<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 3 to
FORM 8-K/A
REPORT
FREEDOM SURF, INC.
Nevada 88-0446457
------- -----------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
207 W. 138th St.
Los Angeles, CA 90061
(Address of Principal Executive Offices) (Zip Code)
(310) 352-3300
(Issuer's Telephone Number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
(None)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $0.001
(Title of Class)
<PAGE>
FORWARD LOOKING STATEMENTS
Freedom Surf, Inc., ("Freedom Surf, Inc.," or the "Company") cautions readers
that certain important factors may affect the Company's actual results and could
cause such results to differ materially from any forward-looking statements that
may be deemed to have been made in this Form 8-K or that are otherwise made by
or on behalf of the Company. For this purpose, any statements contained in the
Form 8-K that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the generality of the foregoing,
words such as "may," "expect," "believe," "anticipate," "intend," "could,"
"estimate," "plans," or "continue" or the negative or other variations thereof
or comparable terminology are intended to identify forward-looking statements.
Factors that may affect the Company's results include, but are not limited to,
the Company's limited operating history, its ability to produce additional
products and services, its dependence on a limited number of customers and key
personnel, its possible need for additional financing, its dependence on certain
industries, and competition from its competitors. With respect to any
forward-looking statements contained herein, the Company believes that it is
subject to a number of risk factors, including: the Company's ability to
implement its product strategies to develop its business in emerging markets;
competitive actions; and, general economic and business conditions. Any
forward-looking statements in this report should be evaluated in light of these
important risk factors. The Company is also subject to other risks detailed
herein or set forth from time to time in the Company's filings with the
Securities and Exchange Commission.
2
<PAGE>
TABLE OF CONTENTS
Item 1. Changes in Control of Registrant 4
Item 2. Acquisition or Disposition of Assets 4
Item 3. Bankruptcy or Receivership 5
Item 4. Changes in Registrant's Certifying Accountant 5
Item 5. Other Events 5
Item 6. Resignation of Registant's Directors 5
Item 7. Financial Statements and Exhibits 6
Item 8. Change in Fiscal Year 15
Item 9. Change in Security Ratings 15
Signatures 15
Exhibit 1
3
<PAGE>
Item 1. Changes in Control of Registrant
No Changes to Report.
Item 2. Acquisition or Disposition of Assets
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, 1998.
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 certain assets valued at
$5,180,000.00 issuing 969,000 common shares of its $.001 par value stock and
assuming a long term liability in the amount of $335,000.00
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.
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 12, 2000 with an
effective date of January 4, 2000. A copy of the Agreement is attached as an
exhibit to this Report.
The terms of the sale were generally as follows:
Southern California Logo, Inc. was acquired through a structured acquisition all
of the issued and outstanding shares in that corporation for 900,000 shares in
Freedom Surf common stock valued for purposes of this acquisition at $2.1667 per
share plus $800,000.00 in cash payable on or before July 15, 2000.
Sewcal 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. As of January 2000 the company has
secured contracts to manufacture product for major surf and skate brands. Sewcal
Logo sales for 1999 exceeded $1.3 million. Sales in the first quarter 2000 are
double that of the same period last year.
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.
4
<PAGE>
Item 3. Bankruptcy or Receivership
Nothing to report.
Item 4. Changes in Registrant's Certifying Accountant
No changes to report.
Item 5. Other Events
No other events to report.
Item 6. Resignation of Registrant's Directors
Changes in officers and directors was noted on a previous version of this 8-K
Report.
5
<PAGE>
Item 7. Financial Statements and Exhibits
SOUTHERN CALIFORNIA LOGO, INC.
FINANCIAL STATEMENTS
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED AUGUST 31, 1999
WITH
INDEPENDENT AUDITORS' REPORT THEREON
Independent Auditor's Report F-1
Balance Sheets F-2
Statement of Income F-3
Statement of Shareholder Equity F-4
Statement of Cash Flow F-5
Notes to Financial Statements F-6
Pro Forma Consolidated Financial Statements PF-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors
Southern California Logo, Inc.
I have audited the accompanying balance sheets of Southern California Logo, Inc.
(the "Company") as of August 31, 1999 and 1998, and the related statements of
income, shareholders' equity and cash flows for the each of the two years in the
period ended August 31, 1999. These financial statements are the responsibility
of the Company's management. My responsibility is to express an opinion on these
financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. 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 audit provides 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 Southern California Logo, Inc. as
of August 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the two years in the period ended August 31, 1999 in
conformity with generally accepted accounting principles.
/S/ JOHN SPURGEON
Glendora, California
September 25, 2000
F-1
<PAGE>
<TABLE>
SOUTHERN CALIFORNIA LOGO, INC.
BALANCE SHEETS
<CAPTION>
NOVEMBER 30, AUGUST 31, AUGUST 31,
ASSETS 1999 1999 1998
--------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash $ - $ 51 $ 6,666
Accounts receivable, less allowance for doubtful
accounts of $7,280 at November 30, 1999, $6,240
at August 31, 1999 and $2,541 August 31, 1998 254,058 201,749 82,173
Inventories 262,526 308,596 371,448
Prepaid expenses and other current assets 4,431 5,318 3,939
--------------- --------------- ---------------
Total current assets 521,015 515,714 464,226
Property and equipment, net 34,155 41,455 82,646
Deferred tax assets 64,798 32,998 -
Deposits and other assets - - 6,000
--------------- --------------- ---------------
TOTAL ASSETS $ 619,968 $ 590,167 $ 552,872
=============== =============== ===============
LIABILITIES AND SHAREHOLDER'S EQUITY
(DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 200,443 $ 123,486 $ 65,693
Line of of credit borrowings 250,000 250,000 197,000
Notes payable from shareholder 216,694 210,194 101,471
Deferred income taxes - - 45,010
Current portion of capital lease obligation 23,061 23,061 20,200
--------------- --------------- ---------------
Total current liabilities 690,198 606,741 429,374
Long-term liabilities:
Capital lease obligation - net of current portion 21,021 26,786 49,847
Total liabilities 711,219 633,527 479,221
--------------- --------------- ---------------
Shareholder's equity:
Common stock, $1 stated value, 5,000 shares authorized,
issued and outstanding 5,000 5,000 5,000
Retained earnings (accumulated deficit) (96,251) (48,360) 68,651
--------------- --------------- ---------------
Total shareholders' equity (deficit) (91,251) (43,360) 73,651
--------------- --------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDER'S
EQUITY (DEFICIT) $ 619,968 $ 590,167 $ 552,872
=============== =============== ===============
</TABLE>
See accompanying notes to financial statements
F-2
<PAGE>
<TABLE>
SOUTHERN CALIFORNIA LOGO, INC.
STATEMENTS OF INCOME
<CAPTION>
THREE MONTHS ENDED NOVEMBER 30, YEARS ENDED AUGUST 31,
------------------------------------------------------------------
1999 1998 1999 1998
------------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $ 262,202 $ 260,336 $ 1,182,730 $ 1,698,936
Cost of sales 165,187 133,984 729,772 893,323
------------ ------------ ------------ ------------
Gross profit 97,015 126,352 452,958 805,613
General and administrative expenses 170,907 213,181 629,007 607,704
------------ ------------ ------------ ------------
Income (loss) from operations (73,892) (86,829) (176,049) 197,909
------------ ------------ ------------ ------------
Other income (expense):
Rental income - - 24,800 -
Interest expense (5,799) (5,620) (43,770) (25,384)
------------ ------------ ------------ ------------
(5,799) (5,620) (18,970) (25,384)
------------ ------------ ------------ ------------
Income (loss) before provision (benefit) for income taxes (79,691) (92,449) (195,019) 172,525
Provision (benefit) for income taxes (31,800) (37,000) (78,008) 69,010
------------ ------------ ------------ ------------
Net income/(loss) $ (47,891) $ (55,449) $ (117,011) $ 103,515
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE>
<TABLE>
SOUTHERN CALIFORNIA LOGO, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
FOR THE TWO YEARS ENDED AUGUST 31, 1999 AND 1998
<CAPTION>
Common Stock
---------------------------------- Retained Earnings
Shares Amount (Accumulated Deficit) Total
--------------- --------------- --------------------- -------------
<S> <C> <C> <C> <C>
Balance at September 1, 1997 5,000 $ 5,000 $ (34,864) $ (29,864)
Net income - - 103,515 103,515
--------------- --------------- ---------------------- -------------
Balance at August 31, 1998 5,000 5,000 68,651 73,651
Net loss - - (117,011) (117,011)
--------------- --------------- ---------------------- -------------
Balance at August 31, 1999 5,000 $ 5,000 $ (48,360) $ (43,360)
=============== =============== ====================== =============
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE>
<TABLE>
SOUTHERN CALIFORNIA LOGO, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
THREE MONTHS ENDED NOVEMBER 30, YEARS ENDED AUGUST 31,
------------------------------- -------------------------
11/30/99 11/30/1998 1999 1998
---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (47,891) $ (55,994) $(117,011) $ 103,515
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Provision for doubtful accounts - - 3,699 (647)
Depreciation and amortization 7,000 7,300 41,191 36,205
Deferred tax provision (31,800) (37,000) (78,008) 69,010
(Increase)/decrease in accounts receivable (52,309) (12,451) (123,275) 21,556
(Increase)/decrease in prepaid expenses and other current assets 887 375 (1,379) (507)
(Increase)/decrease in inventories 46,070 (8,305) 62,852 (265,894)
(Increase)/decrease in security deposits and other assets - - 6,000 -
Increase/(decrease) in accounts payable and accrued expenses 77,359 (6,232) 57,793 (15,473)
---------- ---------- ---------- ----------
Net cash used in operating activities (684) (112,307) (148,138) (52,235)
---------- ---------- ---------- ----------
Cash flows from investing activities:
Purchases of property and equipment - - - -
---------- ---------- ---------- ----------
Cash flows from financing activities:
Net (payments) borrowings under line of credit - - 53,000 47,000
Net (payments) borrowings from shareholder 6,500 109,529 108,723 4,971
Principal repayments of capital lease obligation (5,765) (3,888) (20,200) (4,647)
---------- ---------- ---------- ----------
Net cash provided by financing activities 735 105,641 141,523 47,324
---------- ---------- ---------- ----------
Net decrease in cash (51) (6,666) (6,615) (4,911)
Cash at beginning of period 51 6,666 6,666 11,577
---------- ---------- ---------- ----------
Cash at end of period $ - $ - $ 51 $ 6,666
========== ========== ========== ==========
Supplemental disclosure of cash flow information -
Cash paid during the period for interest $ 5,799 $ 5,620 $ 43,770 $ 25,384
========== ========== ========== ==========
Cash paid during the period for income taxes $ - $ - $ 800 $ 800
========== ========== ========== ==========
Supplemental schedule of non-cash investing activities -
Purchase of machinery under a capital lease $ - $ - $ - $ 74,639
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
SOUTHERN CALIFORNIA LOGO, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
NOTE 1 - ORGANIZATION
---------------------
Nature of Business
------------------
Southern California Logo, Inc., (the "Company"), manufactures custom clothing
and hats for the film industry and other customers in the United States. Its
operations are located in Los Angeles California. The Company was incorporated
in California on August 30, 1985.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------
Concentration of Credit Risk
----------------------------
The Company provides a credit in the normal course of business to a select group
of customers and performs ongoing credit evaluation of such customers. The
Company evaluates reserves for potential credit losses based on the Company's
historical experience.
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 reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Significant estimates made by the Company's management include, but are not
limited to, the allowance for losses on accounts receivable and the
realizability of inventories. Actual results could materially differ from those
estimates.
Inventories
-----------
Inventories are stated at the lower of cost determined using the first-in,
first-out (FIFO) method or market. Inventories consist of raw materials, work-in
process and finished goods. Costs include materials, direct labor and overhead.
Property and Equipment
----------------------
Property and equipment are stated at the Company's cost. When property and
equipment is sold or retired, the cost and related accumulated depreciation are
eliminated from the respective accounts and any gain or loss is credited or
charged to income. Maintenance and repairs are charged to expense when incurred;
expenditures for renewals or betterments are capitalized.
Property and equipment are depreciated using accelerated and straight-line
methods over the estimated useful lives of the related assets or, for leasehold
improvements, over the term of the lease, if less. The following are the
estimated useful lives:
F-6
<PAGE>
SOUTHERN CALIFORNIA LOGO, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
--------------------------------------------------------------
Furniture, fixtures and equipment 3 -5 years
Embroidery machinery 5 years
Automobiles 5 years
Long-Lived Assets
-----------------
Management of the Company assesses the recoverability of property and equipment
and goodwill by determining whether the depreciation and amortization of such
assets over their remaining lives can be recovered through projected
undiscounted cash flows. The amount of impairment, if any, is measured based on
fair value and is charged to operations in the period in which such impairment
is determined by management. To date, management has not identified any
impairment of long-lived assets.
Revenue Recognition
-------------------
Revenues are recognized upon shipment of goods to customers.
Income Taxes
------------
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "ACCOUNTING FOR INCOME TAXES." Under
SFAS 109, the asset and liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and the tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. A valuation allowance is
provided for significant deferred tax assets when it is more likely than not
that such assets will not be recovered.
Unaudited Interim Financial Statements
--------------------------------------
The unaudited financial information included herein as of November 30, 1999 and
for the three months ended November 30, 1999 and 1998, have been prepared in
accordance with generally accepted accounting principles for interim financial
statements. In the opinion of the Company, these unaudited financial statements,
reflect all adjustments necessary, consisting of normal recurring adjustments,
for a fair presentation of such data on a basis consistent with that of the
audited data presented herein. The results of operations for interim periods are
not necessarily indicative of the results expected for a full year.
F-7
<PAGE>
SOUTHERN CALIFORNIA LOGO, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
NOTE 3 - INVENTORIES
--------------------
Inventories consist of the following at August 31, 1999 and 1998:
1999 1998
--------- ---------
Raw materials $172,814 $208,011
Work-in-process 21,602 26,001
Finished goods 114,180 137,436
--------- ---------
$308,596 $371,448
========= =========
NOTE 4 - PROPERTY AND EQUIPMENT
-------------------------------
At August 31, 1999 and 1998, property and equipment consists of the following:
1999 1998
--------- ---------
Furniture, fixtures and equipment $ 180,144 $ 180,144
Embroidery machinery 220,570 220,570
Automobile 55,732 55,732
---------- ----------
456,446 456,446
Less accumulated depreciation and amortization (414,991) (373,800)
---------- ----------
$ 41,455 $ 82,646
========== ==========
Depreciation expense recognized for the years ended August 31, 1999 and 1998
totaled $41,191 and $36,205, respectively.
NOTE 5 - BANK LINE-OF-CREDIT
----------------------------
The Company has a $500,000 line of credit available with a financial
institution. The line bares interest at the bank's index rate plus 1.5%
(totaling 10% at August 31, 1999) and expires March 31, 2000. Credit borrowings
are collateralized by inventories, equipment, accounts receivable and general
intangibles. This line is separately guaranteed by the Company's shareholder
through a deed of trust.
The line of credit agreement requires maintenance of working capital and debt to
net worth ratios. In addition, the agreement contains restrictions regarding
adequate insurance, loans and advances. The Company was in compliance with all
covenants as of August 31, 1999.
F-8
<PAGE>
SOUTHERN CALIFORNIA LOGO, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
NOTE 6 - NOTES PAYABLE FROM SHAREHOLDER
---------------------------------------
Shareholder notes payable consist of unsecured notes, bearing interest at 10%
per annum, with principal and interest due on demand. Interest expense on the
notes for the years ended August 31, 1999 and 1998 was $14,819 and $9,262
respectively.
NOTE 7 - CAPITAL LEASE OBLIGATION
---------------------------------
The Company is the lessee of certain equipment under a capital lease, which
expires through 2001, with an effective interest rate of 13.32%. Future minimum
lease obligation for the asset under capital lease is as follows:
Years Ending
August 31,
2000 $ 28,326
2001 28,714
---------
57,040
Less: interest imputed (7,193)
---------
Present value of future minimum lease obligation 49,847
Less: current portion (23,061)
---------
Noncurrent portion $ 26,786
=========
Leased property under capital lease obligations at August 31, 1999 and 1998
consist of the following:
1999 1998
---------- ----------
Leased equipment $ 74,693 $ 74,693
Less: accumulated depreciation (58,181) (24,935)
---------- ----------
$ 16,512 $ 49,758
========== ==========
F-9
<PAGE>
SOUTHERN CALIFORNIA LOGO, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
NOTE 8 - INCOME TAXES
---------------------
The following are the components of the provision (benefit) for income taxes for
the years ended August 31, 1999 and 1998:
1999 1998
---- ----
Current:
Federal $ - $ -
State 800 800
--------- ---------
800 800
--------- ---------
Deferred:
Federal (66,306) 58,659
State (12,502) 9,551
--------- ---------
(78,808) 68,210
--------- ---------
Provision for income taxes $(78,008) $ 69,010
========= =========
The following is a reconciliation of income tax at the federal statutory rate to
the provision for income taxes:
1999 1998
---- ----
Income taxes at federal statutory rate $(66,306) $ 58,659
State income, taxes net of federal effect (11,702) 10,351
--------- ---------
$(78,008) $ 69,010
========= =========
Deferred income taxes as of August 31, 1999 and 1998 consist primarily of
differences between financial statements and tax basis for inventories,
depreciation, various reserves and accruals, and net loss carryforwards. At
August 31, 1999 the Company has a federal and California net operating loss
carryforward of approximately $59,000 and $29,500 respectively expiring through
2020 and 2005, respectively.
NOTE 9 - COMMITMENTS
--------------------
Lease
-----
The Company leases its manufacturing and operating facility under a
noncancellable operating lease agreement from a partnership, which includes the
sole shareholder the Company. The lease expires
F-10
<PAGE>
SOUTHERN CALIFORNIA LOGO, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
NOTE 9 - COMMITMENTS, CONTINUED
-------------------------------
in October 2003. This lease agreement has a renewal option for an additional
five-year period through 2008. The lease contains clauses requiring the Company
to pay taxes, insurance and other operating expenses of the property.
Future minimum annual payments required under the noncancellable operating
leases, excluding common area maintenance and property taxes, are as follows:
YEARS ENDING AUGUST 31,
-----------------------
2000 $ 125,000
2001 125,000
2002 125,000
2003 125,000
2004 21,000
-----------
$ 521,000
===========
Total rent expense was approximately $127,000 and $77,000 for the years ended
August 31, 1999 and 1998, respectively.
NOTE 10 - SUBSEQUENT EVENTS
---------------------------
On January 4, 2000, the shareholder of the Company agreed to sell all of his
shares of outstanding common stock to Freedom Surf, Inc. for $2,750,000
consisting of an $800,000 note and 900,000 shares of Freedom Surf, Inc.
restricted common stock. The note is non-interest bearing and was due and
payable on or before August 15, 2000. The note has not yet been paid. The
shareholder is in discussions with Freedom Surf, Inc. to modify the terms of the
note. The contract for the sale of the Company was executed on May 12, 2000 with
an effective date of January 4, 2000.
On December 31, 1999, the Company acquired the operating assets and inventory of
Antoncroft, Inc. Antoncroft, Inc. provides manufacturing capabilities for the
production of custom hats. The total purchase price was $175,000. Two notes
payable in the amounts of $40,000 and $135,000 evidenced the purchase price.
Monthly interest free payments on the notes will begin on February 10, 2001 and
May 10, 2001, respectively, in the amount of $3,000 each.
F-11
<PAGE>
FREEDOM SURF, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following financial pro forma consolidated statements represent the Freedom
Surf, Inc., ("Freedom Surf") pro forma consolidated balance sheet as of December
31, 1999 and statements of operations for the year ended December 31, 1999.
The transaction described in Note 2 has been accounted for under the purchase
method of accounting, whereby Freedom Surf acquired Southern California Logo,
Inc. ("SOCAL"). The excess of the consideration paid by Freedom Surf over the
far value of SOCAL's net assets purchased of $2,841,251.00 is recorded as
goodwill.
The following pro forma consolidated balance sheet gives effect to the
transaction as if it occurred on December 31, 1999. The accompanying pro forma
consolidated statements of operations gives effect to the transaction as if it
occurred on January 1, 1999. The financial statements include adjustments
directly attributable to the transactions and are expected to have a continuing
impact on the combined company.
The pro forma information is based on historical financial statements. The
information has been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission and is provided for comparison and
analysis purposes only. The pro forma information does not purport to be
indicative of the results that actually would have occurred had the combination
been effected at either January 1, 1999 or December 31, 1999.
PF-1
<PAGE>
<TABLE>
<CAPTION>
Southern
Freedom California Pro forma Pro forma
Surf, Inc. Logo, Inc. Total Adjustments Consolidated
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Trade receivables $ - $ 254,058 $ 254,058 $ - $ 254,058
Inventory - 262,526 262,526 - 262,526
Other - 4,431 4,431 - 4,431
------------ ------------ ------------ ------------ ------------
Total current assets - 521,015 $ 521,015 - 64,798
------------ ------------ ------------ ------------ ------------
Property, plant and equipment 5,180,000 34,155 5,214,155 - 5,214,155
Deferred tax assets - 64,798 64,798 - 64,798
Goodwill - - - 2,841,251 (A) 2,841,251
------------ ------------ ------------ ------------ ------------
TOTAL ASSETS $ 5,180,000 $ 619,968 $ 5,799,968 2,841,251 $ 8,641,219
============ ============ ============ ============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables $ 1,490.00 $ 200,443 $ 201,933 - $ 201,933
Line of credit borrowing - 250,000 250,000 - 250,000
Notes payable from shareholder - 216,694 216,694 - 216,694
Accrued liabilities and other - - - 800,000 (A) 800,000
Current portion of capital lease obligation - 23,061 23,061 - 23,061
------------ ------------ ------------ ------------ ------------
Total current liabilities 1,490 690,198 691,688 800,000 1,491,688
------------ ------------ ------------ ------------ ------------
Note Payable 335,000 - 335,000 - 335,000
Capital Lease, Net of Current Portion 21,021 21,021 21,021
------------ ------------ ------------ ------------ ------------
Non current liabilities 335,000 21,021 356,021 - 356,021
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Total liabilities: 671,490 711,219 1,047,709 800,000 2,203,730
------------ ------------ ------------ ------------ ------------
Stockholders' equity:
Common stock 5,969 5,000 10,969 (4,100)(B) 6,869
Additional paid-in capital 4,844,031 - 4,844,031 1,949,100 (C) 6,793,131
Retained earnings
(accumulated deficit) (6,490) (96,251) (102,741) (96,251)(D) (6,490)
------------ ------------ ------------ ------------ ------------
Total stockholders' equity 4,843,510 (91,251) 4,752,259 2,141,251 6,793,510
------------ ------------ ------------ ------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 5,180,000 $ 619,968 $ 5,799,968 $ 2,841,251 $ 8,641,219
============ ============ ============ ============ ============
The accompanying notes are an integral part of these pro forma financial
statements.
</TABLE>
PF-2
<PAGE>
<TABLE>
<CAPTION>
Freedom Southern Pro forma Pro forma
Surf, Inc. California Logo Subtotal Adjustments Consolidated
---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Net revenues $ - $ 262,202 $ 262,202 $ - $ 262,202
Cost of revenues - 165,187 165,187 - 165,187
---------- ---------- ---------- ------------ ----------
Gross profit - 97,015 97,015 - 97,015
Operating and other expenses 6,490 176,706 183,196 568,250 (E) 751,446
---------- ---------- ---------- ------------ ----------
NET INCOME (LOSS) $ (6,490) $ (79,691) $ (86,181) $ (568,250) $(654,431)
========== ========== ========== ============ ==========
Basic and diluted earnings
(loss) per share $ - $ (.11)
========== ==========
Basic and diluted weighted
average common shares
outstanding 5,107,667 900,000 (F) 6,007,667
========== ============ ==========
The accompanying notes are an integral part of these pro forma financial
statements.
PF-3
</TABLE>
<PAGE>
NOTE 1 - BASIS OF PRESENTATION:
Effective January 4, 2000, Freedom Surf acquired all of the issued and
outstanding shares in Southern California Logo, Inc. ("SOCAL"), a supplier of
promotional clothing to the film industry. The contract for the purchase of the
corporation was executed on May 12, 2000.
The unaudited pro forma information is not necessarily indicative of the future
consolidated results of operations of Freedom Surf or the consolidated results
of operations that would have resulted had the acquisition taken place on
January 1, 1999 or December 31, 1999. The unaudited pro forma consolidated
balance sheet as of December 31, 1999 reflects the effects of the transactions
as if they occurred on December 31, 1999. The accompanying pro forma
consolidated statements of operations gives effect to the transactions as if
they occurred on January 1, 1999.
The unaudited pro forma consolidated financial statements should be read in
conjunction with Freedom Surf's audited financial statements as of December 31,
1999 and accompanying notes as previously filed with the Securities & Exchange
Commission and the audited financial statements of SOCAL as of August 31, 1999
and unaudited interim financial statements of SOCAL as of November 30, 1999 and
accompanying notes as filed elsewhere herein.
NOTE 2 - DESCRIPTION OF TRANSACTIONS
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 due on or before August 15, 2000. The
stocks were issued on May 12, 2000. This transaction was accounted for under the
purchase method of accounting and the results of operations of SOCAL will be
included in the historical financial statements of Freedom Surf from the
effective date of acquisition. Total value of the SOCAL acquisition was
$2,750,000.00 (Based on Freedom Surf's valuation of SOCAL's business), resulting
in goodwill of $2,841,251.00.
NOTE 3 - DESCRIPTION OF ADJUSTMENTS:
The following adjustments were applied to the historical financial statements of
Freedom Surf and SOCAL to arrive at the pro forma consolidated balance sheet and
statements of operations:
(A) To record the goodwill resulting from the acquisition of SOCAL
by Freedom Surf.
(B) To record 900,000 shares of common stock issued at par value
net of the SOCAL shares eliminated in the acquisition.
PF-4
<PAGE>
(C) To record the additional paid in capital resulting from the
issuance of stock to the SOCAL shareholder.
(D) To eliminate the equity of SOCAL.
(E) To record the annual amortization of goodwill over a useful
life of five years.
(F) To record new shares issued to the shareholder of SOCAL.
PF-5
<PAGE>
Exhibits attached:
Exhibit 10 - A copy of the Acquisition Agreement between Freedom Surf, Inc. and
Southern California Logo, Inc. was attached to the 8-K Report,
Amendment No. 1, filed on September 29, 2000.
Item 8. Change in Fiscal Year
No change to report.
Item 9. Change is Security Rating
No change to report.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, there unto duly authorized.
Freedom Surf, Inc.
(Registrant)
Dated: October 29, 2000
/S/ Rick Songer
-----------------------------------
Rick Songer
Chief Executive Officer & Director
15
