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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20546
AMENDMENT NO 4
TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934
FONECASH, INC
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(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 22-3530573
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(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
90 PARK AVENUE, SUITE 1700, NEW YORK, NEW YORK 10016
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Issuer's telephone number (212) 984-0641
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SECURITIES TO BE REGISTERED UNDER SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.0001 PER SHARE
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(TITLE OF CLASS)
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FORM 10-SB
TABLE OF CONTENTS
PART I
ITEM 1 DESCRIPTION OF BUSINESS
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF CURRENT FINANCIAL
CONDITION AND PLAN OF OPERATION
ITEM 3 DESCRIPTION OF PROPERTY
ITEM 4 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT
ITEM 5 DIRECTORS AND EXECUTIVE OFFICERS
ITEM 6 EXECUTIVE COMPENSATION
ITEM 7 CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
ITEM 8 DESCRIPTION OF SECURITIES
PART II
ITEM 1 LEGAL PROCEEDINGS
ITEM 2 MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANTS COMMON
EQUITY AND OTHER SHAREHOLDER MATTER
ITEM 3 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 4 RECENT SALES OF UNREGISTERED SECURITIES
ITEM 5 INDEMNIFICATION OF DIRECTORS AND OFFICERS
ITEM 6 FINANCIAL STATEMENTS
PART III
ITEM 1 INDEX TO EXHIBITS
ITEM 2 DESCRIPTION OF EXHIBITS
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ITEM 1 -BUSINESS
Fonecash, Inc. (the "Company") was incorporated under the laws of the State of
Delaware on August 7,1997 and is in its development stage. It has had no
operating revenues to date. The Company incurred operating losses of $941,981
from Inception to December 31,1999. The Company spent a total of $352,906 on
Research and Development from Inception to December 31,1999. The Company expects
its accumulated deficit to grow for the foreseeable future.
The Company's Operations to Date
The Company has developed a system of processing credit cards for an under
served community of low volume merchants and in-home salespersons consisting of
a terminal and a system of computers, utilizing established communications
networks, both wired and wireless, for processing the data from credit and debit
cards.
Terminals are electronic collectors of credit and debit data from the magnetic
stripe on cards. In the case of debit and credit cards the Fonecash system
collects the data from the magnetic stripe when a merchant accepts the card for
payment of goods or services. This data is transmitted to processors where the
validity of the card number is confirmed and the amount of the purchase is
authorized to the cardholder's account. Settlement occurs when the collected and
stored data is sent to the card issuing bank which charges the customer's
account and electronically deposits payment in the merchant's bank account,
usually within 24 - 48 hours.
The Company intends to market a product line and a complete processing system
that is high quality and simple to operate, because the Company, and not the
individual merchant, takes the responsibility for closing the day's receipts
and uploading the data to a third party payment processor, such as
Paymenttech, Visanet, or First Data Resources, for settlement. This results
in payments being deposited in the merchants' bank account within 48 hours.
Because the Company not only provides a terminal, but also, provides a
service that facilitates the collection of daily payment receipts, and
transmits these electronic receipts for payment and deposit of funds to each
merchant, the Company believes that it will be able to compete with the
current makers of terminals, who only sell terminals, but also with payment
processors who only support terminals which transmit credit card data to them
only after the merchant has manually collected the day's electronic receipts
which are then transmitted to the payment processor.
The Company intends to establish up to three master distributors in the United
States with the most likely candidates being current Independent Sales
Organizations (ISO's) who are already engaged in the business of distributing
automated credit card processing terminals to established merchants who have
been approved by their sponsoring banks. These ISO's have trained commissioned
sales persons and have an interest in placement of any terminal in the market
regardless of manufacturer.
The Company has never operated under any other name, nor has it ever been
involved with any bankruptcy, receivership or similar proceeding or engaged in
any material reclassification, merger, consolidation, or purchase or sale of
assets.
On October 10, 1997, the Company signed a consulting agreement with Advance Data
Information, Ltd., (hereinafter "ADI"), located in Taipei, Taiwan, to act as the
research and development division, supplying the design engineering for the
hardware and the software of the Company's products. ADI is a privately owned
company of Dr. John Wu, a U.S. citizen, and a director/stockholder of the
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Company, who employs eight engineers in all stages of the engineering process
from concept to design of hardware and operating systems to selection of a
manufacturer and inspection and quality control of the final product. In
return, the Company shall have exclusive ownership rights to any and all
products that are developed as a result of this agreement. The Company has
issued 200,000 shares of its common stock at par value to Dr. Wu in return
for this Agreement, and the Board of Directors voted to issue another 333,333
shares at par value in return for services renedered by Dr. Wu from Inception
to December 31, 1999.
On November 1, 1997, the Company entered into a License Agreement with Mr.
Thomas J. Ulrich by which it acquired exclusive, worldwide rights to U.S. patent
No. 4,803,719, dated June 4,1987, which provides a method for powering telephone
devices directly from the telephone line without external power. The patent runs
until the year 2004. The Company has agreed to pay Mr. Ulrich a signing bonus of
$5000 and another $25,000 upon first funding from an Initial Public Offering. To
date only $5,000 has been paid. The agreement also provides for a royalty of 3%
of the gross sales of all licensed products and an annual minimum fee of $10,000
in 2000 and $20,000 for each year thereafter. This annual minimum fee is due
only if royalties do not meet the minimum sales of $10,000 in 2000 and $20,000
for any of the subsequent years. In addition, minimum sales revenues of
$500,000 for the year 2000 ranging to $2 million in sales for the year 2003 and
thereafter were agreed to. If minimum sales targets are not met, the License
Agreement can be canceled, or modifications to this Agreement can be discussed
between the Licensor and the Company mutually acceptable to both parties. This
patent allows the Company to make an electronic terminal that can be used by
merchants when payment is made with a credit or a debit card. The terminal is
called "fonecash" and, in conjunction with the Company's servers which are
connected to a payment processor, is flexible enough to expand into many
markets, including the hospitality industry, mobile sales organizations,
multi-level marketing companies, home shopping, home banking, secure movie
payment, pre-pay card activation and many similar applications.
On February 4, 1998 the Company entered into a consulting agreement with East
Coast Entertainment, Inc. ("ECE") requiring payments of $50,000 per year in
monthly installments once the Company attains gross revenues of $300,000.ECE has
agreed to perform administrative duties including, but not limited to,
publicity, advertising, public relations, investor relations programs, news
releases, hiring of all necessary outside contractors for any specialized
projects, printing and development of the Company's annual reports, preparation
of any design, print or art work, camera ready art, distribution of reports and
corporate releases to State and Federal securities agencies. ECE is entitled to
$100,000 annually once the Company achieves $500,000 in gross revenues. ECE is
entitled to participate in the Company's stock option plans and group health
plans pursuant to the same terms that apply to all senior key executives and
other employees of the Company. The agreement is renewable annually for a period
of ten years. No expenses have been recognized under this arrangement for the
period ended December 31,1999.
Much of the Company's effort from inception to the present has been focused on
the design and engineering of the products, and the making of molds for the
volume manufacturing process. The Company has spent a total of $352,906 on
research and development during the last two fiscal years. To date the Company
has produced two terminals; one is a desk model and the other is a hand-held
model similar to a cell phone. The Company has completed the manufacture of 1000
terminals which are to be used for the actual field trials of both models with
potential customers. Before manufacturing, testing for Federal Communications
Commission (FCC) approval was completed and the Company's terminals are
certified for Parts 15 and 68 of the FCC Rules & Regulations (Code of Federal
Regulations, 47, Parts 15 & 68) which pertain to all devices that are attached
to the telephone network in the United States. Although the Company has sold
none of its products during this development stage, the terminals are now ready
to be sold.
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Also, much of the time from inception to the present the Company has been
involved in the raising of capital. From June 1998 to early 1999, the Company
sold 502,500 shares of common stock to accredited investors for a total of
$167,750, pursuant to Section 4(2) of the Securities Act of 1933, as amended.
Then, from April 1999 to December 31, 1999, the Company sold 657,372 shares
of common stock for $621,455 pursuant to a Regulation D, Rule 504 offering,
and finally in 1999, the Company sold 143,133 shares of common stock to
non-U.S. citizens for $133,050, pursuant to Regulation S of the Securities
Act of 1933, as amended. These funds were used for development of the
Company's products, marketing activities, working capital, and investments.
The Company purchased 1 million shares in an Internet company called
TradeandSwap.com. The Company paid $50,000 for an 8% share of the total
outstanding stock. Management of the Company believes that its technology could
be used for processing credit and debit cards for services purchased at various
Internet sites and, therefore, believes that this constitutes an active
investment in a site that would use its products and services. Management
believes that the Company can benefit from having a stake in an Internet company
with the potential of profits and that this purchase would add value to the
investment of the shareholders of the Company. Nevertheless, the Company does
not carry this investment as an asset but, because of the difficulty of
assessing the value of this stock objectively, has expensed this item on its
financial statements. As of December 31, 1999, the Company has written its
investment in Trade and Swap down to zero since no future benefit can be
determined as Trade and Swap operates in a volatile industry and has no
proven record of success. An impairment loss of $50,000 has been reported in
the Statements of Operations.
Another intended use of the funds was for possible acquisitions. The
Company's philosophy has been to search for targets of opportunity that would
provide revenues and services. Management believes that if the Company could
gain revenues and needed equipment or services by an acquisition, it would
not have to spend funds to create that same needed equipment or service. The
Company has searched for companies with a marketing and sales force, or with
revenues and communication equipment.
The Company has considered acquiring its partner in Taiwan, ADI. The Company
believes such an acquisition would help satisfy its permanent need for a
research and development division in order to stay ahead of the fast changing
developments in the telecommunications industry which is the backbone of the
Company's transmission network.
Another potential acquisition is a company in Florida, Fusion Capital, an
Independent Sales Organization (ISO), which was formed in 1996, and has been
in the business of placing credit card terminals among merchants and has a
trained sales force and proven revenues. Such an acquisition would alleviate
the need for the Company to recruit, hire and train its own sales force for
the placement of the fonecash terminals.
Pursuant to a letter of intent dated June 5, 1999 between the Company and
Fusion Capital Corp. ("Fusion"), a Florida corporation, the Company agreed to
purchase a majority of the common stock of Fusion Capital Corp. ("Fusion").
The Company simultaneously issued a loan to Fusion of $37,000 to be granted
in 10 installments of $3,700 from June 14,1999 through August 16,1999. Ten
separate promissory notes of $3,700 were executed, each providing for
interest at a rate of 6%, and each of the ten notes was payable within 12
months from the date of issuance with the first payment due on June 14, 2000.
The balance due on the notes was $37, 990 as of December 31, 1999.
Discussions on the proposed acquisition have commenced but no definitive
terms have been agreed upon.
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When the notes were first issued in June 1999, payment of principal and
interest on the notes was due 6 months later with the first note due December
14, 1999. Re-negotiation of the payment dates took place in November 1999,
and the Company agreed in December 1999 to extend the due date of the
principal and interest on these notes for 12 months with the first note due
on June 14, 2000 as noted in the audit report Note 4 for the year ending
December 31, 1999. Therefore, for the period ending March 31, 2000, no
payment of principal or interest had been made. The terms of this receivable
were extended but not written down.
In April 2000, the Company entered into negotiations with Fusion for
deployment and installation services for the 500 terminals which the Company
planned for its trials with merchants in order to prove its revenue concept
as explained further under Item 2 below. The Company requested Fusion to
estimate the cost for the deployment and installation of 500 terminals.
Fusion replied that they would undertake these services in exchange for
converting the principal and interest on the promissory notes and that this
would be a fixed cost contract. Since the Company had made its own estimate
for the cost of these services to be $72.50, the Company agreed to convert
the notes from a loan to an advance pursuant to a Contract for Deployment and
Installation which was signed on May 1, 2000. By converting the note payable
to cover the cost of deployment and installation, the cost per unit was $74
(which amount is included in general and administrative expenses in the
Company's Statement of Operations). The Company, however, elected to write
off the interest of $990 that had accumulated at the period ending December 31,
1999.
On May 1, 2000, the Company signed a Deployment and Installation Agreement
with Fusion Capital Corp. Under the terms of this Agreement, Fusion will
deploy install, and train the merchants who have been selected to participate
in the first trials of the Company's terminals. Further, the Company agreed
to convert the principal of the loan payment of $37,000 into an advance
payment for the services connected with the placement of 500 terminals. The
entire Agreement is attached as an exhibit.
The Company has reached no substantive stage in its discussions with any
potential target, nor to merge or acquire any company. While there have been
discussions about several possible mergers, much depends upon the Company's
approval for public trading of its stock since any merger would take place only
with the issuance of cash and stock in order to conserve cash while making the
best use of its publicly trading stock. Each potential acquisition may dilute
investors' ownership through the issuance of additional shares of the Company's
stock, but a positive effect on the Company's balance sheet could occur from the
added value created as a result of each acquisition. There can be no assurance,
however, that these acquisitions will favorably affect the Company or its
shareholders.
The Company's Target Market
The Company believes that the following four potential markets for its products
and system will experience the highest benefit and, therefore, these potential
markets are the first priority for the Company's future sales efforts. While the
Company has sold none of its products or services into these markets, the
Company believes that the benefits of its products and services will increase
the potential of sales to these specific targets.
1. TRAVELING SALES REPRESENTATIVES. The Company anticipates that a
large market for the fonecash terminal will be the traveling sales
representative. fonecash is portable and ideal for this application. The
salesperson carrying this unit could be selling cosmetics, household products,
insurance policies, encyclopedias or a number of other items. After a
demonstration of products or an explanation of services, the in-home salesperson
could accept payment by credit or debit card by merely attaching the fonecash
terminal to the standard telephone. While the Company has not sold any of its
products to in-home sales persons, it believes that use of the fonecash terminal
by in-home salespersons represents a significant potential.
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2. HOME INSTALLED UNIT. The Company believes that new programs such as
secure Pay Per-View TV, home banking, home shopping clubs, groceries delivered
to the home, restricted Internet access, payments of income taxes, and a variety
of other programs, that demand some form of pre-payment will become increasingly
prevalent. Payment by means of a verified and authorized credit card will be
available through the fonecash terminal. The telephone system is the largest
wide area network (WAN) in the world and its use in connecting to almost every
merchant gives the fonecash terminal the capability to act as a payment device
for most any service. The fonecash terminal is user installed, cheap enough to
be considered a give-away item, and will be positioned to address multiple
markets because its Interactive Voice Response (IVR) system which will be
installed on computers will be designed to handle up to thousands of separate
customers. Payment using a terminal is superior to speaking the credit card
number to a merchant on the telephone because one is not revealing the credit
card number to a unknown person, thus avoiding one of the ways credit card
numbers are stolen and sold to thieves who can use the data to make purchases or
sell the data to others who will use the credit card fraudulently.
3. PRE-PAY CALLING CARD ACTIVATION. The Company believes that the
pre-pay telephone calling card market has been evolving for years and that such
cards are now used widely in developed countries. In the United States, pre-pay
telephone calling cards are often sold behind the counter at small merchant
locations such as neighborhood 7/11 or gas station convenience stores. Since the
cards are delivered ready to be used by anybody, this has created the problem
for the merchant who has to protect these cards from being stolen and therefore
has to keep the cards behind the counter out of sight of the potential
customers. The better arrangement would be to have the card located on stands
throughout the store instead of behind the counter. The fonecash terminal solves
this problem. When installed on the merchant's telephone line, the fonecash
terminal allows the merchant to swipe the telephone card after it has been
purchased and activate the card by swiping it through the fonecash terminal.
This advantage means the merchants can place cards anywhere in the store knowing
they are useless plastic until activated by the terminal. The use of the
fonecash terminal to activate cards also gives the provider other unique
advantages such as tracking sales, recharging cards on the fly, credit card
purchases for cards, credit card authorization services, and many other new
services.
4. LOW VOLUME MERCHANTS These are merchants with fewer than 20
credit card transactions a month. These merchants have the ability to take
credit cards in payment for purchase of goods and services because various
banks have opened up merchant bank accounts for these merchants. These
merchants, however, have no electronic transaction terminal. These merchants
take credit card transactions by making a paper impression of the card, then,
after having the cardholder sign a receipt, they take these paper receipts to
a bank where they are then processed with the funds being received in the
merchant's account 4-5 days later. The process is long and the delay in
depositing the funds causes serious cash flow problems for the merchant.
Because the Company makes and will market a high quality, simple to operate
terminal, it anticipates that it will be able to attract many of these low
volume merchants who are seeking a fast, simple and easy to operate solution
to their processing needs.
The Company's Future Strategy
The Company's goal is to establish itself as a prominent force in the automated
transaction industry by pursuing the following strategies:
o Develop other markets for transaction automation, such as in-home sales
and the home market, wireless transmission and accessing Social
Security benefits and payment of income taxes.
o Target the low volume, paper based merchants which the Company
estimates number approximately 1.3 million accounts by some 83 banks
and financial institutions in the United States.
o Develop opportunities for transaction automation in the international
payment processing market, which the Company believes is largely
untapped and potentially larger than the U.S. market.
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o Entering new segments of the payment processing market by developing
terminals for in-home use to transfer money onto pre-pay telephone
cards.
Management of the Company believes that the foregoing factors are the key
elements of its operational strategy.
Sources of Revenues
Through December 31,1999, the Company had received no revenues from operations
nor has it sold any of its products. If the Company can realize its goals as set
forth above, revenue could potentially come from fees that merchants and banks
would pay to the Company for its terminals and use of its processing system.
Manufacturing
The manufacturing of the Company's products is done by Yue-Shoung, Ltd. an
electronic manufacturer of telephones and telephone equipment, located in
Taiwan, with revenues of $250 million in 1998. This supplier makes a line of
electronic products, including touch screen displays, close-circuit video
security systems, video telephones and similar electronic products. The
Company has no relationship with Yue-Shoung other than as supplier to buyer,
nor is there a contractual relationship of any kind. Manufacturing is done
under a purchase order issued to Yue-Shoung by Advance Information Data (ADI),
Taiwan, which terms of payment are one-third cash deposit at the start of
making the mold for production of the plastic housing; one-third cash payment
at the start of the production run, and one-third cash payment at the
completion and inspection of the final product. The Company reimburses ADI
for payment made under its existing agreement with ADI for consulting and
procurement services.
Marketing Strategy
The Company intends to establish up to three master distributors in the United
States with the most likely candidates being current Independent Sales
Organizations (ISO's) who are already engaged in the business of distributing
automated credit card processing terminals to established merchants who have
been approved by their sponsoring banks. These ISO's have trained commissioned
sales persons and have an interest in placement of any terminal in the market
regardless of manufacturer.
The Company intends to engage a firm in 2000 to create promotional brochures
regarding the Company's terminals and services, emphasizing price, quality and
support services. This material is expected to be sold at cost to distributors
to be used in their sales presentation. Annually, the Company plans to
participate in 4 to 6 forums and exhibitions, such as the Retail Merchants'
Show, the Debit Forum, the American Bankers' Association, the Fraud and Security
Forum, the COMDEX show, where wireless products and innovative computer and
telecommunication products are presented, and the Food and Restaurant
exhibition. The Company also intends to engage a firm to design and place
advertisements in several of the industry's leading publications, including
Credit Card Management, the Blue Book Directory of the Credit Card Industry and
P0S News, a monthly publication from Faulkner & Gray, a publisher in New York.
The Company's own marketing executives also intend to visit executives and
decision makers among the banks and processors. At this level, cost and
performance are top priorities, as banks are looking for solutions to overhead
and insisting that any change results in increased profits. At this time, the
Company
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intends to focus on marketing only one core product that it strongly believes is
needed and wanted by banks that have a problem with the cost of processing paper
receipts.
The Industry
The industry is generally referred to as the transaction payment industry and is
divided into two major segments. In one segment are the manufacturers of
hardware, known as terminals, which are electronic devices for capturing the
data from some medium, such as a magnetic stripe on a plastic card, or from data
stored on a microchip embedded on a plastic card.
In the other segment of this industry are the transaction payment processors,
such as First Data Corporation (FDC), Paymentech, Nova Information Systems and
several other smaller processors, who, when the data from these terminals is
transmitted to their computers by wired or wireless transmission, verify the
card as being valid and authorize the purchase for the specific amount indicated
by the merchant.
The Verification, Authorization and Settlement Process
When a consumer presents a Visa or Mastercard to a merchant in payment for goods
or services, the clerk swipes the card through an electronic terminal that
connects by phone lines to a card processor (FDR, Paymentech, or others) whose
servers access the Visa/Mastercard network to get verification that the card is
valid and to get authorization for the amount to be charged to the cardholder so
that the amount does not exceed the cardholder's credit limit. If the
authorization transaction succeeds, the cardholder's bank that issued the credit
card will put a "hold" for the purchase amount so that, when the settlement or
deposit transaction takes place, the funds will be available to pay the
merchant. An approval number is generated and the merchant has the cardholder
sign a receipt which is kept on file by the merchant for up to six years.
Settlement can take place at any time, but typically, it is done at the end of
the merchant's work day. All the credit card transactions since the last
settlement period will be communicated to the payment processor's servers over a
phone line. The payment processor submits a "Deposit Transaction" through the
Visa/Mastercard network, in effect debiting the amount of the purchase from the
cardholder's card issuing bank and depositing these funds into the merchant's
sponsoring bank. It all takes place in minutes or seconds depending on the
transactions to be settled.
The FoneCash System
Currently there are two models of the fonecash terminal, one a desk model and
another is a hand-held model which are manufactured by Yue-Shoung, Ltd. in
Taiwan, and available for sale by the Company unlike any similar terminal in the
market. Fonecash terminals operate on a different system than the terminals
currently sold by its competitors, utilizing an Interactive Voice Response (IVR)
network which means that the merchant is being prompted through the various
steps involved in taking credit cards for payment of goods and services and
connected to the Company's servers which uses commercially available software
developed and certified to connect to various payment processors, such as First
Data Resources
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and Paymentech, who then, connect to the Visa/ Mastercard networks for
verification, authorization and settlement services. The process of
verification, authorization and settlement is the same for the Company's system,
except that the Company's servers are in-between the Company's terminals and the
payment processor's servers. The Company believes that this will eliminate the
resistance of the payment processors to certifying new terminals because their
servers do not "see" what terminal is transmitting data; all their servers see
is a stream of data from another server (computer). The Company's system is
intended to capture the transactions of small merchants onto its servers and
bundle the transactions together for settlement so that the volume is greater
and thus become more attractive to the payment processors because of the
increased transactions which translated into a rise in revenues.
Competition
The Company does not believe that it faces competition from existing
manufacturers or payment processors which operate in the traditional transaction
processing industry because those companies are not interested in low volume
merchants, and low volume merchants resist the cost related to automated
terminals. The Company intends to target the very segment of the market which
these companies neglect because of their low volume. Management believes that
the fonecash system's simplicity and ease of operation will make it attractive
to these merchants even if they are able to obtain service from the larger
companies offering terminals and payment processing services. Moverover, the
Company knows of no other companies planning to target this market niche or
which offer both terminals and payment processing services under one system.
Terminal Manufacturers
According to The Nilson Report, a bi-monthly publication of the credit payment
systems industry, in Oxnard, California, the leader among the terminal makers is
Verifone, a U.S. based company, publicly held and since 1997, part of
Hewlett-Packard. it is generally conceded that Verifone has market share of 65%
of the terminal market worldwide, based upon delivery and installation of
products.
Hypercom was founded in Australia, has a U.S. base in Phoenix, Arizona and is a
privately held company. Management believes Hypercom is the second largest maker
of on-line stationary terminals with approximately 16% share of the market for
sale and installation of these electronic devices.
Lipman is an Israeli based maker of terminals and, since 1995 has gained some 10
per cent of the market for sales of these terminals.
Dassault and Ingenico are both French companies and, along with some other
makers, such as Goldstar of South Korea, make a line of terminals used mostly in
these companies respective domestic markets. The Company believes their sales
amount to no more than 10,000 units a year. These three makers, along with all
the other smaller firms, amount to 9% of the market for terminals.
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Payment Processors - Barriers to Entry
All credit cards transactions must be cleared through a transaction payment
processor, and all automatic credit card terminals which connect directly to the
computers of the transaction payment processors must be certified by the
transaction processor. Certification involves testing the capabilities of the
terminal software by repeated transmission of test data which simulate real
transactions, in order to prove to the transaction processor that the terminal
software is compliant with all requirements of the processor's computer system.
Transaction processors are not anxious to fully certify and support new
transaction equipment because it is expensive to provide customer assistance to
a large number of terminal models. Every piece of newly certified terminals
translates to higher training cost for their customer service personnel and,
therefore, they try to stick with one piece of equipment.
Strategies to Overcome Barriers to Market
The Company believes that the resistance of the transaction processors to the
introduction of new terminals is overcome because the fonecash terminal is not
supported by the processor but by the Company. The processor merely receives a
stream of data in digital form from the Company's computers for the benefit of
low volume merchants with merchant account numbers who would not be utilizing
the processors because of the lack of an electronic terminal. These low volume
merchants represent an enlarged customer base for the processors, acquired with
very little effort or expense on their part.
In addition to a different method of handling the processing of data, the
Company makes a line of products that are simple in design; do not need an
external power source and are as easy to operate as an ordinary telephone. The
combination of these factors the Company believes are sufficient to overcome
opposition from the established payment processors and the resistance of low
volume merchants to the purchase of more expensive equipment and services.
Risks from Competitors
Even though the Company believes it has strategies to overcome barriers to
entry into this industry and that it has no direct competitors in its
specific target market, the terminal manufacturers and the payment processors
have longer operating histories and significantly greater financial,
technical, marketing and other resources than the Company. Many of these
companies have extensive customer bases and strong customer relationships
that they could leverage, including relationships with the Company's
potential customers. These companies also have significantly more established
customer service organizations than the Company will be able to develop. In
addition, these companies may adopt aggressive pricing policies. There can be
no assurances that that the Company will be able to counter the impact or the
level of the pricing.
In addition, the Company often faces additional competitive factors in foreign
countries including, preferences for national makers of terminals, difficulties
in obtaining necessary certifications and government tariff policies. Finally,
the Company believes that it will need to continue to introduce products
containing
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enhanced features and additional application software programs in order to
remain competitive. There can be no assurance that the Company will he
successful.
Additional Risks Factors
An investment in the Company's common stock involves a high degree of risk.
Investors should consider the following risk factors and the other information
in this registration statement carefully before investing in the Company's
common stock. The Company's business and results of operations could be
seriously harmed if any of these risks actually happen.
1. The Company's Limited Operating History May Prevent it From Achieving
Success.
The Company's inception date was August 1997. It has a limited operating
history, which may prevent it from achieving success. The Company's has never
had revenues and it operating profits are unproven. It will encounter challenges
and difficulties frequently encountered by early-stage companies in new and
rapidly evolving markets. Chief among these challenges and difficulties are:
o persuading banks to outsource their paper-based merchant
accounts;
o finding and hiring personnel with an expertise in computer
software and hardware technology;
o banking;
o credit card processing.
The Company may fail to address any of these challenges and the failure to do so
would seriously harm the Company's business and operating results. It has
limited insights into trends that may emerge and affect the Company's business.
2. The Company has Incurred Losses and Expects Future Losses
The Company has experienced operating losses in each period since inception and
expects to incur losses in the future. On December 31,1999, the Company had an
accumulated deficit of $554,919. The Company expects to increase its operating
expenses. As a result, the Company will need to achieve revenues and profits.
The Company's failure to achieve revenues would seriously harm the Company's
business and operating results. In fact, the Company may not have any revenue
growth.
3. The Company Depends on the Growth of Its Customer Base
The Company's success is substantially dependent on the growth of its customer
base of merchants and banks that use its products and system. If the Company
fails to develop a customer base sufficient to ensure profits, its business and
operating prospects would be seriously harmed. The Company's ability to attract
customers will
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depend upon on a variety of factors, including the price and the quality of the
Company's service as well as the Company's ability to market its products and
services effectively.
4. The Company Needs to Develop and Expand Its Sales and Marketing Capabilities.
The Company needs to expand its marketing and sales operations in order to
increase market awareness of the Company's services and generate revenues.
Competition for qualified personnel is intense, however, and the Company may not
be able to hire enough qualified individuals in the future. The Company services
require sophisticated sales effort targeted at senior management of banks and
other potential customers. The Company has no assurance that it will be able to
attract or hire the qualified personnel that it needs.
5. The Company Must Retain and Attract Key Personnel
The Company's success depends largely on the skills, experience and performance
of the members of its senior management and other key personnel. The Company
needs employees with knowledge of the credit card processing industry, Internet
and computer technology, banking, and Internet security procedures. In the
future, the Company's growth will depend upon its ability to attract and retain
key management personnel.
6. Reliance on Key Personnel
The Company considers Daniel E. Charboneau and Dr. John Wu to be key employees.
The loss of either of them could seriously harm the Company's business. The
Company does maintain key man insurance on Mr. Charboneau and is in the process
of establishing a policy for Dr. Wu. and, while these policies will protect the
assets of the business , the loss of either of these employees will add a
significant burden to the Company's future prospects.
Proprietary Rights
The Company licenses the manufacturing rights to the technology underlying a
United States patent covering the fonecash terminal. The Company relies on
copyrights to protect its operating system and various other software programs.
The Company has registered the FoneCash trademark used in connection with its
products and services in the United States. The Company relies primarily upon
its know-how, rather than patents, to develop and maintain its competitive
position. The Company enters into confidentiality agreements with its employees
and third parties. However, there can be no assurance that others will not
develop products and internal safeguards equivalent or superior to those of the
Company, or that the confidentiality agreements and internal safeguards upon
which the Company relies will be adequate to protect its interests
GOVERNMENT APPROVAL AND REGULATION
Government regulatory policies affect charges and terms for both private line
and public network service. Therefore, changes in such policies which make it
more costly to communicate on such networks could adversely affect the demand
for terminals. The Company must also obtain product certification on the
applicable communications network both in the United States and other
countries. Any delays in obtaining necessary certifications with respect to
future products could delay their introduction. In addition, the Federal
Communications Commission requires that the Company's products comply with
certain rules and regulations governing their performance. The Company
believes it has complied with all such rules and regulations with respect to
its existing products.
7. The Company Needs Future Capital
The Company needs to raise funds, and funds may not be available on favorable
terms or at all. Failure to obtain funds on favorable terms could seriously harm
the Company's business and operating results. Furthermore, if the Company issues
additional equity securities, stockholders will experience dilution, and the new
equity securities could have rights senior to those of the holders of the
Company's common stock. If the Company cannot raise funds on acceptable terms,
it will seriously hamper its growth.
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Special Note Regarding Forward-Looking Statements
This document contains forward-looking statements. These statements relate to
future events or the Company's future financial performance. In some cases, one
can identify forward-looking statements by terminology. For example, "may",
"will", "should", "expect", "plan", "anticipate", "believe", "estimate",
"predict", "potential", or "continue", or the negative of these terms or other
comparable terminology, indicate forward-looking statements. These statements
are only predictions. Actual events or results may differ materially. In
evaluating these statements, one should specifically consider various factors,
including the risks outlined in the Risk Factors section. These factors may
cause the Company's actual results to differ materially from any forward-looking
statement.
Although it believes that the expectations reflected in the forward-looking
statements are reasonable, the Company cannot guarantee future results, levels
of activity, performance or achievements. Accordingly, neither the Company nor
any other person assumes responsibility for whether the forward-looking
statements ultimately prove accurate. The Company will not update any of the
forward-looking statements after the date of this registration statement to
conform to actual results or to make changes in the Company's expectations
that occur after the date this registration statement becomes effective.
EMPLOYEES
The Company employs 3 full time employees in Taiwan who are engaged
in development and manufacturing of the Company's products and the development
of the Company's software and operating system, namely, one hardware engineer,
one software engineer, and one firmware engineer , all of whom are engaged in
research and development and ongoing quality assurance. Mr. Charboneau and Dr.
Wu, as the only other full time employees of the Company, have employment
contracts. Mr. Charboneau, starting in December,1999 has received partial
salary, but, as yet, Mr. Wu has not received compensation for his services.
There are no part time employees.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF
OPERATION
GENERAL
All phases of the Company's operations are subject to influences outside of the
Company's control. Any one, or a combination, of these factors could materially
affect the results of the Company's operations. These factors include
competitive pressures, interest rates fluctuations, inflation, especially of
parts and labor, and other market conditions. Forward-looking statements are
made by or on behalf of the Company based on knowledge of its business and the
environment in which it operates, but because of the factors listed above, as
well as other commercial, environmental and business factors over which the
Company has no control, actual results may differ from those in the
forward-looking statement. Consequently, all of the forward-looking statements
made are qualified in their entirety by these cautionary statements and there
can be no assurance that the actual results or developments anticipated by the
Company will be realized or, even if substantially realized, that they will have
the expected effect on the business and/or operations of the Company.
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The Company has had no revenues since its inception in August 1997 due to the
fact that the Company is in the development stage mode. There were no
compensation expenses for the first two years. There were organizational
expenses of $805 which are being amortized on a straight-line basis over five
years. The Company had a net loss of $353,618 for the initial two year
period. Depreciable assets for this period consisted of $25,000 for
production molds which have a useful life of three years. $6,250 was
considered as a depreciation expense for this period.
The Company incurred operating losses of $1,050,863 from Inception to March
31, 2000. The Company expects its accumulated deficit to grow for the
foreseeable future as total costs and expenses increase due principally to
increased marketing expense associated with its plans to undertake trials of
its products and services. There can be no asurances that the Company will
complete successful trials of its products and services, nor that sufficient
revenues will be generated from the possible sales of such products and
services to allow the Company to operate profitably.
For the three months ending March 31, 2000 general and administrative
expenses were $64,996 as compared to $24,046 for the same period in 1999,
representing an increase of $40,950. The increase during the three month
period ending March 31, 2000 was primarily due to an expansion of the general
operations of the Company, including legal, accounting, and printing
associated with the filing of this Form 10-SB and amendments with the
Securities and Exchange Commission.
Compensation and related benefits during this three motnhs was $16,000 and
represented the first compensation paid to the Company's president; there
were no compensation expenses for the nine months ended March 31, 1999.
The Company's combined cash and cash equivalents totaled $121,020 for the
period ending March 31, 2000. This is an increase of $82,864 from $38,156 for
the period ending March 31, 1999.
Pursuant to a letter of intent dated June 5, 1999 between the Company and
Fusion Capital Corp. ("Fusion"), a Florida corporation, the Company agreed to
purchase a majority of the common stock of Fusion Capital Corp. ("Fusion").
The Company simultaneously issued a loan to Fusion of $37,000 to be granted
in 10 installments of $3,700 from June 14, 1999 through August 16, 1999. Ten
separate promissory notes of $3,700 were executed, each providing for
interest at a rate of 6% and each of the ten notes payable within 12 months
from the date of issuance with the first payment due on June 14, 2000. The
balance due on the notes was $37,990 as of December 31, 1999. Discussions on
the proposed acquisition have commenced but no definitive terms have been
agreed upon.
When the notes were first issued in June 1999, payment of principal and
interest on the notes was due 6 months later with the first note due December
14, 1999. Re-negotiation of the payment dates took place in November 1999,
and the Company agreed in December 1999 to extend the due date of the
principal and interest on these notes for 12 months with the first note due on
June 14, 2000, as noted in the audit report Note 4 for the year ending
December 31, 1999. Therefore, for the period ending March 31, 2000, no
payment of principal or interest had been made. The terms of this receivable
were extended but not written down.
In April 2000, the Company entered into negotiations with Fusion for
deployment and installation services for the 500 terminals which the Company
planned for its trials with merchants in order to prove its revenue concept
as explained further under Item 2 below. The Company requested Fusion to
estimate the cost for the deployment and installation of 500 terminals.
Fusion replied that they would undertake these services in exchange for
converting the principal and interest on the promissory notes and that this
would be a fixed cost contract. Since the Company had made its own estimate
for the cost of these services to be $72.50, the Company agreed to convert
the notes as an advance pursuant to a Contract for Deployment and
Installation which was signed on May 1, 2000. By converting the note payable
to cover the cost of deployment and installation, the cost per unit was $74
(which amount is included in general and administrative expenses in the
Company's Statements of Operations). The Company, however, elected to write
off the interest of $990 that had accumulated at the period ending December
31, 1999.
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Fusion has agreed to deploy, install, and train the merchants who have been
selected to participate in the first trials of the Company's terminals.
Further, the Company agreed to convert the principal of the loan payment of
$37,000 into an advance payment for the services connected with the placement
of 500 terminals. The entire Agreement is attached as an exhibit.
The Company does not expect to generate a positive internal cash flow for at
least the next nine months due to expected increase in spending for salaries
and the expected costs of marketing and sales activities.
Property and equipment was valued at $134,788 for the period ending March 31,
2000 and this represents an increase of $9,788 for purchases of additional
molds used the manufacturing of its products in Taiwan. The molds have a
useful life of 3 years and are depreciated on a straight-line basis.
The Company currently has limited internet and external sources of liquidity.
At this time the Company has no material commitment for capital expenditures.
There are no known trends, events or uncertainties that are expected to have
a material impact on the net sales and income from operations once the
Company conducts its first trials with merchants. The industry and the needs
of the market are well established. The Company believes that it will serve a
niche market with its products and services that has yet to be served
adequately. The Company's business is not subject to seasonal aspects.
The Company was incorporated in the State of Delaware on August 7,1997 and
acquired the rights to a patent that allowed the Company to develop a simple,
portable electronic terminal that could be used by mobile merchants and in-home
salespersons. The Company anticipates that it can generate revenues from sales
of the terminals and from charges collected from each transaction. As of
December 31,1999, no revenues have been generated from sales but management
anticipates sales to commence in 2000 after real-time trials are performed with
a select group of merchants and in-home salespersons.
The Company was started by Messrs. Daniel Charboneau, the Chairman of the Board
and Chief Executive Officer, and John Wu, Director and owner of Advance Data
Information, Ltd, a Taiwan based research and development company. Messrs.
Charboneau and Wu have paid certain expenses on behalf of the Company from
personal funds and from Mr. Wu's business. Also, The Company borrowed a total of
$45,344 from related parties to fund its initial operations with a remaining
balance of $26,586. (See Note 11 of the Financial Statements.) No amount over
$60,000 has been borrowed from any related party.
For the period from inception through December 31, 1998, the Company's capital
raised from the sale of its common shares totalled $84,985 of which $75,357
was used for working capital, legal and accounting expenses, and registering
a domain name on the Internet. The cash balance at the end of this period was
$9,628.
From January 1999 to April 1999, the Company raised additional seed capital
for a total of $82,765, and then, during the remainder of 1999, the Company
raised $621,455 through a private placement of its common stock under
exemption provided by Rule 504 of Regulation D under the Securities Act of
1933, as amended. Finally, another $133,050 was raised through
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the sale of shares pursuant to Regulation S of the Securities Act of 1933, as
amended. The proceeds were used to manufacture a starting inventory of
terminals, marketing and sales activities, technical and engineering services,
and working capital. The Company used these funds to register a web site located
at www. fonecash.com. The Company has engaged Computer Solutions, located in
North Carolina, to construct the web site encompassing products and services of
the Company, as well as investor relations. The total capital raised from
inception in 1997 until March 31, 2000 was $922,255.
The Company's plan of operation for the next twelve months is as follows:
The Company plans to market its credit card processing service to merchants who
are not able to get a bank to sponsor them as VISA/Mastercard merchants because
they are too new, or low volume merchants who have sponsoring banks, but have no
electronic terminal because of their resistance to the high prices for terminals
and payment processing services associated with the leasing or purchase of these
devices, and in-home salespersons who believe they can increase sales if they
have a device for taking credit and debit cards.
In order to facilitate this plan, the Company aims to conduct a temporary
trial, placing 400 terminals with low volume merchants of four merchant banks
for a period of 30 days. Messrs. Mauti, Starr and Mosher will be responsible
for the deployment and the logistics of shipment from the Company's inventory
storage. Since the terminals are as simple to operate as a telephone, many of
the terminals will be sent by UPS courier to all participating merchants
along with a guide for usage. Any questions can be handled over the Company's
telephone help-line.
The Company expects to conduct another temporary trial using 100 terminals
with 2 groups of in-home salespersons for approximately 30 days. For the
deployment of these terminals, the Company has arranged to use the sales
force of Fusion Capital, a Florida based ISO. For merchants who the Company
feels need special service because they have no experience using a credit
card terminal, Fusion's sales personnel will conduct on-site visits, giving
instructions and conducting a few actual transactions in order to familiarize
the merchant with the system.
A thirty day period is reasonable because the Company believes that the
average number of transactions that this type of merchant would have is less
than twenty transactions a month. All of the arrangement for these trials
have been made as have all of the participants. There are, however, no
contracts for these trials, but these trials are taking place on the basis of
oral arrangements between the Company and the participating merchants. The
cost of these trials has been calculated to be $72.50 per terminal over the
30 day trial period.
After this trial period, the Company will analyze the results and conduct
surveys and interviews with participating merchants to ascertain their
satisfaction with the terminal hardware, with the ease of operating the
Company's processing terminals, and any problems they encountered in receipt
of payment for purchases. The Company believes that the outcome will be a
high degree of satisfaction and that the merchant will want to continue to
use the Company's terminal and processing system. Any terminals which have not
been sold or leased will be returned to the Company's inventory. The Company
will contact the merchants who are satisfied by the results of the trial for
continued use and payment of service terms.
Armed with the results of these trials, the Company will use these results as
the basis for a national advertising campaign, printing brochures which organize
the trail data and evaluate the benefits of the Company's system to the niche
market which is the intended target of the Company's marketing and sales
efforts.
The Company will seek to add other low volume merchants who are customers of
domestic banks and negotiate orders for installation of terminals with these
merchants. In addition, the Company will seek to negotiate with existing in-home
sales organizations such as Amway, Mary Kay, Avon, insurance companies and home
health care providers for distribution and sales among their member distributors
and sales force.
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The purpose of these trials is not to prove that the terminals are capable of
performing the task to which the Company will put them because these
terminals are being made under U.S. patent issued in 1987 which has been
proven in the general market. Any domestic telephone that accepts credit
cards in payments for calls uses the electrical circuitry that is represented
by this patent. The purpose of the field trials that the Company intends to
perform is related to proving that the merchants will find the Company's
terminals easy to use. The trials are scheduled with certain participants,
including Amway distributors, insurance agents, low volume merchants who are
customers of Nationsbank and Wells Fargo and in-home health care providers.
The trials will be conducted for approximately 30 days, after which, costs
and profits will be calculated and satisfaction of the using merchant will be
collected and used for promotional purposes.
In order to implement its growth plans, including the trials referred to above,
through the end of June 30, 2000, the Company must raise $500,000. After these
trials have been completed successfully, the Company anticipates that it will
obtain orders for its product and services which are then able to be financed
through traditional methods such as Purchase Order financing, Account Receivable
financing, or Letters of Acceptance.
In order to implement these additional strategies and to fund operations, the
Company entered into an agreement with Sands Brothers & Co., Ltd., a Member
of the New York Stock Exchange and an investment banking firm in New York
pursuant to which Sands is to provide the Company with investment banking,
consulting and other services. Under the terms of this agreement, Sands has
agreed to organize a private placement on behalf of the Company to provide,
through its investors, $3 million. As consideration for services provided by
Sands under the agreement, the Company has agreed to issue Sands 1,250,000
common stock purchase warrants to be exercised at $0.75 over a period of five
years. In addition, Sands will act as advisor to the Company for a period of
three years for mergers and acquisitions, business transactions and financing
transactions for which they will be compensated according to a fee schedule.
Capital Needs
The Company has entered into an agreement with Sands Brothers & Co, as described
above, which management believes can provide sufficient funding for the
Company's near term needs. Should additional funding be required, there can be
no assurance that favorable financing terms will be available at the time such
financing is desired. Further, poor financial performance may adversely affect
the Company's ability to attract commercial lenders, investors, or investment
bankers to underwrite any future financing or stock offering.
Year 2000 issues result from the inability of computer programs or computerized
equipment to accurately calculate, store or use a date subsequent to December
31,1999. The erroneous date can be interpreted in a number of different ways.
Typically, in the case of computers and microchips which have only two digits
representing the year, the concern is that the year 2000 will be interpreted as
the year 1900. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions.
The Company has reviewed the majority of its primary Information technology (IT)
systems and its own manufactured products and is able to confirm that these
systems and products are year 2000 compliant. While problems may become evident
later on in year 2000, the Company believes the potential impact, if any, should
not materially impact the Company's ability to continue activities.
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ITEM 3 - DESCRIPTION OF PROPERTY
The Company owns no property. The Company's principal office is located at 90
Park Avenue, Suite 1700, New York, New York 10016 and consist of 600 square feet
of space at a cost of $600 to $800 a month, depending on the level of
secretarial services that are used. The Company leases an additional location of
approximately 1200 square feet at 475 Dobbs Ferry Road, White Plains, New York
where it houses computers and inventory on a two year basis with an option to
renew for another two years. The monthly rental is $1,850.
ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT
The following table sets forth the stock ownership of each person known by the
Company to be a beneficial owner of five percent (5%) or more of the Company's
equity securities, each Director and executive officer individually and all
Directors and Officers of the Company as a group. Each person has sole voting
and investment power with respect to the shares shown unless otherwise
indicated. As of March 31, 2000, there were 3,836,338 shares issued and
outstanding.
Name & Address Class Amount Owned Shares Beneficially
of Beneficial Owned % of Class
Owner
-------------------------------------------------------------------------------
Daniel E. Charboneau Common 2,000,000 37.7
215 Central Park Ave.
Hartsdale, NY 10530
John Jiann-Shong Wu Common 533,333 13.9
21 Street, 6 Fl, No.211
Chung-Cheng 4 Road
Kaoshiung, Taiwan
Carmine Auditore Common 100,000 2.0
8 Bridlepath Drive
Old Westbury, NY
11568
Arthur Murphy Common 20,000 0.004
18 East Huron St.
Chicago,IL 60611
Total Shares of Officers and 4,120,000 77.4%
Directors as a Group
There are no arrangements either presently or planned that will results in a
change of control of the Company.
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ITEM 5 - DIRECTORS AND EXECUTIVE OFFICERS
NAME AGE POSITION
Daniel E. Charboneau 67 CEO/Chairman/President
John Jiann-Shong Wu 47 Director
Daniel S. MacDonald 64 Director
Arthur Murphy 64 Director
Carmine Auditore 53 Director
John Gill 67 Vice President/CFO
H. Robert Mauti 57 Vice President/Technical
Robert Mosher 42 Vice President/Marketing
Gilbert Starr 52 Vice President/Engineering
Mr. Charboneau has a five year employment contracts starting in August, 1997
and Dr. Wu a five year contract starting from July 1, 1999. (See Item
6-Executive Compensation) The Company retains the services of its
vice-presidents as consultants on an as needed basis and does not pay them a
regular salary.
All current directors were appointed to their office in February 1999 and will
hold office until the next annual stockholders' meeting and until their
successors have been elected or qualified or until their death, resignation,
retirement, removal, or disqualification. Vacancies on the board will be filled
by a majority vote of the remaining directors. Officers of the Company serve at
the discretion of the Board of Directors.
None of the directors holds other directorships in other reporting companies.
The Company's management comprises:
DANIEL E. CHARBONEAU, CEO/President/Chairman of the Board:
Mr. Charboneau is an experienced management executive with over twenty years of
accomplishments in the area of marketing, sales, organizational development,
manufacturing and profit-center responsibilities. He has worked with several
multi-national companies, including Bechtel International where he was
Organization Development Consultant from 1974 to 1980, and with 3M in Asia from
1980 to 1984. From 1984 to 1987, Mr. Charboneau operated as a consultant to U.S.
and European businesses who were interested in investment in Asia. In 1987, in a
joint venture with A&H, a jewelry maker in Rhode Island, Mr. Charboneau
established a manufacturing plant in Taiwan whose products were exported
worldwide. In addition to his duties on the Board of Directors, Mr. Charboneau
directs the development of technologies, products, markets and manages business
relations with Asian suppliers.
JOHN JIANN-SHONG WU, Director/Co-founder:
Born in China, Dr. Wu became an American citizen in 1978 and lives with his
family in San Jose, California when he is not in Taiwan. Educated in Taiwan, Dr.
Wu received His Master Degree in Computer Science from Florida Institute of
Technology and his doctorate in Electrical Engineering from Leland Stanford
Junior University. From 1975 to 1982 he was a Researcher with Taiwan National
Science, and from 1982 to 1988 a Senior Engineer and Project Manager with
General Electric Company in Singapore. From 1989 to 1990, he was a Project
Manager with Digital Equipment Corporation and from 1990 to 1991 he was Senior
Consulting Engineer with Hewlett Packard. Dr. Wu has designed many products,
both hardware and software, and founded his R&D facility to promote better
design of electrical and telephonic products. From 1991 to 1996, Dr. Wu was
co-founder and Vice President of V-Star Electronics, then, from 1997 until
present, Dr. Wu started his own advanced laboratory, Advance Data Information
and became a co-founder in FoneCash.
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JOHN P. GILL, Vice President & Chief Financial Officer:
Mr. Gill is a financial management professional, a Certified Public Accountant,
as well as an attorney. Mr. Gill spent 23 years from 1966 to 1989 with The
Ogilvy Group, as treasurer, Corporate Treasurer, and as a Director on the
Executive Committee. Mr. Gill is specialized in setting up accounting and
auditing procedures, as well as expert in establishing banking and investor
relationships. Since 1989, Mr. Gill is semi-retired but works as a consultant on
a project by project basis.
H. ROBERT MAUTI, Vice President, Systems Management and Product Support:
From 1984 to 1993, Mr. Mauti worked for with Omron Systems of America as
Regional Systems Manager and personally installed the world's first Omron
interactive touch video system for ATM equipment in the Western Hemisphere. Mr.
Mauti has been in charge of large data systems with RCA, Indiana National Bank,
and was Vice President and Manager of planing for on-line computer systems with
Atlantic National Bank. Mr. Mauti was unemployed from November,1993 until June,
1995. Mr. Mauti works as a consultant and since June 1, 1995 is under contract
with USPI Processing Inc. a software development company with contracts for the
maintenance of various ATM's throughout the U.S. Mr. Mauti will be responsible
for all in-house software programming and supports marketing and sales and
technical reviews with clients and customers for the Company.
ROBERT MOSHER, Manager, Marketing and Sales:
From 1991 to 1994, Mr. Mosher worked as national manager or OEM products and
services for Verifone, the largest maker of credit and debit card systems in the
United States. From 1985 to 1991, he worked at National Cash Register
Corporation as Major Accounts Manager. He was Group Manager at Computer
Automation from 1983 to 1985 and serves as a marketing client/server solutions
sales representative, using UMX, 0S2, Windows, and Oracle systems for health,
government and information services From 1995 until the present, Mr. Mosher is
currently employed as Marketing Manager for Globix Systems, a company that
leases time on its computer and servers. Mr. Mosher will direct all in-house
marketing and sale personnel, as well as giving guidance to distributors
worldwide.
GILBERT STARR, Manager, Engineering.
Mr. Starr holds a Ph.D in Electrical Engineering and is the author of many
monograms and papers on microprocessors and computer applications. As president
and owner of Micro Design Associates from 1974 to the present, he installed
network office computer systems using Novel Network Lite and Novel Personal
Netware. Mr. Starr will be in charge of all computer hardware systems as well as
products manufactured in Asia or in the United States for the Company.
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CARMINE AUDITORE, Director
Mr. Auditore has 17 years experience in the Marketing and Purchasing Divisions
at J.C. Penny Co. His responsibilities included the scheduling, budgeting,
development, purchasing, distribution and other matters related activities of
all point-of-sale advertising materials shipped to over 1700 stores with sales
of over 14 billion dollars throughout the United States. Since 1997,
Mr. Auditore has been the sole owner of East Coast Entertainment which performs
consulting in marketing, export, auto financing and ATM business.
DANIEL S. MACDONALD, Director
Mr. MacDonald has 22 years of experience in the mutual fund industry and is a
Certified Financial Planner and holds licenses in real estate, insurance and
securities. He has resided in Japan for from 1962 to 1972 as International
Liaison for the Japanese Chamber of Commerce; he speaks Japanese fluently. From
1972 to 1986, he serves in various capacities with Oppenheimer Management
Corporation, first in San Francisco as Regional Sales Manager and ending in New
York as Senior Vice President and National Sales Manager. In 1989, Mr.
MacDonald started MDIC, Inc. in Bronxville, New York, and for the last 11 years
until present, remains as owner and manager of this financial services
corporation specializing in mutual funds.
ARTHUR MURPHY, Director
Mr. Murphy has 10 years experience in South Korea as administrator of the Korean
Association of Volunteer Agencies (KAVA), a community of voluntary agencies of
the United States whose work was supported by both the Korean and American
governments. In 1970, Mr. Murphy was employed as Assistant Assessor in the
Office of the Cook County Assessor for Chicago and environs. In 1990 until the
present, Mr. Murphy established Urban Real Estate Research, Inc, a company that
performs services for individual property owners who seek adjustment to their
real estate property taxes.
ITEM 6 - EXECUTIVE COMPENSATION
On August 7,1997, the Company entered into an employment agreement with its
chairman and majority shareholder, Mr. Charboneau. Under the terms of this five
year agreement, Mr. Charboneau shall receive a salary of $120,000 per year.
Mr. Charboneau has never been paid this salary and has elected not to accrue
this back pay as a liability on the Company's books. The Company may
terminate the agreement for cause with notice. Disability for up to two years
at 100% of yearly salary is provided, and should Mr. Charboneau die during
the term of employment, the Company shall pay his estate $250,000. The
Company pays for a keyman life insurance of $2 million, $1 million with The
Travelers Group for term life policy, and $1 million with Nationwide
Insurance Company for a variable life policy. The Company is beneficiary in
case of the death of Mr. Charboneau.
Mr Wu's contract of employment is essentially the same as the one for
Mr. Charboneau, regarding benefits, but his annual salary is $105,000. (Please
see complete agreement at Exhibit 10.7)
Currently, the other officers or key personnel receive no compensation,
provide services to the Company on an ad hoc basis and are paid as
consultants. If the Company
22
<PAGE>
becomes profitable and produces commensurate cash flow from operations, then
the Company's Board of Directors will decide the level of full-time
employment, compensation and the timing for the commencement of their
full-time involvement.
The Company currently has no employee stock option, annuity, or pension plans in
place although the Company does intent to provide these benefits at some future
date if it can establish sales and positive cash flow.
Directors do not currently receive any cash compensation.
ITEM-7- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 10,1997, the Company entered into an agreement with Advance Data
Information, Ltd. (ADI) for technical services in electrical engineering and
software development. Dr. John Jiann-Shong Wu, the Company's director and
co-founder, is the sole owner of ADI. The Company agreed to issue 200,000
shares of common stock at the signing of this agreement in return for
services connected with the research and development of the Company's
products. In addition, the Company shall have exclusive rights to any and all
products developed as a result of this collaboration. Dr. Wu was also given a
five year option to purchase 200,000 shares of common stock at 120% of the
price of the initial public offering. Subsequently, in June, 1999, the Board
of Directors approved a resolution issuing another 1,800,000 shares of common
stock at par value in return for services rendered by ADI from Inception of
the Company to December 31,1999.
On February 4,1998, the Company signed an agreement with East Coast
Entertainment, a company owned solely by Mr. Carmine Auditore, a director of the
Company, for professional consulting services relating to public relations,
publicity, advertising, investor relations and development of the Company's
printed material. After the Company attains gross revenues of $300,000, annual
compensation of $50,000 shall be paid in 12 equal installments and after the
Company attains gross revenues of $500,000, the annual fee will be raised to
$100,000.
There are no other transactions between the Company and officers, directors or
promoters of the Company.
ITEM 8 --DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 20,000,000 shares of common stock at $0.0001
par value. The holders of the shares are entitled to one vote for each share
held and are entitled to dividend when, and if, declared by the Board of
Directors. No dividends have ever been declared. As of March 31, 2000, common
shares issued and outstanding totaled 3,836,338.
There are currently no preemptive rights connected with the common stock.
23
<PAGE>
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of no par value preferred
stock. No shares were issued and outstanding as of December 31,1999. Each share
of preferred stock is entitled to dividends when, and if, declared by the Board
of Directors. There are currently no voting, conversion and liquidation rights,
nor redemption or sinking fund provisions for the preferred stock.
PART II
ITEM 1 - LEGAL PROCEEDINGS
The Company is not aware of any legal proceedings threatened or contemplated
against any of its officers or directors. In addition, the Company is not a
party to any pending legal proceedings.
ITEM 2 - MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
There is no public trading market for the Company's Common Stock. The Company
intends to apply to have the Common Stock traded on the OTC Bulletin Board. No
assurance can be given that such application will be approved and, if approved,
that an active trading market for the Common Stock will be established or
maintained.
As of the date hereof, there are 3,836,338 shares of Common Stock that could
be sold pursuant to Rule 144 under the Securities Act of 1933, as amended.
As of December 31,1999, there were 157 shareholders of record of the Company's
Common Stock.
The Company has entered into an agreement with Sands Brothers & Co. Ltd., by
which the Company will issue Sands 1,250,000 Warrants, exercisable over a
period of five years at a Warrant Strike Price of $0.75 each in return for
Sands commitment to raise $3 million for the Company through a private
placement.
While there are no restrictions that limit the Company's ability to pay
dividends on common equity, the Company has not paid, and does not anticipate,
paying dividends in the foreseeable future.
ITEM 3 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 4 - RECENT SALES OF UNREGISTERED SECURITIES
As of December 31,1999, the Company has 5, 303,005 shares of its common stock
issued and outstanding of which shares were issued in transactions exempt by
reason of Section 4(2) of the Securities Act of 1933, as amended, and were
24
<PAGE>
issued in transactions exempt by reason of Rule 504 of Regulation D and
promulgated pursuant to Section 3(b) of the Securities Act of 1933, as amended.
In connection with its formation, the Company issued a total of 2,000,000 shares
at par value of $0.0001 to Daniel E. Charboneau and 200,000 shares valued at
$.15 per share to Dr. John Jiann Shong Wu.
Commencing in June 1998 through December 31,1998, the Company raised seed
capital of $84,985 through the sale of 204,500 shares of its common stock, and
from January 1 through April 30,1999 $82,765 through the sale of 298,000 of
shares of its common stock . This issuance was exempt by reason of Section 4(2)
of the Securities Act of 1933, as amended.
SHARES ISSUED TO: CLASS OF SHARES AMOUNT
Robert Ahr Common 5,000
Carmine Auditore Common 100,000
Harold Blachly Common 20,000
Herbert Blachly Common 20,000
Christopher Castaldo Common 148,750
Jerry Castaldo Common 10,000
Gerald Castaldo Common 2,500
E.R. Chillag Common 5,000
Leonard Cohen Common 10,000
Donald Daigle Common 40,000
Thomas S. Dean Common 10,000
Barry Enders Common 10,000
Michael Eggleston Common 1,250
Rick Genzink Common 40,000
Henry Hoffman Common 10,000
Ernest Koeppen Common 10,000
Joseph A. Lampe Common 12,500
Marc LeFevre Common 500
Timothy Lynch Common 2,000
Jennifer E. Nelson Common 5,000
Virgil R. Plagge Common 10,000
Lindsey Perry, Jr. Common 10,000
Glen D. Primeau Common 10,000
Mitch Warnike Common 10,000
On January 4,1999, the Company issued a Offering Circular pursuant to Rule 504
of Regulation D of the Securities Act of 1933, as amended, for 660,000 shares of
$0.0001 par value common stock at $1.50 a share. The offering sold a total
657,372 shares having been subscribed for a the total of $621,445. Because the
Company offered discounts to all, and any, potential investors based on certain
quantities of shares purchased. The formula, stated in the Offering Circular
which was given to all potential investors, was:
25
<PAGE>
NUMBER OF SHARES DISCOUNT
2500 - 4999 5.0%
5000 - 9999 7.0%
10,000-24,999 13.0%
25,000-49,999 16.0%
50,000 or more 20.0%
The effective price, taking into consideration the discounts, of the stock
offering was $0.95 per share.
Shares Issued to: Class of Shares Amount
Robert Arh Common 5,000
Rui Albuquerque Common 1,000
Ralph Amanna Common 15,000
Robert Amend Common 9,506
Gene Aydt Common 5,000
Calvert Arthur Common 2,000
Shad Ayoub Common 1,000
Vegan Badlian Common 3,500
Glenn Baille Common 10,000
Robert Blane Common 5,000
Nelson Lee Blane Common 3,100
Aeyal Bohodona Common 1,000
Todd Bouton Common 5,000
William Boyton Common 2,500
Jerry Bratton Common 10,000
Dennis Burroughs Common 2,600
David Bulbow Common 400
Joseph Bushman Common 1,000
Joseph P. Camarda Common 1,000
Joseph V. Camarda Common 1,000
Rosemary Charboneau Common 3,000
Keith Chesnut Common 2,500
Robert Mark Chris Common 10,000
Roy Clemes Common 1,000
Roy Victor Clemes Common 1,000
Roberta Coco Common 1,000
Gloria Conzett Common 1,000
James Creglan Common 1,000
Donald Daigle Common 25,000
Darkenwald Family, L.P. Common 1,000
Joseph DeRosa Common 2,500
John Dewey Common 1,000
Andre Dobison Common 2,500
Michael Dobison Common 6,000
26
<PAGE>
Milton Dobison Common 1,000
Grace Donegan Common 4,000
Dorothy Hawkins Trust Common 10,000
Philip Drummond Common 5,000
Dudley Larson Common 10,000
James A. DuHaime Common 7,500
Bryan Eisenhauer Common 5,000
Heidari Farhad Common 3,000
Douglas Fox Common 1,000
G. Jehosehba Holdings, Ltd Common 30,000
Harry Galekovich Common 2,500
David Goldman Common 10,000
George Geogatos Common 1,000
George Gonzales Common 1,000
John Gonzales Common 1,000
Edmund Gould Common 2,500
Daniel Griffin Common 10,000
Elizabeth Hagger Common 1,000
Steve Heckart Common 2,500
Mele & Koloa Heimuli Common 1,000
Henry Heyer Common 1,000
Michael Himmelberger Common 7,500
Alan Hochster Common 2,000
Thomas Hudson Common 1,000
Soane Huhane Common 2,000
Wallace Hunt Common 1,000
William Irvine Common 1,000
Nick Iskanian Common 2,500
Raghunath Jalapti Common 300
Donald Kapan Common 5,000
Mardiros Keoshgerian Common 2,000
Elias Khalil Common 5,000
Kitchen Studio of Monterey Common 2,000
Ernest Koeppen Common 12,300
Daniel Kowkabany Common 2,500
Navin Kumar Common 1,000
Peter Latu Common 4,000
In Lee Common 10,000
Aaron Lehmann Common 1,000
Jeffrey Levinger Common 3,000
Mark Lomazzo Common 1,500
Steven Lynch Common 2,000
Antonio Mangano Common 5,000
27
<PAGE>
Doyle McEacharn Common 2,000
W.Bruce McEacharn Common 5,000
Philip Melfi Common 3,000
Derrick Miles Common 1,000
Joseph Miller Common 12,500
John Monnette Common 2,000
B.R. Moore Common 1,000
Arthur Murphy Common 20,000
Jennifer Nelson Common 5,000
Donald Neuen Common 1,000
David Nute Common 1,000
Gui Chul Park Common 5,000
Peter Park Common 5,000
Rosa Park Common 5,000
Pio Park Common 5,000
Young Hee Park Common 5,000
George Pedersen Common 1,000
Jacob Perl Common 75,000
Robert Pendleton Common 3,000
Lindsey Perry Common 5,000
Dan Pettit Common 1,000
Larry Pickett Common 10,000
Shams Pirbhai Common 2,500
Joseph Ponchart Common 5,000
Quality Filing System Common 2,500
Andrea Ramirez Common 2,000
Martin Ray Common 1,000
David Ruiz Common 666
J.E. Sanders Common 1,000
Jay Schiesser Common 5,000
Christine M. Sofranko Common 25,000
Jay Hyung Son Common 25,000
C. Scott Stanley Common 5,000
Jonathan Studer Common 3,000
Eleanor Svedi Common 1,000
Thomas L. & Euna M. Sulzbach Common 2,000
Richard Thompson Common 10,000
Ed Toon Common 5,000
James Trapp, Jr. Common 10,000
Ronald Velarde Common 1,000
Thomas Vellia Common 4,000
Scott Walstead Common 1,000
Mitchell Warnike Common 10,000
28
<PAGE>
Scott Warnike Common 1,000
Francis Weber Common 1,000
John Welker Common 25,000
Gwen Whitcomb Common 1,000
Brian Wilson Common 1,000
Steven Zuckerman Common 1,500
Gilles de Clerck Common 5,000
From October, 1999 to December 31,1999, the Company sold a total of 143,133
sales of common stock pursuant to Regulation S of the Securities Act of 1933, as
amended, to 4 non-U.S. investors for a total of $133,050. The holding period for
these securities is one year.
Superior Enterprises Common 118,133
Hung, Kuo-Chen Common 5,000
Hsu, Huei-Ching Common 10,000
Chen, Chih-Chung Common 10,000
In June, 1999, the Company issued 333,333 shares of common stock to Dr. John
Jiann-Shong Wu in exchange for services rendered pursuant to a consulting
agreement with ADI.
The Company has entered into an agreement, dated as of March 6, 2000, with
Sands Brothers & Co., Ltd. pursuant to which it has agreed to issue to Sands
Brothers warrants to purchase up to 1,250,000 shares of the Company's common
stock at a price of $0.75 per share. The warrants are expected to be issued
pursuant to Section 4(2) of the Securities Act of 1933 as not in connection
with a public offering.
The Company's transfer agent is Manhattan Transfer Registrar Co., 58
Dorchester Road, Lake Ronkonkoma, New York 11779, (516) 585-7341.
ITEM 5 - INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to the Delaware General Corporation Law, officers and directors of the
Company, as well as former officers and directors, are entitled to
indemnification from the Company from any action or proceeding whether civil,
criminal, or administrative, or investigative to the full extent permitted by
law. No director or officer shall have any person liability to the Company or
its stockholders from damages for breach of fiduciary duty as a Director or
officer, except that the Directors and Officers may be held liable to the
Company or its stockholders for acts or omissions which involve intentional
misconduct, fraud or knowing violation of law of Delaware.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended, may be permitted to officers and directors or persons
controlling the Company pursuant to the laws of Delaware, the Company has been
informed that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
FINANCIAL STATEMENTS (INCEPTION TO DECEMBER 31,1999)
INDEPENDENT AUDITOR'S REPORT 30
BALANCE SHEETS 31
STATEMENTS OF INCOME (LOSS) 32
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 33
STATEMENTS OF CASH FLOWS 34
NOTES TO FINANCIAL STATEMENTS 35
29
<PAGE>
STEWART H. BENJAMIN
CERTIFIED PUBLIC ACCOUNTANT, P. C.
27 SHELTER HILL ROAD
PLAINVIEW, NY 11803
TELEPHONE: (516) 933-9781
FACSIMILE: (516) 827-1203
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors and Stockholders
FoneCash, Inc.
White Plains, New York
I have audited the accompanying balance sheets of FoneCash, Inc. (a Delaware
corporation in development stage ) as of December 31, 1999 and December 31,
1998, and the related statements of operations, stockholders' equity and cash
flows, for the years then ended and for the period from August 7, 1997
(inception), to December 31, 1999. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based upon my audits.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of FoneCash, Inc. as of December
31,1999 and 1998 and the results of its operations and cash flow for the years
then ended and from August 7,1997 (Inception) to December 31,1999, in conformity
with generally accepted accounting principles.
/s/ Stewart H. Benjamin
Certified Public Accountant, P.C.
Plainview, New York
March 28, 2000
30
<PAGE>
FONECASH, INC
(A Development Stage Company)
BALANCE SHEETS
ASSETS
December 31 December 31
1999 1998
--------- ---------
Current assets:
Cash $ 208,702 $ 9,628
Inventory (Note 1) 45,143 --
Prepaid expenses (Note 4) 25,000 --
--------- ---------
278,845 9,628
--------- ---------
--------- ---------
Property and equipment, net (Note 5) 83,333 --
--------- ---------
Other assets:
Organization cost, net (Note 1) 190 263
Patent rights, net (Note 6) 4,000 --
Cash surrender value of life insurance (Note 8) 17,732 --
Deposit 250 --
--------- ---------
22,172 263
--------- ---------
384,350 9,891
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 9,790 $ 977
Due to an officer/stockholder (Note 10) 26,586 45,344
Note payable (Note 9) 7,500 --
Loans payable -- 5,000
--------- ---------
43,876 51,321
--------- ---------
Stockholders' equity(deficit): (Note 2)
Preferred stock; $.0001 par value; authorized -
5,000,000 shares; issued - none -- --
Common stock; $.0001 par value; authorized -
20,000,000 shares; issued and outstanding -
3,836,338 shares in 1999 and 2,404,500 in 1998 383 240
Additional paid-in capital 1,282,072 114,945
Deficit accumulated during the development stage (941,981) (156,615)
--------- ---------
Total stockholders' equity 340,474 (41,430)
--------- ---------
$ 384,350 $ 9,891
========= =========
The accompanying notes are an integral part of the financial statements.
31
<PAGE>
FONECASH, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Aug. 7, 1997
Year Ended Year Ended (Inception) to
December 31, December 31, December 31,
1999 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Costs and expenses
Depreciation $ 41,677 $ -- $ 41,677
Amortization 1,073 74 1,178
Research and development, related party 322,906 -- 352,906
Officer's Compensation 75,000 -- 75,000
Impairment of Investment
in related party 50,000 -- 50,000
General and administrative 295,336 95,137 421,846
----------- ----------- -----------
785,982 95,211 942,597
----------- ----------- -----------
Other Income (expenses)
Interest income 616 -- 616
----------- ----------- -----------
Net loss $ (785,366) $ (95,211) $ (941,981)
=========== =========== ===========
Primary and diluted loss per common share $ (.31) $ (.04) (.66)
=========== =========== ===========
Weighted average common shares outstanding 2,541,069 2,245,685 1,423,554
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
32
<PAGE>
FONECASH, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD AUGUST 7,1997 (INCEPTION) TO DECEMBER 31,1999
<TABLE>
<CAPTION>
Deficit
Additional Accumulated
Common Stock Paid-in from
-------------------
Shares Amount Capital Inception
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balances, August 7, 1997 (Inception) -- $ -- $ -- $ --
Common stock issued for services
and costs advanced, valued at $.0001
per share 2,000,000 200 -- --
Common stock issued for services,
valued at $.15 per share 200,000 20 29,980 --
Net loss for the period -- -- -- (61,404)
--------- --------- --------- ---------
Balances, December 31, 1997 2,200,000 220 29,980 (61,404)
Sale of common stock 204,500 20 84,965 --
Net Loss -- -- -- (95,211)
--------- --------- --------- ---------
Balances, December 31, 1998 2,404,500 240 114,945 (156,615)
Sale of common stock 1,098,505 110 837,160 --
Services contributed by the president
of the Company -- -- 60,000 --
Common stock issued for services,
valued at $.81 per share 333,333 33 269,967 --
Net loss -- -- -- (785,366)
--------- --------- --------- ---------
Balances, December 31, 1999 3,836,338 $ 383 $1,282,072 $(941,981)
========= ========= ========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
33
<PAGE>
FONECASH, INC
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Aug. 7, 1997
Year Ended Year Ended (Inception) to
December 31, December 31, December 31,
1999 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $(785,366) $ (95,211) $(941,981)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 41,667 -- 41,667
Amortization 1,073 74 1,178
Cash surrender value of life insurance (17,732) -- (17,732)
Common stock issued for services 330,000 -- 360,200
Changes in assets and liabilities:
(Increase) in inventory (45,143) -- (45,143)
(Increase) in prepaid expenses (25,000) -- (25,000)
(Increase) in utility deposit (250) -- (250)
Increase in accounts payable 8,813 977 9,790
Increase (decrease) in amounts due to an
officer/stockholder (18,758) 18,803 26,586
Decrease in short-term loans (5,000) -- --
--------- --------- ---------
Net cash used in operating activities (515,696) (75,357) (590,685)
--------- --------- ---------
Cash flows from investing activities:
Organization costs -- -- (368)
Purchase of property and equipment (125,000) -- (125,000)
Acquisition of patent rights (5,000) -- (5,000)
--------- --------- ---------
Net cash used in investing activities (130,000) -- (130,368)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from short-term debt 7,500 -- 7,500
Proceeds from sale of common stock 837,270 84,985 922,255
--------- --------- ---------
Net cash provided by financing activities 844,770 84,985 929,755
--------- --------- ---------
Net increase (decrease) in cash 199,074 9,628 208,702
Cash at beginning of year 9,628 -- --
--------- --------- ---------
Cash at end of year $ 208,702 $ 9,628 $ 208,702
========= ========= =========
Supplemental disclosure of non-cash investing and
financing activities:
Services contributed by the president of the
Company $ 60,000 $ -- $ 60,000
Common Stock issued for research and
development costs $ 270,000 $ -- $ 270,000
Common stock issued for
services and costs advanced $ -- $ -- $ 200
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
34
<PAGE>
FONECASH, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The financial statements presented are those of FoneCash, Inc., a development
stage company (the "Company"). The Company was incorporated under the laws of
the State of Delaware on August 7, 1997. The Company has acquired the rights
to market a patented electronic terminal that is used by retail merchants and
in-home salespersons when payment is made with a credit or debit card.
Revenues will be generated from sales of the terminals and from transaction
charges to banks. No revenues have been earned as of December 31, 1999, but
management anticipates sales to commence in 2000 after real-time trials are
performed with a select group of merchants and in-home salespersons.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reporting amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the period. Actual results
could differ from those estimates.
INVENTORY
Inventory is stated at the lower of cost or market, with cost determined on a
first-in, first-out basis and market based on the lower of replacement cost or
realizable value.
PROPERTY AND EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Depreciation for both financial
reporting and income tax purposes is computed using the straight-line method
over the estimated lives of the assets. Maintenance and repairs are charged to
expense when incurred. When property and equipment are retired or otherwise
disposed of, the related cost and accumulated depreciation are removed from the
respective accounts and any gain or loss is credited or charged to income.
INTANGIBLE ASSETS
Intangible assets consist of organization costs and patent rights. Intangible
assets are amortized on a straight-line basis over five years. Amortization
expense for the year ended December 31, 1999 was $1,073.
35
<PAGE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's receivables due from an officer/stockholder is
not practicable to estimate due to the related party nature of the underlying
transactions and the indefinite payment terms.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to reverse. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the statement of
operations in the period that includes the enactment date.
LOSS PER COMMON SHARE
Loss per common share is computed by dividing the net loss by the weighted
average shares outstanding during the period.
NOTE 2 - STOCKHOLDERS' EQUITY
COMMON STOCK
Since the date of inception, the Company has issued 3,836,338
shares of common stock, which includes 2,000,000 shares that were issued to
officers and directors of the Company for services and costs advanced, valued
at $.0001 per share, 200,000 shares that were valued at $.15 per share and
333,000 shares that were valued at $.81 per share. These shares were issued
to officers and directors of the Company. In 1999 the president of the
Company contributed services to the Company valued at $60,000, as reflected
in the statements of stockholders' equity and statements of operations (in
addition to $15,000 received in cash).
Dividends may be paid on outstanding shares as declared by the Board of
Directors from time to time. Each share of common stock is entitled to one vote.
PREFERRED STOCK
No shares of the Company's no par value preferred stock have been issued or are
outstanding. Dividends, voting rights and other terms, rights and preferences of
the preferred shares have not been designated but may be designated by the Board
of Directors from time to time.
NOTE 3 - INCOME TAXES
There is no provision for income taxes since the Company has incurred net
operating losses. At December 31, 1999, the Company has net operating loss
carryforwards of $920,562, of which $888,957 may be available to offset
future taxable income through 2019 and $31,605 may be available to offset
future taxable income through 2012. A deferred tax asset has not been
recorded for the net operating loss carryforwards due to uncertainties as to
the ultimate realization of the deferred tax asset.
36
<PAGE>
NOTE 4--PREPAID EXPENSES
Prepaid expenses consists of a payment of $25,000 on April 29,1999 for the cost
of printing brochures containing product and company information. The printing
costs will be charged to income as the brochures are distributed. No brochures
have been distributed as of December 31,1999.
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment consist entirely of a production mold purchased during
the year ended December 31, 1999 for $125,000. The mold has an estimated useful
life of 3 years and is depreciated using the straight-line method. Depreciation
expense was $41,667 for the year ended December 31, 1999.
NOTE 6--PATENT RIGHTS
On November 1, 1997 the Company entered into a license agreement with Thomas J.
Ulrich. Under this agreement the Company will acquire an exclusive license under
the licensor's patent rights for U.S. patent number 4,803,719, pertaining to
telephone line powered applications, for the primary purpose of utilizing the
licensor's invention through sales of products and services. The Company is
required to make payments of $30,000 for a non-refundable license execution fee
based upon capital funding, and for royalties based upon gross sales of all
licensed products sold. As of December 31, 1999 a license execution fee of
$5,000 was capitalized and is being amortized over the remaining life of the
patent of 5 years. The balance of the license execution fee of $25,000 is due
upon funding of an Initial Public Offering or other financing exceeding
$500,000. The agreement also provides for a royalty of 3% of the gross sales of
all licensed products and an annual minimum fee of $10,000 in 2000 and $20,000
for each year thereafter. In addition, minimum sales revenues of $500,000 for
the year 2000 to a total of $2 million in sales after the year 2003 and
thereafter were agreed to.
37
<PAGE>
NOTE 7--LONG-LIVED ASSETS
The Company accounts for long-lived assets in accordance with the provisions
of Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for
the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
Of. This statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstance indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by an asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of carry amount or fair
value less costs to sell.
NOTE 8--CASH SURRENDER VALUE OF LIFE INSURANCE
The variable universal life insurance policy carried on the life of the
president of the Company has a cash value of $17,732 on December 31,1999. There
were no borrowings against the cash surrender value.
NOTE 9--NOTE PAYABLE
The Company has a bank line of credit with Fleet Bank, N.A. that provides
short-term borrowings up to $50,000. Interest on advances is payable monthly
at two and three quarters of one percent (2.75%) over the prime rate. The
note payable to the bank is uncollateralized and is personally guaranteed by
the President of the Company. There was an outstanding balance on the bank
line of credit of $7,500 as of December 31, 1999.
NOTE 10--RELATED PARTY TRANSACTIONS
The Company was indebted to an officer/stockholder for expenses advanced on
behalf of the Company, in the amount of $26,586 at December 31,1999. There are
no specific terms for repayment.
In 1999, the president of the Company contributed services to the Company
valued at $60,000 as reflected in the statements of stockholders' equity and
statements of operations (in addition to $15,000 received in cash).
The Company has leased its executive offices and storage facilities from the
president of the Company under a month-to-month operating lease. Rent expense
of $17,373 was charged to operations during the year ended December 31,1999,
and $32,485 was charged to operations for periods prior to 1999.
The Company utilizes Advance Data Information Corporation ("ADI"), a Taiwan
corporation owned by a director/shareholder of the Company, as its research and
development laboratory. Research and development expenses under this arrangement
totaling $322,906 were charged to operations during the year ended December
31,1999.
The Company purchased 1,000,000 shares representing an 8% interest in
Tradeandswap.com, Inc. ("Trade and Swap") for $50,000. A consultant of the
Company is a shareholder and principal officer of Trade and Swap.
38
<PAGE>
TradeandSwap.com, Inc is a privately-held corporation that facilitates barter
and trade swaps for individuals and businesses over a proprietary Internet web
site. The investment in Trade and Swap is carried at cost, as there is no
readily available market value for these shares. If an other-than-temporary
impairment resulting from a decline in fair value in the investment shall be
considered to have occurred, the cost basis shall be written down to fair
value as a new cost basis and the amount of the write-down shall be included
in earnings as a realized loss. As of December 31, 1999, the Company has
written its investment in Trade and Swap down to zero since no future benefit
can be determined as Trade and Swap operates in a volatile industry and has
no proven record of success. An impairment loss of $50,000 has been reported
in the Statements of Operations.
NOTE 11--CONSULTING AGREEMENTS
On February 4, 1998 the Company entered into a consulting agreement with East
Coast Entertainment, Inc. ("ECE") requiring payments of $50,000 per year in
monthly installments once the Company attains gross revenues of $300,000.ECE
will be assigned administrative duties including, but not limited to, publicity,
advertising, public relations, investors relations programs, news releases,
hiring of all necessary outside contractors for any specialized projects,
printing and development of the Company's annual reports, preparation of any
design, print or art work, camera ready art, distribution of reports and
corporate releases to State and Federal securities agencies. ECE is entitled to
$100,000 annually once the Company achieves $500,000 in gross revenues. ECE is
entitled to participate in the Company's stock option plans and group health
plans pursuant to the same terms that apply to all senior key executives and
other employees of the Company. The agreement is renewable annually for a period
of ten years. No expenses have been recognized under this arrangement for the
year ended December 31, 1999.
The Company entered into another consulting agreement with Advance Data
Information Corporation ("ADI"), a Taiwan corporation owned by a
director/stockholder of the Company, in which ADI will act as the research
and development laboratory for the Company. The Company shall have exclusive
ownership rights to any and all products that are developed as a result of
this agreement. The Company has issued 200,000 shares of its common stock to
Dr. Wu in August 1997 valued at $.15 per share and 333,333 shares in June
1999, valued at $.81 per share for services rendered.
39
<PAGE>
===============================================================================
FONECASH, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
AND FOR THE PERIOD AUGUST 7, 1997 (INCEPTION)
THROUGH MARCH 31, 2000
===============================================================================
40
<PAGE>
TABLE OF CONTENTS
Page No.
ACCOUNTANT'S REPORT ................................................... 1
FINANCIAL STATEMENTS
Balance sheets ........................................... 2
Statements of Operations ................................. 3
Statements of Changes in Stockholders' Equity ............ 4
Statements of Cash Flows ................................. 5
Notes to Financial Statements ............................ 6
41
<PAGE>
STEWART H. BENJAMIN
CERTIFIED PUBLIC ACCOUNTANT, P.C.
27 SHELTER HILL ROAD
PLAINVIEW, NY 11803
TELEPHONE: (516) 933-9781
FACSIMILE: (516) 827-1203
To the Board of Directors and Stockholders
FoneCash, Inc.
White Plains, New York
I have reviewed the accompanying balance sheets of FoneCash, Inc. (a development
stage company) as of March 31, 2000 and December 31, 1999, and the related
statements of operations, stockholders' equity and cash flows, for the three
months ended March 31, 2000 and 1999, and for the period from August 7, 1997
(inception), to March 31, 2000, in accordance with Statements on Standards for
Accounting and Review Services, issued by the American Institute of Certified
Public Accountants. All information included in these financial statements is
the representation of the management of FoneCash, Inc.
A review consists principally of inquiries of Company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, I do not express such an
opinion.
Based on my reviews, I am not aware of any material modifications that should be
made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
Stewart H. Benjamin
Certified Public Accountant, P.C.
Plainview, New York
May 18, 2000
42
<PAGE>
FONECASH, INC.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
2000 1999
----------- ------------
<S> <C> <C>
Current assets:
Cash $ 121,020 $ 208,702
Inventory (Note 1) 68,524 45,143
Prepaid expenses (Note 4) 25,000 25,000
----------- -----------
214,544 278,845
----------- -----------
Property and equipment, net (Note 5) 81,889 83,333
----------- -----------
Other assets:
Organization costs, net (Note 1) 172 190
Patent rights, net (Note 6) 3,750 4,000
Cash surrender value of life insurance (Note 8) 13,638 17,732
Deposit 250 250
----------- -----------
17,810 22,172
----------- -----------
$ 314,243 $ 384,350
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,304 $ 9,790
Due to an officer/stockholder (Note 10) 26,586 26,586
Note payable (Note 9) 47,761 7,500
----------- -----------
82,651 43,876
----------- -----------
Stockholders' equity: (Note 2)
Preferred stock; $.0001 par value; authorized -
5,000,000 shares; issued - none -- --
Common stock; $.0001 par value; authorized -
20,000,000 shares; issued and outstanding -
3,836,338 shares 383 383
Additional paid-in capital 1,282,072 1,282,072
Deficit accumulated during the development stage (1,050,863) (941,981)
----------- -----------
Total stockholders' equity 231,592 340,474
----------- -----------
$ 314,243 $ 384,350
----------- -----------
----------- -----------
</TABLE>
See accompanying notes and accountant's review report.
43
<PAGE>
FONECASH, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Three Aug. 7, 1997
Months Ended Months Ended (Inception) to
March 31, March 31, March 31,
2000 1999 2000
------------ ------------ --------------
<S> <C> <C> <C>
Costs and expenses:
Depreciation $ 11,232 $ 2,083 $ 52,899
Amortization 268 268 1,446
Research and development, related party 19,172 -- 372,078
Officer's compensation 16,000 -- 91,000
Impairment of investment in related party -- -- 50,000
General and administrative 64,996 24,046 486,842
----------- ----------- -----------
111,668 26,397 1,054,265
----------- ----------- -----------
Other income (expenses):
Interest income 2,786 -- 3,402
----------- ----------- -----------
Net loss $ (108,882) $ (26,397) $(1,050,863)
----------- ----------- -----------
----------- ----------- -----------
Primary and diluted loss per common share $ (.03) $ (.01) $ (.36)
----------- ----------- -----------
----------- ----------- -----------
Weighted average common shares outstanding 3,836,338 2,452,833 2,889,563
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes and accountant's review report.
44
<PAGE>
FONECASH, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD AUGUST 7, 1997 (INCEPTION) TO MARCH 31, 2000
<TABLE>
<CAPTION>
Deficit
Common Stock Additional Accumulated
----------------------------- Paid-in from
Shares Amount Capital Inception
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balances, August 7, 1997 (Inception) -- $ -- $ -- $ --
Common stock issued for services and costs
advanced, valued at $.0001 per share 2,000,000 200 -- --
Common stock issued for services,
valued at $.15 per share 200,000 20 29,980 --
Net loss for the period (61,404)
--------- ----------- ----------- -----------
Balances, December 31, 1997 2,200,000 220 29,980 (61,404)
Sale of common stock 204,500 20 84,965 --
Net loss (95,211)
--------- ----------- ----------- -----------
Balances, December 31, 1998 2,404,500 240 114,945 (156,615)
Sale of common stock 1,098,505 110 837,160 --
Services contributed by the president of the
Company -- -- 60,000 --
Common stock issued for services,
valued at $.81 per share 333,333 33 269,967 --
Net loss (785,366)
--------- ----------- ----------- -----------
Balances, December 31, 1999 3,836,338 383 1,282,072 (941,981)
Net loss for the period (108,882)
--------- ----------- ----------- -----------
Balances, March 31, 2000 3,836,338 $ 383 $ 1,282,072 $(1,050,863)
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
See accompanying notes and accountant's review report.
45
<PAGE>
FONECASH, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Three Aug. 7, 1997
Months Ended Months Ended (Inception) to
March 31, March 31, March 31,
2000 1999 2000
------------ ------------ --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (108,882) $ (26,397) $(1,050,863)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 11,232 2,083 52,899
Amortization 268 268 1,446
Cash surrender value of life insurance 4,094 -- (13,638)
Common stock issued for services -- -- 360,200
Changes in assets and liabilities:
(Increase) in inventory (23,381) -- (68,524)
(Increase) in prepaid expenses -- -- (25,000)
(Increase) in utility deposit -- -- (250)
Increase (decrease) in accounts payable (1,486) 23 8,304
Increase (decrease) in amounts
due to an officer/stockholder -- (12,913) 26,586
---------- ---------- ----------
Net cash used in operating activities (118,155) (36,936) (708,840)
---------- ---------- ----------
Cash flows from investing activities:
Organization costs -- -- (368)
Purchase of property and equipment (9,788) (25,000) (134,788)
Acquisition of patent rights -- (5,000) (5,000)
---------- ---------- ----------
Net cash used in investing activities (9,788) (30,000) (140,156)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from short-term debt 42,500 -- 50,000
Repayment of short-term debt (2,239) -- (2,239)
Proceeds from sale of common stock -- 95,464 922,255
---------- ---------- ----------
Net cash provided by financing activities 40,261 95,464 970,016
---------- ---------- ----------
Net increase (decrease) in cash (87,682) 28,528 121,020
Cash at beginning of period 208,702 9,628 --
---------- ---------- ----------
Cash at end of period $ 121,020 $ 38,156 $ 121,020
---------- ---------- ----------
---------- ---------- ----------
Supplemental disclosure of noncash investing and
financing activities:
Services contributed by the president of the
Company $ -- $ -- $ 60,000
Common stock issued for research and developmemt
costs $ -- $ -- $ 270,000
Common stock issued for services and costs
advanced $ -- $ -- $ 200
========== ========= ==========
</TABLE>
See accompanying notes and accountant's review report.
46
<PAGE>
FONECASH, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The financial statements presented are those of FoneCash, Inc., a development
stage company (the "Company"). The Company was incorporated under the laws of
the State of Delaware on August 7, 1997. The Company has acquired the rights to
market a patented electronic terminal that is used by retail merchants and
in-home salespersons when payment is made with a credit or debit card. Revenues
will be generated from sales of the terminals and from transaction charges to
banks. No revenues have been earned as of March 31, 2000, but management
anticipates sales to commence in the second quarter of 2000 after real-time
tests are performed with a select group of merchants and in-home salespersons.
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information. In the opinion
of management, such interim statements reflect all adjustments (consisting of
normal recurring accruals) necessary to present fairly the financial position
and the results of operations and cash flows for the interim periods presented.
The results of operations for these interim periods are not necessarily
indicative of the results to be expected for the full year.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reporting amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates.
INVENTORY
Inventory is stated at the lower of cost or market, with cost determined on a
first-in, first-out basis and market based on the lower of replacement cost or
realizable value.
PROPERTY AND EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Depreciation for both financial
reporting and income tax purposes is computed using the straight-line method
over the estimated lives of the assets. Maintenance and repairs are charged to
expense when incurred. When property and equipment are retired or otherwise
disposed of, the related cost and accumulated depreciation are removed from the
respective accounts and any gain or loss is credited or charged to income.
47
<PAGE>
FONECASH, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
INTANGIBLE ASSETS
Intangible assets consist of organization costs and patent rights. Intangible
assets are amortized on a straight-line basis over five years. Amortization
expense for the three months ended March 31, 2000 was $268.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's receivables due to an officer/stockholder is not
practicable to estimate due to the related party nature of the underlying
transactions and the indefinite payment terms.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to reverse. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the statement of
operations in the period that includes the enactment date.
LOSS PER COMMON SHARE
Loss per common share is computed by dividing the net loss by the weighted
average shares outstanding during the period.
NOTE 2 - STOCKHOLDERS' EQUITY
COMMON STOCK
Since the date of inception, the Company has issued 3,836,338 shares of
common stock, which includes 2,000,000 that were issued to officers and
directors of the Company for services and costs advanced, valued at $.0001
per share, 200,000 shares that were valued at $.15 per share and 333,333
shares that were valued at $.81 per share. In 1999 the president of the
Company contributed services to the Company valued at $60,000, as reflected
in the statements of stockholders' equity and statements of operations (in
addition to $15,000 received in cash).
Dividends may be paid on outstanding shares as declared by the Board of
Directors from time to time. Each share of common stock is entitled to one vote.
PREFERRED STOCK
No shares of the Company's no par value preferred stock have been issued or are
outstanding. Dividends, voting rights and other terms, rights and preferences of
the preferred shares have not
48
<PAGE>
FONECASH, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
been designated but may be designated by the Board of Directors from time to
time.
NOTE 3 - INCOME TAXES
There is no provision for income taxes since the Company has incurred net
operating losses. At March 31, 2000, the Company has net operating loss
carryforwards of $1,014,537, which may be available to offset future taxable
income through 2020. A deferred tax asset has not been recorded for the net
operating loss carryforwards due to uncertainties as to the ultimate
realization of the deferred tax asset.
NOTE 4 - PREPAID EXPENSES
Prepaid expenses consists of a payment of $25,000 on April 29, 1999 for the cost
of printing brochures containing product and company information. The printing
costs will be charged to income as the brochures are distributed.
No brochures have been distributed as of March 31, 2000.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consist entirely of production molds purchased during the
year ended December 31, 1999 for $125,000. The Company purchased additional
molds in the amount of $9,788 during the three months ended March 31, 2000. The
molds have an estimated useful life of 3 years and are depreciated using the
straight-line method. Depreciation expense was $11,232 for the three months
ended March 31, 2000.
NOTE 6 - PATENT RIGHTS
On November 1, 1997 the Company entered into a license agreement with Thomas J.
Ulrich. Under this agreement the Company will acquire an exclusive license under
the licensor's patent rights for U.S. patent number 4,803,719, pertaining to
telephone line powered applications, for the primary purpose of utilizing the
licensor's invention through sales of products and services. The Company is
required to make payments of $30,000 for a non-refundable license execution fee
based upon capital funding, and for royalties based upon gross sales of all
licensed products sold. As of March 31, 2000 a license execution fee of $5,000
was capitalized and is being amortized over the remaining life of the patent of
5 years. The balance of the license execution fee of $25,000 is due upon funding
of an Initial Public Offering or any other financing exceeding $500,000. The
agreement also provides for a royalty of 3% of the gross sales of all licensed
products and an annual minimum fee of $10,000 in 2000 and $20,000 for each year
thereafter. In addition, minimum sales revenues of $500,000 for the year 2000 to
a total $2 million in sales for the year 2003 and thereafter were agreed to.
49
<PAGE>
FONECASH, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - LONG-LIVED ASSETS
The Company accounts for long-lived assets in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of.
This statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by an asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of carrying amount or fair value less costs to
sell.
NOTE 8 - CASH SURRENDER VALUE OF LIFE INSURANCE
The variable universal life insurance policy carried on the life of the
president of the Company had a cash value of $13,638 on March 31, 2000. There
were no borrowings against the cash surrender value.
NOTE 9 - NOTE PAYABLE
The Company has a bank line of credit with Fleet Bank, N.A. that provides
short-term borrowings up to $50,000. Interest on advances is payable monthly at
two and three quarters of one percent (2.75%) over the prime rate. The note
payable to the bank is uncollateralized and is personally guaranteed by officers
of the Company. There was an outstanding balance on the bank line of credit of
$47,761 as of March 31, 2000.
NOTE 10 - RELATED PARTY TRANSACTIONS
The Company was indebted to an officer/stockholder for expenses advanced on
behalf of the Company, in the amount of $26,586 at March 31, 2000. There are no
specific terms for repayment.
In 1999 the president of the Company contributed services to the Company valued
at $60,000, as reflected in the statements of stockholders' equity and
statements of operations (in addition to $31,000 received in cash in 1999 and
the first quarter of 2000).
The Company has leased its executive offices and storage facilities from the
president of the Company under a month-to-month operating lease since the
Company's inception. Rent expense was $3,800 for the three months ended March
31, 2000, $17,373 for the year ended December 31, 1999, and $32,485 for periods
prior to 1999.
The Company utilizes Advance Data Information Corporation ("ADI"), a Taiwan
corporation owned by a director/stockholder of the Company, as its research and
development laboratory.
50
<PAGE>
FONECASH, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Research and development expenses under this arrangement totaling $19,172 were
charged to operations during the three months ended March 31, 2000.
The Company purchased 1,000,000 shares representing an 8% interest in
Tradeandswap.com, Inc. ("Trade and Swap") for $50,000. A consultant of the
Company is a shareholder and principal officer of Trade and Swap.
Tradeandswap.com, Inc. is a privately-held corporation that facilitates
barter and trade swaps for individuals and businesses over a proprietary
internet web site. The investment in Trade and Swap is carried at cost, as
there is no readily available market for these shares. If an
other-than-temporary impairment resulting from a decline in fair value in the
investment shall be considered to have occurred, the cost basis shall be
written down to fair value as a new cost basis and the amount of the
write-down shall be included in earnings as a realized loss. During the year
ended December 31, 1999, the Company has written its investment in Trade and
Swap down to zero since no future benefit can be determined as Trade and Swap
operates in a volatile industry and has no proven record of success. An
impairment loss of $50,000 has been reported in the Statements of Operations.
NOTE 11 - CONSULTING AGREEMENTS
On February 4, 1998 the Company entered into a consulting agreement with East
Coast Entertainment, Inc. ("ECE") requiring payments of $50,000 per year in
monthly installments once the Company attains gross revenues of $300,000. ECE
will assign administrative duties including but not limited to, publicity,
advertising, public relations, investor relations programs, news releases,
hiring of all necessary outside contractors for any specialized projects,
printing and development of the Company's annual reports, preparation of any
design, print or art work, camera ready art, distribution of reports and
corporate releases to State and Federal securities agencies. ECE is entitled to
$100,000 annually once the Company achieves $500,000 in gross revenues. ECE is
entitled to participate in the Company's stock option plans and group health
plans pursuant to the same terms that apply to all senior key executives and
other employees of the Company. The agreement is renewable annually for a period
of ten years. No expenses have been recognized under this arrangement for the
three months ended March 31, 2000.
The Company entered into another consulting agreement with Advance Data
Information Corporation ("ADI"), a Taiwan corporation owned by Dr. Wu, a
director/stockholder of the Company, in which ADI will act as the research
and development laboratory for the Company. The Company shall have exclusive
ownership rights to any and all products that are developed as a result of
this agreement. The Company has issued 200,000 shares of its common stock to
Dr. Wu in August 1997, valued at $.15 per share, and 333,333 shares in June
1999, valued at $.81 per share for services rendered.
51
<PAGE>
PART III
ITEM 1 - INDEX TO EXHIBITS
The Following list describes the exhibits filed as part of this Registration
Statement on Form 10-SB:
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
3.1 Certificate of Incorporation as filed on August 7, 1997*
3.2 Amendment to Certificate of Incorporation as filed on November
4, 1997*
3.3 Bylaws*
4.1 Form of Stock Certificate*
10.1 Employment Agreement dated August 1, 1997 by and between the
Company and Mr. Daniel E. Charboneau*
10.2 License Agreement for Patent Rights dated November 1, 1997*
10.3 Consulting Agreement with East Coast Entertainment dated February
4, 1998*
10.4 Consulting Agreement with Advance Data Information dated October
10, 1997*
10.5 Employment Agreement dated August 7, 1997*
10.6 Letter Agreement with Sands Brothers & Co., LTD, dated
March 6, 2000**
10.7 Employment Agreement dated July 1, 1999*
10.8 Deployment and Installation Agreement with Fusion Capital
Corp., dated May 1, 2000**
27.1 Financial Data Schedule**
* Incorporated by reference to Registration Statement on Form 10-SB, filed
with the Securities and Exchange Commission on December 30, 1999.
** Previously filed.
ITEM 2 - DESCRIPTION OF EXHIBITS
The required exhibits are attached hereto, as noted in Item 1 above.
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized
Fonecash, Inc
Date: June 7, 2000 /s/ Daniel E. Charboneau
52
