UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003
COMMISSION FILE NUMBER 002-97869-D
MOBILEPRO CORP.
(Exact name of registrant as specified in charter)
DELAWARE 87-0419571
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 WEST GUDE DRIVE, SUITE 480, ROCKVILLE, MD 20850
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (301) 315-9040
--------------
Check whether the 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: As of August 13, 2003, the Company
had outstanding 105,244,539 shares of its common stock, par value $0.001.
TABLE OF CONTENTS
ITEM NUMBER AND CAPTION PAGE
----------------------- ----
PART I
ITEM 1. FINANCIAL STATEMENTS 3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 9
ITEM 2. MANAGEMENT'S DISCUSSION AND PLAN OF OPERATIONS 27
PART II
ITEM 1. LEGAL PROCEEDINGS 32
ITEM 2. CHANGES IN SECURITIES 32
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 35
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 35
ITEM 5. OTHER INFORMATION 35
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 36
2
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of June 30, 2003 (unaudited)
and March 31, 2003 (audited)
Statements of Operations for the Three Months Ended
June 30, 2003 and 2002 (unaudited) with Cumulative
Totals Since Inception
Statements of Cash Flows for the Three Months Ended
June 30, 2003 and 2002 (unaudited) with Cumulative
Totals Since Inception
Notes to Condensed Consolidated Financial Statements
3
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2003 AND 2002
ASSETS
June 30, March 31,
2003 2003
(Unaudited) (Audited)
-------------- -------------
CURRENT ASSETS
Cash and cash equivalents $ 32,416 $ 6,715
Prepaid expenses 9,518 9,518
-------------- -------------
Total Current Assets 41,934 16,233
Fixed assets, net of depreciation 32,822 36,469
-------------- -------------
TOTAL ASSETS $ 74,756 $ 52,702
============== =============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)
JUNE 30, 2003 AND 2002
LIABILITIES AND STOCKHOLDERS' DEFICIT
June 30, March 31,
2003 2003
(Unaudited) (Audited)
---------------- ---------------
CURRENT LIABILITIES
Current portion of convertible debentures - officers $ 28,000 $ 30,000
Current portion of note payable - Maryland Department
of Revenue and Economic Development 4,500 4,500
Notes payable - sellers 75,000 75,000
Notes payable - other 100,000 100,000
Convertible debentures - other 140,000 215,000
Equity line of credit 175,000 160,000
Accounts payable and accrued expenses 1,322,385 1,234,880
---------------- ---------------
Total Current Liabilities 1,844,885 1,819,380
---------------- ---------------
LONG-TERM LIABILITIES
Convertible debentures - officers- net of current portion 247,617 247,617
Note payable - Maryland Department of Business and
Economic Development - net of current portion 95,500 95,500
---------------- ---------------
Total Long-Term Liabilities 343,117 343,117
---------------- ---------------
TOTAL LIABILITIES 2,188,002 2,162,497
---------------- ---------------
STOCKHOLDERS' DEFICIT
Preferred stock, $.001 par value, authorized 5,000,000 shares,
and 35,425 shares issued and outstanding at June 30, 2003 and
March 31, 2003, respectively 35 35
Common stock, $.001 par value, authorized 600,000,000
shares at June 30, 2003 and March 31, 2003, and
66,210,310 and 30,175,122 shares issued and
outstanding, respectively 66,210 30,175
Additional paid-in capital 11,876,893 11,538,979
Deficit accumulated during development stage (14,056,384) (13,678,984)
---------------- ---------------
Total Stockholder's Deficit (2,113,246) (2,109,795)
---------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 74,756 $ 52,702
================ ===============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
JUNE 30, 2003 AND 2002
Cumulative
Totals Since
2003 2002 Inception
---------------- --------------- ------------------
OPERATING REVENUES
Revenue $ - $ - $ -
---------------- --------------- ------------------
OPERATING EXPENSES
Professional fees and compensation expenses 221,716 1,178,959 5,099,745
Advertising and marketing expenses 8,490 1,685 34,524
Research and development costs 1,095 4,496 9,590
General and administrative expenses 20,414 26,152 1,629,352
Office rent and expenses 15,856 38,437 101,924
Travel and meals expenses - 7,709 12,562
Depreciation and amortization 3,647 4,000 18,999
---------------- --------------- ------------------
Total Operating Expenses 271,218 1,261,438 6,906,696
------------------ ------------------ ------------------
LOSS BEFORE OTHER INCOME (EXPENSE) (271,218) (1,261,438) (6,906,696)
OTHER INCOME (EXPENSE)
Forgiveness of debt - - 276,738
Amortization of discount and interest on conversion of debt (100,199) - (153,350)
Interest expense (5,983) (50,228) (55,150)
Other expense - - (27,608)
Impairment of goodwill - (7,190,374) (7,190,374)
Interest income - - 56
---------------- --------------- ------------------
Total Other Income (Expense) (106,182) (7,240,602) (7,426,426)
---------------- --------------- ------------------
NET LOSS BEFORE PROVISION FOR INCOME TAXES (377,400) (8,502,040) (14,056,384)
Provision for Income Taxes - - -
---------------- --------------- ------------------
NET LOSS APPLICABLE TO COMMON SHARES $ (377,400) $ (8,502,040) $ (14,056,384)
================ =============== ==================
NET LOSS PER BASIC AND DILUTED SHARES $ (0.01) $ (0.66)
================ ===============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 43,740,975 12,905,121
================ ===============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
6
MOBILEPRO CORP. AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 2003 AND 2002
(WITH CUMULATIVE TOTALS SINCE INCEPTION)
Cumulative
Totals Since
2003 2002 Inception
---------------- --------------- ------------------
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (377,400) $ (8,502,040) $ (14,056,384)
---------------- --------------- ------------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Forgiveness of debt - - (276,738)
Depreciation 3,647 4,000 18,999
Common stock issued for services, compensation and
conversion of debt 8,750 835,047 4,479,995
Impairment of goodwill - 7,190,374 7,190,374
Amortization of discount and interest on conversion of debt 100,199 - 153,350
Changes in assets and liabilities
Decrease in other current assets - (57,500) 13,194
Increase (decrease) in accounts payable and
and accrued expenses 87,505 (62,798) 1,040,179
---------------- --------------- ------------------
Total adjustments 200,101 7,909,123 12,619,353
---------------- --------------- ------------------
Net cash (used in) operating activities (177,299) (592,917) (1,437,031)
---------------- --------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
$ - $ - $ 79,100
Proceeds from common stock issuances
Proceeds from convertible debentures-other and
equity line of credit 205,000 - 620,000
Proceeds from borrowings, net - 233,355 394,730
Change in convertible debentures - officers, net (2,000) - 275,617
Net proceeds from issuance of notes payable - 362,000 100,000
---------------- --------------- ------------------
Net cash provided by financing activities 203,000 595,355 1,469,447
---------------- --------------- ------------------
The accompanying notes are an integral part of the condensed consolidated
financial statements.
7
MOBILEPRO CORP. AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE THREE MONTHS ENDED JUNE 30, 2003 AND 2002
(WITH CUMULATIVE TOTALS SINCE INCEPTION)
Cumulative
Totals Since
2003 2002 Inception
---------------- --------------- ------------------
NET INCREASE IN
CASH AND CASH EQUIVALENTS 25,701 2,438 32,416
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 6,715 154 -
---------------- --------------- ------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 32,416 $ 2,592 $ 32,416
================ =============== ==================
SUPPLEMENTAL DISCLOSURE OF NONCASH
ACTIVITIES:
Issuance of common stock for:
Services, compensation and conversion of debt $ 8,750 $ 835,047 $ 4,479,995
================ =============== ==================
Impairment of goodwill $ - $ 7,190,374 $ 7,190,374
================ =============== ==================
Amortization of discount and interest on conversion of debt $ 100,199 $ - $ 153,350
================ =============== ==================
Conversion of equity line of credit to stock $ 220,000 $ - $ 260,000
================ =============== ==================
Conversion of convertible debentures - other $ 45,000 $ - $ 45,000
================ =============== ==================
Acquisition of NeoReach, Inc.
Fixed assets $ - $ 51,821 $ 51,821
Other current assets - 22,712 22,712
Note payable - Maryland Department of Business and
Economic Development - (100,000) (100,000)
Accounts payable - (618,279) (618,279)
Goodwill - 7,190,374 7,190,374
---------------- --------------- ------------------
Fair value of common stock and additional paid-in
capital issued for NeoReach, Inc. $ - $ 6,546,628 $ 6,546,628
================ =============== ==================
The accompanying notes are an integral part of the condensed consolidated
financial statements.
8
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
The condensed consolidated unaudited interim financial statements
included herein have been prepared, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. The
condensed consolidated financial statements and notes are presented as
permitted on Form 10-QSB and do not contain information included in
the Company's annual financial statements and notes. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or
omitted pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these condensed
consolidated financial statements be read in conjunction with the
March 31, 2003 audited financial statements and the accompanying notes
thereto. While management believes the procedures followed in
preparing these condensed consolidated financial statements are
reasonable, the accuracy of the amounts are in some respects dependent
upon the facts that will exist, and procedures that will be
accomplished by the Company later in the year.
These condensed consolidated unaudited financial statements reflect
all adjustments, including normal recurring adjustments which, in the
opinion of management, are necessary to present fairly the
consolidated operations and cash flows for the periods presented.
Mobilepro Corp formerly Craftclick.com, Inc. was incorporated under
the laws of the State of California in January 1999, as BuyIT.com,
Inc. ("Buyit"). From inception through March 31, 1999, the Company
engaged in preliminary activities related to the set up of an Internet
auction business. On April 16, 1999, the Company entered into an
Agreement and Plan of Reorganization ("Plan") with Tecon, Inc.
("Tecon"), a Utah corporation, wherein all of the outstanding shares
and subscriptions of BuyIt were exchanged for 8,500,000 shares (for
the outstanding shares of common stock of Tecon), and 245,997 shares
(for the outstanding subscriptions) of common stock of Tecon. At the
conclusion of all the transactions contemplated in the Plan, BuyIT
shareholders and subscribers owned 8,745,997 shares of total
outstanding shares of 12,179,249, or 71.9%, the survivor in the
aforementioned combination was Tecon. However, the name of the
surviving company was changed to BuyIt.com, Inc., simultaneously with
the Plan. The combination of these two entities had been accounted for
as a purchase. The Company changed its name to Craftclick.com, Inc.,
on January 4, 2000, as a result of changing its business strategy and
focus-which was to become the premier destination for buyers and
sellers of arts and crafts products and supplies through the use of
Internet websites. However, the Company disposed of substantially all
assets in February of 2001 when secured creditors foreclosed on loans
to the Company.
9
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2003 AND 2002
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
In April 2001, Craftclick.com, Inc. reorganized pursuant to a Plan of
Merger wherein its domicile was changed from Utah to Delaware, and the
common stock was reverse split on the basis of 1 new share for every
100 shares outstanding.
On June 6, 2001, Craftclick.com, Inc. merged with Mobilepro Corp. a
Delaware corporation as of June 1, 2001. Under the merger agreement,
Mobilepro Corp merged into Craftclick.com, Inc. with Craftclick being
the surviving corporation and the Certificate of Incorporation and By
Laws of Craftclick being the constituent documents of the surviving
corporation.
On March 12, 2003, the Company amended its Articles of Incorporation,
and pursuant to a board resolution, increased the authorized level of
common stock from 50,000,000 to 600,000,000. In addition, the Company
increased the shares authorized under its 2001 Equity performance Plan
from 1,000,000 to 6,000,000.
In July 2001, the Company changed its name to Mobilepro Corp.
On March 21, 2002, Mobilepro entered into an Agreement and Plan of
Merger with NeoReach, Inc., a private Delaware company pursuant to
which a newly-formed wholly-owned subsidiary of Mobilepro merged into
NeoReach in a tax-free transaction. NeoReach is a development stage
company designing state of the art modem solutions to support third
generation (3G) wireless communications systems. The merger was
consummated on April 23, 2002. As a result of the merger, NeoReach is
now a wholly-owned subsidiary of Mobilepro. On April 23, 2002, the
Company issued 12,352,129 shares of its common stock pursuant to the
Agreement. This was a cash-less transaction and there were no payments
or finder's fees involved. The Board of Directors determined the
consideration to be a fair compensation to the NeoReach shareholders.
The issuance of the shares were valued at a fair value of $6,546,628,
based on the last trading price of $0.53 and assuming there was actual
active trading of the stock at that time.
On March 12, 2003, the Company amended its Articles of Incorporation
and pursuant to a Board resolution, increased the authorized level of
common stock from 50,000,000 to 600,000,000. In addition, the Company
increased the shares authorized under its 2001 Equity Performance Plan
from 1,000,000 to 6,000,000.
10
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2003 AND 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Development Stage Company
Mobilepro Corp and its subsidiary are development stage companies. The
Company since April 23, 2002 devotes substantially all of its efforts
to researching and developing technology for the third generation
wireless waves. Before the acquisition of NeoReach, Inc., Mobilepro
Corp focused on the integration and marketing of complete mobile
information solutions to the business market through strategic
partnership with established firms already delivering information
technology consulting, wireless service and vertical market
application products and services.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments and other
short- term investments with an initial maturity of three months or
less to be cash or cash equivalents.
The Company maintains cash and cash equivalents at several financial
institutions which are insured by the Federal Deposit Insurance
Corporation up to $100,000.
11
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2003 AND 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
The Company was a development stage company and had no revenues during
the period reported. For the period going forward, the management has
adopted a new revenue policy as defined below.
The Company will recognize revenue both from sales of products and
from service contracts. Revenue from product sales that contain
embedded software will be recognized in accordance with the provisions
of the American Institute of Certified Public Accountants Statement of
Position 97-2, "Software Revenue Recognition."
Revenue from product sales will be recognized based on the type of
sale transactions as follows:
Shipments to Credit-Worthy Customers with No Portion of the Collection
Dependent on Any Future Event: Revenues will be recorded at the time
of shipment.
Shipments to a Customer without Established Credit: These transactions
are primarily shipments to customers who are in the process of
obtaining financing and to whom the Company has granted extended
payment terms. Revenues will be deferred (not recognized) and no
receivable will be recorded until a significant portion of the sales
price is received in cash.
Shipments where a portion of the Revenue is Dependent Upon Some Future
Event: These consist primarily of transactions involving value-added
resellers ("VAR") to an end user. Under these agreements, revenues
will be deferred and no receivable will be recorded until a
significant portion of the sales price is received in cash. On certain
transactions, a portion of the payment is contingent upon installation
or customer acceptance.
Upon non-acceptance, the customer may have a right to return the
product. The Company will not recognize revenue on these transactions
until these contingencies have lapsed.
Certain of the Company's product sales are sold with
maintenance/service contracts. The Company will allocate revenues to
such maintenance/service contracts based on vendor-specific objective
evidence of fair value as determined by the Company's renewal rates.
Revenue from maintenance/service contracts will be deferred and
recognized ratably over the period covered by the contract.
12
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2003 AND 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
Effective July 14, 2000, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109 (the Statement),
Accounting for Income Taxes. The Statement requires an asset and
liability approach for financial accounting and reporting for income
taxes, and the recognition of deferred tax assets and liabilities for
the temporary differences between the financial reporting bases and
tax bases of the Company's assets and liabilities at enacted tax rates
expected to be in effect when such amounts are realized or settled.
The cumulative effect of this change in accounting for income taxes as
of June 30, 2003 is $0 due to the valuation allowance established.
Fair Value of Financial Instruments
The carrying amounts reported in the consolidated balance sheet for
cash and cash equivalents, and accounts payable approximate fair value
because of the immediate or short-term maturity of these financial
instruments.
Advertising Costs
The Company expenses the costs associated with advertising as
incurred. Advertising and promotional expenses were approximately
$8,490 and $1,685 for the three months ended June 30, 2003 and 2002,
respectively.
Furniture and Equipment
Furniture and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
assets.
When assets are retired or otherwise disposed of, the costs and
related accumulated depreciation are removed from the accounts, and
any resulting gain or loss is recognized in income for the period. The
cost of maintenance and repairs is charged to income as incurred;
significant renewals and betterments are capitalized. Deduction is
made for retirements resulting from renewals or betterments.
There was $3,647 and $4,000 charged to operations for depreciation
expense for the three months ended June 30, 2003 and 2002,
respectively. The Company acquired $51,821 of net fixed assets from
NeoReach, Inc. in its acquisition of its subsidiary.
13
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2003 AND 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassifications
Certain amounts in the June 30, 2002 financial statements were
reclassified to conform to the June 30, 2003 presentation.
Earnings (Loss) Per Share of Common Stock
Historical net income (loss) per common share is computed using the
weighted average number of common shares outstanding. Diluted earnings
per share (EPS) includes additional dilution from common stock
equivalents, such as stock issuable pursuant to the exercise of stock
options and warrants. Common stock equivalents were not included in
the computation of diluted earnings per share when the Company
reported a loss because to do so would be antidilutive for periods
presented.
The following is a reconciliation of the computation for basic and
diluted EPS:
2003 2002
----------- ------------
Net loss $ (377,400) $(8,502,040)
Weighted-average common shares
Outstanding (Basic) 43,740,975 12,905,121
Weighted-average common stock Equivalents
Stock options - -
Warrants - -
Weighted-average common shares
Outstanding (Diluted) 43,740,975 12,905,121
Options and warrants outstanding to purchase stock were not included
in the computation of diluted EPS for June 30, 2003 and 2002 because
inclusion would have been antidilutive.
14
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2003 AND 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities".
SFAS No. 133 requires companies to recognize all derivative contracts
as either assets or liabilities in the balance sheet and to measure
them at fair value. If certain conditions are met, a derivative may be
specifically designated as a hedge, the objective of which is to match
the timing of the gain or loss recognition on the hedging derivative
with the recognition of (i) the changes in 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. On June 30, 1999, the
FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities-Deferral of the Effective Date of FASB Statement
No. 133". SFAS No. 133 as amended by SFAS No. 137 and 138 is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000.
Historically, the Company has not entered into derivatives contracts
to hedge existing risks or for speculative purposes. Accordingly, the
Company does not expect adoption of the new standard to have a
material effect on the consolidated financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB 101 provides guidance for revenue recognition under
certain circumstances, and is effective during the first quarter of
fiscal year 2001. SAB 101 is not expected to have a material effect on
the consolidated results of operations, financial position and cash
flows.
On March 16, 2000, the Emerging Issues Task Force issued EITF 99-19
"Recording Revenue as a Principal versus Net as an Agent" which
addresses the issue of how and when revenues should be recognized on a
Gross of Net method as the title implies. The emerging Issues Task
Force has not reach a consensus but sites SEC Staff Accounting
Bulletin 101. EITF 99-19 does not affect the condensed consolidated
financial statements.
On July 20, 2000, the Emerging Issues Task Force issued EITF 00-14
"Accounting for Certain Sales Incentives" which established accounting
and reporting requirements for sales incentives such as discounts,
coupons, rebates and free products or services. Generally, reductions
in or refunds of a selling price should be classified as a reduction
in revenue. For SEC registrants, the implementation date is the
beginning of the fourth quarter after the registrant's fiscal year end
December 15, 1999. EITF 00-14 does not affect the condensed
consolidated financial statements.
15
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2003 AND 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements
In June 2001, the FASB issued Statement No. 142 "Goodwill and Other
Intangible Assets". This statement addresses financial accounting and
reporting for acquired goodwill and other intangible assets and
supersedes APB Opinion No. 17, Intangible Assets. It addresses how
intangible assets that are acquired individually or with a group of
other assets (but not those acquired in a business combination) should
be accounted for in financial statements upon their acquisition. This
Statement also addresses how goodwill and other intangible assets
should be accounted for after they have been initially recognized in
the financial statements. This statement was utilized in preparing the
condensed consolidated financial statements for June 30, 2003.
NOTE 3 - NOTE PAYABLE - MARYLAND DEPARTMENT OF BUSINESS & ECONOMIC DEVELOPMENT
The Company entered into an agreement with the Maryland Department of
Business and Economic Development ("DBED") in the amount of $100,000,
which represents DBED's investment in the Challenge Investment Program
("CIP Agreement") dated March 29, 2001. The term of the CIP Agreement
extends through June 30, 2011. Beginning April 30, 2002 and continuing
annually thereafter until April 30, 2011, the Company shall make a
payment (the "Equity Financing Payment") which shall be equal to 1% of
the Company's Aggregate Equity Financing Amount for the year
immediately preceding the April 30th payment date greater than
$500,000, not to exceed $300,000. The Aggregate Equity Financing
Amount shall mean the total amount of capital raised by the Company
through the sale, transfer, or exchange of its stock, options,
warrants or any security convertible into its stock, options, or
warrants during the calendar year immediately preceding the April 30th
payment date. There have been no payments made on this note. The
outstanding balance at June 30, 2003 is $100,000.
Current portion $ 4,500
Long-term portion 95,500
--------
$100,000
========
16
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2003 AND 2002
NOTE 4 - CONVERTIBLE DEBENTURES-OTHER
The Company on May 31, 2002, entered into a Securities Purchase
Agreement with certain investors pursuant to which the Company issued
and sold $250,000 of convertible debentures. The debentures accrue
interest at the rate of four percent (4%) per year and are convertible
at the holders option. Holders of the debentures have certain
registration rights with respect to the resale of common stock
received upon conversion of the debentures. The term of the debentures
are five years. As of June 30, 2003 there was $140,000 outstanding.
Interest accrued approximated $13,700 at June 30, 2003.
NOTE 5 - EQUITY LINE OF CREDIT
On May 31, 2002, the Company entered into an equity line of credit
arrangement with Cornell Capital Partners, L.P. that was terminated on
October 16, 2002 and re-entered on the same day October 16, 2002. This
agreement was in turn terminated on February 6, 2003 and re-entered
the same day February 6, 2003. The equity line provides generally,
that Cornell will purchase up to $10 million of common stock over a
two-year period, with the time and amount of such purchases, if any,
at the Company's discretion. Cornell Capital will purchase the shares
at a 9% discount to the prevailing market price of the common stock.
There are certain conditions applicable to the Company's ability to
draw down on the equity line including the filing and effectiveness of
a registration statement registering the resale of all shares of
common stock that may be issued to Cornell under the equity line and
the Company's adherence with certain covenants. The registration
statement became effective May 9, 2003.
In the event Cornell Capital holds more than 9.9% of the
then-outstanding common stock of the Company, the Company will be
unable to draw down on the Equity Line of Credit. Currently, Cornell
Capital has beneficial ownership of 9.9% of the Company's common stock
and therefore would be unable to draw down on the Equity Line of
Credit unless Cornell Capital's beneficial ownership is below 10%. If
the Company is unable to draw down on the Equity Line of Credit, are
unable to obtain additional external funding or generate revenue from
the sale of its products, the Company could be forced to curtail or
cease operations.
The Company drew $200,000 on the Equity Line on February 26, 2003.
This note was payable in eighty-two (82) calendar days. The Company
agreed to escrow ten (10) requests for advances under the Agreement in
amount not less than $20,000. At March 31, 2003 there was $160,000
outstanding on the note, which was $-0- at June 30, 2003 due to
conversions of this debt to equity. The Company, as part of the Equity
Line of Credit, advanced 10,000,000 shares of its common stock to the
escrow agent Butler Gonzalez, LLP.
17
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2003 AND 2002
NOTE 5 - EQUITY LINE OF CREDIT (CONTINUED)
The Company on May 9, 2003, entered into a second Equity Line of
Credit, for $200,000 with Cornell Capital Partners, L.P. with the same
terms as the February 26, 2003 Equity Line of Credit. Of this $200,000
advance, as of June 30, 2003, $140,000 remains outstanding, with the
$60,000 converted into equity during the three months ended June 30,
2003. As part of this loan, the Company advanced 20,000,000 shares of
common stock to the escrow agent.
In June 2003, the Company also received $35,000 from Cornell Capital
Partners, L.P. which is fully outstanding at June 30, 2003. There were
10,000,000 shares of common stock issued under this loan to the escrow
agent.
NOTE 6 - LONG-TERM DEBT - SELLERS
In February, 2002, as part of the Company's President's private
purchase of stock, the Company entered into two (2) promissory notes
of $37,500 each ($75,000 total) with the seller and a related entity
to the seller. These notes were due September 1, 2002 at an annual
rate of interest on the notes of 5%. Since the Company failed to pay
the notes on the due date, interest will be charged at 15%. There were
no payments made and this note is in default. Interest expense for
June 30, 2003 and 2002 were $2,959 and $1,325, respectively.
NOTE 7 - OFFICERS ADVANCES/ CONVERTIBLE DEBENTURES - OFFICERS
The amounts represent advances to and from officers of the Company.
These advances through March 31, 2003 were interest-free and
anticipated to be repaid in the next year. The advances were necessary
to cover working capital deficiencies.
Pursuant to these advances, on May 16, 2003, the Company entered into
two (2) separate 4% convertible debentures with two officers who
advanced the Company the $277,617. The debentures are due May 15,
2005. The terms of the convertible debentures are that the Company
will accrue interest at 4% per annum retroactive to the date of the
advances, and that accrued interest plus the principal advanced shall
be either (a) paid to the holder on the second year anniversary (May
15, 2005) or (b) converted from time to time until payment in full in
accordance with the conversion terms as stipulated in the debenture,
except for $30,000 of which is due and payable on or before September
1, 2003. Of the $30,000 due, the Company paid $2,000 during the three
months ended June 30, 2003.
18
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2003 AND 2002
NOTE 8 - STOCKHOLDERS DEFICIT
The beginning balances reflected as of March 31, 2000 through June 1,
2001 are those of the former company (registrant) Craftclick.com, Inc.
On June 6, 2001 Craftclick.com, Inc. and Mobilepro Corp merged under a
reverse merger as of June 1, 2001. Upon that merger the stockholders'
equity of Mobilepro Corp (a former private company) under a
recapitalization, became that equity of the public entity. Upon the
recapitalization, 8,750,000 shares were issued to the former
Craftclick.com, Inc.'s stockholders.
Additionally, from June 1, 2001 to March 31, 2002, the Company issued
8,216,000 shares for services valued at fair market value. There were
3,025,000 shares issued for conversion of debt. Finally, 330,000
shares were issued because of a special warrant.
On March 12, 2003, the Company amended its Articles of Incorporation,
and pursuant to a Board resolution, increased the authorized level of
common stock from 50,000,000 to 600,000,000. In addition, the Company
increased the shares authorized under its 2001 Equity performance Plan
from 1,000,000 to 6,000,000.
The following details the stock transactions after the
recapitalization through June 30, 2003.
Common Stock
On June 1, 2001, the Company issued 3,000,000 shares in a conversion
of debt. The issuance of shares were valued at $480,000 (16 cents per
share), the fair value of the Company's stock at that time.
On June 1, 2001, the Company issued 2,600,000 shares for services and
compensation at a value of $416,000 (16 cents per share), the fair
value of the Company's stock at that time.
On August 1, 2001, the Company issued 330,000 shares that were the
result of the exercising of warrants. The value of $577,500 ($1.75 per
share) was the fair value of the Company's stock at that time.
On September 6, 2001, the Company issued 1,500,000 shares for services
at a value of $247,500 (16.5 cents per share), the fair value of the
Company's stock at that time.
On October 26, 2001, the Company issued 25,000 shares for services at
a value of $1,250 (5 cents per share), the fair value of the Company's
stock at that time.
On November 19, 2001, the Company had a 1 for 200 reverse stock split
which effectively reduced their issued and outstanding shares
16,677,711. Additionally, on that date the Company issued 3,000,000
shares for services in conjunction with an Investors Rights Agreement
at a value of $240,000 (8 cents per share), the fair value of the
Company's stock at that time.
19
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2003 AND 2002
NOTE 8 - STOCKHOLDERS DEFICIT (CONTINUED)
Common Stock (Continued)
On February 15, 2002, the Company issued 106,000 shares for services
at a value of $111,300 ($1.05 per share), the fair value of the
Company's stock at that time.
On February 19, 2002, the Company issued 25,000 shares in conversion
of a note payable at a value of $26,250 ($1.05 per share), the fair
value of the Company's stock at that time.
On March 18, 2002, the Company issued 960,000 shares for services.
These shares were issued at 55 cents per share ($528,000) based on a
Board Resolution on March 6, 2002.
On April 23, 2002, the Company issued 12,352,129 shares of our common
stock to the holders of NeoReach's common stock pursuant to an
Agreement and Plan of Merger, dated March 31, 2002. A newly formed,
wholly-owned subsidiary of Mobilepro merged into NeoReach, in a
tax-free one-for-one share exchange transaction. The merger was
consummated on April 23, 2002. As a result of the merger, NeoReach is
now a wholly-owned subsidiary of Mobilepro. The issuance of the shares
were valued at a fair value of $6,546,628, based on the last trading
price of $0.53 and assuming there was actual active trading of our
stock at that time. The Company believes the issuance of the stock to
be exempt from registration under Section 4(2) of the Securities Act.
On May 31, 2002, the Company issued a total of 690,000 shares of its
common stock to the following parties: 450,000 shares to INFe, Inc.,
150,000 shares to Thomas Richfield, 60,000 shares to Francine Goodman,
and 30,000 shares to Triple Crown Consulting. These shares were issued
for consulting services regarding the Mobilepro-NeoReach merger. The
issuance of the shares were valued at $317,400, the fair value of our
stock at that time. The Company believes the value of the services
provided were commensurate with the value of the stock issued. The
Company believes the issuance of the stock to be exempt from
registration under Section 4(2) of the Securities Act.
On June 10, 2002, the Company issued a total of 784,314 shares of the
common stock to the following parties: 764,706 to Cornell Capital
Partners, LP and 19,708 to Westrock Advisors, Inc. These shares were
issued pursuant to an equity line of credit arrangement with Cornell
Capital Partners, dated May 31, 2002. The issuance of the shares were
valued at $517,647, the fair value of our stock at that time. The
Company believes the issuance of the stock to be exempt from
registration under Section 4(2) of the Securities Act.
20
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2003 AND 2002
NOTE 8 - STOCKHOLDERS DEFICIT (CONTINUED)
Common Stock (Continued)
On July 18, 2002, the Company issued a total of 305,000 shares of our
common stock to various parties. 160,000 shares of the restricted
common stock was issued to Daniel Lozinsky, a director of the Company,
in a private sale for an aggregate cash consideration of $39,000 based
on a Board Resolution as of July 17, 2002. In addition, the Company
also issued 20,000 shares of common stock under the 2001 Equity
Performance Plan and 100,000 restricted common stock as compensation
to Mark Johnson for various merger and acquisition related services
and associated back office services in accordance with a Consulting
Agreement dated July 17, 2002. The Company also issued 25,000 shares
of restricted common stock as compensation to M. Johnson & Associates,
Inc. for certain services in accordance with an Investor Relations
Agreement dated July 17, 2002. The issuance of the shares was valued
at $65,250, the fair value of the stock at that time. The Company
believes the value of the services provided were commensurate with the
value of the stock issued. The Company believes the issuance of the
stock to be exempt from registration under Section 4(2) of the
Securities Act.
On July 26, 2002, the Company issued a total of 500,000 shares of its
restricted common stock to Capital Research Group, Inc. for certain
investor relations consulting services in accordance with a Consulting
Group Agreement dated July 25, 2002. The issuance of the shares was
valued at $220,000, the fair value of the stock at that time. The
Company believes the issuance of the stock to be exempt from
registration under Section 4(2) of the Securities Act.
On September 4, 2002, the Company issued a total of 709,853 shares of
its common stock to various parties. 100,000 shares were issued to Hee
Han Bang, a non-affiliated and accredited/sophisticated investor in a
private sale for an aggregate cash consideration of $25,000. These
shares were issued at $0.25 per share based on a Board of Director's
resolution fixing the value of the securities on and as of August 9,
2002. 150,000 shares of the common stock were issued to Daniel
Lozinsky, a director of the Company, in a private sale for an
aggregate cash consideration of $15,000. These shares were issued
based on a Board resolution as of August 19, 2002. The Company issued
a total of 209,853 shares of its common stock to shares of INFe, Inc.
based on a Board resolution as of August 19, 2002. These shares were
issued for consulting services in connection with the
Mobilepro-NeoReach merger and a Reverse Merger Engagement Agreement
dated January 11, 2002 between NeoReach, Inc. and INFe, Inc. The
issuance of the shares was valued at $62,956, the fair value of the
stock at that time. The Company also granted a total of 250,000 shares
of our restricted common stock to Parag Sheth, an executive of the
Corporation. Parag Sheth was granted 150,000 shares of the Company's
restricted common stock for forgiving a total of $15,000 in salary
corresponding to a price of $0.10 per share and he was also granted
100,000 shares of the Company's restricted common stock as an
inducement for providing services for the Corporation. These shares
were issued based on a Board Resolution as of August 20, 2002 and the
issuance of the shares was valued at $25,000.
21
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2003 AND 2002
NOTE 8 - STOCKHOLDERS DEFICIT (CONTINUED)
Common Stock (Continued)
The Company believes the value of the services provided were
commensurate with the value of the stock issued. The Company believes
the issuance of the stock to be exempt from registration under Section
4(2) of the Securities Act.
On March 4, 2003 the Company issued 658,334 shares to Cornell Capital
for a fee for filing the SB2 registration statement late. The fair
value of the services was $26,333.
On March 5, 2003, the Company issued 10,000,000 shares of its common
stock to the escrow agent for use in raising money on the Equity Line
of Credit.
On March 17, 2003 and March 25, 2003, the Company exchanged 2,739,726
shares and converted $40,000 of debt in total and recognized $53,151
of amortization of discount and interest on debt conversions.
On April 30, 2003, May 22, 2003 and June 19, 2003, the Company issued
10,000,000 shares of common stock respectively (30,000,000 in total),
to the escrow agent for use in raising money on the Equity Line of
Credit.
In the three months ended June 30, 2003, the Company exchanged
5,685,188 shares of common stock and converted $220,000 of debt in
total and recognized $100,199 of amortization of discount and interest
on debt conversions.
On June 19, 2003, the Company issued 350,000 shares of common stock as
compensation at a fair value of $8,750.
Preferred Stock
There was no change in preferred stock during the year ended March 31,
2003, and only a slight increase in the number of shares (47) due to
the recapitalization of the Company for the year ended March 31, 2002.
22
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2003 AND 2002
NOTE 9 - PATENTS
As of January 23, 2003, the Company has filed a total of six patent
applications which were pending with the U.S. Patent and Trademark
Office (PTO) in the area of "Smart Antenna" technology. As of January
23, 2003, the Company has been granted approval of five patents and
one patent application is still pending approval. The five approved
patents are as follows:
1. "Smart Antenna with Adaptive Convergence Parameter" with PTO
Patent Number 6,369,757, issued April 9, 2002;
2. "A Smart Antenna With No Phase Calibration for CDMA Reverse Link"
with PTO Patent Number 6,434,375 issued August 13, 2002;
3. "PN Code Acquisition with Adaptive Antenna Array and Adaptive
Threshold for DS-CDMA Wireless Communication" with PTO Patent
Number 6,404,803, issued June 11, 2002;
4. "New Cellular Architecture for Code Division Multiple Access SMOA
Antenna Array Systems" with PTO Patent Number 6,459,895, issued
October 1, 2002; and
5. "Direction of Arrival Angel Tracking Algorithm for Smart
Antennas" with PTO Patent Number 6,483,459, issued date November
19, 2002.
"Improvement of PN Code Chip Time Tracking with Smart Antenna", a
patent application filed on February 6, 2002 with Docket #3228-007-64
and serial number 10/066,762 is pending - awaiting first Office Action
from Patent Office.
In addition, the Company also has two other patent applications
pending which are referred to as "Wireless Communication System and
Method of Providing Wireless Communication Service" with specific
descriptions to include "Device and Method for Changing the
Orientation and Configuration of a Display of an Electronic Device"
and "Electronic Device Having Multiple Service Functionality". Both of
these pending patent applications relate to the business of the
Company before the merger with NeoReach. The Company does not intend
to pursue business related to these patents and intends to assign the
patents to the inventor and former president of Mobilepro.
23
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2003 AND 2002
NOTE 10 - GOING CONCERN
As shown in the accompanying consolidated financial statements the
Company has sustained net operating losses for the years ended March
31, 2003 and 2002 and for the three months ended June 30, 2003 and
2002. There is no guarantee that the Company will be able to raise
enough capital or generate revenues to sustain its operations.
Management has received a commitment from Cornell Capital Partners,
L.P. to provide the Company with up to $10 million in financing under
certain conditions and has received funding in the past fiscal year
from Cornell Capital Partners, L.P. With this funding, the Company's
market value decreased tremendously causing its stock price to drop
below $0.01.
Even with continued funding by Cornell Capital Partners, L.P., the
Company still does not have any operating revenues, therefore this
raises substantial doubt as to the Company's ability to continue as a
going concern. Management is searching for a viable operating entity
to consider as a merger partner in an effort to produce positive
operations and cash flows.
NOTE 11 - COMMITMENTS
In April 2002, NeoReach, Inc. established a technology alliance with
Prime Circuits, Inc. Prime Circuits is a privately-held semiconductor
developer based in Greenbelt, MD that specializes in ultra small,
ultra low power analog, digital and hybrid chipsets. Prime Circuits'
technology is currently in use in a number of NASA applications at
Goddard Space Flight Center.
As part of the alliance, NeoReach will gain access to technical
knowledge, personnel and low power semiconductor technology that
NeoReach believes will greatly expand its digital modem suite. This
solution targets the consumer handsets and network transmission base
stations to support 3G communications.
On May 10, 2002 the Company announced that Arne Dunhem was appointed
the Chairman, President and CEO of Mobilepro Corp. Mr. Dunhem has over
28 years of experience in the growth of high technology companies,
especially in the telecommunications field.
On November 8, 2002, the Company entered into a sublease agreement
with Amisys, L.L.C. The term of the lease was effective December 1,
2002 and terminates December 31, 2006. A security deposit of $9,518
was required at execution of the lease and has been made.
The Company has executed a Memorandum of Understanding (MOU) under
which it intends to acquire GBH Telecom, LLC (GBH) in a tax-free stock
swap transaction. The Company anticipates to close the transaction in
its second fiscal quarter.
24
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2003 AND 2002
NOTE 11 - COMMITMENTS (CONTINUED)
GBH is a development stage company that operates a web-based
enterprise web-portal offering prepaid, subscription-based U.S.
domestic and International voice and data services.
Under the terms of the MOU, upon completion of the proposed
transaction, GBH shareholders are anticipated to secure a majority
control position with the Company.
NOTE 12 - IMPAIRMENT OF GOODWILL
As part of the Company's acquisition of its subsidiary NeoReach, Inc.,
the Company recognized $7,190,374 in goodwill which represented the
excess of the fair value of the stock paid for the net assets received
in accordance with FASB No. 142. Management has considered this
goodwill to be completely impaired and is reflected in the
consolidated statements of operations for the three months ended June
30, 2002 as such.
NOTE 13 - LITIGATION/ LEGAL PROCEEDINGS
As of June 30, 2003, the Company was party to four legal proceedings.
Mr. Tatcha Chulajata, a former employee of Mobilepro filed a formal
complaint against the Company on October 29, 2002 with the State of
Maryland, Department of Labor, Licensing and Regulation for a claim
for unpaid wages. The employee claims a total of $49,866.67 for unpaid
wages from August 2001 through October 2002. Mr. Chulajata was
employed by NeoReach, Inc. on July 15, 2000 as Senior Engineer and he
resigned in October 2002. Due to financial difficulties encountered by
the Company in 2001 and 2002, Mr. Chulajata received a reduced salary.
The Company is currently negotiating a settlement with the employee
with respect to the claim. This amount is included in accrued wages at
June 30, 2003.
Mobilepro and NeoReach, Inc. were on December 31, 2002 served with
three complaints in the United States District Court for the District
of Maryland in three separate actions seeking relief for failure to
pay wages and breach of contract. The three plaintiffs are in the
three separate actions seeking relief of approximately $59,334.67,
$65,383.34 and $60,750.00, respectively. The three plaintiffs are
former employees named Mr. Man Hyuk Park, Mr. Sang Humn Lee and Mr.
Yang Hoon Jung and all were employed as Senior or Principal Engineer
since September 2001, June 2000 and August 2001, respectively. Due to
financial difficulties encountered by Mobilepro in 2001 and 2002, the
three individuals received reduced salaries. Mobilepro is currently
negotiating settlements with the three former employees with respect
to the claims. The Company has included these amounts in accrued wages
at June 30, 2003.
25
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2003 AND 2002
NOTE 13 - LITIGATION/ LEGAL PROCEEDINGS (CONTINUED)
Mr. Scott R. Smith, a former executive of NeoReach, Inc. filed a
formal complaint against the Company on January 10, 2003 with the
State of Illinois, Department of Labor for a claim for unpaid wages.
The former executive claimed a total of $97,335 for unpaid wages from
February 2002 through August 2002. The complaint was subsequently
dismissed by the State of Illinois, Department of Labor in April 2003.
Mr. Smith was employed by NeoReach, Inc. on February 19, 2002 as
Executive Vice President and his employment agreement expired on
August 18, 2002. Due to financial difficulties encountered by
Mobilepro in 2002, Mr. Smith's salary was deferred as part of an
agreement between Mr. Smith and Mobilepro. A settlement agreement was
mutually signed and executed on August 30, 2002. Due to the Company's
inability to pay full amounts per the settlement agreement,
negotiations have been ongoing for an adjusted payment plan, yet, no
revised settlement agreement has been reached. The Company has
recorded the full liability on its books at June 30, 2003.
Virginia University of Technology, Sponsored Programs, claims from the
Company approximately $80,000 for unpaid research and development work
performed by the University for NeoReach during the years 2001 and
2000. The Company is currently negotiating a settlement with the
University with respect to the claim. This amount is currently
reflected in accounts payable for the Company at June 30, 2003.
Dungavel, Inc. claims from the Company as a result of the February 19,
2002 Stock Purchase Agreement between Mr. Daniel Lozinsky and
Dungavel, Inc. a total of $37,500. The Company intends to negotiate a
settlement with Dungavel with respect to this claim. This amount is
currently accounted for in the notes payable outstanding at June 30,
2003.
NOTE 14 - SUBSEQUENT EVENTS
On July 7, 2003, pursuant to the MOU between the Company and GBH
Telecom, LLC, the Company issued 3,500,000 shares of common stock
valued at $68,250.
On July 30, 2003 and August 7, 2003, the Company issued 10,000,000 and
15,000,000 shares of common stock , respectively, to the escrow agent
pursuant to the terms of their agreement., and 10,534,229 shares of
common stock since June 30, 2003 were issued in conversions of certain
amounts borrowed under the equity lines of credit the Company entered
into.
26
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD LOOKING STATEMENTS
When used in this Form 10QSB and in future filings by Mobilepro Corp. with the
Securities and Exchange Commission, the words or phrases "will likely result,"
"management expects," or we expect," "will continue," "is anticipated,"
"estimated," or similar expression or use of the future tense, are intended to
identify forward looking statements. Readers are cautioned not to place undue
reliance on any such forward-looking statements, each of which speak only as of
the date made. These statements are subject to risks and uncertainties, some of
which are described below and others are described in other parts of this Form
10QSB. Actual results may differ materially from historical earnings and those
presently anticipated or projected. We have no obligation to publicly release
the result of any revisions that may be made to any forward-looking statements
to reflect anticipated events or circumstances occurring after the date of such
statements.
BUSINESS HISTORY
Mobilepro is a development stage company and currently trades on the Bulletin
Board under the stock symbol "MOBL". The following is a brief history of the
Company.
Mobilepro was incorporated on July 14, 2000 and was focused on the integration
and marketing of complete mobile information solutions that satisfy the needs of
mobile professionals.
The company with which Mobilepro merged in June of 2001 was first organized in
June 1988 as Bud Corp. Bud Corp. changed its name to Tecon, Inc. in July 1992,
then to Buyit.com, Inc. in May 1999 and finally to CraftClick.com, Inc. on
January 4, 2000. CraftClick's business strategy and focus was to become the
premier destination for buyers and sellers of arts and crafts products and
supplies through the use of Internet websites. Due to the lack of adequate
funding and the lack of generating enough Internet traffic to achieve
profitability, CraftClick began to cease business operations in October 2000.
CraftClick subsequently disposed of substantially all of its assets in February
2001 when secured creditors foreclosed on outstanding loans made to CraftClick.
In April 2001, CraftClick reorganized pursuant to a Plan of Merger wherein its
domicile was changed from Utah to Delaware, and the common stock was subject to
a reverse split on the basis of 1 new share for every 100 shares outstanding. On
June 6, 2001, CraftClick and Mobilepro entered into an Agreement and Plan of
Merger dated June 1, 2001 ("CraftClick Merger Agreement"). Under the CraftClick
Merger Agreement, Mobilepro merged with and into CraftClick, with CraftClick
being the surviving corporation. On July 9, 2001, the name of the surviving
corporation was changed to Mobilepro Corp.
On November 19, 2001, Mobilepro implemented a 200 for 1 reverse stock split of
its Common Stock. There were no fractional shares issued. Concurrent with the
reverse stock split, Mobilepro issued 3,000,000 new shares of Common Stock to
Dungavel, Inc., pursuant to an Investor Rights Agreement, which the Company
entered into with Dungavel on June 1, 2001 as part of the merger with
CraftClick.
On February 19, 2002, the Company entered into a Stock Purchase Agreement with
Mr. Daniel Lozinsky and Dungavel, Inc., and another Stock Purchase Agreement
with Mr. Daniel Lozinsky, Ms. Joann Smith and Mr. Scott Smith. Dungavel, Inc.,
Ms. Joann Smith and Mr. Scott Smith were all significant stockholders of the
Company at
27
the time. Pursuant to these two stock purchase agreements, Mr. Lozinsky acquired
an aggregate of 2,057,733 shares of Mobilepro Common Stock, representing
approximately 64.7% of the Company's voting securities at that time. On February
28, 2002, Mr. Scott Smith resigned as the President, CEO and Chairman of the
Company, and Mr. Lozinsky became the President and CEO of the Company. On May
10, 2002, Mr. Arne Dunhem became the Company's President, CEO and Chairman and
Mr. Lozinsky became our Senior Vice President.
On March 21, 2002, Mobilepro entered into an Agreement and Plan of Merger with
NeoReach, Inc., a private Delaware company, pursuant to which a newly-formed,
wholly-owned subsidiary of Mobilepro merged into NeoReach in a tax-free
transaction. NeoReach is a development stage company designing state of the art
modem solutions to support third generation (third generation) wireless
communications systems. The merger was consummated on April 23, 2002. As a
result of the merger, NeoReach is now a wholly-owned subsidiary of Mobilepro. On
April 23, 2002, the Company issued 12,352,129 shares of its common stock in a
one-for-one tax-free stock exchange to the holders of NeoReach's common stock
pursuant to the Agreement. This was a cash-less transaction and there were no
payments or finder's fees involved. The Board of Directors determined the
consideration to be a fair compensation to the NeoReach shareholders. The
issuance of the shares were valued at a fair value of $ 6,546,628, based on the
last trading price of $0.53 and assuming there was actual active trading of our
stock at that time. The valuation of NeoReach in the merger agreement was based
on several factors, as described in the table below excluding intangible assets
and goodwill, including that over thirty-three man-years of development efforts
had been accumulated for achieving the prototype third generation modem boards
for the base station applications, that a management team and engineering team
were in place, that office and laboratory facilities were in place, that six
patents had been filed or were already approved, and that contacts and
relationships had already been established with potential customers both in the
United States and Korea. The value of intangible assets and goodwill, such as
contacts, relationships and potential customers, has not been included in the
table below since it is difficult to estimate a real value, although it could be
very significant, on these items. The transaction was concluded following
arms-length negotiations. The Company believes the issuance of the stock to be
exempt from registration under Section 4(2) of the Securities Act. The related
parties from both the Company and NeoReach were Messrs. Daniel Lozinsky, Arne
Dunhem, Scott Smith and Ken Min. Mr. Daniel Lozinsky who was a controlling
stockholder of Mobilepro also owned approximately 32.5% of NeoReach.
Approximate valuation of Neoreach, Inc.
(Excluding Intangible Assets and Goodwill)
ITEM APPROX. VALUE
---- -------------
Personnel, engineering man effort, 33 man-years $4.5 M
Patents, Awarded, Allowed, Pending, 6 each $1.8 M
Tangible Assets $0.2 M
------
Total Valuation (Excluding Intangible Assets and Goodwill) $6.5 M
BUSINESS STRATEGY
We are a development stage company and therefore, the following business
strategy contains forward-looking information and we can give no assurances that
we will be able to accomplish these goals, generate sufficient revenues to be
profitable, obtain adequate capital funding or continue as a going concern. Our
independent auditors have issued a going-concern opinion for the year ended
March 31, 2003, March 31, 2002 and March 31, 2001 (See "Financial Statements and
Supplementary Data").
Upon successful completion of the NeoReach/Mobilepro merger, the business
strategy, direction and focus of the former NeoReach became the dominant
operating focus of the new Mobilepro. The former business model and marketplace
offering of Mobilepro ceased entirely. After the merger, Mobilepro has been
notified by the Patent and Trademark Office that five of the six patent
applications that had been filed by NeoReach had been approved and that the
review process was still underway for the remaining one patent application.
In addition to being granted the approval on five patents related to smart
antenna processing, the Company continued to make progress on design of the
various technical features for the base station modem. In April of 2002, the
Company began working with leading scientists at the RF Microelectronics Lab at
Korea's Information and Communications University in South Korea, to test some
modem and radio frequency integrated circuit
28
development advancements. The first phase of the simulation testing focused
principally on the Company's proprietary third generation radio frequency
technology.
As result of the design effort to date, we believe that a preliminary version of
the base station modem will be ready for field evaluation during the first
quarters of 2004 with a multi-channel modem semi-conductor integrated circuit
chip to be commercially available by the end of 2004. The chip is anticipated to
be designed and developed by the Company, but we will expect the chip to be
manufactured by a third party offshore it. Once this development milestone is
reached, the Company believes that it can have the completed design for the
handset modem chip commercially available by the mid of 2005.
The long-term product vision is founded on product line extensions that leverage
the current technology and expertise in third generation. We intend to add new
products to the development schedule if market success with the modem solutions
is demonstrated and based on the market timing and future competitive landscape.
Mobilepro believes it can be successful in the third generation wireless modem
market for two key reasons: 1) capitalizing on an early-to-market advantage with
advanced capabilities; and, 2) maintaining narrowly focused product and market
strategy on its two core solutions. We believe that all the other vendors must
rationalize third generation development, sales and marketing resources among a
larger product line and among an installed base of customers utilizing other
products for which upgrades are expected and required.
We also anticipate to review opportunities arising for strategic partnerships or
possible acquisitions to increase our product and service offerings. Given the
increased demand for wireless remote monitoring of industrial machinery,
corporate computer networks, and various facilities at widely dispersed global
locations in combination with the data processing of all gathered information,
the Company intends to explore possible opportunities in this arena. We intend
to consider licensing or teaming arrangements for the Company's technology
working with other industry players in addition to potential acquisition
opportunities. No funds have been allocated for these new initiatives.
NeoReach has signed a memorandum of understanding with RF Microelectronics
Laboratory of the Information and Communications University of the Republic of
Korea to cooperate in research, particularly in radio frequency integrated
circuit development for the third generation W-CDMA standard. This specific
integrated circuit, chipset, which is expected to support the W-CDMA standard,
is also a required component in the consumer handsets and base stations managed
by the mobile operators to support third generation wireless services. We have
also discussed the development jointly with RF Microelectronics Laboratory of a
ZigBee RF CMOS chip as a complement or alternative initial RF CMOS chip. This
co-development initiative has the potential to expand the NeoReach product suite
beyond the Company's modem solutions currently in development and testing. This
memorandum of understanding is non-binding on either party and additional
agreements are necessary before the parties may collaborate together.
We have also announced a strategic technology alliance with Prime Circuits, Inc.
of Maryland, a semiconductor development company. As part of the alliance, we
expect to gain access to technical knowledge, personnel and low power
semiconductor technology. This solution may target the consumer handsets and
network transmission base stations to support 3G communications. As of December
9, 2002, no material terms of an agreement have yet been developed. There is no
affiliation between Prime Circuits and our Company, its officers, directors
and/or affiliates. The completion of an agreement is pending a joint review of
mutual additional business opportunities and the current nature of the
relationship is still under discussion.
On June 20, 2003, the Company announced in a press release that it entered into
a Memorandum of Understanding with GBH telecom, LLC, a development stage company
headquartered in Arlington, Virginia, under which it intends to acquire GBH
telecom, LLC in a proposed tax-free exchange of stock. The projected closing
date for the transaction was announced to be July 3, 2003. Under the terms of
the MOU, upon completion of the proposed transaction, GBH shareholders will own
the majority of the Company's issued and outstanding common stock and have
voting control of the Company. A copy of this press release was filed as an
exhibit to an 8-K filing on June 20, 2003.
29
FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION
OVERALL OPERATING RESULTS:
We had no revenues for the quarter ended June 30, 2003.
Our operating expenses for the quarter ended June 30, 2003 were approximately
$271,218. Our primary expense was incurred for Professional fees and
compensation expenses of $221,716 compared with $1,178,959 for the three months
ended June 30, 2002. Of this amount, no common stock in lieu of cash was issued
in connection with consulting fees and expenses for services rendered.
Approximately $190,000 in expenses was for on-going compensation expenses.
Operating Losses
Our net operating loss for the quarter ended June 30, 2003 was approximately
$271,218. These losses were incurred primarily as a result of the aforementioned
incurred expenses.
We have accumulated approximately $6,906,696 of net operating loss carryforwards
as of June 30, 2003, that may be offset against future taxable income. There
will be limitations on the amount of net operating loss carryforwards that can
be used due to the change in the control of the management of the Company. No
tax benefit has been reported in the financial statements, because we believe
there is a 50% or greater chance the carryforwards will expire unused.
Accordingly, the potential tax benefits of the loss carryforwards is offset by a
valuation allowance of the same amount.
LIQUIDITY AND CAPITAL RESOURCES:
As of June 30, 2003, we had a total Stockholders' Deficit of approximately
$2,113,246 and do not currently have any revenues, liquidity or capital
resources as we move forward with our business plan and our independent auditors
have issued an audit opinion as of March 31, 2003 that raises substantial doubt
as to our ability to continue as a going concern. We will need additional
financing in order to implement our business plan and continue business. The
traditional markets for raising capital have become extremely more difficult in
the last year due to a depressed economy, large well-known business failures and
the events of September 11, 2001.
The Company will need additional financing and may use a private placement
offering or debt financing to raise such additional funds, to be used for the
following:
o Investment in laboratory facilities including test and simulation
equipment;
o Acquisition or licensing of certain intellectual property related to the
development of modems and communications semiconductor and component
technology;
o Pay-down certain debt, such as a convertible debenture from Cornell
Capital. We intend to pay-off debt owed to Mr. Daniel Lozinsky, a Director,
and Mr. Arne Dunhem, an officer and Director, during 2003; and
o General working capital purposes.
We are in the process of establishing a source for additional financing and we
cannot give any assurances that we will be able to secure any financing.
On October 16, 2002, the Company entered into an equity line of credit
arrangement (the "Equity Line") with Cornell Capital Partners, LP ("Cornell").
This agreement was in turn terminated on February 6, 2003 and re-entered the
same day February 6, 2003. The Equity Line provides, generally, that Cornell
will purchase up to $10 million of Common Stock over a two-year period, with the
timing and amount of such purchases, if any, at the Company's discretion. Any
shares of Common Stock sold under the Equity Line will be priced at a 9%
discount to the lowest closing bid price of the Common Stock during the five-day
period following the Company's notification to Cornell that it is drawing down
on the Equity Line. The Company is not permitted to draw down more than $450,000
in any 30-day calendar period. In addition, there are certain other conditions
applicable to the Company's ability to draw down on the Equity Line including
the filing and effectiveness of a registration statement registering the resale
of all shares of Common Stock that may be issued to Cornell under the Equity
Line and the Company's adherence with
30
certain covenants. At the time of each draw down, the Company is obligated to
pay Cornell a fee equal to three percent of amount of each draw down.
In addition, on May 31, 2002, the Company entered into a Securities Purchase
Agreement with certain investors pursuant to which the Company issued and sold
$250,000 of convertible debentures (the "Debentures"). The Securities Purchase
Agreement contemplates the sale of up to an additional $250,000 of Debentures.
The Debentures accrue interest at the rate of four percent per year. The
Debentures must be repaid two years following their issuance or, at the
Company's election, converted into shares of Common Stock. In addition, at any
time, the holders of the Debentures may elect to convert their debt into Common
Stock. If, at the time of conversion, the Common Stock is listed on the Nasdaq
Bulletin Board System, Nasdaq SmallCap Market, or American Stock Exchange, the
conversion price will be 120% of the closing bid price. If, at the time of
conversion, the Common Stock is not listed on any of the foregoing markets, the
conversion price will be 80% of the closing bid price of the Common Stock as
furnished by the National Association of Securities Dealers, Inc. The Debentures
also provide the Company with certain redemption rights which, if exercised,
will require the Company to issue Common Stock warrants to the Debenture
holders. Holders of the Debentures have certain registration rights with respect
to the resale of shares of Common Stock received upon any conversion of the
Debentures.
EMPLOYEES
We currently employ two people and five consultants. Mr. Arne Dunhem is our
President, Chief Executive Officer and Chairman. We anticipate that we will need
additional persons to fill administrative, sales and technical positions if we
are successful in raising the capital to implement our business plan.
NEW ACCOUNTING PRONOUNCEMENTS
We have adopted FASB Statement 128. It is not expected that we will be impacted
by other recently issued standards. FASB Statement 128 presents new standards
for computing and presenting earnings per share (EPS). The Statement is
effective for financial statements for both interim and annual periods ending
after December 15, 1997.
FASB Statement 131 presents news standards for disclosures about segment
reporting. We do not believe that this accounting standard applies to us as all
of our operations are integrated for financial reporting and decision-making
purposes.
INFLATION
The Company's results of operations have not been affected by inflation and
management does not expect inflation to have a significant effect on its
operations in the future.
RECENT EVENTS
On June 20, 2003, the Company announced in a press release that it entered into
a Memorandum of Understanding with GBH telecom, LLC, a development stage company
headquartered in Arlington, Virginia, under which it intends to acquire GBH
telecom, LLC in a proposed tax-free exchange of stock. The projected closing
date for the transaction was announced to be July 3, 2003. Under the terms of
the MOU, upon completion of the proposed transaction, GBH shareholders will own
the majority of the Company's issued and outstanding common stock and have
voting control of the Company. A copy of this press release was filed as an
exhibit to an 8-K filing on June 20, 2003.
ITEM 3. CONTROLS AND PROCEDURES
As of June 30, 2003, an evaluation was performed under the supervision and with
the participation of the Company's management, including the Chief Executive
Officer and the Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based on that
evaluation, the Company's management, including the Chief Executive Officer and
the Chief Financial Officer, concluded that the Company's disclosure controls
and procedures were effective as of June 30, 2003. There have been no
significant changes in the
31
Company's internal controls or in other factors that could significantly affect
internal controls subsequent to June 30, 2003.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Mr. Tatcha Chulajata, a former employee of Mobilepro filed a formal complaint
against the Company on October 29, 2002 with the State of Maryland, Department
of Labor, Licensing and Regulation for a claim for unpaid wages. The employee
claims a total of $49,866.67 for unpaid wages from August 2001 through October
2002. Mr. Chulajata was employed by NeoReach, Inc. on July 15, 2000 as Senior
Engineer and he resigned in October 2002. Due to financial difficulties
encountered by the Company in 2001 and 2002, Mr. Chulajata received a reduced
salary. The Company is currently negotiating a settlement with the employee with
respect to the claim.
Mobilepro and NeoReach, Inc. were on December 31, 2002 served with three
complaints in the United States District Court for the District of Maryland in
three separate actions seeking relief for failure to pay wages and breach of
contract. The three plaintiffs are in the three separate actions seeking relief
of approximately $59,334.67, $65,383.34 and $60,750.00 respectively. The three
plaintiffs are former employees named Mr. Man Hyuk Park, Mr. Sang Humn Lee and
Mr. Yang Hoon Jung and all were employed as Senior or Principal Engineer since
September 2001, June 2000 and August 2001, respectively. Due to financial
difficulties encountered by Mobilepro in 2001 and 2002, the three individuals
received reduced salaries. The Company is currently finalizing a negotiated
settlement with the employees with respect to the claim.
Mr. Scott R. Smith, a former executive of NeoReach, Inc. filed a formal
complaint against the Company on January 10, 2003 with the State of Illinois,
Department of Labor for a claim for unpaid wages. The former executive claimed a
total of $97,335 for unpaid wages from February 2002 through August 2002. The
complaint was subsequently dismissed by the State of Illinois, Department of
Labor in April 2003. Mr. Smith was employed by NeoReach, Inc. on February 19,
2002 as Executive Vice President and his employment agreement expired on August
18, 2002. Due to financial difficulties encountered by Mobilepro in 2002, Mr.
Smith's salary was deferred as part of an agreement between Mr. Smith and
Mobilepro. A settlement agreement was mutually signed and executed on August 30,
2002. Due to the Company's inability to pay full amounts per the settlement
agreement, negotiations have been ongoing for an adjusted payment plan. The
Company is currently finalizing a negotiated settlement with the employees with
Mr. Smith.
Virginia University of Technology, Sponsored Programs, claims from the Company
approximately $80,000 for unpaid research and development work performed by the
University for NeoReach during the years 2000 and 2001. The Company is currently
negotiating a settlement with the University with respect to the claim.
Dungavel, Inc. claims from the Company as a result of the February 19, 2002
Stock Purchase Agreement between Mr. Daniel Lozinsky and Dungavel, Inc., a total
of $37,500. The Company intends to negotiate a settlement with Dungavel with
respect to the claim.
ITEM 2. CHANGES IN SECURITIES
On April 23, 2002, the Company issued 12,352,129 shares of its common stock to
the holders of NeoReach's common stock pursuant to an Agreement and Plan of
Merger, dated March 21, 2002. A newly formed, wholly-owned subsidiary of
Mobilepro merged into NeoReach, in a tax-free one-for-one share exchange
transaction. The merger was consummated on April 23, 2002. As a result of the
merger, NeoReach is now a wholly-owned subsidiary of Mobilepro. The issuance of
the shares were valued at a fair value of $ 6,546,628, based on the last trading
price of $0.53 and assuming there was actual active trading of our stock at that
time. The Company believes the issuance of the stock to be exempt from
registration under Section 4(2) of the Securities Act.
On May 31, 2002, the Company issued a total of 690,000 shares of its common
stock to the following parties: 450,000 shares to INFe, Inc., 150,000 shares to
Thomas Richfield, 60,000 shares to Francene Goodman, and 30,000 shares to Triple
Crown Consulting. These shares were issued for consulting services regarding the
Mobilepro-
32
NeoReach merger. The issuance of the shares were valued at $ 317,400, the fair
value of our stock at that time. We believe the value of the services provided
were commensurate with the value of the stock issued. The Company believes the
issuance of the stock to be exempt from registration under Section 4(2) of the
Securities Act.
On June 10, 2002, the Company issued a total of 784,314 shares of its common
stock to the following parties: 764,706 to Cornell Capital Partners and 19,708
to West Rock Advisors, Inc. These shares were issued pursuant to an equity line
of credit arrangement with Cornell Capital Partners, dated May 31, 2002. The
issuance of the shares were valued at $517,647, the fair value of our stock at
that time. The Company believes the issuance of the stock to be exempt from
registration under Section 4(2) of the Securities Act.
In addition, on May 31, 2002, the Company entered into a Securities Purchase
Agreement with certain investors pursuant to which the Company issued and sold
$250,000 of convertible debentures (the "Debentures"). The Debentures accrue
interest at the rate of four percent per year. The Debentures must be repaid two
years following their issuance or, at the Company's election, converted into
shares of Common Stock. In addition, at any time, the holders of the Debentures
may elect to convert their debt into Common Stock. If, at the time of
conversion, the Common Stock is listed on the Nasdaq Bulletin Board System,
Nasdaq SmallCap Market, or American Stock Exchange, the conversion price will be
120% of the closing bid price or an amount equal to eighty percent of the
average of the four lowest closing bid prices of the common stock for the five
trading days immediately preceding the conversion date. If, at the time of
conversion, the Common Stock is not listed on any of the foregoing markets, the
conversion price will be 80% of the closing bid price of the Common Stock as
furnished by the National Association of Securities Dealers, Inc. The Debentures
also provide the Company with certain redemption rights which, if exercised,
will require the Company to issue Common Stock warrants to the Debenture
holders. Holders of the Debentures have certain registration rights with respect
to the resale of shares of Common Stock received upon any conversion of the
Debentures. As of August 15, 2002, the Debentures can be converted into
1,041,667 shares of the Company's common stock.
On July 18, 2002, we issued a total of 305,000 shares of our common stock to
various parties. 160,000 shares of our restricted common stock were issued to
Daniel Lozinsky, a director of the Corporation, in a private sale for an
aggregate cash consideration of $39,000 based on a Board Resolution as of July
17, 2002. In addition, we also issued 20,000 shares of common stock under the
2001 Equity Performance Plan and 100,000 restricted common stock as compensation
to Mark Johnson for various Merger and Acquisition related services and
associated back office services in accordance with a Consulting Agreement dated
July 17, 2002. We also issued 25,000 shares of restricted common stock as
compensation to M. Johnson & Associates, Inc. for certain services in accordance
with an Investor Relations Agreement dated July 17, 2002. The issuance of the
shares was valued at $65,250, the fair value of our stock at that time. We
believe the value of the services provided were commensurate with the value of
the stock issued. We believe the issuance of the stock to be exempt from
registration under Section 4(2) of the Securities Act.
On July 26, 2002, we issued a total of 500,000 shares of our restricted common
stock to Capital Research Group, Inc. for certain investor relations consulting
services in accordance with a Consulting Services Agreement dated July 25, 2002.
The issuance of the shares was valued at $220,000, the fair value of our stock
at that time. We believe the issuance of the stock to be exempt from
registration under Section 4(2) of the Securities Act.
On September 9, 2002, we issued a total of 709,853 of our common stock to
various parties. 100,000 shares were issued to Hee Han Bang, a non-affiliated
and accredited/sophisticated investor in a private sale for an aggregate cash
consideration of $25,000. These shares were issued at $0.25 per share based on a
Board Resolution fixing the value of the securities on and as of August 09,
2002. 150,000 shares of our common stock were issued to Daniel Lozinsky, a
director of the Corporation, in a private sale for an aggregate cash
consideration of $15,000. These shares were issued based on a Board Resolution
as of August 20, 2002. We issued a total of 209,853 shares of our common stock
to shares to INFe, Inc. based on a Board Resolution as of August 19, 2002. These
shares were issued for consulting services in connection with the Mobilepro
NeoReach merger and a Reverse Merger Engagement Agreement dated January 11, 2002
between NeoReach, Inc. and INFe, Inc. The issuance of the shares was valued at
$62,956, the fair value of our stock at that time. We also granted a total of
250,000 shares of our restricted common stock to Parag Sheth, an executive of
the Corporation. Parag Sheth was granted 150,000 shares of our restricted common
stock for forgiving a total of $15,000.00 in salary corresponding to a price of
$0.10 per share and he was also granted 100,000 shares of our restricted common
stock as an inducement for providing services for the Corporation. These shares
33
were issued based on a Board Resolution as of August 20, 2002 and the issuance
of the shares was valued at $25,000. We believe the value of the services
provided were commensurate with the value of the stock issued. We believe the
issuance of the stock to be exempt from registration under Section 4(2) of the
Securities Act.
On February 6, 2003, we entered into an equity line of credit arrangement with
Cornell Capital Partners, LP. The Equity Line of Credit provides that Cornell
Capital will purchase up to $10 million of common stock over a two-year period,
with the timing and amount of such purchases, if any, at our discretion. Any
shares of common stock sold under the Equity Line of Credit will be priced at a
9% discount to the lowest closing bid price of the common stock during the
five-day period following the Company's notification to Cornell that it is
drawing down on the Equity Line. We are not permitted to draw down more than
$450,000 in any 30-day calendar period. In addition, there are certain other
conditions applicable to the Company's ability to draw down on the Equity Line
including the filing and effectiveness of a registration statement registering
the resale of all shares of common stock that may be issued to Cornell under the
Equity Line and the Company's adherence with certain covenants. At the time of
each draw down, the Company is obligated to pay Cornell a fee equal to three
percent of amount of each draw down. As of August 13, 2003, Mobilepro has
received advances under the Equity Line of Credit in the aggregate gross amount
of $685,000 with a corresponding aggregate net amount of $485,274.51after
expenses for various fees, interest and certain pay-downs of convertible
debenture from May 31, 2002. As of August 13, 2003, the Company has Pursuant to
the Equity Line of Credit issued into stock escrow with Butler Gonzalez, LLP, to
the benefit of Cornell Capital Partners, LP an aggregate of 65,000,000 shares of
common stock as follows: 10,000,000 shares on March 5, 2003; 10,000,000 shares
on April 30, 2003; 10,000,000 shares on May 22, 2003; 10,000,000 shares on June
19, 2003; 10,000,000 shares on July 30, 2003 and 15,000,000 shares on August 7,
2003. In addition Cornell Capital Partners, LP has as of August 13, 2003
converted, pursuant to a Securities Purchase Agreement dated May 31, 2002 to
which the Company issued and sold $250,000 of convertible debentures, an
aggregate of 17,461,457 shares of common stock as follows: 658,334 shares on
March 4, 2003; 583,706 shares on March 12, 2003; 4,139,601 shares on June 17,
2003; 970,874 shares on June 18, 2003; 574,713 shares on June 20, 2003; 666,667
shares on July 8, 2003; 2,262,443 shares on July 10, 2003; 2,816,902 shares on
July 16, 2003; 714,286 shares on July 21, 2003; 3,010,101 shares on August 4,
2003; and 1,063,830 shares on August 7, 2003.
On June 16, 2003 Dr. Dong Kyung Kang exercised a total of 350,000 cash less
options of shares of the Company's common stock that had vested on May 5, 2003
under his employment agreement dated May 5, 2003 with the Company. The shares
were at the time of exercising valued at $8,050.
On July 7, 2003 as compensation for services, pursuant to a Memorandum of
Understanding between the Company and GBH telecom, LLC, dated June 16, 2003, a
total of 3,500,000 shares of common stock were issued to GBH telecom, LLC who in
turn assigned the shares to 360 Partners, LLC. The shares were at the time of
issuance valued at $68,250.
Except as otherwise noted, the securities described in this Item were issued
pursuant to the exemption from registration provided by Section 4(2) of the
Securities Act of 1933. Each such issuance was made pursuant to individual
contracts which are discrete from one another and are made only with persons who
were sophisticated in such transactions and who had knowledge of and access to
sufficient information about Mobilepro to make an informed investment decision.
Among this information was the fact that the securities were restricted
securities.
Two directors and officers of Mobilepro advanced during 2002 the total amount of
$277,617 to Mobilepro. Daniel Lozinsky, a Director of Mobilepro, advanced to
Mobilepro during the period February 9, 2002 through June 20, 2002 a total of
$155,617 as follows: $23,262 on February 9, 2002; $25,000 on February 19, 2002;
$76,355 on April 25, 2002; $15,000 on May 16, 2002; $4,000 on June 3, 2002; and
$12,000 on June 20, 2002, with a repayment by Mobilepro on or before March 1,
2003 at an ordinary market rate, not to exceed 5.00%. Arne Dunhem, the President
and Chief Executive Officer of Mobilepro, advanced to the Company during the
period April 19, 2002 through May 6, 2002 a total of $122,000 as follows:
$46,000 on April 19, 2002; $40,000 on April 25, 2002; and $36,000 on May 6,
2002, with a repayment by the Company on or before March 1, 2003 at an ordinary
market rate, not to exceed 5.00%. As of July 11, 2003, the principal balance of
these loans remains at $277,617 plus an interest of approximately $15,000. As of
July 11, 2003, the Company has repaid $2,000 to Arne Dunhem but made no
repayment to Danel Lozinsky on these loans. On May 15, 2003 the Company issued a
$155,617 convertible debenture to Daniel Lozinsky and the Company also issued a
$122,000 convertible debenture to Arne Dunhem.
34
On May 16, 2003, Mobilepro issued convertible debentures to Daniel Lozinsky and
to Arne Dunhem in the original principal amount of $155,617 and $122,000
respectively. A maximum principal amount of for Daniel Lozinsky $130,000 and
Arne Dunhem $70,000 respectively is convertible into shares of our common stock
at a price equal to either 120% of the closing bid price of our common stock as
of May 16, 2003, or 120% of the average of the four lowest closing bid prices of
our common stock for the five trading days immediately preceding the conversion
date. If such conversion had taken place on August 13, 2003, then the holder of
the convertible debenture would have received 8,754,209, respectively for Daniel
Lozinsky, and 4,713,805, for Arne Dunhem, shares of our common stock. If, at the
time of conversion, the Common Stock is listed on the NASD Bulletin Board
System, Nasdaq SmallCap Market, or American Stock Exchange, the conversion price
will be 120% of the closing bid price. The convertible debentures accrue
interest at a rate of 4% per year and are convertible at the holder's option.
The convertible debentures have a term of two years. At Mobilepro's option, the
convertible debentures may be paid in cash or converted into shares of our
common stock on the second anniversary unless converted earlier by the holder.
As of August 13, 2003 the Holders had made no conversion.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 12, 2003, the Board of Directors approved and recommended that the
Stockholders adopt an amendment to the Corporation's certificate of
incorporation to increase to 600,000,000 the authorized shares of Corporation
common stock and adopted Amendment No. 1 to the Mobilepro 2001 Equity
Performance Plan in order to increase the number of shares of Common Stock
available for issuance thereunder from 1,000,000 shares to 6,000,000 shares,
conditioned upon the approval of the Stockholders and authorized the Company's
officers to obtain written consents from the holders of the outstanding voting
securities of the Company to approve the recommended actions.
On March 12, 2003, stockholders owning of record an aggregate of 10,389,791
shares of the Company's common stock, representing approximately 52.5% of the
outstanding voting securities of the Company, executed and delivered to the
Company a written consent in lieu of a special meeting authorizing and approving
the 2001 Equity Performance Plan Amendment, which provides, generally, that the
number of shares of Common Stock authorized for issuance pursuant to awards
granted under the Plan, as recommended by the Board of Directors of the
Corporation, is increased from 1,000,000 shares to 6,000,000 shares, in the
aggregate, and that the Certificate of Amendment to Certificate of Incorporation
as recommended by the Board of Directors of the Corporation as follows:
FIRST: The name of the Corporation is Mobilepro Corp.
SECOND: The Certificate of Incorporation of the Corporation is hereby
amended by striking the second paragraph of Article FOURTH in
its entirety and by substituting the following new paragraph
in lieu thereof as the second paragraph of Article FOURTH:
"The total number of shares of capital stock of all classes
which the Corporation shall have authority to issue is
605,035,425 shares, of which 600,000,000 shares shall be
common stock, par value $.001 per share ("Common Stock"),
5,000,000 shares shall be preferred stock, par value $.001 per
share ("Preferred Stock") and 35,425 shares shall be the
Series A Convertible Preferred Stock, par value $.001 per
share ("Series A Convertible Preferred Stock")."
THIRD: The amendment of the Corporation's Certificate of
Incorporation herein certified has been duly adopted in
accordance with the provisions of Sections 228 and 242 of the
General Corporation Law of the State of Delaware.
ITEM 5. OTHER INFORMATION
None
35
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
2.1 Articles of Merger of CraftClick.com, Inc. (a Utah corporation)
and CraftClick.com, Inc. (a Delaware corporation) (incorporated by
reference to the Company's Form S-8 Registration Statement as
filed with the Securities and Exchange Commission on May 11, 2001
(File No. 333-60726))
2.2 Plan of Merger of CraftClick.com, Inc. (a Utah corporation) with
and into CraftClick.com, Inc. (a Delaware corporation)
(incorporated by reference to the Company's Form S-8 Registration
Statement as filed with the Securities and Exchange Commission on
May 11, 2001 (File No. 333-60726))
2.3 Agreement and Plan of Merger dated as of June 1, 2001, between
CraftClick.Com, Inc. a Delaware corporation, and Mobilepro Corp.,
a Delaware corporation, (incorporated by reference to the
Company's Form 8-K Current Report as filed with the Securities and
Exchange Commission on June 20, 2001 (File No. 002-97869-D))
2.4 Agreement and Plan of Merger dated March 21, 2002, consummated
April 23, 2002, between NeoReach, Inc., a Delaware company and
Mobilepro. (incorporated by reference to the Company's Form 8-K
Current Report as filed with the Securities and Exchange
Commission on April 5, 2002 (File No. 002-97869-D)
3.1 Certificate of Incorporation of CraftClick.com, Inc. (a Delaware
corporation) (incorporated by reference to the Company's Form S-8
Registration Statement as filed with the Securities and Exchange
Commission on May 11, 2001 (File No. 333-60726))
3.2 By-Laws of CraftClick.com, Inc. (a Delaware corporation)
(incorporated by reference to the Company's Form S-8 Registration
Statement as filed with the Securities and Exchange Commission on
May 11, 2001 (File No. 333-60726))
3.3 Certificate of Amendment of Certificate of Incorporation of
Mobilepro Corp. (a Delaware corporation) (incorporated by
reference to the Company's Form S-8 Registration Statement as
filed with the Securities and Exchange Commission on December 4,
2001 (File No. 333-74492))
4.1 2001 Performance Equity Plan (incorporated by reference to the
Company's Form S-8 Registration Statement as filed with the
Securities and Exchange Commission on May 11, 2001 (File No.
333-60726))
4.2 2001 Equity Performance Plan (incorporated by reference to the
Company's Form S-8 Registration Statement as filed with the
Securities and Exchange Commission on December 4, 2001 (File No.
333-74492))
10.1 Stock Purchase Agreement dated February 19, 2002 with Mr. Daniel
Lozinsky and Dungavel, Inc., and another Stock Purchase Agreement
dated February 19, 2002 with Mr. Daniel Lozinsky, Ms. Joann Smith
and Mr. Scott Smith. (incorporated by reference to the Company's
Form 8-K Current Report as filed with the Securities and Exchange
Commission on March 6, 2002 (File No. 002-97869-D))
10.2 Memorandum of Understanding between Neoreach, Inc., and RF
Microelectronics Laboratory dated July 31, 2002 for opportunities
to cooperate in research, particularly in RF-CMOS ASICs
development for RF transceiver of 3G W-CDMA standard. The ASICs
will be fabricated in CMOS processes. (incorporated by reference
to the Company's Form 10QSB/A Quarterly Report as filed with the
Securities and Exchange Commission on October 4, 2002 (File No.
002-97869-D))
10.3 Announcement in a press release dated June 20, 2003 that the
Company it entered into a Memorandum of Understanding with GBH
telecom, LLC, a development stage company headquartered in
36
Arlington, Virginia, under which it intends to acquire GBH telecom
(incorporated by reference to the Company's Form 8-K Current
Report as filed with the Securities and Exchange Commission on
June 20, 2003 (File No. 002-97869-D))
99.1 Certification by Arne Dunhem, Chief Executive Officer and Chief
Financial and Accounting Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (included herewith)
b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated April 5, 2002 with the
Securities and Exchange Commission on March 21, 2002, consummated April 23,
2002. On March 21, 2002, NeoReach, Inc., a Delaware company and Mobilepro
entered into an Agreement and Plan of Merger pursuant to which a newly formed,
wholly-owned subsidiary of Mobilepro would merge into NeoReach, in a tax-free
transaction. The merger was effective on April 23, 2002. As a result of the
merger, NeoReach is now a wholly-owned subsidiary of Mobilepro. Prior to the
merger, Mr. Daniel Lozinsky who was a controlling stockholder of Mobilepro also
owned approximately 32.5% of NeoReach.
The Company filed a Current Report on Form 8-K dated May 10, 2002 with the
Securities and Exchange Commission on June 20, 2002. Effective June 6, 2002, the
Board of Directors of Mobilepro Corp. (the "Company") dismissed its independent
auditors, Mantyla, McReynolds LLC ("Mantyla"), and engaged the services of
Bagell, Josephs & Company, L.L.C. ("Bagell"), as its new independent auditors.
Bagell will audit the Company's financial statements for the fiscal year ended
March 31, 2002.
Also included in the Current Report dated May 10, 2002, on May 13, 2002, the
Company announced in a press release that Mr. Daniel Lozinsky had resigned as
the President, Chief Executive Officer and Chairman of the Board of the Company
and that Mr. Arne Dunhem had been appointed to serve as the President, Chief
Executive Officer and Chairman of the Board of the Company, effective as of May
10, 2002. Mr. Lozinsky was also appointed to serve as a Senior Vice President of
the Company, effective as of May 10, 2002.
The Company filed an amended Current Report on Form 8-K/A dated May 10, 2002
with the Securities and Exchange Commission on June 25, 2002.
Subsequent to the period of this report, the Company filed two amended Current
Reports of Form 8-K, dated June 6, 2001 and March 21, 2002 with the Securities
and Exchange Commission on July 5, 2002.
The Company filed a Current Report on Form 8-K dated June 20, 2003 with the
Securities and Exchange Commission on the Company's announcement in a press
release that it entered into a Memorandum of Understanding ("MOU") with GBH
telecom, LLC, a development stage company headquartered in Arlington, Virginia,
under which it intends to acquire GBH telecom, LLC in a proposed tax-free
exchange of stock. The projected closing date for the transaction was announced
to be July 3, 2003. Under the terms of the MOU, upon completion of the proposed
transaction, GBH shareholders will own the majority of the Company's issued and
outstanding common stock and have voting control of the Company. A copy of this
press release was filed as an exhibit to the 8-K filing on June 20, 2003.
37
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.
MobilePro Corp.
By /s/ Arne Dunhem
-------------------------------------------
Arne Dunhem,
President and Chief Executive Officer
(Principal executive and financial officer)
Date August 19, 2003
37
CERTIFICATION
I, Arne Dunhem, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of MobilePro Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this report
(the "Evaluation Date"); and
c) presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
5. I have disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
August 19, 2003
/s/ Arne Dunhem
-----------------------------------------------------
Arne Dunhem
Chief Executive Officer
Principal Financial and Principal Accounting Officer
38