** **

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

** **

**FORM 10-KSB**

** **

**Annual Report Filed pursuant to Section 13 or15(d) of**

** **

**THE SECURITIES EXCHANGE ACT OF 1934**

** **

**for the fiscal year endedDecember 31, 2001, file # 33-38119-C**

** **

**VOICE AND WIRELESS CORPORATION**

**(Exact name ofregistrant as specified in charter)**

** **

| **Minnesota**                                                        |   | **41-1619632**           |
|----------------------------------------------------------------------|--------|--------------------------|
| (State or other jurisdiction                                         |   | (IRS Employer ID Number) |
| of organization)                                                     |   |                     |
|                                                                 |   |                     |
| **Interchange Tower, # 654, 600 S. Hwy 169,  Minneapolis, MN 55426** |
| (address of principal executive offices)                             |
|                                                                 |   |                     |
| Registrant’s telephone number is                                |   | **(952) 546-2075**       |
|                                                                 |   |                     |
| Securities registered pursuant to Section 12(b) of the Act: **NONE** |
|                                                                 |
| Securities registered pursuant to Section 12(g) of the Act:          |

 

| Common Stock, Par value of $0.001 per share |
|---------------------------------------------|
| (Title of Class)                            |

 

                Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities and Exchange Act of 1934 during the preceding 12months, and (2) has registrant been subject to such filing requirements for thepast 90 days.

 

Yes ý                             Noo

 

Thenumber of shares outstanding of each class of the registrant’s common stock asof December 31, 2001 was 8,938,260 shares.

 

Theestimated market value on April 12, 2002, of the voting stock held by allshareholders of the registrant was $2,398,499.80 and of non-affiliates with6,429,601 shares was $1,821,508.23 based upon the last trade of the stock onthe OTC Bulletin Board of $.23 per share. Currently there is a public market onthe Bulletin Board on the Minneapolis Local over the Counter Market with a callsign of “VWLC”.

 

Exhibit Index on the Sequentialpage 18

 

DOCUMENTS INCORPORATED BYREFERENCE: SEE EXHIBIT INDEX

 

 

 

**VOICE & WIRELESS CORPORATION**

**FORM 10-KSB**

 

**YEAR ENDED DECEMBER 31, 2001**

 

**INDEX**

 

 
| **ITEM**     |                                                                                                              |
|--------------|-------------------------------------------------------------------------------------------------------------------|
|         |                                                                                                              |   |
| **PART I**   |                                                                                                              |
|         |                                                                                                              |   |
| 1.           | Description of Business                                                                                           |   |
| 2.           | Description of  Property                                                                                          |   |
| 3.           | Legal  Proceedings                                                                                                |   |
| 4.           | Submission  of matters to vote of security holders                                                                |   |
|         |                                                                                                              |   |
| **PART II**  |                                                                                                              |
|         |                                                                                                              |   |
| 5.           | Market  for Common Equity & Related Stockholder matters                                                       |   |
| 6.           | Management’s  Discussion & Analysis or Plan of Operations                                                |   |
| 7.           | Consolidated  Financial statements                                                                                |   |
| 8.           | Changes  in and Disagreements with Accountants on Accounting and Financial Disclosure                             |   |
|         |                                                                                                              |   |
|         |                                                                                                              |   |
| **PART III** |                                                                                                              |
|         |                                                                                                              |   |
| 9.           | Directors,  Executive Officers, Promoters and Control Persons; Compliance with Section  16(a) of the Exchange Act |   |
| 10.          | Executive Compensation                                                                                            |   |
| 11.          | Security  Ownership of Certain Beneficial Owners and Management                                                   |   |
| 12.          | Certain  Relationships & Related Transactions                                                                 |   |
| 13.          | Exhibits, lists and Reports  on Form 8-K                                                                          |   |
|         | Signatures                                                                                                        |   |
|         |                                                                                                              |   |
|         | Consolidated  Financial Statements                                                                                |   |

 

 

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**CAUTIONARYSTATEMENT FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATESECURITIES LITIGATION REFORM ACT OF 1995**

 

1.               Statements in this discussionwhich are not historical facts may be considered “forward looking statements”within the meaning of Section 21E of the Securities & Exchange  Act of 1934, as amended, including projectedsales based upon orders, estimated cost savings and savings that may be generatedfrom restructuring. The words “believe”, “expect”, “anticipate”, “estimate”,and similar expressions identify forward looking statements. Any forwardlooking statement involves risks and uncertainties that could cause actualevents or results to differ, perhaps materially, from the events described inthe forward looking statements. Readers are cautioned not to place unduereliance on these forward-looking statements. The Company undertakes noobligation to publicly update or revise any forward looking statement, whetheras a result of new information, future events or otherwise. The risksassociated with the Company’s forward looking statements include, but are notlimited to, risks associated with the Company’s history of losses and uncertainprofitability, reliance on a large customer, risks associated with competition,general economic conditions, reliance on key management and production people,future capital needs, dilution, effects of outstanding notes and convertibledebentures, limited public market, low stock price, and lack of liquidity.

 

Thefollowing discussion and analysis should be read in conjunction with theConsolidated Financial Statements, related notes and other information includedin this annual report on Form 10-KSB.

 

**Item 1. Description of Business**

 

Voice& Wireless Corporation changed its name on July 30, 2000 from KENSINGTONINTERNATIONAL HOLDING CORPORATION, (referred to herein as “VWLC” or the“Company”) to more accurately reflect its new direction to providecommunication solutions as well as continuing its core business of installingand manufacturing commercial fixtures. During 2001 the Company sustained lossesdue to the recession, continued losses and investments into Mail Call, costsrelated to the development of the new patent-pending wireless Ear Bud as wellas increased losses at Ives Design.

 

TheCompany was formed in 1988, initially for the purpose of developing oil and gasproperties in Kentucky.  It is areporting public corporation quoted on the “pink and white sheets” as well asthe bulletin board, and its call sign is “VWLC.OB”. On December 31, 2001, theCompany had approximately 1,100 stockholders. On December 31, 2001, VWLC owned100% of Ives Design, Inc., a Minnesota corporation, and 100% of Mail Call,Inc., a Florida 

 

 

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corporation,both of which are operating companies. VWLC owns 80% or more of the followingnon-operating companies; Bluegrass Management and Operating Company, a Kentuckycorporation; VWLC American Gas Drilling #1, a Minnesota LLC. During 2001, VWLCsold its interests in the 28 operating oil and gas wells in Oklahoma, Texas,and Arkansas for $40,000. VWLC also owns less than 10% of a number of companiesunder its Equity Acquisition Program as described on page 9. The Company formeda German subsidiary, “Kensington International Europe GmbH” in March 2000.

 

Inthe past, VWLC has focused on designing, manufacturing, and installingcommercial store fixtures. During 2000, VWLC mapped out a new strategy toreposition the company to grow in the business-to-business Internet andcommunications environment by emphasizing advanced voice and wirelesscommunications services, products, and solutions. It is due to this new focusthat VWLC acquired interests in Mail Call, Inc. and in MicroTalk Technologies,Inc.

 

VWLC,as stated above, is comprised of:

 

**A.****               ****Mail Call, Inc. & the Wireless EarBud**

 

Mail Call, Inc., aFlorida corporation founded in April 1997, is the creator of a convenient andeasy to use method of accessing and managing e-mail from any telephone in theworld.  Mail Call’s elegant andsophisticated e-mail retrieval system provides simple telephone access to themessages, documents, and information we are expecting but can’t always get to acomputer to retrieve.  Mail Call’scustomers dial a toll free number, connect to Mail Call’s automated system,and, heartheir e-mail as Mail Call reads their messages to them. Then,without keyboard or computer, the customer may respond verbally (leaving avoice response as though sending a voice mail) to the e-mail. Mail Calldelivers the “voice” e-mail as a return message to the sender. Mail Call has aWeb Site at www.mailcall.com.

 

Nielson Media Researchand CommerceNet in June of 1998 stated that there were 79 million e-mail usersover the age of 16 in the United States alone. On November 1, 1999, CNBCannounced that the number of adult users of e-mail in the United States hadjust exceeded 100 million people.

 

Currently, MailCall’s services utilize a proprietary text to speech software technology licensedfrom Lernout & Haauspie Speech Product N.V. The license provides that it isworldwide, non-exclusive and non-transferable. Mail Call also has developed itsown proprietary source codes and software.

 

On July 1, 2000the Company acquired 100% ownership of the shares of Mail Call, Inc. During2000 and 2001 VWLC attempted to commercialize Mail Call’s technology and it wasnot successful forcing the Company to close Mail Call in the USA during 2002.Mail Call will continue to be operated in the Bahamas for the Bahamiantelephone company, BATELCO.

 

 

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The patent-pendingdigital wireless ear-piece (DWE) allows you to listen & talk on your analogor digital cellular phone (or any phone) hands free and without wires, byplacing a small amplifier on your phone and by placing a soft plastic shelldevise in the outer “bowl” or concha of your ear. The “Voice & Wireless EarBudä“ uses two hearing aid batteries, whichare easy to replace and that last an estimated 50 hours of “talk time”. Thisextended time is due to the Company’s patent pending method for extending thelife of the batteries. The cell phone amplifier uses three hearing aidbatteries.

 

The digitalwireless ear-bud system works with any existing phone, multimedia computer, CDplayer, MP3 player or radio as well as most televisions on the market today.The ear-bud works with any existing analog or digital cellular phone inexistence today that has a 2.5mm audio port, so most users will not have topurchase new phones to use our product. The wireless digital ear-bud advantages over its competitors are asfollows:

 

•                    The ear-bud has no wires.

•                    Its sound quality is high fidelity.

•                    The earpiece is lightweight (3/10thof an oz.), including batteries.

•                    The ear-bud has no microphone.

•                    Longer battery life.

•                    The ear-bud has multiple applications,not just a cell phone application.

•                    The ear-bud can be used in the car aswell as out of it.

•                    The ear-bud has a zero SAR, which is theFCC’s measure of radiation.

•                    With the ear-bud, you can speak on yourcell phone even if it up to eight feet away.

 

**Significant markets, customers andsuppliers**

 

Themarket for hands free cellular phones is growing and in some jurisdictions, itis mandatory. According to the National Highway Safety Administration, thereare 86 million cell phone subscribers in the United States and most use themwhile they are driving (Investors Business Daily, March 8, 2000).Australia, Austria, Belgium, Germany, Israel, Italy, Japan, New York, Norway,Portugal, South Africa, Spain, and Switzerland have banned the use of a cellphone while driving, unless it is hands free. Investors Business Dailyreported in its February 23, 2001

 

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edition that as of December31, 2000 there were over 1,000,000,000 cell phones and TIME magazine, inits October 9, 2000 edition, reported that manufacturers expect to sell another400 million units in 2001. The market potential for just the cellular phonesapplication is very large and growing.

The London Sunday Times reported in its January 14, 2000edition, “scientists link eye cancer to mobile phones”.  Voice and Wireless doesn’t make any claimsabout the damage that cell phone radiation may cause to human tissue, butmanagement is of the opinion that some people may prefer to use the Voice &Wireless Ear Budä that emits no radiation.  Dr. George Carlo, in his book Cell Phones,published in 2001, found that cell phone users may possibly be 3.5 times morelikely to develop brain cancer than non-users, based upon a study of 770,390people, conducted in 1994.

The Voice & WirelessEar Budä solves both the driving and theradiation safety concerns for using cell phones. The Company’s goal is toprovide comprehensive and safe wireless solutions in one of the largest andfastest growing markets in the world.

 

**Regulation of the communications industry and of the Internet**

 

Thereare federal and state regulations governing the industry that Mail Call and theDWE provide a service to. Both Mail Call and the DWE meet all of theseregulations at this time.

 

**Competitionwithin the hands-free cellular telephone market**

 

For the Ear Budthere is no direct competition that the Company is aware of as of the date ofthis business summary. The indirect competitors that the Company knows of areas follows.

 

Plantronics has awireless cordless phone known as the XLT and it wholesales for $389.00. Theuser has to stay within 100 feet of an electrical power station and the headsetbatteries only last four hours. The headset has a large microphone that must beadjusted.

 

GN-Netcom has amodel similar to Plantronics XLT, but it uses the “bluetooth technology” whichsells for $499. The Netcom devise is a headset with only two hours of “talktime”. The bluetooth model’s range, as tested by Voice & Wireless, is fiveto eight feet. Netcom’s “bluetooth” model does give off radiation.

 

Air Magic, aChinese firm, started marketing an RF (radio frequency) wireless ear-bud duringthe summer of 2000. Air Magic has a range of five feet and can only be usedwith a cell phone in a car. The Chinese model sells for $99.99 plus $21.95 for 

 

 

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shipping and aphone adapter.  As with Netcom, the AirMagic devise does give off radiation. Other indirect competitors are singlepurpose hands-free, wired ear-buds for cell phones which are sold by numerousvendors such as JABRA and GE Netcom and sell for as little as $14.95.Additional indirect competitors are manufacturers of speakerphones made forautomobiles. Management anticipates numerous competitors in the future due tothe large and growing market.

 

**B. IVES DESIGN,INC.**

 

InApril 1992, the Company acquired 100% of IVES DESIGN, INC. (“Ives”), amanufacturer of store display fixtures. The primary components of such fixturesare wood and laminate but many fixtures will incorporate acrylic, glass and/ormetal. Ives provides a broad spectrum of services to its customers includingdesign, manufacturing, delivery and installation. Fixtures are sold to a widevariety of customers ranging from retail and grocery stores to privatecompanies and churches. Several customers are members of the Fortune 1000.Sales are obtained through direct sales contact as well as referrals. The rawmaterial used in production is widely available and procured from a number ofsources depending on pricing and vendor stock. As of December 31, 2001, Ivesemployed 26 full time employees.

 

During2001, Ives Design was greatly affected by the recession and lost nearly$240,000. Management realized that Ives had to acquire a product or productsthat it could market to its existing customers which had better margins andexclusivity. During November 2001, VWLC started negotiations for the exclusiveright to market, sell, service, promote and distribute the STABILUXTM, a voltageregulator that stabilizes voltage and manages lighting for various applicationsin the following areas;

 

“ Facilities ofcustomers headquartered in Minnesota, even if located in other exclusive MasterDistributors areas, provided that the ordering is done through the Minnesotacustomer. In addition, this exclusive distributorship includes sales madethrough Hubbell Lighting, Inc. of Christianberg, VA; Pro Circuit of Conroe, TX;Johnson Controls of Wisconsin; Border States Electric; Viking Electric ofMinnesota; and Qualite Sports Lighting, Inc. of Hillsdale, MI. Once a sale ismade by Voice & Wireless, its subsidiary, distributor, or dealer, inanother designated area, other than Minnesota, that customer remains thecustomer of VWLC for the duration of this distributorship even if a masterexclusive distributorship is established where the customer is located.”

 

On March 6, 2002the agreement was signed and finalized. STABILUXTM is a proven technology, developedby the Italian manufacturer IREM S.p.A., and is in use through out Europe.STABILUXTM is ETL and FCC certified and IREM is both ISO 9001 and ISO 14001certified. The product has been shown to reduce lighting energy costs by asmuch 

 

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as 50% in Europeanapplications such as grocery stores (Ives Design’s biggest customer is SuperValu), parking ramps, large retail stores, and similar facilities. STABILUXTMcan be used with all existing or new lamps, ballasts or energy managementsystems found in commercial, industrial and governmental facilities.

 

On March 6, 2002,VWLC and Ives Design were granted the exclusive rights to market, sell,promote, and distribute the STABILUXTM products in the entire United States ofAmerica for an additional 650,000 shares of restricted stock and for another350,000 shares of registered stock. In addition, VWLC and Ives Design weregranted the non-exclusive right to sell the STABILUXTM worldwide. Part of thetransaction was that VWLC would also receive five (5) STABILUXTM units, and$30,000 of equipment and marketing materials. VWLC has hired a VP of Sales anda VP of Marketing for the STABILUXTM. This United States exclusivity will befinalized once the 350,000 shares of VWLC stock is registered through a FormS-3 filing. Notwithstanding, the Company has been operating as IREM’s exclusiveUnited States distributor of STABILUXTM through its new subsidiary, EconoWattCorporation, a Nevada Corporation, since March 6, 2002. The March 6, 2002agreement to purchase EconoWatt Corporation is attached as Exhibit 10.5.

 

On February 11,2002 the Company entered into a consulting agreement with UTEK Corporation ofFlorida. UTEK has agreed to source out other complimentary technologies for theCompany, assist in selling Mail Call, Inc., and to provide other consultingservices to the Company in return for 45,000 shares a month in 144 restrictedstock. The agreement may be terminated by either party upon 30 days notice.

 

**Significantmarkets, customers and suppliers**

 

Whilethe loss of Ives’ largest customer would have an adverse effect on the Companysuch an event is unlikely since they have recently advised the Company of theirplan to place more substantial orders. The Company presently has no contractualcommitments with any customers but works against purchase orders for its sales.

 

TheCompany believes that the number of potential suppliers of the materialsutilized by Ives in fashioning its products are sufficient that the loss byIves of any one or a number of its present suppliers would not have a materialadverse effect on Ives’ business.

 

Ives’products are not seasonal products and are sold throughout the year.

 

**Regulation****of the storefixture industry**

 

Thereare federal and state regulations governing the Ives 

 

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operationto the extent of Environmental Protection Agency and OSHA rules that apply todisposal of waste from painting and sealing of product. The STABILUXTM is ETLand FCC tested and certified. It meets all electrical codes in the UnitedStates. Ives has a program in effect for all of the situations mentionedherein.

 

**Competitionwithin the store fixture & lighting retrofit industry**

 

Ivesdoes have a number of competitors and bids most of its projects. During therecession, competitors have bid projects down which has resulted in losses forIves Design. Notwithstanding, sales have picked up substantially during 2002and management believes that the Company will become competitive again withrespect to both price and quality of its products. In addition, the newSTABILUXTM product will be rolled out during 2002 and it has only one directcompetitor, Electric City (AMX:ELC) from Illinois. Electric City has beenmarketing another Italian product similar to STABILUX for two years, but itdiffers in numerous operational features and does not have units for smallerand larger applications like STABILUXTM does which means that STABILUXTM may be“single-sourced” and not “bid” in a number of applications.

 

**C. CompanyDirection:**

 

During2000, VWLC mapped out a new strategy to reposition the Company to grow in thebusiness-to-business Internet and communications environment by emphasizingadvanced Internet-related communications services and products. It was due tothat new focus that VWLC acquired interests in Mail Call, Inc. and in MicroTalk Technologies, Inc. During 2001, the Company recognized that Mail Call wasnot generating market acceptance and had to close it in 2002 to save expenses.The DWE is more than a year beyond its scheduled “roll-out” date and it stillhas some noise feedback problems. The Company is attempting to find a buyer forMail Call and is still investing money to resolve the DWE technical problems.Once the DWE technical problems are resolved, the Company intends to findmanufacturing and marketing partners to sell or license the DWE technology to.The new primary focus for VWLC will be to continue to expand its moretraditional revenue generating businesses, such as Ives Design, Inc. and marketthe STABILUXTM. Both of these focuses will be expanded through sales to newcustomers, forming new strategic alliances, expanding sales to existingcustomers, and through acquisitions of products like STABILUXTM.

 

**EquityAcquisition Program**

 

Itis also management’s intention to continue to obtain equity interests in othercorporations in return for the Company’s management expertise. Management is ofthe opinion that it can obtain a 1% to 10% equity interest in these newcompanies with 

 

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littleor no capital investment. The primary focus for the EAP program will becompanies in the Internet and communications sector. The secondary focus willbe on more traditional businesses that have positive cash flow.

 

**Item 2.  Description of Property**

 

Atpresent, the Company’s principal office is located at 600 S. Highway 169, Suite654, Interchange Tower, Minneapolis, Minnesota, 55426, occupying approximately700 square feet and utilized entirely for executive offices. The lease includesthe use of two conference rooms. In 2000 the lease was extended for five years.

 

Asa result of its acquisition of Ives, the Company owns two buildings. Onebuilding has 18,500 square feet, located at 1333 Constance Boulevard, Ham Lake,Minnesota. Approximately 2,500 square feet are utilized for offices and 16,000square feet for manufacturing. There is also a 7,200 square foot storagebuilding.

 

During2001 the Company closed its offices in New York, Florida and in Germany to reducecosts.

 

**Item 3:  LegalProceedings**

 

Thereare no legal proceedings or threats of legal proceedings at December 31, 2001,that the management was aware of. Subsequent to December 31, 2000, two allegedservice providers have threaten lawsuits. RTG of Minneapolis, Minnesotathreatens to sue for $5,000. MARTEK, of Dallas, Texas, is threatening to suefor approximately $8,700. Management disputes both of these claims. During 2001neither of these parties pursued any claims against VWLC.

 

**Item 4:  Submission of matters to a vote of Security Holders**

 

None

 

**PART II**

 

**Item 5:   Market for Common Equity and Related Stockholder Matters**

 

Companystock price by quarter:

 
|        |   | **High** |   | **Low** |   |
|-------------|--------|----------|--------|---------|--------|
| 1st quarter |   | 1.69     |   | .50     |   |
| 2nd quarter |   | 2.15     |   | .38     |   |
| 3rd quarter |   | 1.50     |   | .30     |   |
| 4th quarter |   | .65      |   | .14     |   |

 

 

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Sincethe Company is not NASDAQ qualified, these prices are inter dealer prices andmay not reflect actual value or transactions.

 

                                                (a) MarketInformation

 

                                                                The Registrant’s securities aretraded on the Bulletin Board as “VWLC.OB”.

 

                                                (b) Holders

 

                                                                At December 31, 2001 there wereapproximately 1,100 shareholders of record including people who held stock in“street name”.

 

                                                (c) Dividends

 

                                                                The registrant has not paiddividends on its common stock and does not expect to in the foreseeable future.

 

**Item 6: Management’s Discussion andAnalysis or Plan of Operation**

**SelectedFinancial Information:**

 
|                              |   | **2001**  |       | **2000**  |   |
|-----------------------------------|--------|-----------|------------|-----------|--------|
| Total Revenue                     |   | $         | 2,244,368  |      | $      | 3,012,922 |   |
| Cost of Sales                     |   | 1,733,412 |       | 2,098,746 |   |
| Gross Profit                      |   | $         | 510,956    |      | $      | 914,176 |   |
| Operating Expense                 |   | 1,737,863 |       | 2,152,477 |   |
|                              |   |      |       |      |   |
| Loss on impairment of GW          |   | 607,647   |       | 0         |   |
| Loss from Operations              |   | $         | (1,834,554 | )         | $      | (1,238,271 | ) |
| Other Income (Expense)            |   | (76,537   | )          | 143,865   |   |
|                              |   |      |       |      |   |
| Loss from Continuing Operations   |   | $         | (1,911,091 | )         | $      | (1,094,406 | ) |
| Discontinued Operations           |   | (5,305    | )          | 6,909     |   |
| Net Loss                          |   | $         | (1,916,396 | )         | $      | (1,087,497 | ) |
|                              |   |      |       |      |   |
| Basic and diluted loss  per share |   | $         | (.21       | )         | $      | (.13 | ) |

 

YEAR ENDED DECEMBER 31, 2001 AS COMPARED TO YEAR ENDED DECEMBER 31,2000 REVENUES - Total revenues decreased to $2,244,368 for the fiscal yearended December 31, 2001, compared to $3,012,922 for fiscal year ended 2000, areduction of 25%. This decrease was primarily due to a sharp decline in theshipment of fixtures and related installation revenue at Ives Design.  This decline can be traced to a slow down inthe economy which caused several customers to delay or cancel planned capitalexpenditures.  Ives’ pending backordersgoing into fiscal 2002 was approximately $650,000.

 

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GROSS PROFIT - Grossprofit decreased to $510,956 in fiscal year ended 2001 from $914,176 for fiscalyear ended 2000, a decrease of 44%. The decrease in gross profit margin for thefiscal year ended 2001 was due to the overall mix of business with lower marginproducts making up a higher percentage of the overall sales.

 

OPERATING EXPENSES - Operating expenses decreased to $1,737,863 in thefiscal year ended 2001 from $2,152,447 in fiscal year ended 2000, which wasprimarily the result of lower salary and commission expense. Selling, general,and administrative expenses decreased as a result of consolidating offices andan overall streamlining of the Company’s operations.

 

NET LOSS - As a result of the above, the Company sustained a net lossof $(1,916,396) for the fiscal year ended December 31, 2001 ($.21 loss pershare on 8,938,760 weighted average outstanding shares), compared to a net lossof $(1,087,497) for the fiscal year ended December 31, 2000 ($0.13 loss pershare on 8,363,609 weighted average outstanding shares).

 

Mail Call continued to operate below expectations with a monthly lossin excess of $20,000 and management closed Mail Call in the United Statesduring February 2002.  Management isexploring all options as to the best course of action including selling MailCall or its assets.

 

Patent, research and development costs related to the Company’s ear budproduct contributed significantly to the loss for the year.

 

DISCONTINUED OPERATIONS - During November 2001, the rights to theinvestment in oil and gas properties were sold for gross proceeds of $40,000.At December 31,2001, the Company recognized a loss on these rights of $17,004.

 

LIQUIDITY AND CAPITAL RESOURCES - The Company has financed its cashrequirements primarily through operations, and sales of its securities toaccredited investors.

 

As of December 31, 2001, the Company had a working capital ofapproximately $620,424. The Company has approximately $599,054 in long-termdebt. The auditor’s report on its consolidated financial statements includedelsewhere herein contains an explanatory paragraph about the Company’s abilityto continue as a going concern. The Company, based on management’s estimates,believes cash flow from operations will not support the Company’s workingcapital requirements for the next twelve months as such, the Company is seekingto raise funds through the issuance of convertible debentures to accreditedinvestors. There can be no assurances that the Company will be successful inobtaining this additional financing. If it is not successful, the Company would

 

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seek to negotiate other terms for the issuance of debt, and/or pursuebridge financing, negotiate with suppliers for a reduction of debt through theissuance of stock and seek to raise equity through the sale of its commonstock.

 

## **Critical Accounting Policies**

 

The Company believes thefollowing represent its critical accounting policies:

 

Impairment of Goodwilland other intangibles

 

We periodically evaluateacquired businesses for potential impairment indicators.  Our judgements regarding the existence ofimpairment indicators are based on legal factors, market conditions andoperational performance of our acquired businesses. Future events could causeus to conclude that impairment indicators exist and that goodwill and otherintangibles associated with our acquired businesses are impaired.  In December 2001, we wrote off our remaininggoodwill related to the investment in Mail Call of $607,647.  Based on Mail Call’s historical operatingresults and cash flow requirements, the Company could not foresee that it wouldbe able to recover the carrying amount of its investment in Mail Call or that MailCall has the ability to sustain an earnings capacity which would justify thecarrying amount of the goodwill.  Duringthe years ended December 31, 2001 and 2000, the Company did not record anyimpairment losses related to other intangibles related to acquired businesses.

 

Revenue Recognition

 

We recognize revenue whenproducts are shipped to customers the price is fixed and determinable andcollection is considered probable. The Securities and Exchange Commission’sStaff Accounting Bulletin (SAB) No. 101, “Revenue Recognition” providesguidance on the application of accounting policies generally accepted in theUnited States of America to selected revenue recognition issues. We haveconcluded that our revenue recognition policy is appropriate and in accordancewith accounting principles generally accepted in the United States of Americaand SAB No. 101.

 

## **Recent Accounting Pronouncements**

 

In June 2001, theFinancial Accounting Standards Board (FASB) issued Statement of AccountingStandards (SFAS) No. 141 “Business Combinations.”  SFAS No. 141 eliminates the pooling-of-interests method ofaccounting for business combinations except for qualifying businesscombinations that were initiated prior to July 1, 2001.  In addition, SFAS No. 141 further clarifiesthe criteria to recognize intangible assets separately from goodwill.  The

 

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requirements of SFAS No.141 are effective for any business combination accounted for by the purchasemethod that is completed after June 30, 2001. The Company believes the adoption of SFAS No. 141 will not have amaterial effect on the Company’s consolidated financial position or results ofoperations.

 

In June 2001, the FASBadopted SFAS No. 142, “Goodwill and Other Intangible Assets.”  SFAS No. 142 discontinues the amortizationof recorded goodwill for fiscal years beginning after December 15, 2001.  In the future, goodwill will be reducedbased upon an impairment analysis of the amount recorded on the Company’sbooks.  To the extent it has beendetermined that the carrying value of goodwill is not recoverable and is inexcess of fair value, an impairment loss will be recognized.  Impairment will be reviewed on a periodicbasis based on its fair value as noted in the critical accounting policies, theCompany wrote off $607,647 of impaired goodwill during the year ended December31, 2001.

 

In June 2001, the FASBissued SFAS No. 143. “Accounting for Asset Retirement Obligations.” SFAS No.143 is effective for fiscal years beginning after June 15, 2002.  The Company believes the adoption of SFASNo. 143 will not have a material effect on the Company’s consolidated financialposition or results of operations.

 

In October 2001, the FASBissued SFAS No. 144 “Accounting for the Impairment or Disposal of Long-LivedAssets.”  SFAS No. 144 supersedes SFASNo. 121.  SFAS No. 144 primarilyaddresses significant issues relating to the implementation of SFAS No. 121 anddevelops a single accounting model for long-lived assets to be disposed of, whetherprimarily held, used or newly acquired. The provisions of SFAS No. 144 will be effective for fiscal yearsbeginning after December 15, 2001.  Theprovisions of SFAS No. 144 generally are to be applied prospectively. TheCompany believes the adoption of SFAS No. 144 will not have a material effecton the Company’s consolidated financial position or results of operations.

 

**Item 7: Consolidated FinancialStatements**

 

                The consolidated financialstatements of the Company are included herein following the signatures page.

 

**Item 8:Changes in and Disagreementswith Accountants on Accounting and Financial Disclosure**

 

                None.

 

14

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** **

**Part III**

 

**Item 9. Directors****, Executive Officers, Promotersand Control Persons of the Company; Compliance with Section 16 (a) of theExchange Act**

**MANAGEMENT**

                Mike Nakonechny resigned as adirector and Chairman during January 2002. The executive officers and Directorsof the Company are as follows:

 
| Name                      |   | Age    |   | Position                  |
|---------------------------|--------|--------|--------|---------------------------|
|                      |   |   |   |                      |
| Keith  A. Witter, JD, CPA |   | 54     |   | Director  & Secretary |
|                      |   |   |   |                      |
| Mark  Haggerty, JD        |   | 54     |   | Chief  Executive Officer, |
|                      |   |   |   | Chairman,  COO            |
| Mike  Nakonechny, PE      |   | 73     |   | Retired  Chairman 1-29-02 |
|                      |   |   |   |                      |
| Jeff  Etten, CPA          |   | 46     |   | Chief  Financial Officer  |

 

Directorsare elected for an indefinite term not to exceed five years, expiring at theannual stockholders’ meeting next held after their election and until theirsuccessors are elected and qualified. Officers are appointed by the Board of Directors and serve at itsdiscretion.

 

KeithA. Witter has been a Director of the Company since May 1,1993.  From January 1992 to April 1993,Mr. Witter served as President and Chief Operating Officer of the Company.  He received a B.A. in businessadministration and economics in 1969 from Gustavus Adolphus College, and in1973 obtained a JD degree from the University of Minnesota Law School.  Since 1984, Mr. Witter has served asPresident and owner of Askar Corporation, a securities broker-dealer with 85representatives in five states.  He alsois the President of F.F.P. Investment Advisors, Inc., a financial planningfirm, a position he has held since 1984.

 

MikeNakonechny lives in Pennsylvania and is an electrical engineer. Hehas been a Director since October 15, 1994. Mr. Nakonechny is on the boards of MentorCorporation of Minneapolis and Silicon Technology Corporation and his owncompany, NAK Associates Corp. Mr. Nakonechny resigned on January 29, 2002.

 

MarkHaggerty became an employee of VWLC on May 1, 1993 and becameC.E.O.-C.O.O on September 9, 1993. Mr. Haggerty is a Graduate of the Universityof Minnesota Law School and is a practicing attorney.  From 1974 to 1985 he served as a prosecutor in Anoka County,Minnesota.  From 1971 to 1985 Mr.Haggerty was employed as an attorney with the Minneapolis law firm of Smith,Juster, Feikema, Malmon and Haskvitz and was its youngest shareholder, officerand director. In 1985 Mr. Haggerty was employed as a Senior Vice President atMiller and Schroeder Financial, Inc., 

 

15

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Minneapolis,where he remained until 1987 when he formed Haggerty & Associates,Inc.  During the past twenty years Mr.Haggerty has structured and closed more than 150 taxable and non-taxablefinancing and marketing programs both in the United States and Europe. Heserves as the elected Vice Chairman of the Hennepin County Parks, and on theBoards for all of the VWLC companies. Haggerty has been a Director since October 15, 1994 and Chairman sinceJanuary 30, 2002.

 

JeffEtten****is a C.P.A. and amember of the Minnesota Society of Certified Public Accountants. Mr. Etten wasformerly the C.F.O. of Heritage Computer. Mr. Etten received his BS degree inAccounting from the University of Wisconsin-Eau Claire.

 

## **Other KeyPersonnel**

 

Dennis Krause is the President and a Director of IvesDesign, Inc. Mr. Krause has over 25 years experience in the fixture andmillwork industry.

 

Jochen Stog, Mr. Stog has over 30 years experiencein European business and sales. Mr. Stog holds 25 international patents and speaksnumerous languages fluently. Mr. Stog is one of only 50 elected members to the300,000 member Munster Chamber of Commerce. He is also Chairman of the ErnstSchneider Foundation, cofounder and former Treasurer of ZENIT, the Center forTechnology and Innovation in North Rhine Westphalia which is the R&Ddevelopment corporation for that state of 10,000,000 people. Mr. Stog willoperate out of VWLC’s new European headquarters in the Dortmund, Germany suburbof Waltrop. Waltrop is in the center of the Ruhr and within a fifty mile radiushas approximately 8 million people. Mr. Stog has been president of his owncompany, STOG TEC GmbH for over fifteen years and in the 1970’s served as anassistant to the Secretary of the German Interior in Bonn, Germany.

 

**Item 10: Executive Compensation**

 

**(a) CompensationPursuant to Agreements**

 

                In May 1993, the Company enteredinto an employment agreement with Mark Haggerty to serve as SeniorVice-President. Mr. Haggerty has been and will continue to act as generalcounsel. Mr. Haggerty’s salary is $78,000 per year and his law firm; Haggerty& Associates, Inc. is retained at an additional $12,000 per year.  The agreement with Mr. Haggerty allows himto retain a limited number of clients while employed with the Company since hiscontract only requires him to work 80% of his time for the Company.  Mr. Haggerty also receives an automobileallowance, is reimbursed expenses incurred on Company business, receives four 

 

16

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weekspaid vacation per year as well as medical insurance and life insurance throughIves Design, Inc. Mr. Haggerty’s contract was extended through May 1, 2003.

 

Mr.Etten receives a salary of $72,000 a year for acting as C.F.O. Mr. Etten alsoreceives a car allowance, four weeks paid vacation, medical and life insurancethrough Ives Design, Inc., and expense reimbursement.

 

Upuntil October 2000, the directors only received expense reimbursement andwarrants. Since the board has been decreased in size to three members and nowtwo members, the directors have been authorized to receive $500 a month incompensation.

 

**CompensationPursuant to Plans**

**EmployeeCashless Stock Options**

 

TheCompany has adopted an incentive stock option plan, which authorizes a maximumof 750,000 shares that may be issued pursuant to the Plan. The Board ofDirectors may grant options to key individuals at their discretion. Theexercise price for options issued pursuant to the Plan may not be less than 85%of the fair market value of the Company’s common stock on the date of option.Any option granted must be exercised within ten years of its grant. The sharesissued upon exercise of the options granted pursuant to the Plan have noregistration rights unless specifically authorized by the Board of Directors.

 

**Item 11.SecuityOwnership of Certain Beneficial Owners and Management**

** **

**PRINCIPAL STOCKHOLDERS**

 

                The following table sets forthinformation as of December 31, 2001 regarding ownership of the Company’s commonstock by (1) the only persons known by the Company to own beneficially morethan five percent (5%) thereof; (2) the directors individually, either directlyor through corporations or family members, and (3) all officers and directorsas a group.  All persons listed haveeither direct or indirect voting and investment power with respect to theirshares unless otherwise indicated. The list on page 18 herein includes issuedshares, as well as options and warrants that have not been issued but that havevested.

 

17

----

 

 
| NAME                 |   | Shares    |   | Percentage |   |
|----------------------|--------|-----------|--------|------------|--------|
|                 |   |      |   |       |   |
| Dennis  Krause       |   | 284,089   |   | 3.19       | %      |
| Isanti  Street       |   |      |   |       |   |
| Blaine               |   |      |   |       |   |
| Minnesota  55432     |   |      |   |       |   |
|                 |   |      |   |       |   |
| Mike  Nakonechny     |   | 539,786   |   | 5.93       | %      |
| 114  S. Pine Street  |   |      |   |       |   |
| Elverson,  PA 19520  |   |      |   |       |   |
|                 |   |      |   |       |   |
| Mark  Haggerty       |   | 876,322   |   | 9.64       | %      |
| 8325  Northwood Pkwy |   |      |   |       |   |
| New  Hope, MN 55427  |   |      |   |       |   |
|                 |   |      |   |       |   |
| Keith  Witter        |   | 311,728   |   | 3.44       | %      |
| 606  23rd Street NE  |   |      |   |       |   |
| Rochester,  MN 55906 |   |      |   |       |   |
|                 |   |      |   |       |   |
| Ron  Schnell         |   | 1,240,000 |   | 13.22      | %      |
| 8910  Miramar Pkwy   |   |      |   |       |   |
| Suite  208           |   |      |   |       |   |
| Miramar,  FL 33025   |   |      |   |       |   |
|                 |   |      |   |       |   |
| Jeff  Etten          |   | 97,234    |   | 1.09       | %      |
| Savage,  Minnesota   |   |      |   |       |   |
|                 |   |      |   |       |   |
| Total  (6)           |   | 3,349,159 |   | 36.51      | %      |

 

Allofficers & key persons & directors & recent directors, as a Group,six persons.

 

**Item 12. Certain Relationships andRelated Transactions.**

 

**CERTAIN TRANSACTIONS**

 

**LibertyNational Stock & Warrants**

 

Inconnection with the Company’s 1992 acquisition of American Gas, the Companyassumed certain obligations of American Gas. Among these obligations was the issuance of the Company’s securities (asdescribed more fully below) to creditors and investors who participated in aseries of oil and gas drilling partnerships promoted by Liberty NationalCorporation (“Liberty”), a defunct corporation whose assets American Gasacquired in a sale approved by the Superior Court of the State of California,Orange County. In consideration for the purchase of such assets, the Companyagreed to issue to the approximately 634 Liberty creditors/investors 200,000shares of common stock (the “Liberty Shares”) and 800,000 warrants (the “ClassA Liberty Warrants”). Each Class A Liberty Warrant is exercisable for sixmonths from 

 

18

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issuanceto purchase one share of common stock at $2.50 per share and one Class CLiberty Warrant, which is exercisable at $7.00 per share. These conditions werechanged by Court Order on May 3, 1994 whereby the 634 Liberty Nationalinvestors are to receive 125,000 shares and 1,000,000 Class A Liberty Warrantsas described herein. These Class A Liberty Warrants are subject to redemptionat the sole option of the Company at any time commencing three months aftertheir issuance, at a redemption price of $.001 per Class A Liberty Warrant. TheCompany shall give thirty days’ written notice to all holders of the LibertyWarrants of such redemption, during which time the holder shall have the rightto exercise such Warrant. Upon notice of redemption to the warrant holders andthe warrant holders failure to exercise their right of conversion, the Companyshall, upon surrender and delivery of the warrant certificates to the Companyor its transfer agent, pay the warrant holder a sum equal to the $.001redemption price per warrant times the number of warrants surrendered. At thedate of drafting this 10-KSB, no Liberty Warrants have been either issued orexercised.

 

Pursuantto the terms of the Class B Investor Warrant Agreement, the Class A LibertyWarrant Agreement, and the Class C Liberty Warrant Agreement (collectively, the“Warrants”), the Company is obligated to undertake, on a good faith basis, toregister under the Act and the applicable state securities acts, the shares ofcommon stock underlying the Warrants and to keep such Warrants, at theCompany’s expense. In certain cases, the sale of securities by the Company uponthe exercise of the Warrants could violate the securities laws of the UnitedStates, certain states, or other jurisdictions. The Company will not berequired to honor the exercise of any of the Warrants if, in the opinion ofcounsel to the Company, the sale of securities upon such exercise would beunlawful.

 

In addition to the1,000,000 Liberty National $2.50 Warrants, the Company issued 1,255,250warrants that are exercisable for four years at $2.50 through a recent 506private placement. In addition, the security brokers who sold the 1,255,250warrants received another 99,975 warrants exercisable at $1.00 for five years.Through another private placement, the Company issued 728,750 warrants that areexercisable for five years at $2.50. The security brokers who sold the 728,750warrants received another 69,875 warrants exercisable at $1.00 for five years.In July 2000, the Company issued 87,500 warrants exercisable at $3.00 for threeyears. Neither the brokers warrants nor the 2,071,500 investors warrants arecallable by the Company, but the stock for the warrants are not registered andhave no “piggyback rights”.  Another210,000 Warrants were issued to former and current offices and directorsexercisable at $1.60. Two directors have 50,000 Warrants each exercisable at$.43 and one former outside director has another 50,000 Warrants exercisable at$.11. An additional 50,000 warrants have been issued for marketing servicesexercisable at $1.50 and are callable at $6.00 by the Company at $.01 per warrant.Another 25,000 warrants were issued 

 

19

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for consulting andmarketing services at an exercise price of $1.46. In connection with anemployment agreement, the Company is required to issue a warrant to the individualto purchase 440,000 shares of the Company’s common stock at $1.00 per shareexercisable for five years. The individual has the option to put the warrantback to the Company for $390,000 in the event the Company completes a privateplacement as outlined in the agreement. During 2001 another financialconsulting group was issued 1,050,000 warrants that have exercise pricesranging from $0.875 to $8.40. This group has not performed as agreed to and the1,050,000 Warrants may be cancelled for lack of valid consideration. Alsoduring 2001, the Company through another 506 private offering issued 186,000warrants exercisable at $2.50. As part of the agency agreement to raise debt orequity, the Company issued 18,600 warrants exercisable at $1.25 for sevenyears. In summary, there are issued and outstanding 4,370,950 Warrants plus the1,000,000 Liberty National Warrants with only 400,000 of those having anexercise price of less than one dollar.

In addition, under theCompany’s qualified stock option plan, its employees have a total of 324,329cashless employee options. The plan allows for the issuance of up to 750,000employee options under the plan.  Noneof these warrants, options or shares have been registered.

 

**Item 13.****Exhibits, lists and Reports on Form 8-K**

 

                (A)          Exhibits.                                                 SeeTable of Content.

 

                (B)           Reports on Form 8-K                           Filedin February 2000.

 

 

**Exhibit Index**
| **Exhibit**                                                                                                                   |   | **Description**                         |                                                                                   |   |
|-------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|----------------------------------------------------------------------------------------|--------|
|                                                                                                                          |   |                                    |                                                                                   |   |
| #3                                                                                                                            |   | Certificate  of Incorporation           |                                                                                   | *      |
| #3.3                                                                                                                          |   | By-Laws  of Company                     |                                                                                   | *      |
| #10                                                                                                                           |   | Promissory  notes payable               |                                                                                   | ***    |
| #10.1                                                                                                                         |   | Acquisition  of Ives & American Gas |                                                                                   | **     |
| #10.2                                                                                                                         |   | Acquisition  of Mail Call               |                                                                                   | ****   |
| #10.4                                                                                                                         |   | Employment  agreements                  |                                                                                   | ***    |
| #10.5                                                                                                                         |   | Agreement  with EconoWatt Corporation   |                                                                                   |   |
| #21.1                                                                                                                         |   | Form  of Common Stock                   |                                                                                   | ***    |
| #21.2                                                                                                                         |   | Form  of Warrants & Debentures      |                                                                                   | ***    |
|                                                                                                                          |   |                                    |                                                                                   |   |
| *                                                                                                                             |   |                                    | Filed  as exhibits to Company’s registration 33-38119-C to the SEC                |   |
|                                                                                                                          |   |                                    |                                                                                   |   |
| **                                                                                                                            |   |                                    | Filed  as part of Form 8-K to SEC on 2-12-93                                           |   |
|                                                                                                                          |   |                                    |                                                                                   |   |
| ***                                                                                                                           |   |                                    | Filed  as an exhibit to Form 10-K filed on June 1993.                                  |   |
|                                                                                                                          |   |                                    |                                                                                   |   |
| ****                                                                                                                          |   |                                    | Filed  as an exhibit to Form 8-K filed in December 1999 and amended in February  2000. |   |
|                                                                                                                          |   |                                    |                                                                                   |   |
| All  10-QSB’s, 8-K’s and amendments, S-8’s and 10-KSBs filed since 1989 are  incorporated herein by reference. |
|                                                                                                                               |        |                                         |                                                                                        |        |  |  |

 

 

20

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SIGNATURES

 

                Pursuant to the requirements ofSection 13 or 15(d) of the Securities and Exchange Act of 1934, the Registranthas duly caused this report to be signed on its behalf by the undersignedofficers and/or Directors, there unto duly authorized.

 

Voice & Wireless Corporation

 
|                   |   | By:/s/                                        |                      |   |
|------------------------|--------|-----------------------------------------------|---------------------------|--------|
|                   |   | Mark  Haggerty, Chairman & C.E.O.- C.O.O. |                      |
|                   |   |                                          |                      |
|                   |   | Dated:  April 15, 2002                        |                      |
|                   |   |                                          |                      |   |
| By:/s/                 |   |                                          | Director  & Secretary |   |
| Keith  Witter          |   |                                          |                      |
| Dated:  April 15, 2002 |   |                                          |                      |
|                        |        |                                               |                           |        |  |  |

 

 

21

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**VOICEAND WIRELESS CORPORATION**

**AND SUBSIDIARIES**

 

 

 

 

 

 

 

CONSOLIDATEDFINANCIAL STATEMENTS

IncludingIndependent Auditors’ Report

December 31, 2001and 2000

 

22

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**INDEX TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

Independent Auditors’ Report

 

Consolidated Financial Statements

 

                Balance Sheets

 

                Statements ofOperations

 

                Statementsof Stockholders’ Equity

 

                Statements of CashFlows

 

                Notes toConsolidated Financial Statements

 

23

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**INDEPENDENT AUDITORS’ REPORT**

Stockholders and Board of Directors

Voice and Wireless Corporation and subsidiaries

Minneapolis, Minnesota

 

We have audited the accompanyingconsolidated balance sheets of Voice and Wireless Corporation and subsidiariesas of December 31, 2001 and 2000, and the related consolidated statements ofoperations, stockholders’ equity and cash flows for the years then ended. Theseconsolidated financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these consolidatedfinancial statements based on our audits.

 

We conducted our audits in accordancewith auditing standards generally accepted in the United States of America.Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the consolidated financialstatements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation.  Webelieve that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidatedfinancial statements referred to above present fairly, in all materialrespects, the financial position of Voice and Wireless Corporation andsubsidiaries as of December 31, 2001 and 2000, and the results of theiroperations and their cash flows for the years then ended in conformity withaccounting principles generally accepted in the United States of America.

 

The accompanying consolidated financialstatements have been prepared assuming that the Company will continue as agoing concern.  As discussed in Note 1to the consolidated financial statements, the Company had net losses for theyears ended December 31, 2001 and 2000 and had an accumulated deficit atDecember 31, 2001.  These conditionsraise substantial doubt about its ability to continue as a going concern.  Management’s plans regarding these mattersare described in Note 1.  Theconsolidated financial statements do not include any adjustments that mightresult from the outcome of this uncertainty.

 

 

 

 

 

Minneapolis, Minnesota

April 2, 2002

 

 

24

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**CONSOLIDATED BALANCE SHEETS**

December 31, 2001 and2000
|                                                                                                                                                                   |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| ***ASSETS***                                                                                                                                                           |   |
|                                                                                                                                                                   |   | **2001** |   | **2000** |   |
| **CURRENT  ASSETS**                                                                                                                                                    |   |   |   |   |   |
| Cash and cash  equivalents                                                                                                                                             |   | $ | 9,709 |   | $ | 486,901 | * * |
| Accounts  receivable, net                                                                                                                                              |   | 411,162 |   | 167,171 | * * |
| Notes  receivable, net                                                                                                                                                 |   | 70,000 |   | — | * * |
| Inventories                                                                                                                                                            |   | 249,398 |   | 271,746 | * * |
| Other current  assets                                                                                                                                                  |   | 301,927 |   | 27,380 | * * |
| Total Current  Assets                                                                                                                                                  |   | 1,042,196 |   | 953,198 | * * |
|                                                                                                                                                                   |   |   |   |   |   |
| **OTHER  ASSETS**                                                                                                                                                      |   |   |   |   |   |
| Property and  equipment, net                                                                                                                                           |   | 288,232 |   | 291,648 | * * |
| Net assets from  discontinued operations — oil and gas properties                                                                                                 |   | — |   | 61,796 | * * |
| Investment in  unconsolidated corporations                                                                                                                             |   | 40,000 |   | 50,000 | * * |
| Note receivable,  net                                                                                                                                                  |   | — |   | 55,000 | * * |
| Goodwill, net                                                                                                                                                          |   | — |   | 723,389 | * * |
| Intangible  assets, net                                                                                                                                                |   | 221,055 |   | 125,661 | * * |
| Total Other Assets                                                                                                                                                     |   | 549,287 |   | 1,307,494 | * * |
|                                                                                                                                                                   |   |   |   |   |   |
| **TOTAL ASSETS**                                                                                                                                                       |   | $ | 1,591,483 |   | $ | 2,260,692 |   |
|                                                                                                                                                                   |   |   |   |   |   |
| ***LIABILITIES AND STOCKHOLDERS’  EQUITY***                                                                                                                       |   |
| **CURRENT  LIABILITIES**                                                                                                                                               |   |   |   |   |   |
| Checks written  in excess of cash in bank                                                                                                                              |   | $ | 69,105 |   | $ | — | * * |
| Current portion  of long-term debt                                                                                                                                     |   | 22,932 |   | 8,070 | * * |
| Accounts payable                                                                                                                                                       |   | 248,546 |   | 30,446 | * * |
| Accrued  consulting fees                                                                                                                                               |   | 25,685 |   | — | * * |
| Accrued expenses                                                                                                                                                       |   | 55,504 |   | 26,951 | * * |
| Total Current  Liabilities                                                                                                                                             |   | 421,772 |   | 65,467 | * * |
|                                                                                                                                                                   |   |   |   |   |   |
| **LONG-TERM  LIABILITIES**                                                                                                                                             |   |   |   |   |   |
| Revolving credit  facility                                                                                                                                             |   | 203,500 |   | — | * * |
| Long-term debt,  net                                                                                                                                                   |   | 395,554 |   | 336,257 | * * |
|                                                                                                                                                                   |   |   |   |   |   |
| Total Liabilities                                                                                                                                                      |   | 1,020,826 |   | 401,724 |   |
| **STOCKHOLDERS’  EQUITY**                                                                                                                                         |   |  |   |  |   |
| Capital stock,  no par value, 50,000,000 shares authorized:   Common stock, no par value, 40,000,000 shares authorized,  8,938,760  shares issued and outstanding |   | 7,221,511 |   | 7,221,511 | * * |
| Warrants                                                                                                                                                               |   | 628,085 |   | — | * * |
| Accumulated  deficit                                                                                                                                                   |   | (7,278,939 | ) | (5,362,543 | *)* |
| Total Stockholders’ Equity                                                                                                                                        |   | 570,657 |   | 1,858,968 | * * |
|                                                                                                                                                                   |   |   |   |   |   |
| **TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                    |   | **$** | 1,591,483 |   | **$** | 2,260,692 |   |

 

See accompanying notes to consolidated financialstatements.

 

25

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**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

For the Years Ended December 31, 2001 and 2000

 
|                                                                         |   | **2001**   |       | **Percent** |   | **2000**   |   | **Percent** |   |
|------------------------------------------------------------------------------|--------|------------|------------|-------------|--------|------------|--------|-------------|--------|
| **REVENUES**                                                                 |   | $          | 2,244,368  |        | 100.0  |       | $      | 3,047,922   |   | 100.0 |   |
|                                                                         |   |       |       |        |   |       |   |        |   |
| **COST  OF SALES**                                                           |   | 1,733,412  |       | 77.2        |   | 2,133,746  |   | 70.0        |   |
|                                                                         |   |       |       |        |   |       |   |        |   |
| Gross Profit                                                                 |   | 510,956    |       | 22.8        |   | 914,176    |   | 30.0        |   |
|                                                                         |   |       |       |        |   |       |   |        |   |
| **OPERATING  EXPENSES**                                                      |   | 1,737,863  |       | 77.4        |   | 2,152,447  |   | 70.6        |   |
| **LOSS ON IMPAIRMENT OF GOODWILL**                                           |   | 607,647    |       | 27.1        |   | —     |   | —      |   |
| Total                                                                        |   | 2,345,510  |       | 104.5       |   | 2,152,447  |   | 70.6        |   |
|                                                                         |   |       |       |        |   |       |   |        |   |
| Loss from Operations                                                         |   | (1,834,554 | )          | (81.7       | )      | (1,238,271 | )      | (40.6       | )      |
|                                                                         |   |       |       |        |   |       |   |        |   |
| **OTHER INCOME (EXPENSE)**                                                   |   |       |       |        |   |       |   |        |   |
| Impairment of investments in unconsolidated corporation                      |   | (20,162    | )          | (0.9        | )      | —     |   | —      |   |
| Interest expense                                                             |   | (62,222    | )          | (2.8        | )      | (72,248    | )      | (2.4        | )      |
| Interest income                                                              |   | 3,802      |       | 0.2         |   | 66,250     |   | 2.2         |   |
| Other income                                                                 |   | 2,045      |       | 0.1         |   | 8,100      |   | 0.3         |   |
| Minority interest in loss of Mail Call                                       |   | —     |       | —      |   | 141,763    |   | 4.7         |   |
| Total Other Income (Expense)                                                 |   | (76,537    | )          | (3.4        | )      | 143,865    |   | 4.8         |   |
|                                                                         |   |       |       |        |   |       |   |        |   |
| Loss from Continuing Operations before Income Taxes                          |   | (1,911,091 | )          | (85.1       | )      | (1,094,406 | )      | (35.8       | )      |
|                                                                         |   |       |       |        |   |       |   |        |   |
| **BENEFIT FROM INCOME TAXES**                                                |   | —     |       | —      |   | —     |   | —      |   |
|                                                                         |   |       |       |        |   |       |   |        |   |
| Loss from Continuing Operations                                              |   | (1,911,091 | )          | (85.1       | )      | (1,094,406 | )      | (35.8       | )      |
|                                                                         |   |       |       |        |   |       |   |        |   |
| **DISCONTINUED OPERATIONS**                                                  |   |       |       |        |   |       |   |        |   |
|                                                                         |   |       |       |        |   |       |   |        |   |
| Income from operations of discontinued investment in oil and gas  properties |   | 11,699     |       | 0.5         |   | 6,909      |   | 0.2         |   |
| Loss on disposal of investment in oil and gas properties                     |   | (17,004    | )          | (0.8        | )      | —     |   | —      |   |
| Total Discontinued Operations                                                |   | (5,305     | )          | (0.3        | )      | 6,909      |   | 0.2         |   |
|                                                                         |   |       |       |        |   |       |   |        |   |
| **NET LOSS**                                                                 |   | $          | (1,916,396 | )           | (85.4  | )          | $      | (1,087,497  | )      | (35.6 | ) |
|                                                                         |   |       |       |        |   |       |   |        |   |
| **Basic and diluted loss from continuing operations per  common share**      |   | $          | (0.21      | )           |        |       | $      | (0.13       | )      |  |   |
|                                                                         |   |       |       |        |   |       |   |        |   |
| **Basic and diluted loss on discontinued operations per  common share**      |   | $          | (0.00      | )           |        |       | $      | (0.00       | )      |   |   |
|                                                                         |   |       |       |        |   |       |   |        |   |
| **Basic and diluted net loss per common share**                              |   | $          | (0.21      | )           |   |       | $      | (0.13       | )      |   |   |
|                                                                         |   |       |       |        |   |       |   |        |   |
| **Shares used in computing basic and diluted loss per  common share**        |   | 8,938,760  |       |        |   | 8,363,609  |   |        |   |

 

See accompanying notes to consolidatedfinancial statements.

 

26

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**CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS’ EQUITY**

For the Years Ended December 31, 2001 and 2000

 
|                                                    |   |              |   |       |      |              |   | **Stock**       |   |        |    |       |   |
|---------------------------------------------------------|--------|-------------------|--------|------------|-----------|-------------------|--------|-----------------|--------|-------------|---------|------------|--------|
|                                                    |   | **Common  Stock** |   |       |      | **Subscriptions** |   | **Accumulated** |   |        |    |
|                                                    |   | **Shares**        |   | **Amount** |      | **Warrants**      |   | **Receivable**  |   | **Deficit** |    | **Total**  |   |
| **BALANCE, December 31, 1999**                          |   | 5,239,150         |   | $          | 4,796,893 |              | $      | —          |   | $           | (62,797 | )          | $      | (4,275,046 | ) | $ | 459,050 |   |
|                                                    |   |              |   |       |      |              |   |            |   |        |    |       |   |
| Issuance of common stock, net of issuance costs         |   | 816,250           |   | 798,025    |      | —            |   | —          |   | —      |    | 798,025    |   |
|                                                    |   |              |   |       |      |              |   |            |   |        |    |       |   |
| Issuance of common stock from exercise of stock options |   | 461,015           |   | 7,392      |      | —            |   | —          |   | —      |    | 7,392      |   |
|                                                    |   |              |   |       |      |              |   |            |   |        |    |       |   |
| Issuance of common stock from exercise of warrants      |   | 426,172           |   | 111,375    |      | —            |   | —          |   | —      |    | 111,375    |   |
|                                                    |   |              |   |       |      |              |   |            |   |        |    |       |   |
| Conversion of debt and accrued expenses to common stock |   | 861,173           |   | 386,326    |      | —            |   | —          |   | —      |    | 386,326    |   |
|                                                    |   |              |   |       |      |              |   |            |   |        |    |       |   |
| Issuance of common stock for Mail Call common stock     |   | 1,135,000         |   | 1,121,500  |      | —            |   | —          |   | —      |    | 1,121,500  |   |
|                                                    |   |              |   |       |      |              |   |            |   |        |    |       |   |
| Collections of stock subscriptions receivable           |   | —            |   | —     |      | —            |   | 62,797          |   | —      |    | 62,797     |   |
|                                                    |   |              |   |       |      |              |   |            |   |        |    |       |   |
| Net loss                                                |   | —            |   | —     |      | —            |   | —          |   | (1,087,497  | )       | (1,087,497 | )      |
|                                                    |   |              |   |       |      |              |   |            |   |        |    |       |   |
| **BALANCE, December 31, 2000**                          |   | 8,938,760         |   | 7,221,511  |      | —            |   | —          |   | (5,362,543  | )       | 1,858,968  |   |
|                                                    |   |              |   |       |      |              |   |            |   |        |    |       |   |
| Warrants issued in connection with notes payable        |   | —            |   | —     |      | 166,886           |   | —          |   | —      |    | 166,886    |   |
|                                                    |   |              |   |       |      |              |   |            |   |        |    |       |   |
| Warrants issued for debt issuance costs                 |   | —            |   | —     |      | 19,359            |   | —          |   | —      |    | 19,359     |   |
|                                                    |   |              |   |       |      |              |   |            |   |        |    |       |   |
| Warrants issued for consulting services                 |   | —            |   | —     |      | 441,840           |   | —          |   | —      |    | 441,840    |   |
|                                                    |   |              |   |       |      |              |   |            |   |        |    |       |   |
| Net loss                                                |   | —            |   | —     |      | —            |   | —          |   | (1,916,396  | )       | (1,916,396 | )      |
|                                                    |   |              |   |       |      |              |   |            |   |        |    |       |   |
| **BALANCE, December 31, 2001**                          |   | 8,938,760         |   | $          | 7,221,511 |              | $      | 628,085         |   | $           | —  |       | $      | (7,278,939 | ) | $ | 570,657 |   |

 

 

See accompanying notes to consolidated financialstatements.

 

27

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**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

For the Years Ended December 31, 2001 and 2000

 
|                                                                                 |   | **2001** |       | **2000**  |   |
|--------------------------------------------------------------------------------------|--------|----------|------------|-----------|--------|
| **CASH FLOWS FROM OPERATING ACTIVITIES**                                             |   |     |       |      |   |
| Net loss                                                                             |   | $        | (1,916,396 | )         | $      | (1,087,497 | ) |
| Adjustments to reconcile net loss to   net cash flows from operating activities |   |     |       |      |   |
| Depreciation, depletion and amortization                                             |   | 251,458  |       | 205,720   |   |
| Amortization of prepaid consulting fees                                              |   | 165,688  |       | —    |   |
| Amortization of original issue discount                                              |   | 16,096   |       | —    |   |
| Allowance for doubtful note receivable                                               |   | —   |       | 125,000   |   |
| Loss on disposal of investment in oil and gas properties                             |   | 17,004   |       | —    |   |
| Loss on impairment of goodwill                                                       |   | 607,647  |       | —    |   |
| Write off notes receivable                                                           |   | —   |       | 11,125    |   |
| Write off notes payable                                                              |   | —   |       | (65,358   | )      |
| Impairment of investments in unconsolidated corporation                              |   | 10,000   |       | —    |   |
| Minority interests in loss of consolidated subsidiary                                |   | —   |       | (141,763  | )      |
| Issuance of common stock for services                                                |   | 25,685   |       | —    |   |
| Changes in operating assets and liabilities                                          |   |     |       |      |   |
| Accounts receivable, net                                                             |   | (243,991 | )          | 324,460   |   |
| Inventories                                                                          |   | 22,348   |       | 15,085    |   |
| Other current assets                                                                 |   | 1,605    |       | (8,865    | )      |
| Checks written in excess of cash in bank                                             |   | 69,105   |       | —    |   |
| Accounts payable                                                                     |   | 231,065  |       | (248,260  | )      |
| Accrued expenses                                                                     |   | 15,588   |       | (83,533   | )      |
| Net Cash Flows from Operating Activities                                             |   | (727,098 | )          | (953,886  | )      |
|                                                                                 |   |     |       |      |   |
| **CASH FLOWS FROM INVESTING ACTIVITIES**                                             |   |     |       |      |   |
| Purchases of property and equipment                                                  |   | (51,903  | )          | (82,223   | )      |
| Purchases of intangibles                                                             |   | (124,015 | )          | (142,740  | )      |
| Proceeds from disposal of investment in oil and gas properties                       |   | 25,000   |       | —    |   |
| Investment in unconsolidated corporations                                            |   | —   |       | (10,000   | )      |
| Advances on note receivable                                                          |   | —   |       | (180,000  | )      |
| Net Cash Flows from Investing Activities                                             |   | (150,918 | )          | (414,963  | )      |
|                                                                                 |   |     |       |      |   |
| **CASH FLOWS FROM FINANCING ACTIVITIES**                                             |   |     |       |      |   |
| Proceeds from revolving credit facility                                              |   | 203,500  |       | —    |   |
| Proceeds from long-term debt and warrants issued                                     |   | 232,500  |       | —    |   |
| Payments on long-term debt                                                           |   | (7,551   | )          | (130,462  | )      |
| Payments on capital lease obligations                                                |   | —   |       | (5,913    | )      |
| Payments for debt issuance costs                                                     |   | (27,625  | )          | —    |   |
| Repurchase of common stock                                                           |   | —   |       | (13,500   | )      |
| Proceeds from issuance of common stock, net of issuance costs                        |   | —   |       | 798,025   |   |
| Proceeds from exercise of stock options                                              |   | —   |       | 7,392     |   |
| Proceeds from exercise of warrants                                                   |   | —   |       | 111,375   |   |
| Collections on stock subscriptions receivable                                        |   | —   |       | 62,797    |   |
| Net Cash Flows from Financing Activities                                             |   | 400,824  |       | 829,714   |   |
|                                                                                 |   |     |       |      |   |
| **Net Change in Cash and Cash Equivalents**                                          |   | (477,192 | )          | (539,135  | )      |
|                                                                                 |   |     |       |      |   |
| **CASH AND CASH EQUIVALENTS — Beginning of Year**                               |   | 486,901  |       | 1,026,036 |   |
|                                                                                 |   |     |       |      |   |
| **CASH AND CASH EQUIVALENTS — END OF YEAR**                                     |   | $        | 9,709      |      | $      | 486,901 |   |

 

 

28

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**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS****December 31, 2001 and 2000**

 

**NOTE1 - Nature of Business and Significant Accounting Policies**

 

***     ****Nature of Operations*

 

Voice and Wireless Corporation (Voice or the Company), was incorporatedAugust 22, 1988, for the purpose of direct development of oil and gasproperties in Kentucky.  In 1992, theCompany’s focus shifted from development of oil and gas properties to becominga diversified company.  At December 31,2001, the Company has four wholly–owned subsidiaries: Ives Design, Inc.(Ives), Bluegrass Management and Operating Company (Bluegrass), KensingtonAmerican Gas Drilling #1, LLC (Drilling #1) and Mail Call, Inc. (Mail Call);and two majority owned corporations: I–Med Software, Inc. (I–Med)and Interchange Medical, Inc. (Interchange).

 

Ives was acquired in April 1992. Ives manufactures non–refrigerated, customized display fixtures,primarily for the supermarket industry, and extends unsecured credit tocustomers in the normal course of business. Customers are located throughout the Midwest region of the UnitedStates.

 

Mail Call was formed in June 1997 and Voice acquired its interestsduring 1999 and 2000. Mail Call is in the development stage and has yet togenerate significant revenues (See Goodwill section).

 

Bluegrass, Drilling #1, I–Med and Interchange are inactive.

 

The accompanying consolidated financial statements have been preparedassuming the Company will continue as a going concern that contemplates therealization of assets and satisfaction of liabilities in the normal course ofbusiness.  For the years ended December31, 2001 and 2000, the Company incurred losses from continuing operations of$1,911,091 and $1,094,406.  At December31, 2001, the Company had an accumulated deficit of $7,278,939.  The Company’s ability to continue as a goingconcern is dependent on it ultimately achieving profitability, producing aworking model of the wireless ear bud, expand the customer base of Ives and/orraising additional capital.  Managementintends to obtain additional debt or equity capital to meet all of its existingobligations, however, there can be no assurance that the sources will beavailable or available on terms favorable to the Company.  The consolidated financial statements do notinclude any adjustments that might result from the outcome of theseuncertainties.

 

**     ***Principles of Consolidation*

 

The consolidated financial statements include the accounts of Voice,Ives and Mail Call.  All significantintercompany transactions and accounts have been eliminated in consolidation.

 

*      RevenueRecognition*

 

The Company recognizes revenue from sales at the time that ownershiptransfers to the customer, principally at shipment of the product, and uponcompletion of the earnings process for oil and gas activities.

 

*      Cash andCash Equivalents*

 

The Company includes as cash equivalents certificates of deposit and allother investments with maturities of three months or less when purchased whichare readily convertible into known amounts of cash.  The Company maintains its cash in high quality financialinstitutions.  The balance, at times,may exceed federally insured limits.

 

 

29

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*      AccountsReceivable*

 

Accounts receivable have been reduced by an allowance for uncollectibleaccounts of $0 and $120,000 at December 31, 2001 and 2000.  The Company believes all accounts receivablein excess of the allowance are fully collectible.  If accounts receivable in excess of the provided allowance aredetermined uncollectible, they are charged to expense when that determinationis made.

 

*      Inventories*

 

Inventories consist primarily of display fixtures and related rawmaterials and are valued at the lower of cost (first–in, first–out),or market.

 

*      Depreciation*

 

Property and equipment are recorded at cost and are being depreciatedover their estimated useful lives of three to thirty–one years using thestraight–line method. Depreciation expense was $55,319 and $66,378 for the years endedDecember 31, 2001 and 2000.

 

*      Amortization*

 

Debt issuance costs are amortized over the term of the loan using thestraight–line method, which approximates the interest method.  Product development costs consist of costscapitalized to develop a product and are being amortized using the straight–linemethod over a period of three years. The patent and the trademark are being amortized using the straight–linemethod over a period of fifteen years. Accumulated amortization was $135,969and $60,365 at December 31, 2001 and 2000. Amortization expense was $75,604 and $49,150 for the years endedDecember 31, 2001 and 2000.

 

*      Goodwill*

 

Goodwill represented the excess of acquisition costs over the fair valueof identifiable net assets acquired and was amortized using the straight–linemethod over seven years.  The carryingvalue of goodwill is reviewed if the facts and circumstances suggest that itmay be impaired.  If the reviewindicates that goodwill will not be recoverable, as determined based on theundiscounted cash flows of the assets acquired over the remaining amortizationperiod, the Company’s carrying value of goodwill is reduced by the estimatedshortfall of cash flows.  In December2001, the Company wrote off its remaining goodwill related to the investment inMail Call of $607,647.  Based on MailCall’s historical operating results and cash flow requirements, the Companycould not foresee that it would be able to recover the carrying amount of itsinvestment in Mail Call or that Mail Call has the ability to sustain anearnings capacity which would justify the carrying amount of the goodwill (SeeNote 2).  Accumulated amortization was$0 and $86,807 at December 31, 2001 and 2000.

 

In June 2001, the Financial Accounting Standards Board (FASB) adoptedStatement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and OtherIntangible Assets.”  SFAS No. 142discontinues the amortization of recorded goodwill for fiscal years beginningafter December 15, 2001.  In the future,goodwill will be reduced based upon an impairment analysis of the amountrecorded on the Company’s books.  To theextent it has been determined that the carrying value of goodwill is notrecoverable and is in excess of fair value, an impairment loss will berecognized.  Impairment will be reviewedon a periodic basis based on its fair value.

 

Amortization expense  was$115,742 and $86,807 for the years ended December 31, 2001 and 2000.

 

 

30

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      *Stock–Based Compensation*

 

In accordance with Accounting Principles Board (APB) Opinion No. 25, theCompany uses the intrinsic value–based method for measuring stock–basedcompensation cost which measures compensation cost as the excess, if any, ofthe quoted market price of the Company’s common stock at the grant date overthe amount the employee must pay for the stock.  The Company’s general policy is to grant stock options at fairvalue at the date of grant.  Requiredpro forma disclosures of compensation expense determined under the fair valuemethod of SFAS No. 123, “Accounting for Stock–Based Compensation,” arepresented in Note 11.  Options andwarrants issued to nonemployees are recorded at fair value, as required by SFASNo. 123, using the Black Scholes model.

 

      *Recent Accounting Pronouncements*

 

The Securities and Exchange Commission (SEC) released Staff AccountingBulletin No. 101 – Revenue Recognition (SAB No. 101).  SAB No. 101 provides the SEC’s views inapplying accounting principles generally accepted in the United States ofAmerica to selected revenue recognition issues. In June 2000, the SEC releasedStaff Accounting Bulletin No. 101B – Second Amendment (SAB No. 101B)delaying the implementation date of SAB No. 101 to no later than the fourthfiscal quarter of registrants with fiscal years beginning after December 15,1999. This pronouncement did not have a material effect on the Company’sconsolidated financial statements.

 

SFAS No. 133, “Accounting for Derivative Instruments and HedgingActivities,” as amended, is effective for years beginning after June 15, 2000.SFAS No. 133 establishes accounting and reporting standards requiring thatevery derivative instrument, including certain derivative instruments embeddedin other contracts, be recorded in the balance sheet as either an asset orliability measured at its fair value. SFAS No. 133 requires that changes in the derivative’s fair value berecognized currently in earnings unless specific hedge criteria are met.  Special accounting for qualifying hedgesallows derivative gains or losses to offset related results on the hedged itemin the statement of operations and requires that a company must formallydocument, designate and assess the effectiveness of transactions that receivehedge accounting.  The adoption of SFASNo. 133 did not have a material effect on the Company’s consolidated financialposition or results of operations as the Company has no derivative instruments.

 

In June 2001, the FASB issued SFAS No. 141 “Business Combinations.”  SFAS No. 141 eliminates the pooling–of–interestsmethod of accounting for business combinations except for qualifying businesscombinations that were initiated prior to July 1, 2001.  In addition, SFAS No. 141 further clarifiesthe criteria to recognize intangible assets separately from goodwill.  The requirements of SFAS No. 141 areeffective for any business combination accounted for by the purchase methodthat is completed after June 30, 2001. The Company believes the adoption of SFAS No. 141 will not have amaterial effect on the Company’s consolidated financial position or results ofoperations.

 

In June 2001, the FASB issued SFAS No. 143. “Accounting for AssetRetirement Obligations.”  SFAS No. 143is effective for fiscal years beginning after June 15, 2002.  The Company believes the adoption of SFASNo. 143 will not have a material effect on the Company’s consolidated financialposition or results of operations.

 

In October 2001, the FASB issued SFAS No.144 “Accounting for the Impairment or Disposal of Long–LivedAssets.”  SFAS No. 144 supersedes SFASNo. 121.  SFAS No. 144 primarilyaddresses significant issues relating to the implementation of SFAS No. 121 anddevelops a single accounting model for long–lived assets to be disposedof, whether primarily held, used or newly acquired.  The provisions of SFAS No. 144 will be effective for fiscal yearsbeginning after December 15, 2001.  Theprovisions of SFAS No. 144 generally are to be applied prospectively.  The Company believes the adoption of SFASNo. 144 will not have a material effect on the Company’s consolidated financialposition or results of operations.

 

 

31

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*      Investmentin Oil and Gas Properties*

 

Investment in oil and gas properties was recorded at cost and consistedof acquisition costs of the natural gas reserves, oil and gas leases and therelated rights–of–way, wells, pipeline and related equipment.  The Company followed the successful effortsmethod of accounting for oil and gas properties. Accordingly, intangibledevelopment and well completion costs of oil and gas properties were amortized overthe estimated economic life of the wells when the related reserves were proven.Costs of drilling a well which did not result in proved reserves, net of anysalvage value, were charged to expense when it was determined that the drillinghad been nonproductive.  Geological andgeophysical costs and costs of carrying and retaining undeveloped propertieswere charged to expense when incurred.

 

Unproved oil and gas properties were periodically assessed forimpairment value, and any loss was recognized at the time of impairment byproviding an impairment allowance. Capitalized costs of producing oil and gas properties after consideringestimated dismantlement, abandonment costs and estimated salvage values weredepreciated and depleted by the unit–of–production method.  Pipeline and other equipment were beingdepreciated over their estimated useful lives using the straight–linemethod.  Depletion expense was $4,793and $3,385 for the years ended December 31, 2001 and 2000 (See Note 7).

 

*      AdvertisingCosts*

 

Advertising costs are charged to expense as incurred.  Advertising expense was $502 and $3,144 forthe years ended December 31, 2001 and 2000.

 

*      Shippingand Handling Costs*

 

In accordance with Emerging Issues Task Force (EITF) Issue 00–10,“Accounting for Shipping and Handling Fees and Costs,” the Company includesshipping and handling revenues in revenues and shipping and handling costs incost of sales.

 

*      Loss perCommon Share*

 

Basic net loss per common share is computed by dividing the net loss bythe weighted average number of common shares outstanding for the reportingperiod.  Diluted net loss per commonshare is computed by dividing the net loss by the sum of the weighted averagenumber of common shares outstanding plus all additional common stock that wouldhave been outstanding if potentially dilutive common shares related to commonshare equivalents (stock options and stock warrants) had been issued.  All options and warrants outstanding duringthe years ended December 31, 2001 and 2000 were anti–dilutive.

 

*      Management’sUse of Estimates*

 

The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenuesand expenses during the reporting period. Actual results could differ from those estimates.

 

*      Fair Valueof Financial Instruments*

 

The carrying amounts for all financialinstruments approximates fair value. The carrying amounts for cash and cash equivalents, accounts receivable,accounts payable and accrued expenses approximate fair value because of theshort maturity of these instruments. The fair value of debt approximates the current rates at which theCompany could borrow funds with similar remaining maturities and risks.

 

32

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*      Reclassifications*

 

Certain accounts in the prior year consolidated financial statementshave been reclassified for comparative purposes to conform with thepresentation in the current year consolidated financial statements.  These reclassifications had no effect onconsolidated net loss or stockholders’ equity.

 

**NOTE2 - Investment in Mail Call, Inc.**

 

As of January 2000, the Company owned approximately 51% of the commonstock of Mail Call.  During February2000, the Company issued 1,000,000 shares of common stock to a minoritystockholder of Mail Call in exchange for his shares of Mail Call stock,increasing the Company’s ownership in Mail Call to approximately 85%.  During June 2000, the Company purchased theremaining minority interest in Mail Call. During 2000, the loss of minority interest was $141,763 prior to 100%ownership.

 

**NOTE3 - Notes Receivable**

 

Notes receivable consisted of the following at December 31:

 
|                                                                                                                                                 |   | **2001** |   | **2000** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|
| Proceeds to be received from sale of oil and gas properties — monthly  installments of $5,000, non-interest bearing, unsecured, due March 2002. |   | $        | 15,000 |     | $      | — |   |
|                                                                                                                                                 |   |     |   |     |   |
| Stroke of Fortune, Inc., interest at 9%, unsecured, due June 2002.                                                                                   |   | 180,000  |   | 180,000  |   |
| Total notes receivable                                                                                                                               |   | 195,000  |   | 180,000  |   |
| Less: reserve for uncollectible notes receivable                                                                                                     |   | (125,000 | )      | (125,000 | )      |
| Notes receivable, net                                                                                                                                |   | $        | 70,000 |     | $      | 55,000 |   |

 

**NOTE4 - Inventories**

 

Inventories consisted of the following at December 31:

 
|            |   | **2001** |    | **2000** |   |
|-----------------|--------|----------|---------|----------|--------|
| Raw materials   |   | $        | 133,912 |     | $      | 141,759 |   |
| Work in process |   | 89,753   |    | 18,307   |   |
| Finished goods  |   | 25,733   |    | 111,680  |   |
| Total           |   | $        | 249,398 |     | $      | 271,746 |   |

 

**NOTE5 - Property and Equipment**

 

Property and equipment consisted of the following at December 31:

 
|                                            |   | **2001** |    | **2000** |   |
|-------------------------------------------------|--------|----------|---------|----------|--------|
| Land                                            |   | $        | 19,500  |     | $      | 19,500 |   |
| Buildings                                       |   | 268,699  |    | 268,699  |   |
| Equipment                                       |   | 510,435  |    | 458,532  |   |
| Less: accumulated depreciation and amortization |   | (510,402 | )       | (455,083 | )      |
|                                            |   | $        | 288,232 |     | $      | 291,648 |   |

 

 

33

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**NOTE6 - Intangible Assets**

 

Intangibles consisted of the following at December 31:

 
|                           |   | **2001** |    | **2000** |   |
|--------------------------------|--------|----------|---------|----------|--------|
| Product development costs      |   | $        | 226,732 |     | $      | 135,587 |   |
| Patent and trademark           |   | 45,345   |    | 12,476   |   |
| Debt issuance costs            |   | 84,947   |    | 37,963   |   |
| Less: accumulated amortization |   | (135,969 | )       | (60,365  | )      |
|                           |   | $        | 221,055 |     | $      | 125,661 |   |

 

**NOTE7 - Discontinued Operations – Investment in Oil and Gas Properties**

 

During November 2001, the rights to the investment in oil and gasproperties were sold for gross proceeds of $40,000.  At December 31, 2001, the Company recognized a loss on theserights of $17,004.

 

The consolidated financial statements for prior periods have beenrestated to reflect the accounting for discontinued operations.

 

Selected financial data from discontinued operations consisted of thefollowing for the years ended December 31:

 
|                                        |   | **2001** |   | **2000** |   |
|---------------------------------------------|--------|----------|--------|----------|--------|
| Revenues                                    |   | $        | 34,530 |     | $      | 23,401 |   |
| Income from operations                      |   | 11,460   |   | 6,909    |   |
| Interest income                             |   | 239      |   | —   |   |
| Income from discontinued operations         |   | 11,699   |   | 6,909    |   |
| Loss on disposal of discontinued operations |   | (17,004  | )      | —   |   |
|                                             |        |          |        |          |        |  |  |

 

The net assets of discontinued operations were $0 and $61,796 atDecember 31, 2001 and 2000.

 

No costs were incurred in oil and gas property acquisition, explorationand development activities during 2001 or 2000.

 

**NOTE8 - Investments in Unconsolidated Corporations**

 

At December 31, 2000, the Company owned 50,000 shares of common stock ofYou–Do, Inc., 10,000 shares of common stock of Microtalk Technologies,Inc. and 10,000 shares of common stock of Stroke of Fortune, Inc. with anaggregate value of $50,000.  At December31, 2001, the Company wrote off $10,000 of its investment in MicrotalkTechnologies, Inc. and a certificate of deposit of $10,162 based on the factthe Company may not recover the certificate of deposit.  The investments are being accounted for atcost as the Company’s ownership is less than 20%.  The Company’s intent is to hold these shares beyond one year andas such have classified the investments as long–term.  In addition, the Company was granted a five–yearoption to purchase an additional 30,000 shares of common stock of You–Do,Inc. at $1.00 per share.

 

 

34

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**NOTE9 - Revolving Credit Facility**

 

The Company has a $200,000 revolving credit facility with AssociatedBank Minnesota.  The line bears interestat 1.5% over the prime rate (6.25% at December 31, 2001), matures January 2003,and is secured by substantially all of the assets of Ives.  Outstanding borrowings were $203,500 and $0at December 31, 2001 and 2000.

 

**NOTE10 - Long–Term Debt**

 

Long–term debt consisted of the following at December 31:

 
|                                                                                                                                                                                                                                                                                                                             |   | **2001** |    | **2000** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|---------|----------|--------|
| Note payable — Regency Savings Bank — monthly installments of $3,654  including interest at 10.5%, secured by real estate, due August 2007.                                                                                                                                                                            |   | $        | 336,776 |     | $      | 344,327 |   |
|                                                                                                                                                                                                                                                                                                                             |   |     |    |     |   |
| Subordinated debentures payable, net of original issue discount and  beneficial conversion of notes payable into common stock of $150,790 at  December 31, 2001, monthly interest only  payments, due through August 2006 at 8% (effective interest rate 84.8%),  subordinated to all liabilities not to exceed $2,000,000. |   | 81,710   |    | —   |   |
| Total long-term debt                                                                                                                                                                                                                                                                                                             |   | 418,486  |    | 344,327  |   |
| Less: current portion                                                                                                                                                                                                                                                                                                            |   | (22,932  | )       | (8,070   | )      |
| Long-term debt, net                                                                                                                                                                                                                                                                                                              |   | $        | 395,554 |     | $      | 336,257 |   |

 

Future maturities of long–term debt are as follows for the yearsending December 31:

 
| 2002                                                                                        |   | $        | 22,932  |   |
|---------------------------------------------------------------------------------------------|--------|----------|---------|--------|
| 2003                                                                                        |   | 54,910   |    |
| 2004                                                                                        |   | 60,961   |    |
| 2005                                                                                        |   | 67,679   |    |
| 2006                                                                                        |   | 307,638  |    |
| 2007                                                                                        |   | 55,156   |    |
| Total future minimum payments                                                               |   | 569,276  |    |
| Less: original issue discount and beneficial conversion of notes  payable into common stock |   | (150,790 | )       |
| Present value of future minimum payments                                                    |   | 418,486  |    |
| Less current portion                                                                        |   | (22,932  | )       |
| Long-term debt, net                                                                         |   | $        | 395,554 |   |

 

In 2001, the Company borrowed $232,500 and issued warrants to thevarious lenders to purchase 186,000 common shares at $2.50 per share throughAugust 2006.  The proceeds of $232,500were allocated between the notes and the warrants, which were valued using theBlack Scholes model.  The resultingoriginal issue discount (the fair value of the warrant and the beneficialconversion of the notes payable into common stock as defined in Emerging IssuesTask Force (EITF) 00–27 “Application of Issue No. 98–5 to CertainConvertible Instruments”), is being amortized over the life of the notes usingthe straight–line method, which approximates the interest method.  The notes may be converted based on theterms of the agreement.

 

 

35

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**NOTE11 - Stockholders’ Equity**

 

*      CommonStock*

 

During 2000, the Company sold units consisting of the Company’s commonstock and warrants to purchase common stock. The Company issued 816,250 shares of common stock and issued 728,750warrants to purchase common stock at $2.50 per share exercisable for five yearsand 87,500 warrants to purchase common stock at $3.00 per share exercisable forthree years. The Company received proceeds of $798,025, net of issuancecosts.  In addition, the Company issued69,875 dealer warrants to purchase common stock at $1.00 per share exercisablefor five years.

 

*      StockSubscriptions*

 

During 1992, the Company issued 597,500 shares of common stock at pershare prices ranging from approximately $.40 to $2.00 in exchange forsubscriptions receivable aggregating $455,001. The subscriptions accruedinterest at 8% and matured at various dates from February 1995 to July 1995 andwere secured by the underlying common stock. The subscriptions and accrued interest were recorded as stocksubscriptions receivable. During 2000, the remaining stock subscriptions andaccrued interest were collected.

 

*      StockWarrants*

 

Outstanding and fully vested stock warrants (exercisable through May2008) consisted of the following:

 
|                                 |   | **Number of** |   | **Per Share** |   |
|--------------------------------------|--------|---------------|--------|---------------|--------|
|                                 |   | **Warrants**  |   | **Price**     |   |
| Outstanding — December 31, 1999 |   | 2,007,697     |   | $.11 - $3.00  |   |
| Granted                              |   | 1,701,725     |   | $.43 - $3.00  |   |
| Exercised                            |   | (426,172      | )      | $.11 - $1.00  |   |
| Canceled and expired                 |   | (176,900      | )      | $.63 - $3.00  |   |
| Outstanding — December 31, 2000 |   | 3,106,350     |   | $.11 - $3.00  |   |
| Granted                              |   | 1,264,600     |   | $.88 - $8.40  |   |
| Exercised                            |   | —        |   | —        |   |
| Canceled and expired                 |   | —        |   | —        |   |
| Outstanding — December 31, 2001 |   | 4,370,950     |   | $.11 - $8.40  |   |

 

 

36

----

 

 

Warrants outstanding at December 31, 2001:

 
| **Warrants Outstanding and Exercisable** |   |
|------------------------------------------|--------|
|                                     |   |   |   | **Weighted—** |   |   |   |
|                                     |   |   |   | **Average** |   | **Weighted—** |   |
| **Range of**                             |   |   |   | **Remaining** |   | **Average** |   |
| **Exercise**                             |   | **Number** |   | **Contractual** |   | **Exercise** |   |
| **Prices**                               |   | **Outstanding** |   | **Life** |   | **Price** |   |
| $0.11 - $0.43                            |   | 150,000 |   | 3.35 |   | $0.32 |   |
| $0.88 - $1.75                            |   | 1,513,450 |   | 3.53 |   | 1.15 |   |
| $2.50 - $3.50                            |   | 2,357,500 |   | 4.03 |   | 2.49 |   |
| $5.25 - $8.40                            |   | 350,000 |   | 4.66 |   | 6.45 |   |
| $.11  - $8.40                       |   | 4,370,950 |   | 3.83 |   | $2.31 |   |

 

The Company issued warrants in connection with debt issuance costs topurchase 18,600 common shares at $1.25 per share exercisable through May2008.  The value of the warrants was$19,359 using the Black Scholes model and is being amortized over the term ofthe notes.

 

The Company issued warrants in connection with consulting services to beprovided over the term of one year to purchase 1,050,000 common shares atexercise prices ranging from $0.875 to $8.40 per share exercisable throughAugust 2006.  The value of the warrantswas $441,840 using the Black Scholes model and is being expensed over the termof one year.

 

*      StockOption Plan*

 

The Company has a stock option plan, which authorizes a maximum of750,000 shares of common stock for issuance under the Plan.  The Board of Directors may grant options attheir discretion, provided the purchase price of the option shares are not lessthan 85% of the fair market value of the common stock on the date of the grantand have a life of five years.

 

The Company applies APB Opinion 25 “Accounting for Stock Issued toEmployees” and related Interpretations in accounting for its stockoptions.  Accordingly, no compensationcost has been recognized for its stock options.  Had compensation cost for the Company’s stock options been determinedbased on the fair value at the grant dates consistent with the method of SFASNo. 123, “Accounting for Stock Based Compensation,” the Company’s net loss andbasic and diluted EPS would have been decreased to the proforma net loss andbasic and diluted EPS indicated below for the years ended December 31:

 
|                                                           |   | **2001** |       | **2000** |   |
|----------------------------------------------------------------|--------|----------|------------|----------|--------|
| Net loss as reported                                           |   | $        | (1,916,396 | )        | $      | (1,087,497 | ) |
| Proforma net loss                                              |   | $        | (1,916,396 | )        | $      | (1,433,460 | ) |
| Basic and diluted net loss per common share — as reported |   | $        | (0.21      | )        | $      | (0.13 | ) |
| Proforma basic and diluted EPS                                 |   | $        | (0.21      | )        | $      | (0.17 | ) |

 

 

37

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In determining the compensation cost of the options granted during 2001and 2000, as specified by SFAS No. 123, the fair value of each option grant hasbeen estimated on the date of grant using the Black–Scholes optionpricing model and the weighted average assumptions used in these calculationsare summarized below:

 
|                    |   | **2001** |   | **2000** |   |
|-------------------------|--------|----------|--------|----------|--------|
| Risk free interest rate |   | 3.5      | %      | 6        | %      |
| Expected life           |   | 5 years  |   | 5 years  |   |
| Expected volatility     |   | 61       | %      | 67       | %      |
| Dividend yield          |   | 0        | %      | 0        | %      |

 

Information regarding the Company’s stock options is summarized below:

 
|                                                           |   | **2001**      |   | **2000**           |   |
|----------------------------------------------------------------|--------|---------------|--------|--------------------|--------|
|                                                           |   |          |   | **Weighted**       |   |   |   | **Weighted** |   |
|                                                           |   | **Number of** |   | **Average**        |   | **Number of** |   | **Average** |   |
|                                                           |   | **Options**   |   | **Exercise Price** |   | **Options** |   | **Exercise Price** |   |
| Options outstanding,  beginning of year                        |   | 324,329       |   | $                  | 0.41   |   | 574,750 |   | $ | 0.17 |   |
| Granted                                                        |   | —        |   | —             |   | 270,000 |   | 0.47 |   |
| Canceled or expired                                            |   | —        |   | —             |   | (59,406 | ) | 0.32 |   |
| Exercised                                                      |   | —        |   | —             |   | (461,015 | ) | 0.17 |   |
| Options outstanding, end of year                               |   | 324,329       |   | $                  | 0.41   |   | 324,329 |   | $ | 0.41 |   |
| Options exercisable, end of year                               |   | 324,329       |   | $                  | 0.41   |   | 324,329 |   | $ | 0.41 |   |
| Weighted average fair value of options granted during the year |   |          |   | $                  | — |   |   |   | $ | 0.28 |   |

 

Options outstanding at December 31, 2001 have exercise prices rangingfrom $0.11 to $1.60 and a weighted average remaining contractual life of 3.53years.

 
|           |   | **Options Outstanding** |   | **Options Exercisable** |   |
|----------------|--------|-------------------------|--------|-------------------------|--------|
|           |   |                    |   | **Weighted-**           |   |   |   |   |   |   |   |
|           |   |                    |   | **Average**             |   | **Weighted-** |   |   |   | **Weighted-** |   |
| **Range of**   |   |                    |   | **Remaining**           |   | **Average** |   |   |   | **Average** |   |
| **Exercise**   |   | **Number**              |   | **Contractual**         |   | **Exercise** |   | **Number** |   | **Exercise** |   |
| **Prices**     |   | **Outstanding**         |   | **Life**                |   | **Price** |   | **Exercisable** |   | **Price** |   |
| $ 0.11 - $0.43 |   | 314,329                 |   | 3.60                    |   | $ | 0.37 |   | 314,329 |   | $ | 0.37 |   |
| $ 1.60         |   | 10,000                  |   | 1.27                    |   | 1.60 |   | 10,000 |   | 1.60 |   |
| $ 0.11 - $1.60 |   | 324,329                 |   | 3.53                    |   | $ | 0.41 |   | 324,329 |   | $ | 0.41 |   |

 

 

38

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*      Modificationof American Gas Corporation Acquisition*

 

In 1995, the Company finalized payment for its acquisition of Americanby issuing 125,000 shares of common stock to a court appointed trustee for thebenefit of the shareholders of Liberty National Corporation.  The court also required the Company to issue1,000,000 warrants at an exercise price of $2.50 per share.  The warrants are valid for six months fromthe date of issue, which is yet to be determined, and are callable by theCompany after three months.  The Companyis required to issue new warrants to those who exercise the $2.50warrants.  These new warrants will havean exercise price of $7.00 per share for a period of three years.  The new warrants are not callable by theCompany.  The Company’s originalobligation was to issue 200,000 shares of common stock and 800,000 warrants.

 

*      StockConversion Option*

 

The Company granted a director/stockholder the option to convert accruedexpenses to common stock at $.11 per share. The individual could acquire up to 200,000 shares per year through April2001. The individual converted $22,000 of accrued expenses into 200,000 sharesof common stock during 2000.  Noadditional expenses were converted into common stock during 2001.

 

**NOTE12 - Retirement Plan**

 

The Company has a Simple IRA retirement plan for the benefit ofemployees who qualify for participation. Company contributions were $20,433 and $20,223 for the years endedDecember 31, 2001 and 2000.

 

**NOTE13 - Commitments and Contingencies**

 

      *Operating Leases*

 

The Company leases corporate office space under a lease expiring inFebruary 2005.  Monthly base rent is$1,467, increasing to $1,555 throughout the term of the lease.  In addition, the lease requires the Companyto pay its pro rata share of operating expenses.  Rent expense was $37,261 and $73,834 for the years ended December31, 2001 and 2000.

 

Future minimum rental payments are as follows for the years endingDecember 31:

 
| 2002  |   | $      | 17,895 |   |
|-------|--------|--------|--------|--------|
| 2003  |   | 18,248 |   |
| 2004  |   | 18,601 |   |
| 2005  |   | 3,110  |   |
| Total |   | $      | 57,854 |   |

 

*      MajorCustomer*

 

The Company had sales to two customers, one including its affiliates,representing approximately 60% and 13% of total sales for the year endedDecember 31, 2001.  The Company hadsales to a single customer and its affiliates representing approximately 73% oftotal sales for the year ended December 31, 2000.   Accounts receivable from the same customers, one including itsaffiliates, represented approximately 31% and 48% of total accounts receivableat December 31, 2001.  Accountsreceivable from the single customer and its affiliates representedapproximately 22% of total accounts receivable at December 31, 2000.

 

 

39

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*      EmploymentAgreement*

 

The Company has an employment agreement with an officer of MailCall.  The agreement requires annualcompensation of $160,000 through February 2001 and $200,000 annuallythereafter.  The agreement terminatesMarch 1, 2002, but may be renewed annually. Subsequently, in 2002, the agreement was not renewed.  The agreement required the Company to paythe individual all remaining compensation due under the agreement if theindividual was terminated without cause. In addition, the agreement required the Company to issue a warrant tothe individual to purchase 440,000 shares of the Company’s common stock at$1.00 per share exercisable for five years. The individual has the option to put the warrant back to the Company for$390,000 in the event the Company completes a private placement as outlined inthe agreement.  The agreement alsorestricts the employee from competing with the Company for two years followingemployment termination.

 

**NOTE14 - Income Taxes**

 

The Company has incurred cumulative net operating losses for bothfinancial statement and income tax reporting purposes.  At December 31, 2001, the Company had netoperating loss carryforwards of approximately $4,800,000.  Of the total net operating losscarryforwards, approximately $48,000 will expire in 2004 and the remainder willbegin to expire in 2011.  Future changesin the ownership of the Company may place limitations on the use of these netoperating loss carryforwards.  TheCompany has recorded a full valuation allowance against the net deferred taxasset due to the uncertainty of realizing the related benefits.

 
|                               |   | **2001**   |      | **2000**   |   |
|------------------------------------|--------|------------|-----------|------------|--------|
| Deferred income tax assets:        |   |       |      |       |   |
| Net operating loss carryforwards   |   | $          | 1,935,700 |       | $      | 1,395,300 |   |
| Goodwill basis difference          |   | 324,000    |      | 34,700     |   |
| Asset valuation reserves and other |   | 67,200     |      | 115,200    |   |
|                               |   | 2,326,900  |      | 1,545,200  |   |
| Less: valuation allowance          |   | (2,246,900 | )         | (1,493,900 | )      |
| Deferred income tax liabilities:   |   |       |      |       |   |
| Depreciation and amortization      |   | (80,000    | )         | (51,300    | )      |
| Net deferred income tax assets     |   | $          | —    |       | $      | — |   |

 

Income tax computed at the U.S. federal statutory rate reconciled to theeffective tax rate is as follows for the years ended December 31:

 
|                                |   | **2001** |   | **2000** |   |
|-------------------------------------|--------|----------|--------|----------|--------|
| Federal statutory tax rate benefits |   | (35.0    | )%     | (35.0    | )%     |
| State tax, net of federal benefit   |   | (5.0     | )      | (5.0     | )      |
| Change in valuation allowance       |   | 38.3     |   | 31.9     |   |
| Permanent differences               |   | 0.1      |   | 0.6      |   |
| Other                               |   | 1.6      |   | 7.5      |   |
| Effective tax rate                  |   | 0.0      | %      | 0.0      | %      |

 

 

40

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**NOTE15 - Segment Reporting**

 

The Company operates in two industry segments: manufacturing andtechnology.  Manufacturing consists ofthe fabrication, marketing, and distribution of non–refrigerated,customized display fixtures.  Technologyconsists of electronic mail retrieval service via telephone.  The Company sold its investment in oil andgas during 2001 (See Note 7).  A summaryof the operations by segment is as follows:

 
| Revenues from unaffiliated customers:                       |   |       |       |      |   |
|-------------------------------------------------------------|--------|------------|------------|-----------|--------|
| Manufacturing                                               |   | $          | 2,236,913  |      | $      | 3,038,056 |   |
| Technology                                                  |   | 7,455      |       | 9,866     |   |
| Consolidated                                                |   | $          | 2,244,368  |      | $      | 3,047,922 |   |
|                                                        |   |       |       |      |   |
| Operating loss:                                             |   |       |       |      |   |
| Manufacturing                                               |   | $          | (203,380   | )         | $      | (9,634 | ) |
| Technology                                                  |   | (295,298   | )          | (634,429  | )      |
| General corporate, including impairment of goodwill in 2001 |   | (1,335,876 | )          | (594,208  | )      |
| Consolidated                                                |   | $          | (1,834,554 | )         | $      | (1,238,271 | ) |
|                                                        |   |       |       |      |   |
| Identifiable assets:                                        |   |       |       |      |   |
| Manufacturing                                               |   | $          | 928,717    |      | $      | 907,487 |   |
| Net assets from discontinued operations                     |   | —     |       | 61,796    |   |
| Technology                                                  |   | 190,958    |       | 1,139,936 |   |
| General corporate                                           |   | 471,808    |       | 151,473   |   |
| Consolidated                                                |   | $          | 1,591,483  |      | $      | 2,260,692 |   |
|                                                        |   |       |       |      |   |
| Depreciation, depletion and amortization:                   |   |       |       |      |   |
| Manufacturing                                               |   | $          | 21,465     |      | $      | 34,784 |   |
| Discontinued operations                                     |   | 4,793      |       | 3,385     |   |
| Technology                                                  |   | 21,611     |       | 161,614   |   |
| General corporate                                           |   | 203,589    |       | 5,937     |   |
| Consolidated                                                |   | $          | 251,458    |      | $      | 205,720 |   |
|                                                        |   |       |       |      |   |
| Capital expenditures:                                       |   |       |       |      |   |
| Manufacturing                                               |   | $          | 5,933      |      | $      | 1,376 |   |
| Technology                                                  |   | —     |       | 60,636    |   |
| General corporate                                           |   | 45,970     |       | 20,211    |   |
| Consolidated                                                |   | $          | 51,903     |      | $      | 82,223 |   |

 

 

41

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**NOTE16 - Supplemental Cash Flows Information**

 
|                                                                      |   | **2001** |    | **2000** |   |
|---------------------------------------------------------------------------|--------|----------|---------|----------|--------|
| Cash paid for interest                                                    |   | $        | 46,126  |     | $      | 72,248 |   |
| Cash paid for income taxes                                                |   | $        | —  |     | $      | — |   |
|                                                                      |   |     |    |     |   |
| Noncash investing and financing activities:                               |   |     |    |     |   |
| Issuance of common stock for services                                     |   | $        | 25,685  |     | $      | — |   |
| Issuance of warrants for services recorded as other current assets        |   | $        | 441,840 |     | $      | — |   |
| Warrants issued for debt issuance costs                                   |   | $        | 19,359  |     | $      | — |   |
| Note receivable received in exchange for sale of discontinued  operations |   | $        | 15,000  |     | $      | — |   |
| Debt and accrued expenses converted to common stock                       |   | $        | —  |     | $      | 386,326 |   |
| Issuance of common stock for Mail Call common stock                       |   | $        | —  |     | $      | 1,135,000 |   |

 

**NOTE17 - Subsequent Events (Unaudited)**

 

In February 2002, the Company entered into an agreement for consultingservices.  Compensation for theconsulting services is 540,000 shares of common stock, of which 45,000 shareswere earned and fully vested upon signing, with 45,000 shares vesting eachmonth for the following eleven months.

 

In March 2002, the Company purchased 100% of the stock of EconoWattcorporation for 1,400,000 shares of the Company’s common stock.  350,000 shares are unrestricted, with theremaining 1,050,000 shares restricted pursuant to Regulation 144.

 

 

42

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**VOICEAND WIRELESS CORPORATION AND SUBSIDIARIES**

CONSOLIDATING BALANCE SHEET

December 31, 2001
|                                                           |
|----------------------------------------------------------------|
| ***ASSETS***                                                   |
|                                                           |   |
|                                                           |   |   |   |   |   |   |   | **Elimination** |   |   |   |
|                                                           |   | **Voice and** |   |   |   |   |   | **Entries** |   |   |   |
|                                                           |   | **Wireless** |   | **Ive’s Design** |   | **Mail Call** |   | **Incr. (Decr.)** |   | **Consolidated** |   |
| **CURRENT ASSETS**                                             |   |   |   |   |   |   |   |   |   |   |   |
|                                                           |   |   |   |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                                     |   | $ | 6,485 |   | $ | — |   | $ | 3,224 |   | $ |   |   | $ | 9,709 |   |
| Accounts  receivable, net                                      |   | — |   | 411,162 |   | — |   |   |   | 411,162 |   |
| Inventories                                                    |   | 18,683 |   | 230,715 |   | — |   |   |   | 249,398 |   |
| Other current  assets                                          |   | 277,452 |   | 22,900 |   | 1,575 |   |   |   | 301,927 |   |
| Related party  receivable                                      |   | — |   | 598,890 |   | — |   | (598,890 | ) | — |   |
| Total Current  Assets                                          |   | 302,620 |   | 1,263,667 |   | 4,799 |   | (598,890 | ) | 972,196 |   |
|                                                           |   |   |   |   |   |   |   |   |   |   |   |
| **OTHER ASSETS**                                               |   |   |   |   |   |   |   |   |   |   |   |
|                                                           |   |   |   |   |   |   |   |   |   |   |   |
| Property and  equipment, net                                   |   | 47,686 |   | 214,037 |   | 26,509 |   |   |   | 288,232 |   |
| Notes  receivable, net                                         |   | 70,000 |   | — |   | — |   |   |   | 70,000 |   |
| Loan fees,  net                                                |   | 41,502 |   | 19,903 |   | — |   |   |   | 61,405 |   |
| Intangible  assets, net                                        |   | 155,392 |   | — |   | 4,258 |   |   |   | 159,650 |   |
| Investment in  unconsolidated corporations                     |   | 10,000 |   | 30,000 |   | — |   |   |   | 40,000 |   |
| Investment in  Ives Design & Mail Call                     |   | 729,981 |   | — |   | — |   | (729,981 | ) | — |   |
| Total Other  Assets                                            |   | 1,054,561 |   | 263,940 |   | 30,767 |   | (729,981 | ) | 619,287 |   |
|                                                           |   |   |   |   |   |   |   |   |   |   |   |
| **TOTAL ASSETS**                                               |   | $ | 1,357,181 |   | $ | 1,527,607 |   | $ | 35,566 |   | $ | (1,328,871 | ) | $ | 1,591,483 | ** ** |
|                                                           |   |   |   |   |   |   |   |   |   |   |   |
| ***LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)***      |
|                                                           |   |   |   |   |   |   |   |   |   |   |   |
| **CURRENT LIABILITIES**                                        |   |   |   |   |   |   |   |   |   |   |   |
| Checks written  in excess of cash in bank                      |   | — |   | 69,105 |   | — |   | $ |   |   | 69,105 |   |
| Current portion  of long-term debt                             |   | $ | — |   | $ | 22,932 |   | $ | — |   | $ |   |   | $ | 22,932 |   |
| Accounts payable                                               |   | 87,081 |   | 156,407 |   | 5,058 |   |   |   | 248,546 |   |
| Accrued  consulting fees                                       |   | 25,685 |   | — |   | — |   |   |   | 25,685 |   |
| Accrued expenses                                               |   | 1,910 |   | 36,927 |   | 16,667 |   |   |   | 55,504 |   |
| Notes  payable—related party                              |   | 590,138 |   | — |   | 8,752 |   | (598,890 | ) | — |   |
| Total Current  Liabilities                                     |   | 704,814 |   | 285,371 |   | 30,477 |   | (598,890 | ) | 421,772 |   |
|                                                           |   |   |   |   |   |   |   |   |   |   |   |
| **LONG-TERM LIABILITIES**                                      |   |   |   |   |   |   |   |   |   |   |   |
| Revolving credit  facility                                     |   | — |   | 203,500 |   | — |   |   |   | 203,500 |   |
| Long-term debt,  net                                           |   | 81,710 |   | 313,844 |   | — |   |   |   | 395,554 |   |
| Total Liabilities                                              |   | 786,524 |   | 802,715 |   | 30,477 |   | (598,890 | ) | 1,020,826 |   |
|                                                           |   |   |   |   |   |   |   |   |   |   |   |
| **STOCKHOLDERS’ EQUITY**                                  |   |   |   |   |   |   |   |   |   |   |   |
| Common stock                                                   |   | 7,221,511 |   | 218,682 |   | 1,184,778 |   | (1,403,460 | ) | 7,221,511 |   |
| Warrants                                                       |   | 628,085 |   | — |   | — |   |   |   | 628,085 |   |
| Accumulated  deficit                                           |   | (7,278,939 | ) | 506,210 |   | (1,179,689 | ) | 673,479 |   | (7,278,939 | ) |
| Total  Stockholders’ Equity (Deficit)                     |   | 570,657 |   | 724,892 |   | 5,089 |   | (729,981 | ) | 570,657 |   |
| **TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)** |   | $ | 1,357,181 |   | $ | 1,527,607 |   | $ | 35,566 |   | $ | (1,328,871 | ) | $ | 1,591,483 |   |

See accompanying notes toconsolidated financial statements.

 

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**VOICEAND WIRELESS CORPORATION AND SUBSIDIARIES**

CONSOLIDATING STATEMENTOF OPERATIONS

Year Ended December 31, 2001

 
|                                                                                                   |   |          |       |                  |   |          |   | **Elimination**   |       |             |   |
|--------------------------------------------------------------------------------------------------------|--------|---------------|------------|-----------------------|--------|---------------|--------|-------------------|------------|------------------|--------|
|                                                                                                   |   | **Voice and** |       |                  |   |          |   | **Entries******   |       |             |   |
|                                                                                                   |   | **Wireless**  |       | **Ive’s Design** |   | **Mail Call** |   | **Incr. (Decr.)** |       | **Consolidated** |   |
| **REVENUES**                                                                                           |   |          |       |                  |   |          |   |              |       |             |   |
| Product sales                                                                                          |   | $             |       |                  | $      | 2,236,913     |   | $                 | 7,455      |             |   |   | $ | 2,244,368 |   |
| Oil and gas sales                                                                                      |   |          |       | —                |   | —        |   |              |       |             |   |
| Total revenues                                                                                         |   |          |       | 2,236,913             |   | 7,455         |   |              |       | 2,244,368        |   |
|                                                                                                   |   |          |       |                  |   |          |   |              |       |             |   |
| **COST OF SALES**                                                                                      |   |          |       |                  |   |          |   |              |       |             |   |
| Cost of product sales                                                                                  |   | 9,076         |       | 1,724,336             |   | —        |   |              |       | 1,733,412        |   |
| Total cost of sales                                                                                    |   | 9,076         |       | 1,724,336             |   | —        |   |              |       | 1,733,412        |   |
|                                                                                                   |   |          |       |                  |   |          |   |              |       |             |   |
| Gross Profit                                                                                           |   | (9,076        | )          | 512,577               |   | 7,455         |   |              |       | 510,956          |   |
|                                                                                                   |   |          |       |                  |   |          |   |              |       |             |   |
| **OPERATING EXPENSES**                                                                                 |   | 719,153       |       | 715,957               |   | 302,753       |   |              |       | 1,737,863        |   |
| **LOSS ON IMPAIRMENT OF  GOODWILL**                                                                    |   | 607,647       |       | —                |   | —        |   |              |       | 607,647          |   |
|                                                                                                   |   |          |       |                  |   |          |   |              |       |             |   |
| Operating Income (Loss)                                                                                |   | (1,335,876    | )          | (203,380              | )      | (295,298      | )      | —            |       | (1,834,554       | )      |
|                                                                                                   |   |          |       |                  |   |          |   |              |       |             |   |
| **OTHER INCOME (EXPENSE)**                                                                             |   |          |       |                  |   |          |   |              |       |             |   |
| Interest expense                                                                                       |   | (23,755       | )          | (38,467               | )      | —        |   |              |       | (62,222          |   |
| Interest income                                                                                        |   | 1,061         |       | —                |   | 2,741         |   |              |       | 3,802            |   |
| Equity in loss of subsidiaries                                                                         |   | (552,359      | )          | —                |   | —        |   | 552,359           |       | —           |   |
| Impairment of investments in  unconsolidated                                                           |   | (20,162       | )          | —                |   | —        |   |              |       | (20,162          | )      |
| Management fees                                                                                        |   | 20,000        |       | —                |   | (20,000       | )      |              |       | —           |   |
| Other income                                                                                           |   | —        |       | 2,045                 |   | —        |   |              |       | 2,045            |   |
| Total Other Income (Expense)                                                                           |   | (575,215      | )          | (36,422               | )      | (17,259       | )      | 552,359           |       | (76,537          | )      |
| Income from continuing operations before  income taxes                                                 |   | (1,911,091    | )          | (239,802              | )      | (312,557      | )      | 552,359           |       | (1,911,091       | )      |
|                                                                                                   |   |          |       |                  |   |          |   |              |       |             |   |
| Benefit from income taxes                                                                              |   | —        |       | —                |   | —        |   |              |       | —           |   |
|                                                                                                   |   |          |       |                  |   |          |   |              |       |             |   |
| **Discontinued Operations**                                                                            |   |          |       |                  |   |          |   |              |       |             |   |
| Income (loss) from operations of  discontinued division                                                |   | 11,699        |       | —                |   | —        |   |              |       | 11,699           |   |
| Loss on disposal of division, including  provision of $XX for operating losses during phase-out period |   | (17,004       | )          | —                |   | —        |   |              |       | (17,004          | )      |
| **NET INCOME (LOSS)**                                                                                  |   | $             | (1,916,396 | )                     | $      | (239,802      | )      | $                 | (312,557   | )                | $      | 552,359 |   | $ | (1,916,396 | ) |
| Beg of yr Accum Deficit                                                                                |   | $             | (5,362,543 | )                     | $      | (266,408      | )      | $                 | (867,132   | )                | $      | (570,820 | ) | $ | (7,066,903 | ) |
| End of yr Accum Deficit                                                                                |   | $             | (7,278,939 | )                     | $      | (506,210      | )      | $                 | (1,179,689 | )                | $      | (18,461 | ) | $ | (8,983,299 | ) |

 

See accompanying notes toconsolidated financial statements.

 

 

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