10-K 1 t24030.txt ANNUAL REPORT KWANG-HO LEE Certified Public Accountant MIRACOM INDUSTRIES, INC. Consolidated Financial Statements December 31, 2001 and 2000 (With Independent Auditors' Report Thereon) 3600 Wilshire Blvd., Suite 1416 Los Angeles, CA 90010 INDEPENDENT AUDITORS' REPORT The Board of Directors Miracom Industries, Inc. La Mirada, California We have audited the accompanying consolidated balance sheets of Miracom Industries, Inc. as of December 31, 2001 and 2000 and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Miracom Industries, Inc. as of December 31, 2001 and 2000 the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered losses from operations that raise substantial doubt about the ability to continue as a going concern. Management's plans in regards to this matter are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Kwang-Ho Lee Certified Public Accountant April 11, 2002
MIRACOM INDUSTRIES, INC. Consolidated Balance Sheet December 31, 2001 and 2000 Assets Dec. 31, Dec. 31, 2001 2000 -------- -------- Current assets: Cash - $853 Accounts receivable - trade, less allowance for doubtful accounts of $0 112,282 145,782 Other receivable 30,326 17,267 Inventories 31,990 33,313 Total current assets 174,598 197,215 Property and equipment, at cost: Furniture, fixtures and equipment 16,081 16,081 16,081 16,081 Less: accumulated depreciation 6,144 3,628 Net property and equipment 9,937 12,453 Other assets 965 965 Total assets $185,500 $210,633
See accompanying notes to consolidated financial statements
MIRACOM INDUSTRIES, INC. Consolidated Balance Sheet December 31, 2001 and 2000 Liabilities and Stockholders' Equity Dec. 31, Dec. 31, 2001 2000 -------- -------- Current liabilities: Overdraft with bank $10 - Accounts payable 229,751 212,114 Note payable, convertible(note 4) 147,000 137,000 Accrued expenses and other liabilities(note 5) 188,435 98,642 Total current liabilities 565,196 447,756 Long-term liabilities: - - Total long-term liabilities - - Stockholders' equity: Common stock, par value $0.0001 per share. Authorized 50,000,000 shares; issued and outstanding 6,554,487 shares(note 3) 656 636 Additional paid-in capital(note 3) 222,171 182,191 Retained earnings(deficits) ($602,523) ($419,950) Total stockholders' equity ($379,696) ($237,123) Total liabilities and stockholders' equity $185,500 $210,633
See accompanying notes to consolidated financial statements
MIRACOM INDUSTRIES, INC. Consolidated Statement of Operations Years ended December 31, 2001 and 2000 12 months 12 months Dec. 31, 2001 Dec. 31, 2000 ------------- ------------- Net sales $173,500 $1,760,732 Cost of sales 166,730 1,700,150 Gross profit 6,770 60,582 Selling, general and administrative expenses(note 5) 185,258 235,307 Operating income(loss) ($178,488) ($174,725) Other income(expense): Interest expense ($3,285) ($13,233) Income(loss) before income taxes ($181,773) ($187,958) Income taxes 800 800 Net income(loss) ($182,573) ($188,758) Earnings per common share ($0.03) ($0.03) Weighted average number of common shares 6,488,734 6,319,728
See accompanying notes to consolidated financial statements
MIRACOM INDUSTRIES, INC. Consolidated Statement of Stockholders' Equity Years ended December 31, 2001 and 2000 Common Additional Retained Stock Paid-in capital earnings(deficits) Total ----- --------------- ------------------ ----- Balance at December 31, 1999 $618 82,209 ($231,192) ($148,365) Issuance of common stock 18 99,982 - 100,000 Net income(loss) - - ($188,758) ($188,758) Balance at December 31, 2000 $636 182,191 ($419,950) ($237,123) Issuance of common stock(note 3) 20 39,980 - 40,000 Net income(loss) - - ($182,573) ($182,573) Balance at December 31, 2001 $656 222,171 ($602,523) ($379,696)
See accompanying notes to consolidated financial statements
MIRACOM INDUSTRIES, INC. Consolidated Statement of Cash Flows Years ended December 31, 2001 and 2000 12 Months 12 Months Dec. 31, 2001 Dec. 31, 2000 ------------- ------------- Cash flows from operating activities: Net income(loss) ($182,573) ($188,758) Adjustments to reconcile net income to net cash provided (used in) by operating activities: Depreciation and amortization 2,516 2,349 Decrease (increase) in accounts receivable 33,500 ($103,696) (Increase) decrease in other receivable ($13,059) 28,662 Decrease (increase) in inventories 1,323 ($16,179) Decrease in other assets - 1,843 Increase in overdraft with bank 10 - Increase in accounts payable 17,637 184,945 Increase (decrease) in accrued expenses and other liabilities 89,793 ($8,001) Total adjustments 131,720 89,923 Net cash provided (used in) by operating activities ($50,853) ($98,835) Cash flows from investing activities: Acquisition of property and equipment - ($2,999) Net cash provided (used in) by investing activities - ($2,999) Cash flows from financing activities: Issuance of common stock 20 18 Increase in additional paid-in capital 39,980 99,982 Proceed from note payable, convertible 10,000 - Proceed from long-term debt - 800 Repayment of long-term debt - ($1,277) Net cash provided (used in) by financing activities 50,000 99,523 Net (decrease) increase in cash ($853) ($2,311) Cash at beginning of year 853 3,164 Cash at end of year $0 $853 Supplemental disclosure of cash flow information: Cash payments during the year for interest and income tax - $883
See accompanying notes to consolidated financial statements MIRACOM INDUSTRIES, INC. Notes to consolidated Financial Statements December 31, 2001 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AFFIRMATIVE STATEMENT The accompanying consolidated financial statements have been adjusted to include all adjustments which in the opinion of the management of the Company are necessary in order to make the consolidated financial statements not misleading. BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared on the accrual basis of accounting. ORGANIZATION Miracom Industries, Inc. (the Company), formerly named Bigway, Inc. was incorporated in Nevada on March 12, 1996. Bigway, Inc. was a shell corporation with no assets or liabilities and had no other material operations until the acquisition since its incorporation. On April 25, 1999, Bigway, Inc. approved a Resolution of the Board of Directors whereby it authorized a 'Corporate Combination Agreement', executed and accepted as effective April 26, 1999. In accordance with the 'Agreement', the Company acquired a Miracom Industries, a California sole proprietorship engaged in developing and manufacturing new and innovative consumer electronic products. Simultaneous with the consummation of the acquisition, Bigway, Inc. changed its name to Miracom Industries, Inc., whose main office is located in California, focusing its business direction on the manufacture of the electronic products and distributing them to major department stores and wholesalers throughout the United States. For both financial and income taxes reporting purposes, the Company utilizes calendar year-end accounting period. The Company's fiscal year subsequent to the acquisition ends December 31. REVENUE RECOGNITION The Company recognizes revenue from product sales upon shipment. The Company does not provide a specific return policy. When the products are returned, the Company normally exchanges the products or provides credits to the customers. The returned products are directly shipped out to the supplier and receives new products or credits from the supplier. The Company does not provide sales discounts to the customers. INVENTORIES Inventories, which consist of finished goods, are stated at the lower of cost or market, with cost determined on the first-in, first-out (FIFO) basis. At December 31, 2001, the Company had inventories of $31,990 recorded at cost. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Maintenance and repairs are expensed as paid, and expenditures that increase the useful life of the asset are capitalized. For financial reporting purposes, depreciation is provided using the straight-line method over the following estimated useful lives of the respective assets. Furniture, fixtures and equipment 5 to 7 years RESEARCH AND DEVELOPMENT The Company charges all research and development costs to expense when incurred. EARNINGS PER SHARE Earnings per share of common stock are computed by dividing net income by the weighted average number of shares outstanding during the period. INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standard (SFAS) No. 109, "Accounting for Income Taxes", which was adopted in 1999. The assets and liability approach used in SFAS No. 109 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of the assets and liabilities. Income taxes consist of the minimum state franchise tax of $800. For the year ended December 31, 2001, no provision for federal income tax was made, because the Company is expected to be at a loss for the current year for federal income tax purposes. The ultimate establishment of provision for federal income tax is dependent upon the Company attaining future taxable earnings. (2) GOING CONCERN The Company has incurred net losses of $182,573 and $188,758 for the year ended December 31, 2001 and 2000, respectively. Management believes that the net loss of $182,573 for the year ended December 31, 2001 results mainly from the slowdown of the sales activities, $69,400 of deferred salaries for the Company's officers and $51,720 of professional service expenses, which are the integral portion (65%) of the total selling, general and administrative expenses. This matter raises substantial doubt about the Company's ability to continue as a going concern. If these expenses were not incurred, management believes that total selling, general and administrative expenses might be $64,138, resulting in net losses of $61,453 for the year ended December 31, 2001. In order to survive in an increasingly competitive mini phone market, the management decided to develop a new innovative consumer electronic products. The Company's continued existence is dependent upon the Company's ability to secure adequate investment for the successful completion of the development of the new products. Through the acquisition and the additional capital contributions, the Company already implemented a new and innovative consumer electronic product development, which would significantly improve operating results. The Company plans to obtain patent and copy rights for the new product in order to prevent the competitors from copying the product. Management plans to seek additional capital through equity placements, and it believes that, if successfully funded and implemented, the development of the new product will improve operating results of the Company and net earnings will be recorded in the near future. (3) COMMON STOCK At May 1, 2001, $40,000 of accrued legal expenses were converted into 200,000 shares of the Company's common stock at $0.20 per share. The share price was determined by the approximate market price at the time of the conversion. As of December 31, 2001, common stock status consists of the following:
No. of shares Par Common Capital Additional issued Percent value stock contribution paid-in capital ------ ------- ----- ----- ------------ --------------- 2,500,000 38.14% $0.0001 $ 250 $ 2,500 $ 2,250 3,269,230 49.88% $0.0001 $ 327 $ 327 - 410,257 6.26% $0.0001 $ 41 $ 80,000 $ 79,959 175,000 2.67% $0.0001 $ 18 $ 100,000 $ 99,982 200,000 3.05% $0.0001 $ 20 $ 40,000 $ 39,980 6,554,487 100.00% $0.0001 $ 656 $ 222,827 $ 222,171
As of December 31, 2001, neither subscription rights nor stock warrants were exercised. (4) NOTE PAYABLE, CONVERTIBLE At June 14, 1999, July 13, 1999, August 31, 1999, October 18 and 29, 1999, August 14 and 23, 2001, the Company has 10% notes payable of $20,000, $20,000, $12,000, $50,000 and $35,000, $5,000 and $5,000, respectively, maturing October 31, 2001, August 13 and 22, 2002 and convertible at $1.00 per share. The principle sums of the notes are payable at maturity date, and the interests are payable on the principle sums outstanding from time to time in arrears on the maturity date, at the rate of ten(10) percent per annum accruing from the date of initial issuance. Any or all of the principle or any portion of the principle of the notes, including accrued interests, are convertible into the Company's common stock shares at $1.00 per share, at the notes holder's option, at any time commencing one year after the closing date until maturity. At December 31, 2001, an outstanding borrowing under the notes were $147,000, none of the notes were converted. (5) DEFERRED COMPENSATION The Company incurred $69,400 of deferred salaries, the difference between the stated salaries ($102,000) at fair market value and the actual compensation ($32,600), for the services provided by the officers, which was charged to operations for the year ended December 31, 2001 and was reported as liabilities under the 'Current Liabilities' of the Consolidated Balance Sheet as of December 31, 2001. At December 31, 2001, none of the deferred compensation was actually paid. (6) FAIR VALUE OF FINANCIAL INSTRUMENTS The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments". The carrying values of cash, receivables, accounts payable and accrued liabilities approximate fair value due to the short-term maturities of these instruments. The carrying amount of note payable, convertible approximates fair value. The estimated fair value of the note is based upon the current rate at which the Company could borrow fund with a similar maturity. (7) COMMITMENTS AND CONTINGENCIES At February 14, 2001, the Company entered into a noncancelable operating lease expiring through February, 2002 for office space. Future minimum lease payments under the operating lease as of December 31, 2001 are as follows: Year ending December 31: 2002 $ 1,987 $ 1,987 Rent expense charged to operations for the year ended December 31, 2001 was $8,115. Based upon advice from legal counsel, there are neither existing claims nor pending or threatened litigation, either asserted or unasserted, which would be material to the Company. (8) REPORTABLE EVENT On October 29, 2001, the Company and Spiderfuel, Inc., a Delaware corporation ("Spiderfuel"), entered into a merger agreement pursuant to which Spiderfuel will merge with and into the Company, with the Company remaining as the surviving corporation. Pursuant to the agreement, the stockholders of Spiderfuel shall exchange their Spiderfuel common stock for shares of the Company's common stock, resulting in the stockholders of Spiderfuel owning an aggregate of eighty five (85) percent of the issued and outstanding shares of the Company's common stock. In addition, the Company is obligated to issue additional shares of its common stock to the stockholders of Spiderfuel in the event certain agreed-upon goals are reached. As of December 31, 2001, the merger has not been fully executed and still was in a final completion process.