SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2004
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______ to _______
COMMISSION FILE NO. 000-27259
REWARD ENTERPRISES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Nevada 87-0631750
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(State or Other Jurisdiction (I.R.S. Employer Identification
of Incorporation or Organization) Number)
2033 Main Street, Suite 500, Sarasota, Florida 342337
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(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code (941) 928-7394
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $0.001 per share
----------------------------------------
(Title of Class)
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.
(1) Yes [X] No [ ] (2) Yes [X] No [ ]
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 the 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.
State issuer's revenues for its most recent fiscal year: $ -0-
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within the past 60 days.
The market value of shares held by nonaffiliates is $3,254,526 based on
the bid price of $0.04 per share at November 10, 2004.
As of November 10, 2004, the Company had 113,170,534 shares of common stock
issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
TABLE OF CONTENTS
PART I..............................................................................................................1
Forward-Looking Statements.......................................................................................1
Item 1. Description of business.................................................................................1
Item 2. Description of properties...............................................................................4
Item 3. Legal proceedings.......................................................................................4
Item 4. Submission of matters to a vote of securities holders...................................................4
PART II.............................................................................................................5
Item 5. Market for common equity and related stockholder matters................................................5
Item 6. Management's discussion and analysis or plan of operation...............................................6
Item 7. Financial statements...................................................................................10
Item 8. Changes in and disagreements with accountants on accounting and financial disclosure...................10
Item 8a. Controls and procedures...............................................................................10
Item 9. Directors and executive officers, promoters, and control persons; compliance with section 16(a) of
the exchange act................................................................................................10
Item 10. Executive compensation................................................................................11
Item 11. Security ownership of certain beneficial owners and management security ownership of certain
beneficial owners...............................................................................................12
Item 12. Certain relationships and related transactions........................................................12
PART IV............................................................................................................14
Item 13. Exhibits and reports on form 8-k......................................................................14
Item 14. Principal accounting fees and services................................................................14
SIGNATURES.........................................................................................................15
EXHIBIT 31.1........................................................................................................1
EXHIBIT 31.2........................................................................................................1
EXHIBIT 32.1........................................................................................................1
FINANCIAL STATEMENTS..............................................................................................F-1
PART I
INTRODUCTORY NOTE
FORWARD-LOOKING STATEMENTS
This Form 10-KSB contains "forward-looking statements" relating to
Reward Enterprises, Inc. ("Reward") which represent Reward's current
expectations or beliefs including, but not limited to, statements concerning
Reward's operations, performance, financial condition and growth. For this
purpose, any statements contained in this Form 10-KSB that are not statements of
historical fact are forward-looking statements. Without limiting the generality
of the foregoing, words such as "may", "anticipation", "intend", "could",
"estimate", or "continue" or the negative or other comparable terminology are
intended to identify forward-looking statements. These statements by their
nature involve substantial risks and uncertainties, such as credit losses,
dependence on management and key personnel, variability of quarterly results,
and the ability of Reward to continue its growth strategy and competition,
certain of which are beyond Reward's control. Should one or more of these risks
or uncertainties materialize or should the underlying assumptions prove
incorrect, actual outcomes and results could differ materially from those
indicated in the forward-looking statements.
Any forward-looking statement speaks only as of the date on which such
statement is made, and the Company undertakes no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time and it is not
possible for management to predict all of such factors, nor can it assess the
impact of each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
ITEM 1. DESCRIPTION OF BUSINESS
HISTORY AND ORGANIZATION
GENERAL
Reward Enterprises Inc. (the "Company") was incorporated under the laws
of the State of Nevada on December 12, 1997, as Sports Entertainment
Productions, Inc. to engage in the business of Internet entertainment, including
gaming. In July 1998, the Company changed its name to Reward Enterprises Inc.
On August 15, 2001, the Company discontinued its plan of operating a
virtual casino website as a result of the shareholder approval of the
acquisition of Q Presents Inc., a private California based company which
intended to provide localized and web based custom event registration and
automation solutions targeting the hotel and conference segment of the Event
Automation industry.
In November of 2003, the Company entered into the specialized
international communications market to provide international voice, Internet
access and global network services to corporate clients, communication carriers
and Internet service providers. The Company planned to utilize a web based
platform that was originally intended as an event registration and automation
solution for its telecommunication business. This plan was discontinued in
December of 2003 by management of the Company for reasons of lack of funding to
finish the project.
In January of 2004, the Company's management control group sold
2,300,000 shares of stock, representing 52.08% of the Company's outstanding
shares, to Bell Investments, LLC of Sarasota, FL ("Bell"). Since that time, the
Company has been in search of a suitable operating company to merge with the
Company and has been reclassified as a development stage company.
Effective June 30, 2004 the Company's Articles of Incorporation were
amended to increase its authorized common shares from two hundred million
(200,000,000) to five billion (5,000,000,000). The Company also authorized ten
million (10,000,000) shares of preferred stock.
The company currently has no operations. The Company has recently
entered into a letter of intent dated October 11, 2004 with Consumers Choice
Financial Services, Inc. of Houston, TX ("CCF") whereby the Company would
acquire the operations of CCF in exchange for shares of the Company. The Company
has issued, on a post-split basis as disclosed immediately below, 38,000,000
shares of common stock into escrow pending the close of this transaction.
1
Effective October 13, 2004 the Company enacted a 1-for-10 reverse split
of its issued and outstanding shares and its authorized shares which changed the
issued and outstanding shares from 1,131,705,340 to 113,705,534 shares and its
authorized shares from five billion (5,000,000,000) to five hundred million
(500,000,000). All references to number of shares and price per share have been
adjusted to reflect the reverse stock split on a retroactive basis.
The information set forth below contains the Company's plan of
operations on June 30, 2004. Reward Enterprises, Inc. maintains an
administrative office at 2033 Main Street, Suite 500, Sarasota, Florida, 34237.
OPERATIONS
The Company is a start-up business and has not commenced operations as
of the date hereof other than an undertaking of a market analysis and
discussions in the development of strategic relationships in consumer financial
services. As such, the following reflects the Company's proposed plan of
operation. There is no assurance however, that the Company will ultimately be
able to implement its plan of becoming a nationwide consumer financial services
provider.
CONSUMER FINANCIAL SERVICES
The Company's goal is to become a nationwide provider of consumer
financial services focused on sub-prime lending to consumers for auto loans,
mortgages, insurance products, branded MasterCard and Visa credit cards and
debit cards and various other consumer financial services. The Company has
proposed a merger with Consumers Choice Financial Services, Inc. of Houston, TX
("CCF") that would provide an entry into the consumer financial services
business. Through the acquisition of CCF, the Company could potentially offer a
broad range of integrated consumer loans to sub-prime consumers. CCF has systems
in place that identify targeted sub-prime consumers that maintain good earning
power but have items on their credit reports that have caused their credit
scores to drop into the sub-prime category. With associations currently in
place, CCF would market consumer loan products to these targeted customers and
contract with other financial institutions that would service the subsequent
loans that were made.
In addition, CCF plans to submit it's application for a limited
services credit card bank to the State of South Dakota banking commission for
approval at the commission's January, 2005 regularly scheduled meeting. With
charter approval, CCF would market a branded MasterCard/VISA credit card to its
targeted customers.
CCF is currently a start-up operation with no revenues. Therefore, a
pro-forma financial statement incorporating the operations of CCF with those of
the Company assuming that a merger was completed successfully are not being
presented in this filing as the resulting pro-forma financial statement would
not differ materially from the Company's audited financial statements presented
herein.
The goal of the Company is to complete a merger with CCF by the end of
November 2004. If the Company is unsuccessful in this goal, it will continue to
seek out other operating companies that might provide an entry into the consumer
financial services industry or other industries. The Company signed a
non-binding Letter of Intent with CCF dated October 11, 2004 to explore the
possibility of a merger with CCF.
COMPETITION
There are a number of consumer financial services companies that would
be direct competitors of the Company if it were successful in entering this
industry. Most of the competitors would be very well financed and possess assets
well in excess of $50,000,000, several with assets as much as $500,000,000 to
$800,000,000. This presence of competition in the segment makes the Company's
competitive position extremely weak.
EMPLOYEES
The Company is a development stage company and currently has no
employees other than its Officers and Directors. The Company intends to hire
additional employees as needed.
RISKS RELATED TO OUR BUSINESS
WE ARE SUBJECT TO VARIOUS RISKS THAT MAY MATERIALLY HARM OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. YOU SHOULD CAREFULLY CONSIDER THE
RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS FILING
2
BEFORE DECIDING TO PURCHASE OUR COMMON STOCK. IF ANY OF THESE RISKS OR
UNCERTAINTIES ACTUALLY OCCURS, OUR BUSINESS, FINANCIAL CONDITION OR OPERATING
RESULTS COULD BE MATERIALLY HARMED. IN THAT CASE, THE TRADING PRICE OF OUR
COMMON STOCK COULD DECLINE.
REWARD HAS HISTORICALLY LOST MONEY AND LOSSES MAY CONTINUE IN THE FUTURE WHICH
MAY AFFECT OUR ABILITY TO CONTINUE OPERATIONS
Since our inception we have not been profitable and have lost money on
both a cash and non-cash basis. For the years ended June 30, 2003 and 2004, we
lost $-0- and $55,228 from continuing operations and $391,963 and $2,406,504
from discontinued operations, respectively. Also, we had no revenues for fiscal
year 2003 and 2004. Our accumulated deficit was $3,489,954 at the end of June
30, 2004. Future losses are likely to occur, as we are dependent on spending
money to evaluate and pursue merger candidates. No assurances can be given that
we will be successful in reaching or maintaining profitable operations.
Accordingly, we may continue to experience liquidity and cash flow problems and
ultimately be forced to cease operations.
REWARD WILL MOST LIKELY NEED TO RAISE ADDITIONAL CAPITAL OR DEBT FUNDING TO
SUSTAIN OPERATIONS
Unless Reward can become profitable with the acquisition or merger of
an operating company, Reward will require additional capital to sustain
operations and may need access to additional capital or additional debt
financing to grow. In addition, to the extent that we have a working capital
deficit and cannot offset the deficit we may have to raise capital to repay the
deficit and provide more working capital to permit growth in revenues. We cannot
assure you that financing whether from external sources or related parties will
be available if needed or on favorable terms. Our inability to obtain adequate
financing will result in the need to reduce the pace of business operations. Any
of these events could be materially harmful to our business and may result in a
lower stock price.
WE HAVE BEEN THE SUBJECT OF A GOING CONCERN OPINION FROM OUR INDEPENDENT
AUDITORS, WHICH MEANS THAT SUBSTANTIAL DOUBT EXISTS THAT WE WILL BE ABLE TO
CONTINUE OPERATIONS UNLESS WE CAN BECOME PROFITABLE OR OBTAIN ADDITIONAL FUNDING
Our independent auditors have added an explanatory paragraph to their
audit opinions issued in connection with our financial statements, which states
that the financial statements raise substantial doubt as to our ability to
continue as a going concern. Our ability to make operations profitable or obtain
additional funding will determine our ability to continue as a going concern.
Our financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
WE ARE SUBJECT TO A WORKING CAPITAL DEFICIT, WHICH MEANS THAT OUR CURRENT ASSETS
ON JUNE 30, 2004 WERE NOT SUFFICIENT TO SATISFY OUR CURRENT LIABILITIES
We had a working capital deficit of $170,899 at June 30, 2004, which
means that our current liabilities as of that date exceeded our current assets
of $0 on June 30, 2004 by that amount. Current assets are assets that are
expected to be converted to cash within one year and, therefore, may be used to
pay current liabilities as they become due. As of June 30, 2004 we had $0.00 in
current assets. Our working capital deficit also means that our current assets
on June 30, 2004 were not sufficient to satisfy all of our current liabilities
on that date. If our ongoing operations do not begin to provide sufficient
profitability to offset the working capital deficit we may have to raise capital
or debt to fund the deficit.
OUR COMMON STOCK MAY BE AFFECTED BY LIMITED TRADING VOLUME AND MAY FLUCTUATE
SIGNIFICANTLY
There has been a limited public market for our common stock and there
can be no assurance that a more active trading market for our common stock will
develop. An absence of an active trading market could adversely affect our
shareholders' ability to sell our common stock in short time periods, or
possibly at all. Our common stock has experienced, and is likely to experience
in the future, significant price and volume fluctuations, which could adversely
affect the market price of our common stock without regard to our operating
performance. In addition, we believe that factors such as changes in the overall
economy or the condition of the financial markets could cause the price of our
common stock to fluctuate substantially. These fluctuations may also cause short
sellers to enter the market from time to time in the belief that Reward will
have poor results in the future. We cannot predict the actions of market
participants and, therefore, can offer no assurances that the market for our
stock will be stable or appreciate over time.
3
OUR COMMON STOCK IS DEEMED TO BE "PENNY STOCK," WHICH MAY MAKE IT MORE DIFFICULT
FOR INVESTORS TO SELL THEIR SHARES DUE TO SUITABILITY REQUIREMENTS
Our common stock is deemed to be "penny stock" as that term is defined
in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934. These
requirements may reduce the potential market for our common stock by reducing
the number of potential investors. This may make it more difficult for investors
in our common stock to sell shares to third parties or to otherwise dispose of
them. This could cause our stock price to decline. Penny stocks are stock:
o With a price of less than $5.00 per share;
o That are not traded on a "recognized" national exchange;
o Whose prices are not quoted on the NASDAQ automated quotation system
(NASDAQ listed stock must still have a price of not less than $5.00
per share); or
o In issuers with net tangible assets less than $2.0 million (if the
issuer has been in continuous operation for at least three years) or
$10.0 million (if in continuous operation for less than three
years), or with average revenues of less than $6.0 million for the
last three years.
Broker/dealers dealing in penny stocks are required to provide
potential investors with a document disclosing the risks of penny stocks.
Moreover, broker/dealers are required to determine whether an investment in a
penny stock is a suitable investment for a prospective investor.
OUR LACK OF OPERATING HISTORY MAKES IT DIFFICULT OR IMPOSSIBLE TO EVALUATE OUR
PERFORMANCE AND MAKE PREDICTIONS ABOUT OUR FUTURE
The Company has no current operations. While reward has recently signed
a letter of intent to acquire CCF, this transaction may not close. Based on this
lack of operations, it is difficult or impossible for us to evaluate our
operational and financial performance, or to make accurate predictions about our
future performance.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company maintains an administrative office at 2033 Main Street,
Suite 500, Sarasota, Florida 34237. The Company currently does not pay rent.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Pursuant to a written consent, executed on August 5, 2004, a majority
of the shareholders approved an amendment to Article Six of Reward's Articles of
Incorporation. The amendment, which was filed on September 28, 2004, increased
the authorized shares of common stock to five billion (5,000,000,000) shares
from two hundred million (200,000,000) and approved the authorization of ten
million (10,000,000) preferred shares.
4
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Shares of the Company are quoted on the National Association
of Securities Dealers, Inc. ("NASD") Over-The-Counter Bulletin Board ("OTCBB").
The OTCBB constitutes a limited and sporadic trading market and does not
constitute an "established trading market". There is no assurance that a regular
trading market will be sustainable. A shareholder, may, therefore, be unable to
resell the securities referred to herein should he or she desire to do so.
Furthermore, it is unlikely that a lending institution will accept the Company's
securities as pledged collateral for loans unless a regular trading market
develops.
At November 10, 2004, we had approximately 400 shareholders of record
of our common stock, including shares held by brokerage clearing houses,
depositories or otherwise in unregistered form, based on information provided by
our transfer agent, Pacific Stock Transfer Company, 500 E. Warm Springs Road,
Suite # 240, Las Vegas, Nevada 89119. The beneficial owners of such shares are
not known to us. Our company's securities are traded OTCBB operated by the under
the symbol "RWRD". The table shows the high and low bid of our Company's common
stock as reported on the Nasdaq National Market for the periods indicated.
PERIOD ENDED
FYE 2003 HIGH BID LOW BID
September 30, 2002 $1.00 $0.10
December 31, 2002 $0.50 $0.10
March 31, 2003 $0.10 $0.01
June 30, 2003 $0.10 $0.01
FYE 2004
September 30, 2003 $0.10 $0.01
December 31, 2003 $0.50 $0.01
March 31, 2004 $0.20 $0.05
June 30, 2004 $0.20 $0.05
The above OTCBB reflect inter-dealer prices without retail mark-up,
mark-down or commission and may not represent actual transactions.
There are no plans, proposals, arrangements or understandings with any
person with regard to the development of a trading market in any of the
Company's securities.
At November 10, 2004, our Common Stock was quoted on the OTCBB at a bid
price of $0.04.
DIVIDENDS
Reward has not declared or paid cash dividends on its Common Stock
since its inception and does not anticipate paying such dividends in the
foreseeable future. The payment of dividends may be made at the discretion of
the Board of Directors and will depend upon, among other factors, on Reward's
operations, its capital requirements, and its overall financial condition.
CHANGES IN SECURITIES
The Company had 4,412,200 shares of Common Stock issued and outstanding
as of June 30, 2004.
In August 2001, the Company issued 600,000 shares of common stock in
its acquisition of Q Presents Inc. The shares which are legended under Rule 144
re-sale restrictions were issued pursuant to Rule 16(b) of the Securities Act of
1934.
Between October 2001 and June 2002, Frank Rigney exercised options for
a total of 27,200 common shares at a price of $2.50 per share, and Robert
Dinning exercised options for a total of 20,000 common shares of which 10,000
were at a price of $1.00 per share and 10,000 were at a price of $2.50 per share
5
and Brian Doutaz exercised options for a total of 10,000 shares at a price of
$1.00 per share. All shares so issued were issued under Rule 16(b) of the
Securities Act of 1934.
As of the date hereof, no further options have been exercised.
In December 2001 the Company issued 890,000 shares of its common stock
to twelve investors in consideration of $890 and between January and June 2002,
the Company issued an additional 102,667 shares of common stock to eleven
investors in consideration of $84,000. Two of these investors were granted
warrants to purchase 2,500 and 500 shares of the Company's common stock at $2.50
per share. The shares which are legended under Rule 144 re-sale restrictions
were issued pursuant to Rule 16(b) of the Securities Act of 1934.
In April 2002, the Company issued 294,500 shares of common stock to an
officer and consultant of the Company for prior services rendered in the amount
of $14,725. The shares which are legended under Rule 144 re-sale restrictions
were issued pursuant to Rule 16(b) of the Securities Act of 1934.
Between July and September 2002, the Company issued an additional
29,333 shares of common stock to in consideration of $38,500. The shares which
are legended under Rule 144 re-sale restrictions were issued pursuant to Rule
16(b) of the Securities Act of 1934.
In October 2002, the Company issued 72,500 shares of common stock to a
consultant and officer of the Company for prior services rendered in the amount
of $7,250. The shares which are legended under Rule 144 re-sale restrictions
were issued pursuant to Rule 16(b) of the Securities Act of 1934.
In January of 2004, the Company issued 2,300,000 shares to management
for the assumption of certain debts and payment for consulting fees accrued
during 2003. These shares were subsequently sold to Bell Investments, LLC of
Sarasota, Florida.
In January 2004, 100,000 shares were issued to a consultant in exchange
for services.
In October, 2004 the Company issued 108,750,000 post-split shares to
holders of Promissory Notes valued at $108, 754 in return for the cancellation
of all principal and interest due on the Promissory Notes.
In conjunction with the Company's Letter of Intent with CCF, the
Company issued 380,000,000 shares to the shareholders of CCF, to be held in
attorney's trust pending closing of a share exchange agreement between the
Company and CCF.
Effective October 13, 2004 the Company enacted a 1-for-10 reverse stock
split of its issued and outstanding shares and its authorized shares which
changed the issued and outstanding shares to 113,170,340 shares and it's
authorized shares from five billion (5,000,000,000) to five hundred million
(500,000,000).
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLAN
The following table sets forth the securities that have been authorized
under equity compensation plans as of June 30, 2004.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements, and the Notes thereto included
herein. The information contained below includes statements of Reward's or
management's beliefs, expectations, goals and plans that, if not historical, are
forward-looking statements subject to certain risks and uncertainties that could
cause actual results to differ materially from those anticipated in the
forward-looking statements. For a discussion on forward-looking statements, see
the information set forth in the Introductory Note to this Annual Report under
the caption "Forward Looking Statements", which information is incorporated
herein by reference.
6
GOING CONCERN
As reflected in our financial statements as of June 30, 2004, our
accumulated deficit of $3,849,954 and our working capital deficiency of $170,899
raise substantial doubt about our ability to continue as a going concern. Our
ability to continue as a going concern is dependent on our ability to raise
additional debt or capital. The financial statements for June 30, 2004 do not
include any adjustments that might be necessary if we are unable to continue as
a going concern.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's discussion and analysis of our financial condition and
results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these financial
statements requires that we make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses. At each balance
sheet date, management evaluates its estimates. We base our estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions. The estimates and critical
accounting policies that are most important in fully understanding and
evaluating our financial condition and results of operations include those
listed below.
REVENUE RECOGNITION
The Company currently has no revenues.
STOCK-BASED COMPENSATION
The Company applies Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, and Related Interpretations, in
accounting for stock options issued to employees. Under APB No. 25, employee
compensation cost is recognized when estimated fair value of the underlying
stock on date of the grant exceeds exercise price of the stock option. For stock
options and warrants issued to non-employees, the Company applies SFAS No. 123,
Accounting for Stock-Based Compensation, which requires the recognition of
compensation cost based upon the fair value of stock options at the grant date
using the Black-Scholes option pricing model.
In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure. SFAS No. 148 amends the
transition and disclosure provisions of SFAS No. 123. The Company is currently
evaluating SFAS No. 148 to determine if it will adopt SFAS No. 123 to account
for employee stock options using the fair value method and, if so, when to begin
transition to that method.
RESULTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 2004
REVENUES. We have had no revenue for the years ended June 30, 2003 and
2004.
COST OF REVENUE. We also had no associated costs of revenues for the
years ended June 30, 2003 and 2004.
GROSS PROFIT. Our gross profit for the years ended June 30, 2003 and
2004, was $-0- and $-0-.
OPERATING EXPENSES. Operating expenses for the years ended June 30,
2003 and 2004, were $-0- and $55,228, respectively. Total operating expenses in
the fiscal 2004 year were $55,228. The majority of the operating expenses were
professional fees which consisted of fees paid for legal of $35,385 and
accounting expenses of $6,970.
OTHER EXPENSES. Other expenses for the years ended June 30, 2003 and
2004 were $0 and $5,604. The other expenses in the 2004 period consisted
entirely of interest expense.
LOSS FROM DISCONTINUED OPERATIONS. We had a loss of $336,735 and
$2,406,504 from discontinued operations for the years ended June 30, 2004 and
2003 respectively.
NET LOSS. The Company has net loss of $391,963 and $2,406,504 for the
years ended June 30, 2004 and 2003 respectively.
7
LIQUIDITY AND CAPITAL RESOURCES
Our financial statements have been prepared on a going concern basis
that contemplates the realization of assets and the settlement of liabilities
and commitments in the normal course of business. We incurred a net loss
$391,963 for the year ended June 30, 2004 and have an accumulated deficit of
$3,849,954 at June 30, 2004. As of June 30, 2004 we had no assets and
liabilities of $170,899, a difference of $170,899. The majority of our
liabilities, are notes payable with associated interest of $102,842 and accounts
payable of $68,057. Subsequent to June 30, 2004, the notes payable were
converted into shares of common stock. Management recognizes that Reward must
generate or obtain additional capital to enable it to continue operations.
Management is planning to obtain additional capital principally through the sale
of equity securities. The realization of assets and satisfaction of liabilities
in the normal course of business is dependent upon our obtaining additional
equity capital and ultimately obtaining profitable operations. However, no
assurances can be given that we will be successful in these activities. Should
any of these events not occur, the accompanying consolidated financial
statements will be materially affected.
We had limited operations and no revenues during the year ended June
30, 2004. Our shortfall in working capital has been met through loans and sale
of stock to affiliates. We anticipate that we will require significant capital
to maintain our corporate viability. We anticipate necessary funds will most
likely be provided by our existing shareholders, our officers and directors, and
outside investors. We may be required to pledge equity in the Company to induce
individuals, officers or directors or other shareholders to guarantee our loans
when necessary.
We are at present meeting our current obligations from our monthly cash
flows, which during 2004, has included investor capital, and loans from related
parties. However, due to insufficient cash generated from operations, we
currently do not have internally generated cash sufficient to pay all of its
incurred expenses and other liabilities. As a result, we are dependent on
investor capital and loans to meet its expenses and obligations. Although
related party loans have allowed us to meet our obligations in the recent past,
there can be no assurances that our present methods of generating cash flow will
be sufficient to meet future obligations. There can be no assurances that we
will be able to raise sufficient additional capital in the future.
We have incurred losses since inception. Management believes that it
will require approximately $150,000 in additional capital to fund overall
Company operations for the next twelve months.
PLAN OF OPERATION
The Company is a start-up business and has not commenced operations as
of the date hereof other than an undertaking of a market analysis and
discussions in the development of strategic relationships in consumer financial
services. As such, the following reflects the Company's proposed plan of
operation. There is no assurance however, that the Company will ultimately be
able to implement its plan of becoming a nationwide consumer financial services
provider.
CONSUMER FINANCIAL SERVICES
The Company's goal is to become a nationwide provider of consumer
financial services focused on sub-prime lending to consumers for auto loans,
mortgages, insurance products, branded MasterCard and Visa credit cards and
debit cards and various other consumer financial services. The Company has
proposed a merger with Consumers Choice Financial Services, Inc. of Houston, TX
that would provide an entry into the consumer financial services business.
Through the acquisition of CCF, the Company could potentially offer a broad
range of integrated consumer loans to sub-prime consumers. CCF has systems in
place that identify targeted sub-prime consumers that maintain good earning
power but have items on their credit reports that have caused their scores to
drop into the sub-prime category. With associations currently in place, CCF
would market consumer loan products to these targeted customers and contract
with other financial institutions would service the subsequent loans that were
made.
In addition, CCF plans to submit it's application for a limited
services credit card bank to the State of South Dakota banking commission for
approval at the commission's January, 2005 regularly scheduled meeting. With
charter approval, CCF would market a branded MasterCard/VISA credit card to its
targeted customers.
CCF is currently a start-up operation with no revenues. Therefore, a
pro-forma financial statement incorporating the operations of CCF with those of
the Company assuming that a merger was completed successfully are not being
presented in this filing as the resulting pro-forma financial statement would
not differ materially from the Company's audited financial statements presented
herein.
8
The goal of the Company is to complete a merger with CCF by the end of
November, 2004. If the Company is unsuccessful in this goal, it will continue to
seek out other operating companies that might provide an entry into the consumer
financial services industry or other industries. The Company signed a
non-binding Letter of Intent with CCF dated October 4, 2004 to explore the
possibility of a merger with CCF.
Our continuation as a going concern is dependent on our ability to meet
our obligations and obtain additional debt or equity financing required until
the company engages in meaningful operations that generate earnings. Until such
time as the Company generates earnings, the Company intends to proceed in the
following manner to attaempt to continue in existence:
o Maintain reduced administrative expenses by consolidating management
responsibilities to our president and chief executive officer.
o We intend to seek either equity funding.
We believe that the foregoing plan should enable us to conserve
sufficient funds to continue our operations for the next twelve months.
Management has implemented this plan to overcome the Company's serious
going concern conditions. The first step is to reduce operating costs. To this
end the Company's President and Chief Executive Officer, Earl Ingarfield, has
assumed almost all of the Company's functions from sales and marketing, locating
and evaluating acquisition prospects, shareholder relations and general
administrative functions. Mr. Ingarfield has foregone any compensation and has
committed to continue with no compensation through 2004.
For the next 12 months we anticipate that we will need $150,000 to
continue to fund basic operations, in addition to funding necessary to complete
a merger. The Company anticipates approximately $50,000 in consulting fees in
the next fiscal year and only minor operating expenses.
The Company plans to continue operating with small administrative and
consulting fees in the next fiscal year in order to continue operations.
Continuing to work with its accounting and legal professionals more efficiently,
the Company plans to reduce its fees for such services. In addition, the Company
plans to utilize only one consultant for accounting services.
CURRENT ACCOUNTING PRONOUNCEMENTS
NEW ACCOUNTING PRONOUNCEMENTS. In July 2001, the FASB issued SFAS No.
143, Accounting for Obligations Associated with the Retirement of Long-Lived
Assets. SFAS No. 143 establishes accounting standards for the recognition and
measurement of an asset retirement obligation and its associated asset
retirement cost. It also provides accounting guidance for legal obligations
associated with the retirement of tangible long-lived assets. SFAS No. 143 is
effective in fiscal years beginning after June 15, 2002, with early adoption
permitted. The adoption of SFAS No. 143 did not have a material impact on the
Company's financial statements.
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144 establishes a single
accounting model for the impairment or disposal of long-lived assets, including
discontinued operations. SFAS 144 superseded Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, and APB Opinion No. 30, Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. The provisions of SFAS No. 144 are effective in fiscal years
beginning after December 15, 2001, with early adoption permitted, and in general
are to be applied prospectively. The adoption of SFAS No. 144 did not have a
material impact on the Company's financial statements for the years ended June
30, 2004 and 2003.
In July 2002, the FASB issued Statement No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities,
such as restructurings, involuntarily terminating employees, and consolidating
facilities initiated after December 31, 2002. The implementation of SFAS No. 146
did not have a material effect on the Company's financial statements for the
year ended June 30, 2004.
9
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements of Reward required by Regulation
S-B are attached to this report. Reference is made to Item 13 below for an index
to the financial statements.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has had no disagreements with its certified public
accountants with respect to accounting practices or procedures of financial
disclosure.
ITEM 8A. CONTROLS AND PROCEDURES
(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's Principal Executive Officer/Principal Financial Officer (one person),
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures. The Company's disclosure controls and procedures are
designed to provide a reasonable level of assurance of achieving the Company's
disclosure control objectives. The Company's Principal Executive
Officer/Principal Accounting Officer has concluded that the Company's disclosure
controls and procedures are, in fact, effective at this reasonable assurance
level as of the period covered.
(B) CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
In connection with the evaluation of the Company's internal controls
during the Company's fourth fiscal quarter ended June 30, 2004, the Company's
Principal Executive Officer/Principal Financial Officer has determined that
there are no changes to the Company's internal controls over financial reporting
that has materially affected, or is reasonably likely to materially effect, the
Company's internal controls over financial reporting.
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
GENERAL
The following table sets forth certain information regarding the
current directors and executive officers of the Company:
POSITION(S)
NAME AGE WITH THE COMPANY DIRECTOR SINCE
--------------- --- ----------------------------- --------------
Earl Ingarfield 45 President, C.E.O., C.F.O. and January 2004
Director
The Company's director or executive officer is not a director of any
company that files reports with the SEC. The Company's director has not been
involved in any bankruptcy, other than that he was a director of Dilido Capital
Corp. which filed for bankruptcy protection approximately 3 years ago and he has
not been involved in any criminal proceeding (excluding traffic and other minor
offenses), nor has he been enjoined from engaging in any business.
Reward's directors are elected at the annual meeting of stockholders
and hold office until their successors are elected. Reward's officers are
appointed by the Board of Directors and serve at the pleasure of the Board and
are subject to employment agreements, if any, approved and ratified by the
Board.
Reward does not currently have an audit committee, and the Board of
Directors serves this function.
The following information is furnished for each of the executive
officers and directors of the Company:
EARL INGARFIELD serves as our President and Chief Executive Officer and
is the chairman of our board of directors starting in January 2004. From 1998 to
2001, Mr. Ingarfield was President and Chief Executive Officer of Avid
Sportswear & Golf Corp. From 1979 to 1987, Mr. Ingarfield was a professional
hockey player for the Atlanta Flames, the Calgary Flames and the Detroit Red
Wings.
10
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Our common stock is registered under Section 12(g) of the Exchange Act
and in connection therewith, directors, officers, and beneficial owners of more
than 10% of our common stock ("Reporting Persons") are required to file on a
timely basis certain reports under Section 16 of the Exchange Act as to their
beneficial ownership of our common stock. We believe that under the SEC's rules
for reporting of securities transactions by Reporting Persons, the all of the
required reports have not been filed.
CODE OF ETHICS
On November 11, 2004, the Board of Directors of the Company adopted a
written Code of Ethics designed to deter wrongdoing and promote honest and
ethical conduct, full, fair and accurate disclosure, compliance with laws,
prompt internal reporting and accountability to adherence to the Code of Ethics.
This Code of Ethics has been filed with the Securities and Exchange Commission
as an Exhibit to Reward's Form 10-KSB for the fiscal year ended June 30, 2004.
ITEM 10. EXECUTIVE COMPENSATION
CASH COMPENSATION
There was no cash compensation paid to any of our directors or
executive officers during the fiscal years ended June 30, 2004 and 2003.
EMPLOYMENT AGREEMENTS
Reward has no employment agreements.
BONUSES AND DEFERRED COMPENSATION
None.
COMPENSATION PURSUANT TO PLANS
None.
PENSION TABLE
None.
OTHER COMPENSATION
None.
COMPENSATION OF DIRECTORS
As set forth below, the Company has no compensation plans.
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER SECURITIES TO FUTURE ISSUANCE UNDER
BE ISSUED UPON WEIGHTED-AVERAGE EQUITY COMPENSATION
EXERCISE OF EXERCISE PRICE OF PLANS (EXCLUDING
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, SECURITIES REFLECTED IN
WARRANTS AND RIGHTS WARRANTS AND RIGHTS COLUMN (A))
(A) (B) (C)
-------------------- -------------------- -----------------------
Equity compensation plans approved by security
holders 0 -- 0
Equity compensation plans not approved by
security holders 0 -- 0
TOTAL 0 -- 0
11
TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENT
We have no compensatory plans or arrangements, including payments to be
received from us, with respect to any persons which would in any way result in
payments to any person because of his resignation, retirement, or other
termination of such person's employment by us, or any change in our control, or
a change in the person's responsibilities following a changing in our control.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth as of November 12, 2003, the name,
address and the number of shares of our common stock held of record or
beneficially by each person who was known by us to own beneficially, more than
5% of our 113,170,534 issued and outstanding shares of common stock. In
addition, the table sets forth the name and shareholdings of each director and
of all officers and directors as a group.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS (COMMON)
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENTAGE OF
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS(1)
-------------- ---------------- -------------------- -------------
Common Bell Investments, LLC(2) 2,300,000 2.03%
2033 Main Street
Sarasota, FL 34231
Common Amber Run, LLC
2033 Main Street
Sarasota, FL 34231 23,000,000 20.32%
Common GT Shadow, LLC
2033 Main Street
Sarasota, FL 34231 22,750,000 20.10%
(1) Applicable percentage of ownership is based on 113,170,534 shares of
common stock outstanding as of November 12, 2004 for each stockholder.
Beneficial ownership is determined in accordance within the rules of the
Commission and generally includes voting of investment power with respect
to securities. Shares of common stock subject to securities exercisable or
convertible into shares of common stock that are currently exercisable or
exercisable within 60 days of November 12, 2004 are deemed to be
beneficially owned by the person holding such options for the purpose of
computing the percentage of ownership of such persons, but are not treated
as outstanding for the purpose of computing the percentage ownership of
any other person.
(2) Bell Investments is controlled by Earl Ingarfield.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Except as indicated below, and for the periods indicated, there were no
material transactions, or series of similar transactions, since the beginning of
the Company's last fiscal year, or any currently proposed transactions, or
series of similar transactions, to which we were or are a party, in which the
amount involved exceeds $60,000, and in which any director or executive officer,
or any security holder who is known by us to own of record or beneficially more
than 5% of any class of our common stock, or any member of the immediate family
of any of the foregoing persons, has an interest.
12
During the period ended March 31, 2004, the Company issued 2,540,000
shares of common stock in satisfaction of accounts payable and consulting fees
to affiliated parties of $358,740.
INDEBTEDNESS OF MANAGEMENT
There were no material transactions, or series of similar transactions,
since the beginning of our last fiscal year, or any currently proposed
transactions, or series of similar transactions, to which we were or are a
party, in which the amount involved exceeds $60,000 and in which any director or
executive officer, or any security holder who is known to us to own of record or
beneficially more than 5% of any class of our common stock, or any member of the
immediate family of any of the foregoing persons, has an interest.
TRANSACTIONS WITH PROMOTERS
There have no material transactions between us and our promoters or
founders.
13
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A)(1)...FINANCIAL STATEMENTS. The audited financial statements for
2003 are attached to this report.
(A)(2)...EXHIBITS. The following exhibits are included as part of this
report:
EXHIBIT
NUMBER TITLE OF DOCUMENT LOCATION
------ --------------------------------------------------------- -----------------
Certificate of Amendment to Articles of Incorporation
3.01 filed September 28, 2004 Provided herewith
Certificate of Change to Articles of Incorporation filed
3.02 October 4, 2004 Provided herewith
14.1 Code of Ethics Provided herewith
Certification by Chief Executive Officer Pursuant to 15
U.S.C. Section 7241, as adopted Pursuant to Section 302
31.1 of the Sarbanes-Oxley Act of 2002 Provided herewith
Certification by Chief Financial Officer Pursuant to 15
U.S.C. Section 7241, as adopted Pursuant to Section 302
31.2 of the Sarbanes-Oxley Act of 2002 Provided herewith
Certification by Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
32.1 of 2002 Provided herewith
B) REPORTS ON FORM 8-K. During the last quarter of the fiscal year
ended June 30, 2004, the Company filed a current reports on Form 8-K with the
Commission on May 6, 2004 reporting under Item 5 that the Company and Magna
Yachts, Inc. terminated their non-binding letter of intent pursuant to which
Reward was to acquire all of the outstanding shares of Magna Yachts.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Reward incurred the following principal accounting fees for the year
ended June 30, 2004.
AUDIT FEES. The aggregate fees billed for professional services
rendered was $23,211 for the audits and reviews of Reward's financial statements
during the fiscal year ended June 30, 2004, and the reviews of the financial
statements included in Reward's annual and quarterly reports for that fiscal
year.
AUDIT-RELATED FEES. No fees were billed in the 2004 fiscal year for
assurance and related services by the principal accountant.
TAX FEES. No fees were billed in the 2004 fiscal year for tax
compliance, tax advice of tax planning.
ALL OTHER FEES. No other fees were billed during the 2004 fiscal year.
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
November 12, 2004 REWARD ENTERPRISES, INC.
By: /s/ Earl Ingarfield
----------------------------------
Earl Ingarfield,
President, Chief Executive Officer,
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of Reward
Enterprises, Inc. and in the capacities and on the dates as indicated.
November 12, 2004 REWARD ENTERPRISES, INC.
By: /s/ Earl Ingarfield
-----------------------
Earl Ingarfield,
Director
15
REWARD ENTERPRISES, INC.
FINANCIAL STATEMENTS
TABLE OF CONTENTS
PAGE NO.
Report of Independent Certified Public Accountants F-1
Financial statements
Balance sheet F-2
Statements of operations F-3
Statements of stockholders' deficit F-4
Statements of cash flows F-5
Notes to financial statements F-6
F-i
To the Board of Directors and Stockholders
Reward Enterprises, Inc.
Sarasota, Florida
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying consolidated balance sheet of Reward
Enterprises, Inc. as of June 30, 2004, and the related consolidated statements
of operations, stockholders' deficit and cash flows for the years ended June 30,
2004 and 2003 and for the period from inception of the development stage on
January 1, 2004 through June 30, 2004. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Reward Enterprises, Inc. as of
June 30, 2004, and the results of its activities and cash flows for the years
ended June 30, 2004 and 2003 and for the period from the inception of the
development stage on January 1, 2004 through June 30, 2004 in conformity with
accounting principles generally accepted in the United States of America.
The accompanying 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 losses from
operations and current liabilities exceed current assets, all of which raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regards to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Williams & Webster, P.S.
Williams & Webster, P.S.
Certified Public Accountants
November 11, 2004
Spokane, Washington
F-1
REWARD ENTERPRISES, INC.
BALANCE SHEET
(A DEVELOPMENT STAGE COMPANY)
ASSETS
JUNE 30,
2004
--------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ --
--------
TOTAL CURRENT ASSETS --
--------
TOTAL ASSETS $ --
========
The accompanying notes are an integral part of these financial statements.
F-2
REWARD ENTERPRISES, INC.
BALANCE SHEET
(A DEVELOPMENT STAGE COMPANY)
LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30,
2004
-----------
CURRENT LIABILITIES
Accounts payable $ 68,057
Interest payable 21,342
Notes payable, net of discount 81,500
-----------
TOTAL CURRENT LIABILITIES 170,899
-----------
COMMITMENTS AND CONTINGENCIES --
-----------
STOCKHOLDERS' EQUITY
Preferred stock, 10,000,000 shares authorized,
$0.001 par value; no shares issued and outstanding
Common stock, 5,000,000,000,000 shares authorized,
$0.001 par value; 4,412,200 shares
issued and outstanding 4,412
Additional paid-in capital 3,314,643
Accumulated deficit prior to development stage (3,434,726)
Accumulated deficit during development stage (55,228)
-----------
TOTAL STOCKHOLDERS' EQUITY (170,899)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ --
===========
The accompanying notes are an integral part of these financial statements.
F-3
REWARD ENTERPRISES, INC.
STATEMENTS OF OPERATIONS
(A DEVELOPMENT STAGE COMPANY)
FROM
INCEPTION OF
DEVELOPMENT
YEAR YEAR STAGE ON JANUARY 1,
ENDED ENDED 2004 THROUGH
JUNE 30, JUNE 30, JUNE 30,
2004 2003 2004
----------- ----------- -------------------
REVENUES $ -- $ -- $ --
----------- ----------- -----------
EXPENSES
General and administrative 49,624 -- 49,624
----------- ----------- -----------
TOTAL OPERATING
EXPENSE 49,624 -- 49,624
----------- ----------- -----------
OTHER INCOME AND EXPENSE
Interest expense 5,604 -- 5,604
----------- ----------- -----------
TOTAL OTHER EXPENSE 5,604 -- 5,604
----------- ----------- -----------
LOSS BEFORE INCOME TAXES (55,228) -- (55,228)
----------- ----------- -----------
PROVISION FOR TAXES -- -- --
----------- ----------- -----------
NET LOSS FROM CONTINUING
OPERATIONS (55,228) -- (55,228)
----------- ----------- -----------
NET LOSS FROM DISCONTINUED
OPERATIONS (336,735) (2,406,504) --
----------- ----------- -----------
NET LOSS $ (391,963) $(2,406,504) $ (55,228)
=========== =========== ===========
BASIC AND DILUTED NET INCOME
PER COMMON SHARE $ (0.10) $ (1.30)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON STOCK SHARES OUTSTANDING 4,272,200 1,828,104
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-4
REWARD ENTERPRISES, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
(A DEVELOPMENT STAGE COMPANY)
ADDITIONAL TOTAL
COMMON STOCK PAID IN STOCK ACCUMULATED STOCKHOLDERS
SHARES AMOUNT CAPITAL OPTIONS DEFICIT DEFICIT
----------- ----------- ----------- ----------- ----------- -----------
Balance at June
June 30, 2002 17,703,667 $ 17,704 $ 2,892,861 $ 10,400 $ (691,487) $ 2,229,478
Issuance of common
stock for cash at an
average of $0.13 per
share 293,333 293 38,207 -- -- 38,500
Issuance of common stock
for services at $0.01 per
share 725,000 725 6,525 -- -- 7,250
Expiration of stock
warrant -- -- 4,000 -- -- 4,000
Net loss for the year
ended June 30, 2003 -- -- -- -- (2,406,504) (2,406,504)
----------- ----------- ----------- ----------- ----------- -----------
Balance June 30, 2003 18,722,000 18,722 2,941,593 10,400 (3,097,991) (127,276)
Issuance of common stock
for services, at an average 25,400,000 25,400 333,340 -- -- 358,740
-----------
Cancellation of options -- -- -- (10,400) -- (10,400)
Net loss for the year
ended June 30, 2004 -- -- -- -- (391,963) (391,963)
----------- ----------- ----------- ----------- ----------- -----------
Balance at June 30,
2004 44,122,000 $ 44,122 $ 3,724,933 $ -- $(3,489,954) $ (170,899)
=========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-5
REWARD ENTERPRISES, INC.
STATEMENTS OF OPERATIONS
(A DEVELOPMENT STAGE COMPANY)
FROM
INCEPTION OF
DEVELOPMENT
YEAR YEAR STAGE ON JANUARY 1,
ENDED ENDED 2004 THROUGH
JUNE 30, JUNE 30, JUNE 30,
2004 2003 2004
--------- ------------ ------------------
Cash flows from operating activities
Net loss $(391,963) $ (2,406,504) $(391,963)
Adjustment to reconcile net loss to net cash provided
(used) by operating activities:
Discontinued operations 336,735 2,406,504 336,735
Changes in operating assets and liabilities
Accounts payable and accrued expenses 55,228 -- 55,228
--------- ------------ ---------
Net cash provided (used) by operating activities
Cash flows from investing activities -- -- --
Cash flows from financing activities -- -- --
--------- ------------ ---------
Net change in cash -- -- --
Beginning cash balance -- -- --
--------- ------------ ---------
Ending cash balance $ -- $ -- $ --
========= ============ =========
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ -- $ -- $ --
========= ============ =========
Cash paid for interest $ -- $ -- $ --
========= ============ =========
The accompanying notes are an integral part of these financial statements.
REWARD ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS, HISTORY, AND SUMMARY OF SIGNIFICANT POLICIES
Reward Enterprises Inc. (the "Company") was incorporated under the laws of the
State of Nevada on December 12, 1997, as Sports Entertainment Productions, Inc.
to engage in the business of Internet entertainment, including gaming. In July
1998, the Company changed its name to Reward Enterprises Inc.
On August 15, 2001, the Company discontinued its plan of operating a virtual
casino website as a result of the shareholder approval of the acquisition of Q
Presents Inc., a private California based company which intended to provide
localized and web based custom event registration and automation solutions
targeting the hotel and conference segment of the Event Automation industry.
In November of 2003, the Company entered into the specialized international
communications market to provide international voice, Internet access and global
network services to corporate clients, communication carriers and Internet
service providers. The Company planned to utilize a web based platform that was
originally intended as an event registration and automation solution for its
telecommunication business. This plan was discontinued in December of 2003 by
management of the Company for reasons of lack of funding to finish the project.
In January of 2004, the Company's management control group sold 23,000,000
shares of stock, representing 52.08% of the Company's outstanding shares, to
Bell Investments, LLC of Sarasota, FL ("Bell"). Since that time, the Company has
been in search of a suitable operating company to merge with the Company and has
been reclassified as a development stage company.
Effective June 30, 2004 the Company's Articles of Incorporation were amended to
increase its authorized common shares from two hundred million (200,000,000) to
five billion (5,000,000,000). The Company also authorized ten million
(10,000,000) shares of preferred stock.
The company currently has no operations. The Company has recently entered into a
letter of intent dated October 11, 2004 with Consumers Choice Financial
Services, Inc. of Houston, TX ("CCF") whereby the Company would acquire the
operations of CCF in exchange for shares of the Company. The Company has issued,
on a post-split basis as disclosed immediately below, 38,000,000 shares of
common stock into escrow pending the close of this transaction.
Effective October 13, 2004 the Company enacted a 1-for-10 reverse split of its
issued and outstanding shares and its authorized shares which changed the issued
and outstanding shares from 1,113,170,534 to 113,170,534 shares and its
authorized shares from five billion (5,000,000,000) to five hundred million
(500,000,000). All references to shares outstanding and per share amounts have
been adjusted to reflect the reverse split on a retroactive basis.
F-7
REWARD ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS, HISTORY, AND SUMMARY OF SIGNIFICANT POLICIES
(CONTINUED)
These conditions give rise to substantial doubt about the Company's ability to
continue as a going concern. These financial statements do not include
adjustments relating to the recoverability and classification of reported asset
amounts or the amount and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. The Company's
continuation as a going concern is dependent upon its ability to obtain
additional financing or sale of its common stock as may be required and
ultimately to attain profitability.
Management's plan, in this regard, is to acquire an existing operating company.
The Company's management has committed to covering its nominal interim operating
costs, which will enable the Company to operate for the coming year.
Principles of consolidation - The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant inter-company
balances and transactions have been eliminated.
Use of estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Fair value of financial instruments - The carrying amounts and estimated fair
values of the Company's financial instruments approximate their fair value due
to the short-term nature.
Earnings (loss) per share - Basic earnings (loss) per share excludes any
dilutive effects of options, warrants and convertible securities. Basic earnings
(loss) per share is computed using the weighted-average number of outstanding
common shares during the applicable period. Diluted earnings per share is
computed using the weighted average number of common and common stock equivalent
shares outstanding during the period. Common stock equivalent shares are
excluded from the computation if their effect is antidilutive.
Income taxes - The Company accounts for its income taxes in accordance with
Statement of Financial Accounting Standards No. 109, which requires recognition
of deferred tax assets and liabilities for future tax consequences attributable
to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
As of June 30, 2004, the Company has available net operating loss carryovers of
approximately $800,000 that will expire in various periods through 2024. Such
losses may not be fully deductible due to the significant amounts of non-cash
service costs. The Company has established a valuation allowance for the full
tax benefit of the operating loss carryovers due to the uncertainty regarding
realization.
Accounting methods - The Company recognizes income and expenses based on the
accrual method of accounting.
F-8
REWARD ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS, HISTORY, AND SUMMARY OF SIGNIFICANT POLICIES
(CONTINUED)
Dividend policy - The Company has not adopted a policy regarding payment of
dividends.
Comprehensive loss - The Company has no components of other comprehensive loss.
Accordingly, net loss equals comprehensive loss for all periods.
Segment information - The Company discloses segment information in accordance
with SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, which uses the Management approach to determine reportable
segments. The Company operates under one segment.
Stock-based compensation - The Company applies Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and Related
Interpretations, in accounting for stock options issued to employees. Under APB
No. 25, employee compensation cost is recognized when estimated fair value of
the underlying stock on date of the grant exceeds exercise price of the stock
option. For stock options and warrants issued to non-employees, the Company
applies SFAS No. 123, Accounting for Stock-Based Compensation, which requires
the recognition of compensation cost based upon the fair value of stock options
at the grant date using the Black-Scholes option pricing model.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure. SFAS No. 148 amends the transition and
disclosure provisions of SFAS No. 123. The Company is currently evaluating SFAS
No. 148 to determine if it will adopt SFAS No. 123 to account for employee stock
options using the fair value method and, if so, when to begin transition to that
method.
Net loss per common share - The Company computes net loss per share in
accordance with SFAS No. 128, Earnings per Share and SEC Staff Accounting
Bulletin No. 98. Under the provisions of SFAS 128 and SAB 98, basic net loss per
share is computed by dividing the net loss available to common stockholders for
the period by the weighted average number of shares of common stock outstanding
during the period. The calculation of diluted net loss per share gives effect to
common stock equivalents, however, potential common shares are excluded if their
effect is antidilutive. For the period from July 3, 2002 (Inception) through
June 30, 2004, no shares were excluded from the computation of diluted earnings
per share because their effect would be antidilutive.
NOTE 2. NOTES PAYABLE
As of June 30, 2004, the Company had four notes payable totaling $81,500. The
outstanding balance was unsecured, due upon demand and accrue the interest at
20% per annum. On October 25, 2004, the holders of the notes converted all of
the notes collectively into 108,754,016 shares of common stock.
F-9
REWARD ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3. DISCONTINUED OPERATIONS
On April 1, 2004, the Company discontinued it operations and determined to seek
to acquire an existing operating company:
FOR THE FOR THE
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
2004 2003
------------ -------------
Revenue $ -- $ --
Operating expenses 336,735 2,406,504
------------ -------------
Loss from operations (336,735) (2,406,504)
Other expense -- --
------------ -------------
Loss before provision for income taxes (336,735) (2,406,504)
Provision for income taxes -- --
------------ -------------
Net loss $ (336,735) $ (2,406,504)
============ =============
Basic and diluted loss per common share $ (0.10) $ (1.30)
============ =============
Basic and diluted weighted average common
Shares outstanding 4,272,200 1,828,104
============ =============
NOTE 4. SUBSEQUENT EVENTS
The Company has recently entered into a letter of intent dated October 4, 2004
with Consumers Choice Financial Services, Inc. of Houston, TX ("CCF") whereby
the Company would acquire the operations of CCF in exchange for shares of the
Company. On October 5, 2004, the Company issued 300,000,000 shares of its common
stock to acquire CCF, which is currently being held in escrow pending closing.
On November 5, 2004, the Company issued an additional 80,000,000 post-split
shares of its common stock to acquire CCF, which is also currently being held in
escrow pending closing.
On October 25, 2004, the Note Payable of $81,500 and the related accrued
interest were converted into 108,754,016 shares of the Company's common stock.
Effective October 13, 2004 the Company enacted a 1-for-10 reverse split of its
issued and outstanding shares and its authorized shares which changed the issued
and outstanding shares to 113,170,534 shares and its authorized shares from five
billion (5,000,000,000) to five hundred million (500,000,000).
F-10