10-Q 1 v018457_10q.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2005 Securities and Exchange Commission File Number 000-26369 Reality Wireless Networks, Inc. (Exact name of registrant as specified in its charter) -------------------------------------------------------------------------------- Nevada 88-0422026 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) -------------------------------------------------------------------------------- 4906 Point Fosdick Dr., Suite 102 Gig Harbor, Washington 98335 (Address of principal executive offices, including zip code) (253) 853-3632 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such requirements for the past 90 days. YES |X| NO |_| The number of issued and outstanding shares of the Registrants Common Stock, $0.001 par value, as of May 5, 2005, was 270,624,707 issued and 159,782,404 outstanding Reality Wireless Networks, Inc. PART I - FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Balance Sheet at March 31, 2005 (Unaudited) Consolidated Statements of Operations for the three and six months ended March 31, 2005 and 2004 (Unaudited) Consolidated Statements of Cash Flows for the six months ended March 31, 2005 and 2004 (Unaudited) Notes to Consolidated Financial Statements (Unaudited) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 3. Controls and Procedures PART II - OTHER INFORMATION Item 1. Legal Proceedings. Item 2. Changes in Securities. Item 3. Defaults Upon Senior Securities. Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K. Signatures 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements- REALITY WIRELESS NETWORKS, INC. CONSOLIDATED BALANCE SHEET

See accompanying summary of accounting policies and notes to financials 3 REALITY WIRELESS NETWORKS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

See accompanying summary of accounting policies and notes to financials 4 REALITY WIRELESS NETWORKS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

See accompanying summary of accounting policies and notes to financials 5 REALITY WIRELESS NETWORKS NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1:Basis of Presentation and Summary of Significant Accounting Policies The accompanying unaudited interim financial statements of Reality Wireless Networks, Inc. ("Reality") have been prepared in accordance with the rules of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company's Annual Report filed with the SEC on Form 10-KSB for the year ended September 30, 2004. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for fiscal year end September 30, 2004 as reported in the 10-KSB have been omitted. Principles of Consolidation The financial statements include the accounts of Reality's inactive wholly-owned Canadian subsidiary, 527403 B.C. Limited. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. . Note 2 - Going Concern The financial statements have been prepared assuming that Reality will continue as a going concern. Reality has a significant accumulated deficit and working capital deficiency at March 31, 2005, is not active, is in default on all notes payable and is unable to meet its obligations as they come due, all of which raise substantial doubt about Reality's ability to continue as a going concern. In addition, preferred stock and related subscription note receivable is being cancelled in May 2005. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that might be necessary should Reality be unable to continue as a going concern. The continued support of Reality's creditors, lenders and shareholders is required in order for Reality to continue as a going concern. Management's plans to support Reality's operations include borrowing additional funds, raising additional capital and pursuing plans with one or more merger candidates. (See Note 3 for merger agreement). Reality's inability to obtain additional capital or obtain such capital on favorable terms could have a material adverse effect on its financial position, results of operations and its ability to continue operations. Note 3 -Commitments and Contingencies On November 10, 2004 the Company and Genesis Electronics, Inc. ("Genesis") entered into an agreement to merge Genesis with and into Reality Wireless Networks and to rename the Company Genesis Electronics, Inc. (the "reverse merger"). The agreement provides that all of the shares of common stock of Genesis issued and outstanding at the time the merger becomes effective under applicable state law (the "Effective Time") will be converted into common stock of Registrant such that the current holder of Genesis common stock will hold 97% of all shares of Registrant's common stock outstanding immediately after the closing of this merger transaction. The obligation of Genesis to close is conditioned on, among other things, the satisfactory completion of due diligence review and the reduction of Registrant's liabilities to $50,000 or less. The agreement may be terminated at any time prior to the Effective Time by written agreement; by Genesis for breach of any of the representations and warranties or covenants of Registrant if such breach is not cured within thirty days of written notice; by Registrant for breach of any Genesis representations and warranties or covenants if such breach is not cured within thirty days of written notice. 6 On July 16, 2004 counsel to Reality received Notices of Hearing and Amended Complaints from the State of California, Department of Industrial Relations, Division of Labor Standards Enforcement, for State Case Number 12-54273 JM, in which plaintiff claims that Reality owes (1) unpaid wages in the amount of $1,240, (2) unpaid reimbursable business expenses of $950.00, and (3) additional wages accrued as a penalty of up to $155.00 per day for "an indeterminate number of days not to exceed thirty days." Reality subsequently failed to reach a settlement and, at hearing on July 16, 2004, judgment was entered against Reality in an amount that has not yet been disclosed but is expected to be approximately $6,840.00. On October 13, 2004, a note holder of the Company, filed a complaint in the Superior Court of the State of California, Los Angeles County, alleging that the Company breached its contract under a promissory note. In March of 2005 the Company completed and met its obligations in connection with the settlement and as of March 31, 2005 no additional amounts are owed on this note. The settlement paid off $50,186 in notes payable and $15,000 of accrued interest. The settlement was not paid by the Company, but was paid on behalf of the Company and resulted in a settlement loss of $9,814. The payment of $75,000 was recorded in additional paid in capital. On January 13, 2005, a note holder of the Company, filed a complaint in the Superior Court of the State of Washington, Kings County, alleging that the Company breached its contract under a $209,252 promissory note to be paid in twenty four monthly installments commencing June 2004, to date one payment has been applied. The Company is contesting the claim and is currently engaged in the discovery portion of the litigation. Note 4 - Accounts Payable - related party Approximately $150,000 and $160,000 was applied during the six months ended March 31, 2005 and March 31, 2004, respectively, against outstanding accounts payable balance with a related party legal services vendor. The payments were applied through stock issued to the vendor and, upon liquidation of stock, the vendor applied net sale proceeds against outstanding balance. The party is related as a principal shareholder. Note 5 - Debt Convertible Debentures As of March 31, 2005, 15,892,696 shares have been issued for conversion of debentures totaling $550,000, with 14,609,631 of these issued during the six months ended March 31, 2005 for $43,526 of debenture principal. As of March 31, 2005 all debentures sold have been converted. The Convertible Debenture Purchase Agreement entered into on October 27, 2003 allowed for $1,000,000 in debentures to be issued/sold by the Company, $450,000 has not yet been issued/sold (the "Convertible Debentures"). Amortization of debt discount and of debt issue costs for the six months ended March 31, 2005 were $17,238 and $6,028, respectively. Note 6 -Common Stock On February 23, 2005, 50,000,000 shares of common stock were issued for consulting services, employment agreements and legal work. The value of the stock, based on the quoted trading price of $.0014 on the grant date, was $70,000 in total of which $34,300 was expensed for legal work and $2,975 was expensed for consulting and employment services. The remaining $32,725 is on the balance sheet as a contra-equity deferred expense and will be expensed over the life of the various consulting agreements. These shares are registered pursuant to the Company's Registration Statement on Form S-8. During the six months ended March 31, 2005, amortization of deferred fees that existed at September 30, 2004 was $304,251 with $329,458 remaining deferred at March 31, 2005 and amortization of deferred fees for stock grants granted in 2005 was $1,278,025 with $815,476 remaining deferred at March 31, 2005. Therefore, the total amortization expense for the six months ended March 31, 2005 of existing and current year deferred fees was $1,582,276 with $1,144,934 remaining deferred at March 31, 2005. 7 From October 1, 2003 through March 31, 2005, 125,885,000 shares have been issued to escrow for convertible debenture discussed in Note 5. Of the 125,885,000 shares, 15,892,696 have been converted and 109,992,304 remain in an escrow account to be issued upon conversion at a later date, and are not included in earnings per share. As discussed in Note 5, there are currently no Convertible Debentures owed or available for conversion. Note 7 - Subscription Receivable Promissory Note On August 23, 2004 the Company signed a promissory note with Nelana Holdings, Ltd., for $100,000. The maker promised to pay $10,000 to the Company by October 15, 2004 and $7,500, plus any accrued interest, by the 5th of each month thereafter, in exchange for 51,020,041 newly issued Series A Convertible Preferred Stock. To date no payments have been received by the Company. As the Company deems collection unlikely, effective May 12, 2005 the Board authorized the cancellation of the Series A Convertible Preferred Stock. The subscription receivable promissory note will be reversed out of equity section of balance sheet. The net effect on income statement will be approximately $1,200 in interest income reversed. Note 8 - Subsequent Events On April 14, 2005, the Company issued 105,000,000 shares of common stock for consulting services and legal work. The services will be valued at the stock price on the date granted and recognized over the services period. These shares are registered pursuant to the Company's Registration Statement on Form S-8. On May 12, 2005 the Board authorized the cancellation of the Series A Convertible Preferred Stock. The subscription receivable promissory note will be reversed out of equity section of balance sheet. The net effect on income statement will be approximately $1,200 in interest income reversed. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS Forward-looking Statements Certain statements in this Quarterly Report on Form 10-QSB, as well as statements made by Reality Wireless Networks, Inc. ("Reality" or "the Company") in periodic press releases, oral statements made by the company's officials to analysts and shareholders in the course of presentations about the company 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 that may cause the actual results, performance or achievements of the company to be materially different from any future results, performance or achievements expressed or implied by the forward looking statements. Such factors include, among other things, (1) general economic and business conditions; (2) interest rate changes; (3) the relative stability of the debt and equity markets; (4) competition; (5) demographic changes; (6) government regulations; (7) required accounting changes; (8) the Company's ability to meet its debt obligations; and (9) other factors over which Reality has little or no control. GENERAL OVERVIEW Reality was incorporated in the state of Nevada on March 17, 1999. On March 5, 2002 the Company entered into an asset purchase agreement with Reality Networks, Inc., a Delaware corporation. Until September 2004, the Company was a service provider of fixed, wireless, high-speed, broadband Internet access to principally residential homes and small businesses. The Company provided this service as an alternative to digital subscriber line ("DSL") or cable Internet access service. The Company provided its service primarily in geographical areas of northern California where DSL and cable services are not available. 8 In September 2004, the Company changed its strategy due to poor operating conditions and poor operating results coupled with difficulties in raising capital through debt and equity sources. The Company adopted a new strategy during the fiscal fourth quarter of 2004 that committed to the shutting down of its current business and to seek a merger or acquisition transaction with a Company having better financial resources as well as advise such small, private companies on conducting due diligence, strategic positioning and valuation analysis for newly developing businesses. As of September 2004, the Company ceased providing services to customers and has disposed of most of its assets. The Company has entered a new development phase, while formulating a plan to improve its financial position. On November 10, 2004 the Company and Genesis Electronics, Inc. ("Genesis"), entered into an agreement to merge Genesis with and into Reality Wireless Networks and to rename the Company Genesis Electronics, Inc., (the "reverse merger"). The agreement provides that all of the shares of common stock of Genesis issued and outstanding at the time the merger becomes effective under applicable state law (the "Effective Time"), will be converted into common stock of Registrant such that the current holder of Genesis common stock will hold 97% of all shares of Registrant's common stock outstanding immediately after the closing of this merger transaction. The obligation of Genesis to close is conditioned on, among other things, the satisfactory completion of due diligence review and the reduction of Registrant's liabilities to $50,000 or less. The agreement may be terminated at any time prior to the Effective Time by written agreement; by Genesis for breach of any of the representations and warranties or covenants of the Company if such breach is not cured within thirty days of written notice; by the Company for breach of any Genesis representations and warranties or covenants if such breach is not cured within thirty days of written notice. RESULTS OF OPERATIONS Retail sales for the three months ended March 31, 2005 and 2004 were $0 and $20,386, respectively. Retail sales for the six months ended March 31, 2005 and 2004 were $0 and $44,216, respectively. Effective August 31, 2004, the Company no longer provides services to customers, and therefore, no revenue has been collected since this date. The Company's cost of sales for the three months ended March 31, 2005 and 2004 were $0 and $20,727, respectively. Cost of sales for the six months ended March 31, 2005 and 2004 were $0 and $42,932, respectively. No cost of sales were incurred in the current fiscal year due to cessation of services provided to customers. Gross margin for the three months ended March 31, 2005 and 2004 was $0 and $(341), respectively. Gross margin for the six months ended March 31, 2005 and 2004 was $0 and $1,284, respectively Until the merger with Genesis is closed, gross margin will be $0, as there are currently no cost of sales on related inactivity of services provided to customers. Engineering and development costs for the three months ended March 31, 2005 and 2004 were $0 and $787, respectively. Engineering and development costs for the six months ended March 31, 2005 and 2004 were $0 and $1,574, respectively. 2004 costs were exclusively depreciation of node head end and bandwidth software. All assets were written-off as abandoned as of September 1, 2004, and therefore, no depreciation was incurred in 2005 fiscal year. Operating expenses for the three months ended March 31, 2005 and 2004 were $656,335 and $2,111,829, respectively. 50,000,000 shares valued at $70,000, fair market value on grant date of $.0014/share, were issued in the three months ended March 31, 2005 of which as of March 31, 2005, $37,275 has been expensed. Operating expenses for the six months ended March 31, 2005 and 2004 were $1,655,749 and $3,164,558, respectively. 140,500,000 shares valued at $2,093,500, fair market value on grant date of $.007-$.08/share, were issued in the six months ended March 31, 2005 of which as of March 31, 2005, $1,278,025 has been expensed. The total amount expensed on deferred contracts in the first two quarters of 2005 was $1,582,276 on remaining balance of $2,727,209, leaving $1,144,933 to be expensed over life of contracts and is recorded on balance sheet as a contra-equity. Legal expenses was reduced by $140,674 and $160,000 in the six months ended March 31, 2005 and 2004, respectively, due to sale of stock issued to related party legal services vendor. At the time of issuance, legal expenses were increased for the value of stock issued, then, at time of stock sale, legal expenses were decreased and payment applied against outstanding account payable balance. 9 Interest expense for the three months ended March 31, 2005 and 2004 was $47,461 and $211,708, respectively. Interest expense for the six months ended March 31, 2005 and 2004 was $79,005 and $237,154, respectively The first two quarters of 2005 expense included $11,079 accrual for interest on outstanding payroll taxes and $17,238 amortization of debt discount expense. The remaining $50,687 was accrual of interest on outstanding notes payable. The first two quarters of 2004 expense included $9,594 accrual for interest on outstanding payroll taxes and $177,796 beneficial conversion expense related to conversion of $350,000 in cumulative debenture conversions. The remaining $49,764 was accrual of interest on outstanding notes payable. Settlement loss for the three and six months ended March 31, 2005 was $9,814 The settlement loss was recorded in conjunction with reducing notes payable liability. See Note 3 to financials. Interest income for the three months ended March 31, 2005 and 2004 was $493 and $3,949, respectively and represented accrued interest on subscription receivable and in 2004 I-Element note receivable. Interest income for the six months ended March 31, 2005 and 2004 was $997 and $3,949 and represented accrued interest on subscription receivable and I-Element note receivable, respectively. Net loss for the three months ended March 31, 2005 and 2004 was $723,805 and $2,351,714, respectively. Net loss for the six months ended March 31, 2005 and 2004 was $1,754,259 and $3,424,275, respectively. Liquidity and Capital Resources At March 31, 2005, the Company had negative working capital of $1.19 million. $1.24 million of this is attributable to bridge financing short-term notes, of which the Company hopes the majority will convert into equity upon funding. Net cash used in investing activities was $0 and $247,500 for the six months ended March 31, 2005 and 2004, respectively. The $247,500 represents a note receivable and deposit from IElement, a privately held corporation, in conjunction with potential merge, that has been subsequently terminated and in August 2004 shares related to this deposit were converted into 120,230 shares of I-Element, who later merged with a publicly held company, Mailkey Corporation. Net cash provided by financing activities was $0 and $272,800 for the six months ended March 31, 2005 and 2004, respectively. The $272,800 represents $350,000 received from sale/issuance of convertible debentures, less $77,200 payment on notes and leases. The Company has been funding business operations through bridge financing. Management is actively pursuing significant funding to allow for execution of business plan. The Company hopes the majority of bridge loans will convert to equity at time of funding. Critical Accounting Policies Impairment The Company records impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Beneficial Conversion Feature in Convertible Debentures and Convertible Preferred Stock In accordance with EITF Issue 98-5, as amended by EITF 00-27, we must evaluate the potential effect of any beneficial conversion terms related to convertible instruments such as convertible debt or convertible preferred stock. The Company has issued convertible debentures and convertible preferred stock. A beneficial conversion may exist if the holder, upon conversion, may receive instruments that exceed the value of the convertible instrument. Valuation of the benefit is 10 determined based upon various factors including the valuation of equity instruments, such as warrants, that may have been issued with the convertible instruments, conversion terms, value of the instruments to which the convertible instrument is convertible, etc. Accordingly, the ultimate value of the beneficial feature is considered an estimate due to the partially subjective nature of valuation techniques. Accounting for Stock-Based Compensation The Company accounts for stock options and warrants issued to employees in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock issued to Employees. For financial statement disclosure purposes and issuance of options and warrants to non-employees for services rendered, the Company follows statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation. Factors That May Affect Future Results Dependence Upon External Financing: The Company has been building its business through revenues generated from operations supplemented by the sale of its common stock. The ability of the Company to continue its growth and expand its business is dependent upon the ability of the Company to raise additional financing either through the issuance of additional stock or the incurrence of debt. Ability to Meet Outstanding Debt Obligations: The substantial debt obligations pose risks to the Company and to the stockholders by: o making it more difficult for the Company to satisfy our obligations; o requiring the Company to dedicate a substantial portion of cash flow to principal and interest payments on debt obligations of the Company, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other corporate requirements; o impeding the Company from obtaining additional financing in the future for working capital, capital expenditures and general corporate purposes; and o making the Company more vulnerable to a downturn in its business and limiting flexibility to plan for, or react to, changes in business. The financial statements do not include any adjustments to reflect the possible effects on recoverability and classification of assets or the amounts and classification of liabilities, which may result from the inability of the Company to continue as a going concern. Item 3. CONTROLS AND PROCEDURES The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer/Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 13a-14(c). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. At the end of the period covered by this Quarterly Report, the Company carried out an evaluation, under the supervision and with the participation of the 11 Company's management, including the Company's Chief Executive Officer/Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on the foregoing, the Company's Chief Executive Officer and Chief \Financial Officer concluded that the Company's disclosure controls and procedures were effective to ensure that all material information required to be filed in this Quarterly Report has been made known to them in a timely fashion. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect the internal controls subsequent to the date the Company completed its evaluation. PART II - OTHER INFORMATION Item 1. Legal Proceedings. On July 16, 2004 counsel to Reality received Notices of Hearing and Amended Complaints from the State of California, Department of Industrial Relations, Division of Labor Standards Enforcement, for State Case Number 12-54273 JM, in which, Mr. Arnaud Guerrand ("Mr. Guerrand") claims that Reality owes (1) unpaid wages in the amount of $1,240, (2) unpaid reimbursable business expenses of $950.00, and (3) additional wages accrued as a penalty of up to $155.00 per day for "an indeterminate number of days not to exceed thirty days." Reality subsequently failed to reach a settlement and, at hearing on July 16, 2004, judgment was entered against Reality in an amount that has not yet been disclosed but is expected to be approximately $6,840.00. On October 13, 2004, Lyn Rowbotham-Ameche, note holder of the Company, filed a complaint in the Superior Court of the State of California, Los Angeles County, alleging that the Company breached its contract under a promissory note. In March of 2005 the Company completed and met its obligations in connection with a settlement with Ms. Rowbotham-Ameche. On January 13, 2005, Brent M. Haines, note holder of the Company, filed a complaint in the Superior Court of the State of Washington, Kings County, alleging that the Company breached its contract under a promissory note. The Company is contesting the claim and is currently engaged in the discovery portion of the litigation. Item 2. Changes in Securities. On September 22, 2004, the Company sold 5,102,041 shares of newly designated Series A Convertible Preferred Stock to one purchaser in a transaction exempt from registration under section 4 (2) of the Securities Act. On October 4, 2004, the Company reverse-split the Company's issued and outstanding common stock, options, warrants, and any other securities convertible, bringing the total of outstanding preferred shares from 5,102,041 to 51,020 shares. On October 1, 2003, the Company entered into agreements with HEM Mutual Assurance, LLC to secure certain financing for the Company: (i) Agreement and Plan of Merger, (ii) Convertible Debenture Purchase Agreement, and (iii) 1% Convertible Debentures in the aggregate amount of Nine Hundred Ninety Four Thousand Dollars ($994,000). The Company chose to amend the Agreements to provide for the issuance of an additional 600,000 shares (adjusted as per October 4, 2004 reverse stock split), thereby increasing the number of shares from 600,00 to 1,200,000 (adjusted as per October 4, 2004 reverse stock split), to HEM Mutual Assurance, LLC and to secure additional financing for the Company (the "Amendments"). Copies of the Amendments are made exhibits to the 10-QSB filed May 24, 2004. These securities were issued on May 6, 2004, pursuant to the exemption provided by section 3(a)(9) of the Securities Act of 1933. On December 2, 2004, the Company issued an additional 340,000,000 shares to HEM Mutual Assurance, LLC to provide for the conversion of the outstanding Convertible Debentures as provided in the Convertible Debenture Agreement. Item 3. Defaults Upon Senior Securities. None Item 4. Submission of Matters to a Vote of Security Holders. 12 None. Item 5. Other Information. The following actions were taken by the Board of Directors of the Company (the "Board") during the period ended March 31, 2005. Where agreements are referenced, such agreements are incorporated herein by reference. On February 18, 2005, the Board ratified a existing consulting agreements with Terry Byrne, and Bradford Van Siclen, ratified an existing employment agreement with Steve Careaga, and ratified an existing engagement agreement with The Otto Law Group, PLLC, for legal services rendered to the company, and authorized issuance of 12,250,000 shares, 12,250,000, 1,000,000 shares, and 24,500,000 shares, respectively, of common stock the Company of Form S-8 to Terry Byrne, Bradford Van Siclen, Steve Careaga and David M. Otto of The Otto Law Group, respectively. 13 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits.

14 (b) Reports on Form 8-K. During the period ended March 31, 2005, the Company filed the following reports on Form 8-K: None -------------------------- ----------------------------- Date of Event Reported Items Reported -------------------------- ----------------------------- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. REALITY WIRELESS NETWORKS, INC. Dated: May 13, 2005 /s/ Steve Careaga ---------------------- By: Steve Careaga Its: Chief Executive Officer, Principal Financial Officer/Acting Chief Financial Officer, Director 15

REALITY WIRELESS NETWORKS INC 10-Q