MOBILEPRO
CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED DECEMBER 31, 2004 AND 2003
NOTE
1- ORGANIZATION
AND BASIS OF PRESENTATION
MobilePro
Corp. a Delaware corporation as of June 1, 2001 merged into Craftclick.com, Inc.
with Craftclick being the surviving corporation and the Certificate of
Incorporation and By-Laws of Craftclick being the constituent documents of the
surviving corporation. In July 2001, the Company changed its name to MobilePro
Corp. (“MobilePro” or “ Company”).
On March
21, 2002, MobilePro entered into an Agreement and Plan of Merger with NeoReach,
Inc. (“Neoreach”), a private Delaware company pursuant to which a newly formed
wholly owned subsidiary of MobilePro merged into NeoReach in a tax-free
transaction. NeoReach is a development stage company designing and developing
various wireless technologies and solutions. The merger was consummated on April
23, 2002. As a result of the merger, NeoReach became a wholly owned subsidiary
of MobilePro. On April 23, 2002, the company issued 12,352,129 shares of its
common stock and no cash pursuant to the Agreement. The Board of Directors
determined the consideration to be a fair compensation to the NeoReach
shareholders. The issuance of the shares were valued at a fair value of
$6,546,628, based on the last trading price of $0.53 and assuming there was
actual active trading of the stock at that time.
On March
12, 2003, the Company amended its Certificate of Incorporation and pursuant to a
board resolution, increased the authorized level of common stock from 50,000,000
to 600,000,000. The Company subsequently increased the shares authorized under
its 2001 Equity Performance Plan from 1,000,000 to 6,000,000.
On
January 19, 2004, the Company consummated a Stock Purchase Agreement with DFW
Internet Services, Inc. A newly formed, wholly-owned subsidiary of MobilePro
merged into DFW Internet Services, Inc. in a tax-free exchange transaction. As a
result of the merger, DFW Internet Services, Inc. is now a wholly owned
subsidiary of MobilePro. In March 2004, the Company issued 18,761,726 shares of
common stock to the holders of DFW Internet Services, Inc. in a share exchange
for 100% of DFW Internet Services, Inc. common stock. The issuances of the
shares were valued at a fair value of $500,000 based on the average 20 day
closing price ($0.02665) prior to January 19, 2004.
In March
2004, DFW Internet Services, Inc. acquired Internet Express, Inc., an Internet
service provider in southeast Texas for $650,000 in cash and promissory notes.
In April
2004, DFW Internet Services, Inc. acquired August.net Services LLC, an Internet
service provider in Texas for $1,730,000 in cash and promissory notes.
In June
2004, DFW Internet Services, Inc. acquired ShreveNet, Inc., an internet service
provider in Louisiana for $1,250,000 in cash and common stock. The issuances of
the shares were valued at a fair value of $190,000 based on the average 20-day
closing price ($0.2162) prior to June 3, 2004. The Company issued the common
stock in August 2004.
In June
2004, DFW Internet Services, Inc. acquired certain assets of Crescent
Communications, Inc., an Internet service provider in Houston for $1,194,767 in
cash and a promissory note.
In June
2004, the Company acquired US1 Telecommunications, Inc., a long distance
provider in Kansas for $200,000 in cash and conditional promissory notes.
In July
2004, DFW Internet Services, Inc. acquired Clover Computer Corporation, a
Coshocton, Ohio-based Internet services provider with operations in several Ohio
cities for $1,250,000 in cash and promissory notes.
In July
2004, DFW Internet Services, Inc. acquired Ticon.net, a Janesville,
Wisconsin-based Internet service provider with operations in Janesville and
Milwaukee for $1,000,000 in cash and promissory notes.
In August
2004, the Company acquired Affinity Telecom, a Michigan-based Competitive Local
Exchange Carrier (“CLEC”) and long distance carrier. The Company paid $3,440,000
in cash, notes, and a convertible note. The Agreement and Plan of Merger by and
between the Company and Affinity Telecom was amended as of December 2004 to
settle certain disputes regarding the financial condition of Affinity Telecom.
The Amendment results in a reduction in the aggregate consideration the Company
paid by approximately $927,000.
In August
2004, DFW Internet Services, Inc. acquired the customer base, corporate name and
certain other assets of Web One, Inc., a Kansas City, Missouri-based Internet
service and web-hosting provider for $2,000,000 in cash and common stock which
is expected to be issued subject to post closing adjustments in the Company’s
fiscal fourth quarter, and is reflected as a liability for stock to be issued at
December 31, 2004.
MOBILEPRO
CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR
THE NINE MONTHS ENDED DECEMBER 31, 2004 AND 2003
NOTE
1- ORGANIZATION
AND BASIS OF PRESENTATION (CONTINUED)
In
September 2004, DFW Internet Services, Inc. acquired World Trade Network, Inc.
an Internet services provider based in Houston, Texas for $1,700,000 in cash and
promissory notes.
In
September 2004, DFW Internet Services, Inc. acquired The River Internet Access
Co. an Internet services provider based in Tucson, Arizona for $2,467,204 in
cash and promissory notes.
In
October 2004, the Company acquired CloseCall America, Inc. a Maryland-based
CLEC, offering local, long distance, 1.800CloseCall prepaid calling cards,
wireless, dial-up and DSL internet telecommunications services. The purchase
price included cash of $8,000,000 and 39,999,999 shares of common stock valued
at $10,000,000 plus warrants to purchase 3,500,000 additional shares of common
stock. The 39,999,999 shares are restricted under SEC Rule 144 and the 2,500,000
and 1,000,000 warrants issued have strike prices of $.30 and $.35 per share,
respectively.
In
November 2004, the Company acquired 95.2% of the issued and outstanding common
stock of Davel Communications, Inc., an owner and operator of approximately
40,000 payphones in approximately 25,000 locations in 46 states and the District
of Columbia. The Company acquired 100% of Davel's senior secured debt in the
approximate principal amount of $104 million, as well as the 95.2% of Davel's
common stock in exchange for $14 million. The purchase price includes cash of
$14,000,000 plus warrants to purchase up to 5,000,000 shares of common stock at
the price of $0.30 per share. Additionally, the Company has an obligation to
purchase the remaining 4.8% of Davel’s common stock at $.015 per
share.
NOTE
2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
condensed consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant inter-company accounts and transactions
have been eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash
and Cash Equivalents
The
Company considers all highly liquid debt instruments and other short- term
investments with an initial maturity of three months or less to be cash or cash
equivalents.
The
Company maintains cash and cash equivalents with a financial institution that
exceeds the limit of insurability under the Federal Deposit Insurance
Corporation. However, due to management’s belief about the financial strength of
Bank of America, management does not believe the risk of keeping deposits in
excess of federal deposit limits at Bank of America to be a material
risk.
Restricted
Cash
The
Company is required to maintain letters of credit collateralized by cash as
additional security for the performance of obligations under certain service
agreements. In addition, cash is held as collateral for a note payable to the
bank for an expansion loan as disclosed in Note 8. The cash collateral is
restricted and is not available for the Company’s general working capital needs.
The letters expire in 2005. At December 31, 2004, the restricted cash was
$516,794.
Revenue
Recognition
The
Company in January 2004 emerged from the development stage with the acquisition
of DFW Internet Services, Inc. The Company, as it relates to internet services
recognizes income when the services are rendered and collection is reasonably
assured and recognizes deferred revenue as a liability on services the Company
pre-bills.
MOBILEPRO
CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR
THE NINE MONTHS ENDED DECEMBER 31, 2004 AND 2003
NOTE
2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue
Recognition
(Continued)
Revenue
derived from local, long-distance and wireless calling, and Internet access is
recognized in the period in which subscribers use the related service. Deferred
revenue represents the unearned portion of local, wireless and internet services
that are billed one and two months in advance, respectively.
Revenue
from product sales that contain embedded software is recognized in accordance
with the provisions of the American Institute of Certified Public Accountants
Statement of Position 97-2, “Software Revenue Recognition.”
Revenue
from product sales is recognized based on the type of sale transactions as
follows:
Shipments
to Credit-Worthy Customers with No Portion of the Collection Dependent on Any
Future Event: Revenues is recorded at the time of shipment. Shipments to a
Customer without Established Credit: These transactions are primarily shipments
to customers who are in the process of obtaining financing and to whom the
Company has granted extended payment terms. Revenues are deferred (not
recognized) and no receivable will be recorded until a significant portion of
the sales price is received in cash.
Shipments
where a portion of the Revenue is Dependent upon Some Future Event: These
consist primarily of transactions involving value-added resellers (“VAR”) to an
end user. Under these agreements, revenues are deferred and no receivable will
be recorded until a significant portion of the sales price is received in cash.
On certain transactions, a portion of the payment is contingent upon
installation or customer acceptance.
Upon
non-acceptance, the customer may have a right to return the product. The Company
does not recognize revenue on these transactions until these contingencies have
lapsed.
Certain
of the Company’s product sales are sold with maintenance/service contracts. The
Company allocates revenues to such maintenance/service contracts based on
vendor-specific objective evidence of fair value as determined by the Company’s
renewal rates. Revenue from maintenance/service contracts are deferred and
recognized ratably over the period covered by the contract.
The
Company, in addition to its internet and voice services, from time to time
provides consulting services. During the nine months ended December 31, 2004,
the Company generated $615,000 in revenue from consulting services. Compensation
for these services included $450,000 of common stock and is recorded on the
condensed consolidated balance sheet as an investment at the fair value of the
common stock received. The Company has entered two common stock transactions,
the first with a software company based in Maryland and another with a
specialized electronic assembly prototyping engineering firm in Texas. (See
Notes 2, 3, 10 and 14)
Income
Taxes
Effective
July 14, 2000, the Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 109 (the Statement), Accounting for Income
Taxes. The Statement requires an asset and liability approach for financial
accounting and reporting for income taxes, and the recognition of deferred tax
assets and liabilities for the temporary differences between the financial
reporting bases and tax bases of the Company’s assets and liabilities at enacted
tax rates expected to be in effect when such amounts are realized or settled.
Fair
Value of Financial Instruments
The
carrying amounts reported in the condensed consolidated balance sheets for cash
and cash equivalents, and accounts payable approximate fair value because of the
immediate or short-term maturity of these financial instruments.
Advertising
Costs
The
Company expenses the costs associated with advertising as incurred. Advertising
and promotional expenses were approximately $852,766 and $24,480 for the nine
months ended December 31, 2004 and 2003, respectively.
MOBILEPRO
CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR
THE NINE MONTHS ENDED DECEMBER 31, 2004 AND 2003
NOTE
2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fixed
Assets
Furniture
and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets.
When
assets are retired or otherwise disposed of, the costs and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
recognized income for the period. The cost of maintenance and repairs is charged
to income as incurred; significant renewals and betterments are capitalized.
Deductions are made for retirements resulting from renewals or betterments.
Reclassifications
Certain
amounts in the December 31, 2003 financial statements were reclassified to
conform to the December 31, 2004 presentation. The reclassifications in the
December 31, 2003 financial statements resulted in no changes to the accumulated
deficits.
Accounts
Receivable
The
Company conducts business and extends credit based on an evaluation of the
customers’ financial condition, generally without requiring collateral. Exposure
to losses on receivables is expected to vary by customer due to the financial
condition of each customer. The Company monitors exposure to credit losses and
maintains allowances for anticipated losses considered necessary under the
circumstances.
Accounts
receivable are generally due within 30 days and collateral is not required.
Unbilled accounts receivable represents amounts due from customers for which
billing statements have not been generated and sent to the
customers.
Segment
Information
The
Company follows the provisions of SFAS No. 131, “Disclosures
about Segments of an Enterprise and Related Information”. This
standard requires that companies disclose operating segments based on the manner
in which management disaggregates the Company in making internal operating
decisions.
Deferred
Financing Fees
The
Company, in May 2004, issued 8,000,000 shares of common stock with a value of
$1,760,000 in connection with its Standby Equity Distribution Agreement. These
shares were issued as financing fees to complete the transaction. The agreement
runs for a period of 24 months and the Company will amortize this fee over that
period of time. The Company incurred $513,333 in amortization expense for the
nine months ended December 31, 2004. (See Note 9)
Earnings
(Loss) Per Share of Common Stock
Historical
net income (loss) per common share is computed using the weighted average number
of common shares outstanding. Diluted earnings per share (EPS) include
additional dilution from common stock equivalents, such as stock issuable
pursuant to the exercise of stock options and warrants. Common stock equivalents
were not included in the computation of diluted earnings per share when the
Company reported a loss because to do so would be anti-dilutive for periods
presented.
MOBILEPRO
CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR
THE NINE MONTHS ENDED DECEMBER 31, 2004 AND 2003
NOTE
2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings
(Loss) Per Share of Common Stock (Continued)
The
following is a reconciliation of the computation for basic and diluted EPS for
the nine months ended:
|
|
|
|
December 31,
2004 |
|
December
31, 2003 |
|
|
Net
loss |
|
|
|
($5,460,090 |
) |
|
($1,431,341 |
) |
| |
|
|
|
|
|
|
|
|
|
Weighted-average
common shares |
|
|
|
|
|
|
|
|
|
outstanding
(Basic) |
|
|
|
270,117,287 |
|
|
89,771,571
|
|
| |
|
|
|
|
|
|
|
|
|
Weighted-average
common stock |
|
|
|
|
|
|
|
|
|
equivalents
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Stock
options |
|
|
|
-
|
|
|
-
|
|
|
Warrants
|
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
Weighted-average
common shares |
|
|
|
|
|
|
|
|
|
outstanding
(Diluted) |
|
|
|
270,117,287 |
|
|
89,771,571 |
|
Options
and warrants outstanding to purchase stock were not included in the computation
of diluted EPS for December 31, 2004 and 2003 because inclusion would have been
anti-dilutive.
Goodwill
and Other Intangible Assets
In June
2001, the FASB issued Statement No. 142 “Goodwill and Other Intangible Assets”.
This statement addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes APB Opinion No. 17,
Intangible Assets. It addresses how intangible assets that are acquired
individually or with a group of other assets (but not those acquired in a
business combination) should be accounted for in financial statements upon their
acquisition. This Statement also addresses how goodwill and other intangible
assets should be accounted for after they have been initially recognized in the
financial statements. The Company, in its acquisitions, recognized $32,705,332
of goodwill. In addition, DFW Internet Services, Inc. in its acquisitions of
Internet Express, Inc., The River Internet Access Co., World Trade Network,
Inc., and Ticon.net acquired $373,273, $1,229,883, $415,750, and $2,853
respectively in other intangible assets. The Company acquired other intangible
assets of Close Call and Davel in the amounts of $249,248 and $4,157,967,
respectively. The Company is amortizing the other intangible assets over a
period of three to fifteen years, and the Company performs its annual impairment
test for goodwill at fiscal year-end. As of December 31, 2004 the Company has
determined that there is no impairment of its goodwill.
The
company capitalizes computer software development costs and amortizes these
costs over an estimated useful life of 5 years.
Investments
The
Company on June 29, 2004 entered into a Business Development Agreement with
Solution Technology International, Inc (STI), a company based in Maryland,
whereby the Company will provide consulting services to STI in exchange for a 5%
ownership in the company. The value of the investment is $150,000 and is
reflected in the condensed consolidated balance sheet at December 31, 2004. (See
Notes 2, 3, 10 and 14)
The
Company on August 26, 2004 entered into a Business Development Agreement with
Texas Prototypes, a company based in Texas, whereby the Company will provide
consulting services to Texas Prototypes in exchange for a 5% ownership in the
company. The value of the investment is $300,000 and is reflected in the
condensed consolidated balance sheet at December 31, 2004. (See Notes 2, 3, 10
and 14)
MOBILEPRO
CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR
THE NINE MONTHS ENDED DECEMBER 31 2004 AND 2003
NOTE
2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based
Compensation
Employee
stock awards under the Company's compensation plans are accounted for in
accordance with Accounting Principles Board Opinion No. 25 (“APB 25”),
“Accounting
for Stock Issued to Employees ”, and
related interpretations. The Company provides the disclosure requirements of
Statement of Financial Accounting Standards No. 123, “Accounting
for Stock-Based Compensation ” (“SFAS
123”), and related interpretations. Stock-based awards to non-employees are
accounted for under the provisions of SFAS 123 and have adopted the enhanced
disclosure provisions of SFAS No. 148 “Accounting for Stock-Based
Compensation-Transition and Disclosure, an amendment of SFAS No. 123”.
The
Company measures compensation expense for its employee stock-based compensation
using the intrinsic-value method. Under the intrinsic-value method of accounting
for stock-based compensation, when the exercise price of options granted to
employees is less than the estimated fair value of the underlying stock on the
date of grant, deferred compensation is recognized and is amortized to
compensation expense over the applicable vesting period. In each of the periods
presented, the vesting period was the period in which the options were granted.
The
Company measures compensation expense for its non-employee stock-based
compensation under the Financial Accounting Standards Board (FASB) Emerging
Issues Task Force (EITF) Issue No. 96-18, “Accounting
for Equity Instruments that are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling, Goods or Services”. The
fair value of the option issued is used to measure the transaction, as this is
more reliable than the fair value of the services received. The fair value is
measured at the value of the Company’s common stock on the date that the
commitment for performance by the counterparty has been reached or the
counterparty’s performance is complete. The fair value of the equity instrument
is charged directly to compensation expense and additional paid-in capital.
Recent
Accounting Pronouncements
On
October 3, 2001, the FASB issued Statement of Financial Accounting Standards No.
144, “Accounting
for the Impairment or Disposal of Long-Lived Assets” (“SFAS
144”), which is applicable to financial statements issued for fiscal years
beginning after December 15, 2001. The FASB’s new rules on asset impairment
supersede SFAS 121, “Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of,” and
portions of Accounting Principles Board Opinion 30, “Reporting the Results of
Operations.” This Standard provides a single accounting model for long-lived
assets to be disposed of and significantly changes the criteria that would have
to be met to classify an asset as held-for-sale. Classification as held-for-sale
is an important distinction since such assets are not depreciated and are stated
at the lower of fair value and carrying amount. This Standard also requires
expected future operating losses from discontinued operations to be displayed in
the period (s) in which the losses are incurred, rather than as of the
measurement date as presently required.
In April
2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and
64, Amendment of FASB Statement No. 13, and Technical Corrections. This
statement rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of
Debt, and an amendment of that statement, SFAS No. 44, Accounting for Intangible
Assets of Motor Carriers, and SFAS No. 64, Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements. This statement amends SFAS No. 13, Accounting
for Leases, to eliminate inconsistencies between the required accounting for
sales-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sales-leaseback
transactions.
Also,
this statement amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their applicability
under changed conditions. Provisions of SFAS No. 145 related to the rescissions
of SFAS No. 4 were effective for the Company on November 1, 2002 and provisions
affecting SFAS No. 13 were effective for transactions occurring after May 15,
2002. The adoption of SFAS No. 145 did not have a significant impact on the
Company's results of operations or financial position.
In June
2003, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities. This statement covers restructuring type activities
beginning with plans initiated after December 31, 2002. Activities covered by
this standard that are entered into after that date will be recorded in
accordance with provisions of SFAS No. 146. The adoption of SFAS No. 146 did not
have a significant impact on the Company's results of operations or financial
position.
MOBILEPRO
CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR
THE NINE MONTHS ENDED DECEMBER 31, 2004 AND 2003
NOTE
2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent
Accounting Pronouncements (Continued)
In
December 2002, the FASB issued Statement No. 148, “Accounting for Stock-Based
Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123”
(“SFAS 148”). SFAS 148 amends FASB Statement No. 123, “Accounting for
Stock-Based Compensation,” to provide alternative methods of transition for an
entity that voluntarily changes to the fair value based method of accounting for
stock-based employee compensation. It also amends the disclosure provisions of
that Statement to require prominent disclosure about the effects on reported net
income of an entity’s accounting policy decisions with respect to stock-based
employee compensation. Finally, this Statement amends Accounting Principles
Board (“APB”) Opinion No. 28, “Interim Financial Reporting”, to require
disclosure about those effects in interim financial information. SFAS 148 is
effective for financial statements for fiscal years ending after December 15,
2002. The Company will continue to account for stock-based employee compensation
using the intrinsic value method of APB Opinion No. 25, “Accounting for Stock
Issued to Employees,” but has adopted the enhanced disclosure requirements of
SFAS 148.
In April
2003, the FASB issued SFAS Statement No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities", which amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under FASB Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities. This Statement is effective
for contracts entered into or modified after June 30, 2003, except for certain
hedging relationships designated after June 30, 2003. Most provisions of this
Statement should be applied prospectively. The adoption of this statement did
not have a significant impact on the Company's results of operations or
financial position.
In May
2003, the FASB issued SFAS Statement No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). This statement is effective
for financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003, except for mandatory redeemable financial instruments of
nonpublic entities, if applicable. It is to be implemented by reporting the
cumulative effect of a change in an accounting principle for financial
instruments created before the issuance date of the Statement and still existing
at the beginning of the interim period of adoption. The adoption of this
statement did have a significant impact on the Company's results of operations
or financial position. (See Note 10)
In
November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FIN 45 requires a company, at the time it
issues a guarantee, to recognize an initial liability for the fair value of
obligations assumed under the guarantees and elaborates on existing disclosure
requirements related to guarantees and warranties. The recognition requirements
are effective for guarantees issued or modified after December 31, 2002 for
initial recognition and initial measurement provisions. The adoption of FIN 45
did not have a significant impact on the Company's results of operations or
financial position.
In
January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim
or annual period beginning after June 15, 2003. The adoption of FIN 46 did not
have a significant impact on the Company' results of operations or financial
position.
MOBILEPRO
CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR
THE NINE MONTHS ENDED DECEMBER 31, 2004 AND 2003
NOTE
3- BRIDGE
DEBENTURES RECEIVABLE
On August
23, 2004, the Company provided a $700,000 bridge debenture to Texas Prototypes,
which is convertible into Common Stock of Texas Prototypes. Texas Prototypes may
redeem the debenture at any time for 120% of the face value plus accrued
interest. The Company expects to be repaid by converting the debenture into
Texas Prototypes common stock. The debenture is secured by the assets of Texas
Prototypes. If the debenture is not redeemed within three years it will be
converted into common stock of Texas Prototypes. (See Notes 2, 10 and
14)
On August
25, 2004, the Company provided a $300,000 bridge debenture to Solution
Technology International, Inc (STI) which is convertible into Common Stock of
STI. STI may redeem the debenture at any time for 120% of the face value plus
accrued interest. The Company expects to be repaid by converting the debenture
into STI common stock. The debenture is secured by the assets of STI. If the
debenture is not redeemed within three years it will be converted into common
stock of STI. (See Notes 2, 10 and 14)
NOTE
4- INTANGIBLE
ASSETS - VOICE ACQUISITIONS
The
Company has recorded an intangible asset for the cost of a customer list at
$200,000. Accumulated amortization of the customer list was $20,000 for the nine
months ended December 31, 2004.
NOTE
5- FIXED
ASSETS
Furniture
and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets.
When
assets are retired or otherwise disposed of, the costs and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
recognized income for the period. The cost of maintenance and repairs is charged
to income as incurred; significant renewals and betterments are capitalized.
Deduction is made for retirements resulting from renewals or betterments.
There was
$614,098 and $10,941 charged to operations for depreciation expense for the nine
months ended December 31, 2004 and 2003, respectively. The Company acquired
$1,384,688 in fixed assets from its acquisitions during the nine months ended
December 31, 2004.
NOTE
6- OTHER
LIABILITIES
Liability
for stock to be issued
In August
2004, DFW Internet Services, Inc. acquired the customer base, corporate name and
certain other assets of Web One, Inc., an internet service provider in Kansas
City, Missouri for cash and common stock. The Company is obligated, subject to
post closing adjustments, to issue 2,500,000 shares of common stock to the
shareholders of Web One, Inc. in exchange for $500,000 common stock portion of
the acquisition price. The shares had a fair value of $500,000 based on the
current stock price ($0.20) upon the final acceptance to the terms of the
agreement. Certain provisions of the asset purchase agreement may require
subsequent adjustments to the purchase price. Negotiations between the parties
on the amount of the adjustments have not concluded as of December 31, 2004. The
adjustments mentioned above not withstanding, the balance on the unpaid shares
at December 31, 2004 is $500,000.
MOBILEPRO
CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR
THE NINE MONTHS ENDED DECEMBER 31, 2004 AND 2003
NOTE
7- NOTE
PAYABLE - MARYLAND DEPARTMENT OF BUSINESS & ECONOMIC DEVELOPMENT
The
Company entered into an agreement with the Maryland Department of Business and
Economic Development (“DBED”) in the amount of $100,000, which represented
DBED’s investment in the Challenge Investment Program (“CIP Agreement”), dated
March 29, 2001. The term of the CIP Agreement was to extend through June 30,
2011.
In March
2004, the Company reached an agreement with DBED to accept payment of $7,000 for
a full release of terms relating to the CIP. The Company made this payment in
April 2004. The outstanding balance at December 31, 2004 is $0.
NOTE
8- NOTE
PAYABLE - BANK
The
Company entered into a bank loan for $5,000 to purchase equipment in October
2003. The note accrued interest at an annual rate of 9% per annum and matured
October 1, 2004. The balance was paid off in September 2004.
Other
long-term bank debt consisted of the following:
|
Note
payable to bank for office expansion costs at $4,317 per month, including
interest at 4.3%, and maturing April 2007; secured by cash pledged as
collateral. |
|
$ |
114,594 |
|
| |
|
|
|
|
|
Note
payable to bank for purchase of vehicle at $1,000 per month, including
interest at 6%, and maturing September 2008; secured by the
vehicle. |
|
|
40,223 |
|
| |
|
|
154,817 |
|
|
Less:
Current maturities |
|
|
(57,793 |
) |
| |
|
$ |
97,024 |
|
|
Principal
maturities of long-term debt are as follows:
Nine months ending
December
31, |
|
|
|
|
|
2005 |
|
$ |
57,793 |
|
|
2006 |
|
|
60,427 |
|
|
2007 |
|
|
27,002 |
|
|
2008 |
|
|
9,595 |
|
| |
|
$ |
154,817 |
|
NOTE
9- STANDBY
EQUITY DISTRIBUTION AGREEMENT AND EQUITY LINE OF CREDIT
On May
31, 2002, the Company entered into an Equity Line of Credit arrangement with
Cornell Capital Partners, L.P. that was terminated on October 16, 2002 and
re-entered on the same day October 16, 2002. This agreement was in turn
terminated on February 6, 2003 and re-entered the same day February 6, 2003. The
Equity Line of Credit provided generally, that Cornell would purchase up to $10
million of common stock over a two-year period, with the time and amount of such
purchases, if any, at the Company’s discretion. Cornell Capital purchased the
shares at a 9% discount to the prevailing market price of the common stock.
There
were certain conditions applicable to the Company’s ability to draw down on the
$10 million Equity Line of Credit including the filing and effectiveness of a
registration statement registering the resale of all shares of common stock that
may have been issued to Cornell under the $10 million Equity Line of Credit and
the Company’s adherence with certain covenants. The registration statement
became effective May 9, 2003.
MOBILEPRO
CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR
THE NINE MONTHS ENDED DECEMBER 31, 2004 AND 2003
NOTE
9- STANDBY
EQUITY DISTRIBUTION AGREEMENT AND EQUITY LINE OF CREDIT (CONTINUED)
In the
event Cornell Capital were to hold more than 9.9% of the then-outstanding common
stock of the Company, the Company would have been unable to draw down on the $10
million Equity Line of Credit.
In the
nine months ended December 31, 2003, the Company drew $2,235,000 from Cornell
Capital Partners, L.P in accordance with the $10 million Equity Line of Credit
and advanced 104,517,453 shares of its common stock to the escrow agent as part
of these loans. As of December 31, 2003 there was $1,000,000 outstanding and
79,038,001 shares of common stock were converted for the nine months ended
December 31, 2003.
In the
nine months ended December 31, 2004, the Company drew $2,000,000 from Cornell
Capital Partners, L.P in accordance with the $10 million Equity Line of Credit
and advanced 10,000,000 shares of its common stock to the escrow agent as part
of these loans. As of December 31, 2004, $-0- remains outstanding and 25,276,134
shares of common stock were converted for the nine months ended December 31,
2004.
On May
13, 2004, the Company entered into a $100 million Standby Equity Distribution
Agreement arrangement with Cornell Capital Partners, L.P. The Standby Equity
Distribution Agreement provides generally, that Cornell will purchase
up
to $100
million of common stock over a two-year period, with the time and amount of such
purchases, if any, at the Company’s discretion. Cornell Capital will purchase
the shares at a 2% discount to the prevailing market price of the common stock.
There are
certain conditions applicable to the Company’s ability to draw down on the
Standby Equity Distribution Agreement including the filing and effectiveness of
a registration statement registering the resale of all shares of common stock
that may be issued to Cornell under the Standby Equity Distribution Agreement
and the Company’s adherence with certain covenants. The registration statement
became effective May 27, 2004.
In the
event Cornell Capital holds more than 9.9% of the then-outstanding common stock
of the Company, the Company will be unable to draw down on the $100 million
Standby Equity Distribution Agreement.
In the
nine months ended December 31, 2004, the Company drew $9,200,000 from Cornell
Capital Partners, L.P, in accordance with the $100 million Standby Equity
Distribution Agreement and advanced 60,000,000 shares of its common stock to the
escrow agent as part of these loans. As of December 31, 2004, $-0- remains
outstanding and 52,172,192 shares of common stock were converted for the nine
months ended December 31, 2004.
NOTE
10- LONG-TERM
DEBT
Corporate
On August
23, 2004, the Company borrowed $700,000 from Cornell Capital Partners. The
amount is due in 180 days and carries an interest rate of 14%. The note is
secured by all of the assets of the Company. In addition, the Company has
escrowed two requests for advances each totaling $350,000 under the terms of the
$100 million Standby Equity Distribution Agreement with Cornell Capital
Partners, L.P. The proceeds were advanced to Texas Prototypes by the Company in
anticipation of Texas Prototypes’ initial public offering. (See Notes 2, 3 and
14)
On August
25, 2004, the Company borrowed $300,000 from Cornell Capital Partners. The
amount is due in 180 days and carries an interest rate of 14%. The note is
secured by all of the assets of the Company. In addition the Company has
escrowed two requests for advances each totaling $150,000 under the terms of the
$100 million Standby Equity Distribution Agreement with Cornell Capital
Partners, L.P. The proceeds were advanced to Solution Technology International,
Inc. (STI) by the Company in anticipation of STI’s initial public offering. (See
Notes 2, 3 and 14)
On August
27, 2004, the Company borrowed $8,500,000 from Cornell Capital Partners. The
amount is due in one year and carries an interest rate of 12%. The note is
secured by the assets of the Company and was utilized for the acquisition of
CloseCall. In December 2004, the Company converted $2,200,000 of the note
balance into the $100 million Standby Equity Distribution Agreement. As of
December 31, 2004, the remaining principal balance of the note payable was
$6,300,000 and the accrued interest on this note for the nine months ended
December 31, 2004, was $335,089. The Company has classified the note and the
accrued interest as short-term liabilities.
MOBILEPRO
CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR
THE NINE MONTHS ENDED DECEMBER 31, 2004 AND 2003
NOTE
10- LONG-TERM
DEBT (CONTINUED)
Corporate
(Continued)
On
September 22, 2004, the Company borrowed $3,700,000 from Cornell Capital
Partners. The amount is due in one year and carries an interest rate of 12%. The
note is secured by the assets of the Company and was utilized for the
acquisition of The River Internet Access Co. and World Trade Network, Inc. As of
December 31, 2004, the remaining principal balance of the note payable was
$3,700,000 and the accrued interest on this note for the nine months ended
December 31, 2004, was $121,644. The Company has classified the note and the
accrued interest as short-term liabilities.
On
November 15, 2004, the Company borrowed $15,200,000 from Airlie Opportunity
Master Fund (“Airlie”), a Greenwich, Connecticut-based institutional investor.
MobilePro repaid $2,200,000 on November 30, 2004 and the remaining $13,000,000
note is payable on November 15, 2005 and carries an interest rate of 23%. The
funds were utilized to complete the acquisition of 95.2% of the stock of Davel
Communications, Inc. as described in Note 1. The note is secured by 100 % of the
stock of Davel Communications, Inc. that was conveyed on November 15, 2004, plus
100 % of the Davel debt instruments that were acquired in the transaction. In
addition, the note is secured by the assets of the Company, as subordinated by
the pre-existing first lien of Cornell Capital Partners. As of December 31,
2004, the remaining principal balance of the note payable was $13,000,000 and
the accrued interest payable on this note was $373,750. The Company has
classified the note and the accrued interest as short-term
liabilities.
Internet
Services Acquisitions
On June
21, 2004, DFW Internet Services, Inc. entered into an asset purchase agreement
with Crescent Communications, Inc. The agreement included a promissory note
payable to Crescent Communications, Inc. in the amount of $250,000, with simple
interest accruing at 6% per annum, and monthly payments in the amount of $21,516
beginning on July 21, 2004. The note matures on June 21, 2005, and the monthly
payments will apply first to interest with the remaining portion of the payment
reducing the principal balance. The payments commenced on July 21, 2004, and the
note outstanding balance on December 31, 2004, was $126,791. The interest on
these notes for the nine months ended December 31, 2004, was $5,887.
DFW
Internet Services, Inc. entered into four (4) promissory notes with the prior
owners of Ticon.net, Inc. for an aggregate principal amount of $250,000 plus
interest computed at 6% per annum. The notes were made as of July 14, 2004, and
matured on November 10, 2004. The note payments scheduled for November 10, 2004
were not made due to certain provisions of the stock purchase agreement
requiring subsequent adjustments to the purchase price and outstanding notes.
Negotiations
between the parties on the amount of the note adjustments were not concluded as
of December 31, 2004. The adjustments mentioned above not withstanding, as of
December 31, 2004, the principal balance on the notes was $250,000, and accrued
interest on the notes for the nine months ended December 31, 2004, was $6,986.
The total outstanding note balance plus interest are classified as short-term
liabilities.
DFW
Internet Services, Inc. entered into four (4) promissory notes with the prior
owners of Internet Express, Inc. for an aggregate principal amount of $300,000.
The notes were made as of March 1, 2004 and mature March 1, 2006. DFW Internet
Services, Inc. has agreed to pay a monthly amount of $5,000 inclusive of
interest towards the principal balance of $300,000 with the remaining $180,000
plus accrued interest to be paid by the maturity date. Interest on these notes
will accrue at an annual rate of 6% percent per annum. The monthly payments will
first be applied to interest and the remaining portion will be a reduction of
the principal balance. The payments commenced on April 1, 2004. The balance at
December 31, 2004 on these promissory notes is $233,799. The interest expense on
these notes for the nine months ended December 31, 2004 is $12,546. Of the total
amount outstanding, $60,000 is reflected as a current liability and the
remaining $173,799 is due March 1, 2006.
DFW
Internet Services, Inc. entered into two (2) promissory notes with the prior
owner of Clover Computer Corporation for an aggregate note principal amount of
$542,264. The first note matures on July 6, 2005, and the second is a
convertible note that matures on July 6, 2006. DFW Internet Services has agreed
to a quarterly debt service inclusive of interest at a simple rate of 7% per
annum on the first note, with the first quarterly payment of $70,774 to begin
October 6, 2004, and the last payment of the same amount due on July 6, 2005.
The first and second payments scheduled for October 6, 2004 and January 6, 2005,
were not made due to certain provisions of the stock purchase agreement
requiring subsequent adjustments to the purchase
price and outstanding notes. Negotiations between the parties on the amount of
the note adjustments have not concluded as of December 31, 2004. The adjustments
mentioned above not withstanding, the balance on December 31, 2004, on the first
promissory note was $271,132, and accrued interest on this note for the nine
months ended December 31, 2004,
MOBILEPRO
CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR
THE NINE MONTHS ENDED DECEMBER 31, 2004 AND 2003
NOTE
10- LONG-TERM
DEBT (CONTINUED)
Internet
Services Acquisitions
(Continued)
was
$9,256. The total outstanding note balance plus interest are classified as
short-term liabilities. The second note is a
convertible
note in the amount of $271,132 that matures on July 6, 2006, with simple
interest computed at an annual rate of 4%, and a balloon payment of principal
and interest at maturity. The principal balance on the note for the nine months
ended December 31, 2004, was $271,132 with accrued interest of $5,289. The total
outstanding balance and accrued interest were classified as long-term
liabilities. At any time prior to maturity, the note holder has the right, at
the holder’s option, prior to the repayment of the outstanding balance under the
note, to convert such outstanding balance of this note, in whole or in part,
into common stock at a conversion price of $.20 per share.
DFW
Internet Services, Inc. entered into two (2) promissory notes with the prior
owner of World Trade Network, Inc. for an aggregate principal amount of
$500,000. The two notes were made as of September 15, 2004, and the first note
matures on September 15, 2005, and the second is a convertible note that matures
on March 15, 2006. DFW Internet Services, Inc. has agreed to a quarterly debt
service inclusive of interest at a simple rate of 6% per annum on the first
note. The first quarterly payment of $64,861 was due on December 15, 2004, and
the last payment of the same amount is due on September 15, 2005. The principal
balance on December 31, 2004 of the first promissory note was $250,000, and
accrued interest on this note as of December 31, 2004, was $4,397. The initial
payment was not made on December 15, 2004 due to certain provisions of the stock
purchase agreement requiring subsequent adjustments to the purchase price and
outstanding notes. Negotiations between the parties on the amount of the note
adjustments have not concluded as of December 31, 2004. The total outstanding
principal balance and accrued interest are classified as short-term liabilities.
The second note is a convertible note in the amount of $250,000 that matures on
March 15, 2006, with simple interest computed at an annual rate of 3%, and a
balloon payment of principal and interest at maturity. The principal balance on
the note as of December 31, 2004, was $250,000 with accrued interest of $2,199.
The outstanding principal balance and accrued interest are classified as
long-term liabilities. At any time prior to maturity, the note holder has the
right, at the holder’s option, prior to the repayment of the outstanding balance
under the note, to convert such outstanding balance of this note, in whole or in
part, into common stock at a conversion price of $.20 per share.
DFW
Internet Services, Inc. entered into thirty (30) promissory notes with the prior
owners of The River Internet Access Co. for an aggregate principal amount of
$776,472. The thirty (30) notes were made as of September 16, 2004, and the
first set of fifteen (15) notes mature on September 15, 2005, and the second set
of fifteen (15) notes are convertible notes that mature on March 15, 2006. DFW
Internet Services, Inc. has agreed to a quarterly debt service inclusive of
interest at a simple rate of 6% per annum on the first fifteen notes. The first
quarterly payment of $102,867 was made and the last payment of the same amount
is due on September 16, 2005. The aggregate principal balances on December 31,
2004, on the first set of fifteen promissory notes were $291,181, and accrued
interest on these notes as of December 31, 2004, was $5,808. The total
outstanding principal balances and accrued interest are classified as short-term
liabilities. The second set of fifteen notes are convertible notes in the
aggregate amount of $388,236 that mature on March 16, 2006, with simple interest
computed at an annual rate of 3%, and a balloon payment of principal and
interest at maturity. The principal balances on the notes as of December 31,
2004, were $388,236 with accrued interest of $3,382. The aggregate outstanding
note principal balances and accrued interest of the second set of notes were
classified as long-term liabilities. At any time prior to maturity, the note
holders have the right, at the holders’ option, prior to the repayment of the
outstanding balances under the notes, to convert such outstanding balances of
their notes, in whole or in part, into common stock at a conversion price of
$.20 per share.
The
Company and DFW Internet Services, Inc. and the former owners of DFW Internet
Services, Inc. entered into Put Agreements as of January 19, 2004. The Put
Agreements give the former owners of DFW Internet Services, Inc. the right to
have the Company repurchase all, but not less than all, of the common stock
issued to the former owners. The aggregate purchase price under the Put
Agreement is $250,000. This put right is exercisable at anytime within 60 days
after the third anniversary of the execution of the Put Agreement (March 20,
2007). The Company has classified this liability as a long-term liability on its
condensed consolidated financial statements in accordance with SFAS 150,
“Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity” (“FASB 150”). Pursuant to FASB 150, a financial
instrument, other than an outstanding share, that, at inception, embodies an
obligation to repurchase the issuer’s equity shares, or is indexed to such an
obligation, and that requires or may require the issuer to settle the obligation
by transferring assets, such as a put option on the issuer’s equity shares that
is to be physically settled or net cash settled, should be classified as a
liability.
MOBILEPRO
CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR
THE NINE MONTHS ENDED DECEMBER 31, 2004 AND 2003
NOTE
10- LONG-TERM
DEBT (CONTINUED)
Voice
Services Acquisitions
The
Company acquired US1 Telecommunications, Inc. and escrowed $75,000, which was
due and payable to the former owner within 5 months of the closing date (June
29, 2004), provided the subsidiary performed as indicated in the agreement. The
note bears interest at a rate of 5% and was due on December 1, 2004 in the
amount of $75,940. The final
payment, scheduled for December 1, 2004, was not made due to certain provisions
of the agreement requiring subsequent adjustments to the purchase price and
outstanding note. The final adjustments according to the terms of the agreement
have not been determined as of December 31, 2004. The adjustments mentioned
above notwithstanding, the balance on December 31, 2004, on the note was
$75,940, and accrued interest on this note for the nine months ended December
31, 2004, was $940. The total outstanding note balance plus interest is
classified as a short-term liability. The Company has classified the $75,000 as
restricted cash in the condensed consolidated balance sheet.
The
Company and the former owners of Affinity Telecom entered into Put Agreements as
of September 19, 2004. The Put Agreements gave the former owners of Affinity
Telecom the right to have the Company repurchase all, but not less than all, of
the common stock issued to the former owners. The aggregate purchase price under
the Put Agreement was $995,000. The Company previously classified this as a
short-term liability on its September 30, 2004 condensed consolidated financial
statements in accordance with SFAS 150, “Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity” (“FASB 150”).
Pursuant to FASB 150, a financial instrument, other than an outstanding share,
that, at inception, embodies an obligation to repurchase the issuer’s equity
shares, or is indexed to such an obligation, and that requires or may require
the issuer to settle the obligation by transferring assets, such as a put option
on the issuer’s equity shares that is to be physically settled or net cash
settled, should be classified as a liability. The Agreement and Plan of Merger
by and between the Company and Affinity Telecom was amended as of December 2004
to settle certain disputes regarding the financial condition of Affinity
Telecom. According to the terms of the Amendment the Put Agreement was
terminated and the outstanding balance at December 31, 2004 is $0.
The
Company acquired Affinity Telecom and maintained an escrow payable in the amount
of $140,000 related to the Agreement and Plan of Merger. The Agreement and Plan
of Merger by and between the Company and Affinity Telecom was amended as of
December 2004 to settle certain disputes regarding the financial condition of
Affinity Telecom. According to the terms of the Amendment the escrow payable was
terminated and the outstanding balance at December 31, 2004 is $0.
The
Company acquired Affinity Telecom and recorded a payable in the amount of
$50,000 representing additional consideration applicable to accounts receivable
outstanding at July 30, 2004. The Agreement and Plan of Merger by and between
the Company and Affinity Telecom was amended as of December 2004 to settle
certain disputes regarding the financial condition of Affinity Telecom.
According to the terms of the Amendment the $50,000 payable was terminated and
the outstanding balance at December 31, 2004 is $0.
The
Company acquired Affinity Telecom and issued two (2) notes with the prior
owners, a $300,000 non-interest bearing promissory note and a $750,000
convertible promissory note. The Agreement and Plan of Merger by and between the
Company and Affinity Telecom was amended as of December 2004 to settle certain
disputes regarding the financial condition of Affinity Telecom. According to the
terms of the Amendment the two (2) notes with the prior owners were terminated
and the outstanding balance at December 31, 2004 is $0.
Vehicle
DFW
Internet Services, Inc. entered into a note for the purchase of a company
vehicle in August 2004.
The note
is a three-year note that matures in April 2006 with a balloon payment of
approximately $45,000. The note carries an annual percentage rate of 7.25% and
the payments including interest are $979.49 per month.
The
Company’s maturities over the next two years and in the aggregate are expected
to be as follows:
| |
|
|
|
|
|
| 2005 |
|
|
|
|
$ |
11,754 |
|
| 2006 |
|
|
|
|
|
57,989 |
|
| |
|
|
|
|
|
|
|
|
Total |
|
|
|
|
$ |
69,743 |
|
MOBILEPRO
CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR
THE NINE MONTHS ENDED DECEMBER 31, 2004 AND 2003
NOTE
10- LONG-TERM
DEBT (CONTINUED)
Leases
In 2003,
the Company leased certain equipment under capital lease arrangements. The
Company also leases a building and various equipment under non-cancelable
operating leases. The building lease expires in 2007 and contains options to
renew for additional terms of two years at the prevailing market rate. The
equipment lease expires in 2007. In the normal course of business, operating
leases are generally renewed or replaced by other leases.
Property
and equipment includes the following amount for leases that have been
capitalized at December 31, 2004:
|
Computer
and mailing equipment |
|
$ |
43,812 |
|
|
Less
accumulated amortization |
|
|
(9,388 |
) |
| |
|
$ |
34,424 |
|
Amortization
of leased assets is included in depreciation and amortization
expense.
Future
minimum payments under non-cancelable operating leases with initial terms of one
year or more consist of the following for the twelve months ending December
31:
| |
|
Capital
Leases |
|
Operating
Leases |
|
| |
|
|
|
|
|
|
2005 |
|
$ |
10,508 |
|
$ |
385,259 |
|
|
2006 |
|
|
10,508 |
|
|
382,727 |
|
|
2007 |
|
|
10,508 |
|
|
83,096 |
|
|
2008 |
|
|
5,253 |
|
|
18,497 |
|
|
Total
minimum lease payments |
|
|
36,777 |
|
|
869,579 |
|
|
Less:
Amounts representing interest |
|
|
(4,513 |
) |
|
|
|
|
Less:
Current portion |
|
|
(8,413 |
) |
|
|
|
|
Long
term capital lease obligation |
|
$ |
23,851 |
|
|
|
|
NOTE
11- STOCKHOLDERS’
EQUITY (DEFICIT)
Common
Stock
As of
December 31, 2004, the Company has 600,000,000 shares of common stock authorized
and 348,918,011 issued and outstanding.
The
Company has 6,000,000 shares of common stock authorized under its 2001 Equity
Performance Plan.
The
following details the stock transactions for the year ended March 31, 2004.
On June
19, 2003, the Company issued 350,000 shares of common stock as compensation at a
fair value of $8,750.
On July
7, 2003, pursuant to the MOU between the Company and GBH Telecom, LLC, the
Company issued 3,500,000 shares of common stock valued at $68,250. As of
September 30, 2003, the agreement with GBH Telecom, LLC was terminated.
Between
May 2003 and August 2003, the Company issued 16,130,887 shares of common stock
in conversion of $165,000 of convertible debentures.
MOBILEPRO
CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR
THE NINE MONTHS ENDED DECEMBER 31, 2004 AND 2003
NOTE
11- STOCKHOLDERS’
EQUITY (DEFICIT) (CONTINUED)
Common
Stock
(Continued)
In
October 2003, the Company issued 391,304 shares of common stock in conversion of
$9,000 in advances that were funded to the Company.
In
January 2004, the Company issued 16,666,667 shares of common stock in conversion
of $180,000 in officer advances that were funded to the Company.
In March
2004, the Company issued 18,761,726 shares of common stock to the holders of DFW
Internet Services’ common stock pursuant to a Stock Purchase Agreement, dated
January 19, 2004. A newly formed, wholly-owned subsidiary of The Company merged
into DFW Internet Services, in a tax-free exchange transaction. The merger was
consummated on January 19, 2004. As a result of the merger, DFW Internet
Services is now a wholly-owned subsidiary of the Company. The issuances of the
shares were valued at a fair value of $500,000, based on the average 20-day
closing price ($0.02665) prior to January 19, 2004.
In the
year ended March 31, 2004, the Company issued 134,517,453 shares of common stock
to the escrow agent for use in raising money on the $10 million Equity Line of
Credit. The Company also converted $3,145,000 of debt into 118,351,914 shares of
common stock and recognized $311,757 of amortization of discount and interest on
debt conversions relating to the $10 million Equity Line of Credit.
The
following details the stock transactions for the nine months ended December 31,
2004.
In May
2004, the Company issued 2,000,000 shares of common stock under a settlement
agreement with a former executive, valued at $90,000 and issued 421,037 shares
of common stock for the exercise of options under the Company’s 2001 Equity
Performance Plan to another former executive for cash of $23,999.
In June
2004, the Company issued 8,000,000 shares of common stock for fees associated
with the $100 million Standby Equity Distribution Agreement valued at $1,760,000
which is reflected as a deferred financing fee on the condensed consolidated
balance sheet.
In August
2004, the Company issued 100,000 shares of common stock to an agency as
compensation for personnel recruiting services.
In August
2004, the Company issued 2,000,000 shares in conjunction with conversion of
warrants with a former executive. The exercise price was $.029 per
share.
In August
2004, the Company issued 878,816 shares of common stock to the former owners of
ShreveNet, Inc. as partial compensation for the acquisition of ShreveNet, Inc.
by the Company’s subsidiary DFW Internet Services, Inc. The issuances of the
shares were valued at a fair value of $190,000 based on the average 20-day
closing price ($0.2162) prior to June 3, 2004.
In August
2004, the Company issued 25,000 shares of common stock in conjunction with
conversion of stock options under the Company’s 2001 Equity Performance Plan to
a former employee. The exercise price was $.10 per Share.
In
September 2004, the Company issued 5,000,000 shares of common stock to the
former owners of Affinity Telecom as partial compensation for the acquisition of
Affinity Telecom by the Company. The issuances of the shares were valued at a
fair value of $1,000,000 based upon the date of agreement and the terms of the
deal.
In
November 2004, the Company issued 39,999,999 shares of common stock to the
former owners of CloseCall America, Inc. as partial compensation for the
acquisition of CloseCall America, Inc. that was completed on October 18, 2004.
The 39,999,999 shares were recorded at a fair value of $10,000,000 and the
shares are restricted under SEC Rule 144.
In the
nine months ended December 31, 2004, the Company issued 10,000,000 shares of
common stock to the escrow agent for use in raising money on the $10 million
Equity Line of Credit. The Company also converted $3,800,000 of debt into
25,276,134 shares of common stock and recognized $256,691 of amortization of
discount on debt conversions relating to the $10 million Equity Line of
Credit.
MOBILEPRO
CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR
THE NINE MONTHS ENDED DECEMBER 31, 2004 AND 2003
NOTE
11- STOCKHOLDERS’
EQUITY (DEFICIT) (CONTINUED)
In the
nine months ended December 31, 2004, the Company issued 60,000,000 shares of
common stock to the escrow agent for use in raising money on the $100 million
Standby Equity Distribution Agreement. The Company also converted $9,200,000 of
debt into 52,172,192 shares of common stock. The Company also converted $13,907
of interest into 81,355 shares of common stock. The Company recognized $118,459
of amortization of discount on debt and interest conversions relating to the
$100 million Standby Equity Distribution Agreement.
Preferred
Stock
The
Company has 5,000,000 shares of preferred stock authorized and 35,378 shares of
preferred stock issued and outstanding as of December 31, 2004. There were no
issuances of preferred stock during the nine months ended December 31,
2004.
Stock
Options and Warrants
The
Company has authorized 6,000,000 shares under the 2001 Equity Performance Plan
to be issued as options to employees of the Company. In addition, the Company
from time to time has issued board resolutions to issue warrants to key
personnel.
Under the
Black-Scholes option pricing model, the total value of the stock options granted
is charged to operations. SFAS No. 123, “Accounting
for Stock-Based Compensation ”,
encourages adoption of a fair-value-based method for valuing the cost of
stock-based compensation. However, it allows companies to continue to use the
intrinsic-value method for options granted to employees and disclose pro forma
net loss. Of the 7,850,000 options outstanding at December 31, 2004, 5,345,417
of these options are vested.
The
following table summarizes the activity of the Company's stock option plan for
the nine months ended December 31, 2004:
| |
|
|
Number
of |
|
Weighted-Average |
|
| |
|
|
Options |
|
Exercise
Price |
|
| |
|
|
|
|
|
|
|
Outstanding
- beginning of period |
|
|
|
4,171,037 |
|
$ |
.0482 |
|
|
Granted
|
|
|
|
7,225,000 |
|
|
.1389 |
|
|
Exercised
|
|
|
|
(2,446,037 |
) |
|
.0476 |
|
|
Cancelled |
|
|
|
(1,100,000 |
) |
|
.2045 |
|
|
Outstanding
- end of period |
|
|
|
7,850,000 |
|
$ |
.1099 |
|
| |
|
|
|
|
|
|
|
|
|
Exercisable
at end of period |
|
|
|
5,545,417 |
|
$ |
.0776 |
|
For
disclosure purposes, the fair value of each stock option granted is estimated on
the date of grant using the Black-Scholes option-pricing model, which
approximates fair value, with the following weighted-average assumptions used
for stock options granted in 2004; no annual dividends, volatility of 60%,
risk-free interest rate of 3.00%, and expected life of 9.58 years.
If
compensation expense for the Company's stock-based compensation plans had been
determined consistent with SFAS 123, the Company's net income and net income per
share including pro forma results would have been the amounts indicated below
for the nine months ended December 31, 2004:
MOBILEPRO
CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR
THE NINE MONTHS ENDED DECEMBER 31, 2004 AND 2003
|
NOTE
11- |
STOCKHOLDERS’
EQUITY (DEFICIT) (CONTINUED)
Stock
Options and Warrants (Continued)
|
|
| Net
loss: |
|
|
|
|
|
As
reported |
|
|
($5,460,090 |
) |
|
Total
stock-based employee compensation expense determined under fair value
based method for all awards, net of related tax effects |
|
|
(6,093,029 |
) |
| |
|
|
|
|
|
Pro
forma |
|
|
(11,553,120 |
) |
|
Net
loss per share: |
|
|
|
|
|
As
reported: |
|
|
|
|
|
Basic
|
|
|
($.02 |
) |
|
Diluted
|
|
|
($.02 |
) |
|
Pro
forma: |
|
|
|
|
|
Basic
|
|
|
($.04 |
) |
|
Diluted
|
|
|
($.04 |
) |
The
Company has issued 47,782,500 stock warrants in the nine months ended December
31, 2004. The total warrants outstanding at December 31, 2004 are 52,282,500.
The fair
value of these warrants was estimated using the Black-Scholes pricing model with
the following assumptions: interest rate 3.0%, dividend yield 0%, volatility 60%
and expected life of ten years.
The
Company has the following warrants exercisable for the purchase of its common
stock as of December 31, 2004:
|
Exercise
Price |
|
Exercise
Date |
|
Exercisable
Warrants |
|
$.30 |
|
November,
2009 |
|
5,000,000 |
|
$.032
|
|
September,
2013 |
|
500,000 |
|
$.018 |
|
January,
2014 |
|
4,156,250 |
|
$.018 |
|
April,
2014 |
|
14,382,500 |
|
$.20 |
|
June,
2014 |
|
3,750,000 |
|
$.18
|
|
July,
2014 |
|
2,000,000 |
|
$.30 |
|
October,
2014 |
|
2,500,000 |
|
$.35 |
|
October,
2014 |
|
1,000,000 |
|
$.20 |
|
November,
2014 |
|
83,333 |
| |
|
|
|
|
| |
|
|
|
33,372,083 |
| |
|
Weighted
average exercise price |
|
$0.1221
|
MOBILEPRO
CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR
THE NINE MONTHS ENDED DECEMBER 31, 2004 AND 2003
NOTE
12- PATENTS
As of
December 31, 2004, the Company had filed a total of eight patent applications
which were pending with the U.S. Patent and Trademark Office (PTO) in the areas
of “Smart Antenna” technology and RF Transceiver Chip Design for "Low Noise
Amplifier for wireless communications". As of December 31, 2004, the Company had
been granted approval of five patents and three patent applications are still
pending approval. The five approved patents are as follows:
|
|
1.
|
“Smart
Antenna with Adaptive Convergence Parameter” with PTO Patent Number
6,369,757, issued April 9, 2002; |
|
| |
2.
|
“A
Smart Antenna With No Phase Calibration for CDMA Reverse Link” with PTO
Patent Number 6,434,375 issued August 13, 2002; |
|
| |
3.
|
“PN
Code Acquisition with Adaptive Antenna Array and Adaptive Threshold for
DS-CDMA Wireless Communication” with PTO Patent Number 6,404,803, issued
June 11, 2002; |
|
| |
4.
|
“New
Cellular Architecture for Code Division Multiple Access SMOA Antenna Array
Systems” with PTO Patent Number 6,459,895, issued October 1, 2002; and
|
|
| |
5.
|
“Direction
of Arrival Angel Tracking Algorithm for Smart Antennas” with PTO Patent
Number 6,483,459, issued date November 19, 2002. |
|
“Improvement
of PN Code Chip Time Tracking with Smart Antenna”, a patent application is
pending - awaiting first Office Action from Patent Office.
"Low
Noise Amplifier for Wireless Communications", a patent application is pending
with the U.S. Patent and Trademark Office. The patent application describes a
technology that increases integration on a semiconductor chip for wireless
communications. The new design is anticipated to allow for lower cost and more
compact and efficient wireless communications.
"Voltage
Controlled Oscillator using Complementary Transistors", a patent application is
pending with the U.S. Patent and Trademark Office. The patent application
describes a technology that reduces the "noise" associated with the translation
of an RF signal into usable sound or other signal by taking previously ignored
aspects of an RF signal and utilizing them to achieve greater clarity.
NOTE
13- CONTINGENCY
Certain
mitigating factors that have occurred in the year ended March 31, 2004 and
subsequently, which resulted in management's ability to believe that current
circumstances exist whereby the going concern uncertainty has been removed.
These
mitigating factors include management receiving a commitment from Cornell
Capital Partners, L.P. to provide the Company with up to $100 million in
financing under certain conditions and receiving funding in the past fiscal year
from Cornell Capital Partners, L.P under a prior $10 million Equity Line of
Credit. In addition, the Company completed two acquisitions in its fourth fiscal
quarter ending March 31, 2004 and completed twelve acquisitions in its first
three fiscal quarters ending December 31, 2004 of internet and voice services
companies. These acquisitions are expected to bring revenues and cash flow into
the Company from operations.
In the
nine months ended December 31, 2004, the Company has acquired additional
internet and voice services companies. The acquisitions continue to expand the
Company’s footprint and provide additional products and services to the existing
and future customer base. The Company is also exploring other transactions that
will fit its business model and assist the Company in executing its business
plan.
MOBILEPRO
CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR
THE NINE MONTHS ENDED DECEMBER 31, 2004 AND 2003
NOTE
14- COMMITMENTS
On April
15, 2004, Mr. Jay O. Wright extended his employment as the Company’s President
and Chief Executive Officer. Mr. Wright’s employment is for two years under the
terms of his Executive Employment Agreement with the Company.
The
Company has entered into employment agreements with other key members of
management.
Compensation
earned by these employees has been properly reflected in the condensed
consolidated statements of operations for the nine months ended December 31,
2004 and 2003, respectively.
In May
2004, the Company announced that it has formed a strategic alliance with
Massively Parallel Technologies, Inc. (MPT), a privately owned corporation
located in Louisville, Colorado. Under the alliance, MPT will utilize the
bandwidth provisioning capability of the Company in connection with MPT's high
performance computer cluster platforms and the Company will become a reseller of
the MPT platform.
In June
2004, the Company signed a Development Agreement with Information and
Communications University (ICU), a Korean institution with leading edge
development experience in ZigBee RF design, to jointly develop the Company’s
ZigBee RF transceiver chip. Under the Agreement the Company retains 100%
ownership of all intellectual property rights.
In June
2004, the Company signed a letter of intent to acquire CommSouth Companies, Inc.
a competitive local exchange carrier (CLEC) and long distance and internet
service provider based in Dallas, Texas. As of December 31, 2004, the Company is
not actively pursuing the completion of this acquisition.
In June
2004, the Company entered into a Business Development Agreement with Solution
Technology International, Inc., a Frederick, Maryland-based software company
("STI"), whereby the Company will provide consulting services to STI in exchange
for a 5% ownership in the company. The value of the investment is $150,000 and
is reflected in the condensed consolidated balance sheet at December 31,
2004.
In July
2004 the Company signed a letter of intent to acquire American Fiber Network,
Inc., ("AFN") a licensed Competitive Local Exchange Carrier (CLEC) and long
distance provider based in Kansas City, Missouri. AFN is licensed to provide
local, long distance and Internet service in 48 contiguous U.S. states.
In August
2004, the Company signed a letter of intent to acquire WorldNet Communications,
Inc., a Leesville, Louisiana-based Internet service provider. As of the date of
this 10-Q filing, the Company is not actively pursuing the completion of this
acquisition.
In August
2004, the Company announced its intention to issue a property dividend of
3,073,113 shares of common stock of STI. The Company shareholders are expected
to receive one share of registered (i.e. "free-trading") STI stock for
approximately every 93 shares of the Company stock that they own, based on the
existing shares outstanding and certain warrants. The Company’s Board of
Directors set September 15, 2004 as the record date for the stock dividend. The
payment date will occur after the United States Securities and Exchange
Commission declares STI's SB-2 Registration Statement effective.
In August
2004, the Company announced that it signed a memorandum of understanding with an
Israeli technology company ActivePoint Ltd. to jointly pursue a working
relationship covering a number of potential technology and communications
projects. The companies have agreed that a future working relationship could
include select opportunities involving ActivePoint's search engine and other
software and the Company’s internet and voice services, wireless, security and
other telecommunications and IT initiatives within North America.
In August
2004, the Company signed a business development agreement with Texas Prototypes,
Inc., an electronic prototype manufacturing company, to jointly pursue a working
relationship covering a number of potential technology projects and business
development initiatives. The Company will receive a 5% ownership in the company
as consideration for services under the agreement. The value of the investment
is $300,000 and is reflected in the condensed consolidated balance sheet at
December 31, 2004.
MOBILEPRO
CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR
THE NINE MONTHS ENDED DECEMBER 31, 2004 AND 2003
NOTE
14- COMMITMENTS
(CONTINUED)
In
September 2004, the Company announced a letter of intent to acquire two
Bridgeport, Texas phone companies, Affordaphone, Inc. and Basicphone, Inc. As of
December 31, 2004, the Company is not actively pursuing the completion of this
acquisition.
In
September 2004, the Company announced it has signed a letter of intent to
acquire North Country Internet Access, Inc., an internet services provider based
in Berlin, New Hampshire which offers both analog and digital dial-up, service,
Web hosting and design services. North Country Internet Access, Inc. serves
residential and small business customers in northern New Hampshire. As of the
date of this 10-Q filing, the Company is not actively pursuing the completion of
this acquisition.
In
September 2004, the Company formed a strategic alliance with Global Triad
Incorporated, a Ft. Lauderdale, FL-based software and wireless broadband
company. Pursuant to the arrangement, the companies will look to jointly pursue
select wireless projects and work together utilizing Global Triad's compression
software.
In
October 2004, the Company completed the design of its first ZigBee wireless
semiconductor chip. The 2.4 GHz chip design for the so-called "RF layer," or
"physical layer," is now being converted into a prototype chip at a facility in
Taiwan. In addition the Company announced it had begun design on a 900 MHz
ZigBee chip.
In
connection with the November 2004 acquisition of 95.2% of the common stock of
Davel Communications, Inc. (“Davel”), (See Note 1 above.), MobilePro has agreed
to purchase the remaining issued and outstanding shares of Davel equity.
MobilePro has agreed to purchase all of the shares of common stock
(approximately 4.8%) held by the holders of the Davel’s common stock (the
“Minority Stockholders”) within 180 days of the closing date of the Davel
Transaction. The purchase price to be offered to the Minority Stockholders shall
be an amount per share of not less than $0.015, which, at the discretion of
MobilePro, may be paid in cash or common stock of MobilePro. The form of such
purchase could be through a tender offer, a short-form merger, or some other
means as MobilePro may determine. Prior to undertaking the purchase, MobilePro
must retain an investment banker or other financial advisor to render an opinion
that the terms of the purchase are fair, from a financial point of view, to the
Minority Stockholders. MobilePro has deposited into a third-party escrow account
at the closing of the transaction $450,000 of the purchase price, which is the
approximate amount necessary to purchase for $0.015 per share the shares of
Davel common stock currently held by the Minority Stockholders. In the event
that the purchase is not made within 180 days of the closing of the Davel
Transaction, the amount held in escrow would be distributed pro rata to the
Minority Shareholders as a special distribution from MobilePro.
NOTE
15- IMPAIRMENT
OF GOODWILL
The
Company in its acquisitions of their internet and voice services companies
recognized $32,705,332 of goodwill. The Company performs its annual impairment
test for goodwill at the end of its fiscal year and has determined that at March
31, 2004 there is no impairment of the goodwill and as of December 31, 2004
believes no further impairment has occurred.
NOTE
16- LITIGATION/
LEGAL PROCEEDINGS
As of
December 31, 2004, the Company was party to the following material legal
proceedings.
In
November 2004, the Company acquired 95.2 % of the stock of Davel Communications,
Inc. (“Davel”), an owner and operator of approximately 40,000 payphones in
approximately 25,000 locations in 46 states and the District of Columbia. Prior
to the acquisition of 95.2 % of the stock of Davel by the Company, there was
existing litigation brought against Davel and other defendants regarding a claim
associated with certain alleged patent infringement.
Davel has
been named as a defendant in a civil action captioned Gammino
v. Cellco Partnership d/b/a Verizon Wireless, et al., C.A.
No. 04-4303 filed in the United States District Court for the Eastern District
of Pennsylvania. The plaintiff claims that Davel and other defendants allegedly
infringed its patent involving the prevention of fraudulent long-distance
telephone calls and is seeking unspecified damages in connection with the
alleged infringement. Davel continues to review and investigate the allegations
set forth in the complaint, continues to assess the validity of the Gammino
Patents and is in the process of determining whether the technology purchased by
Davel from third parties infringes upon the Gammino Patents.
According
to the terms of the Davel acquisition (see Note 1 above), the former secured
lenders, subject to certain limitations, have agreed to reimburse the Company
for the litigation cost and any losses resulting from the Gammino lawsuit. The
former secured lenders have agreed to fund such costs from future Regulatory
Receipts that were assigned to them by Davel.
MOBILEPRO
CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR
THE NINE MONTHS ENDED DECEMBER 31, 2004 AND 2003
NOTE
16- LITIGATION/
LEGAL PROCEEDINGS (CONTINUED)
Any such
Regulatory Receipts will be deposited into a third-party escrow account and used
to reimburse the Company for costs incurred. The secured lenders are not
required to fund the escrow account or otherwise reimburse the Company for
amounts, if any, in excess of actual Regulatory Receipts collected. Any amount
remaining in the escrow account at the conclusion of the litigation is to be
returned to the former secured lenders.
The
Company terminated Kevin Kuykendall, former President of the Voice Division, for
cause under the terms of his Executive Employment Agreement, effective
Wednesday, December 29, 2004. On January 26, 2005, MobilePro was served with
notice that a complaint had been filed with the U.S. Department of Labor by Mr.
Kuykendall alleging discriminatory employment practices. Mr. Kuykendall has
alleged that he was terminated on December 29, 2004 in reprisal for challenging
the accuracy of a qualified financial goal of Davel Communications,
Inc. Mr.
Kuykendall is seeking back pay, plus interest, and reinstatement or the future
pay for the term of his contract, reimbursement of insurance premiums borne by
Mr. Kuykendall during the period of his termination, payment of outstanding
bonuses to which he believes he is entitled, compensatory damages for emotional
distress, pain and suffering, punitive damages, costs, and reasonable attorneys’
fees. As the Company indicated previously, management intends to vigorously
defend the Company from this action and believes that it has significant
defenses against it and that the termination was handled properly.
MOBILEPRO
CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR
THE NINE MONTHS ENDED DECEMBER 31, 2004 AND 2003
NOTE
17- SEGMENT
INFORMATION
The
Company’s reportable operating segments include Technology, Voice Services,
Internet Services and Corporate. The Company allocates cost of revenues and
direct operating expenses to these segments.
Operating
segment data for the nine months ended December 31, 2004 and 2003 are as
follows:
For
the nine months ended December 31, 2004:
| |
|
|
|
|
|
Voice |
|
Internet |
|
|
|
| |
|
Corporate |
|
Technology |
|
Services |
|
Services |
|
Total |
|
|
Revenues |
|
$ |
615,000 |
|
$ |
- |
|
$ |
13,346,798 |
|
$ |
9,303,568 |
|
$ |
23,265,366 |
|
|
Direct
costs of revenues |
|
|
- |
|
|
- |
|
|
6,794,042 |
|
|
4,364,548 |
|
|
11,158,590 |
|
|
Gross
profit (loss) |
|
|
615,000 |
|
|
- |
|
|
6,552,756 |
|
|
4,939,020 |
|
|
12,106,776 |
|
|
Operating
expenses |
|
|
805,778 |
|
|
813,266 |
|
|
9,078,162 |
|
|
4,347,168 |
|
|
15,044,374 |
|
|
Depreciation,
amortization and impairment |
|
|
888,483 |
|
|
10,941 |
|
|
438,259 |
|
|
327,679 |
|
|
1,665,362 |
|
|
Other
income |
|
|
- |
|
|
- |
|
|
90,237 |
|
|
- |
|
|
90,237 |
|
|
Interest
(net) |
|
|
787,100 |
|
|
70,216 |
|
|
6,925 |
|
|
83,126 |
|
|
947,367 |
|
|
Net
income (loss) |
|
|
(1,866,361 |
) |
|
(894,422 |
) |
|
(2,880,353 |
) |
|
181,046 |
|
|
(5,460,090 |
) |
|
Segment
assets |
|
|
20,583,028 |
|
|
15,267 |
|
|
35,024,547 |
|
|
18,245,134 |
|
|
73,867,976 |
|
|
Fixed
Assets, net of depreciation |
|
|
- |
|
|
10,940 |
|
|
11,599,256 |
|
|
1,250,436 |
|
|
12,860,632 |
|
For
the nine months ended December 31, 2003:
| |
|
|
|
|
|
Voice |
|
Internet |
|
|
|
| |
|
Corporate |
|
Technology |
|
Services |
|
Services |
|
Total |
|
|
Revenues
|
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
Direct
costs of revenues |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
Gross
profit (loss) |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
Operating
expenses |
|
|
551,627 |
|
|
648,241 |
|
|
- |
|
|
- |
|
|
(1,199,868 |
) |
|
Depreciation,
amortization and impairment |
|
|
202,881 |
|
|
9,847 |
|
|
- |
|
|
- |
|
|
212,728 |
|
|
Interest
(net) |
|
|
18,745 |
|
|
- |
|
|
- |
|
|
- |
|
|
18,745 |
|
|
Net
income (loss) |
|
|
773,253 |
|
|
658,088 |
|
|
- |
|
|
- |
|
|
(1,431,341 |
) |
|
Segment
assets |
|
|
742,861 |
|
|
25,528 |
|
|
- |
|
|
- |
|
|
768,389 |
|
|
Fixed
Assets, net of depreciation |
|
|
- |
|
|
25,528 |
|
|
- |
|
|
- |
|
|
25,528 |
|
MOBILEPRO
CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR
THE NINE MONTHS ENDED DECEMBER 31, 2004 AND 2003
NOTE
18- SUBSEQUENT
EVENTS
On
January 19, 2005, MobilePro announced that Donald H. Sledge was appointed to its
Board of Directors as an independent director. He is slated to chair MobilePro's
compensation committee. Sledge sits on the Board of Directors of Merriman,
Curham & Ford (“MCF”) an Amex-listed broker/dealer and two privately held
companies. Sledge brings a long and distinguished career as a telecommunications
executive, investor and financier to MobilePro. Over the past 10 years, Sledge
has focused on finance and investments, including serving for three years as a
managing director of Freemont Communications Venture Capital Fund and as
chairman (until 2001) of MCF.
On
January 26, 2005, MobilePro was served with notice that a complaint had been
filed with the U.S. Department of Labor by Mr. Kuykendall alleging
discriminatory employment practices. As the Company indicated previously,
management intends to vigorously defend the Company from this action and
believes that it has significant defenses against it and that the termination
was handled properly. (See Note 16)
In
February 2005, the Company ceased from negotiations to acquire North County
Internet Access, Inc. (“NCIA”). The Company previously announced the signing of
a letter of intent in September 2004 to acquire NCIA, an internet services
provider based in Berlin, New Hampshire which offers both analog and digital
dial-up, service, Web hosting and design services.
In
February 2005, the Company ceased from negotiations to acquire WorldNet
Communications, Inc. (“WorldNet”). The Company previously announced the signing
of a letter of intent in August 2004 to acquire WorldNet, a Leesville,
Louisiana-based internet service provider.