SECURITIES EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
Commission file number 333 - 72660
ICONET, INC.
(Exact name of registrant as specified in its Charter)
Nevada
(State of other jurisdiction of incorporation or organization)
86-0891931
(I.R.S. Employer Identification No.)
8 Gaucho Drive
Rolling Hills Estates, CA 90274
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: 416-682-9255
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act: Common Stock
Common Stock
(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 Registrant was required to file such reports), and (2) has been
subject to such filing requirements for past 90 days. Yes [X] No [ ]
Securities registered under Section 12(g) of the Exchange Act:
There are 48,445,430 shares of common stock outstanding as of December 31, 2002.
The shares are traded on the OTC Bulletin Board.
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]
State issuer's revenues for its most recent fiscal year: $0
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. On May 14, 2003, the aggregate market
value of non-affiliate shares was $384,455.00.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 38,445,430 shares of which 30,150,000
were restricted shares. Registrant filed a Form SB-2 on November 1, 2001,
seeking to register 30,150,000 shares of issued and outstanding shares of
Common Stock for selling shareholders. The Form SB-2 was withdrawn by the
Company and was not declared effective.
TABLE OF CONTENTS
PART I
Item 1 Description of Business
Item 2 Description of Property
Item 3 Legal Proceedings
Item 4 Submission of Matters to a Vote of Security Holders
PART II
Item 5 Market for Common Equity and Related Stockholder Matters
Item 6 Management's Discussion and Analysis of Plan of Operations.
Item 7 Financial Statements
Item 8 Changes in and Disagreement with Accountants on Accounting
and Financial Disclosure.
PART III
Item 9 Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act
Item 10 Executive Compensation
Item 11 Security Ownership of Certain Beneficial Owners and
Management
Item 12 Certain Relationships and Related Transactions
Item 13 Exhibits, List and Reports on Form 8-K
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BACKGROUND AND REORGANIZATION
Iconet, Inc., formerly known as Digital Video Display Technology Corp. (the
"Company") was incorporated under the laws of the State of Nevada on August 1,
1997, under the name Meximed Industries. On January 27, 1999, we filed an
Amendment to our Articles of Incorporation changing our name to Digital Video
Display Technology Corp., and on July 12, 2001, filed an Amendment to our
Articles of Incorporation changing our name to Iconet, Inc.
We were initially formed to engage in the business of developing, producing and
distributing a non-reusable medical syringe. In July 1998, we raised a total of
$200,000 in a public offering pursuant to an exemption provided by Rule 504 of
Regulation D, promulgated under the Securities Act of 1933, as amended. The
offering was approved for sale by The New York State Department of Law. After
recognizing the syringe project was going to be far too expensive and difficult
to pursue, we began looking for another business to acquire.
In January 1999, we completed a reorganization and change in control and
acquired a License to a U.S. Patent for an audio video jukebox system from
Software Control Systems International Inc., a Canadian corporation and
unrelated third party (SCSI). As consideration for the License, we agreed to pay
SCSI the sum of $250,000 U.S. in cash and issued SCSI 2,000,000 shares of our
restricted common stock. The License was for a term of 15 years and granted us
an exclusive right to market and sell the SCSI proprietary technology and
products throughout Canada and the states of Oregon, Washington, Montana, Idaho
and Hawaii. Subsequently, on May 10, 1999, we entered into a Distributor
Agreement with SCSI granting SCSI the right to act as a distribution agent for
us. Pursuant to the Agreement, we were to supply SCSI a minimum of 500 jukebox
systems at a price of $7,500 which may be paid in full at the time of delivery
or at the rate of $150 per month for 60 months.
On September 1, 1999, the SCSI agreement was modified. The amendment stated that
we were obligated to pay the $250,000 in $20,000 installments, beginning
December 15, 1999, with a final payment of $10,000 due on December 15, 2000.
This amendment was never ratified by our Board. As of December 31, 1999, no
payment had been made to the third party. The 2,000,000 restricted shares were
to be held by SCSI for two years. SCSI had attempted to sell 230,000 shares of
the stock before the two years expired, so we stopped the sale, and canceled the
2,000,000 shares.
On May 5, 2000, we received a letter from the SCSI attorneys demanding that the
2,000,000 shares be reinstated, and that we pay the $250,000 that was originally
agreed upon. The letter also demanded a distributorship for two of the officers
of SCSI to distribute our video jukeboxes at 10% commission in Canada and the
Northwestern United States. Other settlement alternatives were also offered. We
subsequently settled this dispute without litigation, and we retained no rights
in or to the SCSI audio video juke system. The 2,000,000 shares remain cancelled
and the $250,000.000 debt was cancelled. In the fourth quarter of 2001, our
management had internal disagreements regarding the company's future course of
action in order to achieve its business goals of producing and distributing
video jukeboxes, and was experiencing financial difficulties. This caused the
company to lose momentum, put the line of credit at risk and eventually resulted
in new management being installed. In May 2001, Mr. Randy Miller was appointed
by the then-directors to serve as a Director and sole officer of the Company,
and the other directors resigned, leaving Mr. Miller as the sole director. Mr.
Dalmata, and his group of investors, were interested in protecting their line of
credit and repayment of monies drawn down on the line by the Company, and
approved the appointment of Mr. Miller, and Mr. Dalmata was given the
opportunity to be appointed as a director, if he chose to do so, during the
two-year period commencing May 30, 2001, for a Director term of one year. To
date, Mr. Dalmata has not requested that he be appointed as a director.
Subsequently, in 2001, the technology relating to the audio video jukebox
industry changed significantly and we no longer require the patent held by SCSI
to conduct our proposed business. We have developed a proprietary system,
combining off-the-shelf components, which is not patented and may not be
patentable, as we have not consulted with a patent counsel about the system we
are using.
We never produced or sold any video jukeboxes, and have abandoned the jukebox
business.
In May 2001, we issued shares to Mr. Kurt Dalmata in exchange for his reduction
of monies we owed to him.
Subsequently, in July 2001, we effected a reverse stock split.
Subsequently, we issued an additional 30,000,000 shares in exchange for the
reduction of $637,925 in debt.
On June 12, 2002, the Company entered into an Option to Purchase 100% interest
in 21 mining claims situated in Langmuir Township, Porcupine Mining Division,
Ontario, Canada, from Sea Emerald Development Corp., a Canadian corporation
("Sea Emerald"). Consideration for the Option was $10.00, and the exercise price
for 100% interest in the 21 mining claims is 10,000,000 shares of the Company's
restricted Common Stock.
Pursuant to the terms of the Agreement, a copy of which is included as
an exhibit to this Form 8-K, the Company is required to issue 2,000,000 of the
10,000,000 shares to Sea Emerald within 5 business days from the date of the
Agreement, and 2,000,000 shares at six-month intervals, commencing six months
from the date of the Agreement. The Company must issue the full 10,000,000
shares in order to acquire any interest in or title to the 21 claims. In
addition, the Company is obligated to pay Sea Emerald a royalty equal to 5% of
Net Smelter Returns ("NSR") from production from the claims. The Company has an
option to buy back from Sea Emerald up to a maximum of 2% of the NSR, leaving
Sea Emerald with a 3% NSR. The buy-back price is Cdn$1,000,000 per 1% NSR. If
the Company has not commenced production from the claims and has not exercised
its buy-back right for 2% NSR on or before June 12, 2006, then the Company is
obligated to commence payment of a minimum advance royalty of US$50,000.00 per
year, commencing June 13, 2006.
The amount of the consideration for the Option was nominal and
customary in the mining industry, and the amount of the consideration for
exercise of the Option was determined based on what the parties believed, given
the limited information and data available on the 21 mining claims, was a fair
option exercise price for the claims, giving due consideration to the market
price of the Company's Common Stock and the subjective estimation of the present
value of the 21 claims.
SUBSEQUENT EVENTS
On April 3, 2003, based on further due diligence by the parties, the Company and
Sea Emerald Development Corp., a Canadian corporation ("Sea Emerald"), mutually
agreed to rescind their agreement for the purchase and sale of 100% interest in
21 mining claims situated in Langmuir Township, Porcupine Mining Division,
Ontario, Canada. The 10,000,000 shares of the Company's restricted Common Stock
issued to Sea Emerald will be returned to the Company's treasury.
The Company is currently seeking to acquire a new business.
EMPLOYEES.
We currently have one employee, Randy Miller, our president and a director, who
works for our corporation part-time. We have no employment contracts and our
employee is not a union member or affected by labor contracts.
REPORTS TO SECURITY HOLDERS.
We are a reporting company under the requirements of the Exchange Act and file
quarterly, annual and other reports with the Securities and Exchange Commission.
Our annual report contains the required audited financial statements. We are not
required to deliver an annual report to security holders and will not
voluntarily deliver a copy of the annual report to the security holders. The
reports and other information filed by us will be available for inspection and
copying at the public reference facilities of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549.
Copies of the material may be obtained by mail from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Information on the operation of the Public Reference Room may
be obtained by calling the SEC at 1-800-SEC-0330. In addition, the Commission
maintains a World Wide Website on the Internet at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
In May 2001, we issued 30,000,000 shares of our restricted Common Stock to an
unrelated third party as consideration for reduction of $210,000.00 in principal
on a line of credit. This transaction involved 1 foreign purchaser and was
exempt from registration pursuant to Regulation S of the Securities Act of 1933,
based on offshore transactions involving a non-U.S. person in a sale that took
place entirely outside the U.S.
On July 12, 2001, we effected a reverse split of our total outstanding shares on
the basis of 1 for 200, leaving a total of 257, 115 shares of our Common Stock
outstanding.
In July 2001, we issued 30,000,000 shares of our common stock as consideration
for repayment of $637,925.00 in principal on the line of credit issued to us by
unrelated third party in 1999. This retired the entire balance due on the line
of credit. This transaction involved 21 foreign purchasers and was exempt from
registration pursuant to Regulation S of the Securities Act of 1933, based on
offshore transactions involving all non-U.S. persons in sales that took place
entirely outside the U.S.
The debts referenced above were not related in any way, except that all of the
$837,925.00 was part of the $1.5 Million line of credit. All 22 persons to whom
shares were issued were lenders under the line of credit. At the time the
respective debts were exchanged for shares, the Company verbally agreed, as soon
as possible, to register all of the shares under an SB-2 registration statement.
ITEM 2. DESCRIPTION OF PROPERTY
The property held by Registrant consist of the following:
Our executive offices are located at 170 University Av. 8th Floor, Toronto,
Ontario, Canada M5H3B3, where we share space in the offices our President, Randy
Miller. The space is approximately 400 square feet total, of which we occupy a
small portion without charge. We feel that this space is adequate for our needs
at this time, and we feel that we will be able to locate adequate space in the
future, if needed, on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
Merrill Lynch Canada Inc., filed suit against us on June 26, 2001, seeking
damages regarding an alleged dispute related to the sale of our restricted
common stock to Merrill Lynch by an unrelated third-party stockholder. The case
is styled "Merrill Lynch vs. Digital Video Display Technology, and others",
Action No. S-004012, in the Vancouver Law Court, Supreme Court of British
Columbia. The case is still in its early stages and we are trying to reach a
settlement with Merrill Lynch. At this time, we do not know if we will sustain a
loss, or the amount of the loss. There has been no discovery in the case.
The Company was a defendant in an action by a former employee regarding his
employment contract. The Company settled the case recently for $55,000.00.
The Company has also entered into a settlement agreement with JP Morgan to
settle an outstanding lawsuit of $31,000.00 plus accrued interest.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by the report, no matters
were submitted to a vote of security holders.
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATIONS
The Company, has reviewed, and continues to review, its corporate files, books
and records, and based thereon, it has not been able to conclusively identify a
basis for a certain undetermined amount of its current Accounts Payable and for
the Related Parties payable to previous management. We have been unable, at this
point, to locate back up documentation or back up invoices for some of such
payables. Our review continues in this regard.
On April 3, 2003, based on further due diligence by the parties, the
Company and Sea Emerald Development Corp., a Canadian corporation ("Sea
Emerald"), mutually agreed to rescind their agreement for the purchase and sale
of 100% interest in 21 mining claims situated in Langmuir Township, Porcupine
Mining Division, Ontario, Canada. The 10,000,000 shares of the Company's
restricted Common Stock issued to Sea Emerald have been returned to the
Company's treasury for cancellation.
The company has entered into two option agreements with Starfire Minerals
for various mining claims that it has not, nor does it intend to complete on.
Dr. Stewart Jackson has resigned from the Board of Directors in April 2003.
Mr. Ron Shorr has resigned from the Board of Directors in April 2003.
The Company has also adopted an Option Plan for Directors, Officers and
Employees, subject to shareholder approval. The Company has defaulted on
settlement agreement for the lawsuit with JP Morgan after having made three
payments totalling $9962.37.
The Company has attained a European listing.
PART II
ITEM 5. MARKET FOR COMMON EQUITY STOCK AND OTHER SHAREHOLDER MATTERS
COMMON STOCK TRADING INFORMATION
The following table sets forth the high and low bid quotations for the Common
Stock for the periods indicated. These quotations reflect prices between
dealers, do not include retail mark-ups, mark-downs or commissions and may not
necessarily represent actual transactions. The Company's shares of Common Stock
are traded on the OTC Bulletin Board, under the symbol "ICON". The High/Low bid
quotations for each quarter during the past two fiscal years are as follows:
Quarter Ended High Bid Low Bid
March 31, 2001 $1.78 $1.50
June 30, 2001 $ .635 $ .50
September 30, 2001 $ .31 $ .31
December 31, 2001 $1.45 $ .60
March 31, 2002 $1.15 $ .77
June 30, 2002 $ .20 $ .05
September 30, 2002 $ .14 $ .10
December 31, 2002 $ .09 $ .08
There are currently a total of approximately 57 shareholders of record, as of
May 14, 2003.
Registrant filed a Form SB-2 on November 1, 2001, seeking to register 30,150,000
shares of issued and outstanding shares of Common Stock for selling
shareholders. The Form SB-2 has subsequently been withdrawn by the Company and
was never declared effective.
MARKET INFORMATION.
There is limited trading activity in our securities, and there can be no
assurance that a regular trading market for our common stock will ever be
developed or maintained.
The OTCBB securities are not listed and traded on the floor of an organized
national or regional stock exchanges. Instead, OTCBB securities transactions are
conducted through a telephone and computer network connecting dealers in stocks.
Over-the-counter stocks are traditionally smaller companies that do not meet the
financial and other listing requirements of a regional or national stock
exchange.
However, broker-dealers may be discouraged from effecting transactions in our
securities because they will be considered penny stocks and will be subject to
the penny stock rules.
Rules 15g-1 through 15g-9 promulgated under the Securities Exchange Act of 1934,
as amended, impose sales practice and disclosure requirements on NASD
brokers-dealers who make a market in a "penny stock." A penny stock generally
includes any non-NASDAQ equity security that has a market price of less than
$5.00 per share. Assuming we get our shares listed for trading, purchases and
sales of our shares are expected to be generally facilitated by NASD
broker-dealers who will act as market makers for our shares. The additional
sales practice and disclosure requirements imposed upon brokers-dealers may
discourage broker-dealers from effecting transactions in our shares, which could
severely limit the market liquidity of the shares and impede the sale of our
shares in the secondary market, assuming one develops.
Under the penny stock regulations, a broker-dealer selling penny stock to anyone
other than an established customer or "accredited investor" (generally, an
individual with net worth in excess of $1,000,000 or an annual income exceeding
$200,000, or $300,000 together with his or her spouse) must make a special
suitability determination for the purchaser and must receive the purchaser's
written consent to the transaction prior to sale, unless the broker-dealer or
the transactions is otherwise exempt.
In addition, the penny stock regulations require the broker-dealer to deliver,
prior to any transaction involving a penny stock, a disclosure schedule prepared
by the Commission relating to the penny stock market, unless the broker-dealer
or the transaction is otherwise exempt. A broker-dealer is also required to
disclose commissions payable to the broker-dealer and the registered
representative and current quotations for the securities. Finally, a
broker-dealer is required to send monthly statements disclosing recent price
information with respect to the penny stock held in a customer's account and
information with respect to the limited market in penny stocks.
As of December 31, 2002, there were 58 holders of record of our common stock.
STOCK TRANSFER AGENT
Transfer Online, 227 S.W. Pine Street, Suite 300, Portland, Oregon 97204,
telephone number (503) 227-2950, serves as Registrant's stock transfer agent for
its securities.
DIVIDENDS
Registrant has not paid any cash dividends to any of its shareholders. The
declaration of any future cash dividends will be at the sole discretion of the
Board of Directors and will depend upon the earnings, if any, the capital
requirements and financial position of Registrant, general economic conditions
and other pertinent conditions. Unless otherwise determined by the Board of
Directors, no dividends shall be paid on any share which has been purchased or
redeemed by Registrant while the shares are held by Registrant. Pursuant to
Registrant's Articles of Incorporation (attached hereto as Exhibit 3(I) and
incorporated herein by reference), the Directors may, from time to time,
capitalize any undistributed surplus on hand of Registrant and may from time to
time issue shares, bonds, debentures or debt obligations of Registrant as a
dividend representing such undistributed surplus on hand, or any part thereof.
It is the present intention of Registrant not to pay any cash dividends in the
foreseeable future, but rather to reinvest any earnings into its business
operations.
The Securities and Exchange Commission has adopted regulations which generally
define "penny stock" to be any equity security that has a market price of less
than $5.00 per share, subject to certain exceptions. Registrant's Common Stock
may be deemed to be a penny stock and thus will become subject to rules that
impose additional sales practice requirements on broker/dealers who sell such
securities to persons other than established customers and accredited investors,
unless the Common Stock is listed on The Nasdaq Small Cap Market. Consequently,
the penny stock rules may restrict the ability of broker/ dealers to sell
Registrant's securities and may adversely affect the ability of holders of
Registrant's Common Stock to resell their shares in the secondary market.
ITEM 6. PLAN OF OPERATION
The discussion contained in this prospectus contains "FORWARD-LOOKING
STATEMENTS" that involve risk and uncertainties. These statements may be
identified by the use of terminology such as "BELIEVES," "EXPECTS," "MAY,"
"WILL," "SHOULD" or "ANTICIPATES" or expressing this terminology negatively or
similar expressions or by discussions of strategy. The cautionary statements
made in this prospectus are applicable to all related forward-looking statements
wherever they appear in this prospectus. Our actual results could differ
materially from those discussed in this prospectus. Important factors that could
cause or contribute to these differences include those discussed under the
caption entitled "RISK FACTORS," as well as those discussed elsewhere in this
registration statement.
We intend to continue seeking a business opportunity to acquire for the Company.
We currently have no line of credit, or other sources, to fund our operations.
To the extent that we may need to raise additional capital through the sale of
equity and/or convertible debt securities, the issuance of the securities will
likely result in substantial dilution to our shareholders.
If our company or its management receives proceeds from the sales of the
securities by the selling security shareholders, which neither the company nor
its management has any intent to do, those persons may be deemed underwriters.
Accordingly, they will have liability for any material misrepresentations or
omissions in this document and otherwise in the offer and sale of securities.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
ICONET, INC.
(A EXPLORATION STAGE COMPANY)
FINANCIAL STATEMENTS
FOR THE YEAR ENDED
DECEMBER 31, 2002,
AND
DECEMBER 31, 2001,
WITH
AUDIT REPORT OF
INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
TABLE OF CONTENTS
Independent Auditors' Report...........................................2
Balance Sheet..........................................................4
Statements of Operations...............................................5
Statements of Changes in Stockholders' Deficit.........................6
Statements of Cash Flows...............................................8
Notes to Financial Statements.........................................10
MARK BAILEY & CO. LTD.
Certified Public Accountants
Management Consultants
OFFICE ADDRESS: MAILING ADDRESS:
1495 Ridgeview Drive, Ste. 200 Phone: 775/332.4200 P.O. Box 6060
Reno, Nevada 89509-6634 Fax: 775/332.4210 Reno, Nevada 89513
INDEPENDENT AUDITORS' REPORT
May 14, 2003
Board of Directors
Iconet, Inc.
We have audited the accompanying balance sheet of Iconet, Inc. (an
exploration stage Company) as of December 31, 2002, and the related
statements of operations, stockholders' deficit, and cash flows for the
years ended December 31, 2002, and 2001. 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 audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audits to obtain reasonable assurance about 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, the financial statements referred to above present
fairly, in all material respects, the financial position of Iconet, Inc
(a Company in the exploration stage), as of December 31, 2002, and the
results of its operations and its cash flows for the years ended December
31, 2002, and 2001, in conformity with accounting principles generally
accepted in the United States.
-2-
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As described in Note 1 to
the financial statements, the Company is in the Exploration stage, and
existing cash and available credit are insufficient to fund the Company's
cash flow needs for the next year. These conditions raise substantial
doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note
1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Mark Bailey & Company, Ltd.
Reno, Nevada
-3-
ICONET, INC.
(A Company in the Exploration Stage)
BALANCE SHEET
December 31, 2002
ASSETS
DECEMBER 31, 2002
_________________
CURRENT ASSETS
Cash $ 5,105
Prepaid consulting expenses 352,000
___________
Total current assets 357,105
___________
OTHER ASSETS
Mining rights 515,000
Deferred tax asset (net of valuation allowance of $1,287,659) -
___________
Total other assets 515,000
___________
Total assets $ 872,105
===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 355,644
Bank overdraft payable 28,796
Related party payable 481,065
Line of credit -
Interest payable 150,458
Accrued expenses 13,946
Advance from stockholder 18,600
Payroll and payroll taxes payable 84,665
___________
Total current and total liabilities 1,133,174
___________
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Common stock, $.001 par value, 100,000,000 shares
authorized, 47,757,115 issued and outstanding 47,757
Common stock subscribed 88,000
Additional paid-in-capital 3,670,406
Deferred compensation expense (280,000)
Deficit accumulated during the development stage (3,787,232)
___________
Total stockholders' deficit (261,069)
___________
Total liabilities and stockholders' deficit $ 872,105
===========
The Accompanying Notes are an Integral Part of These Financial Statements
-4-
ICONET, INC.
(A Company in the Exploration Stage)
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2002, and 2001
CUMULATIVE DURING FOR THE YEAR ENDED DECEMBER 31,
EXPLORATION STAGE 2002 2001
_________________ _____________ ____________
REVENUE
OPERATING COSTS AND EXPENSES
Operating and administrative expenses $ (3,639,474) $ (764,619) $ (755,949)
Depreciation expense (5,562) - -
Amortization expense (16,500) - -
_____________ ____________ ____________
Total operating costs and expenses (3,661,536) (764,619) (755,949)
NON-OPERATING INCOME
Dividend income 1,212 - -
Gain on cancellation of contracts 90,604 - -
Loss on disposal of assets (59,641) - (59,641)
_____________ ____________ ____________
Total non-operating income 32,175 - (59,641)
_____________ ____________ ____________
INTEREST EXPENSE (157,871) (7,391) (51,931)
Net loss before income taxes (3,787,232) (772,010) (867,521)
_____________ ____________ ____________
Provision for income taxes - - -
_____________ ____________ ____________
Net loss $ (3,787,232) $ (772,010) $ (867,521)
============= ============ ============
Loss per common share - basic and diluted $ (0.39) $ (0.02) $ (0.06)
============= ============ ============
Weighted average common shares -
basic and diluted 9,634,697 39,535,624 13,027,948
============= ============ ============
The Accompanying Notes are an Integral Part of These Financial Statements
-5-
ICONET, INC.
(A Company in the Exploration Stage)
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
For the Period from Inception (August 1, 1997) to December 31, 2002
ACCUMULATED
ADDITIONAL DEFICIT DURING
COMMON STOCK DEFERRED PAID-IN EXPLORATION TOTAL
SHARES AMOUNT SUBSCRIBED COMPENSATION CAPITAL STAGE EQUITY
__________________________________________________________________________________
Issuance of shares to Company's officers and
directors for cash in August 1997 105,000 $ 105 $ 9,895 $ 10,000
Net loss (998) (998)
__________________________________________________________________________________
Balance at December 31, 1997 105,000 105 - - 9,895 (998) 9,002
Issuance of shares for cash from an offering in
April 1998 valued at $200,000 (less offering
costs of $5,365) 105,000 105 194,530 194,635
Issuance of shares to a related company for
distribution rights, valued at the fair market
value of $20,000 in May 1998 10,500 10 19,990 20,000
Net loss (as restated ) (34,513) (34,513)
__________________________________________________________________________________
Balance at December 31, 1998 220,500 220 - - 224,415 (35,511) 189,124
Cancellation in January 1999 of the stock issued
to the officers, directors, and the related
company (115,500) (116) (19,884) (20,000)
Issuance of shares for patent rights, valued at
the fair market value of $20,000 in February 1999 10,000 10 19,990 20,000
Issuance of shares for consulting services, at
the fair market value of $2,500 in July 1999 1,250 1 2,499 2,500
Net loss (as restated) (806,793) (806,793)
__________________________________________________________________________________
Balance at December 31, 1999 (as restated) 116,250 115 - - 227,020 (842,304) (615,169)
Issuance of shares for consulting services
valued at the fair market value of $75,000 in
January 2000 375 1 74,602 74,603
Cancellation in February 2000 of shares issued
for patent rights (10,000) (10) (19,990) (20,000)
Issuance of shares for consulting services valued
at the fair market value of $73,500 in July 2000 490 1 73,499 73,500
Net loss (1,305,397)(1,305,397)
__________________________________________________________________________________
Balance at December 31, 2000 (as restated) 107,115 107 - - 355,131 (2,147,701)(1,792,463)
Issuance of shares to retire $210,000
from the line of credit in May 2001 150,000 150 209,850 210,000
Issuance of shares to retire $637,925
from the line of credit in July 2001 30,000,000 30,000 607,925 637,925
Issuance of shares for consulting & legal
services with a fair value of $650,000 in
July 2001 1,000,000 1,000 649,000 650,000
Deferred compensation cost for issuance of
an option for 1,000,000 shares in September
2001 (400,000) 400,000 -
Deferred compensation expense 20,000 20,000
Net loss (867,521) (867,521)
__________________________________________________________________________________
Balance at December 31, 2001 31,257,115 31,257 - (380,000) 2,221,906 (3,015,222)(1,142,059)
The Accompanying Notes are an Integral Part of These Financial Statements
-6-
ICONET, INC.
(A Company in the Exploration Stage)
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
For the Period from Inception (August 1, 1997) to December 31, 2002
ACCUMULATED
ADDITIONAL DEFICIT DURING
COMMON STOCK DEFERRED PAID-IN EXPLORATION TOTAL
SHARES AMOUNT SUBSCRIBED COMPENSATION CAPITAL STAGE EQUITY
__________________________________________________________________________________
Balance at December 31, 2001 31,257,115 31,257 - (380,000) 2,221,906 (3,015,222)(1,142,059)
Issuance of shares for consulting with a fair
market value of $75,000 in June 2002 1,500,000 1,500 73,500 75,000
Issuance of shares for mining rights with a
fair market value of $100,000 in June 2002 2,000,000 2,000 98,000 100,000
Issuance of shares for cash in July 2002 1,000,000 1,000 249,000 250,000
Issuance of shares for consulting services
with a fair market value of $320,000 in August
2002 2,000,000 2,000 318,000 320,000
Issuance of shares for mining rights with a
fair market value of $400,000 in September 2002 8,000,000 8,000 392,000 400,000
Issuance of shares for consulting services with
a fair market value of $320,000 in November
2002 2,000,000 2,000 318,000 320,000
Shares subscribed to relieve accrued liabilities
in the amount of $43,000 and legal services
with a fair market value of $45,000 88,000 88,000
Deferred compensation cost 100,000 100,000
Net loss (772,010) (772,010)
__________________________________________________________________________________
Balance at December 31, 2002 47,757,115 $47,757 $ 88,000 $ (280,000) $ 3,670,406 $ (3,787,232)$ (261,069)
==================================================================================
The Accompanying Notes are an Integral Part of These Financial Statements
-7-
ICONET, INC.
(A Company in the Exploration Stage)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2002, and 2001
CUMULATIVE DURING FOR THE YEAR ENDED DECEMBER 31,
EXPLORATION STAGE 2002 2001
__________________ _______________ _____________
Cash Flows from Operating Activities
Net loss $ (3,787,232) $(772,010) $(867,521)
Adjustments to reconcile net loss to net
cash used in operating activities
Amortization and depreciation expense 22,062 - -
Deferred compensation expense 120,000 100,000 20,000
Gain on cancellation of amortization (16,500) - -
Loss on disposal of assets 59,641 - 59,641
Decrease in deposits 14,925 - 600
Decrease in prepaid consulting 444,250 444,250 -
Increase (decrease) in accounts payable 419,619 (8,035) (120,795)
Increase (decrease) in related party payable 516,065 (6,099) 140,099
Increase (decrease) in wages payable 68,327 - (13,344)
Increase in interest payable 158,197 14,553 51,931
Increase (decrease) in accrued expenses 38,284 (35,186) 57,132
Expenses paid by issuance of common
stock subscribed 45,000 45,000 -
Expenses paid by issuance of common stock 655,378 - 504,775
__________________ _______________ _____________
Net cash used in operating activities (1,241,984) (217,527) (167,482)
__________________ _______________ _____________
CASH FLOWS FROM INVESTING ACTIVITIES
Deposits paid (14,925) - -
Investment in mining rights (15,000) (15,000) -
Purchase of capital assets (65,203) - -
__________________ _______________ _____________
Net cash used in investing activities (95,128) (15,000) -
__________________ _______________ _____________
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds received from issuance of stock 454,635 250,000 -
Proceeds received from shareholder advances 24,074 18,600 5,474
Proceeds received from bank overdraft 30,519 - 2,632
Payment on bank overdraft (9,462) (9,462) -
Payment of shareholder advances (5,474) - (5,474)
Payment on line of credit (22,574) (22,574) -
Proceeds received from line of credit 870,499 - 165,918
__________________ _______________ _____________
Net cash provided by financing activities 1,342,217 236,564 168,550
__________________ _______________ _____________
Net increase in cash 5,105 4,037 1,068
Cash and cash equivalents at beginning
of period - 1,068 -
__________________ _______________ _____________
Cash and cash equivalents at end
of period $ 5,105 $ 5,105 $ 1,068
================== ================ ==============
The Accompanying Notes are an Integral Part of These Financial Statements
-8-
ICONET, INC.
(A Company in the Exploration Stage)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2002, and 2001
SUPPLEMENTARY INFORMATION AND NON CASH TRANSACTIONS
During the year ended December 31, 2002, and 2001, the Company paid $577 and $0
in interest, respectively. The Company paid no income taxes during the years
ended December 31, 2002, and 2001, respectively.
During 2002 the Company issued 5,500,000 shares of its common stock for future
consulting fees and the Company subscribed 550,000 shares of its common stock to
relieve $35,000 in related party payables, $8,000 in accrued expense and for
legal expenses valued at $45,000.
During 2001 the Company issued 150,000 shares of its common stock to retire
$210,000 of the line of credit, 30,000,000 shares of its common stock to retire
an additional $637,925 of the line of credit, and the Company issued 1,000,000
shares of its common stock for consulting and legal services valued at $650,000.
Also in 2001 the Company issued an option to purchase 1,000,000 shares of its
common stock at $0.10 per share to a director, resulting in deferred
compensation expense of $400,000.
The Accompanying Notes are an Integral Part of These Financial Statements
- 9 -
ICONET, INC.
(A Company in the Exploration Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 2002
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Iconet, Inc. (the "Company") was incorporated in the State of Nevada in
August 1997, under the name Meximed Industries, Inc.. The Company is in
the exploration stage as its operations principally involve research
and exploration, market analysis, and other business planning
activities, and no revenue has been generated from its business
activities. In January 1999 the Company changed its name to Digital
Video Display Technology Corporation. The Company intended to create a
Digital Video Display jukebox system for distribution in Canada and the
United States. In July 2001 the Company changed its name to Iconet,
Inc., plans to expand its activities to Europe. In June 2002 the
company purchased the mining rights on 21 claims and has started
exploration of the claims.
These financial statements have been prepared assuming that the Company
will continue as a going concern. The Company is currently in the
exploration stage and existing cash and available credit are
insufficient to fund the Company's cash flow needs for the next year.
In October 2001 a related party extended the company a line of credit
for $150,000 (see Note 4). The Company plans to raise additional
capital through private placements, ranging from $6,000,000 to
$8,000,000.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents. As of December 31, 2002, and
2001, the Company held no cash equivalents.
-10-
ICONET, INC.
(A Company in the Exploration Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 2002
OPERATING AND ADMINISTRATIVE EXPENSES
The major components of the operating and administrative expenses for
the years ending December 31, 2002, and 2001 are:
2002 2001
---- ----
Consulting $642,086 $504,073
Salaries and wages and benefits -0- 20,000
Marketing and investor relations -0- 20,000
Legal and accounting 77,551 198,424
Rent expense (1,200) -0-
Other expenses
46,182 13,452
________ ________
Total operating and administrative $764,619 $755,949
======== ========
RENT EXPENSE
For the years ended December 31, 2002, and 2001, the total rent
(credit) expense was $(1,200) and $-0-, respectively.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. There were no
research and development costs during 2002 or 2001.
LOSS PER SHARE
Net loss per share is provided in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share".
Basic loss per share for each period is computed by dividing net loss
by the weighted average number of shares of common stock outstanding
during the period. Diluted loss per share is computed in a manner
consistent with that of basic loss per share while giving effect to all
potentially dilutive common shares that were outstanding during the
period. The number of additional shares is calculated by assuming that
outstanding stock options were exercised and that the proceeds from
such exercises were used to acquire shares of common stock at the
average market price during the reporting period. The weighted averages
for the years ended December 31, 2002, and 2001, and from inception
reflect the reverse stock split of 200:1 that was approved by the board
of directors in July 2001.
-11-
ICONET, INC.
(A Company in the Exploration Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 2002
REVENUE RECOGNITION
In 2000 the SEC issued Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements." Pursuant to SAB No. 101
and the relevant generally accepted accounting principles, the Company
will recognize revenue upon the passage of title, ownership and the
risk of loss to the customer. For service agreements the Company
recognizes revenue on a straight-line basis over the contract period.
During the years ending December 31, 2002, and 2001, there was no
revenue.
NEW ACCOUNTING PRONOUNCEMENTS
In May 2002 the Financial Accounting Standards Board (`FASB') issued
Statement of Financial Accounting Standards (`SFAS') 145 "Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections". This pronouncement requires that gains or
losses arising from early extinguishments of debt that are part of a
company's recurring operations (i.e., a risk management strategy) would
not be reported as extraordinary items. The statement also provides
that modifications to a capital lease that make it an operating lease
be accounted for as a sale-leaseback. SFAS No. 145 will not affect the
financial results as the Company has no long term debt or capital
leases.
In August 2002 the FASB issued SFAS 146 "Accounting for Costs
Associated With Exit or Disposal Activities". This statement supercedes
pronouncement 94-7 from the Emerging Issues Task Force (EITF) and
establishes new standards of accounting and reporting for exit
activities (including a restructuring). Under EITF 94-3, a liability
was recognized as of the date of an entity's commitment to an exit
plan. According to SFAS 146, a liability for exit or disposal costs is
recorded as of the date that the obligation is incurred. This standard
also requires that the liability be initially measured at fair value.
The Company will account for exit or disposal activities in accordance
with the guidance in SFAS 146. Management does not feel that this
standard will affect the Company, as they are not operating in any
industry and will not incur exit or disposal costs.
-12-
ICONET, INC.
(A Company in the Exploration Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 2002
In October 2002 the FASB issued SFAS 147, "Acquisitions of Certain
Financial Institutions." SFAS 147 addresses financial accounting and
reporting for the acquisition of all or part of a financial
institution. Since SFAS 147 is not relevant to the Company's business
this statement will have no impact on the Company's financial position
or results of operations.
In December 2002 the FASB issued SFAS 148 "Accounting for Stock Based
Compensation". This SFAS amends SFAS 123 and provides new guidance
regarding the transition when an entity changes from the intrinsic
value method to the fair value method of accounting for employee stock
based compensation cost. Additional information is now required to be
disclosed regarding such cost in the financial statements of public
companies. The Company believes that this statement will have no impact
on the Company's financial statements or the results of its operation.
2. MINING RIGHTS
In June 2002 the Company entered into an option to purchase 21 mining
claims in Ontario, Canada with Sea Emerald Development Corp. (Sea
Emerald) in exchange for payment of a nominal sum and issuance of a
total of 10,000,000 shares of restricted common stock (valued at
$500,000 on the date that the agreement was signed). In June 2002 the
Company issued the first 2,000,000 shares to Sea Emerald. In September
2002 the Company issued the balance of 8,000,000 shares. (See Note 7).
The Company is obligated to pay 5% of net smelter returns from
production as a royalty to Sea Emerald. During 2002 a total of $15,000
in development costs was capitalized in mining rights.
-13-
ICONET, INC.
(A Company in the Exploration Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 2002
3. FEDERAL INCOME TAXES
The Company recognizes deferred tax liabilities and benefits for the
expected future tax impact of transactions that have been accounted for
differently for book and tax purposes. Deferred tax benefits and
liabilities are calculated using enacted tax rates in effect for the
year in which the differences are expected to reverse. A valuation
allowance has been provided to reduce the asset to the amount of tax
benefit management believes it will most likely realize. The following
is a schedule of the composition of the provision for income taxes:
2002 2001
---- ----
Current tax provision $ -0- $ -0-
Deferred tax provision -0- -0-
_____ ____
Total provision for income taxes $ -0- $ -0-
===== =====
Deferred tax assets consisted of the following:
2002 2001
---- ----
Deferred noncurrent tax asset $ 1,287,659 $ 1,025,175
Valuation allowance (1,287,659) (1,025,175)
___________ ____________
Net deferred noncurrent tax asset $ -0- $ -0-
=========== ============
The net change in the valuation account was $262,484 and $298,357 in
2002 and 2001, respectively. Deferred federal and state income taxes
consist of future tax benefits attributed to loss carryforwards. The
Company has available net operating loss carryforwards totaling
approximately $3,787,200, which expire in the years 2017 to 2022.
4. LINE OF CREDIT
During the year ended December 31, 1999, an unrelated third party
issued the Company an unsecured $1,500,000 line of credit. The line of
credit carried interest at 12% per annum and was due on demand. In May
2001 the company issued 150,000 shares of its common stock to retire
$210,000 of the line of credit, for a value of approximately $.01 per
share. In July the company issued 30,000,000 shares of its common stock
to retire $637,925 of the line of credit, for a value of approximately
$.02 per share. The average market price of the stock per the OTC in
-14-
ICONET, INC.
(A Company in the Exploration Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 2002
May and July 2001 was $1.70 and $1.00, respectively. The balance of the
line of credit and related interest at December 31, 2002, was $150,458.
In October 2001 the Company obtained a new unsecured line of credit
from a shareholder for $150,000 at 12% per annum. The line of credit is
due on demand. At December 31, 2002, the balance was $0.
5. RELATED PARTY TRANSACTIONS
During the years ended December 31, 2002, and 2001, the Company charged
approximately $276,084, and $444,250, respectively, to consulting
expense, and $80,000 and $187,271, respectively, to legal fees for
services rendered by directors or stockholders of the Company.
Outstanding balances payable for consulting and legal fees to these
related parties were $481,065 and $522,164 at December 31, 2002, and
2001, respectively.
In September 2001 the Company issued an option to purchase 1,000,000
shares of common stock at $0.10 per share to an Officer and Director of
the Company (see Note 8). The option expires in September 2006.
In October 2001 a related party issued the company an unsecured
$150,000 line of credit. During the year ended 2002 and 2001, no
interest was paid on the line of credit. The balance at December 31,
2002, was $0 (see Note 4).
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board SFAS No. 107, "Disclosure About
Fair Value of Financial Instruments" is part of a continuing process by
the FASB to improve information on financial statements. The following
methods and assumptions were used by the Company in estimating its fair
value disclosures for such financial instruments as defined by the
Statement.
-15-
ICONET, INC.
(A Company in the Exploration Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 2002
The carrying amounts reported in the balance sheets for accounts
payable and bank overdraft approximate fair value at December 31, 2002,
and 2001, as the payables mature in less than one year.
The estimated fair value of the line of credit is not materially
different from the carrying values for financial statement purposes at
December 31, 2002, and 2001.
7. STOCKHOLDERS' EQUITY
In January 1999 and July 2001, respectively, a 1:21 stock split and a
200:1 reverse stock split occurred. All shares are shown in accordance
with the post July 2001 split.
In August 1997 the Company issued 105,000 shares of common stock to its
officers and directors at $0.01 per share, for a total of $10,000 in
cash.
In April 1998, the Company issued 105,000 shares of common stock as
part of an offering memorandum at $0.20 per share, for a total of
$200,000 in cash, less offering costs of $5,365. In May 1998 the
Company issued 10,500 shares of common stock, with a fair market value
of $20,000, to a related company for the distribution rights to a
non-reusable medical syringe.
In January 1999 the Company canceled the 115,500 shares of common stock
previously issued to the officers, directors, and the related company.
Also in January 1999, the Company declared a forward stock split of
1:21 for the remaining 1,000,000 shares of common stock outstanding,
retaining the $0.001 par value.
In February 1999 the Company issued 10,000 shares of common stock, with
a fair market value of $20,000, for the patent rights to a jukebox
entertainment system. The Company also issued 1,250 shares of its
common stock to unrelated third parties at $.01 per share for a total
-16-
ICONET, INC.
(A Company in the Exploration Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 2002
of $2,500 for consulting services provided. These shares were issued at
the fair market value of the consulting services.
In January 2000 the Company issued 375 shares of restricted common
stock to an unrelated third party for consulting. The value of the
consulting received was $74,603. In February 2000 the Company cancelled
the 10,000 shares issued for the patent rights. In July 2000 the
Company issued 490 shares of its common stock in connection with a
consulting agreement. The fair market value of the stock was $73,500.
In May 2001 the company issued 150,000 shares of its common stock to
retire $210,000 from the line of credit. In July 2001 the company
authorized a reverse stock split of 200:1 shares of its common stock.
The company retained the authorized number of shares and the par value
of the common stock. The company also issued 30,000,000 shares of its
common stock to retire $637,925 from the line of credit. Also in July
2001 the company issued 1,000,000 shares of its common stock to
unrelated third parties in exchange for consulting and legal services
with a fair value of $650,000.
In June 2002 the Company issued 1,500,000 shares of its common stock
for consulting services valued at $75,000. Also in June 2002 the
Company issued the first installment of 2,000,000 shares of its common
stock for mining rights to 21 claims valued at $500,000. In July 2002
the Company issued 1,000,000 shares of its common stock for $250,000
cash. In August 2002 the Company issued 2,000,000 shares of its common
stock for consulting services valued at $320,000. In September 2002 the
Company issued the remaining 8,000,000 shares of its common stock for
mining rights to the 21 claims. In November 2002 the Company issued
2,000,000 shares of its common stock for consulting services valued at
$320,000.
8. STOCK OPTIONS
The Company uses the intrinsic value method to account for options
granted to employees for the purchase of common stock. Deferred
-17-
ICONET, INC.
(A Company in the Exploration Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 2002
compensation is recorded when the market price exceeds the option price
at the grant date. Compensation is recorded using the straight-line
method over the vesting period. In April 1999 the Company issued an
option to purchase 2,500 shares of common stock at $4.00 a share to a
Director. The fair value of the options was zero as the option price
exceeded the market price at the grant date. The option reflects the
reverse stock split of July 2001 (see Note 6). The Director resigned
from the Company in May 2001. The options are still outstanding and
will expire in April 2009.
In September 2001 the Company issued an option to purchase 1,000,000
shares of common stock at $0.10 per share to a Director of the Company
(see Note 4). The Company accrued $400,000 in deferred compensation
costs, as the option price at the grant date was less than the market
price. The option expires in September 2006. The compensation cost will
be accrued over the vesting period. Compensation costs of $100,000 and
$20,000 were included in the statements of operation for the years
ended December 31, 2001, and 2000, respectively. The Company has
determined the pro-forma information as if the Company had accounted
for the stock option granted on September 30, 2001, under the fair
value method of SFAS 123. The Black Scholes option-pricing model was
used with a risk free interest rate of 5.48%; dividend yield of 0.0%; a
volatility factor of 100% and an expected life of 5 years. The fair
value of the stock options granted in September 2001 is $.42 per share.
If the Company had recognized deferred compensation cost based on the
fair value method, it would have decreased deferred compensation by
$80,000.
9. COMMITMENTS AND CONTINGENCIES
There are various claims and lawsuits pending against the Company
arising in the normal course of the Company's business. Although the
amount of liability at December 31, 2002, cannot be ascertained,
management is of the opinion that any resulting liability will not
materially affect the Company's financial position.
Merrill Lynch Canada Inc., has filed suit against the Company regarding
-18-
ICONET, INC.
(A Company in the Exploration Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 2002
a dispute related to the sale of its restricted common stock by an
unrelated third party to Merrill Lynch. The case is still in its early
stages and the Company is trying to reach a settlement with Merrill
Lynch. At this time the Company does not know if it will sustain a
loss, or the amount of the loss.
The Company settled an action by a bank regarding an overdraft. The
Company paid $9,462 of the overdraft. The amount due as of December 31,
2002 is $28,796, which has been accrued by the Company. The Company
paid three payments and then defaulted on this settlement.
10. SUBSEQUENT EVENTS
In April 2003 the Company and Sea Emerald Development Corp., rescinded
their agreement for the purchase and sale of the mining claims situated
in Porcupine Mining Division, Canada. The 10,000,000 shares of the
Company's restricted Common Stock issued to Sea Emerald will be
returned to the Company's treasury.
-19-
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Registrant has no disagreement with the Independent Accountants since inception.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Our Bylaws provide that we shall have a minimum of one director and a maximum of
nine directors on the board at any one time. Our current sole director and
executive officer is as follows:
NAME AND ADDRESS AGE POSITIONS HELD
________________ ___ ______________
Randy Miller 46 President, Secretary, Treasurer and
Director
Each director of the Company is elected by the stockholders to a term of one
year and serves until his successor is elected and qualified. Each officer of
the Company is elected by the Board of Directors to a term of one year and
serves until his successor is duly elected and qualified, or until he is removed
from office. The Board of Directors has no nominating, auditing or compensation
committees.
Mr. Miller was appointed to the Board by the past Board of Directors, concurrent
with their respective resignations, in May 2001. For the past five years, and
since 1995, Mr. Miller has been sole officer, director and shareholder of Adrea
Capital Corporation, a Canadian corporation engaged in providing business and
financial consulting services for small companies in Europe and Canada.
(b) Significant Employees.
Other than Randy Miller, there are no employees who are expected to make a
significant contribution to our corporation.
(c) Family Relationships.
There are no family relationships among our officers, directors, or persons
nominated for such positions.
EMPLOYMENT AGREEMENTS
Mr. Randy Miller, the Company's sole officer and director, is not currently
party to any employment agreement with the Company, nor are there any plans to
enter into any agreements with Mr. Miller. However, he will receive a monthly
consulting agreement of $7,500.00, commencing July 2002, and prior to this the
agreement was in place for $1000.00 per month commencing May 2001. The Company
presently has no pension, health, annuity, bonus, insurance, profit sharing or
similar benefit plans; however, it may adopt such plans in the future. There are
presently no personal benefits available for directors, officers or employees of
the Company, except for options granted by the Board of Directors to certain
officers, directors and consultants to the Company.
There are no arrangements relating to a change in control of the Company.
(d) Legal Proceedings.
No officer, director, or persons nominated for these positions, and no promoter
or significant employee of our corporation has been involved in legal
proceedings that would be material to an evaluation of our management.
ITEM 10. EXECUTIVE COMPENSATION
The Company's officer and director currently does not receive a salary for his
services, and there is no plan to pay a salary unless the company has sufficient
net revenues to afford to pay him.
There are no employment contracts between the Company and its officer and
director.
The Company does not have any plan or arrangement with respect to compensation
to its executive officers which would result from the resignation, retirement or
any other termination of employment with the Company or from a change in control
of the Company, or a change in the executive officers' responsibilities
following any change in control, where in respect of an executive officer, the
value of such compensation exceeds $120,000. There is no arrangement relating to
a change in control of the Company.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
In September, 2001, we granted the following stock option to the following
officer and director as compensation and incentives for services rendered to
theCompany:
PERCENT
OF TOTAL
NUMBER OF OPTIONS/
SECURITIES SARS
UNDERLYING GRANTED EXERCISE DATE OF
NAME OF HOLDER OPTIONS GRANTED FISCAL YR PRICE EXERCISE
______________ _______________ _________ ________ _________
Randy Miller 1,000,000 100%(1) $.10/Share 9/15/06
(1) This percentage is based on the total number of option shares granted during
2001.
Any shares acquired through exercise of this option shall be restricted shares
and may not, under any circumstances, be registered or in any way become free
trading until two years from the date the shares are acquired through exercise
of the option. The records of the stock transfer agency, as well as any
certificates issued upon exercise of these options shall contain said
restrictive legend.
There are no other bonus, pension, deferred compensation, long-term incentive
plans or awards, or any other similar plans for executive officers and/or
directors of the Company.
There are no employment contracts between Registrant and any of its officers or
directors.
Registrant does not have any plan or arrangement with respect to compensation to
its executive officers which would result from the resignation, retirement or
any other termination of employment with Registrant or from a change in control
of Registrant, or a change in the executive officers' responsibilities following
any change in control, where in respect of an executive officer, the value of
such compensation exceeds $120,000.
There are no other bonus, pension, deferred compensation, long-term incentive
plans or awards, or any other similar plans for executive officers and/or
directors of Registrant.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth the ownership, as of December 31, 2002, of our
common stock (a) by each person known by us to be the beneficial owner of more
than 5% of our outstanding common stock, and (b) by each of our directors, by
all executive officers and by our directors as a group. To the best of our
knowledge, all persons named have sole voting and investment power with respect
to the shares, except as otherwise noted.
Security Ownership of Officers and Directors.
AMOUNT OF NATURE OF
TITLE OF BENEFICIAL BENEFICIAL PERCENT OF
CLASS NAME & ADDRESS OWNER OWNER CLASS
________ ______________ __________ __________ __________
Common Randy Miller (1) 1,000,000 Direct 3%(2)
8 Gaucho Drive
Rolling Hills Estates, CA 90274
All Officers and Directors as a Group 1,000,000 Direct 3%
(1 Individual)
(1) Mr. Miller has an option to acquire 1,000,000 shares of our restricted
Common Stock at an exercise price of $.10 per share. This option expires
September 15, 2006, and no portion has yet been exercised by Mr. Miller.
(2) Assumes exercise of option to purchase 1,000,000 shares.
Changes in Control.
There are currently no arrangements, which would result in a change in control
of Iconet, Inc. However, Mr. Kurt Dalmata, a shareholder who owns 1,470,000
shares of Common Stock, has the right to be appointed as a director of our
company.
FUTURE SALES BY EXISTING STOCKHOLDERS
All issued and outstanding shares of Common Stock of the Company are "restricted
securities", as that term is defined in Rule 144 of the Rules and Regulations of
the SEC promulgated under the Act ("Rule 144"), save and except the shares which
were issued under a public offering in the State of New York, pursuant to an
exemption provided by Rule 504 of Regulation D, promulgated under the Securities
Act of 1933, as amended, which are not "restricted securities" under Rule 144
and can be publicly sold, except for those Shares purchased by "affiliates" of
the Company, as that term is defined in Rule 144.
Under Rule 144, restricted shares can be publicly sold, subject to volume
restrictions and certain restrictions on the manner of sale, commencing one (1)
year after their acquisition. Sales of shares by "affiliates" are subject to
volume restrictions and certain other restrictions pertaining to the manner of
sale, all pursuant to Rule 144.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than the sale of shares to our former officers and directors, we have not
entered into any transactions with our officers, directors, persons nominated
for these positions, beneficial owners of 5% or more of our common stock, or
family members of these persons, except for an option granted to Mr. Randy
Miller to acquire up to a total of 1,000,000 shares of our restricted Common
Stock, at $.10 per share, and a loan from Mr. Kurt Dalmata, and his related
ownership of 58% of our total outstanding shares during a portion of 2001.
Mr. Dalmata was issued 30,000,000 shares in May 2001 to retire $210,000 from the
line of credit. Subsequently, in July 2001, the Company authorized a stock split
of 200:1 for its total outstanding shares of common stock. This resulted in Mr.
Dalmata's shares being reduced to a total of 150,000, which are currently owned
by Mr. Dalmata.
We also had a related party payable during 2001, in the sum of $430,000.00, as
disclosed in our September 30, 2001 Form 10-QSB. This was owed to two directors
as salaries and one director as legal fees. The parties and amounts owed are as
follows:
a. Marilyn Haft, Esq., a director, was owed $ 137,500 as and for legal services
performed for the Company.
b. Randy Moss, a director and officer of the Company, was owed $100,000 as and
for salary.
c. Lee Edmondson, a director and officer of the Company, was owed $182,500 as
and for salary.
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K.
EXHIBITS
a) All required exhibits, including the Company's Articles of Incorporation, and
Bylaws, are attached to the Company's Form SB-2, filed on November 1, 2001.
All previously filed exhibits are incorporated herein by reference.
b) Reports on Form 8-K: No reports were on filed on Form 8-K during the quarter
ended December 31, 2001.
EXHIBIT NO. DOCUMENT DESCRIPTION
___________ ____________________
3.1 Articles of Incorporation and any Amendments-
Incorporated by reference to the Form SB-2, filed
November 1, 2001.
3.2 Bylaws- Incorporated by reference to the Form SB-2,
filed November 1, 2001.
99.1 Certification of Chief Executive Officer and Chief
Financial Officer
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, Registrant
caused the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized.
ICONET, INC., a
Nevada corporation
By: /s/ RANDY MILLER Dated: May 14, 2003
_________________________________________ ____________
Randy Miller
Chief Executive Officer and President
By: /s/ RANDY MILLER Dated: May 14, 2003
_________________________________________ ____________
Randy Miller
Chief Financial Officer
CERTIFICATIONS
I, Randy Miller, certify that:
1. I have reviewed this annual report on Form 10-KSB of IConet, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15 d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ RANDY MILLER
___________________________
Randy Miller
Chief Executive Office and President
Date: May 14, 2003 Chief Financial Officer