SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
FORM 10-QSB/A
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED December 31, 2000 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO ____________
COMMISSION FILE NUMBER: 0-31949
INNOFONE.COM, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 98-020313
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
600 North Pine Island Avenue
Suite 450
Plantation, Florida 33324
(Address of principal executive offices and Zip (Postal) Code)
(954) 315-0341
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirement for the past 90 days. Yes X ; No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
INDICATE BY CHECK MARK WHETHER THE COMPANY HAS FILED ALL DOCUMENTS AND REPORTS
REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN CONFIRMED BY A
COURT. YES N/A NO N/A
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE: As of February 14, 2001, the
Company had outstanding 23,582,754 shares of Common Stock, $.001 par value.
Transitional Small Business Disclosure Format: (check one): Yes ; No X
---- ----
INNOFONE.COM, INC.
FORM 10 - QSB
FOR THE PERIOD ENDED DECEMBER 31, 2000
INDEX
Page
PART I. FINANCIAL INFORMATION........................................................................F-1
Item 1. Financial Statements.....................................................................F-2
Item 2. Management's Discussion and Analysis or Plan of Operation..................................1
EXPLANATORY NOTE: Pursuant to Rule 12b-15 under the Securities Exchange Act of
1934, as amended, the amended Items are amended and restated as set forth below.
PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements.
Innofone.com, Inc.
Quarter ended December 30, 2000 and year ended June 30, 2000
The financial statements for the three months ended December 31, 2000
and 1999 include, in the opinion of Innofone.com, Inc. (the "Company"), all
adjustments necessary to present fairly the results of operations for such
periods. Results of operations for the three months ended December 31, 2000, are
not necessarily indicative of results of operations which will be realized for
the year ending June 30, 2001. The financial statements should be read in
conjunction with the Company's Form 10-SB which contains financial statements
for the year ended June 30, 2000.
F-1
INNOFONE.COM, INCORPORATED
Consolidated Balance Sheets
(Stated in United States dollars)
December 31, 2000 with comparative figures as at June 30, 2000,
as restated (see note 8)
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December 31, 2000 June 30,2000
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(unaudited) (audited)
Assets
Current assets:
Cash and cash equivalents $ - $ 8,257
Accounts receivable, net of allowance for doubtful accounts
of $31,700, June 30, 2000--$54,000) 457,221 352,190
Prepaid expenses and deposits 49,447 86,895
Investment 165,000 165,000
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671,668 612,342
Fixed assets 332,951 332,328
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$ 1,004,619 $ 944,670
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Liabilities and Shareholders' Deficiency
Current liabilities:
Bank indebtedness $ 47,777 $ -
Accounts payable and accrued liabilities 1,793,819 794,480
Advances from ultimate shareholders 237,098 114,528
Current portion of long-term debt 40,013 40,524
Obligation under capital lease 1,236 2,236
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2,119,943 951,768
Advances from ultimate shareholders 289,530 244,177
Long-term debt 30,677 47,954
Convertible debt 1,805,500 1,956,600
Shareholders' deficiency:
Share capital (note 2):
Common shares 4,705,083 4,702,250
Preferred shares 2,500 2,500
Additional paid-in capital 6,045,261 4,818,938
-------------------------------------------------------------------------------------------------------------------
10,752,844 9,523,688
Deficit (13,981,898) (11,773,282)
Accumulated other comprehensive loss (11,977) (6,235)
-------------------------------------------------------------------------------------------------------------------
(3,241,031) (2,255,829)
Future operations (note 1(b))
Subsequent events (note 6)
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$ 1,004,619 $ 944,670
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See accompanying notes to consolidated financial statements.
F-2
INNOFONE.COM, INCORPORATED
Consolidated Statements of Operations
(Stated in United States dollars)
Unaudited
For the six months ended December 31, 2000 with comparative figures for the six
months ended December 31, 1999.
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2000 1999
-------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
Sales $ 719,373 $ 345,231
Cost of sales 499,070 232,752
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-------------------------------------------------------------------------------------------------------------------
Gross profit 220,303 112,479
Selling, general and administrative expenses 2,198,139 600,190
Amortization 72,753 41,600
Additional interest 138,400 438,000
Interest on long term debt and bank charges 19,627 10,380
-------------------------------------------------------------------------------------------------------------------
2,428,919 1,090,170
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Net loss (2,208,616) (977,691)
-------------------------------------------------------------------------------------------------------------------
Basic net loss per common share $ (0.10) $ (0.10)
-------------------------------------------------------------------------------------------------------------------
Weighted average number of common shares outstanding 22,745,083 9,700,312
-------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-3
INNOFONE.COM, INCORPORATED
Consolidated Statements of Operations
(Stated in United States dollars)
(Unaudited)
For the quarter ended December 31, 2000 with comparative figures for the quarter
ended December 31, 1999
-------------------------------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
Sales $ 302,605 $ 225,452
Cost of sales 208,285 143,056
-------------------------------------------------------------------------------------------------------------------
Gross profit 94,320 82,396
Selling, general and administrative expenses 1,145,594 316,440
Amortization 35,830 23,782
Interest on long-term debt and bank charges 13,857 5,481
-------------------------------------------------------------------------------------------------------------------
1,195,281 345,703
-------------------------------------------------------------------------------------------------------------------
Net loss (1,100,961) (263,307)
-------------------------------------------------------------------------------------------------------------------
Basic net loss per common share $ (0.05) $ (0.03)
-------------------------------------------------------------------------------------------------------------------
Weighted average number of common shares outstanding 23,582,754 9,700,312
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See accompanying notes to consolidated financial statements.
F-4
INNOFONE.COM, INCORPORATED
Consolidated Statements of Shareholders' Deficiency and Comprehensive Loss
(Stated in United States dollars)
Six months ended December 30, 2000 with comparative figures for the year ended
June 30, 2000, as restated (see note 8)
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Common
Additional share
Common Preferred paid-in purchase
shares shares capital warrants
------------------------------------------------------------------------------------------------------------------------------------
Balance June 30, 1999 8,700 1,570 748,178 --
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Net loss for the year ended June 30, 2000 -- -- -- --
Other comprehensive income, net of tax:
Foreign currency translation adjustment -- -- -- --
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Total comprehensive loss -- -- -- --
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Beneficial conversion feature of convertible debt 1,312,750
Compensatory value of stock options -- -- 2,728,130 --
Stock options 120 -- 29,880 --
Conversion of preferred shares 4,690,000 (2,500) -- --
Reclassification of redeemable equity securities 3,430 3,430
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Balance, June 30, 2000 4,702,250 2,500 4,818,938
Net loss for the six months ended December 31, 2000 --
Other comprehensive income, net of tax:
Foreign currency translation adjustment -- -- -- --
------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive loss -- -- -- --
Beneficial conversion feature of convertible debt 138,400
Convertible notes converted to common stock 1,253 499,847
Stock options exercised 430 65,570
Issuance of stock for legal fees 150 73,504
Issuance of stock by subscription agreement 1,000 449,002
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Balance, December 31, 2000 $ 4,705,083 $ 2,500 $ 6,045,261 $ --
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Accumulated
other
comprehensive
Deficit income Total
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Balance June 30, 1999 (823,235) (25,501) (90,288)
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Net loss for the year ended June 30, 2000 (6,262,547) -- (6,262,547)
Other comprehensive income, net of tax:
Foreign currency translation adjustment -- 19,266 19,266
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Total comprehensive loss (6,262,547) 19,266 (6,243,281)
-----------------------------------------------------------------------------------------------------------------------------------
Beneficial conversion feature of convertible debt 1,312,750
Compensatory value of stock options -- -- 2,728,130
Stock options -- -- 30,000
Conversion of preferred shares (4,687,500) -- --
Reclassification of redeemable equity securities 6,860
-----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2000 (11,773,282) (6,235) (2,255,829)
Net loss for the six months ended December 31, 2000 (2,208,616) (2,208,616)
Other comprehensive income, net of tax:
Foreign currency translation adjustment -- (5,742) (5,742)
-----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive loss (2,208,616) (5,742) (2,214,358)
Beneficial conversion feature of convertible debt 138,400
Convertible notes converted to common stock 501,100
Stock options exercised 66,000
Issuance of stock for legal fees 73,654
Issuance of stock by subscription agreement 450,002
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Balance, December 31, 2000 $(13,981,898) $(11,977) $(3,241,031)
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See accompanying notes to consolidated financial statements.
F-5
INNOFONE.COM, INCORPORATED
Consolidated Statements of Changes in Financial Position
(Stated in United States dollars)
For the six months ended December 31, 2000 with comparative figures for the year
ended June 30, 2000, as restated (see note 8)
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December 31, 2000 June 30, 2000
-------------------------------------------------------------------------------------------------------------------
(unaudited) (audited)
Cash flows provided by (used in):
Operations:
Net loss $ (2,208,616) $ (6,262,547)
Items not involving cash:
Amortization 72,753 94,585
Compensation cost on stock options - 2,728,130
Beneficial conversion feature of convertible notes 138,400 1,312,750
Issuance of stock for legal fees 73,654 -
Change in non-cash operating working capital 931,756 195,606
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(992,053) (1,931,476)
Financing:
Advances from ultimate shareholders 167,923 49,519
Increase (decrease) in bank indebtedness 47,777 (28,816)
Principal payments on long-term debt (17,788) (40,524)
Principal payments on obligation under capital lease (1,000) (1,416)
Increase in convertible debt 350,000 1,956,600
Proceeds from options exercised 66,000 30,000
Issuance of share capital 450,002 -
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1,062,914 1,965,363
Investments:
Additions to fixed assets (77,782) (141,942)
Proceeds from term deposit - 102,477
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(77,782) (39,465)
Effect of exchange rate changes on cash (1,336) 13,835
-------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (8,257) 8,257
Cash and cash equivalents, beginning of period 8,257
-------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 0 $ 8,257
-------------------------------------------------------------------------------------------------------------------
Cash interest paid for the six months ended December 31, 2000 and the year ended
June 30, 2000 was $19,627 and $25,083 respectively.
See accompanying notes to consolidated financial statements
F-6
INNOFONE.COM, INCORPORATED
Notes to Consolidated Financial Statements
(Stated in United States dollars)
(Unaudited)
For the six months ended December 31, 2000
--------------------------------------------------------------------------------
Innofone.com, Incorporated (the "Company") is incorporated under the laws of the
State of Nevada. The Company, through its legal subsidiary Innofone Canada Inc.
("Innofone Canada") that operates in Canada, is engaged in the
telecommunications business of providing long distance telephone services,
cellular services and internet services. All of the Company's sales are to
Canadian customers in the residential and business sectors. The Company is not
dependent on a single customer. However, the Company uses only a few carriers of
long distance services that they are dependent on for the usage of their
telephone lines.
1. BASIS OF PRESENTATION:
(a) Interim financial statements:
These unaudited interim consolidated financial statements should be
read in conjunction with the Company's annual consolidated financial
statements which were completed as of June 30, 2000. In the opinion
of management, the unaudited interim consolidated financial
statements have been prepared on the same basis as the audited
consolidated financial statements and include all adjustments
(consisting only of normal recurring adjustments) necessary for the
fair presentation of the results of such periods. The results of
operations for the interim periods are not necessarily indicative of
the results of operations for the full year.
(b) Future operations:
These financial statements have been prepared on the going concern
basis, which assumes the realization of assets and settlement of
liabilities in the normal course of operations, notwithstanding the
significant operating losses since incorporation, negative working
capital and deficiency in shareholders' equity at December 31, 2000
and the Company's shares being delisted from the National Association
of Securities Dealers ("NASD") over-the-counter Bulletin Board. The
Company is in the process of finalizing a Registration Statement that
it has filed with the United States Securities and Exchange
Commission in order for the Company's shares to be eligible for
trading in the United States on the NASD over-the-counter Bulletin
Board. Continued operations depend upon the Company's ability to
attain profitable operations and obtain sufficient cash from external
financing to meet the Company's liabilities as they become payable.
These conditions and events cast substantial doubt on the Company's
ability to continue as a going concern. Management is of the opinion
that sufficient working capital will be obtained from operations and
external financing to meet the Company's liabilities and commitments
as they become payable.
F-7
2. SHARE CAPITAL:
The number of outstanding common shares of the Company as at December 31,
2000 is computed as follows:
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Common Preferred
Shares Shares
-------------------------------------------------------------------------------------------------------------------
Existing outstanding shares and warrants as at June 30, 2000 20,750,000 2,500,000
Shares issued in exchange for legal fees 150,000 -
Options exercised 430,000 -
Promissory notes converted to stock 1,252,750 -
Shares subscribed 1,000,004 -
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Outstanding shares as at December 31, 2000 23,582,754 2,500,000
-------------------------------------------------------------------------------------------------------------------
During the six months ended December 31, 2000, 430,000 options were
exercised generating proceeds of $66,000 for the Company. Effective
September 12, 2000, $501,100 in convertible notes dated August 5, and 6,
1999, were converted into 1,252,750 shares of common stock in accordance
with the original terms. In September 2000, the Company raised a total
of $500,002 in two separate private placements totaling 1,000,004 units
consisting of one share of common stock and one warrant to purchase
common stock at $1.00 per share and expiring in March 2002.
F-8
3. STOCK OPTIONS :
The following table summarizes the stock option activity:
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Number of
average Weighted-
options exercise price
-------------------------------------------------------------------------------------------------------------------
Outstanding at June 30, 1999 1,380,000 $ 0.64
Granted - vested 3,005,000 $ 0.48
Granted - not vested 4,357,000
Exercised (120,000) $ 0.25
Forfeited - n/a
Expired - n/a
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Outstanding (held by 13 optionees) at June 30, 2000 8,622,000 $ 0.54
Granted -
Exercised (430,000) 0.15
Forfeited -
Expired (50,000) 0.50
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Outstanding at December 31, 2000 (held by 11 optionees) 8,142,000 $ 0.47
-------------------------------------------------------------------------------------------------------------------
The weighted average remaining contractual life for all outstanding options is
approximately one year.
4. SEGMENTED INFORMATION:
(a) Reportable segment:
The Company has one reportable segment; resale of long distance
services. The resale of long distance services is provided to
residential and small to medium sized businesses. This segment
represents the result of operations for the Company.
(b) Geographic information:
The Company derives all of its revenue from Canada and all of its
fixed assets are physically located in Canada.
F-9
5. OTHER EVENTS:
On October 4, 2000, the Company raised $150,000 through a subscription of
10% unsecured promissory notes which are due October 4, 2001. The capital
amount of the notes shall be payable on demand in whole or in part in the
event that the Company makes a distribution of its securities worth at
least $500,000 by private placements or otherwise. The notes are
convertible into common shares of the Company with a par value of $0.001
at a price of $0.50 per share. The market value of the Company's common
shares at the subscription date was less than the conversion price.
Therefore, there is no embedded beneficial conversion option. The notes
also include a non-detachable warrant to purchase one common share of
the Company with a par value of $0.001 at a price of $1.00 per share.
On November 16, 2000, the Company raised $100,000 through a subscription
of 8% unsecured promissory notes which are due November 15, 2001. On
December 16, 2000, the Company raised $100,000 through a subscription of
8% unsecured promissory notes which are due November 15, 2001. Both
subscriptions for notes are convertible into common shares of the Company
with a par value of $0.001 at a price of $0.30 per share. The market
value of the Company's common shares at the subscription date was less
than the conversion price. Therefore, there is no embedded beneficial
conversion option. The notes also include a non-detachable warrant to
purchase one common share of the Company with a par value of $0.001 at
a price of $0.75 per share.
6. SUBSEQUENT EVENTS:
On January 12, 2001 the Company signed a Marketing and Network Services
Agreement with ePhone Telecom Inc. ("ePhone") whereby the Company agreed
to provide ePhone with a first right of refusal until December 31, 2010
to carry its long distance traffic using the ePhone internet network. The
agreement also provides for assessing the feasibility of developing new
products together and generally developing the business of each company.
As part of the agreement, ePhone paid the Company a set-up fee of
$500,000 which is due for repayment on April 19, 2001. If the set-up fee
is not repaid, ePhone has the right to convert into an equivalent amount
of shares of the Company based on a price of $0.25 per share. For
accounting purposes, the set-up fee will be initially recognized in
the financial statements as a loan. The market value of the Company's
common shares at the date of signing the marketing agreement was less
than the conversion price. Therefore, there would be no embedded
beneficial conversion option. Each share would also have a non-detachable
warrant to convert into common shares at a price of $0.75.
On January 12, 2001, the Company granted 100,000 vested options to an
employee having an exercise price of $0.50, and on February 9, 2001,
the Company granted 60,000 vested options to two employees having an
exercise price of $0.25. All 160,000 options expire 12 months after
grant date. The market price of the Company stock at the grant date
was not in excess of the exercise price. Therefore, there was no
intrinsic value to the options at their grant date. However in
accordance with the Company's accounting policy, the fair value of the
options aggregated $4,740, and will be recognized as compensation
expense on the grant date. The fair value has been determined using the
Black-Scholes option pricing model assuming a dividend yield of 0%,
expected volatility of 100%, and a risk free interest rate of 6%.
The Company is in the process of converting into common shares the
promissory notes which become due on December 31, 2000. The notes in the
amount of $1,039,500 are convertible into 2,598,750 shares of common
stock. The notes also included a warrant to purchase one common share at
a price of $1.00 for each $0.40 of notes purchased. These warrants
expired December 31, 2000, but the Company has extended the period to
exercise the warrant to December 31, 2001. The fair value of the
warrants issued at the extension date was not material.
7. NON-CASH FINANCING ACTIVITY
During the six months ended December 31, 2000, the Company issued 150,000
common shares in exchange for legal fees of $73,654 which had been
incurred. These shares have been valued at the market price of the
Company's common shares on the dates at which both performance had
been completed and the shares became issuable.
8. RESTATEMENT OF BURDON OPTIONS:
On April 5, 2000, the Company granted 2,750,000 options to purchase
common shares to Mr. Burdon. The Company had previously reported a
compensation expense of $1,243,933 by June 30, 2000 with an additional
$1,445,267 to be recognized over the period to April 5, 2002. The
consolidated financial statements have been restated to recognize all
of this compensation value by June 30, 2000. As a result of the
restatement, the net loss increased by $1,445,267 which resulted in
the basic net loss per share increasing $0.12 to $0.50 per share.
F-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FORWARD-LOOKING INFORMATION.
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
Consolidated Financial Statements and Notes thereto for the year ended June 30,
2000 included in the Company's Form 10-SB, as amended, originally filed with the
SEC on November 14, 2000. This Quarterly Report on Form 10-Q includes
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.
Words such as "may," "plans," "expects," "anticipates," "approximates,"
"believes," "estimates," "intends," "hopes," "potential," or "continue", and
variations of such words and similar expressions are intended to identify such
forward-looking statements. The Company intends such forward-looking statements,
all of which are qualified by this statement, to be covered by the safe harbor
provisions for forward-looking statements contained in the Private Litigation
Securities Reform Act of 1995 and is including this statement for purposes of
complying with these safe harbor provisions. The Company has based these
statements on its current expectations and projections about future events.
These forward-looking statements are not guarantees of future performance and
are subject to risks and uncertainties that could cause actual results to differ
materially from those projected in these statements. Forward-looking statements
include but are not limited to:
o our expectations regarding our strategic relationships and agreements we are
currently negotiating.
o the availability of necessary funding.
o our ability to implement successfully our operating strategy.
o future financial performance as estimated in the Company's financial
projections.
The following factors, among others, could cause our actual results to differ
materially from those expressed in any forward-looking statements we make:
o inaccuracies in our forecasts of customer or market demand.
o highly competitive market conditions.
o changes in or developments under laws, regulations and licensing requirements
in countries in which the Company is installing gateways.
o changes in telecommunications technology.
These factors should not be construed as exhaustive. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's views only as of the date hereof. The Company is not
obligated to publicly update or revise any forward-looking
-1-
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this Quarterly Report on Form 10-Q might not occur. Readers
should carefully review the risk factors described in the Form 10-SB and any
other documents the Company files from time to time with the Securities and
Exchange Commission, including future Annual Reports on Form 10-K Quarterly
Reports on Form 10-Q.
MANAGEMENT'S DISCUSSION AND ANALYSIS
REVENUES
Revenues for the quarter ended December 31, 2000 increased 35%
to $302,605 as compared to revenues of $225,452 for the quarter ended December
31, 1999. Revenues for the six-month period ended December 31, 2000 increased
108% to $719,373 from $345,231 for the six-month period ended December 31, 1999.
The revenue increase is due entirely to an increase in the number of billable
long distance calling minutes by our customer base. Revenues from the six months
ended December 31, 1999 were generated by GLR customers acquired through our
direct marketing agents while the revenues for the quarter ended December 31,
2000 reflect the customer acquisition program with Visa Desjardins. For the six
months ended December 31, 2000, approximately 80% of our revenues were generated
from the Visa Desjardins customer base and 20% were generated from our GLR
customer base. Approximately 94% of our revenues for the six months ended
December 31, 2000 are from the resale of long distance voice services to
residential and small and medium sized businesses. The remaining 6% of revenues
are from the resale of cellular services.
COST OF SALES AND GROSS MARGIN
As a result of our increased revenues, our cost of sales increased 45%
from $143,056 for the quarter ended December 31, 1999 to $208,285 for the
quarter ended December 31, 2000. Cost of sales for the six months ended
December 31, 2000 increased 115% to $499,070 from $232,752 for the six months
ended December 31, 1999.
Our gross profit also increased from $82,396 for the six months ended
December 31, 1999 to a gross profit of $94,320 for the quarter ending December
31, 2000. The increase in gross profit is a result of our increased sales and
related cost of services. Our gross profit for the six months ended December 31,
2000 increased 96% to $220,303 from $112,479 in 1999. Our gross profit as
percentage of sales for the six months ended December 31, 2000 declined from 33%
in 1999 to 31% in 2000. This decline is reflective of a change in 2000 to more
residential customers where margins typically are lower than for business
customers. In 1999, the GLR program customer base still had a relatively larger
portion of business customers. Business customers typically make long distance
calls during the daytime hours when we can charge higher rates and generate
better margins. Also, during the second quarter of 2000, the Company experienced
a larger than expected number of customer credits on the Visa Desjardins
program, which resulted in a slightly lower gross profit than expected.
-2-
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Our selling, general and administrative expenses were $1,145,594 for
the quarter ending December 30, 2000, up 260% from $316,440 in the same quarter
last year. This increase reflects our increased customer acquisitions and the
attendant costs, the expansion of our management team, and our changed business
model where we have gone from direct sales of a single product to marketing a
bundle of services to a selective customer base using outbound marketing of our
products by external call centers. The primary reasons for the increase in
selling, general and administrative expenses is due to increases in management
and consulting fees, customer acquisition costs, salaries and benefits, billing
costs, call center costs, order fulfillment costs, accounting and legal fees and
office and general expenses.
Management and consulting fees increased 120% to $196,586 for the
quarter ended December 31, 2000 from $88,444 for the same period in 1999.
Management and consulting fees include remuneration of $115,000 to the three
senior officers and $81,000 in consulting fees paid for marketing and program
management. In 1999, these fees only included remuneration paid to the three
senior officers.
Customer acquisition costs increased 496% from $48,439 for the quarter
ended December 31, 1999 to $288,790 for the quarter ended December 31, 2000. The
costs in 2000 reflect commissions we paid Equinox and Visa Desjardins, who were
responsible for the rapid expansion of our customer base and consequently our
increase in sales. We pay them a commission of $20 Canadian for each new
customer that is signed through the outbound sales activity of their call
centers. The customer acquisition fees paid in the quarter ended December 31,
1999 represent commissions we paid Adcom Sales Inc., our direct sales marketing
team which has since discontinued selling for us.
Salaries and benefits increased 156% from $43,622 for the three months
ended December 31, 1999 to $111,569 in the quarter ended December 31, 2000. This
increase is primarily due to the addition in October 2000 of a senior executive
to explore the possibilities of adding energy to the Company's bundle of
services. In October 2000, we also hired two additional administrative staff.
These additional new hires represented approximately $70,000 of the increase
over the comparable quarter in 1999. The remainder of the increase is a result
of pay raises to existing staff.
Billing costs increased by 1000% from $12,486 for the quarter ended
December 31, 1999 to $141,055 for the three months ended December 31, 2000. We
pay these costs to our independent billing company. The increase reflects the
increased sales through the launch of the Visa Desjardins project.
In order to launch the Visa Desjardins project, we needed to utilize the
services of a call center for customer service and customer acquisition, and the
services of an order fulfillment company to provide new customers with a welcome
kit that includes a letter welcoming them to the program as well as any products
ordered and related literature. These costs did not exist during the second
quarter in 1999. For the quarter ended December 31, 2000, call center costs were
$85,275 and order fulfillment costs were $112,155.
-3-
Office and general costs increased approximately 10% from $88,444 for
the quarter ended December 31, 1999 to $194,586 for the quarter ended December
31, 2000. This increase is due to general increases in the volume of our
business. Included in office and general expenses are expenses such as rent,
computer lease costs, printing costs, advertising and marketing costs, travel
and entertainment expenses, legal and accounting fees, telephone charges, bad
debt expenses, commissions to Visa Desjardins, insurance and office supplies.
AMORTIZATION. Amortization expense consists of the depreciation of our
capital assets. Our amortization expense for the three months ended December 31,
2000 was $35,830 as compared to $23,782 for the three months ended December 31,
1999. The relative increase in amortization expense is the result of our
acquiring new computer equipment for our additional staff.
INTEREST AND BANK CHARGES. Interest and bank charges include interest
on long term debt, interest charged on our overdue accounts payable and bank
charges. For the three months ended December 31, 2000, these charges increased
153% to $13,857 from $5,481 in 1999. While the interest on long-term debt has
declined as the term loan is being repaid, we have been charged interest by
several suppliers whose accounts are past due and bank charges are higher due to
the increased banking activity accompanied by our growth in revenues.
Due to the above factors, we incurred losses of $1,100,961 for the
quarter ending December 31, 2000 as compared to losses of $263,307 for the
quarter ended December 31, 1999.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, there unto duly
authorized.
Date: March 12, 2001 Innofone.com, Inc.
/s/ LARRY HUNT
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Larry Hunt
President and Chief Executive Officer
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