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 September 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 November 14, 2003, the Company
had outstanding 122,418,452 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
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
Balance Sheets as of September 30, 2003 (unaudited)
and March 31, 2003 (audited)
Statements of Operations for the Six Months and Three Months Ended
September 30, 2003 and 2002 (unaudited) with Cumulative
Totals Since Inception
Statements of Cash Flows for the Six Months Ended
September 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 SHEETS
ASSETS
SEPTEMBER 30, MARCH 31,
2003 2003
(UNAUDITED) (AUDITED)
------------- -------------
CURRENT ASSETS
Cash and cash equivalents $ 592,211 $ 6,715
Prepaid expenses 9,518 9,518
------------- -------------
TOTAL CURRENT ASSETS 601,729 16,233
Fixed assets, net of depreciation 29,175 36,469
------------- -------------
TOTAL ASSETS $ 630,904 $ 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 SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' DEFICIT
SEPTEMBER 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 -- 215,000
Equity line of credit 600,000 160,000
Accounts payable and accrued expenses 969,939 1,234,880
--------------- ---------------
TOTAL CURRENT LIABILITIES 1,777,439 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 2,120,556 2,162,497
--------------- ---------------
STOCKHOLDERS' DEFICIT
Preferred stock, $.001 par value, authorized
5,000,000 shares, and 35,425 shares
issued and outstanding at September 30, 2003 and March 31,
2003, respectively 35 35
Common stock, $.001 par value, authorized 600,000,000
shares at September 30, 2003 and March 31, 2003, and
122,418,452 and 30,175,122 shares issued and
outstanding, respectively 122,418 30,175
Additional paid-in capital 12,861,168 11,538,979
Deficit accumulated during development stage (14,473,273) (13,678,984)
--------------- ---------------
TOTAL STOCKHOLDER'S DEFICIT (1,489,652) (2,109,795)
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 630,904 $ 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
FOR THE SIX AND THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(CUMULATIVE TOTALS SINCE INCEPTION)
SIX MONTHS ENDED THREE MONTHS ENDED CUMULATIVE
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, TOTALS SINCE
2003 2002 2003 2002 INCEPTION
------------ ------------ ------------ ------------ ------------
OPERATING REVENUES
Revenue $ -- $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------ ------------
OPERATING EXPENSES
Professional fees and compensation expenses 506,522 1,870,172 284,806 691,213 5,384,551
Advertising and marketing expenses 24,480 2,430 15,990 745 50,514
Research and development costs 1,095 4,996 -- 500 9,590
General and administrative expenses 61,160 36,679 40,746 10,527 1,670,098
Office rent and expenses 27,746 64,015 11,890 25,578 113,814
Travel and meals expenses 9,513 12,472 9,513 4,763 22,075
Depreciation and amortization 7,294 8,000 3,647 4,000 22,646
------------ ------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 637,810 1,998,764 366,592 737,326 7,273,288
------------ ------------ ------------ ------------ ------------
LOSS BEFORE OTHER INCOME (EXPENSE) (637,810) (1,998,764) (366,592) (737,326) (7,273,288)
OTHER INCOME (EXPENSE)
Forgiveness of debt -- -- -- -- 276,738
Amortization of discount and interest on
conversion of debt (142,194) -- (41,995) -- (195,345)
Interest expense (14,285) (8,302) -- (63,452)
Other expense -- (48,434) -- 1,794 (27,608)
Impairment of goodwill -- -- -- -- (7,190,374)
Interest income -- -- -- -- 56
------------ ------------ ------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSE) (156,479) (48,434) (50,297) 1,794 (7,476,723)
------------ ------------ ------------ ------------ ------------
NET LOSS BEFORE PROVISION FOR INCOME TAXES (794,289) (2,047,198) (416,889) (735,532) (14,473,273)
PROVISION FOR INCOME TAXES -- -- -- -- --
------------ ------------ ------------ ------------ ------------
NET LOSS APPLICABLE TO COMMON SHARES $ (794,289) $ (2,047,198) $ (416,889) $ (735,532) $(14,473,273)
============ ============ ============ ============ ============
NET LOSS PER BASIC AND DILUTED SHARES $ (0.01) $ (0.13) $ (0.00) $ (0.04)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 67,957,345 15,844,642 92,173,715 18,784,163
============ ============ ============ ============
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 SIX MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(WITH CUMULATIVE TOTALS SINCE INCEPTION)
CUMULATIVE
TOTALS SINCE
2003 2002 INCEPTION
--------------- ---------------- -------------------
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (794,289) $ (2,047,198) $ (14,473,273)
--------------- ---------------- -------------------
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES:
Forgiveness of debt - - (276,738)
Depreciation 7,294 8,000 22,646
Common stock issued for services, compensation and
conversion of debt 77,000 1,208,253 4,548,245
Impairment of goodwill - - 7,190,374
Amortization of discount and interest on conversion of debt 142,194 - 195,345
CHANGES IN ASSETS AND LIABILITIES
Decrease in other current assets - (57,500) 13,194
Increase (decrease) in accounts payable and
and accrued expenses (29,703) 265,068 922,971
--------------- ---------------- -------------------
Total adjustments 196,785 1,423,821 12,616,037
--------------- ---------------- -------------------
NET CASH (USED IN) OPERATING ACTIVITIES (597,504) (623,377) (1,857,236)
--------------- ---------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in amounts due to related parties - 263,001 79,100
--------------- ---------------- -------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES - 263,001 79,100
--------------- ---------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from common stock issuances - - 79,100
Proceeds from convertible debentures-other and -
equity line of credit 1,185,000 - 1,600,000
Proceeds from borrowings, net - - 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 1,183,000 362,000 2,449,447
--------------- ---------------- -------------------
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 SIX MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(WITH CUMULATIVE TOTALS SINCE INCEPTION)
CUMULATIVE
TOTALS SINCE
2003 2002 INCEPTION
--------------- --------------- ----------------
NET INCREASE IN
CASH AND CASH EQUIVALENTS 585,496 1,624 592,211
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 6,715 154 --
-------- ----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $592,211 $ 1,778 $ 592,211
======== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH
ACTIVITIES:
Issuance of common stock for:
Services, compensation and conversion of debt $ 77,000 $ 1,208,253 $ 4,548,245
======== =========== ===========
Impairment of goodwill $ -- $ -- $ 7,190,374
======== =========== ===========
Amortization of discount and interest on conversion of debt $142,194 $ -- $ 195,345
======== =========== ===========
Conversion of equity line of credit to stock $795,000 $ -- $ 835,000
======== =========== ===========
Conversion of convertible debentures - other $165,000 $ -- $ 165,000
======== =========== ===========
Settlement of accounts payable $235,238 $ -- $ 235,238
======== =========== ===========
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.
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
SEPTEMBER 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)
SEPTEMBER 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.
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 on 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)
SEPTEMBER 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 with a financial
institution that periodically exceed the limit of insurability under
Federal Deposit Insurance Corporation. At September 30, 2003, the cash
balance exceeded the insured limits by $492,211.
11
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 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)
SEPTEMBER 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
September 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 $24,480 and
$2,430 for the six months ended September 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 $7,294 and $8,000 charged to operations for depreciation
expense for the six months ended September 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)
SEPTEMBER 30, 2003 AND 2002
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain amounts in the September 30, 2002 financial statements were
reclassified to conform to the September 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:
September 30, September 30,
2003 2002
------------- ------------
Net loss $ (794,289) $ (2,047,198)
Weighted-average common shares
Outstanding (Basic) 67,957,345 15,844,642
Weighted-average common stock
Equivalents
Stock options - -
Warrants - -
Weighted-average common shares
Outstanding (Diluted) 67,957,345 15,844,642
Options and warrants outstanding to purchase stock were not included in
the computation of diluted EPS for September 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)
SEPTEMBER 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 reached 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)
SEPTEMBER 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 September 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
September 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)
SEPTEMBER 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 September 30, 2003 there was $-0- outstanding. Interest
accrued approximated $17,100 through September 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)
SEPTEMBER 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 September 30, 2003, $-0- remains outstanding due to
conversions of this debt to equity. 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. As of September 30, 2003, $-0- remains outstanding as
the debt was converted to equity. There were 10,000,000 shares of
common stock issued under this loan to the escrow agent.
The Company in July, August and September 2003 in accordance with the
agreement with Cornell Capital Partners, L.P., borrowed $1,000,000. As
of September 30, 2003, $600,000 remains outstanding due to conversions
of this debt to equity. As part of these loans, the Company advanced
40,000,000 shares of common stock 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 six
months ended September 30, 2003 and 2002 was $3,098 and $2,428,
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 six
months ended September 30, 2003.
18
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 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 September 30, 2003.
COMMON STOCK
On June 1, 2001, the Company issued 3,000,000 shares in a conversion of
debt. The issuances 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)
SEPTEMBER 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)
SEPTEMBER 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 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 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 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)
SEPTEMBER 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.
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. As of September 30, 2003, the agreement with GBH
Telecom, LLC was terminated. The Company has not received the 3,500,000
shares back that was previously issued.
On July 30, 2003, August 7, 2003 and September 23, 2003, the Company
issued 40,000,000 shares of common stock to the escrow agent pursuant
to the terms of their agreement, and 12,708,142 shares of common stock
were issued in conversions of certain amounts borrowed under the equity
lines of credit entered into by the Company.
In the three months ended September 30, 2003, the Company exchanged
12,708,142 shares of common stock and converted $795,000 of debt in
total and recognized $41,194 of amortization of discount and interest
on debt conversions.
22
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2003 AND 2002
NOTE 8- STOCKHOLDERS DEFICIT (CONTINUED)
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.
There were no issuances during the six months ended September 30, 2003.
ADDITIONAL PAID-IN CAPITAL
During the period ended September 30, 2003, the Company negotiated and
settled with a number of vendors which resulted in a reduction of
accounts payable and a conversion to equity totaling $235,238.
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"
23
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2003 AND 2002
NOTE 9- PATENTS (CONTINUED)
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.
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 six months ended September 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.
24
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2003 AND 2002
NOTE 11- COMMITMENTS (CONTINUED)
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 had anticipated to close the transaction
in its second fiscal quarter.
Upon further due diligence by management, it was determined that this
transaction was not in the best interest of the Company and
negotiations were terminated. The 3,500,000 shares issued during the
negotiations have not been returned.
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 six months ended September 30, 2002 as
such.
NOTE 13- LITIGATION/ LEGAL PROCEEDINGS
As of September 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 settled these claims and obtained full releases on October
2, 2003 dismissing the complaints. This amount is included in gross
wages at September 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 settled these claims and obtained full releases in October
2003, dismissing the
25
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2003 AND 2002
NOTE 13- LITIGATION/ LEGAL PROCEEDINGS (CONTINUED)
complaints. The Company has included these amounts in the accrued wages
at September 30, 2003.
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 had been ongoing for an adjusted
payment plan. The Company settled this claim and obtained a full
release in October 2003, dismissing the complaint. The Company has
recorded the full liability on its books at September 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 September 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 September 30, 2003.
NOTE 14- SUBSEQUENT EVENTS
Since September 30, 2003, the Company has converted and issued common
stock to Cornell Capital for debt outstanding under the equity line of
credit totaling $600,000.
26
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
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
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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 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.
The long-term product vision is founded on product line extensions that leverage
the current radio frequency technology and expertise in third generation
wireless technology. We intend to add new products to the development schedule
if market success with our products is demonstrated and based on the market
timing and future competitive landscape.
We also anticipate reviewing opportunities 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. This memorandum of understanding is non-binding on either party and
additional agreements are necessary before the parties may fully collaborate
together. On September 8, 2003 a new memorandum of understanding was signed with
the RF Microelectronics Laboratory for a joint ZigBee RF CMOS chip development
project.
On September 17, 2003, the Company announced in a press release that the company
had signed a strategic cooperation agreement with Seoul-based Axstone Co., Ltd.,
a leading South Korean wireless technology company. The memorandum of
understanding with Axstone calls for a joint development program to include
marketing and sales of various wireless solutions including systems and
subsystems for CDMA and W-CDMA wireless standards. This includes solutions for
third generation wireless networks.
On September 9, 2003, the Company announced in a press release that it entered
into a memorandum of understanding with Constellation Networks Corporation
(CNC), a telecommunications transmission and distribution company headquartered
in Traverse City, Michigan, under which it intends to acquire CNC. Terms of the
transaction include both stock and cash to fund expansion of CNC's existing
international satellite and fiber network. The projected closing date for the
transaction was announced to be September 19, 2003. On September 19, 2003 it was
subsequently announced that the transaction was delayed due to additional due
diligence and the negotiation of the final detailed terms of the agreement. CNC
provides end-to-end global connectivity for the transport of voice, video,
Internet, voice over IP and data. CNC uses multiple technology platforms to
deliver its services and allow its clients the most flexibility possible. CNC
maintains point of presence in New York City, NY and Malmo, Sweden.
FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION
OVERALL OPERATING RESULTS:
We had no revenues for the quarter ended September 30, 2003.
Our operating expenses for the three months ended September 30, 2003 were
$366,592, a $370,734 or 50% reduction when compared to $737,326 for the period
ended September 30, 2002. For the six months ended September 30, 2003 total
operating expenses were $637,810. This compares with $1.998 million for the six
month period ended September 30, 2002. Our primary expense for the three months
and six month periods ended September 30, 2003 was for Professional fees and
compensation expenses of $284,806 and $506,522 respectively. This compares to
$691,213 and $1.870 million for the three and six month periods ended September
30, 2002. Of this amount, no common stock in lieu of cash was issued in
connection with consulting fees and expenses for services rendered.
29
As of September 30, 2003 the Company had $592,211 in cash compared to $6,715 as
of September 30, 2002. The cash is a result of an equity line arrangement with
Cornell Capital Partners, dated February 6, 2003. As of September 30, 2003,
accounts payable and accrued liabilities were reduced by $235,238 through
management's ongoing negotiation with the Company's vendors.
Operating Losses
Our net operating loss for the three month period ended September 30, 2003 was
$366,592, a $319,983 or 43% reduction when compared to $737,326 for the three
months ended September 30, 2002. The loss for the six month period ended
September 30, 2003 was $637,810 compared to $1.998 million as of September 30,
2002. These losses were incurred primarily as a result of the aforementioned
incurred expenses.
As of September 30, 2003 the Company has accumulated $7.2 million in operating
losses that may, on a limited basis, be offset against future taxable income.
There are 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 September 30, 2003, we had a total Stockholders' Deficit of $1.489 million
compared to $2.109 million as of September 30, 2002. The Company does 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
and large well-known business failures.
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 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.
30
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 September 8, 2003, the Company announced in a press release that the company
had signed a memorandum of understanding for a joint ZigBee integrated circuit
development project with a major Korean research laboratory, the RF
Microelectronics Laboratory (RFME Lab), which is associated with the Information
and Communications University in Daejeon, South Korea. The non-binding agreement
calls for a joint development effort toward developing integrated circuits for
radio frequency (RF) transceivers of the ZigBee standard. The integrated
circuits will be fabricated in complementary metal oxide silicon (CMOS)
processes. The RFME Lab has over the years proven to be a leading design center
for highly advanced and sophisticated radio technologies miniaturized on
semiconductor chips.
On September 9, 2003, the Company announced in a press release that it entered
into a memorandum of understanding with Constellation Networks Corporation
(CNC), a telecommunications transmission and distribution company headquartered
in Traverse City, Michigan, under which it intends to acquire CNC. Terms of the
transaction include both stock and cash to fund expansion of CNC's existing
international satellite and fiber network. The projected closing date for the
transaction was announced to be September 19, 2003. On September 19, 2003 it was
subsequently announced that the transaction was delayed due to the need for due
diligence and the negotiation of the final detailed terms of the agreement. CNC
provides end-to-end global connectivity for the transport of voice, video,
Internet, voice over IP and data. CNC uses multiple technology platforms to
deliver its services and allow its clients the most flexibility possible. CNC
maintains point of presence in New York City, NY and Malmo, Sweden.
On September 19, 2003, the Company also announced that negotiations to acquire
GBH Telecom, Inc. have been terminated due to inability of both parties to agree
on substantive terms of the transaction.
On September 17, 2003, the Company announced in a press release that the company
had signed a strategic cooperation agreement with Seoul-based Axstone Co., Ltd.,
a leading South Korean wireless technology company. The memorandum of
understanding with Axstone calls for a joint development program to include
marketing and sales of various wireless solutions including systems and
subsystems for CDMA and W-CDMA wireless standards. This includes solutions for
third generation wireless networks.
ITEM 3. CONTROLS AND PROCEDURES
31
As of September 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 September 30, 2003. There have been
no significant changes in the Company's internal controls or in other factors
that could significantly affect internal controls subsequent to September 30,
2003.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Mr. Tatcha Chulajata, a former employee of NeoReach, Inc. 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 claimed 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 settled this claim and obtained a full release in October
2003 dismissing the complaint.
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 were 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 settled these claims and obtained full
releases in October 2003 dismissing the complaints.
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 had been ongoing for an adjusted payment plan. The
Company settled this claim and obtained a full release in October 2003
dismissing the complaint.
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
32
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-NeoReach merger. The shares were valued at $ 317,400, the fair value
of our stock at the time of issuance. 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
shares were valued at $517,647, the fair value of our stock at the time of
issuance. 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 November 14, 2003 the Company has satisfied the Debentures
with full repayment with cash payments or the issuance of 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
33
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 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 Capital 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 Capital
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 Capital a fee
equal to three percent of amount of each draw down. We previously issued 764,706
shares of our common stock to Cornell Capital as a commitment fee pursuant to a
prior Equity Line of Credit Agreement, dated May 31, 2002 that was subsequently
terminated. As of November 14, 2003, Mobilepro has received advances under the
Equity Line of Credit in the aggregate gross amount of $1,435,000 with a
corresponding aggregate net amount of $1,101,378 after expenses for various
fees, interest and certain pay-downs of a convertible debenture issued by the
Company to Cornell Capital from May 31, 2002. As of November 14, 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 or directly to Cornell
Capital an aggregate of 84,517,453 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; 2,262,443 shares on July
10, 2003; 10,000,000 shares on July 30, 2003; 15,000,000 shares on August 7,
2003; 15,000,000 shares on September 23, 2003; and 2,255,010 shares on November
14, 2003. In addition Cornell Capital has as of November 14, 2003 fully
converted, pursuant to a Securities Purchase Agreement dated May 31, 2002 to
which the Company issued and sold $250,000 of convertible debentures, with net
proceeds of $172,255, an aggregate of 16,130,887 shares of common stock as
follows: 658,334 shares on March 4, 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; 2,816,902 shares on July 16, 2003; 714,286 shares on July 21,
2003; 3,010,101 shares on August 4, 2003; 1,063,830 shares on August 7, 2003;
and 2,173,913 shares on August 21, 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.
On September 12, 2003 Mr. Isaak Tarasulo requested the conversion of his advance
to the Company of $5,000.00 on September 05, 2002 into shares of the Company's
common stock and that the shares should be registered as soon as appropriate.
Mr. Tarasulo also requested that out of the converted shares, 100,000 shares
should be issued in the name of Isaak Tarasulo and that the balance shares
should be issued in the name of Daniel Lozinsky. Based on the closing trading
price on September 12, 2003 at $0.023 per share the $5,000.00 was converted into
a total of 217,391 shares of the Company's restricted common stock with 100,000
shares issued in the name of Isaak Tarasulo and 117,391 issued in the name of
Daniel Lozinsky.
34
On September 12, 2003 Ms. Mila Superfin requested the conversion of her advance
to the Company of $4,000.00 on July 12, 2002 into shares of the Company's common
stock and that the shares should be registered as soon as appropriate. Based on
the closing trading price on September 12, 2003 at $0.023 per share the
$4,000.00 was converted into a total of 173,913 shares of the Company's
restricted common stock that were issued to Ms. Mila Superfin.
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 November 14, 2003, the principal balance
of these loans remains at $277,617 plus an interest of approximately $17,000. As
of November 14, 2003, the Company has repaid $2,000 to Arne Dunhem but made no
repayment to Danel Lozinsky on these loans.
On May 16, 2003, Mobilepro issued convertible debentures at an aggregate amount
of $277,617 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 $50,000 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. The Holders submitted on August 29,
2003 Notices of Conversion such that Daniel Lozinsky would receive 12,037,037
shares and Arne Dunhem would receive 4,629,630 shares of our common stock. As of
November 14, 2003 the shares have not yet been issued. The Convertible Debenture
for Arne Dunhem stipulate that $30,000 shall be due and payable on or before
September 1, 2003 resulting in a balance of $40,000 plus accrued interest,
assuming a conversion of $50,000 into shares of common stock. The Convertible
Debentures stipulate that 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 average closing bid
price as defined above. As of August 29, 2003, the resulting conversion price
would be $0.0108 per share. 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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the Stockholders for their approval during the
quarter ended September 30, 2003.
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 Arlington, Virginia,
under which it intends to acquire GBH telecom (incorporated by
reference to the
36
Company's Form 8-K Current Report as filed with the Securities and
Exchange Commission on June 20, 2003 (File No. 002-97869-D))
10.4 Employment Agreement, effective as of September 1, 2003, made and
entered by and between Arne Dunhem (the "Executive") and MobilePro
Corp., a Delaware corporation (the "Company").
31.1 Certification by Arne Dunhem, Chief Executive Officer and Chief
Financial and Accounting Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 32.1 Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.1 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
b) Reports on Form 8-K
No Reports on Form 8-K were filed with the Securities and Exchange Commission
during the quarter ended September 30, 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 November 19, 2003
38