<PAGE>
As Filed with the Securities and Exchange Commission on August 29, 2000
Registration No. 333-36930
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Amendment No. 1 to
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
INFORMATION HIGHWAY.COM, INC.
(Exact name of registrant as specified in its charter)
----------------
<TABLE>
<S> <C> <C>
Florida 7389 65-015410
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employee
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
185 - 10751 Shellbridge Way
Richmond, British Columbia V6X 2W8, CANADA
(604) 278-5996
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
<TABLE>
<S> <C>
Agent for Service: With a Copy to:
John G. Robertson, President James L. Vandeberg
INFORMATION HIGHWAY.COM, INC. 1601 Fifth Avenue, Suite 2100
185 - 10751 Shellbridge Way Seattle, Washington 98101-1681
Richmond, British Columbia V6X 2W8, CANADA (206) 447-7000
(604) 278-5996
</TABLE>
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Title of each class of Maximum Maximum Amount of
securities to be Amount to be offering price aggregate registration
registered registered per unit offering price fee
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<S> <C> <C> <C> <C>
Common.................. 4,089,750(2) 2.875 per share(2) 11,758,031 3,104.12(3)
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</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee. Pursuant to Rule 457(c) under the Securities Act of
1933, the price per share is estimated based on the average of the high
and low prices reported for shares of the Information Highway.com's
Common Stock as of May 8, 2000.
(2) Includes the registration for resale of shares of Common Stock issuable
upon exercise of warrants and options, and conversion of debentures.
Assumes the conversion of all debentures and exercise of all options and
warrants at the maximum number of shares issuable. All sales offered
pursuant to this Registration Statement relate only to resales by Selling
Shareholders.
(3) Previously paid.
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The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to such section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+We will amend and complete the information in this prospectus. Although we +
+are permitted by us federal securities law to offer these securities using +
+this prospectus, we may not sell them or accept your offer to buy them until +
+the documentation filed with the sec relating to these securities has been +
+declared effective by the SEC. This prospectus is not an offer to sell these +
+securities or our solicitation of your offer to buy these securities in any +
+jurisdiction where that would not be permitted or legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION-- , 2000
PROSPECTUS
, 2000
INFORMATION HIGHWAY.COM INC.
185 - 10751 Shellbridge Way
Richmond, British Columbia V6X 2W8, CANADA
(604) 278-5996
-----------
4,089,750 Shares
of Common Stock
to be sold by selling shareholders
This prospectus is part of a registration statement that permits selling
shareholders of Information Highway.com to sell their shares on a continuous or
delayed basis in the future. Information Highway.com will not receive any of
the proceeds from the sale of these shares, but may receive proceeds from the
exercise of options and warrants to acquire shares that are registered as part
of this offering. Selling shareholders may sell their shares to the public
immediately upon the effectiveness of the registration statement, or they may
elect to sell some or all of their shares at a later date. As a result, it is
impracticable to state either the number of shares that will be available to
the public or their price.
This is not an underwritten offering. Information Highway.com's stock is
traded in the over-the-counter market (OTC) and quoted through the OTC Bulletin
Board under the symbol "IHWY." On August 18, 2000, the reported closing price
of Information Highway.com's stock was $1.25 per share.
-----------
This investment involves a high degree of risk.
See "Risk Factors" beginning on page 3.
-----------
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF
THIS PROSPECTUS. NOR HAVE THEY MADE, NOR WILL THEY MAKE, ANY DETERMINATION
AS TO WHETHER ANYONE SHOULD BUY THESE SECURITIES. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
You should rely only on the information contained in this document.
Information Highway.com has not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................................................... 2
Risk Factors.......................................................... 3
Use of Proceeds....................................................... 6
Determination of Offering Price....................................... 6
Dilution.............................................................. 6
Selling Shareholders.................................................. 7
Plan of Distribution.................................................. 9
Legal Proceedings..................................................... 9
Directors and Executive Officers...................................... 10
Security Ownership of Certain Beneficial Owners and Management........ 12
Description of Capital Stock.......................................... 13
Interests of Named Experts and Counsel................................ 13
Disclosure of Commission Position on Indemnification for Securities
Act Liabilities...................................................... 13
Organization within Last Five Years................................... 14
Description of Business............................................... 14
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 23
Description of Property............................................... 33
Certain Relationships and Related Transactions........................ 34
Market Price of and Dividends on Capital Stock and Other Shareholder
Matters.............................................................. 34
Executive Compensation................................................ 36
Financial Statements.................................................. F-1
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................. II-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
Information Highway.com, Inc.
Information Highway serves as an Internet Service Provider, or ISP for
companies and individuals that need access to the Internet in exchange for a
recurring fee. Through our portal site compilation of Internet-based services
and information, www.theexecutive.com, we provide localized and portal content
catering to business professionals. Information Highway.com, Inc. conducts its
operations through the following three wholly-owned Canadian subsidiaries:
YesIC Communications, Inc.
World Tel Internet (Toronto) Ltd.
Blue Crow Internet Company, Ltd.
Name, Address, and Telephone Number of Registrant
INFORMATION HIGHWAY.COM INC.
185--10751 Shellbridge Way
Richmond, British Columbia V6X 2W8, CANADA
(604) 278-5996
The Offering
. Common Stock Offered by Selling Shareholders:4,089,750 shares
. Common Stock Outstanding Prior to Offering:8,113,334 shares
. Common Stock Outstanding After Offering*:12,203,084 shares
* Assumes sale of all shares offered
2
<PAGE>
RISK FACTORS
It Is Difficult To Determine Whether Information Highway Will Be Able To
Achieve Commercial Success Due To Its Limited Operating History
There can be no assurance that our services will achieve commercial success
and, if they do not, the price of our common stock will decline. Because we
have concentrated our operations in Canada and have not yet rolled out our
business in the United States, it is difficult to evaluate our business and our
prospects. Our Toronto business unit is our oldest ISP operation, and it began
operations only four years ago. Our portal site is just being completed. We
face certain risks implementing our operations including:
. our complete dependence on the growth of the acceptance of the Internet
as an electronic commerce medium;
. our need to develop and upgrade our infrastructure, including internal
controls, transaction processing systems, data storage and retrieval
systems and Web site;
. our need to manage changing operations, including implementation of new
financial and accounting systems; and
. our dependence upon and need to hire key personnel including software
developers.
We cannot assure you that our ISP business will retain its existing
customers or attract new ones, or that our portal site service will retain its
existing, or attract new, advertisers, consumers and network affiliates,
achieve significant additional revenues or improve operating margins in future
periods. Our Virtual Mall may not be accepted in the marketplace at all.
We Have Incurred Losses Since Our Inception and Expect Losses To Continue For
the Foreseeable Future
We expect to incur substantial operating losses, net losses and negative
operating cash flow for the near term. We have not achieved profitability. We
expect to incur net losses for the foreseeable future and may never become
profitable. Through the year ended May 31, 2000, our net losses were
$4,135,000. At May 31, 2000, our accumulated losses totaled $5,791,000 and our
working capital was $579,000. Our limited operating history makes it difficult
to forecast our future operating results. We cannot be certain that the recent
growth in our revenues will continue. We expect to continue to increase our
marketing and sales, product development and general and administrative
expenses. As a result we will need to generate significant additional revenue
and/or raise additional funds to achieve profitability. If we do achieve
profitability, we cannot be certain that we will sustain or increase it.
Our Quarterly Financial Results Are Subject to Significant Fluctuations and It
Is Difficult To Determine Whether We Will Be Profitable
We believe that quarter-to-quarter comparisons of our operating results are
not a good indication of our future performance. It is likely that in some
future quarter our operating results may be below the expectations of public
market analysts and investors and, as a result of these or other factors, the
price of our common stock may fall. Our operating results have varied widely in
the past, and we expect that they will continue to vary significantly from
quarter-to-quarter due to a number of factors, including:
. demand for our online services by ISP customers, advertisers and
electronic shopping consumers;
. prices paid by ISP customers for Internet connections, which may
fluctuate due to price competition;
. prices paid by advertisers using the portal site service;
. our costs of attracting electronic shopping consumers to the portal
site, including costs of receiving exposure on third-party Web sites and
advertising costs;
3
<PAGE>
. costs related to agreements with suppliers of content to our service and
professional services;
. loss of agreements with suppliers of content to our service and
professional services;
. our ability to significantly increase our distribution channels;
. the amount and timing of operating costs and capital expenditures
elating to expansion of our operations;
. costs and delays in introducing new services and improvements to
existing services;
. changes in the growth rate of Internet usage and acceptance by consumers
of electronic commerce;
. technical difficulties, system failures or Internet downtime;
. government regulations related to the Internet;
. our ability to upgrade and develop our information technology systems
and infrastructure;
. costs related to acquisitions of technologies or businesses; and
. general economic conditions, as well as those specific to the Internet
and related industries.
We May Not Have Sufficient Resources to Meet Our Increasing Expenses
We plan to significantly increase our operating expenses to expand our
marketing and sales operations, broaden our customer support capabilities and
fund greater levels of product development. We may be unable to adjust our
spending in a timely manner to compensate for any unexpected revenue shortfall.
We also may be unable to increase our spending and expand our operations in a
timely manner to adequately meet user demand to the extent it exceeds our
expectations. Revenue and operating results are difficult to forecast and often
beyond our control because they generally depend upon:
. the number of ISP customers we have at any given time;
. the volume of visits to our portal site;
. the amounts paid by advertisers for advertising on our portal site; and
. the extent to which our corporate clients desire customized portal
sites.
We May Be Unable to Achieve A Sufficient Base of ISP Customers, Advertisers and
Electronic Shopping Consumers To Become Profitable
Failure to achieve and maintain a large and active base of ISP customers,
advertisers and electronic shopping consumers would prevent us from becoming
profitable and could seriously jeopardize our business. Our ability to increase
the volume of transactions on our services is dependent upon achieving market
acceptance from more ISP customers, advertisers and electronic shopping
consumers. In particular, we need to convince business professionals of the
superiority of our pre-selected compilation of services on the portal site. Our
service has achieved only limited market acceptance to date. Internet sites are
in their infancy in terms of establishing reputations for content. Internet
advertising in general is at an early stage of development. Most potential
advertisers have only limited experience advertising on the Internet and have
not devoted a significant portion of their advertising expenditures to Internet
advertising. Companies may not decide to have us assist them to customize our
portal site for their company's unique needs. Our electronic commerce service
may not achieve significant acceptance by electronic shopping consumers.
Changes To or Interruptions In Services and Content Supplied To Us By Third
Parties May Limit Our Ability to Operate
If a telecommunications company that supplies us with Internet connections
suffers a service interruption, some or all of our ISP services, and perhaps
also our portal site, will also be interrupted. If a content provider
4
<PAGE>
suffers a service interruption, or decides not to provide its content to us, we
will lose the ability to provide information to our portal site consumers that
they may have grown accustomed to receiving. There can be no assurance that we
will be successful in renewing contracts for these services and content on
commercially acceptable terms or that our costs with respect to these contracts
will not increase following any renewal. If we are unable to develop future key
relationships or maintain and enhance our existing relationships, our business
will be damaged.
The Conversion Of Our Convertible Debentures Will Have A Dilutive Impact On Our
Shareholders
In March 2000, we sold $1.5 million of our 5% convertible debentures to an
investor. The issuance of shares of our common stock upon the conversion of
these debentures will have a dilutive impact on our shareholders. In addition,
the number of shares issued on conversion of the debentures will increase if
the market price of our common stock decreases. As a result, our revenue per
share could be materially decreased in future periods, and the market price of
our common stock could drop.
We May Need Additional Capital Which May Dilute the Ownership Interest of
Investors
We require substantial working capital to fund our business. Our ultimate
success will be dependent upon our ability to raise additional capital. We
cannot be certain that additional financing will be available to us on
favorable terms when required, or at all. Failure to raise the necessary funds
in a timely fashion could delay or prevent us from implementing our business
plan and damage our business. If we raise additional funds through the issuance
of equity, equity-related or convertible debt securities, these securities may
have rights, preferences or privileges senior to those of the rights of our
common stock and our stockholders may experience additional dilution.
Compliance With Regulations Governing the Internet and Our Services May Be
Costly and Difficult
The laws and regulations applicable to the Internet and our services are
evolving and unclear and could damage our 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 Information Highway.com 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 Information
Highway.com to incur significant expenses in complying with any new
regulations. Moreover, the applicability to the Internet of existing laws
governing issues such as property ownership, copyright, defamation, obscenity
and personal privacy is uncertain. Information Highway.com may be subject to
claims that our services violate such laws. Due to the global nature of the
Internet, it is also possible that the governments of other states and foreign
countries might attempt to regulate its transmissions or prosecute Information
Highway.com for violations of their laws. Information Highway.com might
unintentionally violate such laws. Any new legislation or regulation in the
United States or abroad or the application of existing laws and regulations to
the Internet could damage our business and cause the price of our common stock
to decline.
Imposition Of Access Fees Could Reduce Demand For Our Services, Substantially
Increase Our Expenses and Decrease Our Profitability
A number of proposals have been made at the international, 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 substantially increase the costs
of communicating on the Internet, potentially decreasing the demand for our
services. There can be no assurance that this legislation will not impose
significant additional costs on our business or subject Information Highway.com
to additional liabilities.
5
<PAGE>
We May Incur Liabilities For the Activities of Users of Our Service
The law relating to the liability of providers of online services for
activities of their users is currently unsettled and could damage our business.
We do not carry insurance that will indemnify us for all liability for
activities of our users. We are aware that certain of our advertisers' Websites
offer or contain information about alcohol, tobacco, firearms, adult material
and other products, services and information that may be subject to regulation
by local, state or federal authorities. In addition, our advertisers' Websites
may contain text, images or information that could infringe third-party
copyrights, trademarks or other intellectual property rights. We cannot assure
you that Information Highway.com will successfully avoid civil or criminal
liability for unlawful activities carried out by users of our service. We may
be forced to implement measures to reduce our exposure to such liability, which
may require us, among other things, to spend substantial resources or to
discontinue certain service offerings. Defending against these claims, even if
not meritorious, could be expensive and divert management's attention from
operating the company. An uninsured or underinsured claim could have a severe
negative impact on our profitability.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus constitute forward-looking
statements. In some cases, you can identify forward-looking statements by
terminology such as "may", "will", "should", "expects", "plans", "anticipates",
"believes", "estimated", "predicts", "potential", or "continue" or the negative
of such terms or other comparable terminology. These statements are only
predictions and involve known and unknown risks, uncertainties, and other
factors that may cause Information Highway's actual results, levels of
activity, performance, or achievements to be materially different from any
future results, levels of activity, performance, or achievements expressed or
implied by such forward-looking statements. Although Information Highway
believes that the expectations reflected in the forward-looking statements are
reasonable, it cannot guarantee future results, levels of activity,
performance, or achievements. Information Highway is under no duty to update
any of the forward-looking statements after the date of this prospectus to
conform forward-looking statements to actual results.
USE OF PROCEEDS
This prospectus is part of a registration statement that permits certain
selling shareholders to sell their shares on a continuous or delayed basis in
the future. Because this prospectus is solely for the purpose of selling
shareholders, Information Highway.com will not receive any proceeds from the
sale of stock being offered. Information Highway.com will, however, receive
proceeds from the exercise of options and warrants to acquire shares that are
registered as part of this offering.
DETERMINATION OF OFFERING PRICE
This prospectus is solely for the purpose of allowing certain of our
shareholders to sell their stock. The selling shareholders may sell their
shares when the registration statement becomes effective, or they may elect to
sell some or all of their shares at a later date while the registration
statement is effective. The selling shareholders will determine the price for
and timing of any sales of their stock.
DILUTION
This prospectus is for sales of stock by certain of our shareholders on a
continuous or delayed basis in the future. Sales of common stock by
shareholders will not result in any substantial change to the net tangible book
value per share before and after the distribution of shares by the selling
shareholders. There will be no change in net tangible book value per share
attributable to cash payments made by purchasers of the shares being offered.
Prospective investors should be aware, however, that the price of shares
covered by this prospectus may not bear any rational relationship to net
tangible book value per share of Information Highway.com.
6
<PAGE>
SELLING SHAREHOLDERS
The following table gives the names of the shareholders for whose accounts
shares may be offered using this prospectus, the number of shares of common
stock of Information Highway.com beneficially owned by each named shareholder
before this offering, the percentage of the total shares of the company's
common stock as of August 18, 2000, represented by the shares owned, the number
of shares that may be offered for the stockholder's account in this offering,
and the number of shares to be owned by the shareholder following completion of
the offering. Beneficial ownership of shares includes any shares over which a
person exercises sole or shared voting or investment power, or of which a
person has the right to acquire ownership at any time within 60 days, for
example, through the exercise of a warrant, or an option that has vested as to
all or a portion of the underlying shares or through conversion of debentures.
Shares of common stock subject to warrants and options currently exercisable or
exercisable within 60 days are deemed outstanding for purposes of computing the
percentage ownership of the person holding the options, but are not deemed
outstanding for computing the percentage ownership of any other person. The
information regarding the selling shareholders' beneficial ownership after this
offering assumes that all shares of common stock offered by the selling
shareholders through this prospectus are actually sold.
<TABLE>
<CAPTION>
Shares Shares
Beneficially Total shares beneficially
owned before beneficially Shares owned after
Name, Address and offering owned being offering
Position with --------------- --------------- offered --------------
Company, if any Direct Number Number Percent for sale Number Percent
----------------- ------ ------- ------- ------- --------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Gordon Friesen.......... 0 75,000 75,000 0.95 75,000 0 0.00
David Sass, Vice
President.............. 0 300,000 300,000 3.69 300,000 0 0.00
Russ Gallagher.......... 0 100,000 100,000 1.26 100,000 0 0.00
Internet Stock News,
Inc.(1)................ 225,000 125,000 350,000 4.40 350,000 0 0.00
Chris Agarwal........... 30,000 0 30,000 0.38 30,000 0 0.00
David Williamson
Associates Limited(2).. 5,000 0 5,000 0.06 5,000 0 0.00
Mark Nadelson........... 5,000 0 5,000 0.06 5,000 0 0.00
World of Internet.com
AG(3).................. 20,000 0 20,000 0.26 20,000 0 0.00
K & D Equities,
Inc. (4)............... 0 400,000 400,000 4.86 400,000 0 0.00
Garry Savage............ 0 100,000 100,000 1.26 100,000 0 0.00
Mallory M. Parmerlee
Trust Share............ 11,000 10,000 21,000 0.27 5,000 16,000 *
Shawn Lampman........... 12,500 25,000 37,500 0.48 12,500 25,000 *
Joe Ebner............... 25,000 50,000 75,000 0.95 25,000 50,000 *
Dave A. Hanson.......... 27,000 10,000 37,000 0.47 5,000 32,000 *
F.S.D.R.H. Trust(5)..... 12,500 25,000 37,500 0.48 12,500 25,000 *
Gene Cartwright Living
Trust(6)............... 25,000 50,000 75,000 0.95 25,000 50,000 *
T. Kozub................ 5,000 10,000 15,000 0.19 5,000 10,000 *
The Sunrise Trust(7).... 45,000 30,000 75,000 0.95 15,000 60,000 *
Edward Keeney........... 3,000 6,000 9,000 0.11 3,000 6,000 *
T.H. Scheer............. 13,150 26,300 39,450 0.50 13,150 26,300 *
David Fan............... 6,600 13,200 19,800 0.25 6,600 13,200 *
Ladislav Korcek......... 2,000 4,000 6,000 0.08 2,000 4,000 *
Park Avenue Consulting
Group(8)............... 75,000 0 75,000 0.96 75,000 0 0.00
Senasqua Investors,
LLC(9)................. 0 411,000 411,000 4.99 2,500,000 0 0.00
</TABLE>
--------
* Less than 1%.
(1) Internet Stock News, Inc. is beneficially owned by Chris Agarwal, its
controlling shareholder
(2) David Williamson Associates Ltd. is beneficially owned by David
Williamson, its controlling shareholder
(3) World of Interent.com AG is beneficially owned by Torsten Prochnow and
Dennis C. Hass
(4) K & D Equities Inc. is beneficially owned by David Sarnet, Steven Devoss,
and David Kalisch.
(5) Fred Sass is the trustee and Sandra Sass is the beneficiary of the
F.S.D.R.H. Trust.
(6) The Gene Cartwright Living Trust is beneficially owned by Gene Cartwright
and Lisa Littig.
(7) The Sunrise Trust is beneficially owned by Ariana Soroudi and Roxana
Soroudi.
(8) Park Avenue Consulting Group is beneficially owned by Jeffrey Forster.
7
<PAGE>
(9) Senasqua Investors LLC is a private investment fund beneficially owned by
its members, and managed by WEC Asset Management LLC, which has voting and
investment control over the shares owned by Senasqua Investors LLC. WEC
Asset Management LLC's managing members and control persons are Ethan
Benovitz; Jaime Hartman; Mark Nordlicht; and Daniel Saks.
Based upon the terms of the Senasqua Investors, LLC Warrant to Purchase
Common Stock of Information Highway.com and Information Highway.com Inc. 5%
Convertible Debenture which are exhibits to the registration statement that
includes this prospectus. The beneficial ownership of Senasqua Investors,
LLC is calculated based upon the price of the common stock as of March 29,
2000, and on the limitation contained in the debenture that Senasqua may
only convert the debenture to the point where its aggregate beneficial
ownership is equal to or less than 4.999% of Information Highway.com Inc.'s
common stock. The shares being offered for sale are calculated based upon
Information Highway.com Inc.'s conservative estimate of the maximum number
of shares of its stock that it may be required to register under the warrant
and debenture.
8
<PAGE>
PLAN OF DISTRIBUTION
This is not an underwritten offering. This prospectus is part of a
registration statement that permits selling shareholders to sell their shares
on a continuous or delayed basis in the future. Selling shareholders may sell
their shares to the public when the registration statement becomes effective,
or they may elect to sell some or all of their shares at a later date.
Information Highway.com has not committed to keep the registration statement
effective for any set period of time.
The shares of common stock offered hereby include the resale of 2,225,000
shares of common stock issuable upon conversion of the $1,500,000 principal
balance of 5% Convertible Debentures. These debentures are convertible into
shares of common stock at the conversion price for each share of common stock
equal to the lesser of (i) $6.22875 or (ii) .80 times the average of the five
lowest daily closing bid prices during the 20 days immediately preceding date
of notice of conversion of the debentures. The number of shares registered
pursuant to the conversion of debentures is calculated based upon Information
Highway.com's conservative estimate of the maximum number of shares of its
stock that it may be required to register under the debenture. The holder of
the debentures may not convert an amount of debentures that would result in
beneficial ownership of more than 4.999% of outstanding common stock of
Information Highway.com. The holder of the warrants and debentures, Senasqua
Investors LLC, may be deemed a statutory underwriter as a result of sales of
securities on this Form SB-2.
489,750 of the shares which may be offered by the selling shareholders are
outstanding on the date of this Prospectus, and the remaining 3,600,000 shares
may be issued after the date of this Prospectus upon exercise of outstanding
options or warrants or the conversion of outstanding debentures held by selling
shareholders. All of the shares may be resold in the public market by the
selling shareholders. Information Highway.com will receive the exercise price
paid upon exercise of warrants and options for issuance of those shares;
however, any difference between that price and the price at which the shares
are sold in the market by the selling shareholders will accrue to the benefit
of the selling shareholders. Sales of any of these previously restricted shares
into the public market could impact the market adversely so long as this
offering continues.
While the registration statement is effective, selling shareholders may sell
their shares directly to the public, without the aid of a broker or dealer, or
they may sell their shares through a broker or dealer on the OTC bulletin
board. Any commission, fee or other compensation of a broker or dealer would
depend on the brokers or dealers involved in the transaction. The selling
shareholders and any participating broker-dealers may be deemed to be
underwriters within the definition of Section 2(11) of the Securities Act of
1933, and any compensation received by these persons on resale may be deemed
underwriting compensation.
LEGAL PROCEEDINGS
A Writ of Summons and Statement of Claim was filed against Information
Highway.com in the Supreme Court of British Columbia on April 20, 1999 by a
former employee and spouse of the employee. The employee was retained by
Information Highway.com as a consultant on or about December 1996 and was
subsequently terminated for cause by Information Highway.com in December 1997.
The plaintiffs are seeking monetary damages related to the alleged remuneration
due pursuant to an agreement and a stock option between Information Highway.com
and the employee. The total damages claimed amount 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. This subsidiary, Blue Crow Internet Company, Ltd., operated at a net
loss from operations during the period from acquisition in December 1996 to
date. Information Highway.com believes that the plaintiff's allegations are
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
defense. Information Highway.com intends to vigorously defend this action. To
the knowledge of Information Highway.com's Executive Officers and Directors,
Information Highway.com 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.
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DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each Executive
Officer and Director of the Company:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
John G. Robertson.. 59 President, Chief Executive Officer, Director
Jennifer Lorette... 27 Executive Vice President, Secretary/Treasurer,
Principal Accounting Officer and Chief financial
Officer, Director
Donna M. Moroney... 40 Vice-President, Legal and Administration, and Director
James Vandeberg.... 56 Chief Operating Officer, Attorney with Ogden Murphy
Wallace, PLLC, Information Highway.com's legal
counsel, and a Director
</TABLE>
Mr. Robertson and Ms. Lorette have served as directors of our business since
the June 1997 Annual Meeting. Mr. Vandeberg was elected a director in January
1999. Ms. Moroney was elected a director of the Company in December, 1999. Each
director will serve until the next annual meeting of shareholders and their
respective successors are elected and qualified. All officers currently devote
part-time to the operation of the Company.
Executive Officers, Directors and Other Significant Employees of the
Company:
John G. Robertson--President, Principal Executive Officer and a member of the
Board of Directors
Mr. Robertson is a founder, President, Principal Executive Officer and a
member of the Board of Directors. Since October 1984, Mr. Robertson has been
President and a Director of Reg Technologies, Inc., a British Columbia
corporation trading on the Canadian Venture Exchange that, in cooperation with
certain controlled affiliates, is engaged in developing a rotary engine and
other devices utilizing Rand Cam Technology. Since February 1979, Mr. Robertson
has been President and a Director of LinuxWizardry Systems, Inc. (formerly
Flame Petro-Minerals Corp.), a British Columbia corporation trading on the OTC
Bulletin Board and engaged in the development and marketing of a Linux based,
low cost router through its wholly-owned subsidiary, LinuxWizardry, Inc., which
was acquired in January 2000. Mr. Robertson is President, a director and CEO of
IAS Communications, Inc., an Oregon corporation traded over the counter in the
United States that has developed a television antenna which is 14" in diameter
and only 2 inches high that can replace existing outside log periodic antennas
and has the capability of receiving local television stations up to a 60-mile
radius.
Jennifer Lorette--Executive Vice President, Secretary/Treasurer, Principal
Financial Officer and Principal Accounting Officer, and a Member of the Board
of Directors
Ms. Lorette is a founder, Secretary/Treasurer, Principal Financial Officer
and Principal Accounting Officer. Since April 1994, Ms. Lorette has been Vice
President of Administration of Reg Technologies Inc. Since June 1994, Ms.
Lorette has been a Vice President of REGI U.S. and Chief Financial Officer and
Vice President of Linux Wizardry Systems Inc. From February 1994 to April 1994,
Ms. Lorette was an executive assistant at Reg Technologies, Inc. Ms. Lorette is
also Secretary/Treasurer of IAS Communications, Inc.
Donna M. Moroney--Vice-President, Legal and Administration, and a member of the
Board of Directors
Ms. Moroney has been a consultant to public companies since 1992. She has
been an officer of Information Highway.com since January 1998. She has been a
director of Linux Wizardry Systems Inc., an OTCBB company, since 1998. She is
an officer of Teryl Resources Corp., a Canadian Venture Exchange Company, a
director and officer of Teryl, Inc. Ms. Moroney has also been an instructor of
corporate/securities law for legal assistants.
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James L. Vandeberg--Chief Operating Officer and a member of the Board of
Director
Mr. Vandeberg is an attorney with the Seattle, Washington law firm of Ogden
Murphy Wallace, PLLC. He has served as counsel to Information Highway.com since
1996. 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. He became a member
of the Washington Bar Association in 1969 and of the California Bar Association
in 1973. Mr. Vandeberg's practice focuses on the corporate finance area, and he
specializes in securities and acquisitions. He is a member and former director
of the American Society of Corporate Secretaries. Mr. Vandeberg was previously
general counsel and secretary of two NYSE companies and is a director of IAS
Communications, Inc.
Ismael 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 Administrator, a position he has held since joining us 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 Certificate for 3D Animation.
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 us 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.
Carol Coleman--Controller
Ms. Coleman is a Chartered Accountant with over 10 years of experience in
the accounting industry. Her accounting background is in a variety of areas
including manufacturing and high-tech. Ms. Coleman's duties as Controller of
the Company include management of the accounting, management reporting,
banking, insurance and payroll.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of August 18, 2000 and assuming exchange
of all shares of Information Highway, Inc. for our shares as of February 23,
1999, the outstanding Common Stock owned of record or beneficially by each
Executive Officer and Director and by each person who owned of record, or was
known by us to own beneficially, more than 5% of Common Stock, and the
shareholdings of all Executive Officers and Directors as a group.
<TABLE>
<CAPTION>
Percentage
Shares of Shares
Name Owned Owned
---- --------- ----------
<S> <C> <C>
John G. Robertson(1)(2).................................. 2,975,000 36.52%
President and member of the Board of Directors
Jennifer Lorette(1)(3)................................... 234,500 2.9%
Executive Vice President, Secretary/Treasurer,
Chief Financial Officer and a member of the Board of
Directors
James L. Vandeberg(1)(3)................................. 123,400 1.5%
Chief Operating Officer and a member of the Board of
Directors
Donna Moroney(4)......................................... 74,000 .9%
Director, Vice-President, Legal and Administration,
and a member of the Board of Directors
Robertson Family Trust(5)................................ 2,448,000 30.1%
Access Information Services Inc.(6)...................... 398,000 4.9%
All Executive Officers & Directors as a Group (Four
Individuals)(7)......................................... 3,406,900 41.8%
</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 Information
Highway.com and may be deemed to be parents or founders of Information
Highway.com as that term is defined in the Rules and Regulations
promulgated under the 1933 Act.
(2) Includes 2,050,000 shares owned or controlled by the Robertson Family
Trust, 70,000 shares owned of record by SMR Investments, Ltd, a
corporation owned by Susanne Robertson, wife of Mr. Robertson, 10,000
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. Also includes 398,000 shares owned of record by Access
Information Services, a corporation owned by the trust. 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 100,000 options that are currently exercisable. Ms. Lorette's
address is the same as the Company's. Mr. Vandeberg's address is Ogden
Murphy Wallace, 2100 Westlake Center Tower, 1601 Fifth Avenue, Seattle,
Washington.
(4) Includes 50,000 options that are currently exercisable. Ms. Moroney's
address is the same as the Company's.
(5) Includes 398,000 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: (i) 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.
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<PAGE>
(6) 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.
(7) Includes 550,000 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 us the operation of which may result in a
change of control.
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock is a summary and is subject
to and qualified in its entirety by our articles of incorporation and bylaws,
which are included as exhibits to the registration statement of which this
prospectus forms a part, and by the applicable provisions of Florida law.
The authorized capital stock consists of 50,000,000 shares of Common Stock,
$0.0001 par value per share and 10,000,000 shares of Class A Preferred Stock,
$0.0001 par value per share. The holders of shares of common stock are entitled
to dividends, out of funds legally available therefor, when and as declared by
the Board of Directors. The Board of Directors has never declared a dividend
and does not anticipate declaring a dividend in the future. Each outstanding
share of common stock entitles the holder thereof to one vote per share on all
matters. The holders of shares of common stock have no preemptive or
subscription rights. The holders of shares of common stock do not have
cumulative voting rights in connection with the election of the board of
directors, which means that the holders of more than 50% of such outstanding
shares, voting for the election of directors, can elect all of the directors to
be elected, if they so choose, and, in such event, the holders of the remaining
shares will not be able to elect any of our directors. The Class A Preferred
Stock may be issued in series from time to time with such designations, rights,
preferences and limitations as the Board of Directors may determine by
resolution. The Board of Directors could use an issuance of Class A Preferred
Stock with dilutive or voting preferences to delay, defer or prevent a change
in control. In addition, the concentration of control over our common stock in
the Directors and Executive Officers could prevent any change in control not
acceptable to the existing Directors and Executive Officers.
INTERESTS OF NAMED EXPERTS AND COUNSEL
Neither Elliott Tulk Pryce Anderson nor Ogden Murphy Wallace, PLLC was
employed on a contingent basis in connection with the registration or offering
of Information Highway.com's common stock. James L. Vandeberg, of Ogden Murphy
Wallace, PLLC is the Chief Operating Officer and a Director of Information
Highway.com. Mr. Vandeberg directly owns 23,400 shares of the Registrant's
common stock and has options to acquire 100,000 shares of the Registrant's
common stock at a price of $4.00 per share that must be exercised by November
5, 2004.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATIONFOR SECURITIES ACT
LIABILITIES
Our bylaws provide that we will indemnify our officers and directors for
costs and expenses incurred in connection with the defense of actions, suits,
or proceedings against them on account of their being or having been directors
or officers of the Company, absent a finding of negligence or misconduct in the
performance of duty.
13
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Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the forgoing provisions, we have been informed that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in that Act and is, therefore,
unenforceable.
ORGANIZATION WITHIN LAST FIVE YEARS
Mr. Robertson and Ms. Lorette could be considered promoters of Information
Highway.com. Their interests in the Company, including the details of their
stock options, are disclosed below.
DESCRIPTION OF BUSINESS
Information Highway.com, Inc. serves as an Internet Service Provider, or
ISP, for companies and individuals that need access to the Internet in exchange
for a recurring fee. We have also developed and begun providing a compilation
of Internet-based services and information catering to business professionals
known collectively as www.theexecutive.com. We conduct our 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, initially 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, our telephone number is
(604) 278-5996 and our facsimile number is (604) 278-3409.
Business Development
Information Highway.com was incorporated in Florida in December 1988 as
Florida Venture Fund, Inc. Florida Venture Fund had not conducted any business
prior to February, 1999, when it engaged in a reverse takeover with Information
Highway, Inc., a Washington corporation. Information Highway, Inc. was formed
in October, 1996. It 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 Florida Venture Fund, Inc. by Information Highway, Inc. was conducted
pursuant to an Agreement and Plan of Reorganization entered into on February
17, 1999 and closed on February 23, 1999 between Florida Venture Fund, Inc.,
Information Highway, Inc. and certain shareholders of Information Highway, Inc.
Florida Venture Fund, Inc. acquired 3,235,000 common shares of
14
<PAGE>
Information Highway, Inc. (out of a total of 5,639,650 issued and outstanding
common shares) in exchange for 3,235,000 common shares of Florida Venture Fund,
Inc. In connection with the reverse takeover, Florida Venture Fund, Inc.
changed its name to Information Highway.com, Inc. It is our intention to
complete the exchange of shares of Information Highway.com common stock for the
remaining and outstanding common shares of Information Highway, Inc. on a one
for one basis. As of May 11, 2000 (date of exchange offering closing),
2,359,650 of the remaining 2,404,650 Information Highway, Inc. shares had been
exchanged for the same number of Information Highway.com shares. Information
Highway.com has allotted 45,000 shares in anticipation of the remaining shares
of Information Highway, Inc. being exchanged in the future. As part of the
Agreement and Plan of Reorganization, Information Highway.com 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 Information Highway,
Inc. to issue common shares pursuant to warrants and stock options issued by
Information Highway, Inc. $100,000 was paid by Information Highway, Inc. to the
controlling shareholder of Information Highway.com to effect the Agreement and
Plan of Reorganization including the cancellation of 1,659,833 share.
Overview of Information Highway.com's Business
We serve as an Internet Service Provider, or ISP, for companies and
individuals that need access to the Internet in exchange for a recurring fee.
We intend 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 us to avoid purchasing and installing backbone communications equipment
and infrastructure in each city where we plan to offer ISP services.
Our goal is to expand our ISP business throughout North America by
negotiating access to Virtual ISP backbone facilities and then repackaging that
access for sale to our customers and resellers (licensees). We have entered
into agreements that permit us to market access to the Internet user 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 we
provided ISP services, beginning about four years ago.
We believe that Internet users will begin to base their selection of an ISP
in part on the value-added services that their ISP provides. Through our portal
site compilation of Internet-based services and information, we provide
localized and portal content catering to business professionals. Through
research, design, programming, co-branding, and licensing, we have compiled
Internet services and content in our portal site that we believe are useful to
companies, associations and professionals. Portal site web pages are designed
specifically for targeted user groups, and we believe they provide friendly,
easy to navigate interfaces. Our basic portal site may be accessed through the
Internet at www.theexecutive.com. Other portal sites are customized to the
needs of specific Internet subscriber groups (whether by geographic location or
entity affiliation) and have different Internet addresses.
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.
15
<PAGE>
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 CyberAtlas, the
Computer Industry Almanac conducted a study that found that North America will
remain the leading region for Internet users until at least 2005, projecting
that it will grow from about 83 million Internet users at the end of 1998 to
nearly 230 million by the end of 2005. By the end of the year 2000, the
Computer Industry Almanac projects that Internet users in North America will
number almost 149 million. The Computer Industry Almanac defines Internet users
as adults with weekly usage in businesses and homes.
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 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
Information Highway.com, 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. Like most regional and national ISPs, we offer direct Internet
access.
Principal Services
We currently derive the overwhelming majority of our revenues (approximately
98%) from our ISP business. However, in the near future we expect that, with
the advertising and e-commerce marketing plans currently undertaken, an
increase in our revenues will be generated from our licensed portal partners,
licensed resellers, and high speed Digital Subscriber Line (DSL) customers in
the North American market. Over the past 18 months, we have devoted significant
resources to developing our portal site, which provides localized and portal
content catering to business professionals. We believe that the portal site
will ultimately produce significant revenues, as well as complement our 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. We possess
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 we cannot guarantee
that we would maintain service in the face of every kind of natural disaster or
man-made disruption). We have the capacity to increase hardware storage
capabilities due to the modular nature of our equipment and without system
downtime.
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ISP Services
We serve as an ISP for companies and individuals that need access to the
Internet in exchange for a recurring fee. We 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. Our costs of providing
ISP services have historically included equipment installation and ongoing
service and maintenance charges. We intend to provide ISP services to a
steadily growing number of cities in North America as a Virtual ISP by
providing Internet access to our customers using the underlying
telecommunications infrastructure of other companies, such as telephone
companies. The Virtual ISP business model can enable us to avoid purchasing
hardware and installing backbone communications equipment and infrastructure in
each city where we plan to offer ISP services. As we introduce our Virtual ISP
presence in additional cities, each city will represent an increased lease
charge under our agreements with Internet access providers due to the need to
add bandwidth to accommodate the customer base in the new market. As we expand
our presence in a particular market, we will require additional increases in
bandwidth depending on data transmission volumes.
Our goal is to expand our 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 our customers and
resellers (licensees). We have entered into agreements that permit us 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, we
entered into an agreement with Bell Atlantic that lets us provide Internet
access in the Northeast United States on high-speed Digital Subscriber Lines,
or DSLs. The agreement has a three-year term and is subject to renewal annually
thereafter. Under the agreement, we pay fees to Bell Atlantic monthly based on
a per-user basis. In March 1999, we entered into an agreement with Level 3
Communications that lets us 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, we pay 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, we entered into an agreement with Metro Net Communications, recently
acquired by AT&T, which permits us 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, we pay fees to Metro Net Communications
based on a per-port fee. We plan to pursue agreements with additional Internet
access providers based on the markets we seek to serve and the acceptability of
the terms offered by Internet access providers serving those markets. We must
develop and maintain our relationships with telecommunications companies in
order to implement our Virtual ISP business model and facilitate broad market
acceptance in North America of our services and enhance our sales.
We select certain target markets in which we will offer our services and
commit corresponding resources for marketing and infrastructure. We base our
target market assessment on four years of research and development through our
involvement in the Internet industry. Because we do not have a universal
presence on the Internet as an ISP, our ability to achieve market penetration
in the target markets we select to serve has a significant effect on our
ability to maintain and increase our revenues. As of January 31, 2000, we had
approximately 15,000 dial-up customers through our own ISP service and through
our resellers in North America.
Maintaining market penetration successes by minimizing customer turnover
also has a significant effect on our ability to maintain and increase our
revenues. We have had an overall rate of customer turnover during the past four
years of approximately 6,000 ISP customers. A large portion of this turnover
has occurred due to some technical difficulties rolling out new AT&T (formerly
MetroNet) leased lines. A higher percentage of customers than usual have
terminated service due principally to slow transmission speeds and inadvertent
disconnection of transmissions. We are working with AT&T to correct these
problems. We expect customer turnover to increase in the future as competition
intensifies. We expect that service quality (i.e., data transmission speed and
periods of down time) and price will be the major factors that influence ISP
users to switch their ISP. We believe that the availability of customized
portal sites (and other such similar Internet link compilations targeted to
specific user groups) with our value-added services will increasingly become
another factor that ISP customers will consider in their assessment of service
quality.
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We currently have a significant market presence (more than 13,000 dial-up
ISP customers) in Toronto. In addition, we have begun to provide ISP services
in Vancouver and Calgary as a Virtual ISP. We can now offer through Level 3's
fibre optic backbone broadband ISP services in Seattle, Washington, D.C.,
Dallas, Houston, Philadelphia, San Francisco, Miami, New York, Baltimore and
Los Angeles. We will add additional cities to our service area as we assess the
market opportunities and the terms available from Internet access providers.
Recent Developments
In December 1999, we completed a license agreement with ISP Power
Corporation, whereby we licensed ISP's PRISM software that provides integrated
billing and customer care software solutions, which will consolidate all of our
billings and customer related management needs into one powerful, flexible and
automated package that reduces costs and increases profits. The PRISM software
integrates into the Microsoft Commercial Internet System. This software package
provides up-to-date information about customers and enables us to co-brand our
billing system to our Virtual ISP's, while allowing them to retain their own
identity, even when it relates directly to the billing of their customers. With
the installation of this new software and the implementation of Microsoft's
MCIS system, we can now scale up to 10,000,000 users by increasing its
hardware.
On August 24, 1999, we entered into a multi-user DSL agreement with Bell
Atlantic Data Solutions to sell multi-user ADSL (Asymmetric Digital Subscriber
line) service, Internet access and ancillary services. This enables us to offer
to our business customers ADSL Internet service for up to 30 users over one
phone line within the Bell Atlantic footprint in the United States, which
consists of thirteen states from Virginia to Maine. We will offer three types
of Infospeed DSL with downstream speeds of up to 7.1 Mbps and upstream speeds
of up to 680 Kbps.
In February 2000, we launched our Voice Over Internet Protocol (VoIP) analog
program, beginning with production on its rollout program in Canada utilizing
AT&T's fibre optic backbone. With our gateway (www.ihwyphone.com) basic and
enhanced voice services over the Internet, including voice enhanced web
commerce and interactive multimedia communications are now offered.
On February 17, 2000, we entered into a partnership agreement with
LinuxWizardry Systems, Inc. to distribute and market its Linux based, low cost
router to our customers. The Linux operating system allows for an easy
configuration of Internet routers and network appliances through a drag and
drop graphical user interface. The LinuxWizardry router will not require an
expensive network specialist to configure the LinuxWizardry router and will
therefore allow small businesses to take control of their networks.
We selected Ramp Networks, Inc. to provide ADSL solutions to our small
businesses and residential markets in the Bell Atlantic footprint in the
Eastern United States, as well as selected cities served by Level 3
Communications nationwide. High-speed ADSL service with the WebRamp 600I,
Ramp's enhanced platform for software and services, is available through our
network of ISPs. Ramp is also a licensed reseller of our Internet service and
related services through Ramp's value-added resellers.
In March 2000, we launched our Spanish portal site
(http://latino.theexecutive.com), which Portal site offers free access for
Spanish speaking users, allowing them access to all of our standard service on
its portals. We are also in the process of co-branding further content and
shopping resources with www.itiendas.com, www.espanol.com and CD NOW in
Spanish.
Effective March 2000, we commenced trading on the newly created High Risk
Market on the Hamburg Stock Exchange, which is a market that features
predominantly US companies listed on the OTC Bulletin Board or the NASDAQ
exchange.
In June, 2000, we signed a non-exclusive license with The Eezinet
Corporation expanding a portal site previously granted for New York City, New
York to a nationwide portal throughout the United States. Eezinet was also
granted a license to resell our portals, with any revenues received to be
divided equally between Eezinet and Information Highway.com.
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Our Portal Site
We believe that Internet users will begin to select their ISP based in part
on the value-added services that their ISP provides. Through our portal site
compilation of Internet-based services and information, we provide localized
and portal content designed to cater to business professionals. Through
research, design, programming, co-branding, and licensing, we have compiled
Internet services and content in our portal site that we believe are useful to
companies, associations and professionals. Portal site web pages are designed
specifically for targeted user groups, and we believe they provide friendly,
easy to navigate interfaces. Our basic portal site may be accessed through the
Internet at www.theexecutive.com. Other portal sites are customized to the
needs of specific Internet subscriber groups (whether by geographic location or
entity affiliation) and have different Internet addresses.
We are now licensing customized portal sites to other ISPs, companies and
individuals throughout North America. We also offer our clients the ability to
market their products and services to portal site users through our Virtual
Mall. We believe the portal site will be popular because most business
professionals do not want to spend a lot time surfing the Internet for the
information that they need. The portal site has assembled a functional portal
site to enable users to access the information they require immediately. Portal
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;
. Find a suitable restaurant in their area;
. Participate in online forums;
. Use of our virtual shopping mall;
. Carry out electronic transactions via e-commerce; and
. Use our Web-based Internet based Voice Over Internet Protocol service
We do not charge a fee for access to our portal site. We charge a design fee
and a recurring maintenance fee for our portal site partners that we customize
for companies or associations. We also charge a monthly maintenance fee when we
license portals to other ISPs to display our customized portal site. We receive
additional revenues from advertising and e-commerce generated from each
customized portal site. Our portal site has two main purposes. One important
purpose of the portal site is to provide our value added services. 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, we believe that when information and services are properly
bundled, Internet users 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. Our portal
site aims to provide content customized to the needs of our dial-up users,
partners, specific interest groups, companies, and associations.
Although anyone with Internet access will be able to visit the basic portal
site or the customized regional sites maintained by us, only our (or one of its
ISP licensee's) ISP customers will be able to access certain value-added
services available on the portal site. For example, we currently offer our ISP
customers e-mail with no additional charge, and plan to offer 100 minutes of
voice-over Internet Protocol, or IP, phone service with no additional charge.
Anybody accessing a portal site who is not an ISP customer of ours (or one of
our ISP licensees) cannot access these value-added services without any
additional charge. We believe that by
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providing these value-added services, along with the other useful services and
content conveniently located at the portal site, we will have a competitive
advantage in attracting and retaining ISP customers.
Our portal site's second main purpose is to be a profit center. We believe
that the portal site will ultimately become a profit center in its own right.
We believe we can generate non-ISP revenues by providing information organized
and packaged for consumers and businesses. While people will not pay for raw
information, we believe that when information and services are properly
bundled, two distinct revenue streams are available. One revenue stream will be
available from licensees that wish to customize our portal site for their own
targeted user group. Such licensees would include other ISPs, companies and
associations. We believe that they will pay for the convenience, organization,
relevance, and meaningful communication provided by the pre-packaged portal
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 our ISP customers and licensees, or those of other
unrelated ISPs) visiting the portal site and accessing its information and
services. This revenue stream would include advertising and e-commerce
commission revenues. Our portal site is a new concept and, while we have high
hopes for its ultimate success, has yet to provide material revenues.
We have committed significant resources to the development of the portal
site, and we intend to continue to commit significant resources to its
development, maintenance and marketing and advertising. Through research,
design, programming, co- branding, and licensing, we compile 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 dial-up access to the
service to their users, members, associates, or employees. In other words, the
portal site makes available Internet comprehensive services such as 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 portal site's
information and service components, we 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 maintenance fees, will be charged for the development of a customized
portal site. The modular nature of the portal site's information and service
components will also facilitate establishing local customized portal sites in
those markets where we, or one of our licensees, seek to establish or maintain
an ISP presence.
Our portal site, with its value-added services, is available to Internet
users, and a print and Internet advertising campaign is currently underway to
attract additional Internet users (prospective new ISP customers) to the portal
site. We also have succeeded in attracting some business advertising, and we
intend to seek additional advertising customers. We have also introduced our
Virtual Mall. The Virtual Mall provides links to web pages where Internet users
can view merchandise and make purchases using their credit cards. We either
receive a commission from the vendor when an Internet user makes a purchase
after entering a web page through the Virtual Mall or we receive rent from the
vendor for providing a link to the vendor's web page from the Virtual Mall.
We also license portal sites to third parties that want to display their own
web pages. Since March 1999, we have licensed our portal site to five partners
in the United States. Pursuant to the licenses, we developed private-labeled
versions of the portal site for the licensees for their customers throughout
Canada and the United States. The licensees paid an initial set up fee and pay
a monthly maintenance fee. Each licensee also shares with us the advertising
and e-commerce revenues generated from the portals. In April 1999, we also
licensed a Spanish version of our portal site to an ISP in Mexico City, Mexico.
We believe that we will continue to enter into license agreements with other
ISPs, companies and associations in the future. We are currently pursuing an
aggressive advertising and marketing campaign underway throughout the United
States and Canada.
Although the portal site (www.theexecutive.com) does not yet provide a
material portion of our revenues, we believe that in the near future the
revenues generated by the licensing of portal sites will increase both in
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terms of absolute dollars and as a percentage of total revenues. We constantly
assess the content of the portal site, adding, deleting or substituting
information or services when warranted. Currently the major components of the
portal site include:
. Ichat Rooms's chat room system;
. Information Highway.com's Virtual Shopping Mall
. Information Highway.com's Travel and Destination Guides
. Yahoo Online Television Broadcast
. Screaming Media, a comprehensive service of entertainment, sports,
stocks, weather, etc.
. Web-based E-mail
. Online Education
. VoIP Web-based Internet Long Distance Phone Calls
. Paytrust Bill Payment System
Some of this content is actually resident on our web pages, and some of it
is accessed by links to other websites. 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, we generally share revenue with the content provider for the web page.
In addition, we entered into a two year licensing and multicasting agreement
with broadcast.com. We will sell broadcast.com's services to associations,
local ISPs, portal 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. We 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. We
anticipate entering into similar agreements in the future to fully develop and
expand the content in the portal site. New content suppliers are constantly
being identified for existing and potential portal 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. We currently or potentially compete with
many other ISPs, providers of Web directories, search and information services,
as well as traditional media, for consumer attention and advertising
expenditures. We expect 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 websites at a relatively low cost.
Accordingly, we believe that our success will depend heavily upon achieving
significant market acceptance before our competitors and potential competitors
introduce competing services. We compete 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.
We compete with online services and other websites, 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 web pages, has recently increased substantially. Accordingly, we may face
pricing pressure on our e-commerce commissions and for the sale of
advertisements.
Many of our competitors, as well as potential entrants into our markets,
have longer operating histories, larger customer or user bases, greater brand
recognition and significantly greater financial, marketing and other resources
than we do. Many of these current and potential competitors can devote
substantially greater
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resources to promotion and website and systems development than we can. 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 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
our portal site may more tightly integrate these affiliated offerings into
their browsers or other products or services. Any of these trends would
increase the competition we face.
Governmental Regulation
The laws and regulations applicable to the Internet and to our services are
evolving and unclear and could damage our 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 us 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 us 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 our
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 us. Also, Congress
recently passed (and the President has signed into law) the Digital Millennium
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,
the United States recently enacted 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. We cannot currently predict the effect, if any, that this
legislation will have on our business. There can be no assurance that this
legislation will not impose significant additional costs on our business or
subject us 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. We may be
subject to claims that our services violate such laws. Any new legislation or
regulation in the United States or abroad or the application of existing laws
and regulations to the Internet could damage our 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 our
transmissions or prosecute us for violations of their laws. We might
unintentionally violate such laws. Such laws may be modified, or new laws may
be enacted, in the future. Any such development could damage our business.
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Other Information
Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We have increased, and plan to continue to increase, the
scope of our operations. Our staff has grown and will continue to grow
substantially. At August 1, 2000, we had a total of 34 employees. We are
continuing to expand our infrastructure, including hiring new employees when
required, including key employees in marketing and technology development. We
will need to expand our 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.
We do not believe that environmental laws have or will have a significant
effect on our business. In their report on our financial statements, our
auditors have expressed doubt about our ability to continue in business as a
going concern. We will need additional funds to continue in business and to
implement our business plan as proposed, which we may not be able to obtain.
Equity or debt financing may not be available to us on terms acceptable to us,
or at all. We have undertaken steps to address Year 2000 Issues.
Available Information and Reports to Securities Holders
Information Highway.com has filed with the Securities and Exchange
Commission a registration statement on Form SB-2 with respect to the common
stock offered by this prospectus. This prospectus, which constitutes a part of
the registration statement, does not contain all of the information set forth
in the registration statement or the exhibits and schedules which are part of
the registration statement. For further information with respect to Information
Highway.com and its common stock, see the registration statement and the
exhibits and schedules thereto. Any document Information Highway.com files may
be read and copied at the Commission's Public Reference Room located at 450
Fifth Street N.W., Washington D.C. 20549, and the public reference rooms in New
York, New York, and Chicago, Illinois. Please call the Commission at 1-800-SEC-
0330 for further information about the public reference rooms. Information
Highway.com's filings with the Commission are also available to the public from
the Commission's website at http://www.sec.gov.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus 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 our Financial Statements and the 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. Our 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 prospectus.
Overview
We serve 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. We intend 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 us to avoid purchasing
and installing backbone communications equipment and infrastructure in each
city where we plan to offer ISP services.
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Our goal is to expand our ISP business throughout North America by
negotiating access to Virtual ISP backbone facilities and then repackaging that
access for sale to our customers and resellers (licensees). We have entered
into agreements that permit us 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. Our Northeast United States Internet access agreements
permit us to provide Digital Subscriber Line, or DSL, access, which enables
users to remain connected to the Internet 24 hours a day, eliminating annoying
busy signals, as well as the time and cost of waiting to connect, without
disrupting the subscriber's normal telephone service. Toronto, Ontario is the
first market in which we provided ISP services, beginning about four years ago.
We believe that Internet users will begin to base their selection of an ISP
in part on the value-added services that their ISP provides. Through our portal
site compilation of Internet-based services and information, we provide
localized and portal content catering to business professionals. Through
research, design, programming, co-branding, and licensing, we have compiled
Internet services and content in our portal site that we believe are useful to
companies, associations and professionals. Portal site web pages are designed
specifically for targeted user groups, and we believe they provide friendly,
easy to navigate interfaces. Our basic portal site may be accessed through the
Internet at www.theexecutive.com. Other portal sites are customized to the
needs of specific Internet subscriber groups (whether by geographic location or
entity affiliation) and have different Internet addresses.
We plan to market the portal site throughout North America, starting with
our Virtual ISP locations. We may also let other ISPs display customized portal
sites in certain markets. We also offer our commercial clients the ability to
market their products and services to portal site users through our newly
developed Virtual Mall.
Our portal site has assembled a functional business site to enable business
professionals to immediately find what they need rather than spending time
searching the Internet for the information they need. Portal site users are
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.
We do not charge a fee for access to the basic portal site. We charge a
design fee and a recurring maintenance fee for portal sites that we customize
for companies or associations. We also charge a monthly maintenance fee when we
license portals to other ISPs to display a customized portal site. We receive
additional revenues from advertising and e-commerce transactions generated from
each customized portal site.
We Conduct Our Operations Through One Wholly-owned US Subsidiary and Three
Wholly-owned Canadian Subsidiaries
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. 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 During Fiscal 1999
The reverse take-over was conducted pursuant to an Agreement and Plan of
Reorganization entered into on February 17, 1999 and completed on February 23,
1999 between Florida Venture Fund, Inc., Information Highway, Inc. and certain
shareholders of Information Highway, Inc. Florida Venture Fund, Inc. acquired
3,235,000 common shares of Information Highway, Inc. out of a total of
5,639,650 issued and outstanding common shares in exchange for 3,235,000 common
shares of Florida Venture Fund, Inc. It is Information Highway.com's intention
to complete the exchange of shares of its common stock for the remaining and
outstanding common shares of Information Highway, Inc. on a one for one basis.
As of May 11, 2000 (date of exchange offering closing), 2,359,650 of the
remaining 2,404,650 Information Highway, Inc. shares had been exchanged for the
same number of Information Highway.com shares. Information Highway.com has
allotted 45,000 shares in anticipation of the remaining shares of Information
Highway, Inc. being exchanged in the future. As part of the Agreement and Plan
of Reorganization, Information Highway.com 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 Information Highway, Inc. to issue
common shares pursuant to warrants and stock options issued by Information
Highway, Inc. $100,000 was paid by Information Highway, Inc. to the controlling
shareholder of Information Highway.com to effect the Agreement and Plan of
Reorganization including the cancellation of 1,659,833 shares.
For accounting purposes the acquirer was the legal subsidiary, Information
Highway, Inc., as approximately 95% of the issued and outstanding common shares
of Florida Venture Fund, Inc. at the time of the reverse takeover were owned by
the shareholders of Information Highway, Inc. and the Board of Directors of
Information Highway, Inc. now comprises Information Highway.com's Board of
Directors. As Information Highway, Inc. is the legal subsidiary of Information
Highway.com, Inc., the nature of the business combination is a reverse takeover
whereby the control of the assets and the business of Florida Venture Fund,
Inc. (as it was then named) was acquired by Information Highway, Inc. and the
consolidated financial statements are issued under the name of Information
Highway.com, Inc., but is a continuation of Information Highway, Inc. and not
Florida Venture Fund, Inc. The legal capital structure remains that of Florida
Venture Fund, Inc. but the stated shareholders' equity of Information Highway,
Inc. has replaced the stated shareholders' equity of Florida Venture Fund, Inc.
Similarly, Florida Venture Fund, Inc.'s statements of operations and cash flows
represent a continuation of Information Highway, Inc.'s consolidated financial
statements.
Factors Affecting Ongoing Operations
Prior to acquiring Information Highway, Inc. in February, 1999, we had not
conducted any business since inception in 1988. The following discussion
relates to Information Highway, Inc.'s continuing operations and not that of
the Information Highway.com prior to the reverse takeover.
Although planned principal activities have started producing significant
revenues, in our effort to rapidly expand infrastructure and network services
and develop the portal site, we have suffered net losses each quarter to May
31, 2000. At May 31, 2000, our accumulated deficit was $5,791,319 and our
working capital was $579,367. We expect to incur substantial operating losses,
net losses and negative operating cash flow for the near term.
Revenues
Revenue consists of mainly the provision of Internet dial-up services. We
receive limited revenue from banner advertisements, web-site development and
hosting, e-commerce commission revenue and the resale of products over the
Internet.
We completed a license agreement with ISP Power Corporation in early
December. ISP Power Corporation's PRISM Software provides integrated billing
and customer care software solutions. The PRISM software will consolidate all
of our billing and customer related management needs into one powerful,
flexible and automated package that will help reduce costs and increase profits
for ourselves.
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The PRISM software integrates into the Microsoft Commercial Internet System
(MCIS), which enables us to provide up-to-the-minute billing information to
customers. In addition, we will be able to co-brand our billing system for
Virtual ISP's, thereby allowing us to retain our own identity, even when it
relates directly to the billing of our customers.
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 our revenue:
. Service Offering--We derive most of our operating revenue from the ISP
service we provide to our customers;
. Penetration of Target Markets--We select certain target markets in which
we will offer our services and commit corresponding resources for
marketing and infrastructure. We base our target market assessment on
two years of research and development through our involvement in the
Internet industry. Our ability to achieve market penetration in the
target markets we select to serve has a significant effect on our
ability to maintain and increase our revenues;
. Turnover--Maintaining market penetration successes by minimizing
customer turnover also has a significant effect on our ability to
maintain and increase our revenues. To date, customer turnover has been
minimal. We expect customer turnover to increase in the future as
competition intensifies. We expect 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;
. Portal site--Portal site revenues, which to date are mostly from
advertising, are not yet material to our total revenues. We expect that
advertising and e-commerce commission revenues related to our customized
portal site, as well as fee-based revenues from customized portal site
licensees, will grow in the future, both in dollar amount and as a
percentage of our total revenues.
Cost of Revenues
Cost of revenues consists primarily of the cost of serving our 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.
Our network and service costs have historically included equipment
installation and ongoing service and maintenance charges. As we introduce our
Virtual ISP presence in additional cities, each city will represent an
increased lease charge under our agreement with Internet access providers due
to the need to add bandwidth to accommodate the customer base in the new
market. We have entered into agreements that permit us 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. Our Northeast United States Internet
access agreements permit us to provide Digital Subscriber Line, or DSL, access,
which enables users to remain connected to the Internet 24 hours a day,
eliminating annoying busy signals, as well as the time and cost of waiting to
connect, without disrupting the subscriber's normal telephone service. As we
expand our presence in a particular market, we will require additional
increases in bandwidth depending on data transmission volumes.
Other Operating Expenses
Our other operating expenses include portal site 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
our portal site and the locations in which we provide ISP services and
increases in the number of our customers, will drive increases in expenses.
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Results of Operations for the Year Ended May 31, 2000 as Compared to the Year
Ended May 31, 1999
Revenues
Revenues increased by $193,000 (19%) to $1,202,000 from $1,009,000 in 1999.
This increase was due to an increased subscriber base in Vancouver and Toronto
and selling products over the Internet which totaled $22,000. Based on
assumptions about demand for our ISP services and our portal site, we
anticipate that the dollar amount of future revenues will increase over current
levels. We have switched on 50 ports (minimum per agreement with Level 3
Communications) in each of 7 cities which enable us to service up to 500
customers in each city. The cost of these portals for the year ended May 31,
2000 was $210,334 which was charged against general and administrative expenses
as there was no revenue generated during the period from these ports.
We are beginning to receive small amounts of revenue from banner
advertisements, developing web-sites for customers, reselling portal site
information and service modules pursuant to license agreements and reselling
product over the Internet. We have also sold product over the Internet pursuant
to a Resellers Agreement. Sales from this source were $22,000 and costs were
$18,000.
Cost of Revenues
Cost of revenues increased by $731,000 (94%) to $1,507,000 from $776,000 in
1999. One-time catchup Internet and telephone charges, totalling $220,000, were
paid or accrued during 2000. These are not expected to occur in future. The
largest components of cost of revenues are telephone costs and Internet and
license fees. The increases in these costs are reflective of the increase in
our subscriber base. Sales increased by 21% while cost of revenues increased by
66% not including the one-time catchup charges. We realized some economy of
scale because some of the fixed cost of revenue relates to equipment and rent.
We completed a license agreement with Virtual Plus Technologies, LLC to sell
dial-up, ADSL Internet access service, web design and hosting and e-commerce
solutions to the Washington, DC area in addition to a non-exclusive license in
the Baltimore, Maryland area. We also licensed our customized portal site
www.theexecutive.com site to Virtual Plus Technologies for use in Washington,
DC and Baltimore, Maryland. The agreement represents the first step of our
North American rollout, in which we will license our services to other virtual
Internet partners on an exclusive or non-exclusive basis utilizing Level 3
Communications' advanced fiber optic network. We plan to aggressively market
our services to several other major US cities including Seattle, Dallas,
Boston, Chicago, Atlanta, Cincinnati, Detroit, Los Angeles, Miami, New York,
Orlando, Philadelphia, San Diego, San Jose, Tampa and New Jersey.
Gross Profit
After deducting the effect of the one-time catchup charges discussed above
gross profit decreased by $317,000 (136%) to ($304,000) from $233,000 in 1999.
Increased competition in the Internet Service Provider industry increases
pressure of fee reduction for new subscribers and renewing subscribers. We
intend 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 $254,000 (113%) to $478,000
from $224,000 in 1999. The major component of this increase was a result of a
marketing plan to increase advertisements in industry specific publications
throughout Canada. We had very little marketing and sales effort in 1999.
General and Administrative Expenses
General and administrative expenses for corporate overhead activities and
Internet business-related activities combined have increased by $2,340,000 to
$3,141,000 from $802,000 in 1999.
27
<PAGE>
General and administrative expenses relating to corporate overhead
activities, and not Internet business-related activities, have increased by
$2,104,000 to $2,582,000 from $478,000 in 1999. As a result of the reverse
takeover during February, 1999, we are now incurring expenses relating to being
an active operating public company and are incurring additional expenses
relating to investor relations and financial consulting.
Investor relations and financial consulting increased by $1,488,000 to
$1,594,000 as compared to $106,000 in 1999. Part of this increase was $679,000
paid in shares to IP Equity, Inc. for Internet-based marketing and financial
consulting services. Pursuant to this Agreement we were also committed to file
a Registration Statement registering these securities by November 6, 1999. We
agreed to pay interest of $23,000 per month until such time as the commitment
is met. During the year $147,000 was paid and charged to operations. A company
was paid $60,000 and was issued warrants valued at $147,800 for a marketing and
advertising program including banner ads, newsgroup coverage and press release
distribution. A company was issued 20,000 shares valued at $73,000 for European
investor relations.
Information Highway.com issued 130,000 common shares valued at $495,985 for
financial consulting services.
Professional fees increased by $48,000 to $218,000 from $170,000 in 1999.
These additional costs relate to a number of security issuances and regulatory
matters.
Another one-time charge was a $100,000 bonus declared payable to our
President for all prior services rendered.
General and administrative expenses relating to Internet business related
activities increased by $26,000 to $349,000 from $323,000 in 1999. The major
components of these expenses were: amortization of goodwill of $135,000,
salaries and consulting fees of $123,000 (up by $26,000) and telephone costs of
$44,000.
Product Development Expenses
Product development costs consist of expenses incurred by us in the
development and creation of our portal 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 $54,000 (35%) to $210,000 from
$156,000 in 1999. The major component of the increase in product development
expenses was salaries and consulting fees of $167,000 as we continue to expand
our services and improve our products.
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 $39,000 to $129,000 as compared to
$90,000 in 1999.
Purchased goodwill was 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 was
fully amortized by the end of the year.
We anticipate entering into operating and capital leases for any network
equipment and software in the future to minimize capital expenditures.
28
<PAGE>
Net Loss for the Year Ended May 31, 2000 as Compared to the Year Ended May 31,
1999
Our business 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 we operated in one geographic segment, being Canada,
located in Vancouver, BC and Toronto, Ontario. Subsequent to May 31, 1999 we
began expansion of our ISP business into 22 cities in the United States by
setting up Virtual ISP's. We have switched on 50 ports (minimum per agreement
with Level 3 Communications) in each of 7 cities which enable us to service up
to 500 customers in each city. The cost of these portals for the year ended May
31, 2000 was $210,000. There was no revenue generated during the period from
these portals.
Our head office is in Richmond, BC, Canada. The head office does not conduct
any business specifically related to the Internet. Our 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 $2,604,000 relating to such activities. The net loss relating to
Internet activities in Canada amounted to $1,320,000 and the net loss relating
to U.S. portals was $210,000.
Our net losses have come mainly from investor relations activities and
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 our marketing plan into other North American
markets. Other operating activities conducted in the United States thus far
were expenses incurred including investor relations and professional fees.
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 our ISP services and our portal site, we anticipate that the dollar
amount of future revenues will increase over current levels.
We are beginning to receive small amounts of revenue from banner
advertisements, developing web-sites for customers and reselling product
pursuant to license agreements.
Cost of Revenues
Cost of revenues have 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 our subscriber base.
Gross Profit
Gross profit was 23.1% in fiscal 1999 as compared to 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 as there is
not a reciprocal decrease in cost to service our customers. We plan to decrease
the cost of telephone and Internet switching fees with new agreements with
backbone or bandwidth providers.
29
<PAGE>
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, we 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, or to be incurred, to complete and file various
documents with the NASD and the United States Securities and Exchange
Commission on Form 10-SB, 10-QSB, S-8 and 10-KSB 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. 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 was; $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
reapplying 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 our senior management.
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
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 component of general and
administrative expenses was; 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 us in the
development and creation of our portal 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.
30
<PAGE>
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.
We anticipate entering into operating leases for any network equipment and
software in the future to minimize capital expenditures.
Income Taxes
We generated US and Canadian net operating losses, or 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. We expect
some consolidated losses for the foreseeable future which will generate
additional NOL's. However, our ability to use NOL's is dependant on generating
profits in the future and may also be subject to annual limitations. In
addition, income taxes may be payable during this time due to operating income
in certain tax jurisdictions. In the future, if we achieve operating profits
and the NOL's have been exhausted or have expired, we may experience
significant tax expense. We recognized no provision for taxes because we
operated at a loss from inception through to May 31, 1999. The deferred tax
asset value has been reduced to nil because we can not be assured that it is
more likely than not that we will utilize the NOL's carried forward in future
years. If it was more likely than not to realize these losses we 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
Our 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 our 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. Our head office is in Richmond, BC, Canada which does not
conduct any business related to the Internet. Our 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 at May 31, 2000
We have historically satisfied our capital needs by borrowing from
affiliates in the short-term and by issuing equity securities.
We have also used these sources to provide a portion of our operating cash
requirements to make up for a cash shortfall from operating activities. During
the year, we used $3,652,000, generated by issuing equity securities, to fund
our operating cash shortfall of $2,469,000 to repay borrowings from affiliates
of $102,000, to make capital expenditures of $251,000 and to increase our cash
position by $820,000 to $858,000. The operation, development and expansion of
our business will likely require additional capital infusions for the
foreseeable future.
31
<PAGE>
We have working capital, as at May 31, 2000, of $579,000, and will require
additional funds to finance our ongoing operating activities for the
foreseeable future and will need some funds for capital expenditures. We plan
to manage our payables balances and satisfy our operating and capital needs
partially by generating cash (although at a shortfall) through our operating
activities and partially through issuing equity securities.
We will require additional financing in order to carry out our business plan
as proposed. Our capital requirements may vary based upon: the timing and
success of our roll out and as a result of regulatory, technological and
competitive developments; demand for our services or our anticipated cash flow
from operations is less or more than expected; our development plans or
projections changing or proving to be inaccurate; it engaging in any
acquisitions; or it accelerating deployment of our network services or
otherwise altering the schedule or targets of our roll out plan.
We will need additional funds to continue in business and to implement our
business plan as proposed. On March 7, 2000 we received gross proceeds of
$1,500,000 (net proceeds of $1,332,727 after a commission of $150,000 and legal
fees of $17,272 were paid) pursuant to the issuance of our $1,500,000 principal
amount of 5% Convertible Debentures. We also issued to the Debenture holder a
warrant to acquire 225,000 of our shares exercisable at $6.22875 expiring March
3, 2002. We are incurring penalties pursuant to a Registration Rights Agreement
with the Debenture holder. Until the Registration Statement of which this
Prospectus is a part is declared effective by the Securities and Exchange
Commission, we will incur penalties of $30,000 per month. We have been paying
these penalties each month as we receive invoices for the fees.
By filing a registration statement to permit selling shareholders to sell
their shares of our common stock, our ability to raise funds through private
placements of our common stock will be curtailed. We will have to be sure that
any private placement we undertake would not be considered to be in connection
with the public offering of our common stock by the selling shareholders under
the registration statement that includes this prospectus. There can be no
guarantee that additional capital will be available to us on acceptable terms,
or at all.
We have not achieved profitable operations since our inception and have
suffered mounting losses of $5,776,555 to May 31, 2000. In their Independent
Auditor's Report, our accountants state that there is risk that our ability to
continue as a going concern could be in jeopardy and our ability to continue as
a going concern is dependent upon our successful efforts to raise additional
equity financing over the next twelve months, and further develop the market
for our products and services.
On June 30, 2000, we entered into an agreement to purchase a travel agency
located in British Columbia, Canada for a total of $125,000 Canadian. The
acquisition is contingent upon approval from the Registrar of Travel Services
and the International Air Transport Association.
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. Our strategy now is to create Virtual ISP
presences in new markets (i.e., North American cities) pursuant to our
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. We 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. We have
switched on 50 ports (minimum per agreement with Level 3 Communications) in
each of 7 cities which enable us to service up to 500 customers in each city.
The cost of these portals for the year ended May 31, 2000 was $210,000. There
was no revenue generated during the year from these portals. We expect our
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 our defined markets. We made
capital expenditures of $349,000 in the current year, principally to acquire
hardware related to the development and maintenance of the portal site.
Included in this is $96,000 of computer equipment acquired by way of a capital
lease.
32
<PAGE>
Year 2000 Issues
We cannot provide assurance that we will not experience unanticipated
negative consequences from year 2000 problems, including material costs caused
by undetected errors or defects in the technology used in our internal systems
as we operate in the Year 2000.
We Did Not Experience Any Problems With Our Systems or Service Providers During
the Year 2000 Rollover Period
Our online services and their associated and supporting tools, Web sites and
infrastructure were designed and developed to be year 2000 compliant. Our
internal systems, including those used to deliver our services, utilize third-
party hardware and software. Based on vendors' representations received thus
far and our experience with the Year 2000 rollover, we believe that the third-
party hardware and software it uses is year 2000 compliant.
To date, we have 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. We presently estimate 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 we have 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 our year 2000 review and
remediation efforts to date, the recent development of our services, the recent
installation of our information technology equipment and systems, we do not
consider contingency planning to be necessary at this time.
We believe that any lingering Year 2000 problems will occur in the
processing of financial transactions. We believe that our billing systems will
accurately invoice our subscribers and licensees. We will remain vigilant in
our review of invoices from our vendors to detect potential Year 2000 errors in
their charges to us.
If we discover that certain of our services need modification, or certain of
our third-party hardware and software is not year 2000 compliant, we will try
to make modifications to our services and systems on a timely basis. We do not
believe that the cost of these modifications will materially affect our
operating results. However, we cannot provide assurance that we 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 our business and operating results.
DESCRIPTION OF PROPERTY
Our headquarters and executive offices are located at #185-10751 Shellbridge
Way, Richmond, British Columbia V6X 2W8 and our telephone number is (604) 278-
7494. Our 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). We also lease facilities
in Vancouver and Toronto. The Vancouver site supports both ISP services and the
portal site. The lease term is 28 months with monthly payments of approximately
$5,000.00 ($CN7,500.00). The Toronto offices support ISP services. The lease
term is 54 months with monthly payments of approximately $4,150 ($CN6,230). We
believe that our present facilities will be suitable for the operation of our
business for the foreseeable future. The facilities are adequately insured
against perils commonly covered by business insurance policies. These locations
could be replaced without significant disruption.
33
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At May 31, 2000 and 1999, we owed the amounts set forth below to the
following affiliated companies (in the case of the bracketed amounts, we were
owed the amounts set forth below by the following affiliated companies):
<TABLE>
<CAPTION>
May 31,
-----------------
Affiliate 2000 1999 Nature of Affiliation
--------- -------- ------- -------------------------------
<S> <C> <C> <C>
Access Information Systems... $ (7,000) $50,554 (1)
JGR Petroleum Inc............ $ 9,365 $ 6,000 Controlled by John G. Robertson
Reg Technologies, Inc........ $(20,727) $12,895 (2)
SMR Investment Ltd........... $(70,319) $33,527 (3)
</TABLE>
--------
(1) See 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
Canadian Venture 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. From 1977 through 1999, Mr. Robertson was 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) From 1977 through 2000, Mr. Robertson was 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.
From April, 1998 through February, 2000, Vandeberg Johnson & Gandara, a law
firm in which James L. Vandeberg, Information Highway.com's Chief Operating
Officer and a Director, was a partner, was paid $185,956.84 for legal services.
From March 1, 2000 through August 18, 2000, Ogden Murphy Wallace, PLLC,
Mr. Vandeberg's current firm, was paid $14,520.31 for legal services.
Mr. Robertson and Ms. Lorette could be considered promoters of Information
Highway.com. Their interests, including the details of their stock options, are
disclosed above.
No other compensation is paid to any of our Executive Officers or Directors.
We may in the future create retirement, pension, profit sharing, insurance and
medical reimbursement plans covering our Officers and Directors. At the present
time, no such plans exist. No advances have been made or are contemplated to
any of our Officers or Directors.
MARKET PRICE OF AND DIVIDENDS ON CAPITAL
STOCK AND OTHER SHAREHOLDER MATTERS
There is a limited public market for the Common Stock of Information
Highway.com which has traded on the OTC Bulletin Board under the symbol "IHWY"
since February 24, 1999. The high and low bid prices for the stock each
quarter, through May 31, 2000, as reported by Nasdaq Trading & Market Services,
are as follows:
<TABLE>
<CAPTION>
Bid Price
---------------
High Low
------- -------
<S> <C> <C>
Quarter ended February 28, 1999............................ $ 7.375 $0.00
Quarter ended May 31, 1999................................. $12.50 $3.375
Quarter ended August 31, 1999.............................. $13.00 $3.1875
Quarter ended November 30, 1999............................ $ 8.75 $2.50
Quarter ended February 29, 2000............................ $ 6.25 $3.94
Quarter ended May 31, 2000................................. $ 7.00 $1.875
</TABLE>
34
<PAGE>
These quotations reflect inter-dealer prices, without retail mark-up, mark-
down or commission and may not represent actual transactions. As of August 18,
2000, there were 8,113,334 shares of Common Stock outstanding, held by 185
shareholders of record and by various broker/dealers on behalf of an
indeterminate number of street name shareholders. As of August 18, 2000,
1,601,900 shares of common stock were subject to issuance pursuant to
outstanding options at prices ranging from $0.50 to $6.00 per share and 980,567
shares of common stock were subject to issuance pursuant to outstanding
warrants at prices ranging from $3.50 to $6.22875 per share.
<TABLE>
<CAPTION>
Number of
Shares Description
--------- -----------
<C> <S>
2,492,267 Currently issued and permitted to be sold in secondary market
without restriction
1,601,900 Options that could be exercised and then the shares resold
immediately in secondary market without restriction
125,817 Shares that may be sold beginning on various dates from December 8,
2000 to March 2, 2001 in secondary market without restriction
674,450 Shares that may be sold beginning on various dates from March 29,
2000 to February 18, 2001 in secondary market without restriction
129,750 Shares that may be sold beginning on various dates from May 27, 2000
to July 15, 2000 in secondary market without restriction
880,500 Shares that may be sold beginning February 23, 2001 in secondary
market without restriction*
129,750 Shares that may be sold beginning on various dates from March 3,
2001 to February 18, 2002 in secondary market without restriction*
674,450 Shares that may be sold beginning on various dates from May 27, 2001
to July 15, 2001 in secondary market without restriction
125,817 Shares that may be sold beginning on various dates from December 8,
2001 to March 2, 2002 in secondary market without restriction
155,000 Shares that may be sold beginning on various dates from May 15, 2001
to August 3, 2001
3,486,500 Shares held by affiliates that may be sold under either Rule 701 or
Rule 144 beginning March 29, 2000 and options held by affiliates
that may be exercised either pursuant to Rule 701 or Form S-8 (7
persons; each limited to 1% of outstanding shares every 3 months)
</TABLE>
--------
* Shareholders may sell earlier than date indicated subject to the limitation
that an affiliate may sell in the marketplace to approximately one percent
of outstanding shares of Information-Highway.com every three months
In addition, Information Highway.com has 980,567 warrants outstanding that
the holders may exercise up until dates ranging from October 6, 2000 to
December 1, 2002, entitling holders to purchase 980,567 shares of common stock
at prices ranging from $3.50 to $6.22875 per share.
Information Highway.com also has 1,601,900 options available for grant which
may be exercised up until dates ranging from January 26, 2003 to December 1,
2004, entitling holders to purchase 1,601,900 shares of common stock at prices
ranging from $0.50 to $6.00 per share.
To date, we have not paid any dividends on our Common Stock and do 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, our financial condition, and other factors as deemed relevant by our Board
of Directors.
35
<PAGE>
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 $100,000 during the past three fiscal
years. The information contained in the table relates to our predecessor (now
our subsidiary) prior to the February 1999 reorganization. Pursuant to
paragraph (a)(5) of Item 402 of Regulation S-B, the table omits columns that
are not applicable to Mr. Robertson's compensation.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
(a) (b) (e) (g)
Securities
Other Annual Underlying
Compensation Options/SARs
Name and Principal Position Year ($) (#)
--------------------------- ---- ------------ ------------
<S> <C> <C> <C>
John G. Robertson................................ 2000 148,000(1) 300,000
President and Chief Executive Officer 1999 575,500(2) 300,000
1998 48,000(3) 150,000
1997 30,000(4)
</TABLE>
--------
(1) We 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. We have
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. In addition, in
December 1999, a bonus was declared in the amount of $100,000. This amount
has not yet been paid to Mr. Robertson.
(2) On February 23, 1999 Mr. Robertson exercised 150,000 stock options with an
exercise price of $0.50 per share. Based on the closing market price of our
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. We 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. We have 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) We 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. We have
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.
(4) We 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. We have 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.
36
<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
Options/SARs Market Price of
Number of Securities Granted to Underlying
Underlying Employees in Security on Expiration
Name Options/SARs Granted Fiscal Year Exercise Price Grant Date Date
---- -------------------- ------------ -------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
John G. Robertson....... 300,000 50.4% $4.00 $4.50 May 21, 2004
</TABLE>
The following table sets forth certain information concerning exercises of
stock options pursuant to stock option plans by the named Executive Officer
during the year ended May 31, 2000 and stock options held at year end.
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at FY-End Options/SARs at FY-
(#) End ($)
---------------------- --------------------
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable
---- --------------- -------------- ---------------------- --------------------
<S> <C> <C> <C> <C>
John G. Robertson....... 0 0 300,000/-0- -0-(1)/-0-
</TABLE>
--------
(1) Mr. Robertson's 300,000 options were not in-the-money based on the August
18, 2000 closing price of $1.25 for our common stock.
We do 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. Ms. Lorette and Mr. Vandeberg each were granted options to purchase
100,000 shares of our common stock, due in part to their service as directors.
These options, granted during fiscal year 2000, are fully vested, have an
exercise price of $4.00 per share and must be exercised by November 5, 2004. We
have no obligation or policy to grant stock options to directors.
We may in the future create retirement, pension, profit sharing, insurance
and medical reimbursement plans covering our Officers and Directors. At the
present time, no such plans exist. No advances have been made or are
contemplated to any of our Officers or Directors.
We do not have any employment contracts, termination of employment and
change of control arrangements.
37
<PAGE>
INFORMATION HIGHWAY.COM, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Contents
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statements of Stockholders' Equity............................. F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
F-1
<PAGE>
[ETPA LOGO]
Report of Independent Auditors
The Board of Directors and Stockholders
Information Highway.com, Inc.
We have audited the accompanying consolidated balance sheets of Information
Highway.com, Inc. as of May 31, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
ended May 31, 2000 and 1999. 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. as of May 31, 2000 and 1999, and the results of its
operations, and changes in its stockholders' equity and cash flows for the
years ended May 31, 2000 and 1999 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 suffered mounting losses totalling $5,776,555 to May
31, 2000. 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 Note 1. 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
August 15, 2000
[igaf Logo]
F-2
<PAGE>
INFORMATION HIGHWAY.COM, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 31,
------------------------
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents............................... $ 857,949 $ 37,622
Accounts receivable................................ 32,839 --
Inventory (Note 5)................................. 121,264 9,695
Prepaid expenses................................... 150,420 70,487
Advances to related parties (Note 7)............... 36,391 --
----------- -----------
Total Current Assets................................. 1,198,863 117,804
Property, Plant and Equipment (Note 4)............... 490,750 270,092
Goodwill............................................. -- 134,848
----------- -----------
Total Assets..................................... 1,689,613 522,744
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable................................... 385,645 267,279
Accrued liabilities................................ 146,400 65,151
Deferred revenues.................................. 50,678 34,049
Advances from related parties (Note 7)............. -- 65,186
Current portion of obligations under capital leases
(Note 6).......................................... 36,773 --
----------- -----------
Total Current Liabilities............................ 619,496 431,665
Obligations under Capital Leases (Note 6)............ 61,717 --
Convertible Debentures (Note 5)...................... 1,346,437 --
----------- -----------
Total Liabilities................................ 2,027,650 431,665
----------- -----------
Commitments and Contingencies (Notes 1 and 10)
Stockholders' Equity (Deficit)
Common Stock (Note 8), 50,000,000 shares authorized,
par value $.0001 per share, 8,141,334 and 6,469,951
issued and outstanding respectively................. 814 647
Additional Paid in Capital--Common Stock........... 4,812,920 1,698,351
Additional Paid in Capital--Stock Warrants......... 651,120 --
Common Stock allotted and issued in subsequent
year.............................................. -- 50,000
----------- -----------
5,464,854 1,748,998
----------- -----------
Preferred Stock, 10,000,000 shares authorized, par
value $.0001 per share, none issued................. -- --
----------- -----------
Translation adjustments.............................. (11,572) (1,145)
----------- -----------
5,453,282 1,747,853
Accumulated Deficit.................................. (5,791,319) (1,656,774)
----------- -----------
Total Stockholders' Equity (Deficit)............. (338,037) 91,079
----------- -----------
Total Liabilities and Stockholders' Equity....... 1,689,613 522,744
=========== ===========
</TABLE>
(See accompanying notes)
F-3
<PAGE>
INFORMATION HIGHWAY.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended May 31,
-----------------------
2000 1999
----------- ----------
<S> <C> <C>
Revenues............................................. $ 1,202,135 $1,008,657
Cost of Revenues (Note 10)........................... 1,506,664 775,816
----------- ----------
Gross Profit......................................... (304,529) 232,841
----------- ----------
Operating Expenses
Marketing and sales................................ 478,301 224,492
General and administrative......................... 3,141,278 801,702
Product development................................ 210,437 155,520
----------- ----------
Total Operating Expenses......................... 3,830,016 1,181,714
----------- ----------
Net loss............................................. (4,134,545) (948,873)
=========== ==========
Basic loss per share................................. (.55) (.18)
=========== ==========
Weighted average shares used to compute basic loss
per share........................................... 7,427,000 5,382,000
=========== ==========
</TABLE>
Diluted loss per share has not been presented as the result is anti
dilutive.
(See accompanying notes)
F-4
<PAGE>
INFORMATION HIGHWAY.COM, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
--------------------------------
No. of Additional
Shares Par Value Paid-in
Issued $.0001 Capital Deficit
---------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Balance as at May 31, 1996,
1997, 1998 and prior to reverse
takeover on February 23, 1999.. 1,979,500 $ 198 $ 28,530 $ (28,728)
Reverse takeover adjustments
(Note 3)
Cancellation of shares for
no consideration........... (1,659,833) (166) 166 --
Elimination of deficit of
Company.................... -- -- (28,728) 28,728
Deficit of Information
Highway, Inc. as at May 31,
1998....................... (707,901)
Issuance of shares to effect
reverse takeover........... 5,639,650 564 1,355,634 --
Cost of reverse takeover
transaction................ -- -- (100,000) --
Shares issued for cash
pursuant to a private
placement.................... 15,000 1 11,249 --
Shares issued pursuant to
stock options exercised...... 237,334 24 125,476 --
Shares issued for services.... 15,000 1 53,749 --
Shares issued for property.... 3,000 1 11,999 --
Shares issued pursuant to
warrants exercised
(Note 8(a)(i))............... 240,300 24 240,276 --
Net loss for the year........... (948,873)
---------- ----- ---------- -----------
Balance as at May 31, 1999...... 6,469,951 647 1,698,351 (1,656,774)
Shares issued for cash
pursuant to an offering
memorandum (Note 8(a)(ii))... 129,750 13 461,987 --
Shares issued for cash
pursuant to a private
placement (Note 8(a)(iii))... 125,817 13 503,255 --
Less: Finders fee paid on
private placement............ -- -- (43,500) --
Value of warrants issued to
a consultant in connection
with the private
placement.................. -- -- (270,820) --
Shares issued pursuant to
stock options exercised...... 523,266 52 658,323 --
Shares issued pursuant to
warrants exercised
(Note 8(a)(i))............... 565,050 56 564,994 --
Shares issued for services
(Note 8(b)).................. 327,500 33 1,240,330 --
Net loss for the year........... (4,134,545)
---------- ----- ---------- -----------
Balance as at May 31, 2000...... 8,141,334 814 4,812,920 (5,791,319)
========== ===== ========== ===========
</TABLE>
(See accompanying notes)
F-5
<PAGE>
INFORMATION HIGHWAY.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended May 31,
----------------------
2000 1999
----------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss............................................. $(4,134,545) $(948,873)
Adjustments to reconcile net loss to cash
Depreciation and amortization...................... 128,617 89,776
Amortization of goodwill........................... 134,848 159,748
Services paid for by issuing common shares and
warrants.......................................... 1,388,163 111,125
Imputed interest on valuation of warrants.......... 21,937 --
Change in non-cash working capital items
(Increase) decrease in accounts receivable......... (32,839) 4,442
(Increase) in prepaid expenses..................... (79,933) (67,486)
(Increase) in inventory............................ (111,569) (9,695)
Increase in accounts payable and accrued
liabilities....................................... 199,615 125,822
Increase in deferred revenues...................... 16,629 14,049
----------- ---------
Net Cash Used in Operating Activities............ (2,469,077) (521,092)
----------- ---------
Cash Flows from Financing Activities:
Common stock issued.................................. 2,152,193 862,925
(Decrease) in related party advances................. (101,577) (196,598)
Proceeds from convertible debentures................. 1,500,000 --
Capital lease obligations repaid..................... (19,701) --
----------- ---------
Net Cash Provided by Financing Activities........ 3,530,915 666,327
----------- ---------
Cash Flows to Investing Activities:
Acquisition of property, plant and equipment......... (250,785) (138,515)
----------- ---------
Net Cash to Investing Activities................. (250,785) (138,515)
----------- ---------
Translation Adjustments................................ 9,274 (4,797)
----------- ---------
Increase in Cash and Equivalents During the Year....... 820,327 1,923
Cash and Equivalents--Beginning of Year................ 37,622 35,699
----------- ---------
Cash and Equivalents--End of Year...................... 857,949 37,622
=========== =========
Non-Cash Financing Activities
Value of Common Shares issued for services........... 1,240,363 111,125
Value of Warrants issued for services................ 147,800 --
Value of Shares issued for property.................. -- 12,000
----------- ---------
1,388,163 123,125
=========== =========
Supplemental Disclosures:
Interest paid in cash................................ 204,987 --
Income taxes paid in cash............................ -- --
=========== =========
</TABLE>
(See accompanying notes)
F-6
<PAGE>
INFORMATION HIGHWAY.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations, Reorganization and Continuance of Business
The Company was incorporated December 5, 1988 in the state of Florida.
During 1997, the Company's common stock was submitted for quotation on the OTC
Bulletin Board System. From inception to February 17, 1999 the Company did not
engage in any business activity other than initial organization, financing and
some business investigation activities.
Pursuant to an Agreement and Plan of Reorganization entered into with
Information Highway, Inc. on February 17, 1999, a business combination was
completed by way of reverse takeover. All of the 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. (See Note 3.) As part of the
Plan of Reorganization the Company's name was changed to Information
Highway.com, Inc.
Information Highway, Inc. was incorporated in the State of Washington on
October 15, 1996. It owns 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.
The Company has not achieved profitable operations since inception and has
suffered mounting losses of $5,776,555 to May 31, 2000. Although the Company
currently has working capital of $579,367 there is risk that the Company's
ability to continue as a going concern could be in jeopardy and the ability of
the Company to continue as a going concern is dependent upon its successful
efforts to raise additional equity financing over the next twelve months, and
further develop the market for its products and services.
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.
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
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.
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
F-7
<PAGE>
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Significant Accounting Policies (continued)
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, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is computed
utilizing the declining balance method over an estimated useful life of the
related asset. Computer equipment and software and production equipment is
depreciated at 30% per annum and furniture and office equipment at 20% per
annum. Leasehold improvements are amortized over ten years utilizing the
straight-line method. Assets acquired pursuant to capital leases are amortized
over the life of the lease utilizing the straight-line method.
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. See Note 5 for long-term
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 classified under
current liabilities.
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. Costs associated with 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
F-8
<PAGE>
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Significant Accounting Policies (continued)
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.
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.
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 stockholders' 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.
Income Taxes
The Company has adopted the provisions of Financial Accounting Standards
Board Statement No. 109 (SFAS 109), Accounting for Income Taxes.
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 between fiscal
2003 and fiscal 2007.
The Company has US tax losses of $903,000 to offset future years US taxable
income. These losses expire between fiscal 2012 and fiscal 2015.
F-9
<PAGE>
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Significant Accounting Policies (continued)
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:
<TABLE>
<CAPTION>
2000 1999
----------- ---------
<S> <C> <C>
Net Combined Canadian and US Operating Losses........ $ 3,942,000 $ 835,000
Statutory Combined Canadian and US Tax Rate.......... 39% 39%
Effective Tax Rate................................... -- --
Deferred Tax Asset................................... 1,537,000 328,000
Valuation Allowance.................................. (1,537,000) (328,000)
----------- ---------
Net Deferred Tax Asset............................... -- --
=========== =========
</TABLE>
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 and 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.
3. Business Combination
Pursuant to an Agreement and Plan of Reorganization completed on February
23, 1999, the Company acquired 3,235,000 common shares of Information Highway,
Inc. out of a total of 5,639,650 issued and outstanding common shares in
exchange for 3,235,000 common shares of the Company. As of May 11, 2000 (date
of exchange offering closing), 2,359,650 of the remaining 2,404,650 Information
Highway, Inc. shares had been exchanged for the same number of Company shares.
The Company has allotted 45,000 shares in anticipation of the remaining shares
of Information Highway, Inc. being exchanged in the future. 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 Information Highway, Inc. to
issue common shares pursuant to warrants and stock options issued by
Information Highway, Inc. $100,000 was paid by Information Highway, Inc. to the
controlling shareholder of the Company to effect the Agreement and Plan of
Reorganization including the cancellation of 1,659,833 shares.
For accounting purposes the acquirer was Information Highway, Inc. As
Information Highway, Inc. is the legal subsidiary of the Company the nature of
the business combination was a reverse takeover whereby the control of the
Company was acquired by Information Highway, Inc. and the consolidated
financial statements are issued under the name of the Company but is a
continuation of Information Highway, Inc. and not the Company. The legal
capital structure remains that of the Company but the stockholders' equity of
Information Highway, Inc. replaced the stockholders' equity of the Company.
Similarly, the Company's income statements and statements of cash flows
represent a continuation of Information Highway, Inc.'s consolidated financial
statements.
F-10
<PAGE>
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Business Combination (continued)
The $100,000 payment to the controlling shareholder of the Company was
classified as a reduction of additional paid in capital and not as goodwill as
the nature of the transaction was for Information Highway, Inc. 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 the Company.
4. Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization.
<TABLE>
<CAPTION>
Accumulated 2000 1999
Depreciation and Net Book Net Book
Cost Amortization Value Value
-------- ---------------- -------- --------
<S> <C> <C> <C> <C>
Computer equipment............. $610,457 $258,277 $352,180 $207,920
Office furniture and
equipment..................... 53,345 21,198 32,147 31,669
Production equipment
(Note 6(f))................... 25,000 10,125 14,875 21,250
Leasehold improvements......... 11,567 3,471 8,096 9,253
Assets under capital lease..... 96,906 13,454 83,452 --
-------- -------- -------- --------
797,275 306,525 490,750 270,092
======== ======== ======== ========
</TABLE>
Depreciation and amortization per class of asset:
<TABLE>
<CAPTION>
2000 1999
-------- -------
<S> <C> <C>
Computer equipment and software............................ $100,647 $75,508
Office furniture and equipment............................. 6,984 6,345
Production equipment....................................... 6,375 3,750
Leasehold improvements..................................... 1,157 1,158
Assets under capital lease................................. 13,454 --
-------- -------
128,617 86,761
======== =======
</TABLE>
5. Convertible Debentures
The Company issued, to one investor, three $500,000, two year convertible
debentures bearing interest at 5%. Warrants to purchase 225,000 common shares
exercisable at $6.2287 and expiring March 3, 2002 were also issued. The
maturity date is March 3, 2002. The Company received $1,332,728 after paying to
the Agent a 10%, or $150,000, financing fee and legal costs of $17,272. The
debenture holders can convert their debentures into common shares based on the
face value plus accrued interest divided by the lesser of the fixed price of
$6.22875 and the average closing price for the 20 days prior to conversion. No
amount has been allocated to the conversion feature in accordance with APB 14.
Debt issue costs of $167,272 have been charged to operations and the value of
the detachable share purchase warrants, totalling $175,500, was deducted from
the proceeds of the convertible debenture as a valuation allowance and is being
amortized to operations over two years. The Company has the right to redeem
with cash.
The Company is incurring penalties pursuant to a Registration Rights
Agreement with the debenture holder in the amount of $30,000 per month until a
registration statement for selling shareholders is declared effective by the
SEC. The Company has been paying these penalties upon invoice. The Company's
ability to raise funds through private placements of common stock will be
curtailed until the offering by selling shareholders is closed. The Company
must ensure that any private placement it undertakes would not be considered to
be in connection with the offering by selling shareholders.
F-11
<PAGE>
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Obligations Under Capital Leases
The Company acquired computer equipment by way of capital leases.
<TABLE>
<CAPTION>
Total Lease
Fiscal Year Payments
----------- -----------
<S> <C>
2001............................................................. $36,332
2002............................................................. 36,332
2003............................................................. 28,331
2004............................................................. 4,328
2005............................................................. 3,905
-------
109,228
Less amount representing interest................................ 10,738
-------
98,490
Less current portion............................................. 36,773
-------
61,717
=======
</TABLE>
7. Due To/From Related Parties
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
(a) Amounts owing to the President of the Company and
private companies under the President's control
are from short-term cash loans, are due on demand,
unsecured and non-interest bearing................ $ 13,279 $ 77,681
(b) Amounts owing from public companies that share
office premises and have common President's are
from expenses paid on behalf of these companies,
are due on demand, unsecured, and non-interest
bearing........................................... (49,670) (12,497)
-------- --------
Net amount owing (from) to related parties............ (36,391) 65,184
======== ========
</TABLE>
8. Common Stock Issuances and Related Commitments
Pursuant to the Agreement and Plan of Reorganization the Company assumed all
common stock obligations of Information Highway, Inc. as they relate to stock
based compensation plans and warrants issued to acquire common shares.
(a) Private placements of common shares and warrants
(i) Prior to becoming public, the Company approved and completed two
private placements of units and issued 814,150 units at $0.75 per unit to
raise $610,612. These units were issued in December, 1998 and contained one
share and one warrant to acquire one additional share at $1.00 if exercised
by December 30, 1999, some of which were extended to February 18, 2000. Of
the 814,150 warrants issued, 805,350 warrants were exercised by February
18, 2000 for proceeds of $805,350. Warrants with respect to 8,800 shares
expired. No amount was allocated to warrants as there was no market for the
stock prior to becoming a public company.
(ii) The Company offered units pursuant to an Offering Memorandum. Each
unit consisted of one common share, one Series "A" Warrant to acquire one
additional common share at $4.00 per share expiring April 30, 2000
(expired), and one Series "B" Warrant to acquire one additional common
share at
F-12
<PAGE>
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Common Stock Issuances and Related Commitments (continued)
$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. The proceeds
of this private placement were allocated on the following basis: $462,000
to common shares, $47,000 to Series A Warrants and $10,000 to Series B
Warrants.
(iii) The Company offered, pursuant to a private placement, 1,000,000
units at $4.00 per unit. Each unit consisted of one common share, and one
series C warrant to purchase one additional common share at $5.00 per share
expiring October 6, 2000. The private placement was completed on March 2,
2000. On completion, a total of 125,817 common shares were issued at $4.00
per share for total proceeds of $503,268. The Company entered into an
Agreement relating to this private placement financing and investor
relations services. The Agreement calls for a 10% finders fee to be paid
pursuant to this private placement. A total of $43,500 has been paid. In
addition, 100,000 warrants were issued to acquire 100,000 common shares
exercisable at $4.00 per share expiring December 1, 2002. The value of
these warrants, totalling $270,820, was charged against share capital.
(b) Shares and warrants issued for services
During fiscal 2000, the Company issued 175,000 common shares, valued at
$678,900, pursuant to a Marketing and Financial Consulting Agreement, all
of which has been charged to operations. Pursuant to this Agreement the
Company was committed to file a Registration Statement registering these
securities by November 6, 1999. It has been agreed to pay interest of
$23,226 per month until such time as the commitment is met. During the year
a total of $147,478 of such interest was paid and charged to operations.
The Company issued 2,500 common shares valued at $22,000 in connection
with the Company's Internet portal telephony project. This amount was
charged to operations in fiscal 2000.
The Company issued 20,000 common shares valued at $72,614 to a European
investor relations company. This amount has been charged to operations in
fiscal 2000.
The Company issued 130,000 common shares valued at $466,849 for
financial consulting services. This amount has been charged to operations
in fiscal 2000.
The Company paid $60,000 and issued 400,000 warrants to acquire up to
400,000 common shares exercisable at $3.50 per share expiring November 15,
2000 for a three month marketing and advertising program including banner
ads, news group coverage and press release distribution. The value of the
warrants was $147,800. Total compensation expense of $207,800 was charged
to operations in fiscal 2000.
The Company entered into an Agreement relating to this private placement
financing. The Agreement calls for a 10% finders fee to be paid pursuant to
this private placement. A total of $43,500 has been paid. In addition,
100,000 warrants were issued to acquire 100,000 common shares exercisable
at $4.00 per share expiring December 1, 2002. The value of these warrants,
totalling $270,820, was charged against share capital.
(c) Stock Option Plan
Pursuant to a stock option plan amended and restated February 8, 2000
and expiring May 31, 2007, the Company has reserved 3,000,000 common shares
for future issuance.
F-13
<PAGE>
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Common Stock Issuances and Related Commitments (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, pursuant to stock
options, under SFAS 123 was estimated using the Black-Scholes model.
The weighted average number of shares under option and option price for the
year ended May 31, 2000 is as follows:
<TABLE>
<CAPTION>
May 31, 2000
------------------------------
Weighted
Weighted Average
Shares Average Remaining
Under Option Life
Option Price of Options
--------- -------- ----------
# $ (Months)
<S> <C> <C> <C>
Beginning of year............................. 1,237,666 2.25
Granted....................................... 1,070,000 4.37
Exercised..................................... (518,266) (1.26)
Cancelled..................................... (157,500) (4.76)
Lapsed........................................ (30,000) (6.00)
---------
End of year................................... 1,601,900 3.69 48
========= ===== ===
</TABLE>
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, 2000 and
1999 would have been as follows:
<TABLE>
<CAPTION>
2000 1999
----------- ---------
<S> <C> <C>
Net loss
As reported........................................ $(4,134,545) $(948,873)
Pro forma.......................................... (4,897,805) (988,993)
Basic net loss per share
As reported........................................ (.55) (.18)
Pro forma.......................................... (.66) (.18)
</TABLE>
F-14
<PAGE>
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Commitments and Contingent Liability
(a) Commitments
The Company is committed to making the following lease or contract
payments for the next four fiscal years:
<TABLE>
<CAPTION>
For the years ended May 31,
------------------------------
2001 2002 2003 2004
-------- ------- ------ ------
<S> <C> <C> <C> <C>
Management consulting........................ $ 17,500 $ -- $ -- $ --
Investor relations--consulting............... 60,000 -- -- --
Premises leases.............................. 63,987 25,878 8,149 3,396
-------- ------- ------ ------
141,487 25,878 8,149 3,396
======== ======= ====== ======
</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.
10. 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. During fiscal 2000 the
Company began expansion of its ISP business into the United States by setting
up Virtual ISP's. The Company has switched on 50 ports (minimum per agreement)
in each of 7 cities which enables the Company to service up to 500 customers in
each city. The cost of these portals for the year ended May 31, 2000 was
$210,334 and was charged to operations as a general and administrative expense.
There was no revenue generated during the year.
Included in cost of goods sold is a one time telephone fee of $220,000 with
a service provider. The fees were originally in dispute which now has been
settled by the Company.
F-15
<PAGE>
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Segmented Information (Continued)
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 $2,604,047 relating to such activities. The net loss relating to
Internet activities in Canada amounted to $1,320,164 and the net loss relating
to US portal costs was $210,334.
11. Subsequent Event
On June 30, 2000 the Company entered into an agreement to purchase a travel
agency located in British Columbia, Canada. The terms of payment are: Cnd$5,000
as an initial deposit; Cnd$10,000 due on or before the subject removal date,
being July 14, 2000; and Cnd$110,000 due on closing date. The closing date has
been extended until such time as the travel agency receives approval of the
purchase from the Registrar of Travel Services and the International Air
Transport Association. As additional consideration the Company agrees to pay
any prepaid expenses incurred in carrying on the business after the closing
date.
F-16
<PAGE>
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Information Highway.com has not authorized any dealer, salesperson or other
person to give you written information other than this prospectus or to make
representations as to matters not stated in this prospectus. You must not rely
on unauthorized information. This prospectus is not an offer to sell these
securities or a solicitation of your offer to buy the securities in any
jurisdiction where that would not be permitted or legal. Neither the delivery
of this prospectus nor any sales made hereunder after the date of this
prospectus shall create an implication that the information contained herein
or the affairs of Information Highway.com have not changed since the date
hereof.
Until , 2000 (90 days after the date of this prospectus),
all dealers that effect transactions in these shares of common stock may be
required to deliver a prospectus. This is in addition to the dealer's
obligation to deliver a prospectus when acting as an underwriter and with
respect to their unsold allotments or subscriptions.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
4,089,750 Shares
of Common Stock to be
sold by current shareholders
Information Highway.com Inc.
1177 West Hastings, Suite 2110
Vancouver, British Columbia V6E 2K3, CANADA
(604) 687-2199
-------------
PROSPECTUS
-------------
, 2000
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Our Articles of Incorporation provide that we must indemnify our directors
and officers to the fullest extent permitted under the Florida Business
Corporation Act, against all liabilities incurred by reason of the fact that
the person is or was a director or officer of ours or a fiduciary of an
employee benefit plan, or is or was serving at our request as a director or
officer, or fiduciary of an employee benefit plan, of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
The effect of these provisions is potentially to indemnify our Company's
directors and officers from all costs and expenses of liability incurred by
them in connection with any action, suit or proceeding in which they are
involved by reason of their affiliation with us.
Item 25. Other Expenses of Issuance and Distribution
The securities are being registered for the account of selling shareholders,
but all of the following expenses will be borne by us. The amounts set forth
are estimates except for the SEC registration fee:
<TABLE>
<S> <C>
SEC registration fee............................................. $ 3,100
Printing and engraving expenses.................................. 25,000
Attorneys' fees and expenses..................................... 50,000
Accountants' fees and expenses................................... 5,000
Transfer agent's and registrar's fees and expenses............... 5,000
Miscellaneous.................................................... 15,000
--------
Total.......................................................... $103,100
========
</TABLE>
Item 26. Recent Sales of Unregistered Securities
Set forth below is information regarding the issuance and sales of our
securities without registration during the past three years. No such sales
involved the use of an underwriter and no commissions were paid in connection
with the sale of any securities.
(1) In connection with our reorganization in February 1999, we assumed
contractual obligations of one of our subsidiaries under outstanding
warrants to issue shares of common stock for $1.00 per share. During the
quarter ended November 30, 1999, we issued 34,150 shares pursuant to
warrants exercised at $1.00 per share or total proceeds of $34,150. The
sale of the shares was exempt from registration under Regulation S and
under Rule 506 and under Section 4(2) of the Securities Act of 1933. We
provided disclosure to each of the warrant holders in connection with our
reorganization with Information Highway, Inc. and pursuant to our filings
with the Commission. Each of the warrant holders owned shares of
Information Highway, Inc. that they have now exchanged for our shares.
During the quarter ended November 30, 1999, we issued shares to 6
purchasers of which 2 were accredited investors. On September 30, 1999, we
had temporarily halted the exercise of our warrants until we could further
verify the accredited investor status of some of its warrant holders and
shareholders who had previously exercised similar warrants. Upon further
investigation, we determined that through November 30, 1999, in connection
with the exercise of all $1.00 warrants assumed in connection with our
reorganization in February 1999, we issued shares to 48 purchasers, of
which 17 were accredited investors and 8 were
II-1
<PAGE>
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. $65,000 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.
(2) On February 23, 1999 we issued a total of 499,000 shares of common
stock to certain shareholders of PrivCo in exchange for 499,000 shares of
Information Highway, Inc. The issuance of the common stock was exempt from
registration under Rule 504 of Regulation D under Section 3(b) of the
Securities Act of 1933, as amended. Our shares were valued at $0.75 per
share, the price per Unit that Information Highway, Inc. had obtained in
its most recent offering of securities, in which Information Highway, Inc.
offered Units consisting of one share of unrestricted common stock and one
warrant for $0.75 per Unit. If the exemption under Rule 504 of Regulation D
is not available, we believe that this offering was also exempt under
Regulation S and Section 4(2) under the Securities Act of 1933, as amended,
due to the foreign nationality of the relevant shareholders of Information
Highway, Inc., their prior contacts with Information Highway, Inc. and its
management, and the limited number of investors (four).
(3) On February 23, 1999, we issued a total of 2,736,000 shares of
common stock to certain shareholders in exchange for 2,736,000 shares of
Information Highway, Inc. common stock. The issuance of the shares was
exempt from registration under Rule 506 of Regulation D, Regulation S and
Section 4(2) of the Securities Act of 1933, as amended, due to the foreign
nationality of the relevant shareholders of Information Highway, Inc.,
their prior contacts with Information Highway, Inc. and its management, and
the limited number of investors (six).
(4) On February 23, 1999 we began an offer to certain shareholders of
Information Highway, Inc. to exchange 834,000 shares of their unrestricted
Information Highway, Inc. common stock for 834,000 shares of our common
stock exempt from registration under Rule 504 of Regulation D under Section
3(b) of the Securities Act of 1933, as amended. Upon discovery that three
investors who had made deposits in the Information Highway, Inc. offering
set forth in item (a) below had not been issued their Information Highway,
Inc. 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, 15,000 were issued in the fiscal year ended May 31, 1999, and
5,000 were issued after May 31, 1999. Our shares were valued at $0.75 per
share, the price per Unit that Information Highway, Inc. had obtained in
its most recent offering of securities, in which Information Highway, Inc.
offered Units consisting of one share of unrestricted common stock and one
warrant for $0.75 per Unit. As of August 31, 1999, all but 37,000 shares
had been exchanged. The offerees consisted of the Information Highway, Inc.
shareholders who purchased units in Information Highway, Inc. as described
in item (a), below, and two affiliates who had acquired Information
Highway, Inc. shares in the Yes IC acquisition (February 1997). If the
exemption under Rule 504 of Regulation D is not available, we believe that
221,000 shares (which includes the shares of the two affiliates) from this
offering will also be exempt under Regulation S due to the foreign
nationality of the shareholders.
(5) On February 23, 1999, we began an offer to certain shareholders of
Information Highway, Inc. to exchange 1,570,650 shares of their restricted
Information Highway, Inc. common stock for 1,570,650 shares of our common
stock exempt from registration under Rule 506 of Regulation D, Regulation S
and Section 4(2) of the Securities Act of 1933, as amended. We furnished to
purchasers in a timely manner an Exchange Offering Memorandum and financial
information, limited the manner of the offering, promptly filed notices of
sales, and limited the number of domestic non-accredited investors to 2. If
the exemptions under Rule 506 and Section 4(2) are not available, we
believe that 1,151,000 shares from this offering will also be exempt under
Regulation S due to the foreign nationality of the shareholders.
(6) In February 1999, we issued 5,000 shares to David Williamson
Associates Ltd. for marketing and investor relations services in the United
Kingdom. 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 the purchaser's foreign nationality.
II-2
<PAGE>
(7) 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 our reorganization with Information
Highway, Inc. Each of the warrant holders owned shares of Information
Highway, Inc. that they have now exchanged for our shares. Through May 31,
1999, we 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 we determined not to issue
any further shares to non- accredited investors pursuant to the warrants
until such time as the shares could be registered, we 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.
(8) In March 1999, we issued 10,000 shares to its affiliate Access
Information Services in exchange for services rendered. 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 the
foreign nationality of the ultimate beneficial owners of Access Information
Services.
(9) In March 1999, we issued 3,000 shares to IED Internet Engines &
Design Ltd. in connection with the acquisition of an Internet portal
telephony businesses. 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 the foreign nationality of the
purchaser. On July 27, 1999, we issued the balance of 2,500 shares owing to
IED Internet Engines & Design Ltd.
(10) Beginning March 31, 1999, we 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. We 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, we 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.
(11) During the quarter ended May 31, 1999, we issued 237,334 shares
pursuant to options exercised at between $0.50 and $0.75 per share for
total proceeds of $125,500. 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 our written stock
option plan, a copy of which we have has provided to our participants. The
150,000 shares issued to John Robertson were also 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 as a
director and executive officer. If the foregoing exemptions are not
available, we believe 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.
(12) In October 1999, we issued 50,000 shares to IP Equity, Inc. for
marketing and financial consulting services. On June 23, 1999, we issued
175,000 shares to IP Equity for investor relations and
II-3
<PAGE>
marketing activities carried out on behalf of Information Highway.com. The
offers and sales of the shares were exempt from registration under Rule 506
under and Section 4(2) of the Securities Act of 1933.
(13) Pursuant to an Offering Memorandum dated October 6th, 1999, we
issued 125,817 units at a price of $4.00 per unit. Each unit consisted of
one common share and one warrant to purchase one additional share at $5.00
up to and including October 6th, 2000. The offering was completed on March
2, 2000 for total proceeds of $503,268. 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 1 investor.
(14) In November 1999, we issued 20,000 shares to World of Internet.com
for marketing and financial consulting services. The offer and sale of the
shares were exempt from registration under Rule 506 under and Section 4(2)
of the Securities Act of 1933, Regulation S under the Securities Act of
1933, and beyond the jurisdiction of Section 5 of the Securities Act of
1933.
(15) In November 1999, we granted a warrant to purchase up to 400,000
shares of our common stock at a price of $3.50 per share to K&D Equities,
Inc. for marketing services. The offer and sale of the warrants were exempt
from registration under Rule 506 under and Section 4(2) of the Securities
Act of 1933.
(16) During the quarter ended November 30, 1999, we issued 295,166
shares pursuant to options exercised at prices between $0.50 and $4.00 per
share for total proceeds of $382,000. 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 our written stock
option plan, a copy of which we have provided to participants. In the event
Rule 701 is not available, we believe that 60,000 shares were also exempt
from registration under Rule 506 under and Section 4(2) of the Securities
Act of 1933. If the foregoing exemptions are not available, we further
believe that $344,500 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.
(17) On December 1, 1999, we entered into an agreement with Garry Savage
issuing 100,000 warrants to acquire 100,000 shares exercisable at $4.00 per
share expiring December 1, 2002. Copies of the agreement and warrants are
exhibits hereto. The offer and sale of the warrants were exempt from
registration under Rule 506 and Section 4(2) of the Securities Act of 1933.
(18) On March 3, 2000 we entered into a Securities Purchase Agreement
with Senasqua Investors LLC pursuant to which we issued debentures in the
principal amount of $1,500,000 maturing March 3, 2002, and warrants to
acquire 225,000 shares exercisable at $6.22875 per share expiring March 3,
2002. The aggregate purchase price for the debentures and warrants was
$1,500,000. The offer and sale of the warrants and debentures were exempt
from registration under Rule 506 and Section 4(2) of the Securities Act of
1933.
(19) On May 31, 2000, we issued 8,750 shares pursuant to options
exercised at prices between $0.50 and $0.75 per share for total proceeds of
$5,000. 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 our written stock option plan, a copy of which we
have provided to participants. In the event Rule 701 is not available, we
believe that 8,750 shares were also exempt from registration under Rule 506
under and Section 4(2) of the Securities Act of 1933. If the foregoing
exemptions are not available, we further believe that 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.
(20) In May, 2000, we issued 50,000 shares to Capital Research Group
Inc. for financial consulting services. The offer and sale of the shares
were exempt from registration under Rule 506 and Section 4(2) of the
Securities Act of 1933, Regulation S under the Securities Act of 1933, and
beyond the jurisdiction of Section 5 of the Securities Act of 1933.
(21) In May, 2000, we issued 75,000 shares to Park Avenue Consulting
Group Inc. for financial consulting services. The offer and sale of the
shares were exempt from registration under Rule 506 and
II-4
<PAGE>
Section 4(2) of the Securities Act of 1933, Regulation S under the
Securities Act of 1933, and beyond the jurisdiction of Section 5 of the
Securities Act of 1933.
Set forth below is information regarding the issuance and sales of
securities of Information Highway, Inc. without registration during the
past three years. No such sales involved the use of an underwriter and no
commissions were paid in connection with the sale of any securities.
(22) Information Highway, Inc. conducted an offering to its founders,
some of whom purchased through controlled affiliates, beginning in December
1996. On completion of the offering in March 1997, a total of 600,000
shares were issued at $0.10 per share for total proceeds of $60,000. The
offer and sale of the shares were exempt from registration under Rule 504
and Rule 506 of Regulation D under Sections 3(b) and 4(2), respectively, of
the Securities Act of 1933, and under Section 4(2) of the Securities Act of
1933. If the foregoing exemptions are not available, these sales were
exempt under Regulation S under the Securities Act of 1933 due to the
foreign nationality of the purchasers or their ultimate beneficial owners.
(23) In December 1996, Information Highway, Inc. commenced an offering
of common stock pursuant to an Offering Memorandum. On completion of the
offering in March 1997, a total of 500,000 shares were issued at $0.50 per
share for total proceeds of $250,000. The offer and sale of the units were
exempt from registration under Rule 504 and Rule 506 of Regulation D under
Sections 3(b) and 4(2), respectively, of the Securities Act of 1933.
Information Highway, Inc. 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 14 investors. If the foregoing exemptions are
not available, $89,750 of these sales were exempt under Regulation S under
the Securities Act of 1933 due to the foreign nationality of the
purchasers.
(24) Information Highway, Inc. conducted three acquisitions that were
exempt from registration under Regulation S under the Securities Act of
1933 due to the foreign nationality of the persons who accepted shares of
Information Highway, Inc. in exchange for their holdings in the acquired
companies: (i) In February 1997, of YesIC, Communications, Inc., in
exchange for the issue of 3,105,000 shares to 17 foreign persons; (ii) In
February 1997, of World Tel, Internet (Toronto) Ltd., in exchange for the
issue of 387,000 shares to 5 foreign persons; and (iii) In December 1996,
of Blue Crow Internet Company, Ltd., in exchange for the issue of 149,000
shares to 4 foreign persons. If the exemption under Regulation S under the
Securities Act of 1933 due to the foreign nationality of the persons who
accepted shares of Information Highway, Inc. in exchange for their holdings
in the acquired companies is not available, we believe that each of the
offerings is exempt under Rule 506 under Section 4(2) of the Securities Act
of 1933 and that offerings (ii) and (iii) are exempt under Rule 504 under
Section 3(b) of the Securities Act of 1933.
(25) In April 1997, Mr. Robertson purchased 1,000 shares at $0.50 per
share, which he then gifted to a family friend as a bar mitzvah present. In
October 1996 Mr. Robertson purchased 15,000 shares at $0.10 per share as a
founder of Information Highway, Inc. The offer and sale of the shares were
exempt from registration under Rule 506 of Regulation D under Section 4(2)
of the Securities Act of 1933 and under Section 4(2) of the Securities Act
of 1933. If the foregoing exemptions are not available, these sales were
exempt under Regulation S under the Securities Act of 1933 due
Mr. Robertson's foreign nationality.
(26) In April 1998, Information Highway, Inc. concluded an offering of
units pursuant to an Offering Memorandum. Each unit consisted of one common
share and one warrant to acquire an additional share at $1.00 per share by
December 30, 1999. On completion of the offering, a total of 139,650 units
were issued at $0.75 per unit for total proceeds of $100,987.50. The offer
and sale of the units were exempt from registration under Rule 504 and Rule
506 of Regulation D under Sections 3(b) and 4(2), respectively, of the
Securities Act of 1933. Information Highway, Inc. 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 1 investor.
(27) In January 1999, Information Highway, Inc. concluded an offering of
units pursuant to an Offering Memorandum. Each unit consisted of one common
share and one warrant to acquire an additional share at $1.00 per share by
December 30, 1999. Due to a mix-up in connection with changing
II-5
<PAGE>
its bank, we inadvertently overlooked deposits of $15,000 received during
the offering for an additional 20,000 units. Including these units that
should have been issued at the closing of the offering, a total of 754,000
units were issued at $0.75 per unit for total proceeds of $565,500. The
offer and sale of the units were exempt from registration under Rule 504 of
Regulation D under Section 3(b) of the Securities Act of 1933. If the
exemption under Rule 504 of Regulation D is not available, $90,750 of these
sales were exempt under Regulation S under the Securities Act of 1933 due
to the foreign nationality of the purchasers.
Item 27. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Name
------- ----
<C> <S>
2.1(1) Agreement and Plan of Reorganization between the Company and
Information Highway, Inc.
3.1(1) Articles of Incorporation, restated as amended on February 23, 1999
and November 1, 1989
3.2(1) Bylaws
4.1(1) Specimen Share Certificate for Common Stock
4.2(1) Form of Warrants ($1.00)
4.3(1) Stock Option Plan
4.4(1) Form of Stock Option Agreement
4.5(2) Form of Warrants ($4.00 and $6.00)
4.6(3) Form of Warrants ($3.50)
4.7(4) Savage Warrants
4.8(5) Form of Debenture (Senasqua Investors LLC)
4.9(5) Warrant (Senasqua Investors LLC)
4.10(5) Registration Rights Agreement (Senasqua Investors LLC)
4.11(5) Securities Purchase Agreement (Senasqua Investors LLC)
5.1(5) Opinion re: Legality
10.1(6) VPOP Service Agreement between MetroNet Communications and YesIC
Communications
10.2(6) Level 3 Communications Terms and Conditions for Delivery of Service
10.3(6) ADSL Service Agreement dated August 24, 1999, by and between Bell
Atlantic Network Integration, Inc. and Information Highway.com, Inc.
10.4(7) IP Equity Marketing and Financial Consulting Agreement
10.5(4) Savage Agreement
10.6 Eezinet License Agreement - Portal
23.1 Consent of Independent Auditors.
23.2 Consent of Counsel (see Exhibit 5.1).
27.1 Financial Data Schedule.
</TABLE>
--------
(1) Incorporated by reference from our registration statement on form 10-SB
filed with the Securities and Exchange Commission on April 14, 1999.
(2) Incorporated by reference from Amendment No. 1 to our registration
statement on Form 10-SB filed with the Securities and Exchange Commission
on October 12, 1999.
(3) Incorporated by reference from our quarterly report on Form 10-QSB for the
quarterly period ended November 30, 1999, filed with the Securities and
Exchange Commission on January 14, 2000.
II-6
<PAGE>
(4) Incorporated by reference from our quarterly report on Form 10-QSB for the
quarterly period ended February 29, 2000, filed with the Securities and
Exchange Commission on April 14, 2000.
(5) Previously filed.
(6) Incorporated by reference from our 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.
(7) Incorporated by reference from our quarterly report on Form 10-QSB for the
quarterly period ended August 31, 1999, filed with the Securities and
Exchange Commission on October 15, 1999.
Item 28. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(a) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Vancouver, Province of
British Columbia, CANADA, on August 29, 2000.
Information Highway.com Inc.
/s/ John G. Robertson
By: _________________________________
John G. Robertson
Its President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John G. Robertson President, Principal August 29, 2000
______________________________________ Executive Officer
John G. Robertson
/s/ Jennifer Lorette Executive Vice President, August 29, 2000
______________________________________ Secretary/Treasurer,
Jennifer Lorette Principal Accounting
Officer and Chief
Financial Officer
/s/ John G. Robertson Director August 29, 2000
______________________________________
John G. Robertson
/s/ Jennifer Lorette Director August 29, 2000
______________________________________
Jennifer Lorette
/s/ James L. Vandeberg Director August 29, 2000
______________________________________
James L. Vandeberg
</TABLE>
II-8
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Name
------- ----
<C> <S>
2.1(1) Agreement and Plan of Reorganization between the Company and
Information Highway, Inc.
3.1(1) Articles of Incorporation, restated as amended on February 23, 1999
and November 1, 1989
3.2(1) Bylaws
4.1(1) Specimen Share Certificate for Common Stock
4.2(1) Form of Warrants ($1.00)
4.3(1) Stock Option Plan
4.4(1) Form of Stock Option Agreement
4.5(2) Form of Warrants ($4.00 and $6.00)
4.6(3) Form of Warrants ($3.50)
4.7(4) Savage Warrants
4.8(5) Form of Debenture (Senasqua Investors LLC)
4.9(5) Warrant (Senasqua Investors LLC)
4.10(5) Registration Rights Agreement (Senasqua Investors LLC)
4.11(5) Securities Purchase Agreement (Senasqua Investors LLC)
5.1(5) Opinion re: Legality
10.1(6) VPOP Service Agreement between MetroNet Communications and YesIC
Communications
10.2(6) Level 3 Communications Terms and Conditions for Delivery of Service
10.3(6) ADSL Service Agreement dated August 24, 1999, by and between Bell
Atlantic Network Integration, Inc. and Information Highway.com, Inc.
10.4(7) IP Equity Marketing and Financial Consulting Agreement
10.5(4) Savage Agreement
10.6 Eezinet License Agreement - Portal
23.1 Consent of Independent Auditors
23.2 Consent of Counsel (see Exhibit 5.1)
27.1 Financial Data Schedule
</TABLE>
--------
(1) Incorporated by reference from our registration statement on form 10-SB
filed with the Securities and Exchange Commission on April 14, 1999.
(2) Incorporated by reference from Amendment No. 1 to our registration
statement on Form 10-SB filed with the Securities and Exchange Commission
on October 12, 1999.
(3) Incorporated by reference from our quarterly report on Form 10-QSB for the
quarterly period ended November 30, 1999, filed with the Securities and
Exchange Commission on January 14, 2000.
(4) Incorporated by reference from our quarterly report on Form 10-QSB for the
quarterly period ended February 29, 2000, filed with the Securities and
Exchange Commission on April 14, 2000.
(5) Previously filed.
(6) Incorporated by reference from our 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.
(7) Incorporated by reference from our quarterly report on Form 10-QSB for the
quarterly period ended August 31, 1999, filed with the Securities and
Exchange Commission on October 15, 1999.
