<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1999
-----------------
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to _____________
Commission File No. 0-25773
---------
INFORMATION-HIGHWAY.COM, INC.
(Exact name of small business issuer as specified in its charter)
Florida 65-0154103
- ------- -------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
185-10751 Shellbridge Way, Richmond, BC Canada V6X 2W8
--------------------------------------------------------
(Address of principal executive offices)
(604) 278-5996
--------------
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO _________
----------
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: As of January 12, 2000 - 7,693,317
shares of common stock, $.0001 par value were outstanding and 120,250 shares
paid for have not been issued but are allotted. A further 90,000 common shares,
not yet issued, are allotted pursuant to a share exchange agreement explained
further in Part I, Item 2 of this report. Total shares outstanding and allotted
as of January 12, 2000 is 7,903,567.
Transitional Small Business Disclosure Format (Check one): Yes [_] No [X]
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I -- Financial Information
Item 1. Consolidated Financial statements.......................................................... 2
- ------- ---------------------------------
Consolidated Balance Sheets as of November 30, 1999 and May 31, 1999............................... 3
Consolidated Statements of Operations for the three months and six months
ended November 30, 1999 and 1998........................................................... 4
Consolidated Statements of Cash Flows for the six months
ended November 30, 1999 and 1998........................................................... 5
Notes to the Consolidated Financial Statements..................................................... 6-9
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition...... 10-17
- ------- -------------------------------------------------------------------------------------
PART II -- Other Information....................................................................... 18-19
Signatures......................................................................................... 20
</TABLE>
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<PAGE>
PART I - Financial Information
Item 1. Consolidated Financial statements
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<PAGE>
Information-Highway.com, Inc.
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
November 30, May 31,
1999 1999
(unaudited) (audited)
$ $
<S> <C> <C>
Assets
Current Assets
Cash 313,603 37,622
Accounts receivable 8,559 -
Inventory (Note 3) 33,658 9,695
Prepaid expenses and deposits 443,099 70,487
Due from related parties (Note 3) 27,234 -
- ------------------------------------------------------------------------------------------------------
826,153 117,804
Property, Plant and Equipment 341,688 270,092
Goodwill 43,130 134,848
- ------------------------------------------------------------------------------------------------------
Total Assets 1,210,971 522,744
======================================================================================================
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable 221,474 267,279
Accrued liabilities 53,215 65,151
Deferred revenues 38,705 34,049
Advances from related parties (Note 3) - 65,186
- ------------------------------------------------------------------------------------------------------
313,394 431,665
- ------------------------------------------------------------------------------------------------------
Stockholders' Equity
Common Stock (Note 4), 50,000,000 shares authorized,
par value $.0001 per share, 7,457,717 and
6,469,951 issued and outstanding respectively 746 647
Additional Paid in Capital 3,681,866 1,698,351
Warrants issued for services (Note 4) 147,800 -
Common Stock allotted and issued subsequently
(nil and 35,000 shares respectively) - 50,000
- ------------------------------------------------------------------------------------------------------
3,830,412 1,748,998
Preferred Stock, 10,000,000 shares authorized, par value
$.0001 per share, none issued - -
Translation adjustments (4,621) (1,145)
Accumulated Deficit (2,928,214) (1,656,774)
- ------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 897,577 91,079
- ------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity 1,210,971 522,744
======================================================================================================
</TABLE>
(See accompanying notes)
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<PAGE>
Information-Highway.com, Inc.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
November 30, November 30,
----------------------- ----------------------
1999 1998 1999 1998
$ $ $ $
<S> <C> <C> <C> <C>
Revenues 373,510 229,389 666,798 498,895
Cost of Revenues (228,094) (166,445) (441,558) (346,349)
- -------------------------------------------------------------------------------------------------------
Gross Profit 145,416 62,944 225,240 152,546
- -------------------------------------------------------------------------------------------------------
Operating Expenses
Marketing and sales 128,415 54,863 191,931 95,086
General and administrative 683,355 176,139 1,104,555 288,035
Product development 59,973 33,430 119,417 65,755
Portal costs for US expansion (Note 6) 80,777 - 80,777 -
- -------------------------------------------------------------------------------------------------------
Total Operating Expenses 952,520 264,432 1,496,680 448,876
- -------------------------------------------------------------------------------------------------------
Net loss 807,104 201,488 1,271,440 296,330
=======================================================================================================
Historical basic and dilutive net
loss per share .11 .04 .18 .06
=======================================================================================================
Weighted average shares used to
compute basic and historical
net loss per share 7,174,000 4,770,000 6,964,000 4,774,000
=======================================================================================================
</TABLE>
Diluted loss per share has not been presented separately as the result is anti
dilutive.
(See accompanying notes)
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<PAGE>
Information-Highway.com, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months Six months
ended ended
November 30, November 30,
------------ ------------
1999 1998
$ $
<S> <C> <C>
Cash Flows to Operating Activities
Net loss (1,271,440) (296,330)
Adjustments to reconcile net loss to cash
Depreciation and amortization 47,903 28,109
Amortization of goodwill 91,718 79,874
Shares and warrants issued for services rendered 678,899 -
Change in non-cash working capital items
Decrease in accounts receivable (8,559) (2,121)
Increase in prepaid expenses (130,191) (2,299)
Increase in inventory (33,658) -
Increase (decrease) in accounts payable and accruals (57,741) 23,052
Increase in unearned revenue 4,656 -
- ------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (678,413) (169,715)
- ------------------------------------------------------------------------------------------------------------------------------
Cash Flows from (to) Financing Activities
Increase in common stock 1,160,100 593,249
Decrease in advances from related parties (92,420) (102,857)
- ------------------------------------------------------------------------------------------------------------------------------
Net Cash from Financing Activities 1,067,680 490,392
- ------------------------------------------------------------------------------------------------------------------------------
Cash Flows to Investing Activities
Increase in property, plant and equipment (119,499) (1,596)
- ------------------------------------------------------------------------------------------------------------------------------
Net Cash to Investing Activities (119,499) (1,596)
- ------------------------------------------------------------------------------------------------------------------------------
Translation Adjustments 6,213 12,875
- ------------------------------------------------------------------------------------------------------------------------------
Increase in Cash During the Period 275,981 331,956
Cash - Beginning of Period 37,622 35,699
- ------------------------------------------------------------------------------------------------------------------------------
Cash - End of Period 313,603 367,655
==============================================================================================================================
Non-Cash Financing Activities - See Note 4 for shares and warrants issued for services rendered
- ------------------------------------------------------------------------------------------------------------------------------
Supplemental Cash Flow Information:
Cash paid for interest - -
Cash paid for income taxes - -
==============================================================================================================================
</TABLE>
(See accompanying notes)
-5-
<PAGE>
Information-Highway.com, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
1. Nature of Operations
Florida Venture Fund, Inc. (the "Company" or "FVFI") 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 and was
assigned the trading symbol FVFL. From incorporation to February 17, 1999 the
Company did not engage in any business activity other than initial
organization, initial financing and some business investigation activities.
Pursuant to a letter agreement dated February 17, 1999, the Company completed
an Agreement and Plan of Reorganization with Information Highway, Inc.,
herein "IHI", whereby a business combination was completed and all of the
outstanding common stock of Information Highway, Inc. was, or will be,
exchanged for common shares of the Company representing a change of control
of the Company by way of reverse takeover. As part of the Plan of
Reorganization the Company's name was changed to Information-Highway.com,
Inc.
IHI was incorporated in the State of Washington on October 15, 1996. Prior to
the reverse takeover IHI acquired three Canadian operating subsidiaries in
the business of providing access to the Internet and providing services,
including on-line publishing, to individual and corporate subscribers.
2. Basis of Presentation
Consolidated Financial Statements
These consolidated financial statements include the accounts of the Company
and its wholly owned US subsidiary, Information Highway, Inc. which owns
three consolidated, wholly-owned, Canadian subsidiaries. As IHI was the
acquirer in a reverse takeover business combination culminating on February
17, 1999, its fiscal year-end of May 31 is the Company's new fiscal year-end
and the business of IHI will be the continuing business reported for all
comparative purposes, including the statements of operations and cash flows.
Prior to the reverse takeover the Company's fiscal year end was December 31.
Estimates and Assumptions
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Reclassification
Certain amounts in the financial statements have been reclassified to be
consistent and comparable from year-to-year.
Adjustments
These interim financial statements include all adjustments which in the
opinion of management are necessary in order to make the financial statements
not misleading.
3. Related Party Transactions
(a) Amounts owing from related parties and affiliates are from common
expenses paid by the Company on behalf of affiliates and are due on
demand, unsecured and non-interest bearing. These cash loans were
recorded at their exchange amounts.
(b) Pursuant to a Management Agreement dated December 1, 1998 with a company
related to the President of the Company, the Company is committed to pay
management fees of $2,500 per month and rent and secretarial fees of
$1,500 per month for a term of three years expiring December 1, 2001.
(c) A partnership, of which a director of the Company is a partner, was paid
$37,245 for legal services rendered during the six months ended November
30, 1999.
-6-
<PAGE>
3. Related Party Transactions (continued)
(d) Finished goods inventory of $33,658 was acquired from a public company
with common Presidents pursuant to a Marketing Agreement dated January
20, 1999. The Company has the exclusive worldwide rights to market the
product over the Internet. The agreement is for five years subject to
minimum annual sales criteria.
4. Common Stock Issuances and Related Commitments
Pursuant to the Agreement and Plan of Reorganization the Company assumed all
common stock obligations of IHI as they relate to stock based compensation
plans and warrants issued to acquire common shares.
Private Placements
IHI approved and completed two private placements of units and issued 814,150
units at $0.75 per unit to raise $610,612. These units were issued in
December, 1998. Each unit contained one share and one warrant to acquire one
additional share at $1.00 if exercised by December 30, 1999. Of the 814,150
warrants issued 465,650 warrants were exercised as at November 30, 1999 for
proceeds of $465,650 and the remaining 348,500 warrants were exercised by
December 30, 1999 for proceeds of $348,500.
Beginning March 31, 1999, the Company conducted an offering of units pursuant
to an Offering Memorandum. Each unit consisted of one common share, one
Series "A" Warrant to acquire one additional share at $4.00 per share
expiring April 30, 2000, and one Series "B" Warrant to acquire one additional
share at $6.00 per share expiring April 30, 2001. The offering was completed
on August 11, 1999. On completion of the offering, a total of 129,750 units
were issued at $4.00 per unit for total proceeds of $519,000.
The proceeds of the above private placements were allocated 100% to the
common shares issued; no amount was allocated to warrants as the warrant
price was set higher than fair market value and there is a one year hold
period on these shares and no market for the warrants.
Shares issued for services
In July, 1999 the Company issued 125,000 shares to IP Equity, Inc. pursuant
to a Marketing and Financial Consulting Agreement dated June 23, 1999. These
shares were valued at $4.69 per share or $440,000 in total. This compensation
expense was charged to operations during the six months ended November 30,
1999. In October, 1999 the Company issued an additional 50,000 shares to IP
Equity, Inc. These shares were valued at $4.778 per share or $238,900 in
total. $159,900 of this compensation was charged to operations during the six
months ended November 30, 1999 and the remaining $79,000 will be charged in
December, 1999.
In July, 1999 the Company issued 2,500 shares valued at $8.80 per share or
$22,000 in total in connection with the successful completion of the
Company's Internet portal telephony project.
In November, 1999 the Company issued 20,000 shares to World of Internet.com,
a European investor relations company. These shares were valued at $3.631 per
share or $72,614 in total. $32,360 of this compensation was charged to
operations during the six months ended November 30, 1999 and the remaining
$40,254 will be charged in the next quarter.
Warrants issued for services
On November 15, 1999 the Company paid $20,000 and issued 400,000 warrants to
acquire up to 400,000 shares exercisable at $3.50 per share expiring November
15, 2000 for a three month marketing and advertising program including banner
ads, newsgroup coverage and press release distribution. The Company must also
pay $20,000 in December, 1999 and $20,000 in January, 2000. The value of the
warrants on the date of issue was $147,800 using the Black Scholes Pricing
Model. Compensation expense of $24,633 was recognized in the current quarter
and the balance of $123,167 will be recognized in the next quarter.
Stock Option Plan
On June 30, 1997, and amended on May 21, 1999, IHI reserved 2,500,000 common
shares pursuant to a stock option plan. In June and November, 1999 the
Company granted certain employees and directors stock options to acquire up
to 710,000 shares at $4.00 per share and up to 325,000 shares at $5.00 per
share all expiring between May and November, 2004.
-7-
<PAGE>
Stock option activity during the six months ended November 30, 1999
<TABLE>
<CAPTION>
May 31, November 30,
1999 Price Granted Exercised (E) 1999
# $ # Cancelled (C) # Expiry Date
<S> <C> <C> <C> <C> <C>
370,000 0.50 - 222,500 (E) 147,500 January 26, 2003
267,666 0.75 - 147,666 (E) 120,000 August, 2003 to February, 2004
600,000 4.00 710,000 60,000 (E) 1,250,000 May to November, 2004
5.00 325,000 150,000 (C) 175,000 June to November, 2004
--------- --------- ------- ---------
1,237,666 1,035,000 580,166 1,692,500
========= ========= ======= =========
</TABLE>
On December 1, 1999 options to acquire 35,000 shares at $6.00 per share
expiring December 1, 2004 were granted to three employees.
The options are granted for services provided to the Company. Statement of
Financial Accounting Standards No. 123 ("SFAS 123") requires that an
enterprise recognize, or at its option, disclose the impact of the fair value
of stock options and other forms of stock based compensation in the
determination of income. The Company has elected under SFAS 123 to continue
to measure compensation cost on the intrinsic value basis set out in APB
Opinion No. 25. As options are granted at exercise prices based on the market
price of the Company's shares at the date of grant, no compensation cost is
recognized. However, under SFAS 123, the impact on net income and income per
share of the fair value of stock options must be measured and disclosed on a
fair value based method on a pro forma basis.
The fair value of the employee's purchase rights under SFAS 123, was
estimated using the Black-Scholes model with the following assumptions used
for grants on January 26, 1998: risk free interest rate was 5.47%, expected
volatility of 20%, an expected option life of six months and no expected
dividends; and for grants between August 14, 1998 and February 23, 1999, as a
group: risk free interest rate was 5.27%, expected volatility of 20%, an
expected option life of six months and no expected dividends; and for grants
between May 19, 1999 and November 30, 1999, as a group: risk free interest
rate was 5.27%, expected volatility of 20%, an expected option life of six
months and no expected dividends.
If compensation expense had been determined pursuant to SFAS 123, the
Company's net loss and net loss per share for the three months and six months
ended November 30, 1999 and 1998 would have been as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
November 30, November 30,
----------------------- -------------------------
1999 1998 1999 1998
$ $ $ $
<S> <C> <C> <C> <C>
Net loss
As reported (807,104) (204,488) (1,271,440) (296,330)
Pro forma (1,107,440) (208,533) (1,782,378) (307,378)
Basic net loss per share
As reported (.11) (.04) (.18) (.06)
Pro forma (.15) (.04) (.26) (.06)
</TABLE>
-8-
<PAGE>
5. 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.
6. Segmented Information
The Company has adopted SFAS No. 131 Disclosure About Segments of an
Enterprise and related information.
The business of the Company is carried on in one industry segment being the
provision of access to the Internet and providing services, including on-line
publishing, to individual and corporate subscribers.
Up until May 31, 1999 the Company operated in one geographic segment, being
Canada, located in Vancouver, BC and Toronto, Ontario. Subsequent to May 31,
1999 the Company began expansion of its ISP business into 22 cities in the
United States by setting up Virtual ISP's. The Company has switched on 50
ports (minimum per agreement with Level 3 Communications) 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 six months ended November 30, 1999 was $80,777.
There was no revenue generated during the period.
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 $913,893 (1998 - $231,112) relating
to such activities. The net loss relating to Internet activities in Canada
amounted to $276,771 (1998 - $65,218).
7. Subsequent Events
Subsequent to November 30, 1999 the Company has:
(a) received $163,375 and issued 45,500 shares pursuant to options exercised
between $0.50 per share and $4.00 per share;
(b) received $348,500 pursuant to warrants exercised to acquire 348,500
shares;
(c) received $341,000 pursuant to a private placement of units at $4.00 per
unit.
-9-
<PAGE>
INFORMATION HIGHWAY.COM, INC.
FORM 10-QSB FOR THE THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 30, 1999
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------ ---------------------------------------------------------------
Results of Operations
- ---------------------
This report contains forward-looking statements. The words, "anticipate",
"believe", expect", "plan", "intend", "estimate", "project", "could", "may",
"foresee", and similar expressions are intended to identify forward-looking
statements. The following discussion and analysis should be read in conjunction
with the Company's Financial Statements and Notes thereto and other financial
information included elsewhere in this report which contains, in addition to
historical information, forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from the
results discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include those discussed below, as well as those
discussed elsewhere in the Company's Form 10-KSB filed with the Securities and
Exchange Commission.
Overview
The Company serves as an Internet Service Provider (referred to as an "ISP" in
the industry) for companies and individuals that need access to the Internet in
exchange for a recurring fee. The Company intends to provide ISP services to a
steadily growing number of cities in North America as a "Virtual ISP". A Virtual
ISP provides Internet access to its customers using the underlying
telecommunications infrastructure of another company, such as a telephone
company. The Virtual ISP business model should enable the Company to avoid
purchasing and installing "backbone" communications equipment and infrastructure
in each city where it plans to offer ISP services.
The Company's goal is to expand its ISP business throughout North America by
negotiating access to Virtual ISP "backbone" facilities and then repackaging
that access for sale to its customers and resellers (licensees). The Company has
entered into agreements that permit it to market access to the Internet in the
Northeast United States and 20 cities (some in the Northeast) across the United
States, and in Canada. The Company's Northeast United States Internet access
agreements permit it to provide Digital Subscriber Line ("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 the Company provided ISP services, beginning about
four years ago.
The Company believes that Internet users will begin to base their selection of
an ISP in part on the value-added services that their ISP provides. Through its
"Executive Site" compilation of Internet-based services and information, the
Company provides localized and portal content catering to business
professionals. Through research, design, programming, co-branding, and
licensing, the Company has compiled Internet services and content in its
Executive Site that it believes are useful to companies, associations and
professionals. Executive Site web pages are designed specifically for targeted
user groups, and the Company believes they provide friendly, easy to navigate
interfaces. The Company's basic Executive Site may be accessed through the
Internet at www.theexecutive.com. Other Executive Sites are customized to the
needs of specific Internet subscriber groups (whether by geographic location or
entity affiliation) and have different Internet addresses.
References in this report to the "Executive Site" mean the basic Executive Site
as well as all customized Executive Sites, unless the discussion refers
specifically to basic or customized Executive Sites.
The Company plans to market the Executive Site throughout North America,
starting with its Virtual ISP locations. It may also let other ISPs display
customized Executive Sites in certain markets. The Company also offers its
commercial clients the ability to market their products and services to
Executive Site users through its newly developed Virtual Mall.
The Company believes the Executive Site will be popular because most business
professionals don't want to spend their own time searching the Internet for the
information that they need. The Executive Site has assembled a functional
business site to enable users to immediately find what they need. Executive Site
users will be able to:
. monitor and research the stock market;
. plan and book their next business trip;
. check the local news and weather;
. participate in online forums;
-10-
<PAGE>
. carry out electronic transactions via e-commerce; and
. find a suitable restaurant in their area.
The Company does not plan to charge a fee for access to the basic Executive
Site. It plans to charge a design fee and a recurring user fee for Executive
Sites that it customizes for companies or associations. It also plans to charge
a monthly fee when it allows other ISPs to display a customized Executive Site.
The Company expects to receive advertising and e-commerce commission revenues
from the Executive Site.
The Company conducts its operations through one wholly-owned US subsidiary and
three wholly-owned Canadian subsidiaries.
Information Highway, Inc. ("IHI"), a Washington corporation, actually acquired
these subsidiaries. Then, in February 1999, IHI engaged in a reverse takeover of
Florida Venture Fund, Inc., a Florida corporation. As a result of the reverse
takeover, the shareholders of IHI came to own approximately 95% of the
outstanding shares of Florida Venture Fund, Inc. In connection with the reverse
takeover, Florida Venture Fund, Inc. changed its name to Information-
Highway.com, Inc. and is now the ultimate parent company whose shares are traded
on the OTC bulletin board (symbol: IHWY).
Effect of Reorganization During Fiscal 1999
The reverse takeover was conducted pursuant to an Agreement and Plan of
Reorganization entered into on February 17, 1999 and completed on February 23,
1999 between the Company, IHI and certain shareholders of IHI. The Company
acquired 3,235,000 common shares of IHI out of a total of 5,639,650 issued and
outstanding common shares in exchange for 3,235,000 common shares of the
Company. It is the Company's intention to complete the exchange of shares of its
common stock for the remaining and outstanding common shares of IHI on a one for
one basis. As of January 10, 2000, 2,314,650 of the remaining 2,404,650 IHI
shares had been exchanged for the same number of Company shares. In total, to
January 10, 2000, approximately 98% of IHI shares had been exchanged. The
Company has allotted 90,000 shares in anticipation of the remaining shares being
exchanged. As part of the Agreement and Plan of Reorganization the Company
caused 1,659,833 of its 1,979,500 common shares that were issued and outstanding
prior to the closing to be cancelled and assumed the obligations of IHI to issue
common shares pursuant to warrants and stock options issued by IHI.
For accounting purposes the acquirer was the legal subsidiary, IHI, as
approximately 95% of the issued and outstanding common shares of the Company at
the time of the reverse takeover were owned by the shareholders of IHI and the
Board of Directors of IHI now comprises the Board of Directors of the Company.
As IHI is the legal subsidiary of the Company the nature of the business
combination is a reverse takeover whereby the control of the assets and the
business of the Company was acquired by IHI and the consolidated financial
statements are issued under the name of the Company but is a continuation of IHI
and not the Company. The legal capital structure remains that of the Company but
the stated shareholders' equity of IHI has replaced the stated shareholders'
equity of the Company. Similarly, the Company's statements of operations and
cash flows represent a continuation of IHI's consolidated financial statements.
Factors Affecting Ongoing Operations
Prior to acquiring IHI in February, 1999, the Company had not conducted any
business since inception in 1988. The following discussion relates to IHI's
continuing operations and not that of the Company prior to the reverse takeover.
Although planned principal activities have started producing significant
revenues, in its effort to rapidly expand infrastructure and network services
and develop the Executive Site, the Company has suffered net losses each quarter
to November 30, 1999. At November 30, 1999, its accumulated deficit was
$2,928,214 and its working capital was $512,759. The Company expects 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. The
Company receives limited revenue from banner advertisements, web-site
development and hosting, e-commerce commission revenue and the resale of
products over the Internet.
-11-
<PAGE>
Revenue is recognized at the time services are provided. All related costs are
recognized in the period in which they occur. Customer deposits for Internet
dial-up services to be provided in the future are treated as deferred revenues.
The following factors affect the Company's revenue:
. Service Offering - The Company derives most of its operating revenue from the
ISP service it provides to its customers;
. Penetration of Target Markets - The Company selects certain target markets in
which it will offer its services and commit corresponding resources for
marketing and infrastructure. The Company bases its target market assessment
on two years of research and development through its involvement in the
Internet industry. Its ability to achieve market penetration in the target
markets it selects to serve has a significant effect on the Company's ability
to maintain and increase its revenues;
. Turnover - Maintaining market penetration successes by minimizing customer
turnover also has a significant effect on the Company's ability to maintain
and increase its revenues. To date, customer turnover has been minimal. The
Company expects customer turnover to increase in the future as competition
intensifies. The Company expects that service quality (i.e., data transmission
speed and periods of down time) and price will be the major factors that
influence ISP customers to switch their ISP;
. Executive Site - Executive Site revenues, which to date are mostly from
advertising, are not yet material to the Company's total revenues. The Company
expects that advertising and e-commerce commission revenues related to the
Executive Site, as well as fee-based revenues from customized Executive Site
licensees, will grow in the future, both in dollar amount and as a percentage
of the Company's total revenues.
Cost of Revenues
Cost of revenues consists primarily of the cost of serving the Company's
Internet dial-up service customers and the cost of developing web-sites for
customers. These costs include salaries for technical support and customer
service, depreciation of Internet dial-up and web-site hosting equipment,
license fees, equipment leasing costs, telephone line costs and rent to house
equipment and staff directly involved in serving customers.
The Company's network and service costs have historically included equipment
installation and ongoing service and maintenance charges. As the Company
introduces its Virtual ISP presence in additional cities, each city will
represent an increased lease charge under the Company's agreements with Internet
access providers due to the need to add bandwidth to accommodate the customer
base in the new market. The Company has entered into agreements that permit it
to market access to the Internet in the Northeast United States and 20 cities
(some in the Northeast) across the United States, and in Canada. The Company's
Northeast United States Internet access agreements permit it to provide Digital
Subscriber Line ("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 the Company expands its presence in a particular market,
it will require additional increases in bandwidth depending on data transmission
volumes.
Other Operating Expenses
The Company's other operating expenses include Executive Site development and
maintenance, information systems, billing and collections, general management
and overhead, and administrative functions. Head count in functional areas, such
as customer service, engineering and operations, along with expansion of the
Executive Site and the locations in which the Company provides ISP services and
increases in the number of its customers, will drive increases in expenses.
Results of Operations for the Three Months Ended November 30, 1999 as Compared
to the Three Months Ended November 30, 1998
Revenues
Revenues increased by $144,000 (63%) to $374,000 from $229,000 in the
comparative quarter. This increase is due to an increased subscriber base in
Vancouver and Toronto. Based on assumptions about demand for its ISP services
and the Executive Site, the Company anticipates that the dollar amount of future
revenues will continue to increase over current levels. The Company has switched
on 50 ports (minimum per agreement with Level 3 Communications) 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 six months ended November 30, 1999 was
$80,777. There was no revenue generated during the period.
-12-
<PAGE>
The Company is beginning to receive small amounts of revenue from banner
advertisements, developing web-sites for customers, reselling Executive Site
information and service modules pursuant to license agreements and reselling
product over the Internet.
Cost of Revenues
Cost of revenues increased by $62,000 (37%) to $228,000 from $166,000 in the
comparative quarter. 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 the Company's subscriber base. Sales increased by 63% while
cost of revenues increased by 37%. The Company realizes economy of scale because
of some fixed cost of revenue relating to equipment and rent.
Gross Profit
Gross profit increased by $82,000 (130%) to $145,000 from $63,000 in the
comparative quarter. As a percentage of sales gross profit increased to 38% from
27% in the comparative quarter. While increased competition in the Internet
Service Provider industry increases pressure of fee reduction for new
subscribers and renewing subscribers the Company has achieved an overall
improved gross profit percentage as a result of some fixed costs not increasing.
The Company intends to decrease the cost of telephone and Internet switching
fees with new agreements with backbone or bandwidth providers.
Marketing and Sales Expenses
Marketing and sales expenses have increased by $74,000 (135%) to $128,000 from
$55,000 in the comparative quarter. The major component of this increase was a
result of a marketing plan to increase advertisements in industry specific
publications throughout Canada. The Company had very little marketing and sales
effort in the comparative quarter.
General and Administrative Expenses
General and administrative expenses for corporate overhead activities and
Internet business-related activities have increased by $507,000 to $683,000 from
$176,000 in the comparative quarter.
General and administrative expenses relating to corporate overhead activities,
and not Internet business-related activities, have increased by $535,000 to
$583,000 from $48,000 in the comparative quarter. As a result of the reverse
takeover during February, 1999, the Company now is incurring expenses relating
to being an active operating public company and is incurring additional expenses
relating to investor relations and financial consulting. Investor relations and
financial consulting increased by $434,000 to $441,000 as compared to $7,000 in
the comparative period. The major component of this increase was $336,000 paid
in shares to a non-related company for Internet-based marketing and financial
consulting services.
Product Development Expenses
Product development costs consist of expenses incurred by the Company in the
development and creation of its Executive Site web-site. Product development
costs include compensation and related expenses for programmers, depreciation of
computer hardware and software, rent, telephone and costs incurred in developing
features and functionality of the service. Product development costs are
expensed as incurred.
Product development expenses increased by $27,000 (82%) to $60,000 from $33,000
in the comparative quarter. The major component of the increase in product
development expenses was; salaries and consulting fees of $50,000 as the Company
continues to expand its services and improve its 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 $12,000 to $22,000 as compared to $10,000 in the
comparative quarter.
Purchased goodwill will be amortized at $15,000 per month over its estimated
useful life of three years. The estimated useful life of three years was chosen
to reflect the short-term life of the related business because of increased
competition, the lack of a universal presence and technological advancements and
obsolescence in the industry. Amortization expense
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<PAGE>
has been allocated to general and administrative expense for the Internet
business. Goodwill will be fully amortized by the end of the next quarter.
The Company anticipates entering into operating leases for any network equipment
and software in the future to minimize capital expenditures.
Net Loss for the Three Months Ended November 30, 1999 as Compared to the Three
Months Ended November 30, 1998
The Company's net losses have come mainly from investor relations activities and
overhead costs associated with organization, restructuring and financing
operations in Toronto and Vancouver, Canada and costs of developing new and
improved services and expanding its marketing plan into other North American
markets. The Company has switched on 50 ports (minimum per agreement with Level
3 Communications) 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 six months ended
November 30, 1999 was $80,777. There was no revenue generated during the period.
Other operating activities conducted in the United States were expenses incurred
including investor relations and professional fees. The Company's head office is
in Richmond, BC, Canada, which does not conduct any business related to the
Internet. Its sole purpose is to provide administration, investor relations
services and services relating to being a public company.
Results of Operations for the Six Months Ended November 30, 1999 as Compared to
the Six Months Ended November 30, 1998
Revenues
Revenues increased by $168,000 (34%) to $667,000 from $499,000 in the
comparative period. This increase is due to an increased subscriber base in
Vancouver and Toronto. Based on assumptions about demand for its ISP services
and the Executive Site, the Company anticipates that the dollar amount of future
revenues will increase over current levels. The Company has switched on 50 ports
(minimum per agreement with Level 3 Communications) 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 six months ended November 30, 1999 was $80,777. There was
no revenue generated during the period.
The Company is beginning to receive small amounts of revenue from banner
advertisements, developing web-sites for customers, reselling Executive Site
information and service modules pursuant to license agreements and reselling
product over the Internet.
Cost of Revenues
Cost of revenues increased by $96,000 (30%) to $442,000 from $346,000 in the
comparative period. 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 the Company's subscriber base. Sales increased by 34% while
cost of revenues increased by 30%. The Company realizes economy of scale because
of some fixed cost of revenue relating to equipment and rent.
Gross Profit
Gross profit increased by $73,000 (48%) to $225,000 from $153,000 in the
comparative period. As a percentage of sales gross profit increased to 34% from
31% in the comparative period. While increased competition in the Internet
Service Provider industry increases pressure of fee reduction for new
subscribers and renewing subscribers the Company has achieved an overall
improved gross profit percentage as a result of some fixed costs not increasing.
The Company intends to decrease the cost of telephone and Internet switching
fees with new agreements with backbone or bandwidth providers.
Marketing and Sales Expenses
Marketing and sales expenses have increased by $97,000 (100%) to $192,000 from
$95,000 in the comparative period. The major component of this increase was a
result of a marketing plan to increase advertisements in industry specific
publications throughout Canada. The Company had very little marketing and sales
effort in the comparative period.
General and Administrative Expenses
General and administrative expenses for corporate overhead activities and
Internet business-related activities have increased by $817,000 to $1,105,000
from $288,000 in the comparative period.
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<PAGE>
General and administrative expenses relating to corporate overhead activities,
and not Internet business-related activities, have increased by $683,000 to
$914,000 from $231,000 in the comparative period. As a result of the reverse
takeover during February, 1999, the Company now is incurring expenses relating
to being an active operating public company and is incurring additional expenses
relating to investor relations and financial consulting. Investor relations and
financial consulting increased by $647,000 to $722,000 as compared to $75,000 in
the comparative period. The major component of this increase was $600,000 paid
in shares to a non-related company for Internet-based marketing and financial
consulting services.
Product Development Expenses
Product development costs consist of expenses incurred by the Company in the
development and creation of its Executive Site(TM) web-site. Product development
costs include compensation and related expenses for programmers, depreciation of
computer hardware and software, rent, telephone and costs incurred in developing
features and functionality of the service. Product development costs are
expensed as incurred.
Product development expenses increased by $53,000 (80%) to $119,000 from $66,000
in the comparative period. The major component of the increase in product
development expenses was; salaries and consulting fees of $100,000 as the
Company continues to expand its services and improve its 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 $20,000 to $50,000 as compared to $28,000 in the
comparative period.
Purchased goodwill will be amortized at $15,000 per month over its estimated
useful life of three years. The estimated useful life of three years was chosen
to reflect the short-term life of the related business because of increased
competition, the lack of a universal presence and technological advancements and
obsolescence in the industry. Amortization expense has been allocated to general
and administrative expense for the Internet business. Goodwill will be fully
amortized by the end of the next quarter.
The Company anticipates entering into operating leases for any network equipment
and software in the future to minimize capital expenditures.
Net Loss for the Six Months Ended August 31, 1999 as Compared to the Six Months
Ended August 31, 1998
The business of the Company is carried on in one industry segment being the
provision of access to the Internet and providing services, including on-line
publishing, to individual and corporate subscribers.
Up until May 31, 1999 the Company operated in one geographic segment, being
Canada, located in Vancouver, BC and Toronto, Ontario. Subsequent to May 31,
1999 the Company began expansion of its ISP business into 22 cities in the
United States by setting up Virtual ISP's. The Company has switched on 50 ports
(minimum per agreement with Level 3 Communications) 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 six months ended November 30, 1999 was $80,777. There was
no revenue generated during the period.
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 $914,000 (1998 - $231,000) relating to such activities. The net loss
relating to Internet activities in Canada amounted to $277,000 (1998 - $65,000).
The Company's 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 its 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.
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<PAGE>
Liquidity and Financial Resources
The Company has historically satisfied its capital needs by borrowing from
affiliates and by issuing equity securities.
It has also used these sources to provide a portion of its operating cash
requirements to make up for a cash shortfall from operating activities. During
the six months ended November 30, 1999, the Company used $1,160,000, generated
by issuing equity securities, to fund its operating cash shortfall of $678,000,
to repay borrowings from affiliates of $92,000, to make capital expenditures of
$119,000 and to increase its cash position by $276,000 to $314,000. The
operation, development and expansion of the Company's business will likely
require additional capital infusions for the foreseeable future.
The Company has working capital, as at November 30, 1999, of $513,000, and will
require additional funds to finance its ongoing operating activities for the
foreseeable future and will need some funds for capital expenditures. The
Company plans to manage its payables balances and satisfy its operating and
capital needs partially by generating cash (although at a shortfall) through its
operating activities and partially through sales of equity securities. Included
in working capital is $443,000 of prepaid expenses and deposits for future
services to be provided and software deposits.
The Company will require additional financing in order to carry out its business
plan as proposed. The Company's capital requirements may vary based upon: the
timing and success of its roll out and as a result of regulatory, technological
and competitive developments; demand for the Company's services or its
anticipated cash flow from operations is less or more than expected; the
Company's development plans or projections changing or proving to be inaccurate;
it engaging in any acquisitions; or it accelerating deployment of its network
services or otherwise altering the schedule or targets of its roll out plan. The
Company is not presently considering any specific business acquisition.
The Company will need additional funds to continue in business and to implement
its business plan as proposed. In addition to working capital as at November 30,
1999 of $513,000 the Company has raised $852,875 pursuant to options exercised
as to $163,375, warrants exercised as to $348,500 and a private placement of
341,000 shares at $4.00 per share. The Company continues to receive
subscriptions for the $4.00 private placement of up to 1,000,000 shares. The
Company is negotiating, subject to due diligence, a $1,500,000 convertible
debenture offering pursuant to regulation D under the Securities Act of 1933
The principal capital expenditures incurred to date related to putting networks
in place in Toronto and Vancouver. The majority of the networking equipment has
been acquired in previous periods, and new equipment will be leased under
operating leases. The Company's strategy now is to create Virtual ISP presences
in new markets (i.e., North American cities) pursuant to its agreements with
Internet access providers, so that it will not have to commit to capital
expenditures to build out a network in each new market. The Company may need to
commit working capital, however, to fund increased lease payments to Internet
access providers until revenues from new subscribers begin to cover the increase
in monthly lease costs attributable to the new market. The Company has switched
on 50 ports (minimum per agreement with Level 3 Communications) 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 six months ended November 30, 1999 was
$80,777. There was no revenue generated during the period. The Company expects
its capital expenditures to continue at a modest rate in future periods as
necessary, arising primarily from the purchase of some infrastructure equipment
necessary for the development and expansion of its defined markets. The Company
made capital expenditures of $119,000 in the current period, principally to
acquire hardware related to the development and maintenance of the Executive
Site.
Year 2000 Issues
The Company cannot provide assurance that it will not experience unanticipated
negative consequences from year 2000 problems, including material costs caused
by undetected errors or defects in the technology used in its internal systems
as it operates in the Year 2000.
The Company did not experience any problems with its systems or service
providers during the Year 2000 rollover period.
The Company's online services and their associated and supporting tools, Web
sites and infrastructure were designed and developed to be year 2000 compliant.
Its internal systems, including those used to deliver its services, utilize
third-party hardware and software. Based on vendors' representations received
thus far and its experience with the Year 2000 rollover, the Company believes
that the third-party hardware and software it uses is year 2000 compliant.
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<PAGE>
To date, the Company has spent an estimated $100,000, in part to address year
2000 issues. These expenditures consisted mainly of purchases of new year 2000-
compliant computer equipment, and some of these purchases would have been made
in the ordinary course of replacing aging equipment. The Company presently
estimates that the total remaining cost of addressing year 2000 issues will not
be material. These estimates were derived utilizing a number of assumptions,
including the assumption that the Company has already identified any significant
year 2000 issues. However, these assumptions may not be accurate, and actual
results could differ materially from those anticipated. In view of the Company's
year 2000 review and remediation efforts to date, the recent development of its
services, the recent installation of its information technology equipment and
systems, the Company does not consider contingency planning to be necessary at
this time.
The Company believes that any lingering Year 2000 problems will occur in the
processing of financial transactions. The Company believes that its billing
systems will accurately invoice its subscribers and licensees. The Company will
remain vigilant in its review of invoices from its vendors to detect potential
Year 2000 errors in their charges to the Company.
If the Company discovers that certain of its services need modification, or
certain of its third-party hardware and software is not year 2000 compliant, it
will try to make modifications to its services and systems on a timely basis.
The Company does not believe that the cost of these modifications will
materially affect its operating results. However, the Company cannot provide
assurance that it will be able to modify these products, services and systems in
a timely, cost-effective and successful manner, and the failure to do so could
have a material adverse effect on its business and operating results.
-17-
<PAGE>
PART II Other Information
Item 2. Changes in Securities and Use of Proceeds
- ------- -----------------------------------------
Recent Sales of Unregistered Securities.
Set forth below is information regarding the issuance and
sales of securities of the Company without registration during
the quarter ended November 30, 1999. 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 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 November 30, 1999, tho Company issued
34,150 shares pursuant to warrants exercised at $1.00 per
share for 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. The Company provided disclosure to each of
the warrant holders in connection with tho reorganization
of Information Highway, Inc. (IHI) and the Company and
pursuant to its filings with the Commission. Each of the
warrant holders owned shares of IHI that they have now
exchanged for shares of the Company. During the quarter
ended November 30, 1999, the Company issued shares to 6
purchasers of which 2 were accredited investors and 0 were
foreign citizens whose purchases were covered by
Regulation S. On September 30, 1999, the Company had
temporarily halted the exercise of its warrants until it
could further verify the accredited investor status of
some of its warrant holders and shareholders who had
previously exercised similar warrants. Upon further
investigation, the Company determined that through
November 30, 1999, in connection with the exercise of all
$1.00 warrants assumed in connection with the
reorganization of the Company in February 1999, the
Company issued shares to 48 purchasers, of which 17 were
accredited investors and 8 were foreign citizens whose
purchases were covered by Regulation S. All of the shares
issued pursuant to the warrant exercises beer 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) During the quarter ended November 30, 1999, the Company
issued 295,166 shares pursuant to options exercised at
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 the Company's written stock option plan, a
copy of which the Company has provided to its
participants. In the event Rule 701 is not available, the
Company believes 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, the Company further believes 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.
(3) In October 1999 the Company issued 50,000 shares to IP
Equity, Inc. 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.
(4) In November 1999 the Company 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.
(5) In November 1999 the Company granted a warrant to purchase
up to 400,000 shares of its 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.
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<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits.
Exhibit No. Description
---------- -------------------------------------------
4.1* Specimen Share Certificate for Common Stock
4.2* Form of Warrants ($1.00)
4.3* Stock Option Plan
4.4* Form of Stock Option Agreement
4.5** Form of Warrants ($4.00 and $6.00)
4.6 Form of Warrants ($3.50)
27.1 Financial Data Schedule
* Incorporated by reference from the Company's registration
statement on Form 10-SB filed with the Securities and Exchange
Commission on April 14, 1999.
** Incorporated by reference from Amendment No. 1 to the Company's
registration statement on Form 10-SB/A filed with the
Securities and Exchange Commission on October 12, 1999.
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<PAGE>
Signature
---------
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: January 13, 2000 INFORMATION-HIGHWAY.COM, INC.
By: /s/ John G. Robertson
---------------------------------------------
John G. Robertson, President
(Principal Executive Officer)
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<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- ------------------------------------------------
4.1* Specimen Share Certificate for Common Stock
4.2* Form of Warrants ($1.00)
4.3* Stock Option Plan
4.4* Form of Stock Option Agreement
4.5** Form of Warrants ($4.00 and $6.00)
4.6 Form of Warrants ($3.50)
27.1 Financial Data Schedule
* Incorporated by reference from the Company's registration statement
on Form 10-SB filed with the Securities and Exchange Commission on
April 14, 1999.
** Incorporated by reference from Amendment No. 1 to the Company's
registration statement on Form 10-SB/A filed with the Securities and
Exchange Commission on October 12, 1999.
<PAGE>
EXHIBIT 4.6
INFORMATION-HIGHWAY.COM, INC.
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE
EXERCISE OF THIS WARRANT ARE TRANSFERABLE ONLY IN ACCORDANCE
WITH PARAGRAPH H HEREOF.
Void after 5:00 P.M., New York Time, on November 15, 2000
Warrant to Purchase
400,000 Shares
of Common Stock
WARRANT TO PURCHASE COMMON STOCK
This is to Certify That, FOR VALUE RECEIVED, K & D Equities, Inc. an Arizona
company, having an office at 1425 E. University Drive, Suite 108, Tempe, AZ
85281 (the "Holder") is entitled to purchase, subject to the provisions of this
Warrant, from Information-Highway.com, Inc., a company organized under the laws
of the State of Florida, having an office at 10751 Shellbridge Way, Richmond BC
Canada V6X 2W8 (the "Company"), the number of shares set forth above (the
"Warrant Shares") of the Company's Common Stock, $.001 par value ("Common
Stock") at a price of $3.50 per share (or such other price computed by applying
all adjustments made on or before November 15, 2000, in accordance with Section
F hereof, to $3.50 as if it had been the initial Exercise Price per share
hereunder) at any time on or after November 15, 1999 until 5:00 P.M. New York
Time, on November 15, 2000. The number of shares of Common Stock to be received
upon the exercise of this Warrant and the price to be paid for a share of Common
Stock may be adjusted from time to time as hereinafter set forth. The shares of
Common Stock deliverable upon such exercise, and as adjusted from time to time,
are hereinafter sometimes referred to as "Warrant Shares" and the exercise price
of a share of Common Stock in effect at any time and as adjusted from time to
time is hereinafter sometimes referred to as the "Exercise Price."
A. EXERCISE OF WARRANT. Subject to the following conditions precedent and the
--------------------
provisions of Section I hereof, this Warrant may be exercised in whole or in
part at any time or from time to time on or after November 15, 1999, and
before 5:00 P.M. New York Time on November 15, 2000, or, if either such day
is a day on which banking institutions are authorized by law to close, then
on the next succeeding day which shall not be such a day, by presentation and
surrender hereof to the Company at any office maintained by it in British
Columbia, Canada, or at the office of its Warrant Agent, if any, with the
Purchase Form annexed hereto duly executed and accompanied by payment of the
Exercise Price for the number of shares specified in such form. If this
Warrant should be exercised in part only, the Company shall, upon surrender
of this Warrant for cancellation, execute and deliver a new Warrant
evidencing the rights of the Holder hereof to purchase the balance of the
shares purchasable hereunder. Upon receipt by the Company of this Warrant at
its office, or by the Warrant Agent of the Company at its office, in proper
form for exercise, the Holder shall be deemed to be the holder of record of
the shares of Common Stock issuable upon such exercise, notwithstanding that
the stock transfer books of the Company shall then be closed exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificate representing such shares of Common Stock shall not
then be actually delivered to the Holder.
B. RESERVATION OF SHARES. The Company hereby agrees that at all times there
----------------------
shall be reserved for issuance and/or delivery upon exercise of this Warrant
such number of shares of its Common Stock as shall be required for issuance
of delivery upon exercise of this Warrant.
C. FRACTIONAL SHARES. No fractional shares or scrip representing fractional
------------------
shares shall be issued upon the exercise of this Warrant. With respect to any
fraction of a share called for upon exercise hereof, the Company shall issue
to the Holder the next whole share.
D. EXCHANGE, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is exchangeable,
----------------------------------------
without expense, at the option of the Holder, upon presentation and surrender
hereof to the Company or at the office of the Warrant Agent for other
Warrants of different denominations entitling the holder thereof to purchase
in aggregate the same number of shares of Common Stock purchasable hereunder.
The term Warrant as used herein includes any Warrants into which this Warrant
may be divided or exchanged. Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction, or mutilation
of this Warrant, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and cancellation
of this Warrant, if mutilated, the Company will execute and deliver a new
Warrant of like tenor and date. Any such new warrant executed and
<PAGE>
delivered shall constitute an additional contractual obligation on the part
of the Company, whether or not this Warrant so lost stolen, destroyed, or
mutilated shall be at any time enforceable by anyone.
E. RIGHTS OF THE HOLDER. The Holder shall not, by virtue here of, be entitled
---------------------
to any rights of a shareholder in the Company, either at law or equity, and
the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth
herein.
F. STOCK DIVIDENDS, RECLASSIFICATION, REORGANIZATION, ANTI DILUTION PROVISIONS,
----------------------------------------------------------------------------
ETC. This Warrant is subject to the following further provisions:
----
1. In case, prior to the expiration of this Warrant by exercise or by its
terms, the Company shall issue any shares of its Common Stock as a stock
dividend or subdivide the number of outstanding shares of Common Stock
into a greater number of shares, then, in either of such cases, the
Exercise Price per share of the Warrant Shares purchasable pursuant to
this Warrant in effect at the time of such action shall be
proportionately reduced and the number of Warrant Shares at that time
purchasable, pursuant to this Warrant shall be proportionately increased;
and conversely, in the event the Company shall contract the number of
outstanding shares of Common Stock by combining such shares into a
smaller number of shares, then, in such case, the Exercise Price per
share of the Warrant Shares purchasable pursuant to and the number of
Warrant Shares at that time purchasable pursuant to this Warrant shall be
proportionately decreased. Provided however, the maximum Exercise Price
-------- -------
shall not exceed $7.00 and the corresponding minimum number of Warrant
Shares issuable upon exercise hereof shall equal the number determined by
multiplying the initial number of Warrant Shares which could be obtained
upon exercise by $3.50 and dividing the product so obtained by $7.00. Any
dividend paid or distributed upon the Common Stock in stock of any other
class of securities convertible into shares of Common Stock shall be
treated as a dividend paid in Common Stock to the extent that shares of
Common Stock are issuable upon the conversion thereof.
2. In case, prior to the expiration of this Warrant by exercise or by its
terms, the Company shall be recapitalized by reclassifying its
outstanding Common Stock, $.001 par value, into stock with a different
par value or by changing its outstanding Common Stock with par value to
stock without par, the Company or a successor corporation shall be
consolidated or merge with or convey all or substantially all of its or
of any successor corporation's property and assets to any other
corporation or corporations (any such corporation being included within
the meaning of the term successor corporation in the event of any
consolidation or merger of any such corporation with, or the sale of all
or substantially all of the property of any such corporation to, another
corporation or corporations), in exchange for stock or securities of a
successor corporation, the holder of this Warrant shall thereafter have
the right to purchase upon the terms and conditions and during the time
specified in this Warrant, in lieu of the Warrant Shares theretofore
purchasable upon the exercise of this Warrant, the kind and amount of
shares of stock and other securities receivable upon such
recapitalization or consolidation, merger or conveyance by a holder of
the number of shares of Common Stock which the holder of this Warrant
might have purchased immediately prior to such recapitalization or
consolidation, merger or conveyance.
3. Upon the occurrence of each event requiring an adjustment of the Exercise
Price and of the number of Warrant Shares purchasable at such adjusted
Exercise Price by reason of such event in accordance with the provisions
of this Section F, the Company shall compute the adjusted Exercise Price
and the adjusted number of Warrant Shares purchasable at such adjusted
Exercise Price by reason of such event in accordance with the provisions
of this Section F and shall prepare a certificate setting forth such
adjusted Exercise Price and the adjusted number of Warrant Shares and
showing in detail the facts upon which such conclusions are based, The
Company shall mail forthwith to each holder of this Warrant a copy of
such certificate, and thereafter said certificate shall be conclusive and
shall be binding upon such holder unless contested by such holder by
written notice to the Company within thirty (30) days after receipt of
the certificate by such holder.
4. In case:
(a) the Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to receive a dividend or any other
distribution in respect of the Common Stock (including cash),
pursuant to without limitation, any spin-off, split-off or
distribution of the Company's assets; or
(b) the Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to subscribe for or purchase any
shares of stock of any class or to receive any other rights; or
<PAGE>
(c) of any classification, reclassification or other reorganization of
the capital stock of the Company, consolidation or merger of the
Company with or into another corporation, or conveyance of all or
substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or winding
up of the Company;
then, and in any such case, the Company shall mail to the Holder, at
least twenty (20) days prior thereto, a notice stating the date or
expected date on which a record is to be taken for the purpose of
such dividend or distribution of rights, or the date on which such
classification, reclassification, reorganization, consolidation,
merger, conveyance, dissolution, liquidation, or winding up is to
take place, as the case may be. Such notice shall also specify the
date or expected date, if any is to be fixed, as of which holders of
Common Stock of record shall be entitled to participate in said
dividend on distribution of rights, or shall be entitled to exchange
their shares of Common stock for securities or other property
deliverable upon such classification, reclassification,
reorganization, consolidation, merger, conveyance, dissolution,
liquidation, or winding up, as the case may be. The failure to give
such notice shall not affect the validity of any such proceeding or
transaction and shall not affect the right of the holder of this
Warrant to participate in said dividend, distribution of rights, or
any such exchange and acquire the kind and amount of cash, securities
or other property as the Holder would have been entitled to acquire
if it was the record holder of the Warrant Shares which could be
obtained upon the exercise of the Warrants immediately before such
proceeding or transaction; provided that, the Holder exercises the
-------------
Warrants within 30 days after discovery that such action or
proceeding has taken place.
5. In case the Company at any time while this Warrant shall remain unexpired
and unexercised, shall dissolve, liquidate, or wind up its affairs, the
holder of this Warrant may thereafter receive upon exercise hereof in
lieu of each share of Common Stock of the Company which it would have
been entitled to receive, the same kind and amount of any securities or
assets as may be issuable, distributable or payable upon any such
dissolution, liquidation or winding up with respect to each share of
Common Stock of the Company.
G. OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted as
----------------------
required by the provisions of the foregoing Section, the Company shall
forthwith file in the custody of its Secretary at its principal office and
with the Warrant agent, an officer's certificate showing the adjusted
Exercise Price determined as therein provided, setting forth in reasonable
detail the facts requiring such adjustment, including a statement of the
number of additional shares of Common Stock, if any, the consideration for
such shares, determined as provided in such Section F, and such other facts
as shall be necessary to show the reason for and the manner of computing such
adjustment. Each such officer's certificate shall be made available at all
reasonable times for inspection by the holder and the Company shall,
forthwith after each such adjustment, mail a copy of such certificate to the
holder.
H. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933. Neither this Warrant,
---------------------------------------------------
the Warrant Shares, nor any other security issued or issuable upon exercise
of this Warrant may be sold or otherwise disposed or except as follows:
1. to a person who, in the opinion of counsel reasonably satisfactory to the
Company, is a person to whom the Warrant or Warrant Shares may legally be
transferred without registration and without the delivery of a current
prospectus under the Securities Act of 1933, as amended (the "Act") with
respect thereto and then only against receipt of an agreement of such
person to comply with the provisions of this Section H with respect to any
resale or other disposition of such securities; or
2. to any person upon delivery of a prospectus then meeting the requirements
of the Act relating to such securities and the offering thereof for such
sale or disposition.
I. REGISTRATION RIGHTS: LIQUIDATED DAMAGES. The Holder will be entitled to
----------------------------------------
registration rights in respect of the shares of Common Stock issuable upon
exercise of the Warrant (the terms of which are set forth below) as follows:
(1) The Company shall prepare and file, within 30 days of the issuance of the
Warrant, a Registration Statement on either Form S-1, SB-2 or S-3 (the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") covering the resale of the shares of Common Stock issuable upon
the exercise of the Warrant. The Company shall use its best efforts to cause
the Registration Statement to be declared effective by the Commission no
later than 90 days following the issuance of the Warrant and shall promptly
deliver to Holder copies of all amendments to such Registration Statement and
correspondence with the Commission with respect thereto. The Company shall
maintain the effectiveness of the Registration Statement until all of the
Common Stock issuable upon exercise of the Warrant has been sold. The Company
shall pay all expenses of registration (other than underwriting fees and
discounts in respect of shares of Common Stock offered and sold under such
Registration
<PAGE>
Statement by the Purchaser, if any). (2) If the Registration Statement is not
declared effective by the Commission during the 90 day period mentioned above
the expiration date (November 15, 2000) of the Warrant shall be extended to
April 15, 2001. If the Registration Statement is not declared effective
within 180 days following the issuance of this Warrant, the expiration date
shall be extended to November 15, 2001.
J. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
----------------------------------------------
warrants to the holder as follows:
1. The Company is duly organized and, as of the date of the original issuance
hereof, validly existing and in good standing under the laws of the State
of Florida.
2. The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuing
Warrant Shares upon the exercise of this Warrant, such shares as may be
issuable upon the exercise hereof.
3. Warrant Shares, when issued and paid for in accordance with the terms of
this Warrant, will be fully paid and not assessable.
4. This Warrant has been duly authorized and approved by all required
corporate action by the Company and does not violate the certificate of
incorporation or by-laws of the Company.
INFORMATION-HIGHWAY.COM, INC.
/s/ John G. Robertson
John G. Robertson, President
[CORPORATE SEAL]
Dated:
ATTEST:
/s/ Jennifer Lorette, Secretary
Jennifer Lorette, Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> MAY-31-2000 MAY-31-1999
<PERIOD-START> JUN-01-1999 JUN-1-1998
<PERIOD-END> NOV-30-1999 NOV-30-1998
<CASH> 313,603 367,655
<SECURITIES> 0 0
<RECEIVABLES> 8,559 6,563
<ALLOWANCES> 0 0
<INVENTORY> 33,658 0
<CURRENT-ASSETS> 826,153 379,518
<PP&E> 1,066,605 798,465
<DEPRECIATION> (681,787) (429,492)
<TOTAL-ASSETS> 1,210,971 748,491
<CURRENT-LIABILITIES> 313,394 229,660
<BONDS> 0 0
0 0
0 0
<COMMON> 3,682,612 1,356,197
<OTHER-SE> 143,179 7,938
<TOTAL-LIABILITY-AND-EQUITY> 1,210,971 748,491
<SALES> 666,798 498,895
<TOTAL-REVENUES> 666,798 498,895
<CGS> 441,558 346,349
<TOTAL-COSTS> 441,558 346,349
<OTHER-EXPENSES> 1,496,680 448,876
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (1,271,440) (296,330)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,271,440) (296,330)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,271,440) (296,330)
<EPS-BASIC> (.18) (.06)
<EPS-DILUTED> (.18) (.06)
</TABLE>
