UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period
ended June 30, 2003
[ ] TRANSITION REPORT UNDER 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 000-26463
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MILITARY RESALE GROUP, INC.
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(Name of small business issuer as specified in its charter)
New York 11-2665282
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(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
2180 Executive Circle
Colorado Springs, Colorado 80906
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(Address of principal executive offices)
(719) 391-4564
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
As of June 30, 2003, there were 14,222,657 shares of the issuer's common stock
outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
MILITARY RESALE GROUP, INC.
FORM 10-QSB
INDEX
Page No.
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - June 30, 2003 and December 31, 2002..................................................1
Statements of Operations - three and six months ended June 30, 2003 and 2002..........................2
Statements of Cash Flows - three and six months ended June 30, 2003 and 2002..........................3
Notes to Financial Statements.........................................................................5
Item 2. Management's Discussion and Analysis or Plan of Operation.............................................9
Item 3. Controls and Procedures..............................................................................17
PART II. Other Information
Item 2. Changes in Securities and Use of Proceeds............................................................17
Item 6. Exhibits and Reports on Form 8-K.....................................................................18
Signatures .....................................................................................................19
Certifications .....................................................................................................20
i
ITEM 1. FINANCIAL INFORMATION
Military Resale Group, Inc.
Condensed Balance Sheets
June 30, December 31,
2003 2002
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(Unaudited) (Audited)
--------------- ---------------
Assets
Current Assets
Cash $ 820 $ 2,072
Accounts receivable - trade 816,549 428,037
Inventory 277,751 227,416
Prepaid consulting (Note 3) 374,672 116,417
Deposits 23,358 23,358
Prepaid interest (Note 4) 365,400 133,333
Other current assets 4,474 618
--------------- ---------------
Total Current Assets 1,863,024 931,251
Fixed Assets
Office equipment 12,372 10,607
Warehouse equipment 159,444 159,444
Software 16,324 16,324
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188,140 186,375
Less accumulated depreciation (93,890) (76,229)
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Net Fixed Assets 94,250 110,146
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Total Assets 1,957,274 1,041,397
=============== ===============
Liabilities and Stockholders' Equity (Impairment)
Current Liabilities
Accounts payable and accrued expenses 2,026,814 1,470,776
Bank overdraft 14,753 11,068
Other current liabilities 114,773 81,726
Current maturities of capital lease obligations 35,093 37,271
Current portion of deferred rental obligation 26,285 21,584
Accrued interest payable 69,302 47,816
Related party notes payable (Note 5 & 6) - 230,000
Convertible notes payable (Note 6) 65,000 255,000
Promissory note payable (Note 8) 100,000 -
--------------- ---------------
Total Current Liabilities 2,452,020 2,155,241
Deferred rental obligation 56,950 57,557
Obligations under capital leases, excluding current maturities 44,972 51,735
Convertible notes payable, less current portion (Note 6) 505,000 -
--------------- ---------------
Total Liabilities 3,058,942 2,264,533
Commitment and Contingencies (Note 9) - -
Stockholders' Equity (Impairment)
Preferred stock, 10,000,000 shares authorized, 0 issued in 2003 and 2002 - -
Common stock, par value $.0001, 50,000,000 shares authorized, 1,422 1,138
14,222,657 and 11,383,390 shares issued and outstanding in 2003 and
2002, respectively
Additional paid-in capital 3,258,553 2,050,690
Accumulated deficit (4,361,643) (3,274,964)
--------------- ---------------
Total Stockholders' Equity (Impairment) (1,101,668) (1,223,136)
--------------- ---------------
Total Liabilities and Stockholders' Equity (Impairment) $ 1,957,274 $ 1,041,397
--------------- ---------------
See notes to the financial statements.
1
Military Resale Group, Inc.
Condensed Statements of Operations
Three and Six Months Ended June 30, 2003 and 2002
(Unaudited)
Three Months Ended Six Months Ended
---------------------------------- ----------------------------------
June 30,2003 June 30, 2002 June 30, 2003 June 30, 2002
--------------- --------------- --------------- ---------------
Revenues
Resale revenue $ 1,534,377 $ 1,657,440 $ 3,146,974 $ 3,015,024
Commission revenue 135,188 64,472 281,554 124,146
--------------- --------------- --------------- ---------------
Total Revenues 1,669,565 1,721,912 3,428,528 3,139,170
--------------- --------------- --------------- ---------------
Cost of goods sold 1,334,367 1,457,701 2,846,693 2,696,622
--------------- --------------- --------------- ---------------
Gross Profit 335,198 264,211 581,835 442,548
--------------- --------------- --------------- ---------------
Operating Expenses
Stock based compensation (Note 5 and 7) 356,484 166,329 562,853 281,394
Salary and payroll taxes 141,971 125,747 259,109 215,962
Professional fees 136,056 107,446 200,090 200,446
Occupancy 59,356 55,263 118,712 110,525
General and administrative 126,734 106,464 276,793 103,402
Amortization/depreciation 2,670 10,626 17,661 21,253
--------------- --------------- --------------- ---------------
Total Operating Expenses 823,271 571,875 1,435,218 932,982
--------------- --------------- --------------- ---------------
Net Loss From Operations (488,073) (307,664) (853,383) (490,434)
--------------- --------------- --------------- ---------------
Other (Expenses)
Interest expense (97,911) (29,051) (233,296) (240,221)
Total Other (Expense) (97,911) (29,051) (233,296) (240,221)
--------------- --------------- --------------- ---------------
Net Loss $ (585,984) $ (336,715) $ (1,086,679) $ (730,655)
=============== =============== =============== ===============
Loss Per Share
Net Loss Per Common Share - basic and diluted $ (0.05) $ (0.04) $ (0.09) $ (0.08)
=============== =============== =============== ===============
Weighted average number of common shares
shares outstanding - basic and diluted 12,563,035 8,949,752 12,134,457 8,237,398
=============== =============== =============== ===============
See notes to the financial statements.
2
Military Resale Group, Inc.
Condensed Statements of Cash Flows
Six Months Ended June 30, 2003 and 2002
(Unaudited)
2003 2002
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Cash Flows From Operating Activities
Net Loss $(1,086,679) $ (730,655)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 17,661 21,252
Amortization of option based interest expense 133,333 --
Stock based compensation 491,580 281,394
Beneficial conversion feature 75,000
Stock issued for interest -- 150,000
Loss on disposal of assets 6,380
Changes in Assets and Liabilities
Decrease (increase) in accounts receivable (388,512) (81,939)
Decrease (increase) in inventory (50,335) (57,005)
Decrease (increase) in other assets (3,856) 2,994
(Increase) in deposits -- (2,812)
Increase in accounts payable and accrued expenses 573,950 190,497
Increase in deferred rent obligation 4,094 --
Increase in other liabilities 54,533 --
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Net Cash Used In Operating Activities (179,231) (219,894)
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Cash Flows From Investing Activities
Purchase of fixed assets (1,765) (1,912)
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Cash Flows Used In Investing Activities (1,765) (1,912)
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Cash Flows From Financing Activities
Bank overdraft 3,685 (1,349)
Payments on capital lease obligations (8,941) --
Proceeds from issuance of notes 185,000 229,234
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Cash Flows Provided By Financing Activities 179,744 227,885
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Net Increase (Decrease) in Cash and Cash Equivalents (1,252) 6,079
Cash and Cash Equivalents at Beginning of Period 2,072 --
----------- -----------
Cash and Cash Equivalents at End of Period $ 820 $ 6,079
=========== ===========
SUPPLEMENTAL INFORMATION
Interest Paid $ 466 $ 6,170
=========== ===========
Income Taxes Paid $ -- $ --
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See notes to the financial statements.
3
Military Resale Group, Inc.
Condensed Statements of Cash Flows
Non-cash investing and financing activities:
2003 2002
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Issuance of stock and options in exchange for services to be
rendered over six months $ 716,202 $ --
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Issuance of common stock in payment of accrued compensation $ 52,445 $ --
============== ==============
Issuance of stock in exchange for cancellation of
indebtedness of $150,000 and interest expense of $150,000
on convertible notes $ -- $ 300,000
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Issuance of stock options in exchange for note extensions $ 364,500 $ --
============== ==============
See notes to the financial statements.
4
Military Resale Group, Inc.
Notes to Financial Statements
NOTE 1 - NATURE OF ORGANIZATION
We were organized under the laws of the State of New York and are a
regional distributor of grocery and household items specializing in
distribution to commissaries of the U. S. Military. Currently, we service
six military installations located in Colorado, Wyoming and South Dakota.
On October 15, 2001, we entered into a stock purchase agreement with
Military Resale Group, Inc., a Maryland corporation that was formed on
October 6, 1997 ("MRG"), pursuant to which 98.2% of MRG's stock was
effectively exchanged for a controlling interest in our publicly held
"shell" corporation. Concurrently with the closing of that transaction we
changed our name from Bactrol Technologies, Inc. to Military Resale Group,
Inc. This transaction is commonly referred to as a "reverse acquisition".
For financial accounting purposes, this transaction has been treated as the
issuance of stock for our net monetary assets, accompanied by a
recapitalization of MRG with no goodwill or other intangible assets
recorded.
For financial reporting purposes, MRG was considered the acquirer, and
therefore, the historical operating results of Bactrol Technologies, Inc.
are not presented.
The financial statements have been prepared on a going concern basis, which
contemplates continuity of operations, realization of assets and
liquidation of liabilities in the normal course of business.
We have suffered recurring losses from operations, and are in a working
capital deficit position that raises substantial doubt about our ability to
continue as a going concern.
Our management is currently pursuing equity and/or debt financing in an
effort to continue operations. The future success of our company is likely
dependent on our ability to attain additional capital to develop our
business and ultimately, upon our ability to attain future profitable
operations. There can be no assurance that we will be successful in
obtaining such financing, or that we will attain positive cash flow from
operations. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Item 310 of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and six
month periods ended June 30, 2003 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2003. For
further information, refer to the consolidated financial statements and
footnotes thereto included in our annual report on Form 10-KSB for the year
ended December 31, 2002.
5
Military Resale Group, Inc.
Notes to Financial Statements
NOTE 3 - PREPAID CONSULTING
Prepaid consulting expenses are recorded in connection with common stock
and options issued to consultants for future services and are amortized
over the agreement term. During the six months ended June 30, 2003, we
incurred additional prepayments of $715,942 and stock-based compensation
expense of $457,687.
NOTE 4 - PREPAID INTEREST
Prepaid interest expense is recorded in connection with the issuance of
options for the extension of our notes payable. The interest expense is
being amortized over the extension period of six months, with $133,333
charged to interest expense in the current period.
NOTE 5 - RELATED PARTY TRANSACTIONS
In January 2003, we entered into a one-year business consulting agreement
with Edward Meyer, Jr. for marketing and managerial consulting services,
and an executive compensation agreement with Edward Whelan, our Chief
Executive Officer. In consideration of the services to be rendered by Mr.
Whelan and Mr. Meyer, we will issue in respect of each month the number of
shares determined by dividing $12,000 by the product of 80% and the average
closing low price for our common stock during each quarter. During the
three months ended June 30, 2003, we issued 218,519 shares of common stock
under the terms of the agreement for the first quarter of 2003. The
aggregate cost of the shares issued, which was expensed as stock based
compensation, totaled $52,445.
During the three months ended March 31, 2003 and June 30, 2003 we issued
192,414 and 218,519 shares, respectively (96,207 shares each to Mr. Whelan
and Mr. Meyer), of common stock as consideration under a January 2002
consulting agreement for the fourth quarter of 2002 and the first quarter
of 2003. The transactions were valued at $0.16 and $0.24 per share,
respectively, the fair market value of our common stock on the date of
issuance.
On March 11, 2003, Edward Whelan loaned us $10,000. The corresponding note
bears interest at a rate of 8% per annum and is due on June 3, 2006.
Subsequent to June 30, 2003, we issued 254,545 shares of common stock to
each of Mr. Whelan and Mr. Meyer for services rendered during the second
quarter of 2003. The aggregate cost of the shares issued, which was
expensed as accrued stock based compensation at June 30, 2003, totaled
$71,273.
On June 30, 2003, in connection with the conversion of $190,000 of demand
notes to convertible notes from Edward Whelan, our Chief Executive Officer
and our Chairman of the Board of directors, and companies which he controls
and/or is shareholder, 1,130,000 stock options were issued. The demand
notes have been modified to allow the holder to convert their notes into
common stock at $0.25 per share. These convertible notes do not have a
beneficial conversion feature.
On June 30, 2003, in connection with the conversion of $25,000 of demand
notes to convertible notes from cash of Ethan Hokit, our President and one
of our directors, and Atlantic Investment Trust, of which Richard
Tanenbaum, one of our directors, is the trustee, 25,000 stock options were
issued to each of such noteholders. The demand notes have been modified to
allow the holder to convert their notes into common stock at $0.25 per
share. These convertible notes do not have a beneficial conversion feature.
NOTE 6 - CONVERTIBLE NOTES
At June 30, 2003, we had an aggregate of $570,000 payable in convertible
notes. $20,000 of the convertible notes bear interest at 8% per annum until
June 30, 2002 and 9% thereafter and were due on June 30, 2002, $35,000 of
the convertible notes bear interest at 8% per annum and were due on June
30, 2003, and a $10,000 convertible note bearing interest at 8% per annum
is due September 30, 2003. On June 30, 2003, $215,000 of notes originally
due on or before June 30, 2003, and $50,000 of notes originally due
September 30, 2003 were extended until June 3, 2006. Such notes bear
interest at 8% per annum.
6
Military Resale Group, Inc.
Notes to Financial Statements
NOTE 6 - CONVERTIBLE NOTES - continued
Additionally, on June 30, 2003 $240,000 of demand notes were converted to
convertible notes due June 3, 2006. $100,000 of such notes are non-interest
bearing, $60,000 of such notes bear interest at 10% per annum and $80,000
of such notes bear interest at 8% per annum. In connection with the
extension of the due dates and conversion of the demand notes to
convertible notes 1,305,000 stock options were issued and prepaid interest
of $365,400 was recorded and will be amortized over the extension period.
The terms of our convertible notes provide generally that, if the
convertible notes are not in default, the holders may convert, at any time
and from time to time, all or a portion of the outstanding balance under
each convertible note into a number of shares (subject to certain
anti-dilution adjustments) of our common stock that will allow the note
holder to receive common stock having a market value equal to 150% of the
converted balance of the note. If an event of default has occurred in
respect of such convertible notes, the holder may convert the outstanding
balance into a number of shares (subject to certain anti-dilution
adjustments) of our common stock equal to twice the number of shares the
holder would have otherwise received if the convertible notes were not in
default. Among other events of default, the terms of the convertible notes
require us to register under the Securities Act of 1933 the shares of our
common stock issuable upon conversion of the convertible notes not later
than June 3, 2006. The demand notes have been modified to allow the holder
to convert their notes into common stock at $0.25 per share. Such notes do
not have a beneficial conversion feature.
We follow EITF 98-5 in accounting for convertible notes with "beneficial
conversion features" (i.e., the notes may be converted into common stock at
the lower of a fixed rate at the commitment date or a fixed discount to the
market price of the underlying common stock at the conversion date).
Because our convertible notes contained a beneficial conversion feature on
the date of issuance, we measured and recognized the intrinsic value of the
beneficial conversion feature of the convertible notes when the convertible
notes were issued. During the periods ended June 30, 2003 and 2002,
interest expense of $75,000 and $225,000, respectively (representing the
aggregate proceeds to us from convertible notes issued during such
periods), was recognized as the intrinsic value of the beneficial
conversion feature of the convertible notes that were issued during such
periods.
NOTE 7 - SECURITIES ISSUED FOR SERVICES
During the six months ended June 30, 2003, we issued an aggregate of
2,428,334 shares of common stock and 2,350,000 common stock options to
various consultants for services provided or to be provided. Consulting
expense of $491,580 was recognized in 2003 and a prepaid consulting expense
of $363,422 was recorded in 2003. These amounts were based on the fair
market value of the shares on the date of issuance.
NOTE 8 - PROMISSORY NOTE PAYABLE
On March 27, 2003, we issued a promissory note for $100,000 to Romano, Ltd.
The note bears interest at 15% per annum and is due on March 26, 2004,
subject to the following contingent payment terms upon our raising or
securing additional funding from any third-party source:
Additional Funding Terms Modification
------------------------------ ----------------------------------------------------------------------------
$250,000 Payment of 10% of outstanding principal and accrued interest
$500,000 Payment of 15% of outstanding principal and accrued interest
$1,000,000 or more Payment of 100% of outstanding principal and accrued interest
7
Military Resale Group, Inc.
Notes to Financial Statements
NOTE 8 - PROMISSORY NOTE PAYABLE - continued
If we fail to secure any of the above-referenced additional funding, nor
another significant event such as a merger or acquisition of another
company, we will be required to pay $8,000 per month commencing on July 1,
2003 until the full obligation is paid or by March 26, 2004.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
In March 2003, we entered into a consulting agreement that provides for the
issuance of 250,000 shares of common stock with an option to purchase
650,000 shares of common stock at the lower of $.50 per share or the price
per share granted to any other advisor or employee of our company during
the term of the agreement. The agreement is for six months, while the
option expires in five years.
In February 2003, a capital lease obligation, secured by equipment with a
net book value of $25,363, was accelerated due to non-payment. This
obligation is reflected in the current portion of obligations under capital
leases in the accompanying financial statements.
In February 2003, we entered into a Lease Modification Agreement for a
capital lease for equipment with a net book value of $57,183. The term of
the lease was extended through April 2007, with no required payment for the
months between November 2002 and February 2003. Minimum lease payments have
increased to $2,100 through October 2003 and $1,980 for the remaining 40
months.
We are a defendant in pending litigation regarding our former premises. The
plaintiff is the former landlord, who is seeking damages for an alleged
breach of the terms of several operating lease agreements for office and
warehouse space located in Colorado Springs, Colorado. We intend to
vigorously defend against such claim and also intend to pursue our
counterclaims for damages caused by the landlord's constructive eviction
from the premises.
The pending litigation is in its preliminary stages, with a trial date
anticipated in November 2003. The estimated contingent liability for this
litigation is not expected to exceed $75,000, including the costs of
defense.
NOTE 10 - NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 provides accounting and reporting
guidance for legal obligations associated with the retirement of long-lived
assets that result from the acquisition, construction or normal operation
of a long-lived asset. SFAS No. 143 requires the recording of an asset and
a liability equal to the present value of the estimated costs associated
with the retirement of long-lived assets where a legal or contractual
obligation exists. The asset is required to be accreted each year based on
a present value interest rate. We implemented this standard on January 1,
2003. The adoption of this standard did not have a material effect on our
financial statements.
NOTE 11 - SEGMENT INFORMATION
We operate primarily in a single operating segment, distributing and
marketing resale grocery products to military commissaries.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
CERTAIN STATEMENTS IN THIS REPORT CONSTITUTE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE OUR ACTUAL RESULTS, PERFORMANCE
OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE
OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE
WORDS "BELIEVE", "EXPECT", "ANTICIPATE", "INTEND" AND "PLAN" AND SIMILAR
EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS. READERS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF
THE DATE THE STATEMENT WAS MADE. BECAUSE OUR COMMON STOCK IS CONSIDERED A "PENNY
STOCK," AS DEFINED BY THE REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION,
THE SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS DOES NOT APPLY TO STATEMENTS BY
OUR COMPANY.
Our business and results of operations are affected by a wide variety
of factors that could materially and adversely affect us and our actual results,
including, but not limited to: (1) the availability of additional funds to
enable us to successfully pursue our business plan; (2) the uncertainties
related to the addition of new products and suppliers; (3) our ability to
maintain, attract and integrate management personnel; (4) our ability to
complete the development of our proposed product line in a timely manner; (5)
our ability to effectively market and sell our products and services to current
and new customers; (6) our ability to negotiate and maintain suitable strategic
partnerships and corporate relationships with suppliers and manufacturers; (7)
the intensity of competition; and (8) general economic conditions. As a result
of these and other factors, we may experience material fluctuations in future
operating results on a quarterly or annual basis, which could materially and
adversely affect our business, financial condition, operating results and stock
price.
Any forward-looking statements herein speak only as of the date hereof.
We undertake no obligation to publicly release the results of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events. The following discussion should be read in conjunction
with the financial statements and related notes appearing elsewhere in this
Report.
Prior to November 15, 2001, we did not generate any significant
revenue, and accumulated no significant assets, as we explored various business
opportunities. On November 15, 2001, we acquired 98.2% of the issued and
outstanding capital stock of Military Resale Group, Inc., a Maryland corporation
("MRG-Maryland"), in exchange for a controlling interest in our publicly-held
"shell" corporation. For financial reporting purposes, MRG-Maryland was
considered the acquirer in such transaction. As a result, our historical
financial statements for any period prior to November 15, 2001 are those of
MRG-Maryland.
9
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2003 COMPARED TO THREE
MONTHS ENDED JUNE 30, 2002
REVENUES. Total revenue for the three months ended June 30, 2003 of
$1,669,565 reflected a decrease of $52,347, or approximately 3.0%, compared to
total revenue of $1,721,912 for the three months ended June 30, 2002. Our
revenues are derived in either one of two ways. In the majority of instances, we
purchase products from manufacturers and suppliers for resale to the
commissaries we service. In such cases, we resell the manufacturer's or
supplier's products to the commissaries at generally the same prices we pay for
such products, which prices generally are negotiated between the manufacturer or
supplier and the Defense Commissary Agency ("DeCA"). Revenue is recognized as
the gross sales amount received by us from such sales ("resale revenues"), which
includes (i) the purchase price paid by the commissary plus (ii) a negotiated
storage and delivery fee paid by the manufacturer or supplier. In the remaining
instances, we act as an agent for the manufacturer or supplier of the products
we sell, and earn a commission paid by the manufacturer or supplier, generally
in an amount equal to a percentage of the manufacturer's or supplier's gross
sales amount ("commission revenues"). In such cases, revenue is recognized as
the commission we receive on the gross sales amount.
Resale revenue for the three months ended June 30, 2003 of $1,534,377
reflected a decrease of $123,063, or approximately 7.4%, compared to resale
revenue of $1,657,440 for the three months ended June 30, 2002. This decrease
was attributable primarily to our short-term cash shortage during the three
months ended June 30, 2003, which prevented us from adding new products on a
resale basis due the significant cash expenditure required. For the three months
ended June 30, 2003, approximately 59.7% of our gross profit was derived from
sales involving resale revenue compared to approximately 75.6% for the three
months ended June 30, 2002. During the year ended December 31, 2002, we began
implementing our long-term strategy to increase the ratio of our sales of
products we sell on a resale basis, rather than a commission basis, due to the
payment discounts we often receive from the manufacturers and suppliers of the
goods we purchase for resale. However, due to our short-term cash shortage
during the three months ended June 30, 2003, we were required to lower this
ratio by increasing the amount of our of sales on a commission basis, which do
not require a significant cash expenditure.
Commission revenues for the three months ended June 30, 2003 of
$135,188 reflected an increase of $70,716, or approximately 110%, compared to
commission revenues of $64,472 for the three months ended June 30, 2002. For the
three months ended June 30, 2003, approximately 40.3% of our gross profit was
derived from sales involving commission revenues as compared to approximately
24.4% for the three months ended June 30, 2002. These increases were
attributable primarily to the addition of the new products we began supplying to
commissaries during the first and second quarters of fiscal 2003, including
products distributed by Mid-Valley Products, that we sell on a commission basis
due to our short-term cash shortage discussed above. We cannot be certain as to
whether this trend will continue; however, in the long term we are seeking to
increase the ratio of our sales of products sold on a resale basis, rather than
a commission basis, because we believe we can increase our profitability on such
sales by taking advantage of payment discounts frequently offered by the
manufacturers and suppliers of such products. Provided we can generate
sufficient cash from operations or financing activities, we
10
intend to do so by seeking to add new products that we can offer to commissaries
on a resale basis from our existing manufactures and suppliers and from others
with whom we do not currently have a working relationship.
In the second quarter of 2003, we added to our supplier network the
Snak King line of products distributed by Sun-Dance Distributing, Inc. and a
line of frozen pies, cobblers and other dessert foods produced by Mrs. Smith's,
Inc. Pursuant to our agreements with Sun-Dance Distributing and Mrs. Smith's,
Inc., we purchase products for resale to commissaries. Our agreement with
Sun-Dance Distributing has no defined term and may be terminated by Sun-Dance
Distributing at any time. Our agreement with Mrs. Smith's Bakeries has no
defined term and is cancelable by such supplier upon 30 days' written notice.
Subsequent to June 30, 2003, we added to our supplier network the
Country Pride brand of fresh chicken products made by ConAgra Foods, Inc. The
Country Pride lines replaced a majority of the lines of fresh chicken products
that were previously supplied to us by Tyson Foods, Inc. On August 1, 2003, the
Country Pride lines became available in the commissaries we currently serve. Our
agreement with ConAgra is a one-year agreement that is cancelable by ConAgra
upon 30 days' written notice. Subsequent to June 30, 2003, we also added to our
supplier network a line of specialty coffees made by Peaberry Coffee Ltd. and a
line of smoked and pickled seafood products supplied by SeaSpecialities, Inc.
Pursuant to our agreements with Peaberry Coffee and SeaSpecialities, we purchase
products for resale to commissaries. Such agreements have a ten-year term and
are cancelable by such suppliers upon 120 days' written notice.
Management believes our long-term success will be dependent in large
part on our ability to add additional product offerings to enable us to increase
our sales and revenues. However, we believe our ability to add additional
product offerings is dependent on our ability to obtain additional capital to
fund new business development and increased sales and marketing efforts. We are
currently in discussions with a number of other manufacturers and suppliers in
an effort to reach an agreement under which we can distribute their products to
the military market. While there can be no assurance that we will do so, we
believe we will be successful in negotiating agreements with a number of such
suppliers and manufacturers.
To date, all of our sales revenue has been generated from customers
located in the United States.
COST OF GOODS SOLD. Cost of goods sold consists of our cost to acquire
products from manufacturers and suppliers for resale to commissaries. In
instances when we sell products on a commission basis, there is no cost of goods
sold because we act as an agent for the manufacturer or supplier and earn only a
commission on such sales. During the three months ended June 30, 2003, cost of
goods sold decreased by $123,334, or approximately 8.5%, to $1,334,367 from
$1,457,701 for the three months ended June 30, 2002. This decrease was
attributable primarily to the decrease in revenue from products that we sold on
a resale basis during the three months ended June 30, 2003 as compared to the
three months ended June 30, 2002. We cannot be certain as to whether this trend
will continue; however, in the long term we are seeking to increase the ratio of
our sales on a resale basis.
11
GROSS PROFIT. Gross profit for the three months ended June 30, 2003
increased by approximately $70,987, or approximately 26.9%, compared to the
three months ended June 30, 2002, from $264,211 for the three months ended June
30, 2002 to $335,198 for the three months ended June 30, 2003. This increase was
attributable primarily to the increase in our sale of products on a commission
basis that have no associated cost of good sold.
OPERATING EXPENSES. Total operating expenses aggregated $823,271 for
the three months ended June 30, 2003 as compared to $571,875 for the three
months ended June 30, 2002, representing an increase of $251,396, or
approximately 44.0%. The increase in total operating expenses was attributable
primarily to an increase in stock-based compensation expense of $190,155
resulting primarily from the issuance of shares of our common stock and options
to purchase shares of our common stock to our consultants; increased
professional fees of $28,610 resulting primarily from expenses incurred in
connection with our 2002 audit; increased salary and payroll taxes of $16,224;
and increased general and administrative expenses of $20,270 resulting primarily
from increased truck rental expense and increased premiums on health workers'
compensation insurance.
INTEREST EXPENSE. Interest expense of $97,911 for the three months
ended June 30, 2003 reflected a increase of $68,860 as compared to interest
expense of $29,051 for the three months ended June 30, 2002. The increase in
interest expense was attributable primarily to interest expense of $60,000
resulting from the recognition of the beneficial conversion feature (the right
to convert debt into shares of our common stock at a discount to the fair market
value of our common stock) of $60,000 aggregate principal amount of convertible
promissory notes issued in the three months ended June 30, 2003, as compared to
$25,000 aggregate principal amount of convertible promissory notes issued in the
three months ended June 30, 2002, and, to a lesser extent, increase borrowings.
NET LOSS. Primarily as a result of the increased operating and interest
expenses discussed above, we incurred a net loss of $585,984 for the three
months ended June 30, 2003 as compared to a net loss of $336,715 for the three
months ended June 30, 2002.
SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO SIX MONTHS ENDED JUNE 30, 2002
REVENUES. Total revenue for the six months ended June 30, 2003 of
$3,428,528 reflected an increase of $289,358, or approximately 9.2%, compared to
total revenue of $3,139,170 for the six months ended June 30, 2002.
Resale revenue for the six months ended June 30, 2003 of $3,146,974
reflected an increase of $131,950, or approximately 4.4%, compared to resale
revenue of $3,015,024 for the six months ended June 30, 2002. This increase was
attributable primarily to the addition of the new products we began supplying to
commissaries during third and fourth quarters of fiscal 2002, including
Hillshire Farm and Kahn's product groups of Sara Lee Foods -USA, that we sell
12
on a resale basis. For the six months ended June 30, 2003, approximately 51.6%
of our gross profit was derived from sales involving resale revenue compared to
approximately 71.9% for the six months ended June 30, 2002.
Commission revenues for the six months ended June 30, 2003 of $281,554
reflected an increase of $157,408, or approximately 127%, compared to commission
revenues of $124,146 for the six months ended June 30, 2002. For the six months
ended June 30, 2003, approximately 48.4% of our gross profit was derived from
sales involving commission revenues as compared to approximately 28.1% for the
six months ended June 30, 2002. These increases were attributable primarily to
the addition of the new products we began supplying to commissaries during the
first and second quarters of fiscal 2003, including products distributed by Mid
Valley Products, that we sell on a commission basis due to our short-term cash
shortage discussed above.
COST OF GOODS SOLD. During the six months ended June 30, 2003, cost of
goods sold increased by $150,071, or approximately 5.6%, to $2,846,693 from
$2,696,622 for the six months ended June 30, 2002. This increase was
attributable primarily to the addition of new products that we sell on a resale
basis. We cannot be certain as to whether or not this trend will continue;
however, in the long term we are seeking to increase the ratio of our sales on a
resale basis, as discussed above.
GROSS PROFIT. Gross profit for the six months ended June 30, 2003
increased by approximately $139,287, or approximately 31.5%, compared to the six
months ended June 30, 2002, from $442,548 for the six months ended June 30, 2002
to $581,835 for the six months ended June 30, 2003. This increase was
attributable primarily to the increase in our sale of products on a commission
basis that have no associated cost of good sold.
OPERATING EXPENSES. Total operating expenses aggregated $1,435,218 for
the six months ended June 30, 2003 as compared to $932,982 for the six months
ended June 30, 2002, representing an increase of $502,236, or approximately
53.8%. The increase in total operating expenses was attributable primarily to an
increase in stock-based compensation expense of $281,459 resulting primarily
from the issuance of shares of our common stock and options to purchase shares
of our common stock to our consultants; increased salary and payroll taxes of
$43,147; and increased general and administrative expenses of $173,391 resulting
primarily from increased truck rental expense and increased premiums on health
workers' compensation insurance and additional salary expenses due to the
addition of office and warehouse personnel.
INTEREST EXPENSE. Interest expense of $233,296 for the six months ended
June 30, 2003 reflected a decrease of $6,925 as compared to interest expense of
$240,221 for the six months ended June 30, 2002. The decrease in interest
expense was attributable primarily to decreased interest expense resulting from
the recognition of the beneficial conversion feature (the right to convert debt
into shares of our common stock at a discount to the fair market value of our
common stock) of $70,000 aggregate principal amount of convertible promissory
notes issued in the six months ended June 30, 2003 (offset by amortization of
option-based interest expense of approximately $133,333), as compared to
$225,000 aggregate principal amount of convertible promissory notes issued in
the six months ended June 30, 2002.
13
NET LOSS. Primarily as a result of the increased operating discussed
above, we incurred a net loss of $1,086,679 for the six months ended June 30,
2003 as compared to a net loss of $730,655 for the six months ended June 30,
2002.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2003, we had a cash balance of approximately $820. Our
principal source of liquidity has been borrowings. Since November 2001, we have
funded our operations primarily from borrowings of approximately $820,000. Such
borrowings consisted of $340,000 aggregate principal amount of demand note
indebtedness, of which $240,000 was borrowed from our affiliates, and $480,000
aggregate principal amount of convertible note indebtedness, of which $120,000
was borrowed from our affiliates, pursuant to the issuance of convertible notes
bearing interest at either 8% ("8% convertible notes") or 9% ("9% convertible
notes") per annum and having original maturity dates between three to five
months following the date of issuance of such convertible notes. At June 30,
2003, $80,000 aggregate principal amount of 9% convertible notes and $250,000
aggregate principal amount of 8% convertible notes were outstanding.
In April 2002, $150,000 aggregate principal amount of 9% convertible
notes (and $2,380 accrued interest thereon) was converted by the holders into an
aggregate of 1,793,573 shares of our common stock. The remaining $80,000
aggregate principal amount of 9% convertible notes are convertible at any time
and from time to time by the noteholders into a maximum of 1,200,000 shares of
our common stock (subject to certain anti-dilution adjustments) if the 9%
convertible notes are not in default, or a maximum of 2,400,000 shares of our
common stock (subject to certain anti-dilution adjustments) if an event of
default has occurred in respect of such notes. The $250,000 aggregate principal
amount of 8% convertible notes outstanding are convertible at any time and from
time to time by the noteholders into a maximum of 1,500,000 shares of our common
stock (subject to certain anti-dilution adjustments). In nearly all instances,
the terms of the 8% and 9% convertible notes require us to register under the
Securities Act of 1933 the shares our common stock issuable upon conversion of
the 9% convertible notes not later than June 3, 2006. In July 2002, the holders
of $20,000 aggregate principal amount of 8% convertible notes maturing on June
30, 2002 denied our request to extend the maturity of their notes. In June 2003,
the holders of $35,000 aggregate principal amount of 9% convertible notes
maturing on June 30, 2003 and the holder of $10,000 aggregate principal amount
of 8% convertible notes maturing on September 30, 2003 denied our request to
extend the maturity of their notes until June 3, 2006. The outstanding principal
and interest on such convertible notes maturity on June 30, 2002 and June 30,
2003 have not yet been paid and, thus, such convertible notes are currently in
default.
In June 2003, $240,000 aggregate principal amount of our demand notes
with various maturity dates and $265,000 aggregate principal amount of our 8%
convertible notes due June 30, 2003 or September 30, 2003, were extended to June
3, 2006. This debt represented approximately 78% of our short-term liabilities
at June 30, 2003. As a result of the extension, our remaining short-term
liabilities are approximately $165,000, of which $65,000 is convertible to
equity. In consideration of their willingness to extend the maturity dates of
such notes, we issued such noteholders five-year options to purchase 1,305,000
shares of our common stock at an exercise
14
price of $0.25 per share. As additional consideration, we granted the holders of
our demand notes who agreed to extend the maturity dates, the right to convert,
at any time and from time to time, all or a portion of the outstanding balance
under such notes (including accrued interest thereon) into shares of our common
stock at a conversion price of $0.25. Such notes do not have a beneficial
conversion feature.
The terms of $35,000 aggregate principal amount of our 9% convertible
notes and $10,000 aggregate principal amount of our 8% convertible notes provide
generally that, if the convertible notes are not in default, the holders may
convert, at any time and from time to time, all or a portion of the outstanding
balance under each convertible note into a number of shares (subject to certain
anti-dilution adjustments) of our common stock that will allow the noteholder to
receive common stock having a market value equal to 150% of the converted
balance of the note. To achieve this result, the conversion price of such notes
has been initially set at $0.50; provided, that the closing price per share of
our common stock as reported on the OTC Bulletin Board on the date of conversion
is at least $0.75 per share. If such closing price is less than $0.75 per share,
the conversion price shall be proportionately reduced, but in no event to a
conversion price that is less than $0.10 per share in the case of 9% convertible
notes or $0.25 per share in the case of 8% convertible notes, to permit the
noteholder to receive the number of shares discussed above. If an event of
default has occurred in respect of a 9% convertible note, the holder may convert
the outstanding balance into a number of shares (subject to certain
anti-dilution adjustments) of our common stock equal to twice the number of
shares the holder would have otherwise received if such 9% convertible note was
not in default.
The terms of our remaining 8% convertible notes are convertible into
shares of our common stock at a price of $0.25 per share (subject to certain
anti-dilution adjustments). The terms of our remaining 9% convertible notes
provide generally that, if the convertible notes are not in default, the holders
may convert, at any time and from time to time, all or a portion of the
outstanding balance under each convertible note into a number of shares (subject
to certain anti-dilution adjustments) of our common stock that will allow the
noteholder to receive common stock having a market value equal to 150% of the
converted balance of the note. To achieve this result, the conversion price of
such notes has been initially set at $0.25; provided, that the closing price per
share of our common stock as reported on the OTC Bulletin Board on the date of
conversion is at least $0.375 per share. If such closing price is less than
$0.375 per share, the conversion price shall be proportionately reduced, but in
no event to a conversion price that is less than $0.10 per share. If an event of
default has occurred in respect of a 9% convertible note, the holder may convert
the outstanding balance into a number of shares (subject to certain
anti-dilution adjustments) of our common stock equal to twice the number of
shares the holder would have otherwise received if such 9% convertible note was
not in default.
In February 2003, one of our capital lease obligations in the
approximate amount of $35,000, which is secured by equipment with a net book
value of $25,363, was accelerated by the lessor due to non-payment. Management
has contacted such lessor to negotiate alternative payment arrangements for this
obligation. If unsuccessful, the lessor could bring suit to collect payment or
foreclose upon the collateral. Any such litigation may hinder our ability to
raise or obtain the capital we require or have an adverse impact on the terms
upon which we are able to attract or obtain such capital.
15
Our current cash levels, together with the cash flows we generate from
operating activities, are not sufficient to enable us to execute our business
strategy. As a result, we intend to seek additional capital through the sale of
up to 5,000,000 shares of our common stock. In December 2001, we filed with the
Securities and Exchange Commission a registration statement relating to such
shares. Such registration statement has not yet been declared effective, and
there can be no assurance that the Securities and Exchange Commission will
declare such registration statement effective in the near future, if at all. In
the interim, we intend to fund our operations based on our cash position and the
near term cash flow generated from operations, as well as additional borrowings.
In the event we are able to generate sales proceeds of at least $1,000,000 in
our proposed offering, we believe that the net proceeds of such sale, together
with anticipated revenues from sales of our products, will satisfy our capital
requirements for at least the next 12 months. However, we would require
additional capital to realize our strategic plan to expand distribution
capabilities and product offerings. These conditions raise substantial doubt
about our ability to continue as a going concern. Our actual financial results
may differ materially from the stated plan of operations. Our independent
auditors have indicated in its report on our 2002 financial statements that our
recurring losses from operations and our difficulties in generating sufficient
cash flow to meet our obligations and sustain our operations raise substantial
doubt about our ability to continue as a going concern. Such qualification may
hinder our ability to raise or obtain the capital we require or have an adverse
impact on the terms upon which we are able to attract or obtain such capital. In
addition, such qualification may adversely impact our ability to attract and
maintain new customer accounts.
Assuming that we receive net proceeds of at least $1,000,000 from our
proposed offering, we expect capital expenditures to be approximately $100,000
during the next 12 months, primarily for the acquisition of an inventory control
system. It is expected that our principal uses of cash during that period will
be to provide working capital, to finance capital expenditures, to repay
indebtedness and for other general corporate purposes, including sales and
marketing and new business development. The amount of spending for any
particular purpose is dependent upon the total cash available to us and the
success of our offering of common stock.
At June 30, 2003, we had liquid assets of $817,369, consisting of cash
and accounts receivable derived from operations, and other current assets of
$1,045,655, consisting primarily of inventory of products for sale and/or
distribution and prepaid expenses. Long term assets of $188,140 consisted
primarily of warehouse equipment used in operations.
Current liabilities of $2,452,020 at June 30, 2003 consisted primarily
of $2,026,814 of accounts payable and accrued expenses and $165,000 for notes
payable.
Our working capital deficit was $588,996 as of June 30, 2003 for the
reasons described above.
During the six months ended June 30, 2003, we used cash of $179,231 in
operating activities primarily as a result of the net loss we incurred during
this period.
16
During the six months ended June 30, 2003, we used net cash of $1,765
in investing activities, all of which was used for capital expenditures.
Financing activities, consisting primarily of proceeds from the
issuance of notes payable, provided net cash of $179,744 during the six months
ended June 30, 2003.
ITEM 3. CONTROLS AND PROCEDURES
(a) Based upon an evaluation performed within 90 days of this Report,
our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") have
each concluded that our disclosure controls and procedures are effective to
ensure that material information relating to our Company is made known to
management, including the CEO and CFO, particularly during the period when our
periodic reports are being prepared, and that our internal controls are
effective to provide reasonable assurances that our financial condition,
results of operations and cash flows are fairly presented in all material
respects.
(b) The CEO and CFO each note that, since the date of his evaluation
until the date of this Report, there have been no significant changes in
internal controls or in other factors that could significantly affect internal
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) None.
(b) None.
(c) In May and June 2003, we issued $60,000 aggregate principal amount
of convertible promissory notes with original maturity dates of September 30,
2003 that, as amended, mature on June 3, 2006 and bear interest at 8% per annum.
Such notes are convertible at any time and from time to time by the noteholders
into a maximum of 360,000 shares of our common stock (subject to certain
anti-dilution adjustments). The terms of such notes require us to register under
the Securities Act of 1933 the shares of our common stock issuable upon
conversion of such notes not later than June 3, 2006, except for $10,000
aggregate principal amount of such notes which require us to register such
shares not later than September 30, 2003. In connection with the sale of such
notes, we issued 400,000 shares to the noteholders. Such note and shares were
issued by us in reliance upon the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended, on the basis that such
issuance did not involve a public offering, no underwriter fees or commissions
were paid by us in connection with such issuance and such persons were
`accredited investors' as defined in Regulation D under the Securities Act of
1933, as amended.
17
In May 2003, we issued 109,259 shares of our common stock to one of our
consultants for services rendered during the first quarter of 2003. Such shares
were issued by us in reliance upon the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended, on the basis that such
issuance did not involve a public offering, no underwriter fees or commissions
were paid by us in connection with such issuance and such person was an
`accredited investor' as defined in Regulation D under the Securities Act of
1933, as amended.
In May 2003, we issued 109,259 shares of our common stock to our Chief
Executive Officer as compensation for services rendered during the first quarter
of 2003. Such shares were issued by us in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended,
on the basis that such issuance did not involve a public offering, no
underwriter fees or commissions were paid by us in connection with such issuance
and such person was an `accredited investor' as defined in Regulation D under
the Securities Act of 1933, as amended.
In June 2003, we issued 595,000 shares of our common stock and warrants
to purchase 1,000,000 shares of our common stock to a consultant for services
rendered. Such shares and warrants were issued by us in reliance upon the
exemption from registration provided by Section 4(2) of the Securities Act of
1933, as amended, on the basis that such issuance did not involve a public
offering, no underwriter fees or commissions were paid by us in connection with
such issuance and such persons were `accredited investors' as defined in
Regulation D under the Securities Act of 1933, as amended.
In June 2003, we issued an aggregate of 133,334 shares of our common
stock to two consultants for services rendered. Such shares were issued by us in
reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act of 1933, as amended, on the basis that such issuance did not
involve a public offering, no underwriter fees or commissions were paid by us in
connection with such issuance and such persons were `accredited investors' as
defined in Regulation D under the Securities Act of 1933, as amended.
In June 2003, we issued options to purchase 1,305,000 shares of our
common stock to holders of our 8% and 9% convertible notes in consideration of
their willingness to extend the maturity dates of such notes until June 3, 2006.
Such options were issued by us in reliance upon the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended, on the basis
that such issuance did not involve a public offering, no underwriter fees or
commissions were paid by us in connection with such issuance and such persons
were `accredited investors' as defined in Regulation D under the Securities Act
of 1933, as amended.
(d) None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed herewith or are
incorporated by reference to Exhibits previously filed.
18
EXHIBIT
NO. DESCRIPTION
------- -----------
10.1 Consigned Distributor Agreement dated July 21, 2003 between the Company
and ConAgra Poultry Company.
31.1 Certification of our Principal Executive Officer, Edward T. Whelan,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of our Principal Financial Officer, Ethan D. Hokit,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of our Principal Executive Officer, Edward T. Whelan,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of our Principal Financial Officer, Ethan D. Hokit,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
None.
19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized, in Colorado Springs,
Colorado on September 3, 2003.
MILITARY RESALE GROUP, INC.
By: /s/ Ethan D. Hokit
----------------------------------------
Name: Ethan D. Hokit
Title: President (Principal Accounting
Officer and Principal Financial
Officer)
20
CERTIFICATION
PURSUANT TO 18 U.S.C. 1350
(SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002)
I, EDWARD T. WHELAN, CHIEF EXECUTIVE OFFICER of MILITARY RESALE GROUP,
INC., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Military Resale
Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
c) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
21
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: September 3, 2003
/s/ Edward T. Whelan
-----------------------------------
Edward T. Whelan
Chief Executive Officer
22
CERTIFICATION
PURSUANT TO 18 U.S.C. 1350
(SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002)
I, ETHAN D. HOKIT, CHIEF FINANCIAL OFFICER of MILITARY RESALE GROUP,
INC., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Military Resale
Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
c) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
23
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: September 3, 2003
/s/ Ethan D. Hokit
--------------------------------
Ethan D. Hokit
Chief Financial Officer
24