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, 2007
[ ] 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 January 18, 2008: 98,280,006 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. Unaudited Condensed Consolidated Financial Statements...........1
Item 2. Management's Discussion and Analysis or Plan of Operation......25
Item 3. Controls and Procedures........................................29
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..............................................30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds....30
Item 3. Defaults Upon Senior Securities................................30
Item 4. Submission of Matters to a Vote of Security Holders............30
Item 5. Other Information..............................................31
Item 6. Exhibits and Reports of Form 8-K...............................31
SIGNATURES....................................................................33
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
------
December 31,
2007
------------
Current assets
Cash and cash equivalents $ 688
Accounts receivable, net of allowance for doubtful accounts --
Inventory 1,533
------------
Total current assets 2,221
Property and equipment
Office and computer equipment 2,365
Furniture and fixtures 211
Web site development costs 9,118
Developed software applications 46,102
------------
57,796
Less accumulated depreciation and amortization (29,945)
------------
Net property and equipment 27,851
------------
Other assets
Deferred offering costs 201,309
------------
Total assets $ 231,381
============
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
1
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
---------------------------------------
December 31,
2007
------------
Current liabilities
Accounts payable $ 71,633
Accrued compensation and related expenses 173,392
Other accrued liabilities 143,373
Loans from related parties 36,865
------------
Total current liabilities 425,263
Deferred revenue - license fees 124,750
Promissory notes and accrued interest subject to rescission
Promissory notes - Fort Street Equity, Inc., 5% per annum,
principal and accrued interest due December 31, 2009,
unsecured 157,363
Stockholders' (deficit)
Common stock, par value $0.001 per share; 110,000,000 shares
authorized; 98,280,006 shares issued and outstanding 98,280
Additional paid-in capital 1,095,389
Deficit accumulated during the development stage (1,464,451)
Accumulated other comprehensive loss (205,213)
------------
Total stockholders' (deficit) (475,995)
------------
Total liabilities and stockholders' (deficit) $ 231,381
============
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
2
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
For the Period
December 14,
Three Months Ended Six Months Ended 1998
December 31, December 31, (Inception) to
-------------------------- -------------------------- December 31,
2007 2006 2007 2006 2007
----------- ----------- ----------- ----------- -------------
Revenues -- 4,639 495 7,507 41,542
Cost of sales -- 2,033 435 2,730 18,162
----------- ----------- ----------- ----------- -------------
Gross profit -- 2,606 60 4,777 23,380
----------- ----------- ----------- ----------- -------------
Selling, general and administrative expenses
Wages, compensation and related taxes -- 152,757 25,062 393,610 1,946,926
Legal, accounting and consulting fees 15,168 21,723 19,246 32,178 415,271
Realized foreign currency exchange (gains) losses (1,125) -- (45,302) -- (108,693)
Other selling, general and administrative 5,098 17,594 24,973 27,957 558,919
----------- ----------- ----------- ----------- -------------
Total selling, general and administrative
expenses 19,141 192,074 23,979 453,745 2,812,423
----------- ----------- ----------- ----------- -------------
Loss from operations (19,141) (189,468) (23,919) (448,968) (2,789,043)
----------- ----------- ----------- ----------- -------------
Other income (expense)
Gain on cancellation and settlement of debt -- -- 146,752 -- 1,383,031
Interest and other income 3,740 -- 3,763 -- 4,294
Interest expense (2,854) (6,053) (14,993) (3,527) (62,733)
----------- ----------- ----------- ----------- -------------
Total other income (expense) 886 (6,053) 135,522 (3,527) 1,324,592
----------- ----------- ----------- ----------- -------------
Income (loss) before provision for income taxes (18,255) (195,521) 111,603 (452,495) (1,464,451)
Provision for income taxes -- -- -- -- --
----------- ----------- ----------- ----------- -------------
Net income (loss) (18,255) (195,521) 111,603 (452,495) (1,464,451)
Other comprehensive income (loss)
Foreign currency translation 6,775 (133,393) (22,239) (102,291) (205,213)
----------- ----------- ----------- ----------- -------------
Total comprehensive income (loss) (11,480) (328,914) 89,364 (554,786) (1,669,664)
=========== =========== =========== =========== =============
Net income (loss) per common share - basic (0.00) (0.01) 0.00 (0.02) (0.15)
=========== =========== =========== =========== =============
Net income (loss) per common share - diluted 0.00
===========
Weighted average number of common
shares outstanding - basic 27,981,093 22,915,293 26,537,635 21,943,147 9,985,613
=========== =========== =========== =========== =============
Weighted average number of common
shares outstanding - diluted 27,446,543
===========
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
3
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM THE COMPANY'S INCEPTION (DECEMBER 14, 1998) THROUGH DECEMBER 31, 2007
Deficit Accumulated
Common Accumulated Other
Preferred Stock Common Stock Additional Stock During the Comprehensive
------------------- -------------------- Paid-in Subscription Development Income
Description Shares Amount Shares Amount Capital Receivable Stage (Loss) Totals
--------------------- ---------- ------- ----------- ------- ---------- ------------ ----------- ------------- -----------
Balance -
December 14, 1998 -- $ -- -- $ -- $ -- $ -- $ -- -- $ --
Net (loss) for
the period -- -- -- -- -- -- (16,960) -- (16,960)
Foreign currency
translation -- -- -- -- -- -- -- (534) (534)
---------- ------- ----------- ------- ---------- ------------ ----------- ------------- -----------
Balance -
June 30, 1999 -- -- -- -- -- -- (16,960) (534) (17,494)
Net (loss) for
the period -- -- -- -- -- -- (138,322) -- (138,322)
Foreign currency
translation -- -- -- -- -- -- -- 7,472 7,472
---------- ------- ----------- ------- ---------- ------------ ----------- ------------- -----------
Balance -
June 30, 2000 -- -- -- -- -- -- (155,282) 6,938 (148,344)
Issuance of common
stock for services -- -- 5,000,000 5,000 -- -- (5,000) -- --
Net (loss) for
the period -- -- -- -- -- -- (53,529) -- (53,529)
Foreign currency
translation -- -- -- -- -- -- -- 25,453 25,453
---------- ------- ----------- ------- ---------- ------------ ----------- ------------- -----------
Balance -
June 30, 2001 -- -- 5,000,000 5,000 -- -- (213,811) 32,391 (176,420)
Net (loss) for
the period -- -- -- -- -- -- (32,584) -- (32,584)
Foreign currency
translation -- -- -- -- -- -- -- (20,804) (20,804)
---------- ------- ----------- ------- ---------- ------------ ----------- ------------- -----------
Balance -
June 30, 2002 -- -- 5,000,000 5,000 -- -- (246,395) 11,587 (229,808)
Net (loss) for
the period -- -- -- -- -- -- (24,176) -- (24,176)
Foreign currency
translation -- -- -- -- -- -- -- (45,554) (45,554)
---------- ------- ----------- ------- ---------- ------------ ----------- ------------- -----------
Balance -
June 30, 2003 -- -- 5,000,000 5,000 -- -- (270,571) (33,967) (299,538)
Net (loss) for
the period -- -- -- -- -- -- (130,264) -- (130,264)
Foreign currency
translation -- -- -- -- -- -- -- (6,119) (6,119)
---------- ------- ----------- ------- ---------- ------------ ----------- ------------- -----------
Balance -
June 30, 2004 -- $ -- $ 5,000,000 $ 5,000 $ -- $ -- $ (400,835) (40,086) $ (435,921)
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
4
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM THE COMPANY'S INCEPTION (DECEMBER 14, 1998) THROUGH DECEMBER 31, 2007
Deficit Accumulated
Common Accumulated Other
Preferred Stock Common Stock Additional Stock During the Comprehensive
------------------- -------------------- Paid-in Subscription Development Income
Description Shares Amount Shares Amount Capital Receivable Stage (Loss) Totals
--------------------- ---------- ------- ----------- ------- ---------- ------------ ----------- ------------- -----------
Stock options issued
for cash -- $ -- -- $ -- $ 10,000 $ -- $ -- -- $ 10,000
Preferred and common
stock issued for
deemed reverse
merger with FFB
Australia 1,000,000 1,000 15,000,000 15,000 (30,950) -- 5,000 -- (9,950)
Employee compensation
paid by shares
issued by company
officer/director -- -- -- -- 220,000 -- -- -- 220,000
Loan from former
director paid by
shares issued by
company
officer/director -- -- -- -- 7,500 -- -- -- 7,500
Consulting services
paid by shares
issued by company
officer/director -- -- -- -- 132,500 -- -- -- 132,500
Promissory notes
converted to
common stock -- -- 870,000 870 377,932 -- -- -- 378,802
Net (loss) for
the period -- -- -- -- -- -- (536,308) -- (536,308)
Foreign currency
translation -- -- -- -- -- -- -- 1,855 1,855
---------- ------- ----------- ------- ---------- ------------ ----------- ------------- -----------
Balance -
June 30, 2005 1,000,000 1,000 20,870,000 20,870 716,982 -- (932,143) (38,231) (231,522)
Compensation from
stock options
issued by principal
stockholder -- -- -- -- 54,751 -- -- -- 54,751
Common stock issued
for services -- -- 1,000 1 499 -- -- -- 500
Compensation from
stock options
issued by principal
stockholder -- -- -- -- 6,710 -- -- -- 6,710
Common stock issued
for cash -- -- 100,000 100 49,900 (12,000) -- -- 38,000
Net (loss) for the
period (as restated) -- -- -- -- -- -- (1,302,467) -- (1,302,467)
Foreign currency
translation -- -- -- -- -- -- -- 47,347 47,347
---------- ------- ----------- ------- ---------- ------------ ----------- ------------- -----------
Balance -
June 30, 2006
(as restated) 1,000,000 $ 1,000 20,971,000 $20,971 $ 828,842 $ (12,000) $(2,234,610) 9,116 $(1,386,681)
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
5
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM THE COMPANY'S INCEPTION (DECEMBER 14, 1998) THROUGH DECEMBER 31, 2007
Deficit Accumulated
Common Accumulated Other
Preferred Stock Common Stock Additional Stock During the Comprehensive
------------------- -------------------- Paid-in Subscription Development Income
Description Shares Amount Shares Amount Capital Receivable Stage (Loss) Totals
--------------------- ---------- ------- ----------- ------- ---------- ------------ ----------- ------------- -----------
Common stock issued
for cash -- $ -- 3,375,000 $ 3,375 $ 148,625 $ -- $ -- $ -- $ 152,000
Compensation from
extending terms of
stock options -- -- -- -- 4,000 -- -- -- 4,000
Net income for
the period -- -- -- -- -- 12,000 658,556 -- 670,556
Foreign currency
translation -- -- -- -- -- -- -- (192,090) (192,090)
---------- ------- ----------- ------- ---------- ------------ ----------- ------------- -----------
Balance -
June 30, 2007 1,000,000 1,000 24,346,000 24,346 981,467 -- (1,576,054) (182,974) (752,215)
Exercise of stock
options for partial
settlement of note
payable to principal
stockholder
(unaudited) -- -- 1,434,006 1,434 27,246 -- -- -- 28,680
Issuance of shares to
pay officer's
accrued compensation
(unaudited) -- -- 2,500,000 2,500 22,500 -- -- -- 25,000
Issuance of shares to
officer in
settlement of debt
(unaudited) -- -- 20,000,000 20,000 114,176 -- -- -- 134,176
Issuance of shares to
officer to restore
voting rights on
undesignated
preferred shares
(unaudited) (1,000,000) (1,000) 50,000,000 50,000 (50,000) -- -- -- (1,000)
Net income for the
period (unaudited) -- -- -- -- -- -- 111,603 -- 111,603
Foreign currency
translation
(unaudited) -- -- -- -- -- -- -- (22,239) (22,239)
---------- ------- ----------- ------- ---------- ------------ ----------- ------------- -----------
Balance -
December 31, 2007
(unaudited) -- $ -- 98,280,006 $98,280 $1,095,389 $ -- $(1,464,451) $ (205,213) $ (475,995)
========== ======= =========== ======= ========== ============ =========== ============= ===========
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
6
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended For the Period
December 31, December 14,
-------------------------- 1998 (Inception)
to December 31,
2007 2006 2007
----------- ----------- --------------
Cash flows from operating activities
Net income (loss) $ 111,603 $ (452,495) $ (1,464,451)
Adjustments to reconcile net income (loss) to net cash used in
operating activities
Gain on cancellation and settlement of debt (146,752) -- (1,383,031)
Depreciation and amortization 13,937 4,743 56,798
Loss from write-off of deferred offering costs -- 77,000
Employee compensation paid by issued options and shares -- 4,000 285,461
Consulting and other services paid by issued shares -- -- 133,000
Interest on promissory notes converted to paid-in capital -- -- 13,801
Realized foreign currency exchange (gains) losses (45,302) -- (108,693)
Changes in operating assets and liabilities
Accounts receivable -- -- 124,750
Other receivables 2,500 -- --
Inventory -- -- (1,277)
Accounts payable 3,098 (16,687) 70,195
Accrued compensation and other accrued liabilities 45,758 396,008 1,630,559
----------- ----------- --------------
Net cash used in operating activities (15,158) (64,431) (565,888)
----------- ----------- --------------
Cash flows from investing activities
Purchases of property and equipment -- -- (48,131)
Payment for Australian trademark -- -- (219)
----------- ----------- --------------
Net cash used in investing activities -- -- (48,350)
----------- ----------- --------------
Cash flows from financing activities
Bank overdraft -- (2,471) --
Proceeds from loans - related parties 29,109 11,837 467,091
Repayments on loans - related parties -- (29,885) (331,865)
Proceeds from loan - former director -- -- 7,500
Proceeds from issuance of convertible notes -- -- 365,000
Proceeds from issuance of promissory notes -- -- 156,355
Repayments on promissory notes (1,740) -- (1,740)
Proceeds from issuance of common stock -- 152,000 190,050
Payments of deferred offering costs -- (23,052) (246,535)
----------- ----------- --------------
Net cash provided by financing activities 27,369 108,429 605,856
----------- ----------- --------------
Effect of exchange rate changes on cash and cash equivalents (12,663) (877) 9,070
----------- ----------- --------------
Net increase (decrease) in cash and cash equivalents (452) 43,121 688
Cash and cash equivalents, beginning of period 1,140 95 --
----------- ----------- --------------
Cash and cash equivalents, end of period $ 688 $ 43,216 $ 688
=========== =========== ==============
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
7
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended For the Period
December 31, December 14,
-------------------------- 1998 (Inception)
to December 31,
2007 2006 2007
----------- ----------- --------------
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest $ -- $ -- $ 502
=========== =========== ==============
Income taxes $ -- $ -- $ --
=========== =========== ==============
Supplemental disclosure of noncash investing and financing activities
On March 24, 2007, the Company acquired 100% of the common stock of
Footfridge Pty Ltd ("Footfridge") in exchange for a $1,000,000 convertible
promissory note. Pursuant to the agreement, Footfridge became a wholly
owned subsidiary of the Company. Footfridge had minimal operations and its
only significant asset was a patent for a certain heat reflection footwear
device. Accordingly, the acquisition was recorded as an intangible asset
purchase with no goodwill recognized. The patent was recorded at
$1,000,000, which was the estimated fair value of the note payable on the
acquisition date. This agreement was rescinded on August 21, 2007, whereby
the promissory note was cancelled and the Footfridge common stock was
returned to the seller. A total gain of $29,696 was recognized on the
rescission of this acquisition and the related note payable.
On August 14, 2007, the Company accepted the exercise of 1,434,006 options
from Fort Street Equity, a principal shareholder of the Company, in
consideration for a $28,680 reduction in the Company's note payable balance
to Fort Street. Fort Street Equity is a related party, therefore no gain or
loss was recognized on this equity transaction.
The Company originally issued 1,000,000 shares of preferred stock to its
President in 2004 pursuant to a reverse merger transaction. Each of these
preferred shares was approved by the Company's Board of Directors to have
50 votes. In December 2007 while performing due diligence for the Company's
pending sale, it was discovered that a certificate of designation was not
properly filed with the Nevada Secretary of State for the Company's
preferred shares. Due to the Company's failure to provide its President
properly designated preferred shares and their related voting rights, the
Company issued him 50,000,000 shares on December 31, 2007. These additional
common shares provide the Company's President an equal number of voting
rights to what he would have maintained in the event that the original
preferred shares were validly authorized and designated by the Nevada
Secretary of State.
On December 31, 2007, the Company issued 20,000,000 shares to its President
to settle debt totaling $134,176 owed to the President and his affiliated
companies. No gain or loss was recognized on this transaction.
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
8
FIT FOR BUSINESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
(Unaudited)
(1) Nature of Business and Summary of Significant Accounting Policies
Organization and Basis of Presentation
--------------------------------------
Fit For Business International, Inc. ("FFBI" or the "Company") is a Nevada
corporation in the development stage of providing products and services for: (i)
corporate wellness programs which address business productivity, stress and
absenteeism issues; (ii) living well programs directed primarily, but not
exclusively, to individuals over 45 years of age; and, (iii) nutritional
supplements manufactured and supplied by Herbalife Ltd. ("Herbalife"). The
accompanying unaudited condensed consolidated financial statements of FFBI were
prepared from the accounts of the Company under the accrual basis of accounting
in United States dollars. In addition, these financial statements reflect the
completion of a deemed reverse merger between FFBI and Fit For Business
(Australia) Pty Limited ("FFB Australia"), which was effected on September 14,
2004.
Prior to the completion of the deemed reverse merger, FFBI was a dormant
corporation with no assets or operations (essentially since its organization on
May 30, 2001, and incorporation on July 31, 2001). The Company was originally
incorporated under the name of Elli Tsab, Inc. On April 7, 2004, the name of the
Company was changed to Patient Data Corporation. On January 13, 2005, the name
of the Company was again changed to Fit For Business International, Inc. in
order to better reflect the current business plan.
FFB Australia was organized as an Australian private company on December 14,
1998, and subsequently began certain marketing studies and corporate awareness
programs to obtain customers for its products and services. In October 2003, FFB
Australia initiated a capital formation activity through the private placement
of certain convertible promissory notes which provided, through September 14,
2004, proceeds of $365,000. Subsequent to the completion of the deemed reverse
merger, the liability associated with the convertible promissory notes was
assumed by the Company. Thereafter, all of the promissory notes were converted
into shares of common stock of FFBI.
In addition, in November 2003, FFB Australia commenced a capital formation
activity to effect a deemed reverse merger with a corporation validly organized
in the United States for the purpose of completing a Registration Statement on
Form SB-2 with the Securities and Exchange Commission ("SEC"), and raising
capital from the issuance of common stock in the public markets of up to $4.5
million. The initial capital formation activity through a deemed reverse merger
and the issuance of common stock was unsuccessful. Subsequently, FFB Australia
completed a deemed reverse merger with the Company, and FFBI has completed a
registration of its common stock with the SEC pertaining to a second capital
formation activity.
Prior to September 14, 2004, FFB Australia, aside from the capital formation and
marketing activities described above, incurred other development stage operating
costs and expenses related to its organization as an entity, receipt of a
trademark in Australia for the name and related logo of Fit For Business,
formation of a management team, accounting and tax preparation fees, consulting
fees, travel, and other general and administrative expenses. For additional
information relating to the development stage activities of the Company, see
Note 2.
Given that FFB Australia is considered to have acquired FFBI by a deemed reverse
merger through an Exchange Agreement (see Note 6), and its stockholders
currently have voting control of FFBI, the accompanying unaudited condensed
consolidated financial statements and related note disclosures present the
financial position as of December 31, 2007, and the operations for the three
months and six months ended December 31, 2007 and December 31, 2006, and
comparatives for the period from inception (December 14, 1998) through December
31, 2007, of FFB Australia under the name of FFBI. The deemed reverse merger has
been recorded as a recapitalization of the Company, with the net assets of FFB
9
Australia and FFBI brought forward at their historical bases. The costs
associated with the reverse merger have been expensed as incurred.
On March 24, 2007, the Company acquired 100% of the common stock of Footfridge
Pty Ltd ("Footfridge") in exchange for a $1,000,000 convertible promissory note.
Pursuant to the agreement, Footfridge became a wholly owned subsidiary of the
Company. Footfridge had minimal operations and its only significant asset was a
patent for a certain heat reflection footwear device. Accordingly, the
acquisition was recorded as an intangible asset purchase with no goodwill
recognized. The patent was recorded at $1,000,000, which was the estimated fair
value of the note payable on the acquisition date. This agreement was rescinded
on August 21, 2007, whereby the promissory note was cancelled and the Footfridge
common stock was returned to the seller. A total gain of $29,750 was recognized
on the rescission of this acquisition and the related note payable.
On January 16, 2008 the Company's President and principal shareholder entered
into a stock purchase agreement with Route 32, LLC whereby the President would
sell his current majority ownership stake in the Company for $500,000. The stock
purchase agreement is expected to be finalized in January 2008.
If the above stock purchase transaction fails, Management will continue its
attempt to seek a suitable Company to acquire or merge with and to raise
additional equity and debt financing to sustain its current operations. The
successful outcome of future activities cannot be determined at this time due to
the current market conditions, and there are no assurances that if achieved, the
Company will have sufficient funds to execute its intended business plan or
generate positive operating results.
The unaudited condensed financial statements included herein have been prepared
in accordance with accounting principles generally accepted in United States of
America for interim financial information and with the instructions to Form
10-QSB and Item 310(b) of Regulation S-B. They do not include all information
and notes required by generally accepted accounting principles for complete
financial statements. However, except as disclosed herein, there has been no
material changes in the information disclosed in the notes to the consolidated
financial statements included in the Annual Report on Form 10-KSB of Fit for
Business International, Inc. for the fiscal year ended June 30, 2007. In the
opinion of management, all adjustments (including normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month and six month periods ended December 31, 2007 are
not necessarily indicative of the results that may be expected for any other
interim period or the entire fiscal year. For further information, these
unaudited condensed consolidated financial statements and the related notes
should be read in conjunction with the Company's consolidated audited financial
statements for the fiscal year ended June 30, 2007 included in the Company's
Annual Report on For 10-KSB.
Cash and Cash Equivalents
-------------------------
For purposes of reporting within the statement of cash flows, the Company
considers all cash on hand, cash accounts not subject to withdrawal restrictions
or penalties, and all liquid debt instruments purchased with a maturity of three
months or less to be cash and cash equivalents.
Accounts Receivable
-------------------
Accounts receivable consist of amounts due from sales of its license agreements.
The Company establishes an allowance for doubtful accounts in amounts sufficient
to absorb potential losses on accounts receivable. As of December 31, 2007, an
allowance for doubtful accounts of $875,250 was deemed necessary on the
Company's licensing agreements. This allowance was recorded against the related
deferred revenue on these agreements (see Note 10). While management uses the
best information available upon which to base estimates, future adjustments to
the allowance may be necessary if economic conditions differ substantially from
the assumptions used for the purpose of analysis.
Revenue Recognition
-------------------
The Company is in the development stage and has yet to realize significant
revenues from planned operations. It has derived revenues principally from the
sale of services related to wellness programs, and the sale of nutritional
products, literature and training materials. The Company has also entered into a
license agreements which entitle the licensee to provide a distribution network
10
for the Company, use its logo and software, and market and promote its products
and services. Revenue will be derived over the term of the license agreements
once all terms and conditions have been met. Revenues are recognized by major
categories under the following policies:
For specific wellness program services, such as health risk assessment
services, fitness programs, educational and other programs, and
contracts pertaining to such services, revenue is realized as services
are provided. Contracts for wellness program services are evidenced in
writing, and as services are rendered, invoices for such services are
rendered in accordance with contract terms.
For sales of literature, training materials, and nutritional products,
revenue is realized upon shipment to the customer and there are no
unfulfilled company elements related to a customer's order. Orders for
literature, materials, and nutritional products are evidenced in
writing on customer and call center order documents. Payments are
provided in cash, check or by credit card at the time orders are placed
with the Company.
For license agreements, revenue is realized from licensing activities
related to various countries and geographic regions, which entitle
licensees to provide a distribution network for the Company, the use of
the Company logo, software and training materials, and the rights to
market and promote the services of the Company. Revenue from such
agreements is realized over the term and under the conditions of each
specific license once all contract conditions have been met.
Payments for licensing fees are generally received at the time the
license agreements are executed, unless other terms for delayed payment
are documented and agreed to between the parties. Under terms for
delayed payment, the Company may require further assurances of payment
under contract terms such as credit report information, and entity and
personal guarantees.
Internal Web Site Development Costs
-----------------------------------
Under Emerging Issues Taskforce Statement 00-2, Accounting for Web Site
Development Costs ("EITF 00-2"), costs and expenses incurred during the planning
and operating stages of the Company's web site are expensed as incurred. Under
EITF 00-2, costs incurred in the web site application and infrastructure
development stages are capitalized by the Company and amortized to expense over
the web site's estimated useful life or period of benefit. As of December 31,
2007, the Company had net capitalized costs of $1,036 related to its web site
development.
Costs of Computer Software Developed or Obtained for Internal Use
-----------------------------------------------------------------
Under Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"), the Company capitalizes
external direct costs of materials and services consumed in developing or
obtained internal-use computer software; payroll and payroll-related costs for
employees who are directly associated with and who devote time to the
internal-use computer software project; and, interest costs related to loans
incurred for the development of internal-use software. As of December 31, 2007,
the Company had net capitalized costs of $22,847 for projects related to the
development of internal-use software.
Costs of Computer Software to be Sold or Otherwise Marketed
-----------------------------------------------------------
Under Statement of Financial Accounting Standards No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed ("SFAS
86"), the Company capitalizes costs associated with the development of certain
training software products held for sale when technological feasibility is
established. Capitalized computer software costs of products held for sale are
amortized over the useful life of the products from the software release date.
As of December 31, 2007, the Company had not undertaken any projects related to
the development of software products held for sale or to be otherwise marketed.
11
Advertising Costs
-----------------
Advertising costs are charged to operations when incurred, except for television
or magazine advertisements, which are charged to expense when the advertising
first takes place. The Company incurred no advertising costs during the six
month periods ended December 31, 2007 and 2006.
Property and Equipment
----------------------
The components of property and equipment are stated at cost. Property and
equipment costs are depreciated or amortized for financial reporting purposes
over the useful lives of the related assets by the straight-line method. Useful
lives utilized by the Company for calculating depreciation or amortization are
as follows:
Computer and office equipment 5 years
Furniture and fixtures 10 years
Internal web site development costs 3 years
Developed Software 5 years
Upon disposition of an asset, its cost and related accumulated depreciation or
amortization are removed from the accounts, and any resulting gain or loss is
recognized.
Impairment of Long-Lived Assets
-------------------------------
The Company accounts for its long-lived assets in accordance with Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144 requires that long-lived
assets be reviewed for impairment whenever events or changes in circumstances
indicate that the historical cost carrying value of an asset may no longer be
appropriate. The Company assesses recoverability of the carrying value of an
asset by estimating the future net cash flows expected to result from the asset,
including eventual disposition. If the future net cash flows are less than the
carrying value of the asset, an impairment loss is recorded equal to the
difference between the asset's carrying value and the fair value or disposable
value. As of December 31, 2007, the Company does not believe there has been any
impairment of its long-lived assets.
Loss Per Common Share
---------------------
The Company adopted Statement of Financial Accounting Standards No. 128,
Earnings Per Share ("SFAS 128"), that requires the reporting of both basic and
diluted earnings (loss) per share. Basic earnings (loss) per share is computed
by dividing net income (loss) available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted earnings
(loss) per share reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into common
stock. In accordance with SFAS 128, any anti-dilutive effects on net earnings
(loss) per share are excluded. If such shares were included in diluted EPS, they
would have resulted in weighted-average common shares of approximately 28.5
million and 24.9 million for the three months ended December 31, 2007 and 2006,
and 27.4 million and 23.9 million for the six months ended December 31, 2007 and
2006. The effects of issuing such equity instruments would be considered
dilutive for the six months ended December 31, 2007, and thus diluted EPS is
reflected on the statement of operations for that period. Such amounts include
shares potentially issuable under options that were outstanding during these
periods.
Deferred Offering Costs
-----------------------
The Company defers as other assets the direct incremental costs of raising
capital until such time as the offering is completed. At the time of the
completion of the offering, the costs are charged against the capital raised.
Should the offering be terminated, deferred offering costs are charged to
operations during the period in which the offering is terminated.
12
Comprehensive Income (Loss)
---------------------------
The Company presents comprehensive income (loss) in accordance with Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130"). SFAS 130 states that all items that are required to be recognized under
accounting standards as components of comprehensive income (loss) be reported in
the financial statements. For the three months and six months ended December 31,
2007 and 2006, and the cumulative period from inception (December 14, 1998)
through December 31, 2007, comprehensive income (loss) consisted of foreign
currency translation adjustments as shown in the Company's statement of
operations.
Income Taxes
------------
The Company accounts for income taxes pursuant to SFAS No. 109, Accounting for
Income Taxes ("SFAS 109"). Under SFAS 109, deferred tax assets and liabilities
are determined based on temporary differences between the bases of certain
assets and liabilities for income tax and financial reporting purposes. The
deferred tax assets and liabilities are classified according to the financial
statement classification of the assets and liabilities generating the
differences.
The Company maintains a valuation allowance with respect to deferred tax assets.
The Company establishes a valuation allowance based upon the potential
likelihood of realizing the deferred tax asset and taking into consideration the
Company's financial position and results of operations for the current period.
Future realization of the deferred tax benefit depends on the existence of
sufficient taxable income within the carryforward period under the Federal tax
laws.
Changes in circumstances, such as the Company generating taxable income, could
cause a change in judgment about the realizability of the related deferred tax
asset. Any change in the valuation allowance will be included in income in the
period of the change in estimate.
Foreign Currency Translation
----------------------------
The Company accounts for foreign currency translation pursuant to SFAS No. 52,
Foreign Currency Translation ("SFAS 52"). The Company's functional currency is
the Australian dollar. All assets and liabilities are translated into United
States dollars using the current exchange rate at the end of each fiscal period.
Revenues and expenses are translated using the average exchange rates prevailing
throughout the respective periods. Translation adjustments are included in other
comprehensive income (loss) for the period. Certain transactions of the Company
are denominated in United States dollars. Translation gains or losses related to
such transactions are recognized for each reporting period in the related
statement of operations and comprehensive income (loss).
Fair Value of Financial Instruments
-----------------------------------
The Company estimates the fair value of financial instruments using the
available market information and valuation methods. Considerable judgment is
required in estimating fair value. Accordingly, the estimates of fair value may
not be indicative of the amounts the Company could realize in a current market
exchange. As of December 31, 2007, the carrying value of the Company's accounts
payable, accrued liabilities, loans from related parties and promissory notes
approximated fair value due to the nature and terms of maturity of these
instruments.
Stock-Based Compensation
------------------------
The Company uses the fair value method to account for non-employee stock-based
compensation in accordance with SFAS No. 123, Accounting for Stock-Based
Compensation ("SFAS No. 123"), and FASB Emerging Issues Task Force, or EITF,
Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services.
Under the fair value method, all transactions in which goods or services are the
consideration received for the issuance of equity instruments are accounted for
based on the fair value of the consideration received or the fair value of the
equity instruments issued, whichever is more reliably measurable.
The Company accounts for the fair value of stock options granted to employees,
stock options granted by a principal stockholder to employees, and common stock
13
issued by a principal stockholder to employees under the fair value recognition
provisions of SFAS No. 123, and SAB Topic 5.T., "Accounting for Expenses or
Liabilities Paid by Principal Stockholder(s)." Fort Street Equity, Inc., as a
principal stockholder, has provided stock option grants and common stock on
behalf of the Company to employees and other parties which are described in
Notes 6 and 11.
Estimates
---------
The financial statements are prepared on the basis of accounting principles
generally accepted in the United States of America. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of December 31, 2007, and revenues and expenses for
the three months and six months ended December 31, 2007 and 2006, and the
cumulative period from inception. Actual results could differ from those
estimates made by management.
(2) Development Stage Activities and Going Concern
The Company is in the development stage of providing products and services for
corporate business wellness programs; living well programs directed primarily,
but not exclusively, to individuals over 45 years of age; and, nutritional
supplements manufactured and supplied by Herbalife. As of December 31, 2007,
FFBI had completed organization and reverse merger transactions, initial
marketing and corporate awareness programs designed to obtain customers for its
products and services, the receipt of a trademark in Australia for the name "Fit
For Business", formation of a management team, and other activities related to
capital formation, software development, and initial operations. Management of
the Company was pursuing various sources of equity financing, and planned to
raise approximately $4.5 million through the issuance of common stock for cash,
and private investment in public equity ("PIPE") financing of its common stock.
The issuance of common stock for cash, and the completion of PIPE financing were
being conducted pursuant to the approval by the SEC of several Post-Effective
Amendments to the Company's Registration Statement on Form SB-2 which approval
was provided in March 2006. The proceeds from the these capital formation
activities were to be used by the Company for the development and production of
multi-media training programs, marketing and promotional literature and
programs, web site enhancement, purchase of inventory, customer call center and
computer hardware and software programs to be used to aid the Company's customer
service representatives, and working capital required to hire additional staff
and provide for an expected increase in operations.
There can be no assurance that the Company will be able to raise $4.5 million in
equity capital through its current SEC related activities, or be successful in
the sale of its products and services that will generate sufficient revenues to
sustain the operations of the Company.
The accompanying unaudited condensed consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States of America, which contemplate continuation of the Company as a
going concern. The Company has incurred operating losses since inception, has
negative working capital as of December 31, 2007 totaling $423,042, and its cash
resources are insufficient to meet its planned business objectives. These and
other factors raise substantial doubt about the Company's ability to continue as
a going concern. The accompanying financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the possible inability of the Company to continue as a going
concern.
14
(3) Acquisition and Rescission of Footfridge Pty Ltd.
On March 24, 2007, the Company acquired 100% of the common stock of Footfridge
Pty Ltd ("Footfridge") in exchange for a $1,000,000 convertible promissory note.
Pursuant to the agreement, Footfridge became a wholly owned subsidiary of the
Company. Footfridge had minimal operations and its only significant asset was a
patent for a certain heat reflection footwear device. Accordingly, the
acquisition was recorded as an intangible asset purchase with no goodwill
recognized. The patent was recorded at $1,000,000, which was the estimated fair
value of the note payable on the acquisition date. This agreement was rescinded
on August 21, 2007, whereby the promissory note was cancelled and the Footfridge
common stock was returned to the seller. A total gain of $28,959 was recognized
on the rescission of this acquisition and the related note payable.
(4) Accrued Compensation
The Company has entered into employment, consulting, and other related
agreements with its management and other personnel. Due to the Company's cash
flow requirements, the parties to these contracts have agreed to defer payment
of portions of their compensation under these agreements. Total accrued
compensation as of December 31, 2007 under these contracts amounted to $173,392
which will be paid when the Company has sufficient funds available.
On August 16, 2007, the Company reached a settlement agreement with one of its
former employees to rescind $117,793 of accrued compensation (inclusive of
related accrued Australian payroll tax obligations), owed by the Company to this
former employee.
On October 11, 2007 the Company issued 2,500,000 shares to its President to
satisfy an accrued compensation liability of $25,000.
(5) Convertible Debt
As discussed in Note 3, on March 24, 2007 the Company acquired 100% of the
common stock of Footfridge Pty Ltd ("Footfridge") in exchange for a $1,000,000
convertible promissory note. The note bore interest at 7% per annum and was
secured by the Footfridge shares. A principal payment of $200,000 was due and
payable on September 30, 2007, with the $800,000 remaining balance, plus accrued
interest, payable on March 24, 2008. This $800,000 was convertible into common
stock of the Company at a conversion rate of $0.10 per share. This promissory
note was cancelled and the Footfridge common stock was returned to the seller,
pursuant to rescission of the agreement on August 21, 2007 as described in Notes
1 and Note 3.
(6) Common Stock Transactions and Capital Formation
Issuance of Common Stock
------------------------
On August 14, 2007, the Company accepted the exercise of 1,434,006 options from
Fort Street Equity, a principal shareholder of the Company, in consideration for
a $28,680 reduction in the Company's note payable balance to Fort Street. Fort
Street Equity is a related party, therefore no gain or loss was recognized on
this equity transaction.
On October 11, 2007 the Company issued 2,500,000 shares to its President to
satisfy an accrued compensation liability of $25,000.
The Company originally issued 1,000,000 shares of preferred stock to its
President in 2004 pursuant to a reverse merger transaction. Each of these
preferred shares was approved by the Company's Board of Directors to have 50
votes. In December 2007 while performing due diligence for the Company's pending
sale, it was discovered that a certificate of designation was not properly filed
with the Nevada Secretary of State for the Company's preferred shares. Due to
15
the Company's failure to provide its President properly designated preferred
shares and their related voting rights, the Company issued him 50,000,000 shares
on December 31, 2007. These additional common shares provide the Company's
President an equal number of voting rights to what he would have maintained in
the event that the original preferred shares were validly authorized and
designated by the Nevada Secretary of State.
On December 31, 2007, the Company issued 20,000,000 shares to its President to
settle debt totaling $134,176 owed to the President and his affiliated
companies. No gain or loss was recognized on this transaction.
Stock Option Agreement and Stock Options Granted by Principal Stockholder
-------------------------------------------------------------------------
On July 25, 2004, the Company issued 2,000,000 options to Fort Street Equity,
Inc. (see below) to purchase the same number of shares of its common stock for
$10,000 in cash. The option period was initially through December 31, 2005, but
was extended to December 31, 2007, by the Board of Directors of the Company,
effective December 3, 2006. Pursuant to the extended terms of exercise, a total
of $4,000 of additional compensation expense was recognized during the three
months ended December 31, 2006. The exercise price of the options is the higher
of $0.50 per share or the average-trading price of the Company's common stock
over the preceding ten business days prior to exercise of the options, less a
discount of 40 percent.
Fort Street Equity, Inc., as a principal stockholder and holder of 2,000,000
stock options to purchase common stock of the Company described above, provided
stock option grants totaling 565,994 options on behalf of the Company to
employees and other parties to acquire a like number of shares of common stock
of the Company. The market price of the Company's common stock on the date of
each stock option grant was $0.50 per share. The principal stockholder charged
the grantees a total of $134,070 to acquire the options. The proceeds from the
option transactions were subsequently loaned by the principal stockholder to the
Company for working capital purposes under the terms of three promissory notes
which are described in Note 11.
As described above, Fort Street Equity exercised all of its 1,434,006 options on
August 14, 2007 as consideration for a $28,680 reduction in the Company's note
payable balance. The remaining 565,994 options that were granted to employees
and other parties expired unexercised on December 31, 2007.
The fair value of each option was estimated on the dates of grant using the
Black-Scholes option-pricing model with the following assumptions:
Average Expected Expected Employee/ Life of
Risk-Free Volatility Dividend Nonemployee the
Interest Rate of Yield Exit Rate Options
Stock
3.81% 135.3% 0% 0% 160 days
There were no options outstanding as of December 31, 2007.
Stock Exchange Agreement
------------------------
On September 14, 2004, the Company entered into a Share Exchange Agreement (the
"Exchange Agreement") with FFB Australia, whereby FFBI acquired all of the
issued and outstanding capital stock of FFB Australia (81 shares) in exchange
for 15,000,000 shares of common stock and 1,000,000 shares of preferred stock of
the Company. Both the common stock and preferred stock of FFBI have a par value
of $.001. The shares of preferred stock are non-participating, but each share is
entitled to fifty (50) votes in a general meeting of the stockholders. As a
result of the Exchange Agreement, the stockholders of FFB Australia control
FFBI, and FFB Australia has been deemed to have effected a reverse merger for
financial reporting purposes as of the date of the Exchange Agreement. The
deemed reverse merger has been recorded as a recapitalization of the Company,
with the net assets of FFBI and FFB Australia brought forward at their
historical bases.
From the common stock issued to Mark A. Poulsen, President and Chief Executive
Officer of the Company under the Stock Exchange Agreement described above,
500,000 shares of common stock were issued to L.R. Global pursuant to the terms
of a license agreement (see Note 10). Mr. Poulsen also issued shares of common
stock that he received from the Exchange Agreement to satisfy the liabilities of
the Company assumed by FFBI related to the compensation of six individuals. FFBI
recognized the satisfaction of such liabilities by Mr. Poulsen as additional
paid-in capital.
16
Capital Formation Activity
--------------------------
On November 10, 2003, FFBI entered into an agreement with Fort Street Equity,
Inc. ("Fort Street") whereby Fort Street would assist FFBI with the following:
(i) the identification of a corporation validly organized in the United States
with which the Company could realize a deemed reverse merger; and (ii) the
completion and filing of a Registration Statement on Form SB-2 with the SEC for
the purpose of raising capital from the issuance of common stock in the public
markets of up to $4.5 million.
FFBI paid Fort Street two deposits against fees and costs amounting to $130,100.
The initial capital formation activity conducted by FFBI and Fort Street was not
successful due to the fact that the organization and completion of a deemed
reverse merger with a validly organized corporation in the United States could
not be effected. Further, as a result of the uncompleted deemed reverse merger,
FFBI expensed $77,000 of the amount paid to Fort Street as unsuccessful offering
costs.
FFBI and Fort Street initiated a second capital formation activity that resulted
in the Exchange Agreement as described above, and the current activity to file a
Registration Statement on Form SB-2 with the SEC which was completed in March
2006. These costs were comprised of legal, accounting and investor relations
fees paid, and other professional, administrative, and filing fees incurred to
complete the Form SB-2 registration process and capital formation activities.
(7) Income Taxes
There was no provision (benefit) for income taxes for periods to December 31,
2007.
The Company had deferred income tax assets as of December 31, 2007, as follows:
Loss carryforwards $ 128,000
Less: valuation allowance 128,000
------------
Total net deferred tax assets $ --
============
As of December 31, 2007, the Company had net operating loss carryforwards for
income tax reporting purposes of approximately $375,000 that may be offset
against future taxable income. The net operating loss carryforwards expire in
the years 2022-2027. Current tax laws limit the amount of loss available to be
offset against future taxable income when a substantial change in ownership
occurs or a change in the nature of the business. Therefore, the amount
available to offset future taxable income may be limited. No tax benefit has
been reported in the financial statements for the realization of loss
carryforwards, as the Company believes there is high probability that the
carryforwards will not be utilized in the foreseeable future. Accordingly, the
potential tax benefits of the loss carryforwards are offset by a valuation
allowance of the same amount.
(8) Related Party Transactions
On December 31, 2007, the Company issued 20,000,000 shares to its President to
settle debt totaling $134,176 owed to the President and his affiliated companies
(Mark A. Poulsen & Associates Pty. Ltd. and Kamaneal Investments Pty. Ltd.). No
gain or loss was recognized on this transaction.
Mark A. Poulsen & Associates Pty. Ltd. is an Australian private entity and
stockholder of the Company. It is wholly owned by Mark A. Poulsen, President and
Chief Executive Officer of the Company. As of December 31, 2007, the Company
owed $0 to this entity.
Kamaneal Investments Pty. Ltd. is an Australian private company and stockholder
of the Company owned by Mark A. Poulsen, President and Chief Executive Officer
of the Company, and Karen Poulsen, his wife. The purpose of this company is to
hold investments for Mr. and Mrs. Poulsen. As of December 31, 2007, the Company
owed $0 to this entity.
17
As of December 31, 2007, the Company owed $16,701 to Mr. G.L. Ray, a stockholder
of the Company, for an advance made. This amount owed was for working capital
provided, is non-interest bearing, and has no terms for repayment.
As of December 31, 2007, the Company owed $9,644 to Mr. M. Troy, a stockholder
of the Company, for an advance made. This amount owed was for working capital
provided, is non-interest bearing, and has no terms for repayment.
As of December 31, 2007, the Company owed $10,520 to Mr. W. Hoskin, a
stockholder of the Company, for an advance made. This amount owed was for
working capital provided, is non-interest bearing, and has no terms for
repayment.
The Company had a month-to-month expense sharing agreement for office rent and
other common area expenses with Mark A. Poulsen & Associates Pty. Ltd. The
expense sharing agreement replaced a lease arrangement between the Company and
Mark A. Poulsen & Associates Pty. Ltd. that expired on November 30, 2004. For
the six months ended December 31, 2007 and 2006, the Company accrued $0 and
$8,463 in office rent and common area costs pertaining to this agreement. This
agreement was terminated in May 2007.
(9) Recent Accounting Pronouncements
SFAS No. 159 - In February 2007, the FASB issued Statement No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities--Including an
amendment of FASB Statement No. 115. This Statement permits entities to choose
to measure many financial instruments and certain other items at fair value. The
objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge
accounting provisions. This Statement is expected to expand the use of fair
value measurement, which is consistent with the Board's long-term measurement
objectives for accounting for financial instruments. This Statement applies to
all entities, including not-for-profit organizations. Most of the provisions of
this Statement apply only to entities that elect the fair value option. However,
the amendment to FASB Statement No. 115, Accounting for Certain Investments in
Debt and Equity Securities, applies to all entities with available-for-sale and
trading securities. Some requirements apply differently to entities that do not
report net income. This Statement is effective as of the beginning of an
entity's first fiscal year that begins after November 15, 2007. Early adoption
is permitted as of the beginning of a fiscal year that begins on or before
November 15, 2007, provided the entity also elects to apply the provisions of
FASB Statement No. 157, Fair Value Measurements. No entity is permitted to apply
this Statement retrospectively to fiscal years preceding the effective date
unless the entity chooses early adoption. The choice to adopt early should be
made after issuance of this Statement but within 120 days of the beginning of
the fiscal year of adoption, provided the entity has not yet issued financial
statements, including required notes to those financial statements, for any
interim period of the fiscal year of adoption. This Statement permits
application to eligible items existing at the effective date (or early adoption
date). The Company adopted this Statement on January 1, 2008, and does not
believe that it will have a significant impact on its results of operations or
financial position.
SFAS No. 141(R) - In December 2007, the FASB issued Statement No. 141(R),
Business Combinations. The objective of this Statement is to improve the
relevance, representational faithfulness, and comparability of the information
that a reporting entity provides in its financial reports about a business
combination and its effects. To accomplish that, this Statement establishes
principles and requirements for how the acquirer (a) Recognizes and measures in
its financial statements the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree; (b) recognizes and
measures the goodwill acquired in the business combination or a gain from a
bargain purchase; and (c) determines what information to disclose to enable
users of the financial statements to evaluate the nature and financial effects
of the business combination.
This Statement applies to all transactions or other events in which an entity
(the acquirer) obtains control of one or more businesses (the acquirer),
including those sometimes referred to as "true mergers" or "mergers of equals"
and combinations achieved without the transfer of consideration, for example, by
contract alone or through the lapse of minority veto rights. This Statement
applies to all business entities, including mutual entities that previously used
the pooling-of-interests method of accounting for some business combinations. It
does not apply to:
o The formation of a joint venture
18
o The acquisition of an asset or a group of assets that does not constitute
a business
o A combination between entities or businesses under common control
o A combination between not-for-profit organizations or the acquisition of a
for-profit business by a not-for-profit organization.
This Statement replaces FASB Statement No. 141, Business Combinations. This
Statement retains the fundamental requirements in Statement 141 that the
acquisition method of accounting (which Statement 141 called the purchase
method) be used for all business combinations and for an acquirer to be
identified for each business combination. This Statement defines the acquirer as
the entity that obtains control of one or more businesses in the business
combination and establishes the acquisition date as the date that the acquirer
achieves control. Statement 141 did not define the acquirer, although it
included guidance on identifying the acquirer, as does this Statement. This
Statement's scope is broader than that of Statement 141, which applied only to
business combinations in which control was obtained by transferring
consideration. By applying the same method of accounting - the acquisition
method - to all transactions and other events in which one entity obtains
control over one or more other businesses, this Statement improves the
comparability of the information about business combinations provided in
financial reports.
This Statement applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. An entity may not apply it
before that date.
The Company is currently evaluating SFAS 141(R), and has not yet determined its
potential impact on its future results of operations or financial position.
SFAS No. 160 - In December 2007, the FASB issued Statement No. 160,
Noncontrolling Interests in Consolidated Financial Statements - an Amendment of
ARB No. 51. A noncontrolling interest, sometimes called a minority interest, is
the portion of equity in a subsidiary not attributable, directly or indirectly,
to a parent. The objective of this Statement is to improve the relevance,
comparability, and transparency of the financial information that a reporting
entity provides in its consolidated financial statements by establishing
accounting and reporting standards that require:
o The ownership interests in subsidiaries held by parties other than the
parent be clearly identified, labeled, and presented in the consolidated
statement of financial position within equity, but separate from the
parent's equity.
o The amount of consolidated net income attributable to the parent and to
the noncontrolling interest be clearly identified and presented on the
face of the consolidated statement of income.
o Changes in a parent's ownership interest while the parent retains its
controlling financial interest in its subsidiary be accounted for
consistently. A parent's ownership interest in a subsidiary changes if the
parent purchases additional ownership interests in its subsidiary or if
the parent sells some of its ownership interests in its subsidiary. It
also changes if the subsidiary reacquires some of its ownership interests
or the subsidiary issues additional ownership interests. All of those
transactions are economically similar, and this Statement requires that
they be accounted for similarly, as equity transactions.
o When a subsidiary is deconsolidated, any retained noncontrolling equity
investment in the former subsidiary be initially measured at fair value.
The gain or loss on the deconsolidation of the subsidiary is measured
using the fair value of any noncontrolling equity investment rather than
the carrying amount of that retained investment.
o Entities provide sufficient disclosures that clearly identify and
distinguish between the interests of the parent and the interests of the
noncontrolling owners.
This Statement applies to all entities that prepare consolidated financial
statements, except not-for-profit organizations, but will affect only those
entities that have an outstanding noncontrolling interest in one or more
subsidiaries or that deconsolidate a subsidiary. Not-for-profit organizations
should continue to apply the guidance in Accounting Research Bulletin No. 51,
Consolidated Financial Statements, before the amendments made by this Statement,
and any other applicable standards, until the Board issues interpretative
guidance.
19
This Statement amends ARB 51 to establish accounting and reporting standards for
the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. Before this Statement was issued,
limited guidance existed for reporting noncontrolling interests. As a result,
considerable diversity in practice existed. So-called minority interests were
reported in the consolidated statement of financial position as liabilities or
in the mezzanine section between liabilities and equity. This Statement improves
comparability by eliminating that diversity.
This Statement is effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2008. Earlier adoption is
prohibited. The effective date of this Statement is the same as that of the
related Statement 141(R). This Statement shall be applied prospectively as of
the beginning of the fiscal year in which this Statement is initially applied,
except for the presentation and disclosure requirements. The presentation and
disclosure requirements shall be applied retrospectively for all periods
presented.
The Company is currently evaluating SFAS 160 and has not yet determined its
potential impact on its future results of operations or financial position.
(10) License Agreements
First License Agreement
-----------------------
On August 24, 2004, the Company entered into a non-assignable license agreement
(the "License Agreement") with L.R. Global Marketing Pty. Ltd. ("L.R. Global").
Pursuant to the License Agreement, L.R. Global has the right or license, for a
period of ten years, to use of the Company's logo, management information
system, and other material within Australia and New Zealand. L.R. Global will
assist in identifying new clients for the Company, and recruiting account
executive and customer service representatives. Under the terms of the License
Agreement, L.R. Global was obligated to pay the Company $500,000 on or before
December 31, 2004, for the grant of the license. As of December 31, 2004, L.R.
Global had only paid $117,750 toward the fee for the license, and was in default
under the License Agreement.
On January 14, 2005, the Company and L.R. Global entered into an extension
agreement whereby the terms of the License Agreement for payment of the
remaining amount of the $500,000 license fee were extended to May 31, 2005. As
of May 31, 2005, the balance of the License Agreement fees had not been paid,
and L.R. Global was in default under the License Agreement and amendment.
Subsequently, on June 14, 2005, the Company and L.R. Global entered into a
second extension whereby the terms of the License Agreement were amended as
follows: (i) for consideration of $7,000 paid by L.R. Global as a partial
payment of the license fee, the due date for the payment of the remaining
balance of the license fee was extended to a date within sixty (60) days
following the first date on which the common stock of the Company is quoted on
the OTC Bulletin Board or other recognized stock exchange; and, (ii) the two
principals of L.R. Global, Laraine Richardson and Dianne Waghorne, provided
personal guarantees to the Company for payment of the remaining balance of the
license fee in the event that the balance owed is not repaid by L.R. Global.
The delay experienced in collecting the remaining amount of the license fee from
L.R. Global was due primarily to the extended period required by the Company to
complete its capital formation activities, including the effective date of its
Registration Statement on Form SB-2 with the SEC. The principals of L.R. Global
informed the management of the Company that L.R. Global entered into the License
Agreement with the understanding that the Company would implement its plan of
operations (including the completion of its capital formation activities) in
February 2005. At that time, L.R. Global was committed to provide additional
sales and marketing resources, and pay the remaining amount of the license fee
due. Further, as a result of additional discussions with the principals of L.R.
Global and review of available credit information, management of the Company
believed that: (i) L.R. Global would honor the terms of the License Agreement,
and had sufficient operations and financial resources to pay the remaining
amount owed to the Company, (ii) complete payment of the license fee would be
accomplished under the terms of the second extension agreement dated June 14,
2005, and (iii) the personal guarantees of the principals of L.R. Global
provided sufficient additional assurance of collectibility under Australian law.
20
On May 2, 2006, the common stock of the Company began trading on the OTC
Bulletin Board under the stock symbol FFBU. On May 23, 2006, the two principals
of L.R. Global were notified by the Company of the date trading began of the
Company's common stock on the OTC Bulletin Board, and that the balance of the
license fee owed would be due and payable to the Company 60 days from that date.
On July 6, 2006, the Company received a letter from the legal counsel for L.R.
Global advising the management of the Company that payment of the remaining
license fee would not be forthcoming due to alleged verbal misrepresentations
made to the principals of L.R. Global by the management of the Company and
principal stockholder as to the value of the common stock of the Company that
would be achieved by the end of the first week and the end of the first month of
trading on the OTC Bulletin Board. The principals of L.R. Global have disclosed
to the Company through legal counsel that it was their understanding and
expectation that the remaining amount due under the License Agreement would be
satisfied from the sale of a portion or all of the 500,000 shares of common
stock provided to L.R. Global by Mark A Poulsen, President and Chief Executive
Officer of the Company (see below). Due to the fact that the trading price of
the common stock of the Company in early July 2006, was insufficient to provide
proceeds from the sale of the 500,000 shares of common stock owned by L.R.
Global in an amount sufficient to satisfy the remaining amount due to the
Company under the License Agreement, L.R. Global is asserting alleged damages
for misrepresentation, negligent misstatement and/or breaches of Section 52 of
the Australian Trade Practices Act of 1974, and has refused payment of the
amount owed. Management of the Company denies that it had any responsibility as
to the value of its common stock in relation to the amount owed by L.R. Global,
and has demanded payment in full. Currently, negotiations are continuing between
the Company and the principals of L.R. Global to receive full payment of the
amount owed, but the Company has not sought to enforce the collection or
personal guarantees provided under the terms of the second extension to the
License Agreement dated June 14, 2005 by legal action. As a result of this lack
of enforcement by the Company, a reserve for doubtful accounts in the amount of
$375,250 was recorded in the financial statements during the year ended June 30,
2006. Further, due to the matters described above pertaining to the lack of
completion of its capital formation activities by collection of the amount owed,
the Company has not recognized revenue to-date from this License Agreement.
From the shares issued to Mark A. Poulsen, President and Chief Executive Officer
of the Company, under the Exchange Agreement described in Note 6, L.R. Global
received 500,000 shares of common stock. The purpose of the transfer was to
further involve L.R. Global in the Company as a stockholder, and to provide an
incentive for L.R. Global to perform under the License Agreement. Management of
the Company maintains that the transfer of shares of common stock to L.R. Global
by Mark A. Poulsen was a private transaction between the parties, and not part
of the Exchange Agreement to be recognized in the financial statements of the
Company.
Second License Agreement
------------------------
On September 13, 2006, the Company entered into a License Agreement (the "Second
License Agreement") with Mr. Bruce Gilling of Miami, Florida, a related party.
Mr. Gilling is also an option holder to purchase 50,000 shares of the Company's
common under an Option Purchase Agreement with Fort Street (see Note 11). Per
the Second License Agreement, Mr. Gilling as the right, for a period of ten (10)
years, to the use of the Company's logo, web based management information
system, marketing and promotional literature, processes, systems, intellectual
property, and attend the Company's events for the purpose of generating new
customers for the Company, and for training account executives and customer
service representatives. Pursuant to the original license terms, the fee for the
Second License Agreement was $500,000 payable as follows:
On or before October 16, 2006 $ 20,000
On January 30, 2007 $ 80,000
Balance to be invoiced each year for four years $ 400,000
Also under the Second License Agreement, Mr. Gilling would be entitled to
100,000 stock options to purchase a like number of shares of unregistered common
stock of the Company at a 40% discount from market following the payment of the
license fee of $80,000 that was scheduled for January 2007. He would also
receive 100,000 options to purchase a like number of unregistered shares of
common of common stock of the Company at a 40% discount from market on each
occasion that he invoices $1,000,000 in retail sales of the Company's products
and services. Lastly, the Company is to have first right of refusal to purchase
the resultant shares of common stock received by Mr. Gilling under the Second
License Agreement at the then prevailing market price of the common stock or
less.
21
The Company has not received any of the above payments on this license. Due to
the uncertainties surrounding the terms of the license and collection of the
first two installments, the Company has recorded an allowance for doubtful
accounts to reduce the net accounts receivable and deferred revenue balances to
zero.
(11) Promissory Notes - Fort Street Equity, Inc.
On May 10, 2005, the Ralston Superannuation Fund ("Ralston Fund") entered into
an Option Purchase Agreement with Fort Street whereby the Ralston Fund agreed to
purchase 100,000 stock options of the Company held by Fort Street for the amount
of $19,050. The stock options entitle the holder to purchase a like number of
shares of common stock of the Company. The Trustee for the Ralston Fund is
Leanne Ralston, the wife of Prins A. Ralston. Mr. Ralston was the Senior Vice
President and Chief Operating Officer of the Company. Fort Street subsequently
loaned the proceeds from the sale of the stock options to the Company under the
terms of a promissory note dated May 11, 2005. The promissory note is unsecured,
and carries an interest rate of five (5) percent per annum. The maturity date of
the note, together with any remaining interest, is December 31, 2009. Interest
payments on the promissory note are payable to Fort Street bi-annually and at
the maturity date of the obligation. In addition, on March 22, 2006, Fort
Street, as a principal stockholder of the Company, granted to the Ralston Fund
100,000 shares of its common stock for no consideration or modification of the
Option Purchase Agreement described above.
On June 14, 2005, Mr. Bruce Gilling, an unrelated party, entered into an Option
Purchase Agreement with Fort Street whereby the Mr. Gilling agreed to purchase
50,000 stock options of the Company held by Fort Street for the amount of
$15,000. The stock options entitle the holder to purchase a like number of
shares of common stock of the Company. Fort Street subsequently loaned the
proceeds from the sale of the stock options to the Company under the terms of a
promissory note dated June 19, 2005. The promissory note is unsecured, and
carries an interest rate of five (5) percent per annum. The maturity date of the
note, together with any remaining interest, is December 31, 2009. Interest
payments on the promissory note are payable to Fort Street bi-annually and at
the maturity date of the obligation.
On July 1, 2005, Therese Mulherin, a former part-time employee of the Company,
entered into two Option Purchase Agreements with Fort Street whereby the Ms.
Mulherin agreed to purchase 277,576 stock options of the Company held by Fort
Street for $60,240. The stock options entitle the holder to purchase a like
number of shares of common stock of the Company. Fort Street subsequently loaned
the proceeds from the sale of the stock options to the Company under the terms
of two separate promissory notes dated July 1, 2005. Each promissory note is
unsecured, and carries an interest rate of five (5) percent per annum. The
maturity date of the notes, together with any remaining interest, is December
31, 2009. Interest payments on the promissory notes are payable to Fort Street
bi-annually and at the maturity date of the obligations. In addition, on March
22, 2006, Fort Street, as a principal stockholder of the Company, granted to Ms.
Mulherin 277,576 of its common stock for no consideration or modification of the
Option Purchase Agreement described above.
On August 19, 2005, Mr. Mark Hoey, a stockholder of the Company, entered into an
Option Purchase Agreement with Fort Street whereby Mr. Hoey agreed to purchase
66,666 stock options of the Company held by Fort Street for the amount of
$20,000. The stock options entitle the holder to purchase a like number of
shares of common stock of the Company. Fort Street subsequently loaned the
proceeds from the sale of the stock options to the Company under the terms of a
promissory note dated August 29, 2005. The promissory note is unsecured, and
carries an interest rate of five (5) percent per annum. The maturity date of the
note, together with any remaining interest, is December 31, 2009. Interest
payments on the promissory note are payable to Fort Street bi-annually and at
the maturity date of the obligation. In addition, on March 22, 2006, Fort
Street, as a principal stockholder of the Company, granted to Mr. Hoey 66,666
shares of its common stock for no consideration or modification of the Option
Purchase Agreement described above.
On August 26, 2005, the Kelly Superannuation Fund, an unrelated party, entered
into an Option Purchase Agreement with Fort Street whereby the Fund agreed to
purchase 16,666 stock options of the Company held by Fort Street for the amount
of $5,000. The stock options entitle the holder to purchase a like number of
shares of common stock of the Company. Fort Street subsequently loaned the
proceeds from the sale of the stock options to the Company under the terms of a
promissory note dated August 29, 2005. The promissory note is unsecured, and
carries an interest rate of five (5) percent per annum. The maturity date of the
note, together with any remaining interest, is December 31, 2009. Interest
22
payments on the promissory note are payable to Fort Street bi-annually and at
the maturity date of the obligation. In addition, on March 22, 2006, Fort
Street, as a principal stockholder of the Company, granted 16,666 shares of its
common stock to the Kelly Superannuation Fund for no consideration or
modification of the Option Purchase Agreement described above.
On September 14, 2005, Sandra L. Wendt, Vice President and Chief Financial
Officer of the Company, entered into an Option Purchase Agreement with Fort
Street whereby Mrs. Wendt agreed to purchase 13,420 stock options of the company
held by Fort Street for the amount of $2,280. The stock options entitle the
holder to purchase a like number of shares of common stock of the Company. Fort
Street subsequently loaned the proceeds from the sale of the stock options to
the Company under the terms of a promissory note dated September 14, 2005. The
promissory note is unsecured, and carries an interest rate of five (5) percent
per annum. The maturity date of the note, together with any remaining interest,
is December 31, 2009. Interest payments on the promissory note are payable to
Fort Street bi-annually and at the maturity date of the obligation. In addition,
on March 22, 2006, Fort Street, as a principal stockholder of the Company,
granted 13,720 shares of its common stock on behalf of the Company to Ms. Wendt.
The value of the common stock provided amounted to $6,710, and has been
recognized as compensation expense and additional paid-in capital of the Company
in the financial statements during the year ended June 30, 2006. There was no
modification of the Option Purchase Agreement described above as a result of the
grant of the common stock by the principal stockholder.
On September 23, 2005, Keith Appleby, an unrelated party, entered into an Option
Purchase Agreement with Fort Street whereby Mr. Appleby agreed to purchase
16,666 stock options of the Company held by Fort Street for the amount of
$5,000. The stock options entitle the holder to purchase a like number of shares
of common stock of the Company. Fort Street subsequently loaned the proceeds
from the sale of the stock options to the Company under the terms of a
promissory note dated September 23, 2005. The promissory note is unsecured, and
carries an interest rate of five (5) percent per annum. The maturity date of the
note, together with any remaining interest, is December 31, 2009. Interest
payments on the promissory note are payable to Fort Street bi-annually and at
the maturity date of the obligation. In addition, on March 22, 2006, Fort
Street, as a principal stockholder of the Company, granted 16,666 shares of its
common stock to Mr. Appleby for no compensation or modification of the Option
Purchase Agreement described above.
On September 26, 2005, Neil Wendt, a related party, entered into an Option
Purchase Agreement with Fort Street whereby Mr. Wendt agreed to purchase 25,000
stock options of the Company held by Fort Street for the amount of $7,500. The
stock options entitle the holder to purchase a like number of shares of common
stock of the Company. Fort Street subsequently loaned the proceeds from the sale
of the stock options to the Company under the terms of a promissory note dated
September 26, 2005. The Company received the proceeds from the promissory note
in early October 2005. The promissory note is unsecured, and carries an interest
rate of five (5) percent per annum. The maturity date of the note, together with
any remaining interest, is December 31, 2009. Interest payments on the
promissory note are payable to Fort Street bi-annually and at the maturity date
of the obligation. In addition, on March 22, 2006, Fort Street, as a principal
stockholder of the Company, granted to Mr. Wendt 25,000 shares of its common
stock for no compensation or modification of the Option Purchase Agreement
described above.
The total proceeds received by the Company for the above sales of 565,994 stock
options by Fort Street amounted to $134,070. Additional amounts totaling $34,714
were loaned to the Company by Fort Street directly under the same terms as
described above. The total amount payable to Fort Street at December 31, 2007
under this obligation is $138,762, plus accrued interest of $18,601. The Company
made a principal repayment of $1,740 during the quarter ended December 31, 2007.
The note is unsecured, carries an interest rate of five (5) percent per annum,
and matures on December 31, 2009.
23
(12) Commitments and Contingencies
In November 2005, the Company was notified by the SEC that in light of the
proximity in timing between the sales of 565,994 stock options held by Fort
Street to various parties and the loans evidenced by promissory notes made by
Fort Street to the Company (as described in Note 11), such sales of options by
Fort Street are believed to be a primary offering of securities by an
underwriter on behalf of the Company under Section 5 of the Securities Act of
1933 (the "33 Act"). If it is determined that such transactions constitute a
primary offering by or on behalf of the Company in violation of Section 5 of the
33 Act, then the Company may be subject to remedial sanctions. Such sanctions
may include the payment of disgorgement, prejudgment interest and civil or
criminal penalties. Management of the Company is not aware of any pending claims
for sanctions against it based on Section 5 of the 33 Act, and intends to
vigorously defend against any such claims if they arise. However, due to the
notification by the SEC, the Company has classified the promissory notes,
amounting to $138,762, and accrued interest of $18,601, as of December 31, 2007,
as amounts subject to rescission in the accompanying balance sheet.
(13) Subsequent Event
On January 16, 2008 the Company's President and principal shareholder entered
into a stock purchase agreement with Route 32, LLC whereby the President would
sell his current majority ownership stake in the Company for $500,000. The stock
purchase agreement is expected to be finalized in January 2008.
24
Item 2. Management's Discussion and Analysis or Plan of Operation
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of our financial
condition. The discussion should be read in conjunction with our financial
statements and notes thereto appearing in this prospectus. The following
discussion and analysis contains forward-looking statements, which involve risks
and uncertainties. Our actual results may differ significantly from the results,
expectations and plans discussed in these forward-looking statements.
Forward-Looking Statements
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of our results of
operations and financial condition. The discussion should be read in conjunction
with our financial statements and notes thereto appearing in this prospectus.
The following discussion and analysis contains forward-looking statements, which
involve risks and uncertainties. Our actual results may differ significantly
from the results, expectations and plans discussed in these forward-looking
statements.
Overview
Fit For Business International, Inc. ("FFBI" or the "Company") is a Nevada
corporation in the development stage of providing products and services for: (i)
corporate wellness programs which address business productivity, stress and
absenteeism issues; (ii) living well programs directed primarily, but not
exclusively, to individuals over 45 years of age; and, (iii) nutritional
supplements manufactured and supplied by Herbalife Ltd. ("Herbalife"). The
accompanying consolidated financial statements of FFBI were prepared from the
accounts of the Company under the accrual basis of accounting in United States
dollars. In addition, these financial statements reflect the completion of a
deemed reverse merger between FFBI and Fit For Business (Australia) Pty Limited
("FFB Australia"), which was effected on September 14, 2004.
Prior to the completion of the deemed reverse merger, FFBI was a dormant
corporation with no assets or operations (essentially since its organization on
May 30, 2001, and incorporation on July 31, 2001). The Company was originally
incorporated under the name of Elli Tsab, Inc. On April 7, 2004, the name of the
Company was changed to Patient Data Corporation. On January 13, 2005, the name
of the Company was again changed to Fit For Business International, Inc. in
order to better reflect the current business plan.
FFB Australia was organized as an Australian private company on December 14,
1998, and subsequently began certain marketing studies and corporate awareness
programs to obtain customers for its products and services. In October 2003, FFB
Australia initiated a capital formation activity through the private placement
of certain convertible promissory notes which provided, through September 14,
2004, proceeds of $365,000. Subsequent to the completion of the deemed reverse
merger, the liability associated with the convertible promissory notes was
assumed by the Company. Thereafter, all of the promissory notes were converted
into shares of common stock of FFBI.
In addition, in November 2003, FFB Australia commenced a capital formation
activity to effect a deemed reverse merger with a corporation validly organized
in the United States for the purpose of completing a Registration Statement on
Form SB-2 with the Securities and Exchange Commission ("SEC"), and raising
capital from the issuance of common stock in the public markets of up to $4.5
million. The initial capital formation activity through a deemed reverse merger
and the issuance of common stock was unsuccessful. Subsequently, FFB Australia
completed a deemed reverse merger with the Company, and FFBI has completed a
registration of its common stock with the SEC pertaining to a second capital
formation activity.
Prior to September 14, 2004, FFB Australia, aside from the capital formation and
marketing activities described above, incurred other development stage operating
costs and expenses related to its organization as an entity, receipt of a
trademark in Australia for the name and related logo of Fit For Business,
formation of a management team, accounting and tax preparation fees, consulting
fees, travel, and other general and administrative expenses.
25
Given that FFB Australia is considered to have acquired FFBI by a deemed reverse
merger through an Exchange Agreement, and its stockholders currently have voting
control of FFBI, the accompanying unaudited condensed consolidated financial
statements and related note disclosures present the financial position as of
December 31, 2007, and the operations for the three months and six months ended
December 31, 2007 and December 31, 2006, and comparatives for the period from
inception (December 14, 1998) through December 31, 2007, of FFB Australia under
the name of FFBI. The deemed reverse merger has been recorded as a
recapitalization of the Company, with the net assets of FFB Australia and FFBI
brought forward at their historical bases. The costs associated with the reverse
merger have been expensed as incurred.
On March 24, 2007, the Company acquired 100% of the common stock of Footfridge
Pty Ltd ("Footfridge") in exchange for a $1,000,000 convertible promissory note.
Pursuant to the agreement, Footfridge became a wholly owned subsidiary of the
Company. Footfridge had minimal operations and its only significant asset was a
patent for a certain heat reflection footwear device. Accordingly, the
acquisition has been recorded as an intangible asset purchase with no goodwill
recognized. The patent was recorded at $1,000,000, which was the estimated fair
value of the note payable on the acquisition date. This agreement was rescinded
on August 21, 2007, whereby the promissory note was cancelled and the Footfridge
common stock was returned to the seller.
On January 16, 2008 the Company's President and principal shareholder entered
into a stock purchase agreement with Route 32, LLC whereby the President would
sell his current majority ownership stake in the Company for $500,000. The stock
purchase agreement is expected to be finalized in January 2008.
If the above stock purchase transaction fails, Management will continue its
attempt to seek a suitable Company to acquire or merge with and to raise
additional equity and debt financing to sustain its current operations. The
successful outcome of future activities cannot be determined at this time due to
the current market conditions, and there are no assurances that if achieved, the
Company will have sufficient funds to execute its intended business plan or
generate positive operating results.
In November 2005, the Company was notified by the SEC that in light of the
proximity in timing between the sales of 565,994 stock options held by Fort
Street to various parties and the loans evidenced by promissory notes made by
Fort Street to the Company (as described in Note 11), such sales of options by
Fort Street are believed to be a primary offering of securities by an
underwriter on behalf of the Company under Section 5 of the Securities Act of
1933 (the "33 Act"). If it is determined that such transactions constitute a
primary offering by or on behalf of the Company in violation of Section 5 of the
33 Act, then the Company may be subject to remedial sanctions. Such sanctions
may include the payment of disgorgement, prejudgment interest and civil or
criminal penalties. Management of the Company is not aware of any pending claims
for sanctions against it based on Section 5 of the 33 Act, and intends to
vigorously defend against any such claims if they arise. However, due to the
notification by the SEC, the Company has classified the promissory notes,
amounting to $138,762, and accrued interest of $18,601, as of December 31, 2007,
as amounts subject to rescission in the accompanying balance sheet.
Critical Accounting Policies
Our financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America ("US GAAP"). In connection
with the preparation of the financial statements, we are required to make
assumptions and estimates about future events, and apply judgments that affect
the reported amounts of assets, liabilities, revenues, expenses and the related
disclosure. We base our assumptions, estimates and judgments on historical
experience, current trends and other factors that management believes to be
relevant at the time the financial statements are prepared. On a regular basis,
management reviews our accounting policies, assumptions, estimates and judgments
to ensure that our financial statements are presented fairly and in accordance
with U.S. GAAP. However, because future events and their effects cannot be
determined with certainty, actual results could differ from our assumptions and
estimates, and such differences could be material.
Our significant accounting policies are discussed in Note 1 of the notes to
financial statements. Certain critical policies are presented below.
26
Revenue Recognition
-------------------
We are in the development stage and have yet to realize significant
revenues from planned operations. We have derived revenues principally from
the sale of services related to wellness programs, literature and training
materials. We have also entered into a license agreement for Australia and
New Zealand which entitles the licensee to provide a distribution network
for us, use our logo and software, and market and promote our products and
services. Revenue will be derived over the term of the license agreement
once all terms and conditions have been met. Revenues are recognized by
major categories under the following policies:
For specific wellness program services, such as health risk assessment
services, fitness programs, educational and other programs, and contracts
pertaining to such services, revenue is realized as services are provided.
Contracts for wellness program services are evidenced in writing, and as
services are rendered, invoices for such services are rendered in
accordance with contract terms.
For sales of literature and training materials, revenue is realized upon
shipment to the customer and there are no unfulfilled company elements
related to a customer's order. Orders for literature and materials are
evidenced in writing on customer and call center order documents. Payments
are provided in cash, check or by credit card at the time orders are placed
with us.
For license agreements, revenue is realized from licensing activities
related to various countries and geographic regions, which entitle
licensees to provide a distribution network for us, the use of our logo,
software and training materials, and the rights to market and promote our
services. Revenue from such agreements is realized over the term and under
the conditions of each specific license once all contract conditions have
been met. Payments for licensing fees are generally received at the time
the license agreements are executed, unless other terms for delayed payment
are documented and agreed to between the parties. Under terms for delayed
payment, we may require further assurances of payment under contract terms
such as credit report information, and entity and personal guarantees.
Costs of Computer Software Developed or Obtained for Internal Use
-----------------------------------------------------------------
Under State of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"), we capitalize external
direct costs of materials and services consumed in developing or obtained
internal-use computer software; payroll and payroll-related costs for
employees who are directly associated with and who devote time to the
internal-use computer software project; and, interest costs related to
loans incurred for the development of internal-use software.
Foreign Currency
----------------
The Company accounts for foreign currency translation pursuant to SFAS No.
52, Foreign Currency Translation ("SFAS 52"). The Company's functional
currency is the Australian dollar. All assets and liabilities are
translated into United States dollars using the current exchange rate at
the end of each fiscal period. Revenues and expenses are translated using
the average exchange rates prevailing throughout the period. Translation
adjustments are included in accumulated comprehensive income (loss) for the
period. Certain transactions of the Company are denominated in United
States dollars. Translation gains or losses related to such transactions
are recognized for each reporting period in the related statement of
operations and comprehensive income (loss).
As a result of such currency fluctuations and the conversion to United
States dollars for financial reporting purposes, we may experience
fluctuations in our operating results on an annual or quarterly basis going
forward. We have not in the past, but may in the future, hedge against
fluctuations in exchange rates. Future hedging transactions may not
successfully mitigate losses caused by currency fluctuations.
27
Results of Operations for the Three Months Ended December 31, 2007 and 2006
Revenues
--------
We had no revenues for the three months ended December 31, 2007, compared to
revenues of $4,639 for the three months ended December 31, 2006.
Cost of Sales
-------------
Cost of sales was $0 for the three months ended December 31, 2007 as compared to
$2,033 for the same period ended December 31, 2006.
Selling, General and Administrative Expenses
--------------------------------------------
Selling, general and administrative expenses for the three months ended December
31, 2007 were $19,141 compared to $192,074 for the three months ended December
31, 2006. During the three months ended December 31, 2006, we incurred $152,757
in wages, compensation and related taxes that were not incurred in three months
ended December 31, 2007 due to our lack of revenues and sufficient working
capital.
Other Income (Expense)
----------------------
For the three months ended December 31, 2007, we reported miscellaneous income
of $3,740 and incurred interest expense totaling $2,854. For the three months
ended December 31, 2006, we incurred interest expense totaling $6,053.
Results of Operations for the Six Months Ended December 31, 2007 and 2006
Revenues
--------
Our revenues for the six months ended December 31, 2007 totaled $495, compared
to revenues of $7,507 for the six months ended December 31, 2006.
Cost of Sales
-------------
Cost of sales was $435 for the six months ended December 31, 2007 as compared to
$2,730 for the same period ended December 31, 2006.
Selling, General and Administrative Expenses
--------------------------------------------
Selling, general and administrative expenses for the six months ended December
31, 2007 were $23,979 compared to $453,745 for the six months ended December 31,
2006. During the six months ended December 31, 2006, we incurred $393,610 in
wages, compensation and related taxes, versus only $25,062 of these expenses
during the six months ended December 31, 2007.
Other Income (Expense)
----------------------
For the six months ended December 31, 2007, we reported income relating to the
cancellation and settlement of debt totaling $146,752, other income of $3,763,
and interest expense of $14,993. The gain on the cancellation and settlement of
debt included a $117,793 gain from the settlement of an accrued compensation
agreement and $28,959 cancellation of indebtedness related to the rescission of
our previous acquisition of Footfridge. For the six months ended December 31,
2006, we incurred interest expense totaling $3,527.
28
Liquidity and Capital Resources
During the six months ended December 31, 2007, the Company received proceeds of
$29,109 in loans from related parties. Of the amounts received, $15,158 was used
in operations, and $1,740 was used to repay promissory notes. The balance of
cash and cash equivalents as of December 31, 2007 was $688.
During the six months ended December 31, 2006, the Company received $152,000
from the sale of common stock and proceeds of $11,837 in loans from related
parties. Of the amounts received, $64,431 was used in our operations, $2,471 to
cover a cash overdraft, $23,052 to pay costs related to our stock offering, and
$29,885 to repay loans to related parties. The balance of cash and cash
equivalents as of December 31, 2006 was $43,216.
In the course of the activities described above, we have sustained operating
losses and expect such losses to continue in the foreseeable future. To date, we
have not generated sufficient revenues to achieve profitable operations or
positive cash flow from operations. As of December 31, 2007, we had a working
capital deficit of $423,042 and an accumulated deficit of $1,464,451. There is
no assurance that profitable operations, if ever achieved, will be sustained on
a continuing basis.
Our footnotes for the six months ended December 31, 2007 and 2006 contain an
explanatory paragraph which indicates that we have recurring losses from
operations, and our working capital is insufficient to meet our planned business
objectives. This report also states that, because of these losses, there is
substantial doubt about our ability to continue as a going concern. This report
and the existence of these recurring losses from operations may make it more
difficult for us to raise additional debt or equity financing needed to run our
business, and are not viewed favorably by analysts or investors. Furthermore, if
we are unable to complete our planned merger or raise a significant amount of
proceeds form our offering, this may cause our cessation of business resulting
in investors losing the value of their investment in us.
Off Balance Sheet Arrangements
------------------------------
We have no off-balance sheet arrangements.
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, 2007. 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, 2007 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
29
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Our subsidiary, Fit For Business (Australia) Pty. Ltd. is plaintiff in legal
proceedings against one of our licensees, L.R. Global Marketing Pty. Ltd, for
outstanding licensing fees owed in the amount of $443,263.
Other than this claim, neither our parent company nor our subsidiary, or any of
their properties, is a party to any pending legal proceeding. We are not aware
of any contemplated proceeding by a governmental authority. Also, we do not
believe that any director, officer, or affiliate, any owner of record or
beneficially of more than five per cent (5%) of the outstanding common stock, or
security holder, is a party to any proceeding in which he or she is a part
adverse to us or has a material interest adverse to us.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On August 14, 2007, the Company accepted the exercise of 1,434,006 options from
Fort Street Equity, a principal shareholder of the Company, in consideration for
a $28,680 reduction in the Company's note payable balance to Fort Street. Fort
Street Equity is a related party, therefore no gain or loss was recognized on
this equity transaction.
The Company issued 2,500,000 shares of its common stock on October 11, 2007 to
its President and CEO, Mark Poulsen, as compensation for services performed
during July 2007.
The Company originally issued 1,000,000 shares of preferred stock to its
President in 2004 pursuant to a reverse merger transaction. Each of these
preferred shares was approved by the Company's Board of Directors to have 50
votes. In December 2007 while performing due diligence for the Company's pending
sale, it was discovered that a certificate of designation was not properly filed
with the Nevada Secretary of State for the Company's preferred shares. As
compensation for the Company's failure to provide its President properly
designated preferred shares and their related voting rights, the Company issued
him 50,000,000 shares on December 31, 2007. These additional common shares
provide the Company's President an equal number of voting rights to what he
would have maintained in the event that the original preferred shares were
validly authorized and designated by the Nevada Secretary of State. No gain or
loss or compensation expense has been recognized on this transaction.
On December 31, 2007, the Company issued 20,000,000 shares to its President to
settle debt totaling $134,176 owed to the President and his affiliated
companies. No gain or loss was recognized on this transaction.
The aforementioned shares were issued in reliance on the exemption under Section
4(2) of the Securities Act of 1933, as amended (the "Act"). These shares of our
common stock qualified for exemption under Section 4(2) of the Securities Act of
1933 since the issuance shares by us did not involve a public offering. 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, this shareholder had the necessary investment intent as required by
Section 4(2) since they agreed to and received share certificates bearing a
legend stating that such shares are restricted pursuant to Rule 144 of the 1933
Securities Act. This restriction ensures 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 this 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, 2007, covered by
this report to a vote of our shareholders, through the solicitation of proxies
or otherwise.
30
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 January 8, 2008, we filed a Current Report on Form 8-K, whose
information is hereby incorporated by reference. The Current Report
pertained to the unregistered sales of equity securities to the Company's
President and the invalidity of the Company's preferred stock, as further
described above in Item 2.
(b) Exhibits
------------
Exhibit
Method of Filing Number Exhibit Title
---------------- ------- -------------
Incorporated by reference to Exhibit 3.1 to 3.1 Certificate of Incorporation
our Form SB-2 registration statement on March
7, 2005 (SEC File No. 333-123176)
Incorporated by reference to Exhibit 3.1(a) 3.1(a) Certificate of Amendment to Certificate of
to our Amendment No. 1 to Form SB-2 Incorporation
registration statement on May 4, 2005 (SEC File
No. 333-123176)
Incorporated by reference to Exhibit 3.3 to our 3.2 By-Laws
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 to 10.1 Exchange Agreement dated September 5, 2004
our Form SB-2 registration statement on March between us and Fit For Business
7, 2005 (SEC File No. 333-123176). (Australia) Pty Ltd.
Incorporated by reference to Exhibit 10.2 to 10.2 Stock Option Agreement dated July 25, 2004
our Form SB-2 registration statement on March between us and Fort Street Equity, Inc.
7, 2005 (SEC File No. 333-123176). (subscription agreement)
Incorporated by reference to Exhibit 10.2.1 to 10.2.1 Stock Option Extension Letter
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 to 10.3 License Agreement with L.R. Global
our Form SB-2 registration statement on March Marketing Pty Ltd. And Extension Agreement
7, 2005 (SEC File No. 333-123176).
Incorporated by reference to Exhibit 10.4 to 10.4 Employment Agreement - Mark A. Poulsen
our Form SB-2 registration statement on March
7, 2005 (SEC File No. 333-123176).
31
Incorporated by reference to Exhibit 10.5 to 10.5 Employment Agreement - Anthony F. Head
our Form SB-2 registration statement on March
7, 2005 (SEC File No. 333-123176).
Incorporated by reference to Exhibit 10.6 to 10.6 Employment Agreement - Prins A. Ralston
our Form SB-2 registration statement on March
7, 2005 (SEC File No. 333-123176).
Incorporated by reference to Exhibit 10.7 to 10.7 Employment Agreement - Sandra L. Wendt
our Form SB-2 registration statement on March
7, 2005 (SEC File No. 333-123176).
Incorporated by reference to Exhibit 10.8 to 10.8 Agreement with Insource Pty Ltd.
our Form SB-2 registration statement on March
7, 2005 (SEC File No. 333-123176).
Incorporated by reference to Exhibit 10.9 to 10.9 Two (2) Promissory Notes with Fort Street
our Amendment No. 3 to Form SB-2 registration Equity both dated July 1, 2005
statement on August 1, 2005 (SEC File No.
333-123176).
Incorporated by reference to Exhibit 10.9 to 10.9.1 Five (5) Promissory Notes with Fort Street
our Amendment No. 5 to Form SB-2 registration Equity dated as follows: one (1) dated
statement on September 26, 2005 (SEC File No. September 14, 2005; two (2) dated August
333-123176). 29, 2005; one (1) dated June 19, 2005; and
one (1) dated May 11, 2005
Incorporated by reference to Exhibit 10.9 to 10.9.2 Two (2) Promissory Notes with Fort Street
our Amendment No. 8 to Form SB-2 registration Equity dated as follows: September 23,
statement on December 30, 2005 (SEC File No. 2005; and September 26, 2005
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
32
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: January 24, 2008 By: /s/ Mark A. Poulsen
---------------------------
Mark A. Poulsen
Chief Executive Officer, President, and
Chairman of the Board of Directors
Date: January 24, 2008 By: /s/ Sandra Wendt
-----------------------
Sandra Wendt
Chief Financial Officer
Principal Accounting Officer
33