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, 2003.
[ ] 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.)
3470 Onley- Laytonsville Rd #118 Olney MD 20832
--------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (301) 774-8294
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, 2003.
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 30, 2003, based on the closing trading price of the day of
$0.50 for the issuer's Common Shares, $0.001 par value (the "Common Shares") was
$150,742.00.
The number of shares outstanding of the issuer's common equity, as of June 30,
2003, was 301,484.
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") used to 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 the broad technology market.Innofone currently has 1
employee on staff.
The company has no operating subsidiary, because of lack of capital it divested
it self of CompuBec Micro Distribution Inc.("Compubec")in early November 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 was dependent upon raising capital to fund its startup and
operational needs which never materialized.
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 is currently negotiating a
lease for new office space.
Item 3. Legal Proceedings.
------------------
The Company does not currently have any pending legal proceedings.
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, 2003 was $0.52 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
10/1/02 - 12/31/02 .14 .001
2003
----
1/1/03 - 3/31/03 .51 .05
4/1/03 - 6/30/03 .50 .10
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 155 shareholders of record.
(c) We have not paid any cash dividends to date.
3
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, 2003 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 ability to raise financing and find suitable
acquisitions.
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 has convert noteholders to equity common stock shareholders
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. Which is highly unlikely.
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 issued shares to the President for salary and expense reimbursement
due to the company's poor cash flow position.
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.
4
(a) Plan of Operations
The company is in discussions with an several investors and acquistion
candidates.
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 and President Frederic Richardson is currently reviewing
several acquisition candidates and funding sources and hopes to make several
positive announcements in the next shareholder meeting to be held sometime
before yearend.
(b) Results of Operations
The company had no operations in 2003. Management is currently looking for
outside directors and new management to help in securing additional financing
for operations and viable acquisitions. To that end management has retained
Frederic Richardson as its new President, CEO and CFO. The company hopes to make
additional appointments to the Board of Directors and management over the next
three months.
(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.
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.
5
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
Frederic Richardson
Director, Officer
Failure to File Late Filings
No 1
Dick Swartzman Number of Shares Percentage of Ownership
Director, Officer 0 0
Failure to File Late Filings
No 0
Max Apple Number of Shares Percentage of Ownership
Director, Officer 0 0
Failure to File Late Filings
No 0
Ed Hutya 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
---- --- -------- ---- -------------
Frederic Richardson 43 Chairman Annual Nov 01 to current
Max Apple 61 Director Annual Nov 01 to current
Ed Hutya 53 Director Annual Nov 01 to current
Dick Swartzman 54 Director Annual Nov 01 to current
The following table sets forth the names and ages of the Company's current
executive officers:
Name Age Position Term Period Served
---- --- -------- ---- -------------
Frederic Richardson 43 Chairman Annual Nov 01 to current
Max Apple 61 COO Annual Nov 01 to current
Ed Hutya 53 Treasurer Annual Nov 01 to current
Dick Swartzman 54 Secretary Annual Nov 01 to current
6
Frederic Richardson, the President and director of Innofone since Nov 01 2002,
has extensive experience in the computer distribution industry. He is a board
experience in capital formation and running public companies. Richardson is the
current chairman of another public company. He was the former chairman of life
insurance company that was liquidated by the Pennsyvania Insurance Departmant In
1994. Without the prior approval of the Pa insurnace Department Mr Richardson
can not hold a controlling position with any insurer for the next 5 years.
Mr. Maxwell W. Apple has been one of our directors since 2002, and has also
served as our Secretary since 2002. Mr Apple is a former judge and currently a
member of the Indiana Bar. He has been involved in various business ventures
which include owning Nunur Corporation, a company which owned commercial and
residential properties, being a partner in French Lick Springs Golf and Tennis
Resort, L.P., and being the sole shareholder of The Paoli Corporation, a company
specializing in the manufacturing of wood products and operating lumber dry
kilns. He received his Juris Doctor Degree from the Indiana University School of
Law and also attended the National College of the State Judiciary and Indiana
Judicial College during.
Mr. Edward A. Hutya has been one of our directors since 2002. He also served as
our vice president until September 2002. He is currently the president of the
Center of Independent Living and a consultant to Riverside Healthcare
foundation, two not-for-profit organizations. Mr. Hutya has many years of
experience in the operations and acquisitions of health care properties. During
his tenure as president of several not-for-profit corporations, Mr. Hutya
directed corporate development for the acquisition of housing and nursing
facilities for the elderly and special populations. Mr. Hutya also selected and
hired management companies which operated nursing homes. Prior to his
involvement with not-for-profit organizations, Mr. Hutya specialized in
financing, including equipment, vehicles, real estate and governmental leasing
and financing. Mr. Hutya received a degree in Economics from the University of
Connecticut in 1965, and participated in graduate work in Urban Economics at
American University.
Dick Swartzman has been a director seen 2002 He has been a Washington Dc
Attorney specailizing in litigation for over 20 years.
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. The company will pay all operating personnel in stock until cash flow
can sustain salaries.
COMPENSATION OF DIRECTORS.
--------------------------
There has not been any compensation paid to the directors of the company.
Although the company plans to in the coming months.
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
-------------- --------------------------- -------------------------- ----------------
Common shares Frederic Richardson 50,000 Direct 16.6%
3470 Olney Rd.
Olney, MD 20832
Common shares Sarah Suul Simon Trust 100,000 Direct 33.2%
3470 Olney Rd.
Olney, MD 20832
Common shares Ephone Telecom, Inc. 100,000 Direct 33.2%
c/o 1801 Goldmine Rd.
Brookeville, MD 20833
(b) Security ownership of management.
(1) (2) (3) (4)
Name and Amount and
Title of Class Address of Beneficial Owner Nature of Beneficial Owner Percent of Class
-------------- --------------------------- -------------------------- ----------------
Common shares Frederic Richardson 50,000 Direct 16.6%
3470 Olney Rd.
Olney, MD 20832
Item 12. Certain Relationships and Related Transactions.
-----------------------------------------------
None.
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)
8
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
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.
9
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: September 30, 2003 By: /s/ Frederic Richardson
------------------------
Frederic Richardson
President and Director
10
INNOFONE.COM, INCORPORATED
--------------------------
Financial Statements
(Stated in United States Dollars)
June 30, 2003
F-i
INNOFONE.COM, INCORPORATED
--------------------------
INDEX
-----
June 30, 2003
PAGE
----
AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheet - Statement I 2
Statement of Shareholders' Deficiency and
Comprehensive Loss - Statement II 3
Statement of Operations - Statement III 4
Statement of Cash Flows - Statement IV 5
NOTES TO FINANCIAL STATEMENTS 6 - 14
F-ii
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, 2003, and 2002, and the statements of operations, shareholders'
deficiency, and comprehensive loss and cash flows for each of the years in the
two-year period ended June 30, 2003. 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 auditing standards generally accepted
in the United States of America. 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. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at June 30, 2003 and 2002,
and the results of its operations and their cash flows each of the years in the
two-year period ended June 30, 2003, in conformity with Accounting principles
generally accepted in the United States of America.
The company has a going concern problem as discussed in Note 1 and may not be
able to fund its liabilities.
Toronto, Ontario
October 7, 2003 Chartered Accountants
F-1
INNOFONE.COM, INCORPORATED Statement I
Balance Sheet
(Stated in United States Dollars)
As at June 30, 2003
=========================================================================================
2003 2002
-----------------------------------------------------------------------------------------
ASSETS
Investment in 908651 Alberta Ltd. $ 210,000 $ 210,000
=========================================================================================
LIABILITIES
Current
Accounts payable and accrued liabilities $ 316,572 $ 212,572
Due to officers and directors - 104,000
Convertible debt (note 3) - 500,000
Note payable (note 4) - 150,000
-----------------------------------------------------------------------------------------
316,572 966,572
-----------------------------------------------------------------------------------------
SHAREHOLDERS' DEFICIENCY
CAPITAL STOCK (note 5)
Common shares 4,870,700 4,841,522
Preferred shares 1,250 1,250
Additional paid-in capital 8,550,112 7,719,593
-----------------------------------------------------------------------------------------
13,422,062 12,562,365
(DEFICIT) - Statement II (13,528,634) (13,318,937)
-----------------------------------------------------------------------------------------
(106,572) (756,572)
-----------------------------------------------------------------------------------------
$ 210,000 $ 210,000
=========================================================================================
ON BEHALF OF THE BOARD:
/s/ Frederic Richardson Director
---------------------------------
{See accompanying notes.}
F-2
INNOFONE.COM, INCORPORATED Statement II
Statement of Shareholders' Deficiency and Comprehensive Loss
(Stated in United States Dollars)
For The Year Ended June 30, 2003
==================================================================================================================================
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 ( 1,819,095) ( 1,819,095)
Other comprehensive income, net of tax:
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 6) 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)
Convertible note converted to stock 2,300 647,700 650,000
Issuance of shares for legal services 500 1,887 2,387
Issuance of shares for consulting services 26,378 180,932 207,310
Net loss (209,697) (209,697)
----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2003 $ 4,870,700 $ 1,250 $ 8,550,112 ($ 13,528,634) $ - ($ 106,572)
==================================================================================================================================
{See accompanying notes.}
F-3
INNOFONE.COM, INCORPORATED Statement III
Statement of Operations
(Stated in United States Dollars)
For the Year Ended June 30, 2003
=============================================================================================
2003 2002
---------------------------------------------------------------------------------------------
SALES $ - $ -
=============================================================================================
EXPENSES
Forgiveness of debt - (294,908)
Net gain on sale of Digital Micro Distribution
Canada Incorporated - (143,000)
Selling, general and administrative 209,697 101,968
---------------------------------------------------------------------------------------------
209,697 (335,940)
---------------------------------------------------------------------------------------------
NET INCOME (LOSS) FOR THE YEAR ($ 209,697) $ 335,940
=============================================================================================
BASIC NET INCOME (LOSS) PER SHARE (note 8) ($ 1.37) $ NIL
=============================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 152,682 79,738,604
=============================================================================================
{See accompanying notes.}
F-4
INNOFONE.COM, INCORPORATED Statement IV
Statement of Cash Flows
(Stated in United States Dollars)
For The Year Ended June 30, 2003
============================================================================================
2003 2002
--------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) for year ($ 209,697) $ 335,940
Changes in non-cash working capital components
- Prepaid expenses and deposits - 225
- Accounts payable and accrued liabilities (104,000) (19,938)
--------------------------------------------------------------------------------------------
(313,697) 316,227
--------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Bank indebtedness - (546)
Due to officers and directors 104,000 (180,470)
Issuance of capital stock 859,697 690,348
Convertible debt (650,000) (616,000)
--------------------------------------------------------------------------------------------
313,697 (106,668)
--------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Investment in 908651 Alberta Ltd. - (210,000)
Capital assets - 441
--------------------------------------------------------------------------------------------
- (209,559)
--------------------------------------------------------------------------------------------
INCREASE IN CASH NIL NIL
CASH, BEGINNING OF YEAR NIL NIL
--------------------------------------------------------------------------------------------
CASH, END OF YEAR $ NIL $ NIL
============================================================================================
{See accompanying notes.}
F-5
INNOFONE.COM, INCORPORATED
Notes to the Financial Statements
June 30, 2003
================================================================================
1. BASIS OF PRESENTATION
---------------------
Going Concern Issue
-------------------
These financial statements have been prepared on a going concern basis and
do not include any adjustments to the measurement and classification of the
recorded asset amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern. The
company has experienced several continuous years of operating losses. The
Company's ability to realize its assets and discharge its liabilities in
the normal course of business is dependent upon continued support. The
Company is also dependent on an infusion of equity from potential
shareholders. The Company is currently attempting to obtain additional
financing from its existing shareholders and other strategic investors to
continue its operations. However, there can be no assurance that the
Company will obtain sufficient additional funds from these sources.
The conditions cause substantial doubt about the Company's ability to
continue as a going concern. A failure to continue, as a going concern
would require that stated amounts of assets and liabilities be reflected on
a liquidation basis that could differ from the going concern basis.
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.
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.
F-6
INNOFONE.COM, INCORPORATED
Notes to Financial Statements
(Stated in United States Dollars)
June 30, 2003
================================================================================
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
-----------------------------------------------------------------------
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.
3. CONVERTIBLE DEBT
----------------
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.
F-7
INNOFONE.COM, INCORPORATED
Notes to Financial Statements
(Stated in United States Dollars)
June 30, 2003
================================================================================
3. CONVERTIBLE DEBT (continued)
----------------------------
The Company was not in a position to repay the set-up fee on January 19,
2003, and all debt was converted for 2,000,000 common shares on April 4,
2003.
4. 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, 2002 and the promissory note was converted into 300,000 common shares on
April 4, 2003.
F-8
INNOFONE.COM, INCORPORATED
Notes to Financial Statements
(Stated in United States Dollars)
June 30, 2003
================================================================================
5. CAPITAL STOCK
-------------
The number of outstanding shares of the Company as at June 30, 2003 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)
---------------------------------------------------------------------------------------
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
---------------------------------------------------------------------------------------
Outstanding Shares as at June 30, 2002 100,022,505 1,250,000
Shares issued in exchange for consulting fees 23,357,826
Shares issued in exchange for legal fees 500,000
Reverse stock split: 175 shares for one share (123,172,444)
Share issuance on conversion of debt 2,300,000
Share issuance on exchange for consulting fees 3,021,800
Reverse stock split: 20 shares for one share (5,728,203)
--------------------------------------------------------------------------------------------
Outstanding shares as at June 30, 2003 301,484 1,250,000
===========================================================================================
F-9
INNOFONE.COM, INCORPORATED
Notes to Financial Statements
(Stated in United States Dollars)
June 30, 2003
================================================================================
5. 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.
6. STOCK OPTIONS
-------------
At June 30, 2003, 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 2003
(2002 - $Nil).
F-10
INNOFONE.COM, INCORPORATED
Notes to Financial Statements
(Stated in United States Dollars)
June 30, 2003
================================================================================
6. 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 ESC Plan and CSO 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:
============================================================================================
Number of Weighted-Average
Options Exercise Price
--------------------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------------------
Outstanding (held by 3 optionees) as at June 30, 2002 160,000 0.40
--------------------------------------------------------------------------------------------
Expired or forfeited 160,000 0.40
-------------------------------------------------------------------------------------------------
Outstanding as at June 30, 2003 - $ -
=================================================================================================
F-11
INNOFONE.COM, INCORPORATED
Notes to Financial Statements
(Stated in United States Dollars)
June 30, 2003
================================================================================
7. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES
--------------------------------------------------------
Financial Instruments
---------------------
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at June 30, 2003 and 2002. 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
2003 2003
=======================================================================
Financial Assets
Investment in 908651 Alberta Ltd. $ 210,000 $ 210,000
Financial Liabilities
Accounts payable and accrued liabilities 316,572 316,572
=======================================================================
F-12
INNOFONE.COM, INCORPORATED
Notes to Financial Statements
(Stated in United States Dollars)
June 30, 2003
================================================================================
7. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (Continued)
--------------------------------------------------------------------
Carrying Fair
Amount Value
2002 2002
=======================================================================
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
=======================================================================
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
(i) Accounts payable and accrued liabilities, 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-13
INNOFONE.COM, INCORPORATED
Notes to Financial Statements
(Stated in United States Dollars)
June 30, 2003
================================================================================
8. 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.
9. INCOME TAXES
------------
As at June 30, 2003 the company had not filed income tax returns for the
years ending 1999 through 2003. No income tax provision has been recorded
for fiscal 2003.
10. NON-CASH FINANCING AND INVESTING ACTIVITIES
-------------------------------------------
During the year, the Company issued 2,300,000 common shares in exchange of
$650,000 convertible debt and note payable.
F-14