UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 QSB
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Period Ending: March 31, 2000
Date of Report(Date of Earliest Event
Reported): January 1, 2000
FDN, INC. FORMERLY DOING BUSINESS
As "MERCURY CAPITAL CORP."
COLORADO 0-25519 84-0644739
(State or other (Commission File IRS Employer
jurisdiction of Number) I.D. No.)
incorporation)
2290 Lee Rd.
Winter Park, FL 32789
(Address of principal (Zip Code)
executive offices)
(407) 702.2000
Registrant's telephone number, including
area code:
Mercury Capital Corporation
5770 South Beech Ct.
Greenwood Village, CO 80121
(303) 221. 7376
(Former name, address and 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 for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes_____xx________ No__________________
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS.
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court.
Yes_______________ No_________________
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: May 10, 2000: 47,327,803
<PAGE>
FDN, Inc. and subsidiaries
Index to Form 10-QSB
Part No. Item No. Description Page No.
I FINANCIAL INFORMATION:
1. Financial Statements
Consolidated Balance Sheets at March 31, 2000
(Unaudited) and December 31, 1999 2-3
Consolidated Statements of Operations for the
Quarters Ended March 31, 2000 and March 31, 1999
(Unaudited) 4
Consolidated Statements of Cash Flows for the
Quarters Ended March 31, 2000 and March 31, 1999
(Unaudited) 5-6
Notes to Consolidated Financial Statements
(Unaudited) 7-10
2. Management's Discussion and Analysis of Financial
Condition and results of Operations 11-12
II OTHER INFORMATION:
1. Legal Proceedings 13
2. Changes in Securities and Use of Proceeds 13-14
3. Defaults Upon Senior Securities 14
6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
<PAGE>
FDN, Inc. and subsidiaries
Consolidated Balance Sheets
Page 1 of 2
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
March 31 December 31
2000 1999
(Unaudited)
-------------- -------------
CURRENT ASSETS
Cash $ 99,063 $ 80,482
Accounts receivable -
less allowance for doubtful accounts
of $134,368 and $64,619, respectively 425,352 244,129
Accounts receivable - affiliates 264,000 108,201
Accounts receivable - factored -
less allowance for doubtful
accounts of $1,790 and $37,222, respectively 10,144 148,888
Prepaid expenses and other current assets 844,823 47,232
Total Current Assets 1,643,382 628,932
------------ ---------
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment - net 972,256 1,055,144
OTHER ASSETS
Deferred charges and intangibles - net 3,101,336 3,119,071
Assets held for resale 385,000 385,000
Security deposits 5,000 5,000
Total Other Assets 3,491,336 3,509,071
------------ ----------
Total Assets $ 6,106,974 $ 5,193,147
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENT
<PAGE>
FDN, Inc. and subsidiaries
Consolidated Balance Sheets
Page 2 of 2
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31 December 31
2000 1999
(Unaudited)
-------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable - current $ 931,001 $ 1,644,291
Equipment loan payable 335,000 385,000
Loans payable - affiliate 145,809 145,809
Factoring payable - 93,055
Note payable - bank 212,000 212,000
Capital lease obligations - current 81,725 80,183
Accounts payable 1,129,573 1,078,397
Loan payable - shareholder - 29,611
Payroll taxes payable 189,793 191,732
Accrued liabilities 93,818 93,778
----------- ----------
Total Current Liabilities 3,118,719 3,953,856
LONG TERM LIABILITIES
Notes payable - net of current portion 3,545,424 5,301,766
Capital lease obligations -
net of current portion 433,071 419,179
----------- ----------
Total Liabilities 7,097,214 9,674,801
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.001 par value, 100,000,000
Shares authorized, 47,121,433 and 39,261,735
Shares issued and outstanding, respectively 47,121 39,261
Additional paid in capital 5,483,470 24,589
Accumulated deficit (6,520,831) (4,545,504)
----------- ------------
Total Shareholders' Equity (Deficit) (990,240) (4,481,654)
----------- ------------
Total Liabilities and Shareholders' Equity $ 6,106,974 $ 5,193,147
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
FDN, Inc. and subsidiaries
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Quarter ended Quarter ended
March 31, 2000 March 31, 1999
---------------- ----------------
<S> <C> <C>
Sales Revenue:
Net Revenues $ 308,366 $ -
Total Sales Revenue 308,366 -
Cost of Sales:
Cost of goods sold 417,452 -
--------------- ---------------
Gross Profit (Loss) (109,086) -
Operating Expenses:
Selling, general and administrative
expenses 1,450,136 610,600
--------------- --------------
Loss from Operations (1,559,222) (610,600)
Other Income/Expenses:
Interest expense 416,105 4,664
--------------- --------------
Total Other Expenses 416,105 4,664
Loss Before Provision for Income Taxes (1,975,327) (615,264)
--------------- --------------
Income Taxes
Income taxes - currently payable - -
Income taxes - deferred - -
--------------- --------------
Net Loss $ (1,975,327) $ (615,264)
--------------- --------------
Loss per Share - Basic & Diluted $ (0.05) $ (0.02)
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
FDN, Inc. and subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Quarter ended Quarter ended
March 31, 2000 March 31, 1999
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,975,327) $ (615,624)
Adjustments to reconcile
net loss to net cash utilized by
operating activities:
Depreciation and amortization 73,445 3,656
Bad debt expense 1,790 -
Stock issued for interest expense 400,680 -
Stock issued for broker fees 284,420 -
Stock issued for consultant fees 59,860 -
Changes in operating assets and liabilities:
Accounts receivable (181,222) -
Accounts receivable - factor 136,953 -
Prepaid expenses (143,487) -
Other assets - (173,750)
Accounts payable and accrued expenses 47,560 18,098
Other current liabilities (1,939) -
----------------- ------------
NET CASH FLOWS (UTILIZED)
IN OPERATING ACTIVITIES (1,297,267) (767,620)
----------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (38,476) (213,370)
Sales of property and equipment -proceeds 94,283 -
Loans made to affiliates 99,201 (156,773)
---------------- ------------
NET CASH FLOWS PROVIDED BY
(USED IN) INVESTING ACTIVITIES 155,008 (370,143)
----------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net loan from shareholder (284,610) (987,424)
Net pay down to factor (93,055) -
Proceeds from promissory notes - 2,424,533
Payments on promissory notes (798,300) -
Proceeds from long-term debt 100,000 -
Payments of long-term debt (50,000) -
Payments on capital lease obligation (13,195) -
Proceeds from sale of stock 2,300,000 -
----------------- ------------
NET CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES 1,160,840 1,437,109
----------------- ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 18,581 299,706
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 80,482 456
----------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 99,063 $ 300,162
----------------- ------------
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid $ - $ -
Interest paid $ 59,665 -
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
FDN, Inc. and subsidiaries Consolidated
Statements of Cash Flows (Unaudited) (continued)
Supplemental Schedule of Non-cash Investing and Financing Activities
During the first quarter ended March 31, 2000:
The Company entered into a capital lease for office equipment aggregating
$28,629.
The Company converted approximately 1,806,000 of promissory notes
and related accrued interest into 3,000,911 shares of common stock.
The Company issued 1,250,000 shares of common stock for all the outstanding
stock of Mercury Capital Corporation.
The Company issued stock and/or options to certain consultants for future
services valued in the aggregate at $682,925.
The Company issued stock to a finder related to $2,300,000 in equity raised.
The stock issued to the finder was valued at $153,408.
<PAGE>
FDN, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
NOTE 1:
In the opinion of management, the accompanying unaudited and
consolidated financial statements of FDN, Inc. and its subsidiaries,
contain all adjustments necessary to present fairly the Company's
financial position as of March 31, 2000 and the results of its
operations and cash flows for all periods presented.
The results of operations for the period ended March 31, 2000 are not
necessarily indicative of the results to be expected for the full year.
For a summary of significant accounting policies and additional
financial information, see the financial statements in the May 1, 2000
8-KA, which are incorporated herein by reference, for the years ended
December 31, 1999 and 1998 including the notes thereto which should be
read in conjunction with these financial statements.
NOTE 2: DESCRIPTION OF BUSINESS, ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
FDN, Inc., the Company, (formerly Ultrafit Centers, Inc.) was
incorporated in the State of Colorado on May 27, 1987. After being
administratively dissolved on November 1, 1997 by the Colorado
Secretary of State, the Company was reinstated and a certificate of
good standing was issued on February 18, 1999. In anticipation of the
reverse acquisition with FON Digital Network, Inc. (a Florida
corporation) discussed below, the Company officially changed its name
to FDN, Inc. on February 18, 1999. Before the reverse acquisition, FDN,
Inc (formerly Ultrafit Centers, Inc.) had operated a series of
geriatric rehabilitation facilities. Prior to December 31, 1999 FDN,
Inc. ceased operating these facilities and had in fact divested
themselves of all assets related to the rehabilitation business.
FDN Inc., through its subsidiaries, is an emerging provider of
advanced, integrated telecommunications services primarily to
residential and small business customers. The Company offers local,
long-distance, prepaid and operated assisted telephone services
integrated with enhanced communications features. The Company is
broadening its business strategy as an Integrated Communications
Provider (ICP), providing broadband data, voice and video
telecommunications services primarily throughout the United States and
terminating internationally. Additionally, products offered are:
traditional 1 plus, 0 plus (operator assisted), travel card, toll free
800 service, Voice over Internet (VoIP), and Internet Service Provider
(ISP).
FON Digital Network, Inc "FON" was incorporated on August 5, 1998 in
the state of Florida. FON Digital Network changed its name on March
11, 2000 to Clearpoint Communications, Inc. On February 23, 1999, the
FON shareholders agreed to exchange all their shares of common stock
for 32,881,409 shares of FDN, Inc. in a transaction reflected as a
reverse acquisition. FDN, Inc. remains the legal acquirer, although
FON is considered the accounting acquirer, and as such, the financial
statements, present the results of operations for the accounting
acquirer, FON. The only historical information of FDN (Ultrafit
Centers, Inc.) presented is the outstanding liabilities and related
deficit.
On July 15, 1999, FON purchased substantially all the assets of
American Telecommunications Enterprises, Inc., (out of bankruptcy).
The acquisition was accounted for under the purchase method of
accounting and as such, the financial statements include the operations
from the date of acquisition. American Tel Enterprises, Inc. (TEL) was
incorporated in the State of Florida on July 1, 1999 to effectuate this
transaction.
Pro forma Information
The following unaudited pro forma consolidated income statement data
presents the consolidated results of operations of the Company had the
transactions involving American Telecommunications Enterprises, Inc.
occurred at the beginning of the period presented:
Period Ended March 31,
1999
Net sales $ 713,847
Net income (loss) (1,146,400)
Basic earnings per share $ (0.03)
Diluted earnings per share $ (0.03)
<PAGE>
FDN, Inc. and subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
NOTE 2: DESCRIPTION OF BUSINESS, ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
The above pro forma information does not purport to be indicative of
what would have occurred had the acquisition been made as of such
date or of the results which may occur in the future.
The stockholders' equity section of the accompanying financial
statements has been retroactively restated to account for the
recapitalization as a result of the reverse acquisition.
In March 2000, the Company entered into an exchange agreement with
Mercury Capital Corporation, an inactive Colorado corporation, whereby
all the outstanding shares of common stock of Mercury Capital
(4,000,000) were exchanged for 1,250,000 shares of common stock of the
Company. This transaction, in which the Company acquired 100% of the
issued and outstanding common stock of Mercury, also enabled the
Company to become the parent corporation of Mercury. Management
believes that this transaction will allow the Company to achieve full
reporting status to satisfy the NASD eligibility and listing
requirements.
NOTE 3: OPERATING RESULTS AND MANAGEMENT PLANS
The accompanying financial statements reflect significant operating
losses and a large accumulated deficit, as well as negative working
capital and negative cash flows from operations. At March 31, 2000,
the Company was also in default on certain promissory notes and had
delinquent payroll tax liabilities resulting from the Ultrafit
acquisition.
Management has taken an aggressive proactive approach to reversing
these negative trends, including the purchase of the assets of American
Telecommunications Enterprises, Inc, as well as successfully
negotiating the partial conversion of certain notes to equity and
either paying or extending the balance of the majority of the remaining
notes.
Through March 31, 2000, the Company has converted approximately $1.8
million of the promissory notes and related accrued interest to equity,
and has raised an additional $2.3 million in equity financing.
Management is also in discussions and has received best efforts term
sheets for significant additional potential equity financing. The
Company believes it has solidified its relationships with its
telecommunications providers and has established new relationships in
an attempt to better provide services to its existing and potential
client base.
NOTE 4: PROMISSORY NOTES/OTHER NOTES PAYABLE
During February and March of 2000, the Company converted approximately
$1,806,000 of principal and accrued interest related to certain
promissory notes into common stock. The converting note holders
received common stock of a significant shareholder which had been
pledged as collateral. To replace the stock pledged by this
shareholder, the Company issued 3,000,011 replacement shares. These
3,000,011 shares represented a 30,876 share premium from those shares
pledged as collateral, and also takes into account 138,465 additional
shares to be issued in May 2000 to settle a $90,000 note which has been
converted in May of 2000.
In connection with the $1,806,000 of principal and interest converted,
the Company has recorded an additional interest expense associated with
the conversion of $400,681, which represents the fair value of the
stock issued as compared to the book value of the debt converted
At March 31, 2000, $609,956 of promissory notes were still outstanding
and some were in default. Subsequent to March 31, 2000, $50,000 has
been repaid, $90,000 has been converted to equity, and additionally, a
note holder has agreed to extend the terms of his $420,000 note for an
additional six months.
In conjunction with the acquisition of Mercury Capital, the Company
agreed to pay a consultant $200,000. $100,000 was paid in cash and a
non-interest bearing note for the remaining $100,000 is due and payable
in July 2000.
NOTE 5: OBLIGATIONS UNDER CAPITAL LEASE
During the first quarter of 2000, the Company entered into additional
capital leases for various office equipment totaling $28,629.
<PAGE>
FDN, Inc. and subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
NOTE 6: SHAREHOLDERS' EQUITY
During the first quarter of 2000, the Company entered into several
transactions which effect shareholders' equity. These transactions are
detailed below:
In January 2000, the Company issued 500,080 unregistered, restricted
shares of common stock to an investment broker who has helped negotiate
the conversion of certain promissory notes into equity. (See Note 4).
The Company has recorded a brokerage fee and resulting increase to
capital of $284,420 (the fair value of these shares) in connection with
this transaction.
In February 2000, the Company entered into an agreement with a
marketing and promotions firm to perform certain promotional services
over the next 12 months. As payment for these services, the Company
issued 50,000 shares of its restricted common stock to the promotional
firm. The Company recorded an initial $31,450 as a prepaid expense and
increase to equity (the fair value of the shares). The prepaid expense
is being amortized over a 12-month period.
During February 2000, the Company issued 1,441,174 shares of common
stock to two investors in exchange for $1,000,000 pursuant to a private
placement exempt from registration procedures of the Securities Act of
1933 in reliance upon Sections 3(A) and 4(2) and rule 504 of Regulation
D.
On February 8, 2000, the Company entered into a six-month employment
agreement with an individual to serve as the Director of Strategic
Planning. As compensation for his services, the employee was issued
250,000 shares of the Company's restricted stock valued at $111,638.
This amount will be amortized as compensation expense over a six-month
period.
On March 1, 2000, the Company entered into a twelve-month consulting
agreement with an individual to provide various consulting services
related to future financing goals and other services. In connection
with the agreement, the consultant was issued 500,000 shares of
restricted common stock. The Company has recorded a prepaid asset and
related increase to equity of $279,975 (the fair value of these shares)
in connection with this transaction.
In addition, the consulting agreement also grants a three-year option
to acquire an additional 500,000 shares of common stock at an exercise
price of $0.10 per share. The Agreement contemplates these shares
being registered with the SEC under a Form S-8 registration statement.
These options vest ratably over a 12-month period. On the date of
grant, the Company's common stock had a sale price of $0.84 per share.
As a result, the Company has recorded as prepaid consulting fees and
additional equity, $0.74 per share.
During March of 2000, the Company raised an additional $1,300,000 in
funds through a sale of 1,397,564 shares of unregistered, restricted
shares of common stock to one investor.
During March 2000 the Company also issued 3,000,011 shares of
unregistered, restricted shares in connection with the conversion of
promissory notes (See Note 4).
In connection with the two private equity raise ups during the first
quarter, the Company paid a finders fee to an unrelated entity. The
fee was $38,352 in cash and 218,427 restricted shares of common stock
valued at $153,408. The total fee of $191,760 has been recorded as a
reduction of additional paid in capital associated with the equity
raised.
On March 17, 2000 the Company agreed to issue 250,000 shares of common
stock to a consultant associated with the Mercury Capital transaction
(See Note 2). These shares are subject to registration by the Company.
At March 31, 2000, these shares had yet to be issued.
NOTE 7: SUBSEQUENT EVENTS
On April 26, 2000, the Company sold its assets held for resale
aggregating $385,000 to a shareholder of the Company in exchange for
the return of 567,000 shares of Company common stock owned by the
shareholder. In addition, this shareholder returned to the Company
500,000 shares of founders stock, which had been issued erroneously to
an affiliated entity of this shareholder. This stock was retired and
this transaction has been presented retroactively to March 31, 2000.
The Company also received 255,000 shares in full payment for the loans
receivable from this shareholder at March 31, 2000.
<PAGE>
FDN, Inc. and subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
NOTE 7: SUBSEQUENT EVENTS (CONTINUED)
On April 18, 2000, the Board of Directors ratified the issuance of
restricted stock to two new employees holding senior management
positions, in connection with their employment agreements. One
agreement calls for the issuance of 75,000 shares as a sign on bonus
for joining the Company. The other agreement calls for 150,000 shares
to be issued 50,000 per month, equally over a three-month period
starting with the employment date.
During April 2000, the Company settled litigation with HEB Retirement
and Investment Plan Trust resulting from the operations of Ultrafit
Centers, Inc. The Company had previously recorded the liability as a
payable at December 31, 1999
On April 14, 2000, two shareholders loaned the Company $396,000 to be
used as additional working capital.
<PAGE>
FDN, Inc. and subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
FDN Inc., through its subsidiaries, is an emerging provider of
advanced, integrated telecommunications services primarily to
residential and small business customers. The Company offers local,
long-distance, prepaid and operated assisted telephone services
integrated with enhanced communications features. The Company is
broadening its business strategy as an Integrated Communications
Provider (ICP), providing broadband data, voice and video
telecommunications services primarily throughout the United States and
terminating internationally. Additionally, products offered are:
traditional 1 plus, 0 plus (operator assisted), travel card, toll free
800 service, Voice over Internet (VoIP), and Internet Service Provider
(ISP).
RESULTS OF OPERATIONS:
Net revenues for the first quarter of 2000 were $308,366 as compared to
$0 for the first quarter of 1999. The majority of the Company's
revenue, $268,952, was generated from its American Tel subsidiary,
which was not in existence during the first quarter of 1999.
Cost of sales was $417,452 for the first quarter of 2000 as compared to
$0 for the comparable 1999 quarter. As detailed above, the majority of
these costs are associated with the Company's American Tel subsidiary.
Problems with telecommunication providers resulted in a temporary
disruption of certain services provided to customers. However, the
Company is still contractually obligated to certain entities for call
volume minimums. These issues have since been rectified but resulted
in costs during the first quarter of 2000 without corresponding
revenue.
Selling, general, and administrative expenses increased to $1,450,136
from $610,600, an increase of $839,536 or 137%. $240,621 of this
increase is attributed to the operations of American Tel. In addition,
in 2000, the Company incurred $200,000 of consulting fees in connection
with the Mercury Capital transaction as well as approximately $280,000
in brokerage fees associated with the conversion of promissory notes
and related accrued interest into common stock.
Interest expense was $416,105 for the first quarter of 2000 as compared
to $4,664 for the comparable quarter of 1999. This increase is
directly related to $400,681 of interest associated with the conversion
of promissory notes. This increase represents the increase of the fair
value of the common stock over the book value of the promissory notes
converted.
OTHER
During the second quarter of 2000 the Company delivered 500,000 Prepaid
Phone Cards with an approximate gross revenue value of $3,250,000, to
its distributors. This distribution will cover 25,000 to 30,000 retail
outlets in eight major markets throughout the U.S. Furthermore, orders
for 1,000,000 additional cards have already been placed during the
second quarter. The Company plans to further increase profit margin on
prepaid cards by developing international VoIP direct circuits. The
Company will sell the remaining bandwidth to other international
carriers thereby generating additional revenues.
The Company has negotiated an aggressive carrier agreement with Quest
Communications, a top tier carrier.
LIQUIDITY AND CAPITAL RESOURCES
Although the Company continues to have negative working capital, it has
taken actions during the quarter to rectify its cash requirements. The
Company converted approximately $1,806,000 of promissory notes and
related accrued interest into common stock during the quarter. During
the quarter, the Company has also paid down an additional $798,300 of
promissory notes, which were outstanding at December 31, 1999.
Through a series of equity transactions, the Company raised an
additional $2.3 million during the first quarter. These funds were
used for working capital and to repay a portion of the promissory notes
as detailed above.
During the quarter, the Company has also been able to enlist the
services of certain consultants and promotional firms through the
issuance of both common stock and options. The Company feels these
entities can help find potential investors and/or lenders.
As a result of the Mercury Capital acquisition, the Company is now a
fully reporting entity under SEC regulations.
<PAGE>
FDN, Inc. and subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
During the first quarter of 2000, management has also hired two senior
management individuals to manage sales, marketing and operations.
These two individuals will be spearheading the Company's efforts with
regards to prepaid calling cards, carrier and technical operations.
FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the "Act")
provides a safe harbor for forward-looking statements made by or on
behalf of the Company. The Company and its representatives may from
time to time make written or oral statements that the Company believes
are "forward-looking", including statements contained in this report
and other filings with the Securities and Exchange Commission and in
reports to the Company's stockholders.
The Company believes that all statements that express expectations and
projections with respect to future matters, including but not limited
to the launching or prospective development of new business initiatives, are
forward-looking within the meaning of the Act. These statements are made on
the basis of management's views and assumptions, as of the time the
statements are made, regarding future events and business performance. There
can be no assurance, however, that management's expectations will necessarily
come to pass.
<PAGE>
FDN, Inc. and subsidiaries
Part II - Other Information
1. LEGAL PROCEEDINGS
Refer to financial statements filed May 1, 2000 with form 8-KA.
During March 2000, the Company settled its litigation with Global
Commercial Finance Company. The Company paid $103,000 in full
settlement; said amount had previously been recorded as a liability at
December 31, 1999
CHANGES IN SECURITIES AND USE OF PROCEEDS
During the first quarter of 2000, the Company entered into several
transactions which effect shareholders' equity. These transactions are
detailed below:
In January 2000, the Company issued 500,080 unregistered, restricted
shares of common stock to an investment broker who has helped negotiate
the conversion of certain promissory notes into equity. The Company has
recorded a brokerage fee and resulting increase to capital of $284,420
(the fair value of these shares) in connection with this transaction.
In February 2000, the Company entered into an agreement with a
marketing and promotions firm to perform certain promotional services
over the next 12 months. As payment for these services, the Company
issued 50,000 shares of its restricted common stock to the promotional
firm. The Company recorded an initial $31,450 as a prepaid expense and
increase to equity (the fair value of the shares). The prepaid expense
is being amortized over a 12-month period.
During February 2000, the Company issued 1,441,174 shares of common
stock to two investors in exchange for $1,000,000 pursuant to a private
placement exempt from registration procedures of the Securities Act of
1933 in reliance upon Sections 3(A) and 4(2) and rule 504 of Regulation
D.
On February 8, 2000, the Company entered into a six-month employment
agreement with an individual to serve as the Director of Strategic
Planning. As compensation for his services, the employee was issued
250,000 shares of the Company's restricted stock valued at $111,638.
This amount will be amortized as compensation expense over a six-month
period.
On March 1, 2000, the Company entered into a twelve-month consulting
agreement with an individual to provide various consulting services
related to future financing goals and other services. In connection
with the agreement, the consultant was issued 500,000 shares of
restricted common stock. The Company has recorded a prepaid asset and
related increase to equity of $279,975 (the fair value of these shares)
in connection with this transaction.
In addition, the consulting agreement also grants a three-year option
to acquire an additional 500,000 shares of common stock at an exercise
price of $0.10 per share. The Agreement contemplates these shares
being registered with the SEC under a Form S-8 registration statement.
These options vest ratably over a 12-month period. On the date of
grant, the Company's common stock had a sale price of $0.84 per share.
As a result, the Company has recorded as prepaid consulting fees and
additional equity, $0.74 per share.
During March of 2000, the Company raised an additional $1,300,000 in
funds through a sale of 1,397,564 shares of unregistered, restricted
shares of common stock to one investor.
During March 2000 the Company also issued 3,000,011 shares of
unregistered, restricted shares in connection with the conversion of
promissory notes.
In connection with the two private equity raise ups during the first
quarter, the Company paid a finders fee to an unrelated entity. The
fee was $38,352 in cash and 218,427 restricted shares of common stock
valued at $153,408. The total fee of $191,760 has been recorded as a
reduction of additional paid in capital associated with the equity
raised.
On March 17, 2000 the Company agreed to issue 250,000 shares of common
stock to a consultant associated with the Mercury Capital transaction.
These shares are subject to registration by the Company. At March 31,
2000, these shares had yet to be issued.
<PAGE>
FDN, Inc. and subsidiaries
Part II - Other Information (continued)
CHANGES IN SECURITIES AND USE OF PROCEEDS: (CONTINUED)
On April 26, 2000, the Company sold its assets held for resale
aggregating $385,000 to a shareholder of the Company in exchange for
the return of 567,000 shares of Company common stock owned by the
shareholder. In addition, this shareholder returned to the Company
500,000 shares of founders stock which had been issued erroneously to
an affiliated entity of this shareholder. This stock was retired and
this transaction has been presented retroactively to March 31, 2000.
The Company also received 255,000 shares in full payment for the loans
receivable from this shareholder at March 31, 2000.
On April 18, 2000, the Board of Directors ratified the issuance of
restricted stock to two employees in connection with their employment
agreements. One agreement calls for the issuance of 75,000 shares as a
sign on bonus for joining the Company. The other agreement calls for
150,000 shares to be issued 50,000 per month, equally over a three-
month period starting with the employment date.
With regard to the transactions described above, which netted proceeds
to The Company, the proceeds were used to fund working capital and to
repay debt that had been outstanding as of December 31, 1999.
DEFAULTS UPON SENIOR SECURITIES:
At March 31, 2000, $579,956 of promissory notes were in default.
Subsequent to March 31, 2000, $50,000 has been repaid, $90,000 has been
converted to equity, and additionally, a note holder has agreed to
extend the terms of his $420,000 note for an additional six months.
<PAGE>
EXHIBITS AND REPORTS ON FORM 8-K:
a) Exhibit 11: The Earnings Per Share computation, is
submitted below as Exhibit 11
b) Exhibit 27.1: The Financial Data Schedule for the three
months ended March 31, 2000 is submitted below as Exhibit 27.1
c) Reports on Form 8-K. Reports were filed in electronic format on
Form 8-K on March 23, 2000, and on Form 8-KA on May 1, 2000, and are
incorporated by reference.
/s/ Colin Cave /s/
Colin Cave
Chief Financial Officer
Date: May 22, 2000
<PAGE>
FDN, Inc. and subsidiaries
Computations of Per Share Earnings
Three Months Ended March 31, 2000 and 1999
EX-11
2000 1999
------------- ------------
Basic loss per share:
Net loss $ (1,975,327) $ (615,264)
Weighted average shares outstanding 40,634,549 35,504,432
Basic loss per share $ (0.05) $ (0.02)
Loss per common share is computed based on net loss divided by the
weighted average number of shares outstanding during the respective
periods presented. Diluted loss per share is not presented since stock
options are anti-dilutive.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> The schedule contains summary financial information from
the Registrant's consolidated financial statements as of and for the
three months ended March 31, 2000, and is qualified in its entirety
by reference to such consolidated financial statements.
</LEGEND>
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<NAME> FDN,INC.
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