UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003
COMMISSION FILE NUMBER 0-24408
FONEFRIEND, INC.
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(Exact Name of Registrant as Specified in its Charter)
DELAWARE 33-0611753
------------------------ ---------------------------
(State of Incorporation) (I.R.S. Employer ID Number)
2722 Loker Avenue West, Suite G
Carlsbad, CA 92008
----------------------------------------
(Address of Principal Executive Offices)
(760) 607-2330
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check 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 registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
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 /X/ No / /
As of November 14, 2003, there were 820,361 shares of Preferred Stock
and 9,486,000 shares of Common Stock outstanding.
FONEFRIEND, INC.
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets at September 30, 2003 and
June 30, 2003 .......................................... 3
Statements of Operations for the three month
period ended September 30, 2003 and three month
period ended September 30, 2002 ........................ 4
Statements of Cash Flows for the three-month
period ended September 30, 2003 and the three
month period ended September 30, 2002 .................. 5
Statements of Stockholders' Equity for the three
month period ended September 30, 2003 .................. 6
Notes to Financial Statements .......................... 9
Item 2. Management's Discussion and Analysis of Financial
Condition And Results of Operations .................... 13
Item 3. Controls and Procedures ................................ 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ...................................... 18
Item 2. Changes in Securities .................................. 18
Item 3. Defaults Upon Senior Securities ........................ 18
Item 4. Submission of Matters to a Vote of Security Holders .... 18
Item 5. Other Information ...................................... 19
Item 6. Exhibits and Reports on Form 8-K ....................... 19
2
FONEFRIEND, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS
(Amounts in Dollars)
ASSETS
September 30, June 30,
2003 2003
------------- -------------
Current Assets
Cash in banks and on hand $ 10,699 $ 157
Inventory-equipment $ 16,400 $ 16,000
Stock subscription receivable $ 1,390 $ 0
Current portion of prepaid expenses $ 99,400 $ 148,525
------------- -------------
Total current assets $ 127,889 $ 164,682
------------- -------------
Furniture & equipment, net of depreciation - Note 3 $ 13,892 $ 12,255
------------- -------------
Other Assets
Non-current prepaid expenses and deposits $ 13,597 $ 13,597
Capitalized development costs $ 694,863 $ 694,863
Technology rights, FoneFriend license $ 300,000 $ 300,000
Stock in FoneFriend Systems, Inc. $ 150,000 $ 150,000
Organizational costs, net of amortization - Note 3 $ 100 $ 110
------------- -------------
Total other assets $ 1,158,560 $ 1,158,570
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TOTAL ASSETS $ 1,300,341 $ 1,335,507
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 31,919 $ 4,302
Accrued expenses payable $ 163,500 $ 0
Litigation settlement payable $ 20,000 $ 0
Loans from officers and others $ 57,188 $ 57,188
Payroll taxes payable $ 5,416 $ 5,416
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Total current liabilities $ 278,023 $ 66,906
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Loans payable, non-current $ 25,000 $ 25,000
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TOTAL LIABILITIES $ 303,023 $ 91,906
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Stockholders' Equity - Note 4
Preferred stock, $.001 par value, authorized
50,000,000 shares, issued and outstanding
820,361 shares $ 820 $ 820
Common stock, $.001 par value, authorized
200,000,000 shares, issued and outstanding,
9,386,000 at September and 8,926,000 at June
30, 2003 $ 9,386 $ 8,926
Additional paid in capital $ 3,869,203 $ 3,800,063
Operating deficit $ (2,882,091) $ (2,566,208)
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TOTAL STOCKHOLDERS' EQUITY $ 997,318 $ 1,243,601
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,300,341 $ 1,335,507
------------- -------------
See Accompanying Notes to Financial Statements
3
FONEFRIEND, INC.
STATEMENTS OF OPERATIONS
(Amounts in Dollars)
Three Months
Ended September 30,
-----------------------
2003 2002
--------- ---------
Revenue $ -- $ --
--------- ---------
Expenses
Advertising $ 1,300 $ 3,936
Automobile $ 200 $ 3,248
Commissions related to fund raising activity $ -- $ 18,888
Consulting fees $ 241,539 $ 57,720
Depreciation and amortization $ 873 $ --
Insurance $ 1,681 $ 2,447
Legal fees $ 24,398 $ 4,529
Meals and entertainment $ -- $ 4,708
Office supplies $ 917 $ 2,413
Officer/stockholder payments $ 20,060 $ 12,500
Salaries and payroll $ -- $ 59,964
Postage $ 1,358 $ 1,216
Rent $ 6,620 $ 7,029
Telephone $ 4,990 $ 5,891
Travel $ 4,464 $ 7,682
Other $ 7,486 $ 19,155
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Total expenses $ 315,883 $ 211,316
--------- ---------
Loss from development stage operations $(315,883) $(211,316)
--------- ---------
See Accompanying Notes to Financial Statements
4
FONEFRIEND, INC.
STATEMENTS OF CASH FLOWS
(Amounts in Dollars)
Three Months Ended
September 30,
----------------------
2003 2002
--------- ---------
Operating Activities
Loss from development stage operations $(315,883) $(211,316)
Adjustments to loss from development
stage operations:
Prepaid expenses $ 49,125 $ 3,000
Inventory-equipment $ (400) $ (10,000)
Accounts payable $ 27,617 $ 803
Accrued expenses payable $ 163,500 $ --
Litigation settlement payable $ 20,000 $ --
Depreciation and amortization $ 873 $ 1,337
Deposits $ -- $ (15,448)
Other $ (14,290) $ (6,172)
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Net cash provided (used) by development
stage operations $ (69,458) $(243,796)
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Investing Activities
Increase in capitalized development costs $ -- $(113,000)
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Financing Activities
Common stock and paid-in capital $ 80,000 $ 14,990
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Net cash provided by financing activities $ 80,000 $ 14,990
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Net cash increase (decrease) for the period $ 10,542 $(341,806)
Cash at beginning of period $ 157 $ 377,221
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Cash at end of period $ 10,699 $ 35,415
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See Accompanying Notes to Financial Statements
5
FONEFRIEND, INC.
STATEMENTS OF STOCKHOLDERS'EQUITY
(Amounts in Dollars)
Additional Total
No. Shares Par Paid-In Accumulated Stockholders'
Outstanding Value Capital Deficit Equity
----------- ----------- ----------- ----------- -------------
Common shares
Beginning
balance, July
1, 2002 8,956,361 $ 8,956 $ 3,069,182 $(1,036,686) $ 2,041,452
Loss from
operations $ (211,316) $ (211,316)
Common shares
issued September
30, 2002 85,500 $ 86 $ 427,415 $ 427,501
----------- ----------- ----------- ----------- -------------
Balance,
September
30, 2002 9,041,861 $ 9,042 $ 3,496,597 $(1,248,002) $ 2,257,637
Loss from
Operations to
November
21, 2002 $ (118,281) $ (118,281)
Common shares
cancelled (300,000) $ ( 300) $ (300)
Common shares
issued November
21, 2002 58,139 $ 58 $ 29,942 $ $ 30,000
----------- ----------- ----------- ----------- -------------
Total common
shareholders'
equity pre-
merger, November
21, 2002 8,800,000 $ 8,800 $ 3,526,539 $(1,366,283) $ 2,169,056
----------- ----------- ----------- ----------- -------------
Merger of FoneFriend, Inc. (Nevada corporation) on November
21, 2002 with and into FoneFriend, Inc. (Delaware corporation)
Exchange of
Nevada shares
for Delaware
shares 2,200,000 $ 2,200
Issue new
Delaware
Shares:
To: management 4,600,000 $ 4,600
6
FONEFRIEND, INC.
STATEMENT OF STOCKHOLDERS' EQUITY - Continued
Additional Total
No. Shares Par Paid-In Accumulated Stockholders'
Outstanding Value Capital Deficit Equity
----------- ----------- ----------- ----------- -------------
To: UBN Trust 423,000 $ 423
To: D. Johnston 423,000 $ 423
Transfer par value
to paid-in capital $ (1,154) $ 1,154
Issue common
shares to
consultants,
December 2002 825,000 $ 825 $ 213,675 $ 214,500
Loss from
operations
from November
21, 2002 to
March 31, 2003 $(1,124,468) $ (1,124,468)
Total common
shareholders'
equity, March
31, 2003
Delaware
Corporation 8,471,000 $ 8,471 $ 3,741,368 $(2,490,751) $ 1,259,088
Issue common
shares to
consultants,
June 2003 455,000 $ 455 $ 58,695 $ 59,150
Loss from
operations
from April 1,
2003 to June
30, 2003 $ (75,457) $ (75,457)
----------- ----------- ----------- ----------- -------------
Total common
shareholders'
equity, June
30, 2003
Delaware
Corporation 8,926,000 $ 8,926 $ 3,800,063 $(2,566,208) $ 1,242,781
----------- ----------- ----------- ----------- -------------
Issue common
Shares 460,000 $ 460 $ 69,140 $ (315,883) $ 246,283
----------- ----------- ----------- ----------- -------------
7
FONEFRIEND, INC.
Statements of Stockholders' Equity - continued
Additional Total
No. Shares Par Paid-In Accumulated Stockholders'
Outstanding Value Capital Deficit Equity
----------- ----------- ----------- ----------- -------------
Total common
shareholders'
equity, September
30, 2003
Delaware
Corporation 9,386,000 $ 9,386 $ 3,869,203 $(2,882,091) $ 996,498
----------- ----------- ----------- ----------- -------------
Preferred shares
Preferred shares
issued November
21, 2002, Nevada 820,361 $ 820 $ 820
Cancel Nevada
preferred shares,
November 21,
2002 (820,361) $ ( 820) $ (820)
----------- ----------- ----------- ----------- -------------
Issue Delaware
preferred shares
for Nevada
preferred shares,
November 21,
2002 820,361 $ 820 $ 820
----------- ----------- ----------- ----------- -------------
Total stockholders'
equity, September
30, 2003 $ 997,318
----------- ----------- ----------- ----------- -------------
See Accompanying Notes to Financial Statements
8
FONEFRIEND, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2003
NOTE 1 - DESCRIPTION OF BUSINESS
A. Background
FoneFriend, Inc. ("FoneFriend" or the "Company") was incorporated on April 24,
2001, under the laws of the State of Nevada, and on November 21, 2002, was
merged with and into FoneFriend, Inc., a Delaware corporation. The Company
maintains a corporate office at 2722 Loker Avenue, Suite G, Carlsbad, California
92008. The Company's telephone number is: (760) 607-2330.
The Company is a development stage enterprise and has not generated any revenue
during its history. The primary business of the Company is to market an Internet
telephony device and related services to customers worldwide, called the
"FoneFriend". The underlying technology of FoneFriend has been licensed by the
Company from FoneFriend Systems, Inc. and will enable the Company's subscribers
to make and receive unlimited long distance telephone calls over the Internet,
using only their standard residiential telephone set (without the need for a
computer), for a low monthly fee of about $10.00 or less. Due to the small cost
of transmitting calls over the Internet, the Company anticipates that it will
realize significant profit margins, in excess of the traditional
telecommunications industry.
B. Basis of Presentation
The accompanying financial statements have been prepared in accordance with
Generally Accepted Accounting Principles ("GAAP") which contemplates
continuation of the Company as a going concern. Management is attempting to
raise additional capital.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Fiscal Year
The Company's fiscal year is March 31 (after the above-described merger of
FoneFriend, Inc. of Nevada with and into FoneFriend, Inc. of Delaware). The
accompanying unaudited financial statements are for September 30, 2003 and the
three month period then ended.
B. Significant Estimates
In the process of preparing its financial statements in accordance with GAAP,
the Company estimates the carrying value of certain assets and liabilities that
are subjective in nature. The primary estimates included in the Company's
financial statements include capitalized development costs and the ongoing value
of its purchased technology license.
9
FONEFRIEND, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
C. Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments with
maturity dates of three months or less at the date of purchase. These items are
carried at cost, which approximates fair value due to their short-term maturity
dates.
D. Prepaid Expenses and other Current Assets
The Company has cash outlays in advance of expense recognition for items such as
interest, financing fees, and service contracts. All amounts identified as
prepaid expenses that will be utilized during the next twelve months are
identified as current assets, while any portion that will not be utilized during
the next twelve months are classified as non-current assets.
E. Furniture and Equipment
Furniture and equipment are carried at cost and depreciated over the estimated
useful lives of the individual assets.
F. Capitalized Development Costs
Capitalized development costs consist of expenditures made by the Company to
improve the product and develop marketing channels for the product, and which
are deemed by management to have future value to the Company. Such capitalized
development costs will be amortized over the estimated useful life once product
sales begin.
G. Technology Rights, FoneFriend License
The Company purchased a license to use the FoneFriend technology for a period of
ten years from FoneFriend Systems, Inc. under a license agreement dated April
30, 2001. This license agreement allows the Company to manufacture, market and
utilize a proprietary technology referred to as FoneFriend. During the
development stage operations, the Company is carrying the asset at cost and will
begin amortization over the remaining life of the license when product sales
begin. The remaining value to the Company will be reviewed quarterly and if
management determines that impairment of the asset has occurred, the carrying
value will be adjusted accordingly.
10
FONEFRIEND, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
H. Stock in FoneFriend Systems, Inc.
The Company purchased stock in FoneFriend Systems, Inc. as a long-term
investment. Such investment is carried at cost and will be evaluated
periodically by management to determine whether impairment has occurred. Should
management determine that the value has been impaired, the carrying value will
be adjusted accordingly.
NOTE 3 - DEPRECIATION AND AMORTIZATION
The Company's management has estimated the useful lives of furniture, equipment
and certain organization costs. The following tables show the gross asset
amounts and the accumulated depreciation and amortization:
A. Furniture and Equipment
2003
------------------------
Sept. 30, June 30,
--------- ----------
Cost $ 18,745 $ 16,245
Less accumulated depreciation $ (4,853) $ (3,990)
--------- ----------
Net value $ 13,892 $ 12,255
--------- ----------
B. Organizational Costs
2003
------------------------
Sept. 30, March 31,
--------- ----------
Cost $ 195 $ 195
Less accumulated depreciation $ (95) $ (85)
--------- ----------
Net value $ 100 $ 110
--------- ----------
NOTE 4 - MERGER AND CAPITAL STOCK
The merger of FoneFriend, Inc. of Nevada with and into FoneFriend, Inc. of
Delaware was consummated on November 21, 2002 wherein the assets of FoneFriend,
Inc. of Nevada were acquired by Universal Broadband Networks, Inc. ("UBN") in a
tax-free reorganization pursuant to IRC 368 (the "Merger"). The Merger was
effectuated as a "C" type reorganization whereby UBN issued stock in exchange
for all of the assets FoneFriend, Inc. of Nevada, after which that corporation
was dissolved. UBN was the surviving corporation and changed its name to
FoneFriend, Inc. (a Delaware corporation) immediately subsequent to the Merger.
Pursuant to the express terms of the Fourth
11
FONEFRIEND, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
Amended Plan of Reorganization, as approved by the U.S. Bankruptcy court (the
"Plan"), the Merger was accomplished as follows:
1. All of UBN's issued and outstanding shares of capital stock were
cancelled and extinguished and the stockholders of UBN prior to
the Merger have no further interest or rights in UBN.
2. UBN issued 2,200,000 shares of newly created common stock in
favor of FoneFriend, Inc. (Nevada corporation) in exchange for
all of FoneFriend, Inc.'s assets and 115,750 of newly created
common stock in favor of a Liquidating Trust for the benefit of
UBN's creditors. As a result, the merged entity had a total of
2,315,750 shares of newly created common stock issued and
outstanding, of which former shareholders of the dissolved
Nevada corporation owned 95%, and J. Michael Issa, Esq., as
Trustee of the Liquidating Trust (which was created under the
Plan), owned 5%.
3. The issuance of stock pursuant to the Plan, as filed within the
U.S. Bankruptcy Court, was ordered by the Court to be exempt
from all applicable Federal, State and local securities law,
pursuant to 11 U.S.C. ss.1145 (a).
4. The dissolved Nevada corporation's management distributed the
newly issued 2,200,000 shares of FoneFriend, inc. (Delaware
corporation) to its former shareholders, on a pro-rata basis.
Each of such former shareholders received one share of stock in
FoneFriend, Inc. (Delaware corporation) for every four-share
shares held in the dissolved Nevada corporation.
5. Immediately subsequent to the Merger, the Company authorized the
issuance of 820,361 shares of a newly created Series A Preferred
Stock (each share of which is convertible into one share of
common stock) to be issued to shareholders of preferred stock in
the dissolved Nevada corporation prior to the Merger.
6. The Company then issued 4,600,000 shares of common stock to
various management personnel and consultants in order to hire or
retain their services. The Company also issued 423,000 shares of
common stock to Dennis H. Johnston, Esq. as compensation for his
services in connection with the Merger. Additionally, the
Company issued 307,250 shares of common stock to the Liquidating
Trust so as to be in compliance with the Anti-Dilution
Protection provisions of the Plan.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Company's financial statements and related footnotes included elsewhere
herein. Statements contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations which are not historical facts are
forward looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Examples of
such forward looking statements include the Company's expectations regarding its
intended plan of operation, the potential sale of its product, the Company's
planned financing of this venture and the sufficiency of the Company's available
liquidity for working capital, the Company's belief that its technology-based
business will grow and result in profitability, that it is positioned to take
advantage of new opportunities, and that it will focus on strengthening and
growing its business and commercializing innovative technologies and services.
Actual results may differ materially from those stated or implied in the forward
looking statements. Further, certain forward looking statements are based upon
assumptions of future events which may not prove to be accurate and are subject
to risks and uncertainties that could cause actual results to differ materially
from those set forth or implied by forward looking statements. These risks and
uncertainties include, but are not limited to, those referred to in the
Company's annual report on Form 10-KSB, for the fiscal year ended March 31,
2003, including the Company's entry into a new commercial business, its ability
to access the capital markets and obtain working capital, risks associated with
technological changes in the market for telecommunications and voice
transmission over the Internet, risks of competition in the emerging internet
telephony industry, and other risks described in the Company's Securities and
Exchange Commission filings.
OVERVIEW
The Company is a development stage enterprise and has not generated any
revenue during its history. The primary business of the Company is to market an
Internet telephony device and related services to customers worldwide, called
the "FoneFriend". The underlying technology of FoneFriend has been licensed by
the Company from FoneFriend Systems, Inc. and will enable the Company's
subscribers to make and receive unlimited long distance telephone calls over the
Internet, using only their standard residiential telephone set (without the need
for a computer), for a low monthly fee of about $10.00 or less. Due to the small
cost of transmitting calls over the Internet, the Company anticipates that it
will realize significant profit margins, in excess of the traditional
telecommunications industry.
The Company has experienced significant losses during development stage
operations and has yet to realize any revenues from its operations.
13
During the forth quarter of fiscal year 2003, management of the Company
evaluated the future benefit of the Company's capitalized development costs and
determined that it was prudent to write down the value of that asset to its
estimated fair value.
During the first two quarters of the current fiscal year, the Company's
management focused its efforts primarily on reducing its overhead, to conserve
financial resources, and the hiring of consultants that would help further its
quest for financing, as well as assist in implementing the Company's intended
plan of business and preparing the technical infrastructure and marketing
support necessary for its operational stage.
To date, the Company has established the foundation necessary upon
which it can build a next generation telecommunications company, utilizing the
Internet and VoIP technology, that will carry customer calls at rates which are
dramatically lower than traditional international long distance carriers with
excellent quality.
RESULTS OF OPERATIONS
The Company had no revenue during the three months ended September 30,
2003, or during its entire history.
Expenses of the Company for the second quarter of the current fiscal
year, ending March 31, 2004, increased to $315,883, from $211,316 for the three
month period ending September 30, 2003, compared to the three month period
ending September 30, 2002. The increase was due primarily to the accrual of
consulting fees and officer salary expense, which was not previously accrued by
the Company. Current expenses consist primarily of consultant fees, officer
salaries, overhead and other general expenses related to continuing operations,
developing its product and bringing that product to market.
During the second quarter of fiscal 2004, the Company issued 400,000
shares of stock to consultants for future services to be provided to the
Company. The value of such shares issued to consultants is being amortized to
consulting expense over the term of each individual's contract, usually either a
six or a twelve-month period. Also, the Company issued an additional 60,000
shares of common stock in settlement of litigation.
As previously disclosed in the Company's Form 10-QSB, for the period
ending June 30, 2003, the Company received notice on July 30, 2003, that
Francois Van Der Hoeven had resigned as a director. Mr. Van Der Hoeven had
previously resigned as Senior Vice President of Marketing in May of 2003. In
addition, the Company had notified its transfer agent to place a stop transfer
order on 1,300,000 shares that were previously issued to him in anticipation of
his services over a 3-year employment term. Mr. Van Der Hoeven's shares are
being counted as outstanding until such time as the certificate is either
returned or the Company issues a cancellation order.
14
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company anticipates that it will market its product through direct
marketing to segments of the population that use significant long distance
service to foreign countries.
The initial target markets will be areas in which the population
includes significant European, Hispanic and Asian segments. These segments of
the population typically spend substantial time on international long distance
calls to their native countries.
Other products may be developed that compete with the Company's
product, thereby reducing future potential revenue.
Further, since the Company's product requires significant lead time in
the manufacturing process, any delay in filling orders could affect customer
satisfaction.
The Loss Of Our Key Personnel Could Harm Our Business.
The loss of the services of the Company's CEO and other key consultants
or employees could have a material adverse effect on our operations, as hiring
replacements would most likely involve the payment of salaries, for which we do
not currently have the financial resources. Our inability to hire suitable
replacements could have a material adverse effect on our ability to continue
operating.
The Company is in Breach of Key Employment and Consulting Agreements.
For the last year, the Company has failed to make the required payments
of $7,500 per month to Jackelyn Giroux, the President and Director, under her
employment agreement. There is no guarantee that she will continue to work
without being paid. The Company may be forced to amend her Employment Agreement
on less favorable terms. The loss of Ms. Giroux as President would have a
material adverse effect on the Company's ability to continue operating.
For the last year, the Company has failed to make the required payments
of $10,000 a month to Gary A. Rasmussen, a Consultant and founder, under the
terms of his Consulting Agreement. There is no guarantee that he will continue
to work without being paid. The Company may be forced to amend his Consulting
Agreement on less favorable terms. The loss of Mr. Rasmussen would have a
material adverse effect on the Company's ability to continue operating.
Additional Risk Factors are set forth in the Company's 10KSB.
For additional Risk Factors please see the Risk Factors located in the
Company's Form 10KSB, for the fiscal year ended March 31, 2003 which are hereby
adopted and incorporated by reference.
15
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2003, the Company had limited working capital and the
Company had no material unused sources of liquid assets. Also at September 30,
2003, the Company had no existing credit facility. As a result, the Company is
delinquent in certain general and administrative expenses and has a shortage of
cash to pay its pending accounts payable.
A part of the Company's strategy is to seek external financing to grow
its commercial business. Management is presently negotiating with several
qualified investment sources in order to obtain the necessary financing required
to implement its intended plan of business. The Company's current operating
capital has been provided primarily through cash advances from its officers and
various third parties.
While the Company intends to generate working capital from its product
and related services in the future, we expect our minimum capital needs during
the current fiscal year to be approximately $2.0 million. This amount will
primarily be used for manufacturing, implementing a large scale network system,
marketing programs and for general working capital.
However, the Company may not be able to obtain the required financing,
or such financing may not be available on acceptable terms. Due to the Company's
historical operating losses, there can be no assurance that projected capital
requirements will not substantially exceed current and future capital resources.
This could result in a significant and material adverse effect on our ability to
continue operating.
Additional working capital needs of the Company may require issuance of
equity securities, either on a public or private basis. Such issuances would, if
consummated, affect the ongoing capital structure of the Company and may result
in substantial dilution to shareholders. If additional funds are raised through
the issuance of equity, convertible debt, or similar securities of the Company,
the percentage of ownership of the Company's current shareholders will be
reduced, and such new securities may have rights or preferences senior to those
of the common stock held be current shareholders. No agreement with respect to
any such financing has been entered into, and such issuance may not be
consummated. In the event that funding sources are not available as and when
needed by the Company, it could have a severe adverse impact on the combined
business and results of operations of the Company and could result in the
Company being unable to continue as a going concern. Management is continually
monitoring and evaluating the financing sources available to achieve the
Company's goals.
Due to the losses sustained by the Company and its lack of working
capital, the Company's ability to remain a going concern depends upon its
ability to generate sufficient cash flow to meet its obligations and to obtain
additional financing as may be required.
16
As of September 30, 2003, management estimated that the Company's cash
resources were not enough to meet the Company's estimated funding requirements
for the remainder of the year.
FORWARD LOOKING INFORMATION: CERTAIN CAUTIONARY STATEMENTS: "SAFE HARBOR"
STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:
The foregoing discussion should be read in conjunction with our
financial statements and the notes thereto included elsewhere in this Form
10-QSB. This Form 10-QSB contains forward-looking statements regarding the plans
and objectives of management for future operations. This information may involve
known and unknown risks, uncertainties and other factors which may cause our
actual results, performance or achievements to be materially different from
future results, performance or achievements expressed or implied by any
forward-looking statements. Forward-looking statements, which involve
assumptions and describe our future plans, strategies and expectations, are
generally identifiable by use of the words "may," "will," "should," "expect,"
"anticipate," "estimate," "believe," "intend" or "project" or the negative of
these words or other variations on these words or comparable terminology. These
forward-looking statements are based on assumptions that may be incorrect, and
we cannot assure you that these projections included in these forward-looking
statements will come to pass. Our actual results could differ materially from
those expressed or implied by the forward-looking statements as a result of
various factors.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934
(the "Exchange Act"), within the 90 days prior to the filing date of this
report, the Company carried out an evaluation of the effectiveness of the design
and operation of the Company's disclosure controls and procedures. This
evaluation was carried out under the supervision and with the participation of
the Company's management, including the Company's President and CEO, who serves
as the principal operating officer, and its Chief Financial Officer, who has
served as the principal financial and accounting officer. Based upon that
evaluation, the Company's President and CFO have concluded that the Company's
disclosure controls and procedures are effective in alerting them to material
information regarding the Company's financial statement and disclosure
obligation in order to allow the Company to meet its reporting requirements
under the Exchange Act in a timely manner.
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(b) Changes in internal control.
There have been no changes in internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company received notice of a lawsuit commenced against its
predecessor company, Fonefriend, Inc., a Nevada corporation, seeking
approximately $21,000. The assets of this predecessor company were acquired by
the Company in a stock for assets purchase transaction and Fonefriend of Nevada
was dissolved.
The Company has received a threat of litigation from the bankrupt
estate of Allegience Telecom, seeking approximately $5,000. The Company believes
it has affirmative defenses to such charges and intends to defend against any
such action should it be commenced.
ITEM 2. CHANGES IN SECURITIES
During the three months ended September 30, 2003, the Company issued a
total of 400,000 shares of stock to two consultants for cash and current and
future services provided to the Company. Additionally, 60,000 shares of stock
were issued in settlement of a lawsuit.
Subsequent to September 30, 2003, the Company issued a total of 125,000
shares of common stock, of which 100,000 shares were issued in connection with
the exercise of a stock option, and 25,000 shares were issued as consideration
to a consultant.
Subsequent to September 30, 2003, the Company has entered into
additional consulting contracts which provide for the issuance of common stock
and/or stock options as compensation.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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ITEM 5. OTHER INFORMATION
The Company's Board of Directors unanimously approved the appointment
of Ms. Virginia Perfili, subject to her acceptance, as a director to fill the
vacancy created upon the resignation of Mr. Francois Van Der Hoeven. Ms. Perfili
accepted this appointment on November 14, 2003.
Ms. Perfili was formerly President, CEO and Director of Orphan, Inc., a
publicly held, Michigan Corporation, which was formed in 1982 to pursue
opportunities in the entertainment, film and record industries. Ms. Perfili's
duties included the overall management and promotion for the company. Ms.
Perfili left Orphan in 1997 to pursue her career as an independent producer and
director of film projects. Ms. Perfili is a graduate of Wayne State University.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit No. Description
----------- ------------------------------------------------------------
10.1 2002 Non-Employee Director And Consultant Retainer Stock
Plan And Employee Stock Incentive Plan. Incorporated by
reference in Form S-8, filed on December 27, 2002.
10.2 Employment Agreement executed by the Registrant and Jackelyn
Giroux.
10.3 Consulting Agreement executed by the Registrant and Gary A.
Rasmussen.
10.4 Indemnification Agreement executed by the Registrant and
Jackelyn Giroux.
10.5 Indemnification Agreement executed by the Registrant and
Edward N. Jones.
10.6 Indemnification Agreement executed by the Registrant and
Dennis H. Johnston.
10.7 Indemnification Agreement executed by the Registrant and
Gary A. Rasmussen.
10.8 Indemnification Agreement executed by the Registrant and
Francois Van Der Hoeven.
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10.9 Technology License Agreement executed by the Registrant and
Fonefriend Systems, Inc.
17.1 Resignation of Director (Francois Van Der Hoeven)
31.1* Chief Executive Officer certification pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2* Chief Financial Officer certification pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
99.1* Chief Executive Officer certification pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
99.2* Chief Financial Officer certification pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
----------------
* Filed herewith
(b) No reports on Form 8-K were filed during the three months
ended September 30, 2003.
***SIGNATURE PAGE FOLLOWS***
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized by FoneFriend, Inc. (the "Registrant")
By: /S/ Jackelyn Giroux
---------------------------------------
Jackelyn Giroux, President, Director
By: /S/ Dennis H. Johnston
-----------------------------------------
Dennis H. Johnston, Secretary, General
Counsel, Director
By:/S/ Edward N. Jones
------------------------------------
Edward N. Jones, Chief Financial
Officer
Dated: November 19, 2003.
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