UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 0R 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
INITIAL QUARTERLY REPORT FOLLOWING
EFFECTIVE DATE OF REGISTRATION
Commission File Number 0-29915
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FREFAX. INC.
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(Exact name of small business issuer as specified in its charter)
FLORIDA 65-0786722
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
270 NW 3rd Court, Boca Raton. Florida 33432-3720
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(Address of principal executive offices)
(561) 368 - 1427
------------------
Issuer's Telephone
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issu&s classes of
common equity, as of the latest practicable date:
19,446,000 - Common stock as of March 31, 2000
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Transitional Small Business Disclosure Format (Check One) Yes [ ] No [x]
<PAGE>
TABLE OF CONTENTS
PART I ............................................................... 1
ITEM 1. FINANCIAL STATEMENTS.................................. 1
ITEM 2. PLAN OF OPERATION..................................... 1
PART II............................................................... N/A
SIGNATURES............................................................ 2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
Attached unaudited financial statements for Frefax, Inc. (FC) and
subsidiary, for the period ending March 21, 2000 are submitted in compliance
with Item 310(b) of Regulation SB.
ITEM 2. PLAN OF OPERATION
FC has commenced active business operations as of January, 2000, with
the intent of continuing these operations for the entire calendar year. The plan
of operation from a sales standpoint may be summarized as follows:
(1) FC uses twenty-seven (27) machines maintained in its offices
to send soliciting messages by fax to various potential
subscribers. FC intends to send 1,000 such fax messages daily,
with an anticipated acceptance of two percent (2%) daily. On
the basis of twenty working days per month, this totals 400
acceptances monthly.
(2) FC also employs one full-time employee as a salesman who does
direct solicitations in person. It is anticipated that this
salesman will secure thirty percent (30%) sales success, which
should equal the same number of subscribers as the mechanical
process - 400 acceptances monthly.
(3) On the basis of 800 sales monthly at a gross revenue figure of
$100 per sale, FC should receive $80,000 in monthly gross
revenues. FC anticipates a fifty percent (50%) return on the
gross revenue for a monthly gross profit of $40,000.
(4) FC expects total monthly operating costs of $20,000, leaving a
monthly net (pre-tax) profit of $20,000.
Based upon the sales plan as outlined above, FC anticipates satisfying
its cash requirements from current operations and should not have to raise
additional funds in the next twelve months.
FC does not plan any additional capital purchases, except for
operational equipment which will be purchased as additional sales dictate. FC
does not expect any significant change in its current base of three employees,
except to hire additional salesman as the need arises.
1
<PAGE>
SIGNATURES
In accordance with the requirements of Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FREFAX, INC.
(Registrant)
Date: June 1, 2000 By: /s/ Tony Papa
-----------------------------------
Tony Papa
President & Chief Executive Officer
2
<PAGE>
FREFAX, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31,2000 AND 1999
AND
CUMULATIVE FROM
SEPTEMBER 26,1997 (DATE OF INCEPTION) TO MARCH 31, 2000
(UNAUDITED)
<PAGE>
FREFAX, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Page
number
Consolidated balance sheet at March 31, 2000 F-1
Consolidated statements of operations and comprehensive
income (loss) for the nine months ended March 31, 2000 and
1999 and cumulative from September 26, 1997
(date of inception) to March 31, 2000 F-2
Consolidated statement of stockholders' deficiency for the
period from September 26, 1997 (date of inception) to
March 31,2000 F-3 -- F-4
Consolidated statements of cash flows for the nine months
ended March 31,2000 and 1999 and cumulative from
September 26, 1997 (date of inception) to March 31,2000 F-5
Notes to consolidated financial statements F-6--F-8
<PAGE>
FREFAX, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
(UNAUD1TED)
ASSETS
Current assets:
Cash $ 598
Recoverable use tax 4,693
------------
Total current assets 5,291
Furniture, fixtures and equipment, net 90,237
Security deposits 3,600
------------
Total assets $ 99,128
============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable and accrued expenses $ 3,537
Loans from related party 155,039
------------
Total current liabilities 158,576
Commitments and contingencies (Note -3) -
Stockholders' deficiency:
Common stock - S.001 par value,
50,000,000 shares authorized,
19,446,000 shares issued and outstanding 19,446
Additional paid-in capital 180,864
Accumulated deficit during the development stage (57,287)
Accumulated other comprehensive income (loss) (12,345)
Stock subscriptions receivable (190,126)
------------
Total stockholders' deficiency (59,448)
Total liabilities and stockholders' deficiency $ 99,128
============
See accompanying notes to consolidated financial statements (unaudited)
F-1
<PAGE>
FREFAX, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPE~ONS AND COMPREHENSWE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
from
For the nine For the nine September 26)1997
months ended months ended (date of inception)
March31. 2000 March31. 1999 to March31. 2000
------------- ------------- -------------------
<S> <C> <C> <C>
Income $ - $ - $ -
Expenses:
Selling, general and administrative
expenses 5,746 32,799 50,151
Research and development 4,422 9,712 17,929
------------ ------------ -----------
Total expenses 10,169 42,510 67,990
------------ ------------ -----------
Loss before other income
(expense) and provision for income taxes (10,169) (42,510) (67,990)
Other income (expense):
Gain on foreign currency transactions 4,576 496 8,343
Interest income 1,263 77 3,099
Interest expense (285) (290) (749)
------------ ------------ -----------
Total other income (expense) 5,554 283 10,693
------------ ------------ -----------
Loss before provision for income taxes (4,614) (42,793) (57,297)
Provision for income taxes - - -
------------ ------------ -----------
Net (loss) (4,614) (42,793) (57,297)
Other items of comprehensive income (loss) (5,909) (2,856) (12,345)
------------ ------------ -----------
Comprehensive net (loss) $ (10,523) $ (45,649) $ (69,632)
============ ============ ===========
Basic:
Net (loss) $ NIL $ NIL $ (01)
============ ============ ===========
Weighted average number of
Common shares outstanding 19,446,000 9,326,913 11,056,997
------------ ------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements (unaudited)
<PAGE>
FREFAX, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
FOR THE PERIOD FROM SEPTEMBER 26,1997 (DATE OF INCEPTION)
TO MARCH 31,2000 (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional Accumulated Accumulated Other Stock Total
------------------- Paid-in Deficit During the Comprehensive Subscriptions Stockholders
Shares Amount Capital Development Stage Income (Loss) Receiveable Deficiency
---------- ------- ---------- ----------------- ----------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock unon
capitalization
of company 500,000 $ 500 $ 2,000 $ - $ - $ - $ 2,50?
Issuance of common
stock in connection
with limited offerings 403,000 403 297 - - - 70?
Net loss from date
of inception
(September 26, 1997)
to June 30, 1998 - - - (2,954) - - (2,954)
---------- ------ -------- ---------- ----------- --------- ---------
Balances at June 30,1998 903,000 903 2,297 (2,954) - - 24?
Issuance of common stock
in connection
with acquisition of
subsidiary 10,000,000 10,000 - - - - 10,000
Issuance of common stock
in connection
with limited offering
(November 1998) 6,001,000 6, 001 54,009 - - (60,010) -
Issuance of common stock
in connection
with limited offering
(February 1999) 2,542,000 2,542 124,558 - - (127,100) -
Accrued interest on
subscriptions receivable - - - - - (1,755) (1,755)
Foreign currency
translation adjustment - - - - (6,436) - (6,436)
Net loss for the year
ended June 30, 1999 - - - (49,719) - - (49,719)
---------- ------ -------- ---------- ----------- --------- ---------
Balances at June 30, 1999
(forwarded) 19,446,000 19,446 180,864 (52,673) (6,436) (188,865) (47,664)
---------- ------ -------- ---------- ----------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements (unaudited)
F-3
<PAGE>
FREFAX, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS" DEFICIENCY
FOR THE PERIOD FROM SEPTEMBER 26,1997 (DATE OF INCEPTION)
TO MARCH 31,2000 (UNAUDITED) (CONT'D)
<TABLE>
<CAPTION>
Common Stock Additional Accumulated Accumulated Other Stock Total
------------------- Paid-in Deficit During the Comprehensive Subscriptions Stockholders
Shares Amount Capital Development Stage Income (Loss) Receiveable Deficiency
---------- ------- ---------- ----------------- ----------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1999
(from previous page) 19,446,000 $ 19,446 $ 180,854 $ (52,673) $ (6,436) $ (188,865) $ (47,664)
Accrued interest on
Subscriptions receivable - - - - - (1,261) (1,261)
Foreign currency
Translation adjustment - - - - (5,909) - (5,909)
Net loss for the nine months
Ended March 31,2000 - - - (4,614) - - (4,614)
---------- -------- ---------- ---------- -------- ---------- ---------
Balances at March 31,2000 19,446,000 $ 19,446 $ 180,864 (57,287) (12,345) $ (190,126) $ (59,448)
========== ======== ========== ========= ======== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited)
F-4
<PAGE>
FREFAX, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative from
For the nine For the nine September 26, 1997
months ended months ended (date of inception)
March 31.2000 March31. 1999 to March 31.2000
------------- ------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net(loss) $ (4,614) $ (42,793) $ (57,287)
Adjustments to reconcile net (loss) to net
cash used for operating activfties:
Foreign currency translation (5,909) (2,956) (12,345)
Depreciation 1,739 1,441 4,327
Interest income on subscriptions receivable (1,261) (1,316) (3,016)
(Increase) decrease in:
Recoverable use tax (449) (2,997) (4,693)
Security deposits (117) (3,332) (3,600)
Increase (decrease) in:
Accounts payable and accrued expenses (10,774) 5,724 3,537
------------------ ------------------- ------------------
Net cash used for operating activities (21,385) (46,129) (73,977)
------------------ ------------------- ------------------
Cash flows from investing activities:
Purchase of furniture, fixtures and equipment (6,595) (25,190) (94,564)
------------------ ------------------- ------------------
Net cash used for investing activities (6,595) (25,190) (94,564)
------------------ ------------------- ------------------
Cash flows from financing activities:
Proceeds from initial capitalixation of company
and from sale of common stock in connection
with private placements - - 3,200
Loans from related parties 24,765 60,073 165,039
------------------ ------------------- ------------------
Net cash provided by financing activities 24,765 60,073 169,239
------------------ ------------------- ------------------
Net (decrease) increase in cash (3,215) 11,246 599
Cash, beginning of period 3,913 246 -
------------------ ------------------- ------------------
Cash, end of period $ 598 $ 11,492 $ 598
================== =================== ==================
Supplemental disclosure of non-cash flow information:
Cash paid during the year for:
Interest $ - $ - $ -
================== =================== ==================
Income taxes $ - $ - $ -
================== =================== ==================
Schedule of non-cash investing activities:
Issuance of 8,543,000 shares of common stock in
exchange for subscription receivables $ - $ - $ 187,110
================== =================== ==================
</TABLE>
See accompanying notes to consolidated financial statements (unaudited)
F-5
<PAGE>
FREFAX, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NiNE MONTHS ENDED MARCH 31, 2000 AND 1999
AND
CUMULATiVE FROM SEPTEMBER 26, 1997 (DATE OF INCEPTION) TO MARCH 31,2000
(UNAUDITED)
NOTE 1 - ORGANIZATION
Frefax, Inc. (the "Company") was incorporated in the State
of Florida on September 26, 1997 as Central Group, Inc. The
name of the Company was changed on September 15, 1998 to its
current name.
Pursuant to the stock purchase agreement dated July 30, 1998
between the Company and the shareholders of Frefax, Inc.
(Canada), ("Frefax Canada") a company incorporated in the
province of Ontario, Canada, the Company issued an aggregate
of 10,000,000 shares of its $001 par value common stock to
the shareholders of Frefax Canada in exchange for 100% of
Frefax Canada's issued and ontstanding common stock.
Accordingly, Frefax Canada became a wholly owned subsidiary
of the Company. Such transaction is considered a capital
transaction whereby Frefax Canada contributed its stock for
the net book value of the Company.
Frefax Canada was incorporated on September 5, 1996 for the
purpose of developing software to be utilized in reducing
long distance telephone fax charges.
As of March 31,2000, the Company and Frefax Canada are
considered to be development stage companies.
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with
instructions to Form l0-QSB. 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, the
interim financial statements include all adjustments
necessary in order to make the financial statements not
misleading. The results of operations for the nine months
ended are not necessarily indicative of the results to be
expected for the full year For further information, refer to
the Company's audited financial statements and footnoted
thereto as of June 30, 1999.
NOTE 2 - STOCKHOLDERS' DEFICIENCY
Acquisition of Subsidiary
Pursuant to a stock purchase agreement dated July 30, 1998
between the Company and the shareholders of Frefax Canada,
the Company issued an aggregate of 10,000,000 shares of its
$001 par value common stock to the shareholders of Frefax
Canada in exchange for 100% of Frefax Canada issued and
outstanding common stock. Accordingly, after such
transaction, Frefax Canada became a wholly owned subsidiary
of the Company. Such transaction is considered a capital
transaction whereby Frefax Canada contributed its stock for
the net book value of the Company, and accordingly, no
goodwill is recorded.
F-6
<PAGE>
FREFAX, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
(UNAUDITED)
NOTE 3 - COMMITMENTS AND CONTINGENCIES
a) Year 2000
The Companies have addressed and will continue to address
the year 2000 issue to ensure the reliability of its
operational system and products. The Companies have and will
continue to make certain investment in its software systems
and applications to ensure that it is Year 2000 compliant.
These expenditures, which are expensed as incurred are not
expected to be material.
b) Rent
Frefax Canada leased office space under a one-year renewable
lease agreement, which expired November 30. 1999. Rent
expense amounted to $2,428 and $1,312 for the nine months
ended March 31, 2000 and 1999, respectively and $4,702
cumulative from September 26, 1997 (date of inception) to
March 31, 1999. During January 2000, Frefax Canada moved its
operations to a space owned by one of the Company's
shareholders on a month to month basis free of charge until
a permanent location is found.
c) Lack of Insurance
The Company does not maintain any property, product
liability, general liability or any other form of insurance.
Although the Company is not aware of any claims resulting
from product malfunctions, there is no assurance that none
exists. In addition, as a result of not maintaining any
property insurance, the Company's equipment is deemed to be
at risk.
NOTE 4- RELATED PARTY TRANSACTIONS
a) Loans From Rnlated Parties
The Companies have been advanced funds from a Canadian
corporation, which owns approximately 4.1% of the
outstanding common stock of the Company. In addition, the
President of such Canadian corporation owns 7.70/o of the
outstanding common stock of the Company. The loans are
non-interest bearing and are due on demand. As of March 31,
2000, such loans amounted to $155,039.
F-7
<PAGE>
FREFAX, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
(UNAUDITED)
NOTE 4- RELATED PARTY TRANSACTIONS (CONT'D)
b) Rent Expense
During January 2000, Frefax Canada moved its operations to a
space owned by one of its shareholders on a month to month
basis, free of charge until a permanent location is found.
The Company itself does not require any significant office
space and, accordingly, it utilizes the mailing address of
its outside counsel on a month to month basis free of
charge.
During the nine months ended March 31, 2000 and 1999, Frefax
Canada purchased equipment and services amounting to
approximately $0 and $25,000 from a corporation, which is a
10.3% shareholder of the Company. In addition, the President
of such corporation beneficially owns an additional 20.6% of
the Company.
F-8
