FONU2, INC.
M E M O R A N D U M
TO:
William H. Thompson
Accounting Branch Chief
Securities and Exchange Commission
Division of Corporation Finance
Washington DC 20549
FROM:
Robert B. Lees, President and Chief Executive Officer
FonU2, Inc.
DATE:
August 27, 2013
RE:
Re: FonU2, Inc.
Form 10-K for the Fiscal Year Ended September 30, 2012
Filed January 17, 2013
Response dated August 5, 2013
File No. 0-49652
We submit the following in response to your comments by letter of August 13, 2013. In each case, to facilitate review we have quoted your comment and indicated our responses making reference to the page(s) where the response appears or the requested supplemental information has been provided.
Item 8. Financial Statements and Supplementary Data, page 12
Notes to the Financial Statements, page 18
Summary of Significant Accounting Policies, page 18
Reverse-Merger Transaction, page 18
1.
We reviewed your response to the comment in our letter dated July 31, 2013 and the disclosure you propose to include in future filings. Please provide us the revised statements of equity correcting the errors and separating common stock issued before and after the reverse merger transaction that will be included in future filings. In addition, you should revise the statement of operations for the nine months ended September 30, 2012 in future filings to reflect the goodwill impairment and your proposed disclosure to reflect that paid in capital and net loss were understated as a result of the error. Please confirm to us that you will do so. Also, please show us the revisions to the statements of operations and the revisions to the proposed disclosure regarding the prior period misstatement to be included in future filings.
COMPANY RESPONSE: The revised Statements of Stockholders’ Equity (Deficit) correcting the errors and separating common stock issued before and after the reverse-merger transaction are attached below as Exhibit I. The Company confirms that the Statement of Operations for the nine months ended September 30, 2012 will be revised in future filings to reflect the goodwill impairment, and will include the revised disclosure reflecting that paid-in capital and net loss were understated as a result of the error. The revisions to the statements of operations and the proposed disclosure regarding the prior period misstatement to be included in future filings are attached below as Exhibits II and III, respectively
A copy of this letter and any related documents have also been filed via the EDGAR system. Thank you.
Very truly yours,
FONU2, INC.
/S/ Robert B. Lees
_______________________________
By: Robert B. Lees, President
EXHIBIT I
FONU2, INC. | ||||||||||||||||||||||||||
(Formerly Cygnus Internet, Inc.) | ||||||||||||||||||||||||||
Statements of Stockholders' Deficit | ||||||||||||||||||||||||||
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| Additional |
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| Total | ||||||
| Preferred Series A |
| Preferred Series B |
| Common Stock |
| Paid-In |
| Accumulated |
| Stockholders' | |||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| (Deficit) | |||||||||
Balance, December 31, 2010 | - |
| $ | - |
| 1,639,368 |
| $ | 16,394 |
| 15,471,031 |
| $ | 15,471 |
| $ | 928,960 |
| $ | (957,772) |
| $ | 3,053 | |||
Capital contributed by shareholder |
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|
|
|
|
|
|
|
|
| - |
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| - |
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| 1,000 |
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| - |
|
| 1,000 | |||
Distributions to shareholders |
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|
|
| - |
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| - |
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| (1,830) |
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| - |
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| (1,830) | |||
Common stock issued for cash |
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|
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| 532,144 |
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| 532 |
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| 190,459 |
|
| - |
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| 190,991 | |||
Contributed salary | - |
|
| - |
| - |
|
| - |
| - |
|
| - |
|
| 500,000 |
|
| - |
|
| 500,000 | |||
Preferred stock issued for cash | 168,239 |
|
| 1,682 |
| - |
|
| - |
| - |
|
| - |
|
| 138,298 |
|
| - |
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| 139,980 | |||
Preferred stock issued for services | 700,000 |
|
| 7,000 |
| - |
|
| - |
| - |
|
| - |
|
| 573,913 |
|
| - |
|
| 580,913 | |||
Capital contributed by officer | - |
|
| - |
| - |
|
| - |
| - |
|
| - |
|
| 41,600 |
|
| - |
|
| 41,600 | |||
Net loss for the year ended December 31, 2011 | - |
|
| - |
| - |
|
| - |
| - |
|
| - |
|
| - |
|
| (1,490,085) |
|
| (1,490,085) | |||
Balance, December 31, 2011 | 868,239 |
|
| 8,682 |
| 1,639,368 |
|
| 16,394 |
| 16,003,175 |
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| 16,003 |
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| 2,372,400 |
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| (2,447,857) |
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| (34,378) | |||
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Conversion of preferred stock |
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to common stock | (868,239) |
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| (8,682) |
| (1,639,368) |
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| (16,394) |
| 2,507,607 |
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| 2,508 |
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| 22,568 |
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| - |
|
| - | |||
Common stock issued for cash prior to reverse-merger transaction | - |
|
| - |
| - |
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| - |
| 89,125 |
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| 89 |
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| 85,311 |
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| - |
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| 85,400 | |||
Common stock issued for services prior to reverse-merger transaction | - |
|
| - |
| - |
|
| - |
| 5,370,341 |
|
| 5,370 |
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| 5,151,519 |
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| - |
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| 5,156,889 | |||
Common stock issued for services pursuant to non-dilution clauses | - |
|
| - |
| - |
|
| - |
| 29,441,014 |
|
| 29,441 |
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| 28,822,753 |
|
| - |
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| 28,852,194 | |||
Shares issued to acquire Zaldiva.com | 250,000 |
|
| 250 |
| - |
|
| - |
| 9,374,920 |
|
| 9,375 |
|
| 1,865,359 |
|
| - |
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| 1,874,984 | |||
Common stock cancelled | - |
|
| - |
| - |
|
| - |
| (100,000) |
|
| (100) |
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| 100 |
|
| - |
|
| - | |||
Common stock issued for services subsequent to reverse-merger transaction | - |
|
| - |
| - |
|
| - |
| 1,650,000 |
|
| 1,650 |
|
| 224,685 |
|
| - |
|
| 226,335 | |||
Common stock issued for cash subsequent to reverse-merger Transaction | - |
|
| - |
| - |
|
| - |
| 40,000 |
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| 40 |
|
| 9,960 |
|
| - |
|
| 10,000 | |||
Settlement of preferred stock for property | (250,000) |
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| (250) |
| - |
|
| - |
| - |
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| - |
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| (320,450) |
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| - |
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| (320,700) | |||
Common stock issued for prepaid services | - |
|
| - |
| - |
|
| - |
| 2,250,000 |
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| 2,250 |
|
| 425,250 |
|
| - |
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| 427,500 | |||
Common stock issued for interest on note | - |
|
| - |
| - |
|
| - |
| 50,000 |
|
| 50 |
|
| 13,450 |
|
| - |
|
| 13,500 | |||
Net loss for the year ended September 30, 2012 | - |
|
| - |
| - |
|
| - |
| - |
|
| - |
|
| - |
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| (36,423,226) |
|
| (36,423,226) | |||
Balance, September 30, 2012 | - |
| $ | - |
| - |
| $ | - |
| 66,676,182 |
| $ | 66,676 |
| $ | 38,672,905 |
| $ | (38,871,083) |
| $ | (131,502) | |||
The accompanying notes are an integral part of these financial statements.
EXHIBIT II
FONU2, INC. | ||||||||
(Formerly Cygnus Internet, Inc.) | ||||||||
Statements of Operations | ||||||||
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| Nine Months Ended |
| Year Ended | ||
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| September 30, |
| December 31, | ||
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| 2012 |
| 2011 | ||
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REVENUES |
| $ | 81,455 |
| $ | - | ||
COST OF SALES |
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| 47,018 |
|
| - | ||
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GROSS PROFIT |
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| 34,437 |
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| - | ||
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OPERATING EXPENSES |
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| Depreciation |
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| - |
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| 2,033 | |
| Compensation |
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| 34,388,907 |
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| 571,113 | |
| Impairment of goodwill |
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| 1,528,496 |
|
| - | |
| General and administrative |
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| 519,608 |
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| 916,939 | |
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| Total Operating Expenses |
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| 36,437,011 |
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| 1,490,085 |
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LOSS FROM OPERATIONS |
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| (36,402,574) |
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| (1,490,085) | ||
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OTHER EXPENSES |
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| Interest expense, net |
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| (20,652) |
|
| - | |
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| Total Other Expenses |
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| (20,652) |
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| - |
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INCOME (LOSS) BEFORE INCOME TAXES |
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| (36,423,226) |
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| (1,490,085) | ||
PROVISION FOR INCOME TAXES |
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| - |
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| - | ||
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NET INCOME (LOSS) |
| $ | (36,423,226) |
| $ | (1,490,085) | ||
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BASIC AND DILUTED INCOME (LOSS) |
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PER SHARE |
| $ | (0.73) |
| $ | (0.09) | ||
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WEIGHTED AVERAGE NUMBER OF |
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COMMON SHARES OUTSTANDING |
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| 49,941,022 |
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| 15,735,170 | ||
The accompanying notes are an integral part of these financial statements.
EXHIBIT III
Prior Period Misstatement
Subsequent to the closing of the Cygnus/FonU2 merger transaction in March 2012, the Company determined that the transaction had not been correctly accounted for. The transaction had been accounted for as a reverse-merger transaction, when it should have been accounted for as a reverse-acquisition transaction. As a result of this accounting, the Company understated its net loss for the nine-months ended September 30, 2012 by $1,528,496, and both additional paid-in capital and accumulated deficit by $1,528,496. Upon discovery of this error, the Company performed an evaluation of the error pursuant to the SEC’s Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”). As a result of the evaluation of the error under SAB 108, the Company determined that the error was not material, in any qualitative or quantitative sense, to the Company’s September 30, 2012 financial statements, and therefore, no restatement was necessary. Pursuant to SAB 108, the correcting adjustment is reflected in future filings as an increase of $1,528,496 to additional paid-in capital and a corresponding increase in accumulated deficit (resulting from the full impairment of goodwill).
