UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended June 30, 2002.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from __________________ to _____________
Commission file number: 0-31949
Innofone.com Incorporated
-------------------------------
(Name of Small Business Issuer)
Nevada 98-0202313
--------------------------------------------- ----------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
130 Centennial Parkway North, Hamilton, Ontario, Canada L8E 1H9
------------------------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (905) 560-9547
Securities registered under Section 12(b) of the Exchange Act: None
----
Securities registered under Section 12(g) of the Exchange Act:
Common Shares, $ .001 par value
-------------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The issuer had no revenues for the year ended June 30, 2002.
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 28, 2002, based on the closing trading price of the day of
$0.018 for the issuer's Common Shares, $0.001 par value (the "Common Shares")
was $1,800,405.09.
The number of shares outstanding of the issuer's common equity, as of June 30,
2002, was 100,022,505.
Transitional Small Business Disclosure Format (Check one): Yes No X
----- -----
(begin boldface)
Certain statements in this Annual Report on Form 10-KSB, or the Report, are
"forward-looking statements." These forward-looking statements include, but are
not limited to, statements about the plans, objectives, expectations and
intentions of CompuBec Micro Distribution Inc, a subsidiary corporation
(referred to in this Report as "we," "us" or "our,") and other statements
contained in this Report that are not historical facts. Forward-looking
statements in this Report or hereafter included in other publicly available
documents filed with the Securities and Exchange Commission, or the SEC, reports
to our shareholders and other publicly available statements issued or released
by us involve known and unknown risks, uncertainties and other factors which
could cause our actual results, performance (financial or operating) or
achievements to differ from the future results, performance (financial or
operating) or achievements expressed or implied by such forward-looking
statements. Such future results are based upon management's best estimates based
upon current conditions and the most recent results of operations. When used in
this Report, the words "expect," "anticipate," "intend," "plan," "believe,"
"seek," "estimate" and similar expressions are generally intended to identify
forward-looking statements. Because these forward-looking statements involve
risks and uncertainties, there are important factors that could cause actual
results to differ materially from those expressed or implied by these
forward-looking statements, including our plans, objectives, expectations and
intentions and other factors discussed under "Risk Factors."
(end boldface)
PART I
Item 1. Description of Business.
------------------------
Innofone.com, Incorporated ("The Company") operates as a holding company for
companies that are involved in the procurement, refurbishing and remarketing of
used electronic equipment with a focus on used computer equipment. Innofone is
actively seeking new investment opportunities in creating and or acquiring
assets involved in this niche market.Innofone currently has 2 employees on
staff.
The company has one new operating subsidiary, CompuBec Micro Distribution
Inc.("Compubec"), which was incorporated in August, 2002. As previously
reported, our ex-sole operating subsidiary, Digital Micro Distribution Canada
Inc., has been sold to Qvest Management Group effective June 11th, 2002.
Compubec, Innofone.com Inc's sole subsidiary, plans to specialize in the
disassembly and international distribution of used/refurbished, end of line new
personal computers, servers, peripherals and components. Compubec's core
business will act as a clearing house and distribution center for the hundreds
of thousands of used off-lease computers, monitors and printers that are surplus
to major Corporations on an annual basis. The ability of Compubec to execute its
business plan is dependent upon raising capital to fund its startup and
operational needs.
Please see Item 6, "Management's Discussion and Analysis or Plan of Operation,"
for more information.
Item 2. Description of Property.
------------------------
The Company does not own any real estate. The Company currently leases
approximately 1000 square feet of office space, which houses our executive
offices, at 130 Centennial Pkwy N, Hamilton, Ontario.
Item 3. Legal Proceedings.
------------------
The Company does not currently have any pending legal proceedings.
Innofone has settled the lawsuit by Global Financial Press, Inc. by paying the
$12,500 as per the settlement agreement. The United States Bankruptcy Court of
Pennsylvania has discharged the suit.
2
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
Not Applicable.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
---------------------------------------------------------
The Company's common stock is currently traded on the National Association of
Securities Dealers Over the Counter Bulletin Board ("OTC Bulletin Board"). The
common stock had previously traded on the OTC Bulletin Board and was delisted on
September 1, 1999. From September 1, 1999 until the Company's re-listing on the
OTC Bulletin Board on March 27, 2001, its common stock traded in the
over-the-counter market in the United States.
The closing price of The Company's common stock on the OTC Bulletin Board on
September 30, 2002 was $0.006 per share.
The price ranges of trading in The Company's common stock during the last two
fiscal years and the subsequent interim period are as follows:
2000 High Low
---- ---- ---
7/1/00 - 9/30/00 (delisted) .703 .250
10/1/00 - 12/31/00 (delisted) .516 .156
2001
----
1/1/01 - 3/31/01 (delisted) .344 .047
4/1/01 - 6/30/01 .1 .012
7/1/01 - 9/30/01 .14 .012
10/1/01 - 12/31/01 .12 .015
2002
----
1/1/02 - 3/31/02 .08 .015
4/1/02 - 6/30/02 .06 .011
7/1/02 - 9/30/02 .05 .006
Please note that quotations on the OTC Bulletin Board represent inter-dealer
prices, without mark-ups, commissions, etc., and they may not necessarily be
indicative of actual sales prices.
(b) As of June 30, 2002, we had 95 shareholders of record.
(c) We have not paid any cash dividends to date.
(d) COMPENSATORY STOCK OPTION PLAN
The Company has also adopted the 1997 Compensatory Stock Option Plan for
officers, employees, directors and advisors. We have reserved a maximum of
1,500,000 shares of common stock to be issued upon the exercise of options
granted under the stock option plan. The plan provides for the issuance of
non-statutory stock options for shares of common stock. The stock options issued
under this plan are not intended to qualify as "incentive stock options" within
the meaning of Section 422 of the Internal Revenue Code. Options covering
1,205,000 shares of common stock have been granted under the plan. During the
3
year, 475,000 options were exercised and 570,000 options expired. The Company's
stock option plan will automatically terminate on January 7, 2007, unless we
terminate it sooner. In addition, we may amend, alter or discontinue the plan at
any time provided it does not adversely affect any option previously granted
under the plan.
The compensation committee, or in the absence of such a committee the board of
directors, administers the stock option plan and has full power and authority to
designate plan participants and determine the provisions and terms of options
granted under the plan, including the exercise price and vesting provisions, in
accordance with the terms of the plan. Under the plan, the exercise price of
each stock option shall be not less than 100% of the fair market value of the
common stock on the date of the grant. In addition, no option shall have a term
of more than ten years from the date of the grant.
Item 6. Management's Discussion and Analysis or Plan of Operation.
----------------------------------------------------------
FORWARD-LOOKING STATEMENTS
--------------------------
The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the Consolidated Financial
Statements and Notes thereto for the year ended June 30, 2001 included elsewhere
in this Report. This Annual Report on Form 10-KSB includes forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934. Words such as "may," "plans," "expects," "anticipates," "approximates,"
"believes," "estimates," "intends," "hopes," "potential," or "continue", and
variations of such words and similar expressions are intended to identify such
forward-looking statements. The Company intends such forward-looking statements,
all of which are qualified by this statement, to be covered by the safe harbor
provisions for forward-looking statements contained in the Private Litigation
Securities Reform Act of 1995 and is including this statement for purposes of
complying with these safe harbor provisions. The Company has based these
statements on its current expectations and projections about future events.
These forward-looking statements are not guarantees of future performance and
are subject to risks and uncertainties that could cause actual results to differ
materially from those projected in these statements. Forward-looking statements
include but are not limited to:
o The Company's expectations regarding the amount of our receivable from
Innofone Canada that we expect to recover;
and
o The Company's ability to raise the financing and gain government
approval of the Compubec project.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's views only as of the date hereof. The
Company is not obligated to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of the risks, uncertainties and assumptions to which the Company and
such forward-looking statements are subject, the forward-looking events
discussed in this Annual Report on Form 10-KSB might not occur.
The Company currently does not have sufficient funds with which to sustain its
operations. It is still negotiating with ePhone and the noteholder to convert
their notes to common stock and the company is still waiting to see whether or
not it will receive a dividend from the bankruptcy of its previously owned
subsidiary, Innofone Canada.
The company changed its authorized share capital from 100,000,000 shares to
950,000,000 common shares. This was done in accordance to the companies by-laws
as disclosed in it's latest 8-K dated August 12, 2002.
The Company is currently reviewing and implementing new disclosure controls and
procedures to ensure that they fully comply with the new Securities Exchange Act
Rules 13a-15 and 15d-15.
(a) Plan of Operations
The company is in discussions with an investor to raise $1,500,000 US in
exchange for a convertible note and/or common shares. $1,000,000 CAD of these
4
funds will be loaned to the Company's operating subsidiary Compubec. Compbec has
been having negotiations with the government of the province of Quebec to obtain
loans and grants totaling $5,000,000CDN. The portion of grants and loans is yet
to be determined. The Company is also negotiating a wages subsidy and tax free
operations for a period of five and ten years respectively. The company would
move its head office to Quebec and would build a 40,000 to 50,000 square foot
warehouse from which it would run its operations.
The company projects that the building would cost $800,000 and will be
operational within 3 months of relocating to Quebec. Assuming the company can
raise the initial $1,500,000US and Compubec can successfully negotiate the
Quebec government grants and loans, the Company expects to have approximately
$6,000,000 CAD in Startup capital to launch its new operations.
Compubec expects to hire up to seventy-five employees during the first year of
operations. The Company is currently negotiating training subsidies for up to
fifty percent of the labour costs of employees hired from the local area.
As reflected in Note 1 of the financial statements the Company currently has a
going concern issue as there are insufficient assets or prospective cash flows
to fund its liabilities. While the Company is hopeful that the capital and loan
requirements can be achieved, there can be no assurance that they will be and
consequently, it cannot be determined if the company will be able to meet its
current or future obligations.
The Company's CEO Janne Vilhunen is currently staying in Canada on a Work Visa
that expires in October of 2002. Due to the going concern of not having
sufficient operating funds, Mr. Vilhunen is planning to return to Finland at the
end of October 2002. Mr. Jamie Lobo has already assumed most of his functions.
(b) Results of Operations
As reflected in the company's statement of operations the company has recorded
no sales for the year and the comparative information has been deleted due to
the disposition of DMD Canada. The forgiveness of debt of $294,908 consists of
$284,470 owing to former directors of Innofone.com Inc. and the balance relates
to amounts which were owed to DMD Canada. The net gain on the sale of DMD Canada
represents the net book value of DMD Canada on its disposition in the amount of
$210,000 less the $67,000 value attributed to the shares issued for the
acquisition of DMD Canada effective October 15, 2001. The largest component of
the selling general and administrative expenses consist of a management fee in
the amount of $100,000 accrued for Musha Inc., a company controlled by Mr. Sumit
Majumdar the controlling shareholder of Innofone.com. The Compnay has not paid
any wages for the last fiscal year.
(c) Liquidity and Capital Resources
As previously mentioned, the company has a going concern issue as there are
insufficient assets or prospective cash flows to fund its liabilities. The
effect of this on the company being able to meet its current or future
obligations cannot be determined at this time.
Item 7. Financial Statements.
---------------------
The financial statements required by this Item 7 are included elsewhere in this
Report and incorporated herein by this reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure.
---------------------
There have been no changes in or disagreements with our accountants since the
formation of the Company required to be disclosed pursuant to Item 304 of
Regulation S-B.
5
The company was not in a financial position to pay the prior years auditor's
fees, and consequently, they refused to provide any further audit services. The
company retained the services of Danziger and Hochman chartered accountants to
perform the current years audit. There were no changes in or disagreements with
either the current or the prior years auditors relating to financial disclosure
issues. The change of auditors was reported in the 8-K dated August 12, 2002.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
------------------------------------------------------------------------
with Section 16(a) of the Exchange Act.
---------------------------------------
COMPLIANCE WITH SECTION 16(a)OF THE EXCHANGE ACT.
(a) Beneficial Ownership
Name Number of Shares Percentage of Ownership
Sumit Majumdar 67,000,000 67%
Director, Officer
Failure to File Late Filings
No 1
Janne Vilhunen Number of Shares Percentage of Ownership
Director, Officer 0 0
Failure to File Late Filings
No 0
Jamie Lobo Number of Shares Percentage of Ownership
Director, Officer 0 0
Failure to File Late Filings
No 0
None of the above officers and directors sold any common stock and therefore
were not required to file forms relating to the sale of their stock.
The following table sets forth the current names and ages of the directors of
the Company:
Name Age Position Term Period Served
---- --- -------- ---- ------------
Sumit Majumdar 26 Chairman Annual Oct 01 to current
Janne Vilhunen 31 Director Annual Oct 01 to current
Jamie Lobo 28 Director Annual Sept 02 to current
6
The following table sets forth the names and ages of the Company's current
executive officers:
Name Age Position/Office Period served
---- --- --------------- -------------
Sumit Majumdar 26 President Oct 01 to current
Janne Vilhunen 31 CEO Oct 01 to current
Jamie Lobo 28 COO Sept 02 to current
Sumit Majumdar: Mr. Majumdar, the President and director of Innofone since
--------------
October 2001, has extensive experience in the used and refurbished computer
distribution industry. He is a board level technician and is fully trained for
assembly of PC's, software installation, network configuration and Internet
connectivity. He has extensive experience in working with Java, C++, Oracle
8.01, MS Access, HTML and XML. In July 1997 he started a wholesale division for
Burloak Systems Inc., a computer retailer., Mr. Majumdar was the President of
Digital Micro Distribution Canada Inc., which is the former subsidiary of the
Company from July 1998 to July 2002.
Janne Vilhunen: Mr. Vilhunen has been the CEO and director of Innofone.com Inc.
--------------
since October 2001. Mr. Vilhunen also was the General Manager of Digital Micro
Distribution Canada, Inc., the former subsidiary of Innofone, from August 2001
until July of 2002. Prior to joining Innofone, Mr. Vilhunen worked for Bloomberg
L.P. in Princeton, New Jersey, for a year and a half as a research assistant and
equity analyst. He received his BBA in May 1997 from Lander University in
Greenwood SC. Mr. Vilhunen earned an MBA in corporate finance and international
business from the School of Management at SUNY Buffalo in May of 1999. During
the summer of 1998 Mr. Vilhunen worked as a business development intern for
Outokumpu American Brass Inc., of Buffalo, New York.
Jamie Lobo: Mr. Lobo joined Innofone in September of 2002 as a Director. Jamie
----------
has extensive executive experience from the computer industry. He has held
significant Senior Sales Executive management roles with Bluechip Canada,
Serebral Consulting, Microforum, and CIT Group. Leveraging over 7 years of
business-to-business sales in the Finance, Enterprise Software, and IT
industries, Jamie is focused on creating strategic industry partnerships and new
direct opportunities within local markets. Under direct management as Consultant
and Business Manager for Serebral, and CIT Group, revenues increased 470% in
1999-2000 and 290% in 2001, respectively. Jamie graduated from York University,
where he received an Honors Bachelor Degree, with specialization in Macro
Economics and Business. Jamie also has numerous sales & negotiation
certifications, coupled with a project management designation from Ryerson
University.
Item 10. Executive Compensation.
-----------------------
COMPENSATION OF OFFICERS.
The Officers have not received any compensation during the last fiscal year and
will not receive compensation until the Company is in a position to award
compensation. The company has not made any arrangements to negotiate any fees at
this time.
COMPENSATION OF DIRECTORS.
There has not been any compensation paid to the directors of the company.
7
Item 11. Security Ownership of Certain Beneficial Owners and Management.
---------------------------------------------------------------
(a) Security ownership of certain beneficial owners.
(1) (2) (3) (4)
Name and Amount and
Title of Class Address of Beneficial Owner Nature of Beneficial Owner Percent of Class
Sumit Majumdar
130 Centennial Pkwy N
Hamilton, Ontario 67,000,000
Common shares L8E 1H9, Canada Direct 67 %
(b) Security ownership of management.
(1) (2) (3) (4)
Title of Class Name and Amount and Percent of Class
Address of Beneficial Owner Nature of Beneficial Owner
Common shares 67 %
Sumit Majumdar 67,000,000
130 Centennial Pkwy N
Hamilton, Ontario
L8E 1H9, Canada
-- Janne Vilhunen 0 NIL
-- Jamie Lobo 0 NIL
Item 12. Certain Relationships and Related Transactions.
-----------------------------------------------
An accrued management fee of $100,000 USD has been attributed to Musha LLC, a
company controlled by Sumit Majumdar. This fee is in exchange for management
services. The total fee was agreed to by the former officers and directors and
was disclosed in the Reorginization agreement in September 2001. No fees have
been paid to date.
8
PART IV
Item 13. Exhibits and Reports on Form 8-K.
---------------------------------
a) Exhibit Index
Exhibit No. Description
----------- -----------------------------------------------------------------
3.1# Certificate of Incorporation of the Registrant and all amendments
thereto (originally filed as Exhibit 2.1)
3.2* Bylaws of the Registrant, as currently in effect (originally
filed as Exhibit 3.01(i))
3.3# Specimen Common Stock Certificate (originally filed as Exhibit
3.1)
10.1+ Agreement and Plan of Reorganization by and among the Company,
Digital Micro Distribution Canada, Inc. and Sumit Majumdar dated
August 31, 2001
10.2* 1997 Compensatory Stock Option Plan (originally filed as Exhibit
10.04)
10.3* 1997 Employee Stock Option Plan (originally filed as Exhibit
10.05)
# Filed as an exhibit to the Company's Registration Statement on Form 10-SB, as
amended, file no. 0-31949, originally filed on November 14, 2000.
* Incorporated by reference from the Company's registration statement on Form
SB-2, as amended, file no. 333-94497, originally filed January 12, 2001.
+ Incorporated by Reference from the Company's Current Report on Form 8-K, file
no. 0-31949, filed on September 25, 2001.
b) There were no Forms 8-K's filed during the last quarter of the Fiscal Year
April 1, 2002 to June 30th 2002.
DOCUMENTS INCORPORATED BY REFERENCE
The Company is currently subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the SEC.
Such reports, proxy statements and other information may be inspected and copied
at the public reference facilities of the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Washington D.C. 20549; at its New York Regional Office, 233
Broadway, New York, NY 10279; and at its Chicago Regional Office, 175 W. Jackson
9
Boulevard, Suite 900, Chicago, IL 60604, and copies of such materials can be
obtained from the Public Reference Section of the SEC at its principal office in
Washington, D.C., at prescribed rates. In addition, such materials may be
accessed electronically at the Commission's site on the World Wide Web, located
at http://www.sec.gov. We intend to furnish our shareholders with annual reports
containing audited financial statements and such other periodic reports as we
may determine to be appropriate or as may be required by law.
10
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INNOFONE.COM INCORPORATED
Dated: October 10, 2002 By: /s/ Sumit Majumdar
---------------------
Sumit Majumdar
President and Director
11
INNOFONE.COM, INCORPORATED
Financial Statements
(Stated in United States Dollars)
June 30, 2002
F-1
INNOFONE.COM, INCORPORATED
INDEX
June 30, 2002
PAGE
----
AUDITORS' REPORT F-3
FINANCIAL STATEMENTS
Balance Sheet - Statement I F-4
Statement of Shareholders' Deficiency and
Comprehensive Loss - Statement II F-5
Statement of Operations - Statement III F-6
Statement of Cash Flows - Statement IV F-7
NOTES TO FINANCIAL STATEMENTS F-8 - F-16
F-2
AUDITORS' REPORT
To the Board of Directors and Shareholders of:
INNOFONE.COM, INCORPORATED
We have audited the accompanying balance sheet of INNOFONE.COM, INCORPORATED as
---------------------------
at June 30, 2002 and the statements of shareholders' deficiency and
comprehensive loss, operations and cash flows for the year then ended. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at June 30, 2002 and the
results of its operations and its cash flows for the year then ended in
accordance with United States generally accepted accounting principles.
The company has a going concern problem as discussed in Note 1 and may not be
able to fund its liabilities.
North York, Ontario
September 24, 2002 Chartered Accountants
F-3
INNOFONE.COM, INCORPORATED Statement I
Balance Sheet
(Stated in United States Dollars)
As at June 30, 2002
=========================================================================================
2002 2001
-----------------------------------------------------------------------------------------
ASSETS
Current
Prepaid expenses and deposits $ - $ 225
-----------------------------------------------------------------------------------------
Capital Assets - 441
Investment in 908651 Alberta Ltd. 210,000 -
-----------------------------------------------------------------------------------------
$ 210,000 $ 666
=========================================================================================
LIABILITIES
Current
Bank indebtedness $ - $ 546
Accounts payable and accrued liabilities 212,572 232,510
Due to officers and directors (note 3) 104,000 284,470
Convertible debt (note 4) 500,000 1,116,000
Note payable (note 5) 150,000 150,000
-----------------------------------------------------------------------------------------
966,572 1,783,526
-----------------------------------------------------------------------------------------
SHAREHOLDERS' DEFICIENCY
CAPITAL STOCK (note 6)
Common shares 4,841,522 4,772,715
Preferred shares 1,250 1,250
Additional paid-in capital 7,719,593 7,098,052
-----------------------------------------------------------------------------------------
12,562,365 11,872,017
(DEFICIT) - Statement II (13,318,937) (13,654,877)
-----------------------------------------------------------------------------------------
(756,572) (1,782,860)
-----------------------------------------------------------------------------------------
$ 210,000 $ 666
=========================================================================================
ON BEHALF OF THE BOARD:
/s/
--------------------------------
{See accompanying notes.}
F-4
INNOFONE.COM, INCORPORATED Statement II
Statement of Shareholders' Deficiency and Comprehensive Loss
(Stated in United States Dollars)
For The Year Ended June 30, 2002
====================================================================================================================================
Accumulated
Additional other
Common Preferred paid-in comprehensive
shares shares capital Deficit income (loss) Total
------------------------------------------------------------------------------------------------------------------------------------
BALANCE, June 30, 2000 $ 4,702,250 $ 2,500 $ 4,818,938 $ (11,773,282) $ (6,235) $ (2,255,829)
Net loss
Other comprehensive income, net of tax: - - - (1,819,095) - (1,819,095)
Write-off of foreign current translation
adjustment on bankruptcy of Canadian
subsidiary - - - - 6,235 6,235
Issuance of stock for marketing services 30 - 5,970 - - 6,000
Convertible notes converted to stock 3,852 - 1,536,748 - - 1,540,600
Stock options exercised 430 - 65,570 - - 66,000
Compensatory value of stock options (note 7) - - 24,240 - - 24,240
Issuance of stock for legal services 1,403 - 197,584 - - 198,987
Issuance of stock by subscription agreement
net of share issue cost of $50,000 1,000 - 449,002 - - 450,002
Conversion of preferred stock,
including deemed distribution of $62,500 63,750 (1,250) - (62,500) - -
------------------------------------------------------------------------------------------------------------------------------------
BALANCE, June 30, 2001 4,772,715 1,250 7,098,052 (13,654,877) - (1,782,860)
Stock options exercised 475 (427) 48
Convertible notes converted to stock 520 415,480 416,000
Issuance of stock for Digital Micro
Distribution Canada Inc. 67,000 67,000
Issuance of stock for equipment 146 7,154 7,300
Convertible notes converted to stock 666 199,334 200,000
Net earnings 335,940 335,940
------------------------------------------------------------------------------------------------------------------------------------
BALANCE, June 30, 2002 $ 4,841,522 $ 1,250 $ 7,719,593 $ (13,318,937) $ - $ (756,572)
====================================================================================================================================
{See accompanying notes.}
F-5
INNOFONE.COM, INCORPORATED Statement III
Statement of Operations
(Stated in United States Dollars)
For The Year Ended June 30, 2002
============================================================================================
2002 2001
--------------------------------------------------------------------------------------------
(note 12)
SALES $ -
COST OF SALES -
--------------------------------------------------------------------------------------------
GROSS PROFIT -
--------------------------------------------------------------------------------------------
EXPENSES
Forgiveness of debt (294,908)
Net gain on sale of Digital Micro Distribution
Canada Incorporated (143,000)
Selling, general and administrative 101,968
--------------------------------------------------------------------------------------------
335,940
--------------------------------------------------------------------------------------------
NET INCOME FOR THE YEAR $ 335,940
============================================================================================
BASIC NET INCOME PER SHARE (note 9) $ NIL
============================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING $ 79,738,604
============================================================================================
{See accompanying notes.}
F-6
INNOFONE.COM, INCORPORATED Statement IV
Statement of Cash Flows
(Stated in United States Dollars)
For The Year Ended June 30, 2002
===========================================================================================
2002 2001
-------------------------------------------------------------------------------------------
(note 12)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) for year $ 335,940
Changes in non-cash working capital components
- Prepaid expenses and deposits 225
- Accounts payable and accrued liabilities (19,938)
-------------------------------------------------------------------------------------------
316,227
-------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Bank indebtedness (546)
Due to officers and directors (180,470)
Issuance of capital stock 690,348
Convertible debt (616,000)
-------------------------------------------------------------------------------------------
(106,668)
-------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Investment in 908651 Alberta Ltd. (210,000)
Capital assets 441
-------------------------------------------------------------------------------------------
(209,559)
EFFECT OF EXCHANGE RATE CHANGES ON CASH -
-------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH NIL
CASH, BEGINNING OF YEAR NIL
-------------------------------------------------------------------------------------------
CASH, END OF YEAR $ NIL
===========================================================================================
{See accompanying notes.}
F-7
INNOFONE.COM, INCORPORATED
Notes to Financial Statements
(Stated in United States Dollars)
June 30, 2002
================================================================================
Innofone.com, Incorporated (the "Company") is incorporated under the laws of the
State of Nevada. Effective October 15, 2001, the Company acquired Digital Micro
Distribution Canada Incorporated ("DMD Canada") which operates in Canada as a
reseller of used computer related products. DMD Canada, the Company's legal
subsidiary was sold pursuant to an agreement of purchase and sale dated June 11,
2002. The Company is currently working on a strategy to raise capital in order
to expand its business model of reselling used computer equipment
internationally.
1. BASIS OF PRESENTATION
---------------------
Going Concern Issue
-------------------
The company currently has a going concern issue as there are insufficient
assets or prospective cash flows to fund its liabilities. The effect of
this on the Company being able to meet is current or future obligations
cannot be determined.
Acquisition and Disposition of Digital Micro Distribution Inc.
--------------------------------------------------------------
On October 15, 2001, the directors of the Company approved a share exchange
takeover bid whereby; all of the common shares of Digital Micro
Distribution Canada Inc. ("DMD Canada") were acquired in exchange for
67,000,000 shares of its common stock. The exchanged shares would be
"restricted securities" as defined under Rule 144(A) under the Securities
Act of 1993, as amended. The result of this transaction is that the former
shareholder of DMD Canada would hold 67% of the outstanding common shares
of the Company.
Pursuant to an agreement dated June 11, 2002 between the Company and 908651
Alberta Ltd. operating as Qvest Management Group ("Qvest"), the Company
disposed of its interest in Digital Micro Distribution Canada Inc. in
exchange for 1,750,000 shares of Qvest. This investment represents
approximately a 13.5% interest in Qvest. Qvest has undertaken to amalgamate
with another public company by reverse takeover within 6 months upon
meeting the criteria for a qualifying transaction for a company with
approval from the TSX Venture Exchange. The value of the Company's
investment in Qvest has been recorded at the approximate book value of DMD
Canada as at the date of the transaction.
Bulletin Board Listing
----------------------
In January 2001, the Company completed a Registration Statement that has
been filed with the United States Securities and Exchange Commission in
order for the Company's shares to be eligible for trading in the United
States on the National Association of Securities Dealings over-the-counter
Bulletin Board.
F-8
INNOFONE.COM, INCORPORATED
Notes to Financial Statements
(Stated in United States Dollars)
June 30, 2002
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2. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
These financial statements have been prepared by management in accordance
with accounting principles generally accepted in the United States, the
more significant of which are outlined below.
Use of Estimates
----------------
The preparation of financial statements in conformity with United States
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the year. Actual results could differ from those estimates.
Foreign Currency Translation
----------------------------
The Company's reporting currency is the United States dollar because the
Company is a United States corporation and it is trading publicly in the
United States. The statements of operations are translated into United
States dollars using the average exchange rate for the year. The balance
sheets are translated into United States dollars using the year-end
exchange rate.
Stock Option Plans
------------------
The Company applies the fair value based method of accounting prescribed by
SFAS No. 123, Accounting for Stock-Based Compensation in accounting for its
stock options granted to both employees and non-employees. As such,
compensation expense is recorded on the date of grant based on the fair
value of the award and is recognized over the service period.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
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The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed of. This statement requires
that long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying
amount of an asset to future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to
sell.
F-9
INNOFONE.COM, INCORPORATED
Notes to Financial Statements
(Stated in United States Dollars)
June 30, 2002
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3. DUE TO OFFICERS AND DIRECTORS
-----------------------------
Amounts are due to one of the directors, personally, as well as to his
related company. The terms are non-interest bearing, due upon demand and
have no fixed terms of repayment.
4. CONVERTIBLE DEBT
----------------
a) On November 16, 2000, the Company raised $100,000 through a subscription of
8% unsecured promissory notes, which were due November 15, 2001. On
December 16, 2000, the Company raised $100,000 through a subscription of 8%
unsecured promissory notes, which were due November 15, 2001. Both
subscriptions for notes were converted into shares of common stock of the
Company with a par value of $0.001 at a price of $0.30 per share. The notes
also include a non-detachable warrant to purchase one share of common stock
of the Company with a par value of $0.001 at a price of $0.40 per share
until March 18, 2003. The fair value of the warrants at the issuance date
was nominal. The market value of the Company's shares of common stock at
the subscription date was less than the conversion price. Therefore, there
was no embedded beneficial conversion option.
b) As part of an agreement dated January 12, 2001 with ePhone Telecom Inc.
("ePhone"), the Company received a set-up fee of $500,000, which was due
for repayment on April 19, 2001, and subsequently extended to January 19,
2002. For accounting purposes, the set-up fee was recognized in the
financial statements as a loan. ePhone also had the right to convert into
an equivalent amount of shares of the Company based on a price of $0.25 per
share in the event the set-up fee was not repaid. The market value of the
Company's shares of common stock at the date of signing the marketing
agreement was less than the conversion price. Therefore, there was no
embedded beneficial conversion option. Each share would also have a
non-detachable warrant to convert into common stock at a price of $0.75.
The Company was not in a position to repay the set-up fee on January 19,
2002, and ePhone is currently in the process of negotiating to convert the
loan into 2,000,000 common shares of company stock.
c) On June 1, 2000, the Company raised $416,000 through the subscription of 8%
unsecured convertible promissory notes, which were due on June 1, 2001. The
notes were convertible into shares of common stock of the Company with a
par value of $0.001 per share at a price of $0.80 per share. The notes also
included a warrant to purchase one share of common stock of the Company
with a par value of $0.001 at a price of $0.80 (amended from the initial
price of $1.50) per share for each $0.80 of notes purchased on or before
June 30, 2002 (amended from the initial date of June 30, 2001). The fair
value of the warrants at the issuance date was nominal. The total market
value of the Company's shares of common stock at the dates when the notes
were signed was less than the total conversion price. Therefore, there was
no embedded beneficial conversion feature.
F-10
INNOFONE.COM, INCORPORATED
Notes to Financial Statements
(Stated in United States Dollars)
June 30, 2002
================================================================================
5. NOTE PAYABLE
------------
On October 4, 2000, the Company raised $150,000 through a subscription of
10% unsecured promissory notes, which were due October 4, 2001. The capital
amount of the notes shall be payable on demand in whole or in part in the
event that the Company makes a distribution of its securities worth at
least $500,000 by private placement or otherwise. The notes are convertible
into shares of common stock. The notes also include a non-detachable
warrant to purchase one share of common stock of the Company with a par
value of $0.001 at a price of $1.00 per share. The fair value of the
warrants at the issuance date was nominal. The market value of the
Company's shares of common stock at the subscription date was less than the
conversion price. Therefore, there was no embedded beneficial conversion
option.
The Company was not in a position to repay the promissory notes on October
4, 2001 and the Company is currently in the process of negotiating to
convert the loan into 300,000 common shares of company stock.
6. CAPITAL STOCK
-------------
The number of outstanding shares of the Company as at June 30, 2002 is
computed as follows:
Common Preferred
====================================================================================
Outstanding Shares as at June 30, 2000 20,750,000 2,500,000
Shares issued in exchange for legal fees 1,403,333 -
Options exercised in exchange for marketing costs 30,000
Options exercised 430,000 -
Promissory notes converted to common stock 3,851,500 -
Common stock subscribed 1,000,004 -
Preferred stock to be converted to common stock 3,750,000 (1,250,000)
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Outstanding Shares as at June 30, 2001 31,214,837 1,250,000
Shares issued in exchange for equipment 146,000
Options exercised 475,000
Shares issued to DMD CANADA shareholders 67,000,000
Shares issued on conversion of debt 1,186,668
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Outstanding Shares as at June 30, 2002 100,022,505 1,250,000
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F-11
INNOFONE.COM, INCORPORATED
Notes to Financial Statements
(Stated in United States Dollars)
June 30, 2002
================================================================================
6. CAPITAL STOCK (continued)
-------------------------
The Company's authorized capital stock consists of 950,000,000 shares of
common stock and 25,000,000 shares of preferred stock each with a par value
of $0.001 per share. The Company is in the process of increasing the
authorized capital for its common shares. The 1,250,000 shares of issued
preferred stock are voting, convertible as described further below to
shares of common stock on a 3 for 1 basis at the option of the holder based
on certain revenue targets being met and participate equally as to
dividends with each share of common stock. If after five years the
performance criteria have not been met, the remaining shares of preferred
stock are convertible into one half of a share of common stock. Any
dividends declared and paid by the Company would be declared and paid in
United States dollars.
The remaining 1,250,000 shares of preferred stock can be converted into
3,750,000 shares of common stock when the Company reaches $7,000,000
Canadian in cumulative revenue. For accounting purposes, the conversion of
the shares of preferred stock includes both a non-performance element
(equal to one half of the share of preferred stock converted) and a
performance element (equal to the balance). If and when additional shares
of common stock are issued based upon meeting the performance criteria, the
fair value of any such additional shares of common stock will be recognized
as a deemed distribution against equity in the period when the performance
criteria is met. Until these targets are met, the shares of preferred stock
remain outstanding with all rights and restrictions continuing.
As at June 30, 2002, all of the Company's outstanding shares of common
stock are restricted from resale. However, approximately 20,750,000 shares
of outstanding common stock has been held for more than 2 years by
non-affiliates, and therefore, may be freely sold in reliance on Rule 144
of the Securities Act. Additional 10,464,237 shares of common stock may be
sold in compliance with certain volume restrictions and manner of sale
limitations under Rule 144. These figures do not take into account stock
that may be issued pursuant to outstanding warrants and options and upon
the conversion of convertible promissory notes into common stock.
7. STOCK OPTIONS
-------------
At June 30, 2002, the Company has two stock-based compensation plans, which
are described below. The Company accounts for the fair value of its grants
under these plans in accordance with FASB Statement 123. The compensation
cost that has been charged against income for those plans was $Nil for
2002.
F-12
INNOFONE.COM, INCORPORATED
Notes to Financial Statements
(Stated in United States Dollars)
June 30, 2002
================================================================================
7. STOCK OPTIONS (continued)
-------------------------
In 1997, the Company adopted a Compensatory Stock Option Plan (the "CSO
Plan") and an Employee Stock Compensation Plan (the "ESC Plan") pursuant to
which the Company's Board of Directors may grant stock options to
employees, consultants, advisors or directors of the Company. The CSO Plan
authorizes grants of options to purchase up to 1,500,000 shares of
authorized but unissued common stock and the ECS Plan authorizes grants of
options to purchase up to 1,000,000 shares of authorized but unissued
common stock. Stock options are granted under the CSO Plan with an exercise
price equal to or greater than 100% of the stock's fair market value at the
date of grant and the vesting period is limited to no more than 10 years.
Pursuant to the Company's CSO Plan, the Company has outstanding 160,000
stock options to directors and employees for the purchase of shares of
common stock ranging from $0.25 to $0.50 per share, expiring from January
12, 2002 to February 9, 2003 and vesting either on the date of grant or
periods up to 12 months after the date of grant.
Pursuant to the Company's ESC Plan, the Company has no outstanding options.
No stock options were issued during the fiscal year.
The following table summarizes the activity for stock options granted,
exercised and expired during the year:
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Number of Weighted-Average
Options Exercise Price
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Outstanding (held by 13 optionees) as at June 30, 2000 8,642,000 $0.45
(2,097,000 exercisable at an average price of $0.47)
Granted - employees 160,000 0.41
Exercised (460,000) 0.15
Expired or forfeited (4,675,000) 0.50
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Outstanding (held by 9 optionees) as at June 30, 2001 3,667,000 0.42
Granted - employees - -
Exercised (475,000) 0.0001
Expired or forfeited (3,032,000) 0.47
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Outstanding (held by 3 optionees) as at June 30, 2002 160,000 $0.40
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F-13
INNOFONE.COM, INCORPORATED
Notes to Financial Statements
(Stated in United States Dollars)
June 30, 2002
================================================================================
7. STOCK OPTIONS (continued)
-------------------------
The weighted average remaining contractual life for all outstanding options
is approximately one half year.
The fair value of each option was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions: dividend
yield of 0%, expected volatility of 100%, risk-free interest rate of
approximately 6% and expected life of two years.
8. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES
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Financial Instruments
---------------------
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at June 30, 2002 and 2001. The
estimated fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing
parties, other than a forced or liquidation sale. These estimates, although
based on the relevant market information about the financial instrument,
are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Carrying Fair
Amount Value
2002 2002
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Financial Assets
Investment in 908651 Alberta Ltd. $ 210,000 $ 210,000
Financial Liabilities
Accounts payable and accrued liabilities 212,572 212,572
Due to officers and directors 104,000 104,000
Note payable 150,000 150,000
Convertible debt 500,000 500,000
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F-14
INNOFONE.COM, INCORPORATED
Notes to Financial Statements
(Stated in United States Dollars)
June 30, 2002
================================================================================
8. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (Continued)
--------------------------------------------------------------------
Carrying Fair
Amount Value
2001 2001
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Financial Assets
Deposits $ 225 $ 225
Financial Liabilities
Bank indebtedness 546 546
Accounts payable and accrued liabilities 232,510 232,510
Due to officers and directors 284,470 284,470
Note payable 150,000 150,000
Convertible debt 1,116,000 1,116,000
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The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
(i) Deposits, bank indebtedness, accounts payable and accrued liabilities,
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and note payable
----------------
The carrying amounts approximate fair value because of the short term
to maturity of these instruments.
(ii) Convertible debt
----------------
The fair value is estimated by discounting the future cash flows at
rates currently offered to the Company for similar debt instruments of
comparable maturity by the Company's bankers.
(iii) Due to officers and directors and advances from ultimate shareholders
---------------------------------------------------------------------
Imputed interest computed at comparable market rates on the interest
free advances from ultimate shareholders is not considered to be
material to the financial statements. Consequently, the financial
statements do not include a charge for imputed interest on the
interest free advances and the fair value is considered to be
comparable to the carrying value.
F-15
INNOFONE.COM, INCORPORATED
Notes to Financial Statements
(Stated in United States Dollars)
June 30, 2002
================================================================================
9. BASIC NET LOSS PER SHARE
------------------------
Basic net loss per share figures are calculated using the weighted average
number of common shares outstanding computed on a daily basis. The effect
of the conversion of the preferred shares on an if-converted basis and
stock options has an anti-dilutive effect.
10. INCOME TAXES
------------
As at June 30, 2002 the company had not filed income tax returns for the
years ending 1999 through 2002. No income tax provision has been recorded
for fiscal 2002.
11. NON-CASH FINANCING AND INVESTING ACTIVITIES
-------------------------------------------
During the year, the Company issued 1,186,668 common shares in exchange of
$616,600 convertible debt.
12. COMPARATIVE FIGURES
-------------------
The prior period figures were audited by another firm of Chartered
Accountants.
The 2001 statement of operations and cash flows have not been presented in
these financial statements as the 2001 figures represented the consolidated
operations and cash flows of the Company and its subsidiary. As the
subsidiary declared bankruptcy in 2001, the comparative figures would not
be meaningful to the readers of these financial statements.
F-16