UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2006 ----------------- [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from __________ to __________ 333-123176 (Commission file number) FIT FOR BUSINESS INTERNATIONAL, INC. ------------------------------------ (Exact name of small business issuer as specified in its charter) Nevada 20-2008579 ------- ---------- (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 10/27 Mayneview St., Milton, Q 4064 Australia --------------------------------------------- (Address of principal executive offices) 61-7-33673355 ------------- (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. [ ] Yes [X] No State the number of shares outstanding of each of the issuer's classes of common equity, as of February 13, 2007: 24,346,000 shares of Common Stock issued and outstanding. Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Item 1. Financial Statements..............................................1 Item 2. Management's Discussion and Analysis or Plan of Operation........25 Item 3. Controls and Procedures..........................................30 PART II - OTHER INFORMATION Item 1. Legal Proceedings................................................31 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds......31 Item 3. Defaults Upon Senior Securities..................................31 Item 4. Submission of Matters to a Vote of Security Holders..............31 Item 5. Other Information................................................31 Item 6. Exhibits and Reports of Form 8-K.................................31 SIGNATURES....................................................................34 PART I - FINANCIAL INFORMATION Item 1. Financial Statements FIT FOR BUSINESS INTERNATIONAL, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEET (Unaudited) ASSETS ------ December 31, 2006 ------------ Current assets Cash and cash equivalents $ 43,216 Inventory 1,380 ------------ Total current assets 44,596 Property and equipment Office and computer equipment 2,130 Furniture and fixtures 189 Web site development costs 8,209 Developed software applications 41,506 ------------ 52,034 Less accumulated depreciation and amortization (19,880) ------------ Net property and equipment 32,154 Other assets Deferred offering costs 178,370 Trademark, less accumulated amortization of $196 41 ------------ Total other assets 178,411 ------------ Total assets $ 255,161 ============ The accompanying notes are an integral part of these financial statements. 1 FIT FOR BUSINESS INTERNATIONAL, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEET (Unaudited) LIABILITIES AND STOCKHOLDERS' (DEFICIT) --------------------------------------- December 31, 2006 ------------ Current liabilities Accounts payable - trade $ 69,897 Accrued compensation and related expenses 1,447,970 Other accrued liabilities 134,595 Loans from related parties 101,805 ------------ Total current liabilities 1,754,267 Deferred revenue - license fees 124,750 Promissory note Promissory note - Elontraion Pty. Ltd., 5% per annum, due December 31, 2009, unsecured 19,733 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 141,878 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 Common stock subscription receivable - Fort Street Equity, Inc. (12,000) Deficit accumulated during the development stage (2,687,105) Accumulated other comprehensive loss (93,175) ------------ Total stockholders' (deficit) (1,785,467) ------------ Total liabilities and stockholders' (deficit) $ 255,161 ============ The accompanying notes are an integral part of these financial statements. 2 FIT FOR BUSINESS INTERNATIONAL, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Unaudited) For the period December 14, Three Months Ended Six Months Ended 1998 ---------------------------- ---------------------------- (inception) to December 31, December 31, December 31, December 31, December 31, 2006 2005 2006 2005 2006 ------------ ------------ ------------ ------------ -------------- Revenues $ 4,639 $ 2,043 $ 7,507 $ 4,913 $ 36,475 Cost of sales 2,033 1,099 2,730 1,992 17,134 ------------ ------------ ------------ ------------ -------------- Gross profit 2,606 944 4,777 2,921 19,341 ------------ ------------ ------------ ------------ -------------- Selling, general and administrative expenses Wages, compensation and related taxes 152,757 29,535 393,610 120,823 1,843,036 Legal, accounting and consulting fees 21,723 24 32,178 8,553 369,734 Advertising and promotion -- -- -- 103 40,316 Depreciation and amortization 2,373 2,295 4,743 4,472 18,680 Write-off of deferred offering costs -- -- -- -- 79,685 Office rent and common area costs 8,463 4,169 8,463 8,429 41,285 Training and development -- (7) -- 674 26,890 Travel, meals and lodging 458 61 458 1,820 35,707 Realized foreign currency exchange adjustments -- 8,044 -- 7,859 23,613 Other selling, general and administrative 6,300 5,988 14,293 18,201 203,094 ------------ ------------ ------------ ------------ -------------- Total selling, general and administrative expenses 192,074 50,109 453,745 170,934 2,682,040 ------------ ------------ ------------ ------------ -------------- (Loss) from operations (189,468) (49,165) (448,968) (168,013) (2,662,699) Other income (expense) (6,053) (1,844) (3,527) (3,179) (24,406) Provision for income taxes -- -- -- -- -- ------------ ------------ ------------ ------------ -------------- Net loss (195,521) (51,009) (452,495) (171,192) (2,687,105) Other comprehensive income (loss) Australian currency translation (133,393) 12,206 (102,291) 13,216 (93,175) ------------ ------------ ------------ ------------ -------------- Total comprehensive income (loss) (328,914) (38,803) (554,786) (157,976) (2,780,280) ============ ============ ============ ============ ============== Net (loss) per common share - basic and diluted (0.01) (0.00) (0.03) (0.01) ============ ============ ============ ============ Weighted average number of common shares outstanding 22,915,293 20,870,000 21,943,147 20,870,000 ============ ============ ============ ============ The accompanying notes are an integral part of these financial statements. 3 FIT FOR BUSINESS INTERNATIONAL, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) FROM THE COMPANY'S INCEPTION (DECEMBER 14, 1998) THROUGH DECEMBER 31, 2006 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) Australian currency translation -- -- -- -- -- -- -- (534) (534) --------- ------ ---------- ------- ---------- ------------ ----------- ------------- ----------- Balance - June 30, 1999 -- -- -- -- -- -- (16,960) (534) (17,494) Net (loss) for the period -- -- -- -- -- -- (138,322) -- (138,322) Australian 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) Australian 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) Australian 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) Australian 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) Australian 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 financial statements. 4 FIT FOR BUSINESS INTERNATIONAL, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) FROM THE COMPANY'S INCEPTION (DECEMBER 14, 1998) THROUGH DECEMBER 31, 2006 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) Australian 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 - see Note 12) -- -- -- -- -- -- (1,302,467) -- (1,302,467) Australian currency translation -- -- -- -- -- -- -- 47,347 47,347 --------- ------ ---------- ------- ---------- ------------ ----------- ------------- ----------- Balance - June 30, 2006 (as restated - see Note 12) 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 financial statements. 5 FIT FOR BUSINESS INTERNATIONAL, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) FROM THE COMPANY'S INCEPTION (DECEMBER 14, 1998) THROUGH DECEMBER 31, 2006 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 (unaudited) -- -- 3,375,000 3,375 148,625 -- -- -- 152,000 Compensation from extending terms of stock options (unaudited) -- -- -- -- 4,000 -- -- -- 4,000 Net (loss) for the period (unaudited) -- -- -- -- -- -- (452,495) -- (452,495) Australian currency translation (unaudited) -- -- -- -- -- -- -- (102,291) (102,291) --------- ------ ---------- ------- ---------- ------------ ----------- ------------- ----------- Balance - December 31, 2006 (unaudited) 1,000,000 $1,000 24,346,000 $24,346 $ 981,467 $ (12,000) $(2,687,105) $ (93,175) $(1,785,467) ========= ====== ========== ======= ========== ============ =========== ============= =========== The accompanying notes are an integral part of these financial statements. 6 FIT FOR BUSINESS INTERNATIONAL, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the period December 14, Six Months Ended 1998 ---------------------------- (inception) to December 31, December 31, December 31, 2006 2005 2006 ------------ ------------ ------------- Cash flows from operating activities Net loss $ (452,495) $ (171,192) $ (2,687,105) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 4,743 4,115 18,778 Write-off of deferred offering costs -- -- 77,000 Employee compensation paid by issued options and shares 4,000 54,751 285,461 Consulting and other services paid by issued shares -- -- 133,000 Interest on promissory notes converted to paid-in capital -- -- 13,801 Changes in operating assets and liabilities Accounts receivable -- (788) 124,750 Inventory -- 134 (1,277) Accounts payable - trade (16,687) 20,833 63,954 Accrued liabilities 392,232 (17,361) 1,490,001 Accrued interest subject to rescission 3,776 2,986 3,776 ------------ ------------ ------------- Net cash used in operating activities (64,431) (106,522) (477,861) ------------ ------------ ------------- Cash flows from investing activities Purchases of property and equipment -- -- (2,145) Payment for Australian trademark -- -- (219) Expenditures for web site development costs -- (2,640) (7,593) Expenditures for developed software applications -- -- (38,393) ------------ ------------ ------------- Net cash used in investing activities -- (2,640) (48,350) ------------ ------------ ------------- Cash flows from financing activities Bank overdraft (2,471) (1,608) -- Proceeds from loans - related parties 11,837 40,300 410,975 Repayments on loans - related parties (29,885) (15,604) (325,688) Proceeds from loan - former director -- -- 7,500 Proceeds from issuance of convertible notes -- -- 365,000 Proceeds from issuance of promissory notes -- 115,855 156,355 Proceeds from issuance of common stock 152,000 -- 190,050 Payments of deferred offering costs (23,052) (30,990) (243,004) ------------ ------------ ------------- Net cash provided by financing activities 108,429 107,953 561,188 ------------ ------------ ------------- Effect of exchange rate changes on cash and cash equivalents (877) 14,987 8,239 ------------ ------------ ------------- Net increase in cash and cash equivalents 43,121 13,778 43,216 Cash and cash equivalents, beginning of period 95 3,680 -- ------------ ------------ ------------- Cash and cash equivalents, end of period $ 43,216 $ 17,458 $ 43,216 ============ ============ ============= The accompanying notes are an integral part of these financial statements. 7 FIT FOR BUSINESS INTERNATIONAL, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the period December 14, Six Months Ended 1998 ---------------------------- (inception) to December 31, December 31, December 31, 2006 2005 2006 ------------ ------------ ------------- Supplemental disclosure of cash flow information Cash paid during the period for Interest $ -- $ 10 $ 502 ============ ============ ============= Income taxes $ -- $ -- $ -- ============ ============ ============= Supplemental disclosure 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. 8 FIT FOR BUSINESS INTERNATIONAL, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECMEBER 31, 2006 AND 2005 (Unaudited) (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 consolidated financial statements and related disclosures in the notes to financial statements present the financial position as of December 31, 2006, and the operations for the three months and six months then ended, and comparatives for the period from inception (December 14, 1998) through December 31, 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. 9 The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim periods. The results of operations for the three months and six months ended December 31, 2006 are not necessarily indicative of the results to be expected for the full year. The accompanying consolidated financial statements do not contain certain footnotes and certain financial presentations normally required under generally accepted accounting principles; and therefore, should be read in conjunction with the Company's Annual Report on Form 10-KSB, filed on October 24, 2006, for the year ended June 30, 2006. 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 December 31, 2006, 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 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 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. 10 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, 2006, FFBI had net capitalized costs of $1,710 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, 2006, the Company had net capitalized costs of $29,055 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, 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 six month period ended December 31, 2006 no advertising costs were 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. 11 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 six month period ended December 31, 2006 no events or circumstances occurred for which an evaluation of the recoverability of long-lived assets was required. 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 24.9 million and 22.9 million for the three months ended December 31, 2006 and 2005, and approximately 23.9 million and 22.9 million for the six months ended December 31, 2006 and 2005, respectively. Such amounts include shares potentially issuable under outstanding options. 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 six month period ended December 31, 2006, and cumulative from inception (December 14, 1998) through December 31, 2006, the only components of comprehensive income (loss) were the net (loss) for the periods, and the foreign currency translation adjustments. 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. 12 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, 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 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 4 and 9. Concentration of Risk --------------------- As of December 31, 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. 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 December 31, 2006, and revenues and expenses for the three month and six month periods ended December 31, 2006, 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 December 31, 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 13 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 the 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. 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 December 31, 2006 totaling $1,709,671, 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 Share Exchange Agreement (see Note 4). 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 December 31, 2006. (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. 14 On November 8, 2006, FFBI issued 3,375,000 shares of common stock to one investor for $152,000, or $0.045 per share. 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 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 9. 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 Stock Yield Exit Rate Options ------------- ---------- -------- ----------- -------- 3.81% 135.3% 0% 0% 160 days 15 The following tables summarize information about stock options outstanding and exercisable as of December 31, 2006: 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 1 $0.50 Stock Options Exercisable: ------------------------- Range of Number of Exercise Shares Weighted-Avg. Prices Exercisable Exercise Price ------ ----------- -------------- $0.50 2,000,000 $0.50 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 was recognized as compensation expense and additional paid-in capital. 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). 16 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. 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 six months ended December 31, 2006, the Company incurred an additional $35,418 in legal, accounting, administrative, and filing fees related to the second capital formation activity. As a result, as of December 31, 2006, the Company had $178,370 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. (5) Income Taxes There was no provision (benefit) for income taxes for periods to December 31, 2006. The Company had deferred income tax assets as of December 31, 2006, as follows: Loss carryforwards $ 1,037,680 Less: valuation allowance 1,037,680 ----------- Total net deferred tax assets $ -- =========== As of December 31, 2006, the Company had net operating loss carryforwards for income tax reporting purposes of approximately $3,052,000 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 December 31, 2006, the Company owed $34,357 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 December 31, 2006, the Company owed $61,506 to this entity. This amount owed was for working capital provided, is non-interest bearing, and has no terms for repayment. 17 As of December 31, 2006, the Company owed $772 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 December 31, 2006, the Company owed $5,170 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. 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 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 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 18 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 evaluated the impact of the adoption of 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. (8) 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. 19 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 12 for further explanation of this error correction). Deferred revenue at December 31, 2006 at on this license agreement totaled $124,750, which represents the total cash received from LR Global. 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. 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 December 31, 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. 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 20 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 $1,778 as bad debt expense during the six months ended December 31, 2006 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. (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 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. 21 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, 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 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. 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 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. There was no modification to the terms of the promissory note as a result of the grant of the common stock by Fort Street. 22 (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. The costs of the software project are commensurate with those prevailing in arms-length transactions. 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 six months ended December 31, 2006 and 2005, the Company accrued $8,463 and $8,429 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 $10,226, as of December 31, 2006, as amounts subject to rescission in the accompanying balance sheet. On June 30, 2006, under the terms of a resolution made by the Board of Directors, the Company accrued a bonus of $365,050 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 Bulletin Board for a period of 30 days. On August 7, 2006, the Board of Directors resolved that the Company would only pay this bonus after a total of $1,500,000 was raised from future equity sales. 23 (11) Reclassification Certain reclassifications have been made to conform the December 31, 2005 financial statements to the December 31, 2006 presentation for comparative purposes. (12) Restatement of Balances at June 30, 2006 The consolidated statement of stockholders' equity (deficit) from the Company's inception (December 31, 1998) through December 31, 2006 has been restated to correct the effects of an error made in the June 30, 2006 financial statements. 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 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: 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 =========== =========== =========== 24 Item 2. Management's Discussion and Analysis or Plan of Operation 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 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 is currently undertaking a second capital formation activity of the same type. 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. 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 25 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 $131,652, and accrued interest of $10,226, as of December 31, 2006, as amounts subject to rescission in the accompanying balance sheet. Liquidity and Capital Resources 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, 2006, we had a working capital deficit of $(1,709,671) and an accumulated deficit of $(2,687,105). There is no assurance that profitable operations, if ever achieved, will be sustained on a continuing basis. Our footnotes for the period ended December 31, 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 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. 26 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. 27 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. Results of Operations for the Three Months Ended December 31, 2006 and 2005 Revenues -------- Total revenues for the three months ended December 31, 2006 amounted to $4,639, compared to revenues of $2,043 for the same period ended December 31, 2005. The small increase in revenues resulted by our engagement of an additional client. Cost of Sales ------------- Cost of sales increased to $2,033 for the three months ended December 31, 2006 as compared to $1,099 for the same period ended December 31, 2005. The increase was commensurate with our increased sales during the more recent period. 28 Selling, General and Administrative Expenses -------------------------------------------- Selling, general and administrative expenses for the three months ended December 31, 2006 were $192,074 compared to $50,109 for the same period ended December 31, 2005. The increase was primarily due to a large increase in wages, compensation and related taxes. Most of these costs are deferred compensation from employment agreements with certain members of our management. Other Income (Expense) ---------------------- For the three months ended December 31, 2006, other (expense) totaled ($6,053), compared to ($1,844) for the three months ended December 31, 2005. The increase is a result of higher interest expense in the more recent period. Net (Loss) ---------- Net (loss) for the three months ended December 31, 2006, amounted to $(195,521), compared to $(51,009) for the same period ended December 31, 2005. The increase of the net (loss) resulted primarily from our increased wages and compensation expenses. Other Comprehensive Income (Loss) --------------------------------- Other comprehensive income (loss) for the three months ended December 31, 2006, amounted to $(133,393), compared to $12,206 for the same period ended December 31, 2005. 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 December 31, 2006, 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. Results of Operations for the Six Months Ended December 31, 2006 and 2005 Revenues -------- Total revenues for the six months ended December 31, 2006 amounted to $7,507, compared to revenues of $4,913 for the same period ended December 31, 2005. The small increase in revenues resulted by our engagement of an additional client. Cost of Sales ------------- Cost of sales increased to $2,730 for the six months ended December 31, 2006 as compared to $1,992 for the same period ended December 31, 2005. The increase was commensurate with our increased sales during the more recent period. Selling, General and Administrative Expenses -------------------------------------------- Selling, general and administrative expenses for the six months ended December 31, 2006 were $453,745 compared to $170,934 for the same period ended December 31, 2005. The increase was primarily due to a large increase in wages, compensation and related taxes. Most of these costs are deferred compensation from employment agreements with certain members of our management. Other Income (Expense) ---------------------- For the six months ended December 31, 2006, other (expense) totaled ($3,527), compared to ($3,179) for the six months ended December 31, 2005. 29 Net (Loss) ---------- Net (loss) for the six months ended December 31, 2006, amounted to $(452,495), compared to $(171,192) for the same period ended December 31, 2005. The increase of the net (loss) resulted primarily from the our increased wages and compensation expenses. Other Comprehensive Income (Loss) --------------------------------- Other comprehensive income (loss) for the six months ended December 31, 2006, amounted to $(102,291), compared to $13,216 for the same period ended December 31, 2005. 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 December 31, 2006, 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. Off Balance Sheet Arrangements ------------------------------ We have no off-balance sheet arrangements. Item 3. Controls and Procedures Evaluation of disclosure controls and procedures Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), as of December 31, 2006. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that our disclosure and controls are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Changes in internal controls There were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred during the quarter ending December 31, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 30 PART II - OTHER INFORMATION Item 1. Legal Proceedings. As more fully disclosed on our Annual Report filed on October 24, 2006, whose information is hereby incorporated by reference, we may be a party to legal proceedings in the future with one of our licensees, L.R. Global. Other than this possibility, 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 party adverse to us or has a material interest adverse to us. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. As more fully described in Item 1.01 of our Current Report filed on November 16, 2006, whose information is hereby incorporated by reference, we sold 3,375,000 shares of our common stock to one investor for US$152,000, or $0.045 per share. Our shares were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933. No commissions were paid for the issuance of such shares. The above issuance of shares of our common stock qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance of such shares by us did not involve a public offering. The Investor was a sophisticated investor and had access to information normally provided in a prospectus regarding us. The offering was not a "public offering" as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of shares offered. We did not undertake an offering in which we sold a high number of shares to a high number of investors. In addition, the Investor had the necessary investment intent as required by Section 4(2) since she agreed to and received a share certificate bearing a legend stating that such shares are restricted pursuant to Rule 144 of the 1933 Securities Act. These restrictions ensure that these shares would not be immediately redistributed into the market and therefore not be part of a "public offering." Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act of 1933 for the above transaction. Item 3. Defaults Upon Senior Securities. None Item 4. Submission of Matters to a Vote of Security Holders. No matter was submitted during the quarter ending December 31, 2006, covered by this report to a vote of our shareholders, through the solicitation of proxies or otherwise. Item 5. Other Information. None Item 6. Exhibits and Reports of Form 8-K. (a) Reports on Form 8-K and Form 8K-A ---------------------------------------- On November 17, 2006, we filed a Current Report on Form 8-K, whose information is hereby incorporated by reference. The Current Report pertained to the resignation of our Auditor, Davis Accounting Group, P.C., our engagement of a new auditor, Mendoza Berger & Company, LLP; the Resignation of one of our officers and directors, Prins Ralston; and regarding a Securities Purchase agreement entered into by the Company with one investor. 31 (b) Exhibits --------------- Exhibit Method of Filing Number Exhibit Title ---------------- ------- ------------- Incorporated by reference to Exhibit 3.1 Certificate of Incorporation 3.1 to our Form SB-2 registration statement on March 7, 2005 (SEC File No. 333-123176) Incorporated by reference to Exhibit 3.1(a) Certificate of Amendment to Certificate of 3.1(a) to our Amendment No. 1 to Incorporation Form SB-2 registration statement on May 4, 2005 (SEC File No. 333-123176) Incorporated by reference to Exhibit 3.2 By-Laws 3.3 to our Amendment No. 3 to Form SB-2 registration statement on August 1, 2005 (SEC File No. 333-123176). Incorporated by reference to Exhibit 10.1 Exchange Agreement dated September 5, 2004 10.1 to our Form SB-2 registration between us and Fit For Business statement on March 7, 2005 (SEC File (Australia) Pty Ltd. No. 333-123176). Incorporated by reference to Exhibit 10.2 Stock Option Agreement dated July 25, 2004 10.2 to our Form SB-2 registration between us and Fort Street Equity, Inc. statement on March 7, 2005 (SEC File (subscription agreement) No. 333-123176). Incorporated by reference to Exhibit 10.2.1 Stock Option Extension Letter 10.2.1 to our Amendment No. 8 to Form SB-2 registration statement on December 30, 2005 (SEC File No. 333-123176). Incorporated by reference to Exhibit 10.3 License Agreement with L.R. Global 10.3 to our Form SB-2 registration Marketing Pty Ltd. And Extension Agreement statement on March 7, 2005 (SEC File No. 333-123176). Incorporated by reference to Exhibit 10.4 Employment Agreement - Mark A. Poulsen 10.4 to our Form SB-2 registration statement on March 7, 2005 (SEC File No. 333-123176). Incorporated by reference to Exhibit 10.5 Employment Agreement - Anthony F. Head 10.5 to our Form SB-2 registration statement on March 7, 2005 (SEC File No. 333-123176). Incorporated by reference to Exhibit 10.6 Employment Agreement - Prins A. Ralston 10.6 to our Form SB-2 registration statement on March 7, 2005 (SEC File No. 333-123176). 32 Incorporated by reference to Exhibit 10.7 Employment Agreement - Sandra L. Wendt 10.7 to our Form SB-2 registration statement on March 7, 2005 (SEC File No. 333-123176). Incorporated by reference to Exhibit 10.8 Agreement with Insource Pty Ltd. 10.8 to our Form SB-2 registration statement on March 7, 2005 (SEC File No. 333-123176). Incorporated by reference to Exhibit 10.9 Two (2) Promissory Notes with Fort Street 10.9 to our Amendment No. 3 to Form Equity both dated July 1, 2005 SB-2 registration statement on August 1, 2005 (SEC File No. 333-123176). Incorporated by reference to Exhibit 10.9.1 Five (5) Promissory Notes with Fort Street 10.9 to our Amendment No. 5 to Form Equity dated as follows: one (1) dated SB-2 registration statement on September 14, 2005; two (2) dated August September 26, 2005 (SEC File No. 29, 2005; one (1) dated June 19, 2005; and 333-123176). one (1) dated May 11, 2005 Incorporated by reference to Exhibit 10.9.2 Two (2) Promissory Notes with Fort Street 10.9 to our Amendment No. 8 to Form Equity dated as follows: September 23, SB-2 registration statement on 2005; and September 26, 2005 December 30, 2005 (SEC File No. 333-123176). 14 Code of Ethics 31.1 Certification of Mark A. Poulsen pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Sandra Wendt pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Mark A. Poulsen pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Sandra Wendt pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 33 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized. FIT FOR BUSINESS INTERNATIONAL, INC. Date: February 13, 2007 By: /s/ Mark A. Poulsen --------------------------- Mark A. Poulsen Chief Executive Officer, President, and Chairman of the Board of Directors Date: February 13, 2007 By: /s/ Sandra Wendt ----------------------- Sandra Wendt Chief Financial Officer Principal Accounting Officer 34