UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2003
Commission file number 0-32335
R Wireless, Inc.
----------------
(Name of small business issuer in its charter)
Georgia 58-2558702
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4210 Columbia Road, Suite 10-C
Martinez, Georgia 30907-0401
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (212) 534-2202
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
N/A N/A
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
(Title of class)
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 [ ] No [X]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year.
Revenues from continuing operations $38,014
Revenues from discontinued operations $18,961
----------------------------------------------------------------------
Total revenues for the year ended September 30, 2003 $56,975
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.)
On March 4, 2004, shares of common stock of the issuer, its only common
equity, were sold at $0.10 a share. Based on such price, and 6,131,025
common shares outstanding as of March 4, 2004, excluding 9,162,626 common
shares held by affiliates, the aggregate market value of the common stock
of the issuer was $613,103.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
As of March 4, 2004, there were 15,293,651 shares of common stock
outstanding. Transitional Small Business Disclosure Format (Check one): Yes [ ];
No [X]
2
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
CORPORATE STRUCTURE
R Wireless, Inc. ("R Wireless" or the "Company"), formerly HOM
Corporation ("HOM"), a Georgia corporation incorporated on May 4, 2000, is a
holding company. R Wireless has two wholly-owned subsidiaries, Homes By Owners,
Inc. ("Homes"), a Georgia corporation incorporated on December 6, 1999, and
Direct Lending, Inc. ("Direct"), a Georgia corporation incorporated on January
9, 1997 and formerly known as Southern States Lenders, Inc. Homes publishes and
distributes a periodic magazine, FOR SALE BY OWNER, formerly known as FOR SALE
BY OWNER AND BUILDER and HOMES BY OWNERS. FOR SALE BY OWNER lists residential
properties for sale by their owners in the Augusta, Georgia/Aiken, South
Carolina metropolitan areas and contains advertisements, most, but not all, of
which relate to the real estate business. Homes has acquired all the outstanding
equity of Freedom Homes, Inc. ("Freedom"), a Georgia corporation, in exchange
for 70% of Homes' common stock outstanding, subject to raising at least
$500,000, which has not occurred. Freedom is a retail seller of manufactured
homes, based in Columbus, Georgia. The deadline for raising $500,000 has been
extended to April 5, 2004. If the $500,000 is not raised by such date or its
further extension, the Freedom common stock will be returned to its principal
owner, Jim Evans, and the Homes common stock will be returned to Homes.
Direct, which is now inactive, was a licensed mortgage broker that
worked with various financial institutions and underwriters prior to the sale of
substantially all its business assets, including the name Direct Lending, Inc.,
on November 25, 2002. SEE FORMER BUSINESS OF DIRECT LENDING, INC. R Wireless,
Homes and Direct are collectively referred to as the "Company."
SUMMARY OF CURRENT RESULTS AND RECENT DEVELOPMENTS
At present, the Company is not profitable. As a result, Company
management sought acquisitions, joint ventures and business arrangements that
would include profitable operations and attractive business activities enabling
R Wireless to raise additional funds and cost sharing ventures.
In implementation of this search, on December 12, 2002 R Wireless sold
4,647,626 shares of its common stock to MA&N LLC ("MA&N"), a Nevada limited
liability company, which represented 51% of the 9,112,992 shares of R Wireless
common stock issued or issuable as of that date. The consideration for this sale
was (a) the provision of Internet Service Provider, or ISP, wireless service
from not less than 5 nodes, (b) MA&N consulting for at least two years on
financial and management matters, (c) arranging for personnel to manage the
Company, (d) administering the Company's business plan being developed by MA&N
to acquire additional business operations in the ISP wireless business, and (e)
funding accounting and legal costs of specified filings with the U. S.
Securities and Exchange Commission, including this Form 10-KSB (which will
include currently outstanding accounting fees, estimated to be in the range of
$75,000 - $100,000). The continuation of the Company's operations is dependent
on raising sufficient working capital and the implementation of a successful
business plan.
The Company has contemplated business opportunities in the wireless
fidelity business, more commonly known as Wi-Fi industry (the term is used
generically when referring to any type of 802.11 network, whether 802.11b,
802.11a, dual-band, etc.). Due to the competitive nature of the Wi-Fi business,
resulting from numerous entries of large companies with significant research and
development capabilities, R Wireless has not been able to establish itself in
this industry. Various acquisitions have been considered, some of which required
extensive due diligence and research, but none of these were completed.
Apart from the proposed Wi-Fi service, the only business conducted by
the Company is through Home's periodic magazine, FOR SALE BY OWNER, and its
related website. This business has not been profitable, although the current
reductions in personnel and office space allowed it to minimize losses from the
magazine exclusive of any allocated management costs.
3
HISTORY OF R WIRELESS, INC. (FORMERLY HOM CORPORATION)
Direct was acquired by Apple Homes Corporation ("Apple") on October 1,
1998. Subsequently, Apple spun off Direct, as Apple determined that it was not
appropriate to continue to conduct the mortgage business of Direct. The
shareholders of Apple of record on March 1, 1999 received one share of Direct
common stock for each 10 shares of common stock of Apple that they then held,
fractional shares being rounded up to the next full share. Additional common
stock of Direct was sold to private investors. In late 1999, Direct determined
that it would be desirable to use a separate entity for the real estate for sale
by owner business (or "FSBO" business, as referred to in the industry) it wished
to enter. Homes was established for this purpose.
As interest rates rose in 2000 and the mortgage business of Direct (and
other mortgage businesses in the Augusta area) decreased, the Company
reorganized it so that the investor-owned company would be Homes, rather than
Direct. To facilitate this reorganization, Homes incorporated a subsidiary,
Augusta Lenders, Inc. ("Augusta"). It was intended to merge Direct into Augusta.
Subsequently, the Company decided that it would be preferable to reorganize so
that the investor owned company would be the holding company instead of one of
the operating companies.
To attain this structure, the Chairman of Direct and Homes, Robert S.
Wilson, established HOM Corporation with minimal initial investment. Homes
transferred all the outstanding stock of Augusta to HOM, and HOM contributed
2,632,776 shares of its common stock, the same number of shares of its common
stock as the number of then outstanding shares of Direct common stock, to
Augusta. Direct and Augusta merged effective July 5, 2000. Pursuant to Georgia
law, Direct shareholders became shareholders of HOM, and Direct became a wholly
owned subsidiary of HOM. Direct then transferred all the outstanding common
stock of Homes to HOM. The result was an investor-owned HOM with two
wholly-owned subsidiaries, Homes and Direct. This business combination and the
changes to the organizational structure, in effect an internal reorganization,
did not affect the proportional interests of the shareholders or the businesses
and operations in which they were investing or their rights in the business,
since HOM and Direct are Georgia corporations with the same powers and rights of
shareholders.
On December 12, 2002, MA&N acquired control of the Company through
purchase of a majority interest in HOM and causing the majority of the directors
of HOM to be persons associated with MA&N. The name of the Company was changed
from HOM Corporation to R Wireless, Inc. effective as of January 22, 2003.
Furthermore, the following changes were implemented: CUSIP number changed to
74976E 10 4 as of February 4, 2004, and the trading symbol changed to RWLS as of
February 19, 2003.
PROPOSED WI-FI BUSINESS ACTIVITIES
In accordance with MA&N's strategic plan, the Company has attempted to
enter the Wi-Fi business. Wi-Fi allows personal computers and other hand held
devices to connect to the Internet without wires at high speeds comparable to
DSL and Cable access, so that the Internet becomes easier to connect to and more
accessible to Internet users. Wi-Fi antennas act as wireless Internet-access
transmitters and receivers, creating "hotspots". A hotspot is a public access
point -- typically in a hotel, airport, restaurant or other public locations --
that allows wireless-enabled computers and other devices to access the Internet.
The user pays for this service by buying a "day pass" from the hotspot operator,
or by signing up for a monthly subscription that allows use of the Internet from
anywhere in a network of access points. There are hotspots, such as those
located in airport clubs, parks and hotels. which provide free Internet service.
Wi-Fi Internet Access is becoming an increasingly popular method of accessing
the web.
Users of the Wi-Fi networks operate on a set of unlicensed radio
frequencies set aside by the government for everyone who follows a simple set of
design rules, formally known as 802.11 technology, operating at up to 11 million
bits per second. While Wi-Fi does not offer the same amount of mobility as a
cell phone (e.g. a moving car), it is far less expensive than the multi-billion
dollar mobile 3G high-speed wireless networks currently being rolled out by the
wireless phone companies.
4
The Company is arranging to build wireless sites, commonly known as
nodes, in the Borough of Manhattan in New York City, New York. To date, one node
has been completed. R Wireless is also seeking to make acquisitions and form
strategic alliances within the Wi-Fi industry countrywide. While the Company
believes that by rapidly establishing a Wi-Fi network, it will gain a niche in
the Wi-Fi business to exploit or to sell to others, the Company understands that
the Wi-Fi business has yet to be shown to be profitable. Revenues could be
produced by a Wi-Fi business through the provision of an advertising medium,
through fees for use of the Wi-Fi network, or both. Fee charging Wi-Fi networks
justify their cost through enhanced service and security. The Company has not
yet determined which revenue sources it will seek for its Wi-Fi business. A
potential issue for Wi-Fi providers arises from lack of control over Wi-Fi
customers. Theoretically, after a small investment in equipment, all users in
the same house or even neighborhood could use a single stationary internal
connection, while paying for a single back-up.
R Wireless built its first node in January 2003. The project was
completed by Cloud Networks ("Cloud"). The node is located in MA&N's offices at
120 East 87th Street in New York. R Wireless signed a one-year consulting
agreement with Cloud on February 11, 2003, whereby Cloud would act as a
consultant in connection with the potential acquisition of certain wireless
networking related assets. Cloud was formed in September 2002 to provide
wireless LAN consulting and management services to the commercial property
management and retail industry in the United States and internationally. Cloud
participated in key public space wireless projects in New York City, such as the
Bryant Park Wireless Network, Bowling Green Wireless Network, and the Brooklyn
Museum of Art. Cloud employs widely recognized Wi-Fi pioneers, including the
founders of NYCWireless - the first and largest wireless community network in
the United States.
R Wireless, jointly with Cloud, developed a plan to build three
additional nodes in the following locations in the Borough of Manhattan in New
York City:
1. 10 West 66th street
2. 30 Broad Street
3. 828 Broadway.
These projects have not yet been completed.
On February 24, 2003 Cloud presented an acquisition review regarding
the potential acquisition of Access Speed, Inc. ("Access") a Boston, MA based
company. Access had purchased the assets of Broadband 2 Wireless, Inc. which had
raised $32 million in first-round financing, acquired multiple assets, and only
a few months later filed for bankruptcy. Access' original plan was to provide
high-speed internet access to the businesses and individuals in the buildings
owned by a partnering real estate company, Core Investments, Inc.
Cloud's report identified some key advantages, such as a high number of
nodes, good customer base in the Boston area, and extensive research done by the
previous company (Broadband 2 Wireless, Inc.). However, there were some major
shortcomings, such as low network capacity, incompatibility of hardware with
other, more popular Wi-Fi hardware brands, and prohibitively high costs of
retrofitting the existing equipment. Consequently, R Wireless did not complete a
deal with Access.
On October 28, 2003 R Wireless signed a letter of intent with Todd
Myers, principal and majority shareholder of Airpath Wireless, Inc. ("Airpath"),
with an understanding to acquire, or enter in strategic alliance with, Airpath
(www.airpath.com). Airpath is a service provider in the wireless communications
industry and the developer of WiBOSS, a world leading carrier-grade public
access management platform. The platform simplifies deployments, operations and
management of public Wi-Fi access point locations. Utilizing Airpath's managed
solutions, Wi-Fi service providers can enter the Wi-Fi industry quickly, while
Airpath manages all operations. The company manages roaming settlement and
clearing for over 350 Wi-Fi access providers, using its Wi-Fi roaming platform.
The deal with Airpath has not been finalized yet and there are no assurances
about the outcome of future negotiations.
The Company has also considered business activities other than Wi-Fi,
but none has resulted in a firm arrangement or binding agreement.
5
COMPETITIVE ENVIRONMENT OF THE WI-FI BUSINESS
Competition in the Wi-Fi business has intensified. In December 2002
there were approximately 3,000 hotspots in the U.S. That number has grown to
more than 13,000 at the end of 2003 and is expected to grow to 30,000 by 2005.
T-Mobile USA is reported to have installed nodes in over 4,000 Starbucks Cafes
and to be spending $100,000,000 to build its own nationwide network. On December
5, 2002, AT&T, Intel and IBM announced the establishment of Cometa Networks with
the intent to build thousands of Wi-Fi connections, such as these planned by the
Company, into one nationwide network. In August 2003 SBC Communications, Inc.
announced it would offer Wi-Fi service at 6,000 locations over the next three
years. By the end of 2006, the SBC Communication's FreedomLink service is
expected to encompass 20,000 sites in the company's 13-state territory and will
integrate the service with Cingular's GSM/GPRS network. Also in August 2003
Nextel Communications, Inc. announced plans to use RadioFrame's technology to
outfit businesses with indoor Wi-Fi service. In July 2003 Sprint pledged to
offer Sprint PCS Wi-Fi Access in more than 2,100 locations by early 2004. And in
May 2003, Verizon Communications unveiled plans to launch Wi-Fi services in New
York City for its Internet access customers as part of a broader business plan
for deploying public wireless hot spots. T-Mobile USA remains the carrier with
the longest running relationship with Wi-Fi, having embraced the technology when
it first purchased the assets of MobileStar back in October 2001. Management
believes all of these companies have resources vastly superior to those of the
Company.
BUSINESS OF HOMES BY OWNERS, INC.
FOR SALE BY OWNER, Homes' periodic magazine, currently contains 40
pages. It has listings of residential properties for sale in the Augusta,
Georgia and Aiken, South Carolina metropolitan area, and advertisements, most,
but not all, of which relate to the real estate business. The residential
listings usually take a horizontal quarter page and feature a color photograph
of the house. The advertisements are of local realtors, service companies,
providers and merchants, and have represented an increasing proportion of the
revenue of FOR SALE BY OWNER magazine.
Basic rates for a standard one-eighth-page residential listing are $75
to present a color photograph and text for one month or until the property is
sold if listed on Homes' website. Standard rates for a quarter of a page are
$199 to present a color photograph and text for one month, and $499 to present a
color photograph and text for four months plus internet listing. In each case a
durable sign with the legend "Homes By Owners" and a telephone number, usually
of the homeowner but, at his option, of Homes, is available to the listing home
owner for a fee of $30, refundable upon return of the sign. Most residential
listings are in color and run for four months. Commercial rates range from $125
for a quarter page in one issue to $1,000 for a full page in three issues.
Homes' revenues for the last three fiscal years are as follows:
Fiscal year ended Revenues
----------------- --------
September 30, 2003 $38,014
September 30, 2002 $51,456
September 30, 2001 $48,149
FOR SALE BY OWNER is distributed throughout the Augusta/Aiken
metropolitan area in racks provided by Homes. Distribution sites include
supermarkets, drug stores, convenience stores, banks and commercial
establishments, and a modest fee is paid to some high traffic locations, such as
supermarkets. FOR SALE BY OWNER was originally replaced with a new issue every
month. Homes combined some of its magazine issues during the past fiscal year,
producing 8 issues for the period ended September 30, 2003. Currently,
approximately 16,000 copies of an issue of FOR SALE BY OWNER are printed and
distributed periodically to approximately 280 locations.
Homes has established a website, www.homesbyowners.net, with
information concerning Homes and its services, support services such as a
calculator to help buyers determine what they can afford as well as color
pictures and summary information about the listings. While most internet
residential property presentations are in conjunction with a three month color
listing in FOR SALE BY OWNER, a listing can be placed on the website for only
$50. A website listing remains until the house is sold or the listing person
directs that it be removed, subject to the right of Homes to remove stale
listings.
6
The Company has considered expanding the operations of Homes and
entering the real estate brokerage market. The potential spin off of the Company
is considered as a means of expanding the operations and changing the focus of
Homes. In April 2003, Homes entered discussions Horizon Homes, a retailer
organization, in Augusta, Georgia. A prospective site in Lincolnton, Georgia was
considered as the potential location for building modular homes. This
transaction did not materialize and all negotiations were suspended in July
2003.
In July, 2003, Homes approached another company, Freedom Homes, Inc.
("Freedom"), established in Wrens, Georgia and currently based in Augusta,
Georgia. The company has been in the real-estate brokerage industry for over 2
years. The primary business of Freedom has been buying and selling repossessed
and new mobile homes, with plans to enter the newly-constructed homes business.
Pursuant to the Stock Acquisition Agreement dated as of September 4,
2003 between Jim Evans, sole owner of Freedom, R Wireless, and Homes, Mr. Evans
acquired 70% of the outstanding shares of Homes' common stock (4,500,000 shares)
in exchange for all outstanding shares of Freedom. Robert S. Wilson acquired 5%
of the outstanding shares of Homes' common stock (300,000 shares) in partial
consideration for past and future services provided to Homes. R Wireless owns
the remaining 25% of the outstanding shares of Homes' common stock (1,500,000
shares). The certificates for the Homes and Freedom shares were delivered to
David R. Baker, of counsel to Haskell Slaughter Young & Rediker, LLC, counsel to
the Company, who serves as escrow agent, as described in the Escrow Agreement
dated as of September 4, 2003 between Jim Evans, R Wireless, Homes and David R.
Baker (SEE EXHIBITS 2.3, 2.4 AND 2.5). The transaction is subject to a condition
subsequent that a financing for Homes of $500,000 must be completed by April 5,
2004. If such deadline is not met or further extended, the Stock Acquisition
Agreement provides that Mr. Evans would receive his stock in Freedom back, and
Homes would receive its 4,500,000 shares of common stock back.
COMPETITIVE ENVIRONMENT FOR HOMES BY OWNERS, INC.
Currently there is no for-sale-by-owner ("FSBO") magazine in the
Augusta/Aiken metropolitan area other than FOR SALE BY OWNER, although there are
a few magazines, which contain photographs of homes for sale. THE SHOPPER is a
free, weekly issue, which lists advertisements for automobiles, real estate, and
furniture. THE SHOPPER is about 12 pages, of which half a page contains listings
of real estate for rent or sale. TIDBITS is another free weekly issue of about
20 pages, which apart from a few news articles contains a wide range of
advertisements, including advertisements from home builders and brokers. DIGEST
OF HOMES, MORTGAGES AND PROPERTY is a free issue, of about 40 pages, printed in
color, which contains advertisement from realtors only. The issue also lists all
advertisements online, at www.digestofhomes.com. HOMES & LAND is another free
issue in color, of about 88 pages, which contains listings by realtors of
Augusta and the greater CSRA area. The issue also lists all advertisements
online, at www.augustashomes.com. PHOTO BUYS is yet another free issue, which
lists advertisements for automobiles, boats, homes, and other. The issue is
published in full color as of recently and has about 24 pages, of which only 3-5
pages contain listings for houses.
Homes must attract more listings and other advertising if FOR SALE BY
OWNER is to become profitable. See MANAGEMENT'S DISCUSSION AND ANALYSIS. The
Company has examples of FSBO magazines from other areas that seem to indicate
that an area the size of the Augusta/Aiken metropolitan area can support a
successful FSBO magazine. However, management believes that the profit FOR SALE
BY OWNER can generate in the August/Aiken metropolitan area, even if successful,
is limited.
Although the FSBO approach is competitive with realtor brokerage in the
sale of residential properties, it also can be complementary. The Company
believes that a substantial portion of residential properties that it has listed
for sale by owner, are not actually sold by their owners. If a sale is still
needed, the intervention of a broker is sought. Thus FSBO residential listings
can ultimately prove to be leads for real estate brokers.
The Company has contemplated establishing or acquiring a realty company
to realize the full benefits of synergy by combining the operations of Homes and
a realty company. The Company has had discussions with individuals in light of
establishing its own realty company and with existing realty companies about an
acquisition or merger. The Company believes that there is a natural affinity
between realtors and FSBO magazines. It believes a realty operation can
otherwise benefit from access to the product stream generated by a FSBO magazine
operation. For example, a realtor has the opportunity to identify distressed
sale situations that can be acquired by the realtor at favorable prices.
7
SALE OF THE ASSETS AND BUSINESS OF DIRECT
Direct was never profitable. During Fiscal 2002, the Company believed
the sharp decline in interest rates and the resulting increase in the mortgage
business both due to the greater affordability of residential housing through
reduced monthly mortgage payments and the advantage of refinancing mortgage,
would enhance Direct's business. As a result it substantially increased its
personnel, taking additional space and otherwise incurring additional costs.
Although, as noted below, the number of mortgage closings and the resulting
revenue substantially increased, so did expenses. In addition, management
determined that it lacked the management resources to effectively promote and
control the mortgage business. As a result, in October 2002 it was decided to
dispose of the mortgage business, which was completed on November 25, 2002 by
the sale of substantially all the assets of Direct (other than its corporate
records, but including the name, Direct Lending) to Stuckey Enterprises, Inc.,
an unaffiliated entity ("Stuckey"). Stuckey paid $5,000 down and agreed to pay
$484 per month for three years, or a total of $20,000. Following the initial
down payment of $5,000, Stucky made two payments of $484. In January 2003, the
terms of the original agreement were renegotiated, and on January 14, 2003
Stuckey made one final payment of $10,000 in lieu of all remaining monthly
payments. The total amount received from Stuckey was $15,968. R Wireless assumed
the past liabilities of Direct. Mortgage transactions originating prior to
October 25, 2002 were for the account of the Company and subsequent transactions
were for the account of Stuckey. Stuckey assumed responsibility for the
employees and premise and equipment costs from October 25, 2002, thus relieving
the Company of these expenses.
FORMER BUSINESS OF DIRECT LENDING, INC.
Direct was a mortgage company. It located sources of capital willing to
grant home mortgage loans to customers of Direct. Direct acted as a broker and
was paid a fee upon the closing of a loan to a customer. These payments resulted
from origination fees and yield spread income and totaled approximately $2,000
in the case of most of the loans closed by Direct, payable when, and only when,
the loan closed.
Sources of capital that provided home mortgage loans to customers of
Direct included finance companies, banks and wholesale lenders. When a lending
institution indicated an interest in providing a loan to a Direct customer,
Direct provided the appropriate documents and supervised their completion and
the various steps needed to complete the loan. Direct attended the closing of
the loan. Direct provided value by facilitating the entire loan process.
The mortgage business in the Augusta/Aiken metropolitan area was
adversely affected during a significant portion of 1999 and 2000 by rising
mortgage rates. Rising interest rates particularly affect the refinancing of
mortgage loans. Refinancings occur when interest rates drop, so that home owners
can save money through changing to mortgages with interest rates lower than
those of the mortgage to which their property is subject. Mortgage interest
rates declined in late 2000 and in 2001 and remained low in 2002. With the
decline in rates, Direct experienced substantially increased inquiries
concerning mortgage financing. Direct closed mortgage loans as follows:
Number of Mortgage
Period Loans Closed
------ ------------
January 1, 1999-September 30, 1999* 9
October 1, 1999-September 30, 2000 14
October 1, 2000- September 30, 2001 7
October 1, 2001 - September 30, 2002 52
--------------------
* Prior records unavailable
GOVERNMENT REGULATION OF DIRECT
As a mortgage broker, Direct was required to be licensed. Since the
divestiture of the subsidiary, on November 25, 2002, Direct has not extended or
renewed its mortgage license in Georgia.
8
COMPANY EMPLOYEES AND OTHER WORKERS
The Company has no employees, and uses independent contractors for
various services when needed. Robert S. Wilson, HOM's former Chairman and Chief
Executive Officer, is currently acting on behalf of the Company, particularly
for Homes, without receiving compensation. Mr. Wilson was awarded options to
purchase 294,341 shares of R Wireless common stock at $.01 per share in lieu of
$54,000 in compensation earned during calendar year 2001, and cash advances and
accrued interest of $19,585 for a total of $73,585. The options have not yet
been issued. Mr. Wilson is currently supervising Home's magazine, FOR SALE BY
OWNER, with the aid of independent contractors. Homes has an independent
contractor who distributes the magazine in the Augusta/Aiken metropolitan areas.
Homes has paid, and is willing to continue to pay, commissions of 25% on
advertisements and listings for FOR SALE BY OWNER magazine procured by third
parties.
Mark S. Neuhaus, Chairman and President of R Wireless, received
3,000,000 shares for his services to the Company in 2003. Ned Baramov, Secretary
Treasurer of R Wireless, and Don Rizzuto, legal counsel for the Company, each
received 1,500,000 shares as their compensation during 2003. Mark Neuhaus also
was scheduled to receive a monthly salary of $25,000 a month, on a deferred
basis. Subsequently, with the consent of Mr. Neuhaus, this salary was rescinded.
During 2003, the Company, through MA&N, actively looked for an
experienced executive from the Wi-Fi industry to head the Wi-Fi operations of R
Wireless. A number of qualified candidates were interviewed and a preliminary
employment agreement drafted. Due to the competitive nature of the Wi-Fi
industry and the ability of leading companies to attract and retain such
candidates via substantial compensation packages, none of the candidates was
retained. The Company could only offer modest cash compensation and
predominantly equity-based compensation.
MISCELLANEOUS
The Company is not dependent on any particular customer or customers or
any particular supplier or suppliers. It currently holds no patents, trademarks,
licenses, franchises or concessions, and it has no royalty agreements or labor
contracts. The Company has made no expenditures on research and development
activities, although it continually is attempting, with its limited resources,
to improve the quality of its products and services. It has had no costs of
compliance with, and has not been affected by, environmental laws.
RISK FACTORS RELATING TO THE COMPANY'S BUSINESS
Due to the competitiveness of the Wi-Fi industry, the current lack of
profitability and the nature of the Company's business, it encounters many risk
factors. Each of these factors, as well as matters set forth elsewhere in this
Form 10-KSB, could adversely affect the business, operating results and
financial condition of the Company.
BRIEF OPERATING HISTORY - NO ASSURANCE OF PROFITABILITY
The Company has a brief operating history. Although Direct commenced
its mortgage business in 1997, original management was replaced in the latter
part of 1998 and dates from early 1999. See CORPORATE Development. Homes'
magazine, FOR SALE BY OWNER, commenced in January 2000. The operations of
neither Direct nor Homes have been profitable. The Wi-Fi business contemplated
in the acquisition of a controlling interest in the Company by MA&N has
researched acquisition opportunities, none of which have materialized. The exact
nature of R Wireless's involvement is still in the process of definition and
material expenses will be incurred before substantial revenues are generated, if
ever. The Company has encountered unforeseen costs, expenses, problems,
difficulties and delays frequently associated with new ventures, and these may
continue. There is no assurance that the Company's business ventures will be
successful or that the Company will be able to attract and retain sufficient
customers to attain its goals. The Company anticipates that its operating
expenses will increase if and as its business expands, and it will need to
generate revenues sufficient to offset not only its present expenses but these
additional expenses to achieve profitability.
9
COMPETITION COULD NEGATIVELY AFFECT REVENUES
The business of the Company is highly competitive. See COMPETITIVE
SITUATION OF THE WI-FI BUSINESS and COMPETITIVE SITUATION OF HOMES BY OWNERS,
INC. Additional competitors may also enter the market and future competition may
intensify. Most of these competitors have substantially greater financial
resources than the Company, and they and their capital providers may be able to
accept more financial risk than the Company and its capital providers prudently
can manage.
CONCENTRATION OF SHARE OWNERSHIP GIVES INSIDERS CONTROL
MA&N owns 30.4% of R Wireless's outstanding common stock as of March 4,
2004. Mark Neuhaus owns 50.1% of the outstanding stock, including his ownership
through MA&N. Ned Baramov owns 9.8% of the outstanding stock. The total number
of shares owned by insiders is 59.9%. As a result, insiders can determine the
outcome on all matters submitted to the shareholders. This concentration of
share ownership may: (i) delay or prevent a change in control of the Company;
(ii) impede a merger, consolidation, takeover or other business involving the
Company; or (iii) discourage a potential acquirer from making a tender offer or
otherwise attempting to obtain control of the Company.
NEED FOR, AND POSSIBLE DIFFICULTIES IN SECURING, FUTURE FUNDING, DIRECTLY OR
THROUGH AN ALTERNATIVE TRANSACTION
Although the Company believes that the resources of MA&N will be
sufficient and available to fund its operations over the current year, MA&N is
not contractually committed to fund the Company during that period and there is
no assurance that such current year funding will be made. Thereafter the Company
must secure future funding from MA&N or otherwise, either debt or equity, in
order to finance its activities. Such funding will continue to be needed unless
and until the operations of the Company become self-sustaining. There can be no
assurance that any such funding will be available to the Company or that, if it
is, it will be available on terms favorable to the Company. Prior to the
acquisition of a controlling interest in the Company by MA&N, the Company
financed a significant portion of its operations through the sale of stock to
Robert S. Wilson, former Chairman of R Wireless, and to Bryce N. Batzer, a
former director of R Wireless, and to a limited number of principal investors,
and borrowed funds from a bank with a guarantee by Mr. Wilson, from Mr. Wilson
personally, from Judith C. Wilson, Mr. Wilson's wife, from Mr. Batzer and from
David R. Baker, a partner of former counsel to the Company. It is not
anticipated that these funding sources will be available in the future. There
can be no assurance that outside funding or an alternative transaction will be
available to the Company at the time and in the amount to satisfy the Company's
needs, or, if such funding or alternative transaction is available, that it will
be available on terms favorable to the Company. If R Wireless issues additional
shares of common stock, current shareholders may experience immediate and
substantial dilution in their ownership of R Wireless's shares, or, in the case
of an alternative transaction, will receive securities in a continuing entity
providing them relatively lesser rights than they now possess. In case of a
sale, shareholders' proceeds may be limited. In the event R Wireless issues
securities or instruments other than common stock, it may be required to issue
such instruments with greater rights than those currently possessed by holders
of R Wireless's common stock. If a transaction directly involved Homes or
Direct, current R Wireless shareholders might lose or be diluted in their
indirect interests in Homes or Direct.
POSSIBILITY THAT NO PUBLIC MARKET OR ONLY A LIMITED PUBLIC MARKET WILL BE
ESTABLISHED FOR THE COMMON STOCK OF R WIRELESS
On August 14, 2002, NASD Regulation, Inc. cleared a broker's request
for an unpriced quotation on the OTC Bulletin Board for R Wireless's common
stock. Sales have been sporadic and have ranged from $.05 to $.45 a share. See
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
On February 19, 2004, the Company was delisted from the OTC Bulletin
Board due to failure to file current financial statements with the Securities
and Exchange Commission in an acceptable format. Management believes that upon
completion of all due filings the Company will be able to reapply for the OTC
Bulletin Board.
10
LIMITED ACCESS TO QUALIFIED PERSONNEL
To be effective, the Company needs persons with the skills necessary to
conduct the Wi-Fi business, to produce the magazine, and to maintain its
website. It also needs persons with the ability to procure real estate listings
and advertisements for the magazine. The Company is continually trying to
attract and retain qualified personnel to conduct the Wi-Fi business. The
Company has lacked the resources to train personnel, so it needed to find
persons with the required experience, understanding, ability and effectiveness.
The Company's financial position has made this difficult. See COMPANY EMPLOYEES
AND OTHER WORKERS. The inability to attract and retain appropriate personnel may
have a materially adverse effect upon the Company and its operations.
LEGAL AND REGULATORY RISK
Laws and regulations, including securities laws and regulations,
applicable to the Company's business and operations are extensive and complex.
As a start up business with limited personnel and funding, the Company has taken
actions without being able to fully ascertain their legal effect and potential
conflict with applicable law and regulations. The Company believes that this
situation often pertains to minimally-funded new businesses which are in a
financial position similar to that of the Company. As a result, actions taken by
the Company could subject it to regulatory review and challenge, and involve it
in legal or administrative proceedings, that could have a material adverse
affect on the Company.
FORWARD LOOKING STATEMENTS AND CAUTIONARY WORDS
This Registration Statement contains forward-looking statements,
including such statements that constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, and as such may
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Company to be materially
different from any future results, performance, or achievements expressed or
implied by such forward-looking statements. Such forward-looking statements
speak only as of the date of this Registration Statement or the amendment
thereto in which they appear, as the case may be. The Company expressly
disclaims any obligation or undertaking to release publicly any updates or
revisions to any forward-looking statements contained herein to reflect any
change in the Company's expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is based. In
addition, particular attention is called to cautionary words such as "may,"
"will," "expect," "anticipate," "estimate" and "intend" where they appear
herein.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company decided to retain its principal office at 4210 Columbia
Road, Suite 10C, Martinez Georgia. Homes entered into an oral agreement with
Discount Properties, Inc. setting the monthly rent at $200 on a month-to-month
basis.
All of the Company's Wi-Fi related activities are conducted through
MA&N's principal office in New York City, at the expense of MA&N.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which the Company or
any of its subsidiaries is a party or to which any of its property is subject
and, to the best of its knowledge, no such action against the Company is
contemplated or threatened.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
11
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The OTC Compliance Unit of NASD Regulations, Inc. cleared a brokers
request for an unpriced quotation on the OTC Bulletin Board on August 14, 2002.
From that date through September 30, 2002, the high and low sales prices for the
R Wireless Common Stock as furnished by Divine Capital Markets LLC were as
follows:
Period High Sales Price Low Sales Price
------ ---------------- ---------------
August 15 - September 30, 2002 $0.45 $0.23
The high and low sales prices for the period October 1, 2002 - March 4,
2004 for R Wireless common stock were as follows:
Period High Sales Price Low Sales Price
------ ---------------- ---------------
October 1 - December 31, 2002 $0.20 $0.05
January 1 - March 31, 2003 $0.25 $0.07
April 1 - June 30, 2003 $0.18 $0.06
July 1 - September 30, 2003 $0.45 $0.07
October 1 - December 31, 2003 $0.44 $0.05
January 1 - March 4, 2004 $0.20 $0.05
The average daily trading volume for the period October 1, 2002 -
February 20, 2004 was 14,638 shares, and the maximum number of shares traded was
489,200, on January 22, 2004. The average high and low sales prices for the same
period were $0.144 and $0.132 respectively. The highest and lowest sales prices
were $0.45 and $0.05 respectively. All stated quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions.
Actual sales have been sporadic with the highest trading activity
reported in the quarter ended December 31, 2003. The average daily trading
volume during this quarter was 39,783 shares. The most current reported sale was
on March 4, 2004 at $0.10 a share.
The ability of an individual shareholder to trade his or her shares in
a particular state may be subject to various rules and regulations of that
state. A number of states require that an issuer's securities be registered in
their state or appropriately exempted from registration before the securities
are permitted to trade in that state. The Company has no present plans to
register its securities in any particular state, although it may take action
that will allow it to receive appropriate exemption.
The shares of R Wireless's common stock are subject to the provisions
of Section 15(g) and Rule 15g-9 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), commonly referred to as the "penny stock" rule.
The Commission generally defines penny stock to be any equity security that has
a market price less than $5.00 per share, subject to specified exceptions.
Section 15(g) sets forth requirements for transactions in penny stocks and Rule
15g-9(d)(1) incorporates the definition of penny stock as that used in Rule
3a51-1 of the Exchange Act. Rule 3a51-1 provides that any equity security is
considered to be a penny stock unless that security is registered and traded on
a national securities exchange meeting specified criteria set by the Commission;
authorized for quotation on The NASDAQ Stock Market; issued by a registered
investment company; excluded from the definition on the basis of price (at least
$5.00 per share) or the issuer's net tangible assets; or exempted from the
definition by the Commission. As a result, trading in R Wireless's common stock
is subject to additional sales practice requirements on broker-dealers who sell
penny stocks to persons other than established customers and accredited
investors, generally persons with assets in excess of $1,000,000 or annual
income exceeding $200,000, or $300,000 together with their spouse.
12
For transactions covered by these rules, broker-dealers must make a
special suitability determination for the purchase of such securities and must
have received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the first transaction, of a
risk disclosure document relating to the penny stock market. A broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, and current quotations for the securities. Finally,
monthly statements must be sent disclosing recent price information for the
penny stocks held in the account and information on the limited market in penny
stocks. Consequently, these rules may restrict the ability of broker-dealers to
trade and/or maintain a market in R Wireless's common stock and may affect the
ability of shareholders to sell their shares.
As of February 4, 2004, there were approximately 101 shareholders of
record of R Wireless's common stock, which figure does not take into account the
beneficial ownership of those shareholders whose certificates are held in the
name of broker-dealers or other nominees.
As of February 4, 2004, R Wireless has issued and outstanding
15,293,651 shares of common stock. The Company has granted options to Bob Wilson
for 294,341 shares, which have not been exercised yet. SEE COMPANY EMPLOYEES AND
OTHER WORKERS. Of the total 15,293,651 shares outstanding, 10,649,984 shares are
deemed "restricted securities," as defined by the Act, whose sale is subject to
Rule 144 under the Act as having been held for less than two years. Certificates
representing such shares bear an appropriate restrictive legend.
Of R Wireless's total outstanding shares, as of February 4, 2004,
approximately 4,643,667 shares are free trading and may be sold, transferred or
otherwise traded in the public market. As of February 4, 2004, another 536,115
shares may be sold in compliance with the resale limitations of Rule 144 under
the Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted shares of the
Company for at least one year, including any person who may be deemed to be an
"affiliate" of the Company (as the term "affiliate" is defined under the Act),
is entitled to sell, within any three-month period, an amount of shares that
does not exceed the greater of (i) the average weekly trading volume in the
Company's common stock, as reported through the automated quotation system of a
registered securities association, during the four calendar weeks preceding such
sale or (ii) 1% of the shares then outstanding. A person who is not deemed to be
an "affiliate" of the Company and has not been an affiliate for the most recent
three months, and who has held restricted shares for at least two years would be
entitled to sell such shares without regard to the resale limitations of Rule
144.
DIVIDEND POLICY
The Company has not declared or paid cash dividends or made
distributions in the past, and the Company does not anticipate that it will pay
cash dividends or make distributions in the foreseeable future. The Company
currently intends to retain and invest future earnings, if any, to finance its
operations.
SALES OF EQUITY SECURITIES OF R WIRELESS DURING FISCAL 2003
During the year ended September 30, 2003, the Company issued shares of
R Wireless's Common Stock, and agreed to issue options to purchase R Wireless's
Common stock as follows:
References to investments are to cash investments unless otherwise
stated.
(a) On September 24, 2002, a subsidiary of the Company was merged into Crowell &
Co., Inc. resulting in expenses to the Company of $25,000, and proceeds of
$30,101. The proceeds to the Company were in exchange for 75,256 shares of R
Wireless Common Stock, issued on December 2, 2003. The shares were issued to 8
shareholders of Crowell & Co., Inc. It is believed that all, or substantially
all such stockholders, are accredited investors. The proceeds from the
transaction were used to cover various accounts payable. The sale was exempt
pursuant to Section 4 (2) of the Securities Act of 1933.
13
(b) On December 12, 2002, the Company agreed to sell MA&N LLC ("MA&N") 4,647,626
shares in consideration of:
i. All rights relating to the provision of ISP wireless service from
not less than five nodes, including effective lease or other authorization to
use the locations involved and all necessary equipment.
ii. Consultation with the Company for at least two years on financial
and management matters with a view to materially enhancing the Company's
performance.
iii. Arranging for personnel who can effect the management of the
Company.
iv. Causing the Company to proceed with the contemplated business plan
of acquiring additional entities or business operations in the ISP wireless
business.
v. Funding of current payment of accounting and legal fees to enable
upcoming filings with the U.S. Securities and Exchange Commission to be made on
Form 8-K with respect to this transaction and other relevant transaction and on
Form 10-KSB with respect to the Company's fiscal year ended September 30, 2002
(which will include currently outstanding accounting fees), estimated to be in
the range of $75,000 - $100,000.
The total value of the consideration receivable from MA&N was valued at
$232,000 on December 12, 2002. To date, MA&N has provided funding and services
to the Company, for a total of $139,841. MA&N will continue to fund current
expenses, previous operating obligations of the Company and its subsidiaries,
Wi-Fi consulting services, Wi-Fi equipment acquisitions, and will provide
management services until it has satisfied all its obligations, as stated in its
agreement with the Company from December 12, 2002, and as defined by the
estimated consideration value of $232,000.
MA&N, which is owned by Mark Neuhaus, President of the Company, and his
wife Nicole Bloom-Neuhaus, both of whom are accredited investors, is an
accredited investor. The sale was exempt pursuant to Section 4 (2) of the
Securities Act of 1933.
(c) On December 12, 2002, the issuance of 133,487 shares of R Wireless
Common Stock to David R. Baker, partner of Baker, Johnston & Wilson LLP, former
counsel to the Company was authorized, in lieu of $29,584 in loans to the
Company, with an adjustment in lieu of interest of $3,969 and a further
equitable adjustment of $818, or a total of $33,371. Mr. Baker is an accredited
investor. The sale was exempt pursuant to Section 4 (2) of the Securities Act of
1933.
(d) On December 12, 2002, the award of 5-year options to purchase
294,341 shares of R Wireless Common Stock at $0.01 per share to Robert Wilson,
then Chairman and Chief Executive Officer of the Company was authorized in lieu
of $54,000 in compensation earned during calendar year 2001, and cash advances
and accrued interest of $19,585 for a total of $73,585. The options have not yet
been issued. Mr. Wilson is an accredited investor. The sale was exempt pursuant
to Section 4 (2) of the Securities Act of 1933.
(e) On January 15, 2003, the issuance of 3,000,000 shares of R
Wireless's Common Stock to Mark Neuhaus, Chief Executive Officer, for his yearly
compensation was authorized. Mr. Neuhaus is an accredited investor. The sale was
exempt pursuant to Section 4 (2) of the Securities Act of 1933.
(f) On January 15, 2003, the issuance of 1,500,000 shares of R
Wireless's Common Stock to Ned Baramov, Secretary - Treasurer, for his yearly
compensation was authorized. Mr. Baramov is an accredited investor. The sale was
exempt pursuant to Section 4 (2) of the Securities Act of 1933.
(g) On January 15, 2003, the issuance of 1,500,000 shares of R
Wireless's Common Stock to Donald Rizzuto, legal counsel to the Company and
MA&N, for his yearly compensation was authorized. Mr. Rizzuto is an accredited
investor. The sale was exempt pursuant to Section 4 (2) of the Securities Act of
1933.
(h) On September 12, 2003, the issuance of 600,000 shares of R Wireless
Common Stock to Michael Pisani, consultant to the Company, was authorized in
payment of $20,000 in fees for advisory services to the Company and the transfer
by Mr. Pisani of 350,000 shares of previously owned R Wireless Common Stock. Mr.
Pisani is an accredited investor. The sale was exempt pursuant to Section 4 (2)
of the Securities Act of 1933.
14
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
As of September 30, 2003 the Company has never earned a profit, and has
incurred an accumulated deficit of $1,773,731. The acquisition of a controlling
interest in the Company by MA&N has given the Company access to additional funds
directly from MA&N, and the business plan envisioned by MA&N may elicit
additional funds from third parties. However, the MA&N resources are finite and
there can be no assurance of third party funding. The proposed Wi-Fi business
has become very competitive and capital-use intensive. The large number of
established telecommunications companies entering the Wi-Fi industry has reduced
opportunities for R Wireless. Management believes that only equipment
manufacturers are currently successful in generating profits in the Wi-Fi
industry. Service providers have yet to develop a profitable business model.
R Wireless has concentrated its efforts on strategic alliances, which
could gradually be built into one functional business unit. The main focus of
the Company was to acquire financially distressed Wi-Fi companies and leverage
on their existing assets. R Wireless has not completed any of the initiated
negotiations for mergers and acquisitions.
The Company's original business, the mortgage banking business
conducted by Direct, has been divested. See SALE OF THE ASSETS AND BUSINESS OF
DIRECT. The magazine, FOR SALE BY OWNER, is currently operating at a small
deficit. Should there be no allocation of general corporate overhead to its
operation, management believes FOR SALE BY OWNER can at best be made marginally
profitable. By terminating the mortgage banking operations of Direct and by
reducing the expenses of producing the magazine, FOR SALE BY OWNER, the Company
has substantially reduced its operating costs. However, these expense reductions
do not eliminate the Company's current operating deficits. Development of the
Wi-Fi business will substantially increase the Company's operating costs.
LIQUIDITY
At present and historically, the Company has lacked liquidity as a
result of insufficient initial financing and continuing operating deficits. The
Company has maintained its ability to pay expenses through the sale of common
stock from time to time, principally to its directors, who have made significant
investments. As a result of the change of control of the Company, such funding
will not continue. Therefore, the Company will need to rely for its future
liquidity needs on the resources of its new controlling shareholder, MA&N, until
such time as it arranges other financing or becomes profitable.
The main sources of funds throughout the period ended September 30,
2003 were MA&N ($139,841), advances from shareholders ($8,650), and the sale of
Direct's assets ($16,618). The main uses of funds throughout that period were
payment of current expenses and previous operating obligations (SEE CONSOLIDATED
STATEMENTS OF CASHFLOWS).
On December 12, 2002 MA&N gained control over the Company through the
acquisition of 4,647,626 shares of R Wireless Common Stock. Management valued
the consideration at $232,000 in exchange for the shares. As of September 30,
2003 MA&N had provided funding for $114,841 in cash disbursements and $25,000
worth of consulting and management services. MA&N funded $15,320 in current
obligations, $69,419 in accounting fees, $11,000 in legal fees, $3,600 in Wi-Fi
consulting fees, $6,777 in current filing expenses, $6,325 in various current
operating expenses, and $2,400 in Wi-Fi equipment. Although the Company's access
to capital resources remains limited, MA&N's involvement has helped R Wireless
maintain its current operations and consider potential Wi-Fi involvements and
other possible business alliances. MA&N will continue to fund current expenses,
previous operating obligations of the Company and its subsidiaries, Wi-Fi
consulting services, Wi-Fi equipment acquisitions, and will provide management
services until it has satisfied all its obligations, as stated in its agreement
with the Company dated December 12, 2002, and as defined by the consideration
value of $232,000.
CAPITAL EXPENDITURES
The Company has no material commitments for capital expenditures and
has had no need, in its previous operations, to make material capital
expenditures. The development of the Company's Wi-Fi business will require
capital expenditures, the exact extent of which is not now known, although it is
believed that necessary equipment purchases, the principal anticipated capital
expenditures, can be financed to a substantial extent.
To date, the Company, with the help of MA&N, has acquired and installed
one Wi-Fi node. All associated expenses, amounting to $2,400 were funded by
MA&N.
15
RESULTS OF OPERATIONS
During the fiscal 2003, the Company discontinued the operations Direct.
Revenues from Direct were $18,961 in 2003, $114,598 in 2002, and $17,670 in
2001. The following analysis of the Company's operating results excludes the
operations of Direct.
o Year ended September 30, 2003 compared with year ended
September 30, 2002.
Revenues from continuing operations decreased $13,442 from $51,456 in
2002 to $38,014 in 2003, or 26.1%, as a result of fewer magazines printed and
consequently less advertising revenues generated. The Company's subsidiary,
Homes printed only 8 issues of FOR SALE BY OWNER during fiscal 2003, 4 issues
less than the 12 issues printed in fiscal 2002.
The operating loss from continuing operations increased $222,966 from
$283,902 in 2002 to $506,868 in 2003, or $78.5%, principally as a result of an
increase (i) in salaries, commissions and benefits of $250,067 from $62,896 in
2002 to $312,963 in 2003, or 397.6%, which increase was primarily due to the
compensation of newly appointed executives, Mr. Mark Neuhaus, CEO and Mr. Ned
Baramov, CFO, and legal advisor Mr. Rizzuto; (ii) in professional fees of
$11,024, from $154,603 in 2002 to $165,627 in 2003, or 7.1%, which increase
reflected the additional legal and accounting fees associated with filings under
the Securities Exchange Act of 1934, and consulting fees related to the
evaluation of potential Wi-Fi acquisition targets. The increase in professional
fees and salaries, commission and benefits, was partially offset by the decrease
(i) in office, travel and other expense of $26,450, from $54,396 in 2002 to
$27,946 in 2003, or 48.6% primarily due to the use of MA&N's offices for all
Wi-Fi related activities; (ii) in magazine printing expenses of $12,746, from
$38,086 in 2002 to $25,340 in 2003, or 33.5%, which decrease is consistent with
the drop in the number of issues by one third, when compared to fiscal 2002;
(iii) in depreciation of $8,421 from $13,414 in 2002 to $4,993 in 2003, or 62.8%
due to the near fully-depreciated status of all fixed assets.
Other expenses were reduced by $21,962, from $35,433 in 2002 to $13,471
in 2003 or 62%, primarily due to the decrease in unsuccessful business
combination costs of $23,504, from $27,104 in 2002 to $3,600 in 2003, or 86.7%.
The Company relied on management's expertise to evaluate the attractiveness of
potential acquisition targets and to negotiate the terms of draft agreements,
thus reducing business combination expenses. All initiated talks with potential
acquisition targets were suspended at a stage which did not require any
financial commitments from the Company.
o Year ended September 30, 2002 compared with year ended
September 30, 2001.
Revenue from continuing operations increased $3,307 from $48,149 in
2001 to $51,456 in 2002, or 6.9%, as a result of an increase in advertisements
by local realtors, service companies and providers and merchants.
The operating loss from continuing operations increased $70,274 from
$213,628 in 2001 to $283,902 in 2002, or 32.9%, principally as a result of an
increase (i) in professional fees of $72,584 from $82,019 in 2001 to $154,603 in
2002, or 88.5%, which increase reflected the additional legal and accounting
costs associated with filings required under the Securities Exchange Act of 1934
and several proposed transactions that were not consummated (such increase in
operating professional fees was partially offset by the decrease included in
unsuccessful business combination costs referred to in the next paragraph), (ii)
in office, travel and other expenses of $18,401 from $35,995 in 2001 to $54,396
in 2002, or 51.1%, principally as a result of an increase in office expenses.
The increase in these expenses was partially offset by reductions of (i) $13,492
in salaries commissions and benefits, from $76,388 in 2001 to $62,896 in 2002,
or 17.7% due to the reduced number of employees, (ii) $11,161 in rent, from
$14,986 in 2001 to $3,825 in 2002, or 74.5% as a result of renegotiating the
Company's lease agreement and cutting back on the rented office space, (iii)
$4,730 in website maintenance from $4,800 in 2001 to $70 in 2002, or 98.5% due
to the insignificant maintenance fee paid, once the initial set-up and design of
the website has been completed.
Other expense decreased by $29,334 from $64,767 in 2001 to $35,433 in
2002, or 45.3%, principally as a result of a decrease in unsuccessful business
combination costs of $30,043 from $57,147 in 2001 to $27,104 in 2002, or 52.6%,
as a result of the reduction of incurred costs in connection with the Company's
proposed business combination with Connectivity, Inc. and Mobile.com.
16
NET OPERATING LOSS CARRYFORWARDS FOR TAX PURPOSES
As at September 30, 2003, the Company has tax net operating loss
carryforwards totaling $1,662,790 that expire in 2018 through 2023.
Approximately $1,190,000 of the net operating loss carryforwards were incurred
prior to December 12, 2002 at which date MA&N acquired 51% of the Company and
are consequently subject to certain limitation described in section 382 of the
Internal Revenue Code. The Company estimates that, due to the limitations and
expiration dates, only $424,000 of the net operating losses incurred prior to
December 12, 2002 will be available to offset future taxable income.
Net operating losses after December 12, 2002 were $472,790. The total
net operating losses available to the Company to offset future taxable income is
$896,790. In view of the anticipated losses sustained in the three months ended
December 31, 2003, the net operating loss carryforwards will have increased as
of that date. This amount, net of tax (assuming an estimated net federal and
state tax rate of 29.5%), together with $6,521 relating to intangible assets and
$17,149 relating to accrued wages resulting from differences in reporting for
income tax and financial statement purposes, or a total of $288,571 as of
September 30, 2003, offset by deferred tax liabilities relating to property and
equipment in the amount of $649, leaves a net deferred tax asset of $287,922
that may be used against the Company's future income tax. For financial
statement purposes, a valuation allowance of $287,922, or 100%, has been taken
against net deferred taxes as of September 30, 2003. A larger equivalent
valuation will be taken against the larger amount of such assets as of December
31, 2003. There can be no assurance that these deferred tax assets can ever be
used. A deferred tax asset can be used only if there is future taxable income,
as to which there can be no assurance in the case of the Company. SEE NOTE 4 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 2002, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting
for Stock-based Compensation - Transition and Disclosure", an amendment of FASB
Statement No. 123, "Accounting for Stock-Based Compensation", to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. SFAS No. 148 also
amends the disclosure provisions of SFAS No. 123 and Accounting Pronouncement
Board ("APB") Opinion No. 28, "Interim Financial Reporting", to require
disclosure in the summary of significant accounting policies of the effects of
an entity's accounting policy with respect to stock-based employee compensation
on reported net income and earnings per share in annual and interim financial
statements. While SFAS No. 148 does not amend SFAS No. 123 to require companies
to account for employee stock options using the fair value method, the
disclosure provisions of SFAS No. 148 are applicable to all companies with
stock-based employee compensation, regardless of whether they account for that
compensation using the fair value method of SFAS No. 123 or the intrinsic value
method of APB Opinion No. 25. The provisions of SFAS No. 148 are effective for
annual financial statements for fiscal years ending after December 15, 2002, and
for financial reports containing condensed financial statements for interim
periods beginning after December 15, 2002. The adoption of SFAS No. 148 did not
have a material effect on the Company's financial position or results of
operations.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts and loan commitments that relate to the
origination of mortgage loans held for sale, and for hedging activities under
SFAS No. 133. SFAS No. 149 is generally effective for contracts entered into or
modified after June 30, 2003. The adoption of SFAS No. 149 did not have a
material impact on the financial condition or operating results of the Company.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances.) Many of those instruments
were previously classified as equity. SFAS No. 150 is generally effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. The adoption of SFAS No. 150 did not have a material impact on the
financial condition or operating results of the Company.
17
In November 2002, the FASB issued Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN No. 45 requires a company,
at the time it issues a guarantee, to recognize an initial liability for the
fair value of obligations assumed under the guarantee and elaborates on existing
disclosure requirements related to guarantees and warranties. The initial
recognition requirements of FIN No. 45 are effective for guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective for
financial statements of periods ending after December 15, 2002. The adoption of
FIN No. 45 did not have a material effect on the Company's financial position or
results of operations.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities." FIN No. 46 requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns, or both. FIN No. 46 also requires
disclosures about variable interest entities that a company is not required to
consolidate, but in which it has a significant variable interest. FIN No. 46
provides guidance for determining whether an entity qualifies as a variable
interest entity by considering, among other considerations, whether the entity
lacks sufficient equity or its equity holders lack adequate decision-making
ability. The consolidation requirements of FIN No. 46 apply immediately to
variable interest entities created after January 31, 2003. The consolidation
requirements apply to existing entities in the first fiscal year or interim
period beginning after June 15, 2003. Certain of the disclosure requirements
apply in all financial statements issued after January 31, 2003, regardless of
when the variable interest entity was established. The adoption of FIN No. 46
did not have a material effect on the Company's financial position or results of
operations.
Other accounting standards that have been issued or proposed by the
Financial Accounting Standards Board that do not require adoption until a future
date are not expected to have a material impact on the consolidated financial
statements upon adoption.
ITEM 7. FINANCIAL STATEMENTS.
The Company's consolidated balance sheets as of September 30, 2003 and
2002 and the related consolidated statements of operations, changes in
stockholders equity (deficit) and cash flows for the years ended September 30,
2003, 2002 and 2001 have been examined to the extent indicated in their report
by Elliott Davis, L.L.C., independent certified public accountants. These
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America and pursuant to Regulation
S-B as promulgated by the Securities and Exchange Commission and are included
herein in response to Part F/S of this Form 10-KSB. The financial statements
have been prepared assuming the Company will continue as a going concern. SEE
NOTE 1 - NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
18
R WIRELESS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
SEPTEMBER 30, 2003 AND 2002
19
R WIRELESS, INC. AND SUBSIDIARIES
CONTENTS
Page
----------
INDEPENDENT AUDITORS' REPORT 21
FINANCIAL STATEMENTS
Consolidated balance sheets 22
Consolidated statements of operations 23
Consolidated statements of changes in
stockholders' equity (deficit) 24
Consolidated statements of cash flows 25 - 26
Notes to consolidated financial statements 27 - 33
20
INDEPENDENT AUDITORS' REPORT
Board of Directors
R WIRELESS, INC. AND SUBSIDIARIES
Martinez, Georgia
We have audited the accompanying consolidated balance sheets of R WIRELESS,
INC. AND SUBSIDIARIES (the "Company") as of September 30, 2003 and 2002, and the
related consolidated statements of operations, changes in stockholders' equity
(deficit) and cash flows for each of the years in the three year period ended
September 30, 2003. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of R WIRELESS,
INC. AND SUBSIDIARIES as of September 30, 2003 and 2002, and the results of
their operations and cash flows for each of the years in the three year period
ended September 30, 2003, in conformity with accounting principles generally
accepted in the United States of America.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company has suffered recurring
losses from operations and its total liabilities exceeds its total assets. This
raises substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Elliott Davis, L.L.C.
Augusta, Georgia
February 28, 2004, except for Note 8, as
to which the date is March 10, 2004
21
R WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
---------------------------
2003 2002
------------ ------------
ASSETS
CURRENT ASSETS
Cash $ 930 $ 2,489
Accounts receivable -- 3,123
------------ ------------
Total current assets 930 5,612
PROPERTY AND EQUIPMENT - NET 6,230 13,947
OTHER ASSETS 250 1,305
------------ ------------
$ 7,410 $ 20,864
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 304,576 $ 305,570
Accrued wages 4,131 58,131
Deferred revenues -- 2,848
Short-term notes payable 20,598 20,448
Stockholder advances 46,884 86,170
------------ ------------
Total current liabilities 376,189 473,167
------------ ------------
COMMITMENTS AND CONTINGENCIES - NOTE 8
STOCKHOLDERS' EQUITY (DEFICIT)
Paid in capital - 1,000,000 preferred shares authorized;
none issued and outstanding -- --
Paid in capital - no par common - 50,000,000 shares authorized;
issued and outstanding 15,293,651 and 3,962,282 as of
September 30, 2003 and 2002, respectively 1,497,111 808,053
Less amount receivable for common stock issued (92,159) --
------------ ------------
1,404,952 808,053
Accumulated deficit (1,773,731) (1,260,356)
------------ ------------
(368,779) (452,303)
------------ ------------
$ 7,410 $ 20,864
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
22
R WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30,
---------------------------------------------
2003 2002 2001
------------- ------------- -------------
REVENUES $ 38,014 $ 51,456 $ 48,149
------------- ------------- -------------
OPERATING EXPENSES
Professional fees 165,627 154,603 82,019
Salaries, commissions and benefits 312,963 62,896 76,388
Office, travel and other expense 27,946 54,396 35,995
Magazine printing 25,340 38,086 24,131
Rent 3,200 3,825 14,986
Utilities and telephone 2,113 2,661 2,263
Depreciation 4,993 13,414 13,389
Advertising 2,700 5,407 7,806
Website maintenance -- 70 4,800
------------ ------------ ------------
544,882 335,358 261,777
------------- ------------- -------------
Operating loss from continuing operations (506,868) (283,902) (213,628)
------------- ------------- -------------
OTHER EXPENSES
Unsuccessful business combination costs 3,600 27,104 57,147
Interest 9,871 9,300 1,976
Realized (gains) losses on trading securities -- (971) 2,387
Unrealized losses on trading securities -- -- 2,206
Loss on disposal of equipment -- -- 1,051
------------- ------------- -------------
13,471 35,433 64,767
------------- ------------- -------------
Loss from continuing operations before income taxes (520,339) (319,335) (278,395)
PROVISION FOR INCOME TAXES - NET -- -- --
------------- ------------- -------------
Loss from continuing operations (520,339) (319,335) (278,395)
------------- ------------- -------------
DISCONTINUED OPERATIONS
Operating loss of discontinued Direct Lending operations (9,323) (58,960) (68,004)
Gain from disposal of discontinued Direct Lending operations 16,287 -- --
------------- ------------- -------------
Net income (loss) from discontinued Direct Lending operations 6,964 (58,960) (68,004)
------------- ------------- -------------
Net loss $ (513,375) $ (378,295) $ (346,399)
============= ============= =============
PER SHARE INFORMATION:
Basic net loss per common share from continuing operations $ (0.04) $ (0.08) $ (0.08)
============= ============= =============
Basic net loss per common share from discontinued
Direct Lending operations $ -- $ (0.02) $ (0.02)
============= ============= =============
Weighted average shares outstanding 12,482,195 3,796,620 3,292,502
============= ============= =============
The accompanying notes are an integral part of these consolidated financial statements.
23
R WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK
-----------------------------------------
AMOUNT TOTAL
SHARES RECEIVABLE STOCKHOLDERS'
ISSUED AND PAID IN FOR COMMON ACCUMULATED EQUITY
OUTSTANDING CAPITAL STOCK ISSUED DEFICIT (DEFICIT)
------------ ------------ ------------ ------------ ------------
BALANCE, SEPTEMBER 30, 2000 2,901,667 $ 535,774 $ -- $ (535,662) $ 112
Common stock issued as settlement for accounts
payable related to professional services received 63,000 15,750 -- -- 15,750
Common stock issued for cash 368,000 92,000 -- -- 92,000
Common stock issued as repayment for cash advances 176,000 44,000 -- -- 44,000
Net loss -- -- -- (346,399) (346,399)
------------ ------------ ------------ ------------ ------------
BALANCE, SEPTEMBER 30, 2001 3,508,667 687,524 -- (882,061) (194,537)
Common stock issued as settlement for accounts
payable related to professional services received 34,000 13,000 -- -- 13,000
Common stock issued as repayment for cash advances 362,115 90,529 -- -- 90,529
Common stock issued for cash 57,500 17,000 -- -- 17,000
Net loss -- -- -- (378,295) (378,295)
------------ ------------ ------------ ------------ ------------
BALANCE, SEPTEMBER 30, 2002 3,962,282 808,053 -- (1,260,356) (452,303)
Common stock issued for cash and services 4,647,626 232,000 (92,159) -- 139,841
Common stock options awarded as settlement for cash
advances, accrued interest and accrued compensation -- 73,585 -- -- 73,585
Common stock issued as repayment for notes
payable and related accrued interest 133,487 33,372 -- -- 33,372
Common stock issued for cash 75,256 30,101 -- -- 30,101
Common stock issued as compensation to executives 4,500,000 225,000 -- -- 225,000
Common stock issued for professional services 2,100,000 95,000 -- -- 95,000
Common stock cancelled (125,000) -- -- -- --
Net loss -- -- -- (513,375) (513,375)
------------ ------------ ------------ ------------ ------------
BALANCE, SEPTEMBER 30, 2003 15,293,651 $ 1,497,111 $ (92,159) $(1,773,731) $ (368,779)
============ ============ ============ ============ ===========
The accompanying notes are an integral part of these consolidated financial statements.
24
R WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30,
------------------------------------
2003 2002 2001
---------- ---------- ----------
OPERATING ACTIVITIES OF CONTINUING OPERATIONS
Net loss $(513,375) $(378,295) $(346,399)
Adjustments to reconcile net loss to net cash
used in operating activities of continuing operations:
Net (income) loss from discontinued Direct Lending operations (6,964) 58,960 68,004
Depreciation 4,993 13,414 13,389
Realized and unrealized (gains) losses on trading securities, net -- (971) 4,593
Loss on disposal of equipment -- -- 1,051
Professional services received in exchange for common stock 95,000 -- --
Compensation to executives settled with common stock 225,000 -- --
Changes in deferred and accrued amounts:
Accounts receivable 3,123 (2,273) 775
Prepaid expenses -- -- 4,800
Other assets 1,055 2,022 (3,077)
Accounts payable and accrued expenses 4,176 211,040 141,824
Deferred revenues (2,848) (1,682) (7,648)
Adjustments for changes in operating assets and
liabilities of discontinued Direct Lending operations 13,912 (59,592) (67,502)
---------- ---------- ----------
Net cash used in operating activities of continuing operations (175,928) (157,377) (190,190)
---------- ---------- ----------
INVESTING ACTIVITIES OF CONTINUING OPERATIONS
Purchase of trading securities -- (33,927) (161,395)
Proceeds from sale of trading securities -- 70,167 160,700
Purchase of property and equipment (2,400) (1,761) (2,313)
Proceeds from sale of property and equipment -- -- 4,200
---------- ---------- ----------
Net cash (used in) provided by investing activities of continuing operations (2,400) 34,479 1,192
---------- ---------- ----------
FINANCING ACTIVITIES OF CONTINUING OPERATIONS
Proceeds, net of repayments, from short-term notes payable
and stockholder advances 8,650 84,834 118,041
Proceeds from the sale of common stock 169,942 17,000 92,000
---------- ---------- ----------
Net cash provided by financing activities of continuing operations 178,592 101,834 210,041
---------- ---------- ----------
Net cash provided by (used in) continuing operations 264 (21,064) 21,043
---------- ---------- ----------
CASH (USED IN) PROVIDED BY DISCONTINUED DIRECT
LENDING OPERATIONS
Operating activities (18,441) 2,723 1,482
Investing activities 16,618 -- --
Financing activities -- (1,225) (1,159)
---------- ---------- ----------
Net cash (used in) provided by discontinued Direct Lending operations (1,823) 1,498 323
---------- ---------- ----------
(Continued)
25
R WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30,
------------------------------
2003 2002 2001
--------- --------- --------
Net increase (decrease) in cash (1,559) (19,566) 21,366
CASH, BEGINNING OF YEAR 2,489 22,055 689
--------- --------- --------
CASH, END OF YEAR $ 930 $ 2,489 $22,055
========= ========= ========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid for interest $ 3,598 $ 10,606 $ 1,517
========= ========= ========
Cash paid for income taxes $ -- $ -- $ --
========= ========= ========
NONCASH FINANCING ACTIVITIES
Common stock issued as repayment for cash advances,
notes payable and related accrued interest $ 33,372 $ -- $44,000
========= ========= ========
Common stock options awarded as settlement for cash
advances, accrued interest and accrued compensation $ 73,585 $ -- $ --
========= ========= ========
Trading securities received as advances from stockholders $ -- $ 34,657 $ 4,510
========= ========= ========
Common stock issued as settlement for accounts
payable related to professional services received $ -- $ -- $15,750
========= ========= ========
The accompanying notes are an integral part of these consolidated financial statements.
26
R WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES
------------------------------------------------------------------
BUSINESS ACTIVITIES
R Wireless, Inc. (formerly HOM Corporation) (the "Company"),
incorporated May 4, 2000 in the State of Georgia, operates as a holding
company for its two wholly owned subsidiaries, Homes By Owners, Inc.
("Homes") and Direct Lending, Inc. ("Direct").
Homes was incorporated in the State of Georgia in December, 1999 and
operates in the real estate market as an advertiser of real estate
listed as "for sale by owner" ("FSBO"). Homes has published a periodic
magazine which contains FSBO and other advertising, and Homes offers an
Internet web page that serves as an advertising venue for FSBO
residential and commercial real estate in the Central Savannah River
Area.
During 2003, the Company made a decision to discontinue its Direct
Lending operations. On November 25, 2002, the Company sold to Stuckey
Enterprises, Inc. ("Stuckey") for $15,968 substantially all of the
assets and the name, "Direct Lending", of Direct, the Company's wholly
owned subsidiary that operated as a licensed mortgage broker for
various financial institutions. Certain office equipment of Direct was
sold for $650 and certain accounts payable were settled for less than
the invoiced amounts. A gain of $16,287 has been recognized on the
disposal of the discontinued Direct Lending operations. Revenues from
Direct were $18,961 in 2003, $114,598 in 2002, and $17,670 in 2001. The
Company has accounted for its Direct Lending operations as discontinued
operations and the accompanying financial statements have been restated
to report separately the operating results of the discontinued Direct
Lending operations. At September 30, 2003, the subsidiary, Direct, was
inactive.
On December 12, 2002, MA&N, LLC ("MA&N") a Nevada limited liability
company, was issued 4,647,626 shares of R Wireless common stock,
representing, at the time of the transaction, 51% of the total of the
9,112,992 shares issued or issuable as of that date. Consideration for
the 4,647,626 shares issued to MA&N was $232,000, to be paid
principally with cash, the provision of Internet Service Provider, or
ISP, wireless service from not less than 5 nodes, and certain
management and consulting services for a period of at least two years.
As of September 30, 2003, the Company has received cash, including cash
paid directly to vendors, of $114,841 and management and consulting
services valued at $25,000. At September 30, 2003, the Company had
$92,159 receivable from MA&N for the 4,647,626 shares issued in the
transaction. At September 30, 2003, R Wireless had acquired one node.
GOING CONCERN
R Wireless, Inc., with its subsidiaries, has suffered recurring losses
while devoting substantially all of its efforts to raising capital,
identifying and pursuing businesses in the Wi-Fi and other industries
for alliances and potential business combinations, developing markets
for its FSBO advertising, and offering mortgage services through its
now discontinued Direct Lending operations. Additionally, the Company's
total liabilities exceed its total assets and the Company's liquidity
is substantially dependent on raising capital. The accompanying
consolidated financial statements have been prepared on a going concern
basis, which contemplates continuing operations, realization of assets
and liquidation of liabilities in the ordinary course of business. The
Company's ability to continue as a going concern is dependent upon its
ability to raise sufficient capital to implement a successful business
plan and to generate profits sufficient to become financially viable.
The consolidated financial statements do not include adjustments
relating to the recoverability of recorded assets or liabilities that
might be necessary should the Company be unable to continue as a going
concern.
(Continued)
27
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, CONTINUED
-----------------------------------------------------------------------------
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The consolidated financial statements include estimates and assumptions
that affect the Company's financial position and results of operations
and disclosure of contingent assets and liabilities. Actual results
could differ from these estimates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major renewals and
betterments are capitalized, while maintenance and repairs that do not
materially improve or extend the useful lives of the assets are charged
to expense as incurred. Costs relating to the initial design and
implementation of the Internet web page have been capitalized while the
costs of web page maintenance are expensed as incurred. Assets are
depreciated over their estimated useful lives using the straight-line
method. The estimated useful lives are as follows:
Office equipment and furniture 5-7 years
Automobile 5 years
Internet web page and software 3 years
The Company records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might
be impaired and the undiscounted cash flows estimated to be generated
by those assets are less than the carrying amounts of those assets.
START-UP ACTIVITIES
Costs associated with the organization and start-up activities of the
Company are expensed as incurred.
REVENUE RECOGNITION
Advertising revenues from commercial advertisers are recognized ratably
over the agreed upon advertising period. Advertising revenues from FSBO
advertisers are recognized ratably over the agreed upon advertising
period, unless the FSBO property is sold prior to the end of the agreed
upon advertising period, at which time the revenue is recognized in
full. Mortgage origination revenues were recognized at loan closing.
Management believes the Company's revenue recognition policy is
consistent with the Securities and Exchange Commission's Staff
Accounting Bulletin No. 101 -- "Revenue Recognition in Financial
Statements."
ADVERTISING EXPENSES
Advertising costs are expensed as incurred.
INCOME TAXES
Income taxes are estimated for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the financial
reporting basis and income tax basis of assets and liabilities.
Deferred tax assets and liabilities represent future tax consequences
of those differences, which will either be taxable or deductible when
the assets and liabilities are recovered or settled. Deferred taxes may
also be recognized for operating losses that are available to offset
future taxable income. Deferred taxes are adjusted for changes in tax
laws and tax rates when those changes are enacted.
(Continued)
28
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, CONTINUED
-----------------------------------------------------------------------------
INCOME TAXES, CONTINUED
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future
taxable income during periods in which temporary differences become
deductible. Management considers the reversal of any deferred tax
liabilities, projected future taxable income and tax planning
strategies in making this assessment. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the
amount expected to be realized.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years'
consolidated financial statements to conform to the current year
presentation. These reclassifications had no effect on reported net
loss or accumulated deficit.
BASIC NET LOSS PER COMMON SHARE
Basic net loss per common share from continuing operations is computed
by dividing the net loss from continuing operations by the weighted
average number of common shares outstanding during the period. Basic
net loss per common share from discontinued Direct Lending operations
is computed by dividing the net loss from discontinued Direct Lending
operations by the weighted average number of common shares outstanding
during the period. Common shares issuable upon exercise of the stock
options (see Note 9 - COMMON STOCK OPTIONS OUTSTANDING AND MINORITY
INTEREST IN SUBSIDIARY) have not been included in the computation
(diluted loss per common share) because their inclusion would have
reduced the loss per common share (antidilutive) applicable to the loss
from continuing operations and discontinued Direct Lending operations
for all periods presented.
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 2002, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 148,
"Accounting for Stock-based Compensation--Transition and Disclosure",
an amendment of FASB Statement No. 123, "Accounting for Stock-Based
Compensation", to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for
stock-based employee compensation. SFAS No. 148 also amends the
disclosure provisions of SFAS No. 123 and Accounting Pronouncement
Board ("APB") Opinion No. 28, "Interim Financial Reporting", to require
disclosure in the summary of significant accounting policies of the
effects of an entity's accounting policy with respect to stock-based
employee compensation on reported net income and earnings per share in
annual and interim financial statements. While SFAS No. 148 does not
amend SFAS No. 123 to require companies to account for employee stock
options using the fair value method, the disclosure provisions of SFAS
No. 148 are applicable to all companies with stock-based employee
compensation, regardless of whether they account for that compensation
using the fair value method of SFAS No. 123 or the intrinsic value
method of APB Opinion No. 25. The provisions of SFAS No. 148 are
effective for annual financial statements for fiscal years ending after
December 15, 2002, and for financial reports containing condensed
financial statements for interim periods beginning after December 15,
2002. The adoption of SFAS No. 148 did not have any effect on the
Company's financial position or results of operations.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." SFAS No. 149
amends and clarifies accounting for derivative instruments, including
certain derivative instruments embedded in other contracts and loan
commitments that relate to the origination of mortgage loans held for
sale, and for hedging activities under SFAS No. 133. SFAS No. 149 is
generally effective for contracts entered into or modified after June
30, 2003. The adoption of SFAS No. 149 did not have any impact on the
financial condition or operating results of the Company.
(Continued)
29
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, CONTINUED
-----------------------------------------------------------------------------
RECENTLY ISSUED ACCOUNTING STANDARDS, CONTINUED
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity." SFAS No. 150 establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an
issuer classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances.) Many of those
instruments were previously classified as equity. SFAS No. 150 is
generally effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. The adoption of
SFAS No. 150 did not have any impact on the financial condition or
operating results of the Company.
In November 2002, the FASB issued Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others". FIN No. 45
requires a company, at the time it issues a guarantee, to recognize an
initial liability for the fair value of obligations assumed under the
guarantee and elaborates on existing disclosure requirements related to
guarantees and warranties. The initial recognition requirements of FIN
No. 45 are effective for guarantees issued or modified after December
31, 2002. The disclosure requirements are effective for financial
statements of periods ending after December 15, 2002. The adoption of
FIN No. 45 did not have any effect on the Company's financial position
or results of operations.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities." FIN No. 46 requires a variable interest entity to
be consolidated by a company if that company is subject to a majority
of the risk of loss from the variable interest entity's activities or
entitled to receive a majority of the entity's residual returns, or
both. FIN No. 46 also requires disclosures about variable interest
entities that a company is not required to consolidate, but in which it
has a significant variable interest. FIN No. 46 provides guidance for
determining whether an entity qualifies as a variable interest entity
by considering, among other considerations, whether the entity lacks
sufficient equity or its equity holders lack adequate decision-making
ability. The consolidation requirements of FIN No. 46 apply immediately
to variable interest entities created after January 31, 2003. The
consolidation requirements apply to existing entities in the first
fiscal year or interim period beginning after June 15, 2003. Certain of
the disclosure requirements apply in all financial statements issued
after January 31, 2003, regardless of when the variable interest entity
was established. The adoption of FIN No. 46 did not have any effect on
the Company's financial position or results of operations.
Other accounting standards that have been issued or proposed by the
Financial Accounting Standards Board that do not require adoption until
a future date are not expected to have a material impact on the
consolidated financial statements upon adoption.
NOTE 2 - PROPERTY AND EQUIPMENT
-------------------------------
Property and equipment consist of the following at September 30:
2003 2002
----------- -----------
Internet web page and software $ 36,650 $ 36,650
Office equipment and furniture 13,288 21,206
----------- -----------
49,938 57,856
Less accumulated depreciation (43,708) (43,909)
----------- -----------
$ 6,230 $ 13,947
=========== ===========
30
NOTE 3 - SHORT-TERM NOTES PAYABLE
---------------------------------
Short-term notes payable consist of the following at September 30:
2003 2002
----------- -----------
A short-term note payable to a financial
institution with a current maturity of
September 15, 2004. Interest only payments
are due monthly at prime plus 1.0% (5.00%
on September 30, 2003 and 5.75% on September
30, 2002). The note is guaranteed and is
secured by the primary residence of a former
director and current stockholder of the
Company. $ 20,598 $ 20,448
=========== ===========
NOTE 4 - INCOME TAXES
---------------------
The tax effects of temporary differences that give rise to deferred taxes
are as follows at September 30:
2003 2002
----------- -----------
Deferred tax assets:
Net operating loss carryforwards $ 264,901 $ 338,902
Accrued wages 17,149 17,149
Intangible assets 6,521 7,179
----------- -----------
288,571 363,230
Deferred tax liabilities:
Property and equipment (649) (1,017)
----------- -----------
Net deferred tax assets 287,922 362,213
Valuation allowance (287,922) (362,213)
----------- -----------
$ -- $ --
=========== ===========
The Company has tax net operating loss carryforwards totaling $1,662,790
that expire in 2018 through 2023. Approximately $1,190,000 of the net operating
loss carryforwards were incurred prior to December 12, 2002 at which date MA&N
acquired 51% of the Company and are consequently subject to certain limitation
described in section 382 of the Internal Revenue Code. The Company estimates
that, due to the limitations and expiration dates, only $424,000 of the net
operating losses incurred prior to December 12, 2002 will be available to offset
future taxable income.
The provision (benefit) for income taxes is as follows for the years ended
September 30:
2003 2002 2001
----------------- ----------------- ---------------
Deferred income tax benefit $ (151,621) $ (102,787) $ (101,704)
Change in valuation allowance (74,291) 102,787 101,704
Loss due to limitations on availability of net
operating loss carryforwards 225,912 -- --
----------------- ----------------- ---------------
$ -- $ -- $ --
================= ================= ===============
31
There were no income taxes due or receivable from the current year's
operations, and the Company's reported provision for income taxes differs from
the amount computed by applying statutory tax rates to loss before income taxes
due to changes in the valuation allowance for financial reporting purposes.
Other differences relate to expense items or portions of items not deductible,
such as meals and entertainment.
NOTE 5 - NON-CASH TRANSACTIONS
------------------------------
During the years ended September 30, 2003, 2002, and 2001, the Company
issued shares of common stock in exchange for services and as repayment for
accounts payable and for cash advances from significant shareholders. The
non-cash transactions involving stock are summarized in the consolidated
statement of changes in stockholders' equity (deficit). The transactions are
recorded based on management's estimate of the fair value received or an
estimated value of the shares exchanged.
NOTE 6 - SEGMENT INFORMATION
----------------------------
In previously issued financial statements, the Company presented segment
information for Homes, an advertising segment that provides advertising services
for FSBO real estate and for businesses, and presented segment information for
Direct, a mortgage segment that provided mortgage services to individuals and
small businesses as a mortgage broker. As discussed in Note 1 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, the Company discontinued its
Direct Lending operations and sold substantially all of the assets of Direct. At
December 31, 2003, the Company had operations in a single industry segment,
Homes. The Company did acquire certain assets at a total cost of $2,400 to begin
operations in the Wi-Fi industry, but at December 31, 2003, the Company had no
operating activities in this segment.
NOTE 7 - UNSUCCESSFUL BUSINESS COMBINATION COSTS
------------------------------------------------
During 2001, the Company entered into negotiations for a business
combination with Connectivity, Inc. and Econo-Comm, Inc., two closely-held
Florida corporations. In conjunction with the negotiations, the Company
contracted with various professionals to perform due diligence, to audit the
financial statements of Connectivity, Inc. and to draft the various contracts
for the proposed business combination(s). The Company was unsuccessful in
reaching an agreement on the terms of the business combination(s) and the
proposed business combination(s) were not consummated.
During 2003, the Company entered into negotiations for a business
combination with Access Speed. In conjunction with the negotiations, the Company
contracted with professionals to perform due diligence. The Company was
unsuccessful in reaching an agreement on the terms of the business combination
and the proposed business combination was not consummated.
The costs incurred through September 30, 2003, 2002 and 2001 on the
proposed business combination(s) are reported as other expense in the statement
of operations and consist of the following costs:
2003 2002 2001 TOTAL
------------------ ------------------ ------------------ ------------------
Legal fees $ -- $ 8,406 $ 37,102 $ 45,508
Accounting fees -- 9,698 6,345 16,043
Other professional fees 3,600 9,000 9,000 21,600
Other -- -- 4,700 4,700
------------------ ------------------ ------------------ ------------------
$ 3,600 $ 27,104 $ 57,147 $ 87,851
================== ================== ================== ==================
32
NOTE 8 - CONTINGENCIES
----------------------
On September 4, 2003, the Company entered into an agreement with an
individual to exchange 70% of issued and outstanding common shares of Homes for
100% of the issued and outstanding common shares of Freedom Homes, Inc., a
retailer of manufactured homes that is wholly owned by the same individual. The
agreement contains a condition subsequent which causes the agreement to be
contingent upon Homes raising $500,000 in equity capital.
If the equity capital is not raised, under the terms of the agreement as
amended and within a time period that is acceptable to the Company, the
agreement will become null and void. Regardless of the outcome, a former
director and current shareholder of the Company will be awarded a minority
interest in Homes in exchange for promoting Homes' stock and for services
rendered in negotiating the agreement with Freedom Homes.
NOTE 9 - COMMON STOCK OPTIONS
-----------------------------
In December 2002, as settlement for $73,585 of cash advances and related
accrued interest and unpaid compensation that was recognized in periods prior to
September 30, 2002, the Company awarded 294,341 common stock options to a former
director and current shareholder of the Company that are exercisable at $0.01
per share and expire in five years. No options have been exercised as of
September 30, 2003.
33
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There were no changes in or disagreements with accountant on accounting and
financial disclosure.
ITEM 8A. CONTROLS AND PROCEDURES
EFFECTIVENESS OF DISCLOSURE CONTROLS AND PROCEDURES
Our chief executive officer and our chief financial officer, after
evaluating our "disclosure controls and procedures" (as defined in Securities
Exchange Act of 1934 (the "Exchange Act") Rules 13a-14(c) and 15-d-14(c)) as of
September 30, 2003, have concluded that our disclosure controls and procedures
are not effective to ensure that information we are required to disclose in
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms. Because of the limited staff of the
Company, all transactions are recorded, processed, and summarized by management.
Consequently the accuracy of all records is guaranteed, and management has
certified the correctness of all facts set forth herein, to the best of their
knowledge. However, the reporting accuracy has been achieved at the expense of
time, and the Company has been very pressed to meet reporting deadlines.
CHANGES IN INTERNAL CONTROLS
During 2003 the Company's management identified material weaknesses
in the Company's disclosure procedures and has taken corrective actions.
Management has already implemented disclosure procedural improvements, which
will guarantee the effectiveness, accuracy, and timeliness of the Company's
financial reporting systems in the future. As discussed in EFFECTIVENESS OF
DISCLOSURE CONTROLS AND PROCEDURES, priority has been given to meeting all
reporting deadlines.
34
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of R Wireless are as follows:
Name Age Position
---- --- --------
Mark S. Neuhaus 48 Chairman of the Board
of Directors and President
(Chief Executive Officer)
Ned Baramov 29 Secretary-Treasurer
(Chief Financial Officer)
The terms of each of the directors expires at the next annual meeting
of the stockholders, the date for which has not been set by the Board of
Directors. The officers serve at the pleasure of the Board of Directors.
Robert Wilson, a former director, resigned on April 30, 2003. Mr.
Wilson did not receive any compensation as a director, for the period October 1,
2002 - April 30, 2003.
Nicole Bloom Neuhaus, a former director, resigned on November 4,
2003. Mrs. Neuhaus did not receive any compensation as a director, for the
period October 1, 2002 - November 4, 2003.
Bryce N. Batzer, a former director, was killed in an automobile
accident on December 15, 2002.
All directors hold office until the next annual meeting of shareholders
and until their successors have been duly elected and qualified. Directors will
be elected at the annual meetings to serve for one-year terms. The Company does
not know of any agreements with respect to the election of directors. The
Company has not compensated its directors for service on the Board of Directors
of R Wireless or any of its subsidiaries or any committee thereof. Any
non-employee director of R Wireless or its subsidiaries is reimbursed for
expenses incurred for attendance at meetings of the Board of Directors and any
committee of the Board of Directors, although no such committee has been
established. Each executive officer of R Wireless is appointed by and serves at
the discretion of the Board of Directors.
None of the officers or directors of R Wireless is currently an officer
or director of a company required to file reports with the Securities and
Exchange Commission, other than R Wireless.
The business experience of each of the persons listed above during the
past five years is as follows:
Mark S. Neuhaus has been the founder of several startup companies,
including Solar Electric Engineering in 1997, which later became US Electric
Car. Mr. Neuhaus was one of the founding shareholders of Interactive Motorsports
and Entertainment. Mr. Neuhaus manages several funds which specialize in
financing small cap public companies, owned by himself and his wife, Nicole
Bloom Neuhaus, a former director of R Wireless, which has been his principal
occupation since 1995. MA&N, which acquired a controlling interest in R Wireless
on December 12, 2002, is jointly owned by Mr. and Mrs. Neuhaus.
Ned Baramov currently (and has since mid 2002) works at a privately
held hedge fund in New-York-City which specializes in small-cap and penny stocks
and which is owned by Mark S. Neuhaus, director of R Wireless who also owns MA&N
which controls the Company. Mr. Baramov will continue at his position with the
hedge fund while he serves as Secretary Treasurer of R Wireless. From 2000 until
2002 he was enrolled in the Fuqua School of Business at Duke University, from
which he received his MBA. Mr. Baramov spent the previous two years in the
Bulgarian Ministry of Industry, working as a senior associate in the
Privatization Department, helping attract foreign investors, and assisting in
selling state-owned companies.
35
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Based solely upon a review of Forms 3 and 4 (there have been no
amendments) furnished to the Company during the year ended September 30, 2003
(no Forms 5 having been furnished with respect to such year) and written
representation furnished to the Company as provided in paragraph (b)(2)(i) of
Item 405 of Form 10-KSB, there are no persons who need to be identified under
this Item as having failed to file on a timely basis reports required by Section
16(a) of the Securities Exchange Act of 1934 during the most recent fiscal year.
In determining the timeliness of filing, a Form 3 received from Jeremy Collins,
a former officer and director, was received by the Company within 3 days of its
required filing date, so that Mr. Collin's Form 3 was deemed to be timely filed
under Item 405 of Regulations S-B under the Securities and Exchange Act of 1934.
CODE OF ETHICS
On February 24, 2004 the Company adopted a code of ethics, which is
applicable to all employees of R Wireless and to any person, not an employee,
who performs functions similar to those of its principal executive officer,
principal financial officer or principal accounting officer or controller. SEE
EXHIBIT 33.1 FOR THE FULL TEXT OF R WIRELESS'S CODE OF ETHICS.
ITEM 10. EXECUTIVE COMPENSATION.
On December 12, 2002, the award of 5-year options to purchase 294,341
shares of R Wireless Common Stock at $0.01 per share to Robert Wilson, then
Chairman and Chief Executive Officer of the Company was authorized in lieu of
$54,000 in compensation earned during calendar year 2001, and cash advances and
accrued interest of $19,585 for a total of $73,585. The options have not yet
been issued. Mr. Wilson is an accredited investor. The sale was exempt pursuant
to Section 4 (2) of the Securities Act of 1933.
On January 15, 2003, the Company issued 3,000,000 shares and 1,500,000
shares of the Company's Common Stock for the yearly compensation of Mark
Neuhaus, Chief Executive Officer, and Ned Baramov, Secretary/Treasurer,
respectively. The basis per share used in the estimation of salary expense for
the two executives was $0.05, management's estimate of the fair value, which
estimate considered the stock price on January 15, 2003, and a discount which
reflects the restricted status of the newly registered shares. Mark Neuhaus was
also authorized a salary of $25,000 per month, which the Company will pay when
cash flow is sufficient, according to employment agreement signed on January 15,
2003. No amount was paid under this authorization and on December 23, 2003, the
Company's Board unanimously resolved to rescind Mr. Neuhaus' salary.
The following table sets forth all compensation paid by the Company for
services rendered to the Company for the fiscal years ended September 30, 2003,
2002, and 2001 to the persons indicated.
Summary Compensation Table
Name and Fiscal Cash Stock All Other
Principal Positions Year Compensation Compensation Compensation
------------------- ---- ------------ ------------ ------------
Mark Neuhaus 2003 $-0- $150,000(1) $-0-
Chairman and C.E.O.
R Wireless, Inc..
Ned Baramov 2003 $-0- $75,000(2) $-0-
Secretary - Treasurer and C.F.O.
R Wireless, Inc.
Robert S. Wilson 2003 $-0- $-0- $-0-
Former Chairman and C.E.O. 2002 $4,977 $13,016(3) $-0-
HOM Corporation (4) 2001 $9,954 $26,046(3) $-0-
_______________
(1) On February 19, 2003, the Company issued 3,000,000 shares of R Wireless's
Common Stock to Mark Neuhaus, Chairman and CEO of the Company. The shares
represent $150,000 of stock compensation for 2003, and are registered under an
S-8 Registration Statement under the Securities Act of 1933.
36
(2) On February 19, 2003, the Company issued 1,500,000 shares R Wireless's
Common Stock to Ned Baramov, Secretary - Treasurer. The shares represent $75,000
of stock compensation for 2003, and are registered under an S-8 Registration
Statement under the Securities Act of 1933
(3) Mr. Wilson had agreed to accept shares of R Wireless common stock for his
salary through December 31, 2001, of which $36,000 was earned during fiscal 2001
and $18,000 was earned during fiscal 2002. On December 12, 2002, Mr. Wilson was
awarded options to purchase 294,341 shares of R Wireless common stock at $.01
per share in lieu of $54,000 in compensation earned during calendar year 2001,
and cash advances and accrued interest of $19,585 for a total of $73,585. The
options have not yet been issued.
(4) Robert S. Wilson was Chairman and Chief Executive Officer of R Wireless
since its inception June 16, 2000, until December 12, 2002. R Wireless became
the investor owned company, with Direct as a subsidiary, when Direct merged with
a subsidiary of R Wireless effective July 5, 2000. Robert Wilson resigned as
Director of R Wireless, Inc. on April 30, 2003.
The preceding table does not include any amounts for noncash
compensation, including personal benefits, paid to any of the foregoing officers
during the periods covered herein. The Company believes that the value of such
noncash benefits and compensation paid during the periods presented did not
exceed the lesser of $50,000 or 10% of the annual salary reported for them.
EMPLOYMENT AGREEMENTS
On February 19, 2003, the Company issued 3,000,000 of R Wireless's
Common Stock to Mark Neuhaus, pursuant to an employment agreement with the
Company dated January 15, 2003. The Company also issued 1,500,000 shares of R
Wireless's Common Stock to Ned Baramov, pursuant to an employment agreement with
the Company dated January 15, 2003, and 1,500,000 shares to Donald Rizzuto,
pursuant to a retainer agreement with the Company dated January 15, 2003.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information, to the best of the
Company's knowledge, as of February 4, 2004 with respect to each person known by
the Company to own beneficially (as such term is defined in Item 403 of
Regulation S-B under the Securities Exchange Act of 1934) more than 5% of the
outstanding R Wireless common stock, each director, each executive officer and
all directors and officers as a group.
Name and Address of Amount and Nature of Percent of
Beneficial Owner (1) Beneficial Ownership Class (2)
-------------------- -------------------- ---------
Mark S. Neuhaus(a) 7,662,626(3) 50.1%
P.O. Box 5629
Ketchum, ID 83340
Ned Baramov(a) 1,500,000 9.8%
2025 Broadway, 23F
New York, NY 10023
Nicole Bloom Neuhaus 4,647,626(4) 30.4%
P.O. Box 5629
Ketchum, ID 83340
MA&N LLC 4,647,626 30.4%
All directors and executive
officers as a group 9,162,626 59.9%
__________
(a) Director and executive officer (b) Director
(1) Unless otherwise indicated in the footnotes below, the Company has been
advised that each person above has sole investment and voting power over the
shares indicated above.
(2) Based upon 15,293,651 shares of common stock outstanding as of February 4,
2004.
37
(3) Represents shares held by MA&N (4,647,626), shares received as compensation
for 2003 (3,000,000), and shares acquired in the open market (15,000). Mr.
Neuhaus has a 50% equity interest in MA&N and his wife, Nicole Bloom Neuhaus,
also has a 50% equity interest. Mr. Neuhaus disclaims any beneficial interest in
the 2,323,813 shares allocable to his wife's beneficial interest.
(4) Represents shares held by MA&N in which Mrs. Neuhaus has a 50% equity
interest and her husband, Mark S. Neuhaus, also has a 50% equity interest. Mrs.
Neuhaus disclaims any beneficial interest in the 2,323,813 shares allocable to
her husband's beneficial interest.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
PARTICULAR TRANSACTIONS
There have been no transactions during the last two years between the
Company and any officer, director, nominee for election as director, or any
shareholder owning more than 5% of the Company's outstanding shares, or any
member of any such individual's immediate family, as to which the amount
involved in the transaction or a series of similar transactions exceeded
$60,000, except as set forth below.
FISCAL YEAR ENDED SEPTEMBER 30, 2003
On February 19, 2003, the Company issued 3,000,000 shares of R
Wireless's Common Stock to Mark Neuhaus, Chairman and CEO of the Company. The
shares represent $150,000 of stock compensation for 2003, and are registered
under an S-8 Registration Statement under the Securities Act of 1933.
On February 19, 2003, the Company issued 1,500,000 shares of R
Wireless's Common Stock to Ned Baramov, Secretary - Treasurer. The shares
represent $75,000 of stock compensation for 2003, and are registered under an
S-8 Registration Statement under the Securities Act of 1933.
FISCAL YEAR ENDED SEPTEMBER 30, 2002
On October 27, 2002, Bryce N. Batzer, a director of R Wireless, loaned
$19,000 to the Company. In late November and early December 2001, Judith C.
Wilson, the wife of Robert S. Wilson, Chairman and CEO of R Wireless,
transferred to a brokerage account of Homes marketable securities that were sold
forthwith upon transfer for aggregate net proceeds of $34,657, resulting in an
advance to the Company by Mrs. Wilson in that amount. Mrs. Wilson has been
reimbursed $11,000 of such amount, leaving $23,657. Both the loan by Mr. Batzer
and the advance by Mrs. Wilson were on a demand basis, Mrs. Wilson's loan was
evidenced by a note bearing interest at 12% per annum.
On January 9, 2002, the Company authorized the issuance of R Wireless
common stock upon conversion of loans by David R. Baker, a partner of Baker,
Johnston & Wilson, counsel to the Company, and Bryce N. Batzer, a director of R
Wireless, including the unpaid interest on such loans to January 9, 2002, and
advances by Judith C. Wilson, wife of Robert S. Wilson, a director of R
Wireless, to the Company, on the basis of $.25 per share
To limit his ownership in the Company to meet guidelines set by the
professional liability insurers of his firm, Mr. Baker's loans were not to be
converted to the extent and so long as such conversion would cause his
beneficial ownership of R Wireless common stock, including R Wireless common
stock owned by his law firm, to exceed 9.9% of the outstanding shares of R
Wireless common stock.
As a result of such authorization, the following shares of R Wireless common
stock have been issued:
(a) 178,682 shares to Bryce N. Batzer in conversion of his $43,000 in
loans to the Company and $1,670 interest thereon to January 9, 2002, or
a total of $44,670, and
(b) 94,627 shares to Judith C. Wilson in conversion of her $23,657 in
net advances to the Company.
38
(c) 47,206 shares to David R. Baker in conversion of $10,416 in
advances to the Company and $1,386 in accrued interest through January
9, 2002, for a total of $11,802. Mr. Baker loaned $15,000 to the
Company on July 16, 2001 and another $15,000 on September 27, 2001, for
a total of $30,000 in advances. The issued shares reduced the principal
owed to Mr. Baker to $19,584, and settled all accrued interest through
January 9, 2002. The interest thereon of 12% and all remaining
principal was agreed to be converted in stock, as long as such
conversion would not cause Mr. Baker's beneficial ownership of R
Wireless common stock to exceed 9.9% of the total R Wireless common
stock outstanding.
Through December 31, 2001, the Company accrued $54,000 of salary for
Robert S. Wilson, Chairman and CEO of R Wireless. Mr. Wilson had indicated his
willingness to accept R Wireless common stock on the basis of $.25 a share in
payment of his salary, after deduction of withholding of income and FICA taxes,
such stock to be issued to him not later than June 30, 2002, and on January 9,
2002, the Company authorized such issuance. The Company and Mr. Wilson
subsequently agreed to extend that deadline to December 31, 2003. Review
estimated that such withholding payments would be $14,931 and that Mr. Wilson,
therefore, would be granted 156,276 shares in payment of the remaining $39,069
of his salary.
On June 27, 2002, 41,600 shares of R Wireless common stock were issued
to Robert S. Wilson, Chairman and Chief Executive Officer of R Wireless, at $.25
a share pursuant to a previous arrangement for the satisfaction of loans to R
Wireless of $8,000 on February 13, 2002 and $2,000 on February 21, 2002, plus
interest of $400 to the date of authorizing satisfaction, for a total of
$10,400.
PROMOTER AND CONTROLLING PERSONS
MA&N, through its majority ownership of the outstanding R Wireless
common stock, and Mark S. Neuhaus and Nicole Bloom Neuhaus as the owners of MA&N
and directors of R Wireless (Mr. Neuhaus is the Chairman and President (Chief
Executive Officer) of R Wireless) may be deemed the controlling persons of R
Wireless, along with Ned Baramov, a director and Secretary-Treasurer of R
Wireless.
39
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS
The following exhibits are filed with this Registration Statement:
Exhibit No. Exhibit Name
----------- ------------
2.1 Stock Acquisition Agreement for 51% of the outstanding and
issuable Common Stock of R Wireless Corporation dated
December 12, 2002 by and between MA&N LLC and R Wireless
Corporation (Exhibit B omitted, to be furnished upon request
of the Commission) (1)
2.2 Sale of Assets Agreement dated November 15, 2002 between HOM
Corporation and Stuckey Enterprises (list of assets omitted,
to be furnished upon request of the Commission) (1)
2.3 Stock Acquisition Agreement dated September 4, 2003 between
Jim Evans, R Wireless, Inc. and Homes by Owner, Inc.
2.4 Escrow Agreement dated September 4, 2003 between Jim Evans, R
Wireless, Inc., Homes by Owner, Inc. and David Baker.
2.5 Extension Agreement dated March 5, 2004 between Jim Evans, R
Wireless, Inc., and Homes by Owner, Inc.
3.1a Composite Articles of Incorporation of R Wireless, Inc, as
amended to reflect the change of name from HOM Corporation,
effective January 22, 2003 (3)
3.3 By-Laws of HOM Corporation as adopted December 12, 2002
4 Instrument defining rights of holders (See Exhibit No. 3.1a,
Articles of Incorporation - Article Four)
21.1 List of Subsidiaries of R Wireless, Inc. (2)
23.2 Consent of Elliott Davis, L.L.C.
31.1 Certification of Mark Neuhaus, CEO of R Wireless, Inc.
31.2 Certification of Ned Baramov, CFO of R Wireless, Inc.
32.1 Certification of Mark Neuhaus and Ned Baramov, pursuant to
Section 1350
33.1 R Wireless, Inc. Code of Ethics adopted February 24, 2004
99.7 Employment Agreement between Registrant and Ned Baramov dated
January 15, 2003 (5)
99.8 Employment Agreement between Registrant and Mark Neuhaus
dated January 15, 2003 (5)
99.9 Retainer Agreement between Registrant and Donald N. Rizzuto,
Attorney and Counselor at Law dated January 15, 2003 (5)
_____________________
(1) Incorporated by reference to the exhibit as filed with Form 8K of R
Wireless, Inc., with Securities and Exchange Commission filing date of December
27, 2002.
(2) Incorporated by reference to the exhibit as filed with Form 10-SB of R
Wireless, Inc., with Securities and Exchange Commission filing date of February
9, 2001.
(3) Incorporated by reference to the exhibit as filed with Form 10-QSB of R
Wireless, Inc., with Securities and Exchange Commission filing date of February
19, 2003.
(4) Incorporated by reference to the exhibit as filed with Form 10-SB/A2 of R
Wireless, Inc., with Securities and Exchange Commission filing date of August
31, 2001.
(5) Incorporated by reference to the exhibit as filed with Form S-8 of R
Wireless, Inc., with Securities and Exchange Commission filing date of February
19, 2003.
REPORTS ON FORM 8-K
1. Nicole Bloom Neuhaus' resignation from November 4, 2003.
40
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
AUDIT FEES
The aggregate audit fees billed in the fiscal year ended September 30,
2003 were $39,418. The audit fees billed in the year ended September 30, 2002
were $19,600. There were no other audit related fees billed or paid during these
periods.
TAX AND OTHER FEES
The aggregate tax and other accounting-related fees paid by the Company
during fiscal 2003 and 2002 were $2,512 and $2,881, respectively.
41
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
R Wireless, Inc.
By /s/ Mark S. Neuhaus
Mark S. Neuhaus, Chairman and President (Chief Executive Officer)
Date: March 12, 2004
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Mark S. Neuhaus
Mark S. Neuhaus, Chairman and President (Chief Executive Officer)
Date: March 12, 2004
/s/ Ned Baramov
Ned Baramov, Secretary-Treasurer, (Chief Financial Officer)
Date: March 12, 2003
42