<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________
FORM 10-SB/A
AMENDMENT NO. 2 TO
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR 12(g)
COMMISSION FILE NO. 0-25773
INFORMATION-HIGHWAY.COM, INC.
(Name of small business issuer as specified in its charter)
Florida 65-0154103
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
185 - 10751 Shellbridge Way
Richmond, British Columbia V6X 2W8, Canada
(Address, including postal code, of registrant's principal executive offices)
(604) 278-5996
(Telephone number including area code)
Securities to be registered under Section 12(b) of the Exchange Act: None
Securities to be registered under Section 12(g)
of the Exchange Act: Common Stock
________________________________________________________________________________
<PAGE>
PART III
Item 1. Index to Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- -------------- -------------------------------------------------------------------- ---------
<S> <C> <C>
2.1* Articles of Incorporation, restated as amended on February 23, 1999
and November 1, 1989
2.2* Bylaws
3.1* Specimen Share Certificate for Common Stock
3.2* Form of Warrants
3.3* Stock Option Plan
3.4* Form of Stock Option Agreement
3.5* Form of Warrants
6.1** VPOP Service Agreement between MetroNet Communications and YesIC
Communications
6.2** Level 3 Communications Terms and Conditions for Delivery of Service
6.3** ADSL Service Agreement dated August 24, 1999, by and between Bell
Atlantic Network Integration, Inc. and Information-Highway.com, Inc.
8.1* Agreement and Plan of Reorganization between the Company and
Information Highway, Inc.
12.1 Annual report on Form 10-KSB for the fiscal year ended May 31, 1999
27.1*** Financial Data Schedule
</TABLE>
* Previously filed.
** Incorporated by reference from the Company's annual report on Form 10-
KSB for the fiscal year ended May 31, 1999, filed with the Securities
and Exchange Commission on October 6, 1999.
*** Previously filed or incorporated by reference from the Company's
annual report on Form 10-KSB for the fiscal year ended May 31, 1999,
filed with the Securities and Exchange Commission on October 6, 1999,
or incorporated by reference from the Company's quarterly report on
Form 10-QSB for the quarterly period ended February 28, 1999, filed
with the Securities and Exchange Commission on September 10, 1999.
36
<PAGE>
SIGNATURES
Pursuant to the requirements Section 12 of the Securities Exchange Act of 1934,
the Registrant has duly caused this report or amendment to be signed on its
behalf by the undersigned, thereunto duly authorized.
INFORMATION-HIGHWAY.COM, INC.
By: /s/ John G. Robertson
---------------------
John G. Robertson, President
Chief Executive Officer and Director
Dated: October 26, 1999
37
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- --------------------------------------------------
2.1* Articles of Incorporation, restated as amended on February
23, 1999 and November 1, 1989
2.2* Bylaws
3.1* Specimen Share Certificate for Common Stock
3.2* Form of Warrants
3.3* Stock Option Plan
3.4* Form of Stock Option Agreement
3.5* Form of Warrants
6.1** VPOP Service Agreement between MetroNet Communications and
YesIC Communications
6.2** Level 3 Communications Terms and Conditions for Delivery of
Service
6.3** ADSL Service Agreement dated August 24, 1999, by and between
Bell Atlantic Network Integration, Inc. and Information-
Highway.com, Inc.
8.1* Agreement and Plan of Reorganization between the Company and
Information Highway, Inc.
12.1 Annual report on Form 10-KSB for the fiscal year ended May
31, 1999
27.1*** Financial Data Schedule
* Previously filed.
** Incorporated by reference from the Company's annual report
on Form 10-KSB for the fiscal year ended May 31, 1999, filed
with the Securities and Exchange Commission on October 6,
1999.
*** Previously filed or incorporated by reference from the
Company's annual report on Form 10-KSB for the fiscal year
ended May 31, 1999, filed with the Securities and Exchange
Commission on October 6, 1999, or incorporated by reference
from the Company's quarterly report on Form 10-QSB for the
quarterly period ended February 28, 1999, filed with the
Securities and Exchange Commission on September 10, 1999.
<PAGE>
EXHIBIT 12.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
THE SECURITIES ACT OF 1934
For the Fiscal Year Ended May 31, 1999
COMMISSION FILE NO. 0-25773
INFORMATION-HIGHWAY.COM, INC.
(Name of small business issuer in its charter)
FLORIDA 65-0154103
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
185 - 10751 SHELLBRIDGE WAY
RICHMOND, BRITISH COLUMBIA V6X 2W8, CANADA
(Address, including postal code, of registrant's principal executive offices)
(604) 278-5996
(Telephone number including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act: NONE
Securities registered pursuant to Section 12(g) of the Exchange Act:
Title of each class Name of each Exchange on which registered:
------------------- ------------------------------------------
Common Stock, no par value None
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
The registrant's revenues for its most recent fiscal year were: $1,008,657.
The Aggregate market value of the voting stock held by non-affiliates
of the registrant on August 31, 1999, computed by reference to the price at
which the stock was sold on that date: $19,093,244.
The number of shares outstanding of the registrant's Common Stock, no
par value, as of August 31, 1999 was 6,868,901.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format (Check one):
Yes No X
______________________________________________________________________________
<PAGE>
INFORMATION-HIGHWAY.COM, INC.
FORM 10-KSB
TABLE OF CONTENTS
PART I Page
----
Item 1. Description of Business........................................ 1
Item 2. Property....................................................... 11
Item 3. Legal Proceedings.............................................. 12
Item 4. Submission of Matters to a Vote of Security Holders............ 12
PART II
Item 5. Market for Common Equity and Related Stockholder Matters....... 12
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 14
Item 7. Financial Statements........................................... 24
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure....................................... 40
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.............. 40
Item 10. Executive Compensation......................................... 42
Item 11. Security Ownership of Certain Beneficial Owners and
Management..................................................... 45
Item 12. Certain Relationships and Related Transaction.................. 46
Item 13. Exhibits and Reports on Form 8-K............................... 47
<PAGE>
PART I
Item 1. Description of Business.
Information-Highway.com, Inc. (the "Company") serves as an Internet Service
Provider (referred to as an "ISP" in the industry) for companies and individuals
that need access to the Internet in exchange for a recurring fee. The Company
has also developed and begun providing a compilation of Internet-based services
and information catering to business professionals known collectively as the
"Executive Site(TM)". The Company conducts its operations through the following
three wholly-owned Canadian subsidiaries:
. YesIC, Communications, Inc., acquired in February 1997;
. World Tel Internet (Toronto) Ltd., acquired in February 1997; and
. Blue Crow Internet Company, Ltd., acquired in December 1996.
Information Highway, Inc., a Washington corporation, actually acquired these
subsidiaries. Then, in February 1999, Information Highway, Inc. engaged in a
reverse takeover of Florida Venture Fund, Inc., a Florida corporation. As a
result of the reverse takeover, the shareholders of Information Highway, Inc.
came to own approximately 95% of the outstanding shares of Florida Venture Fund,
Inc. In connection with the reverse takeover, Florida Venture Fund, Inc.
changed its name to Information-Highway.com, Inc.
Information-Highway.com, Inc. is now the ultimate parent company whose shares
are traded on the OTC bulletin board (symbol: IHWY). Information-Highway.com,
Inc.'s executive offices are located at 10751 Shellbridge Way, Suite 185,
Richmond, British Columbia V6X 2W8, Canada, its telephone number is (604) 278-
5996 and its facsimile number is (604) 278-3409.
Business Development
The Company was incorporated in Florida in December 1988 as Florida Venture
Fund, Inc. The Company had not conducted any business prior to February, 1999,
when it engaged in a reverse takeover with Information Highway, Inc., a
Washington corporation ("IHI"). IHI was formed in October 1996. IHI began to
build the basis for the current business of the Company by undertaking the
following acquisitions:
. YesIC, Communications, Inc., acquired in February 1997;
. World Tel Internet (Toronto) Ltd., acquired in February 1997; and
. Blue Crow Internet Company, Ltd., acquired in December 1996.
In a reverse takeover, the shareholders of an acquired company generally end up
owning all or most of the resulting combined company. The reverse takeover of
the Company by IHI was conducted pursuant to an Agreement and Plan of
Reorganization entered into on February 17, 1999 and closed on February 23, 1999
between the Company, IHI and certain shareholders of IHI. The Company acquired
3,235,000 common shares of IHI (out of a total of 5,639,650 issued and
outstanding common shares) in exchange for 3,235,000 common shares of the
Company. It is the Company's intention to complete the exchange of shares of its
common stock for the remaining and outstanding common shares of IHI on a one for
one basis. As of August 31, 1999, 2,240,150 of the remaining 2,404,650 IHI
shares had been exchanged for the same number of Company shares. In total, to
August 31, 1999, approximately 97% of IHI shares had been exchanged. The Company
has allotted 164,500
3
<PAGE>
shares in anticipation of the remaining shares being exchanged. As part of the
Agreement and Plan of Reorganization, the Company caused 1,659,833 of its
1,979,500 common shares that were issued and outstanding prior to the closing to
be cancelled and assumed the obligations of IHI to issue common shares pursuant
to warrants and stock options issued by IHI. IHI paid $100,000 to the
controlling shareholder of the Company as a finder's fee and to effect the
Agreement and Plan of Reorganization. In connection with the reverse takeover,
the Company changed its name from Florida Venture Fund, Inc. to Information-
Highway.com, Inc.
Overview of Information-Highway.com's Business
The Company serves as an Internet Service Provider (referred to as an "ISP" in
the industry) for companies and individuals that need access to the Internet in
exchange for a recurring fee. The Company intends to provide ISP services to a
steadily growing number of cities in North America as a "Virtual ISP". A
Virtual ISP provides Internet access to its customers using the underlying
telecommunications infrastructure of another company, such as a telephone
company. The Virtual ISP business model should enable the Company to avoid
purchasing and installing "backbone" communications equipment and infrastructure
in each city where it plans to offer ISP services.
The Company's goal is to expand its ISP business throughout North America by
negotiating access to Virtual ISP "backbone" facilities and then repackaging
that access for sale to its customers and resellers (licensees). The Company
has entered into agreements that permit it to market access to the Internet in
the Northeast United States and 20 cities (some in the Northeast) across the
United States, and in Canada. Toronto, Ontario is the first market in which the
Company provided ISP services, beginning about four years ago.
The Company believes that Internet users will begin to base their selection of
an ISP in part on the value-added services that their ISP provides. Through its
"Executive Site(TM)" compilation of Internet-based services and information, the
Company provides localized and portal content catering to business
professionals. Through research, design, programming, co-branding, and
licensing, the Company has compiled Internet services and content in its
Executive Site that it believes are useful to companies, associations and
professionals. Executive Site web pages are designed specifically for targeted
user groups, and the Company believes they provide friendly, easy to navigate
interfaces. The Company's basic Executive Site may be accessed through the
Internet at www.theexecutive.com. Other Executive Sites are customized to the
needs of specific Internet subscriber groups (whether by geographic location or
entity affiliation) and have different Internet addresses.
References in this report to the "Executive Site" mean the basic Executive Site
as well as all customized Executive Sites, unless the discussion refers
specifically to basic or customized Executive Sites.
The Company plans to market the Executive Site throughout North America,
starting with its Virtual ISP locations. It may also let other ISPs display
customized Executive Sites in certain markets. The Company also offers its
commercial clients the ability to market their products and services to
Executive Site users through its newly developed Virtual Mall.
4
<PAGE>
The Company believes the Executive Site will be popular because most business
professionals don't want to spend their own time searching the Internet for the
information that they need. The Executive Site has assembled a functional
business site to enable users to immediately find what they need. Executive
Site users will be able to:
. monitor and research the stock market;
. plan and book their next business trip;
. check the local news and weather;
. participate in online forums;
. carry out electronic transactions via e-commerce; and
. find a suitable restaurant in their area.
The Company does not plan to charge a fee for access to the basic Executive
Site. It plans to charge a design fee and a recurring user fee for Executive
Sites that it customizes for companies or associations. It also plans to charge
a monthly fee when it allows other ISPs to display a customized Executive Site.
The Company expects to receive advertising and e-commerce commission revenues
from the Executive Site.
Industry Background - The Internet
The Internet is a global collection of thousands of interconnected computer
networks that links computers around the world and enables commercial
organizations, educational institutions, governmental agencies and individuals
to communicate electronically, access and share information and conduct
commerce. Unlike other public and private telecommunications networks that are
managed by businesses, governmental agencies or other entities, the Internet is
a cooperative interconnection of many such public and private networks. The
networks that comprise the Internet are connected in a variety of ways,
including the public-switched telephone network and dedicated high-speed leased
lines. Open communications on the Internet are enabled by TCP/IP, the common
Internet communications protocol, which enables communication across the
Internet regardless of the hardware and software used.
Recent technological advances, combined with cultural changes and evolving
business practices, have led to integration of the Internet into the activities
of individuals and the operations and strategies of commercial organizations.
Use of the Internet by individuals and relatively small businesses and other
organizations has been accelerated by dramatic increases in cost-effective
processing power and data storage capabilities in personal computers, as well as
widespread availability of multimedia, fax/modem, and networking capabilities to
the home computing market. According to a study by Forester Research, at the end
of 1997 approximately 22 million households, or 19% of all U.S. households, were
online. By the end of 2001, according to this study, almost 80 million
households, or 72% of all U.S. households, are expected to be online--an
increase of about 400%. A study by IDC indicates that, nationwide, the market
of small and medium-sized businesses currently is comprised of approximately 7.2
million businesses, of which 29% have Internet access. IDC also projects that
the number of businesses in this market will increase at an annual rate of 2.2%
into the next century and that the percentage of such companies with Internet
access will rise to 72% by the year 2000.
Much of the recent growth in Internet use by businesses and individuals has been
driven by the emergence of a network of servers and information available on the
worldwide web. The
5
<PAGE>
worldwide web, which is based on a client/server model and a set of standards
for information access and navigation, can be accessed using software that
allows non-technical users to exploit the capabilities of the Internet. The
worldwide web enables users to find, retrieve and link information on the
Internet easily and consistently. The development of worldwide web technology
and associated easy-to-use software has made the Internet easier to navigate and
more accessible to a larger number of users and for a broader range of
applications.
Until recently, individuals could access the Internet only through an
organization with a direct Internet connection, or through traditional online
services employing closed, proprietary networks that allow Internet access only
to limited Internet resources. With the growth and increasing commercialization
of the Internet, a number of Internet Service Providers, or ISPs, including the
Company, have emerged to provide direct access to individuals. Traditional
online services also have begun to increase the scope and capacity of their
access to the Internet. Access providers vary widely in geographic coverage,
subscriber focus and levels of Internet access. For example, access providers
may concentrate on certain types of subscribers (such as businesses or
individuals) that differ substantially in the type of service and support
required. Providers may also differ according to whether they provide direct or
non-direct access to the Internet. Direct access through Internet protocol such
as PPP (Point-to-Point Protocol) enable users to establish direct connections to
other computers on the Internet, including worldwide web sites or computers
operated by other users, and thereby have access to the full range of Internet
resources. The Company, like most regional and national ISPs, offers direct
Internet access.
Principal Services
The Company currently derives the overwhelming majority of its revenues
(approximately 98%) from its ISP business. Over the past 18 months, the Company
has devoted significant resources to developing its "Executive Site(TM)" web
sites, which provide localized and portal content catering to business
professionals. The Company believes that the Executive Site will ultimately
produce significant revenues, as well as complement the Company's ISP services
by functioning as an Internet access gateway.
Key strategic developments to date have included equipment, software and robust
network infrastructure acquisitions, acquisitions of licenses for web content,
research and development and marketing plan development. The Company possesses
what management considers to be the latest in high-end computer management
systems. Hardware systems have been installed, tested, and are operating with
comprehensive redundancy and contingency plans (although the Company cannot
guarantee that it would maintain service in the face of every kind of natural
disaster or man-made disruption). The Company has the capacity to increase
hardware storage capabilities due to the modular nature of its equipment and
without system downtime.
ISP Services
The Company serves as an ISP for companies and individuals that need access to
the Internet in exchange for a recurring fee. The Company began as a local ISP
in Toronto and Vancouver, purchasing and installing the "backbone"
communications equipment and infrastructure necessary to be a stand-alone ISP.
The Company's costs of providing ISP services have historically included
equipment installation and ongoing service and maintenance charges. The Company
intends to provide ISP services to a steadily growing
6
<PAGE>
number of cities in North America as a Virtual ISP by providing Internet access
to its customers using the underlying telecommunications infrastructure of other
companies, such as telephone companies. The Virtual ISP business model should
enable the Company to avoid purchasing hardware and installing "backbone"
communications equipment and infrastructure in each city where it plans to offer
ISP services. As the Company introduces its Virtual ISP presence in additional
cities, each city will represent an increased lease charge under the Company's
agreements with Internet access providers due to the need to add bandwidth to
accommodate the customer base in the new market. As the Company expands its
presence in a particular market, it will require additional increases in
bandwidth depending on data transmission volumes.
The Company's goal is to expand its ISP business throughout North America by
negotiating access to the telecommunications "backbone" facilities of Internet
access providers and then repackaging that access for sale to its customers and
resellers (licensees). The Company has entered into agreements that permit it to
market access to the Internet in the Northeast United States and 20 cities (some
in the Northeast) across the United States, and in Canada. In September 1999 the
Company entered into an agreement with Bell Atlantic that lets the Company
provide Internet access in the Northeast United States on high-speed Digital
Subscriber Lines ("DSLs"). The agreement has a three-year term and is subject to
renewal annually thereafter. Under the agreement, the Company pays fees to Bell
Atlantic monthly based on bandwidth used and Bell Atlantic's then-current price
schedule. In March 1999 the Company entered into an agreement with Level 3
Communications that lets the Company provide Internet access in 20 cities across
the United States using their fiber-optic backbone (a phone line). The agreement
does not have a specific term and is on a month-to-month basis. Under the
agreement, the Company pays fees to Level 3 Communications based on a per-port
fee (each port provides capacity for a certain volume of data transmission). In
November 1998 the Company entered into an agreement with MetroNet
Communications, recently acquired by AT&T, which permits the Company to use
their Canadian network of high-speed, fiber-optic ATM links. The agreement has a
five-year term and no stated renewal clause. Under the agreement, the Company
pays fees to MetroNet Communications based on a per-port fee. The Company will
continue to pursue agreements with additional Internet access providers based on
the markets the Company seeks to serve and the acceptability of the terms
offered by Internet access providers serving those markets. The Company must
develop and maintain its relationships with owners of telecommunications
networks in order to implement its "Virtual ISP" business model and facilitate
broad market acceptance of its services and enhance its sales.
The Company selects certain target markets in which it will offer its services
and commit corresponding resources for marketing and infrastructure. The Company
bases its target market assessment on two years of research and development
through its involvement in the Internet industry. Because the Company does not
have a universal presence on the Internet as an ISP, its ability to achieve
market penetration in the target markets it selects to serve has a significant
effect on the Company's ability to maintain and increase its revenues. As of
August 31, 1999, the Company had approximately 23,000 ISP customers.
Maintaining market penetration successes by minimizing customer turnover also
has a significant effect on the Company's ability to maintain and increase its
revenues. The Company believes it has had a very satisfactory overall rate of
customer turnover. During the past two years, approximately 2,500 ISP customers
stopped using the Company as their ISP. The bulk of this turnover occurred in a
six-month period of time from November 1998 to May 1999, when the Company had
some technical difficulties rolling out new MetroNet leased lines. During this
period, a higher percentage of customers than usual, approximately two percent
of existing customers per month, terminated service, due principally to slow
transmission speeds and inadvertent disconnection of transmissions. The Company
has worked with MetroNet to correct these problems, and its turnover rate since
May 1999 is now back below the industry standard of one percent of existing
customers per month. The Company expects customer turnover to increase in the
future as competition intensifies. The Company expects that service quality
(i.e., data transmission speed and periods of down time) and
7
<PAGE>
price will be the major factors that influence ISP customers to switch their
ISP. The Company believes that the availability of customized Executive Sites
(and other such similar Internet link compilations targeted to specific user
groups) with their value-added services will increasingly become another factor
that ISP customers will consider in their assessment of service quality. See
"Principal Services--The Executive Site".
The Company currently has a significant market presence (more than 20,000 ISP
customers) in Toronto. In addition, the Company has begun to provide ISP
services in Vancouver and Calgary as a Virtual ISP. Within the next six months,
the Company plans to begin offering ISP services in Seattle, Washington, D.C.,
Dallas, Houston, Philadelphia, San Francisco, Miami, New York and Los Angeles.
The Company will add additional cities to its service area as it assesses the
market opportunities and the terms available from Internet access providers.
The Executive Site
The Company believes that Internet users will begin to base their selection of
an ISP in part on the value-added services that their ISP provides. Through its
"Executive Site" compilation of Internet-based services and information, the
Company plans to provide localized and portal content catering to business
professionals. Through research, design, programming, co-branding, and
licensing, the Company has compiled Internet services and content in its
Executive Site that it believes are useful to companies, associations and
professionals. Executive Site web pages are designed specifically for targeted
user groups, and the Company believes they provide friendly, easy to navigate
interfaces. The Company's basic Executive Site may be accessed through the
Internet at www.theexecutive.com. Other Executive Sites are customized to the
needs of specific Internet subscriber groups (whether by geographic location or
entity affiliation) and have different Internet addresses.
The Company plans to market the Executive Site throughout North America,
starting with its Virtual ISP locations. It may also let other ISPs display
customized Executive Sites in certain markets. The Company also offers its
commercial clients the ability to market their products and services to
Executive Site users through its newly developed Virtual Mall.
The Company believes the Executive Site(TM) will be popular because most
business professionals don't want to spend their own time searching the Internet
for the information that they need. The Executive Site(TM) has assembled a
functional business site to enable users to immediately find what they need.
Executive Site(TM) users will be able to:
. monitor and research the stock market;
. plan and book their next business trip;
. check the local news and weather;
. participate in online forums;
. carry out electronic transactions via e-commerce; and
. find a suitable restaurant in their area.
The Company does not plan to charge a fee for access to the basic Executive
Site(TM). It plans to charge a design fee and a recurring user fee for Executive
Sites(TM) that it customizes for companies or associations. It also plans to
charge a monthly fee when it allows other ISPs to display a customized Executive
Site. The Company expects to receive advertising and e-commerce commission
revenues from the Executive Site(TM).
8
<PAGE>
The Executive Site has two main purposes. One important purpose of the
Executive Site is to complement the Company's ISP business. Thus far the
industry has focused on providing high speed access to the Internet and has
largely neglected the content development market. The greatest difficulty in
content development is encouraging people to pay for the information they need.
Some companies have attempted to charge for information. However, information
can always be found free on the Internet. While people will not pay for raw
information, the Company believes that when information and services are
properly bundled, ISP customers will find value in convenience, organization,
relevance, and meaningful communication. Internet content is now aimed at broad
target markets doing little to customize information to users needs. The
Executive Site aims to provide content customized to the needs of specific
interest groups, companies, and associations.
Although anyone with Internet access will be able to visit the basic Executive
Site or the customized regional sites maintained by the Company, only the
Company's (or one of its ISP licensee's) ISP customers will be able to access
certain value-added services available on the Executive Site. For example, the
Company currently offers its ISP customers e-mail without any additional charge
and plans to offer 100 minutes of voice-over Internet Protocol ("IP") phone
service without any additional charge. Anybody accessing an Executive Site who
is not an ISP customer of the Company (or one of its ISP licensees) cannot
access these value-added services without any additional charge. The Company
believes that by providing these value-added services, along with the other
useful services and content conveniently located at the Executive Site, it will
have a competitive advantage in attracting and retaining ISP customers.
The Executive Site's second main purpose is to be a profit center. The Company
believes that the Executive Site will ultimately become a profit center in its
own right. The Company believes it can generate non-ISP revenues by providing
information organized and packaged for consumers and businesses. While people
will not pay for raw information, the Company believes that when information and
services are properly bundled, two distinct revenue streams are available. One
revenue stream will be available from licensees that would like to customize an
Executive Site for their own targeted user group. Such licensees would include
other ISPs, companies and associations. The Company believes that they will pay
for the convenience, organization, relevance, and meaningful communication
provided by the pre-packaged Executive Site information and services, and the
tools required to organize and maintain them. A second distinct revenue stream
will be available by virtue of Internet users (whether they are ISP customers of
the Company and its licensees or of other unrelated ISPs) visiting the Executive
Site and accessing its information and services. This revenue stream would
include advertising and e-commerce commission revenues. The Executive Site is a
new concept and, while the Company has high hopes for its ultimate success, has
yet to provide material revenues to the Company.
The Company has committed significant resources to the development of the
Executive Site, and it intends to continue to commit significant resources to
its development and maintenance. Through research, design, programming, co-
branding, and licensing, the Company compiles a collection of the most
compelling and functional Internet services. These services are then
synthesized into a single web interface. Finally, this web interface is
customized to function as a dedicated service for dial-up communities, interest
groups, associations, and companies, who in turn sell access to the service to
their members, associates, or employees. In other words, the Executive Site
compiles
9
<PAGE>
some of the Internet's best stock quote systems, travel reservation systems,
shopping networks, and chat technologies, and then adds information and
directories unique to any given group or organization. In some cases, its
networks may even form the backbone of a corporate Intranet. Because of the
modular nature of the Executive Site's information and service components, the
Company can offer businesses and associations the components that they want as
the basis of their customized intranets or executive sites. An initial
development and licensing fee, together with monthly user fees, will be charged
for the development of a customized Executive Site. The modular nature of the
Executive Site's information and service components will also facilitate
establishing local customized Executive Sites in those markets where the Company
or one of its licensees seeks to establish or maintain an ISP presence. When the
Company licenses information and service components, the licensee then has the
ability to control access to the website on which it displays the components.
The Company has begun making the Executive Site, with its value-added services,
available to its own ISP customers, and a print and Internet advertising
campaign is currently underway to attract Internet users (prospective new ISP
customers) to the Executive Site. The Company also has succeeded in attracting
some business advertising, and it intends to seek additional advertising
customers. The Company has also introduced its Virtual Mall. The Virtual Mall
provides links to web pages where Internet users can view merchandise and make
purchases using their credit cards. The Company either receives a commission
from the vendor when an Internet user makes a purchase after entering a web page
through the Virtual Mall or it receives rent from the vendor for providing a
link to the vendor's web page from the Virtual Mall.
The Company also has begun licensing Executive Site information and service
components to third parties that want to display their own webpages. In March
1999, the Company licensed its Executive Site portal to MediaComm Broadcasting
Systems, an ISP in Englewood, Colorado. The Company developed a private-labeled
version of the Executive Site for MediaComm's Internet access customers in the
Denver, Colorado area at http://denver.theexecutive.com. MediaComm paid an
initial set up fee and pays a monthly user fee. MediaComm also shares
advertising and e-commerce revenues generated on the site's pages with the
Company. In April 1999, the Company licensed its Executive Site portal to
InfoABC S.A., an ISP in Mexico City, Mexico. The Company developed a private-
labeled version of the Executive Site for InfoABC's Internet access customers in
the Mexico City area. InfoABC paid an initial set up fee and pays a monthly user
fee. InfoABC also shares advertising and e-commerce revenues generated on the
site's pages with the Company. As of August 31, 1999, the Company had licensed
Executive Site components to three ISPs, but not yet to any companies,
associations or interest groups. The Company believes that it will enter into a
number of license agreements with other ISPs, companies and associations during
the coming year.
The Executive Site is still in its early phases. It does not yet provide a
material portion of the Company's revenues. The Company believes that in the
future the non-ISP revenues provided by the Executive Site will increase both in
terms of absolute dollars and as a percentage of total revenues.
The Company constantly assesses the content of the Executive Site, adding,
deleting or substituting information or services when warranted. Currently the
major components of the Executive Site include:
Demon Systems's stock quote and research system;
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Internet Travel Network's travel reservation system;
WeatherLabs, Inc.'s weather information;
Ichat Rooms's chat room system;
the Company's Virtual Mall;
Furle/Powertrader's business directory;
Some of this content is actually resident on the Company's web pages, and some
of it is accessed by links to other web sites. Compensation arrangements with
content providers are generally based on the number of Internet users that
access a particular item of content (known in the industry as "hits"). With
respect to advertising revenues derived from banner advertisements placed on
various web pages, the Company generally shares revenue with the content
provider for the web page. In addition, the Company entered into a two year
licensing and multicasting agreement with broadcast.com. The Company will sell
broadcast.com services to associations, local ISP's, Executive Site users, local
dial-up, and national virtual ISP customers. Services will include audio and
video hosting, and live event broadcasting (multicasting) including multimedia
presentations, trade shows and conferences. The Company will receive a
percentage of revenues generated by these services for a period of two years and
will have the option to renew this contract annually.
These components represent only a small sample of planned future content. The
Company anticipates entering into similar agreements in the future to fully
develop and expand the content in the Executive Site. New content suppliers are
constantly being identified for existing and potential Executive Sites.
Additional content will also be developed by associations and companies
themselves.
Competitive Conditions
The market for Internet products, services and advertising is new, rapidly
evolving and intensely competitive. The Company currently or potentially
competes with many other ISPs, providers of Web directories, search and
information services, as well as traditional media, for consumer attention and
advertising expenditures. The Company expects competition to intensify in the
future. Barriers to entry may not be significant, and current and new
competitors may be able to provide ISP services and to launch new Web sites at a
relatively low cost. Accordingly, the Company believes that its success will
depend heavily upon achieving significant market acceptance before its
competitors and potential competitors introduce competing services.
The Company competes with other ISPs for ISP customers. Although some
affirmative effort is required to change ISPs, there are no significant barriers
to ISP customers changing their ISP in response to service quality or price
considerations. The Company competes with online services and other Web sites,
as well as traditional offline media such as television, radio and print, for a
share of advertisers' total advertising budgets. The number of companies
offering e-commerce outlets and selling Web-based advertising, and the available
inventory of related space on webpages, has recently increased substantially.
Accordingly, the Company may face pricing pressure on its e-commerce commissions
and for the sale of advertisements.
Many of the Company's competitors, as well as potential entrants into its
markets, have longer operating histories, larger customer or user bases, greater
brand recognition and significantly greater financial, marketing and other
resources than the Company. Many of these current and potential competitors can
devote substantially greater resources to promotion and Web site and systems
development than the Company. In addition, as the use of the Internet and other
online services increases, larger, well-established and well-financed entities
may continue to acquire, invest in or form joint ventures with ISPs, providers
of Web directories, search and information
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services or advertising solutions, and existing ISPs, providers of Web
directories, search and information services or advertising solutions may
continue to consolidate. In addition, providers of Internet browsers and other
Internet products and services who are affiliated with ISPs or providers of web
directories and information services in competition with the Company's Executive
Site web site may more tightly integrate these affiliated offerings into their
browsers or other products or services. Any of these trends would increase the
competition the Company faces.
Governmental Regulation
The laws and regulations applicable to the Internet and the Company's services
are evolving and unclear and could damage the Company's business. There are
currently few laws or regulations directly applicable to access to, or commerce
on, the Internet. Due to the increasing popularity and use of the Internet, it
is possible that laws and regulations may be adopted, covering issues such as
user privacy, defamation, pricing, taxation, content regulation, quality of
products and services, and intellectual property ownership and infringement.
Such legislation could expose the Company to substantial liability as well as
dampen the growth in use of the Internet, decrease the acceptance of the
Internet as a communications and commercial medium, or require the Company to
incur significant expenses in complying with any new regulations. The European
Union has recently adopted privacy and copyright directives that may impose
additional burdens and costs on international operations. In addition, several
telecommunications carriers, including America's Carriers' Telecommunications
Association, are seeking to have telecommunications over the Internet regulated
by the Federal Communications Commission, or FCC, in the same manner as other
telecommunications services. Because the growing popularity and use of the
Internet has burdened the existing telecommunications infrastructure and many
areas with high Internet usage have begun to experience interruptions in phone
services, local telephone carriers, such as Pacific Bell, have petitioned the
FCC to regulate the Internet and to impose access fees. Increased regulation or
the imposition of access fees could substantially increase the costs of
communicating on the Internet, potentially decreasing the demand for the
Company's services. A number of proposals have been made at the federal, state
and local level that would impose additional taxes on the sale of goods and
services through the Internet. Such proposals, if adopted, could substantially
impair the growth of electronic commerce and could adversely affect the Company.
Also, Congress recently passed (and the President has signed into law) the
Digital Millenium Copyright Act, which is intended to reduce the liability of
online service providers for listing or linking to third-party Web sites that
include materials that infringe copyrights. Congress also recently passed (and
the President has signed into law) the Children's Online Protection Act and the
Children's Online Privacy Act, which will restrict the distribution of certain
materials deemed harmful to children and impose additional restrictions on the
ability of online services to collect user information from minors. Further,
Congress recently passed (and the President has signed into law) the Protection
of Children from Sexual Predators Act, which mandates that electronic
communication service providers report facts or circumstances from which a
violation of child pornography laws is apparent. The Company cannot currently
predict the effect, if any, that this legislation will have on its business.
There can be no assurance that this legislation will not impose significant
additional costs on the Company's business or subject it to additional
liabilities. Moreover, the applicability to the Internet of existing laws
governing issues such as property ownership, copyright, defamation, obscenity
and personal privacy is uncertain. The Company may be subject to claims that its
services violate such laws. Any new legislation or regulation in the
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United States or abroad or the application of existing laws and regulations to
the Internet could damage the Company's business.
Due to the global nature of the Internet, it is possible that the governments of
other states and foreign countries might attempt to regulate its transmissions
or prosecute the Company for violations of their laws. The Company might
unintentionally violate such laws. Such laws may be modified, or new laws may be
enacted, in the future. Any such development could damage the Company's
business.
Other Information
The Company's ability to successfully offer products and services and implement
its business plan in a rapidly evolving market requires an effective planning
and management process. The Company has increased, and plans to continue to
increase, the scope of its operations. Its headcount has grown and will
continue to grow substantially. At May 31, 1999, the Company had a total of 21
employees. It will need to expand its infrastructure, which will include hiring
certain key employees, including without limitation, key employees in marketing
and technology development. Hiring such employees has historically been
difficult.
Product development expenses increased by $11,000 to $156,000 as compared to
$145,000 in the previous year, an increase of 8%. The major component of product
development expenses was; salaries and consulting fees of $117,000, rent and
telephone of $25,000, and amortization of capital assets used directly in
product development activities of $13,000. Related expenses incurred in the
previous year were comparatively similar as incurred in fiscal 1999.
The Company does not believe that environmental laws have or will have a
significant effect on its business.
In their report on the Company's financial statements, the Company's auditors
have expressed doubt about the Company's ability to continue in business as a
going concern. The Company will need additional funds to continue in business
and to implement its business plan as proposed, which it may not be able to
obtain. Equity or debt financing may not be available to the Company on terms
acceptable to the Company, or at all.
The Company has undertaken steps to address Year 2000 Issues. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Issues".
Item 2. Property.
The Company's headquarters and executive offices are located at #185-10751
Shellbridge Way, Richmond, British Columbia V6X 2W8 and the telephone number is
(604)278-5996. The Company leases, on a month-to-month basis, approximately 200
square feet of space at the aforementioned office from SMR Investments Ltd., a
private British Columbia company owned by Susanne Robertson, the wife of John G.
Robertson. The monthly rent fee is approximately $350.00 ($CN500.00).
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The Company also leases facilities in Vancouver and Toronto. The Vancouver site
supports both ISP services and the Executive Site. The lease term is 28 months
with monthly payments of approximately $5000.00 ($CN7500). The Toronto offices
support ISP services. The lease term is 54 months with monthly payments of
approximately $2000.00 ($CN2950). These locations could be replaced without
significant disruption to the Company.
Item 3. Legal Proceedings.
A Writ of Summons and Statement of Claim was filed against the Company in the
Supreme Court of British Columbia on April 20, 1999 by a former employee and
spouse of the employee (the "Plaintiffs"). The employee was retained by the
Company as a consultant on or about December 1996 and was subsequently
terminated for cause by the Company in December 1997. The Plaintiffs are seeking
monetary damages related to the alleged remuneration due pursuant to an
agreement and a stock option between the Company and the employee. The total
damages claimed amounts to $597,000, including alleged unpaid remuneration and a
stock option benefit. The Plaintiffs are also claiming 5% of business revenue
from the operating subsidiary in Vancouver, Canada. The Company believes that
the Plaintiff's alleged claim is without legal or factual basis and therefore it
has not accrued any potential losses resulting from this claim except for legal
fees paid in establishing the defence. The Company intends to vigorously defend
this action.
To the knowledge of the Company's Executive Officers and Directors, the Company
is not a party to any other legal proceeding or litigation and none of its
property is the subject of a pending legal proceeding. Further, the Officers
and Directors know of no other threatened or contemplated legal proceedings or
litigation.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the fiscal year ended May
31, 1999, to a vote of security holders, through the solicitation of proxies or
otherwise.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
There is a limited public market for the Common Stock of the Company which
currently trades on the OTC Bulletin Board under the symbol "IHWY" where it has
been traded since February 24, 1999. The high and low bid prices for the
Company's stock each calendar quarter, through June 30, 1999, as reported by
Nasdaq Trading & Market Services, are as follows:
Bid Price
High Low
----- -----
Quarter ended March 31, 1999 $12.50 $0.00
Quarter ended June 30, 1999 $ 8.00 $3.1875
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These quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not represent actual transactions.
As of August 31, 1999, there were 6,868,901 shares of Common Stock outstanding,
held by 169 shareholders of record and by various broker/dealers on behalf of an
indeterminate number of street name shareholders.
To date the Company has not paid any dividends on its Common Stock and does not
expect to declare or pay any dividends on such Common Stock in the foreseeable
future. Payment of any dividends will be dependent upon future earnings, if
any, the financial condition of the Company, and other factors as deemed
relevant by the Company's Board of Directors.
Set forth below is information regarding the issuance and sales of securities of
the Company without registration during the fourth quarter of the fiscal year
ended May 31, 1999. No such sales involved the use of an underwriter and no
commissions were paid in connection with the sale of any securities.
A. Beginning March 31, 1999, the Company conducted an offering of units
pursuant to an Offering Memorandum. Each unit consisted of one common
share, one Series "A" Warrant to acquire one additional share at $4.00 per
share expiring April 30, 2000, and one Series "B" Warrant to acquire one
additional share at $6.00 per share expiring April 30, 2001. The offering
was completed on August 11, 1999. On completion of the offering, a total
of 129,750 units were issued at $4.00 per unit for total proceeds of
$519,000. Through May 31, 1999, 5000 units were issued at $4.00 per unit
for total proceeds of $20,000. The offer and sale of the units were exempt
from registration under Rule 506 under and Section 4(2) of the Securities
Act of 1933. The Company furnished to purchasers in a timely manner an
Offering Memorandum and financial information, limited the manner of the
offering, promptly filed notices of sales, and limited the number of non-
accredited investors to 5 investors. If the foregoing exemptions are not
available, the Company believes that $72,600 of these sales were also
exempt under Regulation S under the Securities Act of 1933, as amended, due
to the foreign nationality of the relevant purchasers.
B. In connection with the reorganization of the Company in February 1999,
the Company assumed contractual obligations of one of its subsidiaries
under outstanding warrants to issue shares of common stock for $1.00 per
share. During the quarter ended May 31, 1999, the Company issued 270,300
shares pursuant to warrants exercised at $1.00 per share for total proceeds
of $270,300. The sale of the shares was exempt from registration under
Regulation S and under Rule 506 under and Section 4(2) of the Securities
Act of 1933. The Company provided disclosure to each of the warrant holders
in connection with the reorganization of IHI and the Company. Each of the
warrant holders owned shares of IHI that they have now exchanged for shares
of the Company. Through May 31, 1999, the Company issued shares to 30
purchasers, of which 7 were accredited investors and 6 were foreign
citizens whose purchases were covered by Regulation S. Through September
30, 1999, when the Company determined not to issue any further shares to
non-accredited investors pursuant to the warrants until such time as the
shares could be registered, the Company issued shares to 45 purchasers, of
which 7 were accredited investors and 7 were foreign citizens whose
purchases were covered by Regulation S. All of the shares issued pursuant
to the warrant exercises bear a legend indicating that they are restricted
securities. $53,000 of these sales were exempt under Regulation S under the
Securities Act of 1933, as amended, due to the foreign nationality of the
relevant purchasers.
C. During the quarter ended May 31, 1999, the Company issued 237,334
shares pursuant to options exercised at between $0.50 and $0.75 per share
for total proceeds of
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$125,500. Except for 150,000 shares issued to John Robertson, the sale of
the shares was exempt from registration under Rule 701 under Section 3(b)
of the Securities Act of 1933. The sales were made on exercise of grants
under the Company's written stock option plan, a copy of which the Company
has provided to its participants. The 150,000 shares issued to
Mr. Robertson were exempt from registration under Rule 506 under and
Section 4(2) of the Securities Act of 1933. Mr. Robertson is an accredited
investor by virtue of his positions with the Company as a director and
executive officer. If the foregoing exemptions are not available, the
Company believes that all $125,500 of these sales were also exempt under
Regulation S under the Securities Act of 1933, as amended, due to the
foreign nationality of the relevant purchasers.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This report contains forward-looking statements. The words, "anticipate",
"believe", expect", "plan", "intend", "estimate", "project", "could", "may",
"foresee", and similar expressions are intended to identify forward-looking
statements. The following discussion and analysis should be read in conjunction
with the Company's Financial Statements and Notes thereto and other financial
information included elsewhere in this report which contains, in addition to
historical information, forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from the
results discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include those discussed below, as well as those
discussed elsewhere in this report.
Overview
The Company serves as an Internet Service Provider (referred to as an "ISP" in
the industry) for companies and individuals that need access to the Internet in
exchange for a recurring fee. The Company intends to provide ISP services to a
steadily growing number of cities in North America as a "Virtual ISP". A
Virtual ISP provides Internet access to its customers using the underlying
telecommunications infrastructure of another company, such as a telephone
company. The Virtual ISP business model should enable the Company to avoid
purchasing and installing "backbone" communications equipment and infrastructure
in each city where it plans to offer ISP services.
The Company's goal is to expand its ISP business throughout North America by
negotiating access to Virtual ISP "backbone" facilities and then repackaging
that access for sale to its customers and resellers (licensees). The Company has
entered into agreements that permit it to market access to the Internet in the
Northeast United States and 20 cities (some in the Northeast) across the United
States, and in Canada. Toronto, Ontario is the first market in which the Company
provided ISP services, beginning about four years ago.
The Company believes that Internet users will begin to base their selection of
an ISP in part on the value-added services that their ISP provides. Through its
"Executive Site(TM)" compilation of Internet-based services and information, the
Company provides localized and portal content catering to business
professionals. Through research, design, programming, co-branding, and
licensing, the Company has compiled Internet services and content in its
Executive Site that it
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believes are useful to companies, associations and professionals. Executive Site
web pages are designed specifically for targeted user groups, and the Company
believes they provide friendly, easy to navigate interfaces. The Company's basic
Executive Site may be accessed through the Internet at www.theexecutive.com.
Other Executive Sites are customized to the needs of specific Internet
subscriber groups (whether by geographic location or entity affiliation) and
have different Internet addresses.
References in this report to the "Executive Site" mean the basic Executive Site
as well as all customized Executive Sites, unless the discussion refers
specifically to basic or customized Executive Sites.
The Company plans to market the Executive Site throughout North America,
starting with its Virtual ISP locations. It may also let other ISPs display
customized Executive Sites in certain markets. The Company also offers its
commercial clients the ability to market their products and services to
Executive Site users through its newly developed Virtual Mall.
The Company believes the Executive Site will be popular because most business
professionals don't want to spend their own time searching the Internet for the
information that they need. The Executive Site has assembled a functional
business site to enable users to immediately find what they need. Executive
Site users will be able to:
. monitor and research the stock market;
. plan and book their next business trip;
. check the local news and weather;
. participate in online forums;
. carry out electronic transactions via e-commerce; and
. find a suitable restaurant in their area.
The Company does not plan to charge a fee for access to the basic Executive
Site. It plans to charge a design fee and a recurring user fee for Executive
Sites that it customizes for companies or associations. It also plans to charge
a monthly fee when it allows other ISPs to display a customized Executive Site.
The Company expects to receive advertising and e-commerce commission revenues
from the Executive Site.
The Company conducts its operations through the following three wholly-owned
Canadian subsidiaries:
. YesIC, Communications, Inc., acquired in February 1997;
. World Tel, Internet (Toronto) Ltd., acquired in February 1997; and
. Blue Crow Internet Company, Ltd., acquired in December 1996.
Information Highway, Inc. ("IHI"), a Washington corporation, actually acquired
these subsidiaries. Then, in February 1999, IHI engaged in a reverse takeover of
Florida Venture Fund, Inc., a Florida corporation. As a result of the reverse
takeover, the shareholders of IHI came to own approximately 95% of the
outstanding shares of Florida Venture Fund, Inc. In connection with the reverse
takeover, Florida Venture Fund, Inc. changed its name to Information-
Highway.com, Inc. and is now the ultimate parent company whose shares are traded
on the OTC bulletin board (symbol: IHWY).
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Effect of Reorganization
The reverse takeover was conducted pursuant to an Agreement and Plan of
Reorganization entered into on February 17, 1999 and completed on February 23,
1999 between the Company, IHI and certain shareholders of IHI. The Company
acquired 3,235,000 common shares of IHI out of a total of 5,639,650 issued and
outstanding common shares in exchange for 3,235,000 common shares of the
Company. It is the Company's intention to complete the exchange of shares of its
common stock for the remaining and outstanding common shares of IHI on a one for
one basis. As of August 31, 1999, 2,240,150 of the remaining 2,404,650 IHI
shares had been exchanged for the same number of Company shares. In total, to
August 31, 1999, approximately 97% of IHI shares had been exchanged. The Company
has allotted 164,500 shares in anticipation of the remaining shares being
exchanged. As part of the Agreement and Plan of Reorganization the Company
caused 1,659,833 of its 1,979,500 common shares that were issued and outstanding
prior to the closing to be cancelled and assumed the obligations of IHI to issue
common shares pursuant to warrants and stock options issued by IHI. IHI paid
$100,000 to the controlling shareholder of the Company as a finder's fee and to
effect the Agreement and Plan of Reorganization.
For accounting purposes the acquirer is IHI as approximately 95% of the issued
and outstanding common shares of the Company are owned by the shareholders of
IHI and the entire Board of Directors of the Company is now comprised of the
entire Board of Directors of IHI. As IHI is the legal subsidiary of the Company
the nature of the business combination is a reverse takeover whereby the control
of the assets and the business of the Company is acquired by IHI and the
consolidated financial statements are issued under the name of the Company but
is a continuation of IHI and not the Company. The legal capital structure
remains that of the Company but the shareholders' equity of IHI has replaced the
shareholders' equity of the Company. Similarly, the Company's income statements
and statements of cash flows represent a continuation of IHI's consolidated
financial statements.
The accounting treatment of the reverse takeover takes into account $100,000 of
consideration that was paid to shareholders of the Company. The $100,000 payment
to the controlling shareholder of FVFI has been treated, for accounting
purposes, as a reduction of additional paid in capital and not as goodwill as
the nature of the transaction was for IHI to obtain a listing on the OTC
Bulletin Board by way of reverse takeover. The cost is associated with publicly
listing shares and not with any business associated with FVFI. FVFI had not
conducted any business prior to the reverse takeover.
Factors Affecting Ongoing Operations
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Prior to acquiring IHI, the Company had not conducted any business since
inception in 1988. The following discussion will relate to the Company as if the
reverse takeover had taken place as of the earliest date of the consolidated
financial statements presented.
Although planned principal activities have started producing significant
revenues, in its effort to rapidly expand infrastructure and network services
and develop the Executive Site(TM), the Company has suffered net losses for the
years ended May 31, 1999, 1998 and 1997 of $949,000, $557,000 and $151,000,
respectively. At May 31, 1999, its accumulated deficit was $1.7 million and its
working capital deficit was $314,000. The Company expects to incur substantial
operating losses, net losses and negative cash flow for the foreseeable future.
Revenues
Revenue consists of mainly the provision of Internet dial-up services. The
Company receives limited revenue from banner advertisements, web-site
development and hosting and e-commerce commission revenue.
Revenue is recognized at the time services are provided. All related costs are
recognized in the period in which they occur. Customer deposits for Internet
dial-up services to be provided in the future are treated as deferred revenues.
The following factors affect the Company's revenue:
. Service Offering - The Company derives most of its operating revenue from
the ISP service it provides to its customers;
. Penetration of Target Markets - The Company selects certain target markets
in which it will offer its services and commit corresponding resources for
marketing and infrastructure. The Company bases its target market
assessment on two years of research and development through its involvement
in the Internet industry. Because the Company does not have a universal
presence on the Internet as an ISP, its ability to achieve market
penetration in the target markets it selects to serve has a significant
effect on the Company's ability to maintain and increase its revenues;
. Turnover - Maintaining market penetration successes by minimizing customer
turnover also has a significant effect on the Company's ability to maintain
and increase its revenues. To date, customer turnover has been minimal. The
Company expects customer turnover to increase in the future as competition
intensifies. The Company expects that service quality (i.e., data
transmission speed and periods of down time) and price will be the major
factors that influence ISP customers to switch their ISP;
. Executive Site(TM) - Executive Site(TM) revenues, which to date are mostly
from advertising, are not yet material to the Company's total revenues. The
Company expects that advertising and e-commerce commission revenues related
to the Executive Site(TM), as well as fee based revenues from customized
Executive Site licensees, will grow in the future, both in dollar amount
and as a percentage of the Company's total revenues.
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Cost of Revenues
Cost of revenues consists primarily of the cost of serving the Company's
Internet dial-up service customers and the cost of developing web-sites for
customers. These costs include salaries for technical support and customer
service, depreciation of Internet dial-up and web-site hosting equipment,
license fees, equipment leasing costs, telephone line costs and rent to house
equipment and staff directly involved in serving customers.
The Company's network and service costs have historically included equipment
installation and ongoing service and maintenance charges. As the Company
introduces its Virtual ISP presence in additional cities, each city will
represent an increased lease charge under the Company's agreements with Internet
access providers due to the need to add bandwidth to accommodate the customer
base in the new market. As the Company expands its presence in a particular
market, it will require additional increases in bandwidth depending on data
transmission volumes.
Other Operating Expenses
The Company's other operating expenses include Executive Site(TM) development
and maintenance, information systems, billing and collections, general
management and overhead, and administrative functions. Head count in functional
areas, such as customer service, engineering and operations, along with
expansion of the Executive Site(TM) and the locations in which the Company
provides ISP services and increases in the number of its customers, will drive
increases in expenses.
Results of Operations for the Year Ended May 31, 1999 as Compared to the
Year Ended May 31, 1998
Revenues
Revenues have increased by $150,000 to $1,009,000 as compared to $859,000 in the
previous period, which is an increase of 17.5%. This increase is due to an
increased subscriber base in Vancouver and Toronto. Based on assumptions about
demand for its ISP services and the Executive Site(TM), the Company anticipates
that the dollar amount of future revenues will increase over current levels.
The Company is beginning to receive small amounts of revenue from banner
advertisements, developing web-sites for customers and reselling Executive Site
information and service modules pursuant to license agreements.
Cost of Revenues
Cost of revenues has increased by $126,000 to $776,000 as compared to $650,000
in the previous year, which is an increase of 19%. This increase is
approximately the same as the increase in revenues. The largest components of
cost of revenues is telephone costs of $266,000 as compared to $238,000 in the
previous year; Internet and license fees of $224,000 as compared to $197,000 in
the previous year; and salaries and consulting fees of $192,000 as compared to
$155,000 in the previous year. The increases in these costs are reflective of
the increase in the Company's subscriber base.
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Gross Profit
Gross profit was $233,000 (23.1%) in fiscal 1999 as compared to $210,000 (24.4%)
in fiscal 1998. With increased competition in the Internet Service Provider
industry there has been increased pressure to reduce fees for new subscribers
and renewing subscribers. This reduction of fees results in lower gross profit
percentages as there is not a reciprocal decrease in cost to service its
customers. The Company intends to decrease the cost of telephone and Internet
switching fees with new agreements with backbone or bandwidth providers.
Marketing and Sales Expenses
Marketing and sales expenses have increased by $53,000 to $224,000 as compared
to $171,000 in the previous year, which is an increase of 31%. The major
component of this increase was a result of a marketing plan to increase
advertisements in industry specific publications which increased by $43,000 to
$103,000 as compared to $60,000 in the previous year. The other major component
of marketing and sales is salaries, which increased by $8,000 to $64,000 as
compared to $56,000 in the previous year. Other costs relate to rent, telephone
and amortization of capital assets.
General and Administrative Expenses
General and administrative expenses for corporate overhead activities and
Internet business-related activities have increased by $350,000 to $800,000 as
compared to $450,000 in the previous year, which is an increase of 78%.
General and administrative expenses relating to corporate overhead activities,
and not Internet business-related activities, have increased by $319,000 to
$478,000 as compared to $159,000 in the previous year, which is an increase of
200%. As a result of the reverse takeover, the Company incurred one-time
expenses relating to professional fees and investor relations advertising and
consulting. Professional fees such as legal and accounting increased by $115,000
to $158,000 as compared to $43,000 in the previous year. This increase relates
to costs incurred to complete and file various documents with the NASD and the
United States Securities and Exchange Commission, in addition to legal fees to
effect the reverse takeover; the majority of these expenses were incurred in the
final quarter ended May 31, 1999. The Company expects that it will incur
significant legal and accounting fees in the first two quarters of fiscal year
2000 as it files its initial annual report on Form 10-KSB and conducts its
initial annual meeting as a company subject to reporting under the Securities
Exchange Act of 1934. Investor relations advertising and consulting increased by
$157,000 to $164,000 as compared to $7,000 in the previous year. The major
components of this increase were $114,000 paid in shares and cash to two non-
related companies for Internet-based marketing and investor communications
services including e-mails to their respective data bases of customers. The
remaining $50,000 was paid to various consultants and companies for news
releases and in-house investor relations services. Office, rent and telephone
increased by $58,000 to $62,000 as a result of various office and telephone
costs incurred during and after becoming a public company. Salaries and
management fees decreased by $43,000 to $45,000 as a result of changing the job
responsibilities of certain salaried employees to Internet related business
activities from corporate related activities. Travel increased by $12,000 to
$18,000 as a result of trips to New York, Toronto and Las Vegas by senior
management of the Company. Transfer agent and various filing fees increased by
$11,000 to $11,000 as a result of becoming a public company. Amortization of
head office equipment
21
<PAGE>
increased by $5,000 to $10,000. The vast majority of all of the above expenses
were incurred in the final quarter of fiscal 1999.
General and administrative expenses relating to Internet business-related
activities increased by $31,000 to $323,000 as compared to $292,000 in the
previous year, an increase of 11%. The major components of general and
administrative expenses were: amortization of goodwill of $160,000; salaries and
consulting fees of $97,000; office, rent and telephone of $46,000; legal and
accounting of $11,000 and bank charges of $9,000.
Product Development Expenses
Product development costs consist of expenses incurred by the Company in the
development and creation of its Executive Site(TM) web-site. Product development
costs include compensation and related expenses for programmers, depreciation of
computer hardware and software, rent, telephone and costs incurred in developing
features and functionality of the service. Product development costs are
expensed as incurred.
Product development expenses increased by $11,000 to $156,000 as compared to
$145,000 in the previous year, an increase of 8%. The major component of product
development expenses was; salaries and consulting fees of $117,000, rent and
telephone of $25,000, and amortization of capital assets used directly in
product development activities of $13,000. Related expenses incurred in the
previous year were comparatively similar as incurred in fiscal 1999.
Depreciation and Amortization Expenses
Depreciation and amortization expense has been allocated to cost of revenues,
marketing and sales, general and administrative, and product development based
on the use of each capital asset. During fiscal 1999 and 1998 approximately 60%
of capital assets was used in cost of revenues, 15% in marketing and sales, 10%
in general and administrative and 15% in product development. Depreciation and
amortization of capital assets increased by $32,000 to $90,000 as compared to
$58,000 in the previous year.
Purchased goodwill has been amortized at $13,000 per month over its estimated
useful life of three years. The estimated useful life of three years was chosen
to reflect the short-term life of the related business because of increased
competition, the lack of a universal presence and technological advancements and
obsolescence in the industry. Amortization expense has been allocated to general
and administrative expense for the Internet business. Goodwill will be fully
amortized during fiscal 2000.
The Company anticipates entering into operating leases for any network equipment
and software in the future to minimize capital expenditures.
Income Taxes
The Company generated US and Canadian net operating losses ("NOL") carried
forward of $835,000 during the current year as compared to $424,000 for the
comparative year. Total NOL's from inception to May 31, 1999 totals $1,385,000.
The Company expects some consolidated losses for the foreseeable future which
will generate additional NOL's. However, the Company's ability to use NOL's is
dependent on generating profits in the future and may also be subject to
22
<PAGE>
annual limitations. In addition, income taxes may be payable during this time
due to operating income in certain tax jurisdictions. In the future, if the
Company achieves operating profits and the NOL's have been exhausted or have
expired, the Company may experience significant tax expense. The Company
recognized no provision for taxes because it operated at a loss from inception
through to May 31, 1999. The deferred tax asset value has been reduced to nil
because the Company can not be assured that it is more likely than not that it
will utilize the NOL's carried forward in future years. If it was more likely
than not to realize these losses the Company would have recorded a deferred tax
asset of $525,000.
Net Loss for the Year Ended May 31, 1999 as Compared to the Year Ended
May 31, 1998
The Company's net losses have come mainly from overhead costs associated with
organization, restructuring and financing start-up operations in Toronto and
Vancouver, Canada and costs of developing new and improved services and
expanding its marketing plan into other North American markets. The only
operating activities conducted in the United States thus far were expenses
incurred in the going public process including investor relations and
professional fees. The Company's head office is in Richmond, BC, Canada, which
does not conduct any business related to the Internet. Its sole purpose is to
provide administration, investor relations services and services relating to
being a public company. Included in general and administrative expenses and net
loss is $477,000 as compared to $159,000 in fiscal 1998, relating to such
activities. The net loss relating to Internet activities amounted to $471,000 as
compared to $398,000 in fiscal 1998.
Liquidity and Financial Resources
The Company has historically satisfied its capital needs by borrowing from
affiliates and by issuing equity securities. It has also used these sources to
provide a portion of its operating cash requirements to make up for a cash
shortfall from operating activities. The Company's operating activities used
$521,000 and $198,000 for the years ended May 31, 1999 and 1998, respectively.
During the year ended May 31, 1999, the Company used $863,000, generated by
issuing equity securities, to fund its operating cash shortfall of $521,000, to
repay borrowings from affiliates of $197,000 and to make capital expenditures of
$139,000. The operation, development and expansion of the Company's business
will likely require additional capital infusions for the foreseeable future.
During the year ended May 31, 1998, the Company used $224,000, generated by
issuing equity securities, and $110,000, generated from borrowings from
affiliates, to fund its operating cash shortfall of $198,000 and to make capital
expenditures of $109,000.
The Company has a working capital deficit, as at May 31, 1999, of $314,000, and
will require funds to finance its ongoing operating activities for the
foreseeable future and will need some funds for capital expenditures. The
Company plans to manage its payables balances and satisfy its operating and
capital needs partially by generating cash (although at a shortfall) through its
operating activities and partially through sales of equity securities.
Subsequent to May 31, 1999 the Company has raised a total of $770,000 pursuant
to an Offering Memorandum, stock option exercises and warrant exercises as
follows:
. an Offering Memorandum was completed on August 11, 1999 whereby 129,750
units were issued at $4.00 per unit for total proceeds of $519,000, each
unit containing one common share and one Series "A" Warrant to acquire one
additional share at $4.00 per share expiring April 30, 2000 and one Series
"B" Warrant to acquire one additional share at
23
<PAGE>
$6.00 per share expiring April 30, 2001. If all warrants were exercised the
Company would receive a further $1,297,500;
. the Company issued 156,200 shares pursuant to warrants exercised at $1.00
per share for total proceeds of $171,200. There are currently 370,650
additional warrants outstanding exercisable at $1.00 per share for
potential proceeds of $370,650. These warrants expire between October 1999
and December 1999;
. the Company issued 135,000 shares pursuant to options exercised at between
$0.50 and $0.75 per share for total proceeds of $80,000. The Company
currently has 285,000 shares reserved for the exercise of stock options at
$0.50 per share, 217,666 shares reserved for the exercise of stock options
at $0.75 per share, 700,000 shares reserved for the exercise of stock
options at $4.00 per share and 125,000 shares reserved for stock options at
$5.00 per share. If all of these options were exercised the Company would
receive $3,730,750.
The Company will require financing in addition to the $770,000 it has raised
since May 31, 1999, in order to carry out its business plan as proposed. The
Company's capital requirements may vary based upon: the timing and success of
its roll out and as a result of regulatory, technological and competitive
developments; demand for the Company's services or its anticipated cash flow
from operations is less or more than expected; the Company's development plans
or projections changing or proving to be inaccurate; it engaging in any
acquisitions; or it accelerating deployment of its network services or otherwise
altering the schedule or targets of its roll out plan. The Company is not
presently considering any specific business acquisition.
In their report on the Company's financial statements, the Company's auditors
have expressed doubt about the Company's ability to continue in business as a
going concern. The Company will need additional funds to continue in business
and to implement its business plan as proposed, which it may not be able to
obtain. Equity or debt financing may not be available to the Company on terms
acceptable to the Company, or at all. The Company will need additional funds,
which it may not be able to obtain.
The principal capital expenditures incurred to date related to putting networks
in place in Toronto and Vancouver. The majority of the networking equipment has
been acquired in previous periods, and new equipment will be leased under
operating leases. The Company's strategy now is to create Virtual ISP presences
in new markets (i.e., North American cities) pursuant to its agreements with
Internet access providers, so that it will not have to commit to capital
expenditures to build out a network in each new market. The Company may need to
commit working capital, however, to fund increased lease payments to Internet
access providers until revenues from new subscribers begin to cover the increase
in monthly lease costs attributable to the new market. The Company expects its
capital expenditures to continue at a modest rate in future periods as
necessary, arising primarily from the purchase of some infrastructure equipment
necessary for the development and expansion of its defined markets.
Year 2000 Issues
The Company cannot provide assurance that it will not experience unanticipated
negative consequences from year 2000 problems, including material costs caused
by undetected errors or defects in the technology used in its internal systems.
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these code fields will need to accept four digit entries to distinguish
the year 2000 and 21st century dates from other 20th century dates. As a result,
computer systems and/or software products used by many companies may need to be
upgraded to solve this problem.
24
<PAGE>
The Company's online services and their associated and supporting tools, Web
sites and infrastructure were designed and developed to be year 2000 compliant.
Its internal systems, including those used to deliver its services, utilize
third-party hardware and software. The Company has begun the process of
contacting the vendors of these infrastructure products in order to gauge their
year 2000 compliance. Based on vendors' representations received thus far, the
Company believes that the third-party hardware and software it uses is year 2000
compliant, although it has not heard from all of these vendors. The Company has
verbally confirmed with Bell Atlantic, Level 3 Communications and MetroNet that
their internet access facilities used by the Company are Year 2000 compliant.
The Company is in the process of obtaining written confirmation of these
representations.
To date, the Company has spent an estimated $100,000, in part to address year
2000 issues. These expenditures consisted mainly of purchases of new year 2000-
compliant computer equipment, and some of these purchases would have been made
in the ordinary course of replacing aging equipment. The Company presently
estimates that the total remaining cost of addressing year 2000 issues will not
be material. These estimates were derived utilizing a number of assumptions,
including the assumption that the Company has already identified any significant
year 2000 issues. However, these assumptions may not be accurate, and actual
results could differ materially from those anticipated. In view of the Company's
year 2000 review and remediation efforts to date, the recent development of its
services, the recent installation of its information technology equipment and
systems, the Company does not consider contingency planning to be necessary at
this time. The Company believes that the most likely worst case scenario is that
the Internet fails and it will be unable to offer its services.
If the Company discovers that certain of its services need modification, or
certain of its third-party hardware and software is not year 2000 compliant, it
will try to make modifications to its services and systems on a timely basis.
The Company does not believe that the cost of these modifications will
materially affect its operating results. However, the Company cannot provide
assurance that it will be able to modify these products, services and systems in
a timely, cost-effective and successful manner, and the failure to do so could
have a material adverse effect on its business and operating results.
Year 2000 compliance issues also could cause a significant number of companies,
including the Company's current advertisers, to reevaluate their current system
needs and, as a result, consider switching to other systems and means of
advertising. This could result in a material adverse effect on the Company's
business, operating results and financial condition. Also, during the next few
months there is likely to be an increased advertiser focus on addressing year
2000 compliance issues, creating the risk that advertisers may reallocate
expenditures to fix year 2000 problems of existing systems. Although the Company
has not experienced these effects to date, if advertisers defer Internet
advertising and commerce and related services because of such a reallocation, it
would adversely affect the Company's business and operating results.
25
<PAGE>
Item 7. Financial Statements
- -----------------------------
Information-Highway.com, Inc.
(formerly Florida Venture Fund, Inc.)
Index to Consolidated Financial Statements
Contents
Report of Independent Auditors.......................................... 25
Consolidated Financial Statements
Consolidated Balance Sheets............................................. 26
Consolidated Statements of Operations................................... 27
Consolidated Statements of Stockholders' Equity......................... 28-29
Consolidated Statements of Cash Flows................................... 30
Notes to Consolidated Financial Statements.............................. 31-39
26
<PAGE>
[LETTERHEAD OF ELLIOTT TULK PRYCE ANDERSON]
Report of Independent Auditors
The Board of Directors and Stockholders
Information-Highway.com, Inc. (formerly Florida Venture Fund, Inc.)
We have audited the accompanying consolidated balance sheets of Information-
Highway.com, Inc. (formerly Florida Venture Fund, Inc.) as of May 31, 1999 and
1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years ended May 31, 1999 and 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Information-
Highway.com, Inc. (formerly Florida Venture Fund, Inc.) as of May 31, 1999 and
1998, and the results of its operations, and changes in its stockholders' equity
and cash flows for the years ended May 31, 1999 and 1998 in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has not achieved profitable operations since
inception and has accumulated losses of $1,656,774 and a working capital deficit
of $313,861. These factors raise doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters are also
discussed in Notes 1 and 11. These financial statements do not include any
adjustments which might result from the outcome of this uncertainty.
/s/ "Elliott, Tulk, Pryce, Anderson"
Chartered Accountants
Vancouver, Canada
September 15, 1999
27
<PAGE>
Information-Highway.com, Inc.
(formerly Florida Venture Fund, Inc.)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
May 31,
--------------------
1999 1998
$ $
Assets
<S> <C> <C>
Current Assets
Cash 37,622 35,699
Accounts receivable - 4,442
Inventory (Note 6) 9,695 -
Prepaid expenses 70,487 3,001
- --------------------------------------------------------------------------------------------------------------------
Total Current Assets 117,804 43,142
Property and Equipment (Note 5) 270,092 209,353
Other Assets (Note 4) 134,848 294,598
- --------------------------------------------------------------------------------------------------------------------
Total Assets 522,744 547,093
====================================================================================================================
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable 267,279 196,608
Accrued liabilities 65,151 10,000
Deferred revenues 34,049 20,000
Advances from related parties (Note 6) 65,186 261,784
- --------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 431,665 488,392
- --------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Notes 1 and 8)
- --------------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Common Stock (Note 7), 50,000,000 shares authorized,
par value $.0001 per share, 6,469,951 and 4,766,000
issued and outstanding respectively 647 477
Additional Paid in Capital on Common Stock 1,698,351 700,484
Common Stock allotted and issued subsequently
(35,000 and 82,650 shares respectively) 50,000 61,987
- --------------------------------------------------------------------------------------------------------------------
1,748,998 762,948
- --------------------------------------------------------------------------------------------------------------------
Preferred Stock, 10,000,000 shares authorized, par value
$.0001 per share, none issued - -
- --------------------------------------------------------------------------------------------------------------------
Translation adjustments (1,145) 3,654
- --------------------------------------------------------------------------------------------------------------------
1,747,853 766,602
Accumulated Deficit (1,656,774) (707,901)
- --------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 91,079 58,701
- --------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity 522,744 547,093
====================================================================================================================
</TABLE>
(See accompanying notes)
28
<PAGE>
Information-Highway.com, Inc.
(formerly Florida Venture Fund, Inc.)
Consolidated Statements of Operations
Years ended May 31,
---------------------
1999 1998
$ $
Revenues 1,008,657 859,184
Cost of Revenues 775,816 649,584
- ---------------------------------------------------------------------------
Gross Profit 232,841 209,600
- ---------------------------------------------------------------------------
Operating Expenses
Marketing and sales 224,492 171,047
General and administrative 801,702 450,595
Product development 155,520 145,165
- ---------------------------------------------------------------------------
Total Operating Expenses 1,181,714 766,807
- ---------------------------------------------------------------------------
Net loss 948,873 557,207
===========================================================================
Historical basic and dilutive net loss per share .18 .14
===========================================================================
Weighted average shares used to compute basic and
historical net loss per share 5,382,000 3,896,000
===========================================================================
Diluted loss per share has not been presented
separately as the result is anti dilutive.
(See accompanying notes)
29
<PAGE>
Information-Highway.com, Inc.
(formerly Florida Venture Fund, Inc.)
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Additional
Information Highway, Inc. - stockholders' equity section No. of Par Value Paid-in
from October 15, 1996 (Inception) to February 17, 1999 Shares $0.0001 Capital Total Deficit
(prior to reverse takeover) Issued $ $ $
<S> <C> <C> <C> <C> <C>
Balance as at October 15, 1996 (Date of Inception of
Information Highway, Inc.) - - - - -
Issued for cash:
$0.10 per share pursuant to a subscription
received in October, 1996 15,000 2 1,498 1,500 -
$0.50 per share pursuant to a subscription
received in April, 1997 1,000 1 499 500 -
Issued for settlement of debt:
$0.365 per share agreed price - February, 1997 24,000 2 8,758 8,760 -
$0.50 per share - April, 1997 45,000 4 22,496 22,500 -
Issuance of stock in acquisitions of subsidiaries (Note 4):
At a fair value of $0.10 per share to acquire a
100% interest in:
Blue Crow Internet Co. Ltd. 125,000 13 12,487 12,500 -
World-Tel Internet (Toronto) Ltd. 342,000 34 34,166 34,200 -
YesIC Communications Inc. 3,115,000 311 311,189 311,500 -
Net loss for the period - - - - (150,694)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance as at May 31, 1997 3,667,000 367 391,094 391,461 (150,694)
Issued for cash:
$0.10 per share pursuant to a private placement 600,000 60 59,940 60,000 -
$0.50 per share pursuant to a private placement 499,000 50 249,450 249,500 -
Net loss for the year - - - - (557,207)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance as at May 31, 1998 4,766,000 477 700,484 700,961 (707,901)
Issued for cash pursuant to two private placements at
$0.75 per share 797,150 80 597,782 597,862 -
Issued for services at a fair market value at
$0.75 per share 76,500 7 57,368 57,375 -
- -----------------------------------------------------------------------------------------------------------------------------------
Balance as at February 17, 1999, prior to reverse takeover 5,639,650 564 1,355,634 1,356,198 (707,901)
===================================================================================================================================
</TABLE>
(See accompanying notes)
30
<PAGE>
Information-Highway.com, Inc.
(formerly Florida Venture Fund, Inc.)
Consolidated Statements of Stockholders' Equity (continued)
<TABLE>
<CAPTION>
Common Stock
---------------------------------------
Information-Highway.com, Inc. - capital stock section No. of Additional
from May 31, 1996 to May 31, 1999 Shares Par Value Paid-in
Issued $.0001 Capital Total Deficit
$ $ $ $
<S> <C> <C> <C> <C> <C>
Balance May 31, 1996, 1997, 1998 and prior to
reverse takeover on February 17, 1999 1,979,500 198 28,530 28,728 (28,728)
Reverse takeover adjustments (Note 3)
Cancellation of shares for no
consideration (1,659,833) (166) 166 - -
Elimination of deficit - - (28,728) (28,728) 28,728
Deficit of Information Highway,
Inc. as at May 31, 1998 (707,901)
Issuance or allotment of shares to effect
reverse takeover (see table above) 5,639,650 564 1,355,634 1,356,198 -
Cost of reverse takeover transaction - - (100,000) (100,000) -
Shares issued for cash pursuant to a private
placement at $0.75 per share 15,000 1 11,249 11,250 -
Shares issued pursuant to stock options
exercised at $0.75 per share 27,334 3 20,497 20,500 -
Shares issued pursuant to stock options
exercised at $0.50 per share 210,000 21 104,979 105,000 -
Shares issued for services at a fair market
value of $0.75 per share 5,000 - 3,750 3,750 -
Shares issued for services at a fair market
value of $5.00 per share 10,000 1 49,999 50,000 -
Shares issued for property at a fair market
value of $4.00 per share 3,000 1 11,999 12,000 -
Shares issued pursuant to warrants
exercised at $1.00 per share 240,300 24 240,276 240,300 -
Net loss for the year (948,873)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance as at May 31, 1999 6,469,951 647 1,698,351 1,698,998 (1,656,774)
===================================================================================================================================
</TABLE>
(See accompanying notes)
31
<PAGE>
Information-Highway.com, Inc.
(formerly Florida Venture Fund, Inc.)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended May 31,
------------------------------
1999 1998
$ $
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss (948,873) (557,207)
Adjustments to reconcile net loss to cash
Depreciation and amortization 89,776 57,611
Amortization of goodwill 159,748 159,745
Financial services paid for by issuing shares 111,125 -
Change in non-cash working capital items
(Increase) decrease in accounts receivable 4,442 (2,814)
(Increase) decrease in prepaid expenses (67,486) 2,275
(Increase) in inventory (9,695) -
Increase in accounts payable and accrued liabilities 125,822 147,133
Increase (decrease) in deferred revenues 14,049 (4,495)
- ---------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (521,092) (197,752)
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Common stock (net of finders fee paid) 862,925 223,488
Increase (decrease) in related party advances (196,598) 110,345
- ---------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 666,327 333,833
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Capital expenditures for property and equipment (138,515) (108,983)
- ---------------------------------------------------------------------------------------------------------------------------
Net Cash to Investing Activities (138,515) (108,983)
- ---------------------------------------------------------------------------------------------------------------------------
Translation Adjustments (4,797) 3,654
- ---------------------------------------------------------------------------------------------------------------------------
Increase in Cash During the Period 1,923 30,752
Cash - Beginning of Period 35,699 4,947
- ---------------------------------------------------------------------------------------------------------------------------
Cash - End of Period 37,622 35,699
===========================================================================================================================
Non-Cash Financing Activities
The Company issued 91,500 shares for financial services 111,125 -
The Company issued 3,000 shares for property 12,000 -
- ---------------------------------------------------------------------------------------------------------------------------
123,125 -
===========================================================================================================================
Supplemental Disclosures:
Interest paid - -
Income taxes paid - -
===========================================================================================================================
</TABLE>
(See accompanying notes)
32
<PAGE>
Information-Highway.com, Inc.
(formerly Florida Venture Fund, Inc.)
Notes to Consolidated Financial Statements
1. Nature of Operations, Reorganization and Continuance of Business
Florida Venture Fund, Inc. (the "Company" or "FVFI") was incorporated
December 5, 1988 in the state of Florida. The Company has the authority to
issue 50,000,000 common shares of $.0001 par value. The Company may
transact any and all lawful business for which corporations may be
incorporated under the Florida General Corporation Act.
During 1997, the Company's common stock was submitted for quotation on the
OTC Bulletin Board System and was assigned the trading symbol FVFL.
From incorporation to February 17, 1999 the Company did not engage in any
business activity other than initial organization, initial financing and
some business investigation activities.
Pursuant to a letter agreement dated February 17, 1999, the Company
completed an Agreement and Plan of Reorganization with Information Highway,
Inc., herein "IHI", whereby a business combination was completed and all of
the outstanding common stock of Information Highway, Inc. was, or will be,
exchanged for common shares of the Company representing a change of control
of the Company by way of reverse takeover, see Note 3. As part of the Plan
of Reorganization the Company's name was changed to Information-
Highway.com, Inc.
IHI was incorporated in the State of Washington on October 15, 1996. See
Note 4 regarding IHI's acquisition of three Canadian operating subsidiaries
in the business of providing access to the Internet and providing services,
including on-line publishing, to individual and corporate subscribers.
IHI emerged from being a development stage company during its fiscal year
ended May 31, 1998. In a development stage company, management devoted most
of its activities to establishing the business. Planned principal
activities have started producing significant revenues, however, the
Company has experienced start-up losses from October 15, 1996 (Inception)
to May 31, 1999 totalling $1,656,774 and has a working capital deficit as
at May 31, 1999 of $313,861. There is risk that the Company's ability to
continue as a going concern could be in jeopardy based on these factors.
The ability of the Company to continue as a going concern is dependent upon
its successful efforts to raise additional equity financing, and further
develop the market for its products and services. As discussed in Note 11
the Company has raised in excess of $750,000 to improve its working capital
situation.
2. Significant Accounting Policies
Consolidated Financial Statements
These consolidated financial statements include the accounts of the Company
and its wholly owned US subsidiary, Information Highway, Inc. which owns
three consolidated, wholly-owned, Canadian subsidiaries, see Note 4. As IHI
was the acquirer in a reverse takeover business combination culminating on
February 17, 1999, its fiscal year-end of May 31 will be the Company's new
fiscal year-end and the business of IHI will be the business reported for
all comparative purposes, including the statements of operations and cash
flows. See Note 3 for a discussion on this business combination and reverse
takeover accounting. Prior to the reverse takeover transaction the
Company's fiscal year end was December 31.
Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities in
the financial statements and accompanying notes. Actual results could
differ from those estimates.
Reclassification
Certain amounts in the financial statements have been reclassified to be
consistent and comparable from year-to-year.
Cash and Cash Equivalents
33
<PAGE>
Cash and cash equivalents include cash on hand, in banks and all highly
liquid investments with a maturity of three months or less when purchased.
2. Significant Accounting Policies (continued)
Concentration of Credit Risk
The Company does not have any concentrations of credit risk as the majority
of its customers prepay for services. For those instances when credit is
extended it is based on an evaluation of the customer's financial
condition, and generally collateral is not required. The Company does not
have any customers that account for in excess of 10% of income.
The Company places its temporary cash investments with high credit quality
financial institutions and limits the amount of credit exposure to any one
financial institution.
Inventory
Inventory is comprised of finished goods purchased to resell over the
Internet. Finished goods are carried at the lower of landed cost or net
realizable value.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed
utilizing the declining balance method over an estimated useful life of the
related asset category. Computer equipment and software and production
equipment is depreciated at 30% per annum and furniture and office
equipment at 20%. Leasehold improvements are amortized over ten years
utilizing the straight-line method.
Long-Lived Assets
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards (SFAS) No. 121
"Accounting for the Impairment of Long-Lived Assets".
Goodwill is a long-lived asset representing the excess of purchase
consideration over fair market value of net identifiable assets acquired,
and is amortized on a straight-line basis over its estimated useful life.
Goodwill is evaluated in each reporting period to determine if there were
events or circumstances which would indicate a possible inability to
recover the carrying amount. Such evaluation is based on various analyses
including undiscounted future cash flows which necessarily involves
significant management judgement.
Financial Instruments
The fair value of the Company's current assets and current liabilities were
estimated to approximate their carrying values due to the immediate or
short-term maturity of these financial instruments. The Company operates in
Canada and virtually all of its assets and liabilities are giving rise to
significant exposure to market risks from changes in foreign currency
rates. The financial risk is the risk to the Company's operations that
arise from fluctuations in foreign exchange rates and the degree of
volatility of these rates. Currently, the Company does not use derivative
instruments to reduce its exposure to foreign currency risk.
Revenue Recognition and Deferred Revenues
Revenue consists of the provision of Internet dial-up services, banner
advertisements, web-site development and hosting and E-Commerce revenue
sharing with various Internet partners.
Revenue is recognized at the time services are provided. All related costs
are recognized in the period in which they occur. Customers deposits for
Internet dial-up services to be provided in the future are treated as
deferred revenues.
Cost of Revenue
Cost of revenue consists primarily of the cost of serving the Company's
Internet dial-up service customers and the cost of developing web-sites for
customers. Cost associated with above revenue generating activities
consists of salaries for technical support and customer service,
depreciation of Internet dial-up and web-site hosting equipment, license
fees, equipment leasing costs, telephone line costs and rent to house
equipment and staff directly involved in serving customers.
Product Development Costs
Product development costs consist of expenses incurred by the Company in
the development and creation of its Executive Site(TM) Web-Site. Product
development costs include compensation and related expenses for
programmers, depreciation of computer hardware and software, rent,
telephone and costs incurred in developing features and functionality of
the service. Product development costs are expensed as incurred.
34
<PAGE>
2. Significant Accounting Policies (continued)
Accounting for Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," requires that
stock awards granted subsequent to January 1, 1995, be recognized as
compensation expense based on their fair value at the date of grant.
Alternatively, a company may account for granted stock awards under
Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock
Issued to Employees," and disclose pro forma income amounts which would
have resulted from recognizing such awards at their fair value. The Company
has elected to account for stock-based compensation expense under APB No.
25 and make the required pro forma disclosures for compensation expense
(see Note 7).
Foreign Exchange
All of the Company's Canadian operating subsidiaries are operationally and
financially independent of the parent and are considered self-sustaining.
As such, the current rate method is used whereby assets and liabilities are
translated into United States dollars at exchange rates in effect at the
balance sheet dates. Shareholders' equity accounts are translated using
historical exchange rates. Income and expense items are translated at
average exchange rates for the periods. Accumulated net translation
adjustments are included as a separate component of shareholders' equity.
Current monetary assets and liabilities of the Company which are
denominated in foreign currencies are translated at the exchange rate in
effect at the balance sheet dates. Revenues and expenses are translated at
rates of exchange prevailing on the transaction dates. Exchange gains or
losses on the realization of current monetary assets and the settlement of
current monetary liabilities are recognized currently to operations. The
gain or loss realized on these transactions amounted to a gain of $119 for
fiscal 1999 and a loss of $2,992 for fiscal 1998.
Income Taxes
The Company has adopted the provisions of Financial Accounting Standards
Board Statement No. 109 (SFAS 109), Accounting for Income Taxes. SFAS 109
requires that deferred taxes reflect the tax consequences on future years
of differences between the tax bases of assets and liabilities and their
financial reporting amounts. At the date of adoption of SFAS 109, there was
no material effect on the Company's financial statements.
Pursuant to SFAS 109 the Company is required to compute tax asset benefits
for net operating loss carry forwards. Potential benefit of net operating
losses has not been recognized in the financial statements because the
Company cannot be assured that it is more likely than not that it will
utilize the net operating loss carry forwards in future years.
The Company's Canadian subsidiaries have Canadian tax losses of $482,000 to
offset future years Canadian taxable income. These losses expire as
follows:
$
2003 3,000
2004 66,000
2005 138,000
2006 275,000
The Company and the Company's US subsidiary have US tax losses of $903,000
to offset future years US taxable income. These losses expire as follows:
$
2012 61,000
2013 286,000
2014 556,000
The components of the net deferred tax asset, the statutory tax rate, the
effective tax rate and the elected amount of the valuation allowance are
scheduled below:
1999 1998
$ $
Net Combined Operating Losses 835,000 424,000
Statutory Combined Canadian and US Tax Rate 39% 37%
Effective Tax Rate - -
Deferred Tax Asset 328,000 157,000
Valuation Allowance (328,000) (157,000)
Net Deferred Tax Asset - -
=========================
35
<PAGE>
2. Significant Accounting Policies (continued)
Basic and Diluted Net Income (Loss) per Share
The Company computes net income (loss) per share in accordance with SFAS
No. 128, "Earnings per Share" (SFAS 128). SFAS 128 requires presentation of
both basic an diluted earnings per share (EPS) on the face of the income
statement. Basic EPS is computed by dividing net income (loss) available to
common shareholders (numerator) by the weighted average number of common
shares outstanding (denominator) during the period. Diluted EPS gives
effect to all dilutive potential common shares outstanding during the
period including stock options, using the treasury stock method, and
convertible preferred stock, using the if-converted method. In computing
Diluted EPS, the average stock price for the period is used in determining
the number of shares assumed to be purchased from the exercise of stock
options or warrants. Diluted EPS excludes all dilutive potential common
shares if their effect is anti dilutive.
New Accounting Pronouncements
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 (SFAS 130), Reporting Comprehensive Income.
This statement requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same
prominence as other financial statements. Comprehensive income is the same
as net income for all periods presented.
Effective January 1, 1998, the Company adopted Statement of Accounting
Standards No. 131 (SFAS 131), Disclosures about Segments of an Enterprise
and Related Information. This statement requires the Company to report
income/loss, revenue, expense and assets by business segment including
information regarding the revenues derived from specific products and
services and about the countries in which the Company is operating. The
Statement also requires that the Company report descriptive information
about the way that operating segments were determined, the products and
services provided by the operating segments, differences between the
measurements used in reporting segment information and those used in the
Company's general-purpose financial statements and changes in the
measurement of segment amounts from period to period. As noted above this
statement establishes standards for reporting and display and has no
material effect on the Company's financial condition or results of
operations.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132 (SFAS 132), Employers' Disclosures about Pensions and
other Post Retirement Benefits. This statement standardizes the disclosure
requirements for pension and other post retirement benefits. The Company
typically does not offer the types of benefit programs that fall under the
guidelines of this statement.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging
Activities. This statement establishes accounting and reporting standards
for derivative instruments and requires recognition of all derivatives as
assets or liabilities in the statement of financial position and
measurement of those instruments at fair value. The statement is effective
for fiscal years beginning after June 15, 1999. The Company does not have
any derivative instruments and has not entered into any hedging activities.
3. Business Combination
Pursuant to an Agreement and Plan of Reorganization entered into on
February 17, 1999 and completed on February 23, 1999 between the Company,
Information Highway, Inc. ("IHI") and certain shareholders of IHI, the
Company acquired 3,235,000 common shares of IHI out of a total of 5,639,650
issued and outstanding common shares in exchange for 3,235,000 common
shares of the Company. It is the Company's intention to complete the
exchange of shares of its common stock for the remaining and outstanding
common shares of IHI on a one for one basis. As of September 15, 1999,
2,235,150 of the 2,404,650 IHI shares had been exchanged for the same
number of Company shares. In total, to September 15, 1999 97% of IHI shares
had been exchanged. The Company has allotted 169,500 shares in anticipation
of the remaining shares of IHI being exchanged. As part of the Agreement
and Plan of Reorganization the Company caused 1,659,833 of its 1,979,500
common shares that were issued and outstanding, prior to the closing, to be
cancelled and assumed the obligations of IHI to issue common shares
pursuant to warrants and stock options issued by IHI. IHI paid $100,000 to
the controlling shareholder of the Company to effect the Agreement and Plan
of Reorganization including the cancellation of 1,659,833 shares.
36
<PAGE>
3. Business Combination (continued)
For accounting purposes the acquirer is IHI, as 95% of the issued and
outstanding common shares of the Company are owned by the shareholders of
IHI and the entire Board of Directors of the Company is now comprised of
the entire Board of Directors of IHI. As IHI is the legal subsidiary of the
Company the nature of the business combination is a reverse takeover
whereby the control of the Company is acquired by IHI and the consolidated
financial statements are issued under the name of the Company but is a
continuation of IHI and not the Company. The legal capital structure
remains that of the Company but the shareholders' equity of IHI has
replaced the shareholders' equity of the Company. Similarly, the Company's
income statements and statements of cash flows represent a continuation of
IHI's consolidated financial statements.
The accounting treatment of the reverse takeover is based on the following
consideration that was paid to shareholders of the Company:
$
Cash paid to the controlling shareholder of FVFI 100,000
Net liabilities of FVFI assumed at book value -
Value attributed to the 319,667 shares of FVFI not cancelled -
---------
100,000
=========
The $100,000 payment to the controlling shareholder of FVFI has been
treated, for accounting purposes, as a reduction of additional paid in
capital and not as goodwill as the nature of the transaction was for IHI to
obtain a listing on the OTC Bulletin Board by way of reverse takeover. The
cost is associated with publicly listing shares and not with any business
associated with FVFI.
4. Business Combinations of Information Highway, Inc. Prior to the Reverse
Takeover
Information Highway, Inc. acquired three operating Canadian subsidiaries
during the period December, 1996 to February 28, 1997, in the business of
providing access to the Internet and providing services, including on-line
publishing, to individual and corporate subscribers. The acquisitions were
accounted for using the purchase method of accounting for business
combinations. IHI issued 3,582,000 of its common shares at a fair market
value of $0.10 per share and $27,380 as cash consideration for all three
acquisitions. In total, IHI assumed net liabilities of $113,663. The excess
of the purchase price over the fair market value of net liabilities
assumed, totalling $499,243, was allocated to goodwill. Details of
liabilities assumed and assets acquired are as follows:
$
(i) Consideration
Capital stock of IHI issued (3,582,000 at $.10) 358,200
Cash paid 27,380
- -------------------------------------------------------------------------------
385,580
- -------------------------------------------------------------------------------
$
(ii) Net liabilities assumed
Liabilities assumed
Accounts payable 43,080
Unearned revenue 20,000
Loans from directors 37,853
Loans from affiliated companies 127,491
- -------------------------------------------------------------------------------
228,424
- -------------------------------------------------------------------------------
Assets acquired
Cash received in combination (7,055)
Accounts receivable (1,711)
Capital assets (105,995)
- -------------------------------------------------------------------------------
(114,761)
- -------------------------------------------------------------------------------
Net liabilities assumed 113,663
- -------------------------------------------------------------------------------
(iii) Excess of cost over book value 499,243
===============================================================================
37
<PAGE>
4. Business Combinations of Information Highway, Inc. Prior to the Reverse
Takeover (continued)
The excess of cost over book value, totalling $499,243, was allocated to
goodwill as there were no other fair market value adjustments to non-
monetary assets or other identifiable intangible assets. Goodwill has been
capitalized and is being amortized over its estimated useful life of three
years.
1999 1998
Accumulated Net Book Net Book
Cost Amortization Value Value
$ $ $ $
Goodwill 499,243 364,395 134,848 294,598
===============================================================================
5. Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization.
<TABLE>
<CAPTION>
Accumulated 1999 1998
Depreciation and Net Book Net Book
Cost Amortization Value Value
$ $ $ $
<S> <C> <C> <C> <C>
Computer equipment and software 365,550 157,630 207,920 172,827
Office furniture and equipment 45,883 14,214 31,669 26,115
Production equipment (Note 6(f)) 25,000 3,750 21,250 -
Leasehold improvements 11,567 2,314 9,253 10,411
- ------------------------------------------------------------------------------------------------------------------------------------
448,000 177,908 270,092 209,353
====================================================================================================================================
Depreciation and amortization per class
of asset:
1999 1998
$ $
Computer equipment and software 75,508 51,833
Office furniture and equipment 6,345 4,622
Production equipment 3,750 -
Leasehold improvements 1,158 1,156
- ------------------------------------------------------------------------------------------------------------------------------------
86,761 57,611
====================================================================================================================================
</TABLE>
6. Related Party Transactions
(a) Amounts owing to the President and director of the Company and
affiliated companies under the President's control are from short-term
cash loans, are due on demand, unsecured and non-interest bearing. The
Company intends on repaying a portion or all of these debts in the
next fiscal year. These cash loans were recorded at their exchange
amounts.
(b) The President and director of the Company was also President and a
director of World-Tel and Chief Executive Officer and a director of
YesIC prior to their acquisition, see Note 4. These two business
combinations were recorded at the fair value of shares issued at the
time of acquisition which approximated fair value of shares being
issued at the time to arms length parties for cash consideration.
(c) Pursuant to a Management Agreement dated December 1, 1998 between IHI
and a company related to the President of IHI, the Company is
committed to pay management fees of $2,500 per month and rent and
secretarial fees of $1,500 per month for a term of three years
expiring December 1, 2001.
(d) A partnership, of which a director of the Company is a partner, was
paid $91,182 cash (1998 - $19,562) for legal services rendered during
the year.
(e) Certain officers and/or directors or Company's related to officers
and/or directors of the Company have participated in various private
placements from inception to date.
38
<PAGE>
6. Related Party Transactions (continued)
(f) Finished goods inventory was acquired from a public company with
common Presidents pursuant to a Marketing Agreement dated January 20,
1999. The Company has the exclusive worldwide rights to market the
product over the Internet. The Company paid $25,000 for production
equipment and $7,000 for certain components. The agreement is for five
years subject to minimum annual sales criteria.
7. Common Stock Issuances and Related Commitments
Pursuant to the Agreement and Plan of Reorganization the Company assumed
all common stock obligations of IHI as they relate to stock based
compensation plans and warrants issued to acquire common shares.
Private Placements
IHI approved and completed two private placements of units and issued
812,150 units at $0.75 per unit to raise $609,112. These units were issued
between October and December, 1998. Each unit contained one share and one
warrant to acquire one additional share at $1.00 if exercised between
October and December, 1999. Of the 812,150 warrants issued 270,300 warrants
were exercised as at May 31, 1999 for proceeds of $270,300 and 171,200
warrants were exercised subsequently for proceeds of $171,200.
The proceeds of the above private placements were allocated 100% to the
common shares issued; no amount was allocated to warrants as the warrant
price was set higher than fair market value and there is a one year hold
period on these shares and no market for the warrants.
Stock Option Plan
On June 30, 1997, and amended on May 21, 1999, IHI reserved 2,500,000
common shares pursuant to a stock option plan. On January 26, 1998 the
Company granted stock options to certain directors and employees to acquire
725,000 shares at $0.50 per share expiring January 26, 2003. Stock options
granted to certain employees to acquire 145,000 common shares at $0.50 per
share were cancelled. Stock options were granted to certain directors,
officers and employees to acquire 295,000 common shares at $0.75 per share
expiring five years after grant date being between August 14, 2003 and
February 23, 2004.
May 31, 1998
<TABLE>
<CAPTION>
May 31, Price Granted Exercised (E) May 31, Expiry Date
1997 $ # Cancelled (C) 1998
# #
<S> <C> <C> <C> <C> <C>
Nil 0.50 725,000 (145,000)(C) 580,000 January, 2003
======= ======= ============= =========
May 31, 1999
<CAPTION>
May 31, Price Granted Exercised (E) May 31, Expiry Date
1998 $ # Cancelled (C) 1999
# #
<S> <C> <C> <C> <C> <C>
580,000 0.50 - (210,000)(E) 370,000 January, 2003
- 0.75 295,000 (27,334)(E) 267,666 August, 2003 to February, 2004
- 4.00 600,000 - 600,000 May, 2004
------- ------- ------------- ---------
580,000 895,000 (237,334) 1,237,666
======= ======= ============= =========
Subsequent to May 31, 1999
<CAPTION>
May 31, Price Granted Exercised (E) August 31, Expiry Date
1999 $ # Cancelled (C) 1999
# #
<S> <C> <C> <C> <C> <C>
370,000 0.50 - 85,000 (E) 285,000 January, 2003
267,666 0.75 - 50,000 (E) 217,666 August, 2003 to February, 2004
600,000 4.00 100,000 - 700,000 May to June, 2004
5.00 275,000 150,000 (C) 125,000 June, 2004
--------- ------- ------- ---------
1,237,666 375,000 285,000 1,327,666
========= ======= ======= =========
</TABLE>
39
<PAGE>
7. Common Stock Issuances and Related Commitments (continued)
Stock Option Plan (continued)
The options are granted for services provided to the Company. Statement of
Financial Accounting Standards No. 123 ("SFAS 123") requires that an
enterprise recognize, or at its option, disclose the impact of the fair
value of stock options and other forms of stock based compensation in the
determination of income. The Company has elected under SFAS 123 to continue
to measure compensation cost on the intrinsic value basis set out in APB
Opinion No. 25. As options are granted at exercise prices based on the
market price of the Company's shares at the date of grant, no compensation
cost is recognized. However, under SFAS 123, the impact on net income and
income per share of the fair value of stock options must be measured and
disclosed on a fair value based method on a pro forma basis.
The fair value of the employee's purchase rights under SFAS 123, was
estimated using the Black-Scholes model with the following assumptions used
for grants on January 26, 1998: risk free interest rate was 5.47%, expected
volatility of 20%, an expected option life of six months and no expected
dividends; and for grants between August 14, 1998 and February 23, 1999, as
a group: risk free interest rate was 5.27%, expected volatility of 20%, an
expected option life of six months and no expected dividends; and for grants
between May 19, 1999 and June 23, 1999, as a group: risk free interest rate
was 5.27%, expected volatility of 20%, an expected option life of six months
and no expected dividends.
If compensation expense had been determined pursuant to SFAS 123, the
Company's net loss and net loss per share for the years ended May 31, 1999
and 1998 would have been as follows:
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C>
Net loss
As reported (948,873) (557,207)
Pro forma (988,993) (570,779)
Basic net loss per share
As reported (.18) (.14)
Pro forma (.18) (.15)
</TABLE>
8. Commitments and Contingent Liability
(a) Commitments
The Company is committed to making the following lease or contract
payments for the next five fiscal years:
<TABLE>
<CAPTION>
For the years ended May 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000 2001 2002 2003 2004
$ $ $ $ $
Management consulting 30,000 17,500 -- -- --
Equipment leases 21,417 -- -- -- --
Licence fees 8,333 -- -- -- --
Premises leases 35,446 36,473 32,417 26,044 21,409
------------------------------------------------------
95,196 53,973 32,417 26,044 21,409
======================================================
</TABLE>
(b) Contingent Liability - Lawsuit
A Writ of Summons and Statement of Claim was filed against the Company
in the Supreme Court of British Columbia in April 1999 by a former
employee and spouse of the employee (the "Plaintiffs"). The employee
was retained by the Company as a consultant on or about December 1996
and was subsequently terminated for cause by the Company in December
1997. The Plaintiffs are seeking monetary damages related to the
alleged remuneration pursuant to the agreement and a stock option
between the Company and the employee. The total damages claimed amounts
to $597,000 including alleged unpaid remuneration and a stock option
benefit. The plaintiff's are also claiming 5% of business revenue from
the operating subsidiary in Vancouver, Canada. This subsidiary operated
at a net loss from operations during the period from acquisition in
December 1996 to date. Management believes that the Plaintiff's alleged
claim is without legal or factual basis and therefore have not accrued
any potential losses resulting from this claim except for legal fees
paid in establishing the defence. The Company intends to vigorously
defend this action.
40
<PAGE>
9. Segmented Information
The Company has adopted SFAS No. 131 Disclosure About Segments of an
Enterprise and related information.
The business of the Company is carried on in one industry segment being the
provision of access to the Internet and providing services, including on-
line publishing, to individual and corporate subscribers.
Up until May 31, 1999 the Company operated in one geographic segment, being
Canada, located in Vancouver, BC and Toronto, Ontario. Subsequent to May 31,
1999 the Company has begun expansion of its ISP business into 22 cities in
the United States by setting up Virtual ISP's.
The Company's head office is in Richmond, BC, Canada. The head office does
not conduct any business specifically related to the Internet . Its sole
purpose is to provide administration, investor relations services and
services relating to being a public company. Included in general and
administrative expenses and net loss is $477,672 (1998 - $159,031) relating
to such activities. The net loss relating to Internet activities in Canada
amounted to $471,201 (1998 - $398,176).
10. Uncertainty Due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the Company,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
11. Subsequent Events
The Company has issued a further 171,200 shares pursuant to warrants
exercised at $1.00 per share for total proceeds of $171,200.
A total of 135,000 shares have been issued pursuant to stock options
exercised at between $0.50 per share and $0.75 per share for proceeds of
$80,000.
On June 23, 1999 stock options were granted to certain employees to acquire
100,000 shares at $4.00 per share and 275,000 shares at $5.00 per share, of
which 150,000 were cancelled.
Subsequent to May 31, 1999 the Company has raised $519,000, pursuant to an
Offering Memorandum, and issued 129,750 units at $4.00 per unit which closed
August 11, 1999. Each unit contained one common share and one Series "A"
Warrant to acquire one additional share at $4.00 per share expiring April
30, 2000 and one Series "B" Warrant to acquire one additional share at $6.00
per share expiring April 30, 2001.
41
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Directors and Executive Officers of the Registrant
The following table sets forth the name, age and position of each Executive
Officer and Director of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
John G. Robertson 58 President, Chief Executive Officer and a member
of the Board of Directors
James L. Vandeberg 56 Vice-President, Chief Operating Officer,
Secretary and a member of the Board of Directors
Jennifer Lorette 27 Vice-President, Chief Financial Officer,
Principal Accounting Officer and a member of the
Board of Directors
</TABLE>
All Directors of the Company have served since the reverse takeover of the
Company in February 1999. The Executive Officers were elected following the
reverse takeover. All executive officers currently devote part-time to the
operation of the Company. The other significant employees devote full-time to
the operation of the Company.
There are no family relationships between any director or executive officer and
any other director or executive officer.
John G. Robertson - President, Chief Executive Officer and a Member of
the Board of Directors
Since June 1997 Mr. Robertson has been President, Chief Executive Officer and a
Director of the Company and its predecessor IHI. Mr. Robertson has been the
President and Principal Executive Officer and a Director of IAS Communications,
Inc., an Oregon corporation traded on the OTC bulletin board, which is
developing a new type of antenna system, since its formation in 1994. Mr.
Robertson has been the Chairman, President and Chief Executive Officer of REGI,
U.S., Inc., an Oregon corporation traded on the OTC bulletin board, since July
1992. Since October 1984 Mr. Robertson has been President and a Director of Reg
Technologies Inc., a British Columbia corporation listed on the Vancouver Stock
Exchange that has financed the research on the Rand Cam Engine (REGI U.S.'s
principal product) since 1986. REGI U.S. is ultimately controlled by Reg
Technologies Inc. Mr. Robertson is also the President and Founder of Teryl
Resources Corp., a public company trading on the Vancouver Stock Exchange
involved in gold, diamond, and oil and gas exploration. He is also President of
Flame Petro Minerals Corp., a
42
<PAGE>
public company trading on the Alberta stock Exchange with interests in oil and
gas and gold prospects. Since May 1977 Mr. Robertson has been President and a
member of the Board of Directors of SMR Investments Ltd., a British Columbia
corporation engaged in the business of management and investment consulting.
James L. Vandeberg - Vice-President, Chief Operating Officer and a
Member of the Board of Directors
Mr. Vandeberg became Vice-President, Chief Operating Officer and a Director of
the Company in February 1999. Mr. Vandeberg became a Director of IAS
Communications, Inc., an Oregon corporation traded on the OTC bulletin board, in
November 1998, and its Chief Operating Officer in August 1999. Mr. Vandeberg is
a partner in the Seattle, Washington law firm of Vandeberg Johnson & Gandara.
He has served as counsel to the Company and its predecessor IHI since 1997. Mr.
Vandeberg's practice focuses on the corporate finance area, with an emphasis on
securities and acquisitions. Mr. Vandeberg was previously general counsel and
secretary of two NYSE companies. He is a member and former director of the
American Society of Corporate Secretaries. He became a member of the Washington
Bar Association in 1969 and of the California Bar Association in 1973. Mr.
Vandeberg graduated cum laude from the University of Washington with a Bachelor
of Arts degree in accounting in 1966, and from New York University School of Law
in 1969, where he was a Root-Tilden Scholar.
Jennifer Lorette - Vice-President, Chief Financial Officer, Principal
Accounting Officer and a member of the Board of Directors
Since June 1997 Ms. Lorette has been Vice-President, Chief Financial Officer,
Principal Accounting Officer and a member of the Board of Directors of the
Company and its predecessor IHI. Since February 1995 Ms. Lorette has been
Secretary/Treasurer, Principal Financial Officer and Principal Accounting
Officer of IAS Communications Inc., an Oregon corporation traded on the OTC
bulletin board. Since June 1994 Ms. Lorette has been Vice President and Chief
Financial Officer of REGI U.S., Inc., an Oregon corporation traded on the OTC
bulletin board. Since April 1994 she has also been Vice President of
Administration for Reg Technologies, Inc., a British Columbia corporation listed
on the Vancouver Stock Exchange. REGI U.S. is ultimately controlled by Reg
Technologies Inc. Since June 1994 Ms. Lorette has also been Chief Financial
Officer and Vice President of Flame Petro-Minerals Corp.
Other Significant Employees
Cristian Rodriguez - Manager of Information Systems and Senior Network
System Administrator
Mr. Rodriguez is 28 years old. He is the Manager of Information Systems and
Senior Network System Adminstrator of the Company, and has held that position
since joining the Company in 1996. Prior to that Mr. Rodriguez was a private
consultant assisting clients with Internet services, networking and computer
hardware. Mr. Rodriguez attended Vancouver Film School and received a
43
<PAGE>
Certificate for 3D Animation.
Kevin Brook - President Toronto Operating Unit
Mr. Brook is 40 years old. He is President of the Toronto operating unit, and
has held that position since joining the Company in 1997. Prior to joining the
Company he was a vice president at Bell Canada in the Global Link division.
Jack Wasserman - Vice-President Toronto Operating Unit
Mr. Wasserman is 50 years old. He is Vice-President of the Toronto operating
unit and has held that position since joining the Company in 1995. Prior to that
Mr. Wasserman was an accountant with World Tel (Toronto) Internet, Inc. Mr.
Wasserman received his accounting designation with Arthur Andersen and Company,
in 1976 in the province of Ontario.
Section 16(a) Beneficial Ownership Reporting Compliance
The Company's officers, directors and beneficial owners of more than ten percent
of the Company's common stock did not have an obligation to file reports under
Section 16(a) of the Securities Exchange Act of 1934 during the fiscal year
ended May 31, 1999, because the Company's registration statement on Form 10-SB
became effective on June 14, 1999. Due to a misunderstanding regarding the
effective status of the Company's Form 10-SB, the Company's officers, directors
and beneficial owners of more than ten percent of the Company's common stock did
not timely file their initial statements of beneficial ownership of securities
on Form 3 due on June 14, 1999.
Item 10. Executive Compensation
The following table sets forth compensation awarded to, earned by or paid to Mr.
Robertson for the designated fiscal years. No executive officer had an annual
salary and bonus in excess of $100,000 during the past three fiscal years. The
information contained in the table relates to the Company's predecessor (now its
subsidiary) prior to the February 1999 reorganization. Pursuant to paragraph
(a)(5) of Item 402 of Regulation S-B, the table omits columns that are not
applicable to Mr. Robertson's compensation.
44
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
(a) (b) (e) (g)
Securities
Other Annual Underlying
Name and Principal Position Year Compensation ($) Options/SARs (#)
<S> <C> <C> <C>
John G. Robertson, President and
Chief Executive Officer 1999 575,500 (1) 300,000
1998 48,000 (2) 150,000
1997 30,000 (3)
</TABLE>
(1) On February 23, 1999 Mr. Robertson exercised 150,000 stock options with an
exercise price of $0.50per share. Based on the closing market price of the
Company's stock of $3.75 on February 24, 1999, its first day of trading,
according to rules of the Securities and Exchange Commission the exercise
resulted in compensation to Mr. Robertson of $487,500.
The Company paid Access Information Services, Inc. a management fee of
$2,500 per month and an additional $1,500 per month for rent and
secretarial services each month. Access Information Services, Inc. is a
corporation owned by a trust of which Mr. Robertson is one of three voting
trustees and of which Kelly Robertson, Mr. Robertson's daughter, is the
beneficiary. The Company has disclosed the entire amount of these payments,
$48,000, as other compensation paid to Mr. Robertson, due to his shared
control over the trust, even though he will not receive this amount in
cash.
(2) The Company paid Access Information Services, Inc. a management fee of
$2,500 per month and an additional $1,500 per month for rent and
secretarial services each month. Access Information Services, Inc. is a
corporation owned by a trust of which Mr. Robertson is one of three voting
trustees and of which Kelly Robertson, Mr. Robertson's daughter, is the
beneficiary. The Company has disclosed the entire amount of these payments,
$48,000, as other compensation paid to Mr. Robertson, due to his shared
control over the trust, even though he will not receive this amount in
cash.
(3) The Company paid Access Information Services, Inc. a management fee of
$2,500 per month and an additional $1,500 per month for rent and
secretarial services each month from inception (October 15, 1996). Access
Information Services, Inc. is a corporation owned by a trust of which Mr.
Robertson is one of three voting trustees and of which Kelly Robertson, Mr.
Robertson's daughter, is the beneficiary. The Company has disclosed the
entire amount of these payments, $30,000, as other compensation paid to Mr.
Robertson, due to his shared control over the trust, even though he will
not receive this amount in cash.
45
<PAGE>
The following table sets forth certain information concerning grants of stock
options pursuant to stock option plans to the named Executive Officer during the
year ended May 31, 1999.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
<TABLE>
<CAPTION>
(a) (b) (c) (d) (d) (e)
% of Total
Number of Options/ Market Price
Securities SARs Granted of
Underlying to Employees Underlying
Options/ in Fiscal Exercise Security on Expiration
Name SARs Granted Year Price Grant Date Date
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
John G. Robertson 300,000 50.4% $4.00 $4.50 May 21, 2004
</TABLE>
The following table sets forth certain information concerning exercises of stock
options pursuant to stock option plans by the named Executive Officer during the
year ended May 31, 1999 and stock options held at year end.
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of Securities
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
Shares
Acquired on Value Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John G. Robertson 150,000 487,500 300,000/-0- -0-(1)/-0-
</TABLE>
(1) Mr. Robertson's 300,000 options were not in-the-money based on the May 28,
1999 closing price of $3.75 for the Company's common stock.
The Company does not have any Long Term Incentive Plans. Directors receive no
compensation for their service as such, although they do receive reimbursement
for reasonable expenses incurred in attending meetings of the Board of
Directors. In addition to the options granted to Mr. Robertson, Ms. Lorette and
Mr. Vandeberg each were granted options to purchase 50,000 shares of the
Company's common stock, due in part to their service as directors. Ms.
Lorette's options, granted during fiscal year 1998, are fully vested, have an
exercise price of $0.50 per share and must be exercised by January 26, 2003.
Mr. Vandeberg's options, granted during fiscal year
46
<PAGE>
1999, are fully vested, have an exercise price of $0.75 per share and must be
exercised by January 18, 2004. The Company has no obligation or policy to grant
stock options to directors.
The Company may in the future create retirement, pension, profit sharing,
insurance and medical reimbursement plans covering its Officers and Directors.
At the present time, no such plans exist. No advances have been made or are
contemplated by the Company to any of its Officers or Directors.
The Company does not have any employment contracts, termination of employment
and change of control arrangements.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of August 31, 1999 and assuming exchange of
all shares of PrivCo for shares of the Company as of February 23, 1999, the
outstanding Common Stock of the Company owned of record or beneficially by each
Executive Officer and Director and by each person who owned of record, or was
know by the Company to own beneficially, more than 5% of the Company's Common
Stock, and the shareholdings of all Executive Officers and Directors as a group.
<TABLE>
<CAPTION>
Percentage of
Name Shares Owned Shares Owned
- --------------------------------------------------------------------------------------
<S> <C> <C>
John G. Robertson (1)(2) President and member of
the Board of Directors 3,209,000 46.7%
- --------------------------------------------------------------------------------------
Jennifer Lorette (1)(3)
Executive Vice President, Secretary/Treasurer,
Chief Financial Officer and Principal Accounting
Officer, and member of the Board of Directors 149,500 2.2%
- --------------------------------------------------------------------------------------
James L. Vandeberg (1)(3), member of the Board of
Directors 76,000 1.1%
- --------------------------------------------------------------------------------------
Robertson Family Trust (4) 2,614,000 38.0%
- --------------------------------------------------------------------------------------
Access Information Systems Inc. (5) 564,000 8.2%
- --------------------------------------------------------------------------------------
Kevin Brook (6) 405,000 5.9%
- --------------------------------------------------------------------------------------
Jack Wasserman (6) 430,000 6.3%
- --------------------------------------------------------------------------------------
ALL EXECUTIVE OFFICERS & DIRECTORS
AS A GROUP (Three Individuals) (7) 3,434,500 50.0%
- --------------------------------------------------------------------------------------
</TABLE>
Except as noted below, all shares are held of record and each record shareholder
has sole voting and investment power.
(1) These individuals are the Executive Officers and Directors of the Company
and may be deemed to be "parents or founders" of the Company as that term
47
<PAGE>
is defined in the Rules and Regulations promulgated under the 1933 Act.
(2) Includes 2,614,000 shares owned or controlled by the Robertson Family
Trust, 70,000 shares owned of record by SMR Investments, Ltd, a corporation
controlled by Susanne Robertson, wife of Mr. Robertson, 20,000 shares owned
of record by Mrs. Robertson, and 300,000 options that are currently
exercisable. Mr. Robertson is one of three trustees of the Robertson Family
Trust, which acts by the majority vote of the three trustees. Mr. Robertson
disclaims beneficial ownership of the shares owned or controlled by the
Robertson Family Trust. Mr. Robertson's address is the same as the
Company's.
(3) Includes 50,000 options that are currently exercisable. Ms. Lorette's
address is the same as the Company's. Mr. Vandeberg's address is Vandeberg
Johnson & Gandara, One Union Square, Suite 2424, Seattle, Washington.
(4) Includes 564,000 shares owned of record by Access Information Services, a
corporation owned by the trust. The address of the Robertson Family Trust
is 185 - 10751 Shellbridge Way, Richmond, British Columbia V6X 2W8, Canada.
The trust acts by majority vote of its three trustees: (1) Mr. Robertson;
(ii) Susanne Robertson, Mr. Robertson's wife, 4040 Amundsen Place,
Richmond, BC V7C 4L8; and (iii) Eric Hanson, 4620 Britannia St., Richmond,
B.C. The sole beneficiary is Kelly Robertson, daughter of Mr. and Mrs.
Robertson, #401 12633 No. 2 Road, Richmond, B.C. V7E 6N5.
(5) Access Information Services is a corporation owned by the Robertson Family
Trust. Its address is 185 - 10751 Shellbridge Way, Richmond, British
Columbia V6X 2W8, Canada.
(6) Includes 75,000 options that are currently exercisable. Messrs. Brook's
and Wasserman's address is the same as the Company's.
(7) Includes 400,000 options that are currently exercisable. Also see Note (2)
above regarding share ownership attributed to Mr. Robertson.
Changes in Control
There are no arrangements known to the Company the operation of which may result
in a change of control of the Company.
Item 12. Certain Relationships and Related Transactions
At May 31, 1999 and 1998 the Company owed the amounts set forth below to the
following affiliated companies:
<TABLE>
<CAPTION>
May 31,
------------------------
Affiliate 1999 1998 Nature of Affiliation
- -------------------------- --------- --------- -------------------------------
<S> <C> <C> <C>
Access Information Systems $ 50,554 $ 37,500 (1)
JGR Petroleum, Inc. $ 6,000 $ 27,155 Controlled by John G. Robertson
Reg Technologies, Inc. $ 12,895 $ 2,285 (2)
SMR Investment Ltd $ 33,527 $ 199,414 (3)
</TABLE>
(1) See Item 11, Security Ownership of Certain Beneficial Owners and
Management, the table thereunder and the notes thereto.
(2) Reg Technologies Inc. is a British Columbia corporation listed on the
Vancouver Stock Exchange. Since October 1984 Mr. Robertson has been
President and a Director of Reg Technologies Inc. SMR Investment Ltd., a
British Columbia corporation, holds a controlling interest in Reg
Technologies Inc. Since May 1977 Mr. Robertson has been President and a
member of the Board of Directors of SMR Investment Ltd. Susanne M.
Robertson, Mr. Robertson's wife, owns SMR Investment Ltd.
(3) Since May 1977 Mr. Robertson has been President and a member of the Board
of Directors of SMR Investment Ltd. Susanne M. Robertson, Mr. Robertson's
wife, owns SMR Investment Ltd.
The indebtedness is unsecured and non-interest bearing.
Vandeberg Johnson & Gandara, a law firm in which James L. Vandeberg, a Director,
is a partner, was paid $91,182 for legal services during the year ended May 31,
1999.
Mr. Robertson and Ms. Lorette could be considered promoters of the Company.
48
<PAGE>
Their interests in the Company, including the details of their stock options,
are disclosed above. See "Security Ownership of Certain Beneficial Owners and
Management" and "Executive Compensation".
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ---------------- ------------------------------------------------------------- ------------
<C> <S> <C>
2.1* Agreement and Plan of Reorganization between the Company and
Information Highway, Inc.
4.1* Specimen Share Certificate for Common Stock
4.2* Form of Warrants
4.3* Stock Option Plan
4.4* Form of Stock Option Agreement
10.1 VPOP Service Agreement between MetroNet Communications and
YesIC Communications
10.2 Level 3 Communications Terms and Conditions for Delivery of
Service
10.3 ADSL Service Agreement dated August 24, 1999, by and between
Bell Atlantic Network Integration, Inc. and
Information-Highway.com, Inc.
27.1 Financial Data Schedule
</TABLE>
* Incorporated by reference from the Company's registration statement on Form
10-SB filed with the Securities and Exchange Commission on April 14, 1999.
(b) Reports on Form 8-K.
None.
49
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report or amendment to be signed on its
behalf by the undersigned, thereunto duly authorized.
INFORMATION-HIGHWAY.COM, INC.
By: /s/ John G. Robertson
-----------------------------
John G. Robertson, President
Chief Executive Officer and Director
Dated: October 5, 1999
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ John G. Robertson President, Chief 10/5/99
- ------------------------------------------- Executive Officer
(John G. Robertson) and Director
/s/ James L. Vandeberg Vice President, Chief 10/5/99
- ------------------------------------------- Operating Officer, Secretary
(James L. Vandeberg) and Director
/s/ Jennifer Lorette Vice President, 10/5/99
- ------------------------------------------- Chief Financial Officer
(Jennifer Lorette) Principal Accounting
Officer and Director
</TABLE>
50
