<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1 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
Not Applicable
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
Not Applicable
Item 4. Changes in Registrant's Certifying Accountant
Not Applicable
Item 5. Other Events
Not Applicable
Item 6. Resignation of Registrant's Directors
Effective February 20, 2000, Martin Gilchrist, Director and Vice President,
resigned for personal reasons. He has been replaced by Rick Songer as Director
and Vice President of Sales & Marketing.
Rick Songer, President and Chief Operating Officer of Southern California Logo,
Inc. prior to its acquisition by Freedom Surf, Inc., founded Southern California
Logo, Inc. in 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.
Effective February 20, 2000, Louise Freidman, Chief Financial Officer of the
Company retired. She has been replaced by Judy Songer. Judy Songer has been
Chief Financial Officer to Southern California Logo, Inc. since its founding in
1985. Prior to the founding of Southern California Logo, Ms. Songer was employed
by BDM, Inc., a Washington, D.C. think tank. She also resides in Southern
California and is the wife of Rick Songer. She has always been actively engaged
in the company since its founding and will continue to be actively engaged in
the continued operations of Freedom Surf, Inc. as its Chief Financial Officer.
5
<PAGE>
Item 7. Financial Statements and Exhibits
SOUTHERN CALIFORNIA LOGO, INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
WITH
INDEPENDENT AUDITOR'S REPORT THEREON
<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, shareholder's equity and cash flows for the years then ended. 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 the years then ended in conformity with generally accepted accounting
principles.
/s/ JOHN SPURGEON
Glendora, California
September 27, 2000
<PAGE>
<TABLE>
SOUTHERN CALIFORNIA LOGO, INC.
BALANCE SHEETS
<CAPTION>
FEBRUARY 29, AUGUST 31, AUGUST 31,
ASSETS 2000 1999 1998
-------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash $ 4,056 $ 51 $ 6,666
Accounts receivable, less allowance for doubtful
accounts of $2,541 (1998), $6,240 (1999)
and $10,135 (2000) 338,378 201,749 82,173
Employee receivable 1,500 3,000 -
Inventories 194,965 308,596 371,448
Prepaid expenses and other current assets 4,070 2,318 3,939
-------------- -------------- --------------
Total current assets 542,969 515,714 464,226
Property and equipment, net 45,860 41,455 82,646
Deferred tax assets 126,160 78,008 -
Deposits and other assets - - 6,000
-------------- -------------- --------------
TOTAL ASSETS $ 714,989 $ 635,177 $ 552,872
============== ============== ==============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 158,788 $ 123,486 $ 65,693
Line of credit 363,600 250,000 197,000
Loan from shareholder 224,864 210,194 101,471
Current portion of capital lease obligation 23,061 23,061 20,200
-------------- -------------- --------------
Total current liabilities 770,313 606,741 384,364
Long-term liabilities
Capital lease obligation - noncurrent 15,255 26,786 49,847
-------------- -------------- --------------
Total long-term liabilities 15,255 26,786 49,847
-------------- -------------- --------------
Total liabilities 785,568 633,527 434,211
-------------- -------------- --------------
Shareholder's equity:
Common stock ($1 stated value, 5,000 shares authorized,
5,000 shares issued and outstanding) 5,000 5,000 5,000
Retained earnings (deficit) (75,579) (3,350) 113,661
-------------- -------------- --------------
Total shareholders' equity (70,579) 1,650 118,661
-------------- -------------- --------------
TOTAL LIABILITIES AND SHAREHOLDER'S
EQUITY $ 714,989 $ 635,177 $ 552,872
============== ============== ==============
See accompanying notes to financial statements
2
</TABLE>
<PAGE>
<TABLE>
SOUTHERN CALIFORNIA LOGO, INC.
STATEMENTS OF INCOME
<CAPTION>
SIX MONTHS ENDED YEARS ENDED AUGUST 31,
---------------------------------- ----------------------------------
2/29/00 2/28/99 1999 1998
--------------- --------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Sales $ 718,723 $ 529,708 $ 1,182,730 $ 1,698,936
Cost of Sales 505,631 341,535 729,772 893,323
--------------- --------------- --------------- ---------------
Gross profit 213,092 188,173 452,958 805,613
General and Administrative expenses 310,608 306,896 629,007 607,704
--------------- --------------- --------------- ---------------
Income/(loss) from operations (97,516) (118,723) (176,049) 197,909
--------------- --------------- --------------- ---------------
Other income (expense):
Rental Income - 24,800 -
Interest expense (22,865) (15,866) (43,770) (25,384)
--------------- --------------- --------------- ---------------
(22,865) (15,866) (18,970) (25,384)
--------------- --------------- --------------- ---------------
Income before provision for income taxes (120,381) (134,589) (195,019) 172,525
Provision for income taxes 48,152 53,836 78,008
--------------- --------------- --------------- ---------------
Net income/(loss) $ (72,229) $ (80,753) $ (117,011) $ 172,525
=============== =============== =============== ===============
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
<TABLE>
SOUTHERN CALIFORNIA LOGO, INC.
SCHEDULES OF COST OF SALES
<CAPTION>
SIX MONTHS ENDED YEARS ENDED AUGUST 31,
---------------------------------- ----------------------------------
2/29/00 2/28/99 1999 1998
--------------- --------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cost of Sales
Purchases 94,212 86,768 246,756 240,203
Ad specialty purchases 6,719 2,763 4,648 10,741
Purchases/samples - 426 426 2,335
Freight-in 381 (278) (1,026) (1,597)
Sewing supplies/threads 24,513 12,499 29,245 32,244
Sewing supplies/caps 61,043 29,176 50,964 129,313
Screenprinting 9,313 6,371 14,082 35,316
Direct labor 309,450 203,810 384,677 444,768
--------------- --------------- --------------- ---------------
Total cost of sales $ 505,631 $ 341,535 $ 729,772 $ 893,323
=============== =============== =============== ===============
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
<TABLE>
SOUTHERN CALIFORNIA LOGO, INC.
SCHEDULES OF GENERAL AND ADMINISTRATIVE EXPENSES
<CAPTION>
SIX MONTHS ENDED YEARS ENDED AUGUST 31,
---------------------------------- ---------------------------------
2/29/00 2/28/99 1999 1998
---------------- -------------- --------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C.
General and Administrative Expenses
Auto $ 3,047 $ 12,446 $ 17,220 $ 12,254
Auto insurance 720 - 409 805
Auto lease fee - - - 274
Bad debt 1,752 (275) 3,699 (647)
Bank service charge 8,624 1,370 2,463 5,340
Building maintenance 14,757 991 2,882 -
Car phone 2,134 4,485 6,150 5,068
Commission 4,133 - 600 2,649
Credit card fees 3,737 - 2,360 1,097
Depreciation 20,595 20,595 41,191 36,205
Dues & subscription 40 395 632 367
Electricity 5,684 6,264 9,575 11,532
Employee medical insurance 7,317 6,987 9,074 9,686
Equipment maintenance 12,696 2,918 6,780 15,848
Finance charges - 362 716 224
Freight 2,136 5,265 9,811 7,237
Insurance - work comp 6,601 4,433 7,135 10,026
Liability insurance 2,465 4,751 5,750 7,904
Machine Lease 37,869 14,163 9,159 2,411
Meals & Entertainment 167 496 832 317
Miscellaneous - - - 1,906
Office expense 4,406 4,367 8,132 8,580
Office supplies 2,233 1,870 4,136 5,184
Officer salaries 39,800 44,300 68,100 111,900
Other expense (63,311) 20,430 48,993 -
Payroll taxes 38,739 22,625 59,887 77,354
Professional fees - 2,321 4,756 479
Property taxes 748 - 2,119 2,263
Rent 42,730 49,210 127,018 77,214
Salaries & wages 103,150 67,936 154,892 181,589
Selling expense -
Sewing supplies 509 2,478 2,649 -
Taxess & licenses - 200 200 4,448
Telephone 4,978 5,053 9,975 7,395
Travel 956 - 163 795
Utility 1,196 460 1,549 -
---------------- -------------- --------------- --------------
Total General & Administrative Expenses $ 310,608 $ 306,896 $ 629,007 $ 607,704
================ ============== =============== ==============
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
<TABLE>
SOUTHERN CALIFORNIA LOGO, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
SIX MONTHS ENDED YEARS ENDED AUGUST 31,
---------------------------- ----------------------------
2/29/2000 2/29/99 1999 1998
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income/(loss) $ (72,229) $ (80,753) $ (117,011) $ 172,525
Adjustments to reconcile net income/(loss) to net
cash provided by (used in) operating activities:
Provision for doubtful accounts 3,895 6,102 3,699 (647)
Depreciation and amortization 20,595 20,595 41,191 36,205
(Increase)/decrease in accounts receivable (140,524) (97,195) (123,275) 21,556
(Increase)/decrease in prepaid expenses (1,752) 375 1,621 (507)
(Increase)/decrease in employee receivables 1,500 - (3,000) -
(Increase)/decrease in inventory 113,631 118,420 62,852 (265,894)
(Increase)/decrease in deferred tax assets (48,152) (53,836) (78,008) -
(Increase)/decrease in security deposit - - 6,000 -
(Increase)/decrease in payroll clearing - (1,062) - -
Increase/(decrease) in accounts payable and
accrued expenses 35,302 11,888 57,793 (15,473)
------------ ------------ ------------ ------------
Net cash provided by (used in) operating activities (87,734) (75,466) (148,138) (52,235)
------------ ------------ ------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (25,000)
Proceeds from sale of property and equipment - -
------------ ------------ ------------ ------------
Net cash used in investing activities (25,000) - - -
------------ ------------ ------------ ------------
Cash flows from financing activities:
Net (payments) borrowings under bank loan 113,600 33,650 53,000 47,000
Net (payments) borrowings from shareholder 14,670 45,250 108,723 4,971
Principal repayments of capital lease obligation (11,531) (10,100) (20,200) (4,647)
------------ ------------ ------------ ------------
Net cash provided by (used in) financing activities 116,739 68,800 141,523 47,324
------------ ------------ ------------ ------------
Net change in cash 4,005 (6,666) (6,615) (4,911)
Cash at beginning of period 51 6,666 6,666 11,577
------------ ------------ ------------ ------------
Cash at end of period $ 4,056 $ (0) $ 51 $ 6,666
============ ============ ============ ============
Supplemental disclosure of cash flow information -
Cash paid during the period for interest $ 22,865 $ 15,866 $ 43,770 $ 25,384
============ ============ ============ ============
Cash paid during the period for income taxes $ 800 $ 800 $ 800 $ 800
============ ============ ============ ============
Supplemental schedule of non-cash investing
activities - Purchase of embroidery machine
under a capital lease $ - $ - $ - $ 74,639
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements
6
<PAGE>
<TABLE>
SOUTHERN CALIFORNIA LOGO, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE YEAR ENDED AUGUST 31, 1999
<CAPTION>
Common Stock
------------------------------------- Retained
Shares Amount Earnings (Deficit) Total
------------------ ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Balance at September 1, 1997 10,000 $ 5,000 $ (58,864) $ (53,864)
Net income (loss) - - 172,525 172,525
------------------ ------------- --------------- ---------------
Balance at August 31, 1998 10,000 5,000 113,661 118,661
Net income (loss) - - (117,011) (117,011)
------------------ ------------- --------------- ---------------
Balance at August 31, 1999 10,000 $ 5,000 $ (3,350) $ 1,650
================== ============= =============== ===============
</TABLE>
See accompanying notes to financial statements
7
<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"), a California corporation, was
incorporated in October, 1985 and is a leading supplier of high quality, custom
embroidered, promotional clothing to the film industry. The company has provided
products for over 500 movies including The Rock, Armageddon, Top Gun, Terminator
1 and 2, and many other major films. In the early years, the Company became a
top supplier of wardrobe and related products to the motion picture industry. In
more recent years, the Company has expanded the customer base 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.
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. The Company determines the reserve based on a percentage
of total accounts receivable. Management determined that a $6,240 and $2,541
reserve was required for accounts receivable at August 31, 1999 and 1998,
respectively.
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 and the realizability of
property and equipment through future operations. Actual results could
materially differ from those estimates.
Inventories
-----------
Inventories are stated at cost determined using the first-in, first-out (FIFO)
method, but not in excess of market. Inventories consist of raw materials,
work-in process and finished goods. Costs include materials and direct labor.
8
<PAGE>
SOUTHERN CALIFORNIA LOGO, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUTED
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
--------------------------------------------------------------
Property and Equipment
----------------------
Property and equipment are stated at the Company's allocated acquisition cost
for the assets acquired and at cost for all new additions. 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 is primarily depreciated using the straight-line method
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:
Machinery and equipment 3 - 5 years
Automobiles 5 years
Furniture and fixtures 5 years
Computer equipment 5 years
Leasehold improvements 10 years
Long-Lived Assets
-----------------
Management of the Company assesses the recoverability of property and equipment
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.
9
<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
--------------------------------------------------------------
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.
Unaudited Interim Financial Statements
--------------------------------------
The unaudited financial information included herein as of February 29, 2000 and
for the six months ended February 29, 2000 and February 28, 1999, 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.
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
============= =============
Based on a physical inventory taken on August, 2000, the Company's total
inventories had 56% raw materials, 7% work-in-process, and 37% finished goods.
The same allocation percentage was used to allocate the total inventories at
August 31, 1999 and 1998.
10
<PAGE>
SOUTHERN CALIFORNIA LOGO, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
NOTE 4 - PROPERTY AND EQUIPMENT
-------------------------------
At August 31, 1999 and 1998, property and equipment consists of the following:
<TABLE>
<CAPTION>
1999 1998
------------ -------------
<S> <C> <C>
Furniture, fixtures and equipment $ 105,451 $ 105,451
Embroidery machinery 220,570 220,570
Capital lease asset 74,693 74,693
Automobile 55,732 55,732
------------ -------------
456,446 456,446
Less accumulated depreciation and amortization (414,991) (373,800)
------------ -------------
$ 41,455 $ 82,646
============ =============
</TABLE>
Total depreciation and amortization 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 bears interest at the bank's index rate (national prime as
determined by Bank of America of California) plus 1.5% and expires January 20,
2000. It is collateralized by inventories, equipment, accounts receivable and
general intangibles. This line is separately guaranteed by the Company's
shareholder.
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
restrictions as of August 31, 1999.
As of August 31, 1999 and 1998, the outstanding balance on this line of credit
was $250,000 and $197,000, respectively.
NOTE 6 - NOTE PAYABLE - SHAREHOLDER
-----------------------------------
Shareholder note payable consists of unsecured note, 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.
11
<PAGE>
SOUTHERN CALIFORNIA LOGO, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
NOTE 7 - CAPITAL LEASE OBLIGATION
---------------------------------
The Company is the lessee of certain equipment (included in property and
equipment) under a capital lease which expires through 2001, with effective
interest rate of 13.32%. Future minimum lease obligation for the asset under
capital lease are as follows:
Years Ending
August 31, 1999
------------- ---------------
2000 28,326
2001 28,714
---------------
Total minimum lease obligations 57,040
Less: interest imputed (7,193)
---------------
Present value of future minimum lease obligations 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 property $ 74,693 $ 74,693
Less: accumulated depreciation (58,181) (24,935)
------------- -------------
$ 16,512 $ 49,758
============= =============
12
<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 for income taxes for the years
ended August 31, 1999 and 1998:
1999 1998
------------- -------------
Current:
Federal $ $
State
-------------
Deferred:
Federal
State
Provision for income taxes $ $
The following is a reconciliation of income tax as the federal statutory rate to
the provision for income taxes.
The effective tax rate for the year ended August 31, 1999 differs from the
statutory rate primarily as a result of non-deductible goodwill amortization and
other miscellaneous items.
Deferred tax assets and liabilities as of August 31, 1999 consist primarily of
various reserves and accruals, net operating loss and alternative minimum tax
credit carryforwards and depreciation differences.
NOTE 9 - COMMITMENTS
--------------------
Lease
-----
The Company leases its manufacturing and operating facility under noncancelabel
operating lease agreement, which expires 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. The monthly lease payment is $10,418.
Future minimum annual payments required under the noncancellable operating
leases, excluding common area maintenance and property taxes, are as follows:
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<PAGE>
SOUTHERN CALIFORNIA LOGO, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
YEARS ENDING AUGUST
31,
-----------------------
2000 $ 125,016
2001 125,016
2002 125,016
2003 125,016
2004 20,836
----------------
$ 520,900
================
Total rent expense was approximately $127,000 and $77,000 for the years ended
August 31, 1999 and 1998, respectively.
NOTE 10 - SUBSEQUENT EVENT
--------------------------
On January 4, 2000, the shareholder of the Company sold all of his shares of
outstanding common stock to Freedom Surf, Inc. for $2,750,030 in note and
Freedom Surf, Inc. common stock. The contract for the sale of the Company was
executed on May 12, 2000 with an effective date of January 4, 2000.
On August 28, 2000, Freedom Surf paid in full the entire credit line of Sewcal
totaling $520,900.00.
14
<PAGE>
Exhibits attached:
Exhibit 1 - Copy of the Acquisition Agreement between Freedom Surf, Inc. and
Southern California Logo, Inc.
Item 8. Changes in Fiscal Year
Not Applicable
Item 9. Change is Security Rating
Not Applicable
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, thereunto duly authorized.
Freedom Surf, Inc.
(Registrant)
Dated: May 8, 2000
/S/ Raece Richardson
-----------------------------------
Raece Richardson
Chief Executive Officer & Director
Dated: May 8, 2000
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