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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to ______
Commission file number: 0-30536
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FoneCash, Inc.
(Exact name of registrant as specified in its charter)
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Delaware 22-3530573
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
90 Park Avenue, 1700, New York, New York 10016-1301
(Address of principal executive offices) (Zip-Code)
Registrant's telephone number, including area code: (212) 984-0641
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 X No__
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12,13,or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No__
The number of outstanding shares of the registrant's Common Stock, par
value $.0001 per share, was 26,849,056 on March 31, 2001.
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Fonecash, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended on March 31, 2002
Table of Contents
Part I. FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements (Unaudited)
Balance Sheets as of March 31, 2002 and December 31, 2000
Statement of Operations for Three Month Period Ending March 31, 2002
Statement of Cash Flow for Three Month Period Ending March 31, 2002
Notes to Consolidated Financial Statements
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II OTHER INFORMATION
Incorporated by reference in the Company's Form 10-SB,
Amendment 3 registration statement, along with all exhibits,
submitted on May , 2000
FONECASH, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
------
March 31, December 31,
2002 2001
----------- -----------
Current assets:
Cash $ 568 $ --
Accounts receivable 10,840 10,840
Stock subscriptions receivable 83,875 --
Inventory 177,800 177,800
Prepaid expenses 25,000 25,000
----------- -----------
298,083 213,640
----------- -----------
Property and equipment, net 23,613 30,320
----------- -----------
Other assets:
Patent rights, net 1,750 2,000
Other -- --
----------- -----------
1,750 2,000
----------- -----------
$ 323,446 $ 245,960
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Accounts payable $ 149,208 $ 161,478
Due to officer/stockholder 474,791 478,691
Notes payable 191,860 196,024
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815,859 836,193
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Stockholders' deficit :
Preferred stock; $.0001 par value; authorized -
10,000,000 shares; issued - none -- --
Common stock; $.0001 par value; authorized -
500,000,000 shares; issued and outstanding -
26,849,056 shares in 2002 and 14,899,056 in 2001 2,685 1,490
Additional paid-in capital 3,559,054 3,127,624
Treasury stock, 500 shares at cost (1,500) (1,500)
Deficit accumulated during the development stage (4,052,652) (3,717,847)
----------- -----------
(492,413) (590,233)
----------- -----------
$ 323,446 $ 245,960
=========== ===========
See accompanying notes to the financial statements.
2
FONECASH, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
Three Three Aug. 7, 1997
Months Ended Months Ended (Inception) to
March 31, March 31, March 31,
2002 2001 2002
------------ ------------ ------------
Revenue:
Sales $ -- $ 6,020 $ 10,840
Cost of sales -- 2,800 5,662
------------ ------------ ------------
Gross profit -- 3,220 5,178
Interest income 5 6 5,216
------------ ------------ ------------
Total revenue 5 3,226 10,394
------------ ------------ ------------
Costs and expenses:
Depreciation 6,707 18,345 197,012
Amortization 250 268 3,618
Research and development, related party -- 9,700 432,256
Officer's compensation 221,000 1,200 934,429
Impairment of investment in related party -- -- 50,000
Impairment of investment in subsidiaries -- -- 450,000
General and administrative 106,853 282,080 1,995,731
------------ ------------ ------------
334,810 311,593 4,063,046
------------ ------------ ------------
Net loss $ (334,805) $ (308,367) $ (4,052,652)
============ ============ ============
Basic and diluted loss per common share $ (.02) $ (.05)
============ ============
Weighted average common shares outstanding 16,791,556 6,234,705
============ ============
See accompanying notes to the financial statements.
3
FONECASH, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Changes in Stockholders' Equity
For the Period August 7, 1997 (Inception) to March 31, 2002
Deficit
Accumulated
Common Stock Additional Treasury Stock During the
------------------------ Paid-in ------------------------- Development
Shares Amount Capital Shares Amount Stage
----------- ----------- ----------- ----------- ----------- -----------
Balances, August 7, 1997 (inception) -- $ -- $ -- -- $ -- $ --
Common stock issued for services
and costs advanced, valued at
$.0001 per share 2,000,000 200 -- -- -- --
Common stock issued for services,
valued at $.15 per share 200,000 20 29,980 -- -- --
Net loss for the period (61,404)
----------- ----------- ----------- ----------- ----------- -----------
Balances, December 31, 1997 2,200,000 220 29,980 -- -- (61,404)
Sale of common stock ($.4156 per share) 204,500 20 84,965 -- -- --
Net loss (95,211)
----------- ----------- ----------- ----------- ----------- -----------
Balances, December 31, 1998 2,404,500 240 114,945 -- -- (156,615)
Sale of common stock ($.7622 per share) 1,098,505 110 837,160 -- -- --
Services contributed by the
president of the Company -- -- 60,000 -- -- --
Common stock issued for services,
valued at $.81 per share 333,333 33 269,967 -- -- --
Net loss (785,366)
----------- ----------- ----------- ----------- ----------- -----------
Balances, December 31, 1999 3,836,338 383 1,282,072 -- -- (941,981)
Sale of common stock ($1.25 per share) 25,000 3 31,247 -- -- --
Common stock issued for services,
valued at $.11 per share 1,466,667 147 157,353 -- -- --
Common stock issued for services,
valued at $.5312 per share 623,367 62 331,071 -- -- --
Purchase of treasury stock -- -- -- 500 (1,500) --
Net loss (897,368)
----------- ----------- ----------- ----------- ----------- -----------
Balances, December 31, 2000 5,951,372 $ 595 $ 1,801,743 500 $ (1,500) $(1,839,349)
Common stock issued for services,
valued at $.12 per share 6,959,708 696 858,080 -- -- --
Sale of common stock ($.017 per share) 1,087,976 109 17,891 -- -- --
Common stock issued in acquisition
of subsidiaries, valued at $.50 per share 900,000 90 449,910 -- -- --
Net loss (1,878,498)
----------- ----------- ----------- ----------- ----------- -----------
Balances, December 31, 2001 14,899,056 $ 1,490 $ 3,127,624 500 $ (1,500) $(3,717,847)
Sale of common stock ($.03 per share) 4,450,000 445 132,180 -- -- --
Common stock issued for services,
valued at $.04 per share 7,500,000 750 299,250 -- -- --
Net loss for the period (334,805)
----------- ----------- ----------- ----------- ----------- -----------
Balances, March 31, 2002 26,849,056 2,685 3,559,054 500 (1,500) (4,052,652)
=========== =========== =========== =========== =========== ===========
See accompanying notes to the financial statements.
4
FONECASH, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
Three Three Aug. 7, 1997
Months Ended Months Ended (Inception) to
March 31, March 31, March 31,
2002 2001 2002
----------- ----------- -----------
Cash flows from operating activities:
Net loss $ (334,805) $ (308,367) $(4,052,652)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation 6,707 18,345 197,012
Amortization 250 268 3,618
Common stock issued for services 300,000 266,000 2,007,609
Common stock issued in acquisition of subsidiaries -- -- 450,000
Write-down of lost inventory -- -- 26,538
Changes in assets and liabilities
Increase in accounts receivable -- (6,020) (10,840)
(Increase) decrease in inventory -- (172,200) (204,338)
Increase in prepaid expenses -- -- (25,000)
Increase (decrease) in accounts payable (12,270) 75,202 149,208
----------- ----------- -----------
Net cash used in operating activities (40,118) (126,772) (1,458,845)
----------- ----------- -----------
Cash flows from investing activities:
Organization costs -- -- (368)
Purchases of property and equipment -- -- (220,625)
Acquisition of patent rights -- -- (5,000)
----------- -----------
----------- -----------
Net cash used in investing activities -- -- (225,993)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from short-term debt 2,625 3,091 244,949
Repayment of short-term debt (6,789) (5,565) (53,089)
Increase (decrease) in amounts
due to an officer/stockholder (3,900) 127,888 474,791
Purchase of treasury stock -- -- (1,500)
Proceeds from sale of common stock 48,750 -- 1,020,255
----------- ----------- -----------
Net cash provided by financing activities 40,686 125,414 1,685,406
----------- ----------- -----------
Net increase (decrease) in cash 568 (1,358) 568
Cash at beginning of period -- 1,822 --
----------- ----------- -----------
Cash at end of period $ 568 $ 464 $ 568
=========== =========== ===========
See accompanying notes to the financial statements.
5
FONECASH, INC. AND SUBSIDIARIES
(A Development Stage Company)
Form 10QSB
Quarter Ended March 31, 2002
Notes to Consolidated Financial Statements
Note 1 - Condensed Consolidated Financial Statements
Basis of Presentation
---------------------
The accompanying interim unaudited consolidated financial statements include the
accounts of FoneCash, Inc. and its subsidiaries which are hereafter referred to
as (the "Company"). All intercompany accounts and transactions have been
eliminated in consolidation. These financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-QSB of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements. In the opinion of management, such
interim statements reflect all adjustments (consisting of normal recurring
accruals) necessary to present fairly the financial position and the results of
operations and cash flows for the interim periods presented. The results of
operations for these interim periods are not necessarily indicative of the
results to be expected for the year ending December 31, 2002. These financial
statements should be read in conjunction with the audited financial statements
and footnotes included in the Company's report on Form 10-KSB for the year ended
December 31, 2001.
Note 2 - Stockholders' Equity (Deficit)
Common Stock
Since December 31, 2001, the Company has issued 2,100,000
shares of common stock for consulting services and 5,400,000 shares for
officers' compensation, valued at $.04 per share. The Company has also sold
4,450,000 shares of common stock at $.03 per share.
Loss Per Common Share
---------------------
Loss per common share is computed by dividing the net loss by the weighted
average shares outstanding during the period.
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Item 2. Management's Discussion and Analysis
This Quarterly Report on Form 10-QSB, including the information incorporated by
reference herein, includes "forward looking statement" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Act") and Section
21E of the Securities Act of 1934, as amended ("Act of 34"). All of the
statements contained in this Quarterly Report on Form 10-QSB, other than
statements of historical fact, should be considered forward looking statements,
including, but not limited to, those concerning the Company's strategies,
objectives and plans for expansion of its operation, products and services and
growth in demand for it's products and services. There can be no assurances that
these expectations will prove to have been correct. Certain important factors
that could cause actual results to differ materially from the Company's
expectations (the "Cautionary Statements") are disclosed in this Quarterly
report on Form 10-QSB. All subsequent written and oral forward looking
statements by or attributable to the Company or persons acting on behalf are
expressly qualified in their entirety by such Cautionary Statements. Investors
are cautioned not to place undue reliance on these forward looking statements
which speak only as of the date hereof and are not intended to give any
assurance as to future results. The Company undertakes no obligation to publicly
release any revisions to these forward-looking statements to reflect events or
reflect the occurrence of unanticipated events.
Fonecash, Inc. (the "Company") was incorporated under the laws of the State of
Delaware on August 7,1997 and is in its development stage. The first sale of its
products was made in during this period.
The Company incurred operating losses of $4,052,652 from Inception to March
31,2002. The Company expects its accumulated deficit to grow for the foreseeable
future as total costs and expenses increases due principally to increased
marketing expenses associated with its plans to undertake trials of its products
and services. There can be no assurances that the Company will complete
successful trials of its products and services, nor that sufficient revenues
will be generated from the possible sales of such products and services to allow
the Company to operate profitably.
General
The Company has developed a system of processing credit cards for an under
served community of low volume merchants and in-home salespersons consisting of
a terminal and a system of computers, utilizing established communications
networks, both wired and wireless, for processing the data from credit and debit
cards.
Terminals are electronic collectors of credit and debit data from the magnetic
stripe on cards. In the case of debit and credit cards the Fonecash system
collects the data from the magnetic stripe when a merchant accepts the card for
payment of goods or services. This data is transmitted to processors where the
validity of the card number is confirmed and the amount of the purchase is
authorized to the cardholder's account. Settlement occurs when the collected and
stored data is sent to the card issuing bank which charges the customer's
account and electronically deposits payment in the merchant's bank account,
usually within 24 - 48 hours.
7
The Company intends to market a product line and a complete processing system
that is high quality and simple to operate, because the Company, and not the
individual merchant, takes the responsibility for closing the day's receipts and
uploading the data to a third party payment processor, such as Paymenttech,
Visanet, or First Data Resources, for settlement which results in payments being
deposited in the merchants' bank account within 48 hours. Because the Company,
not only provides a terminal, but also, provides a service that facilitates the
collection of daily payment receipts, and transmits these electronic receipts
for payment and deposit of funds to each merchant, the Company believes that it
will be able to compete with the current makers of terminals, who only sell
terminals, but also, able to compete with payment processors who only support
terminals which transmit credit card data to their computers after the merchant
has manually closed out the day's electronic receipts and transmitted the totals
to the payment processor.
The Company intends to establish up to three master distributors in the United
States with the most likely candidates being current Independent Sales
Organizations (ISO's) who are already engaged in the business of distributing
automated credit card processing terminals to established merchants who have
been approved by their sponsoring banks. These ISO's have trained commissioned
sales persons and have an interest in placement of any terminal in the market
regardless of manufacturer.
The Company has never operated under any other name, nor has it ever been
involved with any bankruptcy, receivership or similar proceeding or engaged in
any material reclassification, merger, consolidation, or purchase or sale of
assets.
Results of Operation
General and administrative expenses during the three months ending March 31,
2002 were $106,853 as compared to $282,080 for the same period in 2001,
representing an decrease of $173,227. The decrease during the three month period
ending March 31, 2002 was primarily due to an infusion of the capital to the
Company to cover legall, accounting and printing associated with the filing of
various documents with the Securities and Exchange Commission, as well as cost
associated with the manufacture, shipping and storage of products for sale.
Compensation and related benefits during this three months was $221,000 and
represented compensation to its consultant; but not to its president whose total
compensation for the three months ended March 31, 2001. amounted $1,200.
Balance Sheet Data
The Company's combined cash and cash equivalents totaled $298,083 for the period
ending March 31,2002. This is an increase of $84,443 from $213,640 for the
period ending March 31, 2001
8
The Company does not expect to generate a positive internal cash flow for at
least the next nine months due to expected increase in spending for salaries and
the expected costs of marketing and sales activities.
Property and equipment was valued at $23,613 for the period ending March 31,
2002 and this represents an decrease of $6,707 for purchases of additional molds
used the manufacturing of its products in Taiwan. The molds have a useful life
of 3 years and are depreciated on a straight-line basis.
Part II Other Information
Item 1 Legal Proceedings
On April 8, 2002, the Company was served with a Notice of an Administrative
Hearing at the Securities and Exchange Commission (SEC) offices in Washington,
D.C. to be held on April 23, 2002, relating to certain allegations of the
Enforcement Division of the SEC, that a Registration Statement on Form SB-2,
filed on December 26, 2001 and amended thereafter, contained misrepresentations
and omissions of material facts. The Commission seeks to have the ability to
sell shares registered pursuant to the Registration Statement stopped. The
Company is currently in discussions with the SEC to resolve this matter without
a hearing and believes that this matter will be resolved shortly, in a manner
that will not materially affect the ability to operate or to engage in further
financing. The Company has been given an Offer for Settlement, which is
currently under advisement with the Company's attorneys.
Also, on April 8, 2002, in a concurrent action, the Company was served with a
Summons and Complaint, entitled Securities and Exchange Commission, Plaintiff v.
Fonecash, Inc, and Daniel E. Charboneau, Defendants, entered at the United
States District Court, District of Columbia. This action contains the same
allegations as in the Notice of Administrative Hearing, related to alleged
misrepresentations and omission in the filings of the Company. The Company is in
discussions with the Commission related to the resolution of this matter and
believes that a resolution will shortly be reached that will not materially
impact on the operations of the Company. The Company has filed a Motion for an
extension on the time to file an Answer to the Complaint and is awaiting a
decision of the court.
The Company has been served with a Summons and Complaint from Fleet National
Bank in an action commenced in the Supreme Court of the State of New York,
County of New York entitled, Fleet National Bank v. Fonecash, Inc, Jean-Paul
--------------------------------------------------
Charboneau, Individually and Jiann-Shong Wu, Individually. This action is for
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the failure to pay the monthly payments on a Line of Credit with Fleet National
Bank. The Company has filed an Answer and a Request for Documents and is waiting
for a response. The Company intends to defend the action and believes that it
will be resolved in a manner that does not materially impact the Company.
9
The Company has been served with a Summons and Complaint from Edgar Filings, LTD
in an action commenced in Harris County, Texas, entitled Edgar Filings, Ltd. v.
FoneCash, Inc. This action is for failure to pay various invoices amounting to
$2,303.31 for services incurred for filings documents with the Securities and
Exchange Commission. The Company is in the process of working out a reasonable
payment schedule with plaintiffs.
The Company has been threatened with litigation related to the use of Merrill
Communications LLC. Merrill was used to file the Company's filings on the EDGAR
system. They claim that a balance of $21,371.07, including interest is currently
due. The Company has not yet been served with a Complaint by Merrill.
Furthermore, the Company disputes the total amount due to Merrill. The Company
believes that a resolution will be worked out that will not materially affect
the Company. However, if a resolution can not be worked out, a judgment in the
amount sought by Merrill might have a material adverse impact on the operations
of the Company at this point in time.
The Company is threatened with litigation by Penny King Holdings
Corporation(PKH) for $30,000 which is claimed as liquidated damages for
cancellation on January 29, 2002 of a Financial Consulting Services Agreement.
The Company has rejected this claim as being contrary to fact since the
agreement upon which this claim is made is silent about liquidated damages, as
well as the fact that PKH did not perform the obligations promised. The Company
intends to defend itself against any action and believes that this threat will
not materially affect the Company.
Item 2 Changes in Securities
On January 31, 2002, The Company signed a Stock Purchase Agreement with Hedley
Finance, Inc., a company, located in Athens, Greece, whereby Hedley would
purchase 200 million restricted shares of the Company's common stock at a share
price of $0.03 for a total of $6 million. These shares were to be sold by reason
of Regulation S to non-citizens of the United States. In order to exchange and
make delivery of the stock certificates, an escrow agreement was established
with Crouch Chapman Chartered Accountants, located in London, whereby as Hedley
deposited funds into the escrow account, Crouch Chapman would release the stock
certificates. Hedley never made payment for any of the shares and, after two
months, the Company canceled the Stock Purchase Agreement and the sale. Crouch
Chapman is in the process of returning the stock certificates to the Company's
transfer agent who will cancel these certificates, returning the shares to
authorized and unissued status. Under the General; Corporation Law of Delaware,
unless consideration has been received, shares are deemed not to have been
issued. Nor is stock in escrow considered to have been delivered to the
investors.
On December 27, 2001, the Company filed a registration statement on form SB-2 to
register 7,275,730 shares, previously issued for services, which became
effective on January 16, 2002. The Company filed a post effective statement to
the SB-2 registration on February 26, March 6, and March 14, 2002.
During the First Quarter of 2002, the Board of Directors passed a resolution
agreeing to issue 3,000,000 shares of common stock to its president, Daniel
Charboneau, and 2,400,000 shares of common stock to John Wu, valued at $0.04 a
share, in lieu of cash compensation for the year ending December 31, 2001.
10
Items 3 Defaults upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
The Company increased its authorized common shares from 20,000,000 to
500,000,000 and its preferred shares from 5,000,000 to 10,000,000. The Board of
Directors of the Company approved this increase and obtained the necessary
approval of a majority of the shareholders. The Company filed Form 14C
Information with the Securities and Exchange Commission on January 28, 2002.
Item 5 Other Information
On January 29, 2002, The Company canceled a contract with Penny King Holding
Corporation(PKH), made on December 5, 2001, whereby, in return for 2.5 million
free trading shares, priced at $0.10 each and for 2.5 million warrants with an
exercise price of $0.20, PKH would deposit $250,000 in an escrow account no
later than January 29, 2002. While an escrow was not part of the original
agreement, PKH and Company mutually agreed to an escrow and agreed to appoint
American Investment Services (AIS), a broker/dealer, located in Irvine,
California, as the escrow agent. The Company delivered the stock certificates
into the escrow, but PKH failed to deposit the funds on January 29, 2002 as
promised. The Company notified PKH by certified letter that it was in default of
the agreement and gave five days for compliance. On February 5, when promised
funds were not deposited into escrow, the escrow agent agreed with Company that
PKH was in default, and upon a request by the Company to return the stock
certificates, the escrow agent sent the stock certificates to the Company's
Transfer agent, returning the shares to authorized and unissued status. As an
engagement fee, 125,000 shares were not returned to the Company, but the Company
notified the transfer agent to put a stop on these shares as PKH did not perform
any services in return for this compensation.
Item 6 Exhibits and reports on Form 8-K
a. Exhibit Index
b. Reports of Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended March 31, 2002.
Signatures
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned who is duly authorized
to sign as an officer and as the principal officer of the Company.
Fonecash, Inc
By: /s/ Daniel E. Charboneau
----------------------------------
Daniel E. Charboneau, Chairman/CEO
Date: May 20, 2002
11