<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
--------- ---------
Commission File No. 000-28749
FREEDOM SURF, INC.
(Name of Small Business Issuer in Its Charter)
Nevada 88-0446457
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
17011 Beach Blvd., Suite 710
Huntington Beach, CA 92648
(Address of Principal Executive Offices) (Zip Code)
(714) 843-6633
(Issuer's Telephone Number)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or such shorter
period of time that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ ] No [X]
State the number of shares outstanding of each of the issuer's classes of common
equity as of September 30, 2000: Common stock 10,159,000 shares, Preferred Stock
0 shares
Transitional Small Business Disclosure Format
(Check one): Yes [ ] No [x]
1
<PAGE>
TABLE OF CONTENTS
PART 1 - FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements..................................... 3/10
Item 2. Plan of Operation........................................ 11
PART 11- OTHER INFORMATION
Item 1. Legal Proceedings........................................ 12
Item 2. Changes in Securities.................................... 13
Item 3. Defaults Upon Senior Securities.......................... 13
Item 4. Submission of Matters to a Vote of Security Holders...... 13
Item 5. Other Information........................................ 13
Item 6. Exhibits and Reports on Form 8-K......................... 13
SIGNATURES....................................................... 14
2
<PAGE>
FINANCIAL STATEMENTS
(Unaudited)
September 30, 2000
TABLE OF CONTENTS
PAGE
BALANCE SHEET - ASSETS 4
BALANCE SHEET - LIABILITIES AND SHAREHOLDER'S EQUITY 5
STATEMENT OF OPERATIONS 6
STATEMENT OF STOCKHOLDERS' EQUITY 7
STATEMENT OF CASH FLOWS 8
NOTES TO FINANCIAL STATEMENTS 9
3
<PAGE>
<TABLE>
FREEDOM SURF, INC. AND SUBSIDIARY
Consolidated Balance Sheet
September 30, 2000
ASSETS
<CAPTION>
<S> <C>
CURRENT ASSETS
Cash $ 358,488
Accounts receivable, net of allowance
for doubtful accounts of $7,280 360,950
Employee advance 1,500
Loan to directors 99,006
Inventory 323,596
Prepaid expenses 698
------------
TOTAL CURRENT ASSETS 1,144,238
PROPERTY AND EQUIPMENT
Automobile 55,732
Furniture & fixture 71,580
Capital lease 74,693
Office equipment 58,990
Machinery & equipment 5,425,563
------------
5,686,558
Less: accumulated depreciation (456,515)
------------
TOTAL PROPERTY & EQUIPMENT 5,230,043
OTHER ASSETS
Goodwill, net of accumulated amortization of $29,478 2,800,454
Organization cost, net of accumulated amortization of $2,825 53,675
Deferred tax assets 3,121,762
------------
TOTAL OTHER ASSETS 5,975,891
------------
TOTAL ASSETS $12,350,172
============
See accompanying notes to consolidated financial statements and accountant's report
4
<PAGE>
FREEDOM SURF, INC. AND SUBSIDIARY
Consolidated Balance Sheet
September 30, 2000
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable & accrued expenses $ 439,271
Accrued interest 58,458
Line of credit 463,500
Deposit on sale of equipment 750,000
Loan from stockholder 131,776
Capital lease obligation, current portion 26,787
------------
TOTAL CURRENT LIABILITIES 1,869,792
LONG-TERM LIABILITIES
Notes payable 1,135,000
------------
TOTAL LIABILITIES 3,004,792
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, 20,000,000 shares authorized,
10,159,000 shares issued and outstanding 10,159
Paid in capital 13,938,316
Accumulated deficit (4,603,095)
------------
TOTAL STOCKHOLDERS' EQUITY 9,345,380
-----------
TOTAL LIABILITIES & OWNER'S EQUITY $12,350,172
============
See accompanying notes to consolidated financial statements and accountant's report
</TABLE>
5
<PAGE>
<TABLE>
FREEDOM SURF, INC. AND SUBSIDIARY
Consolidated Statements of Income
For the Three and Nine Months Ended September 30, 2000 and 1999
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
(Consolidated) (Unconsolidated) (Consolidated) (Unconsolidated)
<S> <C> <C> <C> <C>
SALES $ 731,969 $ - $ 2,177,528 $ -
COST OF SALES 683,943 - 1,701,441 -
------------- ------------- ------------- -------------
GROSS PROFIT 48,026 - 476,087 -
OPERATING EXPENSES
Selling 3,404 - 15,556 -
General and administrative 7,491,276 - 7,956,336 6,490
Depreciation & amortization 30,896 - 63,455 -
------------- ------------- ------------- -------------
TOTAL OPERATING EXPENSES 7,525,576 - 8,035,347 6,490
------------- ------------- ------------- -------------
OPERATING INCOME (7,446,654) - (7,559,260) (6,490)
OTHER INCOME (EXPENSE)
Other income - - - -
Interest expense (43,343) - (101,747) -
------------- ------------- ------------- -------------
TOTAL OTHER INCOME (EXPENSE) (43,343) - (101,747) -
------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAX (7,489,997) - (7,661,007) (6,490)
PROVISION FOR INCOME TAX (3,008,357) - (3,064,402) -
------------- ------------- ------------- -------------
NET INCOME $ (4,481,640) $ - $ (4,596,605) $ (6,490)
============= ============= ============= =============
EARNINGS PER SHARE - BASIC $ (0.44) $ - $ (0.45) $ -
============= ============= ============= =============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 10,159,000 5,000,000 10,159,000 5,000,000
============= ============= ============= =============
See accompanying notes to consolidated financial statements and accountant's report
</TABLE>
6
<PAGE>
<TABLE>
FREEDOM SURF, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2000 and 1999
<CAPTION>
Nine Months Ended
September 30,
2000 1999
------------ ------------
(Consolidated) (Unconsolidated)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(4,596,605) $ (6,490)
Adjustments to reconcile net income (loss) to net cash provided 4,277,066
used by operating activities
Issuance of stock in lieu of salary -
Deferred taxes (213,025) -
Depreciation and amortization 63,455 -
(Increase) decrease in accounts receivable (162,631) -
(Increase) decrease in employee advance - -
(Increase) decrease in inventory - -
(Increase) decrease in prepaid expense 1,620 -
Increase (decrease) in accounts payable and accrued expense 273,626 1,490
Increase (decrease) in accrued interest 58,458 -
------------ ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (298,036) (5,000)
CASH FLOWS FROM INVESTING ACTIVITIES
Deposit from buyer of equipment 750,000 -
Capitalized organization expenditures (56,500) -
Acquisition of property and equipment (50,111) -
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES 643,389 -
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from line of credit 214,500 -
Net proceeds from notes payable - -
Principal payments on capital lease obligation (17,295) -
Loans to directors (79,006) -
Payment of Loan from Stockholder (105,321)
Proceeds from issuance of stock - 5,000
------------ ------------
NET CASH USED BY FINANCING ACTIVITIES 12,878 5,000
------------ ------------
NET INCREASE (DECREASE) IN CASH 358,230 -
CASH BALANCE, BEGINNING OF PERIOD 257 -
------------ ------------
CASH BALANCE, END OF PERIOD $ 358,488 $ -
============ ============
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for interest $ 43,289 $ -
============ ============
Cash paid during the period for income tax $ - $ -
============ ============
SUPPLEMENTAL SCHEDULES OF NONCASH OPERATING, INVESTING,
AND FINANCING ACTIVITIES
Common stock issued for services rendered $ $ -
============ ============
Note receivable incurred for issuance of common stock $ 20,000 $ -
============ ============
Common stock issued for purchase of equipment $ 4,845,000 $ -
Note payable issued for purchase of equipment 335,000
------------ ------------
Total noncash purchase of equipment $ 5,180,000 $ -
============ ============
Common stock issued for acquisition of subsidiary $ 1,950,030 $ -
Note payable issued for acquisition of subsidiary 800,000 -
------------ ------------
Total noncash consideration 2,750,030 -
Total liabilities assumed by the parent company 694,336 -
Total assets acquired (614,434) -
------------ ------------
Goodwill recognized $ 2,829,932 $ -
============ ============
See accompanying notes to consolidated financial statements and accountant's report
</TABLE>
7
<PAGE>
FREEDOM SURF, INC. AND SUBSIDIARY
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
September 30, 2000
(Unaudited)
NOTE 1 - ACCOUNTING POLICIES AND PROCEDURES
1. Freedom Surf, Inc. ("the Company") uses the accrual method of
accounting, recording revenues when a transaction occurs where the
Company has a reasonable expectation of receiving the revenue.
2. The Company has not yet adopted any policy regarding payment of
dividends. No dividends have been paid since inception.
3. The costs of equipment and real property improvements are depreciated
over the estimated useful life of the asset utilizing the straight-line
method of depreciation.
4. The preparation of these financial statements are in conformity
with generally accepted accounting principles. Therefore
management has made estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the financial
statements and revenues and expenses for the period reported. Actual
results may differ from these estimates.
A review is substantially less in scope than an audit. These interim
results are not necessarily indicative of results for a full year.
5. The Company has a net operating loss carry forward as of December 31,
1999. The Company will review its need for a provision for federal
income tax after each operating quarter and each period for which a
statement of operations is issued. The Company's marginal tax rate is
34%. The Company's effective tax rate is 0% due to the tax loss carry
forward.
6. The Company's subsidiary, Southern California Logo, Inc. ("SOCAL") has
changed its year end to December 31 to conform to the Company's fiscal
year end.
NOTE 2 - ACQUISITION
On January 4, 2000, the Company acquired all of the issued and outstanding
common stock of SOCAL for 900,000 shares of the Company stock at $2.1667 per
share plus $800,000 in a note payable to Rick Songer at an interest rate of
prime plus one due on or before July 15, 2000. The note was extended to December
15, 2000. The stock was issued on May 2, 2000. The Company also assumed the
outstanding liabilities of SOCAL.
8
<PAGE>
FREEDOM SURF, INC. AND SUBSIDIARY
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
September 30, 2000
(Unaudited)
NOTE 2 - ACQUISITION, CONTINUED
This transaction has been accounted for under the purchase method of accounting
and the results of operations of SOCAL are included in the historical financial
statements from the date of acquisition.
Common stock issued to SOCAL's shareholder $1,950,030
Note payable 800,000
Liabilities assumed and incurred 467,152
----------
Total acquisition cost 3,217,182
Less: Assets acquired 387,250
----------
Excess of purchase price over net assets acquired $2,829,932
==========
NOTE 3 - COMMON STOCK TRANSACTIONS
On April 5, 1999, the Company completed a public offering that was exempt from
federal registration pursuant to Regulation D, Rule 504 of the Securities Act of
1933 as amended. The Company sold 5,000,000 shares of common stock at a price of
$.001 per share for a total amount of $5,000.
On or about December 10, 1999 the Company purchased equipment (the "Equipment")
to manufacture neoprene wet suits valued at $5,180,000 by issuing 969,000 shares
of the Company's stock and issuing a promissory note in the original principal
amount of $335,000. The Company did not obtain a report from a licensed
independent appraiser as to the valuation of the Equipment.
On May 2, 2000, the Company issued 900,000 shares at $2.1667 per share to
acquire a subsidiary (see Note 2).
On June 20, 2000, the Company issued 500,000 restricted shares of the Company's
Common stock for future consulting fees to World Alliance
Consulting,Incorporated.
On June 20, 2000, the Company issued 500,000 restricted shares of the Company's
Common stock for future consulting fees to International Capital Group LLC.
NOTE 4 - STOCK OPTIONS
On March 15, 2000, the Company granted 4,560,000 stock options at an exercise
price of $0.01 to its key employees and service providers considered essential
to the continuation of the business.
On July 5, 2000, Raece Richardson exercised 2,000,000 stock options at
$0.01 per share.
NOTE 5 - EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed based on the weighted average number of
shares of common stock outstanding during the period. Basic loss per share for
nine months ended September 30, 2000 is $0.03.
9
<PAGE>
FREEDOM SURF, INC. AND SUBSIDIARY
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
September 30, 2000
(Unaudited)
NOTE 6 - SEGMENT REPORTING
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" requires that a publicly traded company must disclose information
about its operating segments when it presents a complete set of financial
statements. Since the parent did not have substantial operations in 2000, and
all income is derived from the Subsidiary, detailed information of the
reportable segment is not presented; accordingly, detailed information of the
reportable segment is not presented.
NOTE 7 - GOING CONCERN
The accompanying financial statements are presented on the basis that the
Company is a going concern. Going concern contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business over a
reasonable length of time. As shown in the accompanying financial statements,
the Company incurred a net loss of $4,596,605 for the nine months ended
September 30, 2000 and an accumulated deficit of $4,603,095.
Management is currently involved in active negotiations to obtain additional
financing and is actively increasing marketing efforts to increase revenues. The
Company's continued existence depends on its ability to meet its financing
requirements and the success of its future operations. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
NOTE 8 - DISPOSITIONS
On October 19, 2000 the Company sold its neoprene wet suit equipment to
Ronbridge Investments. Ltd. ("Ronbridge") The sale price was $4,750,000.
Ronbridge made a cash deposit of $750,000 in August 2000. The balance of the
payment will be made on or before March 18, 2002 with interest payable quarterly
at the rate of 6%. At the time of the sale, Ronbridge could be deemed to be an
affiliate of the Company in that Ronbridge's controlling shareholder was related
to Raece Richarson, who is a major shareholder and prior officer and director of
the Company. It is the Company's understanding that Ronbridge did not and does
not now have sufficient resources to pay the amount due to the Company. The
Company understands that it is Ronbridge's intent to resell the equipment and
use the proceeds to pay the amount it owes the Company on this transaction. The
Company understands that the $750,000 payment was paid by an individual who was
assisting Ronbridge on this transaction.
10
<PAGE>
Item 2 - Management's Discussion & Analysis or Plan of Operation
The Company was organized August 2, 1997(Date of Inception) under the laws of
the State of Delaware, as Interstate Capital Corporation The Company has no
operations and in accordance with SFAS #7, the Company is considered a
development stage company. On or about November 17, 1999, the Company caused a
Nevada corporation to be incorporated under the name of Freedom Surf, Inc.,
authorized to issued 20,000,000 shares of $.001 par value common stock, and
5,000,000 shares of $.001 par value preferred stock and merged with that
Corporation, for the purpose of changing its domicile to Nevada, in accordance
with Articles of Merger adopted on or about November 17, 1999.
On April 5, 1999, the Company completed a public offering that was exempt from
federal registration pursuant to Regulation D, Rule 504 of the Securities Act of
1933 as amended. The Company sold 5,000,000 shares of Common Stock at a price of
$.001 per share for a total amount raised of $5,000.00.
On or about December 10, 1999, the Company purchased equipment (the "Equipment")
to manufacture neoprene wet suits valued at $5,180,000.00 by issuing 969,000
shares of its common stock and issuing a promissory note in the original
principal amount of of $335,000.00. The Company did not obtain a report from a
licensed independent appraiser as to the valuation of the Equipment.
On October 19, 2000, the Company sold the Equipment to Ronbridge Investments
Limited, a Hong Kong company ("Ronbridge") for $4,750,000.00, accepting a down
payment of $750,000.00 in cash which was received on August 31, 2000 and a
promissory note for the balance of $4,000,000.00. The balance is to be paid on
or before March 18, 2002. The balance carries interest until paid at the rate of
6% per annum. At the time of the sale, Ronbridge could be deemed to be an
affiliate of the Company in that Ronbridge's controlling shareholder was related
to Raece Richardson, who is a major shareholder and prior officer and director
of the Company. It is the Company's understanding that Ronbridge did not and
does not now have sufficient resources to pay the amount due to the Company. The
Company understands that it is Ronbridge's intent to resell the Equipment and
use the proceeds to pay the amount it owes the Company on this transaction. The
Company understands that the $750,000 payment was paid by an individual who was
assisting Ronbridge on this transaction.
On the acquisition of the Equipment, the Company negotiated the transaction with
the owner of the Equipment who was STS de Costa Rica, SA (the "Seller"). At the
time of the Company's purchase, the Equipment was being warehoused by the Seller
in Costa Rica. Based on advice from the Company's outside consultants the
acquisition transaction was structured so that Pacific Standard Financial Group,
Inc. ("Pacific") acquired the Equipment from the Seller and resold it to the
Company.
It is the Company's understanding that Pacific purchased the Equipment from the
Seller for the same consideration that the Company agreed to pay Pacific except
as follows: the promissory note issued by Pacific to the Seller was in the
original principal amount of $300,000. Further, it is the Company's
understanding that Pacific transferred the 969,000 shares to the Seller as part
of its agreement with the Seller to purchase the Equipment.
At the time of this acquisition, the Equipment was being stored at a location in
Costa Rica by the Seller. After this transaction, the Company did not take
possession of the Equipment and it remained in storage under the control of the
Seller. As a part of the agreement, the Company was required to pay storage fees
but it has not done so. At the time of the transaction, the Company planned to
move the Equipment to a location in Mexico and use it in the Company's proposed
manufacturing operations. Since that time, the Company decided to not
manufacture wetsuits through its own operations but to contract with outside
parties for the manufacture of its wetsuits. Accordingly, after this
transaction, the Company decided it did not have further use for the Equipment
and, for this reason, decided to sell it to Ronbridge.
11
<PAGE>
The Company has not made the required payment to Pacific of $335,000 and Pacific
has not made the required payment to the Seller of $300,000. The Company does
not have the resources at the present time to make this payment. On November 16,
2000, the Company received a notice ("Notice") from the Seller of the Equipment
declaring a default in the purchase of the Equipment on account of the
nonpayment of the $300,000 due the Seller. The Notice states that the Seller is
terminating the agreement. Based on this, the Company will seek to recover from
the Seller the 969,000 common shares it paid for the Equipment. The Company
believes it can be successful in recovering these shares of common stock but
there is no assurance that the Company will be successful in doing so. Based on
this Notice, it appears the Company is unable to deliver the Equipment to
Ronbridge. The Company has notified Ronbridge that it is unable to deliver the
Equipment and has notified Ronbridge that it is unable to refund the $750,000
previously paid to the Company on behalf of Ronbridge. The Company is
negotiating a settlement of this matter with Ronbridge on terms that will
involve the issuance of shares of the Company's common stock to Ronbridge in
lieu of returning the $750,000 paid on behalf of Ronbridge. The Company believes
it can be successful in negotiating a settlement of this transaction based on
the issuance of common stock but there can be no assurance the Company will be
successful in this.
Effective as of January 4, 2000, the Company acquired all of the issued and
outstanding shares in Southern California Logo, Inc. (Sewcal Logo). The contract
for the purchase of the corporation was executed on May 4, 2000 with an
effective date of January 4, 2000.
Freedom Surf, Inc. ("FSI" or the "Company"), a Nevada corporation, was formed to
enter into the surf apparel and accessory products market, and consolidate and
manage an integrated network of companies in the surfing industry. The Company
will also manufacture and market surf suits and surf accessory products.
Sewcal Logo employs around 60 persons and is a leading supplier of high quality
promotional clothing to the film industry. Sewcal Logo has provided product for
over 500 movies including The Rock, Armageddon, Top Gun, Terminator 1 and 2 and
many other major films. Freedom Surf plans to continue producing film related
products and expand the manufacturing facility to include manufacture of high
quality surf and skate clothing products.
The Company continues the development of the "Freedom Wetsuit" brand,
incorporating the company's proprietary stitch free technology. First run
products have been developed and proven under real surf conditions and
production of the suits is expected to begin in 2000 for Fall/Winter delivery.
The Company purchased exclusive marketing rights to the "Stitchfree"
manufacturing process.
The Company's strategy on a going forward basis is to acquire operating
businesses in the ocean sports field. The Company has from time to time entered
into letters of intent in connection with making acquisitions. The purpose of
this is to allow the Company conduct due diligence on the acquisition targets.
In fact, the Company previously entered into letters of intent to acquire three
companies but, for a variety of reasons, decided not to proceed with the
acquisitions. If the Company decides to make an acquisition, it will be required
to raise additional capital. No assurance can be given that the Company will be
able to make acquisitions on reasonable terms or to obtain funding for any
acquisitions.
12
<PAGE>
Liquidity and Capital Resources:
From inception, operations have been financed primarily through loans from
shareholders, issuance of promissory notes in connection of its acquisition of
the Equipment and Sewcal Logo, the sale of the Equipment to Ronbridge, from its
line of credit, credit from vendors and cash flow from Sewcal Logo.
Sewcal Logo has a $500,000 line of credit from South Bay Bank. The line of
credit is renewable every year and currently expires on March 1, 2001. The
interest rate on the line of credit is prime plus 1 1/2 percent. The line of
credit is secured by all of Sewcal Logo's inventory, equipment and accounts
receivable.
For the three and nine months ended September 30, 2000, the Company had
operating losses of $7,489,997 and $7,661,007, respectively, and net losses of
$4,481,640 and $4,596,605, respectively. At September 30, 2000, the Company had
a working capital deficit of $725,554. Funds available from operating activities
and under the Company's line of credit are not sufficient to meet the Company's
current and ongoing obligations. The Company's ability to continue as a going
concern is dependent upon its ability to generate profitable operations in the
future, obtain concessions from vendors and/or to obtain the necessary financing
to meet its obligations and repay its liabilities arising from normal business
operations when they become done. The Company is currently in the process of
raising additional funds through the private placement of its securities
sufficient to fund its operations through at least September 30, 2001, however,
no assurance can be given that these efforts will be successful.
Forward Looking Statements:
This Quarterly Report on Form 10-QSB may be deemed to contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. The Company intends that
such forward-looking statements be subject to the safe harbors created by such
statutes. The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. Accordingly, to
the extent that this Annual Report contains forward-looking statements regarding
the financial condition, operating results, business prospects or any other
aspect of the Company, please be advised that the Company's actual financial
condition, operating results and business performance may differ materially from
that projected or estimated by the Company in forward-looking statements. The
differences may be caused by a variety of factors, including but not limited to
adverse economic conditions, intense competition, including intensification of
price competition and entry of new competitors and products, adverse federal,
state and local government regulation, inadequate capital, unexpected costs and
operating deficits, increases in general and administrative costs, lower sales
and revenues than forecast, loss of customers, customer returns of products sold
to them by the Company, disadvantageous currency exchange rates, termination of
contracts, loss of suppliers, technological obsolescence of the Company's
products, technical problems with the Company's products, price increases for
supplies and components, inability to raise prices, failure to obtain new
customers, litigation and administrative proceedings involving the Company, the
possible acquisition of new businesses that result in operating losses or that
do not perform as anticipated, resulting in unanticipated losses, the possible
fluctuation and volatility of the Company's operating results, financial
condition and stock price, losses incurred in litigating and settling cases,
dilution in the Company's ownership of its business, adverse publicity and news
coverage, inability to carry out marketing and sales plans, loss or retirement
of key executives, changes in interest rates, inflationary factors, and other
specific risks that may be alluded to in this Annual Report or in other reports
issued by the Company. In addition, the business and operations of the Company
are subject to substantial risks which increase the uncertainty inherent in the
forward-looking statements. In light of the significant uncertainties inherent
in the forward-looking information included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives or plans of the Company will be achieved.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company may from time to time be involved in various claims, lawsuits,
disputes with third parties, actions involving allegations of discrimination, or
breach of contract actions incidental to the operation of its business. The
Company is not currently involved in any such litigation which it believes could
have a materially adverse effect on its financial condition or results of
operations other than a potential dispute with the Seller of the Equipment in
connection with the Seller's declaration of a default and a possible claim by
Ronbridge, each as discussed more fully in Management's Discussion & Analysis
and Plan of Operation.
Presently, neither the Company nor any of its officers or directors are involved
in any legal proceedings.
13
<PAGE>
Item 2 - Changes in Securities
From time to time the company issues options and warrants to key employees and
service providers considered essential to the continuation of the business. On
March 15, 2000, the corporation granted the following stock options to its
employees:
Raece Richardson 4,000,000 common shares at $0.01 each
David McKenzie 500,000 common shares at $0.01 each
Rod Tomlinson 50,000 common shares at $0.01 each
Amy Bratton 10,000 common shares at $0.01 each
In December 1999 the Company issued 969,000 shares of common stock in connection
with its acquisition of the Equipment.
Additionally, 900,000 common shares in Freedom Surf were issued to the owners of
Southern California Logo, Inc. in exchange for all of the outstanding stock in
that corporation.
On July 5, 2000, Raece Richardson 2,000,000 in common stock options at
$0.01 per share.
On August 10, 2000, the Board of Directors of the Company authorized the
issuance of warrants to each director of the Company. 100,000 warrants were
authorized for each director. The term of the warrants were for two years from
the issue date of August 15, 2000, exercisable at the price of $1.00 per
warrant, 25,000 warrants exercisable in each six month period over the two year
life of the warrants. The following directors are to receive warrants:
Rick Songer
David McKenzie
John Cruickshank
Holly Richardson
On September 29, 2000, the Company filed an S-8 Registration Statement with
respect to certain shares of common stock which was issued pursuant to a
consulting agreement entered into in November of 1999 between the Company and
Public Securities Services, Inc. Under the terms of that Registration Statement
the following securities were registered:
The shareholders acquired the Shares pursuant to a compensatory benefit plan
with the Company for legal and consulting services they provided during 1999 and
early 2000.
The table below sets forth the number of Shares owned, the number of Shares
registered on September 29, 2000 and the number and percent of outstanding
Shares that will be owned after the sale of the registered Shares assuming the
sale of all of the registered Shares.
NUMBER OF NUMBER OF % OF SHARES
SHARES SHARES NUMBER OF OWNED BY
SELLING OWNED REGISTERED BY SHARES OWNED SHAREHOLDER
SHAREHOLDERS(1) BEFORE SALE PROSPECTUS AFTER SALE AFTER SALE
----------------------- ------------- ------------- ------------ -----------
Neil Liebman (1) 10,000 10,000 -0- -0-
----------------------- ------------- ------------- ------------ -----------
John Cruickshank (2) 100,000 100,000 -0- -0-
----------------------- ------------- ------------- ------------ -----------
Jonathan Barsades (3) 10,000 10,000 -0- -0-
----------------------- ------------- ------------- ------------ -----------
(1) Neil Liebman, Esq., performed consulting services for the Company.
(2) John Cruickshank is the sole shareholder and officer and director of Public
Securities Services, Inc. who performed consulting services for the Company
in connection with the drafting and filing of all of its current reports
with the Securities and Exchange Commission. He is currently a director of
the Company but was not a director at the time the services were performed.
(3) Jonathan Barsades, Esq. performed consulting services for the Company.
A copy of the consulting agreement was attached to the S-8 Registration
Statement which was filed with the SEC on September 29, 2000.
14
<PAGE>
Item 3 - Defaults upon Senior Securities
There have been no defaults upon senior securities
Item 4 - Submission to a Vote of Security Holders
There have been no submissions to a vote of security holders during this
quarter.
Item 5 - Other Information
On August 10, 2000, Raece Richardson resigned as President, Chief Executive
Officer and Director. He was replaced by Rick Songer as President, Chief
Executive Officer and will continue as a director of the Company.
Rick Songer has been President and Chief Operating Officer of Southern
California Logo, Inc. prior to its acquisition by Freedom Surf, Inc., since 1985
and has headed the manufacturing and marketing arms for that company since its
inception. In the early years, Southern California Logo became a top supplier of
wardrobe and related products to the motion picture industry. In more recent
years, Rick has expanded the customer base of the company into promotional
products for many major corporations and has done private labeling for numerous
major brands. The company's most recent venture has provided products for the
surf and skateboard industry. Mr. Songer was prior to his involvement with
Southern California Logo, an executive in the pharmaceutical industry and is a
1969 graduate of Virginia Tech. He and his family have resided in Southern
California since 1981.
Holly Richardson was named to replace Raece Richardson as a director by the
Board of Directors until the next annual meeting of shareholders.
Ms. Richardson was from 1988 through 1993 the major shareholder and a director
of Zan Plum Proprietary, Ltd., a Sydney, NSW, Australia fashion accessories
company distributing its products throughout Australia and South East Asia. She
developed the product range and managed the national sales force. She attended
Mount San Jacinto College in San Jacinto, California, followed by studies at the
Alliance Francaise in Paris, France. During 1986 through 1988, Ms. Richardson
set up a distribution network of surf related products in Europe. Following the
sale of Zan Plum in 1993, Ms. Richardson was with Hypersearch, a licensee to Rip
Curl mountain wear products manufacturing skis, snowboards and related apparel.
Her responsibilities included all aspects of developing and launching the
product, creating and training a sales force and maintaining the high profile
image of Rip Curl. After 1996, Ms. Richardson became a direct employee of Rip
Curl managing and supervising their entire watch and accessory division. During
the late nineties, she opened a chain of six retail stores in Southern
California selling surf related products. She will bring her marketing and
organizational talents to the Company and will be an active member of the Board
of Directors.
John Cruickshank had previously been named a director until the next annual
meeting of shareholders. Effective December 1, 2000, Mr. Cruickshank resigned
from the Company's Board of Directors.
Item 6 - Exhibits and Reports on Form 8-K
The following 8-K Reports were filed which had an impact on the 3rd quarter:
a. An 8-K Report reporting a change in officers and directors which
was filed on August 11, 2000 with the SEC;
b. An 8-K Report filed on September 29, 2000 amending the 8-K Report
filed on the purchase by the Company of Southern California Logo, Inc. which had
been previously filed on May 15, 2000. That 8-K Report contained what purported
to be audited Financial Statements by John Spurgeon, CPA which were
inadvertently filed without the auditor's signed opinion letter. As a result,
the public was asked to disregard that filing in an amended 8-K Report filed on
October 26, 2000.
c. An 8-K Report filed on November 1, 2000 contained the audited
financial statements of Southern California Logo, Inc. and reported
the sale of Southern California Logo, Inc. to Freedom Surf, Inc.
15
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized. Section 12 of the Securities Exchange Act of 1934, the registrant
Dated: November 10, 2000
/s/ Rick Songer
--------------------
Rick Songer
Chief Executive Officer, Director
16
