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ECURITIES 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 September 30, 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
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(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 57,974,056 on September 30, 2002.
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Fonecash, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended on September 30, 2002
Table of Contents
Part I. FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements (Unaudited)
Balance Sheets as of September 30, 2002 and December 31, 2001
Statement of Operations for the Period Ending September 30, 2002
Statement of Cash Flow for the Period Ending September 30, 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 5
registration statement, along with all exhibits, submitted on May ,
2000
FONECASH, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
------
September 30, December 31,
2002 2001
----------- -----------
Current assets:
Cash $ 1,686 $ --
Accounts receivable 10,840 10,840
Stock subscriptions receivable 20,694 --
Inventory 177,800 177,800
Prepaid expenses 25,000 25,000
----------- -----------
236,020 213,640
----------- -----------
Property and equipment, net 10,199 30,320
----------- -----------
Other assets:
Patent rights, net 1,250 2,000
Other -- --
----------- -----------
1,250 2,000
----------- -----------
$ 247,469 $ 245,960
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Accounts payable $ 153,008 $ 161,478
Due to officer/stockholder 468,303 478,691
Notes payable 211,601 196,024
----------- -----------
832,912 836,193
----------- -----------
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 -
57,974,056 shares in 2002 and 14,899,056 in 2001 5,797 1,490
Additional paid-in capital 4,365,963 3,127,624
Treasury stock, 500 shares at cost (1,500) (1,500)
Deficit accumulated during the development stage (4,955,703) (3,717,847)
----------- -----------
(585,443) (590,233)
----------- -----------
$ 247,469 $ 245,960
=========== ===========
See accompanying notes to the financial statements.
3
FONECASH, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
Nine Nine Aug. 7, 1997
Months Ended Months Ended (Inception) to
September 30, September 30, September 30,
2002 2001 2002
------------ ------------ ------------
Revenue:
Sales $ -- $ 15,660 $ 10,840
Cost of sales -- 8,524 5,662
------------ ------------ ------------
Gross profit -- 7,136 5,178
Interest income 44 17 5,255
------------ ------------ ------------
Total revenue 44 7,153 10,433
------------ ------------ ------------
Costs and expenses:
Depreciation 20,121 55,035 210,426
Amortization 750 805 4,118
Research and development, related party -- 9,700 432,256
Officer's compensation 228,110 1,200 941,539
Impairment of investment in related party -- -- 50,000
Impairment of investment in subsidiaries -- 450,000 450,000
General and administrative 988,919 460,770 2,877,797
------------ ------------ ------------
1,237,900 977,510 4,966,136
------------ ------------ ------------
Net loss $ (1,237,856) $ (970,357) $ (4,955,703)
============ ============ ============
Basic and diluted loss per common share $ (.03) $ (.13)
============ ============
Weighted average common shares outstanding 37,318,488 7,660,617
============ ============
See accompanying notes to the financial statements.
4
FONECASH, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Changes in Stockholders' Equity
For the Period August 7, 1997 (Inception) to September 30, 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) $(3,717,847)
Sale of common stock ($.011 per share) 14,275,000 1,427 163,219 -- -- --
Common stock issued for services,
valued at $.04 per share 28,800,000 2,880 1,075,120 -- -- --
Net loss for the period (1,237,856)
----------- ----------- ----------- ----------- ----------- -----------
Balances, September 30, 2002 57,974,056 5,797 4,365,963 500 (1,500) (4,955,703)
=========== =========== =========== =========== =========== ===========
See accompanying notes to the financial statements.
5
FONECASH, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
Nine Nine Aug. 7, 1997
Months Ended Months Ended (Inception) to
September 30, September 30, September 30,
2002 2001 2002
----------- ----------- -----------
Cash flows from operating activities:
Net loss $(1,237,856) $ (970,357) $(4,955,703)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation 20,121 55,035 210,426
Amortization 750 805 4,118
Common stock issued for services 1,078,000 386,000 2,785,609
Common stock issued in acquisition of subsidiaries -- 450,000 450,000
Write-down of lost inventory -- -- 26,538
Changes in assets and liabilities
Increase in accounts receivable -- (15,660) (10,840)
(Increase) decrease in inventory -- (166,476) (204,338)
Increase in prepaid expenses -- -- (25,000)
Increase (decrease) in accounts payable (8,470) 93,393 153,008
----------- ----------- -----------
Net cash used in operating activities (147,455) (167,260) (1,566,182)
----------- ----------- -----------
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 32,625 23,637 274,949
Repayment of short-term debt (17,048) (15,974) (63,348)
Increase (decrease) in amounts
due to an officer/stockholder (10,388) 147,215 468,303
Purchase of treasury stock -- -- (1,500)
Proceeds from sale of common stock 143,952 18,000 1,115,457
----------- ----------- -----------
Net cash provided by financing activities 149,141 172,878 1,793,861
----------- ----------- -----------
Net increase (decrease) in cash 1,686 5,618 1,686
Cash at beginning of period -- 1,822 --
----------- ----------- -----------
Cash at end of period $ 1,686 $ 7,440 $ 1,686
=========== =========== ===========
See accompanying notes to the financial statements.
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FONECASH, INC AND SUBSIDIARIES
(A Development Stage Company)
Form 10QSB
Quarter Ended September 30, 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 23,400,000 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 14,275,000 shares of common
stock at an average price of $.01 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 $4,955,703 from Inception to September
30, 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.
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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 period ending September 30, 2002
were $988,919 as compared to $460,770 for the same period in 2001, representing
an increase of $528,149. The increase during the three month period ending
September 30, 2002 was primarily due to cost associates with legal, accounting
and manufacturing of samples of the Company's wireless products.
Compensation and related benefits during these three months was $228,110 and
represented compensation to its consultant; but not to its president whose total
compensation for the three months ended September 30, 2002. amounted $3,000.
Balance Sheet Data
The Company's combined cash and cash equivalents totaled $236,020 for the period
ending September 30, 2002. This is an increase of $22,380 from $213,640 for the
period ending December 31, 2001
9
The Company does not expect to generate a positive internal cash flow for at
least the next six months due to expected increase in spending for salaries and
the expected costs of marketing and sales activities.
Property and equipment was valued at $10,199 for the period ending September 30,
2002 and this represents a decrease of $20,121 representing depreciation on the
molds which 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. On May 21, 2002, The Company executed an Offer of Settlement to the
administrative proceeding agreeing to allow the Commission to suspend the
Registration Statement and all amendments previously filed by the Company. This
agreement and the Consent to the findings contained therein are limited solely
to the Proceeding and any other proceeding to which the Commission is a party,
except the pending Civil Action, and are made without admitting or denying the
accuracy of the allegations in the Commission's Statement of Matters or any
Order Making Finding and Issuing Stop Order which may be issued. This matter has
been resolved and the registration statement withdrawn. The Company is complying
with all requirements in the Consent order.
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. On May 9, 2002, The Company executed and entered into a
consent agreement of Preliminary Injunctions in the pending action. This Consent
was without admitting or denying the allegations of the Commission's Complaint.
The proposed Order enjoins the Company from violating, directly or indirectly
the Rules of the Securities Act of 1933 as cited in the Complaint. This civil
action has not been resolved, and the Company has decided to litigate this case
as it believes it has defenses to the allegations. It is the opinion of the
Company that the matter will reach a resolution that does not have a material
adverse effect on the Company.
10
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
the failure to pay the monthly payments on a Line of Credit with Fleet National
Bank. The Plaintiff has obtained a judgment against the defendants. The Company
is seeking a method to pay the outstanding balance so as not to adversely affect
the Company. If the judgment creditor seeks to enforce the judgment it would
have an adverse material effect on the Company to operate.
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 Plaintiff has received a judgment against the Company.
The Company intends to pay the amount due upon receipt of funds. If the judgment
creditor seeks to enforce the judgment it would have an adverse effect on the
ability of the Company to operate.
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. At present the Company has a preliminary
resolution with the claimant to make payments on the outstanding amount. The
Company has made an initial payment. If the creditor was to reduce the amount,
sue to judgment, after instituting litigation, any enforcement of the judgment,
it would have an adverse material effect on the ability of the Company to
operate.
On August 13, 2002, the United Stated Attorney for the Southern District of
Florida handed up an indictment in the United States District Court for the
Southern District of Florida, naming four defendants, including Daniel E.
Charboneau, President, CEO and Chairman of the Company. The indictment does not
name the Company, or any other Company employee. Although alleging a broader
conspiracy, the indictment alleges that Mr. Charboneau engaged in a scheme to
circumvent and violated certain restrictions on the raising of capital for
public companies through the sale of restricted shares at an inflated price in
the Company and the maximum amount that can be paid for commissions to
intermediaries, among other counts of various wire and mail fraud. The other
defendants named in the indictment have no involvement in the business of the
Company. Mr. Charboneau has entered a plea of "Not Guilty" to the charges
against him and intends to vigorously defend himself. The Company intends to
continue its normal day-to-day business operations while Mr. Charboneau
vigorously contest the allegations .It is impossible to determine at this time
if this action will have any material affect on the Company.
11
Item 2 Changes in Securities
During the period ending June 30, 2002, the Company issued shares of common
stock to non-domestic investors for cash in accordance with Regulation S.
Items 3 Defaults upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
Regulation FD Disclosure
Certification Pursuant to 18 U.S.C., Section 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
I, Daniel E. Charboneau, Chief Executive Officer and Chief Financial
Officer of FoneCash, Inc. (the "Company"), certify pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, 18 U.S.C., Section 1350, that::
E. the Company's Quarterly Report on Form 10-QSB for the fiscal quarter ended
September 30, 2002, as files with the Securities and Exchange Commission on
the date hereof (the "Report") fully complies with the requirements of
Section 13(a) or 15(d) for the Securities Exchange Act of 1934; and
F. the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operation of the Company
for the period presented therein.
/s/Daniel E. Charboneau
Chief Executive Officer
Chief Financial Officer
November 20, 2002
Item 6 Exhibits and reports on Form 8-K
a. Exhibit Index
b. Reports of Form 8-K
12
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: November 20, 2002
13