UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB,
AMENDMENT NO. 1
(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 PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to
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Commission File Number: 000-32319
JPAL, Inc.
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(Exact name of small business issuer as specified in its charter)
Nevada 33-0851302
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17620 Oak Street, Fountain Valley, California, 92708
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(Address of principal executive offices)
(714) 785.2095
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(Issuer's Telephone Number)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date. As of December 20, 2001, there were
8,645,260 shares of the issuer's $.001 par value common stock issued and
outstanding.
1
INDEX TO QUARTERLY REPORT ON
FORM 10-QSB, AMENDMENT NO.1
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (Unaudited) 3
Condensed Balance Sheet at September 30, 2001 3
Condensed Statements of Operations for the three months
and nine months ended September 30, 2001 and 2000 4
Condensed Statements of Cash Flows for the nine months ended
September 30, 2001 and 2000 5 - 6
Notes to the Condensed Financial Statements 7 - 10
Item 2. Management's Discussion and Analysis of 11
Financial Condition and Results of Operations
PART II - OTHER INFORMATION 13
SIGNATURE
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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JPAL, INC.
CONDENSED BALANCE SHEET
September 30, 2001
(unaudited)
ASSETS
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Current assets:
Cash and cash equivalents $ 797
Advances due from Essential Reality, LLC 400,000
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Total current assets 400,797
Property and equipment, net 1,628
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Total assets $ 402,425
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LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Accounts payable $ 1,725
Short term notes payable 435,300
Accrued expenses 3,083
----------------
Total current liabilities 440,108
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Commitments and contingencies
Stockholders' deficit:
Preferred stock, $.001 par value
5,000,000 shares authorized
No shares issued or outstanding
Common stock, $.001 par value;
50,000,000 shares authorized,
8,645,260 shares issued and outstanding 1,729
Additional paid-in capital 55,072
Accumulated deficit (94,484)
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Total stockholders' deficit (37,683)
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Total liabilities and stockholders' deficit $ 402,425
================
See the accompanying notes to these condensed financial statements
3
JPAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Nine months Ended
September 30, September 30,
----------------------------- ------------------------------
2001 2000 2001 2000
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Revenues:
Rental commissions $ --- $ 1,832 $ 1,039 $ 2,462
Listing fees --- --- --- 660
------------- ------------- ------------- ------------
--- 1,832 1,039 3,122
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Selling, general and administrative expense
37,760 9,319 56,495 13,801
Other expense:
Interest 3,083 --- 3,083 ---
Depreciation 151 148 446 447
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40,994 9,467 60,024 14,248
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Loss before provision for income taxes (40,994) (7,635) (58,985) (11,126)
Provision for income taxes --- --- --- ---
------------- ------------- ------------- ------------
Net loss $ (40,994) $ (7,635) $ (58,985) $ (11,126)
============= ============= ============= ============
Basic and dilutive loss per share $ (.00) $ (.00) $ (.00) $ (.00)
============= ============= ============= ============
Basic and dilutive weighted average of common
shares outstanding 8,645,260 11,787,329 14,927,638 17,643,783
============= ============= ============= ============
See the accompanying notes to these condensed financial statements
4
JPAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
September 30,
-----------------------------------------
2001 2000
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Cash flows from operating activities:
Net loss $ (58,985) $ (11,126)
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation 446 447
Services provided in exchange for issuance of common stock
--- 797
Goods and services and rent provided in exchange for additional
paid-in capital 18,304 1,250
Changes in operating assets and liabilities
Increase in due from related party (400,000) ---
(Increase) decrease in prepaid expenses 608 (3,463)
Increase (decrease) in accounts payable 1,628 (844)
Increase in accrued expenses 3,083 ---
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Net cash used in operating activities (434,916) (12,939)
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Cash flows from financing activities:
Proceeds from short term borrowings, net 435,300 ---
Additional paid-in capital 2,068 9,795
Proceeds from issuance of common stock --- 3,020
Redemption of common stock (2,068) ---
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Net cash provided by financing activities 435,300 12,815
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Net increase (decrease) in cash and cash equivalents 384 (124)
Cash and cash equivalents, beginning of period 413 884
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Cash and cash equivalents, end of period $ 797 $ 760
================= =================
See the accompanying notes to these condensed financial statements
5
JPAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Nine Months Ended
September 30,
2001 2000
----------------- -----------------
Cash paid during the period for interest $ --- $ ---
Cash paid during the period for income taxes $ --- $ ---
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
During the period ended September 30, 2001, the Company recorded rent and
computer services of $2,700 and $4,625, respectively, and additional
paid-in capital of $7,325 for rent and services provided by a stockholder.
During the period ended September 30, 2001, the Company recorded $10,979 for
legal, accounting and other administrative expenses and additional
paid-in-capital of $10,979 for services paid directly by a stockholder.
6
JPAL, INC.
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NOTES TO FINANCIAL STATEMENTS
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SEPTEMBER 30, 2001 AND 2000
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NOTE 1 - BASIS OF PRESENTATION
The management of JPAL, Inc. (the "Company") without audit has prepared
the financial statements included herein. The accompanying unaudited financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial information.
Certain information and note disclosures normally included in the financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been omitted pursuant to rules and
regulations of the Securities and Exchange Commission, although the Company
believes that the disclosures in the unaudited interim financial statements are
adequate to make the information presented not misleading. In the opinion of the
management of the Company, all adjustments considered necessary for fair
presentation of the financial statements have been included and were of a normal
recurring nature, and the accompanying financial statements present fairly the
financial position as of September 30, 2001, and the results of operations for
the three and nine months ended September 30, 2001 and September 30, 2000 and
its cash flows for the nine months ended September 30, 2001 and September 30,
2000. The interim results are not necessarily indicative of the results for the
full year.
The Company was incorporated in the state of Nevada on March 31, 1999
to operate as an Internet based provider of vacation rental properties and
services with an elected December 31st fiscal year end. A majority of the
services were to properties located in Nevada. During the period ended September
30, 2001 the Company has abandoned the development of their Internet services to
provide vacation rental properties and services. The Company is currently in the
process of completing a merger with another company.
The Company has experienced net losses since its inception over the
past two years and had an accumulated deficit of approximately $94,500 at
September 30, 2001. Such losses are attributable to cash losses resulting from
costs incurred in the development of the Company's services and infrastructure.
The Company expects operating losses to continue for the foreseeable future as
it continues to seek alternative business opportunities.
7
NOTE 2 - NEW PRONOUNCEMENTS
In July 2001, the FASB issued Statement No. 141, Business Combinations,
and Statement No. 142, Goodwill and Other Tangible Assets. Statement 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 as well as all purchase method
business combinations completed after June 30, 2001. Statement 141 also
specifies criteria intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill, noting
that all purchase price allocable to an assembled workforce may not be accounted
for separately. Statement 142 will require that goodwill and intangible assets
with indefinite useful lives no longer be amortized, but instead be tested for
impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 also requires that intangible assets with estimable useful lives
be amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with FAS Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of. The Company is required to adopt the provisions of
Statement 141 immediately, except with regard to business combinations initiated
prior to July 1, 2001, and to adopt Statement 142 effective with the fiscal year
beginning January 1, 2002.
The Company believes that adoption of the Provisions of Statement 142
that are effective January 1, 2001 will have no material effect on the financial
condition and results of operations based on the requirements of Statement 142.
NOTE 3 - NOTES PAYABLE
The Company has several unsecured notes payable with interest rates
ranging from 8.00% to 8.50%. Notes totaling $30,000 will mature on January 26,
2002. Notes totaling $305,300 will mature on the earliest of (i) January 15,
2002 or (ii) the sale or exchange of all or substantially all of the outstanding
shares of common stock. One note for $100,000 is payable on demand. The total
amount of short term notes payable was $435,300 at September 30, 2001. Interest
expense on these notes during the period ended September 30, 2001 was $3,083.
The Company issued warrants to acquire 150,000 shares of JPAL, Inc.'s common
stock at a purchase price of $3.00 per share in connection with the issuance of
these notes payable. $400,000 of the proceeds from these notes has been advanced
to Essential Reality, LLC with which the Company is in the process of completing
a merger agreement.
NOTE 4 - INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109 ("SFAS 109"). This statement mandates the liability
method of accounting for deferred income taxes and permits the recognition of
deferred tax assets subject to an ongoing assessment of realizability.
8
NOTE 4 - INCOME TAXES (CONTINUED)
The components of the Company's income tax provision consist of:
Nine Months Ended
September 30,
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2001 2000
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Federal taxes (deferred) net operating loss benefit $ (8,800) $ (1,600)
Change in valuation account 8,800 1,600
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$ --- $ ---
================= ==================
Deferred income taxes are provided for timing differences in the
recognition of certain income and expense items for tax and financial statement
purposes. The tax effect of the temporary differences giving rise to the
Company's deferred tax assets and liabilities as of September 30, 2001 are as
follows:
Deferred income taxes
Net operating loss benefit $ 14,100
Valuation allowance (14,100)
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$ ---
==================
The Company has federal net operating loss carryforwards of
approximately $36,000 that will expire through 2020.
The Company's tax reporting year end is December 31st. If the Company
has a net operating loss carryforward from operations for the year ended
December 31, 2001, it will expire in 2021.
NOTE 5 - RELATED PARTY TRANSACTIONS
The Company is currently utilizing office space provided by the
Company's president (a stockholder). During the period ended September 30, 2001,
the Company has recorded rent expense of $2,700 which represents the Company's
pro rata share of the office space being provided by the Company's current and
past presidents. The Company has also recorded computer consulting services of
$4,625 which were provided by the Company's previous president. The services
were valued using hourly rates at estimated fair market value of similar
services. The Company has recorded $10,979 for legal, accounting and other
administrative expenses that were paid for by the Company's current and past
presidents. The presidents have waived reimbursement of the allocated rent,
computer consulting services, legal, accounting and other administrative
services provided and have considered them as additional paid-in capital. During
the period ended September 30, 2001 the Company's current president received
$6,000 as compensation which is included in selling, general and administrative
expense.
9
NOTE 6 - COMMON STOCK
On June 14, 2001 the Company redeemed 2,068,417 shares of its common
stock for $2,068.
On July 2, 2001, the Company approved a 5 for 1 forward stock split of
its common stock. Accordingly, all share and per share amounts have been
retroactively restated in the financial statements to reflect this split.
NOTE 7 - WARRANTS
During 2001, the Company issued 150,000 warrants in connection with the
short term promissory notes dated August 23, 2001. The warrants were issued for
the purchase of common stock at $3.00 per share. These warrants are exercisable
at the option of warrant holder and expire three years from the date of
issuance.
The following represents a summary of the warrants outstanding as of
September 30, 2001.
Weighted
Average
Exercise
Shares Price
--------------- ---------------
Outstanding, beginning of period --- $ ---
Granted 150,000 3.00
Expired/forfeited --- ---
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Outstanding, end of period 150,000 $ 3.00
=============== ===============
Weighted average fair value of warrants granted $ 3.00
===============
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company has entered into an agreement with Essential Reality, LLC
("Essential Reality") dated August 23, 2001 where as the Company and Essential
Reality have agreed to a business combination. The business combination is
contingent on the consummation of the Company's private placement of up to
1,730,769 shares of common stock and up to an additional 288,462 shares of
common stock at a selling price of $3.00 per share.
Upon the closing of the agreement, the Company shall issue 11,000,000
shares of common stock in exchange for one hundred percent (100)%) interest in
Essential Reality.
10
Item 2. Plan of Operation
--------------------------
This following information specifies certain forward-looking statements of
management of the company. Forward-looking statements are statements that
estimate the happening of future events and are not based on historical fact.
Forward-looking statements may be identified by the use of forward-looking
terminology, such as "may", "shall", "will", "could", "expect", "estimate",
"anticipate", "predict", "probable", "possible", "should", "continue", or
similar terms, variations of those terms or the negative of those terms. The
forward-looking statements specified in the following information have been
compiled by our management on the basis of assumptions made by management and
considered by management to be reasonable. Our future operating results,
however, are impossible to predict and no representation, guaranty, or warranty
is to be inferred from those forward-looking statements.
The assumptions used for purposes of the forward-looking statements specified in
the following information represent estimates of future events and are subject
to uncertainty as to possible changes in economic, legislative, industry, and
other circumstances. As a result, the identification and interpretation of data
and other information and their use in developing and selecting assumptions from
and among reasonable alternatives require the exercise of judgment. To the
extent that the assumed events do not occur, the outcome may vary substantially
from anticipated or projected results, and, accordingly, no opinion is expressed
on the achievability of those forward-looking statements. We cannot guaranty
that any of the assumptions relating to the forward-looking statements specified
in the following information are accurate, and we assume no obligation to update
any such forward-looking statements.
We are an Internet based provider of vacation rental properties and services. We
are currently redesigning our website to provide a wide range of services to
both vacationers and property owners. Our primary source of revenue has been
property rental fees, which are charged to the property owners as a percentage
of the vacationers' total rental price, and we anticipate that those fees will
continue to be our primary source of revenue, although we intend to attempt to
generate additional revenue sources such as Internet advertising. In order to
effectuate our business plan during the next three to six months, we need to
complete the redevelopment of our website.
In August 2001, we entered into a contribution agreement with Essential Reality
LLC, a Delaware limited liability company. Essential Reality LLC is a privately
held New York-based technology firm specializing in the development of
innovative computer and game console peripherals. Pursuant to the terms of the
contribution agreement, we will issue up to 11 million shares of our common
stock to the current shareholders of Essential Reality LLC in exchange for all
of the equity interests of Essential Reality LLC. The consummation of the
transaction is contingent on a number of factors, including, but not limited to,
that we raise a minimum of $4.5 million dollars.
Liquidity and Capital Resources. We had cash of $797 as of September 30, 2001.
Our total assets were $402,425, of which approximately $400,000 is due from
Essential Reality LLC. Pursuant to the contribution agreement, we loaned
$400,000 to Essential Reality LLC. Our total liabilities were approximately
$440,108 as of September 30, 2001. In August and September 2001, we entered into
several unsecured notes payable in order to memorialize certain bridge
financings relating to the contemplated transaction with Essential Reality LLC.
Those unsecured notes payable bear interest rates ranging from 8.00% to 8.50%.
Notes totaling $30,000 will mature on January 26, 2002. One note for $100,000 is
payable on demand. Notes totaling $305,300 will mature on the earliest of (i)
January 15, 2002 or (ii) the sale or exchange of all or substantially all of the
outstanding shares of common stock. The total amount of short-term notes payable
was $435,300 at September 30, 2001. Interest expense on these notes during the
period ended September 30, 2001 was $3,083.
11
Results of Operations.
Revenue. For the three months ended September 30, 2001, we generated no revenues
compared to revenues of approximately $1,832 during the three months ended
September 30, 2000. The decline in our revenues is due the fact that we have not
completed the redevelopment of our website and we have not conducted any
marketing activities. We do not expect that we will generate any significant
revenues until such time as our website redevelopment is complete. In addition,
the acts of terrorism that occurred on September 11, 2001, in New York City and
Washington, D.C have negatively impacted the travel industry. As a result of
these terrorist acts, there may be a significant reduction in the demand for our
services. We are unable to determine the long-term impact, if any, of these
incidents or of any acts of war or terrorism in the United States or worldwide
on the U.S. economy, on us or on the price of our common stock.
Operating Expenses. For the three months ended September 30, 2001, operating
expenses totaled $40,994, of which $37,760 of those expenses relate to general
and administrative expenses. We anticipate that we will continue to incur
significant general and administrative expenses with respect the contemplated
acquisition of Essential Reality LLC.
Our Plan of Operation for the Next Twelve Months. Our plan of operation is
dependent on our ability to complete the acquisition of Essential Reality LLC or
complete the redevelopment of our website so that we can generate more revenues.
If we are unable to complete the acquisition of Essential Reality LLC, then we
intend to complete the redevelopment of our website.
In the opinion of management, available funds will satisfy our working capital
requirements for the next twelve months. Our forecast for the period for which
our financial resources will be adequate to support our operations involves
risks and uncertainties and actual results could fail as a result of a number of
factors. We will need to raise additional capital to complete the acquisition of
Essential Reality LLC. Such additional capital may be raised through public or
private financing as well as borrowings and other sources. We cannot guaranty
that additional funding will be available on favorable terms, if at all.
We are not currently conducting any research and development activities, other
than the redevelopment of our website. We do not anticipate conducting any other
such activities in the next twelve months, unless we complete the acquisition of
Essential Reality LLC. We do not anticipate that we will purchase or sell any
significant equipment in the next six to twelve months unless we complete the
acquisition of Essential Reality LLC. We do not anticipate that we will hire any
employees in the next six to twelve months, unless complete the acquisition of
Essential Reality LLC.
12
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
--------------------------
None.
Item 2. Changes in Securities.
------------------------------
In connection with the issuance of the notes payable, we issued to the note
holders warrants to purchase 150,000 shares of our common stock at a purchase
price of $3.00 per share.
Item 3. Defaults Upon Senior Securities.
-----------------------------------------
None.
Item 4. Submission of Matters to Vote of Security Holders.
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None.
Item 5. Other Information.
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None.
Item 6. Exhibits and Reports on Form 8-K.
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None.
13
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
JPAL, Inc.,
a Nevada corporation
December 20, 2001 By: /s/ Frank Drechsler
-----------------------------------
Frank Drechsler
Its: President, Secretary, Director