UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended MARCH 31, 2003
[ ] Transition Report pursuant to 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period to
Commission File Number 000-33163
ICOWORKS, INC.
------------------------------------------------------------------
(Exact name of small Business Issuer as specified in its charter)
NEVADA 76-0609444
-------------------------------- -----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
SUITE 1700, 1111 WEST GEORGIA STREET
VANCOUVER, BRITISH COLUMBIA, CANADA V6E 4M3
------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number,
including area code: 604-681-1754
------------
FORMER NAME: PARAGON POLARIS STRATEGIES.COM INC.
-------------------------------------------------
FORMER FISCAL YEAR: DECEMBER 31
--------------------------------
(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 by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the issuer 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
stock, as of the latest practicable date: 12,886,398 SHARES OF $.001 PAR VALUE
COMMON STOCK OUTSTANDING AS OF JUNE 13, 2003.
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
2
ICOWORKS, INC.
(formerly Paragon Polaris Strategies.com Inc.)
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(Unaudited)
MARCH 31, 2003
ICOWORKS, INC.
(formerly Paragon Polaris Strategies.com Inc.)
CONSOLIDATED BALANCE SHEET
(Expressed in U.S. Dollars)
(Unaudited)
=========================================================
March 31,
2003
---------------------------------------------------------
ASSETS
Current assets
Cash $ 132,645
Available-for-sale equity securities 8,530
Accounts receivable 61,802
Income taxes recoverable 920
Inventory 2,218,326
Prepaid expenses 92,462
Deferred bonus -
Deferred tax asset less valuation allowance -
-----------
Total current assets 2,514,685
Property and equipment 88,584
Deferred financing costs 304,554
Intangible asset 296,835
-----------
Total assets $3,204,658
===========
- continued -
The accompanying notes are an integral part of these consolidated financial
statements.
ICOWORKS, INC.
(formerly Paragon Polaris Strategies.com Inc.)
CONSOLIDATED BALANCE SHEET
(Expressed in U.S. Dollars)
(Unaudited)
========================================================
March 31,
2003
-------------------------------------------------------
Continued
LIABILITIES AND DEFICIENCY IN ASSETS
Current liabilities
Accounts payable and accrued liabilities $ 2,810,856
Due to related parties 785,329
------------
Total current liabilities 3,681,185
Commitments and contingencies
Minority interest (71,127)
Deficiency in assets
Common stock
Authorized
100,000,000 common shares with
a par value of $0.001
Issued and outstanding
12,886,398 common shares 12,886
Additional paid-in capital 2,484,817
Accumulated other comprehensive loss (8,730)
Accumulated deficit (2,809,372)
------------
Total deficiency in assets (320,399)
------------
Total liabilities and deficiency
in assets $ 3,204,658
=======================================================
The accompanying notes are an integral part of these consolidated financial
statements.
ICOWORKS, INC.
(formerly Paragon Polaris Strategies.com Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. Dollars)
(Unaudited)
===============================================================================================
Three Month Three Month Nine Month Nine Month
Period Ended Period Ended Period Ended Period Ended
March 31, March 31, March 31, March 31,
2003 2002 2003 2002
-----------------------------------------------------------------------------------------------
SALES $ 722,754 $ 542,131 $ 1,397,887 $ 629,143
COST OF SALES 666,506 289,305 1,035,730 352,056
----------- ----------- ------------ -----------
GROSS MARGIN 56,248 252,826 362,157 277,087
----------- ----------- ------------ -----------
EXPENSES
Amortization of customer list 44,526 44,526 133,576 59,367
Amortization of deferred bonus 18,896 - 56,686 -
Depreciation 20,606 - 32,166 -
General and administrative 568,380 415,870 1,207,726 563,909
----------- ----------- ------------ -----------
652,408 460,396 1,430,154 623,276
----------- ----------- ------------ -----------
Loss before minority interest in net
loss of subsidiaries (596,160) (207,570) (1,067,997) (346,189)
MINORITY INTEREST IN NET LOSS OF
SUBSIDIARIES (71,127) - (71,127) -
----------- ----------- ------------ -----------
Loss before other items and income taxes (525,033) (207,570) (996,870) (346,189)
OTHER INCOME (EXPENSES)
Foreign exchange loss (172) - (172) -
Interest income 7,356 17 7,858 168
Gain on settlement of accounts payable - - - 55,000
Gain on sale of assets 11,551 - 7,367 -
Loss on sale of available-for-sale
equity securities (8,588) - - -
----------- ----------- ------------ -----------
Total other income, net 10,147 17 15,053 55,168
----------- ----------- ------------ -----------
Loss before income taxes (514,886) (207,553) (981,817) (291,021)
INCOME TAX BENEFITS (3,792) - (3,792) -
----------- ----------- ------------ -----------
Net loss $ (511,094) $ (207,553) $ (978,025) $ (291,021)
==============================================================================================
Basic and diluted net loss per share $ (0.05) $ (0.04) $ (0.14) $ (0.05)
==============================================================================================
Weighted average number of
common shares outstanding 9,495,064 5,531,461 6,937,219 5,321,399
==============================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
ICOWORKS, INC.
(formerly Paragon Polaris Strategies.com Inc.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Expressed in U.S. Dollars)
(Unaudited)
============================================================
Nine Month Nine Month
Period Ended Period Ended
March 31, March 31,
2003 2002
------------------------------------------------------------
Net loss $(978,025) $(291,021)
Change in cumulative translation
adjustment (8,677) (6,507)
----------------------
Comprehensive loss $(986,702) $(297,528)
========================================================
The accompanying notes are an integral part of these consolidated financial
statements.
ICOWORKS, INC.
(formerly Paragon Polaris Strategies.com Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
(Unaudited)
===============================================================================
Nine Month Nine Month
Period Ended Period Ended
March 31, March 31,
2003 2002
-------------------------------------------------------------------------------
CASH FROM OPERATING ACTIVITIES
Net loss $ (978,025) $(291,021)
Items not involving cash:
Accrued management fees due to a related party 153,000 102,000
Amortization of customer list 133,576 -
Amortization of deferred bonus 56,686 -
Depreciation 32,166 59,365
Foreign exchange gain - (6,506)
Gain on settlement of accounts payable - (55,000)
Minority interest in net loss of subsidiaries (71,127) -
Reversal of contingent liability - (63,530)
Shares issued for consulting services - 42,200
Shares issued for financing fees - 4,200
Impairment of property and equipment - 1,215
Changes in non-cash working capital items:
(Increase) decrease in accounts receivable 43,896 (60,882)
Decrease in income taxes recoverable 21,868 -
(Increase) decrease in inventory (2,208,631) 4,726
Increase in prepaid expenses (87,001) (2,716)
Increase (decrease) in accounts payable
and accrued liabilities 2,509,308 (276,226)
------------------------
Net cash used in operating activities (394,285) (542,175)
------------------------
CASH FROM INVESTING ACTIVITIES
Cash acquired on purchase of subsidiaries - 270,958
Sale of available-for-sale equity securities 1,299 -
Purchase of subsidiary - (115,000)
Purchase of property and equipment (50,010) (11,371)
------------------------
Net cash used in investing activities (48,781) (144,587)
------------------------
- continued -
The accompanying notes are an integral part of these consolidated financial
statements.
ICOWORKS, INC.
(formerly Paragon Polaris Strategies.com Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
(Unaudited)
======================================================================
Nine Month Nine Month
Period Ended Period Ended
March 31, March 31,
2003 2002
----------------------------------------------------------------------
Continued...
CASH FROM FINANCING ACTIVITIES
Issuance of common stock, net of
issuance costs 91,086 1,110,100
Increase (decrease) in due to related
parties 350,101 (496,347)
----------------------
Net cash provided by financing activities 441,187 613,753
----------------------
Change in cash during the period (1,879) 216,155
Cash, beginning of period 134,524 1,269
----------------------
Cash, end of period $132,645 $ 217,433
==================================================================
Cash paid during the period
for interest $ - $ -
==================================================================
Cash paid during the period for
income taxes $ - $ -
==================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
ICOWORKS, INC.
(formerly Paragon Polaris Strategies.com Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
MARCH 31, 2003
(Unaudited)
================================================================================
1. HISTORY AND ORGANIZATION OF THE COMPANY
Icoworks, Inc. (formerly Paragon Polaris Strategies.com Inc.) (the "Company")
was incorporated in the State of Nevada on May 27, 1999. On July 1, 1999, the
Company acquired limited rights to distribute and produce an oxygen enriched
water product for fish farming, aquaculture, mariculture, poultry raising and
for treating animal waste from dairies, feedlots of all kinds and for other
similar uses. The rights to use this technology were subsequently withdrawn by
agreement with the owner and the Company subsequently acquired a three year
license to market and sell vitamins, minerals, nutritional supplements from
Vitamineralherb.com Inc. This business was abandoned by the Company.
On February 20, 2003, the Company acquired 56% of the issued and outstanding
capital stock of Icoworks Holdings, Inc. ("Icoworks Holdings") consisting of
3,593,199 shares from several non-U.S. stockholders. As consideration, the
Company issued 7,186,398 common shares to the former non-U.S. stockholders of
Icoworks Holdings and control of the combined companies passed to the former
non-U.S. stockholders of Icoworks Holdings. The acquisition was accounted for
as a business combination (Note 4).
The consolidated statements of operations, stockholders' equity (deficiency) and
cash flows of the Company prior to February 20, 2003 are those of Icoworks
Holdings. The Company's consolidated date of incorporation is considered to be
February 27, 1998, the date of inception of Icoworks Holdings. Following the
acquisition, the Company changed its name from Paragon Polaris Strategies.com
Inc. to Icoworks, Inc.
Icoworks Holdings is a Nevada incorporated company whose principal business
activity consists of the conduct of customized auctions for corporate assets
such as wholesale and retail inventories, used industrial equipment and other
related goods. During the year ended June 30, 2002 and prior to the acquisition
of the Company, Icoworks Holdings purchased all the issued and outstanding
capital stock of two companies, Icoworks Services Ltd. and DM International
Appraisals & Consulting Ltd. (Note 5). Icoworks Holdings also has two other
subsidiaries, being Icoworks Eastern Ltd. and Icoworks Joint Venture Ltd.
Interim reporting
The accompanying unaudited consolidated financial statements have been prepared
by the Company in accordance with the rules and regulations of Regulation S-B as
promulgated by the Securities and Exchange Commission. In the opinion of
management, the accompanying unaudited financial statements contain all
adjustments necessary (consisting of normal recurring accruals) to present
fairly the financial information contained therein. The accompanying unaudited
financial statements do not include all disclosures required by generally
accepted accounting principles in the United States of America. The results of
operations for the three and nine month periods ended March 31, 2003 are not
necessarily indicative of the results to be expected for the year ending June
30, 2003.
2. GOING CONCERN
These consolidated financial statements have been prepared reflecting the
on-going assumption that the Company will be able to realize its assets and
discharge its liabilities in the normal course of business rather than through a
process of forced liquidation. However, certain conditions noted below currently
exist which raise substantial doubt about the Company's ability to continue as a
going concern. These consolidated financial statements do not include any
adjustments to the amounts and classifications of assets and liabilities that
might be necessary should the Company be unable to continue as a going concern.
ICOWORKS, INC.
(formerly Paragon Polaris Strategies.com Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
MARCH 31, 2003
(Unaudited)
================================================================================
2. GOING CONCERN (cont'd )
The operations of the Company have primarily been funded by the issuance of
capital stock. Continued operations of the Company are dependent on the
Company's ability to complete additional equity financings or generate
profitable operations in the future. Management's plan in this regard is to
secure additional funds through future equity financings. Such financings may
not be available or may not be available on reasonable terms.
=====================================================
March 31,
2003
-----------------------------------------------------
Accumulated deficit $ (2,809,372)
Working capital (deficiency) (1,166,500)
=====================================================
3. SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
These consolidated financial statements include the accounts of the Company and
its wholly-owned and partially-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated upon consolidation.
Use of estimates
The preparation of financial statements in accordance with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Foreign currency translation
The Company has determined that the functional currency of certain of its
wholly-owned and partially-owned subsidiaries is the local currency, the
Canadian dollar. Assets and liabilities denominated in foreign currency are
translated into U.S. dollars at the period end exchange rates. Revenue and
expenses are translated at the rates of exchange prevailing on the dates such
items are recognized in earnings. Related exchange gains and losses are
included in a separate component of shareholders' equity under other
comprehensive income. Exchange gains and losses resulting from foreign currency
transactions are included in income for the period.
Marketable securities
Marketable securities are classified into available-for-sale or trading
securities stated at fair market values. Any unrealized holding gains or losses
are to be reported as a separate component of shareholders' equity until
realized for available-for-sale securities, and included in earnings for trading
securities.
ICOWORKS, INC.
(formerly Paragon Polaris Strategies.com Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
MARCH 31, 2003
(Unaudited)
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd )
Inventory
Inventory is stated at the lower of cost or net realizable value. Cost is
generally determined on the first in, first out basis.
Property and equipment
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is recorded on a declining balance basis at the following annual
rates:
Auction equipment 20%
Automotive equipment 30%
Computer equipment 30%
Computer software 50%
Leasehold improvements Lease term
Office equipment 20%
Sign 20%
Tools and equipment 20%
Intangible asset
Intangible assets are recorded at cost and amortized using the straight-line
method over their estimated useful lives. As at March 31, 2003, the intangible
asset consists of a customer list with an estimated useful life of 3 years (Note
5).
The carrying value of intangible assets is re-evaluated for potential permanent
impairment on an ongoing basis at the reporting unit level. In order to
determine whether permanent impairment exists, management considers the
Company's and its subsidiaries' financial condition as well as expected pre-tax
earnings, undiscounted cash flows or market related values. If the carrying
value of intangible assets of a reporting unit exceeds the fair value of the
reporting unit, the carrying value of intangible assets must be written down to
fair value in the year the impairment is recognized.
Revenue recognition
Revenues consist of two main activities, auction revenues and held for sale
revenues. Auction revenues are comprised of buyers premiums, being premiums
over and above the purchase prices of items sold, and commissions paid by
consignors of items for auction. Held for sale revenues are comprised of
revenues from items purchased and held for sale and or liquidation. Revenue is
recognized once the auction or sales are completed and collection is reasonably
assured. Other commissions are earned when the Company provides guarantees on
the gross proceeds to be received from sale to the consignor.
The Company conducts these sales where it, or in joint venture with others,
temporarily acquires title to the goods. Where these activities are conducted,
the profits are divided between the Company and the joint venturers on a
negotiated basis. If the actual proceeds are less than cost, or less than the
guaranteed price, the Company may be required to fund the shortfall (Note 12).
Revenue is also earned from fees charged for appraisals and is recognized when
the work is completed and collection is reasonably assured.
ICOWORKS, INC.
(formerly Paragon Polaris Strategies.com Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
MARCH 31, 2003
(Unaudited)
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd )
Income taxes
The Company follows the liability method of accounting for income taxes. Under
this method, future income taxes are recognized for the future income tax
consequences attributable to differences between the financial statement
carrying values and their respective income tax bases (temporary differences).
Future income tax assets and liabilities are measured using enacted income tax
rates expected to apply to taxable income in the years in which temporary
differences are expected to be recovered or settled. The effect on future income
tax assets and liabilities of a change in tax rates is included in income in the
period in which the change occurs. The amount of future income tax assets
recognized is limited to the amount that is more likely than not to be realized.
Loss per share
Basic loss per share is computed by dividing the net loss for the period
attributable to common stockholders by the weighted average number of shares of
common stock outstanding during the period. Diluted loss per share takes into
consideration shares of common stock outstanding (computed under basic loss per
share) and potentially dilutive shares of common stock. Diluted loss per share
is not presented separately from loss per share as the conversion of outstanding
stock options and warrants into common shares would be anti-dilutive.
Stock-based compensation
Statements of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to account for stock-based
compensation using Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25"). Accordingly, compensation cost for stock
options is measured as the excess, if any, of the quoted market price of the
Company's stock at the date of the grant over the amount an employee is required
to pay for the stock.
The Company accounts for stock-based compensation issued to non-employees in
accordance with the provisions of SFAS 123 and the consensus in Emerging Issues
Task Force No. 96-18, "Accounting for Equity Instruments that are Issued to
Other Than Employees for Acquiring or in Conjunction with Selling, Goods or
Services".
ICOWORKS, INC.
(formerly Paragon Polaris Strategies.com Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
MARCH 31, 2003
(Unaudited)
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd )
Stock-based compensation (cont'd )
The following table illustrates the effect on loss and loss per share if the
Company had applied the fair value recognition provisions of SFAS 123 to
stock-based employee compensation.
=============================================================================================
Three Month Three Month Nine Month Nine Month
Period Ended Period Ended Period Ended Period Ended
March 31, March 31, March 31, March 31,
2003 2002 2003 2002
---------------------------------------------------------------------------------------------
Net loss, as reported $(511,094) $(207,553) $(978,025) $(291,021)
Add: Total stock-based employee
compensation expense included
in loss, as reported determined
under APB 25, net of
related tax effects - - - -
Deduct: Total stock-based employee
compensation expense determined
under fair value based
method for all awards,
net of related tax effects (4,973) - (7,680) -
----------------------------------------------
Pro-forma net loss $(516,067) $(207,553) $(985,705) $(291,021)
===================================================================================
Basic and diluted net loss
per share, as reported $ (0.05) $ (0.04) $ (0.14) $ (0.05)
===================================================================================
Basic and diluted net loss
per share, pro-forma $ (0.05) $ (0.04) $ (0.14) $ (0.05)
===================================================================================
Recent accounting pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") approved the
issuance of Statements of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" ("SFAS 142"). SFAS 142 requires that goodwill no longer
be amortized to earnings, but instead be reviewed for impairment. The statement
is effective for fiscal years beginning after December 15, 2001, and is required
to be applied at the beginning of an entity's fiscal year and to be applied to
all goodwill and other intangible assets recognized in its financial statements
at that date. Impairment losses for goodwill and indefinite-lived intangible
assets that arise due to the initial application of this statement (resulting
from a transitional impairment test) are to be reported as resulting from a
change in accounting principle. Under an exception to the date at which this
statement becomes effective, goodwill and intangible assets acquired after June
30, 2001, will be subject immediately to the non-amortization and amortization
provisions of this statement.
In June 2001, FASB issued Statements of Financial Accounting Standards No. 143,
"Accounting for Asset Retirement Obligations" ("SFAS 143") that records the fair
value of the liability for closure and removal costs associated with the legal
obligations upon retirement or removal of any tangible long-lived assets. The
initial recognition of the liability will be capitalized as part of the asset
cost and depreciated over its estimated useful life. SFAS 143 is required to be
adopted effective January 1, 2003.
ICOWORKS, INC.
(formerly Paragon Polaris Strategies.com Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
MARCH 31, 2003
(Unaudited)
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd )
Recent accounting pronouncements (cont'd )
In August 2001, FASB issued Statements of Financial Accounting Standards No.
144, "Accounting for the Impairment on Disposal of Long-lived Assets" ("SFAS
144"), which supersedes Statements of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to
be Disposed of". SFAS 144 requires that long-lived assets that are to be
disposed of by sale be measured at the lower of book value or fair value less
cost to sell. Additionally, SFAS 144 expands the scope of discontinued
operations to include all components of an entity with operations that (1) can
be distinguished from the rest of the entity and (2) will be eliminated from the
ongoing operations of the entity in a disposal transaction. SFAS 144 is
effective for fiscal years beginning after December 15, 2001, and, generally,
its provisions are to be applied prospectively.
In April 2002, FASB issued Statements of Financial Accounting Standards No. 145,
"Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No.
13, and Technical Corrections" ("SFAS 145"). SFAS 145 eliminates the requirement
that gains and losses from the extinguishment of debt be aggregated and, if
material, classified as an extraordinary item, net of the related income tax
effect and eliminates an inconsistency between the accounting for sale-leaseback
transactions and certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. Generally, SFAS 145 is effective for
transactions occurring after May 15, 2002.
In June 2002, FASB issued Statements of Financial Accounting Standards No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146")
that nullifies Emerging Issues Task Force No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(Including Certain Costs Incurred in a Restructuring)" ("EITF 94-3"). SFAS 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred, whereby EITF 94-3 had
recognized the liability at the commitment date to an exit plan. The provisions
of this statement are effective for exit or disposal activities that are
initiated after December 31, 2002 with earlier application encouraged.
In October 2002, FASB issued Statements of Financial Accounting Standards No.
147, "Accounting of Certain Financial Institutions - an amendment of FASB
Statements No. 72 and 44 and FASB Interpretation No. 9" ("SFAS 147"). SFAS 147
requires the application of the purchase method of accounting to all
acquisitions of financial institutions, except transactions between two or more
mutual enterprises. SFAS 147 is effective for acquisitions for which the date of
acquisition is on or after October 1, 2002.
In December 2002, FASB issued Statements of Financial Accounting Standards No.
148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an
amendment of FASB Statement No. 123" ("SFAS 148"). SFAS 148 amends FASB
Statement No. 123 to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS 148 amends the disclosure requirements of FASB
Statement No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. SFAS 148 is
effective for fiscal years ending after December 31, 2002.
ICOWORKS, INC.
(formerly Paragon Polaris Strategies.com Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
MARCH 31, 2003
(Unaudited)
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd )
Recent accounting pronouncements (cont'd )
In April 2003, FASB issued Statements of Financial Accounting Standards No. 149
"Amendment of Statement 133 on Derivative Instruments and Hedging Activities"
("SFAS 149"). SFAS 149 amends and clarifies financial accounting and reporting
for derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities under FASB Statement No. 133
"Accounting for Derivative Instruments and Hedging Activities". SFAS 149 is
generally effective for contracts entered into or modified after June 30, 2003.
The adoption of these new pronouncements is not expected to have a material
effect on the Company's consolidated financial position or results of
operations.
4. BUSINESS COMBINATION WITH ICOWORKS HOLDINGS
On November 20, 2002, the Company entered into an agreement to merge with
Icoworks Holdings. On February 20, 2003, the Company acquired a 56% interest in
Icoworks Holdings through the private acquisition of 3,593,199 shares of
Icoworks Holdings from several non-U.S. stockholders and, accordingly, the
Company is considered to be the legal acquirer. As consideration, the Company
issued 7,186,398 common shares to the former non-U.S. stockholders of Icoworks
Holdings and control of the combined companies passed to the former non-U.S.
stockholders of Icoworks Holdings and therefore, Icoworks Holdings is considered
the accounting acquirer. Consequently, the consolidated statements of
operations, stockholders' equity (deficiency) and cash flows include Icoworks
Holdings' results of operations, deficit and cash flows from February 27, 1998
(date of inception) and the Company's results of operations and cash flows from
February 20, 2003. The issued number of shares of common stock is that of the
Company. The acquisition was accounted for as a business combination. The
Company plans to complete the merger with Icoworks Holdings as contemplated by
the merger agreement.
Under the terms of the merger agreement, the Company agreed to issue shares of
its common stock to the shareholders of Icoworks Holdings on a two-for-one
basis. The Company anticipates issuing an aggregate of 12,886,398 shares in
order to complete the acquisition of all of the outstanding shares of Icoworks
Holdings, inclusive of the 7,186,398 shares already issued by the Company. In
addition, the Company will issue options and warrants to the current option
holders and warrant holders of Icoworks Holdings on a two-for-one basis.
ICOWORKS, INC.
(formerly Paragon Polaris Strategies.com Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
MARCH 31, 2003
(Unaudited)
================================================================================
4. BUSINESS COMBINATION WITH ICOWORKS HOLDINGS (cont'd )
At the date of acquisition, the fair market value of the net assets of the
Company was as follows:
Cash and cash equivalents $49
Accounts receivable 2,592
Accounts payable and accrued liabilities (17,066)
Due to related parties (82,892)
---------
Net liabilities assumed $(97,317)
=========
5. ACQUISITIONS
Acquisition of Icoworks Services Ltd. (formerly Wigley Auction Ltd.)
On December 1, 2001, Icoworks Holdings acquired all of the issued and
outstanding common stock of Icoworks Services Ltd. ("Icoworks Services") for
consideration of $679,584, consisting of a cash payment of $572,082 and the
issuance of 600,000 shares of common stock. Icoworks Holdings funded $367,805
while $115,000 was advanced by related parties.
The acquisition of Icoworks Services has been accounted for using the purchase
method and accordingly, these consolidated financial statements include the
results of operations and cash flows of Icoworks from the date of acquisition.
The total purchase price of $679,584 was allocated as follows:
Cash $270,958
Marketable securities 9,373
Accounts receivable 7,723
Inventory 48,275
Prepaid expenses 5,292
Due from related parties 177,677
Property and equipment 55,342
Trust assets 1,270
Accounts payable and accrued liabilities (429,358)
Trust liabilities (1,270)
Customer list 534,302
----------
$ 679,584
==========
The customer list is being amortized using the straight-line method to the
consolidated statements of operations over its estimated useful life of 3 years.
As at March 31, 2003, the customer list, with a cost of $534,302, has been
amortized by $237,467, leaving a net book value of $296,835.
ICOWORKS, INC.
(formerly Paragon Polaris Strategies.com Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
MARCH 31, 2003
(Unaudited)
================================================================================
5. ACQUISITIONS (cont'd )
Acquisition of DM International Appraisals & Consulting Ltd.
On April 1, 2002, Icoworks Holdings acquired all of the issued and outstanding
common stock of DM International Appraisals & Consulting Ltd. ("DM") for
consideration of $75,000, consisting of the issuance of 75,000 shares of common
stock.
The acquisition of DM has been accounted for using the purchase method and
accordingly, these consolidated financial statements include the results of
operations and cash flows of DM from the date of acquisition.
The total purchase price of $75,000 was allocated as follows:
Cash $5,729
Accounts receivable 1,806
Income taxes recoverable 111
Property and equipment 3,650
Accounts payable and accrued liabilities (7,481)
Due to related parties (4,396)
Deferred bonus 75,581
--------
$75,000
========
The deferred bonus relates solely to the value of the employment contract
Icoworks Holdings entered into with the former shareholder and key executive of
DM that was part of the terms of the acquisition. The deferred bonus was
amortized to the consolidated statements of operations commencing April 1, 2002
over a period of one year, being the term of the employment contract with the
former shareholder of DM.
6. INVENTORY
============================================================
March 31,
2003
------------------------------------------------------------
Wood products and associated equipment $1,532,925
Books 674,487
Miscellaneous and other goods held for resale 10,914
----------
$2,218,326
==========================================================
ICOWORKS, INC.
(formerly Paragon Polaris Strategies.com Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
MARCH 31, 2003
(Unaudited)
================================================================================
7. PROPERTY AND EQUIPMENT
===========================================================
March 31,2003
---------------------------------
Accumulated Net Book
Cost Depreciation Value
Auction equipment $ 17,015 $ 10,260 $ 6,755
Automotive equipment 60,576 40,368 20,208
Computer equipment 68,393 44,249 24,144
Computer software 16,718 5,161 11,557
Leasehold improvements 12,265 - 12,265
Office equipment 17,611 10,832 6,779
Sign 7,605 1,914 5,691
Tools and equipment 16,702 15,517 1,185
---------------------------
$216,885 $128,301 $88,584
===================================================
8. DEFERRED FINANCING COSTS
The Company issued 1,531,029 warrants to an investor group that has made
available to the Company funds totaling $1,087,030 (CDN$1,600,000). These
warrants are exercisable at $0.71 per warrant and expire on March 28, 2005. The
Company has recorded $304,554 in the consolidated balance sheets, being the fair
value calculated using the Black-Scholes option-pricing model of $306,000 net of
amortization of $1,446.
The Company used the Black-Scholes option pricing model to compute estimated
fair value, based on the following assumptions:
====================================================
Risk free interest rate 4.0%
Dividend yield rate 0.0%
Volatility 45%
Weighted average expected life of options 2 years
====================================================
ICOWORKS, INC.
(formerly Paragon Polaris Strategies.com Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
MARCH 31, 2003
(Unaudited)
================================================================================
9. DUE TO RELATED PARTIES
==================================================
March 31,
2003
--------------------------------------------------
Advances due to directors, unsecured,
non-interest bearing,
no fixed terms of repayment. $ 69,099
Management fees due to
a company related by common
ownership and a common
director, unsecured, non-
interest bearing, no fixed
terms of repayment. 311,086
Advances due to a company
controlled by common management,
unsecured, non-interest bearing,
no fixed terms of repayment 144,398
Payment due to the former
shareholders of Icoworks
(Note 4), unsecured, non-
interest bearing, no fixed
terms of repayment. 85,190
Due to shareholders 37,690
Advances due to a company
related by common ownership
and a common director,
unsecured, bearing interest
at prime plus 1%, due on
demand. These advances
require the Company to pay
a cash bonus and a stock
bonus, each equivalent to
10% of the outstanding
advances when demand
for repayment is requested. 137,866
--------
$785,329
===============================================
10. COMMON STOCK
During the year ended June 30, 2001, the Company issued 799,000 shares of common
stock for gross proceeds of $399,500 and incurred share issuance costs of
$35,202 paid in cash.
During the year ended June 30, 2002, the Company issued 1,521,000 units for
gross proceeds of $1,521,000 and incurred share issuance costs of $226,475 paid
in cash. Each unit consists of one share of common stock and one
non-transferable share purchase warrant. Each share purchase warrant entitles
the holder to purchase one additional common share on the earlier of 36 months
from the date of issuance or January 8, 2005 at an exercise price of $1.50 per
share.
On December 1, 2001, the Company issued 600,000 shares of common stock as part
of the consideration paid to acquire Icoworks (Note 5).
On January 1, 2002, the Company issued 4,200 shares of common stock at a fair
value of $1.00 per share for consulting services. The Company also issued
42,200 shares of common stock at a fair value of $1.00 per share to a company
related by common ownership and a common director as a financing fee for
advances received.
On April 1, 2002, the Company issued 75,000 shares of common stock at a fair
value of $1.00 per share to acquire DM (Note 5).
ICOWORKS, INC.
(formerly Paragon Polaris Strategies.com Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
MARCH 31, 2003
(Unaudited)
================================================================================
10. COMMON STOCK (cont'd )
During the nine month period ended March 31, 2003, the Company issued 88,600
units for proceeds of $88,600. Each unit consists of one share of common stock
and one non-transferable share purchase warrant. Each share purchase warrant
entitles the holder to purchase one additional common share on the earlier of 36
months from the date of issuance or January 8, 2005 at an exercise price of
$1.50 per share. The Company also issued 60,960 of the 150,850 shares of common
stock to be issued to various brokers as compensation for arranging private
placements during the year ended June 30, 2002.
On February 20, 2003, the Company issued 7,186,398 shares of common stock to
acquire a 56% interest in Icoworks Holdings (Note 4).
The Company has received the consent of a majority of its stockholders to
increase to the authorized number of shares of common stock to 100,000,000
shares and to create a class of 10,000,000 shares of preferred stock. Each of
these changes will require an amendment to the Company's articles of
incorporation.
Warrants
At March 31, 2003, Icoworks Holdings had warrants which were outstanding
enabling holders to acquire the following shares of common stock:
=======================================================================
Number of Shares Exercise Price
Subsidiary (Parent) Subsidiary (Parent) Expiry Date
-----------------------------------------------------------------------
Warrants 21,000 /(42,000) $1.50 ($0.75) December 27, 2004
Warrants 1,500,000/(3,000,000) 1.50 ($0.75) January 8, 2005
=======================================================================
Stock options
At March 31, 2003, Icoworks Holdings had options which were outstanding enabling
holders to acquire the following shares of common stock:
======================================================================
Number of Shares Exercise Price
Subsidiary (Parent) Subsidiary (Parent) Expiry Date
----------------------------------------------------------------------
Options 200,000/(400,000) 0.75 ($0.375) November 12, 2007
======================================================================
The stock option plan serves as an equity incentive program for management,
qualified employees, members of the board of directors and independent advisors
or consultants. Generally, the stock options have a life of 5 years and vest
equally on each anniversary date over a 3 year period.
On November 12, 2002, Icoworks Holdings granted 200,000 options to qualified
employees. The stock options granted have a life of 5 years, an exercise price
$0.75 ($0.375 based on a 2:1 transfer from the subsidiary to the parent plan if
the proposed merger) and vest equally on each anniversary date over a 3 year
period. As at March 31, 2003, no stock options had vested or expired and no
stock options were exercised or forfeited.
ICOWORKS, INC.
(formerly Paragon Polaris Strategies.com Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
MARCH 31, 2003
(Unaudited)
================================================================================
10. COMMON STOCK (cont'd )
Stock options (cont'd )
The Company used the Black-Scholes option pricing model to compute estimated
fair value, based on the following assumptions:
============================================================
Risk free interest rate 3.17% to 3.65%
Dividend yield rate 0.0%
Volatility 45%
Weighted average expected life of options 3 years
============================================================
11. RELATED PARTY TRANSACTIONS
During the nine month period ended March 31, 2003, the Company entered into the
following transactions with related parties:
a) Paid or accrued consulting expenses of $56,729 (2002 - $27,868) to
companies related by common ownership and directors.
b) Paid or accrued financing fees of $Nil (2002 - $42,200) to a company
related by common ownership and a common director.
c) Paid or accrued management fees of $148,000 (2002 - $115,086) to a company
related by common ownership and a common director.
d) Paid or accrued rent of $124,166 (2002 - $49,739) to a company controlled
by employees who were previously directors of Icoworks Services.
These transactions were in the normal course of operations and were measured at
the exchange value which represented the amount of consideration established and
agreed to by the related parties.
12. SUPPLEMENTAL DISCLOSURES WITH RESPECT TO CASH FLOWS
The significant non-cash transaction during the nine month period ended March
31, 2003 consisted of the Company issuing 7,186,398 shares of common stock to
acquire a 56% interest in Icoworks Holdings (Note 4).
The significant non-cash transaction during nine month period ended March 31,
2002 consisted of the Company issuing 600,000 shares of common stock as part of
the consideration paid to acquire all of the issued and outstanding shares of
Icoworks Services and 75,000 shares of common stock as consideration paid to
acquire all of the issued and outstanding shares of DM (Note 5).
ICOWORKS, INC.
(formerly Paragon Polaris Strategies.com Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
MARCH 31, 2003
(Unaudited)
================================================================================
13. COMMITMENTS AND CONTINGENCIES
Icoworks Services was named as a defendant in a statement of claim relating to
the purchase of certain equipment Icoworks Services considered to be in poor
condition. Consequently, Icoworks Services accrued a liability of $63,530
relating to this claim in a prior year's financial statements. During the nine
month period ended March 31, 2002, the claim was settled in favor of Icoworks
Services, however, the plaintiff appealed the ruling. Management believes the
appeal has no merit and, as a result, the $63,530 contingent liability
previously recorded was reversed during the nine month period ended March 31,
2002.
The Company has entered into an arrangement in which it has guaranteed profits
to investors who provide funds to the Company that are to be used to guarantee
minimum return to clients who wish to sell assets or to acquire assets outright
to be held for resale. These investors will share in the profits from these
transactions on the basis of 65% of the profits to the Company and 35% to the
investors. The Company has in turn guaranteed to those investors a minimum
return of 15% per annum on the funds advanced. Further, the Company issued
warrants to those investors to purchase shares of common stock the (Note 8) up
to the value of their investment. Management is confident that the arrangement
will yield the investor group sufficient return so that the guarantee will not
result in any additional expense to the Company. As at March 31, 2003, the
Company would be liable for $163,055 (CDN$240,000) in each of the 12 month
periods ended March 31, 2004 and 2005 as $1,087,030 (CDN$1,600,000) has been
made available by the investors.
The Company has the following commitments not disclosed elsewhere in these
consolidated financial statements as at March 31, 2003:
a) Pay management fees of $17,000 per month plus all reasonable out-of-pocket
disbursements to a company related by common ownership and a common
director.
b) Pay consulting fees relating to assistance with investor relation services
to a company related by common ownership. The agreement required a payment
of $25,000 upon signing (paid) and a payment of $125,000 upon completion of
all services. As at March 31, 2003, $100,000 of the $125,000 of services
remained to be performed.
c) Issue 89,890 shares of common stock to various brokers as compensation for
arranging private placements during the year ended June 30, 2002.
d) Pay $111,536 (CDN$175,000) annually plus bonuses under employment contracts
to former shareholders of Icoworks. The employment contracts expire on
December 31, 2004.
e) Pay $108,000 annually under an employment contract to the former
shareholder of DM. The employment contract expires on April 1, 2003.
f) Pay minimum lease payments for premises of $127,000 per annum, plus common
area costs, under an operating lease expiring November 30, 2003.
ICOWORKS, INC.
(formerly Paragon Polaris Strategies.com Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
MARCH 31, 2003
(Unaudited)
================================================================================
14. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, marketable securities,
accounts receivable, income taxes recoverable, accounts payable and accrued
liabilities and due to related parties. Unless otherwise noted, it is
management's opinion that the Company is not exposed to significant interest,
currency or credit risks arising from these financial instruments. The fair
value of these financial instruments approximates their carrying values unless
otherwise noted.
15. SEGMENT INFORMATION
Notwithstanding that the Company may operate certain assets it acquires while it
holds the goods for resale, the Company conducts operations in one reportable
segment, being the conduct of customized auctions, in Canada.
16. SUBSEQUENT EVENT
Subsequent to March 31, 2003, the Company accepted the subscription for 30,000
Series A preferred shares as part of an offering of 300,000 shares. Each Series
A preferred share will have a face value of $10.00 per share, and;
a) Will be convertible into shares of the Company's common stock on the basis
of one share of common stock for each $0.75 of Series A preferred shares at
the option of the holder. The minimum amount of Series A preferred shares
that may be converted by a holder will be $10,000.
b) Will accrue interest at the rate of 10% per annum. Interest will be paid
quarterly at the end of each calendar quarter, commencing June 30, 2003.
c) The Company will have the right to redeem the Series A preferred share at
any time after eighteen months from the date of issuance in the event that
the closing price of the Company's common stock is equal to or greater than
$1.50 per share for at least twenty consecutive trading days during the
three month period prior to the date of notice of redemption.
d) Each holder will have the right to redeem the Series A preferred share at
any time after the date that is three years from the date of closing of the
purchase of the Series A preferred shares.
e) Will not have voting rights, other than on matters affecting the Series A
preferred shares, as prescribed by Nevada law.
f) Will not have dividend rights, other than to receive the annual 10%
interest rate.
The subscriptions received will result in the quarterly obligation to pay $7,500
and if all of the Series A preferred shares which have been offered are sold,
the payments will be $75,000 per quarter ($300,000 annually). If converted, the
Series A preferred shares which have been subscribed would result in the issue
of 400,000 shares of common stock.
The holders shall have the right to redeem the preferred shares anytime after
the closing date.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
FORWARD LOOKING STATEMENTS
The information in this discussion contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements involve risks and uncertainties, including statements
regarding our capital needs, business strategy and expectations. Any statements
contained herein that are not statements of historical facts may be deemed to be
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may", "will", "should", "expect", "plan",
"intend", "anticipate", "believe", "estimate", "predict", "potential" or
"continue", the negative of such terms or other comparable terminology. Actual
events or results may differ materially. In evaluating these statements, you
should consider various factors, including the risks outlined below, and, from
time to time, in other reports we file with the SEC. These factors may cause our
actual results to differ materially from any forward-looking statement. We
disclaim any obligation to publicly update these statements, or disclose any
difference between our actual results and those reflected in these statements.
The information constitutes forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995.
OVERVIEW
Icoworks, Inc. (formerly Paragon Polaris Strategies.com Inc.) ("We", "Icoworks"
or the "Company") was incorporated in the State of Nevada on May 27, 1999.
On July 1, 1999, we acquired limited rights to distribute and produce an oxygen
enriched water product for fish farming, aquaculture, mariculture, poultry
raising, and for treating animal waste from dairies, feedlots of all kinds, and
for other similar uses. The rights to use this technology were subsequently
withdrawn by agreement with the owner. We subsequently acquired a three year
license to market and sell vitamins, minerals, nutritional supplements from
Vitamineralherb.com Inc. We have abandoned this business.
We entered into an agreement on November 20, 2002 to merge with Icoworks
Holdings Inc. (formerly Icoworks, Inc.) (www.icoworks.com), a Nevada corporation
("Icoworks Holdings") that specializes in offering a complete array of
industrial, oilfield and commercial appraisal, liquidation and auction services.
Under the terms of the merger agreement, we agreed to issue shares of our common
stock to the shareholders of Icoworks Holdings on a two-for-one basis. This
merger agreement has terminated in accordance with its terms as the merger was
not consummated by May 1, 2003, however we anticipate that we will enter into a
new merger agreement to complete the acquisition of the minority interest in
Icoworks Holdings that we currently do not own. There is no assurance that this
merger will be completed.
We completed the acquisition of a 56% interest in Icoworks Holdings on February
20, 2003 through the private acquisition of 3,593,199 shares of Icoworks
Holdings from several non-U.S. shareholders. We issued 7,186,398 shares of our
common stock to acquire this interest. We plan to complete the merger with
Icoworks Holdings as originally contemplated by the merger agreement. We
anticipate issuing an aggregate of 12,886,398 shares in order to complete the
acquisition of all of the outstanding shares of Icoworks Holdings, inclusive of
the 7,186,398 shares issued on February 20, 2003 to acquire the majority 56%
interest in Icoworks Holdings. In addition, we anticipate we will issue options
and warrants to the current optionholders and warrantholders of Icoworks
Holdings on a two-for-one basis if a new merger agreement is signed. The
completion of the merger will be subject to approval by the shareholders of both
the Icoworks and Icoworks Holdings. We anticipate proceeding with the filing of
a registration statement with the Securities and Exchange Commission in
connection with obtaining shareholder approval of the merger.
Our shareholders approved the change of our corporate name to "Icoworks, Inc."
to reflect our acquisition of the majority interest in Icoworks Holdings. In
connection with this name change, the name of Icoworks Holdings has been changed
from "Icoworks, Inc." to "Icoworks Holdings Inc." Our shareholders also approved
the increase to the authorized number of shares of common stock to 100,000,000
shares and the creation of a class of 10,000,000 authorized shares of preferred
stock. We have filed a certificate of amendment to our articles of incorporation
with the Nevada Secretary of State in order to give effect to the changes to our
name and our authorized capital.
3
We do not have any business or subsidiaries other than our 56% interest in
Icoworks Holdings.
OVERVIEW OF ICOWORKS HOLDINGS
Icoworks Holdings is engaged in the asset realization business and is a provider
of a full and comprehensive range of auction, liquidation and appraisal services
to the industrial, oilfield, commercial and office markets. Icoworks Holdings'
business operations have historically been based in Calgary, Alberta, Canada and
have recently been expanded to include a subsidiary operation in Oakville,
Ontario, Canada. Icoworks Holdings plans to expand its business, both through
the expansion of its traditional auction, liquidation and appraisal services and
through the acquisition of other businesses engaged in the asset realization
business that complement Icoworks Holdings' growth strategy. Icoworks Holdings
also plans to enhance its traditional services by the use of technology,
including the use of live internet auctions, online internet auctions and
technology-assisted auctions, in order to expand the scope of potential
purchasers for its asset realization business and to facilitate auction
transactions.
PRESENTATION OF FINANCIAL INFORMATION
We completed the acquisition of Icoworks Holdings effective February 20, 2003.
Under United States generally accepted accounting principles, our financial
statements have been prepared using reverse-acquisition accounting principles,
which result in Icoworks Holdings acquiring Icoworks for accounting purposes.
Accordingly, Icoworks Holdings is treated as the acquirer for accounting
purposes, even though Icoworks is the legal acquirer. Under United States
generally accepted accounting principles, comparative figures for prior periods
are based on the operating results of Icoworks Holdings, but the type of share
capital and number of issued and outstanding shares continue to reflect those of
Icoworks. Therefore, our consolidated financial statements include the accounts
of Icoworks Holdings and its legal subsidiaries and all significant intercompany
accounts and transactions have been eliminated on consolidation. Our results
of operations for the nine months ended March 31, 2003 include the financial
results of Icoworks since February 20, 2003. Comparative figures shown in our
financial statements for the nine month period ended March 31, 2002 are for
Icoworks Holdings only. Further adjustments were also required as outlined in
the notes to the financial statements. We have adopted the June 30 year end of
Icoworks Holdings to reflect the accounting treatment of the acquisition, rather
than proceeding with our previous December 31 year end. Due to the fact that we
own less than 100% of Icoworks Holdings, our financial statements account for
the minority interest in Icoworks Holdings that we do not own.
BUSINESS STRATEGY AND PLAN OF OPERATIONS
Our business strategy is to continue to expand the asset realization business of
Icoworks Holdings with the objective of increasing revenues and profitability.
Icoworks Holdings' strategies to achieve this business plan are as follows:
1. Icoworks Holdings intends to target and acquire regional auction businesses
that are currently engaged in traditional industrial and commercial auction
and liquidation services. The objective of this strategy is to expand the
geographic scope of Icoworks Holdings' business, to expand its customer
base and to expand the scope of the prospective bidders for items sold by
Icoworks Holdings. By pursuing this strategy, Icoworks Holdings plans to be
able to market to a broader base of customers on the basis that Icoworks
Holdings' geographic influence and its database of prospective bidders will
result in customers achieving higher prices for items to be sold.
2. Icoworks Holdings plans to continue to integrate technology into its
traditional auction business. Icoworks Holdings will focus its efforts on
using technology to supplement its existing traditional auction business
services, rather than attempting to shift traditional auctions into an
online format. Icoworks Holdings plans to continue the use of live internet
auctions using the BidSpotter or competing technology. Icoworks Holdings
also plans to pursue online auctions through its e-Bay store. Icoworks
Holdings will also consider conducting live online auctions that are
accessible to users through its corporate website.
3. Icoworks Holdings plans to pursue creative financing strategies for
financing and selling bought deals. Bought deals involve purchase of a
group of assets from the seller at a discount to the anticipated selling
price. The advantage of this arrangement to a seller is that the seller
would be able to achieve immediate proceeds from the sale at a guaranteed
amount rather than waiting for the completion of the auction
4
process and being at risk to lower than anticipated sales price at the
auction. The risk to Icoworks Holdings as a purchaser is that it would not
be able to sell the assets at the price paid to the seller. In order to be
able to participate in such ventures at a lower risk, Icoworks Holdings
plans to evaluate the financing transactions, including limited
partnerships whereby Icoworks Holdings and other venture partners would
fund the purchase price for a block of assets and share the risk associated
with the sale of the assets on the market. This business strategy would
offer greater potential returns for Icoworks Holdings, but at potentially
greater risks than in its traditional auction and liquidation business
where assets are sold on a fixed commission basis.
Icoworks Holdings has incorporated a subsidiary, Icoworks Joint Ventures Inc.
("Icoworks Joint Ventures"), for the purpose of financing and selling bought
deals. Icoworks Holdings and Icoworks Joint Ventures have entered into a joint
venture agreement with several initial investors. The purpose of the joint
venture formed pursuant to the joint venture agreement is to purchase and resell
various types of assets being liquidated in receiverships and bankruptcy on a
"bought deal" basis. Assets purchased will be resold using the services of
Icoworks Holdings. The joint venture will plan to generate profit by selling
these assets at a higher price than the original purchase cost plus costs of
sale. Under the joint venture agreement, Icoworks Holdings will carry out the
purchase and sale of assets for each bought deal. Icoworks Joint Ventures has
agreed to pay to Icoworks Holdings 3.5% of the gross sale price of the assets to
compensate Icoworks Holdings for sale costs relating to the marketing, promotion
and resale of the purchased assets. The gross profit, being the sale price of
each completed sale, less acquisition costs, sale costs and any additional
costs, will be distributed as follows:
(1) 65% to Icoworks Holdings, and
(2) 35% to be divided proportionately to each of the joint venture investors.
Icoworks Holdings has guaranteed a return to each joint venture investor of 15%
per annum. The term of the joint venture agreement is for a minimum of one year
and a maximum of three years. Icoworks Holdings will report quarterly to the
joint venture investors and distributions will be made on a quarterly basis of
cash available for distribution. The joint venture investors will have the
option to convert their investments in Icoworks Joint Ventures into shares of
our common stock at any time within one year of their initial investment at a
price based on the market price of our common stock for the period immediately
prior to the date of investment. To date, a total of $1,087,030 has been made
available by investors. As at March 31, 2003, we would be liable for $163,055
in each of the twelve month periods ended March 31, 2004 and 2004 if we are
required to pay the investors based on our guarantee obligation.
Our plan of operations includes the following components over the next twelve
months:
1. We plan to complete the merger with Icoworks Holdings in order to acquire
the remaining 44% interest in Icoworks Holdings that we do not currently
own. We anticipate that the completion of this acquisition will take
approximately six months and will cost approximately $100,000 due to the
fact that we must file a registration statement with the United States
Securities and Exchange Commission to register the shares to be issued to
the remaining shareholders of Icoworks Holdings.
2. We plan to continue the existing business of Icoworks Holdings, as its
major shareholder. We anticipate that we will be required to advance
approximately $1,000,000 to Icoworks Holdings in order to fund its existing
business operations over the next twelve months.
3. We plan to advance approximately $1,390,000 to Icoworks Holdings to fund
the participation by Icoworks Holdings in bought deals, as described above.
4. We plan to advance approximately $1,000,000 to Icoworks Holdings to fund
the acquisition strategy of Icoworks Holdings, as described above.
Based on these anticipated expenditures, we anticipate spending approximately
$3,500,000 over the next twelve months in pursuing our plan of operations. Of
this amount, we anticipate that approximately $1,750,000 will be advanced during
the next six months. Our cash position as of March 31, 2003 was $132,645 and we
had a working capital deficit of $1,166,500 as of March 31, 2003. Accordingly,
we will require substantial additional financing in order to proceed with our
plan of operations. We do not have any arrangements for financing currently in
place.
5
There is no assurance that we will be able to obtain the financing necessary to
pursue this plan of operations. If we are successful in achieving financing, we
anticipate that any financing would be either through sales of our common stock
or sales of preferred stock that will be convertible into shares of our common
stock. Accordingly, any financing could result in dilution to our shareholders.
If we are not able to obtain the necessary financing, then we will scale back
the plan of operations in order to reflect available funds. Our first
priorities will be to complete the merger with Icoworks Holdings and to continue
the existing business of Icoworks Holdings. The funds available to fund the
participation of Icoworks Holdings in bought deals and to fund the acquisition
strategy of Icoworks Holdings will be scaled back according to the amounts of
available funds. If we are not successful in raising the necessary financing,
we will also pursue alternate financing arrangements, such as the joint venture
financing arrangement involving Icoworks Joint Ventures, as described above.
RESULTS OF OPERATIONS
REVENUES
We earn revenues from two principal activities, namely auction revenues and held
for sale revenues. Auction revenues are comprised of buyers premiums, being
premiums over and above the purchase prices of items sold, and commissions paid
by consigners of items for auctions. Held for sale revenues are comprised of
revenues from items purchased and held for sale and/or liquidation. Revenue is
recognized once the auction or sales are completed and collections reasonably
assured. Other commissions are earned by us when we provide guarantees on the
gross proceeds to be received from sale to a consigner. We conduct our sales
where we temporarily acquire title to goods pending sale. We also enter into
joint venture agreements through our subsidiary, Icoworks Joint Ventures,
whereby goods are purchased for resale on a joint venture basis. When these
activities are conducted on a joint venture basis, the profits are divided
between us and the joint venture party on a negotiated basis. If the actual
proceeds are less than cost, or less than the guaranteed price, then we may be
required to fund any shortfall.
We also earn fees charged for appraisals. Revenues from appraisals is
recognized when work is completed and collection is reasonably assured.
Our revenues increased to $1,397,887 for the nine month period ended March 31,
2003, compared to $629,143 for the nine month period ended March 31, 2002. The
increase in revenues for the nine month period is primarily attributable to the
fact that Icoworks Services Ltd. ("Icoworks Services"), was acquired as a wholly
owned subsidiary of Icoworks Holdings Inc. on December 1, 2001. Accordingly,
results for the nine month period ended March 31, 2002 only reflect the
operations of Icoworks Services. for the four month period from December 1, 2001
to March 31, 2002.
Our revenues have increased to $722,754 for the three month period ended March
31, 2003, compared to $542,131 for the three month period ended March 31, 2002,
representing an increase of $180,623 or 33%. The increase was primarily
attributable to a large auction involving the liquidation of the assets of
Synsorb, a Calgary, Alberta based company, in January 2003.
Our gross margin was $362,157 for the nine month period ended March 31, 2003,
compared to $277,087 for the nine month period ended March 31, 2002. Gross
margin as a percentage of sales decreased to 25.9% for the nine month period
ended March 31, 2003, compared to 44.0% for the nine month period ended March
31, 2002.
Gross margins decreased to $56,248 for the three months ended March 31, 2003,
compared to $252,826 for the three months ended March 31, 2002, representing a
decrease of $196,578 or 77.8%. Gross margins as a percentage of sales decreased
to 7.8% for the three months ended March 31, 2003, compared to 46.6% for the
three months ended March 31, 2002.
Variations in our operating results on a quarter by quarter basis are explained
in part due to the nature of the auction business. Our auction business
involves large sales of items through auctions. The scheduling of these large
auction sales will impact on the timing of revenues earned and will result in
quarter by quarter variations in revenues and consequent operating results.
6
EXPENSES
Our general and administrative expenses increased to $1,207,726 for the nine
months ended March 31, 2003, compared to $563,909 for the nine months ended
March 31, 2002. The large increase in general and administrative expenses is
again explained by the fact that the acquisition of Icoworks Services was
completed on December 1, 2001 and consequently expenses for the nine month
period ended March 31, 2002 do not reflect the operating expenses of Icoworks
Services for the full nine month period.
General and administrative expenses increased to $568,380 for the three months
ended March 31, 2003, compared to $415,870 for the three months ended March 31,
2002, representing an increase of $152,510 or 36.7%. The increase in our general
and administrative expenses reflects our acquisition of Icoworks Services in
December 2001 and our acquisition of DM International Appraisals and Consulting
("DM International") in April 2002. Our general and administrative expenses
also increased due to the expansion of our operations into Ontario, Canada and
British Columbia, Canada, from our initial base in Calgary, Alberta. We
recently formed a 75% owned subsidiary named Icoworks Eastern which operates in
the Greater Toronto area in the Province of Ontario, Canada. Expenses in
respect of these operations were incurred in the three months ended March 31,
2003; however, revenues from this business expansion are not expected to be
realized until subsequent quarters. The acquisition of DM International was
completed in order to enable us to offer a wider range of services to our
clients and to provide additional synergies for our Calgary, Alberta office and
additional expertise for our expanded operations. We expect that our additional
locations will contribute to increase appraisal revenue in the future as the
current appraisal revenue are currently limited to the Alberta office.
Our total expenses increased to $1,430,154 for the nine months ended March 31,
2003, compared to $623,276 for the nine months ended March 31, 2002. Our total
expenses increased to $652,408 for the three months ended March 31, 2003,
compared to $460,396 for the three months ended March 31, 2002, representing an
increase of $192,112 or 41.7%. The increase in our total expenses is
attributable to the increase in our general and administrative expenses, as
discussed above, and to increased amortization and depreciation expenses which
are largely attributable to our acquisition of Icoworks Services and DM
International, as discussed in the Notes To Financial Statements.
NET LOSS
Our net loss increased to $978,025 for the nine months ended March 31, 2003,
compared to $291,021 for the nine months ended March 31, 2002. Our net loss
increased to $511,094 for the three months ended March 31, 2003, compared to
$207,553 for the three months ended March 31, 2002, representing an increase of
$297,333 or 143%. Our increased loss is primarily attributable to the increases
to our costs of sales which have resulted in decreased gross margins and in
increased expenses attributable to our expansion efforts.
LIQUIDITY AND FINANCIAL CONDITION
CASH AND WORKING CAPITAL
As at March 31, 2003, we had cash of $132,645 and a working capital deficiency
of $1,166,500. Our working capital deficiency is the result of a number of
factors including the expansion of operations and continuing losses. We
anticipate that we will require additional funding in order to achieve
profitable operations and to implement our plan of operations.
CASH USED IN OPERATING ACTIVITIES
We used $394,285 of cash in operating activities during the nine months ended
March 31, 2003, compared to $542,175 during the nine months ended March 31,
2002. We experienced an increase in inventory in the amount of $2,208,631
during this period and an increase in accounts payable and accrued liabilities
in the amount of $2,509,308.
7
FINANCING ACTIVITIES
We financed our cash used in operating activities primarily from cash generated
from financing activities. Cash from financing activities was $441,187 for the
nine months ended March 31, 2003 compared to $613,753 for the nine months ended
March 31, 2002. Increases in the amounts due to related parties was the
principal component of the cash generated from financing activities. There is
no assurance that we will be able to continue finance our continued operations
using funds received from related parties.
Subsequent to March 31, 2003, we completed a financing with a non-US investor
for proceeds of $300,000 pursuant to which we have agreed to issue 30,000 shares
of our preferred stock which will be designated as Series A preferred shares.
Each Series A preferred share will be issued for each $10 advanced and will be
convertible into shares of our common stock at rate of one share for each $0.75
of preferred shares converted. We received the funds from this financing in
early April and we have applied the proceeds to working capital. We anticipate
designating the class of Series A Preferred Shares and issuing the preferred
shares to the investor in the near future.
We have access to a fund of capital in the amount of $1,087,030 through the
Icoworks Joint Ventures joint venture arrangement which we anticipate will be
used to finance the acquisition of inventory and assets for resale on a project
by project basis. These joint ventures arrangements and our obligations
thereunder are described above under "Plan of Operations".
FINANCING REQUIREMENTS
Our strategy is to increase sales through acquisitions with the objective of
increasing the sales and revenue of those acquired businesses by making capital
available to the acquired businesses allowing bids on bought deals or the
acquisition of assets for resale. In addition, we will seek to expand the
geographic scope of our business operations through the establishment of new
branch offices if no viable acquisition is available. Our ability to implement
this strategy is dependant on our ability to raise the necessary capital to
carry out our plans.
As discussed above under Plan of Operations, we will require additional
financing if we are to continue as a going concern and to complete our plan of
operations. In the event that we are unable to raise additional financing under
acceptable terms, then we may not be able to proceed with our plan of operations
or we may be required to scale back our plan of operations. We also anticipate
that we will continue to incur losses until such time as we are able to generate
profits from the business of Icoworks Holdings and its expansion strategy.
The implementation of our business plan will require additional financial
resources that are in excess of our current financial resources. We plan to
pursue equity financings involving sales of our common stock or convertible
preferred stock in order to raise financing to fund the business plan of
Icoworks Holdings and to funds our ongoing capital requirements. It is
contemplated that funds would be advanced by us to Icoworks Holdings as a loan
pending the completion of the merger with Icoworks Holdings. There is no
assurance that we will be successful in raising the necessary financing to
pursue our stated plan of operations.
In the event that we are successful in achieving financing, we anticipate
advancing funds to Icoworks Holdings to fund bought deals and the acquisition
strategy of Icoworks Holdings as a loan pending the completion of the merger of
Icoworks Holdings. These loans may be advanced as secured or unsecured loans.
In the event that we advance funds to Icoworks Holdings, there will be no
assurance that these funds will be repaid by Icoworks Holdings. If the business
of Icoworks Holdings is not successful in generating sufficient funds to repay
these loans, then our financial condition will be adversely affected. In
addition, there is a risk that we will advance substantial funds to Icoworks
Holdings and the merger of Icoworks Holdings will not proceed.
8
ITEM 3. CONTROLS AND PROCEDURES.
As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the
"Exchange Act"), we carried out an evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures within the 90 days prior
to the filing date of this report. This evaluation was carried out under the
supervision and with the participation of our Chief Executive Officer, Mr.
Robert Foo, and our Chief Financial Officer, Mr. Samuel Lau. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures are effective in timely alerting
management to material information relating to us required to be included in our
periodic SEC filings. There have been no significant changes in our internal
controls or in other factors that could significantly affect internal controls
subsequent to the date we carried out our evaluation.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in our reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in our reports filed under the Exchange Act is
accumulated and communicated to management, including our Chief Executive
Officer and our Chief Financial Officer, to allow timely decisions regarding
required disclosure.
9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings and to our knowledge, no
such proceedings are threatened or contemplated.
ITEM 2. CHANGES IN SECURITIES
We completed a two to one forward split of our outstanding shares of common
stock in December 2002. Upon completion of the forward split, there were two
shares of our common stock outstanding for each previously issued and
outstanding shares of common stock. All information set forth below is based on
post-forward split numbers of shares with corresponding adjustments to share and
warrant prices.
We completed the following unregistered sales of our common stock during our
fiscal quarter ended March 31, 2003;
1. On February 20, 2003, we issued a total of 7,186,398 shares of our common
stock to several of the shareholders of Icoworks Holdings on closing of the
acquisition of a 56% majority interest in Icoworks Holdings as follows:
PERCENTAGE OF COMPANY
NAME OF NUMBER OF SHARES COMMON STOCK CURRENTLY
BENEFICIAL OWNER OF COMMON STOCK HELD (1)
-----------------------------------------------------------------
Ian Brodie 3,584,398 (2) 27.8%
Bill Wigley 1,200,000 (3) 9.3%
Hollywood Holdings Ltd. 800,000 6.3%
Solara Ventures Inc. 2,084,398 16.9%
J. Graham Douglas 1,602,000 (4) 12.4%
TOTAL 7,186,398 55.8%
(1) Based on 12,886,398 shares of the Company's common stock issued and
outstanding as of February 28, 2003.
(2) Mr. Brodie is a director and officer of Solara Ventures and a minority
shareholder of Solara Ventures. Accordingly, Mr. Brodie is deemed to
beneficially own shares held by Solara Ventures for the purposes of
Rule 13d-3. Mr. Brodie was individually issued 1,500,000 shares of the
Company's common stock. The balance of the shares deemed to be
beneficially held by Mr. Brodie are held by Solara Ventures.
(3) Includes shares held by the spouse of Mr. Wigley.
(4) The shares held by Mr. Douglas are held by a private corporation
controlled by Mr. Douglas.
The shares of our common stock that were issued to the former shareholders of
Icoworks Holdings listed above were issued in consideration of the transfer to
us of the shares of Icoworks Holdings held by the former shareholders. The
shares were issued to the former Icoworks Holdings shareholders on the basis of
two shares of our common stock in consideration for each one share of Icoworks
Holdings' common stock. The number of shares issued was based on our
assessment of the fair market value of Icoworks Holdings and the trading price
of our common stock at the time of the execution of the share purchase
agreement.
These shares were issued pursuant to Regulation S of the Securities Act of 1933
(the "Securities Act") on the basis that each former shareholder of Icoworks
Holdings is not a U.S person, as defined in Regulation S, and received the offer
to exchange their securities in an offshore transaction, as defined in
Regulation S. The share certificates issued to the former shareholders of
Icoworks Holdings were endorsed with a legend confirming that the shares are
restricted shares under the Securities Act and can be sold only pursuant to
Regulation S of the Securities Act,
10
pursuant to an exemption from the registration requirements of the Securities
Act or pursuant to an effective registration statement under the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended March 31, 2003, we filed a proxy statement with the
Securities and Exchange Commission in connection with the solicitation of the
consent of our shareholders to our name change and to certain changes to our
authorized capital. Shareholders holding in excess of 55% of our common stock
approved the change our corporate name to "Icoworks, Inc." to reflect our
acquisition of the majority interest in Icoworks Holdings, the increase to the
authorized number of shares of our common stock to 100,000,000 shares and the
creation of a class of 10,000,000 authorized shares of preferred stock. We have
filed a certificate of amendment to our articles of incorporation with the
Nevada Secretary of State in order to give effect to the changes to our name and
our authorized capital.
ITEM 5. OTHER INFORMATION
None.
11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS REQUIRED BY ITEM 601 OF FORM 8-K
--------------------------------------------------------------------------------
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
--------------------------------------------------------------------------------
3.3 Certificate of Amendment to Articles of Incorporation (1)
99.1 Certification of Chief Executive Officer pursuant to pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 90
99.2 Certification of Chief Financial Officer pursuant to pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 90
--------------------------------------------------------------------------------
(1) Filed as an Exhibit to this Quarterly Report on Form 10-QSB
--------------------------------------------------------------------------------
REPORTS ON FORM 8-K
We filed the following Current Reports on Form 8-K during the fiscal quarter
ended March 31, 2003:
1. Form 8-K dated February 20, 2003 filed with the Securities and Exchange
Commission on March 6, 2003.
We are required to file an amendment to the Form 8-K filed with the SEC on March
6, 2003 in order to include the audited financial statements of Icoworks
Holdings and the pro forma financial statements required to be included on the
Form 8-K in accordance with the SEC's disclosure requirements. We are currently
endeavoring to complete these financial statements and to proceed with the
filing on the required amendment to the original Form 8-K.
Subsequent to March 31, 2003, we filed a Current Report on Form 8-K dated June
10, 2003 respecting the change to our auditor from Janet Loss, CPA to Dohan and
Company, Certified Public Accountants and the change of our fiscal year end.
12
SIGNATURES
In accordance with the Securities Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
By: /s/ Robert Foo
___________________________________
Robert Foo, Chief Executive Officer and Director
(Principal Executive Officer)
Date: June 19, 2003
By: /s/ Samuel Lau
___________________________________
Samuel Lau, Chief Financial Officer and Director
(Principal Financial Officer and Principal Accounting Officer)
Date: June 19, 2003
CERTIFICATIONS
I, Robert Foo, Chief Executive Officer of Icoworks, Inc. (the "Registrant"),
certify that;
(1) I have reviewed this quarterly report on Form 10-QSB of Icoworks, 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) The Registrant's other certifying officers and I are 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) The Registrant's other certifying officers 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 (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
(6) The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other facts 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/ Robert Foo
Date: June 19, 2003 ___________________________________
(Signature)
CHIEF EXECUTIVE OFFICER
___________________________________
(Title)
CERTIFICATIONS
I, Samuel Lau, Chief Financial Officer of Icoworks, Inc. (the "Registrant"),
certify that;
(1) I have reviewed this quarterly report on Form 10-QSB of Icoworks, 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) The Registrant's other certifying officers and I are 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) The Registrant's other certifying officers 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 (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
(6) The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other facts 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/ Samuel Lau
Date: June 19, 2003 ___________________________________
(Signature)
CHIEF FINANCIAL OFFICER
___________________________________
(Title)