-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vs/aHxp8WCw7gsytCuNZuYAP5d81o34diYs6PsqNN4Pvg4xJK4atSdp8n3cGRDQQ kbTkFuN2dp0reSlvr6aZ5w== 0001021408-01-510157.txt : 20020410 0001021408-01-510157.hdr.sgml : 20020410 ACCESSION NUMBER: 0001021408-01-510157 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RFP EXPRESS INC CENTRAL INDEX KEY: 0000929425 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823] IRS NUMBER: 944453386 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 033-83526 FILM NUMBER: 1787431 BUSINESS ADDRESS: STREET 1: 8080 DAGGETT STREET SUITE 220 CITY: SAN DIEGO STATE: CA ZIP: 92111 BUSINESS PHONE: 6196775580 MAIL ADDRESS: STREET 1: 8080 DAGGETT STREET SUITE 220 CITY: SAN DIEGO STATE: CA ZIP: 92111 FORMER COMPANY: FORMER CONFORMED NAME: IXATA GROUP INC DATE OF NAME CHANGE: 20000207 FORMER COMPANY: FORMER CONFORMED NAME: MATERIAL TECHNOLOGIES INC DATE OF NAME CHANGE: 19970313 FORMER COMPANY: FORMER CONFORMED NAME: MATERIAL TECHNOLOGY INC DATE OF NAME CHANGE: 19970326 FORMER COMPANY: FORMER CONFORMED NAME: SECURFONE AMERICA INC DATE OF NAME CHANGE: 19971114 10QSB 1 d10qsb.txt FORM 10QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2001. [_] Transition report under Section 13 or 15(d) of the Exchange Act For the transition period from to Commission file number: 33-83526 RFP Express Inc. --------------------------------------------------------------------------- (Exact Name of Registrant as Specified in its Charter) Delaware 95-4453386 - ------------------------ ------------------------------------ (State of Incorporation) (I.R.S. Employer Identification No.) 8989 Rio San Diego Drive, #160, San Diego, CA 92108 ---------------------------------------------------- (Address of Principal Executive Offices) 619-400-8800 ------------------------------------------------------ (Issuer's Telephone Number, Including Area Code) The IXATA Group, Inc. ----------------------------------------------------- (Former Name) Check whether issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ --- State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: Common Stock, $0.001 par value per share: 14,825,543 (as of October 31, 2001) - -------------------------------------------------------------------------------- Transition Small Business Disclosure Format (check one): Yes ______ No X --- RFP Express Inc. and Subsidiaries (formerly The IXATA Group, Inc. and Subsidiaries Quarterly Report on Form 10-QSB For the Nine Months and Quarter Ended September 30, 2001 - -------------------------------------------------------------------------------- Table of Contents
Item Page - ---- ---- Part I -- Financial Information 1 Item 1. Financial Statements. 1 Item 2. Management's Discussion and Analysis or Plan of Operation. 14 Introduction 14 Overview 14 Results of Operations 15 Liquidity and Capital Resources 17 Forward-Looking Statements 18 Part II -- Other Information 20 Item 1. Legal Proceedings. 20 Item 2. Changes in Securities and Use of Proceeds. 20 Item 3. Defaults Upon Senior Securities. 20 Item 4. Submission of Matters to a Vote of Security Holders. 20 Item 5. Other Information. 20 Item 6. Exhibits and Reports on Form 8-K. 20
i RFP Express Inc. and Subsidiaries (formerly The IXATA Group, Inc.) Quarterly Report on Form 10-QSB For the Nine Months and Quarter Ended September 30, 2001 - -------------------------------------------------------------------------------- Part I -- Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets................................. 2-3 Condensed Consolidated Statements of Operations....................... 4 Condensed Consolidated Statements of Cash Flows....................... 5-6 Notes to Condensed Consolidated Financial Statements.................. 7-13 1 RFP Express Inc. and Subsidiaries (formerly The IXATA Group, Inc. and Subsidiaries) Condensed Consolidated Balance Sheets =============================================================================== September 30, 2001 2000 - ------------------------------------------------------------------------------- Assets Current Assets Cash $ - $ 62,664 Marketable equity security - 6,000 Accounts receivable 229,580 286,863 - ------------------------------------------------------------------------------- Total current assets 229,580 355,527 Fixed Assets - Net 155,085 102,251 Other Assets - Net 4,833 8,057 - ------------------------------------------------------------------------------- $ 389,498 $ 465,835 =============================================================================== The accompanying notes are an integral part of these condensed consolidated financial statements. 2 RFP Express Inc. and Subsidiaries (formerly The IXATA Group, Inc. and Subsidiaries) Condensed Consolidated Balance Sheets
============================================================================================================================ September 30, 2001 2000 - ---------------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Deficit Current Liabilities Checks written in excess of bank balance $ 10,076 $ - Notes payable 865 1,217,365 Current portion of capitalized lease obligation and long term notes payable (Note 3) 138,064 99,814 Accounts payable and accrued expenses 106,688 619,818 Related party payables (Note 5) 247,290 458,629 Accrued payroll and related taxes 57,852 281,617 Accrued interest 18,913 392,109 Deferred revenue 535,287 434,498 - ---------------------------------------------------------------------------------------------------------------------------- Total current liabilities 1,115,035 3,503,850 Long-Term Debt (Note 3) 1,070,515 1,440,450 - ---------------------------------------------------------------------------------------------------------------------------- Total liabilities 2,185,550 4,944,300 Commitments and Contingencies Stockholders' Deficit Preferred stock, 10,000,000 shares authorized; 2,085,461 and no shares issued and outstanding in 2001 and 2000, respectively (liquidation preference of $2,148,025) (Note 4) 2,085 - Common stock, $.001 par value; 100,000,000 shares authorized; 14,325,543 and 13,791,679 shares issued and outstanding in 2001 and 2000, respectively 14,326 13,792 Stock subscriptions receivable (2,963) (2,963) Additional paid-in capital (Note 4) 19,302,192 16,296,760 Accumulated deficit (21,111,692) (20,492,054) Accumulated other comprehensive loss: Unrealized holding loss on marketable securities - (294,000) - ---------------------------------------------------------------------------------------------------------------------------- Total stockholders' deficit (1,796,052) (4,478,465) - ---------------------------------------------------------------------------------------------------------------------------- $ 389,498 $ 465,835 ============================================================================================================================
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 RFP Express Inc. and Subsidiaries (formerly The IXATA Group, Inc. and Subsidiaries) Condensed Consolidated Statements of Operations
==================================================================================================================================== Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended September 30, 2001 September 30, 2001 September 30, 2000 September 30, 2000 - ----------------------------------------------------------------------------------------------------------------------------------- Revenues $ 364,038 $ 765,749 $ 321,350 $ 456,040 Selling, general and administrative expenses, including non-cash stock-based compensation of $101,441, $154,918, $213,296, and $278,463 respectively 675,701 1,972,534 1,063,786 3,718,519 Loss on impairment of goodwill - - - 5,363,889 - ------------------------------------------------------------------------------------------------------------------------------------ Loss from Operations (311,663) (1,206,785) (742,436) (8,626,368) Other Income (Expense) Loss on issuance of stock for debt - (41,850) - - Interest expense (5,567) (22,291) (74,968) (231,696) Interest income - - - 909 - ----------------------------------------------------------------------------------------------------------------------------------- Total Other Income (Expense) (5,567) (64,141) (74,968) (230,787) - ----------------------------------------------------------------------------------------------------------------------------------- Net Loss $ (317,230) $ (1,270,926) $ (817,404) $ (8,857,155) =================================================================================================================================== Net Loss Per Share (Basic) $ (0.02) $ (0.09) $ (0.06) $ (0.68) =================================================================================================================================== Weighted-Average Shares Outstanding 14,318,949 14,318,949 12,957,108 12,957,108 ===================================================================================================================================
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 RFP Express Inc. and Subsidiaries (formerly The IXATA Group, Inc. and Subsidiaries) Condensed Consolidated Statements of Cash Flows
===================================================================================================================== Nine Months Ended Nine Months Ended September 30, 2001 September 30, 2000 - --------------------------------------------------------------------------------------------------------------------- Cash Flows From Operating Activities Net loss $ (1,270,926) $ (8,857,155) Adjustments to reconcile net loss to net cash used in operating activities: Non-cash equity granted for services 154,918 278,462 Net loss on stock issued for debt 41,850 - Depreciation and amortization 29,807 687,225 Loss on impairment of goodwill - 5,363,889 Change in operating assets and liabilities: Accounts receivable (76,450) (27,080) Accounts payable, accrued payroll and accrued expenses (37,781) 387,966 Related party payables (27,597) 89,129 Accrued interest 17,908 205,261 Deferred revenue 237,152 167,278 - --------------------------------------------------------------------------------------------------------------------- Net cash used in operating activities (931,119) (1,705,025) - --------------------------------------------------------------------------------------------------------------------- Cash Flows From Investing Activities Purchases of fixed assets (86,744) (50,749) - --------------------------------------------------------------------------------------------------------------------- Cash Flows From Financing Activities Proceeds from issuance of notes payable 748,509 600,000 Net proceeds from sale of stock 120,000 900,293 Principal payments on notes payable (111,466) (8,000) Checks written in excess of bank balance 10,076 - - --------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 767,119 1,492,293 - --------------------------------------------------------------------------------------------------------------------- Net decrease in cash (250,744) (263,481) Cash at Beginning of Period 250,744 326,145 - --------------------------------------------------------------------------------------------------------------------- Cash at End of Period $ - $ 62,664 =====================================================================================================================
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 RFP Express Inc. and Subsidiaries (formerly The IXATA Group, Inc. and Subsidiaries) Condensed Consolidated Statements of Cash Flows, Continued
============================================================================================================================ Nine Months Ended Nine Months Ended September 30, 2001 September 30, 2000 - ---------------------------------------------------------------------------------------------------------------------------- Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest $ 9,349 $ 26,250 Income taxes $ 4,082 $ -
Noncash Investing and Financing Activities: During January 2001, the Company issued 450,000 shares of common stock with a fair value of approximately $41,850 to satisfy debt related to professional services. The fair value of the shares was calculated using the closing prices surrounding the issuance dates. During January 2001, the Company issued 40,000 shares of Series C preferred stock with a stated value of $40,000 to satisfy a debt with the Company's Chief Executive Officer for services and equipment purchases. In March 2001, the Company converted $250,000 of notes payable-related party into 250,000 shares of preferred stock. See Note 4. In April and June 2001, assets that had been on the Company's books were written off. The assets had been retained by Tel.n.Form Interactive and the net book value of the assets was offset against an accounts payable balance that was owed to Tel.n.Form. The remaining payable balance was paid in full in June 2001. In June 2001, the Company converted $500,000 of notes payable-related party into 500,000 shares of preferred stock. See Note 4. During the first nine months of 2001, the Company granted stock options to purchase 4,651,500 shares of the Company's common stock to employees. During the same period, options to purchase 4,318,000 shares of the Company's common stock were returned or expired. These stock options, in addition to options vesting in the first nine months of 2001 from earlier grants, were valued at $154,918 in accordance Statement of Financial Accounting Standards No. 123. See Note 4. ================================================================================ The accompanying notes are an integral part of these condensed consolidated financial statements. 6 RFP Express Inc. and Subsidiaries (formerly The IXATA Group, Inc. and Subsidiaries Quarterly Report on Form 10-QSB For the Quarter Ended September 30, 2001 Notes to Condensed Consolidated Financial Statements - -------------------------------------------------------------------------------- Note 1. Basis of Presentation The accompanying condensed consolidated financial statements of RFP Express Inc. and Subsidiaries (the "Company") (formerly The IXATA Group, Inc. and Subsidiaries) include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, the condensed consolidated financial statements reflect all normal and recurring adjustments which are necessary for a fair presentation of the Company's financial position, results of operations and cash flows as of the dates and for the periods presented. The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Consequently, these statements do not include all the disclosures normally required by generally accepted accounting principles for annual financial statements nor those normally made in the Company's Annual Report on Form 10-KSB. Accordingly, reference should be made to the Company's Form 10-KSB filed on April 16, 2001 and other reports the Company filed with the Securities and Exchange Commission for additional disclosures, including a summary of the Company's accounting policies, which have not materially changed. The consolidated results of operations for the nine months ended September 30, 2001 are not necessarily indicative of results that may be expected for the fiscal year ending December 31, 2001 or any future period, and the Company makes no representations related thereto. The accompanying condensed consolidated financial statements as of September 30, 2001 and 2000 have been prepared assuming the Company will continue as a going concern. However, the Company had a working capital deficit of $885,455 as of September 30, 2001 and incurred a net loss of $1,270,926 for the nine months then ended. These conditions raise substantial doubt about the Company's ability to continue as a going concern. To meet both current and contractual commitments and business growth objectives, the Company will require additional financing. To address its financing needs, on September 8, 2000, the Company entered into a letter of intent with NextGen Capital, L.L.C. for an equity investment by NextGen in the Company. NextGen is a Virginia-based firm that manages two venture capital funds specializing in high-technology and internet-related investments. The financing was consummated on December 5, 2000. In addition, upon the completion of defined performance milestones by the Company, NextGen agreed to purchase additional preferred shares and warrants. The Company reached the first defined performance milestone in March, 2001 at which time NextGen purchased the second round of preferred shares of stock and warrants. The June 2001 targeted milestones were also met and NextGen invested the final, third round of preferred shares and warrants on June 15, 2001. In August, 2001, NextGen purchased an additional 90,000 preferred shares and warrants. As of September 30, 2001, the Company had issued 2,085,461 Series C preferred shares of stock and warrants to purchase an additional 2,050,000 shares of preferred stock to NextGen Fund II, L.L.C., NextGen SBS Fund II, L.L.C., and other investors for a total of $2,300,000. 7 RFP Express Inc. and Subsidiaries (formerly The IXATA Group, Inc. and Subsidiaries Quarterly Report on Form 10-QSB For the Quarter Ended September 30, 2001 Notes to Condensed Consolidated Financial Statements - -------------------------------------------------------------------------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities and the results of operations during the reporting period. Actual results could differ materially from those estimates. In July 2001, the FASB issued Statement No. 141, "Business Combinations," and Statement No. 142, "Goodwill and Other Intangible Assets." Statement 141 requires that the purchase method of accounting be used for all business combinations subsequent to June 30, 2001 and specifies criteria for recognizing intangible assets acquired in a business combination. Statement 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. Intangible assets with definite useful lives will continue to be amortized over their respective estimated useful lives. The Company plans to adopt the provisions of Statement No. 141 and 142 effective January 1, 2002. The implementation of these guidelines will not have a material effect on the financial statements of the Company. Certain reclassifications have been made to the prior period financial statements to conform to the current period presentations. These reclassifications had no effect on reported total assets or net loss. Note 2. Abbreviated Summary of Significant Accounting Policies A summary of the Company's significant accounting policies applied consistently in the preparation of the accompanying condensed consolidated financial statements follows. Development stage operations and current business During 1999, the Company was primarily devoted to developing its databases, software and customer base. On November 11, 2000, the Company commenced principal operations and began generating significant revenues. Accordingly, management no longer considers the Company to be in the development stage. The Company's principal operations are to provide internet-based electronic commerce services in the travel market for creative solutions for creating, receiving and managing preferred lodging programs. 8 RFP Express Inc. and Subsidiaries (formerly The IXATA Group, Inc. and Subsidiaries) Quarterly Report on Form 10-QSB For the Quarter Ended September 30, 2001 Notes to Condensed Consolidated Financial Statements - -------------------------------------------------------------------------------- Note 3. Long-Term Debt Long-term debt consisted of the following:
September 30, 2001 2000 - ---------------------------------------------------------------------------------------------- Note payable; interest at 8% per annum; due on December 5, 2003. Issued with non-detachable warrants for 500,000 shares exercisable at $2.72 per share were repriced to $0.05 per share. The warrants expire on $314,928 $ - August 21, 2003. Note payable; interest at 8% per annum; $200,000 is due on December 5, 2003. The remaining balance is payable in monthly installments of $5,000 beginning on January 15, 2002, with monthly installments increasing to $10,000 starting on July 15, 2002. Non-detachable warrants for 100,000 shares exercisable at $0.10 per share were issued in connection with the note. The warrants expire on December 5, 2003. 263,629 - Note payable for a settlement with the Company's former CEO to resolve all outstanding Company obligations related to his employment; interest at 4% per annum; 50% of the balance is payable on December 1, 2003 and the remaining 50% is payable at the rate of $1,500 per month beginning on January 15, 2002. 204,056 - Note payable for a settlement with the Company's former CFO to resolve all outstanding Company obligations related to his employment; interest at 4% per annum; 50% of the balance is payable on December 1, 2003 and the remaining 50% is payable at the rate of $1,500 per month beginning on January 15, 2002. 136,168 - Note payable to a limited partnership; interest at 8% per annum; due on December 5, 2003. Non-detachable warrants for 100,000 shares exercisable at $0.10 per share were issued in connection with the note. The warrants expire on December 5, 2003. 75,583 -
9 RFP Express Inc. and Subsidiaries (formerly The IXATA Group, Inc. and Subsidiaries) Quarterly Report on Form 10-QSB For the Quarter Ended September 30, 2001 Notes to Condensed Consolidated Financial Statements - -------------------------------------------------------------------------------- Note payable for a settlement with the Company's former President to resolve all outstanding Company obligations related to his employment; interest at 8% per annum; 50% is payable at the rate of $1,500 per month beginning on January 1, 2002 and the remaining 50% is due on December 1, 2003. 72,908 - Note payable; interest at 8% per annum; due on December 5, 2003. Non-detachable warrants for 65,000 shares exercisable at $0.10 per share were issued in connection with the note. The warrants expire on December 5, 2003. 31,493 - Note payable to a related party; interest at 5% per annum; principal and interest are due on February 16, 10,000 10,000 2004. Convertible debenture in the amount of $1,000,000 issued August 21, 1998 for advances made to the Company; interest at 12% per annum; payable quarterly; principal is payable on the earlier of 1) the Company's receipt of at least $8 million in proceeds from a public offering of Company securities, or 2) August 21, 2001. Non-detachable warrants for 500,000 shares exercisable at $2.72 per share were issued in connection with the convertible debenture. - 1,000,000 Advances payable to unrelated parties and potential investors who have committed the funds on a long-term basis. - 430,450 - --------------------------------------------------------------------------------------------------- 1,108,765 1,440,450 Less current portion of long-term debt (38,250) - - --------------------------------------------------------------------------------------------------- Long-term Debt $1,070,515 $1,440,450 - --------------------------------------------------------------------------------------------------- CAPITAL LEASE: In March 1997, the Company entered into a sale-leaseback arrangement under which computer equipment capitalized at $159,649 is being accounted for as a capital lease. $ 99,814 $ 99,814 Less current portion of lease (99,814) (99,814) - --------------------------------------------------------------------------------------------------- Long-term Debt $ - $ - ===================================================================================================
10 RFP Express Inc. and Subsidiaries (formerly The IXATA Group, Inc. and Subsidiaries) Quarterly Report on Form 10-QSB For the Quarter Ended September 30, 2001 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Future minimum principal payments on long-term debt are as follows: Year Ending September 30, - --------------------------------------------------- 2002 $ 138,064 2003 262,816 2004 736,587 2005 36,000 2006 18,584 Thereafter 16,528 -------------------------------------------------- $1,208,579 =================================================== Note 4. Shareholders' Equity Preferred stock On January 3, 2001, individuals purchased 60,000 shares of Series C preferred stock, which are presently convertible into 600,000 shares of common stock (subject to an anti-dilution adjustment in the event of subsequent issuances of stock by the Company at a price less than the conversion price of the Series C preferred stock, stock splits, stock dividends, recapitalization and similar events). 40,000 shares of the preceding Series C preferred stock were issued to satisfy a $40,000 debt to a related party. The individuals were also granted Series C warrants to purchase 60,000 shares of Series C preferred stock. These Series C warrants are exercisable at a price of $1.00 per share and expire on January 3, 2006. The fair value of the shares at that date was $40,000. On February 28, 2001, an individual purchased 10,000 shares of Series C preferred stock, which shares are convertible into 100,000 shares of common stock (subject to an anti-dilution adjustment in the event of subsequent issuances of stock by the Company at a price less than the conversion price of the Series C preferred stock, stock splits, stock dividends, recapitalizatio and similar events). The individual was also granted Series C warrants to purchase 10,000 shares of Series C preferred stock. These Series C warrants are exercisable at a price of $1.00 per share and expire on February 28, 2006. On March 9, 2001, NextGen Fund II, L.L.C. purchased 150,000 shares of Series C preferred stock and NextGen SBS Fund II, L.L.C. purchased 100,000 shares of Series C preferred stock for a combined total of 250,000 shares of Series C preferred stock, which are presently convertible into 2,500,000 shares of common stock (subject to an anti-dilution adjustment in the event of subsequent issuances of stock by the Company at a price less than the conversion price of the Series C preferred stock, stock splits, stock dividends, recapitalization and similar events). NextGen was also granted Series C warrants to purchase 250,000 shares of Series C preferred stock. These Series C warrants are exercisable at a price of $1.00 per share and expire on March 9, 2006. 11 RFP Express Inc. and Subsidiaries (formerly The IXATA Group, Inc. and Subsidiaries) Quarterly Report on Form 10-QSB For the Quarter Ended September 30, 2001 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- On June 16, 2001, NextGen Fund II, L.L.C. purchased 300,000 shares of Series C preferred stock and NextGen SBS Fund II, L.L.C. purchased 200,000 shares of Series C preferred stock for a combined total of 500,000 shares of Series C preferred stock, which are presently convertible into 5,000,000 shares of common stock (subject to an anti-dilution adjustment in the event of subsequent issuances of stock by the Company at a price less than the conversion price of the Series C preferred stock, stock splits, stock dividends, recapitalization and similar events). NextGen was also granted Series C warrants to purchase 500,000 shares of Series C preferred stock. These Series C warrants are exercisable at a price of $1.00 per share and expire on June 16, 2006. On August 8, 2001, NextGen Fund II, L.L.C. purchased 54,000 shares of Series C preferred stock and NextGen SBS Fund II L.L.C. purchased 36,000 shares of Series C preferred stock for a combined total of 90,000 shares of Series C preferred stock, which are presently convertible into 900,000 shares of common stock (subject to an anti-dilution adjustment in the event of subsequent issuances of stock by the Company at a price less than the conversion price of the Series C preferred stock, stock splits, stock dividends, recapitalization and similar events). NextGen was also granted Series C warrants to purchase 90,000 shares of Series C preferred stock. These Series C warrants are exercisable at a price of $1.00 per share and expire on August 8, 2006. Stock options During January through September 2001 and January through September 2000, respectively, the Company granted a net of 333,500 and 1,094,000 vesting stock options to employees under the expanded 1997 Employees Non-Qualified Stock Option Plan. Compensation expense of $154,918 and $278,463 was recorded in accordance with Statement of Financial Accounting Standards No. 123 for the nine months ended September 30, 2001 and 2000, respectively. During the third quarter 2001 and the third quarter 2000, respectively, the Company granted 433,000 and 37,000 vesting stock options to employees under the expanded 1997 Employees Non-Qualified Stock Option Plan. Compensation expense of $101,441 and $213,296 was recorded in accordance with Statement of Financial Accounting Standards No. 123 for the third quarter ended September 30, 2001 and 2000, respectively. Note 5. Related Parties Classified as Related Party Payables - ------------------------------------ The Secretary of the Company is also a partner in the law firm that represents the Company in its legal matters. The Company had outstanding payables of $77,290 to the law firm as of September 30, 2001. In addition, the Company formerly had consulting contracts with 12 RFP Express Inc. and Subsidiaries (formerly The IXATA Group, Inc. and Subsidiaries) Quarterly Report on Form 10-QSB For the Quarter Ended September 30, 2001 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- members of its Board of Directors. Related expenses were $0 and $110,000 for the first nine months of 2001 and 2000, respectively. Related payables were $170,000 and $0 at September 30, 2001 and 2000, respectively. Classified as Long-Term Debt - ---------------------------- At September 30, 2001, the Company had long-term notes payable due to former officers and directors of the Company of $429,987 including a current portion payable of $38,250 and accrued interest payable of $16,855. A liability of $360,011 due to former officers and directors was reported as a current payable at September 30, 2000. The Company had maintained a management and services agreement with a company that is owned and controlled by stockholders with significant ownership of the Company. Related long-term notes payable for services under this agreement were approximately $273,000 and $10,000 at September 30, 2001 and September 30, 2000, respectively. Related expenses for the first nine months of 2001 were $9,543 (reduced from the second quarter total due to subsequent credits). The management and services agreement was largely terminated in June 2000, except for network and internet services. The remainder of the contract was terminated in February 2001 when the Company purchased and began operating on independent server equipment. 13 RFP Express Inc. and Subsidiaries (formerly The IXATA Group, Inc.) Quarterly Report on Form 10-QSB For the Nine Months and Quarter Ended September 30, 2001 - -------------------------------------------------------------------------------- Item 2. Management's Discussion and Analysis or Plan of Operation. Introduction The following describes certain factors that produced changes in the results of operations of RFP Express Inc. (the "Company") (formerly The IXATA Group, Inc.) during the quarter and nine months ended September 30, 2001 and as compared with the quarter and nine months ended September 30, 2000 as indicated in the Company's consolidated financial statements. The following should be read in conjunction with the consolidated financial statements and related notes. Historical results of operations are not necessarily indicative of results for any future period. All material inter-company transactions have been eliminated in the results presented in this Quarterly Report. Certain matters discussed in this Quarterly Report constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties. These forward-looking statements relate to, among other things, expectations of the business environment in which the Company operates, projections of future performance, perceived opportunities in the market and statements regarding the Company's mission and vision. The Company's actual results, performance or achievements may differ significantly from the results, performance, or achievements expressed or implied in these forward-looking statements. See "Forward-Looking Statements." Overview The Company was organized to develop and market prepaid wireless products and services in various markets throughout the United States. In late 1998, the Company established a new strategic objective of refocusing the Company's mission to pursue new complimentary internet-related and e-commerce opportunities. In 1999, the Company actively implemented its new mission by, among other actions, selling a portion of the Company's business no longer considered essential for the new strategy and purchasing IXATA, Inc., a company whose business thrust was in line with the new strategy. Upon closing the IXATA, Inc. acquisition, the Company established itself as a provider of internet-based, business-to-business ("B2B") electronic commerce services in the travel market, targeting existing and new corporate clients, hotel and property management groups, and major travel agencies. IXATA, Inc.'s principal service, RFP Express, integrates a user-friendly, internet-based interface with a sophisticated data-warehousing system and fax technology to deliver automated solutions for creating, sending, receiving and managing preferred lodging programs request for proposal process in the hospitality services market ("RFP process"). This process typically involves hundreds and, in some cases thousands of properties worldwide. By automating the users' RFP process, and also providing user-friendly internet access to a sophisticated data warehousing system, RFP Express provides dramatic cost savings to users. On November 11, 2000, the Company commenced principal operations and began generating significant revenues. Accordingly, management no longer considers the Company to be in the development stage. The Company's principal operations are to provide internet based electronic commerce services in the travel market for creative solutions for creating, receiving and managing preferred lodging programs. Although the market reaction to the Company's service has been positive, there can be no assurance that the Company will be able to attain profitability. 14 RFP Express Inc. and Subsidiaries (formerly The IXATA Group, Inc.) Quarterly Report on Form 10-QSB For the Nine Months and Quarter Ended September 30, 2001 - -------------------------------------------------------------------------------- Results of Operations The First Nine Months of 2001 as Compared to the First Nine Months of 2000 - -------------------------------------------------------------------------- Revenues Revenues are from two components: subscription revenues recognized over the life of contracts and transaction revenues recognized in the month of the transaction activity. Year to date sales in 2001 increased by 68% over sales in 2000 for the same period. The subscription component continues to generate recognizable revenue in the periods after the initial sale. Transaction revenues were less in the first nine months of 2001 than in the first nine months of 2000, at $218,544 and $242,445, respectively. The subscription component of revenues was greater in the first nine months of 2001, more than double the subscription component of revenues for the first nine months of 2000, at $533,494 and $203,118, respectively. The subscription component of revenues combined with transaction revenues during the first nine months of 2001, plus revenues from minor ancillary services, to increase total revenues to $765,749, 68% greater than the $456,040 recorded for the same period in 2000. This increase is attributable the Company achieving sales targets that were greater during the first nine months of 2001 than during the first nine months of 2000 and the residual effects of subscription revenues from earlier in the year. The increased sales targets were met due to increasing the number of sales people and retaining trained sales people in 2001 as compared to 2000. Operating Expenses Selling, general and administrative expenses ("SG&A") were $1,972,534 for the nine months ended September 30, 2001 as compared to $3,718,519 for the nine months ended September 30, 2000, an improvement of $1,745,985. The largest component of SG&A continued to be payroll and related expenses. Payroll and related expenses decreased $418,870, or 26%, during the first nine months of 2001 to $1,183,231 from $1,602,101 during the first nine months of 2000. Non- cash stock based compensation decreased 44% during the nine months ended September 30, 2001 compared to the nine months ended September 30, 2000. This decrease is attributed to cost control measures instituted by new management which included staff reductions through attrition during 2000 and layoffs as the Company entered its slow season in January 2001. The second largest component of SG&A expense had been amortization of goodwill. Goodwill created by the acquisition of IXATA, Inc. in 1999 was deemed to be impaired in June 2000. As a result of the impairment, the unamortized balance of goodwill was written off and a loss of $5,363,889 was recognized in June 2000. This change accounts for a reduction in SG&A expense of $670,488 for amortization of goodwill for the first nine months of 2001 compared to amortization the first nine months of 2000. Travel and entertainment expense decreased $136,594 during the nine months ended September 30, 2001 from the nine months ended September 30, 2000. Travel and entertainment expense during the nine months ended September 30, 2001 reflected both a change in the Company's sales philosophy and reduced sales and executive personnel travel. Expense for consultants and outside labor decreased $198,574 during the nine months ended September 30, 2001 from the nine months ended September 30, 2000. In the first nine months of 2001, consulting expense related to acquiring and maintaining the Company's new independent server equipment, and paying certain expenses of the CEO and a marketing consultant hired in April 2001. During the nine months ending September 30, 2000, the Company maintained certain contracts with consultants though consulting expense declined steadily during 2000 as the Company filled related fulltime employee positions. The preceding factors combined to account for $1,424,526 of the $1,745,985 decrease in SG&A expense during the nine months ended September 30, 2001 from the nine months ended September 30, 2000. Interest expense decreased $209,405, or 90%, to $22,291 in the first nine months of 2001 from $231,696 in the first nine months of 2000 due to restructuring the Company's debt obligations. This restructuring was completed as a condition to the financing transaction with NextGen Capital in December 2000. The nature of the restructuring fell under the accounting treatment for a troubled debt restructuring and, as such, all future interest payable on the 15 RFP Express Inc. and Subsidiaries (formerly The IXATA Group, Inc.) Quarterly Report on Form 10-QSB For the Nine Months and Quarter Ended September 30, 2001 - -------------------------------------------------------------------------------- restructured notes was recognized in December 2000 and included in the principal amount of the note. Thus, in the nine months ended September 30, 2001 and for all future periods until these notes are paid, no interest will be recorded for these restructured long-term obligations. Some short and long-term notes remain and interest will be recorded on these until the balances are paid in full. The net loss in the first nine months of 2001 decreased to $1,270,926 from $8,857,155 in 2000. This improvement of $7,586,229 in the first nine months of 2001 from the first nine months of 2000 was the result of two factors. First, a one-time $5,363,889 loss on impairment of goodwill was charged to expense in June 2000. Second, the nine months ended September 30, 2001 reflected both increased revenues and decreased operating expenses as compared to the nine months ended September 30, 2000. This change was attributable to aggressive cost reduction efforts while maintaining sales growth targets. The Quarter Ended September 30, 2001 as Compared to the Quarter Ended September - ------------------------------------------------------------------------------- 30, 2000 - -------- Revenues Revenues are from two components: subscription revenues recognized over the life of contracts and transaction revenues recognized the month of the transaction activity. Sales in the third quarter of 2001 were slightly greater than sales for the same period in 2000. The subscription component continued to generate recognizable revenue in the periods after the initial sale. Transaction revenues were less in the third quarter of 2001 than the third quarter of 2000, at $148,092 and $206,733, respectively. The subscription component of revenues was greater in the third quarter of 2001 than the third quarter of 2000, at $218,256 and $108,297, respectively. The subscription component of revenues combined with transaction revenues during the third quarter of 2001, plus credits and revenues from minor ancillary services, to account for total revenues of $364,038, a 13% increase over the $321,350 recorded for the same period in 2000. Operating Expenses Selling, general and administrative expenses ("SG&A") were $675,701 for the quarter ended September 30, 2001 as compared to $1,063,786 for the quarter ended September 30, 2000, an improvement of $388,065, and a 36% reduction. The largest component of SG&A continues to be payroll and related expenses. Payroll and related expenses decreased $228,603, or 37%, during the third quarter of 2001 to $388,998 from $617,601 during the third quarter of 2000. Non-cash stock based compensation decreased 52% for the third quarter 2001 compared to the third quarter 2000. This decrease was attributed to cost control measures instituted by new management which included staff reductions through attrition during 2000 and layoffs as the Company entered its slow season in January 2001. Rent increased $37,491, or 137%, during the three months ending September 30, 2001 to $64,701 for the period as compared to $27,210 for the same period in 2000. The increase was due to the annual July 1, rent increase per the lease agreement. Travel and entertainment expense decreased $11,287 during the three months ended September 30, 2001 from the three months ended September 30, 2000. Travel and entertainment expense during the third quarter of 2001 reflected reduced sales and executive personnel travel, this philosophy had also begun to take hold during the third quarter 2000 as expense during this quarter is much reduced from previous quarters in 2000. Expense for consultants and outside labor decreased $36,462 during the three months ended September 30, 2001 from the three months ended September 30, 2000. In the third quarter of 2001, consulting expense related to maintaining the Company's new independent server equipment, and paying certain expenses of the CEO and a marketing consultant hired in April 2001. During the three months ended September 30, 2000, the Company maintained certain contracts with consultants though consulting expense declined steadily during 2000 as the Company filled fulltime employee positions and terminated a management services agreement with Tel.n.form Interactive. The preceding factors combined to account for $238,857 of the $276,230 decrease in SG&A expense during the three months ended September 30, 2001 from the three months ended September 30, 2000. Interest expense decreased $69,401, or 93%, to $5,567 in the third quarter of 2001 from $74,968 in the third quarter of 2000 due to restructuring the Company's debt obligations. This restructuring was completed as a condition to the 16 RFP Express Inc. and Subsidiaries (formerly The IXATA Group, Inc.) Quarterly Report on Form 10-QSB For the Nine Months and Quarter Ended September 30, 2001 - -------------------------------------------------------------------------------- financing transaction with NextGen Capital in December 2000. The nature of the restructuring fell under the accounting treatment for a troubled debt restructuring and, as such, all future interest payable on the restructured notes was recognized in December 2000 and included in the principal amount of the note. Thus, in the three months ended September 30, 2001 and for all future periods until these notes are paid, no interest will be recorded for these restructured long-term obligations. Some short and long-term notes remain and interest will be recorded on these until the balances are paid in full. The net loss in the second quarter of 2001 decreased to $317,230 from $817,404 in the second quarter 2000. This improvement of $500,174 in the third quarter of 2001 from the third quarter of 2000 was the result of increased revenues and decreased operating expenses during the three months ended September 30, 2001 as compared to the three months ended September 30, 2000. This change was attributable to aggressive cost reduction efforts while maintaining sales growth targets. Income Taxes Deferred income taxes are provided for temporary differences in recognizing certain income and expense items for financial and tax reporting purposes. Deferred tax assets consist primarily of income tax benefits from net operating loss carry-forwards and amortization of goodwill. A valuation allowance has been recorded to fully offset the deferred tax asset as it is more likely than not that the assets will not be utilized. The valuation allowance increased $450,000 for the nine months ended September 30, 2001 from $1,839,000 at December 31, 2000 to $2,289,000 at September 30, 2001. Liquidity and Capital Resources The Company has incurred significant operating losses as a result of the development and operation of its products, service platform and supporting networks. The Company expects that such losses will continue as the Company focuses on the development and expansion of product offerings and its customer base as cash provided by current operations will not be sufficient to fund the ongoing cash flow. The Company had working capital deficits of $885,455 and $3,148,323 as of September 30, 2001 and 2000, respectively, and incurred net losses of $1,270,926 and $8,857,155 ($3,493,266 before impairment of goodwill) for the first nine months in 2001 and 2000, respectively. These conditions raise substantial doubt about the Company's ability to continue as a going concern. To address its financing needs, on September 8, 2000, the Company entered into a letter of intent with NextGen Capital, LLC for an equity investment by NextGen in the Company. NextGen is a Virginia-based firm that manages two venture capital funds specializing in high-technology and internet-related investments. The financing was consummated on December 5, 2000. In addition, upon the completion of defined performance milestones by the Company, NextGen agreed to purchase additional preferred shares and warrants. The Company reached the first defined performance milestone in March 2001 at which time NextGen purchased the second round of preferred shares and warrants. The June 2001 targeted milestones were also met and NextGen invested the final third round of preferred shares of stock and warrants on June 15, 2001. In August 2001 NextGen purchased an additional 90,000 preferred shares and warrants. After all financing rounds, the Company had issued 2,085,461 Series C preferred shares of stock as of September 30, 2001 and warrants to purchase an additional 2,050,000 shares of preferred to NextGen Fund II, LLC, NextGen SBS Fund II, LLC, and other investors for a total of $2,300,000. The First Nine Months of 2001 as Compared to the First Nine Months of 2000 - -------------------------------------------------------------------------- As of September 30, 2001, the Company had cash and cash equivalents of $0 as compared to $62,664 as of September 30, 2000. This decrease was attributable to cash used to pay off the Company's $100,000 line of credit and a $75,000 investment in computers and equipment to support the new independent server room in addition to cash used to support operations and settlement payments related to consummating the NextGen transaction. The Company had accounts receivable totaling $229,580 at September 30, 2001 as compared with $286,863 at September 30, 2000. The decrease in accounts receivable reflected more efficient accounts receivable collection 17 RFP Express Inc. and Subsidiaries (formerly The IXATA Group, Inc.) Quarterly Report on Form 10-QSB For the Nine Months and Quarter Ended September 30, 2001 - -------------------------------------------------------------------------------- during the nine months ended September 30, 2001. Net cash used by operating activities was $931,119 for the nine months ended September 30, 2001 compared to $1,705,025 for the nine months ending September 30, 2000. This improvement was attributable to increased revenues and decreased operating expenses as noted in the SG&A expense discussion preceding. Net cash used by investing activities for the nine months ended September 30, 2001 was $86,744 for the purchase of fixed assets as compared with $50,749 for the nine months ended September 30, 2000. Net cash provided by financing activities for the first nine months of 2001 totaled $767,119 compared to $1,492,293 during the first nine months of 2000. Cash infusions for the nine months ended September 30, 2001 reflected a series of fundings from NextGen Capital and certain related investors based on pre- determined milestones related to sales and cost targets. Seasonality Sales of the Company's RFP Express(SM) products and services are generally seasonal in nature. Most of the RFP processing transactions and related billable activities occur in the third and fourth quarter. While the Company is pursuing new services, which may reduce the revenue volatility of the Company's business, there can be no assurance when revenues from such services will be realized. Forward-Looking Statements Statements that are not historical facts, including statements about the Company's confidence in its prospects and strategies and its expectations about expansion into new markets, growth in existing markets, and the Company's ability to attract new sources of financing, are forward-looking statements that involve risks and uncertainties. These risks and uncertainties include, but are not limited to: . The continued losses and negative working capital raise substantial doubt about the Company's ability to continue as a going concern. . The Company will require additional capital, which it may not be able to obtain. . The Company has a short operating history upon which to base an investment decision. . The Company's failure to protect or maintain its intellectual property rights could place it at a competitive disadvantage and result in loss of revenue and higher expenses. . The Company's business prospects depend on demand for and market acceptance of the internet. . If the Company's market does not grow as expected, its revenues will be below its expectations and its business and financial results will suffer. . Any failure of the Company's internet and e-commerce infrastructure could lead to significant costs and disruptions which could reduce revenues and harm business and financial results. . The Company could lose customers and expose itself to liability if breaches of its network security disrupt service to its customers or jeopardize the security of confidential information stored in its computer systems. . Rapid growth in the Company's business could strain its resources and harm its business and financial results. . The Company may not be able to compete in its highly competitive market. . The Company depends on the services of senior management and other key personnel and the ability to hire, train and retain skilled employees. 18 RFP Express Inc. and Subsidiaries (formerly The IXATA Group, Inc.) Quarterly Report on Form 10-QSB For the Nine Months and Quarter Ended September 30, 2001 - -------------------------------------------------------------------------------- . Risks associated with operating in international markets could restrict the Company's ability to expand globally and harm its business and prospects. . Government regulation and legal uncertainties could limit the Company's business or slow its growth. . The Company's operating results may fluctuate in future periods which may cause volatility or a decline in the price of its common stock. . The Company's executive officers, directors, and parties related to them, in the aggregate, control 83% of the Company's voting Stock and may have the ability to control matters requiring stockholder approval. . The Company's common stock may be delisted from the Nasdaq Over-the-Counter Bulletin Board Service if the Company fails to make required filing with the Securities and Exchange Commission. . Our business partially depends on the free flow of services through the channels of commerce. Recently, in response to terrorists' activities and threats aimed at the United States, transportation, mail, financial, and other services have been slowed or stopped altogether. Further delays or stoppages in transportation, mail, financial or other services could have a material adverse effect on our business, results of operations, and financial condition. Furthermore, we may experience a small increase in operating costs, such as costs for transportation, insurance, and security as a result of the activities and potential activities. The U.S. economy in general is being adversely affected by the terrorist activities and potential activities, and any economic downturn could adversely impact our results of operations, impair our ability to raise capital, or otherwise adversely affect our ability to grow our business. . The September 11, 2001 terrorist attacks have dramatically curtailed both business and leisure travel and have exacerbated pressures on an already weakened economy. Management anticipates continued pressures on revenues over the next twelve months due to decreased occupancy, the effects of the September 11, 2001 attacks, the subsequent war on terrorism which will continue to have a significant impact on travel and lodging demand and the weakening of the U.S. economy. These and other risks described in the Company's most recent Annual Report must be considered by any investor or potential investor in the Company. 19 RFP Express Inc. and Subsidiaries (formerly The IXATA Group, Inc.) Quarterly Report on Form 10-QSB For the Nine Months and Quarter Ended September 30, 2001 - -------------------------------------------------------------------------------- Part II -- Other Information Item 1. Legal Proceedings. None. Item 2. Changes in Securities and Use of Proceeds. On December 5, 2000, the Company entered into the Series C Convertible Preferred Stock and Series C Convertible Preferred Stock Warrant Purchase Agreement. Pursuant to the Stock Purchase Agreement, on August 8, 2001, NextGen purchased 90,000 shares of preferred stock. Each share of preferred stock is presently convertible into ten shares of common stock (subject to anti-dilution adjustment in the event of subsequent issuances of stock by the Company at a price less than the conversion price of the Series C preferred stock (presently $0.10), stock splits, stock dividends, recapitalization and similar events). NextGen was also granted Series C preferred warrants to purchase an equal number of Series C shares. These Series C warrants are exercisable at a price of $1.00 per share and expire five years from the date of issuance. The Company believes this issuance to be exempt under (S) 4(2) and Rule 506 of the Securities Act. Item 3. Defaults Upon Senior Securities. No defaults upon senior securities occurred during the third quarter of 2001. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. On May 25, 2001, John C. Riener succeeded Michael W. Wynne as CEO of the Company. Mr. Wynne became Chairman and CEO of the Company following the NextGen investment in December, 2000. Mr. Wynne was selected for a cabinet position in the Bush administration and was charged with finding a replacement candidate with extensive industry experience for the President/CEO position at the Company. Mr. Riener was appointed CEO by the Board on May 24, 2001. Mr. Wynne resigned as Chairman and from the Board effective on July 31, 2001. Robert D. Cuthbertson resigned as the Company's Chief Financial Officer and a member of the Board of Directors as of August 10, 2001 and left the Company to pursue other interests as of August 24, 2001. Item 6. Exhibits and Reports on Form 8-K. None. 20 RFP Express Inc. and Subsidiaries (formerly The IXATA Group, Inc.) Quarterly Report on Form 10-QSB For the Nine Months and Quarter Ended September 30, 2001 - -------------------------------------------------------------------------------- SIGNATURES In accordance with the requirements of the Exchange Act, the Company caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized. RFP Express Inc. Date: November 12, 2001 /s/ John C. Riener ------------------ By John C. Riener, Chief Executive Officer 21 -----END PRIVACY-ENHANCED MESSAGE-----