<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended August 31, 1999
---------------
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to __________________
Commission File No. 0-25773
---------
INFORMATION-HIGHWAY.COM, INC
(Exact 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 No.)
185-10751 Shellbridge Way, Richmond, BC Canada V6X 2W8
---------------------------------------------------------------
(Address of principal executive offices)
(604) 278-5996
--------------------------
(Issuer's telephone number, including area code)
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
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: As of October 12, 1999 - 6,906,901
shares of common stock, $.0001 par value were outstanding. A further 164,500
common shares, not yet issued, are allotted pursuant to a share exchange
agreement explained further in Part I, Item 2 of this report. Total shares
outstanding and allotted as of October 12, 1999 are 7,071,401.
Transitional Small Business Disclosure Format (Check one): YES NO X
<PAGE>
INDEX
<TABLE>
<CAPTION>
PART I -- Financial Information Page
<S> <C>
Item 1. Consolidated Financial statements................................................................ 2
- ------- ---------------------------------
Consolidated Balance Sheets as of August 31, 1999 and May 31, 1999........................................ 3
Consolidated Statements of Operations for the three months ended August 31, 1999 and 1998................. 4
Consolidated Statements of Cash Flows for the three months ended August 31, 1999 and 1998................. 5
Notes to the Consolidated Financial Statements............................................................ 6
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition............ 7-12
- ------ -------------------------------------------------------------------------------------
PART II -- Other Information.............................................................................. 13-14
Signatures................................................................................................ 16
</TABLE>
<PAGE>
PART I - Financial Information
Item 1. Consolidated Financial statements
- ------- ---------------------------------
2
<PAGE>
Information-Highway.com, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
August 31, May 31,
1999 1999
(unaudited) (audited)
$ $
Assets
<S> <C> <C>
Current Assets
Cash 435,314 37,622
Inventory 9,695 9,695
Prepaid expenses 265,181 70,487
Due from related parties 31,444 -
741,634 117,804
Fixed Assets 336,481 270,092
Goodwill 88,989 134,848
Total Assets 1,167,104 522,744
- ------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable 220,910 267,279
Accrued liabilities 78,552 65,151
Deferred revenues 35,864 34,049
Advances from related parties - 65,186
335,326 431,665
Stockholders' Equity
Common Stock, 50,000,000 shares authorized,
par value $.0001 per share, 7,058,401 and
6,469,951 issued and outstanding respectively 706 647
Additional Paid in Capital 2,954,242 1,698,351
Common Stock allotted and issued subsequently
(nil and 35,000 shares respectively) - 50,000
2,954,948 1,748,998
Preferred Stock, 10,000,000 shares authorized, par value
$.0001 per share, none issued - -
Translation adjustments (2,060) (1,145)
2,952,888 1,747,853
Accumulated Deficit (2,121,110) (1,656,774)
Total Stockholders' Equity 831,778 91,079
Total Liabilities and Stockholders' Equity 1,167,104 522,744
- ------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
Information-Highway.com, Inc.
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended
August 31,
1999 1998
$ $
<S> <C> <C>
Revenues 293,288 269,506
Cost of Revenues 213,464 179,904
Gross Profit 79,824 89,602
Operating Expenses
Marketing and sales 63,516 40,223
General and administrative 421,200 111,896
Product development 59,444 32,325
Total Operating Expenses 544,160 184,444
Net loss 464,336 94,842
- -----------------------------------------------------------------------
Historical basic and dilutive
net loss per share .07 .02
- -----------------------------------------------------------------------
Weighted average shares used
to compute basic and historical
net loss per share 6,740,000 4,766,000
- -----------------------------------------------------------------------
</TABLE>
Diluted loss per share has not been presented separately as the result is anti
dilutive.
4
<PAGE>
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three months ended
August 31,
1999 1998
$ $
<S> <C> <C>
Cash Flows to Operating Activities
Net loss (464,336) (94,842)
Adjustments to reconcile net loss to cash
Depreciation and amortization 25,972 14,217
Amortization of goodwill 45,859 39,936
Shares paid for services 286,000 -
Change in non-cash working capital items
Decrease in accounts receivable - 4,442
(Increase) decrease in prepaid expenses (18,694) 220
Decrease in accounts payable and accruals (32,968) (35,901)
Increase in unearned revenue 1,815 9,567
Net Cash Used in Operating Activities (156,352) (62,361)
Cash Flows from Financing Activities
Increase in common stock 743,950 66,000
Increase (decrease) in advances from related parties (96,630) 17,267
Net Cash from Financing Activities 647,320 83,267
Cash Flows to Investing Activities
Increase in capital assets acquired (93,997) -
Net Cash to Investing Activities (93,997) -
Translation adjustments 721 591
Increase in cash during the period 397,692 21,497
Cash - beginning of period 37,622 35,699
Cash - end of period 435,314 57,196
- ---------------------------------------------------------------------------------------------------
Non-Cash Financing Activities
125,000 shares were issued for services at a
fair market value of $3.52 per share, 40% of
which was a prepaid expense at August 31, 1999 440,000 -
2,500 shares were issued for services
at a fair market value of $8.80 per share 22,000 -
462,000 -
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Cash paid for interest - -
Cash paid for income taxes - -
- ---------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
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. 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. Prior
to the reverse takeover IHI acquired 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.
2. Basis of Presentation
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. 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. 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.
Adjustments
These interim financial statements include all adjustments which in the
opinion of management are necessary in order to make the financial
statements not misleading.
6
<PAGE>
Item 2. 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 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.
7
<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.
The Company conducts its operations through Information Highway, Inc. ("IHI"), a
Washington corporation, a wholly-owned US subsidiary, which in turn owns three
wholly-owned Canadian subsidiaries. In February 1999, IHI engaged in a reverse
takeover of Florida Venture Fund, Inc. ("FVFI"), a Florida corporation. As a
result of the reverse takeover, the shareholders of IHI came to own
approximately 95% of the outstanding shares of FVFI. In connection with the
reverse takeover, FVFI 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).
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 October 12, 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
October 12, 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
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.
8
<PAGE>
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 each
quarter to August 31, 1999. At August 31, 1999, its accumulated deficit was $2.1
million. The Company expects to incur substantial operating losses, net losses
and negative operating cash flow for the foreseeable future.
Revenues
Revenue consists of mainly the provision of Internet dial-up services. The
Company receives limited revenue from web-site customization, development and
hosting, banner advertisements, 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 satisfactory. 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.
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 customizing and 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.
9
<PAGE>
Results of Operations for the Quarter Ended August 31, 1999 as Compared to the
Quarter Ended August 31, 1998
Revenues
Revenues increased by $23,000 (9%) to $293,000 from $270,000 in the comparative
quarter. 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 increased by $33,000 (18%) to $213,000 from $180,000 in the
comparative quarter. The increase was primarily due to salaries and consulting
fees of $48,000 as compared to $30,000 in the comparative quarter. The largest
components of cost of revenues are telephone costs of $62,000 as compared to
$61,000 in the comparative quarter; and Internet and license fees of $59,000 as
compared to $56,000 in the comparative quarter. The increases in these costs are
reflective of the increase in the Company's subscriber base.
Gross Profit
Gross profit was $80,000 (27%) in the quarter ended August 31, 1999 as compared
to $90,000 (33%) in the comparative quarter. With increased competition in the
Internet Service Provider industry there has been increased pressure to reduce
fees for new subscribers and renewing subscribers. This unit 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 increased by $24,000 (60%) to $64,000 from $40,000
in the comparative quarter. The major component of this increase was a result of
a marketing plan to increase advertisements in industry specific publications
which increased by $12,000 to $28,000 from $16,000 in the comparative quarter.
The other major component of marketing and sales is salaries, which increased by
$8,000 to $22,000 from $14,000 in the comparative quarter.
General and Administrative Expenses
General and administrative expenses for corporate overhead activities and
Internet business-related activities have increased by $309,000 to $421,000 from
$112,000 in the comparative quarter.
General and administrative expenses relating to corporate overhead activities,
and not Internet business-related activities, have increased by $306,000 to
$331,000 from $25,000 in the comparative quarter. As a result of the reverse
takeover during February, 1999, the Company now is incurring expenses relating
to being an active operating public company and is incurring additional expenses
relating to investor relations and financial consulting. Investor relations and
financial consulting increased by $273,000 to $281,000 as compared to $8,000 in
the comparative period. The major component of this increase was $264,000 paid
in shares to a non-related company for Internet-based marketing and financial
consulting services. The increase in corporate overhead expenses of
approximately $42,000 that was not covered by equity issuances was spread fairly
evenly across office, rent and telephone expenses, salaries and management fees,
and travel.
General and administrative expenses relating to Internet business-related
activities increased by $3,000 (3%) to $90,000 from $87,000 in the comparative
quarter.
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 $37,000 (84%) to $59,000 from $32,000
in the comparative quarter. The major component of the increase in product
development expenses was salaries and consulting fees of $50,000 ($22,000
10
<PAGE>
was a one-time payment for completion of the Voice over IP project) as compared
to $25,000 in the comparative quarter.
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. 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 $12,000 to $26,000 as compared to $14,000 in the
comparative period.
Purchased goodwill will be amortized at $15,000 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 the current fiscal year.
The Company anticipates entering into operating leases for any network equipment
and software in the future to minimize capital expenditures.
Net Loss for the Quarter Ended August 31, 1999 as Compared to the
Quarter Ended August 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 $331,000 as compared to $25,000 in the comparative quarter, relating to
such activities. The net loss relating to Internet activities amounted to
$133,000 as compared to $70,000 in the comparative quarter.
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. During the quarter ended August 31, 1999,
the Company used $744,000, generated by issuing equity securities, to fund its
operating cash shortfall of $156,000, to repay borrowings from affiliates of
$97,000, to make capital expenditures of $94,000 and to increase its cash
position by $398,000 to $435,000. The operation, development and expansion of
the Company's business will likely require additional capital infusions for the
foreseeable future.
The Company has working capital, as at August 31, 1999, of $406,000, and will
require additional 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.
The Company will require additional financing 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 for the years ended May
31, 1999 and 1998, 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.
11
<PAGE>
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. The Company
made capital expenditures of $94,000 in the current quarter, principally to
acquire hardware related to the development and maintenance of the Executive
Site.
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.
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. Bell Atlantic
has indicated in writing that most of its systems are Year 2000 compliant,
although it is still remediating some Year 2000 issues using a combination of
Bell Atlantic's internal technical staff, Year 2000 consultants and outsourcing
to Year 2000 service providers. Level 3 Communications has confirmed in writing
to the Company that it will be "Year 2000 Ready" on or before January 1, 2000.
"Year 2000 Ready" means that the Level 3 Network will operate properly during
and after January 1, 2000, including any leap year calculations. The Company
has verbally confirmed with 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.
12
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
(c) Recent Sales of Unregistered Securities.
Set forth below is information regarding the issuance and sales of
securities of the Company without registration during the quarter ended
August 31, 1999. No such sales involved the use of an underwriter and no
commissions were paid in connection with the sale of any securities.
(1) 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. After May 31, 1999, 124,750
units were issued at $4.00 per unit for total proceeds of $499,000.
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,
due to the foreign nationality of the relevant purchasers.
(2) 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 August 31, 1999, the Company
issued 156,200 shares pursuant to warrants exercised at $1.00 per
share for total proceeds of $156,200. 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. During the quarter ended August 31, 1999, the Company issued
shares to 12 purchasers, of which 1 was a foreign citizen whose
purchase was 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. $10,000 of these
sales during the quarter ended August 31, 1999 were exempt under
Regulation S under the Securities Act of 1933 due to the foreign
nationality of the relevant purchaser.
13
<PAGE>
(3) During the quarter ended August 31, 1999, the Company issued 85,000
shares pursuant to options exercised at $0.50 per share for total
proceeds of $42,500. 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. If the foregoing exemptions are not available, the
Company believes that all $42,500 of these sales were also exempt
under Regulation S under the Securities Act of 1933 due to the foreign
nationality of the relevant purchasers.
(4) On February 23, 1999 the Company began an offer to certain
shareholders of Information Highway, Inc. ("IHI") to exchange 834,000
shares of their unrestricted IHI common stock for 834,000 shares of
the Company's common stock exempt from registration under Rule 504 of
Regulation D under Section 3(b) of the Securities Act of 1933. Upon
discovery that 3 investors who had made deposits in the IHI offering
that formed the shareholder base for this offering had not been issued
their IHI shares, this offering was expanded to 854,000 shares to
include the 20,000 shares purchased by those investors. Of the 20,000
shares identified, 5000 were issued during the quarter ended August
31, 1999. The Company's shares were valued at $0.75 per share, the
price per unit that IHI had obtained in its most recent offering of
securities, in which IHI offered units consisting of one share of
unrestricted common stock and one warrant for $0.75 per unit.
(5) In July 1999 the Company issued 125,000 shares to IP Equity, Inc. for
marketing and financial consulting services. The offer and sale of
the shares were exempt from registration under Section 4(2) of the
Securities Act of 1933.
(6) In July 1999 the Company issued 2,500 shares to Erik Lagerway in
connection with his successful completion of the Company's Internet
portal telephony project. The offer and sale of the shares were exempt
from registration under Section 4(2) of the Securities Act of 1933.
If the foregoing exemption is not available, this sale was exempt
under Regulation S under the Securities Act of 1933 due to Mr.
Lagerway's foreign nationality.
14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. Description Page No.
- ------------- -------------------------------------------------- ----------
4.1* Specimen Share Certificate for Common Stock
4.2* Form of Warrants ($1.00)
4.3* Stock Option Plan
4.4* Form of Stock Option Agreement
4.5** Form of Warrants ($4.00 and $6.00)
10.1 IP Equity Marketing and Financial Consulting
Agreement
10.2*** 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
* Incorporated by reference from the Company's registration statement on
Form 10-SB filed with the Securities and Exchange Commission on April 14, 1999.
** Incorporated by reference from Amendment No. 1 to the Company's
registration statement on Form 10-SB/A filed with the Securities and Exchange
Commission on October 12, 1999.
*** Incorporated by reference from the Company's annual report on Form 10-KSB
filed with the Securities and Exchange Commission on October 6, 1999.
15
<PAGE>
Signatures
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: October 14, 1999 INFORMATION-HIGHWAY.COM, INC
By:/s/ John G. Robertson
----------------------------------------------------
John G. Robertson, President (Principal Executive
Officer)
16
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page No.
- ------------- --------------------------------------- ----------
4.1* Specimen Share Certificate for Common Stock
4.2* Form of Warrants ($1.00)
4.3* Stock Option Plan
4.4* Form of Stock Option Agreement
4.5** Form of Warrants ($4.00 and $6.00)
10.1 IP Equity Marketing and Financial Consulting
Agreement
10.2*** 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
* Incorporated by reference from the Company's registration statement on
Form 10-SB filed with the Securities and Exchange Commission on April 14, 1999.
** Incorporated by reference from Amendment No. 1 to the Company's
registration statement on Form 10-SB/A filed with the Securities and Exchange
Commission on October 12, 1999.
*** Incorporated by reference from the Company's annual report on Form 10-KSB
filed with the Securities and Exchange Commission on October 6, 1999.
<PAGE>
IP EQUITY
June 23, 1999
Information Highway, Inc.
#185 10751 Shellbridge Way
Richmond, B.C. V6X 2W8
Canada
Attn: John Robertson
Re: Internet Marketing & Financial Consulting
Dear Mr. Robertson,
This letter is to serve as our contract, and will summarize the arrangement
under which we will develop for approval by you and implementation by us:
. A campaign to promote investor awareness over the Internet
In particular, our services will consist of some or all of the following, as we
may agree.
. PRESS PACKAGE: We will create and coordinate a series of 5 press releases for
your company which will announce to the public the following items: a private
placement offering, an exercise of options by our company, the announcement
of your company's business-sharing opportunities, and your company's
reporting status.
. FINANCIAL CONSULTING: We will assist your company in the search for a
reputable investment banking company willing to perform consulting services
and a future private placement offering for your company.
. INVESTOR RELATIONS: We will coordinate our Internet-based investment
marketing services with telephone communications to Increase investor
awareness and to assist your company in identifying investors which may be
interested in investing in your private placement offering. These investors
must have a preexisting relationship with your company via our affinity
group.
As compensation for the services to be furnished by IP Equity, as described
above, your company shall:
. Deliver certificates, registered in the name of IP Equity, Inc., a California
Corporation, for 125,000 shares of your company's stock (subject to a 1-year
restriction from sale) by July 10/th/, 1999.
. Deliver a stock option, registered in the name of IP Equity, Inc., a
California Corporation, to purchase 125,000 shares of your company's common
stock at $5 per share, with an expiration date of July 10/th/, 2003 or later
by July 10/th/, 1999.
Services will be billed to your company an a monthly basis and fees will be due
within 15 days of billing. Services beyond the scope of those described above,
your company and IP Equity will be subject to further agreement as to the nature
and scope of the additional services, and as to the compensation for these
additional services. (Additional words or format preferences are available at an
additional cost)
Your company expressly understands, acknowledges, and agrees that IP Equity
relies on, and will rely on, your company and its employees and agents for the
accuracy of information which your company provides to IP Equity and which IP
Equity will be disseminating to the public. Accordingly, your company agrees to
assume liability for, and agrees to
<PAGE>
indemnify, protect, save, defend, and hold harmless, IP Equity, its
shareholders, directors, officers, and their respective agents, consultants,
employees, successors, and assigns of, from and against any and all liabilities,
obligations, losses, damages, penalties, claims, actions, suits, costs and
expenses, including attorney's fees, which may be incurred by, imposed on,
asserted against, or suffered by them relating to, or arising out of, errors,
misstatements, or omissions in any information furnished by your company or by
its employees or agents to IP Equity regarding your company including, but not
limited to your company's financial position, business operation and prospects,
management, revenues, earnings, forward looking statements or projections,
government filings, and regulatory and/or governmental matters.
This agreement shall be governed by, and construed in accordance with, the laws
of the State of California, United States of America, excluding any choice of
law rules which may direct the application of the laws of any other
jurisdiction. Any litigation relating to, or arising out of, this Agreement must
be tried and litigated exclusively in the state or federal courts located in the
County of San Diego, State of California, and each party consents to in personam
jurisdiction in that state.
The prevailing party in any litigation, arbitration, mediation, bankruptcy,
insolvency or other proceeding ("Proceeding") arising out of, or relating to,
this agreement shall be entitled to recover from the unsuccessful party all
costs, expenses (including expert witness and other fees and costs), and actual
attorney's fees relating to, or arising out of (a) the Proceeding (whether or
not the Proceeding proceeds to judgement), and (b) any post judgement or award
resulting from the Proceeding.
This agreement is to be effective on IP Equity's receipt of the initial payment
noted above, and this agreement shall continue in full force until it is
terminated within 90 days advance written notice either by your company or by IP
Equity.
To express your understanding of, and agreement to, the matters stated above,
please sign this facsimile and fax it back to us.
If you have any questions regarding this agreement or concerning any facet of
our work, please call us at your convenience. We look forward to working with
you and enjoying a long and successful relationship.
Sincerely,
IP Equity, Inc. Information Highway, Inc.
By: /s/ Chris Agarwal By: /s/ John Robertson
------------------------------ ----------------------------------
Chris Agarwal, its President John Robertson, its President
IP Equity, Inc.
4220 Camino Ticino
San Diego, CA 92122
Ph: (619)457-9780
Fax: (619)457-9784
E-mail: [email protected]
-----------------
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