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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20546
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 OF INCORPORATION (I.R.S. EMPLOYER
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 $413,236
from Inception to September 30,1999. The Company expects its accumulated deficit
to grow for the foreseeable future.
The Industry
The industry is generally referred to as the 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 plastic cards, 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 Company's Operation 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 low cost terminal and a system of computers, utilizing established
communications networks, both wired and wireless, for processing the data from
credit and debit cards.
The Company intends to market a product line that is low cost, high quality and
low maintenance, and thus, anticipates that it will be able to compete with the
current makers of terminals. In addition to the terminals, the Company intends
to utlize a different, simplified method for collecting and transmitting the
credit card data.
The Company has never operated under any other name, nor has is 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 an agreement with Advance Data
Information, Ltd., (hereinafter "ADI"), located in Taipei, Taiwan, to supply 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, who employs
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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.
On November 1,1997, the Company entered into a License agreement with Mr. Thomas
J. Ulrich by which it acquired exclusive, worldwide rights to a U.S. patent
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 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. 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 automated computer system, 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, and pre-pay card activation.
Much of the Company's effort from inception to the present has been focused on
the design and engineering of the products, laboratory testing of the first
models, and the making of molds for the volume manufacturing process. To date
the Company has produced two terminals; one is a desk model and the another is a
hand-held terminal similar to a cell phone. The Company is now in the process of
manufacturing 1000 terminals which will be shipped early in 2000 for actual
field testing of both models with potential customers. Testing includes the
certification from the Federal Communication Commission (FCC) for 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.
Also, much of the time from inception to the present, the Company has been
involved in the raising of capital, first from the sale of 502,250 shares of its
common stock, and then, from the sale of an additional 657,372 shares from a
Regulation D, Rule 504 offering. The total funds raised from these two stock
offerings was $812,629.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. Management believes that the Company can benefit from having a
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stake in an Internet company with the potential of profits that would add value
to the investment of the shareholders of the Company.
Another intended use of the funds was for possible acquisitions. The Company's
philosophy has been to search for targets of opportunity that would add revenues
and services so 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 service. The Company has searched for companies with a marketing and
sales force, or companies with revenues and communication equipment.
The Company has considered acquiring its partner's Taiwan company, ADI. The
Company believes such an acquisition would help satisfy its a 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, which was
formed in 1996, and has been in the business of placing credit card terminals
among merchants and has a trained sales forces 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.
The Company, however, 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.
Since any merger or acquisition for the Company would depend greatly on its
publicly trading shares, management of the Company also believes that, a
possible method of getting its stock listed would be to purchase a reporting
shell company. As a prudent measure, in order to protect its initial investors
who took the greatest risks and who were anticipating the public listing of
their shares, the Company decided to set aside a certain amount of funds as
insurance to accomplish this goal. Also, in line with the thinking of the
Company was that a reporting shell could be useful in acquiring an especially
attractive company in the industry which wanted to become public and had useful
assets and wished to combine with a public company in the fastest way possible.
The Company sought to hedge its plans so that, if one avenue of getting to the
public market was denied, another avenue was at hand. If both the Company and a
fully owned subsidiary were to become publicly reporting companies, the outcome
would add value to the investment of the shareholders.
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No public shells have been purchased although the Company has identified a few
possible targets. No discussions with the owners of the reporting shells have
taken place, nor is there any assurance that the Company will purchase a
reporting shell company, nor whether it is in the best interest of the
shareholders that a shell company be purchased. In any event, shareholders of
both companies would have to vote and agree to such a purchase and, at this
time, neither discussions with shareholders, nor a vote has taken place.
The Company's Target Market
The Company believe 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. The fonecash terminal 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.
2. HOME INSTALLED UNIT. With 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, instant credit card payment is made available through the fonecash
terminal. The telephone system is the largest wide area network (WAN) in the
world and its use in connecting to 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 a 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's representative 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 information fraudulently.
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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 cards 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 activates 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, and credit card authorization 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 merchant take credit card transaction by
making a paper impression of the card, then, after having the cardholder sign a
receipt, the merchant take these paper receipts to a bank where they are then
processed like paper checks with the funds being received in the merchant's bank
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 low cost, high quality, low maintenance terminal, it
anticipates that it will be able to attract many of these low volume merchants
who are seeking fast, simple and a low cost 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:
- - - Develop other markets for transaction automation, such as in-home sales and
the home market.
- - - Target the low volume, paper based merchants which the Company estimates
number approximately 1.3 million accounts held by domestic banks and
financial institutions in the United States.
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- - - 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.
- - - 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. There can be no assurances, however, that
the Company will be successful in implementing the above strategies.
Sources of Revenues
Through September 30,1999, 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
merchants 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.
Marketing Strategy
The Company has engaged a firm to create promotional brochures regarding the
Company's terminals and Company's services, emphasizing price, quality and
support services.
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 has engaged 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.
Products Terminal Hardware:
Currently there are two terminals, manufactured by Yue-Shoung, Ltd. in Taiwan,
and available for sale by the Company unlike any similar terminal in the market.
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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 by the
Company's computers.
FoneCash Terminals Main Unique Features
The Company believes that the main unique features that set fonecash terminals
apart from the competition are:
- - - Low cost
- - - Telephone line powered/ no battery; no external power adapter needed
- - - 9 memory pre-dialer keys- easily programmable
- - - Sophisticated call routing; works on any analog system
- - - User friendly and user installable
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 but have not received compensation for their services.
Proprietary Rights
The Company licenses the marketing 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. Tile
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
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terminals. 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.
Competition
The industry is generally referred to as the 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 plastic cards, or from data
stored on a microchip embedded on a plastic card.
The other segment of this industry consist of 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.
Terminal Manufacturers
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 product.
Hypercom was founded in Australia, and 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.
Payment Processors
All credit cards transactions must be cleared through a transaction payment
processor, and all automatic credit card terminal which connect directly to the
computers of the transaction payment processors must be certified by the
transaction
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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 terminal translates to
higher training cost for their customer service personnel and, therefore, they
try to stick with one piece of equipment.
The resistance of the transaction processor 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 receive a stream of data in digital form
from the Company's computers for the benefit of low volume merchants. These low
volume merchants represent an enlarged customer base for the processors,
acquired with very little effort or expense on their part.
Risks from Competitors
Even though the Company believes it has strategies to overcome barriers to entry
into this industry, the Company's competitors have longer operating histories
and significantly greater financial, technical, marketing and other resources
than the Company. Many of the competitors have extensive customer bases and
strong customer relationships that they could leverage, including relationships
with the Company's potential customers. These competitors also have
significantly stronger customer service organizations than the Company. In
addition, these competitors 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 competition.
In addition, the Company often faces additional competitive factors in foreign
countries including, preferences for local vendors, difficulties in obtaining
necessary certifications and government tariff policies. Finally, the Company
believes that it will need to continue to introduce products containing enhanced
features and additional application software programs in order to remain
competitive. There can be no assurance that the Company will be 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.
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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 its 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:
- - - persuading banks to outsource their paper-based merchant accounts;
- - - finding and hiring personnel with an expertise in computer software and
hardware technology, banking, and 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 September 30,1999, the Company had an
accumulated deficit of $413,236. 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 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.
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4. 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.
5. 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.
6. 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.
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
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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 of this
registration statement.
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, are 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.
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 low cost,
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 fees collected from each transaction. As of October
31,1999, no revenues have been generated from sales, but management anticipates
sales to commence in 2000 after real-time tests are performed with a select
group of merchants and in-home salespersons. No real-time or field test have
been performed as yet and there are no assurances that these tests will be
performed.
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 $32,270. (See Note 11 of the Financial Statements.) No amount over
$60,000 has been borrowed from any related party.
For the period ended December 31,1998, the Company raised seed capital through
the sale of its common shares for a total of $84,965 of which $75,357 was used
for
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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.
Commencing January 1999 to September 30,1999, the Company raised a total of
$727,664 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. 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 September 30,1999 was $812,629.
From January 1,1998 to September 30,1998, the loss from operations was $56,436.
Of this amount, legal and professional fees amounted to $9,916; marketing
expense totaled $6,500; office expenses, $12,715 and consulting fees, $27,250.
From January 1,1999 to September 30,1999, the loss from operations was $282,748.
Legal and professional fees were $70,796; lease expense of $30,671; marketing
expenses totaled $25,320; office expense, $21,320; wages and benefits for Taiwan
employees, $22,969; R&D, $21,171, and consulting fees were $89,501.
The Company's plan of operation for the next twelve months is as follows:
First Half 2000
1. Test 400 terminals with four banks for a period of 30 days.
2. Test 100 terminals with 2 groups of in-home salespersons for 30 days.
3. Analyze data from the test and compare cost and profits.
4. Negotiate orders for installation of terminals with banks.
5. Negotiate with existing sales organizations for distribution and sales.
Second Half 2000
6. Provide salary and benefit compensation for Dr. Starr, Mr. Mauti and
Mr. Mosher.
7. Start manufacturing 20,000 terminals.
8. Start development of wireless terminal models.
9. Delivery and installation of 20,000 terminals.
In order to implement its growth plans for the next six months, the Company must
raise $500,000. After these field test have been completed successfully, the
Company anticipates that it will obtain orders for its product and services
which will then be able to be financed through traditional methods such as
Purchase Order financing, Account Receivable financing, or Letters of
Acceptance.
Failure to raise the $500,000 or the additional funding needed to finance it
goals will have a material adverse effect on the financial position of the
Company. There is no
15
<PAGE>
assurance that the Company will be able to raise any more working capital, and
any such financing will cause dilution of the shares to the existing
shareholders.
In order to raise the capital for these plans, the Company plans to complete a
private offering of shares of its common stock which have not been registered
under the Securities Act of 1933, as amended and will be sold in reliance upon
an exemption from registration afforded by Regulation S which will not be
offered to any person in the United States or to any U.S. person, as the term is
defined in Regulation S of the Securities Act of 1933, as amended.
Capital Needs
The Company anticipates the need for additional capital in order to implement
its plans for the second half of 2000. The Company estimates that it will need a
total of $3 million to accomplish its goals for the period July to December
2000, that is, manufacturing of terminals, implementing salaries and benefits
for personnel and initiation of R&D on the wireless model. The Company will need
to sell additional shares in either a private or public offering. Although the
Company has no financing commitment from a commercial source of funds or a
letter of intent with an investment banker/underwriter, the Company remains
confident that the financing resources should be available to meet the Company's
future financing needs. There can be no assurance, however, that favorable
financing terms will be available at the time 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.
Without financing, it would be difficult to cover working capital requirements
and future capital expenditures. No assurance can be given that any efforts to
raise additional capital will develop for the Company's common stock or that the
Company will be able to find financing.
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.
16
<PAGE>
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 October 31,1999, there were 5,159,872 shares issued and
outstanding.
<TABLE>
<CAPTION>
Name & Address Class Amount Owned Shares Beneficially
of Beneficial Owned % of Class
Owner
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Daniel E. Charboneau Common 2,000,000 39.0
215 Central Park Ave.
Hartsdale, NY 10530
John Jiann-Shong Wu Common 2,000,000 39.0
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 0.4
18 East Huron St.
Chicago,IL 60611
Total Shares of Officers and 4,120,000 80.4%
Directors as a Group
</TABLE>
17
<PAGE>
There are no arrangements either presently or planned that will results in a
change of control of the Company.
ITEM 5 - DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
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
</TABLE>
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. 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
18
<PAGE>
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.
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. Mr. Gill is currently 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 works as a consultant and is currently under
contract with USPI Processing Inc. a software development company with contracts
for the maintenance of various ATM 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
19
<PAGE>
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.
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
whose work was supported by both the Korean and American government agencies. 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
20
<PAGE>
year agreement, Mr. Charboneau shall receive a salary of $120,000 per year. Mr.
Charboneau has never been paid this salary and has elected to contribute this
pay to capital 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 the employee die during the term of employment, the
Company shall pay the employee's estate $250,000. The Company pays for a keyman
life insurance of $1 million with The Travelers Group with the Company as
beneficiary in case of the death of Mr. Charboneau.
Currently, no other officers or key personnel receive compensation. If the
Company becomes profitable and produces commensurate cash flow from operations,
the Company's Board of Directors will decide the level of compensation and the
timing for the commencement of this compensation.
The Company currently has no employee stock option plans, 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 800,000 shares of common stock to Dr. Wu.
for services rendered.
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.
The Company provided loans to Mr. Charboneau totaling $47,976, payable in one
year at a rate of 6% interest.
21
<PAGE>
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 December 31,1999, common
shares issued and outstanding totaled 5,159,872.
There are currently no preemptive rights connected with the common stock.
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 4, 502,500 shares of Common Stock that could be
sold pursuant to Rule 144 under the Securities Act of 1933, as amended.
As of October 31,1999, there were 153 shareholders of record of the Company's
Common Stock.
None of the common stock is (i) subject to outstanding options or warrants to
purchase, or securities convertible into, common equity of the Company, or (ii)
being or proposed to be, publicly offered by the Company, the offering of which
22
<PAGE>
could have a material adverse effect on the market price of the Company's common
equity.
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 October 31,1999, the Company has 5,159,822 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
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 4,000,000 at par
value of $0.0001 to its two founders, Daniel E. Charboneau and Dr. John Jiann
Shong Wu.
From June 1998 the Company raised seed capital from twenty four accredited
investors, selling 502,250 shares of common stock for a total consideration of
$167,500. This issuance was exempt by reason of Section 4(2) of the Securities
Act of 1933, as amended.
<TABLE>
<CAPTION>
SHARES ISSUED TO: CLASS OF SHARES AMOUNT
<S> <C> <C>
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
Leonard Cohen 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
23
<PAGE>
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
</TABLE>
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 was closed with
657,372 shares having been subscribed for a the total of $645,129. Because the
Company offered discounts to all, and any, potential investors based on certain
quantities of shares purchased, the average price of a share of common was
$1.25. The formula, stated in the Offering Circular which was given to all
potential investors, was:
<TABLE>
<CAPTION>
NUMBER OF SHARES DISCOUNT
<S> <C>
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%
</TABLE>
The effective price, taking into consideration the discounts, of the stock
offering was $1.25 per share.
<TABLE>
<CAPTION>
Shares Issued to: Class of Shares Amount
<S> <C> <C>
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
24
<PAGE>
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
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
25
<PAGE>
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
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
26
<PAGE>
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
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
</TABLE>
The Company's transfer agent is Manhattan Transfer Registrar Co., 58 Dorchester
Road, Lake Ronkonkoma, New York 11779, (516) 585-7341
27
<PAGE>
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 personal 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.
ITEM 6 - -FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS PAGE
FINANCIAL STATEMENT (INCEPTION TO DECEMBER 31,1998)
<S> <C>
INDEPENDENT AUDITOR'S REPORT 29
BALANCE SHEET 30
STATEMENT OF INCOME(LOSS) 31
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY 32
STATEMENT OF CASH FLOW 33
NOTES TO FINANCIAL STATEMENT 34
FINANCIAL STATEMENT (JANUARY 1,1999 TO SEPTEMBER 30,1999)
INDEPENDENT REVIEWER'S REPORT 37
BALANCE SHEET 38
STATEMENT OF INCOME (LOSS) 39
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY 40
STATEMENT OF CASH FLOW 41
NOTES TO FINANCIAL STATEMENTS 42
</TABLE>
28
<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 the development stage) as of December 31, 1998 and 1997, and the
related statements of operations, stockholders' equity, and cash flows for the
year ended December 31, 1998 and the period August 7, 1997 (inception) to
December 31, 1997, and for the period August 7, 1997 (inception) to December 31,
1998. These financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these financial
statements based on 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,
1998 and 1997, and the results of its operations and cash flows for the year and
period then ended and from August 7, 1997 (inception) to December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ Stewart H. Benjamin
Certified Public Accountant, P.C.
Plainview, New York
August 27, 1999
29
<PAGE>
FONECASH, INC.
(A Development Stage Company)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
-------- --------
<S> <C> <C>
Current assets:
Cash $ 9,628
Due from an officer/stockholder 12,764
-------- --------
22,392
-------- --------
Other assets: (Note 1)
Organization costs, net 263 337
-------- --------
$ 22.655 $ 337
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities: (Note 4)
Accounts payable $ 977
Loans payable 5,000 $ 10,572
-------- --------
5,977 10,572
-------- --------
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 - 4,204,500 shares in 1998
and 4,000,000 in 1997 420 400
Additional paid-in capital 84,965
Deficit accumulated during the development
stage (68,707) (10,635)
-------- --------
Total stockholders' equity (deficit) 16,678 (10,235)
-------- --------
$ 22.655 $ 337
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
FONECASH, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
AUG. 7, 1997 AUG. 7, 1997
YEAR ENDED (INCEPTION) TO (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Costs and expenses:
Amortization $ 74 $ 31 $ 105
General and administrative 57,998 10,604 68,602
--------- --------- -------
Net loss $ (58,072) $ (10,635) $68,707
========= ========= =======
Loss per common share $ (.014) $ .003
========= ========= =======
Weighted average common shares outstanding 4.045,685 4,000,000
========= ========= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
31
<PAGE>
FONECASH, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD AUGUST 7, 1997 (INCEPTION) TO DECEMBER 31, 1998
<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 4,000,000 400
Net loss for the period (10,635)
--------- ----- -------- ----------
Balances, December 31, 1997 4,000,000 400 (10,635)
Common stock issued 204,500 20 84,965
Net loss (58,072)
--------- ----- -------- ----------
Balances, December 31, 1998 4,204,500 $ 420 $ 84,965 $ (68,707)
========= ===== ======== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
32
<PAGE>
FONECASH, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
AUG. 7, 1997 AUG. 7, 1997
YEAR ENDED (INCEPTION) TO (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(58,072) $(10,635) $(68,707)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization 74 31 105
Common stock issued for services
Changes in assets and liabilities:
(Increase) decrease in amounts due from an
officer/stockholder (12,764) (12,764)
Increase (decrease) in accounts payable 977 977
Increase (decrease) in short-term loans (5,572) 10,572 5,000
-------- -------- --------
Net cash used in operating activities (75,357) (32) (75,389)
-------- -------- --------
Cash flows from investing activities:
Organization costs (368) (368)
-------- -------- --------
Net cash used in investing activities (368) (368)
-------- -------- --------
Cash flows from financing activities:
Proceeds from sale of common stock 84,985 400 85,385
-------- -------- --------
Net cash provided by financing activities 84,985 400 85,385
-------- -------- --------
Net increase (decrease) in cash 9,628 9,628
Cash at beginning of year
-------- -------- --------
Cash at end of year $ 9,628 $ -- $ 9,628
======== ======== ========
Supplemental disclosure of noncash investing and
financing activities:
Common stock issued for organizational costs $ $ $
======== ======== ========
Common stock issued for services and costs advanced $ $ $
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
33
<PAGE>
FONECASH, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
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, 1998, but management
anticipates to commence sales in the fourth quarter of 1999, or the first
quarter of 2000.
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.
ORGANIZATION COSTS
Organization costs are amortized over five years using the straight-line method.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's payables 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
34
<PAGE>
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 (DEFICIT)
COMMON STOCK
Since the date of inception, the Company has issued 4,204,500 shares of common
stock, 4,000,000 of which were for services and costs advanced, valued at $.0001
per share. These shares were issued to officers and directors of the Company.
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, 1998, the Company has net operating loss
carryforwards of $68,707, of which $58,072 may be available to offset future
taxable income through 2018 and $10,635 may be available to offset future
taxable income through 2012.
NOTE 4 - LOANS PAYABLE
The Company was indebted to an individual for $5,000 at December 31, 1998. The
loan was repaid in July 1999.
NOTE 5 - RELATED PARTY TRANSACTION
The Company provided loans to an officer/stockholder totaling $12,764 as of
December 31, 1998. The loans bear interest at 6% and are due within one year.
35
<PAGE>
NOTE 6 - 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 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 often years. No expenses have been recognized under this
arrangement for the year ended December 31, 1998.
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 will issue 200,000 shares of its common stock to ADI for
services rendered. No shares have been issued under this arrangement as of
December 31, 1998.
NOTE 7 - LICENSE AGREEMENT
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 for a license execution fee based upon capital
funding, and for royalties based upon gross sales of all licensed products sold,
neither of which has occurred as of December 31, 1998.
36
<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 September 30, 1999 and December 31, 1998, and the related
statements of operations, stockholders' equity and cash flows, for the nine
months ended September 30, 1999 and 1998, and for the period from August 7, 1997
(inception), to September 30, 1999, 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 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.
/s/ Stewart H. Benjamin
Certified Public Accountant, P.C.
Plainview, New York
December 28, 1999
37
<PAGE>
FONECASH, INC
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 389 $ 9,628
Notes receivable (Note 4) 40,382
Inventory (Note 1) 15,789
Prepaid expenses 25,000
--------- ---------
81,560 9,628
--------- ---------
Property and equipment, net (Note 6) 18,750
Other assets:
Organization cost, net (Note 1) 208 263
Patent rights, net (Note 7) 4,250
Investment, related party (Notes 8 & 11) 50,000
Cash surrender value of life insurance (Note 9) 12,297
Deposits (Note 8) 271,650
--------- ---------
338,405 263
--------- ---------
438,715 9,891
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 6,539 $ 977
Due to an officer/stockholder (Note 11) 32,270 45,344
Loans payable 5,000
--------- ---------
38,809 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 -
5,126,172 shares in 1999 and 4,204,500 in 1998 513 420
Additional paid-in capital 812,629 84,965
Deficit accumulated during the development stage (413,236) (126,815)
--------- ---------
Total stockholders' equity 399,906 (41,430)
--------- ---------
$ 438,715 $ 9,891
========= =========
</TABLE>
See accompanying notes and accountant's review report
38
<PAGE>
FONECASH, INC.
(A Development Stage Company)
STATEMENTS OF OPERATION
<TABLE>
<CAPTION>
Nine Nine Aug.7,1997
Months Ended Months Ended (Inception) to
September 30, September 30, September 30,
1999 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
Cost and expenses
Depreciation $ 6,250 $ -- $ 6,250
Amortization 805 55 910
General and administrative 282,748 56,381 409,458
----------- --------- -----------
289,803 56,436 416,618
----------- --------- -----------
Other Income (expenses)
Interest income 3,382 3,382
----------- --------- -----------
Net loss $ (286,421) $ (56,436) $ (413,236)
=========== =========== ===========
Primary and diluted loss per common share $ (.06) $ (.01)
=========== =========== ===========
Weighted average common shares outstanding 4,797,484 4,000,000
=========== ===========
</TABLE>
See accompanying notes and accountant's review report
39
<PAGE>
FONECASH, INC.
(A Development Stage Company)
STATEMENTS OF CHANGE IN STOCKHOLDERS' EQUITY
FOR THE PERIOD AUGUST 7,1997 (INCEPTION) TO SEPTEMBER 30,1999
<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 4,000,000 400
Net loss for the period (31,605)
--------- ----------- -------- ---------
Balances, December 31,1997 4,000,000 400 (31,605)
Common stock issued 204,500 20 84,965
Net Loss (95,210)
--------- ----------- -------- ---------
Balances, December 31,1998 4,204,500 420 84,965 (126,815)
Common stock issued 921,672 93 727,664
Net loss for the period (286,421)
--------- ----------- -------- ---------
Balances, September 30,1999 5,126,172 $ 513 $812,629 $(413,236)
========= =========== ======== =========
</TABLE>
See accompanying notes and accountant's review report.
40
<PAGE>
FONECASH, INC
(A Development Stage Company)
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Nine Nine Aug. 7,1997
Months Ended Months Ended (Inception) to
September 30, September 30, September 30,
1999 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $(286,421) $ (56,436) $(413,236)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 6,250 6,250
Amortization 805 55 910
Common stock issued for services
Changes in assets and liabilities:
(Increase) in inventory (15,789) (15,789)
(Increase) in prepaid expenses (25,000) (25,000)
(Increase) in utility deposit (250) (250)
(Decrease) in accounts payable 1,400 6,539
5,562
Increase (decrease) in amounts due to
officer/stockholder (13,074) 20,493 32,270
Increase (decrease) in short-tern loans (5,000)
--------- --------- ---------
Net cash used in operating activities (345,214) (34,488) (420,603)
--------- --------- ---------
Cash flows from investing activities:
Organization costs (368)
Purchase of property and equipment (25,000) (25,000)
Acquisition of patent rights (5,000) (5,000)
Increase in notes receivable (40,382) (40,382)
Investment in related company (50,000) (50,000)
Deposit (271,400) (271,400)
--------- --------- ---------
Net cash used in investing activities (391,782) (392,150)
--------- --------- ---------
Cash flow from financing activities:
Proceeds from sale of common stock 727,757 34,585 813,142
--------- --------- ---------
Net cash provided by financing activities 727,757 34,585 813,142
--------- --------- ---------
Net increase (decrease) in cash (9,239) 97 389
Cash at beginning of period 9,628
--------- --------- ---------
Cash at end of period $ 389 $ 97 $ 389
========= ========= =========
Supplemental disclosure of noncash investing and
financing activities:
Common stock issued for organizational costs $ $ $
========= ========= =========
Common stock issued for services and costs advanced $ $ $
========= ========= =========
</TABLE>
See accompanying notes and accountant's review report.
41
<PAGE>
FONECASH, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
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 September 30, 1999, but management
anticipates sales to commence in the 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
42
<PAGE>
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 nine months ended September 30, 1999 was $805.
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 5,126,172 shares of common
stock, 4,000,000 of which were for services and costs advanced, valued at $.0001
per share. These shares were issued to officers and directors of the Company. In
1999 the president of the Company contributed $60,000 to capital in exchange for
compensation.
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.
43
<PAGE>
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 September 30, 1999, the Company has net operating loss
carry forwards of $343,348, of which $311,743 may be available to offset future
taxable income through 2018 and $31,605 may be available to offset future
taxable income through 2012.
NOTE 4 - NOTE RECEIVABLE
Pursuant to a letter of intent dated June 5, 1999 to purchase a majority of the
common stock of Fusion Capital Corp. ("Fusion"), a Florida corporation, entered
into by the Company and Fusion, the Company simultaneously issued a loan to
Fusion of $37,000 to be paid in 10 equal installments 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 payable within 6 months. The
balance due on the notes was $40,382 as of September 30, 1999 includes accrued
interest of $3,382.
Fusion was organized in 1996 and had 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.
Discussions on the proposed acquisition have commenced but no definitive terms
have been agreed upon.
NOTE 5 - 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 September 30,1999.
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment consist entirely of a production mold purchased on
February 24, 1999 for $25,000. The mold has an estimated useful life of 3 years
and is depreciated using the straight-line method. Depreciation expense was
$6,250 for the nine months ended September 30, 1999.
44
<PAGE>
NOTE 7 - 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 September 30, 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.
NOTE 8 - 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 assets 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 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. The related party
investment is carried at cost, as there is no readily available market for these
shares. No impairment loss has been recorded since there have been no
significant adverse changes in legal factors or the business climate that could
affect the value of the asset.
NOTE 9 - 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 $12,297 on September 30,1999. There
were no borrowings against the cash surrender value.
NOTE 10 - DEPOSITS
Deposits consists of a utility deposit of $250 and an escrow deposit of
$271,400. On June 14, 1999 the Company's Board of Directors approved a
resolution to purchase a reporting company with publicly trading stock
registered on the OTC Bulletin Board. Management of the Company has taken such
action as a means of listing its stock and protecting its investors' interest.
The deposit is held with an escrow agent who has knowledge of various "shell"
companies. The escrow
45
<PAGE>
agent's fee is 10% of the escrow deposit. The escrow agreement terminates and
the escrow balance becomes refundable if the Escrowee is unable to locate a
target "shell" company within 180 days. The Company has indicated its intention
to purchase one of two "shell" companies that are currently being reviewed.
NOTE 11 - RELATED PARTY TRANSACTIONS
The Company was indebted to an officer/stockholder for expenses advanced on
behalf of the Company, in the amount of $32,270 at September 30,1999. There are
no specific terms for repayment.
The Company leases its executive offices and storage facilities from the
president of the Company under a month-to-month operating lease. Rent expenses
of $17,373 was charged to operations during the nine months ended September
30,1999, 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 $39,215 were charged to operations during the nine months ended
September 30,1999.
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.
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. The Company reviews the carrying
value of its investment on a daily basis through discussions with its
consultant.
NOTE 12 - 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
six months ended September 30, 1999.
46
<PAGE>
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 will issue 200,000 shares of its common stock to ADI for
services rendered. No shares have been issued under this arrangement as of
September 30, 1999.
PART III
ITEM 1 - INDEX TO EXHIBITS *
* The Company's Exhibits were submitted with its first registration statement,
dated December 28, 1999.
FoneCash, Inc
Date: /s/Daniel E. Charboneau
47
