The accompanying notes are an integral part of these financial statements.
27
Table of Contents
FONU2, INC.
Notes to the Financial Statements
For the Years Ended September 30, 2014 and 2013
1.
BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
FONU2, Inc. (the Company) was organized on August 26, 2009, under the laws of the State of Florida, as Cygnus Internet, Inc. The Company operates two business units; a comic book and collectibles retail business and a social commerce business currently under development.
Basis of Presentation
The Company prepares its financial statements on the accrual basis of accounting. Management believes that all adjustments necessary for a fair presentation of the results of the years ended September 30, 2014 and 2013 have been made. The Company currently does not have any subsidiaries.
Significant Accounting Policies
The Companys management selects accounting principles generally accepted in the United States of America and adopts methods for their application. The application of accounting principles requires the estimating, matching and timing of revenue and expense. It is also necessary for management to determine, measure and allocate resources and obligations within the financial process according to those principles. The accounting policies used conform to generally accepted accounting principles which have been consistently applied in the preparation of these financial statements.
The financial statements and notes are representations of the Companys management that is responsible for their integrity and objectivity. Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company's system of internal accounting control is designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods being presented.
Reverse-Merger Transaction
On December 2, 2011, the stockholders of Zaldiva, Inc., a Florida corporation (Zaldiva) approved Zaldivas change of domicile from the state of Florida to the state of Nevada. The change of domicile was effectuated by merging Zaldiva into its newly-
28
Table of Contents
formed wholly-owned subsidiary, FONU2 Inc., a Nevada corporation formerly known as Zaldiva, Inc. (FONU2), with every share of Zaldivas common and preferred stock automatically being converted into one-half of one corresponding share of FONU2, and with all fractional shares that would otherwise result from such conversion being rounded up to the nearest whole share. Zaldiva and FONU2 filed Articles of Merger in the States of Florida and Nevada on December 2, 2011. The change of domicile and de facto reverse-split were effectuated on January 9, 2012.
On March 6, 2012, the Company executed an Agreement and Plan of Reorganization (the Agreement) with FONU2, and Jeffrey M. Pollitt, who is the Companys Chief Executive Officer and the holder of approximately 37% of the Companys outstanding shares of common stock. Under the Agreement, FONU2 acquired all of the material assets of the Company in exchange for 53,411,262 unregistered and restricted shares of FONU2s common stock, which represented approximately 85% of FONU2s issued and outstanding common stock upon issuance, with such shares to be issued pro rata to the Companys common stockholders.
The Agreement was accounted for as a reverse-merger recapitalization transaction, with FONU2 as the accounting acquirer, and Zaldiva as the legal acquirer. The historical financial statements presented herein for the period prior to the merger date are those of FONU2.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Earnings (Loss) per Share
The Company computes net income (loss) per share in accordance with ASC 260 which requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. There are no such common stock equivalents outstanding as of September 30, 2014 and 2013.
Reclassification
Certain account totals and other figures from prior periods have been reclassified to conform to current period presentation.
29
Table of Contents
Comprehensive Income
ASC 220 establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. For the years ended September 30, 2014 and 2013, the Company had no items of other comprehensive income. Therefore, the net loss equals the comprehensive loss for the years then ended.
Emerging Growth Company Critical Accounting Policy Disclosure
The Company qualifies as an emerging growth company under the 2012 JOBS Act. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. As an emerging growth company, the Company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company may elect to take advantage of the benefits of this extended transition period in the future.
Cash and Cash Equivalents
For purposes of the Statement of Cash Flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes.
Property and Equipment
Property and equipment is recorded at cost. Major additions and improvements are capitalized and depreciated over their estimated useful lives. Depreciation of property and equipment is determined using the straight-line method over their useful lives, which ranges from three to five years. Gains or losses on the sale or disposal of property and equipment are included in the statements of operations. Maintenance and repairs that do not extend the useful life of the assets are expensed as incurred.
Inventory
The Companys inventory consists of various comic books, toys, and other collectible items. These items are purchased from external suppliers. The inventory items are recorded and valued at cost. Management performs periodic reviews of its slow-moving inventory for possible impairment. When slow-moving inventory is identified, its cost is also adjusted so as to represent the lower of cost or market at all times.
Revenue Recognition
The Company's revenues are generated from the sales of various comic books, toys, and other collectible items. Sales are transacted primarily through the Companys website, via credit card order; or through eBay, via Paypal or e-check transaction. The Company follows guidance found in ASC 605, which provides guidance on the recognition, presentation and disclosure of revenue in financial statements.
30
Table of Contents
ASC 605 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general, the Company recognizes revenue related to merchandise sales when the following conditions are met:
a)
Persuasive evidence of an arrangement exists,
b)
Delivery has occurred or services have been rendered,
c)
The fee is fixed or determinable,
d)
Collectability is reasonably assured.
Cost of Sales
When an inventory item is sold, the Company recognizes cost of sales expense for the value of the inventory item sold. This value includes the purchase price of the inventory item, plus any expenditure on improvements to the inventory items. Shipping costs are not included in cost of sales calculations.
Accounting Basis
The basis is accounting principles generally accepted in the United States of America. The Company has adopted a September 30 fiscal year end.
Stock-Based Compensation.
The Company accounts for share-based compensation in accordance with Accounting Standards Codification subtopic 718-10, Stock Compensation (ASC 718-10). This requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock options and employee stock purchases related to an Employee Stock Purchase Plan based on the estimated fair values.
Research and Development.
Research and development cost are charged to operations as incurred.
Recent Accounting Pronouncements
The Company has evaluated recent accounting pronouncements and their adoption has not had nor is not expected to have a material impact on the Companys financial position or statements.
2.
GOING CONCERN
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, the Company has accumulated deficit of $40,401,033 as of September 30, 2014, and negative working capital of $474,110. During the year ended September 30, 2014 the Company realized negative cash flows from operations totaling $ 660,135 . The Company currently has limited liquidity, and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time. These items raise substantial doubt about its ability to continue as a going concern.
31
Table of Contents
Management anticipates that the Company will be dependent, for the near future, on additional investment capital to fund operating expenses The Company intends to position itself so that it may be able to raise additional funds through the capital markets. In light of managements efforts, there are no assurances that the Company will be successful in this or any of its endeavors or become financially viable and continue as a going concern.
3.
CONVERTIBLE NOTES PAYABLE
As of September 30, 2014 and September 30, 2013, the Company had net totals of $195,320 and $61,439 in outstanding convertible notes payable, respectively.
During 2011, the Company entered into two debt agreements for a total of $75,000. The notes carry interest at 10% and are convertible into shares of the Company common stock at a discount of 30% to the market price of the Companys common stock, however the conversion price can be no lower than $0.10 or higher than $0.50. During the year ended September 30, 2013 the Company converted $25,000 of this debt into 243,055 shares of the Companys common stock. During the year ended September 30, 2014, the remaining principal of $50,000 and accrued interest of $12,500 was assigned to a new holder.
During 2013, $58,000 of notes payable that were previously not convertible became convertible. The embedded conversion options in these notes are required to be classified as liabilities. See Note 7. The note payable was due on February 2, 2013, and the Company incurred an additional $29,000 owed as part of the principal of the note due to being in default. During the year ended September 30, 2013, the lender converted $87,000 of the note payable. As of September 30, 2014 and September 30, 2013, the note had an outstanding principal of zero.
32
Table of Contents
On March 11, 2013 the Company entered into a convertible promissory note with an unrelated third party, wherein the Company borrowed $78,500. A total of $23,500 of the proceeds was paid directly to the Companys vendors by the lender. The principal accrues interest at a rate of eight percent per annum and is due in full on December 16, 2013. The note is convertible at the option of the holder at any point at least 180 days from the note date at a 42 percent discount to the average of the three lowest closing prices during the ten day period prior to conversion. The note will accrue interest at a rate of 22 percent per annum should the Company default. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 Derivatives and Hedging and determined that the instrument should be classified as liabilities once the conversion option becomes effective after 180 days due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. During the year ended September 30, 2013 the lender converted $35,000 of the note principal into 417,224 shares of the Companys common stock. During the nine months ended June 30, 2014 the lender converted the remaining $43,500 note principal into 1,102,411 shares of the Companys common stock. As of September 30, 2014 and September 30, 2013 the note had an outstanding principal balance of $-0- and $43,500, respectively. As of September 30, 2014 accrued interest on this note totaled $3,422.
On November 6, 2013 the Company entered into a convertible promissory note with an unrelated third party whereby the Company borrowed $128,500, with initial debt discount of $18,500. The principal accrues interest at a rate of eight percent per annum and is due in full on August 8, 2014. The note became convertible on May 5, 2014 at a 42 percent discount to the average of the three lowest closing prices during the ten day period prior to conversion. The note will accrue interest at a rate of 22 percent per annum should the Company default. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 Derivatives and Hedging and determined that the derivative instrument should be classified as a liability once the conversion option becomes effective due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. During the year ended September 30, 2014 the lender converted $76,940 of the note principal into 15,415,891 shares of the Companys common stock. As of September 30, 2014 the remaining principal balance on this note was $51,560.
On November 13, 2013 the Company entered into a promissory note with an unrelated third party whereby the Company agreed to borrow a maximum of $300,000. Each borrowing under the terms of the note, along with specific accrued interest is due two years from the date the specific funds are received by the Company. All borrowings under the terms of this note are subject to a 10% original issue discount such that the consideration due back to the lender is equal to cash proceeds actually received plus ten percent of the amount borrowed. Through June 30, 2014, the Company had borrowed $137,500, with initial debt discount of $12,500 pursuant to this promissory note. The note is exempt from interest for the 90 days after the note date; after 90 days the unpaid principal balance shall accrue interest at a rate of 12 percent per annum. The note
33
Table of Contents
became convertible into shares of the Companys common stock on May 12, 2014 at 60 percent of the lowest trade price in the 25 trading days previous to the conversion. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 Derivatives and Hedging and determined that the derivative instrument should be classified as a liability once the conversion option becomes effective due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. During the year ended September 30, 2014 the lender converted $42,510 of the note principal into 9,700,000 shares of the Companys common stock. As of September 30, 2014 the remaining principal balance on this note was $94,990.
On April 11, 2014 the Company entered into a convertible promissory note with an unrelated third party, wherein the Company borrowed $103,000. The principal accrues interest at a rate of eight percent per annum and is due in full on April 11, 2015. The note is convertible at the option of the holder at any point after the note date at a 40 percent discount to the average of the three lowest closing prices during the ten day period prior to conversion. The note will accrue interest at a rate of 22 percent per annum should the Company default. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 Derivatives and Hedging and determined that the derivative instrument should be classified as a liability when the conversion option became effective after the note date due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. As of September 30, 2014 the principal balance on this note remained at $103,000.
On April 11, 2014 the Company assigned $50,000 of principal and $12,500 of interest to a new holder who issued a replacement note. The principal accrues interest at a rate of eight percent per annum and is due in full on April 11, 2015. The note is convertible at the option of the holder at any point after the note date at a 40 percent discount to the lowest closing price during the five day period prior to conversion. The Company analyzed the modification of the term under ASC 470-60 Trouble Debt Restructurings and ASC 470-50 Extinguishment of Debt. The Company determined the modification is substantial and the transaction should be accounted for as an extinguishment with the old debt written off and the new debt initially recorded at fair value with a new effective interest rate. The Company analyzed the conversion option of the new debt for derivative accounting consideration under ASC 815-15 Derivatives and Hedging and determined that the derivative instrument should be classified as a liability when the conversion option became effective after the note date due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. During the year ended September 30, 2014 the lender converted all $62,500 of the note principal, along with $ 515 in accrued interest, into 9,674,997 shares of the Companys common stock. As of September 30, 2014 the remaining principal balance on this note was $-0-
34
Table of Contents
On January 24, 2014 the Company entered into a Securities Purchase Agreement with an unrelated third-party entity in connection with a convertible note whereby the Company borrowed $78,500. The note principal bears interest at a rate of eight percent per annum and will accrue interest at a rate of 22 percent per annum should the Company default. The note principal and any unpaid accrued interest is due in full on or before October 28, 2014. The note is convertible at the option of the holder at any point at least 180 days from the note date at a 42 percent discount to the average of the three lowest closing prices during the ten day period prior to conversion. As of September 30, 2014 accrued interest on this note totaled $4,284.
During the year ended September 30, 2013 the Company recorded a debt discount totaling $168,902 relating to the derivative features and original issue discounts of the convertible debts. Of this amount, $136,841 was amortized to interest expense during the year ended September 30, 2013, leaving total unamortized debt discounts of $32,061 as of September 30, 2013. During the year ended September 30, 2014, the Company recorded additional debt discounts totaling $ 485,795 , and amortized a total $416, 126 to interest expense, leaving total unamortized debt discounts of $132,730 as of September 30, 2014.
4.
NOTES PAYABLE
As of September 30, 2014 and September 30, 2013, the Company had total of $ 44 ,000 and $19,000 in outstanding notes payable respectively.
On May 1, 2012 the Company entered into a loan agreement with an unrelated third party. The note principal bears interest at a rate of 10 percent per annum and due on demand. At September 30, 2014 and 2013, the entire $19,000 principal balance remained outstanding, along with $3,800 in accrued interest.
On June 12, 2013 the Company entered into a convertible promissory note with an unrelated third party, wherein the Company borrowed $53,000. $3,000 of the proceeds was paid directly to the Companys vendors by the lender. The principal accrues interest at a rate of eight percent per annum and is due in full on March 14, 2014. The note is convertible at the option of the holder at any point at least 180 days from the note date at
35
Table of Contents
a 42 percent discount to the average of the three lowest closing prices during the ten day period prior to conversion. The note will accrue interest at a rate of 22 percent per annum should the Company default. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 Derivatives and Hedging and determined that the derivative instrument should be classified as a liability when the conversion option became effective after 180 days due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. As of September 30, 2013 the principal balance on this note remained at $53,000. The note became convertible on December 19, 2013. The Company recognized an initial derivative liability in the amount of $30,769 pursuant to the debt discount on the note. On December 20, 2013 the Company paid the note principal, along with all accrued interest, down to zero. In satisfying the note, the Company recognized a loss on derivative liability in the amount of $9,088 and amortized $7,125 of the debt discount to interest expense. The remaining $23,644 debt discount was closed to interest and the $39,857 derivative liability was closed to additional paid-in capital.
On August 26, 2014 the Company entered into a $25,000 convertible debenture note agreement with an unrelated third party. The note accrues interest at a rate of 12 percent per annum and is due on August 25, 2017. Pursuant to the terms of the note, the principal can be converted into shares of the Companys common stock, at the option of the lender, at any time after six months and up to one year from the note date at a 20 percent discount to the market price of the shares. The discount will be 25 percent if converted between one and two years, and will be 30 percent if converted after two years. The maximum conversion price will be $0.50 per share. As of September 30, 2014, accrued interest on the note totaled $288.
5.
RELATED PARTY NOTES PAYABLE
During the period ended September 30, 2013 the Company borrowed an aggregate amount of $13,000 from its CMO, Niccole Leigh. The Company repaid this amount in full during the period.
During the period ended September 30, 2013 the Company borrowed an aggregate amount of $188,300 from its former CEO, Jeff Pollitt. The note is unsecured, bears no interest and is due on demand.
On October 14, 2013 the Company converted the $188,300 note payable due to its former CEO, along with accrued interest of $7,419 and accrued wages payable totaling $86,000, into 2,400,000 shares of the Companys common stock. Pursuant to this transaction, the liabilities were considered fully satisfied, and the Company recognized a $5,719 gain on settlement of debts.
36
Table of Contents
On August 5, 2014 the Company borrowed $18,000 from a related party (former CEO Robert Lees) in the form of a note payable. The note accrues interest at a rate of 12 percent per annum, is unsecured, and is due on demand.
As of September 30, 2014 and 2013, the Company had $18,000 and $188,300, respectively, in outstanding related party payables.
6.
FAIR VALUE MEASUREMENTS
As defined in FASB ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilized the market data of similar entities in its industry or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. FASB ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).
The three levels of the fair value hierarchy are as follows:
| |
Level 1 | Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities. |
| |
Level 2 - | Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date and includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars. |
37
Table of Contents
| |
Level 3 | Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in managements best estimate of fair value. |
The following table sets forth by level within the fair value hierarchy the Companys financial assets and liabilities that were accounted for at fair value as September 30, 2014 and 2013
September 30, 2014
7.
DERIVATIVE INSTRUMENTS
During 2013, the Company issued debt instruments that were convertible into common stock at a 42 percent discount to the average of the three lowest closing prices during the ten day period prior to conversion. During the year ended September 30, 2014 the Company issued additional debt instruments under the same terms, as well as additional debt instruments convertible into common stock at a 40% discount to the lowest trading price in the 25 trading days previous to conversion, 60% discount to the average of the three lowest closing prices during the ten day period prior to conversion. The conversion options embedded in these instruments contain no explicit limit to the number of shares to be issued upon settlement and as a result are classified as liabilities under ASC 815. Additionally, because the number of shares to be issued upon settlement is indeterminate, all other share settle-able instruments must also be classified as liabilities. A debt discount of $168,902 was recorded as a result of these derivative liabilities, $136,841 of which was amortized into interest expense for the year ended September 30, 2013. During the period ended September 30, 2014, debt discount of $ 485,795 was recorded as a result of new derivative liabilities, $416, 126 of which was amortized into interest expense for the period ending September 30, 2014.
During 2013, certain notes payable were converted resulting in settlement of the related derivative liabilities. The Company re-measured the embedded conversion options at fair value on the date of settlement and recorded these amounts to additional paid-in capital.
38
Table of Contents
The following table summarizes the changes in the derivative liabilities during the period ended September 30, 2014:
| | | | |
Balance as of September 30, 2012 | | $ | - | |
Additions due to new convertible debt and warrants issued | | | 900,933 | |
Reclassification of derivative liabilities to additional paid-in capital due to conversion of debt | | | (221,200) | |
Change in fair value | | | 289,942 | |
Balance as of September 30, 2013 | | $ | 969,675 | |
Additions due to new convertible debt and warrants issued | | | 485,795 | |
Reclassification of derivative liabilities to additional paid-in capital due to conversion of debt | | | ( 623,975 ) | |
Change in fair value | | | ( 583,615 ) | |
Balance as of September 30, 2014 | | $ | 247,880 | |
During the period ended September 30, 2013, the loss on derivative of $303,973 in the statement of operations consisted of a loss on the change in fair value of $289,942 noted above and a loss of $14,031, which was the amount by which the derivative liabilities exceeded the principal of the related party payable on the date the notes were issued.
The Company uses the Black Scholes Option Pricing Model to value its derivatives based upon the following assumptions: 2014: dividend yield of -0-%, volatility of 174-449%, risk free rate of 0.11-0.18% and an expected term of 0.25 to one year; 2013: dividend yield of -0-%, volatility of 86-693%, risk free rate of 0. 12 -0.18% and an expected term of 0.25 to one year .
8.
COMMON STOCK
During the year ended September 30, 2013 the Company issued 10,581,515 shares of common stock for services valued at $474,301.
On February 27, 2013, Jeff Pollitt, the Companys CEO, resigned his position with the Company. Pursuant to this resignation, Mr. Pollitt returned 15,000,000 of his 22,796,962 shares of the Companys common back to the Company. The 15,000,000 shares were cancelled by the Company immediately upon receipt.
During the year ended September 30, 2013 the Company issued 10,003,111 for the conversion of notes payable and other debts in the amount of $214,259.
During the year ended September 30, 2013 the Company issued 6,250,000 shares of common stock for cash proceeds of $250,000. 6,250,000 warrants were issued with the common shares, which can be exercised at a price of $0.04 per share. These warrants qualify for derivative accounting, see note 7.
39
Table of Contents
During the year ended September 30, 2013 the Company issued 1,500,000 shares of common stock for prepaid services valued at fair market value of $255,000. The consulting services will be provided for one year commencing 8/1/2013.
During the year ended September 30, 2014 the Company issued 3,250,000 shares of common stock for cash proceeds of $130,000. The Company issued an additional 2,250,000 shares of common stock upon the exercise of warrants at $0.04 per share, resulting in cash proceeds in the amount of $90,000.
During the year ended September 30, 2014 the Company issued an aggregate of 35,893 ,299 shares of common stock for the conversion of $225,965 notes payable and 2,400,000 shares of common stock for the conversion of other debts totaling $ 276,000. The conversion rates ranged from $0.0013 to $0.0677. The Company recorded a gain on the conversion of other debts of $5,719.
On January 30, 2014 the Company entered into an agreement with an unrelated public relations firm. Pursuant to the agreement, the firm will provide public relations services for the Company for a term of six months. As payment for these services, the Company issued 500,000 shares of common stock valued at fair market value of $24,600 on the agreement date, and issued an additional 700,000 shares on May 2, 2014 at fair market value of $41,930 at the beginning of month four of the agreement term.
On April 4, 2014 the Company issued 6,625,000 shares of common stock to various individuals as consideration for services rendered. These shares had a fair market value of $463,750. In addition, the Company agreed to issue an aggregate of 385,000 shares of common stock per quarter to various individuals as compensation for services to be rendered.
On April 15, 2014 the Company executed an engagement letter with a non-related third party entity to provide certain services in relation to a public offering of the Companys common stock. Pursuant to the agreement, the firm will provide services for the Company for a term of one year. As payment for these services, the Company issued 823,723 shares of common stock valued at fair market value of $50,000 on the agreement date.
On April 22, 2014 the Company issued 226,152 shares of common stock to settle accounts payable from legal and professional services rendered . The fair value of the shares issued is $14,338, no gain or loss was recorded on the settlement of accounts payable .
On April 22, 2014 the Company issued 732,314 shares of common stock with a fair value of $51,262 for consulting services rendered.
40
Table of Contents
On April 25, 2014 the Company issued 75,643 shares of common stock with a fair value of $5,000 for professional fees rendered .
On August 25, 2014 the Company issued 4,000,000 shares of common stock to a third party consulting entity as payment for a one-year consulting services contract. The shares were valued at $0.0033 per share, being the market value of the shares on the date of issuance which is $13,200 .
On September 30, 2014 the Company issued an aggregate of 385,000 shares of common stock with a fair market value of $501, to various third parties as payment for consulting and administrative services rendered.
9.
WARRANTS
A summary of the status of the Companys options and warrants as of September 30, 2014 and 2013 and changes during the periods ended September 30, 2014 and 2013 is presented below:
| | | | | | | | | | | | |
Description | | Warrant Shares | | | Exercise Price | | | Value if Exercised | |
Outstanding at 9/30/12 | | | - | | | | - | | | | - | |
Granted | | | 6,250,000 | | | $ | 0.04 | | | $ | 1,062,500 | |
Exercised | | | - | | | | - | | | | - | |
Cancelled | | | - | | | | - | | | | - | |
Expired | | | - | | | | - | | | | - | |
Outstanding at 9/30/13 | | | 6,250,000 | | | | 0.04 | | | | 1,062,500 | |
Granted | | | - | | | | - | | | | - | |
Exercised | | | 2,250,000 | | | | 0.04 | | | | 90,000 | |
Cancelled | | | - | | | | - | | | | - | |
Expired | | | 4,000,000 | | | | 0.04 | | | | 160,000 | |
Outstanding at 9/30/14 | | | - | | | $ | - | | | $ | - | |
The warrants granted during the year ended September 30, 2013 were granted in connection with the a private placement offering whereby the Company is authorized to issue up to 6,500,000 units, with each unit consisting of one share of the Companys common stock and one warrant to purchase one share of the Companys common stock at an exercise price of $0.04 per share. The units were sold for $0.04 per unit, resulting in total cash proceeds of $250,000. The warrants were valued using the Black-Scholes Options Pricing Model using the following assumptions: dividend yield of -0-%, volatility of 86-693%, risk free rate of 0.12-0.18% and an expected term of 0.25 to one year.
During the year ended September 30, 2014 2,250,000 warrants were exercised at $0.04 per share, resulting in cash proceeds in the amount of $90,000. Additionally during the year ended September 30, 2014 4,000,000 warrants expired.
41
Table of Contents
10.
INCOME TAXES
The Company provides for income taxes under ASC 740, Accounting for Income Taxes. ASC 740 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. The Companys predecessor operated as entity exempt from Federal and State income taxes.
ASC 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The provision for income taxes differs from the amounts which would be provided by applying the statutory federal income tax rate of 39% to net the loss before provision for income taxes for the following reasons:
| | | | | | |
| | September 30, | | September 30, |
| | 2014 | | 2013 |
Income tax expense at statutory rate | | $ | (460,534) | | $ | (579,000) |
Common stock issued for services | | | 246,533 | | | 161,262 |
Amortization | | | 141,483 | | | 46,526 |
Impairment expense | | | 2,557 | | | - |
Change in valuation allowance | | | 69,962 | | | 371,211 |
Income tax expense per books | | $ | - | | $ | - |
Net deferred tax assets consist of the following components as of:
| | | | | |
| September 30, | | September 30 |
| 2014 | | 2013 |
NOL carryover | $ | (876,534) | | $ | $ (416,000) |
Valuation allowance | | 876,534 | | | 416,000 |
Net deferred tax asset | $ | - | | $ | - |
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards of approximately $2, 500,000 for federal income tax reporting purposes are subject to annual limitations. When a change in ownership occurs, net operating loss carry forwards may be limited as to use in future years.
42
Table of Contents
11 .
SUBSEQUENT EVENTS
On October 1, 2014 Robert Lees resigned as President and CEO and Roger Miguel who had served as Chief Operating Officer was appointed President and CEO. Robert Lees remained in the company and on the Board of Directors.
On October 3, 2014 Robert Lees resigned as CFO and as Director. Roger Miguel assumed the role of Interim CFO. The Board of Director position was left vacant.
On November 10, 2014 the Company entered into an Independent Contractor Agreement with a third party, pursuant to which the Company issued 17,500,000 shares of common stock as an initial payment.
Subsequent to September 30, 2014 the Company issued an aggregate of 16,977,930,591 pre-split shares (42,444,826 post-split) shares of common stock upon conversion of debts in the amount of $ 822,099 .
The following resolution was duly adopted by the Board of Directors of the Company effective as of December 5, 2014: pursuant to authority conferred upon the Board of Directors by the Articles of Incorporation, as amended, of the Company, which authorizes the issuance of up to twenty million (20,000,000) shares of preferred stock, par value $0.001 per share, and by the bylaws of the Company.
It was resolved that pursuant to authority expressly granted to and vested in the Board of Directors of the Company by the Company's Articles of Incorporation, the Board of Directors hereby creates a series of preferred stock, herein designated and authorized as the Series B Convertible Preferred Stock, par value $0.01 per share, which shall consist of Two Million Five Hundred Thousand (2,500,000) of the twenty million (20,000,000) shares of preferred stock which the Company now has authority to issue, and the Board of Directors hereby fixes the powers, designations and preferences and the relative, participating, optional and other special rights of the shares of each such class and series, and the qualifications, limitations and restrictions thereof . . The Series B Convertible Preferred Stock shall be entitled to vote on all matters submitted to for a vote to holder of Common stock as if they held five hundred shares of Common stock for each share of Series B Preferred stock. The conversion price of the Series B Convertible Preferred Stock is $0.10 per share.
On December 3, 2014 the Company issued an aggregate of 770,000 shares of common stock to various individuals as compensation for services rendered. This payment was for the first two quarters. Subsequently this program was terminated.
43
Table of Contents
On December 8, 2014, the Company entered into a purchase agreement with Studioplex City, LLC, (SC) a Georgia based limited liability company and Jake Shapiro (Shapiro), the owner of all membership interests of SC. Pursuant to this agreement, the Company paid Shapiro $2.5 Million in the form of 2,500,000 Series B convertible preferred shares, which were issued to him on December 12, 2014. In return, the Company received 100% of the membership interests of SC.
As part of the purchase agreement The Company has formed Studioplex City Acquisition Corp., as a wholly owned subsidiary of the Company. The closing shall take place through this subsidiary.
As a result of this transaction Shapiro directly owns 67% of the voting securities of the Company, causing a change of control of the Registrant.
On December 8, 2014 the Company elected Shapiro as a director and Chairman of the Board of Directors of the Company. Mr. Shapiro was formerly a director of Medient Studios, Inc. (now Moon River Studios, Inc.)
On February 8, 2014, the Company completed a 400:1 reverse stock split.
On February 10, 2015, the Company acquired the lease of a 1,560 acre property located in Effingham County, Georgia from Moon River. The purchase price was $10,000,000 and 10,000,000 post-split shares (4,000,000,000 pre-split shares) of FONU2 common stock. Terms of the purchase agreement require that the FONU2 shares be registered and distributed to all Moon River shareholders as of record date February 10, 2015. In addition to the lease, the Company has acquired certain intellectual property and trademarks associated with the project. The property has an independently appraised value in excess of $22,000,000. Included under terms of the original lease, Memorandum of Understanding and supplemental agreement (i) the Company is responsible for an agreed amount of job creation and capital investment in the property, (ii) All property taxes for the property have been waived for the term of the lease, (iii) the property may be purchased at any time with no prepayment penalties, (iv) at the end of the lease, the property may be purchased for $100. FONU2 has assumed the $10,000,000 note secured by the property. The note has an interest rate of zero percent with a 20 year term.
On February 12, 2014 300,000 post-split (120,000,000 pre-split) shares were issued to Roger Miguel and 73,500 post-split (24,900,000 pre-split) shares were issued to an unrelated third party as a performance bonus.
On February 12, 2015, the Company acquired the worldwide distribution rights for the movie Yellow. Under terms of the agreement, FONU2 will receive, in addition to a profit share, a 10% (ten percent) distribution fee, and a 20% (twenty percent) return on all funds expended associated with the acquisition of the rights, print and advertising, marketing, and other expenses associated with the release of the movie. As consideration, FONU2 has committed to provide these costs and fees, along with the assumption of $540,000 of costs associated with the movie.
44
Table of Contents
On February 15, 2015, the Company issued 4,300,000 post split (1,720,000,000 pre-split) common shares to Dr. Yusuf Hameed upon his conversion of his three outstanding convertible notes. These notes consist of an $90,000 convertible note with an 8% per annum interest dated 9/5/2014, a $50,000 convertible note with an 8% per annum interest rate dated 12/22/2014, and a $20,000 convertible note with an 8% per annum interest rate dated 12/31/2014. These notes were settled at a conversion price of $0.04 per share, resulting in the issuance of 4,000,000 post-split (1,600,000,000) common shares. An additional 300,000 post-split (120,000,000 pre-split) shares were issued as a negotiated settlement for the interest due on the notes. Dr. Hameed has agreed a 12 month voluntary lockup provision on these shares.
On February 18, 2015, the Company issued 7,083,333 post-split (2,833,333,200 pre-split) common shares to Penny Marshall in payment of the equity portion of her directors fee re the movie Effa , which totaled $425,000. The shares were issued at a price of $0.06 per share.
On February 18, 2015, the Company issued 1,250,000 post-split (500,000,000 pre-split) common shares to Michael Mann in payment of the equity portion of his management fee re the movie Effa , which totaled $75,000. The shares were issued at a price of $0.06 per share.
On February 27, 2015, the Company entered into a Rights Acquisition and Investment Agreement with Eagle Productions, LLC with a view toward the Company investing in, co-producing and exploiting the motion picture currently titled Effa to be produced by Eagle Productions. Under this agreement, the Company will acquire the worldwide distribution rights and will invest in the movie. The Company will be the sole and exclusive beneficiary of the worldwide exploitation rights of the picture for all purposes, in perpetuity. The Company will advance a portion of the budget of the picture, consisting of $10,000,000 in restricted common shares at a value of $0.06 per share. The Company agrees to file a Registration statement for these shares.
Once the Company has recouped its advance in full, the Company and Eagle Productions will share in the net profits of the film, with the Company to receive 99% and Eagle Productions to receive 1%. All fees and costs of the Company are to be included in and payable from the budget of the picture. The Company is not liable for any loss should the transaction not proceed for any reason. However, the Company will bear the loss (if any) arising from the initial payment of $75,000 in regards to the director services of Penny Marshall, the issuance of stock (7,083,333 post-split shares) in the value of $425,000 for the services of the director, the initial payment of $75,000 to Wendi Laski under the terms of her producing agreement, and the initial payment of $8,000 made to the writers of the screenplay.
45
Table of Contents
On February 27, 2015, the Company issued 166,666,667 post-split (66,666,666,800 pre-split) common shares at $0.06 per common share to Eagle Productions (which was originally formed by Jake Shapiro) to acquire the worldwide distribution rights for the film Effa , as described above. Film Producer Wendi Laski has been appointed the managing director of Eagle Productions LLC.
On March 1, 2015, the Company sold ownership of Zaldiva Comics and Collectibles to Ms. Nicole Leigh, a former director of the Company, for $100 and the settlement of a $10,000 debt. The assets sold consist of Zaldiva.com, Zaldiva.com Comics & Collectibles, Zaldiva Comics & Collectibles, and all of Zaldivas inventory and intellectual property. The company was not profitable and was deemed by Management to no longer be a strategic fit for the Company.
On March 1, 2015, Nicole Leigh resigned as a director.
On March 1, 2015, the Company elected Joseph Giamichael as a director. Mr. Giamichael will be the chairman of the audit committee. Mr. Giamichael was formerly a director of Medient Studios, Inc. (now Moon River Studios, Inc.). Other than his experience in serving as a director of Medient, there have been no transactions between Mr. Giamichael and any related party, nor any material plans, contracts, or arrangements to which Mr. Giamichael is a party.
On March 1, 2015, the Company appointed Graham Bradstreet, as Chief Financial Officer. His position will last for one year, and is renewable at the yearly shareholder meeting.
On March 1, 2015, the Company approved the change of its offices to 135 Goshen Rd. Ext., Suite 205, Rincon, GA 31326, with a monthly rent of $2,730.
On March 9, 2015 the Company engaged EquityGroups to conduct an investor campaign to increase the Companys public awareness. The Company has agreed to pay $2,500 per month for the first three months increasing to $3,500 per month thereafter. The consultant may also earn up to 1M of common shares. From time to time, the Company intends to hire a variety of companies to increase public awareness.
On March 10, 2015 the Company announced that Ms. Alice P. Neuhauser has been appointed as Chief Operating Officer of the Company.
On March 26, 2015 the Board resolved that the Company issue 1,250,000 shares of unregistered and restricted common shares to Alex Warner in exchange for $50,000 of services.
46
Table of Contents
On March 31, 2015 the Company announced that it had signed definitive agreements to acquire the assets of Applebox Productions. The acquisition is structured as an asset purchase consisting of lights, cameras, grip equipment, electrics, production vehicles, etc. The purchase price of One Million Dollars ($1,000,000) is being financed by a combination of traditional equipment loans and seller financing. The seller-financing note is both corporately guaranteed and personally guaranteed by Mr. Jake Shapiro, Chairman of the Board of the Company. Closing is expected to take place by mid May, 2015
In the period to March 31, 2015 the Company issued a Long Term Note in the amount of $78,000. The Note matures 36 months after issue.
Subsequent to September 30, 2014, the Company issued $1,154,879 of Convertible Notes. The Convertible Notes have interest rates of between 8% and 12% and mature one year from the date of issue. The Convertible Notes are convertible between no days and 180 days. The discount on conversion ranges from 45% to 50% based on various share prices averaged over a number of days prior to the date of conversion or the date of notice of conversion.
12 .
EMPLOYEE BENEFIT PLANS
During the years ended September 30, 2014 and 2013, there were no qualified or non-qualified employee pension, profit sharing, stock option, or other plans authorized for any class of employees.
47
Table of Contents
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On December 12, 2014 the Company discontinued audit services with Malone Bailey, LLP, (MB) its independent registered public accounting firm, and appointed The Hall Group CPAs as its independent registered public accounting firm.
During the term of engagement of MB there were no disagreements on any matter of accounting principles or practices, financial statement disclosure, or auditing scope and procedure which, if not resolved to the satisfaction of MB, would have caused MB to make reference to the subject matter of the disagreement(s) in connection with any report.
On March 6, 2015, the registrant dismissed The Hall Group, CPAs as their registered independent public accountant. On March 6, 2015, the registrant engaged MaloneBailey, LLP as its new registered independent public accountant. MaloneBailey has previously served as the Companys independent public accountants.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures:
Based on our evaluation as of the end of the period covered by this Annual Report, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures as of the end of the period covered by this Annual Report were not effective such that the information required to be disclosed by the Company in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding disclosure. This material deficiency is due to a lack of adequate internal controls and the lack of an audit committee.
Managements Annual Report on Internal Control over Financial Reporting:
The Companys management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). The Companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States.
48
Table of Contents
The Companys management, with the participation of the principal executive officer and the principal financial officer, evaluated the effectiveness of the Companys internal control over financial reporting as of September 30, 2014. In making this assessment, the Companys management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control Integrated Framework. Based on this evaluation, our management, with the participation of the principal executive officer and principal financial officer, concluded that, as of September 30, 2014, o ur internal control over financial reporting was not effective, due primarily to lack of adequate internal controls and the lack of an audit committee. The most significant material weaknesses that led management to this conclusion are the lack of segregation of duties, and failure in the operation of controls over stock based compensation and derivative liabilities.
This Annual Report does not include an attestation report of the Companys registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by the Companys registered public accounting firm pursuant to rules of the Commission that permit the Company to provide only managements report in this Annual Report.
Evaluation of Changes in Internal Control over Financial Reporting:
There have been no changes in internal control over financial reporting during the fourth quarter of the fiscal year covered by this Annual Report that have materially affected, or are reasonably likely to materially affect, the Registrants internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
The Company is delinquent in meeting its payroll tax obligations and is working to correct this as soon as possible.
49
Table of Contents
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Identification of Directors and Executive Officers
The following table sets forth the names of all current directors and executive officers of the Company. These persons will serve until the next annual meeting of the stockholders or until their successors are elected or appointed and qualified, or their prior resignation or termination.
* These persons presently serve in the capacities indicated.
50
Table of Contents
Business Experience
Robert B. Lees. Mr. Lees, age 66, is a graduate of the U.S. Naval Academy. He served as an Officer in the Marine Corps, both overseas and domestically. After transferring to the active Reserves, he joined the DuPont Company, where he managed the Southeastern Region. He took the region from last to first in the acrylic sheet division for sales and service. He then became part owner and general manager of a wood laminating operation in Orlando, Florida. Upon the sale of the business, he joined Merrill Lynch in the Private Client Group and became an assistant Vice President. He has since consulted to a Florida-based investor relations firm, and served as President and Chief Operating Officer of two start-up companies, as well as his current position.
Ms. Leigh is 42 years of age. She is a 1989 graduate of Washington High School in Phoenix, Arizona. For the past six years, she has been significantly involved in the Companys operations, including web site design and maintenance, inventory and shipping, online sales fulfillment and general operations.
On October 1, 2014, Robert B. Lees, Nicole Leigh and Roger Miguel, acting as the sole directors of FONU2 resolved to accept the resignation of Mr. Lees as the Companys President and Chief Executive Officer and to appoint Mr. Miguel to serve in such capacities. Mr. Lees will continue to serve as the Chief Financial Officer and as a director of the Company.
On October 3, 2014, Robert B. Lees resigned as a director and as the Chief Financial Officer of FONU2 for personal reasons. On the same date, the Companys Board of Directors unanimously resolved to appoint Roger Miguel, the Companys Chief Executive Officer and one of its two remaining directors, to serve as interim Chief Financial Officer.
Mr. Miguel is 59 years old. Mr. Miguel graduated from The University of Toronto in 1979 with an Honors BA in Commerce and Economics and has over 30 years experience in the Information Technology Industry. He currently is serving as Chief Operating Officer at the Companys wholly-owned subsidiary, FONU2 CCN, Inc. which includes responsibility for all corporate and administrative functions, sales, marketing, contract negotiations and strategic partnerships. Previously Roger held Senior Management Positions with some of the worlds largest Computer Services Outsourcing Companies (EDS/HP, Computer Sciences Corp, Xerox Business Services). He managed application services outsourcing across wide variety of industries and provided large account management with major clients such as General Motors, Sears and the Government of Ontario, Canada. Served as Regional Applications Services Manager for CSC in the U.S. Midwest region, Application Service Center Director (900 FTEs) for South East US, and Services Director of Global Process Management for the Americas and the Zurich
51
Table of Contents
Financial Services global account. Successfully managed all aspects of the business including participating in several successful CMMI Level 3, ISO 9K, ISO 20K certifications, large program and product management, business process re-engineering, and business process outsourcing.
There are no family relationships between Mr. Miguel and any other director, executive officer or person nominated or chosen by the Company to become a director or executive officer.
Mr. Jake Shapiro is 43 years old. Mr. Shapiro has served as a founder or co-founder of several technology and commercial product companies and has helped structure and/or finance companies in Asia, South America, Australia, Western Europe, Eastern Europe, and North America. Shapiro is also a former Principal and Vice President from M.H. Meyerson & Company, where he served as a Senior Equities Trader, servicing clients such as Goldman Sachs, Lehman Brothers, and Deutsche Bank. Mr. Shapiro currently serves as the Companys Chairman of the Board. There are no family relationships between Mr. Shapiro and any other director, executive officer or person nominated or chosen by the Company to become a director or executive officer. Mr. Shapiro was formerly an officer of Medient Studios, Inc. (now Moon River Studios, Inc.)
Mr. Joseph Giamichael is 43 years old. Mr. Giamichael is the founder and Chief Executive Officer of Umbrella Research and Advisory, an emerging growth research and advisory financial services boutique. He has extensive capital markets experience, including over a decade as a publishing analyst and several years as a trader with an emphasis on special situations, as well as having served as an advisor to a middle markets-oriented private equity firm. Mr. Giamichael earned his Bachelor of Science degree from Skidmore College and was previously employed by Global Hunter Securities LLC, Rodman and Renshaw LLC, CJS Securities LLC, and Knight Capital Group. Mr. Giamichael currently serves as the Companys Chairman of the Audit Committee. There are no family relationships between Mr. Giamichael and any other director, executive officer or person nominated or chosen by the Company to become a director or executive officer. Mr. Giamichael was formerly an officer of Medient Studios, Inc. (now Moon River Studios, Inc.)
Alice Neuhauser, age 53, has been a manager of New Beginning Enterprises, LLC from 1999 through today. She has been the responsible officer for the Kushner-Locke Company and has been the manager of its successor entity, Kushner Locke, LLC, from 2002 through today. She worked in SVP film operations with Relativity Media from 2006 through 2014. In addition, she has provided consulting work for Zen Media and Lloyd Ivan Miller Productions.
Ms. Neuhauser received an MBA from the Anderson School at UCLA in 1994. She received her BA at Harvard College in 1984.
On March 1, 2015, the Company appointed Graham Bradstreet, age 62, as Chief Financial Officer. His position will last for one year, and is renewable at the yearly shareholder meeting. There is no family relationship between Mr. Bradstreet and any other member of the Company, nor any material plans, contracts, or arrangements to which Mr. Bradstreet is a party. From 2000 through today, Mr. Bradstreet has worked as a consultant to various entities and was the executive producer for the movies Carmen and 360 . From August 2012 through February 27, 2015, he worked as a financial consultant for Medient. From 1997 through 2001, he was the founder and director of ICE Media, which managed insurance-backed film financing. Mr. Bradstreet qualified as a chartered accountant in New Zealand in 1974. Mr. Bradstreet was formerly an officer of Medient Studios, Inc. (now Moon River Studios, Inc.)
52
Table of Contents
Significant Employees
Other than Jeffrey Pollitt, who is responsible for the development of our prepaid card service program, FONU2 has no significant employees who are not executive officers. Jeffrey Pollitt is no longer with the Company, he apparently resigned without notice in July 2014 and the Company has been unable to contact him since.
Family Relationships
None; not applicable.
Directorships
None of the Companys directors holds a directorship in any other company with a class of securities registered pursuant to Section12 of the Exchange Act or subject to the requirements of Section 15(d) of such Act or any company registered as an investment company under the Investment Company Act of 1940.
Involvement in Certain Legal Proceedings
During the past ten years, no director, promoter or control person:
·
has filed a petition under federal bankruptcy laws or any state insolvency laws, nor had a receiver, fiscal agent or similar officer appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
·
was convicted in a criminal proceeding or named subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
·
was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him or her from or otherwise limiting the following activities:
-
Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
53
Table of Contents
-
Engaging in any type of business practice; or
-
Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;
-
was the subject of any order, judgment or decree, not subsequently reverse, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in the preceding bullet point, or to be associated with persons engaged in any such activity;
-
was found by a court of competent jurisdiction in a civil action or by the SEC to have violated any Federal or State securities law, and the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated;
-
was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
-
was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:
-
any Federal or State securities or commodities law or regulation; or
-
any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or
-
any law or regulation prohibiting mail or wire fraud in connection with any business activity; or
-
was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, or any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act, or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
54
Table of Contents
Promoters and control person.
Not applicable.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on a review of Forms 3, 4 and 5, and amendment thereto, filed during the most recently completed fiscal year, and since then, the Company has determined that the following persons failed to file the following Section 16(a) forms on a timely basis:
Jeffrey M. Pollitt, Form 4 re disposition of 15,000,000 shares of common stock on February 27, 2013.
Robert B. Lees, Form 5 re various transactions during the 2013 fiscal year.
Nicole Leigh, Form 5 re various transactions during the 2013 fiscal year.
J & S Funding Group, LLC, Form 3 re acquisition of a number of shares of common stock triggering the Form 3 filing requirement on November 19, 2013.
Jeffrey M. Pollitt, Form 4 re various transactions beginning on July 3, 2013.
J & S Funding Group re various transactions during the 2014 fiscal year.
Code of Ethics
The Company adopted a Code of Ethics that was filed as Exhibit 14 to our Annual Report on Form 10-KSB-A1 for the year ended September 30, 2012. The Company undertakes to provide to any person, without charge, upon request, a copy of such Code of Ethics. Requests may be made by contacting the Company at 954-938-4133.
Corporate Governance
Nominating Committee
During the annual period ended September 30, 2014, there were no changes in the procedures by which security holders may recommend nominees to FONU2s Board of Directors, and FONU2 does not presently have a Nominating Committee for members of its Board of Directors. Nominations are considered by the entire Board.
Committees of the Board of Directors
FONU2 is managed under the direction of its Board of Directors.
55
Table of Contents
Compensation Committee
The members of the Board of Directors serve as its compensation committee, with the serving Chairman as Chairman of the committee.
Audit Committee
The members of the Board of Directors serve as its audit committee, with Mr. Miguel serving as its chairman.
Previous "Blank Check" or "Shell" Company Involvement
Management of FONU2 has not been involved in prior private "blank-check" or "shell" companies.
Annual Meeting
The annual meeting of FONU2 stockholders is expected to be held at a future date as soon as practicable. This will be an annual meeting of stockholders for the election of directors. The annual meeting will be held at FONU2s principal office or at such other place as permitted by the laws of the State of Nevada and on such date as may be fixed from time to time by resolution of FONU2s Board of Directors.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to officers and Board of Directors members during the fiscal years ended September 30, 2014 and 2013. The table sets forth this information for salary, bonus, and certain other compensation to the Board of Directors members and named executive officers for the past three fiscal years and includes all Board of Directors members and officers as of September 30, 2014.
56
Table of Contents
SUMMARY COMPENSATION TABLE
302 CERTIFICATION
I, Roger Miguel, certify that:
1. I have reviewed this annual report on Form 10-K of FONU2 Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures, to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 13, 2015
/s/Roger Miguel
Roger Miguel
Chief Executive Officer
302 CERTIFICATION
I, Graham Bradstreet, certify that:
1. I have reviewed this annual report on Form 10-K of FONU2 Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures, to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 13, 2015
/s/Graham Bradstreet
Graham Bradstreet
Chief Financial Officer