UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
Check the appropriate box:
[ X ] Preliminary Information Statement
[ _ ] Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
[ _ ] Definitive Information Statement
Fit For Business International, Inc.
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ _ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ _ ] Fee paid previously with preliminary materials.
[ _ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
Fit For Business International, Inc.
9900 Research Drive
Irvine, CA 92618
February [__], 2008
To: The holders of the Common Stock of Fit For Business International, Inc.
Re: Action by Written Consent in Lieu of Meeting of Stockholders
------------------------------------------------------------
This Information Statement is furnished by the Board of Directors of
Fit For Business International, Inc., a Nevada corporation (the "Company"), to
holders of record of the Company's common stock, $0.001 par value per share, at
the close of business on February 22, 2008. The purpose of this Information
Statement is to inform the Company's stockholders of certain actions taken by
the written consent of the holders of a majority of the Company's common stock,
dated as of February 14, 2008. This Information Statement shall be considered
the notice required under Section 78.370 of the Nevada Revised Statutes.
The actions taken by the Company's stockholders will become effective
shortly before or after the consummation of an acquisition or merger with a
future, as yet unidentified, company or companies, and are more fully described
in the Information Statement accompanying this Notice.
This is not a notice of a special meeting of stockholders and no
stockholder meeting will be held to consider any matter that will be described
herein.
By Order of the Board of Directors
__________________________________
Adele Ruger, President
February [__], 2008
Irvine, California
2
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY
INFORMATION STATEMENT
INTRODUCTION
This Information Statement is being mailed or otherwise furnished to
the holders of the Company's common stock, par value $0.001 per share (the
"Common Stock") by the Board of Directors to notify them about certain actions
that the holders of a majority of the Company's outstanding Common Stock have
taken by written consent, in lieu of a special meeting of the stockholders. The
actions were taken on February 14, 2008.
Copies of this Information Statement are first being sent on or before
February 29, 2008 to the holders of record on February 22, 2008 of the
outstanding shares of the Company's Common Stock.
General Information
Stockholders of the Company owning a majority of the Company's
outstanding Common Stock have approved the following actions (the "Actions") by
written consent dated February 14, 2008, in lieu of a special meeting of the
stockholders:
1. The prospective amendment to the Certificate of Incorporation
of the Company to change the Company's name to a name selected
by the Company's Board of Directors.
2. The prospective amendment to the Certificate of Incorporation
of the Company to effectuate a reverse stock split of the
issued and outstanding shares of Common Stock at a ratio of up
to 1-for-250 shares.
3. The prospective amendment to the Certificate of Incorporation
of the Company to increase the authorized Common Stock from
One Hundred Million (100,000,000) shares to Three Hundred
Million (300,000,000) shares, with a par value of $0.001 per
share.
4. The possible sale of substantially all of the Company's assets
to Mr. Mark Poulsen, the Company's former Chief Executive
Officer, President, Chairman of the Board of Directors, and
majority shareholder, if the Company elects to exercise its
option under the Subsidiary Acquisition Option Agreement dated
February 11, 2008, to sell its wholly-owned subsidiary, Fit
For Business (Australia) Pty Limited, to Mr. Mark Poulsen.
5. The ratification of the Company's issuance of 70,000,000
shares of common stock to Mr. Mark Poulsen, the Company's
former Chief Executive Officer, President, Chairman of the
Board of Directors, and majority shareholder, for failing to
provide Mr. Poulsen with validly issued preferred stock and in
exchange for Mr. Poulsen agreeing to extinguish and waive any
and all of his rights and claims to $134,176 in debt
collectively owed by the Company to two entities controlled by
Mr. Poulsen.
The Company anticipates that the Actions will become effective shortly
before or after the consummation of an acquisition or merger with a future, as
yet unidentified, company or companies.
3
The Company has asked brokers and other custodians, nominees and
fiduciaries to forward this Information Statement to the beneficial owners of
the common stock held of record by such persons and will reimburse such persons
for out-of-pocket expenses incurred in forwarding such material.
Dissenters' Right of Appraisal
No dissenters' or appraisal rights under the Nevada Revised Statutes
("NRS") are afforded to the Company's stockholders as a result of the approval
of the Actions.
Vote Required
The vote which was required to approve the above Actions was the
affirmative vote of the holders of a majority of the Company's voting stock.
Each holder of Common Stock is entitled to one (1) vote for each share of Common
Stock held.
The record date for purposes of determining the number of outstanding
shares of voting stock of the Company, and for determining stockholders entitled
to vote, was the close of business on February 22, 2008 (the "Record Date"). As
of the Record Date, the Common Stock was the Company's only issued and
outstanding class of voting stock. As of the Record Date, the Company had
outstanding 98,280,006 shares of Common Stock. Holders of the Common Stock have
no preemptive rights. All outstanding shares are fully paid and nonassessable.
The transfer agent for the Common Stock is Standard Transfer & Trust Company,
Inc., 2980 South Rainbow Blvd., Suite 220H, Las Vegas, NV 98146, telephone (702)
212-3493.
Vote Obtained - Section 78.320 Nevada Revised Statutes
NRS 78.320 provides that the written consent of the holders of the
outstanding shares of voting stock, having not less than the minimum number of
votes which would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted, may be
substituted for such a meeting.
In order to eliminate the costs and management time involved in
soliciting and obtaining proxies to approve the Actions and in order to
effectuate the Actions as early as possible in order to accomplish the purposes
of the Company as hereafter described, the Board of Directors of the Company
voted to utilize, and did in fact obtain, the written consent of the holders of
a majority of the voting power of the Company. The consenting shareholders and
their respective approximate ownership percentage of the voting stock of the
Company, which total in the aggregate 85.5% of the outstanding voting stock, are
as follows: Route 32, LLC (85.5%).
Pursuant to NRS 78.370, the Company is required to provide prompt
notice of the taking of the corporate action without a meeting to the
stockholders of record who have not consented in writing to such action. This
Information Statement is intended to provide such notice.
Change in Control of the Company
Pursuant to Item 6(e) of Schedule 14A of the Securities Exchange Act of
1934, as amended, the Company has experienced a change of control since the
beginning of its last fiscal year. On January 16, 2008, the Company and Mark
Poulsen, Karen Poulsen, and Kamaneal Investments Pty Ltd ATF The Poulsen Family
Trust entered into an Agreement for the Purchase of Stock (the "Purchase
Agreement") with Route 32, LLC, a New York limited liability company ("Route
32"), whereby Route 32 acquired 84,080,000 shares of common stock of the
Company, representing 85.5% of the total issued and outstanding shares of voting
4
stock of the Company. In conjunction with the Purchase Agreement, Adele Ruger,
the managing member of Route 32, was appointed as the Company's sole officer and
director.
ACTION ONE
THE NAME CHANGE AMENDMENT
General
On February 14, 2008, the Board of Directors of the Company approved,
declared it advisable and in the Company's best interest, and directed that
there be submitted to the holders of a majority of the Company's common stock
for approval, the prospective amendment to the First Article of the Company's
Articles of Incorporation to change the name of the Company to a name selected
by the Company's Board of Directors (the "Name Change Amendment"). On February
14, 2008, stockholders of the Company, owning a majority of the Company's
outstanding voting stock (the "Majority Stockholders"), approved the Name Change
Amendment by written consent, in lieu of a special meeting of the stockholders.
The Board of Directors of the Company and the Majority Stockholders
believe that it is advisable and in the Company's best interests to authorize
and approve the Name Change Amendment in order to provide the Company with
flexibility with respect to changing the Company's name to more accurately
reflect potential changes in the Company's business focus and to reduce the time
involved to complete an acquisition or merger with a future, as yet
unidentified, company or companies.
The Name Change Amendment, a copy of which is attached to this
Information Statement as Exhibit A, will be filed with the Nevada Secretary of
State shortly before or after the consummation of an acquisition or merger with
a future, as yet unidentified, company or companies.
ACTION TWO
AMENDMENT TO EFFECTUATE REVERSE STOCK SPLIT
General
On February 14, 2008, the Board of Directors of the Company approved,
declared it advisable and in the Company's best interest and directed that there
be submitted to the holders of a majority of the Company's voting stock for
approval, the prospective amendment to the Fourth Article of the Company's
Articles of Incorporation to effectuate a reverse stock split of the issued and
outstanding shares of common stock of the Company at a ratio of up to 1-for-250
shares (the "Reverse Split Amendment"). Fractional shares will be rounded up to
the next whole share. On February 14, 2008, the Majority Stockholders approved
the Reverse Split Amendment by written consent, in lieu of a special meeting of
the stockholders.
Reasons for the Reverse Split Amendment
The Board of Directors of the Company and the Majority Stockholders
believe that it is advisable and in the Company's best interest to effectuate a
reverse stock split of the issued and outstanding shares of Common Stock at a
ratio of up to 1-for-250 shares (the "Reverse Split") to attract additional
capital and to reduce the time involved and provide the Company with flexibility
with respect to creating an optimal capital structure to complete an acquisition
or merger with a future, as yet unidentified, company or companies.
In approving the Reverse Split, the Board of Directors and the Majority
Stockholders also considered certain factors concerning the Common Stock,
including:
5
o because of their increased volatility:
o some investors are reluctant to purchase lower priced securities;
o brokerage firms are generally reluctant to recommend lower priced
securities to their clients; and
o most investment funds are reluctant to invest in lower priced
securities; moreover, many funds are not permitted by their
investment guidelines to invest in lower priced securities;
o investors may also be dissuaded from purchasing lower priced securities
because the brokerage commissions, as a percentage of the total
transaction, tend to be higher for such stocks; and
o lower priced securities attract less research analyst coverage than
higher priced securities.
The Company believes that the Reverse Split may improve the level and
stability of the common stock trading price, and that a higher share price could
help generate additional interest in the Company.
Potential Risks of the Reverse Split
The effect of the Reverse Split on the market price for the Company's
Common Stock cannot be predicted, and the performance history of similar stock
splits for companies in like circumstances is varied. There can be no assurance
that the Company's Common Stock will continue to trade at least in proportion to
the reduction in the number of outstanding shares resulting from the Reverse
Split or that the market price of the post-split common stock can be maintained.
The market price of the Company's Common Stock will also be based on its
financial performance, market conditions, the market perception of its future
prospects and the Company's industry as a whole, as well as other factors, many
of which are unrelated to the number of shares outstanding.
Effects of the Reverse Split
General. A reverse stock split is a reduction in the number of
outstanding shares of a class of a corporation's capital stock, which may be
accomplished by the Company, in this case, by reclassifying and converting all
outstanding shares of the Company's common stock into a proportionately fewer
number of shares of Common Stock. For example, upon implementation of a reverse
split at a ratio of 1-for-10 shares, a stockholder holding 1,000 shares of the
Company's common stock before the reverse split would hold 100 shares of the
Company's Common Stock after the reverse split. Each stockholder's proportionate
ownership of the issued and outstanding shares of the Company's Common Stock
would remain the same, except for minor changes that may result from rounding
fractional shares up to the next whole share. Outstanding shares of new common
stock resulting from the Reverse Split will remain fully paid and
non-assessable.
Fractional Shares. The Company will not issue fractional shares in
connection with the Reverse Split. Instead, any fractional share that results
from the Reverse Split will be rounded up to the next whole share. The Company
is doing this to avoid the expense and inconvenience of issuing and transferring
fractional shares of the Company's Common Stock as a result of the stock split.
The shares issued upon such rounding do not represent separately bargained for
consideration.
Accounting Matters. The Reverse Split will not affect the par value of
the Company's Common Stock. As a result, on the effective date of the Reverse
Split, if the reverse split ratio were 1-for-10, the stated capital on the
Company's balance sheet attributable to Common Stock would be reduced from its
present amount by a fraction that equals one divided by ten, and the additional
6
paid-in capital account would be credited with the amount by which the stated
capital was reduced. The per share net income or loss and net book value per
share would be increased because there would be fewer shares.
Effect on Authorized and Outstanding Shares. Based on the shareholders
as of February 22, 2008, if the reverse split ratio were 1-for-250, the maximum
amount, there would be approximately 393,121 shares of Common Stock issued and
outstanding and held by approximately 78 shareholders of record following the
Reverse Split. As a result of the Reverse Split, the number of shares of common
stock issued and outstanding would be reduced to the approximate number of
shares of Common Stock issued and outstanding immediately prior to the
effectiveness of the Reverse Split divided by 250.
The number of shares of Common Stock underlying any stock options would
be divided by 250 for each award (with any fractional amount disregarded) and
the exercise price per share would be increased by multiplying by 250.
There will be no change to the number of authorized shares of our
Common Stock or preferred stock as a result of the Reverse Split; However, the
Increase in Authorized Amendment described in Action Three herein will increase
the authorized shares of Common Stock.
With the exception of the number of shares issued and outstanding, the
rights and preferences of the shares of Common Stock prior and subsequent to the
Reverse Split will remain the same. It is not anticipated that the Company's
financial condition, the percentage ownership of management, the number of
stockholders, or any aspect of the Company's business would materially change,
solely as a result of the Reverse Split. The Reverse Split will be effectuated
simultaneously for all of the Company's Common Stock. The Reverse Split will
affect all of our stockholders uniformly and will not affect any stockholder's
percentage ownership interests in the Company or proportionate voting power,
except for minor changes that may result from rounding fractional shares up to
the next whole share.
Increase of Shares of Common Stock Available for Future Issuance. As a
result of the Reverse Split, there will be a reduction in the number of shares
of Common Stock issued and outstanding and an associated increase in the number
of authorized shares that would be unissued and available for future issuance
after the Reverse Split. The increase in available shares could be used for any
proper corporate purpose approved by the Board of Directors, including, among
other purposes, future financing transactions and acquisitions.
Effectiveness of the Reverse Split. The Reverse Split will become
effective upon the filing of a Certificate of Amendment to the Company's
Certificate of Incorporation with the Secretary of State of the State of Nevada
(the form of which is attached hereto as Exhibit A). The filing is expected to
occur after this Information Statement is declared effective by the SEC and
shortly before or after the consummation of an acquisition or merger with a
future, as yet unidentified, company or companies.
Tax Consequences of the Reverse Split. The following discussion
summarizing material federal income tax consequences of the Reverse Split is
based on the Internal Revenue Code of 1986, as amended (the "Code"), the
applicable Treasury Regulations promulgated thereunder, judicial authority and
current administrative rulings and practices in effect on the date this
Information Statement was first mailed to stockholders. This discussion does not
discuss consequences that may apply to special classes of taxpayers (e.g.,
non-resident aliens, broker-dealers, or insurance companies). Stockholders
should consult their own tax advisors to determine the particular consequences
to them.
The receipt of the Common Stock following the effective date of the
Reverse Split, solely in exchange for the Common Stock held prior to the Reverse
Split, will not generally result in recognition of gain or loss to the
stockholders. The aggregate tax basis of the post-split shares received in the
Reverse Split (including any fraction of a new share deemed to have been
7
received) will be the same as the stockholder's aggregate tax basis in the
pre-split shares exchanged therefore, and the holding period of the post-split
shares received in the Reverse Split will include the holding period of the
pre-split shares surrendered therein.
No gain or loss will be recognized by the Company as a result of the
Reverse Split. The Company's views regarding the tax consequences of the Reverse
Split are not binding upon the Internal Revenue Service or the courts, and there
can be no assurance that the Internal Revenue Service or the courts would accept
the positions expressed above.
THIS SUMMARY IS NOT INTENDED AS TAX ADVICE TO ANY PARTICULAR PERSON. IN
PARTICULAR, AND WITHOUT LIMITING THE FOREGOING, THIS SUMMARY ASSUMES THAT THE
SHARES OF COMMON STOCK ARE HELD AS "CAPITAL ASSETS" AS DEFINED IN THE CODE, AND
DOES NOT CONSIDER THE FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY'S
STOCKHOLDERS IN LIGHT OF THEIR INDIVIDUAL INVESTMENT CIRCUMSTANCES OR TO HOLDERS
WHO MAY BE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS (SUCH
AS DEALERS IN SECURITIES, INSURANCE COMPANIES, FOREIGN INDIVIDUALS AND ENTITIES,
FINANCIAL INSTITUTIONS AND TAX EXEMPT ENTITIES). IN ADDITION, THIS SUMMARY DOES
NOT ADDRESS ANY CONSEQUENCES OF THE REVERSE SPLIT UNDER ANY STATE, LOCAL OR
FOREIGN TAX LAWS. THE STATE AND LOCAL TAX CONSEQUENCES OF THE REVERSE SPLIT MAY
VARY AS TO EACH STOCKHOLDER DEPENDING ON THE STATE IN WHICH SUCH STOCKHOLDER
RESIDES.
AS A RESULT, IT IS THE RESPONSIBILITY OF EACH STOCKHOLDER TO OBTAIN AND RELY ON
ADVICE FROM HIS, HER OR ITS TAX ADVISOR AS TO, BUT NOT LIMITED TO, THE
FOLLOWING: (A) THE EFFECT ON HIS, HER OR ITS TAX SITUATION OF THE REVERSE SPLIT,
INCLUDING, BUT NOT LIMITED TO, THE APPLICATION AND EFFECT OF STATE, LOCAL AND
FOREIGN INCOME AND OTHER TAX LAWS; (B) THE EFFECT OF POSSIBLE FUTURE LEGISLATION
OR REGULATIONS; AND (C) THE REPORTING OF INFORMATION REQUIRED IN CONNECTION WITH
THE REVERSE SPLIT ON HIS, HER OR ITS OWN TAX RETURNS. IT WILL BE THE
RESPONSIBILITY OF EACH STOCKHOLDER TO PREPARE AND FILE ALL APPROPRIATE FEDERAL,
STATE, LOCAL, AND, IF APPLICABLE, FOREIGN TAX RETURNS.
Share Certificates
Following the Reverse Split, the share certificates you now hold will
continue to be valid and will evidence your ownership in post-split shares of
Common Stock. Going forward, following the effective date of the Reverse Split,
new shares of common stock issued will reflect the Reverse Split, but this in no
way will affect the validity of your current share certificates. However, after
the effective date of the Reverse Split, those stockholders who wish to obtain
new certificates should contact the exchange agent at:
Standard Transfer & Trust Company, Inc.
2980 South Rainbow Blvd., Suite 220H
Las Vegas, NV 98146
Phone: (702) 212-3493
Many stockholders hold some or all of their shares electronically in
book-entry form either through a representative broker-dealer or through the
direct registration system for securities. If you hold registered shares in a
book-entry form, you do not need to take any action to receive your post-split
shares or your cash payment in lieu of any fractional share interest, if
8
applicable. If you are entitled to post-split shares, a transaction statement
will automatically be sent to your address of record by either your broker (if
you hold your shares through a broker) or the exchange agent indicating the
number of shares you hold.
ACTION THREE
AMENDMENT TO INCREASE AUTHORIZED SHARES
General
On February 14, 2008, the Board of Directors of the Company approved,
declared it advisable and in the Company's best interest and directed that there
be submitted to the holders of a majority of the Company's voting stock for
approval, the prospective amendment to the Fourth Article of the Company's
Articles of Incorporation to increase the authorized common stock from
100,000,000 shares, par value $0.001, to 300,000,000 shares, par value $0.001
(the "Increase in Authorized Amendment"). On February 14, 2008, the Majority
Stockholders approved the Increase in Authorized Amendment by written consent,
in lieu of a special meeting of the stockholders.
Reasons for the Increase in Authorized Amendment
Currently, the Company is authorized to issue 100,000,000 shares of
Common Stock. Of the 100,000,000 shares of Common Stock authorized, as of the
Record Date, there were 98,280,006 shares of Common Stock issued and outstanding
and no shares of Common Stock reserved for issuance upon the exercise of
outstanding options, including, without limitation, the benefit plans of the
Company. Consequently, the Company has approximately 1,719,994 shares of Common
Stock available for general corporate purposes. After giving effect to the
Reverse Split Amendment set forth in Action Two, the Company may have up to
99,600,000 shares of Common Stock available to be issued.
As a general matter, the Board of Directors does not believe the
currently available number of unissued shares of Common Stock is an adequate
number of shares to assure that there will be sufficient stock available for
issuance in connection with possible future acquisitions, equity and
equity-based financings, possible future awards under employee benefit plans,
stock dividends, stock splits, and other corporate purposes. Therefore, the
Board of Directors and Majority Stockholders approved the increase in authorized
shares of Common Stock as a means of providing the Company with the flexibility
to act with respect to the issuance of Common Stock or securities exercisable
for, or convertible into, Common Stock in circumstances which they believe will
advance the interests of the Company and its stockholders without the delay of
seeking an amendment to the Certificate of Incorporation at that time.
The Board of Directors is considering, and will continue to consider,
various financing options, including the issuance of Common Stock or securities
convertible into Common Stock from time to time to raise additional capital
necessary to support future growth of the Company. As a result of the Increase
in Authorized Amendment, the Board of Directors will have more flexibility to
pursue opportunities to engage in possible future capital market transactions
involving Common Stock or securities convertible into Common Stock, including,
without limitation, public offerings or private placements of such Common Stock
or securities convertible into Common Stock.
In addition, the Company's growth strategy may include the pursuit of
selective acquisitions to expand its product base and geographic markets or to
go into other business. The Company could also use the additional Common Stock
for potential strategic transactions, including, among other things,
acquisitions, spin-offs, strategic partnerships, joint ventures, restructurings,
divestitures, business combinations and investments.
9
Ability of the Board to Issue Stock; Certain Issuances Requiring Shareholder
Approval
The additional shares of Common Stock authorized by the Increase in
Authorized Amendment may be issued for any proper purpose from time to time upon
authorization by the Board of Directors, without further approval by the
stockholders unless required by applicable law, rule or regulation, including,
without limitation, rules of any trading market that the Company's Common Stock
may trade at that time. Shares may be issued for such consideration as the Board
of Directors may determine and as may be permitted by applicable law.
Interest of the Directors and Officers of the Company in the Increase in
Authorized Amendment
The current officers and directors of the Company and the officers and
directors of the Company when the Increase in Authorized Amendment was approved
by the Board of Directors do not have any substantial interest, direct or
indirect, in the approval of the Increase in Authorized Amendment, other than as
stockholders of the Company.
Effects of the Increase in Authorized Amendment
The increase in authorized shares of Common Stock was not approved as a
means of preventing or dissuading a change in control or takeover of the
Company. However, use of these shares for such a purpose is possible. Authorized
but unissued or unreserved shares of Common Stock, for example, could be issued
in an effort to dilute the stock ownership and voting power of persons seeking
to obtain control of the Company or could be issued to purchasers who would
support the Board of Directors in opposing a takeover proposal. In addition, the
increase in authorized shares of Common Stock may have the effect of
discouraging a challenge for control or make it less likely that such a
challenge, if attempted, would be successful. The Board of Directors and
executive officers of the Company have no knowledge of any current effort to
obtain control of the Company or to accumulate large amounts of Common Stock.
The holders of Common Stock are not entitled to preemptive rights with
respect to the issuance of additional Common Stock or securities convertible
into or exercisable for Common Stock. Accordingly, the issuance of additional
shares of Common Stock or such other securities might dilute the ownership and
voting rights of stockholders.
The holders of Common Stock will not realize any dilution in their
percentage of ownership of our company or their voting rights as a result of the
increase. However, issuances of significant numbers of additional shares of
Common Stock in the future (i) will dilute stockholders' percentage ownership of
our company and (ii) if such shares are issued at prices below what current
stockholders paid for their shares, may dilute the value of current
stockholders' shares.
The Increase in Authorized Amendment does not change the terms of the
Common Stock. The additional Common Stock for which authorization is sought will
have the same voting rights and liquidation rights, the same rights to dividends
and distributions and will be identical in all other respects to the Common
Stock now authorized.
It is anticipated that the Increase in Authorized Amendment will become
effective upon the filing of a Certificate of Amendment to the Company's
Certificate of Incorporation with the Secretary of State of the State of Nevada,
the form of which is attached hereto as Exhibit A, which filing is expected to
occur shortly before or after the consummation of an acquisition or merger with
a future, as yet unidentified, company or companies.
10
Information Required by Item 13(a) of Schedule 14A
This information is incorporated by reference from the Company's (i)
Quarterly Report on Form 10-QSB for the quarterly period ended December 31,
2007, filed with the Commission on January 24, 2008, (ii) Quarterly Report on
Form 10-QSB for the quarterly period ended September 30, 2007, filed with the
Commission on November 29, 2007, (iii) Annual Report on Form 10-KSB/A for the
fiscal year ended June 30, 2007, filed with the Commission on November 13, 2007,
and (iv) Annual Report on Form 10-KSB/A for the fiscal year ended June 30, 2006,
filed with the Commission on January 29, 2008, which are set forth in Exhibit C.
ACTION FOUR
ASSET SALE
General
On February 14, 2008, the Board of Directors of the Company approved,
declared it advisable and in the Company's best interest and directed that there
be submitted to the holders of a majority of the Company's Common Stock for
approval, the potential sale of substantially all of the Company's assets to
Mark Poulsen, the Company's former Chief Executive Officer, President, Chairman
of the Board of Directors, and majority shareholder, if the Company elects to
exercise its option under the Subsidiary Acquisition Option Agreement dated
February 11, 2008 (the "Option Agreement"), to sell its wholly-owned subsidiary,
Fit For Business (Australia) Pty Limited ("FFB Australia"), to Mark Poulsen (the
"Asset Sale"). On February 14, 2008, the Majority Stockholders approved the
Asset Sale by written consent, in lieu of a special meeting of the stockholders
Mark Poulsen is the Company's former Chief Executive Officer, President
and Chairman of the Board of Directors, and as such, a conflict of interest may
exist in the related-party transaction, which conflict of interest was waived by
the Board of Directors and Majority Stockholders of the Company.
The Board of Directors of the Company and the Majority Stockholders
believe that it is advisable and in the Company's best interests to approve the
Asset Sale to promote the interests of the Company's stockholders by selling
potentially unprofitable assets in exchange for Mark Poulsen giving up his right
to receive shares of common stock of the Company pursuant to the Option
Agreement.
Transaction Information
Summary Term Sheet
- ------------------
The material terms of the Asset Sale are as follows:
o Under a Stock Purchase Agreement dated January 16, 2008 (the
"Stock Purchase Agreement"), Mark Poulsen is entitled to
receive Two Hundred Fifty Thousand (250,000) shares of the
Company's common stock (the "Option Shares") if, within one
year after the close of the transaction contemplated by the
Stock Purchase Agreement the Company undergoes a restructuring
involving a reverse stock split;
o Under the Option Agreement, the Company has the option, in its
sole discretion, to sell 100% of the issued and outstanding shares
(the "Subsidiary Shares") of FFB Australia to Mark Poulsen in
exchange for either the Option Shares if the shares have been
issued, or in exchange for Mark Poulsen giving up his right to
receive the Option Shares if the shares have not been issued;
11
o The acquisition contemplated by the Stock Purchase Agreement
closed on February 12, 2008. Consequently, Mark Poulsen's right to
receive the Option Shares will expire on February 12, 2009, if the
Company does not undergo a restructuring involving a reverse stock
split prior to that date; and
o The Subsidiary Shares and the Option Shares are currently held in
escrow and the Option Shares will be delivered to the Company for
the purchase of the Subsidiary Shares and the Subsidiary Shares
will be delivered to Mark Poulsen, if the Company exercises its
option to sell the Subsidiary Shares under the Option Agreement.
Contact Information
- -------------------
Fit For Business International, Inc. is located at 9900 Research Drive,
Irvine, California 92618, telephone number (949) 635-1240.
Mark Poulsen is located at 10/27 Mayneview Street, Milton Q 4064
Australia, telephone number: 0733673355.
Business Conducted
- ------------------
Fit For Business International, Inc., through its wholly-owned
subsidiary, FFB Australia, is in the development stage of providing products and
services for: (i) corporate wellness programs which address business
productivity, stress and absenteeism issues; (ii) living well programs directed
primarily, but not exclusively, to individuals over 45 years of age; and, (iii)
nutritional supplements manufactured and supplied by Herbalife Ltd.
Terms of the Transaction
- ------------------------
(i) A brief description of the transaction.
Pursuant to Stock Purchase Agreement dated January 16, 2008 (the "Stock
Purchase Agreement"), Mark Poulsen is entitled to receive Two Hundred Fifty
Thousand (250,000) shares of the Company's common stock (the "Option Shares")
if, within one year after the close of the transaction contemplated by the Stock
Purchase Agreement, the Company undergoes a restructuring involving a reverse
stock split. Under the Option Agreement, the Company has the option, in its sole
discretion, to sell 100% of the issued and outstanding shares of Fit For
Business (Australia) Pty Limited to Mark Poulsen, the Company's former Chief
Executive Officer, President, Chairman of the Board of Directors, and majority
shareholder, in exchange for either the Option Shares if the shares have been
issued, or in exchange for Mark Poulsen giving up his right to receive the
Option Shares if the shares have not been issued.
(ii) The consideration offered to security holders.
Not Applicable.
(iii) The reasons for engaging in the transaction.
The principal reason for engaging in the Asset Sale is to promote the
interests of the Company's stockholders by selling potentially unprofitable
assets in exchange for Poulsen's right to receive shares of Common Stock of the
Company pursuant to the Option Agreement.
12
(iv) The vote required for approval of the transaction.
The vote which is required to approve the Asset Sale is the affirmative
vote of the holders of a majority of the Company's voting stock.
(v) An explanation of any material differences in the rights of
security holders as a result of the transaction, if material.
There would be no differences in the rights of security holders as a
result of the transaction.
(vi) A brief statement as to the accounting treatment of the
transaction, if material.
The accounting treatment of the transaction is not material.
(vii) The federal income tax consequences of the transaction, if
material.
The federal income tax consequences of the transaction are not
material.
Regulatory approvals
- --------------------
No federal or state regulatory requirements must be complied with or
approval obtained in connection with the Asset Sale.
Reports, opinions. appraisals
- -----------------------------
No reports, opinions or appraisals materially relating to the Asset
Sale have been received from an outside party or are referred to in the
Information Statement.
Past contacts, transactions or negotiations
- -------------------------------------------
Not Applicable.
Selected financial data
- -----------------------
This information is not required because the Company meets the
definition of "small business issuer" under Rule 12b-2 of the Exchange Act and
this disclosure item is not required by Regulation S-B.
Pro forma selected financial data
- ---------------------------------
This information is not required because the Company meets the
definition of "small business issuer" under Rule 12b-2 of the Exchange Act and
this disclosure item is not required by Regulation S-B.
13
Pro forma information
- ---------------------
(i) Historical and Equivalent Pro Forma per Share Data of the
Company
- ----------------------------------------------------------------------------------------------------------------------
Items FY-Ended 2003 FY-Ended 2004 FY-Ended 2005 FY-Ended 2006 FY-Ended 2007
- ------------- ------------------- ------------------- ------------------- ------------------- -------------------
Pro Pro Pro Pro Pro
Historical Forma Historical Forma Historical Forma Historical Forma Historical Forma
- ------------- ---------- ------- ---------- ------- ---------- ------- ---------- ------- ---------- -------
Book Value
per Share $ (0.06) $ - $ (0.09) $ - $ (0.01) $ - $ (0.07) $ (0.03) $ 0.03 $ -
- ------------- ---------- ------- ---------- ------- ---------- ------- ---------- ------- ---------- -------
Cash
Dividends
Declared
per Common
Share $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
- ------------- ---------- ------- ---------- ------- ---------- ------- ---------- ------- ---------- -------
Income (Loss)
from
Continuing
Operations
per Common
Share $ - $ - $ (0.03) $ - $ (0.03) $ (0.02) $ (0.06) $ (0.03) $ 0.03 $0.02
- ----------------------------------------------------------------------------------------------------------------------
--------------------------- ---------------------------------
Items 6 Months ended December 31, 2007
--------------------------- ---------------------------------
Pro
Historical Form a
--------------------------- ---------------- ----------------
Book Value per Share $ - $ -
--------------------------- ---------------- ----------------
Cash Dividends Declared
per Common Share $ - $ -
--------------------------- ---------------- ----------------
Income (Loss) from
Continuing Operations per
Common Share $ - $ -
--------------------------- ---------------- ----------------
(ii) Historical and Equivalent Pro Forma per Share Data of Target
Company
This item is not applicable because there is no target company.
Financial information
- ---------------------
The information required by Article 11 of Regulation S-X with respect
to the Asset Sale is attached hereto as Exhibit B.
Information about the Parties to the Transaction
The information required by Part B of Form S-4 with respect to the
Asset Sale is attached hereto as Exhibit C.
14
ACTION FIVE
RATIFICATION OF STOCK ISSUANCE
General
On December 31, 2007, the Board of Directors of the Company approved,
declared it advisable and in the Company's best interest the issuance of
70,000,000 shares of common stock to Mr. Mark Poulsen, the Company's former
Chief Executive Officer, President, Chairman of the Board of Directors, and
majority shareholder, for failing to provide Mr. Poulsen with validly issued
preferred stock and in exchange for Mr. Poulsen agreeing to extinguish and waive
any and all of his rights and claims to $134,176 in debt collectively owed by
the Company to two entities controlled by Mr. Poulsen (the "Stock Issuance"). On
February 14, 2008, the Majority Stockholders ratified the Stock Issuance by
written consent, in lieu of a special meeting of the stockholders.
Description of the Transaction
On December 31, 2007, the Company issued a total of 70,000,000 shares
of its common stock, restricted in accordance with Rule 144, to Mr. Mark
Poulsen, the Company's former Chief Executive Officer, President, Chairman of
the Board of Directors, and majority shareholder, in consideration for the
following: 50,000,000 shares for failing to provide Mr. Poulsen with validly
issued preferred stock, and 20,000,000 shares in exchange for Mr. Poulsen
agreeing to extinguish, and waive any and all of his rights and claims to
$134,176 in debt collectively owed as of December 31, 2007 to Mark A. Poulsen &
Associates Pty Ltd. and Kamaneal Investments Pty Ltd., both entities controlled
by Mr. Poulsen. These shares were issued in reliance on the exemption under
Section 4(2) of the Securities Act of 1933, as amended.
Reasons for the Stock Issuance
Issuance to Replace Invalid Preferred Stock
- -------------------------------------------
On December 31, 2007, the Company's Board of Directors determined that
although it had previously authorized and approved the designation of 10,000,000
shares of preferred stock, par value $0.001 per share, each with a right to 50
votes of the Company's common stock (the "Preferred Stock"), as well as the
subsequent issuance of 1,000,000 shares of Preferred Stock to Mr. Poulsen, the
Company did not file a Certificate of Designation with the State of Nevada to
officially authorize and designate the Preferred Stock and as a result, the
Preferred Stock was never legitimately issued and was not valid. Consequently,
the Company issued 50,000,000 shares of its common stock to Mr. Poulsen for
failing to provide him with validly issued preferred stock.
Issuance to Extinguish Debt
- ---------------------------
Mark A. Poulsen & Associates Pty. Ltd. is an Australian private entity
and stockholder of the Company. It is wholly owned by Mr. Poulsen. In addition
to providing working capital to the Comapny, Mark A. Poulsen & Associates Pty.
had a month-to-month expense sharing agreement for office rent and other common
area expenses with the Company. The expense sharing agreement replaced a lease
arrangement between the Company and Mark A. Poulsen & Associates Pty. Ltd. that
expired on November 30, 2004.
Kamaneal Investments Pty. Ltd. is an Australian private company and
stockholder of the Company owned by Mr. Poulsen and Karen Poulsen, his wife. The
purpose of this company is to hold investments for Mr. and Mrs. Poulsen.
Kamaneal Investments Pty. Ltd. provided the Company with working capital.
15
As of December 31, 2007, the Company collectively owed $134,176 (the
"Debt Amount") to Mark A. Poulsen & Associates Pty Ltd. and Kamaneal Investments
Pty Ltd. Consequently, the Company issued 20,000,000 shares of its common stock
to Mr. Poulsen in exchange for the extinguishment and waiver by Mr. Poulsen and
the abovementioned entities controlled by Mr. Poulsen of any and all of their
rights and claims to the Debt Amount.
Information Required by Item 13(a) of Schedule 14A
This information is incorporated by reference from the Company's (i)
Quarterly Report on Form 10-QSB for the quarterly period ended December 31,
2007, filed with the Commission on January 24, 2008, (ii) Quarterly Report on
Form 10-QSB for the quarterly period ended September 30, 2007, filed with the
Commission on November 29, 2007, (iii) Annual Report on Form 10-KSB/A for the
fiscal year ended June 30, 2007, filed with the Commission on November 13, 2007,
and (iv) Annual Report on Form 10-KSB/A for the fiscal year ended June 30, 2006,
filed with the Commission on January 29, 2008, which are set forth in Exhibit C.
OTHER INFORMATION
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of the Record Date, certain
information with respect to the Company's equity securities owned of record or
beneficially by (i) each Officer and Director of the Company; (ii) each person
who owns beneficially more than 5% of each class of the Company's outstanding
equity securities; and (iii) all Directors and Executive Officers as a group.
Common Stock
- --------------------------------------------------------------------------------
Amount and
Nature of
Name and Address of Beneficial Percent
Title of Class Beneficial Owner (1) Ownership of Class (2)
- -------------- --------------------------- ------------ --------------
Common Stock
Adele Ruger (3) (4) 84,080,000 85.5%
Common
Stock Route 32, LLC (4) 84,080,000 85.5%
------------ --------------
Common All Officers and Directors
Stock as a Group (1 Person) 84,080,000 85.5%
============ ==============
(1) Unless otherwise noted, the address of each beneficial owner is c/o Fit
For Business International, Inc., 9900 Research Drive, Irvine, CA
92618.
(2) Based on 98,280,006 shares outstanding as of February 22, 2008. Shares
of Common Stock subject to options or warrants currently exercisable,
or exercisable within 60 days, are deemed outstanding for purposes of
computing the percentage of the person holding such options or
warrants, but are not deemed outstanding for purposes of computing the
percentage of any other person.
(3) Indicates an officer and/or director of the Company.
(4) Adele Ruger is the controlling owner of Route 32, LLC. Adele Ruger and
Route 32, LLC own zero shares and 84,080,000 shares of our Common
Stock, respectively. However, because Adele Ruger controls Route 32,
16
LLC, the ownership of the shares held by each is attributed to the
other. As a result, although Adele Ruger and Route 32, LLC are shown in
the table above each to own 85.5% of the outstanding shares of Common
Stock of the Company, in the aggregate they own together 85.5% of the
outstanding shares of Common Stock of the Company.
By order of the Board of Directors
_______________________________________
Adele Ruger, President
February [__], 2008
Irvine, California
17
Exhibit A
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
Fit For Business International, Inc.
(Pursuant to NRS 78.385 and 78.390 - after issuance of stock)
The undersigned being the President and Secretary of Fit For Business
International, Inc., a Nevada Corporation (the "Corporation"), hereby certify
that pursuant to Unanimous Written Consent of the Board of Directors of said
Corporation on February 14, 2008, and Majority Written Consent of Shareholders
of said Corporation on February 14, 2008, it was voted that this Certificate of
Amendment of Articles of Incorporation authorizing (i) a change of the
Corporation's name, (ii) a 1-for-[__] reverse stock split of the issued and
outstanding shares of common stock of the Corporation, and (iii) an increase in
the number of authorized shares of common stock from 100,000,000 to 300,000,000,
be filed.
The effective date of this Amendment shall be [______________], 200_.
FIRST: The undersigned certify that article "First" of the Articles of
Incorporation, originally filed on July 31, 2001, are amended
to read as follows:
"The name of the Corporation is [_______________________]."
FIRST: The undersigned certify that article "Fourth" of the Articles
of Incorporation are amended to read as follows:
"This Corporation is authorized to issue two classes of shares of stock
to be designated as "Common Stock" and "Preferred Stock". The total number of
shares of Common Stock which this Corporation is authorized to issue is Three
Hundred Million (300,000,000) shares, par value $0.001. The total number of
shares of Preferred Stock which this Corporation is authorized to issue is Ten
Million (10,000,000) shares, par value $0.001.
Effective [___________], 200_, the issued and outstanding shares of
common stock of the Corporation shall be subject to a 1-for-[__] reverse stock
split.
The shares of Preferred Stock may be issued from time to time in one or
more series. The Board of Directors of the Corporation (the "Board of
Directors") is expressly authorized to provide for the issue of all or any of
the shares of the Preferred Stock in one or more series, and to fix the number
of shares and to determine or alter for each such series, such voting powers,
full or limited, or no voting powers, and such designations, preferences, and
relative, participating, optional, or other rights and such qualifications,
limitations, or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions adopted by the Board of Directors providing for the
issue of such shares (a "Preferred Stock Designation") and as may be permitted
by the Nevada Revised Statutes. The Board of Directors is also expressly
authorized to increase or decrease (but not below the number of shares of such
A - 1
series then outstanding) the number of shares of any series subsequent to the
issue of shares of that series. In case the number of shares of any such series
shall be so decreased, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
No holder of any of the shares of any class of the corporation shall be
entitled as of right to subscribe for, purchase, or otherwise acquire any shares
of any class of the corporation which the corporation proposes to issue or any
rights or options which the corporation proposes to grant for the purchase of
shares of any class of the corporation or for the purchase of any shares, bonds,
securities, or obligations of the corporation which are convertible into or
exchangeable for, or which carry any rights, to subscribe for, purchase, or
otherwise acquire shares of any class of the corporation; and any and all of
such shares, bonds, securities, or obligations of the corporation, whether now
or hereafter authorized or created, may be issued, or may be reissued or
transferred if the same have been reacquired and have treasury status, and any
and all of such rights and options may be granted by the Board of Directors to
such persons, firms, corporations, and associations, and for such lawful
consideration, and on such terms, as the Board of Directors in its discretion
may determine, without first offering the same, or any thereof, to any said
holder."
The undersigned hereby certify that they have on this [__]th day of
[_____________], 200_ executed this Certificate amending the Articles of
Incorporation heretofore filed with the Secretary of State of Nevada.
_______________________ _______________________
, President , Secretary
A - 2
EXHIBIT B
Financial Information Required by Article 11 of Regulation S-X
INDEX TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
Condensed Financial Statements:
Introduction B-2
Unaudited Pro Forma Condensed Balance Sheet as of
December 31, 2007 B-3
Unaudited Pro Forma Condensed Statements of Operations for the
Year Ended June 30, 2007 B-5
Unaudited Pro Forma Condensed Statements of Operations for the
Six Months Ended December 31, 2007 B-6
Notes to Unaudited Pro Forma Condensed Financial Statements B-7
B - 1
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
On February 14, 2008, the Board of Directors of the Company approved,
declared it advisable and in the Company's best interest and directed that there
be submitted to the holders of a majority of the Company's Common Stock for
approval, the potential sale of substantially all of the Company's assets to
Mark Poulsen, the Company's former Chief Executive Officer, President, Chairman
of the Board of Directors, and majority shareholder, if the Company elects to
exercise its option under the Subsidiary Acquisition Option Agreement dated
February 11, 2008 (the "Option Agreement"), to sell its wholly-owned subsidiary,
Fit For Business (Australia) Pty Limited ("FFB Australia"), to Mark Poulsen (the
"Asset Sale"). On February 14, 2008, the Majority Stockholders approved the
Asset Sale by written consent, in lieu of a special meeting of the stockholders
Summary Term Sheet
- ------------------
The material terms of the Asset Sale are as follows:
o Under the Option Agreement, Mark Poulsen is entitled to receive
Two Hundred Fifty Thousand (250,000) shares of the Company's
common stock (the "Option Shares") if, within one year after the
close of the transaction contemplated by the Stock Purchase
Agreement dated January 16, 2008 (the "Stock Purchase Agreement"),
the Company undergoes a restructuring involving a reverse stock
split;
o Under the Option Agreement, the Company has the option, in its
sole discretion, to sell 100% of the issued and outstanding shares
(the "Subsidiary Shares") of FFB Australia to Mark Poulsen in
exchange for either the Option Shares if the shares have been
issued, or in exchange for Mark Poulsen giving up his right to
receive the Option Shares if the shares have not been issued;
o The acquisition contemplated by the Stock Purchase Agreement
closed on February 12, 2008. Consequently, Mark Poulsen's right to
receive the Option Shares will expire on February 12, 2009, if the
Company does not undergo a restructuring involving a reverse stock
split prior to that date; and
o The Subsidiary Shares and the Option Shares are currently held in
escrow and the Option Shares will be delivered to the Company for
the purchase of the Subsidiary Shares and the Subsidiary Shares
will be delivered to Mark Poulsen, if the Company exercises its
option to sell the Subsidiary Shares under the Option Agreement.
The unaudited pro forma condensed balance sheet reflects the
disposition of the subsidiary as if it had occurred on December 31, 2007. The
unaudited pro forma condensed statements of operations for the year ended June
30, 2007 and for the six months ended December 31, 2007 reflect the disposition
of the subsidiary as if it occurred on the first day of the respective periods.
The unaudited pro forma condensed statements of operations do not reflect any
incremental income or expenses that might have occurred during the periods as a
result of the transaction. The pro forma adjustments and assumptions are based
on estimates, evaluations and other data currently available and, in
management's opinion, provide a reasonable basis for the fair presentation of
the estimated effects directly attributable to the disposition of the
subsidiary. The unaudited pro forma condensed statements of operations are
provided for illustrative purposes only and are not necessarily indicative of
what the results of operations would actually have been had the disposition of
the subsidiary occurred on the first day of the respective periods, nor do they
represent a forecast of the results of operations or financial position for any
future period or date.
These unaudited pro forma condensed financial statements are based in
part upon our historical financial statements contained in our Annual Report on
Form 10-KSB for the year ended June 30, 2007, and our Quarterly Report on Form
10-QSB for the six months ended December 31, 2007, filed with the SEC, and
should be read in conjunction with those financial statements and the notes
thereto.
B - 2
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
PRO FORMA CONDENSED BALANCE SHEET
DECEMBER 31, 2007
(Unaudited)
ASSETS
------
Fit for
Fit for Business
Business Australia
International, Pty. Ltd.
Inc. Disposition Pro Forma
Historical Adjustments Results
-------------- -------------- --------------
Current assets
Cash and cash equivalents $ 688 $ (646) $ 42
Accounts receivable, net of allowance for
doubtful accounts -- -- --
Inventory 1,533 (1,533) --
-------------- -------------- --------------
Total current assets 2,221 (2,179) 42
Property and equipment
Office and computer equipment 2,365 (2,365) --
Furniture and fixtures 211 (211) --
Web site development costs 9,118 (9,118) --
Developed software applications 46,102 (46,102) --
-------------- -------------- --------------
57,796 (57,796) --
Less accumulated depreciation and amortization (29,945) 29,945 --
-------------- -------------- --------------
Net property and equipment 27,851 (27,851) --
Other assets
Deferred offering costs 201,309 (23,000) 178,309
-------------- -------------- --------------
Total assets $ 231,381 $ (53,030) $ 178,351
============== ============== ==============
See accompanying notes to unaudited pro forma condensed financial information
B - 3
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
PRO FORMA CONDENSED BALANCE SHEET
DECEMBER 31, 2007
(Unaudited)
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
---------------------------------------
Fit for
Fit for Business
Business Australia
International, Pty. Ltd.
Inc. Disposition Pro Forma
Historical Adjustments Results
-------------- -------------- --------------
Current liabilities
Accounts payable $ 71,633 $ (33,779) $ 37,854
Accrued compensation and related expenses 173,392 (173,392) --
Other accrued liabilities 143,373 (126,296) 17,077
Loans from related parties 36,865 (36,865) --
-------------- -------------- --------------
Total current liabilities 425,263 (370,332) 54,931
Deferred revenue - license fees 124,750 (124,750) --
Promissory notes and accrued interest subject to rescission
Promissory notes - Fort Street Equity, Inc.,
5% per annum, principal and accrued interest due
December 31, 2009, unsecured 157,363 -- 157,363
Stockholders' (deficit)
Common stock, par value $0.001 per share; 110,000,000 shares
authorized; 98,280,006 shares issued and outstanding 98,280 -- 98,280
Additional paid-in capital 1,095,389 -- 1,095,389
Deficit accumulated during the development stage (1,464,451) 236,839 (1,227,612)
Accumulated other comprehensive loss (205,213) 205,213 --
-------------- -------------- --------------
Total stockholders' (deficit) (475,995) 442,052 (33,943)
-------------- -------------- --------------
Total liabilities and stockholders' (deficit) $ 231,381 $ (53,030) $ 178,351
============== ============== ==============
See accompanying notes to unaudited pro forma condensed financial information
B - 4
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
PRO FORMA CONDENSED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEAR ENDED JUNE 30, 2007
(Unaudited)
Fit for
Fit for Business
Business Australia
International, Pty. Ltd.
Inc. Disposition Pro Forma
Historical Adjustments Results
-------------- -------------- --------------
Revenues $ 12,079 (12,079) $ --
Cost of sales 3,323 (3,323) --
-------------- -------------- --------------
Gross profit 8,756 (8,756) --
-------------- -------------- --------------
Selling, general and administrative expenses
Wages, compensation and related taxes 472,438 (261,713) 210,725
Legal, accounting and consulting fees 58,469 (1,464) 57,005
Realized foreign currency exchange (gains) losses (77,891) 77,891 --
Other selling, general and administrative 107,133 (77,312) 29,821
-------------- -------------- --------------
Total selling, general and administrative expenses 560,149 (262,598) 297,551
-------------- -------------- --------------
Loss from operations (551,393) 253,842 (297,551)
Other income (expense)
Gain on cancellation of officer's accrued compensation 1,236,279 (435,527) 800,752
Interest and other income 531 (531) --
Interest expense (26,861) -- (26,861)
-------------- -------------- --------------
Total other income (expense) 1,209,949 (436,058) 773,891
-------------- -------------- --------------
Income (loss) before provision for income taxes 658,556 (182,216) 476,340
Provision for income taxes -- -- --
-------------- -------------- --------------
Net income (loss) 658,556 (182,216) 476,340
Other comprehensive income (loss)
Foreign currency translation (192,090) 22,239 (169,851)
-------------- -------------- --------------
Total comprehensive income (loss) $ 466,466 $ (159,977) $ 306,489
============== ============== ==============
Net loss per common share - basic $ 0.03 $ -- $ 0.02
============== ============== ==============
Net loss per common share - diluted $ 0.02 $ -- $ 0.02
============== ============== ==============
Weighted average number of common
shares outstanding - basic 23,134,699 -- 23,134,699
============== ============== ==============
Weighted average number of common
shares outstanding - diluted 27,282,644 -- 27,282,644
============== ============== ==============
See accompanying notes to unaudited pro forma condensed financial information
B - 5
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
PRO FORMA CONDENSED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE SIX MONTHS ENDED DECEMBER 31, 2007
(Unaudited)
Fit for
Fit for Business
Business Australia
International, Pty. Ltd.
Inc. Disposition Pro Forma
Historical Adjustments Results
-------------- -------------- --------------
Revenues $ 495 (495) $ --
Cost of sales 435 (435) --
-------------- -------------- --------------
Gross profit 60 (60) --
-------------- -------------- --------------
Selling, general and administrative expenses
Wages, compensation and related taxes 25,062 574 25,636
Legal, accounting and consulting fees 19,246 (1,215) 18,031
Realized foreign currency exchange (gains) losses (45,302) 45,302 --
Other selling, general and administrative 24,973 (23,637) 1,336
-------------- -------------- --------------
Total selling, general and administrative expenses 23,979 21,024 45,003
-------------- -------------- --------------
Loss from operations (23,919) (21,084) (45,003)
Other income (expense)
Gain on cancellation and settlement of debt 146,752 (146,752) --
Interest and other income 3,763 (3,763) --
Interest expense (14,993) -- (14,993)
-------------- -------------- --------------
Total other income (expense) 135,522 (150,515) (14,993)
-------------- -------------- --------------
Income (loss) before provision for income taxes 111,603 (171,599) (59,996)
Provision for income taxes -- -- --
-------------- -------------- --------------
Net income (loss) 111,603 (171,599) (59,996)
Other comprehensive income (loss)
Foreign currency translation (22,239) 22,239 --
-------------- -------------- --------------
Total comprehensive income (loss) $ 89,364 $ (149,360) $ (59,996)
============== ============== ==============
Net loss per common share - basic and diluted $ 0.00 $ -- $ (0.00)
============== ============== ==============
Weighted average number of common
shares outstanding - basic 26,537,635 -- 26,537,635
============== ============== ==============
Weighted average number of common
shares outstanding - diluted 27,446,543 -- 27,446,543
============== ============== ==============
See accompanying notes to unaudited pro forma condensed financial information
B - 6
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
NOTE 1 - PRO FORMA ADJUSTMENTS TO UNAUDITED CONDENSED FINANCIAL INFORMATION AT
DECEMBER 31, 2007
The pro forma balance sheet adjustments have been made to reflect the
disposition of the operating assets and liabilities of the Company's 100%
owned subsidiary (Fit for Business Australia Pty. Ltd.).
Assets and liabilities that are specifically related to the Company's
public reporting activities remain in the pro forma results, whether or not
the underlying transactions were incurred by the Company or its subsidiary.
Management assumes that such public reporting costs would continue to be
incurred whether or not the Company owned the subsidiary. These assets and
liabilities include deferred offering costs and liabilities for legal,
accounting and other professional fees.
B - 7
EXHIBIT C
Information Required by Part B of Form S-4
DESCRIPTION OF BUSINESS
- -----------------------
We were organized on May 30, 2001, and incorporated in the State of Nevada on
July 31, 2001, under the name Elli Tsab, Inc.
On May 30, 2001, we issued 5,000,000 shares of our common stock at par value of
$.001 per share to former officers and directors of the Company for
incorporation services rendered valued at $5,000 and as founders of the Company.
We changed our name to Patient Data Corporation on April 15, 2004, and we also
increased our authorized capital to 100,000,000 shares of common stock and
10,000,000 shares of preferred stock, each with a par value of $.001 per share.
On July 25, 2004, we issued 2,000,000 options to Fort Street Equity, Inc. (a
Cayman Islands company) to purchase the same number of shares of our common
stock for $10,000 in cash. The option period was originally through December 31,
2005. However, it has been extended through March 31, 2006. The exercise price
of the options is the higher of $0.50 per share or the average trading price of
our common stock over the preceding ten (10) business days prior to exercise of
the options, less a discount of forty (40%) percent.
On November 10, 2003, our Subsidiary entered into an agreement with Fort Street
Equity, Inc. ("Fort Street") whereby Fort Street would assist with the
following: (i) the identification of a corporation validly organized in the
United States with which Subsidiary could realize a deemed reverse merger; and
(ii) the completion and filing of a Registration Statement on Form SB-2 with the
SEC for the purpose of raising capital from the issuance of common stock in the
public markets of up to $4.5 million.
Subsidiary paid Fort Street two deposits against fees and costs amounting to
$130,100. The initial capital formation activity conducted by Subsidiary and
Fort Street was not successful due to the fact that the organization and
completion of a deemed reverse merger with a validly organized corporation in
the United States could not be effected. Further, as a result of the uncompleted
deemed reverse merger, Subsidiary expensed $77,000 of the amount paid to Fort
Street as unsuccessful offering costs. With Fort Street, Subsidiary initiated a
second capital formation activity that resulted in the Exchange Agreement as
described below, and the current activity to file a Registration Statement on
Form SB-2 with the SEC which was completed in March 2006.
On September 14, 2004, we entered into an exchange agreement and acquired 100%
of the issued and outstanding capital shares of Subsidiary. Fit For Business
(Australia) Pty Limited was incorporated on December 14, 1998, in the State of
Queensland, Australia. All shares of Subsidiary were owned by Mark A. Poulsen
and Mark A. Poulsen & Associates Pty. Ltd. Our operations are conducted through
our Subsidiary which delivers services and products to the workplace health and
safety industry in Australia.
In exchange for all of the issued and outstanding shares of Subsidiary, we
issued an aggregate of 15,000,000 of our common shares and 1,000,000 of our
preferred shares to the shareholders of Subsidiary, Mark A. Poulsen and Mark A.
Poulsen & Associates Pty. Ltd. Mark A. Poulsen and Mark A. Poulsen & Associates
Pty. Ltd. subsequently transferred some of their common shares to other
individuals and entities, as detailed herein. In addition, the exchange
agreement included the following terms: (1) Mark A. Poulsen would be elected as
the only director; (2) the company would change its name to "Fit for Business
International, Inc." In this transaction, there were no finders fees paid and no
compensation paid, directly or indirectly.
C - 1
On January 13, 2005, we changed our name to Fit For Business International, Inc.
in order to better reflect our new business plan.
During the year ended June 30, 2005, we entered into a License Agreement with
L.R. Global. We have yet to realize any revenues from that License Agreement.
The term of the License Agreement with L.R. Global is ten years. Over the period
of the license, we expect to realize license fee revenues of $500,000.
Our web site is located at www.fitforbusiness.com.au.
Our business model addresses the alarming health statistics of individuals in
westernized countries. For example, the Australian Institute of Health and
Welfare last year revealed that 60 per cent1 of Australian adults are overweight
and over 90 per cent2 have at least one modifiable risk factor for heart, stroke
and vascular disease. These statistics are reflected in the Australian
workforce3. Further, the combination of an aging workforce, falling birth rates
and increased demand for workers makes it imperative that Corporations guide
employees in modifying the risk factors that could prevent them from making a
long and productive contribution within the workforce. The Australian National
Audit Office has reported that, many businesses have recognized the need to
intervene by introducing programs that include absence management techniques
such as leave banks and health initiatives such as influenza injections, gym
programs, yoga and stress management4.
The US Department of Health and Human Services has reported that innovative
employers are providing their employees with a variety of work-site-based health
promotion and disease prevention programs. These programs have been shown to
improve employee health, increase productivity and yield a significant return on
investment for the employer. In their report, "Prevention makes Common Cents"
they profile some of the nationally awarded and successful wellness programs in
America such as those of Motorola, DaimlerChrysler and Caterpillar and some of
the key program features including health risk appraisals, health screenings,
targeted education programs, support for employees throughout the process of
lifestyle change, smoking cessation, weight management, fitness activities,
individual counseling, and tracking/monitoring/reporting5.
The FFBI approach to promoting wellness amongst employees reflects many of the
features which have proved successful in corporations like Motorola,
DaimlerChrysler and Caterpillar6. FFBI delivers an integrated work-site based
program tailored to the needs of the business. The FFBI program involves the
following features:
a. health risk assessment,
b. health education focused on the identified health risks,
c. behavior modification techniques,
d. nutritional supplements for optimal nutrition and weight management
e. a walking based fitness program,
f. individual counseling of employees to support and motivate them as
they make positive lifestyle changes,
g. smoking cessation program,
__________________
1 Australian Heart Foundation, "Heart Stroke & Vascular diseases Australian
Facts 2004" pg 2 http://www.heartfoundation.com.au/index.cfm?page=19, visited on
31 May 2005
2 As Above
3 Australian Heart Foundation, "The shifting burden of cardiovascular disease in
Australia 2005" pg 26 http://www.heartfoundation.com.au/index.cfm?page=20
4 Auditor General Audit Report #52 2002-2003, "Absence management in the
Australian Public Service" pg 68, 30 June 2003,
http://www.anao.gov.au/WebSite.nsf/Publications/BD2FEAB022F0A678CA256D4B000F5DFD
5 US Department of Health and Human Services "Prevention Makes Common Cents",
Executive Summary, September 2003
http://aspe.hhsgov/health/prevention/prevention.pdf visited on 31 May 2005
6 US Department of Health and Human Services "Prevention Makes Common Cents",
Executive Summary, September 2003
http://aspe.hhsgov/health/prevention/prevention.pdf visited on 31 May 2005
C - 2
h. preventative measures such as inoculations,
i. regular monitoring of results and reporting.
Potential investors should be aware that to date, FFBI does not have any case
studies to demonstrate the efficacy of our specific programs in delivering
improved wellness to individuals or improved productivity to corporations.
FFBI backs all programs with friendly, fully-trained customer service
representatives who use state-of-the-art occupational health and safety web
based information and communications systems to support, record and report on
progress of people on the programs. This ensures ongoing support and
encouragement to both the individual and the corporation.
It would be FFBIs analysis that within three to five years, workplace wellness
programs like those being proposed by FFBI will become the norm7 as businesses
increasingly recognize the benefits of greater productivity, happier employees,
less sickness and absenteeism, and a better profitability8.
FFBI's business plan sees it licensing prime distributors, known as "Licensees",
in the countries that it targets. The Licensees will need to be very successful
long-term business people with existing networks of account executives and
customer service representatives. Each account executive and customer service
representative will be individually required to contract with FFBI as
independent account executives or customer service representatives. FFBI earns
its revenues through the licensing fees as well as, on average, earning a 15%
margin on programs delivered to corporate customers. The key to the business
model is that corporate customers contract with FFBI and pay for the purchase of
the programs for their employees. The successful implementation of the business
plan will be dependent on our ability to meet the challenges of developing a
management team capable of not only the development of the various programs but
also brand management and the implementation of specific marketing strategies.
These strategies will include the utilization of specific existing distributors
currently in the business of marketing nutritional and wellness programs. As
well, we will be employing our own account executives to offer our services and
programs to our various target markets.
Additionally, it will be necessary to educate the target market and build
relationships with corporate customers in order to demonstrate the commercial
benefits of the Fit For Business wellness programs.
Our business plan has two major components or programs which involve products
and services for:
(1) "Corporate Wellness;" and
(2) "Living Well."
Market Opportunities
The Fit For Business Programs are currently marketed to two major target
markets:
1. Corporate Wellness Solutions - targeted to small/medium/large
corporations;
2. Living Well Solutions - targeted primarily to retirement village
groups and individual seniors.
__________________
7 US Department of Health and Human Services "Prevention Makes Common Cents",
Page 22&23, September 2003 http://aspe.hhsgov/health/prevention/prevention.pdf
visited on 31 May 2005
8 Ozminkowski RJ, Ling D, Goetzel RZ, Bruno JA, Rutter KR, Izaac F, Wang S.
"Long-term impact of Johnson & Johnson`s health and wellness program on health
care utilization and expenditures." Journal of Occupational and Environmental
Medicine. 2002; 44:21-29
C - 3
Marketing is conducted via several methods:
1. Targeted media advertising and events;
2. Direct mail; and
3. Relationship marketing
Potential investors should be aware that to date FFBI has not conducted any
feasibility studies to demonstrate the efficacy of our business strategy.
CORPORATE WELLNESS SOLUTION PROGRAM
Under this component of the business plan, we are focused on delivering products
and services to make the corporate workplace healthier. The goal is that a
healthier workplace increases productivity and reduces absenteeism and stress,
and therefore, increases bottom line profits for employers. Our main objective
is to be a market leader in the Corporate Wellness arena.
Our approach to tackling the wellness issues faced by corporations employees is
to initially concentrate on nutrition and physical activity to replace bad
eating habits with goods ones. FFBI assists the employee to aim to undertake
this behavior modification within the first 21 days, usually the length of time
taken to break a habit.
Following which FFBI can introduce other wellness components of the corporations
choice, through FFBI, and our partner providers or through working with
providers of the corporations choice - but always monitored and followed up
through our web based information system and customer service representatives.
FFBI delivers an initial Corporate wellness program that includes:
o Profiling of the business including the physical requirements of the
major roles within the work place
o Introductory seminar on the aims and goals of the FFBI program and on
what good nutrition entails
o A profile of all individual employees on the program and referral to
appropriate medical/service providers
o Physical activity program
o Nutrition program including menu planning
o Non-intrusive follow-up/coaching of all individuals at the 1, 3, 7,
14, 28 days and then monthly
o Actively working with employees to monitor and report on progress
o Providing ongoing educational material (as agreed) via electronic or
hardcopy means
The balanced nutritional program provided by FFBI and for which the products are
supplied by Herbalife can consist of:
o protein, vitamins, minerals, herbs and dietary fibre
o B6 supplement
o Vitamin and Mineral supplement
o Vitamin C Supplement
Plus we can provide other targeted products from the Herbalife range of
nutritional products:
o Florafibre, Natures Raw Guarana, Chitosan, Lifeline - Omega 3,
Xtra-Cal, RoseOx (antioxidant), Tang Kuei, Protein powder and so on.
FFBI offers a variety of programs which includes the above services and
appropriate products, ranging in price from $85.00 (AUS. $115.00) to $210.67
(AUS. $285.00) per individual employee per month.
The benefits for corporations undertaking the FFBI programs can include:
o that employees feel better about themselves and have more energy;
o reduced absenteeism rates;
o reduced staff turnover;
C - 4
o improved productivity; and
o reduced health services costs.
The benefits for individuals undertaking the FFBI programs can include:
o Reducing the chance of excess unpaid sick leave;
o Improving health which may reduce the cost of personal health/medical
expenses;
o Savings on the costs of meals;
o Having more energy and stamina to meet the demands of work and life in
general; and
o Having the program costs totally paid for by the employer.
Potential investors should be aware that to date FFBI has not conducted any
studies to determine the efficacy of our programs and there are no guarantees
that our programs will provide the benefits indicated above.
Potential corporate customers are identified through a process of gathering and
analyzing business information and data by our marketing and account executives.
The Corporate Wellness Solution program is then marketed directly to the target
companies ("customers") via the account executives. The account executives have
previous experience in sales and are trained in the Fit For Business Program
methodology on how to approach potential corporate customers, when information
is required by customers, how to best present the information, and how to close
the sale.
We also have a separate training manual, provided on CD to all account
executives, which provides detailed training on how each separate market is to
be targeted, as well as detailed information on follow up, reporting, and other
procedures.
Once a corporate customer has agreed to participate in the program, our Account
Executive prepare an agreement, with our assistance, to be presented to the
customer. On signing of the agreement, the individual employees of the customer
are interviewed by our customer service representative to advise the correct
program for their use. The customer is then invoiced for the full retail value
of three (3) month's program for all employees who will be utilizing the
program. The in principle structure of our pricing policy is as follow:
a. 40% is allocated to direct program consumables, such as inoculations,
pedometer, nutritional supplements, participant rewards, participant
information packs and so forth;
b. 10% is allocated to indirect program cost such an allocation for
overheads, quality assurance, management information systems and so
forth;
c. 35% is allocated to compensate the customer service representatives
who implement the program and coach/monitor the individuals on the
program; and
d. 15% is the gross margin that we aim to attain on any program sales and
out of which we pay sales commissions.
Each corporate customer's employee receives follow-up at the 1, 3, 7, 14, 21
days and then weekly from the fully trained customer service representative to
ensure compliance with the program. This follow-up process ensures that
individual employees obtain positive results, assists them in forming positive
habits, and helps them to stay on the program, which benefits us as well as the
customer.
The customer receives initially weekly, and then monthly, reports from the
Account Executive showing the progress of the applicants. This information is
also recorded onto the Web based Fit For Business Customer Follow-up program.
Through the Web based Fit For Business management information system, we are
able to gauge the results achieved by the employees of various customers as well
as our customer service representatives.
C - 5
CORPORATE WELLNESS SOLUTION PROGRAM
The FFBI business model for delivering the wellness solution program to the
corporate market place sees:
o the FFBI corporate entity delivering the marketing, support and
quality assurance services to the sales team;
o the sales team comprising the licensee and the independent and
employed account executives, undertaking the corporate sales
activities and securing sales;
o the customer service representatives delivering the services and
products to the employees of the corporations.
Typically an Account Executive would source the corporations/retirement
villages, make the initial contact, present the FFB program, and negotiate the
contract.
Once the contract is signed off the customer service representative would then
"take over" the implementation of the contract and the actual service delivery.
The customer service representative would be the one to contact the individual
participants, initiate them onto the program and provide the 1 on 1 customer
support as part of the FFB customer care program. We envisage that each customer
service representative will be able to support up to 150 program participants.
(NB once a contract has been negotiated an independent account executive can
choose to have the dual role of customer service representative for up to a
maximum of 50 program participants at any one time. This has the advantage of
keeping the independent account executive in touch with the customer
experience.)
The directors and officers of FFBI are not Licensees, account executives or
customer service representatives.
Currently, there are 16 Independent Account Executives and 5 independent
customer service representatives out of the total of 67 account executives and
customer service representatives who are affiliated with Mark A. Poulsen &
Associates Pty. Ltd. Mark A. Poulsen, our CEO and President, is a director and
beneficiary of Mark A. Poulsen & Associates. As such Mark A. Poulsen should
receive some distribution of dividends or income from Mark A. Poulsen &
Associates Pty. Ltd. that have resulted from commissions paid to Mark A. Poulsen
& Associates Pty. Ltd. from Herbalife as a result of nutritional products sold
by FFBI's independent account executives and customers service representatives.
No other know affiliations exist between any account executives, customer
service representatives and any officers or directors or employees of FFBI.
C - 6
The table below expands on the specific roles played by each party to the FFBI
business model.
- -------------------------- ------------------ -------------------- --------------------
FFBI Staff Licensees Account Customer
Executives services
representatives
- -------------------------- ------------------ -------------------- --------------------
o Develops programs for o Provides an o Researches o Contacts each
the market place existing and potential employee of
proven group of customers who are corporations
o Puts in place strategic Account corporations joining the
relationships with executives and program
product providers customer o Builds
service relationships o Conducts the
o Undertakes the Brand representatives with corporations Customer Profile
and market building to ascertain
activities o Generates sales o Does correct
leads for their presentations to program
o Provides all of the Account corporations and for the employee
marketing and executive finalizes sales
promotional collateral o Orders the
o Assists the o Once sales products from
o Generates sales leads account process is Product Supplier
for the account executives complete
executives finalize sales allocates o Delivers
customer services Products and
o Builds relationships o Monitors representatives initiates
with the larger performance of to corporations customer onto the
customer and assist the account to service their program
the account executives executives and employees who are
close sales with Customer on FFBI programs o Performs
these organizations services followup as per
representatives o Monitors customer customer care
o Undertake induction and service program on 1st,
training of licensees, o FFBI intend to representatives 3rd, 7th, 14th,
Account executives and establish a to ensure 21st and
customer services compensation services quality weekly
representatives plan comprising is maintained thereafter
options and
o Monitors performance of cash bonuses o Ensures that
the account executives which will be corporations
and Customer services dependant on renew their
representatives total sales contract with
volumes of FFBI FFBI
o Maintain business model programs
through their o It is intended
o Provision of web distribution that the Account
presence group. Executive service
provide customer
o Provision of Web based service to
information systems at least 50
employees of
o Maintain systems and corporations
process
C - 7
o Finalizes proposal and
contracts with
customers
o Maintain ISO9001:2000
Quality certification
Independent Account Executives have two sources of income:
a. Commission on sales - a sliding scale commission for all contracts that
commences once an agreed cumulative yearly threshold of $100,000 has been
reached. An indicative commission scale is as follows: o 3% for sales up to
$1,000,000 o 2% for further sales between $1,000,000 and $2,000,000 o 1%
for any further sales above $2,000,000(no maximum cap).
b. A per participant fee when also acting as Customer Service Representative
for implementing the FFB program for a maximum of 50 participants at any
point in time.
Independent Customer Service Representatives have one source of income:
a. A per participant fee for implementing the FFB program for an agreed number
of participants.
Independent Account Executives and Customer Service Representatives receive
compensation from FFB on the basis of every program sold, irrespective of
whether the program involves the nutritional supplement component.
COMPENSATION PLAN FOR LICENSEES, ACCOUNT EXECUTIVES AND CUSTOMER SERVICE REPRESENTATIVES
- ----------------------- --------------------- -------------------- --------------------- --------------------
Fit For Business Licensee Independent Account Independent Customer FFBI Employed
Executives* Service Account Executives
Representative* & Customer Service
Representatives
- ----------------------- --------------------- -------------------- --------------------- --------------------
Budgeted to retain 15% Receives 5% Are to receive a Budgeted to receive FFBI will pay an
of the retail value of commission from sales commission up to 35% of the annual salary
any FFBI Program sales. Herbalife for any which will be retail value of any negotiated at the
nutritional product dependent on total FFBI program sale. time of employment.
sold as a component volume of sales of May also receive 5%
of a FFBI program FFBI programs. May commission from
by their account receive 5% Herbalife for any
executive or commission from products sold as part
customer service Herbalife for any of a FFBI program if
representative who nutritional they are a Herbalife
are Herbalife products sold as distributor.
distributors. part of a FFBI
program.
- ----------------------- --------------------- -------------------- --------------------- --------------------
* Distinction between Account Executive and Customer Service
Representative-typically an Account Executive would source the
corporations/retirement villages, make the initial contact, present the FFB
program, and negotiate the contract phase. Once this is signed off the Customer
Service Representative would then "take over" the contract (NB the Account
Executive may choose to maintain this contract himself if it is a small number
of programs) he/she would then contact the participants, review their program
requirements, order & deliver programs. Initiate them onto the program and
provide the 1 on 1 customer support as part of the FFB customer care program.
Illustrative Compensation Tables
The tables below illustrate the compensation that could be received by
independent account executives and independent customer service representatives.
C - 8
Example 1: In the current year the Account Executive has secured one 12 month
contract for a standard FFBI Wellness Program with Company A for 200 employees
at $1600.00 per participant. The total value of the contract is $320,000. The
Account Executive chooses to take on the role of Customer Service Representative
for 50 participants.
- ------------------------ -------------- ---------------- ------------------- ------------------ -------------------
Eligible for Value of Sales Number of program Payment per TOTAL REMUNERATION
Sales Commission participants participant
Commission monitored monitored
- ------------------------ -------------- ---------------- ------------------- ------------------ -------------------
Independent Account
Executive Yes(1) $9600 50 35% x $1600 x 50 $37,600
= $28,000
- ------------------------ -------------- ---------------- ------------------- ------------------ -------------------
Independent Customer
Service Representative N/A Nil 150 35% x $1600 x 150 $84,000
= $84,000
- ------------------------ -------------- ---------------- ------------------- ------------------ -------------------
Example 2: In the current year, the Account Executive has secured a 12 month
contract for a FFB Wellness Program (without the nutritional supplements) with
Company B for 200 employees at $200.00 per participant. The total value of the
contract is $40,000. The Account Executive chooses to take on the role of
Customer Service Representative for 50 participants.
- ------------------------ -------------- ---------------- -------------------- ------------------ -------------------
Eligible for Value of Sales Number of Payment per TOTAL REMUNERATION
Sales Commission participants participant
Commission monitored monitored
- ------------------------ -------------- ---------------- -------------------- ------------------ -------------------
Independent Account
Executive No(2) Nil 50 35% x $200 x 50 $3,500
= $3,500
- ------------------------ -------------- ---------------- -------------------- ------------------ -------------------
Independent Customer
Service Representative N/A Nil 150 35% x $200 x 150 $10,500
= $10,500
- ------------------------ -------------- ---------------- -------------------- ------------------ -------------------
(1) The minimum annual sales threshold of $100,000 has been reached with this
one contract so a Sales Commission applies at the 3% rate. (2) The minimum
annual sales threshold of $100,000 has not been reached in this example so a
Sales Commission does not yet apply.
LIVING WELL PROGRAM
This component of our business plan is targeted through programs directed
primarily, but not exclusively, to individuals over 45 years of age. The
programs consist of a wide range of nutritional supplements, personal care,
Physical activity and weight management programs, that promote inner and outer
wellness, and a healthy lifestyle. The nutritional products currently utilized
within the living well programs are manufactured by Herbalife.
2 (a) Retirement Village Groups
Retirement villages and homes are approached directly by Living Well account
executives who have been trained on how to approach the retirement villages;
what information is required; and how to present it.
The Account Executive then organizes a group presentation to the village at a
suitable time. Once the presentation is complete, each attendee receives a
seniors brochure which includes information on the program and an order form.
Once the order is placed by the customer directly with us or via the Living Well
account executive, the funds are deposited with us. The Living Well account
executive via a customer service representative places the order and initiates
the customer onto the customer care program. The in principle structure of our
pricing policy is as follow:
C - 9
a. 40% is allocated to direct program consumables, such as inoculations,
pedometer, nutritional supplements, participant rewards, participant
information packs and so forth;
b. 10% is allocated to indirect program cost such an allocation for
overheads, quality assurance, management information systems and so
forth;
c. 35% is allocated to compensate the customer service representatives
who implement the program and coach/monitor the individuals on the
program; and
d. 15% is the gross margin that we aim to attain on any program sales and
out of which we pay sales commission.
2 (b) Individual Seniors
The seniors market is driven solely by our nation wide advertising campaign. We
are currently mass marketing the Fit For Business Program in all the states of
Australia. We are using free to air and television Pay programs, with
advertising slots and a sponsorship campaign.
As well as the TV campaign, we are placing ads in the nationally recognized
"Seniors" newspapers and magazines.
We believe this advertising not only generates customer interest, it also helps
create national brand awareness for us.
The Fit For Business national call center receives the customer calls in
response to the advertisements. Their details are taken by the call center and
entered on to the Fit for Business Web Based management information system. Fit
For Business then distributes the leads, via the management information system,
for each State (there are seven states and two territories in Australia)in
Australia to the customer service representatives randomly, dependent on
geographic location. The customer service representative then follows up each
potential new customer as per the customer follow up program.
Once the customer decides to purchase the program, the funds are deposited into
our account. The customer service representative places the order and initiates
the customer onto the customer care program. The in principle structure of our
pricing policy is as follow:
a. 40% is allocated to direct program consumables, such as inoculations,
pedometer, nutritional supplements, participant rewards, participant
information packs and so forth;
b. 10% is allocated to indirect program cost such an allocation for
overheads, quality assurance, management information systems and so
forth;
c. 35% is allocated to compensate the customer service representatives
who implement the program and coach/monitor the individuals on the
program; and
d. 15% is the gross margin that we aim to attain on any program sales and
out of which we pay sales commission.
PRODUCTS AND SERVICES
The Fit For Business Program provides to our customers, and in the case of
corporate customers, to their employees, a unique nutritional component, which
is manufactured and supplied by Herbalife. Herbalife has been selected as our
nutritional supplement provider because we believe its products are safe,
effective, and have a recognized market presence after twenty-four years in the
market place. We also believe that the Herbalife products are effective for our
C - 10
customers because of their continuing commitment to enhance their products
through research and development. Further, the products manufactured by
Herbalife have been selected because we believe they provide a flexible,
balanced nutrition program based on the core formulated meal replacement
product, which can be tailored to meet individual needs.
FFBI does not directly have any relationship with Herbalife Ltd. There is no
contractual relationship between Herbalife Ltd. and FFBI. From November 10-15,
2002, our President and CEO, Mark A. Poulsen, and Senior Vice President of
Sales, Anthony F. Head, were invited to present the Fit For Business program to
the then CEO and Co-President of Herbalife Ltd., Carole Hannah. Our presentation
and subsequent meetings were received with great excitement and enthusiasm by
all nine Senior Vice Presidents of Herbalife Ltd. As there was no conflict with
Herbalife, they encouraged FFBI to proceed with our business plan into the
market place. They were of the view that the FFBI programs could only enhance
the sales of their product. FFBI is in regular contact with Herbalife Australia
to ensure that product supply can be assured to FFBI corporate customers. Mark A
Poulsen the President and Chief Executive Officer of FFBI is a Herbalife
distributor. Currently the licensees that are being chosen by FFBI to distribute
FFBI programs are Herbalife distributors with existing distributor network
currently distributing Herbalife products to the domestic market. Herbalife Ltd.
utilizes a network marketing model to distribute their products to the domestic
market place. Herbalife distributors are independent business people and are not
restricted in pursuing any other business or employment opportunities. Some of
the Account Executives that the licensees will choose to distribute the FFBI
programs may also be existing Herbalife distributors, as will the customers
service representatives.
OUR BUSINESS STRATEGY
Our business strategy is comprised of the following principal elements:
Program Branding and Wellness
Our initiative is to develop the Fit For Business brand and reputation as a
company focused on a complete wellness program and way of life. To bring this
message across, we plan to undertake a significant advertising, public relations
and branding campaign.
Account Executive Expansion, Retention & Training
Employed account executives are recruited as any other corporate employee would
be via newspapers advertisement or via an employment agency. Employed account
executive recruitment is undertaken via selection and interview processes.
Independent account executives are recruited through similar mechanisms by the
licensees. No fees or inducements of any kind are paid by FFBI for the
recruitment of these account executives, other than agreed fees to registered
employment agencies. No employed or independent account executives or customer
service representatives or any employee of FFBI receives any fees, inducements,
or other pecuniary benefits for the recruitment of account executives or any
other employee. There are no revenues that can be attributed to the recruitment
of account executives.
To expand our independent account executive base, we are focusing on
implementing programs to ensure account executive retention. Key areas include:
provision of more qualified leads to account executives; enhancing our customer
service capabilities at our call centers; offering greater business-building
opportunities through our web based management information system; creating
business support initiatives and better training and educational materials for
new account executives to guide them through their first eighteen months; and
offering enriched reward and recognition programs. To further support our
account executives, a cross-functional sales team will help provide account
executives with the best marketing, training, sales and information tools to
ensure their success.
We recognize that in addition to high-quality programs and a proven account
executive compensation plan, the success of our business depends on the training
of our account executives. Extensive training opportunities enable account
executives to not only develop invaluable business-building and leadership
C - 11
skills, but also to become experts in our programs. By placing a top priority on
training, we will build credibility among our account executives and be further
established in the industry.
We sell account executive kits at a worldwide cost of approximately $59.14 per
kit (AUS $80.00), which an individual must purchase in order to become an
account executive. This kit includes:
o FFBI Letterhead (25 copies)
o FFBI Corporate Brochures (6 copies)
o FFBI Nutritional Brochures (Herbalife) 6 copies
o FFBI Corporate Folders (6 copies)
o CD Rom containing all training and proforma documents
o Certificate of Registration of Account Executive or Customer Service
Representative
o Living Well program posters (5 copies)
o Living well pamphlets (100 copies)
o Corporate Employee Implementation Brochures (20 copies)
o Web Based Management system Access codes and instructions
o FFBI email address details
Sales of account executive kits are not subject to account executive allowances
and cash incentives, including commissions and bonuses. Accordingly, we receive
the entire retail sales amount from the sale of account executive kits.
FIT FOR BUSINESS PROGRAM RETURN AND BUY-BACK POLICIES
Our programs include an individual customer employee satisfaction guarantee.
Under this guarantee, within 30 days of purchase, any individual employee who is
not satisfied with any FFBI program for any reason may return it or any unused
portion of any nutritional product to the account executive or customer service
representative for a full refund.
GEOGRAPHIC PROFILES AND SALES TRENDS.
At this time, we have account executives working in Australia and New Zealand.
We hope to enter the following markets in 2007, or as soon funds permit: USA,
Japan and South Korea, followed by Singapore, and Hong Kong. However there is no
guarantee that we will expand into these markets, or that if we do that we will
obtain significant sales.
In any new country market we initially expect to target corporations that are
favorably disposed to purchasing the FFBI programs. However, subsequent
marketing efforts to corporations that are not as favorably disposed to our
products, will require greater efforts and time to finalize sales.
We believe that a significant factor affecting these sales trends will be the
opening of other new country markets within the same geographic region or with
the same or similar language or cultural bases. As such when new countries are
opened, we expect the sales in existing markets to shift to newly opened
markets, resulting in a plateau in sales in the existing markets. This will be
caused by existing account executive in existing markets viewing the prospect of
being able to market to favorably disposed corporations in the new country
markets as being a relatively easier sales proposition than pursuing less
favorably disposed corporations in existing markets.
a) Our international expansion includes targeting companies that are pre
disposed to purchasing our programs. This is done through research on these
companies to find out which ones are indeed already pro - active in
corporate wellness.
b) We will be entering these new markets with a track record and testimonials,
which should increase our speed to market.
C - 12
c) We will be employing qualified experienced corporate sales executives that
are already connected into the corporate arena in these international
markets.
MANAGEMENT INFORMATION, INTERNET AND TELECOMMUNICATION SYSTEMS
In order to facilitate our continued growth and support account executive
activities, we will continually upgrade our web-based management information
system and supporting internet and telecommunication systems. These systems will
include:
(1) local area networks of personal computers, serving our administrative
staff;
(2) an internet website to provide a variety of online services for account
executives, customer service representatives, and potential corporate
customers.
(3) an international web-based integrated customer management systems,
combining online and standalone features, to allow Fit For Business and its
employees, account executives, customer service representatives and
licensees to record, track and report relevant customer information.
1. Calendar & Appointment Functionality
2. Corporate Profile - including goals
3. Individual Employee Profile - Including Goals of going on program
4. Employee Follow-up module
a. Including call scripts to collect & record information on how
employee is performing on program, this includes physical,
behaviors, and feelings, measurements on the 1st, 3rd, 7th, 14th,
28th, and then monthly
5. Product order and reorder - automated
a. Interface to Herbalife Ordering procedures/system
6. Reporting system
a. To Individual employee for encouragement to show how they are
performing against the goals they set
b. To the corporation at the aggregate level
i. No individual information to privacy reasons
7. Licensee, Account Executive and Customer Service Representative
management
a. Ensure all customers are being followed up
b. Orders are being placed in a timely manner
c. Contract renewals are followed up
We will continue to invest in our systems in order to strengthen our operating
platform.
GOVERNMENTAL REGULATION
General. We are affected by extensive laws, governmental regulations,
administrative determinations, court decisions and similar constraints, as
applicable, at the federal, state and local levels, including regulations
pertaining to: (1) program claims and advertising, including direct claims and
advertising by us, as well as claims and advertising by account executives, for
which we may be held responsible; (2) our distribution system; (3) transfer
pricing and similar regulations that affect the level of taxable income and
customs duties; and (4) taxation of account executives, which in some instances
may impose an obligation on us to collect the taxes and maintain appropriate
records.
Programs. While there have been no program sales to date by FFBI in the United
States it was our intention by February 2006 to commence investigating the North
American market place. Our investigations of the north American market have
proven to be fruitful and we have entered into a licensing arrangement in the
USA and it is our intension that we would commence program sales in 2007 in the
United States.
C - 13
In the United States and other markets we intend to operate in, the formulation,
manufacturing, packaging, storing, labeling, promotion, advertising,
distribution of the Herbalife nutritional products will be subject to regulation
by one or more governmental agencies, but these regulations will need to be
complied with by Herbalife - prior to receipt and distribution by FFBI Account
Executives and customer service representatives.
Prior to commencing operations and prior to making or permitting sales of our
programs in some international markets, we may be required to obtain an
approval, license or certification from the country's relevant health agency.
Where a formal approval, license or certification is not required, we may seek a
favorable opinion of counsel regarding our compliance with applicable laws.
Prior to entering a new market in which a formal approval, license or
certificate is required, we will work extensively with local authorities in
order to obtain the requisite approvals. The approval process may require us to
present each program and product ingredient to appropriate regulators and, in
some instances, arrange for testing of products by local technicians for
ingredient analysis. The approvals may be conditioned on reformulation of our
products or may be unavailable with respect to some programs or some
ingredients. Product reformulation or the inability to introduce some programs
or ingredients into a particular market may have an adverse effect on sales. We
must also comply with program advertising, labeling and packaging regulations
that vary from country to country. Our failure to comply with these regulations
can result in our program being removed from sale in a particular market, either
temporarily or permanently.
In the United States, the FTC, which exercises jurisdiction over the advertising
of our programs, has in the past several years instituted enforcement actions
against several dietary supplement companies for false and misleading
advertising of some of their products. These enforcement actions have resulted
in consent decrees and monetary payments by the companies involved. In addition,
the FTC has increased its scrutiny of the use of testimonials, which we also
utilize. We cannot be sure that the FTC will not question our advertising or
other operations. In November 1998, the FTC issued a guide for the dietary
supplement industry, describing how the FTC applies the law that it administers
to advertisements for dietary supplements. It is unclear whether the FTC will
subject advertisements of this kind, including our advertisements, to increased
surveillance to ensure compliance with the principles set forth in the guide.
In some countries, regulations applicable to the activities of our account
executives also may affect our business because in some countries we may be
responsible for our account executives' conduct. In these countries, regulators
may request or require that we take steps to ensure that our account executives
comply with local regulations. The types of regulated conduct may include: (1)
representations concerning our programs; (2) income representations made by us
and/or account executives; (3) public media advertisements, which in foreign
markets may require prior approval by regulators; and (4) sales of programs in
markets in which the products have not been approved, licensed or certified for
sale.
In some markets, it is possible that improper program claims by account
executives could result in our programs being reviewed or re-reviewed by
regulatory authorities and, as a result, being classified or placed into another
category as to which stricter regulations are applicable. For example
inappropriate or improper claims made about nutritional products could see them
being reclassified from being a food to a therapeutic good. Such a
reclassification would require significantly different registration, labeling
and marketing processes being undertaken for such a nutritional product. In
addition, we might be required to make advertising and labeling changes.
Through our manuals, seminars and other training materials and programs, we
attempt to educate our account executives and customer service representatives
as to the scope of permissible and impermissible activities for example
impermissible activities in some markets may include claiming that our programs
can deliver weight reduction or that they will deliver stress relief in the work
place or increase the productivity of the workplace. The account executives and
customer service representatives are trained to ensure that their activities and
claims involving the FFBI programs do not transgress any of the laws of the
market in which they operate.
C - 14
We also investigate allegations of account executive misconduct. However, our
independent account executives generally are independent contractors, and we are
unable to monitor directly all of their activities. As a consequence, we cannot
be sure that our account executives comply with applicable regulations.
Misconduct by account executives could have a material adverse effect on us in a
particular market or in general. For example if the account executive was
located in Australia and were to make a proven misleading or deceptive claim,
the Australian Trade Practices Act 1974 (Cth) might open FFBI to a claim for
damages consisting of:
o compensatory damages for any injury;
o damages for any expenses incurred to treat an injury or repair damage
to property, including medical expenses;
o compensation for any loss of income because of injury or damage;
o an amount in respect of any costs which will be incurred in the future
to treat an injury or repair damage to property; and
o compensation for any loss of life expectancy or ongoing impairment of
earning capacity.
We are unable to predict the nature of any future laws, regulations,
interpretations or applications, nor can we predict what effect additional
governmental regulations or administrative orders, when and if promulgated,
would have on our business in the future. They could, however, require: (1) the
reformulation of some products not able to be reformulated; (2) imposition of
additional record keeping requirements; (3) expanded documentation of the
properties of some programs; (4) expanded or different labeling; and (5)
additional scientific substantiation regarding product ingredients, safety or
usefulness.
Any or all of these requirements could have a material adverse effect on our
results of operations and financial condition.
Sources of liability for FFBI will depend on the nature of the activity been
undertaken and the jurisdiction that we are operating in. For example in
Australia actions in respect of defective services or products are likely to be
based in one or more of the following three areas of law:
o the Australian Federal Trade Practices Act and comparable legislation
in the Australian State and Territory jurisdictions; and
o the common law of contract; and
o the common law of negligence.
Australian Federal Trade Practices Act:
The Trade Practices Act 1974 (Cth) in broad terms, the objectives of the Trade
Practices Act and similar State and Territory legislation are to promote
competition and fair trading and provide for consumer protection. The Trade
Practices Act covers anti-competitive and unfair market practices, company
mergers or acquisitions, product safety and product liability. The section of
the Act most likely to affect FFBI is Section 52 which prohibits corporations
from engaging in misleading or deceptive conduct in trade or commerce. It
prohibits certain false representations, for example, that services or goods are
of a particular standard, quality, value, grade, composition, style or model or
have a particular history or a particular previous use. Labeling and advertising
claims on products are susceptible to challenge under these provisions and must
be capable of substantiation. In assessing whether claims are misleading, courts
will look at whether the express and implied representations are correct and
whether the overall impression is accurate. The Fair Trading Acts of the
Australian States and Territories contain similar provisions. This extremely
wide-ranging provision has established a norm of conduct which, if breached, can
give rise to a variety of remedies for a person who suffers damage.
The common law of contract:
Where a service or product is supplied by a manufacturer to a supplier or by a
supplier to a consumer there will be a contract between the two parties.
Australian courts will often be prepared to find that those contracts include
C - 15
implied terms about the quality of the service or product. If those terms are
breached then the party which received the service or product will have an
action for breach of contract.
The common law of negligence:
The common law tort of negligence remains an important source of legal rights
and responsibilities for service or product liability actions under Australian
law. The most significant of the common law remedies against service provider,
manufacturers and distributors of defective goods is the law of negligence.
Under the law of negligence a plaintiff may recover damages from a defendant if:
o the defendant owes the plaintiff a duty of care at law o the defendant
breaches that duty by failing to meet the standard of care required by the law;
and o the plaintiff suffers damage because of the breach of duty. In Australia
it is well settled that a duty of care is owed by the service provider,
manufacturer and supplier of goods to the purchaser or user. The common law
provides that the service provider ought reasonably have the user in
contemplation when considering the issues of design, delivery, safety and
distribution.
Damages:
There are a number of technical differences between the calculation of damages
in contract and negligence and under the TPA. However, in broad terms, a
successful plaintiff in a service or product liability action will be able to
recover:
o compensatory damages for any injury
o damages for any expenses incurred to treat an injury or repair damage
to property, including medical expenses
o compensation for any loss of income because of injury or damage
o an amount in respect of any costs which will be incurred in the future
to treat an injury or repair damage to property; and
o compensation for any loss of life expectancy or ongoing impairment of
earning capacity.
Food:
Another area of Law in Australia that can affect the FFBI are the regulation
affecting Food as the many nutritional products are registered as a food and not
a therapeutic good. The Australian States and Territories have food legislation
to regulate the composition, packaging, advertising and labeling of food and the
hygiene of food premises and equipment.
The Australia New Zealand Food Standards Code is adopted by all the Australian
States and Territories. The Code prescribes labeling requirements for all food.
Certain statements are prohibited and others are regulated and may only be used
in specific circumstances. For example, health and nutrition claims and claims
that a food is a food for a specific dietary use are strictly regulated. There
is also a general prohibition on the addition of substances to food such as
additives, vitamins and minerals, and certain botanicals, unless specifically
permitted for a particular food. In addition to the general requirements, the
Code sets out prescribed standards for particular foods. Some foods must undergo
rigorous safety assessments before they can be made available for sale, for
example, novel and genetically modified food.
Therapeutic goods:
Therapeutic goods must be registered and can only be manufactured by a licensed
manufacturer, and must also be included on the Australian Register of
Therapeutic Goods as either listed or registered goods. There are standards for
the manufacture, composition, handling, labeling and advertising of such goods.
Therapeutic goods may be assessed for safety and efficacy, depending on the
level of risk and the claims made on the product. Distributors of therapeutic
goods must hold the relevant level of evidence to support claims made on
packaging and in advertising. The legislation also provides a procedure for
pre-publication clearance for advertisements of certain therapeutic goods. There
are also standards for the labeling of these products.
C - 16
Trade measurement:
Australian State and Territory trade measurement legislation also imposes
certain labeling requirements for packaged foods and other packaged consumer
products. The requirements of the legislation apply to all goods packed for sale
in Australia and goods fully imported for sale in Australia, unless specifically
exempted from the marking requirements. The legislation also includes offences
in relation to short measure of packaged goods.
Compliance Procedures. We have instituted formal regulatory compliance measures
by developing a system to identify specific complaints against account
executives and to remedy any violations by account executives through
appropriate sanctions, including warnings, suspensions and, when necessary,
terminations. In our manuals, seminars and other training programs and
materials, we emphasize that account executives are prohibited from making
therapeutic claims.
In order to comply with regulations that apply to both us and our account
executives, we will conduct research into the applicable regulatory framework
prior to entering a new market in order to identify all necessary licenses and
approvals and applicable limitations on our operations in that market.
Typically, we would conduct this research with the assistance of local legal
counsel and other representatives. We also research laws applicable to account
executive operations and revise or alter our account executive manuals and other
training materials and programs to provide account executives with guidelines
for operating a business, marketing and distributing our programs and similar
matters, as required by applicable regulations in each market. We are unable to
monitor our supervisors and account executives effectively to ensure that they
refrain from distributing our programs in countries where we have not commenced
operations.
It is part of our business to anticipate and respond to new and changing
regulations and to make corresponding changes in our operations. Although we
will devote resources to maintaining our compliance with regulatory constraints
in each market, we cannot be sure that (1) we would be found to be in full
compliance with applicable regulations in all markets at any given time, or (2)
the regulatory authorities in one or more markets will not assert, either
retroactively or prospectively or both, that our operations are not in full
compliance. Depending upon the severity of regulatory changes in a particular
market and the changes in our operations that would be necessitated to maintain
compliance, these changes could result in our experiencing a material reduction
in sales in the market or determining to exit the market altogether. We cannot
be sure that this transition would not have an adverse effect on our business
and results of operations either in the short or long term.
COMPETITION
We are subject to significant competition for the recruitment of account
executives from network marketing organizations, including those that market
weight management programs, nutritional supplements, and personal care programs,
as well as other types of products. Some of our competitors are substantially
larger than we are, and have available considerably greater financial resources
than we have. HCG Healthcorp Group, Healthwise Australia, and Corporate
Relaxation and Wellness are direct competitors in Australia. Our ability to
remain competitive depends, in significant part, on our success in recruiting
and retaining account executives through an attractive compensation plan and
other incentives. However, we cannot be sure that our programs for recruitment
and retention of account executives will be successful.
The business of marketing weight management programs, nutritional supplements,
and personal care programs also is highly competitive. This market segment
includes numerous manufacturers including: Omega Trend, USANA, Magnatec Inc.,
and other marketers, retailers and physicians that actively compete for the
business of consumers. The market is highly sensitive to the introduction of new
programs or weight management plans, including various prescription drugs that
may rapidly capture a significant share of the market.
C - 17
SALES
Sales represent the gross sales amounts reflected on our invoices by our account
executives. Given our pricing policy is as follow:
a. 40% is allocated to direct program consumables, such as inoculations,
pedometer, nutritional supplements, participant rewards, participant
information packs and so forth;
b. 10% is allocated to indirect program cost such an allocation for
overheads, quality assurance, management information systems and so
forth;
c. 35% is allocated to compensate the customer service representatives
who implement the program and coach/monitor the individuals on the
program; and
d. 15% is the gross margin that we aim to attain on any program sales and
out of which we pay sales commission.
We receive the amount reported as "retail sales," and we monitor the actual
retail prices charged for our programs. "Net sales" represent the actual
purchase prices paid to us by our customers , less any costs associated with
items (a) and (b) above. We receive our sales price in cash, check, direct debit
or through credit card payments upon execution of contract with corporations.
Our use of "retail sales" in reporting financial and operating data reflects the
fundamental role of "retail sales" in our accounting systems, internal controls
and operations. The "retail sales" price is used by us to calculate, among other
things, bonuses earned by licensees and sales commissions earned by account
executives. We rely upon "retail sales" data reflected in daily sales reports to
monitor results of operations in each of our markets.
CUSTOMERS
For the period ended June 30, 2007, we had 2 customers who had generated
approximately $9,622 of revenue.
EMPLOYEES
As of November 7, 2007, we had in total 3 employees, who are also our only
Directors and Officers, Mark Poulsen, Anthony Head and Sandra Wendt. Due to our
diminished financial capacity, out of the 3 employees only Mark Poulsen
continues in a full-time capacity while the other two are part-time. We have
never had a work stoppage, and no employees are represented under collective
bargaining agreements. We consider our relations with our employees to be good.
We have entered into employment contracts with our employees.
INDEPENDENT ACCOUNT EXECUTIVES AND CUSTOMER SERVICE REPRESENTATIVES
As of October 30, 2007 we have 15 registered independent account executives and
customer services representatives. The independent account executives and
customer service representatives are not our agents and have agreed to abide by
our code of conduct and quality assured procedures.
The FFBI Code of Conduct is intended to regulate the conduct of independent and
employed account executives and customers service representatives. FFBI is
responsible for administering the Code.
To ensure compliance with the Code of Conduct, FFBI may impose an administrative
sanction if a breach of the Code is found to have occurred. An administrative
sanction may range from a caution through to suspension or the ultimate sanction
of dismissal if an employee or cancellation of their contract as an independent
contractor.
C - 18
The Code of Conduct is not intended to displace any duty or liability that an
account executive or a customer service representative may have under the law of
the country in which they are doing business.
The objectives of the Code of Conduct are:
(a) to establish a proper standard for the conduct of business as an
account executive or customer service representative;
(b) to set out the minimum attributes and abilities that a person must to
perform as a account executives and customer service representatives under the
Code of Conduct, including:
(i) being of good character;
(ii) knowing the FFBI programs and products, in sufficient depth to
offer sound and comprehensive advice to a customer;
(iii) completing continuing professional development as required;
(iv) being able to perform diligently and honestly;
(v) being able and willing to deal fairly with customers;
(vi) having enough knowledge of business procedure to conduct
business as an account executive or customer service
representative;
(vii) properly managing and maintaining customer, employee and
retiree records;
(c) to require account executives and customer service representatives to
be accountable to the customer.
The Code of Conduct does not list exhaustively the acts and omissions that may
fall short of what is expected of a competent and responsible account executives
and customer service representatives. However, the Code of Conduct imposes on an
account executives and customer service representatives the overriding duty to
act at all times in the lawful interests of the customer. Any conduct falling
short of that requirement may make the account executives and customer service
representatives liable to dismissal if an employee or cancellation of their
contract as an independent contractor.
In achieving its mission FFBI looks to provide high quality programs and
products to our customers. The quality procedures implemented by FFBI strives to
ensure FFBI meets and exceed customer' needs and expectations through fostering
a culture of continuous improvement, both at the sales and managerial level, and
by cultivating cooperation and mutual respect among employees, independent
contractors, customers, and suppliers.
FFBI, has developed a quality assurance process that includes systems, methods,
and work instructions in accordance with our values and to achieve the following
objectives:
o Providing effective programs by working continuously to meet the
needs, desires, and satisfaction of all customers;
o Ensuring that the quality, safety, efficacy, standards are placed,
approved, and adhered to;
o Ensuring that all policies, operational procedures, and work
instructions are constantly revised and evaluated;
o Verifying that adequate steps and procedures are placed and
implemented to ensure an ongoing process of improvement through the
participation and commitment of all employees and independent
contractors at all levels;
o Supporting the company's quality assurance procedure, by introducing
and utilizing the latest technology, innovations and research, to make
our programs of the highest quality; and
o Developing programs for customers through following
cost-effectiveness, well-planning, and systematic methods that enable
measuring, evaluating, and achieving program attributes in compliance
with the customer requirements.
C - 19
FFBI is strongly committed to the FFBI quality procedures and processes and as
proven through the implementation of ISO 9001:2000.
LICENSEE AND THE AUSTRALIAN AND NEW ZEALAND LICENSE AGREEMENT
The licensee assists FFBI enter a new market place by making available their:
o distribution chain;
o experience in the market place;
o existing government and business relationships; and
o their profile within the wellness industry of the market that FFBI is
entering.
The licensee main motivator for becoming part of the FFBI business model is to
gain the increased retail sales volumes of products and services from
corporations and retirement villages, and as such open their existing
distribution business to the corporate market segment in addition to continuing
to target individual retail customers. The licensees by increasing their sales
volumes would increase their revenues and thus their commissions and or overall
profitability. For example where the licensee is an existing Herbalife
nutritional products distributor, such as L.R. Global Marketing Pty Ltd, they
have provided:
o an existing group of Herbalife product distributors, who will
primarily be supplying these products to individual retail customers.
A small number of these distributors have met the selection criteria
to become FFBI Account Executives or Customer Service Representatives;
o an intimate knowledge and an existing profile of doing business in the
Australian and New Zealand market places in which they operate and has
been demonstrated by their business success in these market place;
o an existing distribution and supply chain already set up as far as the
Herbalife nutritional products are concerned; and
o existing corporate and government relationship that they are starting
to leverage to get the FFBI programs accepted into the workplaces;
In the instance that the licensee is a Herbalife distributor they take up an
FFBI license because they see an opportunity to increase their retail sales by
using the FFBI model to market to a single corporation that may have a hundred
employees rather than to individual retail customers. As such getting an
individual corporate customer with a hundred employees can be a more cost and
time effective mechanism of generating greater sales of the Herbalife products
as opposed to gaining a hundred individual retail customers. Those licensees
that are Herbalife distributors are incentivized to join FFBI due to the 5%
commission they will receive through all sales of Herbalife products by their
Account executives and Customer Service representatives, as well as from
receiving 1% of the full value of all contracts signed by their account
executives from FFBI. FFBI is willing to sacrifice these opportunities in
exchange for revenues generated by the licensing fee and the knowledge that they
will be obtaining the service of an established sales force. They will also be
in a position to benefit from the branding expenses undertaken by FFBI in the
form of advertisements, as well as from the television programs FFBI intends to
launch pertaining to its products and services.
The value of the license grant of $500,000 is determined on the basis of FFBI
delivering the following services to the licensee:
[ ] Initial set up fee $50,000
o Assistance with the short listing, interview and selection of up to 10
account executives and 10 customer service representatives to join
FFB;
o Set up and provision of all office automation and IT systems;
[ ] Initial set up fee $100,000 (this may vary depending on the number of
locations)
C - 20
o Provision of orientation training for the licensee their 10 Account
Executives and 10 customer service representatives including on the
rules of conduct, policies, all Information Technology systems,
corporate process and quality assurance processes;
o A series of hands on workshops on every element of the FFBI programs
on offer;
o A series of workshop for licensee and Account Executives on corporate
sales process of the FFBI program;
o A series of workshop on developing existing corporate or relationships
and leads of the account executives;
o Assisting licensee and their account executives undertake and
retirement village presentations;
o Generating corporate sales leads for the account executives;
[ ] Ongoing annual fee for 10 years of $35,000
o Developing and releasing updates for all corporate policies, systems
and processes;
o Ongoing training provision;
o Generating corporate sales leads for the account executives; and
o Hosting annual conference.
In August 2004, Subsidiary entered into a non-assignable license agreement with
L.R. Global Marketing Pty. Ltd. ("L.R. Global"). The principals of L.R. Global
are Laraine Richardson and Dianne Waghorne. The principals of L.R. Global are
not related to FFBI, or to its officers and directors except as described
herein. Pursuant to the license agreement, L.R. Global has the right, for a
period of ten (10) years, to the use of our logo, our web based management
information system, marketing and promotional literature, processes, systems,
intellectual property and attend FFBI events for the purpose of generating new
customers for the Company and for training account executives and customer
service representatives.
Under the terms of the license agreement, L.R. Global is obligated to pay
$500,000 for the grant of the license. L.R. Global will as an independent
Herbalife distributor receives a five (5%) percent commission directly from
Herbalife on the sales of the Herbalife products generated by L.R. Global as
part of any FFBI program sales. The 5% commission is a standard commission paid
by Herbalife to independent distributors such as L.R. Global. FFBI has no
influence, or agreement, as to what commissions L.R. Global Pty Ltd will receive
from Herbalife. This is a matter entirely determined independently through L.R.
Global Pty Ltd independent distributor agreement with Herbalife. In connection
with the grant of the license agreement, Mark A. Poulsen transferred 500,000
shares of our common stock to L.R. Global. The value of the shares transferred
by Mark A. Poulsen was estimated to be $250,000, or $.50 per share. Such value
was determined based on the value per share calculated and assigned by the board
of directors of the company to certain promissory notes assumed from subsidiary
subsequent to the execution of the exchange agreement which were converted into
shares of common stock of FFBI in September 2004.
Through June 30, 2005, L.R. Global has paid the sum of $124,750. L.R. Global was
required to pay the balance of the amount owing by December 31, 2004. L.R.
Global was in default of the terms of the License Agreement balance owing to us.
In June 2005, L.R. Global paid us USD$7,000 and executed an amended license
agreement. The amended license agreement provides for final payment of the
balance of the license fee within 60 days after our stock is quoted on the OTC
Bulletin Board. In addition, the principals of L.R. Global, Laraine Richardson
and Dianne Waghorne, executed personal guarantees for the balance of the
outstanding license fee. As of October 30, 2007, L.R. Global was yet to make the
remaining payment. L.R. Global's legal representatives are in discussions with
the company attempting to negotiate a further payment arrangement. While the
Company is negotiating in good faith the Company has reserved its rights to
legally enforce its entitlements under its licensing agreements and the
Directors and Personal Guarantees.
In September 2006, the Company entered into a non-assignable license agreement
with Mr Bruce Gilling of Florida ("Gilling"). Mr Gilling is an existing
optionholder of FFBI but is not otherwise related to FFBI, or to its officers
and directors except as described herein. Pursuant to the license agreement,
Gilling has the right, for a period of ten (10) years, to the use of our logo,
C - 21
our web based management information system, marketing and promotional
literature, processes, systems, intellectual property and attend FFBI events for
the purpose of generating new customers for the Company and for training account
executives and customer service representatives.
Under the terms of the license agreement, Gilling is obligated to pay $500,000
for the grant of the license. Gilling will as an independent Herbalife
distributor receive a five (5%) percent commission directly from Herbalife on
the sales of the Herbalife products generated by Gilling as part of any FFBI
program sales. The 5% commission is a standard commission paid by Herbalife to
independent distributors such as Gilling. FFBI has no influence, or agreement,
as to what commissions Gilling will receive from Herbalife. This is a matter
entirely determined independently through Gilling independent distributor
agreement with Herbalife.
The License fee payment will be made by way of initial deposit of $20,000 in
October 2006, a further implementation Fee of $80,000 in January 2007 and then
annually as invoiced $100,000 per year for four years. Pursuant to the licensing
agreement Gilling will be entitled to 100,000 options convertible to
unregistered shares at a 40% discount to market following the payment of
implementation Fee in January 2007. Gilling is also to receive 100,000 options
convertible to unregistered shares at a 40% discount to market as on each
occasion that he invoices $1,000,000 in retail sales. The Company is to have the
first right of refusal on the sale of the resultant shares by Gilling, at the
then prevailing market price or less.
FIT FOR BUSINESS IS ISO 9001:2000 CERTIFIED
The International Organization for Standardization (ISO) is a worldwide
federation of national standards bodies from some 100 countries, one from each
country. ISO's work results in international agreements which are published
asInternational Standards. ISO 9001:2000 provides an internationally recognized
formula for running any operation where quality assurance in the provision of
the service is a requirement. The requirements of the ISO 9001:2000 standard are
organized into the following five sections:
o Quality Management System
o Management Responsibility
o Resource Management
o Product Realization
o Measurement, analysis and improvement
The Company's quality management system puts in place a system whereby quality
has become part of our operation and will continually improve our services and
products.
The implementation of our quality management system was certified to the
Australian/International Standard AS/NZS ISO 9001:2000, and this is the highest
certification that can be awarded for a management system and will satisfy all
government requirements in Australia and internationally.
Whatmakes up our quality management system?
o Quality Policy - The Management's commitment to quality
o Quality Manual - our overall policy and interpretation of the
standard
o Detailed Work Instructions - documented procedures on how to
specific task and training
o Job Descriptions - specific tasking to staff members ensuring and
accountability
o Company Forms - the approved form used within the company
o A procedure for recording and fixing problems
o A regular internal check of the system and processes
o A regular check by independent auditors of the system and
processes
C - 22
PATENTS OR TRADEMARKS OR LICENCES
FFBI's "Fit For Business" logo was trademarked and registered in Australia on
Oct 15, 1999 for a period of ten (10) years.
FFBI does not have any other trademarks, patents or licenses nor is it currently
seeking any further intellectual property rights.
DESCRIPTION OF PROPERTY
- -----------------------
The Company does not own any real property. We presently have a rent and common
area cost sharing agreement with Mark Poulsen & Associates Pty. Ltd.
("Associates") which is a month-to-month arrangement. Mark A. Poulsen is one of
our officers and directors. The premises are located at 10/27 Mayneview Street,
Milton, Australia. We pay approximately 90% of the costs associated with
Associates agreement. This is approximately $1,383 per month. We also have an
agreement with Incorp Services, Inc., located at 3155 E. Patrick Lane, Suite 1,
Las Vegas, Nevada. This agreement provides us with a "virtual office program."
The "virtual office program" provides us with registered agent services in
Nevada (since we are a Nevada corporation) and use of certain facilities such as
conference rooms and receipt of mail. We do not operate our business from this
location. We will pay approximately $1,495 per year for the "virtual office
program."
LEGAL PROCEEDINGS
- -----------------
Our subsidiary, Fit For Business (Australia) Pty. Ltd., is plaintiff in legal
proceedings against one of our licensees, L.R. Global Marketing Pty. Ltd, for
outstanding licensing fees owed in the amount of $443,263.
Other than this claim, neither our parent company nor our subsidiary, or any of
their properties, is a party to any pending legal proceeding. We are not aware
of any contemplated proceeding by a governmental authority. Also, we do not
believe that any director, officer, or affiliate, any owner of record or
beneficially of more than five per cent (5%) of the outstanding common stock, or
security holder, is a party to any proceeding in which he or she is a part
adverse to us or has a material interest adverse to us.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
- -------------------------------------------------------------------------
DISCLOSURE
- ----------
There have been no events required to be reported by this Item.
C - 23
Fit For Business International, Inc.
Consolidated Financial Statements
June 30, 2007 and 2006
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Fit For Business International, Inc.
Milton, Australia
We have audited the accompanying balance sheet of Fit For Business
International, Inc. (a development stage company) as of June 30, 2007, and the
related statements of operations and comprehensive loss, cash flows and
stockholders' equity, for the two years then ended and for the period from
inception (December 14, 1998) through June 30, 2007. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fit For Business International,
Inc. (a development stage company) as of June 30, 2007 and the results of its
operations and its cash flows for the two years then ended and for the period
from inception (December 14, 1998) through June 30, 2007 in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 2, the
Company has incurred recurring operating losses and has an accumulated deficit.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 2. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
Mendoza Berger & Company, LLP
/s/ Mendoza Berger & Company, LLP
Irvine, California
October 12, 2007
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
ASSETS
------
June 30,
2007
-----------
Current assets
Cash and cash equivalents $ 1,140
Accounts receivable, net of allowance for doubtful accounts --
Other receivables 2,500
Inventory 1,484
-----------
Total current assets 5,124
Property and equipment
Office and computer equipment 2,290
Furniture and fixtures 204
Web site development costs 8,828
Developed software applications 44,635
-----------
55,957
Less accumulated depreciation and amortization (26,363)
-----------
Net property and equipment 29,594
Intangible assets subject to amortization
Patent, less accumulated amortization of $20,864 979,136
Trademark, less accumulated amortization of $223 31
-----------
979,167
Other assets
Deferred offering costs 194,902
-----------
Total assets $ 1,208,787
===========
The accompanying notes are an integral part of
these consolidated financial statements.
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
June 30,
2007
-----------
Current liabilities
Accounts payable $ 79,086
Accrued compensation and related expenses 285,869
Other accrued liabilities 129,797
Loans from related parties 140,375
Convertible promissory note 1,018,986
-----------
Total current liabilities 1,654,113
Deferred revenue - license fees 124,750
Promissory notes and accrued interest subject to rescission
Promissory notes - Fort Street Equity, Inc., 5% per annum, principal
and accrued interest due December 31, 2009, unsecured 182,139
Stockholders' (deficit)
Preferred stock, par value $0.001 per share; 10,000,000 shares
authorized; 1,000,000 shares issued and outstanding 1,000
Common stock, par value $0.001 per share; 100,000,000 shares
authorized; 24,346,000 shares issued and outstanding 24,346
Additional paid-in capital 981,467
Deficit accumulated during the development stage (1,576,054)
Accumulated other comprehensive loss (182,974)
-----------
Total stockholders' (deficit) (752,215)
-----------
Total liabilities and stockholders' (deficit) $ 1,208,787
===========
The accompanying notes are an integral part of
these consolidated financial statements.
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Period
December 14,
Years Ended June 30, 1998
---------------------------- (Inception)
(As Restated) to June 30,
2007 2006 2007
------------ ------------ --------------
Revenues $ 12,079 $ 9,622 $ 41,047
Cost of sales 3,323 6,381 17,727
------------ ------------ --------------
Gross profit 8,756 3,241 23,320
------------ ------------ --------------
Selling, general and administrative expenses
Wages, compensation and related taxes 472,438 1,120,246 1,921,864
Legal, accounting and consulting fees 58,469 101,577 396,025
Realized foreign currency exchange (gains) losses (77,891) 8,079 (63,391)
Other selling, general and administrative 107,133 68,493 533,946
------------ ------------ --------------
Total selling, general and administrative
expenses 560,149 1,298,395 2,788,444
------------ ------------ --------------
Loss from operations (551,393) (1,295,154) (2,765,124)
------------ ------------ --------------
Other income (expense)
Gain on cancellation of officer's accrued compensation 1,236,279 -- 1,236,279
Interest income 531 -- 531
Interest expense (26,861) (7,313) (47,740)
------------ ------------ --------------
Total other income (expense) 1,209,949 (7,313) 1,189,070
------------ ------------ --------------
Income (loss) before provison for income taxes 658,556 (1,302,467) (1,576,054)
Provision for income taxes -- -- --
------------ ------------ --------------
Net income (loss) 658,556 (1,302,467) (1,576,054)
Other comprehensive income (loss)
Foreign currency translation (192,090) 47,347 (182,974)
------------ ------------ --------------
Total comprehensive income (loss) 466,466 (1,255,120) (1,759,028)
============ ============ ==============
Net income (loss) per common share -
basic and diluted 0.03 (0.06) (0.17)
============ ============ ==============
Weighted average number of common
shares outstanding 23,134,699 20,888,123 9,009,468
============ ============ ==============
The accompanying notes are an integral part of
these consolidated financial statements.
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM THE COMPANY'S INCEPTION (DECEMBER 14, 1998) THROUGH JUNE 30, 2007
Deficit Accumulated
Common Accumulated Other
Preferred Stock Common Stock Additional Stock During the Comprehensive
------------------ -------------------- Paid-in Subscription Development Income
Description Shares Amount Shares Amount Capital Receivable Stage (Loss) Totals
- --------------------- ---------- ------ ----------- ------- ---------- ----------- ----------- ----------- -----------
Balance -
December 14, 1998 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Net (loss) for the
period -- -- -- -- -- -- (16,960) -- (16,960)
Foreign currency
translation -- -- -- -- -- -- -- (534) (534)
---------- ------ ----------- ------- ---------- ----------- ----------- ----------- -----------
Balance -
June 30, 1999 -- -- -- -- -- -- (16,960) (534) (17,494)
Net (loss) for the
period -- -- -- -- -- -- (138,322) -- (138,322)
Foreign currency
translation -- -- -- -- -- -- -- 7,472 7,472
---------- ------ ----------- ------- ---------- ----------- ----------- ----------- -----------
Balance -
June 30, 2000 -- -- -- -- -- -- (155,282) 6,938 (148,344)
Issuance of common
stock for services -- -- 5,000,000 5,000 -- -- (5,000) -- --
Net (loss) for the
period -- -- -- -- -- -- (53,529) -- (53,529)
Foreign currency
translation -- -- -- -- -- -- -- 25,453 25,453
---------- ------ ----------- ------- ---------- ----------- ----------- ----------- -----------
Balance -
June 30, 2001 -- -- 5,000,000 5,000 -- -- (213,811) 32,391 (176,420)
Net (loss) for the
period -- -- -- -- -- -- (32,584) -- (32,584)
Foreign currency
translation -- -- -- -- -- -- -- (20,804) (20,804)
---------- ------ ----------- ------- ---------- ----------- ----------- ----------- -----------
Balance -
June 30, 2002 -- -- 5,000,000 5,000 -- -- (246,395) 11,587 (229,808)
Net (loss) for the
period -- -- -- -- -- -- (24,176) -- (24,176)
Foreign currency
translation -- -- -- -- -- -- -- (45,554) (45,554)
---------- ------ ----------- ------- ---------- ----------- ----------- ----------- -----------
Balance -
June 30, 2003 -- -- 5,000,000 5,000 -- -- (270,571) (33,967) (299,538)
Net (loss) for the
period -- -- -- -- -- -- (130,264) -- (130,264)
Foreign currency
translation -- -- -- -- -- -- -- (6,119) (6,119)
---------- ------ ----------- ------- ---------- ----------- ----------- ----------- -----------
Balance -
June 30, 2004 -- -- 5,000,000 5,000 -- -- (400,835) (40,086) (435,921)
The accompanying notes are an integral part of
these consolidated financial statements.
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM THE COMPANY'S INCEPTION (DECEMBER 14, 1998) THROUGH JUNE 30, 2007
Deficit Accumulated
Common Accumulated Other
Preferred Stock Common Stock Additional Stock During the Comprehensive
------------------ -------------------- Paid-in Subscription Development Income
Description Shares Amount Shares Amount Capital Receivable Stage (Loss) Totals
- --------------------- ---------- ------ ----------- ------- ---------- ----------- ----------- ----------- -----------
Stock options
issued for cash -- -- -- -- 10,000 -- -- -- 10,000
Preferred and
common stock issued
for deemed reverse
merger with FFB
Australia 1,000,000 1,000 15,000,000 15,000 (30,950) -- 5,000 -- (9,950)
Employee compensation
paid by shares
issued by company
officer/director -- -- -- -- 220,000 -- -- -- 220,000
Loan from former
director paid by
shares issued by
company
officer/director -- -- -- -- 7,500 -- -- -- 7,500
Consulting services
paid by shares
issued by company
officer/director -- -- -- -- 132,500 -- -- -- 132,500
Promissory notes
converted to
common stock 870,000 870 377,932 -- -- -- 378,802
Net (loss) for the
period -- -- -- -- -- -- (536,308) -- (536,308)
Foreign currency
translation -- -- -- -- -- -- -- 1,855 1,855
---------- ------ ----------- ------- ---------- ----------- ----------- ----------- -----------
Balance -
June 30, 2005 1,000,000 1,000 20,870,000 20,870 716,982 -- (932,143) (38,231) (231,522)
Compensation from
stock options
issued by principal
stockholder -- -- -- -- 54,751 -- -- -- 54,751
Common stock issued
for services -- -- 1,000 1 499 -- -- -- 500
Compensation from
stock options
issued by principal
stockholder -- -- -- -- 6,710 -- -- -- 6,710
Common stock issued
for cash -- -- 100,000 100 49,900 (12,000) -- -- 38,000
Net (loss) for the
period (as restated) -- -- -- -- -- -- (1,302,467) -- (1,302,467)
Foreign currency
translation -- -- -- -- -- -- -- 47,347 47,347
---------- ------ ----------- ------- ---------- ----------- ----------- ----------- -----------
Balance -
June 30, 2006
(as restated) 1,000,000 1,000 20,971,000 20,971 828,842 (12,000) (2,234,610) 9,116 (1,386,681)
The accompanying notes are an integral part of
these consolidated financial statements.
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM THE COMPANY'S INCEPTION (DECEMBER 14, 1998) THROUGH JUNE 30, 2007
Deficit Accumulated
Common Accumulated Other
Preferred Stock Common Stock Additional Stock During the Comprehensive
------------------ -------------------- Paid-in Subscription Development Income
Description Shares Amount Shares Amount Capital Receivable Stage (Loss) Totals
- --------------------- ---------- ------ ----------- ------- ---------- ----------- ----------- ----------- -----------
Common stock issued
for cash -- -- 3,375,000 3,375 148,625 -- -- -- 152,000
Compensation from
extending terms of
stock options -- -- -- -- 4,000 -- -- -- 4,000
Net income for the
period -- -- -- -- -- 12,000 658,556 -- 670,556
Foreign currency
translation -- -- -- -- -- -- -- (192,090) (192,090)
---------- ------ ----------- ------- ---------- ----------- ----------- ----------- -----------
Balance -
June 30, 2007 1,000,000 $1,000 24,346,000 $24,346 $ 981,467 $ -- $(1,576,054) $ (182,974) $ (752,215)
========== ====== =========== ======= ========== =========== =========== =========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the period
December 14,
Years Ended June 30, 1998
-------------------------- (Inception)
(As Restated) to June 30,
2007 2006 2007
----------- ----------- -----------
Cash flows from operating activities
Net income (loss) $ 658,556 $(1,302,467) $(1,576,054)
Adjustments to reconcile net income (loss) to net cash used in
operating activities
Gain on cancellation of officer's accrued compensation (1,236,279) -- (1,236,279)
Depreciation and amortization 28,826 8,668 42,861
Write-off of deferred offering costs -- -- 77,000
Employee compensation paid by issued options and shares 4,000 61,461 285,461
Consulting and other services paid by issued shares -- 500 133,000
Interest on promissory notes converted to paid-in capital -- -- 13,801
Changes in operating assets and liabilities
Accounts receivable -- -- 124,750
Other receivables (2,500) -- (2,500)
Inventory -- 1,925 (1,277)
Accounts payable (13,544) 28,599 67,097
Accrued compensation and other accrued liabilities 423,641 1,008,327 1,521,410
----------- ----------- -----------
Net cash used in operating activities (137,300) (192,987) (550,730)
----------- ----------- -----------
Cash flows from investing activities
Purchases of property and equipment -- (1,102) (48,131)
Payment for Australian trademark -- -- (219)
----------- ----------- -----------
Net cash used in investing activities -- (1,102) (48,350)
----------- ----------- -----------
Cash flows from financing activities
Bank overdraft (2,471) 863 --
Proceeds from loans - related parties 38,844 54,814 437,982
Repayments on loans - related parties (36,062) (22,626) (331,865)
Proceeds from loan - former director -- -- 7,500
Proceeds from issuance of convertible notes -- -- 365,000
Proceeds from issuance of promissory notes -- 122,305 156,355
Proceeds from issuance of common stock 152,000 38,000 190,050
Payments of deferred offering costs (26,583) (50,199) (246,535)
----------- ----------- -----------
Net cash provided by financing activities 125,728 143,157 578,487
----------- ----------- -----------
Effect of exchange rate changes on cash and cash equivalents 12,617 47,347 21,733
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 1,045 (3,585) 1,140
Cash and cash equivalents, beginning of period 95 3,680 --
----------- ----------- -----------
Cash and cash equivalents, end of period $ 1,140 $ 95 $ 1,140
=========== =========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the period
December 14,
Years Ended June 30, 1998
-------------------------- (Inception)
(As Restated) to June 30,
2007 2006 2007
----------- ----------- -----------
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest $ -- $ 303 $ 502
=========== =========== ===========
Income taxes $ -- $ -- $ --
=========== =========== ===========
Supplemental disclosure of noncash investing and financing activities
On March 24, 2007, the Company acquired 100% of the common stock of
Footfridge Pty Ltd ("Footfridge") in exchange for a $1,000,000 convertible
promissory note. Footfridge had no operations and its only significant
asset was a patent. Accordingly, the acquisition has been recorded as an
intangible asset purchase with no goodwill recognized. The patent was
recorded at $1,000,000, which was the estimated fair value of the note
payable on the acquisition date.This agreement was subsequently rescinded
on August 21, 2007. (See Note 3).
The accompanying notes are an integral part of
these consolidated financial statements.
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2007 AND 2006
(1) Summary of Significant Accounting Policies
Organization and Basis of Presentation
Fit For Business International, Inc. ("FFBI" or the "Company") is a Nevada
corporation in the development stage of providing products and services for: (i)
corporate wellness programs which address business productivity, stress and
absenteeism issues; (ii) living well programs directed primarily, but not
exclusively, to individuals over 45 years of age; and, (iii) nutritional
supplements manufactured and supplied by Herbalife Ltd. ("Herbalife"). The
accompanying consolidated financial statements of FFBI were prepared from the
accounts of the Company under the accrual basis of accounting in United States
dollars. In addition, these financial statements reflect the completion of a
deemed reverse merger between FFBI and Fit For Business (Australia) Pty Limited
("FFB Australia"), which was effected on September 14, 2004.
Prior to the completion of the deemed reverse merger, FFBI was a dormant
corporation with no assets or operations (essentially since its organization on
May 30, 2001, and incorporation on July 31, 2001). The Company was originally
incorporated under the name of Elli Tsab, Inc. On April 7, 2004, the name of the
Company was changed to Patient Data Corporation. On January 13, 2005, the name
of the Company was again changed to Fit For Business International, Inc. in
order to better reflect the current business plan.
FFB Australia was organized as an Australian private company on December 14,
1998, and subsequently began certain marketing studies and corporate awareness
programs to obtain customers for its products and services. In October 2003, FFB
Australia initiated a capital formation activity through the private placement
of certain convertible promissory notes which provided, through September 14,
2004, proceeds of $365,000. Subsequent to the completion of the deemed reverse
merger, the liability associated with the convertible promissory notes was
assumed by the Company. Thereafter, all of the promissory notes were converted
into shares of common stock of FFBI.
In addition, in November 2003, FFB Australia commenced a capital formation
activity to effect a deemed reverse merger with a corporation validly organized
in the United States for the purpose of completing a Registration Statement on
Form SB-2 with the Securities and Exchange Commission ("SEC"), and raising
capital from the issuance of common stock in the public markets of up to $4.5
million. The initial capital formation activity through a deemed reverse merger
and the issuance of common stock was unsuccessful. Subsequently, FFB Australia
completed a deemed reverse merger with the Company, and FFBI has completed a
registration of its common stock with the SEC pertaining to a second capital
formation activity.
Prior to September 14, 2004, FFB Australia, aside from the capital formation and
marketing activities described above, incurred other development stage operating
costs and expenses related to its organization as an entity, receipt of a
trademark in Australia for the name and related logo of Fit For Business,
formation of a management team, accounting and tax preparation fees, consulting
fees, travel, and other general and administrative expenses. For additional
information relating to the development stage activities of the Company, see
Note 2.
Given that FFB Australia is considered to have acquired FFBI by a deemed reverse
merger through an Exchange Agreement (see Note 6), and its stockholders
currently have voting control of FFBI, the accompanying consolidated financial
statements and related note disclosures present the financial position as of
June 30, 2007, and the operations for the years ended June 30, 2007 and June 30,
2006, and comparatives for the period from inception (December 14, 1998) through
June 30, 2007, of FFB Australia under the name of FFBI. The deemed reverse
merger has been recorded as a recapitalization of the Company, with the net
assets of FFB Australia and FFBI brought forward at their historical bases. The
costs associated with the reverse merger have been expensed as incurred.
On March 24, 2007, the Company acquired 100% of the common stock of Footfridge
Pty Ltd ("Footfridge") in exchange for a $1,000,000 convertible promissory note.
Pursuant to the agreement, Footfridge became a wholly owned subsidiary of the
Company. Footfridge had minimal operations and its only significant asset was a
patent for a certain heat reflection footwear device. Accordingly, the
acquisition has been recorded as an intangible asset purchase with no goodwill
recognized. The patent was recorded at $1,000,000, which was the estimated fair
value of the note payable on the acquisition date. This agreement was rescinded
on August 21, 2007, whereby the promissory note was cancelled and the Footfridge
common stock was returned to the seller.
On July 7, 2007 the Company signed a letter of intent to facilitate a merger,
acquisition or other combinational transaction with Belmont Partners, LLC (the
"Buyer"). The Buyer's intent is to purchase a controlling interest in the
Company's public vehicle (the "Vehicle") for a purchase price of $500,000. Upon
acquisition of the Vehicle, the buyer would agree to effectuate a reverse merger
of the Vehicle with a target company whereby the Vehicle would remain the
surviving corporation.
If the above merger fails, Management will continue its attempt to seek a
suitable Company to acquire or merge with and to raise additional equity and
debt financing to sustain its current operations. The successful outcome of
future activities cannot be determined at this time due to the current market
conditions, and there are no assurances that if achieved, the Company will have
sufficient funds to execute its intended business plan or generate positive
operating results.
Cash and Cash Equivalents
- -------------------------
For purposes of reporting within the statement of cash flows, the Company
considers all cash on hand, cash accounts not subject to withdrawal restrictions
or penalties, and all liquid debt instruments purchased with a maturity of three
months or less to be cash and cash equivalents.
Accounts Receivable
- -------------------
Accounts receivable consist of amounts due from sales of its license agreements.
The Company establishes an allowance for doubtful accounts in amounts sufficient
to absorb potential losses on accounts receivable. As of June 30, 2007, an
allowance for doubtful accounts of $875,250 was deemed necessary on the
Company's licensing agreements. This allowance was recorded against the related
deferred revenue on these agreements (see Notes 10 and 14). While management
uses the best information available upon which to base estimates, future
adjustments to the allowance may be necessary if economic conditions differ
substantially from the assumptions used for the purpose of analysis.
Revenue Recognition
- -------------------
The Company is in the development stage and has yet to realize significant
revenues from planned operations. It has derived revenues principally from the
sale of services related to wellness programs, and the sale of nutritional
products, literature and training materials. The Company has also entered into a
license agreements which entitle the licensee to provide a distribution network
for the Company, use its logo and software, and market and promote its products
and services. Revenue will be derived over the term of the license agreements
once all terms and conditions have been met. Revenues are recognized by major
categories under the following policies:
For specific wellness program services, such as health risk assessment
services, fitness programs, educational and other programs, and
contracts pertaining to such services, revenue is realized as services
are provided. Contracts for wellness program services are evidenced in
writing, and as services are rendered, invoices for such services are
rendered in accordance with contract terms.
For sales of literature, training materials, and nutritional products,
revenue is realized upon shipment to the customer and there are no
unfulfilled company elements related to a customer's order. Orders for
literature, materials, and nutritional products are evidenced in
writing on customer and call center order documents. Payments are
provided in cash, check or by credit card at the time orders are placed
with the Company.
For license agreements, revenue is realized from licensing activities
related to various countries and geographic regions, which entitle
licensees to provide a distribution network for the Company, the use of
the Company logo, software and training materials, and the rights to
market and promote the services of the Company. Revenue from such
agreements is realized over the term and under the conditions of each
specific license once all contract conditions have been met.
Payments for licensing fees are generally received at the time the
license agreements are executed, unless other terms for delayed payment
are documented and agreed to between the parties. Under terms for
delayed payment, the Company may require further assurances of payment
under contract terms such as credit report information, and entity and
personal guarantees.
Internal Web Site Development Costs
- -----------------------------------
Under Emerging Issues Taskforce Statement 00-2, Accounting for Web Site
Development Costs ("EITF 00-2"), costs and expenses incurred during the planning
and operating stages of the Company's web site are expensed as incurred. Under
EITF 00-2, costs incurred in the web site application and infrastructure
development stages are capitalized by the Company and amortized to expense over
the web site's estimated useful life or period of benefit. As of June 30, 2007,
the Company had net capitalized costs of $1,563 related to its web site
development.
Costs of Computer Software Developed or Obtained for Internal Use
- -----------------------------------------------------------------
Under Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"), the Company capitalizes
external direct costs of materials and services consumed in developing or
obtained internal-use computer software; payroll and payroll-related costs for
employees who are directly associated with and who devote time to the
internal-use computer software project; and, interest costs related to loans
incurred for the development of internal-use software. As of June 30, 2007, the
Company had net capitalized costs of $26,781 for projects related to the
development of internal-use software.
Costs of Computer Software to be Sold or Otherwise Marketed
- -----------------------------------------------------------
Under Statement of Financial Accounting Standards No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed ("SFAS
86"), the Company capitalizes costs associated with the development of certain
training software products held for sale when technological feasibility is
established. Capitalized computer software costs of products held for sale are
amortized over the useful life of the products from the software release date.
As of June 30, 2007, the Company had not undertaken any projects related to the
development of software products held for sale or to be otherwise marketed.
Trademark
- ---------
The Company obtained a trademark from the government of Australia effective
October 15, 1999. The trademark covers the name "Fit For Business" and the logo
of the Company. The cost of obtaining the trademark has been capitalized by the
Company, and is being amortized over a period of ten years.
Advertising Costs
- -----------------
Advertising costs are charged to operations when incurred, except for television
or magazine advertisements, which are charged to expense when the advertising
first takes place. For the years ended June 30, 2007 and 2006 the Company
incurred advertising costs totaling $3,787 and $102, respectively, all of which
were expensed as incurred.
Property and Equipment
- ----------------------
The components of property and equipment are stated at cost. Property and
equipment costs are depreciated or amortized for financial reporting purposes
over the useful lives of the related assets by the straight-line method. Useful
lives utilized by the Company for calculating depreciation or amortization are
as follows:
Computer and office equipment 5 years
Furniture and fixtures 10 years
Internal web site development costs 3 years
Developed Software 5 years
Upon disposition of an asset, its cost and related accumulated depreciation or
amortization are removed from the accounts, and any resulting gain or loss is
recognized.
Impairment of Long-Lived Assets
- -------------------------------
The Company accounts for its long-lived assets in accordance with Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144 requires that long-lived
assets be reviewed for impairment whenever events or changes in circumstances
indicate that the historical cost carrying value of an asset may no longer be
appropriate. The Company assesses recoverability of the carrying value of an
asset by estimating the future net cash flows expected to result from the asset,
including eventual disposition. If the future net cash flows are less than the
carrying value of the asset, an impairment loss is recorded equal to the
difference between the asset's carrying value and the fair value or disposable
value. As of June 30, 2007, the Company does not believe there has been any
impairment of its long-lived assets.
Loss Per Common Share
- ---------------------
The Company adopted Statement of Financial Accounting Standards No. 128,
Earnings Per Share ("SFAS 128"), that requires the reporting of both basic and
diluted earnings (loss) per share. Basic earnings (loss) per share is computed
by dividing net income (loss) available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted earnings
(loss) per share reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into common
stock. In accordance with SFAS 128, any anti-dilutive effects on net earnings
(loss) per share are excluded. If such shares were included in diluted EPS, they
would have resulted in weighted-average common shares of approximately 27.3
million and 22.9 million for the years ended June 30, 2007 and 2006,
respectively. Such amounts include shares potentially issuable under outstanding
options and convertible notes.
Deferred Offering Costs
- -----------------------
The Company defers as other assets the direct incremental costs of raising
capital until such time as the offering is completed. At the time of the
completion of the offering, the costs are charged against the capital raised.
Should the offering be terminated, deferred offering costs are charged to
operations during the period in which the offering is terminated (see Note 6).
Comprehensive Income (Loss)
- ---------------------------
The Company presents comprehensive income (loss) in accordance with Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130"). SFAS 130 states that all items that are required to be recognized under
accounting standards as components of comprehensive income (loss) be reported in
the financial statements. For the years ended June 30, 2007 and 2006, and the
cumulative period from inception (December 14, 1998) through June 30, 2007,
comprehensive income (loss) consisted of net income (loss) and the foreign
currency translation adjustments as shown in the Company's statements of
operations.
Income Taxes
- ------------
The Company accounts for income taxes pursuant to SFAS No. 109, Accounting for
Income Taxes ("SFAS 109"). Under SFAS 109, deferred tax assets and liabilities
are determined based on temporary differences between the bases of certain
assets and liabilities for income tax and financial reporting purposes. The
deferred tax assets and liabilities are classified according to the financial
statement classification of the assets and liabilities generating the
differences.
The Company maintains a valuation allowance with respect to deferred tax assets.
The Company establishes a valuation allowance based upon the potential
likelihood of realizing the deferred tax asset and taking into consideration the
Company's financial position and results of operations for the current period.
Future realization of the deferred tax benefit depends on the existence of
sufficient taxable income within the carryforward period under the Federal tax
laws.
Changes in circumstances, such as the Company generating taxable income, could
cause a change in judgment about the realizability of the related deferred tax
asset. Any change in the valuation allowance will be included in income in the
period of the change in estimate.
Foreign Currency Translation
- ----------------------------
The Company accounts for foreign currency translation pursuant to SFAS No. 52,
Foreign Currency Translation ("SFAS 52"). The Company's functional currency is
the Australian dollar. All assets and liabilities are translated into United
States dollars using the current exchange rate at the end of each fiscal period.
Revenues and expenses are translated using the average exchange rates prevailing
throughout the respective periods. Translation adjustments are included in other
comprehensive income (loss) for the period. Certain transactions of the Company
are denominated in United States dollars. Translation gains or losses related to
such transactions are recognized for each reporting period in the related
statement of operations and comprehensive income (loss).
Fair Value of Financial Instruments
- -----------------------------------
The Company estimates the fair value of financial instruments using the
available market information and valuation methods. Considerable judgment is
required in estimating fair value. Accordingly, the estimates of fair value may
not be indicative of the amounts the Company could realize in a current market
exchange. As of June 30, 2007, the carrying value of the Company's accounts
payable, accrued liabilities, loans from related parties and promissory notes
approximated fair value due to the nature and terms of maturity of these
instruments.
Stock-Based Compensation
- ------------------------
The Company uses the fair value method to account for non-employee stock-based
compensation in accordance with SFAS No. 123, Accounting for Stock-Based
Compensation ("SFAS No. 123"), and FASB Emerging Issues Task Force, or EITF,
Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services.
Under the fair value method, all transactions in which goods or services are the
consideration received for the issuance of equity instruments are accounted for
based on the fair value of the consideration received or the fair value of the
equity instruments issued, whichever is more reliably measurable.
The Company accounts for the fair value of stock options granted to employees,
stock options granted by a principal stockholder to employees, and common stock
issued by a principal stockholder to employees under the fair value recognition
provisions of SFAS No. 123, and SAB Topic 5.T., "Accounting for Expenses or
Liabilities Paid by Principal Stockholder(s)." Fort Street Equity, Inc., as a
principal stockholder, has provided stock option grants and common stock on
behalf of the Company to employees and other parties which are described in
Notes 6 and 11.
Estimates
- ---------
The financial statements are prepared on the basis of accounting principles
generally accepted in the United States of America. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of June 30, 2007, and revenues and expenses for the
years ended June 30, 2007 and 2006, and the cumulative period from inception.
Actual results could differ from those estimates made by management.
(2) Development Stage Activities and Going Concern
The Company is in the development stage of providing products and services for
corporate business wellness programs; living well programs directed primarily,
but not exclusively, to individuals over 45 years of age; and, nutritional
supplements manufactured and supplied by Herbalife. As of June 30, 2007, and
subsequent thereto, FFBI had completed organization and reverse merger
transactions, initial marketing and corporate awareness programs designed to
obtain customers for its products and services, the receipt of a trademark in
Australia for the name "Fit For Business", formation of a management team, and
other activities related to capital formation, software development, and initial
operations. Management of the Company was pursuing various sources of equity
financing, and planned to raise approximately $4.5 million through the issuance
of common stock for cash, and private investment in public equity ("PIPE")
financing of its common stock. The issuance of common stock for cash, and the
completion of PIPE financing were being conducted pursuant to the approval by
the SEC of several Post-Effective Amendments to the Company's Registration
Statement on Form SB-2 which approval was provided in March 2006. The proceeds
from the these capital formation activities were to be used by the Company for
the development and production of multi-media training programs, marketing and
promotional literature and programs, web site enhancement, purchase of
inventory, customer call center and computer hardware and software programs to
be used to aid the Company's customer service representatives, and working
capital required to hire additional staff and provide for an expected increase
in operations.
There can be no assurance that the Company will be able to raise $4.5 million in
equity capital through its current SEC related activities, or be successful in
the sale of its products and services that will generate sufficient revenues to
sustain the operations of the Company.
On July 7, 2007 the Company signed a letter of intent to facilitate a merger,
acquisition or other combinational transaction with Belmont Partners, LLC (the
"Buyer"). The Buyer's intent is to purchase a controlling interest in the
Company's public vehicle (the "Vehicle") for a purchase price of $500,000. Upon
acquisition of the Vehicle, the buyer would agree to effectuate a reverse merger
of the Vehicle with a target company whereby the Vehicle would remain the
surviving corporation.
If the above merger fails, Management will continue its attempt to seek a
suitable Company to acquire or merge with and to raise additional equity and
debt financing to sustain its current operations. The successful outcome of
future activities cannot be determined at this time due to the current market
conditions, and there are no assurances that if achieved, the Company will have
sufficient funds to execute its intended business plan or generate positive
operating results.
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, which contemplate continuation of the Company as a going concern. The
Company has incurred operating losses since inception, and its cash resources
are insufficient to meet its planned business objectives. These and other
factors raise substantial doubt about the Company's ability to continue as a
going concern. The accompanying financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the possible inability of the Company to continue as a going
concern.
(3) Acquisition of Footfridge Pty Ltd.
On March 24, 2007, the Company acquired 100% of the common stock of Footfridge
Pty Ltd ("Footfridge") in exchange for a $1,000,000 convertible promissory note.
Pursuant to the agreement, Footfridge became a wholly owned subsidiary of the
Company. Footfridge had minimal operations and its only significant asset was a
patent for a certain heat reflection footwear device. Accordingly, the
acquisition has been recorded as an intangible asset purchase with no goodwill
recognized. The patent was recorded at $1,000,000, which was the estimated fair
value of the note payable on the acquisition date.
The patent has an estimated useful life of thirteen years, and the accumulated
amortization on the patent at June 30, 2007 was $20,864.
This agreement was rescinded on August 21, 2007, whereby the promissory note was
cancelled and the Footfridge common stock was returned to the seller.
(4) Accrued Compensation
The Company has entered into employment, consulting, and other related
agreements with its management and other personnel. Due to the Company's cash
flow requirements, the parties to these contracts have agreed to defer payment
of portions of their compensation under these agreements. Total accrued
compensation as of June 30, 2007 under these contracts amounted to $285,869
which will be paid when the Company has sufficient funds available.
Effective June 6, 2007, the Company and its President and Chief Executive
Officer, Mark Poulsen, terminated its employment agreement through execution of
a Mutual Release and a Mutual Recession (collectively "Release and Recession").
Under the terms of the Release and Recession, Poulsen and the Company mutually
rescinded the Agreement. A total of $1,236,279 of Poulsen's accrued compensation
was cancelled in this agreement, and accordingly, is reflected as other income
in the statement of operations. As of June 30, 2007, there are no amounts due by
the Company to Poulsen for accrued compensation.
(5) Convertible Debt
As discussed in Note 3, on March 24, 2007 the Company acquired 100% of the
common stock of Footfridge Pty Ltd ("Footfridge") in exchange for a $1,000,000
convertible promissory note. The note bore interest at 7% per annum and was
secured by the Footfridge shares. A principal payment of $200,000 was due and
payable on September 30, 2007, with the $800,000 remaining balance, plus accrued
interest, payable on March 24, 2008. This $800,000 was convertible into common
stock of the Company at a conversion rate of $0.10 per share. This promissory
note was cancelled and the Footfridge common stock was returned to the seller,
pursuant to rescission of the agreement on August 21, 2007 as described in Notes
1 and Note 3.
(6) Common Stock Transactions and Capital Formation
Issuance of Common Stock
- ------------------------
During the year ended June 30, 2006, the Company issued 100,000 shares of its
common stock for $38,000.
On March 7, 2006, transfer agent services valued at $500 were satisfied with the
issuance of 1,000 shares of common stock by the Company.
During the year ended June 30, 2007, the Company issued 3,375,000 shares of its
common stock for $152,000.
Stock Option Agreement and Stock Options Granted by Principal Stockholder
- -------------------------------------------------------------------------
On July 25, 2004, the Company issued 2,000,000 options to Fort Street Equity,
Inc. (see below) to purchase the same number of shares of its common stock for
$10,000 in cash. The option period was initially through December 31, 2005, but
was extended to December 31, 2007, by the Board of Directors of the Company,
effective December 3, 2006. Pursuant to the extended terms of exercise, a total
of $4,000 of compensation expense was recognized during the three months ended
December 31, 2006. The exercise price of the options is the higher of $0.50 per
share or the average-trading price of the Company's common stock over the
preceding ten business days prior to exercise of the options, less a discount of
40 percent.
During the year ended June 30, 2006, Fort Street Equity, Inc., as a principal
stockholder and holder of 2,000,000 stock options to purchase common stock of
the Company described above, provided stock option grants totaling 290,996
options on behalf of the Company to two employees to acquire a like number of
shares of common stock of the Company. The market price of the Company's common
stock on the date of each stock option grant was $0.50 per share. The principal
stockholder charged the grantees a total of $62,520 to acquire the options. The
proceeds from the option transactions were subsequently loaned by the principal
stockholder to the Company for working capital purposes under the terms of three
promissory notes which are described in Note 11.
The fair value of each option was estimated on the dates of grant using the
Black-Scholes option-pricing model with the following assumptions:
Average Expected Expected Employee/ Life of
Risk-Free Volatility Dividend Nonemployee the
Interest Rate of Yield Exit Rate Options
Stock
3.81% 135.3% 0% 0% 160 days
The following tables summarize information about stock options outstanding and
exercisable as of June 30, 2007:
Stock Options Outstanding:
- -------------------------
Weighted-Avg.
Number of Remaining
Exercise Shares Contractual Weighted-Avg.
Price Outstanding Life in Years Exercise Price
----- ----------- ------------- --------------
$0.50 2,000,000 0.5 $0.50
Stock Options Exercisable:
- -------------------------
Number of
Range of Exercise Shares Weighted-Avg.
Prices Exercisable Exercise Price
------ ----------- --------------
$0.50 2,000,000 $0.50
Stock Exchange Agreement
- ------------------------
On September 14, 2004, the Company entered into a Share Exchange Agreement (the
"Exchange Agreement") with FFB Australia, whereby FFBI acquired all of the
issued and outstanding capital stock of FFB Australia (81 shares) in exchange
for 15,000,000 shares of common stock and 1,000,000 shares of preferred stock of
the Company. Both the common stock and preferred stock of FFBI have a par value
of $.001. The shares of preferred stock are non-participating, but each share is
entitled to fifty (50) votes in a general meeting of the stockholders. As a
result of the Exchange Agreement, the stockholders of FFB Australia control
FFBI, and FFB Australia has been deemed to have effected a reverse merger for
financial reporting purposes as of the date of the Exchange Agreement. The
deemed reverse merger has been recorded as a recapitalization of the Company,
with the net assets of FFBI and FFB Australia brought forward at their
historical bases.
From the common stock issued to Mark A. Poulsen, President and Chief Executive
Officer of the Company under the Stock Exchange Agreement described above,
500,000 shares of common stock were issued to L.R. Global pursuant to the terms
of a license agreement (see Note 10). Mr. Poulsen also issued shares of common
stock that he received from the Exchange Agreement to satisfy the liabilities of
the Company assumed by FFBI related to the compensation of six individuals. FFBI
recognized the satisfaction of such liabilities by Mr. Poulsen as additional
paid-in capital.
Capital Formation Activity
- --------------------------
On November 10, 2003, FFBI entered into an agreement with Fort Street Equity,
Inc. ("Fort Street") whereby Fort Street would assist FFBI with the following:
(i) the identification of a corporation validly organized in the United States
with which the Company could realize a deemed reverse merger; and (ii) the
completion and filing of a Registration Statement on Form SB-2 with the SEC for
the purpose of raising capital from the issuance of common stock in the public
markets of up to $4.5 million.
FFBI paid Fort Street two deposits against fees and costs amounting to $130,100.
The initial capital formation activity conducted by FFBI and Fort Street was not
successful due to the fact that the organization and completion of a deemed
reverse merger with a validly organized corporation in the United States could
not be effected. Further, as a result of the uncompleted deemed reverse merger,
FFBI expensed $77,000 of the amount paid to Fort Street as unsuccessful offering
costs.
FFBI and Fort Street initiated a second capital formation activity that resulted
in the Exchange Agreement as described above, and the current activity to file a
Registration Statement on Form SB-2 with the SEC which was completed in March
2006. As of June 30, 2007, the Company had incurred $194,902 of deferred
offering costs which were comprised of legal, accounting and investor relations
fees paid, and other professional, administrative, and filing fees incurred to
complete the Form SB-2 registration process and capital formation activities.
This offering is still open.
(7) Income Taxes
There was no provision (benefit) for income taxes for periods to June 30, 2007.
The Company had deferred income tax assets as of June 30, 2007, as follows:
Loss carryforwards $ 116,000
Less: valuation allowance 116,000
------------
Total net deferred tax assets $ --
============
As of June 30, 2007, the Company had net operating loss carryforwards for income
tax reporting purposes of approximately $340,000 that may be offset against
future taxable income. The net operating loss carryforwards expire in the years
2022-2027. Current tax laws limit the amount of loss available to be offset
against future taxable income when a substantial change in ownership occurs or a
change in the nature of the business. Therefore, the amount available to offset
future taxable income may be limited. No tax benefit has been reported in the
financial statements for the realization of loss carryforwards, as the Company
believes there is high probability that the carryforwards will not be utilized
in the foreseeable future. Accordingly, the potential tax benefits of the loss
carryforwards are offset by a valuation allowance of the same amount.
(8) Related Party Transactions
Mark A. Poulsen & Associates Pty. Ltd. is an Australian private entity and
stockholder of the Company. It is wholly owned by Mark A. Poulsen, President and
Chief Executive Officer of the Company. As of June 30, 2007, the Company owed
$41,277 to this entity. This amount owed to this entity was for working capital
and office space provided, is non-interest bearing, and has no terms for
repayment.
Additionally, the Company has a month-to-month expense sharing agreement for
office rent and other common area expenses with Mark A. Poulsen & Associates
Pty. Ltd. For the years ended June 30, 2007 and 2006, the Company accrued
$15,959 and $16,651 in office rent and common area costs pertaining to this
agreement. This agreement was terminated on May 31, 2007.
Kamaneal Investments Pty. Ltd. is an Australian private company and stockholder
of the Company owned by Mark A. Poulsen, President and Chief Executive Officer
of the Company, and Karen Poulsen, his wife. The purpose of this company is to
hold investments for Mr. and Mrs. Poulsen. As of June 30, 2007, the Company owed
$82,928 to this entity. This amount owed was for working capital provided, is
non-interest bearing, and has no terms for repayment.
As of June 30, 2007, the Company owed $16,170 to Mr. GL Ray, a stockholder of
the Company, for an advance made. This amount owed was for working capital
provided, is non-interest bearing, and has no terms for repayment.
The Company has a month-to-month expense sharing agreement for office rent and
other common area expenses with Mark A. Poulsen & Associates Pty. Ltd. The
expense sharing agreement replaced a lease arrangement between the Company and
Mark A. Poulsen & Associates Pty. Ltd. that expired on November 30, 2004. For
the years ended June 30, 2007 and 2006, the Company accrued $15,959 and $16,651
in office rent and common area costs pertaining to this agreement.
(9) Recent Accounting Pronouncements
FASB Interpretation No. 48 - In June 2006, the FASB issued Interpretation No.
48, Accounting for Uncertainty in Income Taxes (FIN 48), which supplements SFAS
No. 109, Accounting for Income Taxes, by defining the confidence level that a
tax position must meet in order to be recognized in the financial statements.
The Interpretation requires that the tax effects of a position be recognized
only if it is "more-likely-than-not" to be sustained based solely on its
technical merits as of the reporting date. The more-likely-than-not threshold
represents a positive assertion by management that a company is entitled to the
economic benefits of a tax position. If a tax position is not considered
more-likely-than-not to be sustained based solely on its technical merits, no
benefits of the position are to be recognized. The Company has evaluated the
impact of the adoption of FIN 48, and does not believe the impact will be
significant to the Company's overall results of operations or financial
position.
SFAS No. 157 - In September 2006, the FASB issued Statement 157, Fair Value
Measurements. This Statement defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles (GAAP), and
expands disclosures about fair value measurements. This Statement applies under
other accounting pronouncements that require or permit fair value measurements,
the Board having previously concluded in those accounting pronouncements that
fair value is the relevant measurement attribute. Accordingly, this Statement
does not require any new fair value measurements. However, for some entities,
the application of this Statement will change current practice. This Statement
is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. Earlier
application is encouraged, provided that the reporting entity has not yet issued
financial statements for that fiscal year, including financial statements for an
interim period within that fiscal year. The Company has evaluated the impact of
the adoption of SFAS 157, and does not believe the impact will be significant to
the Company's overall results of operations or financial position.
SFAS No. 158 - In September 2006, the FASB issued Statement No. 158 Employers'
Accounting for Defined Benefit Pension and Other Postretirement Plans--an
amendment of FASB Statements No. 87, 88, 106, and 132(R). This Statement
improves financial reporting by requiring an employer to recognize the
overfunded or underfunded status of a defined benefit postretirement plan (other
than a multiemployer plan) as an asset or liability in its statement of
financial position and to recognize changes in that funded status in the year in
which the changes occur through comprehensive income of a business entity or
changes in unrestricted net assets of a not-for-profit organization. This
Statement also improves financial reporting by requiring an employer to measure
the funded status of a plan as of the date of its year-end statement of
financial position, with limited exceptions. An employer with publicly traded
equity securities is required to initially recognize the funded status of a
defined benefit postretirement plan and to provide the required disclosures as
of the end of the fiscal year ending after December 15, 2006. An employer
without publicly traded equity securities is required to recognize the funded
status of a defined benefit postretirement plan and to provide the required
disclosures as of the end of the fiscal year ending after June 15, 2007. The
Company has adopted SFAS 158, and does not believe the impact will be
significant to the Company's overall results of operations or financial
position.
SAB No. 108 - In September 2006, the Securities and Exchange Commission released
Staff Accounting Bulletin (SAB) No. 108, "Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements." SAB No. 108 requires a registrant to quantify all misstatements
that could be material to financial statement users under both the "rollover"
and "iron curtain" approaches. If either approach results in quantifying a
misstatement that is material, the registrant must adjust its financial
statements. SAB No. 108 is effective for fiscal years beginning after November
15, 2006. The Company has evaluated the impact of the adoption of SAB 108, and
does not believe the impact will be significant to the Company's overall results
of operations or financial position.
SFAS No. 159 - In February 2007, the FASB issued Statement No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities--Including an
amendment of FASB Statement No. 115. This Statement permits entities to choose
to measure many financial instruments and certain other items at fair value. The
objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge
accounting provisions. This Statement is expected to expand the use of fair
value measurement, which is consistent with the Board's long-term measurement
objectives for accounting for financial instruments. This Statement applies to
all entities, including not-for-profit organizations. Most of the provisions of
this Statement apply only to entities that elect the fair value option. However,
the amendment to FASB Statement No. 115, Accounting for Certain Investments in
Debt and Equity Securities, applies to all entities with available-for-sale and
trading securities. Some requirements apply differently to entities that do not
report net income. This Statement is effective as of the beginning of an
entity's first fiscal year that begins after November 15, 2007. Early adoption
is permitted as of the beginning of a fiscal year that begins on or before
November 15, 2007, provided the entity also elects to apply the provisions of
FASB Statement No. 157, Fair Value Measurements. No entity is permitted to apply
this Statement retrospectively to fiscal years preceding the effective date
unless the entity chooses early adoption. The choice to adopt early should be
made after issuance of this Statement but within 120 days of the beginning of
the fiscal year of adoption, provided the entity has not yet issued financial
statements, including required notes to those financial statements, for any
interim period of the fiscal year of adoption. This Statement permits
application to eligible items existing at the effective date (or early adoption
date). The Company plans on adopting this Statement on January 1, 2008, and does
not believe that it will have a significant impact on its results of operations
or financial position.
(10) License Agreements
First License Agreement
- -----------------------
On August 24, 2004, the Company entered into a non-assignable license agreement
(the "License Agreement") with L.R. Global Marketing Pty. Ltd. ("L.R. Global").
Pursuant to the License Agreement, L.R. Global has the right or license, for a
period of ten years, to use of the Company's logo, management information
system, and other material within Australia and New Zealand. L.R. Global will
assist in identifying new clients for the Company, and recruiting account
executive and customer service representatives. Under the terms of the License
Agreement, L.R. Global was obligated to pay the Company $500,000 on or before
December 31, 2004, for the grant of the license. As of December 31, 2004, L.R.
Global had only paid $117,750 toward the fee for the license, and was in default
under the License Agreement.
On January 14, 2005, the Company and L.R. Global entered into an extension
agreement whereby the terms of the License Agreement for payment of the
remaining amount of the $500,000 license fee were extended to May 31, 2005. As
of May 31, 2005, the balance of the License Agreement fees had not been paid,
and L.R. Global was in default under the License Agreement and amendment.
Subsequently, on June 14, 2005, the Company and L.R. Global entered into a
second extension whereby the terms of the License Agreement were amended as
follows: (i) for consideration of $7,000 paid by L.R. Global as a partial
payment of the license fee, the due date for the payment of the remaining
balance of the license fee was extended to a date within sixty (60) days
following the first date on which the common stock of the Company is quoted on
the OTC Bulletin Board or other recognized stock exchange; and, (ii) the two
principals of L.R. Global, Laraine Richardson and Dianne Waghorne, provided
personal guarantees to the Company for payment of the remaining balance of the
license fee in the event that the balance owed is not repaid by L.R. Global.
The delay experienced in collecting the remaining amount of the license fee from
L.R. Global was due primarily to the extended period required by the Company to
complete its capital formation activities, including the effective date of its
Registration Statement on Form SB-2 with the SEC. The principals of L.R. Global
informed the management of the Company that L.R. Global entered into the License
Agreement with the understanding that the Company would implement its plan of
operations (including the completion of its capital formation activities) in
February 2005. At that time, L.R. Global was committed to provide additional
sales and marketing resources, and pay the remaining amount of the license fee
due. Further, as a result of additional discussions with the principals of L.R.
Global and review of available credit information, management of the Company
believed that: (i) L.R. Global would honor the terms of the License Agreement,
and had sufficient operations and financial resources to pay the remaining
amount owed to the Company, (ii) complete payment of the license fee would be
accomplished under the terms of the second extension agreement dated June 14,
2005, and (iii) the personal guarantees of the principals of L.R. Global
provided sufficient additional assurance of collectibility under Australian law.
On May 2, 2006, the common stock of the Company began trading on the OTC
Bulletin Board under the stock symbol FFBU. On May 23, 2006, the two principals
of L.R. Global were notified by the Company of the date trading began of the
Company's common stock on the OTC Bulletin Board, and that the balance of the
license fee owed would be due and payable to the Company 60 days from that date.
On July 6, 2006, the Company received a letter from the legal counsel for L.R.
Global advising the management of the Company that payment of the remaining
license fee would not be forthcoming due to alleged verbal misrepresentations
made to the principals of L.R. Global by the management of the Company and
principal stockholder as to the value of the common stock of the Company that
would be achieved by the end of the first week and the end of the first month of
trading on the OTC Bulletin Board. The principals of L.R. Global have disclosed
to the Company through legal counsel that it was their understanding and
expectation that the remaining amount due under the License Agreement would be
satisfied from the sale of a portion or all of the 500,000 shares of common
stock provided to L.R. Global by Mark A Poulsen, President and Chief Executive
Officer of the Company (see below). Due to the fact that the trading price of
the common stock of the Company in early July 2006, was insufficient to provide
proceeds from the sale of the 500,000 shares of common stock owned by L.R.
Global in an amount sufficient to satisfy the remaining amount due to the
Company under the License Agreement, L.R. Global is asserting alleged damages
for misrepresentation, negligent misstatement and/or breaches of Section 52 of
the Australian Trade Practices Act of 1974, and has refused payment of the
amount owed. Management of the Company denies that it had any responsibility as
to the value of its common stock in relation to the amount owed by L.R. Global,
and has demanded payment in full. Currently, negotiations are continuing between
the Company and the principals of L.R. Global to receive full payment of the
amount owed, but the Company has not sought to enforce the collection or
personal guarantees provided under the terms of the second extension to the
License Agreement dated June 14, 2005 by legal action. As a result of this lack
of enforcement by the Company, a reserve for doubtful accounts in the amount of
$375,250 was recorded in the financial statements during the year ended June 30,
2006. Further, due to the matters described above pertaining to the lack of
completion of its capital formation activities by collection of the amount owed,
the Company has not recognized revenue to-date from this License Agreement.
The reserve for doubtful accounts of $375,250, noted above, was originally
recorded as an expense to operations in the June 30, 2006 financial statements.
However, since no revenue was recognized on the related license agreement, the
$375,250 reserve should have been recorded as a reduction of deferred revenue
instead of a charge to operations pursuant to SAB No. 104 (see Note 14 for
further explanation of this error correction). Deferred revenue at June 30, 2007
on this license agreement totaled $124,750, which represents the total cash
received from LR Global.
From the shares issued to Mark A. Poulsen, President and Chief Executive Officer
of the Company, under the Exchange Agreement described in Note 6, L.R. Global
received 500,000 shares of common stock. The purpose of the transfer was to
further involve L.R. Global in the Company as a stockholder, and to provide an
incentive for L.R. Global to perform under the License Agreement. Management of
the Company maintains that the transfer of shares of common stock to L.R. Global
by Mark A. Poulsen was a private transaction between the parties, and not part
of the Exchange Agreement to be recognized in the financial statements of the
Company.
Second License Agreement
- ------------------------
On September 13, 2006, the Company entered into a License Agreement (the "Second
License Agreement") with Mr. Bruce Gilling of Miami, Florida, a related party.
As of June 30, 2007, Mr. Gilling was also an option holder to purchase 50,000
shares of the Company's common under an Option Purchase Agreement with Fort
Street (see Note 11). Per the Second License Agreement, Mr. Gilling as the
right, for a period of ten (10) years, to the use of the Company's logo, web
based management information system, marketing and promotional literature,
processes, systems, intellectual property, and attend the Company's events for
the purpose of generating new customers for the Company, and for training
account executives and customer service representatives. Pursuant to the
original license terms, the fee for the Second License Agreement was $500,000
payable as follows:
On or before October 16, 2006 $ 20,000
On January 30, 2007 $ 80,000
Balance to be invoiced each year for four years $ 400,000
Also under the Second License Agreement, Mr. Gilling will be entitled to 100,000
stock options to purchase a like number of shares of unregistered common stock
of the Company at a 40% discount from market following the payment of the
license fee of $80,000 that was scheduled for January 2007. He will also receive
100,000 options to purchase a like number of unregistered shares of common of
common stock of the Company at a 40% discount from market on each occasion that
he invoices $1,000,000 in retail sales of the Company's products and services.
Lastly, the Company is to have first right of refusal to purchase the resultant
shares of common stock received by Mr. Gilling under the Second License
Agreement at the then prevailing market price of the common stock or less.
The Company has not received any of the above payments on this license, and is
currently in discussions with Mr. Gilling to renegotiate the terms of the
agreement. Due to the uncertainties surrounding the terms of the license and
collection of the first two installments, the Company has recorded $1,830 as bad
debt expense during the year ended June 30, 2007 in order to offset 100% of the
previously recognized revenue on this license. Additionally, an allowance for
doubtful accounts has been provided to reduce the net accounts receivable and
deferred revenue balances to zero.
(11) Promissory Notes - Fort Street Equity, Inc.
On May 10, 2005, the Ralston Superannuation Fund ("Ralston Fund") entered into
an Option Purchase Agreement with Fort Street whereby the Ralston Fund agreed to
purchase 100,000 stock options of the Company held by Fort Street for the amount
of $19,050. The stock options entitle the holder to purchase a like number of
shares of common stock of the Company. The Trustee for the Ralston Fund is
Leanne Ralston, the wife of Prins A. Ralston. Mr. Ralston was the Senior Vice
President and Chief Operating Officer of the Company. Fort Street subsequently
loaned the proceeds from the sale of the stock options to the Company under the
terms of a promissory note dated May 11, 2005. The promissory note is unsecured,
and carries an interest rate of five (5) percent per annum. The maturity date of
the note, together with any remaining interest, is December 31, 2009. Interest
payments on the promissory note are payable to Fort Street bi-annually and at
the maturity date of the obligation. In addition, on March 22, 2006, Fort
Street, as a principal stockholder of the Company, granted to the Ralston Fund
100,000 shares of its common stock for no consideration or modification of the
Option Purchase Agreement described above.
On June 14, 2005, Mr. Bruce Gilling, an unrelated party, entered into an Option
Purchase Agreement with Fort Street whereby the Mr. Gilling agreed to purchase
50,000 stock options of the Company held by Fort Street for the amount of
$15,000. The stock options entitle the holder to purchase a like number of
shares of common stock of the Company. Fort Street subsequently loaned the
proceeds from the sale of the stock options to the Company under the terms of a
promissory note dated June 19, 2005. The promissory note is unsecured, and
carries an interest rate of five (5) percent per annum. The maturity date of the
note, together with any remaining interest, is December 31, 2009. Interest
payments on the promissory note are payable to Fort Street bi-annually and at
the maturity date of the obligation.
On July 1, 2005, Therese Mulherin, a former part-time employee of the Company,
entered into two Option Purchase Agreements with Fort Street whereby the Ms.
Mulherin agreed to purchase 277,576 stock options of the Company held by Fort
Street for $60,240. The stock options entitle the holder to purchase a like
number of shares of common stock of the Company. Fort Street subsequently loaned
the proceeds from the sale of the stock options to the Company under the terms
of two separate promissory notes dated July 1, 2005. Each promissory note is
unsecured, and carries an interest rate of five (5) percent per annum. The
maturity date of the notes, together with any remaining interest, is December
31, 2009. Interest payments on the promissory notes are payable to Fort Street
bi-annually and at the maturity date of the obligations. In addition, on March
22, 2006, Fort Street, as a principal stockholder of the Company, granted to Ms.
Mulherin 277,576 of its common stock for no consideration or modification of the
Option Purchase Agreement described above.
On August 19, 2005, Mr. Mark Hoey, a stockholder of the Company, entered into an
Option Purchase Agreement with Fort Street whereby Mr. Hoey agreed to purchase
66,666 stock options of the Company held by Fort Street for the amount of
$20,000. The stock options entitle the holder to purchase a like number of
shares of common stock of the Company. Fort Street subsequently loaned the
proceeds from the sale of the stock options to the Company under the terms of a
promissory note dated August 29, 2005. The promissory note is unsecured, and
carries an interest rate of five (5) percent per annum. The maturity date of the
note, together with any remaining interest, is December 31, 2009. Interest
payments on the promissory note are payable to Fort Street bi-annually and at
the maturity date of the obligation. In addition, on March 22, 2006, Fort
Street, as a principal stockholder of the Company, granted to Mr. Hoey 66,666
shares of its common stock for no consideration or modification of the Option
Purchase Agreement described above.
On August 26, 2005, the Kelly Superannuation Fund, an unrelated party, entered
into an Option Purchase Agreement with Fort Street whereby the Fund agreed to
purchase 16,666 stock options of the Company held by Fort Street for the amount
of $5,000. The stock options entitle the holder to purchase a like number of
shares of common stock of the Company. Fort Street subsequently loaned the
proceeds from the sale of the stock options to the Company under the terms of a
promissory note dated August 29, 2005. The promissory note is unsecured, and
carries an interest rate of five (5) percent per annum. The maturity date of the
note, together with any remaining interest, is December 31, 2009. Interest
payments on the promissory note are payable to Fort Street bi-annually and at
the maturity date of the obligation. In addition, on March 22, 2006, Fort
Street, as a principal stockholder of the Company, granted 16,666 shares of its
common stock to the Kelly Superannuation Fund for no consideration or
modification of the Option Purchase Agreement described above.
On September 14, 2005, Sandra L. Wendt, Vice President and Chief Financial
Officer of the Company, entered into an Option Purchase Agreement with Fort
Street whereby Mrs. Wendt agreed to purchase 13,420 stock options of the company
held by Fort Street for the amount of $2,280. The stock options entitle the
holder to purchase a like number of shares of common stock of the Company. Fort
Street subsequently loaned the proceeds from the sale of the stock options to
the Company under the terms of a promissory note dated September 14, 2005. The
promissory note is unsecured, and carries an interest rate of five (5) percent
per annum. The maturity date of the note, together with any remaining interest,
is December 31, 2009. Interest payments on the promissory note are payable to
Fort Street bi-annually and at the maturity date of the obligation. In addition,
on March 22, 2006, Fort Street, as a principal stockholder of the Company,
granted 13,720 shares of its common stock on behalf of the Company to Ms. Wendt.
The value of the common stock provided amounted to $6,710, and has been
recognized as compensation expense and additional paid-in capital of the Company
in the financial statements during the year ended June 30, 2006. There was no
modification of the Option Purchase Agreement described above as a result of the
grant of the common stock by the principal stockholder.
On September 23, 2005, Keith Appleby, an unrelated party, entered into an Option
Purchase Agreement with Fort Street whereby Mr. Appleby agreed to purchase
16,666 stock options of the Company held by Fort Street for the amount of
$5,000. The stock options entitle the holder to purchase a like number of shares
of common stock of the Company. Fort Street subsequently loaned the proceeds
from the sale of the stock options to the Company under the terms of a
promissory note dated September 23, 2005. The promissory note is unsecured, and
carries an interest rate of five (5) percent per annum. The maturity date of the
note, together with any remaining interest, is December 31, 2009. Interest
payments on the promissory note are payable to Fort Street bi-annually and at
the maturity date of the obligation. In addition, on March 22, 2006, Fort
Street, as a principal stockholder of the Company, granted 16,666 shares of its
common stock to Mr. Appleby for no compensation or modification of the Option
Purchase Agreement described above.
On September 26, 2005, Neil Wendt, a related party, entered into an Option
Purchase Agreement with Fort Street whereby Mr. Wendt agreed to purchase 25,000
stock options of the Company held by Fort Street for the amount of $7,500. The
stock options entitle the holder to purchase a like number of shares of common
stock of the Company. Fort Street subsequently loaned the proceeds from the sale
of the stock options to the Company under the terms of a promissory note dated
September 26, 2005. The Company received the proceeds from the promissory note
in early October 2005. The promissory note is unsecured, and carries an interest
rate of five (5) percent per annum. The maturity date of the note, together with
any remaining interest, is December 31, 2009. Interest payments on the
promissory note are payable to Fort Street bi-annually and at the maturity date
of the obligation. In addition, on March 22, 2006, Fort Street, as a principal
stockholder of the Company, granted to Mr. Wendt 25,000 shares of its common
stock for no compensation or modification of the Option Purchase Agreement
described above.
The total proceeds received by the Company for the above sales of 565,994 stock
options by Fort Street amounted to $134,070. Additional amounts totaling $34,714
were loaned to the Company by Fort Street directly under the same terms as
described above. The total amount payable to Fort Street under this obligation
is $168,784, plus accrued interest of $13,355. The note is unsecured, carries an
interest rate of five (5) percent per annum, and matures on December 31, 2009.
(12) Commitments and Contingencies
In November 2005, the Company was notified by the SEC that in light of the
proximity in timing between the sales of 565,994 stock options held by Fort
Street to various parties and the loans evidenced by promissory notes made by
Fort Street to the Company (as described in Note 11), such sales of options by
Fort Street are believed to be a primary offering of securities by an
underwriter on behalf of the Company under Section 5 of the Securities Act of
1933 (the "33 Act"). If it is determined that such transactions constitute a
primary offering by or on behalf of the Company in violation of Section 5 of the
33 Act, then the Company may be subject to remedial sanctions. Such sanctions
may include the payment of disgorgement, prejudgment interest and civil or
criminal penalties. Management of the Company is not aware of any pending claims
for sanctions against it based on Section 5 of the 33 Act, and intends to
vigorously defend against any such claims if they arise. However, due to the
notification by the SEC, the Company has classified the promissory notes,
amounting to $168,784, and accrued interest of $13,355, as of June 30, 2007, as
amounts subject to rescission in the accompanying balance sheet.
(13) Reclassification
Certain reclassifications have been made to conform the June 30, 2006 financial
statements to the June 30, 2007 presentation for comparative purposes.
(14) Restatement of Balances at June 30, 2006
The consolidated statement of stockholders' equity (deficit) from the Company's
inception (December 31, 1998) through June 30, 2007 has been restated to correct
the effects of an error made in the June 30, 2006 financial statements. On
February 14, 2007, the Company determined it was necessary to restate
previously-issued financial statements included in the Company's Annual Report
on Form 10-KSB for the fiscal year ended June 30, 2006, based on the conclusion
of an internal accountant that the bad debt expense was incorrectly recorded.
The error relates to the incorrect expensing of $375,250 of bad debts relating
to doubtful collections of accounts receivable associated with the Company's
license agreement with Global Marketing Pty. Ltd. (see Note 10). No revenue was
ever recognized on this license agreement and therefore the bad debt allowance
should have been recorded as a reduction of the associated deferred revenue,
rather than as a charge to operations pursuant to SAB No. 104. With the
agreement of the Company's current auditors, the Company previously disclosed
this error in Note 12 of its Quarterly Report on Form 10-QSB for the three and
six months ended December 31, 2006 and the Company is in the process of amending
the appropriate prior filings to include restated financial statements for the
fiscal year ended June 30, 2006 and for the quarter ended September 30, 2006.
The following financial statement line items for the year ended June 30, 2006
were affected by the correction:
Effect
As Reported As Adjusted of Change
----------- ----------- -----------
Deferred revenue - license fee $ 500,000 $ 124,750 $ (375,250)
=========== =========== ===========
Deficit accumulated during the
development stage (2,609,860) (2,234,610) 375,250
=========== =========== ===========
Net loss (1,677,717) (1,302,467) 375,250
=========== =========== ===========
(15) Subsequent Events
Proposed Merger
- ---------------
On July 7, 2007 the Company signed a letter of intent to facilitate a merger,
acquisition or other combinational transaction with Belmont Partners, LLC (the
"Buyer"). The Buyer's intent is to purchase a controlling interest in the
Company's public vehicle (the "Vehicle") for a purchase price of $500,000. Upon
acquisition of the Vehicle, the buyer would agree to effectuate a reverse merger
of the Vehicle with a target company whereby the Vehicle would remain the
surviving corporation.
If the above merger fails, Management will continue its attempt to seek a
suitable Company to acquire or merge with and to raise additional equity and
debt financing to sustain its current operations. The successful outcome of
future activities cannot be determined at this time due to the current market
conditions, and there are no assurances that if achieved, the Company will have
sufficient funds to execute its intended business plan or generate positive
operating results.
Rescission of Footfridge Acquisition
- ------------------------------------
On March 24, 2007, the Company acquired 100% of the common stock of Footfridge
Pty Ltd ("Footfridge") in exchange for a $1,000,000 convertible promissory note.
Pursuant to the agreement, Footfridge became a wholly owned subsidiary of the
Company. Footfridge had minimal operations and its only significant asset was a
patent for a certain heat reflection footwear device. Accordingly, the
acquisition has been recorded as an intangible asset purchase with no goodwill
recognized. The patent was recorded at $1,000,000, which was the estimated fair
value of the note payable on the acquisition date. This agreement was rescinded
on August 21, 2007, whereby the promissory note was cancelled and the Footfridge
common stock was returned to the seller.
Settlement Agreement for Accrued Compensation
On August 16, 2007, the Company reached a settlement agreement with one of its
former employees to rescind $81,834 of accrued compensation owed by the Company
to this former employee.
On August 14, 2007, the Company accepted the exercise of 1,434,006 options from
Fort Street Equity, a principal shareholder of the Company, in consideration for
a $28,680 reduction in the Company's note payable balance to Fort Street. Fort
Street Equity is a related party, therefore no gain or loss was recognized on
this equity transaction.
Effective October 11, 2007, the Company issued 2,500,000 shares of its common
stock to Mark Poulsen, its President and CEO, as compensation for work performed
during the quarter ended September 30, 2007.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of our financial
condition. The discussion should be read in conjunction with our financial
statements and notes thereto appearing in this prospectus. The following
discussion and analysis contains forward-looking statements, which involve risks
and uncertainties. Our actual results may differ significantly from the results,
expectations and plans discussed in these forward-looking statements.
Forward-Looking Statements
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of our results of
operations and financial condition. The discussion should be read in conjunction
with our financial statements and notes thereto appearing in this prospectus.
The following discussion and analysis contains forward-looking statements, which
involve risks and uncertainties. Our actual results may differ significantly
from the results, expectations and plans discussed in these forward-looking
statements.
Overview
Fit For Business International, Inc. ("FFBI" or the "Company") is a Nevada
corporation in the development stage of providing products and services for: (i)
corporate wellness programs which address business productivity, stress and
absenteeism issues; (ii) living well programs directed primarily, but not
exclusively, to individuals over 45 years of age; and, (iii) nutritional
supplements manufactured and supplied by Herbalife Ltd. ("Herbalife"). The
accompanying consolidated financial statements of FFBI were prepared from the
accounts of the Company under the accrual basis of accounting in United States
dollars. In addition, these financial statements reflect the completion of a
deemed reverse merger between FFBI and Fit For Business (Australia) Pty Limited
("FFB Australia"), which was effected on September 14, 2004.
Prior to the completion of the deemed reverse merger, FFBI was a dormant
corporation with no assets or operations (essentially since its organization on
May 30, 2001, and incorporation on July 31, 2001). The Company was originally
incorporated under the name of Elli Tsab, Inc. On April 7, 2004, the name of the
Company was changed to Patient Data Corporation. On January 13, 2005, the name
of the Company was again changed to Fit For Business International, Inc. in
order to better reflect the current business plan.
FFB Australia was organized as an Australian private company on December 14,
1998, and subsequently began certain marketing studies and corporate awareness
programs to obtain customers for its products and services. In October 2003, FFB
Australia initiated a capital formation activity through the private placement
of certain convertible promissory notes which provided, through September 14,
2004, proceeds of $365,000. Subsequent to the completion of the deemed reverse
merger, the liability associated with the convertible promissory notes was
assumed by the Company. Thereafter, all of the promissory notes were converted
into shares of common stock of FFBI.
In addition, in November 2003, FFB Australia commenced a capital formation
activity to effect a deemed reverse merger with a corporation validly organized
in the United States for the purpose of completing a Registration Statement on
Form SB-2 with the Securities and Exchange Commission ("SEC"), and raising
capital from the issuance of common stock in the public markets of up to $4.5
million. The initial capital formation activity through a deemed reverse merger
and the issuance of common stock was unsuccessful. Subsequently, FFB Australia
completed a deemed reverse merger with the Company, and FFBI has completed a
registration of its common stock with the SEC pertaining to a second capital
formation activity.
Prior to September 14, 2004, FFB Australia, aside from the capital formation and
marketing activities described above, incurred other development stage operating
costs and expenses related to its organization as an entity, receipt of a
trademark in Australia for the name and related logo of Fit For Business,
formation of a management team, accounting and tax preparation fees, consulting
fees, travel, and other general and administrative expenses.
Given that FFB Australia is considered to have acquired FFBI by a deemed reverse
merger through an Exchange Agreement, and its stockholders currently have voting
control of FFBI, the accompanying consolidated financial statements and related
note disclosures present the financial position as of June 30, 2007, and the
operations for the years ended June 30, 2007 and June 30, 2006, and comparatives
for the period from inception (December 14, 1998) through June 30, 2007, of FFB
Australia under the name of FFBI. The deemed reverse merger has been recorded as
a recapitalization of the Company, with the net assets of FFB Australia and FFBI
brought forward at their historical bases. The costs associated with the reverse
merger have been expensed as incurred.
On March 24, 2007, the Company acquired 100% of the common stock of Footfridge
Pty Ltd ("Footfridge") in exchange for a $1,000,000 convertible promissory note.
Pursuant to the agreement, Footfridge became a wholly owned subsidiary of the
Company. Footfridge had minimal operations and its only significant asset was a
patent for a certain heat reflection footwear device. Accordingly, the
acquisition has been recorded as an intangible asset purchase with no goodwill
recognized. The patent was recorded at $1,000,000, which was the estimated fair
value of the note payable on the acquisition date. This agreement was rescinded
on August 21, 2007, whereby the promissory note was cancelled and the Footfridge
common stock was returned to the seller.
On July 7, 2007 the Company signed a letter of intent to facilitate a merger,
acquisition or other combinational transaction with Belmont Partners, LLC (the
"Buyer"). The Buyer's intent is to purchase a controlling interest in the
Company's public vehicle (the "Vehicle") for a purchase price of $500,000. Upon
acquisition of the Vehicle, the buyer would agree to effectuate a reverse merger
of the Vehicle with a target company whereby the Vehicle would remain the
surviving corporation.
If the above merger fails, Management will continue its attempt to seek a
suitable Company to acquire or merge with and to raise additional equity and
debt financing to sustain its current operations. The successful outcome of
future activities cannot be determined at this time due to the current market
conditions, and there are no assurances that if achieved, the Company will have
sufficient funds to execute its intended business plan or generate positive
operating results.
In November 2005, the Company was notified by the SEC that in light of the
proximity in timing between the sales of 565,994 stock options held by Fort
Street to various parties and the loans evidenced by promissory notes made by
Fort Street to the Company, such sales of options by Fort Street are believed to
be a primary offering of securities by an underwriter on behalf of the Company
under Section 5 of the Securities Act of 1933 (the "33 Act"). If it is
determined that such transactions constitute a primary offering by or on behalf
of the Company in violation of Section 5 of the 1933 Act, then the Company may
be subject to remedial sanctions. Such sanctions may include the payment of
disgorgement, prejudgment interest and civil or criminal penalties. Management
of the Company is not aware of any pending claims for sanctions against it based
on Section 5 of the 1933 Act, and intends to vigorously defend against any such
claims if they arise. However, due to the notification by the SEC, the Company
has classified the promissory notes, amounting to $168,784, and accrued interest
of $13,355, as of June 30, 2007, as amounts subject to rescission in the
accompanying balance sheet.
Critical Accounting Policies
Our financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America ("US GAAP"). In connection
with the preparation of the financial statements, we are required to make
assumptions and estimates about future events, and apply judgments that affect
the reported amounts of assets, liabilities, revenues, expenses and the related
disclosure. We base our assumptions, estimates and judgments on historical
experience, current trends and other factors that management believes to be
relevant at the time the financial statements are prepared. On a regular basis,
management reviews our accounting policies, assumptions, estimates and judgments
to ensure that our financial statements are presented fairly and in accordance
with U.S. GAAP. However, because future events and their effects cannot be
determined with certainty, actual results could differ from our assumptions and
estimates, and such differences could be material.
Our significant accounting policies are discussed in Note 1 of the notes to
financial statements. Certain critical policies are presented below.
Revenue Recognition
-------------------
We are in the development stage and have yet to realize significant
revenues from planned operations. We have derived revenues principally from
the sale of services related to wellness programs, literature and training
materials. We have also entered into a license agreement for Australia and
New Zealand which entitles the licensee to provide a distribution network
for us, use our logo and software, and market and promote our products and
services. Revenue will be derived over the term of the license agreement
once all terms and conditions have been met. Revenues are recognized by
major categories under the following policies:
For specific wellness program services, such as health risk assessment
services, fitness programs, educational and other programs, and contracts
pertaining to such services, revenue is realized as services are provided.
Contracts for wellness program services are evidenced in writing, and as
services are rendered, invoices for such services are rendered in
accordance with contract terms.
For sales of literature and training materials, revenue is realized upon
shipment to the customer and there are no unfulfilled company elements
related to a customer's order. Orders for literature and materials are
evidenced in writing on customer and call center order documents. Payments
are provided in cash, check or by credit card at the time orders are placed
with us.
For license agreements, revenue is realized from licensing activities
related to various countries and geographic regions, which entitle
licensees to provide a distribution network for us, the use of our logo,
software and training materials, and the rights to market and promote our
services. Revenue from such agreements is realized over the term and under
the conditions of each specific license once all contract conditions have
been met. Payments for licensing fees are generally received at the time
the license agreements are executed, unless other terms for delayed payment
are documented and agreed to between the parties. Under terms for delayed
payment, we may require further assurances of payment under contract terms
such as credit report information, and entity and personal guarantees.
Costs of Computer Software Developed or Obtained for Internal Use
-----------------------------------------------------------------
Under State of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"), we capitalize external
direct costs of materials and services consumed in developing or obtained
internal-use computer software; payroll and payroll-related costs for
employees who are directly associated with and who devote time to the
internal-use computer software project; and, interest costs related to
loans incurred for the development of internal-use software.
Foreign Currency
----------------
The Company accounts for foreign currency translation pursuant to SFAS No.
52, Foreign Currency Translation ("SFAS 52"). The Company's functional
currency is the Australian dollar. All assets and liabilities are
translated into United States dollars using the current exchange rate at
the end of each fiscal period. Revenues and expenses are translated using
the average exchange rates prevailing throughout the period. Translation
adjustments are included in accumulated comprehensive income (loss) for the
period. Certain transactions of the Company are denominated in United
States dollars. Translation gains or losses related to such transactions
are recognized for each reporting period in the related statement of
operations and comprehensive income (loss).
As a result of such currency fluctuations and the conversion to United
States dollars for financial reporting purposes, we may experience
fluctuations in our operating results on an annual or quarterly basis going
forward. We have not in the past, but may in the future, hedge against
fluctuations in exchange rates. Future hedging transactions may not
successfully mitigate losses caused by currency fluctuations.
Results of Operations for the Years Ended June 30, 2007 and 2006
Revenues
- --------
Total revenues for the year ended June 30, 2007 amounted to $12,079, compared to
revenues of $9,622 for the year ended June 30, 2006.
Cost of Sales
- -------------
Cost of sales was $3,323 for the year ended June 30, 2007 as compared to $6,381
for the same period ended year ended June 30, 2006.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses for the year ended June 30, 2007
were $560,149 compared to $1,298,395 for the year ended June 30, 2006. The
decrease was primarily due to significantly lower wages and compensation during
the current year, resulting from a reduction of employees and the termination of
employment agreements with certain members of our management during the year
ended June 30, 2007.
Other Income (Expense)
- ----------------------
For the year ended June 30, 2007, other income (net) totaled $1,209,949,
compared to ($7,313) of other expense (net) for the year ended June 30, 2006.
The increase is a result of a $1,239,279 gain from an agreement with our
President to cancel his accrued compensation during the year ended June 30,
2007.
Other Comprehensive Income (Loss)
- ---------------------------------
Other comprehensive loss for the year ended June 30, 2007, amounted to
($192,090), compared to other comprehensive income of $47,347 for the year ended
June 30, 2006. The larger comprehensive (loss) in the current period was a
result of significant foreign currency translation losses resulting from the
decline of the value of the US dollar in relation to the Australian dollar. As
of June 30, 2007, we had Australian denominated liabilities that exceeded our
Australian denominated assets, therefore we report other comprehensive losses
for currency translation when marking these assets and liabilities to their
current US dollar values. Our other comprehensive gains and losses are reported
as a separate component of stockholders' equity.
Liquidity and Capital Resources
During the year ended June 30, 2007, the Company received proceeds of $152,000
through the sale of its common stock and $38,844 in loans from related parties.
Of the amounts received in the year ended June 30, 2007, $137,300 was used in
operations, $36,062 to repay loans to related parties, $26,583 to pay offering
costs, and $2,471 to repay a bank overdraft. The balance of cash and cash
equivalents as of June 30, 2007 was $1,140, which was an increase in cash of
$1,045 for the fiscal year.
During the year ended June 30, 2006, the Company received proceeds of $38,000
through the sale of its common stock, $122,305 from the issuance of promissory
notes, $54,814 in loans from related parties, and $863 from a bank overdraft. Of
the amounts received in the year ended June 30, 2006, $192,987 was used in
operations, $1,102 was used to purchase equipment, $22,626 to repay loans to
related parties, and $50,199 to pay offering costs. The balance of cash and cash
equivalents as of June 30, 2006 was $95, which was a decrease in cash of
($3,585) for the fiscal year.
In the course of the activities described above, we have sustained operating
losses and expect such losses to continue in the foreseeable future. To date, we
have not generated sufficient revenues to achieve profitable operations or
positive cash flow from operations. As of June 30, 2007, we had a working
capital deficit of $1,648,989 and an accumulated deficit of $1,576,054. There is
no assurance that profitable operations, if ever achieved, will be sustained on
a continuing basis.
Our footnotes for the years ended June 30, 2007 and 2006 contain an explanatory
paragraph from our independent registered public accounting firms which
indicates that we have recurring losses from operations, and our working capital
is insufficient to meet our planned business objectives. This report also states
that, because of these losses, there is substantial doubt about our ability to
continue as a going concern. This report and the existence of these recurring
losses from operations may make it more difficult for us to raise additional
debt or equity financing needed to run our business, and are not viewed
favorably by analysts or investors. Furthermore, if we are unable to complete
our planned merger or raise a significant amount of proceeds form our offering,
this may cause our cessation of business resulting in investors losing the value
of their investment in us.
Summary of Contractual Obligations
Year Ended June 30,
------------------------------------
Contractual Obligation Total 2008 2009 2010
------------------------------------- ---------- ---------- ---------- ----------
Convertible promissory note (a) $1,018,986 $1,018,986 $ -- $ --
Loans from related parties 140,375 140,375 -- --
Promissory notes - Fort Street Equity 182,139 -- -- 182,139
Accrued Compensation (b) 285,869 285,869 -- --
Total $1,627,369 $1,445,230 $ -- $ 182,139
(a) The convertible promissory note was subsequently cancelled in the
rescission of the Footfridge acquisition on August 21, 2007.
(b) The Company is obligated for accrued compensation due its employees
as of June 30, 2007 in the amount of $285,869. Pursuant to understandings
it has with the related employees, the accrued compensation will be paid
when the Company has sufficient funds to meet these obligations.
Changes in Securities
During the year ended June 30, 2006, the Company issued 100,000 shares of
its common stock for $38,000.
On March 7, 2006, transfer agent services valued at $500 were satisfied
with the issuance of 1,000 shares of common stock by the Company.
During the year ended June 30, 2007, the Company issued 3,375,000 shares
of its common for $152,000.
Fit For Business International, Inc.
Consolidated Financial Statements
June 30, 2006 and 2005
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
Report of Registered Independent Auditors....................................F-2
Financial Statements-
Balance Sheet as of June 30, 2006 (Restated)..............................F-3
Statements of Operations and Comprehensive (Loss) for the Years Ended
June 30, 2006 (Restated), and 2005, and Cumulative from Inception.......F-4
Statements of Stockholders' (Deficit) for the Periods from Inception
Through June 30, 2006 (Restated)........................................F-5
Statements of Cash Flows for the Years Ended June 30, 2006 (Restated),
and 2005, and Cumulative from Inception ................................F-6
Notes to Financial Statements for the Years
Ended June 30, 2006 (Restated), and 2005 ...............................F-8
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Fit For Business International, Inc.
We have audited the accompanying consolidated balance sheet of Fit For Business
International, Inc., (a development stage company) as of June 30, 2006 and the
related consolidated statements of operations and comprehensive loss, changes in
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The consolidated financial statements of Fit For Business
International, Inc. as of June 30, 2005 were audited by other auditors, whose
report dated October 22, 2006, on those statements included an explanatory
paragraph that described the uncertainty of the Company's ability to continue as
a going concern discussed in Note 2 to the consolidated financial statements. As
discussed in Note 12, the Company has restated its 2006 consolidated financial
statements to correct an error related to the recording of bad debt expense when
the associated revenues had been previously deferred and remained unearned
pursuant to Staff Accounting Bulletin No. 104 (SAB 104). The other auditors
reported on the 2006 consolidated financial statements before the restatement.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Fit For Business
International, Inc. as of June 30, 2006 and the results of its operations and
its cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered recurring losses
from operations that raise doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Mendoza Berger & Company, LLP
/s/Mendoza Berger & Company, LLP
Irvine, California
October 17, 2007
F-2
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
ASSETS
------ JUNE 30,
2006
(RESTATED)
-----------
Current Assets:
Cash on hand $ 95
Accounts Receivable-
Trade --
License fee 375,250
Less - Allowance for doubtful accounts (375,250)
-----------
Total accounts receivable --
Inventory 1,277
-----------
Total current assets 1,372
-----------
Property and Equipment:
Developed software applications 38,393
Web site development costs 7,593
Office and computer equipment 1,970
Furniture and fixtures 175
-----------
48,131
Less - Accumulated depreciation and amortization (13,865)
-----------
Net property and equipment 34,266
-----------
Other Assets:
Trademark 219
Less - Accumulated amortization (170)
Deferred offering costs 142,952
-----------
Total other assets 143,001
-----------
Total Assets $ 178,639
===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
---------------------------------------
Current Liabilities:
Checks in excess of bank balances $ 2,471
Accounts payable - Trade 80,641
Accrued liabilities 1,097,769
Loans from related parties 103,334
Deferred revenue - License fee 124,750
-----------
Total current liabilities 1,408,965
-----------
Promissory Note:
Promissory note - Elontraion Pty. Ltd, 5% per annum, due
December 31, 2009, unsecured 18,253
Promissory notes and Accrued Interest Subject to Rescission:
Promissory notes - Fort Street Equity, Inc., 5% per annum, due
December 31, 2009, and accrued interest, unsecured 138,102
-----------
Total long-term debt 156,355
-----------
Total liabilities 1,565,320
-----------
Commitments and Contingencies
Stockholders' (Deficit):
Preferred stock, par value $.001 per share; 10,000,000 shares
authorized; 1,000,000 shares issued and outstanding 1,000
Common stock, par value $.001, 100,000,000 shares
authorized; 20,971,000 shares issued and outstanding 20,971
Additional paid-in capital 828,842
Less - Common stock subscription receivable - Fort Street Equity, Inc. (12,000)
Accumulated other comprehensive income 9,116
(Deficit) accumulated during the development stage (2,234,610)
-----------
Total stockholders' (deficit) (1,386,681)
-----------
Total Liabilities and Stockholders' (Deficit) $ 178,639
===========
The accompanying notes are an integral part of these financial statements.
F-3
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS)
FOR THE YEARS ENDED JUNE 30, 2006, AND 2005,
AND CUMULATIVE FROM INCEPTION
(DECEMBER 14, 1998) THROUGH JUNE 30, 2006
Years Ended
June 30, Cumulative
---------------------------- From
2006 2005 Inception
(RESTATED) (RESTATED)
------------ ------------ ------------
Revenues:
Sales of products and services $ 9,622 $ 11,053 $ 28,968
------------ ------------ ------------
Total revenues 9,622 11,053 28,968
------------ ------------ ------------
Cost of Goods Sold:
Cost of goods sold 6,381 4,300 14,404
------------ ------------ ------------
Gross Profit (Loss) 3,241 6,753 14,564
------------ ------------ ------------
Expenses:
Selling, general and administrative-
Wages, compensation and related taxes 1,120,246 132,564 1,449,426
Legal, accounting and consulting fees 101,577 214,312 337,556
Write-off of deferred offering costs -- -- 79,685
Advertising and promotion 102 31,821 40,316
Travel, meals and lodging 1,994 30,847 35,249
Office rent and common area costs 16,651 16,171 32,822
Training and development 1,417 25,473 26,890
Depreciation and amortization 9,109 1,892 13,937
Other 30,107 39,007 188,801
Realized foreign exchange adjustments 17,192 45,566 23,613
------------ ------------ ------------
Total selling, general and administrative expenses 1,298,395 537,653 2,228,295
------------ ------------ ------------
(Loss) from Operations (1,295,154) (530,900) (2,213,731)
Other Income (Expense) (7,313) (5,408) (20,879)
Provision for income taxes -- -- --
------------ ------------ ------------
Net (Loss) (1,302,467) (536,308) (2,234,610)
------------ ------------ ------------
Comprehensive Income:
Australian currency translation 47,347 1,855 9,116
------------ ------------ ------------
Total Comprehensive (Loss) $ (1,255,120) $ (534,453) $ (2,225,494)
============ ============ ============
(Loss) Per Common Share:
(Loss) per common share - Basic and Diluted $ (0.06) $ (0.03)
============ ============
Weighted Average Number of Common Shares
Outstanding - Basic and Diluted 20,888,123 20,235,890
============ ============
The accompanying notes are an integral part of these financial statements.
F-4
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' (DEFICIT)
FOR THE PERIODS FROM INCEPTION (DECEMBER 14, 1998)
THROUGH JUNE 30, 2006
(Deficit)
Common Accumulated Accumulated
Preferred Stock Common stock Additional Stock Other During the
------------------ ------------------- Paid-in Subscription Comprehensive Development
Description Shares Amount Shares Amount Capital Receivable (Loss) Income Stage Totals
- ------------------- --------- ------ ---------- -------- ---------- ------------ ------------- ----------- -----------
Balance -
December 14, 1998 -- $ -- -- $ -- $ -- $ -- $ -- $ -- $ --
Australian currency
translation -- -- -- -- -- -- (534) -- (534)
Net (loss) for the
period -- -- -- -- -- -- -- (16,960) (16,960)
--------- ------ ---------- -------- ---------- ------------ ------------- ----------- -----------
Balance -
June 30, 1999 -- -- -- -- -- -- (534) (16,960) (17,494)
Australian currency
translation -- -- -- -- -- -- 7,472 -- 7,472
Net (loss) for the
period -- -- -- -- -- -- -- (138,322) (138,322)
--------- ------ ---------- -------- ---------- ------------ ------------- ----------- -----------
Balance -
June 30, 2000 -- -- -- -- -- -- 6,938 (155,282) (148,344)
Issuance of common
stock for services -- -- 5,000,000 5,000 -- -- -- (5,000) --
Australian currency
translation -- -- -- -- -- -- 25,453 -- 25,453
Net (loss) for the
period -- -- -- -- -- -- -- (53,529) (53,529)
--------- ------ ---------- -------- ---------- ------------ ------------- ----------- -----------
Balance -
June 30, 2001 -- -- 5,000,000 5,000 -- -- 32,391 (213,811) (176,420)
Australian currency
translation -- -- -- -- -- -- (20,804) -- (20,804)
Net (loss) for the
period -- -- -- -- -- -- -- (32,584) (32,584)
--------- ------ ---------- -------- ---------- ------------ ------------- ----------- -----------
Balance -
June 30, 2002 -- -- 5,000,000 5,000 -- -- 11,587 (246,395) (229,808)
Australian currency
translation -- -- -- -- -- -- (45,554) -- (45,554)
Net (loss) for the
period -- -- -- -- -- -- -- (24,176) (24,176)
--------- ------ ---------- -------- ---------- ------------ ------------- ----------- -----------
Balance -
June 30, 2003 -- -- 5,000,000 5,000 -- -- (33,967) (270,571) (299,538)
Australian currency
translation -- -- -- -- -- -- (6,119) -- (6,119)
Net (loss) for the
period -- -- -- -- -- -- -- (130,264) (130,264)
--------- ------ ---------- -------- ---------- ------------ ------------- ----------- -----------
Balance -
June 30, 2004 -- -- 5,000,000 5,000 -- -- (40,086) (400,835) (435,921)
Stock options
issued for cash -- -- -- -- 10,000 -- -- -- 10,000
Preferred and common
stock issued for
deemed reverse
merger with FFB
Australia 1,000,000 1,000 15,000,000 15,000 (30,950) -- -- 5,000 (9,950)
Employee
compensation paid
by issued shares -- -- -- -- 220,000 -- -- -- 220,000
Loan from former
director paid by
issued shares -- -- -- -- 7,500 -- -- -- 7,500
Consulting services
paid by issued
shares -- -- -- -- 132,500 -- -- -- 132,500
Promissory notes
converted to
common stock -- -- 870,000 870 377,932 -- -- -- 378,802
Australian currency
translation -- -- -- -- -- -- 1,855 -- 1,855
Net (loss) for the
period -- -- -- -- -- -- -- (536,308) (536,308)
--------- ------ ---------- -------- ---------- ------------ ------------- ----------- -----------
Balance -
June 30, 2005 1,000,000 1,000 20,870,000 20,870 716,982 -- (38,231) (932,143) (231,522)
Compensation from
stock options
issued by principal
stockholder -- -- -- -- 54,751 -- -- -- 54,751
Common stock issued
for services -- -- 1,000 1 499 -- -- -- 500
Compensation from
common stock
issued by principal
stockholder -- -- -- -- 6,710 -- -- -- 6,710
Common stock issued
for cash -- -- 100,000 100 49,900 (12,000) -- -- 38,000
Australian currency
translation -- -- -- -- -- -- 47,347 -- 47,347
Net (loss) for the
period (Restated) -- -- -- -- -- -- -- (1,302,467) (1,302,467)
--------- ------ ---------- -------- ---------- ------------ ------------- ----------- -----------
Balance -
June 30, 2006 1,000,000 $1,000 20,971,000 $ 20,971 $ 828,842 $ (12,000) $ 9,116 $(2,609,860) $(1,761,931)
========= ====== ========== ======== ========== ============ ============= =========== ===========
The accompanying notes are an integral part of these financial statements.
F-5
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2006, AND 2005,
AND CUMULATIVE FROM INCEPTION (DECEMBER 14, 1998)
THROUGH JUNE 30, 2006
Years Ended
June 30, Cumulative
-------------------------- From
2006 2005 Inception
(RESTATED)
----------- ----------- -----------
Operating Activities:
Net (loss) $(1,302,467) $ (536,308) $(2,234,610)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Depreciation and amortization 8,668 2,239 14,035
Write-off of deferred offering costs -- -- 77,000
Employee compensation paid by issued options and shares 61,461 23,384 281,461
Consulting and other services paid by issued shares 500 132,500 133,000
Interest on promissory notes converted to paid-in capital -- 5,698 13,801
Changes in net assets and liabilities-
Accounts receivable -- 124,750 124,750
Inventory 1,925 (3,202) (1,277)
Accounts payable - trade 28,599 49,148 80,641
Accrued liabilities and other 1,008,327 89,442 1,097,769
----------- ----------- -----------
Net Cash (Used in) Operating Activities (192,987) (112,349) (413,430)
----------- ----------- -----------
Investing Activities:
Purchases of property and equipment (149) (1,790) (2,145)
Payment for Australian trademark 9 (21) (219)
Expenditures for web site development costs (2,640) (466) (7,593)
Expenditures for developed software applications 1,678 (40,071) (38,393)
----------- ----------- -----------
Net Cash (Used in) Investing Activities (1,102) (42,348) (48,350)
----------- ----------- -----------
Financing Activities:
Proceeds from issuance of convertible notes -- 180,000 365,000
Checks in excess of bank balance 863 1,608 2,471
Proceeds from loans - related parties 54,814 172,120 399,138
Payments on loans - related parties (22,626) (161,640) (295,803)
Proceeds from loan - former director -- -- 7,500
Proceeds from issuance of promissory notes 122,305 34,050 156,355
Payments of deferred offering costs (50,199) (69,753) (219,952)
Proceeds from issuance of capital stock 38,000 -- 38,050
----------- ----------- -----------
Net Cash Provided by Financing Activities 143,157 156,385 452,759
----------- ----------- -----------
Effect of Exchange Rate Changes on Cash 47,347 1,855 9,116
----------- ----------- -----------
Net Increase (Decrease) in Cash (3,585) 3,543 95
Cash - Beginning of Period 3,680 137 --
----------- ----------- -----------
Cash - End of Period $ 95 $ 3,680 $ 95
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-6
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2006, AND 2005,
AND CUMULATIVE FROM INCEPTION (DECEMBER 14, 1998)
THROUGH JUNE 30, 2006
Years Ended
June 30, Cumulative
-------------------------- From
2006 2005 Inception
(RESTATED)
----------- ----------- -----------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 303 $ 199 $ 502
=========== =========== ===========
Income taxes $ -- $ -- $ --
=========== =========== ===========
Supplemental Information of Noncash Investing and Financing Activities:
On September 14, 2004, the Company entered into an Exchange Agreement with
FFB Australia whereby FFBI acquired all of the issued and outstanding
capital stock of FFB Australia (81 shares) in exchange for 15,000,000
shares of common stock and 1,000,000 shares of preferred stock of the
Company. As a result of the Exchange Agreement, the stockholders of FFB
Australia control FFBI, and FFB Australia has been deemed to have effected
a reverse merger for financial reporting purposes. The deemed reverse
merger has been recorded as a recapitalization of the Company, with the
net assets of FFBI and FFB Australia brought forward at their historical
bases.
On September 20, 2004, the Company issued 420,000 shares of common stock
with a value of $140,000 in connection with the conversion of certain
Notes and accrued interest.
On September 29, 2004, the Company issued 450,000 shares of common stock
with a value of $225,000 in connection with the conversion of the
remainder of the Notes and accrued interest.
On September 14, 2004, accrued employee compensation of $220,000 was
satisfied with the issuance of 440,000 shares of common stock provided
personally by an officer and director of the Company.
On September 14, 2004, a loan to the Company of $7,500 by a former
director was satisfied with the issuance of 15,000 shares of common stock
provided personally by an officer and director of the Company.
On September 14, 2004, accrued consulting services of $20,000 was
satisfied with the issuance of 40,000 shares of common stock provided
personally by an officer and director of the Company.
On September 14, 2004, accrued consulting services of $112,500 were
satisfied with the issuance of 225,000 shares of common stock provided
personally by an officer and director of the Company.
On March 7, 2006, transfer agent services valued at $500 were satisfied
with the issuance of 1,000 shares of common stock by the Company.
The accompanying notes are an integral part of these financial statements.
F-7
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006, AND 2005
(1) Summary of Significant Accounting Policies
Basis of Presentation and Organization
Fit For Business International, Inc. ("FFBI" or the "Company") is a Nevada
corporation in the development stage of providing products and services for: (i)
corporate wellness programs which address business productivity, stress and
absenteeism issues; (ii) living well programs directed primarily, but not
exclusively, to individuals over 45 years of age; and, (iii) nutritional
supplements manufactured and supplied by Herbalife Ltd. ("Herbalife"). The
accompanying financial statements of FFBI were prepared from the accounts of the
Company under the accrual basis of accounting in United States dollars. In
addition, the accompanying financial statements reflect the completion of a
deemed reverse merger between FFBI and Fit For Business (Australia) Pty Limited
("FFB Australia"), which was effected on September 14, 2004.
Prior to the completion of the deemed reverse merger, FFBI was a dormant
corporation with no assets or operations (essentially since its organization on
May 30, 2001, and incorporation on July 31, 2001). The Company was originally
incorporated under the name of Elli Tsab, Inc. On April 7, 2004, the name of the
Company was changed to Patient Data Corporation. On January 13, 2005, the name
of the Company was again changed to Fit For Business International, Inc. in
order to better reflect the current business plan.
FFB Australia was organized as an Australian private company on December 14,
1998, and subsequently began certain marketing studies and corporate awareness
programs to obtain customers for its products and services. In October 2003, FFB
Australia initiated a capital formation activity through the private placement
of certain convertible promissory notes which provided, through September 14,
2004, proceeds of $365,000. Subsequent to the completion of the deemed reverse
merger, the liability associated with the convertible promissory notes was
assumed by the Company. Thereafter, all of the promissory notes were converted
into shares of common stock of FFBI.
In addition, in November 2003, FFB Australia commenced a capital formation
activity to effect a deemed reverse merger with a corporation validly organized
in the United States for the purpose of completing a Registration Statement on
Form SB-2 with the Securities and Exchange Commission ("SEC"), and raising
capital from the issuance of common stock in the public markets of up to $4.5
million. The initial capital formation activity through a deemed reverse merger
and the issuance of common stock was unsuccessful. Subsequently, FFB Australia
completed a deemed reverse merger with the Company, and FFBI has completed a
registration of its common stock with the SEC pertaining to a second capital
formation activity.
Prior to September 14, 2004, FFB Australia, aside from the capital formation and
marketing activities described above, incurred other development stage operating
costs and expenses related to its organization as an entity, receipt of a
trademark in Australia for the name and related logo of Fit For Business,
formation of a management team, accounting and tax preparation fees, consulting
fees, travel, and other general and administrative expenses. For additional
information relating to the development stage activities of the Company, see
Note 2.
Given that FFB Australia is considered to have acquired FFBI by a deemed reverse
merger through an Exchange Agreement (see Note 4), and its stockholders
currently have voting control of FFBI, the accompanying financial statements and
related disclosures in the notes to financial statements present the financial
F-8
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006, AND 2005
position as of June 30, 2006, and the operations for the years ended June 30,
2006, and 2005, and for the period from inception (December 14, 1998) through
June 30, 2006, of FFB Australia under the name of FFBI. The deemed reverse
merger has been recorded as a recapitalization of the Company, with the net
assets of FFB Australia and FFBI brought forward at their historical bases. The
costs associated with the reverse merger have been expensed as incurred.
Cash and Cash Equivalents
For purposes of reporting within the statement of cash flows, the Company
considers all cash on hand, cash accounts not subject to withdrawal restrictions
or penalties, and all liquid debt instruments purchased with a maturity of three
months or less to be cash and cash equivalents.
Accounts Receivable
Accounts receivable consist of amounts due from sales of its products and
services, a license agreement, employees, related parties, and value added tax
refunds. The Company establishes an allowance for doubtful accounts in amounts
sufficient to absorb potential losses on accounts receivable. As of June 30,
2006, an allowance for doubtful accounts of $375,250 was deemed necessary on the
Company's licensing agreements. This allowance was recorded against the related
deferred revenue on these agreements (see Notes 8 and 12). While management uses
the best information available upon which to base estimates, future adjustments
to the allowance may be necessary if economic conditions differ substantially
from the assumptions used for the purpose of analysis.
Revenue Recognition
The Company is in the development stage and has yet to realize significant
revenues from planned operations. It has derived revenues principally from the
sale of services related to wellness programs, and the sale of nutritional
products, literature and training materials. The Company has also entered into a
license agreement for Australia and New Zealand which entitles the licensee to
provide a distribution network for the Company, use its logo and software, and
market and promote its products and services. Revenue will be derived over the
term of the license agreement once all terms and conditions have been met.
Revenues are recognized by major categories under the following policies:
For specific wellness program services, such as health risk assessment services,
fitness programs, educational and other programs, and contracts pertaining to
such services, revenue is realized as services are provided. Contracts for
wellness program services are evidenced in writing, and as services are
rendered, invoices for such services are rendered in accordance with contract
terms.
For sales of literature, training materials, and nutritional products, revenue
is realized upon shipment to the customer and there are no unfulfilled company
elements related to a customer's order. Orders for literature, materials, and
nutritional products are evidenced in writing on customer and call center order
documents. Payments are provided in cash, check or by credit card at the time
orders are placed with the Company.
For license agreements, revenue is realized from licensing activities related to
various countries and geographic regions, which entitle licensees to provide a
distribution network for the Company, the use of the Company logo, software and
training materials, and the rights to market and promote the services of the
Company. Revenue from such agreements is realized over the term and under the
F-9
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006, AND 2005
conditions of each specific license once all contract conditions have been met.
Payments for licensing fees are generally received at the time the license
agreements are executed, unless other terms for delayed payment are documented
and agreed to between the parties. Under terms for delayed payment, the Company
may require further assurances of payment under contract terms such as credit
report information, and entity and personal guarantees.
Internal Web Site Development Costs
Under Emerging Issues Taskforce Statement 00-2, Accounting for Web Site
Development Costs ("EITF 00-2"), costs and expenses incurred during the planning
and operating stages of the Company's web site are expensed as incurred. Under
EITF 00-2, costs incurred in the web site application and infrastructure
development stages are capitalized by the Company and amortized to expense over
the web site's estimated useful life or period of benefit. As of June 30, 2006,
FFBI had capitalized $7,593 related to its web site development.
Costs of Computer Software Developed or Obtained for Internal Use
Under Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"), the Company capitalizes
external direct costs of materials and services consumed in developing or
obtained internal-use computer software; payroll and payroll-related costs for
employees who are directly associated with and who devote time to the
internal-use computer software project; and, interest costs related to loans
incurred for the development of internal-use software. As of June 30, 2006, the
Company had capitalized $38,393 for projects related to the development of
internal-use software.
Costs of Computer Software to be Sold or Otherwise Marketed
Under Statement of Financial Accounting Standards No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed ("SFAS
86"), the Company capitalizes costs associated with the development of certain
training software products held for sale when technological feasibility is
established. Capitalized computer software costs of products held for sale are
amortized over the useful life of the products from the software release date.
As of June 30, 2006, the Company had not undertaken any projects related to the
development of software products held for sale or to be otherwise marketed.
Trademark
The Company obtained a trademark from the government of Australia effective
October 15, 1999. The trademark covers the name "Fit For Business" and the logo
of the Company. The cost of obtaining the trademark has been capitalized by the
Company, and is being amortized over a period of ten years.
Advertising Costs
Advertising costs are charged to operations when incurred, except for television
or magazine advertisements, which are charged to expense when the advertising
first takes place. For the years ended June 30, 2006, and 2005, advertising
costs amounted to $102 and $31,821, respectively.
F-10
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006, AND 2005
Property and Equipment
The components of property and equipment are stated at cost. Property and
equipment costs are depreciated or amortized for financial reporting purposes
over the useful lives of the related assets by the straight-line method. Useful
lives utilized by the Company for calculating depreciation or amortization are
as follows:
Computer and office equipment 5 years
Furniture and fixtures 10 years
Internal web site development costs 3 years
Developed Software 5 years
Upon disposition of an asset, its cost and related accumulated depreciation or
amortization are removed from the accounts, and any resulting gain or loss is
recognized.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of long-lived assets and the related
estimated remaining lives when events or circumstances lead management to
believe that the carrying value of an asset may not be recoverable. For the
years ended June 30, 2006, and 2005, no events or circumstances occurred for
which an evaluation of the recoverability of long-lived assets was required.
Loss Per Common Share
Basic loss per share is computed by dividing the net loss attributable to the
common stockholders by the weighted average number of shares of common stock
outstanding during the period. Fully diluted loss per share is computed similar
to basic loss per share except that the denominator is increased to include the
number of additional common shares that would have been outstanding if the
potential common shares had been issued and if the additional common shares were
dilutive.
Deferred Offering Costs
The Company defers as other assets the direct incremental costs of raising
capital until such time as the offering is completed. At the time of the
completion of the offering, the costs are charged against the capital raised.
Should the offering be terminated, deferred offering costs are charged to
operations during the period in which the offering is terminated (see Note 4).
Comprehensive Income (Loss)
The Company presents comprehensive income (loss) in accordance with Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130"). SFAS 130 states that all items that are required to be recognized under
accounting standards as components of comprehensive income (loss) be reported in
the financial statements. For the years ended June 30, 2006, and 2005, and
cumulative from inception (December 14, 1998) through June 30, 2006, the only
components of comprehensive income (loss) were the net (loss) for the periods,
and the foreign currency translation adjustments.
F-11
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006, AND 2005
Income Taxes
The Company accounts for income taxes pursuant to SFAS No. 109, Accounting for
Income Taxes ("SFAS 109"). Under SFAS 109, deferred tax assets and liabilities
are determined based on temporary differences between the bases of certain
assets and liabilities for income tax and financial reporting purposes. The
deferred tax assets and liabilities are classified according to the financial
statement classification of the assets and liabilities generating the
differences.
The Company maintains a valuation allowance with respect to deferred tax assets.
The Company establishes a valuation allowance based upon the potential
likelihood of realizing the deferred tax asset and taking into consideration the
Company's financial position and results of operations for the current period.
Future realization of the deferred tax benefit depends on the existence of
sufficient taxable income within the carryforward period under the Federal tax
laws.
Changes in circumstances, such as the Company generating taxable income, could
cause a change in judgment about the realizability of the related deferred tax
asset. Any change in the valuation allowance will be included in income in the
year of the change in estimate.
Foreign Currency Translation
The Company accounts for foreign currency translation pursuant to SFAS No. 52,
Foreign Currency Translation ("SFAS 52"). The Company's functional currency is
the Australian dollar. All assets and liabilities are translated into United
States dollars using the current exchange rate at the end of each fiscal period.
Revenues and expenses are translated using the average exchange rates prevailing
throughout the respective periods. Translation adjustments are included in other
comprehensive income (loss) for the period. Certain transactions of the Company
are denominated in United States dollars. Translation gains or losses related to
such transactions are recognized for each reporting period in the related
statement of operations and comprehensive income (loss).
Fair Value of Financial Instruments
The Company estimates the fair value of financial instruments using the
available market information and valuation methods. Considerable judgment is
required in estimating fair value. Accordingly, the estimates of fair value may
not be indicative of the amounts the Company could realize in a current market
exchange. As of June 30, 2006, the carrying value of the loans from related
parties, accrued liabilities, and promissory notes approximated fair value due
to the nature and terms of maturity of these instruments.
Stock-Based Compensation
The Company uses the fair value method to account for non-employee stock-based
compensation in accordance with SFAS No. 123, Accounting for Stock-Based
Compensation ("SFAS No. 123"), and FASB Emerging Issues Task Force, or EITF,
Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services.
Under the fair value method, all transactions in which goods or services are the
F-12
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006, AND 2005
consideration received for the issuance of equity instruments are accounted for
based on the fair value of the consideration received or the fair value of the
equity instruments issued, whichever is more reliably measurable.
The Company accounts for the fair value of stock options granted to employees,
stock options granted by a principal stockholder to employees, and common stock
issued by a principal stockholder to employees under the fair value recognition
provisions of SFAS No. 123, and SAB Topic 5.T., "Accounting for Expenses or
Liabilities Paid by Principal Stockholder(s)." During the year ended June 30,
2006, Fort Street Equity, Inc., as a principal stockholder, provided stock
option grants and common stock on behalf of the Company to employees and other
parties which are described in Notes 4 and 9.
Concentrations of Risk
As of June 30, 2006, the Company had a material off-balance sheet risk with
regards to its dependence upon Herbalife as its sole source of supply for the
purchase of nutritional supplements related to its planned wellness programs.
No customer accounted for more than 10 percent of total revenues for the years
ended June 30, 2006, and 2005.
Estimates
The financial statements are prepared on the basis of accounting principles
generally accepted in the United States. The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities as of June 30, 2006, and revenues and expenses for the years ended
June 30, 2006, and 2005, and cumulative from inception. Actual results could
differ from those estimates made by management.
(2) Development Stage Activities and Going Concern
The Company is in the development stage of providing products and services for
corporate business wellness programs; living well programs directed primarily,
but not exclusively, to individuals over 45 years of age; and, nutritional
supplements manufactured and supplied by Herbalife. As of June 30, 2006, and
subsequent thereto, FFBI had completed organization and reverse merger
transactions, initial marketing and corporate awareness programs designed to
obtain customers for its products and services, the receipt of a trademark in
Australia for the name "Fit For Business", formation of a management team, and
other activities related to capital formation, software development, and initial
operations. Management of the Company is pursuing various sources of equity
financing, and plans to raise approximately $4.5 million through the issuance of
common stock for cash, and private investment in public equity ("PIPE")
financing of its common stock. The issuance of common stock for cash, and the
completion of PIPE financing are being conducted pursuant to the approval by the
SEC of several Post-Effective Amendments to the Company's Registration Statement
on Form SB-2 which approval was provided in March 2006. The proceeds from these
capital formation activities will be used by the Company for the development and
production of multi-media training programs, marketing and promotional
literature and programs, web site enhancement, purchase of inventory, customer
call center and computer hardware and software programs to be used to aid the
Company's customer service representatives, and working capital required to hire
additional staff and provide for an expected increase in operations.
F-13
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006, AND 2005
While management of the Company believes that the Company will be successful in
its capital formation and operating activities, there can be no assurance that
the Company will be able to raise $4.5 million in equity capital through its
current SEC related activities, or be successful in the sale of its products and
services that will generate sufficient revenues to sustain the operations of the
Company.
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplate continuation of the Company as a going concern. The Company has
incurred operating losses since inception, had negative working capital as of
June 30, 2006, and the cash resources of the Company are insufficient to meet
its planned business objectives. These and other factors raise substantial doubt
about the Company's ability to continue as a going concern. The accompanying
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of
the Company to continue as a going concern.
(3) Convertible Debt
In November 2003, FFBI began a capital formation activity through the private
placement of up to 200 unsecured convertible promissory notes (the "Note" or
"Notes"). Under the terms of the private placement subscription agreement, the
minimum unit participation was one unit per Note valued at $5,000. Multiple
units could be acquired under the terms of a single Note. The Notes issued for
the units stated a maturity date of November 30, 2004, and provided for an
interest rate of ten percent (10%) per annum, payable upon redemption. None of
the Notes were issued to officers, directors, or employees of FFBI.
The Notes were convertible into 10,000 shares of common stock per unit at any
time prior to maturity at the option of the note holder, or, if called by FFBI,
then automatically in the event of a public offering of shares. No value was
associated with the conversion feature of the Notes. FFBI structured an
incentive program with the first eleven subscribers to the private placement for
the Notes, and provided an additional 1/2 unit of value for each unit
subscribed. As such, as of September 14, 2004, FFBI had received and recorded
proceeds of $365,000 under the private placement in exchange for the Notes with
87 units for the calculation of conversion into common stock (870,000 shares of
common stock), and accrued interest in the amount of $13,801. The liability for
the Notes was assumed by the Company as a result of the Exchange Agreement.
On September 20, 2004, the Company, pursuant to a planned public offering of its
common stock, called and converted Notes with a unit value of 42 units into
420,000 shares of common stock. The transaction was valued at $0.33 per share of
common stock for a total of $140,000. Further, on September 29, 2004, the
remaining Notes with a unit value of 45 units were called and converted by the
Company into 450,000 shares of common stock. The transaction was valued at $0.50
per share of common stock for a total of $225,000. The value of the conversion
transactions in excess of the par value of the common stock issued, including
accrued interest, has been presented as additional paid-in capital in the
accompanying balance sheet as of June 30, 2006.
F-14
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006, AND 2005
(4) Common Stock Transactions and Capital Formation
Issuance of Common Stock
On May 30, 2001, FFBI issued 5,000,000 shares of its common stock to former
officers and directors of the Company for services rendered. The value of the
services rendered was $5,000. This transaction, along with the accumulated
(deficit) of FFBI, made up the components of the reverse merger related to the
recapitalization of FFBI common stock.
Stock Exchange Agreement
On September 14, 2004, the Company entered into a Share Exchange Agreement (the
"Exchange Agreement") with FFB Australia, whereby FFBI acquired all of the
issued and outstanding capital stock of FFB Australia (81 shares) in exchange
for 15,000,000 shares of common stock and 1,000,000 shares of preferred stock of
the Company. Both the common stock and preferred stock of FFBI have a par value
of $.001. The shares of preferred stock are non-participating, but each share is
entitled to fifty (50) votes in a general meeting of the stockholders. As a
result of the Exchange Agreement, the stockholders of FFB Australia control
FFBI, and FFB Australia has been deemed to have effected a reverse merger for
financial reporting purposes as of the date of the Exchange Agreement. The
deemed reverse merger has been recorded as a recapitalization of the Company,
with the net assets of FFBI and FFB Australia brought forward at their
historical bases. As a result of the Exchange Agreement, consulting fees were
accrued in the amount of $112,500 to Messrs. Mitchell Stough and Kevin Murray
for services rendered in connection with the completion of the transaction under
separate letter agreements executed with Mr. Mark A. Poulsen, as principal
stockholder of the Company (see Other Transactions below).
Conversion of Notes
On September 20, 2004, the Company issued 420,000 shares of its common stock
with a value of $140,000 in connection with the conversion of certain Notes and
accrued interest (see Note 3).
On September 29, 2004, the Company issued 450,000 shares of its common stock
with a value of $225,000 in connection with the conversion of the remainder of
the Notes and accrued interest (see Note 3).
Stock Option Agreement and Stock Options Granted by Principal Stockholder
On July 25, 2004, the Company issued 2,000,000 options to Fort Street Equity,
Inc. (see below) to purchase the same number of shares of its common stock for
$10,000 in cash. The option period was initially through December 31, 2005, but
was subsequently extended to September 30, 2006, by the Board of Directors of
the Company. The exercise price of the options is the higher of $0.50 per share
or the average-trading price of the Company's common stock over the preceding
ten business days prior to exercise of the options, less a discount of 40
percent.
During the year ended June 30, 2006, Fort Street Equity, Inc., as a principal
stockholder and holder of 2,000,000 stock options to purchase common stock of
the Company described above, provided stock option grants totaling 290,996
options on behalf of the Company to two employees to acquire a like number of
F-15
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006, AND 2005
shares of common stock of the Company. The principal stockholder charged the
grantees a total of $62,520 to acquire the options. The proceeds from the option
transactions were subsequently loaned by the principal stockholder to the
Company for working capital purposes under the terms of three promissory notes
which are described in Note 9.
The exercise price of each option granted amounted to $0.50, which equaled the
market price of the Company's common stock on the date of each stock option
grant. On the dates of grant, the stock options were fully vested and
exercisable. The initial expiration date of the options granted was December 31,
2005. However, such date was subsequently extended to December 31, 2006, by the
Board of Directors of the Company.
The fair value of each option was estimated on the dates of grant using the
Black-Scholes option-pricing model with the following assumptions:
Average Expected Expected Employee/ Life
Risk-Free Volatility of Dividend Nonemployee of the
Interest Rate Stock Yield Exit Rate Options
------------- ------------- ---------- ----------- ---------------
3.81% 135.3% 0% 0% 43.9% of 1 year
Total compensation expense for the year ended June 30, 2006, amounted to
$54,751. This amount has been charged to operations and recognized as a
contribution to additional paid-in capital for the period.
The following tables summarize information about stock options outstanding and
exercisable as of June 30, 2006:
Stock Options Outstanding
-----------------------------------------------
Weighted-Ave.
Number of Remaining Weighted-Ave.
Exercise Shares Contractual Exercise
Price Outstanding Life in Years Price
---------- ------------- --------------- --------------
$0.50 2,000,000 0.25 $0.50
Stock Options Outstanding
-----------------------------------------------
Range of Number of Weighted-Ave.
Exercise Shares Exercise
Prices Excercisable Price
------------- --------------- --------------
$0.50 2,000,000 $0.50
F-16
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006, AND 2005
Common Stock Granted by Principal Stockholder
On March 22, 2006, Fort Street Equity, Inc., as a principal stockholder of the
Company, provided common stock totaling 13,720 shares on behalf of the Company
to an employee. The value of the common stock provided amounted to $6,710, and
has been recognized as compensation expense and additional paid-in capital of
the Company in the accompanying financial statements for the year ended June 30,
2006.
Other Transactions
From the common stock issued to Mark A. Poulsen, President and Chief Executive
Officer of the Company, under the Exchange Agreement, L.R. Global received
500,000 shares of common stock. Mr. Poulsen also issued shares of common stock
that he received from the Exchange Agreement to satisfy the liabilities of the
Company assumed by FFBI related to the compensation of six individuals. FFBI
recognized the satisfaction of such liabilities by Mr. Poulsen as additional
paid-in capital.
The Company also owed Wayne Hoskin, a former director of the Company, the amount
of $7,500 as of September 14, 2004. The obligation resulted from a loan made to
the Company. Mr. Hoskin agreed to accept 15,000 shares of common stock of FFBI
in full satisfaction of this obligation. From the common stock issued to Mark A.
Poulsen, President and Chief Executive Officer of the Company, under the
Exchange Agreement, Mr. Hoskin received 15,000 shares of common stock valued at
$7,500. FFBI recognized the satisfaction of this liability by Mr. Poulsen as
additional paid-in capital.
The Company also owed Donald Howell Wild, a former note holder and current
stockholder of the Company, the amount of $20,000 for services rendered related
to the private placement of Notes (see Note 3). From the common stock issued to
Mark A. Poulsen, President and Chief Executive Officer of the Company, under the
Exchange Agreement, on September 14, 2004, Mr. Wild received 40,000 shares of
common stock valued at $20,000. FFBI recognized the satisfaction of this
liability by Mr. Poulsen as additional paid-in capital.
The Company also owed Messrs. Mitchell Stough and Kevin Murray, consultants
engaged to complete the Exchange Agreement, the amount of $112,500 for services
rendered. Messrs. Stough and Murray were engaged to complete the Exchange
Agreement under separate letter agreements with Mr. Mark A. Poulsen, as
principal stockholder of the Company. From the common stock issued to Mark A.
Poulsen, President and Chief Executive Officer of the Company, under the
Exchange Agreement, on September 14, 2004, Messrs. Stough and Murray, through
their respective nominees, received 225,000 shares of common stock valued at
$112,500. FFBI recognized the satisfaction of this liability by Mr. Poulsen as
additional paid-in capital. Mr. Stough is the Managing Director of Fort Street
Equity, Inc. (see Capital Formation Activity below).
On March 7, 2006, the Company issued 1,000 shares of its common stock with a
value of $500 for transfer agent services.
On April 26, 2006, the Company issued to Fort Street Equity, Inc. 100,000 shares
of its common stock with a value of $.50 per share for $50,000. The Company has
received $38,000 related to the issuance of the common stock. As of June 30,
2006, $12,000 remained as a stock subscription receivable in the accompanying
balance sheet.
Capital Formation Activity
On November 10, 2003, FFBI entered into an agreement with Fort Street Equity,
Inc. ("Fort Street"), a Cayman Islands company, whereby Fort Street would assist
FFBI with the following: (i) the identification of a corporation validly
organized in the United States with which the Company could realize a deemed
reverse merger; and (ii) the completion and filing of a Registration Statement
on Form SB-2 with the SEC for the purpose of raising capital from the issuance
of common stock in the public markets of up to $4.5 million.
F-17
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006, AND 2005
FFBI paid Fort Street two deposits against fees and costs amounting to $130,100.
The initial capital formation activity conducted by FFBI and Fort Street was not
successful due to the fact that the organization and completion of a deemed
reverse merger with a validly organized corporation in the United States could
not be effected. Further, as a result of the uncompleted deemed reverse merger,
FFBI expensed $77,000 of the amount paid to Fort Street as unsuccessful offering
costs. FFBI and Fort Street initiated a second capital formation activity that
resulted in the Exchange Agreement as described above, and the current activity
to file a Registration Statement on Form SB-2 with the SEC which was completed
in March 2006. During the year ended June 30, 2006, the Company incurred an
additional $50,199 in legal, accounting, administrative, and filing fees related
to the second capital formation activity. As a result, as of June 30, 2006, the
Company had $142,952 of deferred offering costs which were comprised of legal
and accounting fees paid, and other professional, administrative, and filing
fees incurred to complete the Form SB-2 registration process and capital
formation activities.
Additional Common Stock Granted by Principal Stockholder
On March 22, 2006, Fort Street Equity, Inc., as a principal stockholder of the
Company, provided common stock totaling 13,720 shares on behalf of the Company
to an employee. The value of the common stock provided amounted to $6,710, and
has been recognized as compensation expense and additional paid-in capital of
the Company in the accompanying financial statements for the year ended June 30,
2006.
(5) Income Taxes
The provision (benefit) for income taxes for the periods ended June 30, 2006,
and 2005, was as follows (using a 34 percent effective Federal income tax rate):
2006 2005
(RESTATED)
---------- ----------
Current Tax Provision:
Federal-
Taxable income $ -- $ --
---------- ----------
Total current tax provision $ -- $ --
========== ==========
Deferred Tax Provision:
Federal-
Loss carryforwards $ 443,000 $ 182,300
Change in valuation allowance (443,000) (182,300)
---------- ----------
Total deferred tax provision $ -- $ --
========== ==========
F-18
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006, AND 2005
The Company had deferred income tax assets as of June 30, 2006, as follows:
2006
(RESTATED)
----------
Loss carryforwards $ 760,000
Less - Valuation allowance (760,000)
----------
Total net deferred tax assets $ --
==========
As of June 30, 2006, the Company had net operating loss carryforwards for income
tax reporting purposes of approximately $2,235,000 that may be offset against
future taxable income. The net operating loss carryforwards expire in the years
2021-2026. Current tax laws limit the amount of loss available to be offset
against future taxable income when a substantial change in ownership occurs or a
change in the nature of the business. Therefore, the amount available to offset
future taxable income may be limited. No tax benefit has been reported in the
financial statements for the realization of loss carryforwards, as the Company
believes there is high probability that the carryforwards will not be utilized
in the foreseeable future. Accordingly, the potential tax benefits of the loss
carryforwards are offset by a valuation allowance of the same amount.
(6) Related Party Transactions
Mark A. Poulsen & Associates Pty. Ltd. is an Australian private entity and
stockholder of the Company. It is wholly owned by Mark A. Poulsen, President and
Chief Executive Officer of the Company. As of June 30, 2006, the Company owed
$26,974 to this entity. This amount owed to this entity was for working capital
provided, is non-interest bearing, and has no terms for repayment.
Kamaneal Investments Pty. Ltd. is an Australian private company and stockholder
of the Company owned by Mark A. Poulsen, President and Chief Executive Officer
of the Company, and Karen Poulsen, his wife. The purpose of this company is to
hold investments for Mr. and Mrs. Poulsen. As of June 30, 2006, the Company owed
$70,864 to this entity. This amount owed was for working capital provided, is
non-interest bearing, and has no terms for repayment.
As of June 30, 2006, the Company owed $714 to Mark A. and Karen Poulsen for
expenses incurred on behalf of the Company. Mr. Poulsen is the President and
Chief Executive Officer of the Company. This amount owed was for working capital
provided, is non-interest bearing, and has no terms for repayment.
As of June 30, 2006, the Company owed $4,782 to Mr. GL Ray, a stockholder of the
Company, for an advance made. This amount owed was for working capital provided,
is non-interest bearing, and has no terms for repayment.
Donald Howell Wild, a former note holder and current stockholder of the Company
(see Note 4), is the uncle of Linda Wild, also a former note holder and current
stockholder of the Company. In addition, Mr. Wild is the father of Laraine
Richardson, a principal in the Company of L.R. Global Marketing Pty. Ltd., which
entity entered into a License Agreement with the Company on August 24, 2004 (see
Note 8). Mr. Wild also assisted the Company with the private placement of the
Notes by marketing the placement, and was responsible for the subscription
agreements of several note holders. Mr. Wild's services were valued at $20,000.
The liability to Mr. Wild was satisfied by the transfer of 40,000 shares of
common stock of FFBI directly to him from the shares received from the Exchange
F-19
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006, AND 2005
Agreement by Mark A. Poulsen, President and Chief Executive Officer of the
Company, at a value of $.50 per share. FFBI credited paid-in capital for the
value of the accrued liability satisfied by Mr. Poulsen.
As described in Note 3, the Company completed a private placement of Notes to
thirty individuals and entities with proceeds amounting to $365,000, and
subsequently converted the Notes to 870,000 shares of common stock of FFBI. Of
the thirty individuals and entities that subscribed to the private placement
offering of Notes, twelve parties are considered both account executives (part
of the independent marketing group of the Company) and independent Herbalife
distributors, and six of the parties are only independent Herbalife
distributors. Mark A. Poulsen, President and Chief Executive Officer of the
Company, is also an independent Herbalife distributor.
(7) Recent Accounting Pronouncements
In July 2005, the Financial Accounting Standards Board ("FASB") issued an
exposure draft of a proposed interpretation, "Accounting for Uncertain Tax
Positions - an Interpretation of SFAS Statement No. 109", ("SFAS No. 109"). This
interpretation would apply to all open tax positions accounted for in accordance
with SFAS No. 109, including those acquired in business combinations. It is a
proposed asset recognition approach to apply a dual threshold for uncertain tax
positions. The interpretation would allow the recognition of a tax benefit when
it is probable that it could be sustained upon audit. The interpretation defines
"probable" as it is defined in SFAS No. 5, "Accounting for Contingencies." The
FASB has not established an effective date for the interpretation. The Company
is currently reviewing the effect, if any, that the proposed guidance would have
on its financial statements.
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments--an amendment of FASB Statements No. 133 and 140," ("SFAS
No. 155"). This Statement permits fair value of re-measurement for any hybrid
financial instrument that contains an embedded derivative that otherwise would
require bifurcation; clarifies which interest-only strips and principal-only
strips are not subject to the requirements of SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," establishes a requirement to
evaluate interests in securitized financial assets to identify interests that
are freestanding derivatives or that are hybrid financial instruments that
contain an embedded derivative requiring bifurcation; clarifies that
concentrations of credit risk in the form of subordination are not embedded
derivatives; and amended SFAS No. 140, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities," to eliminate the
prohibition on a qualifying special-purpose entity from holding a derivative
financial instrument that pertains to a beneficial interest other than another
derivative financial instrument. SFAS No. 155 is effective for all financial
instruments acquired, issued, or subject to a re-measurement (new basis) event
occurring after the beginning of an entity's first fiscal year that begins after
September 15, 2006. The Company does do believe that this pronouncement will
have a material impact on its statements of financial position or results of
operations.
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets," ("SFAS No. 156"), which amends SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
SFAS No. 156 requires an entity to recognize a servicing asset or servicing
liability each time it undertakes an obligation to service a financial asset by
entering into a servicing contract in any of the following situations: (a) A
transfer of the servicer's financial assets that meets the requirements for sale
F-20
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006, AND 2005
accounting; (b) A transfer of the servicer's financial assets to a qualifying
special-purpose entity in a guaranteed mortgage securitization in which the
transferor retains all of the resulting securities and classifies them as either
available-for-sale securities or trading securities in accordance with SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities"; or (c)
An acquisition or assumption of an obligation to service a financial asset that
does not relate to financial assets of the servicer or its consolidated
affiliates. The Company does do believe that this pronouncement will have a
material impact on its statements of financial position or results of
operations.
(8) License Agreement
On August 24, 2004, the Company entered into a non-assignable license agreement
(the "License Agreement") with L.R. Global Marketing Pty. Ltd. ("L.R. Global").
Pursuant to the License Agreement, L.R. Global has the right or license, for a
period of ten years, to use of the Company's logo, management information
system, and other material within Australia and New Zealand. L.R. Global will
assist in identifying new clients for the Company, and recruiting account
executive and customer service representatives. Under the terms of the License
Agreement, L.R. Global was obligated to pay the Company $500,000 on or before
December 31, 2004, for the grant of the license. As of December 31, 2004, L.R.
Global had only paid $117,750 toward the fee for the license, and was in default
under the License Agreement.
On January 14, 2005, the Company and L.R. Global entered into an extension
agreement whereby the terms of the License Agreement for payment of the
remaining amount of the $500,000 license fee were extended to May 31, 2005. As
of May 31, 2005, the balance of the License Agreement fees had not been paid,
and L.R. Global was in default under the License Agreement and amendment.
Subsequently, on June 14, 2005, the Company and L.R. Global entered into a
second extension whereby the terms of the License Agreement were amended as
follows: (i) for consideration of $7,000 paid by L.R. Global as a partial
payment of the license fee, the due date for the payment of the remaining
balance of the license fee was extended to a date within sixty (60) days
following the first date on which the common stock of the Company is quoted on
the OTC Bulletin Board or other recognized stock exchange; and, (ii) the two
principals of L.R. Global, Laraine Richardson and Dianne Waghorne, provided
personal guarantees to the Company for payment of the remaining balance of the
license fee in the event that the balance owed is not repaid by L.R. Global.
The delay experienced in collecting the remaining amount of the license fee from
L.R. Global was due primarily to the extended period required by the Company to
complete its capital formation activities, including the effective date of its
Registration Statement on Form SB-2 with the SEC. The principals of L.R. Global
informed the management of the Company that L.R. Global entered into the License
Agreement with the understanding that the Company would implement its plan of
operations (including the completion of its capital formation activities) in
February 2005. At that time, L.R. Global was committed to provide additional
sales and marketing resources, and pay the remaining amount of the license fee
due. Further, as a result of additional discussions with the principals of L.R.
Global and review of available credit information, management of the Company
believed that: (i) L.R. Global would honor the terms of the License Agreement,
and had sufficient operations and financial resources to pay the remaining
amount owed to the Company, (ii) complete payment of the license fee would be
F-21
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006, AND 2005
accomplished under the terms of the second extension agreement dated June 14,
2005, and (iii) the personal guarantees of the principals of L.R. Global
provided sufficient additional assurance of collectibility under Australian law.
On May 2, 2006, the common stock of the Company began trading on the OTC:BB
under the stock symbol FFBU. On May 23, 2006, the two principals of L.R. Global
were notified by the Company of the date trading began of the Company's common
stock on the OTC:BB, and that the balance of the license fee owed would be due
and payable to the Company 60 days from that date. On July 6, 2006, the Company
received a letter from the legal counsel for L.R. Global advising the management
of the Company that payment of the remaining license fee would not be
forthcoming due to alleged verbal misrepresentations made to the principals of
L.R. Global by the management of the Company and principal stockholder as to the
value of the common stock of the Company that would be achieved by the end of
the first week and the end of the first month of trading on the OTC:BB. The
principals of L.R. Global have disclosed to the Company through legal counsel
that it was their understanding and expectation that the remaining amount due
under the License Agreement would be satisfied from the sale of a portion or all
of the 500,000 shares of common stock provided to L.R. Global by Mark A Poulsen,
President and Chief Executive Officer of the Company (see below). Due to the
fact that the trading price of the common stock of the Company in early July
2006, was insufficient to provide proceeds from the sale of the 500,000 shares
of common stock owned by L.R. Global in an amount sufficient to satisfy the
remaining amount due to the Company under the License Agreement, L.R. Global is
asserting alleged damages for misrepresentation, negligent misstatement and/or
breaches of Section 52 of the Australian Trade Practices Act of 1974, and has
refused payment of the amount owed. Management of the Company denies that it had
any responsibility as to the value of its common stock in relation to the amount
owed by L.R. Global, and has demanded payment in full. As of October 22, 2006,
negotiations are continuing between the Company and the principals of L.R.
Global to receive full payment of the amount owed, but the Company has not
sought to enforce the collection or personal guarantees provided under the terms
of the second extension to the License Agreement dated June 14, 2005 by legal
action. As a result of this lack of enforcement by the Company, a reserve for
doubtful accounts in the amount of $375,250 was recorded in the accompanying
financial statements as of June 30, 2006. Further, due to the matters described
above pertaining to the lack of completion of its capital formation activities
by collection of the amount owed, the Company has not recognized revenue from
the License Agreement for the years ended June 30, 2006, and 2005. (See also
Note 12).
As described in Note 4 above, from the shares issued to Mark A. Poulsen,
President and Chief Executive Officer of the Company, under the Exchange
Agreement, L.R. Global received 500,000 shares of common stock. The purpose of
the transfer was to further involve L.R. Global in the Company as a stockholder,
and to provide an incentive for L.R. Global to perform under the License
Agreement. Management of the Company maintains that the transfer of shares of
common stock to L.R. Global by Mark A. Poulsen was a private transaction between
the parties, and not part of the Exchange Agreement to be recognized in the
financial statements of the Company.
(9) Promissory Notes - Fort Street Equity, Inc. and Elontraion Pty. Ltd.
On May 10, 2005, the Ralston Superannuation Fund ("Ralston Fund") entered into
an Option Purchase Agreement with Fort Street whereby the Ralston Fund agreed to
purchase 100,000 stock options of the Company held by Fort Street for the amount
of $19,050. The stock options entitle the holder to purchase a like number of
shares of common stock of the Company. The Trustee for the Ralston Fund is
Leanne Ralston, the wife of Prins A. Ralston. Mr. Ralston was the Senior Vice
President and Chief Operating Officer of the Company. Fort Street subsequently
F-22
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006, AND 2005
loaned the proceeds from the sale of the stock options to the Company under the
terms of a promissory note dated May 11, 2005. The promissory note is unsecured,
and carries an interest rate of five (5) percent per annum. The maturity date of
the note, together with any remaining interest, is December 31, 2009. Interest
payments on the promissory note are payable to Fort Street bi-annually and at
the maturity date of the obligation. In addition, on March 22, 2006, Fort
Street, as a principal stockholder of the Company, granted to the Ralston Fund
100,000 shares of its common stock for no consideration or modification of the
Option Purchase Agreement described above.
On June 14, 2005, Mr. Bruce Gilling, an unrelated party, entered into an Option
Purchase Agreement with Fort Street whereby the Mr. Gilling agreed to purchase
50,000 stock options of the Company held by Fort Street for the amount of
$15,000. The stock options entitle the holder to purchase a like number of
shares of common stock of the Company. Fort Street subsequently loaned the
proceeds from the sale of the stock options to the Company under the terms of a
promissory note dated June 19, 2005. The promissory note is unsecured, and
carries an interest rate of five (5) percent per annum. The maturity date of the
note, together with any remaining interest, is December 31, 2009. Interest
payments on the promissory note are payable to Fort Street bi-annually and at
the maturity date of the obligation.
On July 1, 2005, Therese Mulherin, a former part-time employee of the Company,
entered into two Option Purchase Agreements with Fort Street whereby the Ms.
Mulherin agreed to purchase 277,576 stock options of the Company held by Fort
Street for $60,240. The stock options entitle the holder to purchase a like
number of shares of common stock of the Company. Fort Street subsequently loaned
the proceeds from the sale of the stock options to the Company under the terms
of two separate promissory notes dated July 1, 2005. Each promissory note is
unsecured, and carries an interest rate of five (5) percent per annum. The
maturity date of the notes, together with any remaining interest, is December
31, 2009. Interest payments on the promissory notes are payable to Fort Street
bi-annually and at the maturity date of the obligations. In addition, on March
22, 2006, Fort Street, as a principal stockholder of the Company, granted to Ms.
Mulherin 277,576 of its common stock for no consideration or modification of the
Option Purchase Agreement described above.
On August 19, 2005, Mr. Mark Hoey, a stockholder of the Company, entered into an
Option Purchase Agreement with Fort Street whereby Mr. Hoey agreed to purchase
66,666 stock options of the Company held by Fort Street for the amount of
$20,000. The stock options entitle the holder to purchase a like number of
shares of common stock of the Company. Fort Street subsequently loaned the
proceeds from the sale of the stock options to the Company under the terms of a
promissory note dated August 29, 2005. The promissory note is unsecured, and
carries an interest rate of five (5) percent per annum. The maturity date of the
note, together with any remaining interest, is December 31, 2009. Interest
payments on the promissory note are payable to Fort Street bi-annually and at
the maturity date of the obligation. In addition, on March 22, 2006, Fort
Street, as a principal stockholder of the Company, granted to Mr. Hoey 66,666
shares of its common stock for no consideration or modification of the Option
Purchase Agreement described above.
On August 26, 2005, the Kelly Superannuation Fund, an unrelated party, entered
into an Option Purchase Agreement with Fort Street whereby the Fund agreed to
purchase 16,666 stock options of the Company held by Fort Street for the amount
of $5,000. The stock options entitle the holder to purchase a like number of
shares of common stock of the Company. Fort Street subsequently loaned the
proceeds from the sale of the stock options to the Company under the terms of a
promissory note dated August 29, 2005. The promissory note is unsecured, and
carries an interest rate of five (5) percent per annum. The maturity date of the
F-23
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006, AND 2005
note, together with any remaining interest, is December 31, 2009. Interest
payments on the promissory note are payable to Fort Street bi-annually and at
the maturity date of the obligation. In addition, on March 22, 2006, Fort
Street, as a principal stockholder of the Company, granted 16,666 shares of its
common stock to the Kelly Superannuation Fund for no consideration or
modification of the Option Purchase Agreement described above.
On September 14, 2005, Sandra L. Wendt, Vice President and Chief Financial
Officer of the Company, entered into an Option Purchase Agreement with Fort
Street whereby the Fund agreed to purchase 13,420 stock options of the Company
held by Fort Street for the amount of $2,280. The stock options entitle the
holder to purchase a like number of shares of common stock of the Company. Fort
Street subsequently loaned the proceeds from the sale of the stock options to
the Company under the terms of a promissory note dated September 14, 2005. The
promissory note is unsecured, and carries an interest rate of five (5) percent
per annum. The maturity date of the note, together with any remaining interest,
is December 31, 2009. Interest payments on the promissory note are payable to
Fort Street bi-annually and at the maturity date of the obligation. In addition,
as described in Note 4, on March 22, 2006, Fort Street, as a principal
stockholder of the Company, granted 13,720 shares of its common stock on behalf
of the Company to Ms. Wendt. The value of the common stock provided amounted to
$6,710, and has been recognized as compensation expense and additional paid-in
capital of the Company in the accompanying financial statements for the year
ended June 30, 2006. There was no modification of the Option Purchase Agreement
described above as a result of the grant of the common stock by the principal
stockholder.
On September 23, 2005, Keith Appleby, an unrelated party, entered into an Option
Purchase Agreement with Fort Street whereby the Fund agreed to purchase 16,666
stock options of the Company held by Fort Street for the amount of $5,000. The
stock options entitle the holder to purchase a like number of shares of common
stock of the Company. Fort Street subsequently loaned the proceeds from the sale
of the stock options to the Company under the terms of a promissory note dated
September 23, 2005. The promissory note is unsecured, and carries an interest
rate of five (5) percent per annum. The maturity date of the note, together with
any remaining interest, is December 31, 2009. Interest payments on the
promissory note are payable to Fort Street bi-annually and at the maturity date
of the obligation. In addition, on March 22, 2006, Fort Street, as a principal
stockholder of the Company, granted 16,666 shares of its common stock to Mr.
Appleby for no compensation or modification of the Option Purchase Agreement
described above.
On September 26, 2005, Neil Wendt, a related party, entered into an Option
Purchase Agreement with Fort Street whereby the Fund agreed to purchase 25,000
stock options of the Company held by Fort Street for the amount of $7,500. The
stock options entitle the holder to purchase a like number of shares of common
stock of the Company. Fort Street subsequently loaned the proceeds from the sale
of the stock options to the Company under the terms of a promissory note dated
September 26, 2005. The Company received the proceeds from the promissory note
in early October 2005. The promissory note is unsecured, and carries an interest
rate of five (5) percent per annum. The maturity date of the note, together with
any remaining interest, is December 31, 2009. Interest payments on the
promissory note are payable to Fort Street bi-annually and at the maturity date
of the obligation. In addition, on March 22, 2006, Fort Street, as a principal
stockholder of the Company, granted to Mr. Wendt 25,000 shares of its common
stock for no compensation or modification of the Option Purchase Agreement
described above.
On November 28, 2005, Elontraion Pty. Ltd., an unrelated Australian private
company, loaned $18,253 to the Company under the terms of a promissory note.
This promissory note is unsecured, and carries an interest rate of five (5)
percent per annum. The proceeds from the promissory note were used for working
F-24
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006, AND 2005
capital purposes. The maturity date of the note, together with any remaining
interest, is December 31, 2009. Interest payments on the promissory note are
payable to Elontraion Pty. Ltd. bi-annually and at the maturity date of the
obligation. In addition, on March 22, 2006, Fort Street granted to Elontraion
Pty. Ltd. 61,356 shares of its common stock for no compensation. There was no
modification to the terms of the promissory note as a result of the grant of the
common stock by Fort Street.
(10) Commitments and Contingencies
For each fiscal year since inception, the Company has recognized as compensation
expense the ongoing contribution of time and effort of six individuals, two of
which, currently serve as officers of the Company. Such individuals have
provided their time and effort without formal compensation by the Company which
in certain instances dates back to 1998. For the period ended December 31, 2004,
the Company recorded accrued compensation expense amounting to $23,384. Through
September 14, 2004, the total liability for employee compensation amounted to
$220,000. This obligation was satisfied by the transfer of 440,000 shares of
common stock of FFBI directly to the individuals from the shares received from
the Exchange Agreement by Mark A. Poulsen, President and Chief Executive Officer
of the Company, at a value of $.50 per share. FFBI credited paid-in capital for
the value of the accrued compensation satisfied by Mr. Poulsen.
On September 21, 2004, the Company entered into a contract with Insource Pty.
Ltd., a related party, for software services pertaining to the development of
certain computerized systems for customer service, administration, and
information reporting purposes. The contract price for the software development
services amounted to approximately $30,500, which was subsequently increased by
approximately $10,000, and the estimated duration of the contract term was 14
weeks. Further, under the terms of the contract, a down payment of $3,500 was to
be made, followed by weekly progress payments of approximately $1,930. The
estimated term of the contract was subsequently extended to the end of June
2005, and certain additional features were added to the computerized systems
applications. The Company completed the software development project on July 21,
2005, and placed the software in service. The cost of the software project
amounted to $38,393, and has been reflected as "Developed software applications"
in the accompanying balance sheet.
On November 28, 2004, the Company entered into a month-to-month expense sharing
agreement for office rent and other common area expenses with Mark A. Poulsen &
Associates Pty. Ltd. that provided for an effective date of July 1, 2004. The
expense sharing agreement replaced a lease arrangement between the Company and
Mark A. Poulsen & Associates Pty. Ltd. that expired on November 30, 2004. For
the year ended June 30, 2006, the Company accrued $16,651 in office rent and
common area costs pertaining to this agreement.
On February 1, 2005, the Company also entered into a registered agent
arrangement with Incorp. Services, Inc. whereby Incorp. agreed to act as the
registered agent for the State of Nevada, and to provide certain virtual office,
office facility use, and administrative services to the Company for a fee of
$1,495 per year.
In November 2005, the Company was notified by the SEC that in light of the
proximity in timing between the sales of 565,994 stock options held by Fort
Street to various parties and the loans evidenced by promissory notes made by
Fort Street to the Company, such sales of options by Fort Street are believed to
be a primary offering of securities by an underwriter on behalf of the Company
under Section 5 of the Securities Act of 1933 (the "33 Act"). If it is
determined that such transactions constitute a primary offering by or on behalf
of the Company in violation of Section 5 of the 33 Act, then the Company may be
subject to remedial sanctions. Such sanctions may include the payment of
disgorgement, prejudgment interest and civil or criminal penalties. Management
of the Company is not aware of any pending claims for sanctions against it based
on Section 5 of the 33 Act, and intends to vigorously defend against any such
claims if they arise. However, due to the notification by the SEC, the Company
has classified the promissory notes, amounting to $131,652, and accrued interest
of $6,450, as of June 30, 2006, as amounts subject to rescission in the
accompanying balance sheet.
F-25
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006, AND 2005
On June 30, 2006, under the terms of a resolution made by the Board of
Directors, the Company accrued a bonus of $365,050 (AUD$500,000) to Mark A.
Poulsen, President and Chief Executive Officer of the Company, for successfully
completing the registration of the Company's common stock with the SEC, and
trading related to such stock on the OTC:BB for a period of 30 days.
(11) Subsequent Events
Second License Agreement
On September 13, 2006, the Company entered into a License Agreement (the "Second
License Agreement") with Mr. Bruce Gilling of Miami, Florida, a related party.
As of June 30, 2006, Mr. Gilling was also an option holder to purchase 50,000
shares of the Company's common under an Option Purchase Agreement with Fort
Street (see Note 9). Per the Second License Agreement, Mr. Gilling as the right,
for a period of ten (10) years, to the use of the Company's logo, web based
management information system, marketing and promotional literature, processes,
systems, intellectual property, and attend the Company's events for the purpose
of generating new customers for the Company, and for training account executives
and customer service representatives. The fee for the Second License Agreement
is $500,000 payable as follows:
On or before October 16, 2000 - $20,000 On January 30, 2007 - $80,000
Balance to be invoiced each year for four years - $400,000
Also under the Second License Agreement, Mr. Gilling will be entitled to 100,000
stock options to purchase a like number of shares of unregistered common stock
of the Company at a 40% discount from market following the payment of the
license fee of $80,000 in January 2007. He will also receive 100,000 options to
purchase a like number of unregistered shares of common of common stock of the
Company at a 40% discount from market on each occasion that he invoices
$1,000,000 in retail sales of the Company's products and services. Lastly, the
Company is to have first right of refusal to purchase the resultant shares of
common stock received by Mr. Gilling under the Second License Agreement at the
then prevailing market price of the common stock or less.
Extension of Stock Options
On October 5, 2006, all options granted to purchase common stock of the
Company were extended through December 31, 2006.
(12) Restatement of Balances at June 30, 2006
The accompanying June 30, 2006 financial statements been restated to correct the
effects of an error. This error relates to the incorrect expensing of $375,250
of bad debts relating to doubtful collections of accounts receivable associated
with the Company's license agreement with Global Marketing Pty. Ltd. (see Note
8). No revenue was ever recognized on this license agreement and therefore the
bad debt allowance should have been recorded as a reduction of the associated
deferred revenue, rather than as a charge to operations pursuant to SAB No. 104.
The following financial statement line items for the year ended June 30, 2006
were affected by the correction:
As
Originally Effect of
Reported As Restated Change
----------- ----------- -----------
BALANCE SHEET:
--------------
Deferred revenue - license fee $ 500,000 $ 124,750 $ (375,250)
=========== =========== ===========
Total current liabilities 1,784,215 1,408,965 (375,250)
=========== =========== ===========
Total liabilities 1,940,570 1,565,320 (375,250)
=========== =========== ===========
Deficit accumulated during the
development stage (2,609,860) (2,234,610) 375,250
=========== =========== ===========
Total stockholders' (deficit) (1,761,931) (1,386,681) 375,250
=========== =========== ===========
F-26
As
Originally Effect of
Reported As Restated Change
----------- ----------- -----------
STATEMENT OF OPERATIONS AND
COMPREHENSIVE (LOSS):
---------------------
Total selling, general and
administrative expenses 1,673,645 1,298,395 375,250
=========== =========== ===========
Loss from operations (1,670,404) (1,295,154) 375,250
=========== =========== ===========
Net loss (1,677,717) (1,302,467) 375,250
=========== =========== ===========
Total comprehensive loss (1,630,370) (1,255,120) 375,250
=========== =========== ===========
(Loss) per common share (.08) (.06) (.02)
=========== =========== ===========
STATEMENT OF STOCKHOLDERS' (DEFICIT):
-------------------------------------
Net loss (1,677,717) (1,302,467) 375,250
=========== =========== ===========
Deficit accumulated during the
development stage (2,609,860) (2,234,610) 375,250
=========== =========== ===========
Total stockholders' (deficit) (1,761,931) (1,386,681) 375,250
=========== =========== ===========
STATEMENT OF CASH FLOWS:
------------------------
Net loss (1,677,717) (1,302,467) 375,250
=========== =========== ===========
Adjustment to reconcile net (loss)
to net cash (used in) operating
activities - allowance for
doubtful accounts 375,250 0 375,250
=========== =========== ===========
The cumulative amounts from inception have also been restated to incorporate the
changes to these financial statement line items.
F-27
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Forward-Looking Statements
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of our results of
operations and financial condition. The discussion should be read in conjunction
with our financial statements and notes thereto appearing in this prospectus.
The following discussion and analysis contains forward-looking statements, which
involve risks and uncertainties. Our actual results may differ significantly
from the results, expectations and plans discussed in these forward-looking
statements.
Overview
Fit For Business International, Inc. ("FFBI" or the "Company") is a Nevada
corporation in the development stage having a mission to improve the wellness
and productivity of people in the workplace. FFBI provides products and services
for: (i) corporate wellness programs which address business productivity, stress
and absenteeism issues; and (ii) living well programs directed primarily, but
not exclusively, to individuals over 45 years of age.
Fit For Business (Australia) Pty Limited ("Subsidiary") was organized as an
Australian private company on December 14, 1998, and subsequently began certain
marketing studies and corporate awareness programs to obtain customers for its
products and services. In October 2003, Subsidiary initiated a capital formation
activity through the private placement of certain convertible promissory notes
which provided, through September 14, 2004, proceeds of $365,000. Subsequent to
the completion of the reverse merger between FFBI and Subsidiary, the liability
associated with the convertible promissory notes was assumed by the Company.
Thereafter, all of the promissory notes were converted into shares of common
stock of FFBI.
In addition, in November 2003, Subsidiary commenced a capital formation activity
to effect a reverse merger with a corporation validly organized in the United
States for the purpose of completing a Registration Statement on Form SB-2 with
the Securities and Exchange Commission ("SEC"), and raising capital from the
issuance of common stock in the public markets of up to $4.5 million. The
initial capital formation activity through a deemed reverse merger and the
issuance of common stock was unsuccessful. Subsequently, Subsidiary completed a
reverse merger with FFBI, and FFBI undertook a second capital formation activity
of the same type which was completed in March, 2006.
Prior to September 14, 2004, Subsidiary, aside from the capital formation and
marketing activities described above, incurred other development stage operating
costs and expenses related to its organization as an entity, receipt of a
trademark in Australia for its name and related logo, formation of a management
team, accounting and tax preparation fees, consulting fees, travel, and other
general and administrative expenses.
On September 14, 2004, FFBI entered into a Share Exchange Agreement (the
"Exchange Agreement") with Subsidiary, whereby FFBI acquired all of the issued
and outstanding capital stock of Subsidiary (81 shares) in exchange for
15,000,000 shares of common stock and 1,000,000 shares of preferred stock of the
Company. Both the common stock and the preferred stock of FFBI have a par value
of $.001. The shares of preferred stock are non-participating, but each share is
entitled to fifty (50) votes in a general meeting of the stockholders. As a
result of the Exchange Agreement, the stockholders of Subsidiary control FFBI,
and Subsidiary has been deemed to have effected a reverse merger for financial
reporting purposes as of the date of the Exchange Agreement. The reverse merger
has been recorded as a recapitalization of the Company, with the net assets of
FFBI and Subsidiary brought forward at their historical bases.
Possible Section 5 Violation
It is possible that it can be determined that we violated Section 5 of the
Securities Act of 1933 based on the sales of options to purchase our common
stock executed by Fort Street Equity and loans made by Fort Street Equity to us.
Section 5(c) of the Securities Act prohibits the use of any means or instruments
of transportation or communication in interstate commerce or of the mails to
offer to sell or offer to buy a security unless a registration statement has
been filed as to such security. Because Fort Street Equity was acting as an
underwriter when it sold the securities acquired from us and of the proximity in
time between sales of securities held by Fort Street Equity to third parties and
loans made by Fort Street Equity to us, such transactions, taken together, may
be viewed as a primary offering by us or on our behalf without an effective
registration statement on file with the Securities and Exchange Commission.
The transactions that may have caused such a violation of Section 5 are as
follows: On July 25, 2004, we issued 2,000,000 options to Fort Street Equity,
Inc. to purchase the same number of shares of its common stock for $10,000 in
cash. Since issuance to Fort Street Equity, it sold 100,000 options to Ralston
Superannuation Fund, 50,000 options to Bruce Gilling, 277,576 options to Therese
Mulherin, 16,666 options to Kelly Superannuation Fund, 66,666 options to Mark
Hoey, 13,420 options to Sandra Wendt, 16,666 options to Keith Appleby and 25,000
options to Neil Wendt. In addition, for the purposes of providing working
capital, we borrowed from Fort Street Equity $19,050 on May 11, 2005, $15,000 on
June 19, 2005, $60,240 on July 1, 2005, $20,000 and $5,000 on August 29, 2005,
$2,280 on September 14 2005, $5000 on September 23, 2005 and $7,500 on September
26, 2005.
If it is determined that the sales and subsequent loans executed by Fort Street
Equity, acting as an underwriter, constitute a primary offering by us or on our
behalf in violation of Section 5, then we may be subject to remedial sanctions
under the Securities Act of 1933. Such sanctions could include the payment of
disgorgement, prejudgment interest, and civil or criminal penalties pursuant to
Sections 12(a)(1), 8A, and 24 of the Securities Act.
We are not aware of any pending claims for sanctions against us based on Section
5 of the Securities Act of 1933. However, in our financial statements we have
classified the promissory notes, amounting to $131,652 of principal, and accrued
interest of $$6,450, as of June 30, 2006, as amounts subject to rescission.
As of October 23, 2006, we do not have the capital or the liquidity to meet such
a recession requirement if needed. The claim would make it more difficult for us
to raise additional debt or equity financing needed to run our business, and
would not be viewed favorably by analysts or investors. Furthermore, this may
cause our cessation of business resulting in investors losing their money.
We intend to vigorously defend any such claim that such transactions constituted
a primary offering by us or on our behalf. Nevertheless, it is possible that a
court could determine that we did engage in a primary offering and that we are
subject to disgorgement, interest and possible civil penalties. This claim, if
successful, would significantly exceed our cash reserves and require us to
borrow funds and would materially and adversely affect our results of operations
and financial condition. Therefore, these claims would have a significant impact
on us and could force us to consider bankruptcy or a similar alternative with
the resulting impact of investors losing their money.
Extension of Option Exercise Period
The 2,000,000 options originally had an expiration date of December 31, 2005.
The Company extended the exercise date of the options until September 30, 2006
based on the following considerations:
o The business conditions that existed in May 2005, when the first options
were purchased from Fort Street, have not changed significantly in that the
Company has only been able to operate in a very limited capacity while
undertaking the capital formation activities. As such and as expected, the
option holders are yet to benefit from the finalization of the capital
formation activities and the full implementation of our plan of operations.
o The Company views the cash flow that will be provided by the exercise of
these options as an integral part of its capital formation activity in
order to implement its plan of operations. As such, it is in the best
interests of the Company to extend these options at nil consideration.
o As a risk mitigation strategy relating to the possible rescission of the
promissory notes and accrued interest as disclosed in the preceding
section.
These options have since been extended through December 31, 2006.
In the course of the activities described above, we have sustained operating
losses and expect such losses to continue in the foreseeable future. To date, we
have not generated sufficient revenues to achieve profitable operations or
positive cash flow from operations. As of June 30, 2006, we had a working
capital deficit of $(1,407,593) and an accumulated deficit of $(2,234,610).
There is no assurance that profitable operations, if ever achieved, will be
sustained on a continuing basis. During the period ended June 30, 2006, we
derived revenues from the sale of programs to corporate and living well
customers.
The report of our independent auditors on our financial statements for the
period ended June 30, 2006, contains an explanatory paragraph which indicates
that we have recurring losses from operations, and our working capital is
insufficient to meet our planned business objectives. This report also states
that, because of these losses, there is substantial doubt about our ability to
continue as a going concern. This report and the existence of these recurring
losses from operations may make it more difficult for us to raise additional
debt or equity financing needed to run our business, and are not viewed
favorably by analysts or investors. Furthermore, if we are unable to raise a
significant amount of proceeds in this offering, this may cause our cessation of
business resulting in investors losing the value of their investment in us.
With our main revenues likely to be generated from the sale of our wellness
programs to corporations and government departments, we will be concentrating on
sales efforts with those corporations most likely to purchase our programs.
Market research will be conducted to identify those corporations most likely to
purchase our programs following which the sales process can take anywhere from 3
to 12 months to complete. Corporations and government departments class our
programs as mainly employee benefits programs. If economic circumstances become
tight, corporations tend to reduce their expenditures on employee benefits
programs and this will have a detrimental impact on our revenues.
Other trends that have a material effect on our revenues, plan of operations and
the results of our operations include our market's tendency to be aware of
health issues and the desire of the majority of those in our market to maintain
or improve their current level of health and personal well being. Currently,
those in Australia and New Zealand are very much aware of the importance of good
health and physical fitness. Our products and services rely on this awareness
and desire. These trends result in part from government education programs and
also from social pressures to look well and be physically active. While there is
no indication that these trends will decline, there is no assurance that these
trends will continue and if they were to cease or become less prevalent, our
results will be materially affected.
Critical Accounting Policies
Our financial statements are prepared in accordance with accounting
principles generally accepted in the United States ("US GAAP"). In connection
with the preparation of the financial statements, we are required to make
assumptions and estimates about future events, and apply judgments that affect
the reported amounts of assets, liabilities, revenues, expenses and the related
disclosure. We base our assumptions, estimates and judgments on historical
experience, current trends and other factors that management believes to be
relevant at the time the financial statements are prepared. On a regular basis,
management reviews our accounting policies, assumptions, estimates and judgments
to ensure that our financial statements are presented fairly and in accordance
with U.S. GAAP. However, because future events and their effects cannot be
determined with certainty, actual results could differ from our assumptions and
estimates, and such differences could be material.
Our significant accounting policies are discussed in Note 1 of the notes to
financial statements, "Significant Accounting Policies". Certain critical
policies are presented below.
Revenue Recognition
We are in the development stage and have yet to realize significant revenues
from planned operations. We have derived revenues principally from the sale of
services related to wellness programs, literature and training materials. We
have also entered into a license agreement for Australia and New Zealand which
entitles the licensee to provide a distribution network for us, use our logo and
software, and market and promote our products and services. Revenue will be
derived over the term of the license agreement once all terms and conditions
have been met. Revenues are recognized by major categories under the following
policies:
For specific wellness program services, such as health risk assessment services,
fitness programs, educational and other programs, and contracts pertaining to
such services, revenue is realized as services are provided. Contracts for
wellness program services are evidenced in writing, and as services are
rendered, invoices for such services are rendered in accordance with contract
terms.
For sales of literature and training materials, revenue is realized upon
shipment to the customer and there are no unfulfilled company elements related
to a customer's order. Orders for literature and materials are evidenced in
writing on customer and call center order documents. Payments are provided in
cash, check or by credit card at the time orders are placed with us.
For license agreements, revenue is realized from licensing activities related to
various countries and geographic regions, which entitle licensees to provide a
distribution network for us, the use of our logo, software and training
materials, and the rights to market and promote our services. Revenue from such
agreements is realized over the term and under the conditions of each specific
license once all contract conditions have been met. Payments for licensing fees
are generally received at the time the license agreements are executed, unless
other terms for delayed payment are documented and agreed to between the
parties. Under terms for delayed payment, we may require further assurances of
payment under contract terms such as credit report information, and entity and
personal guarantees.
Internal Web Site Development Costs
Under Emerging Issues Taskforce Statement 00-2, Accounting for Web Site
Development Costs ("EITF 00-2"), costs and expenses incurred during the planning
and operating stages of our web site are expensed as incurred. Under EITF 00-2,
costs incurred in the web site application and infrastructure development stages
are capitalized by us and amortized to expense over the web site's estimated
useful life or period of benefit.
Costs of Computer Software Developed or Obtained for Internal Use
Under State of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"), we capitalize external
direct costs of materials and services consumed in developing or obtained
internal-use computer software; payroll and payroll-related costs for employees
who are directly associated with and who devote time to the internal-use
computer software project; and, interest costs related to loans incurred for the
development of internal-use software.
Costs of Computer Software to be Sold or Otherwise Marketed
Under Statement of Financial Accounting Standards No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed ("SFAS
86"), we capitalize costs associated with the development of certain training
software products held for sale when technological feasibility is established.
Capitalized computer software costs of products held for sale are amortized over
the useful life of the products from the software release date.
Foreign Currency
The Company accounts for foreign currency translation pursuant to SFAS No. 52,
Foreign Currency Translation ("SFAS 52"). The Company's functional currency is
the Australian dollar. All assets and liabilities are translated into United
States dollars using the current exchange rate at the end of each fiscal period.
Revenues and expenses are translated using the average exchange rates prevailing
throughout the period. Translation adjustments are included in accumulated
comprehensive income (loss) for the period. Certain transactions of the Company
are denominated in United States dollars. Translation gains or losses related to
such transactions are recognized for each reporting period in the related
statement of operations and comprehensive income (loss).
As a result of such currency fluctuations and the conversion to United States
dollars for financial reporting purposes, we may experience fluctuations in our
operating results on an annual or quarterly basis going forward. We have not in
the past, but may in the future, hedge against fluctuations in exchange rates.
Future hedging transactions may not successfully mitigate losses caused by
currency fluctuations.
Accounting for Income Taxes
Significant judgment is required in determining our worldwide income tax expense
provision. In the ordinary course of a global business, there are many
transactions and calculations where the ultimate tax outcome is uncertain. Some
of these uncertainties arise as a consequence of cost reimbursement arrangements
among related entities, the process of identifying items of revenue and expense
that qualify for preferential tax treatment and segregation of foreign and
domestic income and expense to avoid double taxation. Although we believe that
our estimates are reasonable, the final tax outcome of these matters may be
different than those presented in our historical income tax provisions and
accruals. Such differences could have a material effect on our income tax
provision and net income (loss) in the period in which such determination is
made.
The Company accounts for income taxes pursuant to SFAS No. 109, Accounting for
Income Taxes ("SFAS 109"). Under SFAS 109, deferred tax assets and liabilities
are determined based on temporary differences between the bases of certain
assets and liabilities for income tax and financial reporting purposes. The
deferred tax assets and liabilities are classified according to the financial
statement classification of the assets and liabilities generating the
differences.
The Company maintains a valuation allowance with respect to deferred tax assets.
The Company establishes a valuation allowance based upon the potential
likelihood of realizing the deferred tax asset and taking into consideration the
Company's financial position and results of operations for the current period.
Future realization of the deferred tax benefit depends on the existence of
sufficient taxable income within the carryforward period under the Federal tax
laws.
Changes in circumstances, such as the Company generating taxable income, could
cause a change in judgment about the realizability of the related deferred tax
asset. Any change in the valuation allowance will be included in income in the
year of the change in estimate.
As of June 30, 2006, the Company had net operating loss carryforwards for income
tax reporting purposes of approximately $2,235,000 that may be offset against
future taxable income. The net operating loss carryforwards expire in the years
2021-2026. Current tax laws limit the amount of loss available to be offset
against future taxable income when a substantial change in ownership occurs or a
change in the nature of the business. Therefore, the amount available to offset
future taxable income may be limited. No tax benefit has been reported in the
financial statements for the realization of loss carryforwards, as the Company
believes there is high probability that the carryforwards will not be utilized
in the foreseeable future. Accordingly, the potential tax benefits of the loss
carryforwards are offset by a valuation allowance of the same amount.
RESULTS OF OPERATIONS
PERIOD ENDED JUNE 30, 2006, COMPARED TO THE PERIOD ENDED JUNE 30, 2005.
Revenues
Total revenues for the period ended June 30, 2006, amounted to $9,622, or a 13%
decrease over revenues of $11,053 for the same period ended June 30, 2005. The
decrease in revenues resulted from a lack of capital to employ a sufficient
sales force.
Cost of Goods Sold
Cost of goods sold increased $2,081, or 48.4%, to $6,381 for the period ended
June 30, 2006, when compared to $4,300 for the same period ended June 30, 2005.
The increase was due to additional sales of the Company's Herbalife nutritional
products.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the period ended June 30, 2006,
increased by 241.5% to $1,298,395, when compared to $537,653 for the same period
ended June 30, 2005. The increase was primarily attributed to executive
salaries, an executive bonus, and bad debt expenses.
Other Income (Expense)
For the period ended June 30, 2006, other (expense) consisted of interest
expense of $(7,313) related to an increase in debt and the interest required to
service such debt. For the same fiscal period ended June 30, 2005, other
(expense) consisted of interest expense of $(5,408).
Net (Loss)
Net (loss) for the period ended June 30, 2006, amounted to $(1,302,467),
compared to $(536,308) for the same period ended June 30, 2005. The increase in
the net (loss) of $(766,159) resulted primarily from the overall decrease in
selling, general and administrative expenses, described above and the increase
in revenues for the period.
Comprehensive Income (Loss) - Australian Currency Translation
For the period ended June 30, 2006, comprehensive income related to Australian
currency translation amounted to $47,347, compared to a comprehensive income of
$1,855 for the same fiscal period in 2005.
Total Comprehensive (Loss)
For the period ended June 30, 2006, we experienced a comprehensive (loss) of
$(1,255,120), compared to a comprehensive (loss) of $(534,453) for the same
fiscal period in 2005. The increase in the total comprehensive (loss) of
$(720,667) resulted primarily from the overall increase in selling, general and
administrative expenses, and the decrease in revenues offset by the increase in
comprehensive income for the period.
Net (Loss) Per Share
We incurred a net (loss) per share of $(0.06) for the period ended June 30,
2006, compared to a net (loss) per share of $(0.03) for the same period ended
June 30, 2005. The weighted average number of common shares outstanding for the
twelve-month period ended June 30, 2006, was 20,888,123, compared to 20,235,890
shares for the same period in 2005. The weighted average number of common shares
outstanding for the periods ended June 30, 2006, and 2005, reflects the
retroactive restatement of shares outstanding from the reverse merger between
FFBI and Subsidiary effected on September 14, 2004.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2006, our total current assets were $1,372 and our total current
liabilities were $1,408,965, resulting in a working capital deficit of
$(1,407,593). As of the same date, we also had an accumulated deficit during the
development stage of $(2,234,610). We finance our operations with a combination
of securities issuances and loans from related parties. As discussed below, we
completed a private placement of convertible promissory notes in June 2005,
which provided gross proceeds of $365,000.
Software development expenditures as of June 30, 2006, amounted to $0 from
$40,071 as of June 30, 2005. The increase in software development costs is a
result of the development of our web based management information system. We
also incurred $7,593 in web site development costs which have been reflected in
our financial statements as of June 30, 2006.
On November 25, 2005, Kamaneal Investments Pty. Ltd., a related party entity,
loaned $31,344 to us. The amount loaned was for working capital purposes, is
non-interest bearing, and has no terms for repayment.
As of June 30, 2006, we had $95 of cash resources. Our current cash resources
are not sufficient to satisfy our cash requirements over the next 12 months. Our
management does not believe that we have sufficient funds to continue operations
through the end of January 2007.
In order to preserve cash, employment positions at our company have already been
eliminated as necessary to correspond to the lack of capital. As such the only
staff continuing to be employed are the Mr. Mark Poulsen, Ms. Sandra Wendt and
Mr. Tony Head. Available staff are continuing to focus on the two primary
activities of capital formation and revenue generation via program sales.
However, with the lack of capital for marketing and promotion, sales activities
have been severely curtailed.
On August 25, 2004, our Subsidiary entered into a License Agreement (the
"Agreement") with L.R. Global Marketing Pty. Ltd. ("L.R. Global"), an Australian
corporation acting as trustee for Fit For Business Australia/New Zealand Trust
(the "trust"). The principals of L.R. Global are Laraine Richardson and Dianne
Waghorne, and the beneficiaries of the trust are Laraine Richardson and Dianne
Waghorne.
The principals of L.R. Global and the beneficiaries of the trust being the same
persons are not related to us, or to our Subsidiary, our officers or directors,
except as described herein. L.R. Global is a Herbalife distributor. Under the
terms of the Agreement, L.R. Global has been granted a non-assignable,
non-exclusive license to represent Subsidiary within Australia and New Zealand
for a term of ten (10) years in consideration for the payment of a licensing fee
in the amount of $500,000. Pursuant to the terms of the Agreement, L.R. Global
may use our logo, our web based management information system, marketing and
promotional literature, processes, systems, intellectual property and attend
FFBI events, for the purpose of generating new customers for us and for training
account executives and customer service representatives. Subsequent to the share
exchange transaction of September 14, 2004, Mark A. Poulsen, our President and
Chief Executive Officer, transferred 500,000 common shares to L.R. Global. The
purpose of the transfer was to further involve L.R. Global in the Company as a
stockholder, and to provide an incentive for L.R. Global to perform under the
License Agreement. We maintain that the transfer of shares of common stock to
L.R. Global by Mark A. Poulsen, our President and Chief Executive Officer, was a
private transaction between the parties, and not part of the Exchange Agreement
to be recognized in our financial statements. To date, L.R. Global has paid us
USD $124,750 of the licensing fee and we agreed to extend to a date within sixty
(60) days following the first date on which our common stock is quoted on the
OTC Bulletin Board or other recognized stock exchange, the balance due us. In
addition, the principals of L.R. Global, Laraine Richardson and Dianne Waghorne,
have executed personal guarantees for the payment of the balance of the
outstanding license fees. As at 30 September 2006 L.R. Global was yet to make
the remaining payment. L.R. Global's legal representatives are in discussions
with the company attempting to negotiate a further payment arrangement, however
a settlement is not imminent and may not occur. L.R. Global has informed the
Company that it may seek damages in an amount equal to the amount owed under the
licensing agreement plus other damages in connection with alleged activities by
the Company during the relationship. While the Company is negotiating in good
faith the Company has reserved its rights to legally enforce its entitlements
under its licensing agreements and the Directors and Personal Guarantees.
The delay experienced in collecting the remaining amount of the license fee from
L.R. Global is due primarily to the extended period of time required by us to
complete our capital formation activities. The principals of L.R. Global have
informed us that L.R. Global entered into the License Agreement with the
understanding that we would implement our plan of operations (including the
completion of our capital formation activities) in February 2005. At that time,
L.R. Global was committed to provide additional sales and marketing resources,
and pay the remaining amount of the license fee due. As a result of ongoing
discussions with the principals of L.R. Global and review of available credit
information, we believed that: (i) L.R. Global had sufficient financial
resources to pay the remaining amount owed to us, (ii) complete payment of the
license fee would be accomplished under the terms of the second extension
agreement dated June 14, 2005, and (iii) the personal guarantees of the
principals of L.R. Global provided sufficient additional assurance of
collectibility under Australian law. As of October 10, 2006, there have been no
modifications to the second extension agreement to the License Agreement, or
changes in any of its terms.
As a result of this lack of enforcement by the Company, a reserve for doubtful
accounts in the amount of $375,250 was recorded in the financial statements
during the year ended June 30, 2006. Further, due to the matters described above
pertaining to the lack of completion of its capital formation activities by
collection of the amount owed, the Company has not recognized revenue to-date
from this License Agreement. Accordingly, the reserve for doubtful accounts
reduced our deferred revenues related to the license agreement by $375,250
pursuant to SAB No. 104.
In September 2006, the Company entered into a non-assignable license agreement
with Mr Bruce Gilling of Florida ("Gilling"). Mr Gilling is an existing
optionholder of FFBI but is not otherwise related to FFBI, or to its officers
and directors except as described herein. Pursuant to the license agreement,
Gilling has the right, for a period of ten (10) years, to the use of our logo,
our web based management information system, marketing and promotional
literature, processes, systems, intellectual property and attend FFBI events for
the purpose of generating new customers for the Company and for training account
executives and customer service representatives.
Under the terms of the license agreement, Gilling is obligated to pay $500,000
for the grant of the license. Gilling will as an independent Herbalife
distributor receives a five (5%) percent commission directly from Herbalife on
the sales of the Herbalife products generated by Gilling as part of any FFBI
program sales. The 5% commission is a standard commission paid by Herbalife to
independent distributors such as Gilling. FFBI has no influence, or agreement,
as to what commissions Gilling will receive from Herbalife. This is a matter
entirely determined independently through Gilling independent distributor
agreement with Herbalife.
The License fee payment will be made by way of initial deposit of $20,000 in
October 2006, a further implementation Fee of $80,000 in January 2007, and then
annually as invoiced $100,000 per year for four years. Pursuant to the licensing
agreement Gilling will be entitled to 100,000 options convertible to
unregistered shares at a 40% discount to market following the payment of
implementation Fee in January 2007. Gilling is also to receive 100,000 options
convertible to unregistered shares at a 40% discount to market as on each
occasion that he invoices $1,000,000 in retail sales. The Company is to have the
first right of refusal on the sale of the resultant shares by Gilling, at the
then prevailing market price or less.
The successful implementation of all aspects of the business plan is subject to
our ability to be able to raise additional funds and the Company strategy is to
raise such further Capital through the issuance of:
o Promissory notes; and
o further options, subsequently registering these options, following
which the holder of these option would exercise these option resulting
in the inflow of funds to the Company.
The Company is currently in negotiations with various parties in attempting to
execute the above strategies and is hopeful that this strategy will provide
$1,200,000 in Capital within the next 3 to 6 months.
A crucial component of our business strategy is to implement our sales plan in
order that we may secure sufficient sales to become profitable. It has been
estimated that we will require $180,000 for marketing, promotional and brand
campaign costs, in order to effectively implement our sales plan.
If we raise less than $1,200,000 through the Company's intended capital raising
strategy, we would have to curtail expenditures on recruitment of staff and or
on various projects or delay these recruitment actions or projects until funds
do become available. The delay in the recruitment of staff or projects will have
an impact on our ability to achieve the sales target we seek to attain, and
consequently delay the company reaching profitability.
Should the funding required to pursue our business strategy not be forthcoming
from the aforementioned sources, we may have to explore other avenues of capital
formation. In any event, our investors should assume that any additional funding
will cause substantial dilution to current stockholders. In addition, we may not
be able to raise additional funds on favorable terms, if at all.
For the purposes of providing working capital, FFBI borrowed from Fort Street
Equity $19,008 on May 11, 2005, $15,000 on June 19, 2005, $60,240 on July 1,
2005, $20,000 and $5,000 on August 29, 2005, $2,280 on September 14 2005, $5,000
on September 23, 2005 and $7,500 on September 26, 2006 (the $7,500 in proceeds
from this note were received by us in October 2005). These borrowings were
evidenced by a total of nine promissory notes with all but the borrowing of July
1, being in the amounts borrowed. The borrowing of July 1 of $60,240 is
evidenced by two promissory notes each of $30,120.
The promissory notes all have the same material terms in that they are
unsecured, and carry an interest rate of five (5) percent per annum. The
maturity date of the notes, together with any remaining interest, is December
31, 2009. Interest payments on the promissory notes are payable to Fort Street
bi-annually and at the maturity date of the promissory notes, specifically,
December 31, 2009.
There can be no assurance that we will be able to raise $4.5 million in equity
capital through our planned capital raising strategy, or be successful in the
sale of our products and services that will generate sufficient revenues to
sustain our operations.
The notes to our financial statements include an explanatory paragraph
expressing substantial doubt about our ability to continue as a going concern.
Among the reasons cited in the notes as raising substantial doubt as to our
ability to continue as a going concern are the following: we have incurred
operating losses since inception, and our working capital is insufficient to
meet our planned business objectives. Our ability to continue as a going concern
is dependent on our ability to further implement our business plan, raise
additional capital and generate revenues.
Plan of Operation
The detailed plan of operation outlined below is based on the capital raising
strategy delivery $4.374 million. However, since we are a development stage
company with no significant operating history and in poor financial condition,
we may be unsuccessful in obtaining financing or the amount of the financing may
be minimal, and therefore, inadequate to implement our full plan of operations
as described below. We have therefore developed five alternative plans of
operations depending on financing being raised at the levels of $4.374 million,
$2.7 million, $1.2 million, $700,000 and $350,000. These alternate plans involve
a scaling back or staged implementation of the $4.374 million plan of operations
described in detail below.
For example if we were to raise only $350,000 then the following items would be
funded:
Approximate Approximate
Dollar Percentage of
Application of Proceeds Amount Net Proceeds
- ----------------------- ------ ------------
Working Capital (6)
Rent Expense $ 40,000
Salaries 250,000
Cash Flow Funding 60,000 $ 350,000 100.0%
----------- ------
Total.................. $ 350,000 100.0%
=========== ======
As a result initiatives described in the full plan of operations that do not
relate to the above items will not proceed. At this level of funding, the
efforts of all personnel would be directed towards either further capital
formation or revenue generation through program sales. The Salaries funding will
allow a core group of staff to undertake specific activities as follows:
- - Capital raising via alternate sources.
- - Actively working with the 67 independent account executives continuing to
identify companies to undertake sales presentations to.
- - Actively working with the 67 independent account executives researching
company leads to ensure they meet an identified set of criteria.
- - Approaching the identified companies via our 67 account executives with our
sales proposal.
- - Closing sales and negotiating contracts.
- - Working with the licencee to recruit and train sufficient customer service
representatives to implement and deliver on contracts.
- - For the business that we win initiating the implementation program via our
customer service representatives.
- - Continuing to monitor and report to the individuals and corporations
consuming our programs.
- - Undertaking the necessary administrative support tasks to support the above
activities.
Further, if we were to raise less than $350,000, then the expenditures
enumerated in this example will be decreased in a proportionate manner, provided
that salaries will be decreased at a rate twice that of cash flow funding and
rent expense.
As illustrated above, the implementation of the plan of operation is highly
dependant on the level and timing of the capital raised. While we had originally
contemplated that the implementation of the plan of operations would commence in
February 2005 this was based on the capital raising being finalized some months
earlier. As we have been unable to raise the funds required to date to date, we
have been unable to pursue our intended plan of operations in the time frame
originally anticipated. We have therefore based our plan of operation relative
to a point in time after our intended capital raising.
Implementation Of The $4.374 Million Plan Of Operations:
During the period ended September 30, 2006, we have devoted our activities to
the following:
Maintaining our operating infrastructure;
- - With the use of the minimal staffing levels maintaining the operations of
FFBI.
Capital raising:
- - Unconcluded discussions are continuing with various parties as to the
provision of funding via a mixture of the issuance of Promissory notes,
exercise of options and PIPES transactions. Management expectations are
that the first tranche of funding amounting to $350,000 should be available
by November 2006/
Expansions of the Licensee base:
- - An additional licensee has been signed up in the USA.
Sales:
- ------
- - Identification of market segments that are predisposed to purchasing our
programs.
- - Identifying companies with the purchasing power within that segment.
- - Researching company leads to ensure they meet an identified set of
criteria.
- - Approaching the identified companies via our account executives with our
sales proposal.
- - Winning the business
- - Initiating the implementation program via our customer service
representatives.
- - Continually monitoring and reporting to the individuals and corporations
consuming our programs.
- - Continuously improving our internal processes and systems and ensure all
account executives and customer service representatives are fully trained.
The plan of operations post-September 2006 is highly dependant on our ability to
raise sufficient capital. As such, itemized below is our plan of operations,
anticipated activities and expected costs assuming net proceeds from capital
raising activities of $4,000,000. If a lesser amount is raised then it will be
necessary to reduce both the range and extent of activities undertaken and some
timeframes will extend.
The period ending three months post-capital raising:
Our business objectives for this period are as follows:
a. Recruitment of staff
- -----------------------
The following staff will be recruited to augment the existing 3 staff members: -
Senior Vice-President and Chief Operating Officer - Financial Officer -
Development Director - 5 X Corporate account executives
b. International Market Development - USA
- -------------------------------------------
- - Identify potential new licensees in USA.
- - Sell new licenses in USA.
- - Recruit Account Executives and Customer Service Representatives in
conjunction with the Licensees in USA.
- - Refine our marketing and sales process in conjunction with the USA
Licenses.
- - Specify any required changes to our Web presence and our web base
management information system to accommodate USA nuances.
c. Sales
- ----------
Recruitment of five full-time employed corporate account executives will
commence. Continued sales efforts by existing independent Account Executives
targeting corporations.
d. Computer Software and Systems
- ----------------------------------
Delivery and implementation of version 2 of our web-based integrated management
system.
e. Program Development
- ------------------------
It is expected in-house permanent staff will increase to include a Development
Director. We will also initiate new product offerings such as: Physical activity
components, (i.e. walking programs) stress management programs (i.e. yoga,
meditation, Tai Chi) Inoculations, education programs (i.e. meal planning,
cooking lessons) weight management (dietitian, nutritionist) to be included in
the programs identified by our collaborate approach with other Occupational
Health and Safety Providers.
f. Marketing, Promotion Literature and Brand
- ----------------------------------------------
Continue Marketing and Brand building via press releases, targeted media
interaction, and relationship building events.
Methods of Achieving Objectives
The new Development Director will, deliver on items (b)and (e) and we have
estimated that we require $40,000 for research assistance and travel to USA.
The Senior Vice President/Chief Operating Officer will be responsible for the
recruitment activity of Item (c) and will engage the services of a professional
recruitment firm to assist in this process. It is anticipated that it will cost
in the order of $60,000.
The sales activity of Item (c) will be achieved by the Senior Vice President of
Sales with the assistance of our Licensee, independent account executives, and
independent customer service representatives.
Item (d) will require the assistance of Insource Pty Ltd. We entered into a
contract with Insource Pty. Ltd. for software services pertaining to the
development of certain computerized systems for customer service,
administration, and information reporting purposes. The contract price for the
software development services amounted to $40,502 and includes the delivery and
implementation assistance for version 2.
Item (f) will be achieved through the efforts of the existing full time staff of
FFBI.
The period ending 6 months post-capital raising:
- ------------------------------------------------
Our business objectives for this period are as follows:
a. Computer Software and Systems
- ----------------------------------
Specify the call centre module that is to be developed as part of the Web based
management information system.
Enhance the Web Based information system to cater for the Japanese market.
b. Website Design and Enhancement
- -----------------------------------
Specify and implement the e-commerce components of the web presence.
Modify the Web presence to cater for the USA market place.
c. Multi Media Training programs
- ----------------------------------
Specify the requirements in order to change the paper base training programs for
our account executives and customer service representatives to a Multi Media
base.
d. Marketing, Promotion Literature and Brand:
- -----------------------------------------------
Continue Marketing and Brand building via continued press releases, targeted
media interaction and relationship building events.
Implement an Awards program to recognize businesses that operate corporate
health and awareness programs, particularly those which achieve outstanding
productivity improvements or reductions in absenteeism. Partner with Australian
State and Federal Governments to recognize public sector employers who achieve
in this area.
Commence Marketing and Brand building activities in USA in which we identify
corporations within market segments that are predisposed to purchasing our
programs and then sell to them.
e. International Market Development
- -------------------------------------
Continue with the preparation to commence business in USA.
- - Initiate new product offerings to be included in the Fit For Business USA
programs
Commence market development for Japan as follows:
- - Research and test Japan market for compatibility in accepting the current
configuration of our programs.
- - Develop marketing approach to sell licenses in Japan.
- - Identify potential new licensees in Japan. Sell licenses in South
Japan.
- - Recruit account executives and customer service representatives in
conjunction with the Licensees in Japan.
- - Refine our marketing and sales process in conjunction with the Japanese
Licensees.
- - Specify any required changes to our Web presence and our web base
management information system to accommodate Japanese nuances.
f. Sales
- ----------
The five full-time employed corporate account executives will commence
employment and be trained and start to sell our programs to our target markets.
The sales process and length of time taken to finalize sales will vary depending
on the size and nature of the organization that we are targeting.
New Licensee in Australia and USA would be joining and bringing on between 10 to
15 Independent Account Executives to assist with the sales effort.
Method of achieving objectives
Items (a) and (b) will require the assistance of Insource Pty Ltd. We will
negotiate a new contract for the delivery of these objectives and anticipate
that the cost for this component will be $40,000.
Item (c) will require the assistance of a specialized elearning content
developer and provider. A specific provider has not been identified at this
time. The cost is expected to be $20,000.
Item (d) will be achieved through the efforts of the existing full time staff of
FFBI and the engagement of a Advertising and Communications agency. The cost is
expected to be $40,000.
Item (e) will be delivered by the Development Director and will require an
estimated $70,000 for research assistance and travel.
Item (f) will be achieved and guided by the Senior Vice President of Sales.
The period ending 9 months post-capital formation:
- --------------------------------------------------
Our business objectives for this period are as follows:
a. Computer Software and Systems
- ----------------------------------
Develop and implement the call centre module that is part of the Web based
management information system.
Enhance the Web Based information system to cater for the Japanese market.
b. Website Design and Enhancement
- -----------------------------------
Modify the Web presence to cater for the Japanese market place.
c. Multi Media Training programs
- ----------------------------------
Develop and implement the multi media based training programs for our account
executives and customer service representatives.
d. Marketing, Promotion Literature and Brand:
- -----------------------------------------------
Continue marketing and brand building via continued press releases, targeted
media interaction and relationship building events.
Commence marketing and brand building activities in Japan in which we identify
corporations within market segments that are predisposed to purchasing our
programs and then sell to them.
e. International Market Development
- -------------------------------------
Continue with the preparation to commence business in Japan. -- Initiate new
product offerings to be included in the Fit For Business Japanese programs.
Commence market development for South Korea as follows:
- - Research and test South Korean market for compatibility in accepting the
current configuration of our programs.
- - Develop marketing approach to sell licenses into South Korea.
- - Identify potential new licensees in South Korea. Sell licenses in South
Korea.
- - Recruit account executives and customer service representatives in
conjunction with the Licensees in South Korea.
- - Refine our marketing and sales process in conjunction with the South Korean
Licensees.
- - Specify any required changes to our Web presence and our web base
management information system to accommodate South Korean nuances.
f. Sales
- ----------
Sales in Australia are expected to be established with consistent program sales
and first USA sales commencing. It is anticipated that a new Licensee would be
joining for Japan and bringing on between 5 and 10 account executives to assist
with the Sales effort.
Method of achieving objectives
Items (a) and (b) will require the assistance of Insource Pty Ltd. We anticipate
that the cost for this component will be $70,000.
Item (c) will require the assistance of a specialized learning content developer
and provider. A specific provider has not been identified at this time. The cost
is expected to be $80,000.
Item (d) will be achieved through the efforts of the existing full time staff of
FFBI and the engagement of a Advertising and Communications agency. The cost is
expected to be $90,000.
Item (e) will be delivered by the Development Director and will require an
estimated $100,000 for research assistance and travel.
Item (f) will be achieved and guided by the Senior Vice President of Sales.
Since we are a development stage company with no significant operating history
and a poor financial condition, we may be unsuccessful in obtaining financing or
the amount of the financing may be minimal, and therefore, inadequate to
implement our full plan of operations. We have developed five alternative plans
of operations depending on financing being raised at the levels of $4.374
million, $2.7 million, $1.2 million, $700,000 and $350,000. These alternate
plans involve a scaling back or staged implementation of the $4.374 million plan
of operations described. In the event that we do not receive the full, or
partial financing, or our financing is inadequate or if we do not adequately
implement an alternative plan of operations that enables us to conduct
operations without having received adequate financing, we may have to liquidate
our business and undertake any or all of the following actions:
1. Sell or dispose of our assets;
2. Pay our liabilities in order of priority, if we have available cash to pay
such liabilities;
3. If any cash remains after we satisfy amounts due to our creditors,
distribute any remaining cash to our shareholders in an amount equal to the net
market value of our net assets;
4. File a Certificate of Dissolution with the State of Nevada to dissolve our
corporation and close our business;
5. Make the appropriate filings with the Securities and Exchange Commission so
that we will no longer be required to file periodic and other required reports
with the Securities and Exchange Commission, if, in fact, we are a reporting
company at that time; and
6. Make the appropriate filings with the National Association of Security
Dealers to affect a de-listing of our common stock, if, in fact, our common
stock is quoted on the Over-the-Counter Bulletin Board at that time.
If we have any liabilities that we are unable to satisfy and we qualify for
protection under the US Bankruptcy Code, we may voluntarily file for
reorganization under Chapter 11 or liquidation under Chapter 7. Our creditors
may also file a Chapter 7 or Chapter 11 bankruptcy action against us. If our
creditors or we file for Chapter 7 or Chapter 11 bankruptcy, our creditors will
take priority over our shareholders. If we fail to file for bankruptcy under
Chapter 7 or Chapter 11 and we have creditors, such creditors may institute
proceedings against us seeking forfeiture of our assets, if any. We do not know
and cannot determine which, if any, of these actions we may be forced to take.
Material commitments for capital expenditure: We have no material commitments
for capital expenditures.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Fit For Business International, Inc.
Condensed Consolidated Financial Statements
December 31, 2007 and 2006
(Unaudited)
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
------
December 31,
2007
------------
Current assets
Cash and cash equivalents $ 688
Accounts receivable, net of allowance for doubtful accounts --
Inventory 1,533
------------
Total current assets 2,221
Property and equipment
Office and computer equipment 2,365
Furniture and fixtures 211
Web site development costs 9,118
Developed software applications 46,102
------------
57,796
Less accumulated depreciation and amortization (29,945)
------------
Net property and equipment 27,851
------------
Other assets
Deferred offering costs 201,309
------------
Total assets $ 231,381
============
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
1
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
---------------------------------------
December 31,
2007
------------
Current liabilities
Accounts payable $ 71,633
Accrued compensation and related expenses 173,392
Other accrued liabilities 143,373
Loans from related parties 36,865
------------
Total current liabilities 425,263
Deferred revenue - license fees 124,750
Promissory notes and accrued interest subject to rescission
Promissory notes - Fort Street Equity, Inc., 5% per annum,
principal and accrued interest due December 31, 2009,
unsecured 157,363
Stockholders' (deficit)
Common stock, par value $0.001 per share; 110,000,000 shares
authorized; 98,280,006 shares issued and outstanding 98,280
Additional paid-in capital 1,095,389
Deficit accumulated during the development stage (1,464,451)
Accumulated other comprehensive loss (205,213)
------------
Total stockholders' (deficit) (475,995)
------------
Total liabilities and stockholders' (deficit) $ 231,381
============
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
2
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
For the Period
December 14,
Three Months Ended Six Months Ended 1998
December 31, December 31, (Inception) to
-------------------------- -------------------------- December 31,
2007 2006 2007 2006 2007
----------- ----------- ----------- ----------- -------------
Revenues -- 4,639 495 7,507 41,542
Cost of sales -- 2,033 435 2,730 18,162
----------- ----------- ----------- ----------- -------------
Gross profit -- 2,606 60 4,777 23,380
----------- ----------- ----------- ----------- -------------
Selling, general and administrative expenses
Wages, compensation and related taxes -- 152,757 25,062 393,610 1,946,926
Legal, accounting and consulting fees 15,168 21,723 19,246 32,178 415,271
Realized foreign currency exchange (gains) losses (1,125) -- (45,302) -- (108,693)
Other selling, general and administrative 5,098 17,594 24,973 27,957 558,919
----------- ----------- ----------- ----------- -------------
Total selling, general and administrative
expenses 19,141 192,074 23,979 453,745 2,812,423
----------- ----------- ----------- ----------- -------------
Loss from operations (19,141) (189,468) (23,919) (448,968) (2,789,043)
----------- ----------- ----------- ----------- -------------
Other income (expense)
Gain on cancellation and settlement of debt -- -- 146,752 -- 1,383,031
Interest and other income 3,740 -- 3,763 -- 4,294
Interest expense (2,854) (6,053) (14,993) (3,527) (62,733)
----------- ----------- ----------- ----------- -------------
Total other income (expense) 886 (6,053) 135,522 (3,527) 1,324,592
----------- ----------- ----------- ----------- -------------
Income (loss) before provision for income taxes (18,255) (195,521) 111,603 (452,495) (1,464,451)
Provision for income taxes -- -- -- -- --
----------- ----------- ----------- ----------- -------------
Net income (loss) (18,255) (195,521) 111,603 (452,495) (1,464,451)
Other comprehensive income (loss)
Foreign currency translation 6,775 (133,393) (22,239) (102,291) (205,213)
----------- ----------- ----------- ----------- -------------
Total comprehensive income (loss) (11,480) (328,914) 89,364 (554,786) (1,669,664)
=========== =========== =========== =========== =============
Net income (loss) per common share - basic (0.00) (0.01) 0.00 (0.02) (0.15)
=========== =========== =========== =========== =============
Net income (loss) per common share - diluted 0.00
===========
Weighted average number of common
shares outstanding - basic 27,981,093 22,915,293 26,537,635 21,943,147 9,985,613
=========== =========== =========== =========== =============
Weighted average number of common
shares outstanding - diluted 27,446,543
===========
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
3
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM THE COMPANY'S INCEPTION (DECEMBER 14, 1998) THROUGH DECEMBER 31, 2007
Deficit Accumulated
Common Accumulated Other
Preferred Stock Common Stock Additional Stock During the Comprehensive
------------------- -------------------- Paid-in Subscription Development Income
Description Shares Amount Shares Amount Capital Receivable Stage (Loss) Totals
- --------------------- ---------- ------- ----------- ------- ---------- ------------ ----------- ------------- -----------
Balance -
December 14, 1998 -- $ -- -- $ -- $ -- $ -- $ -- -- $ --
Net (loss) for
the period -- -- -- -- -- -- (16,960) -- (16,960)
Foreign currency
translation -- -- -- -- -- -- -- (534) (534)
---------- ------- ----------- ------- ---------- ------------ ----------- ------------- -----------
Balance -
June 30, 1999 -- -- -- -- -- -- (16,960) (534) (17,494)
Net (loss) for
the period -- -- -- -- -- -- (138,322) -- (138,322)
Foreign currency
translation -- -- -- -- -- -- -- 7,472 7,472
---------- ------- ----------- ------- ---------- ------------ ----------- ------------- -----------
Balance -
June 30, 2000 -- -- -- -- -- -- (155,282) 6,938 (148,344)
Issuance of common
stock for services -- -- 5,000,000 5,000 -- -- (5,000) -- --
Net (loss) for
the period -- -- -- -- -- -- (53,529) -- (53,529)
Foreign currency
translation -- -- -- -- -- -- -- 25,453 25,453
---------- ------- ----------- ------- ---------- ------------ ----------- ------------- -----------
Balance -
June 30, 2001 -- -- 5,000,000 5,000 -- -- (213,811) 32,391 (176,420)
Net (loss) for
the period -- -- -- -- -- -- (32,584) -- (32,584)
Foreign currency
translation -- -- -- -- -- -- -- (20,804) (20,804)
---------- ------- ----------- ------- ---------- ------------ ----------- ------------- -----------
Balance -
June 30, 2002 -- -- 5,000,000 5,000 -- -- (246,395) 11,587 (229,808)
Net (loss) for
the period -- -- -- -- -- -- (24,176) -- (24,176)
Foreign currency
translation -- -- -- -- -- -- -- (45,554) (45,554)
---------- ------- ----------- ------- ---------- ------------ ----------- ------------- -----------
Balance -
June 30, 2003 -- -- 5,000,000 5,000 -- -- (270,571) (33,967) (299,538)
Net (loss) for
the period -- -- -- -- -- -- (130,264) -- (130,264)
Foreign currency
translation -- -- -- -- -- -- -- (6,119) (6,119)
---------- ------- ----------- ------- ---------- ------------ ----------- ------------- -----------
Balance -
June 30, 2004 -- $ -- $ 5,000,000 $ 5,000 $ -- $ -- $ (400,835) (40,086) $ (435,921)
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
4
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM THE COMPANY'S INCEPTION (DECEMBER 14, 1998) THROUGH DECEMBER 31, 2007
Deficit Accumulated
Common Accumulated Other
Preferred Stock Common Stock Additional Stock During the Comprehensive
------------------- -------------------- Paid-in Subscription Development Income
Description Shares Amount Shares Amount Capital Receivable Stage (Loss) Totals
- --------------------- ---------- ------- ----------- ------- ---------- ------------ ----------- ------------- -----------
Stock options issued
for cash -- $ -- -- $ -- $ 10,000 $ -- $ -- -- $ 10,000
Preferred and common
stock issued for
deemed reverse
merger with FFB
Australia 1,000,000 1,000 15,000,000 15,000 (30,950) -- 5,000 -- (9,950)
Employee compensation
paid by shares
issued by company
officer/director -- -- -- -- 220,000 -- -- -- 220,000
Loan from former
director paid by
shares issued by
company
officer/director -- -- -- -- 7,500 -- -- -- 7,500
Consulting services
paid by shares
issued by company
officer/director -- -- -- -- 132,500 -- -- -- 132,500
Promissory notes
converted to
common stock -- -- 870,000 870 377,932 -- -- -- 378,802
Net (loss) for
the period -- -- -- -- -- -- (536,308) -- (536,308)
Foreign currency
translation -- -- -- -- -- -- -- 1,855 1,855
---------- ------- ----------- ------- ---------- ------------ ----------- ------------- -----------
Balance -
June 30, 2005 1,000,000 1,000 20,870,000 20,870 716,982 -- (932,143) (38,231) (231,522)
Compensation from
stock options
issued by principal
stockholder -- -- -- -- 54,751 -- -- -- 54,751
Common stock issued
for services -- -- 1,000 1 499 -- -- -- 500
Compensation from
stock options
issued by principal
stockholder -- -- -- -- 6,710 -- -- -- 6,710
Common stock issued
for cash -- -- 100,000 100 49,900 (12,000) -- -- 38,000
Net (loss) for the
period (as restated) -- -- -- -- -- -- (1,302,467) -- (1,302,467)
Foreign currency
translation -- -- -- -- -- -- -- 47,347 47,347
---------- ------- ----------- ------- ---------- ------------ ----------- ------------- -----------
Balance -
June 30, 2006
(as restated) 1,000,000 $ 1,000 20,971,000 $20,971 $ 828,842 $ (12,000) $(2,234,610) 9,116 $(1,386,681)
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
5
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM THE COMPANY'S INCEPTION (DECEMBER 14, 1998) THROUGH DECEMBER 31, 2007
Deficit Accumulated
Common Accumulated Other
Preferred Stock Common Stock Additional Stock During the Comprehensive
------------------- -------------------- Paid-in Subscription Development Income
Description Shares Amount Shares Amount Capital Receivable Stage (Loss) Totals
- --------------------- ---------- ------- ----------- ------- ---------- ------------ ----------- ------------- -----------
Common stock issued
for cash -- $ -- 3,375,000 $ 3,375 $ 148,625 $ -- $ -- $ -- $ 152,000
Compensation from
extending terms of
stock options -- -- -- -- 4,000 -- -- -- 4,000
Net income for
the period -- -- -- -- -- 12,000 658,556 -- 670,556
Foreign currency
translation -- -- -- -- -- -- -- (192,090) (192,090)
---------- ------- ----------- ------- ---------- ------------ ----------- ------------- -----------
Balance -
June 30, 2007 1,000,000 1,000 24,346,000 24,346 981,467 -- (1,576,054) (182,974) (752,215)
Exercise of stock
options for partial
settlement of note
payable to principal
stockholder
(unaudited) -- -- 1,434,006 1,434 27,246 -- -- -- 28,680
Issuance of shares to
pay officer's
accrued compensation
(unaudited) -- -- 2,500,000 2,500 22,500 -- -- -- 25,000
Issuance of shares to
officer in
settlement of debt
(unaudited) -- -- 20,000,000 20,000 114,176 -- -- -- 134,176
Issuance of shares to
officer to restore
voting rights on
undesignated
preferred shares
(unaudited) (1,000,000) (1,000) 50,000,000 50,000 (50,000) -- -- -- (1,000)
Net income for the
period (unaudited) -- -- -- -- -- -- 111,603 -- 111,603
Foreign currency
translation
(unaudited) -- -- -- -- -- -- -- (22,239) (22,239)
---------- ------- ----------- ------- ---------- ------------ ----------- ------------- -----------
Balance -
December 31, 2007
(unaudited) -- $ -- 98,280,006 $98,280 $1,095,389 $ -- $(1,464,451) $ (205,213) $ (475,995)
========== ======= =========== ======= ========== ============ =========== ============= ===========
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
6
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended For the Period
December 31, December 14,
-------------------------- 1998 (Inception)
to December 31,
2007 2006 2007
----------- ----------- --------------
Cash flows from operating activities
Net income (loss) $ 111,603 $ (452,495) $ (1,464,451)
Adjustments to reconcile net income (loss) to net cash used in
operating activities
Gain on cancellation and settlement of debt (146,752) -- (1,383,031)
Depreciation and amortization 13,937 4,743 56,798
Loss from write-off of deferred offering costs -- 77,000
Employee compensation paid by issued options and shares -- 4,000 285,461
Consulting and other services paid by issued shares -- -- 133,000
Interest on promissory notes converted to paid-in capital -- -- 13,801
Realized foreign currency exchange (gains) losses (45,302) -- (108,693)
Changes in operating assets and liabilities
Accounts receivable -- -- 124,750
Other receivables 2,500 -- --
Inventory -- -- (1,277)
Accounts payable 3,098 (16,687) 70,195
Accrued compensation and other accrued liabilities 45,758 396,008 1,630,559
----------- ----------- --------------
Net cash used in operating activities (15,158) (64,431) (565,888)
----------- ----------- --------------
Cash flows from investing activities
Purchases of property and equipment -- -- (48,131)
Payment for Australian trademark -- -- (219)
----------- ----------- --------------
Net cash used in investing activities -- -- (48,350)
----------- ----------- --------------
Cash flows from financing activities
Bank overdraft -- (2,471) --
Proceeds from loans - related parties 29,109 11,837 467,091
Repayments on loans - related parties -- (29,885) (331,865)
Proceeds from loan - former director -- -- 7,500
Proceeds from issuance of convertible notes -- -- 365,000
Proceeds from issuance of promissory notes -- -- 156,355
Repayments on promissory notes (1,740) -- (1,740)
Proceeds from issuance of common stock -- 152,000 190,050
Payments of deferred offering costs -- (23,052) (246,535)
----------- ----------- --------------
Net cash provided by financing activities 27,369 108,429 605,856
----------- ----------- --------------
Effect of exchange rate changes on cash and cash equivalents (12,663) (877) 9,070
----------- ----------- --------------
Net increase (decrease) in cash and cash equivalents (452) 43,121 688
Cash and cash equivalents, beginning of period 1,140 95 --
----------- ----------- --------------
Cash and cash equivalents, end of period $ 688 $ 43,216 $ 688
=========== =========== ==============
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
7
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended For the Period
December 31, December 14,
-------------------------- 1998 (Inception)
to December 31,
2007 2006 2007
----------- ----------- --------------
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest $ -- $ -- $ 502
=========== =========== ==============
Income taxes $ -- $ -- $ --
=========== =========== ==============
Supplemental disclosure of noncash investing and financing activities
On March 24, 2007, the Company acquired 100% of the common stock of
Footfridge Pty Ltd ("Footfridge") in exchange for a $1,000,000 convertible
promissory note. Pursuant to the agreement, Footfridge became a wholly
owned subsidiary of the Company. Footfridge had minimal operations and its
only significant asset was a patent for a certain heat reflection footwear
device. Accordingly, the acquisition was recorded as an intangible asset
purchase with no goodwill recognized. The patent was recorded at
$1,000,000, which was the estimated fair value of the note payable on the
acquisition date. This agreement was rescinded on August 21, 2007, whereby
the promissory note was cancelled and the Footfridge common stock was
returned to the seller. A total gain of $29,696 was recognized on the
rescission of this acquisition and the related note payable.
On August 14, 2007, the Company accepted the exercise of 1,434,006 options
from Fort Street Equity, a principal shareholder of the Company, in
consideration for a $28,680 reduction in the Company's note payable balance
to Fort Street. Fort Street Equity is a related party, therefore no gain or
loss was recognized on this equity transaction.
The Company originally issued 1,000,000 shares of preferred stock to its
President in 2004 pursuant to a reverse merger transaction. Each of these
preferred shares was approved by the Company's Board of Directors to have
50 votes. In December 2007 while performing due diligence for the Company's
pending sale, it was discovered that a certificate of designation was not
properly filed with the Nevada Secretary of State for the Company's
preferred shares. Due to the Company's failure to provide its President
properly designated preferred shares and their related voting rights, the
Company issued him 50,000,000 shares on December 31, 2007. These additional
common shares provide the Company's President an equal number of voting
rights to what he would have maintained in the event that the original
preferred shares were validly authorized and designated by the Nevada
Secretary of State.
On December 31, 2007, the Company issued 20,000,000 shares to its President
to settle debt totaling $134,176 owed to the President and his affiliated
companies. No gain or loss was recognized on this transaction.
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
8
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
(Unaudited)
(1) Nature of Business and Summary of Significant Accounting Policies
Organization and Basis of Presentation
- --------------------------------------
Fit For Business International, Inc. ("FFBI" or the "Company") is a Nevada
corporation in the development stage of providing products and services for: (i)
corporate wellness programs which address business productivity, stress and
absenteeism issues; (ii) living well programs directed primarily, but not
exclusively, to individuals over 45 years of age; and, (iii) nutritional
supplements manufactured and supplied by Herbalife Ltd. ("Herbalife"). The
accompanying unaudited condensed consolidated financial statements of FFBI were
prepared from the accounts of the Company under the accrual basis of accounting
in United States dollars. In addition, these financial statements reflect the
completion of a deemed reverse merger between FFBI and Fit For Business
(Australia) Pty Limited ("FFB Australia"), which was effected on September 14,
2004.
Prior to the completion of the deemed reverse merger, FFBI was a dormant
corporation with no assets or operations (essentially since its organization on
May 30, 2001, and incorporation on July 31, 2001). The Company was originally
incorporated under the name of Elli Tsab, Inc. On April 7, 2004, the name of the
Company was changed to Patient Data Corporation. On January 13, 2005, the name
of the Company was again changed to Fit For Business International, Inc. in
order to better reflect the current business plan.
FFB Australia was organized as an Australian private company on December 14,
1998, and subsequently began certain marketing studies and corporate awareness
programs to obtain customers for its products and services. In October 2003, FFB
Australia initiated a capital formation activity through the private placement
of certain convertible promissory notes which provided, through September 14,
2004, proceeds of $365,000. Subsequent to the completion of the deemed reverse
merger, the liability associated with the convertible promissory notes was
assumed by the Company. Thereafter, all of the promissory notes were converted
into shares of common stock of FFBI.
In addition, in November 2003, FFB Australia commenced a capital formation
activity to effect a deemed reverse merger with a corporation validly organized
in the United States for the purpose of completing a Registration Statement on
Form SB-2 with the Securities and Exchange Commission ("SEC"), and raising
capital from the issuance of common stock in the public markets of up to $4.5
million. The initial capital formation activity through a deemed reverse merger
and the issuance of common stock was unsuccessful. Subsequently, FFB Australia
completed a deemed reverse merger with the Company, and FFBI has completed a
registration of its common stock with the SEC pertaining to a second capital
formation activity.
Prior to September 14, 2004, FFB Australia, aside from the capital formation and
marketing activities described above, incurred other development stage operating
costs and expenses related to its organization as an entity, receipt of a
trademark in Australia for the name and related logo of Fit For Business,
formation of a management team, accounting and tax preparation fees, consulting
fees, travel, and other general and administrative expenses. For additional
information relating to the development stage activities of the Company, see
Note 2.
Given that FFB Australia is considered to have acquired FFBI by a deemed reverse
merger through an Exchange Agreement (see Note 6), and its stockholders
currently have voting control of FFBI, the accompanying unaudited condensed
consolidated financial statements and related note disclosures present the
financial position as of December 31, 2007, and the operations for the three
months and six months ended December 31, 2007 and December 31, 2006, and
comparatives for the period from inception (December 14, 1998) through December
31, 2007, of FFB Australia under the name of FFBI. The deemed reverse merger has
been recorded as a recapitalization of the Company, with the net assets of FFB
9
Australia and FFBI brought forward at their historical bases. The costs
associated with the reverse merger have been expensed as incurred.
On March 24, 2007, the Company acquired 100% of the common stock of Footfridge
Pty Ltd ("Footfridge") in exchange for a $1,000,000 convertible promissory note.
Pursuant to the agreement, Footfridge became a wholly owned subsidiary of the
Company. Footfridge had minimal operations and its only significant asset was a
patent for a certain heat reflection footwear device. Accordingly, the
acquisition was recorded as an intangible asset purchase with no goodwill
recognized. The patent was recorded at $1,000,000, which was the estimated fair
value of the note payable on the acquisition date. This agreement was rescinded
on August 21, 2007, whereby the promissory note was cancelled and the Footfridge
common stock was returned to the seller. A total gain of $29,750 was recognized
on the rescission of this acquisition and the related note payable.
On January 16, 2008 the Company's President and principal shareholder entered
into a stock purchase agreement with Route 32, LLC whereby the President would
sell his current majority ownership stake in the Company for $500,000. The stock
purchase agreement is expected to be finalized in January 2008.
If the above stock purchase transaction fails, Management will continue its
attempt to seek a suitable Company to acquire or merge with and to raise
additional equity and debt financing to sustain its current operations. The
successful outcome of future activities cannot be determined at this time due to
the current market conditions, and there are no assurances that if achieved, the
Company will have sufficient funds to execute its intended business plan or
generate positive operating results.
The unaudited condensed financial statements included herein have been prepared
in accordance with accounting principles generally accepted in United States of
America for interim financial information and with the instructions to Form
10-QSB and Item 310(b) of Regulation S-B. They do not include all information
and notes required by generally accepted accounting principles for complete
financial statements. However, except as disclosed herein, there has been no
material changes in the information disclosed in the notes to the consolidated
financial statements included in the Annual Report on Form 10-KSB of Fit for
Business International, Inc. for the fiscal year ended June 30, 2007. In the
opinion of management, all adjustments (including normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month and six month periods ended December 31, 2007 are
not necessarily indicative of the results that may be expected for any other
interim period or the entire fiscal year. For further information, these
unaudited condensed consolidated financial statements and the related notes
should be read in conjunction with the Company's consolidated audited financial
statements for the fiscal year ended June 30, 2007 included in the Company's
Annual Report on For 10-KSB.
Cash and Cash Equivalents
- -------------------------
For purposes of reporting within the statement of cash flows, the Company
considers all cash on hand, cash accounts not subject to withdrawal restrictions
or penalties, and all liquid debt instruments purchased with a maturity of three
months or less to be cash and cash equivalents.
Accounts Receivable
- -------------------
Accounts receivable consist of amounts due from sales of its license agreements.
The Company establishes an allowance for doubtful accounts in amounts sufficient
to absorb potential losses on accounts receivable. As of December 31, 2007, an
allowance for doubtful accounts of $875,250 was deemed necessary on the
Company's licensing agreements. This allowance was recorded against the related
deferred revenue on these agreements (see Note 10). While management uses the
best information available upon which to base estimates, future adjustments to
the allowance may be necessary if economic conditions differ substantially from
the assumptions used for the purpose of analysis.
Revenue Recognition
- -------------------
The Company is in the development stage and has yet to realize significant
revenues from planned operations. It has derived revenues principally from the
sale of services related to wellness programs, and the sale of nutritional
products, literature and training materials. The Company has also entered into a
license agreements which entitle the licensee to provide a distribution network
10
for the Company, use its logo and software, and market and promote its products
and services. Revenue will be derived over the term of the license agreements
once all terms and conditions have been met. Revenues are recognized by major
categories under the following policies:
For specific wellness program services, such as health risk assessment
services, fitness programs, educational and other programs, and
contracts pertaining to such services, revenue is realized as services
are provided. Contracts for wellness program services are evidenced in
writing, and as services are rendered, invoices for such services are
rendered in accordance with contract terms.
For sales of literature, training materials, and nutritional products,
revenue is realized upon shipment to the customer and there are no
unfulfilled company elements related to a customer's order. Orders for
literature, materials, and nutritional products are evidenced in
writing on customer and call center order documents. Payments are
provided in cash, check or by credit card at the time orders are placed
with the Company.
For license agreements, revenue is realized from licensing activities
related to various countries and geographic regions, which entitle
licensees to provide a distribution network for the Company, the use of
the Company logo, software and training materials, and the rights to
market and promote the services of the Company. Revenue from such
agreements is realized over the term and under the conditions of each
specific license once all contract conditions have been met.
Payments for licensing fees are generally received at the time the
license agreements are executed, unless other terms for delayed payment
are documented and agreed to between the parties. Under terms for
delayed payment, the Company may require further assurances of payment
under contract terms such as credit report information, and entity and
personal guarantees.
Internal Web Site Development Costs
- -----------------------------------
Under Emerging Issues Taskforce Statement 00-2, Accounting for Web Site
Development Costs ("EITF 00-2"), costs and expenses incurred during the planning
and operating stages of the Company's web site are expensed as incurred. Under
EITF 00-2, costs incurred in the web site application and infrastructure
development stages are capitalized by the Company and amortized to expense over
the web site's estimated useful life or period of benefit. As of December 31,
2007, the Company had net capitalized costs of $1,036 related to its web site
development.
Costs of Computer Software Developed or Obtained for Internal Use
- -----------------------------------------------------------------
Under Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"), the Company capitalizes
external direct costs of materials and services consumed in developing or
obtained internal-use computer software; payroll and payroll-related costs for
employees who are directly associated with and who devote time to the
internal-use computer software project; and, interest costs related to loans
incurred for the development of internal-use software. As of December 31, 2007,
the Company had net capitalized costs of $22,847 for projects related to the
development of internal-use software.
Costs of Computer Software to be Sold or Otherwise Marketed
- -----------------------------------------------------------
Under Statement of Financial Accounting Standards No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed ("SFAS
86"), the Company capitalizes costs associated with the development of certain
training software products held for sale when technological feasibility is
established. Capitalized computer software costs of products held for sale are
amortized over the useful life of the products from the software release date.
As of December 31, 2007, the Company had not undertaken any projects related to
the development of software products held for sale or to be otherwise marketed.
11
Advertising Costs
- -----------------
Advertising costs are charged to operations when incurred, except for television
or magazine advertisements, which are charged to expense when the advertising
first takes place. The Company incurred no advertising costs during the six
month periods ended December 31, 2007 and 2006.
Property and Equipment
- ----------------------
The components of property and equipment are stated at cost. Property and
equipment costs are depreciated or amortized for financial reporting purposes
over the useful lives of the related assets by the straight-line method. Useful
lives utilized by the Company for calculating depreciation or amortization are
as follows:
Computer and office equipment 5 years
Furniture and fixtures 10 years
Internal web site development costs 3 years
Developed Software 5 years
Upon disposition of an asset, its cost and related accumulated depreciation or
amortization are removed from the accounts, and any resulting gain or loss is
recognized.
Impairment of Long-Lived Assets
- -------------------------------
The Company accounts for its long-lived assets in accordance with Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144 requires that long-lived
assets be reviewed for impairment whenever events or changes in circumstances
indicate that the historical cost carrying value of an asset may no longer be
appropriate. The Company assesses recoverability of the carrying value of an
asset by estimating the future net cash flows expected to result from the asset,
including eventual disposition. If the future net cash flows are less than the
carrying value of the asset, an impairment loss is recorded equal to the
difference between the asset's carrying value and the fair value or disposable
value. As of December 31, 2007, the Company does not believe there has been any
impairment of its long-lived assets.
Loss Per Common Share
- ---------------------
The Company adopted Statement of Financial Accounting Standards No. 128,
Earnings Per Share ("SFAS 128"), that requires the reporting of both basic and
diluted earnings (loss) per share. Basic earnings (loss) per share is computed
by dividing net income (loss) available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted earnings
(loss) per share reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into common
stock. In accordance with SFAS 128, any anti-dilutive effects on net earnings
(loss) per share are excluded. If such shares were included in diluted EPS, they
would have resulted in weighted-average common shares of approximately 28.5
million and 24.9 million for the three months ended December 31, 2007 and 2006,
and 27.4 million and 23.9 million for the six months ended December 31, 2007 and
2006. The effects of issuing such equity instruments would be considered
dilutive for the six months ended December 31, 2007, and thus diluted EPS is
reflected on the statement of operations for that period. Such amounts include
shares potentially issuable under options that were outstanding during these
periods.
Deferred Offering Costs
- -----------------------
The Company defers as other assets the direct incremental costs of raising
capital until such time as the offering is completed. At the time of the
completion of the offering, the costs are charged against the capital raised.
Should the offering be terminated, deferred offering costs are charged to
operations during the period in which the offering is terminated.
12
Comprehensive Income (Loss)
- ---------------------------
The Company presents comprehensive income (loss) in accordance with Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130"). SFAS 130 states that all items that are required to be recognized under
accounting standards as components of comprehensive income (loss) be reported in
the financial statements. For the three months and six months ended December 31,
2007 and 2006, and the cumulative period from inception (December 14, 1998)
through December 31, 2007, comprehensive income (loss) consisted of foreign
currency translation adjustments as shown in the Company's statement of
operations.
Income Taxes
- ------------
The Company accounts for income taxes pursuant to SFAS No. 109, Accounting for
Income Taxes ("SFAS 109"). Under SFAS 109, deferred tax assets and liabilities
are determined based on temporary differences between the bases of certain
assets and liabilities for income tax and financial reporting purposes. The
deferred tax assets and liabilities are classified according to the financial
statement classification of the assets and liabilities generating the
differences.
The Company maintains a valuation allowance with respect to deferred tax assets.
The Company establishes a valuation allowance based upon the potential
likelihood of realizing the deferred tax asset and taking into consideration the
Company's financial position and results of operations for the current period.
Future realization of the deferred tax benefit depends on the existence of
sufficient taxable income within the carryforward period under the Federal tax
laws.
Changes in circumstances, such as the Company generating taxable income, could
cause a change in judgment about the realizability of the related deferred tax
asset. Any change in the valuation allowance will be included in income in the
period of the change in estimate.
Foreign Currency Translation
- ----------------------------
The Company accounts for foreign currency translation pursuant to SFAS No. 52,
Foreign Currency Translation ("SFAS 52"). The Company's functional currency is
the Australian dollar. All assets and liabilities are translated into United
States dollars using the current exchange rate at the end of each fiscal period.
Revenues and expenses are translated using the average exchange rates prevailing
throughout the respective periods. Translation adjustments are included in other
comprehensive income (loss) for the period. Certain transactions of the Company
are denominated in United States dollars. Translation gains or losses related to
such transactions are recognized for each reporting period in the related
statement of operations and comprehensive income (loss).
Fair Value of Financial Instruments
- -----------------------------------
The Company estimates the fair value of financial instruments using the
available market information and valuation methods. Considerable judgment is
required in estimating fair value. Accordingly, the estimates of fair value may
not be indicative of the amounts the Company could realize in a current market
exchange. As of December 31, 2007, the carrying value of the Company's accounts
payable, accrued liabilities, loans from related parties and promissory notes
approximated fair value due to the nature and terms of maturity of these
instruments.
Stock-Based Compensation
- ------------------------
The Company uses the fair value method to account for non-employee stock-based
compensation in accordance with SFAS No. 123, Accounting for Stock-Based
Compensation ("SFAS No. 123"), and FASB Emerging Issues Task Force, or EITF,
Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services.
Under the fair value method, all transactions in which goods or services are the
consideration received for the issuance of equity instruments are accounted for
based on the fair value of the consideration received or the fair value of the
equity instruments issued, whichever is more reliably measurable.
The Company accounts for the fair value of stock options granted to employees,
stock options granted by a principal stockholder to employees, and common stock
13
issued by a principal stockholder to employees under the fair value recognition
provisions of SFAS No. 123, and SAB Topic 5.T., "Accounting for Expenses or
Liabilities Paid by Principal Stockholder(s)." Fort Street Equity, Inc., as a
principal stockholder, has provided stock option grants and common stock on
behalf of the Company to employees and other parties which are described in
Notes 6 and 11.
Estimates
- ---------
The financial statements are prepared on the basis of accounting principles
generally accepted in the United States of America. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of December 31, 2007, and revenues and expenses for
the three months and six months ended December 31, 2007 and 2006, and the
cumulative period from inception. Actual results could differ from those
estimates made by management.
(2) Development Stage Activities and Going Concern
The Company is in the development stage of providing products and services for
corporate business wellness programs; living well programs directed primarily,
but not exclusively, to individuals over 45 years of age; and, nutritional
supplements manufactured and supplied by Herbalife. As of December 31, 2007,
FFBI had completed organization and reverse merger transactions, initial
marketing and corporate awareness programs designed to obtain customers for its
products and services, the receipt of a trademark in Australia for the name "Fit
For Business", formation of a management team, and other activities related to
capital formation, software development, and initial operations. Management of
the Company was pursuing various sources of equity financing, and planned to
raise approximately $4.5 million through the issuance of common stock for cash,
and private investment in public equity ("PIPE") financing of its common stock.
The issuance of common stock for cash, and the completion of PIPE financing were
being conducted pursuant to the approval by the SEC of several Post-Effective
Amendments to the Company's Registration Statement on Form SB-2 which approval
was provided in March 2006. The proceeds from the these capital formation
activities were to be used by the Company for the development and production of
multi-media training programs, marketing and promotional literature and
programs, web site enhancement, purchase of inventory, customer call center and
computer hardware and software programs to be used to aid the Company's customer
service representatives, and working capital required to hire additional staff
and provide for an expected increase in operations.
There can be no assurance that the Company will be able to raise $4.5 million in
equity capital through its current SEC related activities, or be successful in
the sale of its products and services that will generate sufficient revenues to
sustain the operations of the Company.
The accompanying unaudited condensed consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States of America, which contemplate continuation of the Company as a
going concern. The Company has incurred operating losses since inception, has
negative working capital as of December 31, 2007 totaling $423,042, and its cash
resources are insufficient to meet its planned business objectives. These and
other factors raise substantial doubt about the Company's ability to continue as
a going concern. The accompanying financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the possible inability of the Company to continue as a going
concern.
14
(3) Acquisition and Rescission of Footfridge Pty Ltd.
On March 24, 2007, the Company acquired 100% of the common stock of Footfridge
Pty Ltd ("Footfridge") in exchange for a $1,000,000 convertible promissory note.
Pursuant to the agreement, Footfridge became a wholly owned subsidiary of the
Company. Footfridge had minimal operations and its only significant asset was a
patent for a certain heat reflection footwear device. Accordingly, the
acquisition was recorded as an intangible asset purchase with no goodwill
recognized. The patent was recorded at $1,000,000, which was the estimated fair
value of the note payable on the acquisition date. This agreement was rescinded
on August 21, 2007, whereby the promissory note was cancelled and the Footfridge
common stock was returned to the seller. A total gain of $28,959 was recognized
on the rescission of this acquisition and the related note payable.
(4) Accrued Compensation
The Company has entered into employment, consulting, and other related
agreements with its management and other personnel. Due to the Company's cash
flow requirements, the parties to these contracts have agreed to defer payment
of portions of their compensation under these agreements. Total accrued
compensation as of December 31, 2007 under these contracts amounted to $173,392
which will be paid when the Company has sufficient funds available.
On August 16, 2007, the Company reached a settlement agreement with one of its
former employees to rescind $117,793 of accrued compensation (inclusive of
related accrued Australian payroll tax obligations), owed by the Company to this
former employee.
On October 11, 2007 the Company issued 2,500,000 shares to its President to
satisfy an accrued compensation liability of $25,000.
(5) Convertible Debt
As discussed in Note 3, on March 24, 2007 the Company acquired 100% of the
common stock of Footfridge Pty Ltd ("Footfridge") in exchange for a $1,000,000
convertible promissory note. The note bore interest at 7% per annum and was
secured by the Footfridge shares. A principal payment of $200,000 was due and
payable on September 30, 2007, with the $800,000 remaining balance, plus accrued
interest, payable on March 24, 2008. This $800,000 was convertible into common
stock of the Company at a conversion rate of $0.10 per share. This promissory
note was cancelled and the Footfridge common stock was returned to the seller,
pursuant to rescission of the agreement on August 21, 2007 as described in Notes
1 and Note 3.
(6) Common Stock Transactions and Capital Formation
Issuance of Common Stock
- ------------------------
On August 14, 2007, the Company accepted the exercise of 1,434,006 options from
Fort Street Equity, a principal shareholder of the Company, in consideration for
a $28,680 reduction in the Company's note payable balance to Fort Street. Fort
Street Equity is a related party, therefore no gain or loss was recognized on
this equity transaction.
On October 11, 2007 the Company issued 2,500,000 shares to its President to
satisfy an accrued compensation liability of $25,000.
The Company originally issued 1,000,000 shares of preferred stock to its
President in 2004 pursuant to a reverse merger transaction. Each of these
preferred shares was approved by the Company's Board of Directors to have 50
votes. In December 2007 while performing due diligence for the Company's pending
sale, it was discovered that a certificate of designation was not properly filed
with the Nevada Secretary of State for the Company's preferred shares. Due to
15
the Company's failure to provide its President properly designated preferred
shares and their related voting rights, the Company issued him 50,000,000 shares
on December 31, 2007. These additional common shares provide the Company's
President an equal number of voting rights to what he would have maintained in
the event that the original preferred shares were validly authorized and
designated by the Nevada Secretary of State.
On December 31, 2007, the Company issued 20,000,000 shares to its President to
settle debt totaling $134,176 owed to the President and his affiliated
companies. No gain or loss was recognized on this transaction.
Stock Option Agreement and Stock Options Granted by Principal Stockholder
- -------------------------------------------------------------------------
On July 25, 2004, the Company issued 2,000,000 options to Fort Street Equity,
Inc. (see below) to purchase the same number of shares of its common stock for
$10,000 in cash. The option period was initially through December 31, 2005, but
was extended to December 31, 2007, by the Board of Directors of the Company,
effective December 3, 2006. Pursuant to the extended terms of exercise, a total
of $4,000 of additional compensation expense was recognized during the three
months ended December 31, 2006. The exercise price of the options is the higher
of $0.50 per share or the average-trading price of the Company's common stock
over the preceding ten business days prior to exercise of the options, less a
discount of 40 percent.
Fort Street Equity, Inc., as a principal stockholder and holder of 2,000,000
stock options to purchase common stock of the Company described above, provided
stock option grants totaling 565,994 options on behalf of the Company to
employees and other parties to acquire a like number of shares of common stock
of the Company. The market price of the Company's common stock on the date of
each stock option grant was $0.50 per share. The principal stockholder charged
the grantees a total of $134,070 to acquire the options. The proceeds from the
option transactions were subsequently loaned by the principal stockholder to the
Company for working capital purposes under the terms of three promissory notes
which are described in Note 11.
As described above, Fort Street Equity exercised all of its 1,434,006 options on
August 14, 2007 as consideration for a $28,680 reduction in the Company's note
payable balance. The remaining 565,994 options that were granted to employees
and other parties expired unexercised on December 31, 2007.
The fair value of each option was estimated on the dates of grant using the
Black-Scholes option-pricing model with the following assumptions:
Average Expected Expected Employee/ Life of
Risk-Free Volatility Dividend Nonemployee the
Interest Rate of Yield Exit Rate Options
Stock
3.81% 135.3% 0% 0% 160 days
There were no options outstanding as of December 31, 2007.
Stock Exchange Agreement
- ------------------------
On September 14, 2004, the Company entered into a Share Exchange Agreement (the
"Exchange Agreement") with FFB Australia, whereby FFBI acquired all of the
issued and outstanding capital stock of FFB Australia (81 shares) in exchange
for 15,000,000 shares of common stock and 1,000,000 shares of preferred stock of
the Company. Both the common stock and preferred stock of FFBI have a par value
of $.001. The shares of preferred stock are non-participating, but each share is
entitled to fifty (50) votes in a general meeting of the stockholders. As a
result of the Exchange Agreement, the stockholders of FFB Australia control
FFBI, and FFB Australia has been deemed to have effected a reverse merger for
financial reporting purposes as of the date of the Exchange Agreement. The
deemed reverse merger has been recorded as a recapitalization of the Company,
with the net assets of FFBI and FFB Australia brought forward at their
historical bases.
From the common stock issued to Mark A. Poulsen, President and Chief Executive
Officer of the Company under the Stock Exchange Agreement described above,
500,000 shares of common stock were issued to L.R. Global pursuant to the terms
of a license agreement (see Note 10). Mr. Poulsen also issued shares of common
stock that he received from the Exchange Agreement to satisfy the liabilities of
the Company assumed by FFBI related to the compensation of six individuals. FFBI
recognized the satisfaction of such liabilities by Mr. Poulsen as additional
paid-in capital.
16
Capital Formation Activity
- --------------------------
On November 10, 2003, FFBI entered into an agreement with Fort Street Equity,
Inc. ("Fort Street") whereby Fort Street would assist FFBI with the following:
(i) the identification of a corporation validly organized in the United States
with which the Company could realize a deemed reverse merger; and (ii) the
completion and filing of a Registration Statement on Form SB-2 with the SEC for
the purpose of raising capital from the issuance of common stock in the public
markets of up to $4.5 million.
FFBI paid Fort Street two deposits against fees and costs amounting to $130,100.
The initial capital formation activity conducted by FFBI and Fort Street was not
successful due to the fact that the organization and completion of a deemed
reverse merger with a validly organized corporation in the United States could
not be effected. Further, as a result of the uncompleted deemed reverse merger,
FFBI expensed $77,000 of the amount paid to Fort Street as unsuccessful offering
costs.
FFBI and Fort Street initiated a second capital formation activity that resulted
in the Exchange Agreement as described above, and the current activity to file a
Registration Statement on Form SB-2 with the SEC which was completed in March
2006. These costs were comprised of legal, accounting and investor relations
fees paid, and other professional, administrative, and filing fees incurred to
complete the Form SB-2 registration process and capital formation activities.
(7) Income Taxes
There was no provision (benefit) for income taxes for periods to December 31,
2007.
The Company had deferred income tax assets as of December 31, 2007, as follows:
Loss carryforwards $ 128,000
Less: valuation allowance 128,000
------------
Total net deferred tax assets $ --
============
As of December 31, 2007, the Company had net operating loss carryforwards for
income tax reporting purposes of approximately $375,000 that may be offset
against future taxable income. The net operating loss carryforwards expire in
the years 2022-2027. Current tax laws limit the amount of loss available to be
offset against future taxable income when a substantial change in ownership
occurs or a change in the nature of the business. Therefore, the amount
available to offset future taxable income may be limited. No tax benefit has
been reported in the financial statements for the realization of loss
carryforwards, as the Company believes there is high probability that the
carryforwards will not be utilized in the foreseeable future. Accordingly, the
potential tax benefits of the loss carryforwards are offset by a valuation
allowance of the same amount.
(8) Related Party Transactions
On December 31, 2007, the Company issued 20,000,000 shares to its President to
settle debt totaling $134,176 owed to the President and his affiliated companies
(Mark A. Poulsen & Associates Pty. Ltd. and Kamaneal Investments Pty. Ltd.). No
gain or loss was recognized on this transaction.
Mark A. Poulsen & Associates Pty. Ltd. is an Australian private entity and
stockholder of the Company. It is wholly owned by Mark A. Poulsen, President and
Chief Executive Officer of the Company. As of December 31, 2007, the Company
owed $0 to this entity.
Kamaneal Investments Pty. Ltd. is an Australian private company and stockholder
of the Company owned by Mark A. Poulsen, President and Chief Executive Officer
of the Company, and Karen Poulsen, his wife. The purpose of this company is to
hold investments for Mr. and Mrs. Poulsen. As of December 31, 2007, the Company
owed $0 to this entity.
17
As of December 31, 2007, the Company owed $16,701 to Mr. G.L. Ray, a stockholder
of the Company, for an advance made. This amount owed was for working capital
provided, is non-interest bearing, and has no terms for repayment.
As of December 31, 2007, the Company owed $9,644 to Mr. M. Troy, a stockholder
of the Company, for an advance made. This amount owed was for working capital
provided, is non-interest bearing, and has no terms for repayment.
As of December 31, 2007, the Company owed $10,520 to Mr. W. Hoskin, a
stockholder of the Company, for an advance made. This amount owed was for
working capital provided, is non-interest bearing, and has no terms for
repayment.
The Company had a month-to-month expense sharing agreement for office rent and
other common area expenses with Mark A. Poulsen & Associates Pty. Ltd. The
expense sharing agreement replaced a lease arrangement between the Company and
Mark A. Poulsen & Associates Pty. Ltd. that expired on November 30, 2004. For
the six months ended December 31, 2007 and 2006, the Company accrued $0 and
$8,463 in office rent and common area costs pertaining to this agreement. This
agreement was terminated in May 2007.
(9) Recent Accounting Pronouncements
SFAS No. 159 - In February 2007, the FASB issued Statement No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities--Including an
amendment of FASB Statement No. 115. This Statement permits entities to choose
to measure many financial instruments and certain other items at fair value. The
objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge
accounting provisions. This Statement is expected to expand the use of fair
value measurement, which is consistent with the Board's long-term measurement
objectives for accounting for financial instruments. This Statement applies to
all entities, including not-for-profit organizations. Most of the provisions of
this Statement apply only to entities that elect the fair value option. However,
the amendment to FASB Statement No. 115, Accounting for Certain Investments in
Debt and Equity Securities, applies to all entities with available-for-sale and
trading securities. Some requirements apply differently to entities that do not
report net income. This Statement is effective as of the beginning of an
entity's first fiscal year that begins after November 15, 2007. Early adoption
is permitted as of the beginning of a fiscal year that begins on or before
November 15, 2007, provided the entity also elects to apply the provisions of
FASB Statement No. 157, Fair Value Measurements. No entity is permitted to apply
this Statement retrospectively to fiscal years preceding the effective date
unless the entity chooses early adoption. The choice to adopt early should be
made after issuance of this Statement but within 120 days of the beginning of
the fiscal year of adoption, provided the entity has not yet issued financial
statements, including required notes to those financial statements, for any
interim period of the fiscal year of adoption. This Statement permits
application to eligible items existing at the effective date (or early adoption
date). The Company adopted this Statement on January 1, 2008, and does not
believe that it will have a significant impact on its results of operations or
financial position.
SFAS No. 141(R) - In December 2007, the FASB issued Statement No. 141(R),
Business Combinations. The objective of this Statement is to improve the
relevance, representational faithfulness, and comparability of the information
that a reporting entity provides in its financial reports about a business
combination and its effects. To accomplish that, this Statement establishes
principles and requirements for how the acquirer (a) Recognizes and measures in
its financial statements the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree; (b) recognizes and
measures the goodwill acquired in the business combination or a gain from a
bargain purchase; and (c) determines what information to disclose to enable
users of the financial statements to evaluate the nature and financial effects
of the business combination.
This Statement applies to all transactions or other events in which an entity
(the acquirer) obtains control of one or more businesses (the acquirer),
including those sometimes referred to as "true mergers" or "mergers of equals"
and combinations achieved without the transfer of consideration, for example, by
contract alone or through the lapse of minority veto rights. This Statement
applies to all business entities, including mutual entities that previously used
the pooling-of-interests method of accounting for some business combinations. It
does not apply to:
o The formation of a joint venture
18
o The acquisition of an asset or a group of assets that does not constitute
a business
o A combination between entities or businesses under common control
o A combination between not-for-profit organizations or the acquisition of a
for-profit business by a not-for-profit organization.
This Statement replaces FASB Statement No. 141, Business Combinations. This
Statement retains the fundamental requirements in Statement 141 that the
acquisition method of accounting (which Statement 141 called the purchase
method) be used for all business combinations and for an acquirer to be
identified for each business combination. This Statement defines the acquirer as
the entity that obtains control of one or more businesses in the business
combination and establishes the acquisition date as the date that the acquirer
achieves control. Statement 141 did not define the acquirer, although it
included guidance on identifying the acquirer, as does this Statement. This
Statement's scope is broader than that of Statement 141, which applied only to
business combinations in which control was obtained by transferring
consideration. By applying the same method of accounting - the acquisition
method - to all transactions and other events in which one entity obtains
control over one or more other businesses, this Statement improves the
comparability of the information about business combinations provided in
financial reports.
This Statement applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. An entity may not apply it
before that date.
The Company is currently evaluating SFAS 141(R), and has not yet determined its
potential impact on its future results of operations or financial position.
SFAS No. 160 - In December 2007, the FASB issued Statement No. 160,
Noncontrolling Interests in Consolidated Financial Statements - an Amendment of
ARB No. 51. A noncontrolling interest, sometimes called a minority interest, is
the portion of equity in a subsidiary not attributable, directly or indirectly,
to a parent. The objective of this Statement is to improve the relevance,
comparability, and transparency of the financial information that a reporting
entity provides in its consolidated financial statements by establishing
accounting and reporting standards that require:
o The ownership interests in subsidiaries held by parties other than the
parent be clearly identified, labeled, and presented in the consolidated
statement of financial position within equity, but separate from the
parent's equity.
o The amount of consolidated net income attributable to the parent and to
the noncontrolling interest be clearly identified and presented on the
face of the consolidated statement of income.
o Changes in a parent's ownership interest while the parent retains its
controlling financial interest in its subsidiary be accounted for
consistently. A parent's ownership interest in a subsidiary changes if the
parent purchases additional ownership interests in its subsidiary or if
the parent sells some of its ownership interests in its subsidiary. It
also changes if the subsidiary reacquires some of its ownership interests
or the subsidiary issues additional ownership interests. All of those
transactions are economically similar, and this Statement requires that
they be accounted for similarly, as equity transactions.
o When a subsidiary is deconsolidated, any retained noncontrolling equity
investment in the former subsidiary be initially measured at fair value.
The gain or loss on the deconsolidation of the subsidiary is measured
using the fair value of any noncontrolling equity investment rather than
the carrying amount of that retained investment.
o Entities provide sufficient disclosures that clearly identify and
distinguish between the interests of the parent and the interests of the
noncontrolling owners.
This Statement applies to all entities that prepare consolidated financial
statements, except not-for-profit organizations, but will affect only those
entities that have an outstanding noncontrolling interest in one or more
subsidiaries or that deconsolidate a subsidiary. Not-for-profit organizations
should continue to apply the guidance in Accounting Research Bulletin No. 51,
Consolidated Financial Statements, before the amendments made by this Statement,
and any other applicable standards, until the Board issues interpretative
guidance.
19
This Statement amends ARB 51 to establish accounting and reporting standards for
the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. Before this Statement was issued,
limited guidance existed for reporting noncontrolling interests. As a result,
considerable diversity in practice existed. So-called minority interests were
reported in the consolidated statement of financial position as liabilities or
in the mezzanine section between liabilities and equity. This Statement improves
comparability by eliminating that diversity.
This Statement is effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2008. Earlier adoption is
prohibited. The effective date of this Statement is the same as that of the
related Statement 141(R). This Statement shall be applied prospectively as of
the beginning of the fiscal year in which this Statement is initially applied,
except for the presentation and disclosure requirements. The presentation and
disclosure requirements shall be applied retrospectively for all periods
presented.
The Company is currently evaluating SFAS 160 and has not yet determined its
potential impact on its future results of operations or financial position.
(10) License Agreements
First License Agreement
- -----------------------
On August 24, 2004, the Company entered into a non-assignable license agreement
(the "License Agreement") with L.R. Global Marketing Pty. Ltd. ("L.R. Global").
Pursuant to the License Agreement, L.R. Global has the right or license, for a
period of ten years, to use of the Company's logo, management information
system, and other material within Australia and New Zealand. L.R. Global will
assist in identifying new clients for the Company, and recruiting account
executive and customer service representatives. Under the terms of the License
Agreement, L.R. Global was obligated to pay the Company $500,000 on or before
December 31, 2004, for the grant of the license. As of December 31, 2004, L.R.
Global had only paid $117,750 toward the fee for the license, and was in default
under the License Agreement.
On January 14, 2005, the Company and L.R. Global entered into an extension
agreement whereby the terms of the License Agreement for payment of the
remaining amount of the $500,000 license fee were extended to May 31, 2005. As
of May 31, 2005, the balance of the License Agreement fees had not been paid,
and L.R. Global was in default under the License Agreement and amendment.
Subsequently, on June 14, 2005, the Company and L.R. Global entered into a
second extension whereby the terms of the License Agreement were amended as
follows: (i) for consideration of $7,000 paid by L.R. Global as a partial
payment of the license fee, the due date for the payment of the remaining
balance of the license fee was extended to a date within sixty (60) days
following the first date on which the common stock of the Company is quoted on
the OTC Bulletin Board or other recognized stock exchange; and, (ii) the two
principals of L.R. Global, Laraine Richardson and Dianne Waghorne, provided
personal guarantees to the Company for payment of the remaining balance of the
license fee in the event that the balance owed is not repaid by L.R. Global.
The delay experienced in collecting the remaining amount of the license fee from
L.R. Global was due primarily to the extended period required by the Company to
complete its capital formation activities, including the effective date of its
Registration Statement on Form SB-2 with the SEC. The principals of L.R. Global
informed the management of the Company that L.R. Global entered into the License
Agreement with the understanding that the Company would implement its plan of
operations (including the completion of its capital formation activities) in
February 2005. At that time, L.R. Global was committed to provide additional
sales and marketing resources, and pay the remaining amount of the license fee
due. Further, as a result of additional discussions with the principals of L.R.
Global and review of available credit information, management of the Company
believed that: (i) L.R. Global would honor the terms of the License Agreement,
and had sufficient operations and financial resources to pay the remaining
amount owed to the Company, (ii) complete payment of the license fee would be
accomplished under the terms of the second extension agreement dated June 14,
2005, and (iii) the personal guarantees of the principals of L.R. Global
provided sufficient additional assurance of collectibility under Australian law.
20
On May 2, 2006, the common stock of the Company began trading on the OTC
Bulletin Board under the stock symbol FFBU. On May 23, 2006, the two principals
of L.R. Global were notified by the Company of the date trading began of the
Company's common stock on the OTC Bulletin Board, and that the balance of the
license fee owed would be due and payable to the Company 60 days from that date.
On July 6, 2006, the Company received a letter from the legal counsel for L.R.
Global advising the management of the Company that payment of the remaining
license fee would not be forthcoming due to alleged verbal misrepresentations
made to the principals of L.R. Global by the management of the Company and
principal stockholder as to the value of the common stock of the Company that
would be achieved by the end of the first week and the end of the first month of
trading on the OTC Bulletin Board. The principals of L.R. Global have disclosed
to the Company through legal counsel that it was their understanding and
expectation that the remaining amount due under the License Agreement would be
satisfied from the sale of a portion or all of the 500,000 shares of common
stock provided to L.R. Global by Mark A Poulsen, President and Chief Executive
Officer of the Company (see below). Due to the fact that the trading price of
the common stock of the Company in early July 2006, was insufficient to provide
proceeds from the sale of the 500,000 shares of common stock owned by L.R.
Global in an amount sufficient to satisfy the remaining amount due to the
Company under the License Agreement, L.R. Global is asserting alleged damages
for misrepresentation, negligent misstatement and/or breaches of Section 52 of
the Australian Trade Practices Act of 1974, and has refused payment of the
amount owed. Management of the Company denies that it had any responsibility as
to the value of its common stock in relation to the amount owed by L.R. Global,
and has demanded payment in full. Currently, negotiations are continuing between
the Company and the principals of L.R. Global to receive full payment of the
amount owed, but the Company has not sought to enforce the collection or
personal guarantees provided under the terms of the second extension to the
License Agreement dated June 14, 2005 by legal action. As a result of this lack
of enforcement by the Company, a reserve for doubtful accounts in the amount of
$375,250 was recorded in the financial statements during the year ended June 30,
2006. Further, due to the matters described above pertaining to the lack of
completion of its capital formation activities by collection of the amount owed,
the Company has not recognized revenue to-date from this License Agreement.
From the shares issued to Mark A. Poulsen, President and Chief Executive Officer
of the Company, under the Exchange Agreement described in Note 6, L.R. Global
received 500,000 shares of common stock. The purpose of the transfer was to
further involve L.R. Global in the Company as a stockholder, and to provide an
incentive for L.R. Global to perform under the License Agreement. Management of
the Company maintains that the transfer of shares of common stock to L.R. Global
by Mark A. Poulsen was a private transaction between the parties, and not part
of the Exchange Agreement to be recognized in the financial statements of the
Company.
Second License Agreement
- ------------------------
On September 13, 2006, the Company entered into a License Agreement (the "Second
License Agreement") with Mr. Bruce Gilling of Miami, Florida, a related party.
Mr. Gilling is also an option holder to purchase 50,000 shares of the Company's
common under an Option Purchase Agreement with Fort Street (see Note 11). Per
the Second License Agreement, Mr. Gilling as the right, for a period of ten (10)
years, to the use of the Company's logo, web based management information
system, marketing and promotional literature, processes, systems, intellectual
property, and attend the Company's events for the purpose of generating new
customers for the Company, and for training account executives and customer
service representatives. Pursuant to the original license terms, the fee for the
Second License Agreement was $500,000 payable as follows:
On or before October 16, 2006 $ 20,000
On January 30, 2007 $ 80,000
Balance to be invoiced each year for four years $ 400,000
Also under the Second License Agreement, Mr. Gilling would be entitled to
100,000 stock options to purchase a like number of shares of unregistered common
stock of the Company at a 40% discount from market following the payment of the
license fee of $80,000 that was scheduled for January 2007. He would also
receive 100,000 options to purchase a like number of unregistered shares of
common of common stock of the Company at a 40% discount from market on each
occasion that he invoices $1,000,000 in retail sales of the Company's products
and services. Lastly, the Company is to have first right of refusal to purchase
the resultant shares of common stock received by Mr. Gilling under the Second
License Agreement at the then prevailing market price of the common stock or
less.
21
The Company has not received any of the above payments on this license. Due to
the uncertainties surrounding the terms of the license and collection of the
first two installments, the Company has recorded an allowance for doubtful
accounts to reduce the net accounts receivable and deferred revenue balances to
zero.
(11) Promissory Notes - Fort Street Equity, Inc.
On May 10, 2005, the Ralston Superannuation Fund ("Ralston Fund") entered into
an Option Purchase Agreement with Fort Street whereby the Ralston Fund agreed to
purchase 100,000 stock options of the Company held by Fort Street for the amount
of $19,050. The stock options entitle the holder to purchase a like number of
shares of common stock of the Company. The Trustee for the Ralston Fund is
Leanne Ralston, the wife of Prins A. Ralston. Mr. Ralston was the Senior Vice
President and Chief Operating Officer of the Company. Fort Street subsequently
loaned the proceeds from the sale of the stock options to the Company under the
terms of a promissory note dated May 11, 2005. The promissory note is unsecured,
and carries an interest rate of five (5) percent per annum. The maturity date of
the note, together with any remaining interest, is December 31, 2009. Interest
payments on the promissory note are payable to Fort Street bi-annually and at
the maturity date of the obligation. In addition, on March 22, 2006, Fort
Street, as a principal stockholder of the Company, granted to the Ralston Fund
100,000 shares of its common stock for no consideration or modification of the
Option Purchase Agreement described above.
On June 14, 2005, Mr. Bruce Gilling, an unrelated party, entered into an Option
Purchase Agreement with Fort Street whereby the Mr. Gilling agreed to purchase
50,000 stock options of the Company held by Fort Street for the amount of
$15,000. The stock options entitle the holder to purchase a like number of
shares of common stock of the Company. Fort Street subsequently loaned the
proceeds from the sale of the stock options to the Company under the terms of a
promissory note dated June 19, 2005. The promissory note is unsecured, and
carries an interest rate of five (5) percent per annum. The maturity date of the
note, together with any remaining interest, is December 31, 2009. Interest
payments on the promissory note are payable to Fort Street bi-annually and at
the maturity date of the obligation.
On July 1, 2005, Therese Mulherin, a former part-time employee of the Company,
entered into two Option Purchase Agreements with Fort Street whereby the Ms.
Mulherin agreed to purchase 277,576 stock options of the Company held by Fort
Street for $60,240. The stock options entitle the holder to purchase a like
number of shares of common stock of the Company. Fort Street subsequently loaned
the proceeds from the sale of the stock options to the Company under the terms
of two separate promissory notes dated July 1, 2005. Each promissory note is
unsecured, and carries an interest rate of five (5) percent per annum. The
maturity date of the notes, together with any remaining interest, is December
31, 2009. Interest payments on the promissory notes are payable to Fort Street
bi-annually and at the maturity date of the obligations. In addition, on March
22, 2006, Fort Street, as a principal stockholder of the Company, granted to Ms.
Mulherin 277,576 of its common stock for no consideration or modification of the
Option Purchase Agreement described above.
On August 19, 2005, Mr. Mark Hoey, a stockholder of the Company, entered into an
Option Purchase Agreement with Fort Street whereby Mr. Hoey agreed to purchase
66,666 stock options of the Company held by Fort Street for the amount of
$20,000. The stock options entitle the holder to purchase a like number of
shares of common stock of the Company. Fort Street subsequently loaned the
proceeds from the sale of the stock options to the Company under the terms of a
promissory note dated August 29, 2005. The promissory note is unsecured, and
carries an interest rate of five (5) percent per annum. The maturity date of the
note, together with any remaining interest, is December 31, 2009. Interest
payments on the promissory note are payable to Fort Street bi-annually and at
the maturity date of the obligation. In addition, on March 22, 2006, Fort
Street, as a principal stockholder of the Company, granted to Mr. Hoey 66,666
shares of its common stock for no consideration or modification of the Option
Purchase Agreement described above.
On August 26, 2005, the Kelly Superannuation Fund, an unrelated party, entered
into an Option Purchase Agreement with Fort Street whereby the Fund agreed to
purchase 16,666 stock options of the Company held by Fort Street for the amount
of $5,000. The stock options entitle the holder to purchase a like number of
shares of common stock of the Company. Fort Street subsequently loaned the
proceeds from the sale of the stock options to the Company under the terms of a
promissory note dated August 29, 2005. The promissory note is unsecured, and
carries an interest rate of five (5) percent per annum. The maturity date of the
note, together with any remaining interest, is December 31, 2009. Interest
22
payments on the promissory note are payable to Fort Street bi-annually and at
the maturity date of the obligation. In addition, on March 22, 2006, Fort
Street, as a principal stockholder of the Company, granted 16,666 shares of its
common stock to the Kelly Superannuation Fund for no consideration or
modification of the Option Purchase Agreement described above.
On September 14, 2005, Sandra L. Wendt, Vice President and Chief Financial
Officer of the Company, entered into an Option Purchase Agreement with Fort
Street whereby Mrs. Wendt agreed to purchase 13,420 stock options of the company
held by Fort Street for the amount of $2,280. The stock options entitle the
holder to purchase a like number of shares of common stock of the Company. Fort
Street subsequently loaned the proceeds from the sale of the stock options to
the Company under the terms of a promissory note dated September 14, 2005. The
promissory note is unsecured, and carries an interest rate of five (5) percent
per annum. The maturity date of the note, together with any remaining interest,
is December 31, 2009. Interest payments on the promissory note are payable to
Fort Street bi-annually and at the maturity date of the obligation. In addition,
on March 22, 2006, Fort Street, as a principal stockholder of the Company,
granted 13,720 shares of its common stock on behalf of the Company to Ms. Wendt.
The value of the common stock provided amounted to $6,710, and has been
recognized as compensation expense and additional paid-in capital of the Company
in the financial statements during the year ended June 30, 2006. There was no
modification of the Option Purchase Agreement described above as a result of the
grant of the common stock by the principal stockholder.
On September 23, 2005, Keith Appleby, an unrelated party, entered into an Option
Purchase Agreement with Fort Street whereby Mr. Appleby agreed to purchase
16,666 stock options of the Company held by Fort Street for the amount of
$5,000. The stock options entitle the holder to purchase a like number of shares
of common stock of the Company. Fort Street subsequently loaned the proceeds
from the sale of the stock options to the Company under the terms of a
promissory note dated September 23, 2005. The promissory note is unsecured, and
carries an interest rate of five (5) percent per annum. The maturity date of the
note, together with any remaining interest, is December 31, 2009. Interest
payments on the promissory note are payable to Fort Street bi-annually and at
the maturity date of the obligation. In addition, on March 22, 2006, Fort
Street, as a principal stockholder of the Company, granted 16,666 shares of its
common stock to Mr. Appleby for no compensation or modification of the Option
Purchase Agreement described above.
On September 26, 2005, Neil Wendt, a related party, entered into an Option
Purchase Agreement with Fort Street whereby Mr. Wendt agreed to purchase 25,000
stock options of the Company held by Fort Street for the amount of $7,500. The
stock options entitle the holder to purchase a like number of shares of common
stock of the Company. Fort Street subsequently loaned the proceeds from the sale
of the stock options to the Company under the terms of a promissory note dated
September 26, 2005. The Company received the proceeds from the promissory note
in early October 2005. The promissory note is unsecured, and carries an interest
rate of five (5) percent per annum. The maturity date of the note, together with
any remaining interest, is December 31, 2009. Interest payments on the
promissory note are payable to Fort Street bi-annually and at the maturity date
of the obligation. In addition, on March 22, 2006, Fort Street, as a principal
stockholder of the Company, granted to Mr. Wendt 25,000 shares of its common
stock for no compensation or modification of the Option Purchase Agreement
described above.
The total proceeds received by the Company for the above sales of 565,994 stock
options by Fort Street amounted to $134,070. Additional amounts totaling $34,714
were loaned to the Company by Fort Street directly under the same terms as
described above. The total amount payable to Fort Street at December 31, 2007
under this obligation is $138,762, plus accrued interest of $18,601. The Company
made a principal repayment of $1,740 during the quarter ended December 31, 2007.
The note is unsecured, carries an interest rate of five (5) percent per annum,
and matures on December 31, 2009.
23
(12) Commitments and Contingencies
In November 2005, the Company was notified by the SEC that in light of the
proximity in timing between the sales of 565,994 stock options held by Fort
Street to various parties and the loans evidenced by promissory notes made by
Fort Street to the Company (as described in Note 11), such sales of options by
Fort Street are believed to be a primary offering of securities by an
underwriter on behalf of the Company under Section 5 of the Securities Act of
1933 (the "33 Act"). If it is determined that such transactions constitute a
primary offering by or on behalf of the Company in violation of Section 5 of the
33 Act, then the Company may be subject to remedial sanctions. Such sanctions
may include the payment of disgorgement, prejudgment interest and civil or
criminal penalties. Management of the Company is not aware of any pending claims
for sanctions against it based on Section 5 of the 33 Act, and intends to
vigorously defend against any such claims if they arise. However, due to the
notification by the SEC, the Company has classified the promissory notes,
amounting to $138,762, and accrued interest of $18,601, as of December 31, 2007,
as amounts subject to rescission in the accompanying balance sheet.
(13) Subsequent Event
On January 16, 2008 the Company's President and principal shareholder entered
into a stock purchase agreement with Route 32, LLC whereby the President would
sell his current majority ownership stake in the Company for $500,000. The stock
purchase agreement is expected to be finalized in January 2008.
24
Item 2. Management's Discussion and Analysis or Plan of Operation
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of our financial
condition. The discussion should be read in conjunction with our financial
statements and notes thereto appearing in this prospectus. The following
discussion and analysis contains forward-looking statements, which involve risks
and uncertainties. Our actual results may differ significantly from the results,
expectations and plans discussed in these forward-looking statements.
Forward-Looking Statements
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of our results of
operations and financial condition. The discussion should be read in conjunction
with our financial statements and notes thereto appearing in this prospectus.
The following discussion and analysis contains forward-looking statements, which
involve risks and uncertainties. Our actual results may differ significantly
from the results, expectations and plans discussed in these forward-looking
statements.
Overview
Fit For Business International, Inc. ("FFBI" or the "Company") is a Nevada
corporation in the development stage of providing products and services for: (i)
corporate wellness programs which address business productivity, stress and
absenteeism issues; (ii) living well programs directed primarily, but not
exclusively, to individuals over 45 years of age; and, (iii) nutritional
supplements manufactured and supplied by Herbalife Ltd. ("Herbalife"). The
accompanying consolidated financial statements of FFBI were prepared from the
accounts of the Company under the accrual basis of accounting in United States
dollars. In addition, these financial statements reflect the completion of a
deemed reverse merger between FFBI and Fit For Business (Australia) Pty Limited
("FFB Australia"), which was effected on September 14, 2004.
Prior to the completion of the deemed reverse merger, FFBI was a dormant
corporation with no assets or operations (essentially since its organization on
May 30, 2001, and incorporation on July 31, 2001). The Company was originally
incorporated under the name of Elli Tsab, Inc. On April 7, 2004, the name of the
Company was changed to Patient Data Corporation. On January 13, 2005, the name
of the Company was again changed to Fit For Business International, Inc. in
order to better reflect the current business plan.
FFB Australia was organized as an Australian private company on December 14,
1998, and subsequently began certain marketing studies and corporate awareness
programs to obtain customers for its products and services. In October 2003, FFB
Australia initiated a capital formation activity through the private placement
of certain convertible promissory notes which provided, through September 14,
2004, proceeds of $365,000. Subsequent to the completion of the deemed reverse
merger, the liability associated with the convertible promissory notes was
assumed by the Company. Thereafter, all of the promissory notes were converted
into shares of common stock of FFBI.
In addition, in November 2003, FFB Australia commenced a capital formation
activity to effect a deemed reverse merger with a corporation validly organized
in the United States for the purpose of completing a Registration Statement on
Form SB-2 with the Securities and Exchange Commission ("SEC"), and raising
capital from the issuance of common stock in the public markets of up to $4.5
million. The initial capital formation activity through a deemed reverse merger
and the issuance of common stock was unsuccessful. Subsequently, FFB Australia
completed a deemed reverse merger with the Company, and FFBI has completed a
registration of its common stock with the SEC pertaining to a second capital
formation activity.
Prior to September 14, 2004, FFB Australia, aside from the capital formation and
marketing activities described above, incurred other development stage operating
costs and expenses related to its organization as an entity, receipt of a
trademark in Australia for the name and related logo of Fit For Business,
formation of a management team, accounting and tax preparation fees, consulting
fees, travel, and other general and administrative expenses.
25
Given that FFB Australia is considered to have acquired FFBI by a deemed reverse
merger through an Exchange Agreement, and its stockholders currently have voting
control of FFBI, the accompanying unaudited condensed consolidated financial
statements and related note disclosures present the financial position as of
December 31, 2007, and the operations for the three months and six months ended
December 31, 2007 and December 31, 2006, and comparatives for the period from
inception (December 14, 1998) through December 31, 2007, of FFB Australia under
the name of FFBI. The deemed reverse merger has been recorded as a
recapitalization of the Company, with the net assets of FFB Australia and FFBI
brought forward at their historical bases. The costs associated with the reverse
merger have been expensed as incurred.
On March 24, 2007, the Company acquired 100% of the common stock of Footfridge
Pty Ltd ("Footfridge") in exchange for a $1,000,000 convertible promissory note.
Pursuant to the agreement, Footfridge became a wholly owned subsidiary of the
Company. Footfridge had minimal operations and its only significant asset was a
patent for a certain heat reflection footwear device. Accordingly, the
acquisition has been recorded as an intangible asset purchase with no goodwill
recognized. The patent was recorded at $1,000,000, which was the estimated fair
value of the note payable on the acquisition date. This agreement was rescinded
on August 21, 2007, whereby the promissory note was cancelled and the Footfridge
common stock was returned to the seller.
On January 16, 2008 the Company's President and principal shareholder entered
into a stock purchase agreement with Route 32, LLC whereby the President would
sell his current majority ownership stake in the Company for $500,000. The stock
purchase agreement is expected to be finalized in January 2008.
If the above stock purchase transaction fails, Management will continue its
attempt to seek a suitable Company to acquire or merge with and to raise
additional equity and debt financing to sustain its current operations. The
successful outcome of future activities cannot be determined at this time due to
the current market conditions, and there are no assurances that if achieved, the
Company will have sufficient funds to execute its intended business plan or
generate positive operating results.
In November 2005, the Company was notified by the SEC that in light of the
proximity in timing between the sales of 565,994 stock options held by Fort
Street to various parties and the loans evidenced by promissory notes made by
Fort Street to the Company (as described in Note 11), such sales of options by
Fort Street are believed to be a primary offering of securities by an
underwriter on behalf of the Company under Section 5 of the Securities Act of
1933 (the "33 Act"). If it is determined that such transactions constitute a
primary offering by or on behalf of the Company in violation of Section 5 of the
33 Act, then the Company may be subject to remedial sanctions. Such sanctions
may include the payment of disgorgement, prejudgment interest and civil or
criminal penalties. Management of the Company is not aware of any pending claims
for sanctions against it based on Section 5 of the 33 Act, and intends to
vigorously defend against any such claims if they arise. However, due to the
notification by the SEC, the Company has classified the promissory notes,
amounting to $138,762, and accrued interest of $18,601, as of December 31, 2007,
as amounts subject to rescission in the accompanying balance sheet.
Critical Accounting Policies
Our financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America ("US GAAP"). In connection
with the preparation of the financial statements, we are required to make
assumptions and estimates about future events, and apply judgments that affect
the reported amounts of assets, liabilities, revenues, expenses and the related
disclosure. We base our assumptions, estimates and judgments on historical
experience, current trends and other factors that management believes to be
relevant at the time the financial statements are prepared. On a regular basis,
management reviews our accounting policies, assumptions, estimates and judgments
to ensure that our financial statements are presented fairly and in accordance
with U.S. GAAP. However, because future events and their effects cannot be
determined with certainty, actual results could differ from our assumptions and
estimates, and such differences could be material.
Our significant accounting policies are discussed in Note 1 of the notes to
financial statements. Certain critical policies are presented below.
26
Revenue Recognition
-------------------
We are in the development stage and have yet to realize significant
revenues from planned operations. We have derived revenues principally from
the sale of services related to wellness programs, literature and training
materials. We have also entered into a license agreement for Australia and
New Zealand which entitles the licensee to provide a distribution network
for us, use our logo and software, and market and promote our products and
services. Revenue will be derived over the term of the license agreement
once all terms and conditions have been met. Revenues are recognized by
major categories under the following policies:
For specific wellness program services, such as health risk assessment
services, fitness programs, educational and other programs, and contracts
pertaining to such services, revenue is realized as services are provided.
Contracts for wellness program services are evidenced in writing, and as
services are rendered, invoices for such services are rendered in
accordance with contract terms.
For sales of literature and training materials, revenue is realized upon
shipment to the customer and there are no unfulfilled company elements
related to a customer's order. Orders for literature and materials are
evidenced in writing on customer and call center order documents. Payments
are provided in cash, check or by credit card at the time orders are placed
with us.
For license agreements, revenue is realized from licensing activities
related to various countries and geographic regions, which entitle
licensees to provide a distribution network for us, the use of our logo,
software and training materials, and the rights to market and promote our
services. Revenue from such agreements is realized over the term and under
the conditions of each specific license once all contract conditions have
been met. Payments for licensing fees are generally received at the time
the license agreements are executed, unless other terms for delayed payment
are documented and agreed to between the parties. Under terms for delayed
payment, we may require further assurances of payment under contract terms
such as credit report information, and entity and personal guarantees.
Costs of Computer Software Developed or Obtained for Internal Use
-----------------------------------------------------------------
Under State of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"), we capitalize external
direct costs of materials and services consumed in developing or obtained
internal-use computer software; payroll and payroll-related costs for
employees who are directly associated with and who devote time to the
internal-use computer software project; and, interest costs related to
loans incurred for the development of internal-use software.
Foreign Currency
----------------
The Company accounts for foreign currency translation pursuant to SFAS No.
52, Foreign Currency Translation ("SFAS 52"). The Company's functional
currency is the Australian dollar. All assets and liabilities are
translated into United States dollars using the current exchange rate at
the end of each fiscal period. Revenues and expenses are translated using
the average exchange rates prevailing throughout the period. Translation
adjustments are included in accumulated comprehensive income (loss) for the
period. Certain transactions of the Company are denominated in United
States dollars. Translation gains or losses related to such transactions
are recognized for each reporting period in the related statement of
operations and comprehensive income (loss).
As a result of such currency fluctuations and the conversion to United
States dollars for financial reporting purposes, we may experience
fluctuations in our operating results on an annual or quarterly basis going
forward. We have not in the past, but may in the future, hedge against
fluctuations in exchange rates. Future hedging transactions may not
successfully mitigate losses caused by currency fluctuations.
27
Results of Operations for the Three Months Ended December 31, 2007 and 2006
Revenues
- --------
We had no revenues for the three months ended December 31, 2007, compared to
revenues of $4,639 for the three months ended December 31, 2006.
Cost of Sales
- -------------
Cost of sales was $0 for the three months ended December 31, 2007 as compared to
$2,033 for the same period ended December 31, 2006.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses for the three months ended December
31, 2007 were $19,141 compared to $192,074 for the three months ended December
31, 2006. During the three months ended December 31, 2006, we incurred $152,757
in wages, compensation and related taxes that were not incurred in three months
ended December 31, 2007 due to our lack of revenues and sufficient working
capital.
Other Income (Expense)
- ----------------------
For the three months ended December 31, 2007, we reported miscellaneous income
of $3,740 and incurred interest expense totaling $2,854. For the three months
ended December 31, 2006, we incurred interest expense totaling $6,053.
Results of Operations for the Six Months Ended December 31, 2007 and 2006
Revenues
- --------
Our revenues for the six months ended December 31, 2007 totaled $495, compared
to revenues of $7,507 for the six months ended December 31, 2006.
Cost of Sales
- -------------
Cost of sales was $435 for the six months ended December 31, 2007 as compared to
$2,730 for the same period ended December 31, 2006.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses for the six months ended December
31, 2007 were $23,979 compared to $453,745 for the six months ended December 31,
2006. During the six months ended December 31, 2006, we incurred $393,610 in
wages, compensation and related taxes, versus only $25,062 of these expenses
during the six months ended December 31, 2007.
Other Income (Expense)
- ----------------------
For the six months ended December 31, 2007, we reported income relating to the
cancellation and settlement of debt totaling $146,752, other income of $3,763,
and interest expense of $14,993. The gain on the cancellation and settlement of
debt included a $117,793 gain from the settlement of an accrued compensation
agreement and $28,959 cancellation of indebtedness related to the rescission of
our previous acquisition of Footfridge. For the six months ended December 31,
2006, we incurred interest expense totaling $3,527.
28
Liquidity and Capital Resources
During the six months ended December 31, 2007, the Company received proceeds of
$29,109 in loans from related parties. Of the amounts received, $15,158 was used
in operations, and $1,740 was used to repay promissory notes. The balance of
cash and cash equivalents as of December 31, 2007 was $688.
During the six months ended December 31, 2006, the Company received $152,000
from the sale of common stock and proceeds of $11,837 in loans from related
parties. Of the amounts received, $64,431 was used in our operations, $2,471 to
cover a cash overdraft, $23,052 to pay costs related to our stock offering, and
$29,885 to repay loans to related parties. The balance of cash and cash
equivalents as of December 31, 2006 was $43,216.
In the course of the activities described above, we have sustained operating
losses and expect such losses to continue in the foreseeable future. To date, we
have not generated sufficient revenues to achieve profitable operations or
positive cash flow from operations. As of December 31, 2007, we had a working
capital deficit of $423,042 and an accumulated deficit of $1,464,451. There is
no assurance that profitable operations, if ever achieved, will be sustained on
a continuing basis.
Our footnotes for the six months ended December 31, 2007 and 2006 contain an
explanatory paragraph which indicates that we have recurring losses from
operations, and our working capital is insufficient to meet our planned business
objectives. This report also states that, because of these losses, there is
substantial doubt about our ability to continue as a going concern. This report
and the existence of these recurring losses from operations may make it more
difficult for us to raise additional debt or equity financing needed to run our
business, and are not viewed favorably by analysts or investors. Furthermore, if
we are unable to complete our planned merger or raise a significant amount of
proceeds form our offering, this may cause our cessation of business resulting
in investors losing the value of their investment in us.
Off Balance Sheet Arrangements
- ------------------------------
We have no off-balance sheet arrangements.