U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10QSB
Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act
of 1934 for the Quarterly Period Ended September 30, 2002
Commission File Number: 000-28481
Iconet, Inc.
-------------
(Exact name of small business issuer as specified in its charter)
Nevada 86-0891931
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8 Gaucho Hills Drive, Rolling Hills Estates, California 90274
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(Address of Principal Executive Offices) (Zip Code)
(416) 682-9255
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(Issuer's telephone number)
N/A
----
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed be
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.
Yes X No
------ ------
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
There are 45,757,115 shares of common stock outstanding as of September 30,
2002. The shares are traded on the OTC Bulletin Board, under the symbol
"ICON".
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Item 2. Management's Discussion of Operations and Financial Condition
PART II - OTHER INFORMATION
Signatures
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
ICONET, INC.
(A Company in the Development Stage)
BALANCE SHEETS
ASSETS
-------
September
30, 2002 December
Current Assets (Unaudited) 31, 2001
-------------- ------------ ------------
Cash $ 61,795 $ 1,068
Prepaid expenses 266,667 81,250
------------ ------------
Total current assets 328,462 82,318
------------ ------------
Other Assets
------------
Mining rights 515,000 -
Deferred tax asset (net) - -
------------ ------------
Total Other Assets 515,000 -
------------ ------------
Total Assets $ 843,462 $ 82,318
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current Liabilities
-------------------
Accounts payable $ 355,644 $ 363,679
Note payable 38,257 30,519
Related party payable 521,065 522,164
Officer advances 14,900 -
Related party line of credit - 22,574
Interest payable to a related party 150,458 143,644
Accrued expenses 17,816 57,132
Wages payable 68,327 68,327
Payroll tax payable 16,338 16,338
------------ ------------
Total current and total liabilities 1,182,805 1,224,377
------------ ------------
Commitments and Contingencies
-----------------------------
Stockholders' Deficit
---------------------
Common stock, $.001 par value, 100,000,000 shares
authorized, 45,757,115 and 31,257,115 shares issued
and outstanding at September 30, 2002 and
December 31, 2001 45,757 31,257
Additional paid-in capital 3,352,406 2,221,906
Deferred compensation costs (320,000) (380,000)
Deficit accumulated during the development stage (3,417,506) (3,015,222)
------------ ------------
Total Stockholders' Equity (339,343) (1,142,059)
------------ ------------
Total liabilities and stockholders' equity $ 843,462 $ 82,318
3
ICONET, INC.
(A Company in the Development Stage)
STATEMENT OF OPERATIONS
----------------------
(Unaudited)
Cumulative From
Inception Nine Nine Three Three
(August 1997) Months Months Months Months
through Ended Ended Ended Ended
September September September September September
30, 2002 30, 2002 30, 2001 30, 2002 30, 2001
Revenue $ - $ - $ - $ - $ -
-------
Operating Costs
and Expenses
---------------
Consulting $ (1,719,899) $ (270,418) $ (208,250) $ (111,503) $ (167,000)
Research and
development (179,027) - - - -
Marketing expense (159,394) - (20,000) - -
Labor expense (80,000) (60,000) - (20,000) -
Legal and accounting (353,035) (28,452) (140,153) (4,001) (97,590)
Operating and
administrative
expenses (693,563) (29,228) (4,655) (19,365) (2,384)
Rent expense (85,335) (7,300) - (1,500) -
Depreciation expense (5,562) - - - -
Amortization expense (16,500) - - - -
----------- ----------- ----------- ----------- -----------
Total operating
costs and expenses (3,292,315) (395,398) (373,058) (156,369) (266,974)
----------- ----------- ----------- ----------- -----------
Non-operating Income
--------------------
Dividend income 1,212 - - - -
Gain on cancellation
of contracts 74,104 - - - -
Gain on cancellation
of amortization 16,500 - - - -
Loss on disposal
of assets (59,641) - (59,641) - -
----------- ----------- ----------- ----------- -----------
Total non-operating
income 32,175 - (59,641) - -
----------- ----------- ----------- ----------- -----------
Interest expense (157,366) (6,886) (44,991) (2,182) (1,468)
---------------- ----------- ----------- ----------- ----------- -----------
Net loss before
income taxes (3,417,506) (402,284) (477,690) (158,551) (268,442)
----------- ----------- ----------- ----------- -----------
Provision for
income taxes - - - - -
----------- ----------- ----------- ----------- -----------
Net loss $ (3,417,506) $ (402,284) $ (477,690) $ (158,551) $ (268,442)
============ =========== =========== =========== ===========
Loss per common
share - basic $ (0.44) $ (0.01) $ (0.05) $ (0.00) $ (0.01)
============ =========== =========== =========== ===========
4
ICONET, INC.
(A Company in the Development Stage)
STATEMENT OF OPERATIONS
----------------------
(Unaudited)
Cumulative From
Inception Nine Nine Three Three
(August 1997) Months Months Months Months
through Ended Ended Ended Ended
September September September September September
30, 2002 30, 2002 30, 2001 30, 2002 30, 2001
Weighted average
common shares
- basic 7,731,614 32,868,226 10,507,115 36,090,448 31,257,115
============ =========== =========== =========== ===========
Loss per common shares
- diluted $ (0.40) $ (0.01) $ (0.05) $ (0.00) $ (0.01)
============ =========== =========== =========== ===========
Weighted average common
shares - diluted 8,514,223 33,650,835 9,983,305 36,438,274 30,425,654
============ =========== =========== =========== ===========
5
ICONET, INC.
(A Company in the Development Stage)
STATEMENTS OF CASH FLOWS
------------------------
(Unaudited)
Cumulative
From Inception Nine Nine
(August 1997 Months Months
1997) through Ended Ended
September September September
30, 2002 30, 2002 30, 2001
Cash Flows from Operating Activities
------------------------------------
Net loss $ (3,417,506) $ (402,284) $ (477,690)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization and depreciation expenses 22,062 - -
Deferred compensation expense 80,000 60,000 -
Gain on cancellation of amortization (16,500) - -
Loss on disposal of assets 59,641 - 59,641
Decrease in deposits 14,925 - 600
Deposit paid (14,925) - -
Increase (decrease) in accounts payable 419,619 (8,035) (108,360)
Increase (decrease) in related party payable 521,065 (1,099) 67,500
Interest incurred on bank overdraft 7,738 7,738 -
Increase in wages payable 68,327 - -
Increase in interest payable 150,458 6,814 44,991
Increase in accrued expenses 109,154 35,684 4,500
Expenses paid by issuance of common stock 789,961 134,583 260,000
------------ ----------- -----------
Net cash used in operating activities (1,205,981) (166,599) (148,818)
------------ ----------- -----------
Cash Flows from Investing Activities
------------------------------------
Purchase of mining rights (15,000) (15,000) -
Purchase of fixed assets (65,203) - -
------------ ----------- -----------
Net cash used in investing activities (80,203) (15,000) -
------------ ----------- -----------
6
ICONET, INC.
(A Company in the Development Stage)
STATEMENTS OF CASH FLOWS
------------------------
(Unaudited)
Cumulative
From Inception Nine Nine
(August 1997 Months Months
1997) through Ended Ended
September September September
30, 2002 30, 2002 30, 2001
Cash Flows from Financing Activities
------------------------------------
Proceeds received from issuance of stock $ 454,635 $ 250,000 $ -
Proceeds received from officer advances 25,374 19,900 5,474
Proceeds from bank overdraft 30,519 - -
Payment on related party line of credit (115,924) (115,924) -
Payment of officers advances (10,474) (5,000) -
Proceeds received from line of credit 847,925 - 143,344
Proceeds received from related party
line of credit 115,924 93,350 -
------------ ----------- -----------
Net cash provided by financing activities 1,347,979 242,326 148,818
------------ ----------- -----------
Net increase in cash 61,795 60,727 -
Cash and cash equivalents at (Inception)
at December 31, 2001 and 2000 - 1,068 -
------------ ----------- -----------
Cash and cash equivalents at
September 30, 2002 and 2001 $ 61,795 $ 61,795 $ -
============ =========== ===========
Supplementary Information
-------------------------
During the nine months ended September 30, 2002, $72 in interest and $0 in
income tax was paid. During the nine months ended September 30, 2001, no
amounts were paid for either interest or income taxes.
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 2,000,000 shares of its common stock
as a partial payment for mining rights.
In August 2002 the Company issued 2,000,000 shares of its common stock as
payment for consulting services valued at $320,000.
In September 2002 the Company issued 8,000,000 shares of its common stock
as the balance of the payment for mining rights.
7
ICONET, INC.
(A Company in the Development Stage)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
September 30, 2002
1. Basis of Presentation
---------------------
The accompanying unaudited interim financial statements of Iconet,
Inc. (the "Company") have been prepared by the Company in accordance
with accounting principles generally accepted in the United States of
America, pursuant to the Securities and Exchange Commission rules and
regulations. In management's opinion all adjustments necessary for a
fair presentation of the results for the interim periods have been
reflected in the interim financial statements. The results of
operations for any interim period are not necessarily indicative of
the results for a full year. All adjustments to the financial
statements are of a normal recurring nature.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. Such disclosures
are those that would substantially duplicate information contained in
the most recent audited financial statements of the Company, such as
significant accounting policies and stock options. Management
presumes that users of the interim statements have read or have access
to the audited financial statements and notes thereto included in the
Company's most recent annual report on Form 10-KSB.
New 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. Management feels
that the early adoption of 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 nullifies
EITF 94-3 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 have not yet begun
operations in the mining industry.
8
ICONET, INC.
(A Company in the Development Stage)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
September 30, 2002
Going Concern
-------------
These financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is currently in
the development stage, and existing cash, other material assets, 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 3). Management is
attempting to raise additional capital.
Prepaid Expenses
----------------
In August 2002 the Company issued 2,000,000 shares of common stock to
a third party as full payment for consulting services to be provided
over six months. The services were valued at the trading price of
$0.16 of the stock on the issue date. At September 30, 2002, $266,667
of this consulting expense was prepaid. (See Note 4)
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 4).
The Company is obligated to pay 5% of net smelter returns from
production as a royalty to Sea Emerald. At September 30, 2002, a total
of $15,000 in development costs was capitalized in mining rights.
9
ICONET, INC.
(A Company in the Development Stage)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
September 30, 2002
3. Related Party Line of Credit
----------------------------
In October 2001 the Company obtained an unsecured line of credit from
a shareholder for $150,000 at 12% per annum. The line of credit is due
on demand on or after December 31, 2002. At September 30, 2002, the
outstanding balance on this line of credit was $0. An interest payable
balance on this line of credit of $7,222 remains outstanding. (See
Note 5)
4. Capital Stock
-------------
In June 2002 the Company issued 1,500,000 shares of common stock to an
unrelated third party for consulting. The value of the consulting
received was $75,000.
Also in June 2002 the Company issued 2,000,000 shares of common stock
as the first payment for mining rights. In September 2002 the Company
issued the balance of 8,000,000 shares due for the mining rights. (See
Note 2).
In July 2002 the Company issued 1,000,000 shares in a private
placement to an unrelated third party at $0.25 per share.
In August 2002 the Company issued 2,000,000 shares of common stock as
full payment for consulting services to be provided over six months.
The services were valued at the trading price of $0.16 of the stock on
the issue date. (See Note 1)
5. Related Party Transactions
--------------------------
In October 2001 the Company obtained an unsecured line of credit from
a shareholder for $150,000 at 12% per annum. At September 30, 2002,
the outstanding balance on this line of credit was $0 with related
interest payable of $7,222. As of September 30, 2002, interest payable
to related parties of $143,238 remained outstanding on a prior line of
credit.
The company rents office space on a month-to-month basis in order to
perform administrative functions. The rent is due to an officer of the
Company. At September 30, 2002, rent expense of $8,500 was payable as
part of officer advances. For the three and nine months ended
September 30, 2002, rent of $1,500 and $7,300 was expensed,
respectively.
The President of Iconet, Inc. has advanced the Company funds to pay
expenses. The advance is due upon demand and carries no interest. As
of September 30, 2002, the outstanding advance balance was $14,900.
10
ICONET, INC.
(A Company in the Development Stage)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
September 30, 2002
6. 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 September 30, 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 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 is a defendant in an action by a bank regarding an
overdraft. A settlement has been reached whereby the Company owes the
bank $38,257 as well as related interest at 9% per annum, in twelve
monthly installments of $3,321.
Item 3. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
------------------------------------------------------
The Company's Chief Executive Officer and Chief Financial Officer have
conducted an evaluation of the Company's disclosure controls and procedures
as of a date (the "Evaluation Date") within 90 days before the filing of
this quarterly report. Based on their evaluation, the Company's Chief
Executive Officer and Chief Financial Officer have concluded that the
Company's disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in reports that it
files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
applicable Securities and Exchange Commission rules and forms.
(b) Changes in Internal Controls and Procedures.
-------------------------------------------------
Subsequent to the Evaluation Date, there were no significant changes in
the Company's internal controls or in other factors that could
significantly affect these controls, nor were any corrective actions
required with regard to significant deficiencies and material weaknesses.
PART II. OTHER INFORMATION
30/Sep/02 Management Discussion and Analysis
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.
11
The Company has acquired the option to buy 21 mining claims in The
Porcupine Mining Division in the Northern Ontario, Canada. The Claims are
in the Shaw Dome region in the Timmins, Canada area. This area
has a history of producing major mining activity. We have started the
exploration phase of the project and are looking forward to drilling this
property to try and achieve greater shareholder value. During July 2002,
the Company raised US $250,000.00 through a private placement to accredited
investors and issued 1,000,000 shares of its restricted common stock, at a
price of US $0.25 per share. The proceeds from this offering are
currently being used to do exploration work on our newly acquired claims
and for general working capital.
Dr. Stewart Jackson joined the Board of Directors in July 2002.
Mr. Ron Shorr joined the Board of Directors in Sept. 2002.
The Company has issued the balance of the stock required to complete the
transaction of the mineral claims in the third quarter, bringing the amount
issued to Ten Million shares for the mineral claims.
The Company has also adopted an Option Plan for Directors, Officers and
Employees, subject to shareholder approval.
The Company has settled the lawsuit with JP Morgan and will be satisfied
within one year from Sept. 2002 by way of monthly instalments satisfactory
to both parties.
The Company is actively seeking a European listing.
12
Item 7. Signatures
Signatures
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ICONET, INC.
November 13, 2002 /S/ Randy Miller
--------------------------------
Randy Miller
13
SECTION 302 CERTIFICATION
I, Randy Miller, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Iconet,
Inc.
2. Based on my knowledge, this quarterly 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 quarterly report.
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly 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
quarterly report;
4. I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-
14) for the registrant and 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 quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. I have disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
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
14
6. I have indicated in this quarterly 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.
Date: November 13, 2002 /S/ Randy Miller
-----------------------------------
Randy Miller
Chairman and CEO
15