AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 29, 1999
REGISTRATION NO. 333-88031
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
YAK COMMUNICATIONS (USA), INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
FLORIDA 7385 98-0203422
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
55 TOWN CENTRE COURT, SUITE 506
TORONTO, ONTARIO M1P 4X4
CANADA
(416) 296-7111
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL
EXECUTIVE OFFICES AND PRINCIPAL PLACE OF BUSINESS)
--------------------------------
CHARLES ZWEBNER
PRESIDENT & CHIEF EXECUTIVE OFFICER
55 TOWN CENTRE COURT, SUITE 506
TORONTO, ONTARIO M1P 4X4
CANADA
(416) 296-7111
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
--------------------------------
COPIES TO:
DENNIS J. OLLE, ESQ.
ADORNO & ZEDER, P.A.
2601 SOUTH BAYSHORE DRIVE
MIAMI, FLORIDA 33133
(305) 860-7044
--------------------------------
APPROXIMATE DATE OF PROPOSED SALES TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
<PAGE>
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE BEING
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 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 REGISTRATION STATEMENT FOR THE
SAME OFFERING. [ ]
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE
434, PLEASE CHECK THE FOLLOWING BOX. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE PER AGGREGATE OFFERING PRICE REGISTRATION FEE
SHARE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCK, NO PAR VALUE 1,688,000(1) $10.00(2) $16,880,000(2) $4,692.65
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) Includes 188,000 shares issuable upon exercise of warrants issued to a
selling shareholder, and 1,500,000 shares which we propose to sell to the
general public.
(2) Estimated solely for the purpose of computing the amount of the registration
fee in accordance with Rule 457(c).
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 THE 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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
ii
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION) DATED DECEMBER 29, 1999
The information in this preliminary prospectus is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
YAK COMMUNICATIONS (USA), INC.
A minimum of 600,000 shares and a maximum of 1,500,000 shares
issuable to the general public, and 188,000 shares of common stock
underlying warrants issuable to a selling shareholder
This is the initial registered public offering of Yak Communications
(USA), Inc., and we are offering a minimum of 600,000 shares and a maximum of
1,500,000 shares of common stock to the general public. We have also prepared
this prospectus to allow a selling stockholder to sell up to 188,000 shares of
our common stock which it may acquire on exercise of warrants. We will receive
the proceeds from our sale of the shares of our common stock to the general
public and from the selling stockholder's exercise of the warrants, if any. We
will not receive any proceeds from the sale of shares by the selling
stockholder. The selling stockholder is under no obligation to exercise the
warrants. We expect that the price of our common stock will be between $7.50 and
some greater price as may be set in the auction process. See "Company's Plan of
Distribution." This price may not reflect the market price of our shares after
this offering. We have applied to have our common stock listed on the AMEX
market.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
MINIMUM OFFERING MAXIMUM OFFERING
--------------------------------- --------------------------------
PER SHARE TOTAL PER SHARE TOTAL
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Public Offering Price $7.50 $4,500,000 $7.50 $11,250,000
- -----------------------------------------------------------------------------------------------
Offering Expenses $0.417 $250,000 $0.167 $250,000
- -----------------------------------------------------------------------------------------------
Net Proceeds $7.083 $4,250,000 $7.333 $11,000,000
- -----------------------------------------------------------------------------------------------
</TABLE>
Investing in our common stock involves a high degree of risk. Please see
"Risk Factors" starting on page 3 to read about certain risks that you should
consider carefully before buying shares of our common stock.
The Securities and Exchange Commission and state regulators have not
approved or disapproved these securities or determined if this prospectus is
truthful or complete. It is a crime to make any representation to the contrary.
iii
<PAGE>
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUMMARY..........................................................1
RISK FACTORS................................................................3
USE OF PROCEEDS.............................................................9
MANAGEMENT'S PLAN OF OPERATIONS............................................10
IMPACT OF THE YEAR 2000 ISSUE..............................................11
OUR COMPANY................................................................12
FORWARD-LOOKING STATEMENTS.................................................22
MANAGEMENT.................................................................23
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................26
PRINCIPAL SHAREHOLDERS.....................................................27
SELLING SHAREHOLDER'S PLAN OF DISTRIBUTION.................................30
COMPANY'S PLAN OF DISTRIBUTION.............................................32
DESCRIPTION OF SECURITIES..................................................36
LEGAL MATTERS..............................................................39
EXPERT ....................................................................39
WHERE YOU CAN FIND ADDITIONAL INFORMATION..................................39
AUDITED FINANCIAL STATEMENTS..............................................F-1
INFORMATION NOT REQUIRED IN PROSPECTUS...................................II-1
iv
<PAGE>
PROSPECTUS SUMMARY
YAK COMMUNICATIONS (USA), INC.
We were incorporated under the laws of the State of Florida in December
1998 to develop and offer international long distance discount services to
medium and small-sized businesses and residential customers with an initial
emphasis on targeting those ethnic markets that make a significant amount of
international long distance calls. We began offering international long distance
calling services in July 1999. We currently market our services in Toronto and
in Montreal, and intend to expand our marketing to Vancouver, Miami, New York,
Los Angeles and San Francisco in 2000.
International long distance traffic is generally transmitted through an
international gateway switching facility. International gateway switches are
digital computerized routing facilities that receive calls, route calls through
transmission lines to their destination, and record information about the
source, destination and duration of calls. We currently operate an international
gateway switch in Toronto, and expect to begin operation of an international
gateway switch in New York in January 2000.
We rely on resale arrangements to secure low-cost transmission of calls
that are routed through our gateway switching facilities. Resale arrangements
typically involve the wholesale purchase and sale of transmission and
termination services between long distance providers on a variable, per minute
basis. Resale arrangements set per minute prices for different routes.
We currently offer a dial-around service (also known as "casual
calling"). This allows the customer to dial around his existing long distance
carrier on any call by entering a few digits prior to making the call, without
switching long distance carriers. We will also offer the customer the ability to
automatically switch long distance calls from his existing long distance carrier
to our long distance service, known as "1 + billing".
To date, we have had limited operating revenues. We will continue to
incur costs in excess of our operating revenues in connection with the
development of our business and it is uncertain when, if ever, we will achieve
sufficient revenues to offset these operating costs. Our operating expenses are
likely to significantly increase with our planned expansion of markets and
services.
We intend to provide our customers with internet telephony as the
associated technology emerges. This is expected to allow PC-to-Phone, PC-to-PC,
and Phone-to-Phone internet calling. Currently, transmission of voice over the
internet costs substantially less than transmission of voice over telephone
transmission facilities. In addition, when the internet is used for the
transmission rather than using international telephone transmission facilities,
there are currently no "settlement" fees, which are international calling
charges paid by phone companies in a call's country of origin to the phone
company in the country where a call is terminated. We expect that as the quality
of internet telephony transmission improves, we will be able to use our gateway
switching facilities to connect conventional phone systems to the internet and
use the lower-cost internet as the link for long-distance calls.
<PAGE>
We also intend to provide to our customers with value added
internet-telephony services as the supporting technology continues to improve.
We expect these services to include:
/bullet/ internet incoming telephone alerts and available response
capabilities
/bullet/ internet e-commerce communication service allowing the user to
simultaneously remain on a business web site and talk directly
with the business while continuing to view the web site, and
/bullet/ internet to telephone, including wireless, calling, paging,
faxing, e-mail and voice-mail sending and retrieving facilities.
We expect to be able to provide all of these services and voice
communications to our customers by integrating and bridging the public switched
telephone network and the world wide web, thus allowing telephone, cellular and
other wireless devices to communicate with these and other devices connected to
the internet.
For our ethnic markets we intend to introduce these services in multiple
languages with imbedded translation facilities and speech recognition.
We expect that these services will be available to our customers on a
monthly subscription basis with varying prices depending on the package of
services to which the customer chooses to subscribe. In addition, we intend to
create a revenue stream from advertisers where our delivery system to our
customers will allow for advertising space to be sold. Whenever possible, we
intend to continue to bill and collect for these services through the local
phone company from which the customer rents his local lines, using the
technology and agreement terms that we currently use for our billing and
collection of long distance discount calling services. See "Our Company --
Billing Agreements."
Unless otherwise indicated, all information in this prospectus reflects
our 1 for 5 reverse split of our common stock, which occurred in December, 1999.
The method we are using to distribute our shares in this offering differs from
that traditionally used in public offerings. Our shares' public offering price
will be determined primarily by an auction process. A more detailed description
of this process is included in "Company's Plan of Distribution."
Our offices are located at 55 Town Centre Court, Suite 506, Toronto,
Ontario, Canada. Our telephone number is (416) 296-7111. Our facsimile number is
(416) 279-1372. Our world-wide web address is www.yakcom.com. Information
contained in our web site is not part of this prospectus.
2
<PAGE>
RISK FACTORS
In addition to the other information included in this prospectus, prospective
purchasers should carefully consider the following.
WE ARE A START UP COMPANY WITH LIMITED REVENUES, AND HAVE NEVER BEEN PROFITABLE.
From our incorporation in December 1998 through June 1999, we focused on
formulating our plans and developing our facilities to provide long distance
services. We commenced providing telephone calling services in July 1999 in
Toronto and in October 1999 in Montreal; accordingly, we do not have a prolonged
operating history upon which you can evaluate our business and prospects.
Although our initial business has developed so that we have narrowed the rate of
our losses, an investment in our company is still subject to many of the risks
involved in a newly established business venture. We may continue to incur costs
in excess of our operating revenues in connection with the development of our
business and it is uncertain when, if ever, we will achieve sufficient revenues
to offset these operating costs. You should consider the problems, delays,
expenses and difficulties encountered by companies at this early stage of
operations, many of which may be beyond our control, including marketing and
service introduction, competition, new market acceptance of our services, and
unanticipated problems and additional costs relating to the development of our
services.
Our success will depend on our ability to provide long distance telephone
calls at a discount from the prices offered by the larger, established carriers,
and to successfully market our discounted long distance time. The prospects for
our success must be considered in light of the risks, expenses and difficulties
often encountered in the development of a new startup business. Accordingly, AN
INVESTMENT IN OUR COMMON STOCK IS A HIGH-RISK SPECULATIVE INVESTMENT SUITABLE
ONLY FOR PERSONS HAVING NO NEED FOR LIQUIDITY IN THEIR INVESTMENT AND WHO HAVE
ADEQUATE FINANCIAL RESOURCES TO WITHSTAND A TOTAL LOSS OF THEIR INVESTMENT.
OUR FAILURE TO OBTAIN ADDITIONAL FINANCING WHEN NEEDED COULD ADVERSELY AFFECT
OUR BUSINESS.
Our working capital requirements in connection with the expansion of our
business will be material. We anticipate that the net proceeds from this
offering and our anticipated cash flow from operations will be sufficient to
satisfy our working capital requirements for at least the next twelve months;
however, we plan to incur additional costs over the next twelve months in
connection with our plans to expand our geographic markets and our service
offerings. We may need to seek additional financing sooner than we anticipate if
our sales do not grow as we anticipate, or we accelerate our expansion plans. If
we need additional financing to carry out our intended activities, there can be
no assurance that any such financing will be available, or if available, will be
on terms acceptable to us. Any inability to raise sufficient working capital in
the future when needed would limit or prevent our ability to expand at a rate
currently contemplated, and could impair our ability to continue operations.
3
<PAGE>
DISCOUNT TELECOMMUNICATIONS IS A HIGHLY COMPETITIVE INDUSTRY AND
WE MAY NOT HAVE THE RESOURCES TO ADEQUATELY COMPETE.
The performance of discount telecommunications companies is affected by
the quality of their services and their prices. We purchase discounted calling
services from providers with clear, relatively static-free lines that are
generally free from echos and delays between speaking and hearing. In addition,
at the current time our prices for international calls are among the lowest in
our markets. Although currently we compete favorably in our initial markets,
there are several small companies, as well as some larger companies that have
greater resources than we have, and each of these other companies provides
similar long distance communications services. Additionally, there is nothing to
prevent the largest of the companies involved in the telecommunications industry
from entering the "casual calling" market. These larger, established
telecommunications companies not only have greater resources than we do, they
also have significantly greater experience and name recognition than we do. Some
of these larger existing and potential competitors have the potential marketing
advantage of being able to offer multiple services and products to our current
or prospective customers. One or more of these competitors could also improve
their current services and products or develop new products which may compete
more effectively with us.
New technology introduced into discount calling services or in other
calling methods could render our method of "casual calling" obsolete. These new
technologies include, among others, personal computer telephony and internet
voice communications. Our limited resources can be an impediment when new
technologies are offered by our competitors. New technologies may arise which
could lower or eliminate the demand for our services. Many of our existing and
potential competitors may be able to respond more quickly to new or emerging
advancements in the industry and to devote greater resources to the development,
promotion and sale of their products and services. No assurances can be given
that we will be able to compete successfully against current and future
competitors.
Our limited resources could also impair our ability to compete with
larger and well established companies that may enter our markets by acquiring
discount telecommunication companies operating in our markets. Current and
potential competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with third parties that could increase their
ability to reach our targeted market. These larger companies may enter our
markets with new services, and may be able to offer lower prices over an
extended period of time. They may also be able to launch extensive and effective
marketing campaigns aimed at our target markets. There is no guarantee that we
would be able to compete with these larger companies that might choose to enter
our markets.
WE MAY NOT SUCCEED IN INTEGRATING THE TECHNOLOGY TO UNDERTAKE OUR FUTURE PLANS.
We intend to provide internet telephony, in part, by bridging the
internet to the conventional switched telephone network through our gateway
switches. We also intend to provide additional web-based services. See "Our
Company -- Voice Over IP and Web-based Communications Services." To provide
internet telephony and web-based services, the quality of available software
products will have to improve, and we will have to successfully adapt the
software into our network.
4
<PAGE>
We will rely on third parties to develop and improve the necessary technology.
It is uncertain when, if ever, the software will achieve a quality we deem
necessary for our commercial use, or if we will obtain access to that technology
when and if it is available to others. It is also uncertain if we will be able
to integrate the necessary technology into our network to offer these services
in a manner acceptable to our customers. If we experience delays, problems or we
fail to obtain or integrate the technology necessary to offer internet telephony
or additional web-based services, we might fail in our attempts to offer
internet telephony or web-based services.
WE MAY NOT SUCCEED IN GAINING MARKET ACCEPTANCE WITH OUR
PLANNED INTERNET SERVICE OFFERINGS.
We may be able to offer internet telephony and other web-based services,
but not succeed in marketing or obtaining a profit from these services. Although
we offer and market discount international telephone calls over the public
switched telephone network, we have never marketed or sold internet-based
telephony and value added services. We have not done a market study to determine
the market demand for these services, or if any specific marketing plan we might
use would succeed in gaining general market acceptance. If we undertake, but are
unable, to successfully market internet telephony or additional web-based
services, we are likely to lose a significant amount of money in our failed
undertaking.
OUR SUCCESS LARGELY DEPENDS ON THE CONTINUED EFFORTS OF OUR CHIEF EXECUTIVE
OFFICER; HOWEVER, THERE IS NO GUARANTEE THAT WE WON'T LOSE HIS SERVICES.
We depend greatly on the services of our chief executive officer, Charles
Zwebner, to devise, implement and execute our strategy. The loss of Mr. Zwebner
would likely have a material adverse effect on our operations. Mr. Zwebner is
bound by an employment agreement pursuant to which he is employed by us until
December 31, 2004. Also, Mr. Zwebner has a significant economic interest in our
company as the owner of 616,400 shares of our common stock. Although we are not
aware of any reason why Mr. Zwebner could not continue to provide the service he
currently provides, there can be no guarantee that Mr. Zwebner will continue to
perform as expected under his employment agreement. We do not currently employ
someone with similar skills or the experience of Mr. Zwebner, nor can we assure
that, if necessary, we could locate and hire someone with the necessary
experience and skills to replace Mr. Zwebner.
WE NEED, BUT CANNOT GUARANTEE, A CONTINUING RELATIONSHIP WITH VENDORS.
/bullet/ WE ARE DEPENDANT ON, BUT CANNOT GUARANTEE OUR RELATIONSHIP
WITH OUR SWITCH SUPPLIER.
The success of our business will depend in part on our ability to obtain
and maintain switching equipment that meets our requirements. While there are
many different switch supporters, currently we have only one switch supplier,
and as a result we are dependent upon that supplier's switches for timely
replacement parts should any be needed in the future. We currently have a good
relationship with the company that manufactures and supplies our switches and
component parts; however, we cannot guarantee events will not arise in the
future that interfere with that relationship.
5
<PAGE>
/bullet/ WE ARE DEPENDANT ON, BUT CANNOT GUARANTEE OUR ABILITY TO
PURCHASE DISCOUNT CALLINg ROUTES FROM TRANSMISSION SUPPLIERS.
Substantially all of the telephone calls made by our customers through
our switches are connected through large long-distance carriers that have
significant transmission facilities. These carriers provide us with transmission
capacity through a variety of resale arrangements. Our ability to maintain and
expand our business is dependent, in part, upon continuing to maintain
satisfactory relationships with these carriers. Typically, these carriers do not
enter into long-term contracts with resellers of their services, and they are
not restricted from competing against us. To the extent that any of these
carriers raise their rates, change their pricing structure or reduce the amount
of capacity they will make available to us, our financial condition or results
of operations may be adversely affected. While there are many suppliers of these
transmission services, any and all of them are our potential competitors. There
can be no assurance that we will maintain contractual arrangements with these
carriers that allow us to become or remain profitable. Also, we face the risk
that there may be a disruption in the service or the quality of service provided
by these carriers, causing a disruption in the services we provide to our
customers.
/bullet/ WE ARE DEPENDANT ON, BUT CANNOT GUARANTEE BELL CANADA AND
STENTOR WILL CONTINUE To PROVIDE BILLING AND COLLECTION
SERVICES.
In Canada, we are dependent on Bell Canada for our billing and
collection. Pursuant to our Billing and Collection Services Agreement with Bell
Canada, we must provide accurate billing records to Bell Canada and in turn Bell
Canada is responsible for collecting from consumers and paying us. See "Our
Company -- Billing Agreements."
Also, we are dependent on Stentor Canadian Network Management, an
unincorporated association made up of the provincial local phone companies. We
engage the services of Stentor for the delivery and handling of billing records
to Bell Canada (or other provincial telephone companies). Pursuant to a service
agreement between us and Stentor, we will deliver billable records to Stentor,
and Stentor will transmit our call records to Bell Canada in accordance with
transmitting procedures among the provincial local phone companies for billing
and collection. Therefore, we are dependent on Stentor for the routing of our
billing records, and on Bell Canada for our billing and collections.
Canadian regulations require that Bell Canada must continue to offer us
billing and collection services. Our billings being included on the Bell Canada
bills to our customers, and Bell Canada's collections for us from our customers,
is an important part of our business operations. These services by Bell Canada
significantly reduce our costs of billing and collections, and significantly
increase our rate of collections. If Canadian regulations changed and no longer
required Bell Canada to provide us with billing and collection services, an
increase in costs of operations and decrease in collections would impair our
business, and could result in our inability to operate profitably.
6
<PAGE>
OUR OPERATIONS RELY ON A NETWORK BUILT WITH CHANGING AND ADVANCING
TECHNOLOGICAL COMPONENTS WHICH ARE SUBJECT TO FAILURE.
Our success is largely dependent on our ability to deliver competitively
priced international long distance telephone services. Our operations are
dependent on our ability to successfully expand our network and integrate new
and emerging technologies and equipment, which may increase the risk of system
failure and cause strain upon our network. Our operations also are dependent on
protection of our hardware and other equipment from damage due to power loss,
telecommunications failures or similar occurrences. Significant or prolonged
telephone network failures, or difficulties for customers in completing long
distance telephone calls, could damage our reputation and result in the loss of
customers, and consequently have a material adverse effect on our financial
position or business prospects.
WE COULD EXPERIENCE AN INCREASE IN THE INCIDENTS OF USERS WHO STEAL
TELECOMMUNICATION SERVICES.
The potential for fraud has always been prevalent in the
telecommunications industry. Telephone carriers and resellers are subject to the
schemes of people who use the carriers' and the resellers' systems without
having the cost for the calls attributed to that user. Currently we have several
levels of control in place to prevent fraud. We believe that our operations are
not susceptible to widespread fraud, however, there is always a possibility of
individuals who attempt to steal services from telecommunications systems, who
can adversely affect our operations.
OUR MANAGEMENT WILL CONTROL A SIGNIFICANT AMOUNT OF OUR COMMON STOCK AFTER THIS
OFFERING AND THEIR INTERESTS MAY BE DIFFERENT FROM AND CONFLICT WITH YOURS.
Following this offering, depending on the number of shares we sell
between our minimum and maximum offering, our executive officers and directors
will beneficially own a total of approximately 27.8% to 33.4% of our outstanding
common stock, assuming no exercise of the selling shareholder's warrants.
Together with the shares owned by their non-household family members, they will
beneficially own approximately 38.5% to 44.3% of our common stock. Since the
common stock does not have cumulative voting rights, if our management and their
family members act together, they are likely to be successful in controlling the
election of all of our directors and the approval of significant corporate
transactions for which the approval of our stockholders is required. If you
purchase our securities, you may have a limited or no effective voice in our
management. See "Principal Shareholders".
THE LIQUIDITY OF OUR STOCK IS UNCERTAIN, SINCE IT HAS NEVER BEEN PUBLICLY
TRADED.
Prior to this offering, there has been no public market for our common
stock. We cannot predict the extent to which investor interest in us will lead
to the development of an active trading market or how liquid that market might
become. The market price of the common stock may decline below the initial
public offering price. We will unilaterally set the minimum bid price in the
initial public offering for the shares. This initial price may not be indicative
of prices that will prevail in the trading market.
7
<PAGE>
THE MARKET PRICE OF OUR STOCK MAY BE ADVERSELY AFFECTED BY MARKET VOLATILITY.
The stock market has experienced extreme price and volume fluctuations.
The trading price of our common stock could be subject to wide fluctuations in
response to a number of factors, including:
/bullet/ fluctuations in our quarterly or annual results of operations;
/bullet/ changes in published earnings estimates by analysts and whether
our earnings meet or exceed such estimates;
/bullet/ additions or departures of key personnel; and
/bullet/ changes in overall stock market conditions, including the stock
prices of other discount calling telecommunication companies
In the past, companies that have experienced volatility in the market
price of their stock have been the object of securities class action litigation.
If we were subject to securities class action litigation, it could result in
substantial costs and diversion of our management's attention and resources.
WE FACE POSSIBLE SERVICE INTERRUPTION ASSOCIATED WITH THE YEAR 2000.
We believe our current call system is year 2000 compliant. In the event
that our call connection system or the call processing facilities of Bell Canada
or other regional phone transmission systems are not year 2000 compliant, we
could have to incur significant expense to remedy the problem, and significant
disruption in our services could result, which could seriously damage operations
and our business. See "Impact of the Year 2000 Issue."
8
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds of from $4.25 million from
the sale of the 600,000 shares of common stock offered as the minimum amount of
shares in this offering to $11.0 million for the sale of the 1,500,000 shares of
common stock offered as the maximum amount of shares in this offering; in both
instances assuming an initial public offering price of $7.50 per share, and
after deducting estimated offering expenses. While we cannot predict with
certainty how the proceeds of this offering will be used, we currently intend to
use them approximately as follows:
<TABLE>
<CAPTION>
MINIMUM OFFERING MAXIMUM OFFERING
--------------------- ---------------------
DOLLARS PERCENT DOLLARS PERCENT
------- ------- ------- -------
<S> <C> <C> <C> <C>
Equipment and technology $ 750,000 17.6% $ 2,000,000 18.2%
including switches, hardware and
software
Marketing and Advertising $ 1,500,000 35.3% $ 3,000,000 27.3%
General corporate purposes, $ 2,000,000 47.1% $ 6,000,000 54.5%
including working capital
Total $ 4,250,000 100% $11,000,000 100%
</TABLE>
Pending these uses, the net proceeds of the offering will be invested in
short-term, interest-bearing investments or accounts.
The cost, timing and amount of funds we need cannot be precisely determined at
this time and will be based on numerous factors. Our board of directors has
broad discretion in determining how the proceeds of this offering will be
applied.
9
<PAGE>
MANAGEMENT'S PLAN OF OPERATIONS
For the next twelve months, we plan to expand our discount long distance
calling services by expanding our marketing efforts and adding capital equipment
which will give us greater capacity and, we expect, reduce our costs.
As of December 15, 1999, we have acquired property and equipment with a
cost of $885,000. We have $376,000 in outstanding capital lease obligations in
connection with this equipment.
As we make sales to consumers we may continue to draw upon our initial
accounts receivable credit facility of $435,000. As of December 15, 1999, we
have drawn approximately $400,000 on our $435,000 accounts receivable credit
facility. We have also arranged for an additional $3,000,000 accounts receivable
credit facility. The lender of the $435,000 credit facility has agreed to
subordinate its position to the $3,000,000 accounts receivable credit facility.
As of December 15, 1999, we have not drawn any funds from our $3,000,000 credit
facility.
Since inception, we have relied upon equity and debt financing to fund
our development which began in December 1998, and our international
long-distance discount telephone calling services which began in July 1999.
Operating revenues are currently less than the current cost of operations. We
expect that the current level of growth in revenues will enable us to achieve
monthly "breakeven" operations, on an operating statement basis, in the first
calendar quarter of 2000. We expect that our operating expenses combined with
our continued investment in our planned growth will require more cash than will
be available from operations in 2000. With this offering, we are seeking
additional equity funds to finance our planned growth.
Assuming the minimum offering is fully subscribed, we do not anticipate
any need to raise additional capital for at least the next year. The funds
raised in this offering will be used to expand our operations to new geographic
markets, which we intend in 2000 will include our current markets of Toronto and
Montreal, and our expected new markets of Vancouver, Miami, New York, Los
Angeles and San Francisco. We also expect to use funds raised in this offering
to initiate internet telephony and web-based services. See "Our Company -- Voice
Over IP and Web-based Communications Services." The funds will be used for new
equipment, marketing and advertising, and general corporate purposes. See "Use
of Proceeds." If the minimum offering is not fully subscribed, we expect to
continue current operations without our planned geographic or services expansion
or expanding our marketing efforts. We project revenues for the first calendar
quarter of 2000 to equal or exceed operating costs.
We have completed the research and development necessary for us to
commence operating our international gateway switching system and our sale of
capacity through our system. We expect our technical staff will have to conform
certain software products, as they become available, for use in our expected
integration of the public switched telephone network and the world wide web, and
our offering of various internet telephony services. Our technical staff's
review of the initial commercial development of these software applications has
led us to believe that our technical staff will be able to adapt these software
products without significant additional expenditures for research and
development.
We expect to approximately double the number of our employees over the
next twelve months. On December 15, 1999, we employed seven full time and three
part time employees. See "Our Company -- Employees."
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IMPACT OF THE YEAR 2000 ISSUE
The year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of our
suppliers and customers' computer programs that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system failures or miscalculations causing the disruption of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar, normal business activities.
We believe that year 2000 is a significant issue which could have a material
impact on our operations.
All of our switching equipment has been purchased during 1999 with
supplier representations that it is year 2000 compliant. All further new
hardware and software will be purchased only if we receive representations that
they are year 2000 compliant. There are no planned expenditures required to make
our internal systems year 2000 compliant.
We are also reliant on third parties' compliance with the year 2000
issue; in particular, our long distance suppliers who provide trunking,
connection and network services to over 200 countries worldwide, and Stentor and
Bell Canada for billing and collections. Due to the interdependence of the
services provided, we risk business interruption if any one of these systems is
not year 2000 compliant, or electrical power is interrupted. We have been
advised by our suppliers that they have implemented year 2000 readiness programs
and the related products and services are "service ready." "Service ready" means
that, to the best of their knowledge, products or services, if required, will be
able to accurately process voice and data information; provided that all
products and services which interconnect with, or which are used in combination
with, such products and services, properly exchange data (provided, however,
that no unauthorized modifications or additions have been made to any such
products). In addition, we are relying upon the representations of the suppliers
of our equipment and software that their telecommunications systems and
equipment are year 2000 compliant.
We believe that year 2000 remediation activities among telecommunications
carriers varies from country to country, and that the telecommunications
carriers in some counties are not intensively acting to remediate their
potential year 2000 problems. We have not analyzed the year 2000 remediation
efforts by telecommunications carriers in the various countries to which we
place customer calls. Year 2000 telecommunications business interruption in
these countries may cause an interruption in our ability to terminate calls to
these countries. Some of these countries may have significant emigrant
populations to whom we market our discount calling services to their homeland.
Although we could not directly remediate these telecommunication interruptions
in foreign countries, they could significantly impair our ability to, or prevent
us from, placing calls to these countries until service is adequately restored.
We do not know if that will occur, or for how long a telecommunications
interruption would last in any of these countries. If loss of telecommunication
termination services is widespread and continuing in foreign countries to which
we place discounted long distance telephone calls, then we would experience a
significant interruption to our revenue generating activities.
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OUR COMPANY
Yak Communications (USA), Inc., was incorporated in Florida on December
24th, 1998. Our objective is to provide international long distance discount
services to medium and small-sized businesses and residential customers with an
initial emphasis on targeting those ethnic markets that make a significant
amount of international long distance calls. We intend to provide internet
telephony and value-added internet telephony services as the supporting
technology improves.
Internationally switched long distance services are provided through
switching and transmission facilities that automatically route calls to circuits
based upon a predetermined set of routing criteria. The call typically
originates on a local exchange carrier's network and is routed on that network
to the caller's long distance carrier. The long distance provider picks up the
call at its international gateway switch and sends it directly through one or
more other long distance providers to a corresponding gateway switch operated in
the country of destination. Once the traffic reaches the country of destination,
it is then routed to the party being called through that country's domestic
telephone network. International long distance providers can generally be
categorized by their ownership and use of switches and transmission facilities.
The largest U.S. carriers, such as AT&T, MCI and Sprint, primarily utilize owned
switches and transmission facilities. Only such very large carriers have
transmission facilities that cover the over 200 countries to which most
international calls are made. Mid-size carriers both own and operate their own
switches and facilities, and also rely on resale agreements with other long
distance carriers to terminate their traffic. We purchase our long distance call
capacity from both the large and mid-sized carriers.
We began our development activities in December 1998. We began providing
wholesale long distance services for businesses and discount long distance
services primarily for residential users in July 1999. We are able to provide
long distance telephone services through our own gateway switches that allow us
direct access to carrier networks, and the ability to buy time on those networks
at deep discounts. We market and resell that access to our customers in the form
of discounted long distance phone calls.
We intend to capitalize on the increasing demand for high quality
international telecommunication services resulting from the increase in
immigrant populations, the globalization of the world economies, the worldwide
trend towards telecommunication deregulation, and the growth of international
voice and data traffic.
We currently offer a dial-around service (also known as "casual
calling"). This allows the consumer to dial around his existing long distance
carrier on any call by entering a few digits prior to making the call, without
switching long distance carriers. We will also offer the customer the ability to
automatically switch all of his calls from his existing long distance carrier to
our long distance service, known as "1+ billing."
We utilize our own "state of the art" Harris IXP digital international
gateway switches that have access to several carrier networks. Our switches
receive the calls made by our customers and route them to the appropriate
carrier from whom we purchase calling time. Our use of carriers is based on the
location to which a call is made: we purchase different call routes from
different carriers. Our
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acquisition of the carrier time is at a substantial discount that varies based
on the carrier and the location to which the call is made. We resell the time to
the callers at a discount from the cost the customer would have to pay the
carrier directly. Our billing and collection for these calls is done by Bell
Canada, and is included as a part of the customer's regular phone bill.
OUR LOCAL AND WORLDWIDE MARKETPLACE AND COMPETITION
Meaningful competition in long distance telephone services in Canada has
been in effect since 1987. After hundreds of new companies entered the
marketplace, there was a "shakeout" which has left three very large providers of
long distance services, Bell Canada, Sprint and AT&T. These three carriers
collectively dominate the Canadian long distance calling market. Bell Canada
alone has well over one-half of this long distance market.
Among the advantages the three large market leaders for international
long-distance service have had was the quality of their calls. Bell Canada, AT&T
and Sprint generally provided international calls that consumers found to be
relatively free from static and echoes, and which generally had fewer delays
between speaking and hearing. Small providers of international long-distance
services often offered calling services without comparable quality in their
efforts to secure low-cost transmission services. We have purchased transmission
services that we have found to be of a quality that consumers should find to be
comparable to that of Bell Canada, AT&T and Sprint, but at a cost to consumers
that is a fraction of the costs offered by the market leaders.
We currently market telephone calling time to approximately 160 countries
at prices to the consumers that are lower than the market leaders for every
country to which we offer calling services. By way of example, listed below are
our per-minute rates, in Canadian dollars, for our 11 largest calling markets
for November, 1999, and the per-minute costs for similar Bell Canada, AT&T and
Sprint calls.
BELL AT&T SPRINT
COUNTRY YAK FIRST RATE GLOBETALK THE MOST INT'L
------- --- ---------- --------- --------------
China 0.41 0.95 0.59 0.95
France 0.13 0.26 0.19 0.26
Germany 0.13 0.30 0.18 0.30
Hong Kong 0.12 0.19 0.12 0.19
Israel 0.18 0.85 0.25 0.85
Italy 0.18 0.29 0.19 0.31
Phillippines 0.39 0.65 0.49 0.65
Poland 0.34 0.62 0.49 0.62
Russia 0.39 1.19 0.59 1.19
South Korea 0.19 0.84 0.39 0.76
United Kingdom 0.09 0.14 0.12 0.14
Monthly fee to be on 0.00 4.95 2.95 2.95
respective discount plan
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The consumer demand for our products and services -- high quality,
international telephone calls and data transmission at substantially discounted
prices -- has been strong. We began offering discount long distance calling
services in July 1999, and sent our first broad-based marketing materials into
our target market in early October 1999. The following table shows the initial
response, in United States dollars, to our marketing and our calling services.
<TABLE>
<CAPTION>
REVENUE REVENUE
FROM DIAL REVENUE NEW DIAL TOTAL FROM
AROUND GROWTH FOR AROUND DIAL AROUND WHOLESALE WHOLESALE
MONTH CUSTOMERS THE MONTH CUSTOMERS CUSTOMERS CUSTOMERS CUSTOMERS
----- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
July $ 9,780 $ 9,780 1,155 1,155 150,366 1
August $ 29,566 $ 19,786 2,499 3,385 154,841 1
September $ 71,656 $ 42,090 4,851 7,560 146,373 1
October $142,135 $ 70,479 6,799 12,947 282,778 1
November $236,131 $ 93,996 9,393 19,905 181,990 1
December(1) $347,000 $110,869 14,000 31,000 196,016 1
</TABLE>
- ----------
(1) Estimated at December 15, 1999
Although there can be no assurances that we will continue to increase
revenues and customer growth, or even maintain current revenues and numbers of
customers, we anticipate continued increase in revenues and customers as
consumers become familiar with our calling services, and the quality and prices
of our calling services. We expect to continue to fulfill this consumer demand
with our package of services, creative and aggressive marketing, advanced
technological equipment, and our quality carrier and alternate supplier
relationships.
The resale of capacity, which was first permitted in the North American
market in the 1980's, enabled the emergence of new international long distance
providers. The highly competitive and rapidly changing international
telecommunications market has created a significant opportunity for carriers
that can offer high quality, low cost international long distance service. This
is especially true in the international long distance calling market where
deregulation, privatization, the expansion of the resale market and other trends
influencing international communications are driving decreased termination
costs, a proliferation of routing options, and increased competition. There can
be no assurance that the major world-wide facilities-based carriers will not
seek to dominate this market with consistently decreasing costs to consumers
coupled with extensive marketing efforts. Successful companies among both the
emerging and established international long distance companies will need to
aggregate enough traffic to lower costs of both facilities-based or resale
opportunities, invest in facilities and switches, and remain flexible enough to
locate and route traffic through the most advantageous routes.
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We believe that a number of trends in the international
telecommunications market will continue to drive growth in international
traffic, including:
/bullet/ continuing deregulation and privatization of telecommunications
markets;
/bullet/ pressure to reduce international outbound long distance rates
paid by end users driven by increased competition in newly
deregulated global markets;
/bullet/ the dramatic increase in the availability of telephones and the
number of access lines in service around the world;
/bullet/ the increasing globalization of commerce, trade and travel;
/bullet/ the proliferation of communications devices such as faxes,
cellular telephones, pagers and data communications devices; and
/bullet/ increasing demand for data transmission services.
These trends developed simultaneously with more efficient technology
developed in an era of deregulation and a proliferation of startup activity
designed to exploit the opportunity they spawn. This has resulted, in part, in
the multi-billion dollar business of international phone calls having prices to
consumers drastically reduced.
For decades, telephone companies relied on bilateral "settlement"
agreements to compensate each other for calls that began in one country and
ended in another. The "settlement" payments were paid to the telephone company
in the country in which the call ended, and was built into the cost structure of
making international calls. However, as deregulation, privatization, the
expansion of the resale market, technological innovations and other trends
influencing international communications are driving decreased termination
costs, countries around the world are now allowing a scheme known as
international simple resale. International simple resale allows owners of
private leased phone lines between countries, including large facilities-based
carriers and major international corporate users, to resell leftover space on
their lines to local phone companies. This boosts the amount of international
capacity and lowers prices. In addition, calls carried on these lines are not
subject to "settlement" fees. Resale of excess capacity has put significant
pressure on phone companies around the world that used to monopolize incoming
telecommunications traffic.
The result of these rapid changes is that, for the large facilities-based
telecommunications companies, telephone call minutes are becoming a low-margin
commodity. This is causing these large carriers to focus on new features that
can offer them larger margins. While, it is possible that the cost of
international calls could drop so low that larger telecommunications companies
will offer them for cost or even for free in connection with consumers using
more high margin services offered by these carriers, we expect that this trend
will be beneficial to quality resellers who can ultimately thrive by offering
the services that are no longer as attractive to the large, capital intensive
facilities- based telecommunications companies.
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STRATEGY
Our operations began through our wholly-owned subsidiary, Yak
Communications (Canada) Inc., which was also established to provide
international long distance discount services primarily using dial-around
access. Our current focus is the penetration into the ethnic markets of Toronto
and Montreal, and thereafter Vancouver, Miami, New York, Los Angeles and San
Francisco. On July 1, 1999 we launched our international calling services in
Toronto, and on October 1, 1999, we launched our international calling services
in Montreal. We expect ethnic residential and small business customers will
continue to make a significant amount of international calls, and will continue
to comprise our core user market.
With full deregulation of the monopoly of Teleglobe Canada (the official
provider of all inbound and outbound international calls to and from Canada) by
the Canadian Radio-Television and Telecommunications Commission on October 1,
1998, it has become possible to effectively compete in the international
discount telephone services market in Canada. We intend to take advantage of the
opportunities offered by a deregulated telecommunications market to route our
calls using the least cost route over different and multiple carrier networks
that make use of digital transmission technologies over existing carrier
networks.
Other long distance discount services are currently provided by North
America long distance carriers, domestic flat rate calling service providers,
prepaid card service providers, rebillers, aggregators, and resellers of Centrex
and local line services. Although there are many such companies in Canada,
including small start-up dial-around providers, currently there is no
significant provider (over $10 million in revenues in Canada per year) of a
dial-around service. We believe that we can provide a quality call-around
service offering attractive discounts for long distance calls, and match it with
aggressive and creative marketing.
DESCRIPTION OF COMPANY'S PRODUCTS AND SERVICES
In general, both residential and business consumers have become
increasingly unwilling to switch long distance carriers. Many consumers have had
a significant amount of sales call pitches from sales persons promising lower
rates, and some have become victims of well-publicized "slamming": the
unauthorized changing of a customer's long distance carrier. We believe that
this has resulted in consumer resistance to change to new carriers or
long-distance services that are unrecognized and not trusted by the consumer. We
believe that it is for these reasons that Bell Canada, which historically has
been the most expensive provider of long distance telephone services for
Canadians, is still the dominant player in the Canadian international long
distance telephone industry.
However, with a casual calling alternative, our customers can dial the
10-XXX number to access our switch for routing of calls at a discounted price.
Our customer does not need to change carriers. Furthermore, because of our
billing and collection arrangements with Bell Canada, our customer will continue
to receive only one invoice from Bell Canada which would include the customer's
local line monthly rental and service costs provided by Bell Canada and the long
distance calls routed over our switch. The calls routed over our switch are
billed to the customer at our
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advertised rates, which could be as much as a 75% savings over the rates they
would be billed if they used Bell Canada's standard rates.
If the customer wishes to be on a 1+ program, which would mean that he
does not need to dial the 10-XXX number each time he makes a call, the customer
can sign up with our 1+ program. This essentially gives us the authorization to
move the customer from his current long distance provider to our switch. The
customer would then receive our lower rates each time he makes a call. Bell
Canada would still do the billing and collection.
We rely on resale arrangements to secure low cost transmission of
switched calls. Resale arrangements typically involve the wholesale purchase and
sale of transmission and termination services between two long distance
providers on a variable, per minute basis. The resale of capacity, which was
first permitted in the North American market in the 1980s, enabled the emergence
of new international long distance providers that rely at least in part on
capacity acquired on a wholesale basis from other long distance providers.
International long distance calls may be routed through a facilities based
carrier with excess capacity, or through multiple long distance resellers.
Resale arrangements set per minute prices for different routes, which may be
guaranteed for a set time period or subject to fluctuation following notice.
SALES & MARKETING ACTIVITIES
In Canada, as in many countries throughout the world, ethnic minorities
comprise a substantial number of displaced or otherwise separated families. In
Canada's larger cities, immigrants make up a significant portion of the local
ethnic communities. These immigrants usually have family in their home
countries.
We market our services primarily to ethnic markets in Canada. These
target groups account for a substantial portion of all international calls. We
currently use attractive, informative direct mail marketing materials aimed at
these ethnic markets. We intend to use print media, radio and continued direct
mail marketing materials to develop brand recognitions and generate new
customers. We expect that informative, attractive and distinctive direct mail,
coupled with print media advertising in ethnic newspapers and on selected radio
programs will allow us to reach customers that make international calls.
We have created marketing paraphernalia such as tee shirts, coffee mugs,
pens, keychains, caps, stickers and magnets that will be distributed on an
ongoing basis to create brand awareness. We also intend to create a Yak
membership club which will provide customers with additional discounts and some
giveaways. It is our intention to develop this club over the internet and use it
as a base for solicitation of our intended Voice over IP platform. We intend to
utilize our own web based home page to further this effort; this will also allow
for links to other products and services and should generate alternate revenues,
including advertising revenues.
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WHOLESALE TRAFFIC RESALE
In addition to our dial around and 1+ billing programs, and because of
our volume purchasing power from the multiple carriers and alternate long
distance suppliers, we are able to resell calling routes at favorable rates to
small and medium resellers who are unable to obtain as favorable rates. These
smaller resellers often do not have the expertise and financial resources
necessary to set up their own switching system that ties into multiple carrier
networks, or they do not have the volume of telephone traffic, which in some
cases may be country specific, that allows them to command such favorable rates.
As a result we will sell, on a wholesale basis, long distance calling time to
them, albeit at a smaller markup than sales of long distance time to our retail
customers.
We are currently supplying long distance traffic on a wholesale basis to
First Debit Corp., which is a prepaid telephone card issuer and market supplier.
They also pay us a small per minute least-cost route processing fee. See
"Certain Relationships and Related Transactions" below.
We believe the wholesale market is a potentially profitable business, and
also has the additional advantage of allowing us to increase our traffic volumes
with our carrier suppliers, and hence allow us to realize the benefits of
greater volume purchasing discounts. However, we intend our primary focus will
remain on the dial around and l+billing programs, where the profit margins are
more favorable. On an ongoing basis we will continue to evaluate the optimum
balance between the wholesale and retail markets.
VOICE OVER IP AND WEB-BASED COMMUNICATIONS SERVICES
Whereas traditional telephone service is provided over the Public
Switched Telephone Network, internet telephony uses internet protocol -- which
is commonly referred to as "IP" -- to transmit voice data over the
world-wide-web infrastructure. From its origins, approximately six years ago, as
an inexpensive, low-voice-quality means to talk without long distance phone call
charges from one personal computer to another, internet telephony has grown into
an inexpensive alternative to traditional long distance calling over the public
switched telephone network, accounting for slightly more than 1% of all
international voice telecommunications traffic. By using gateway switches that
can connect conventional phone systems to the internet, carriers and resellers
can send calls from phone to phone using the internet as the long distance
carrier. Although several software applications and hardware solutions are
currently on the market, the quality of the call, as compared to the quality of
calls over the public switched telephone network, prevents internet telephony
services from gaining widespread acceptance. New compression technology is
emerging that is increasing the quality of the calls. When the quality of such
lower cost routing through the internet is acceptable to the consumer, and
increased bandwidth is made available to allow such calls to be made on mass, we
intend to resell this technology to our customers.
We intend to become a provider of both internet telephony services and
value added web-based communications services. We expect that we will be able to
provide our customers with these services anywhere in the world. Among our
planned services are:
/bullet/ internet incoming telephone alerts and available response
capabilities
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/bullet/ internet e-commerce communication service allowing the user to
simultaneously remain on a business website and talk directly
with the business while continuing to view the web site, and
/bullet/ internet to telephone, including wireless, calling, paging,
faxing, and e-mail and voice- mail sending and retrieving
facilities.
We expect to be able to provide all of these services and voice
communications to our customers by integrating and bridging the public switched
telephone network and the world wide web, thus allowing telephone, cellular and
other wireless devices to communicate with these and other devices connected to
the internet.
For our ethnic markets we intend to introduce these services in multiple
languages with imbedded translation facilities and speech recognition.
We believe that the internet offers significant potential advantages that
will enhance communications and commerce. For example, internet communications
can provide e-commerce shoppers with the ability to speak directly with customer
service representatives of on-line retailers providing the on-line retailer with
the ability to offer responsive, real-time customer support and service while
the customer is still viewing the items on the web site.
We expect our technical staff will have to conform certain software
products, as they become available, for use in our expected integration of the
public switched telephone network and the world wide web, and our offering of
various web-based communication services. Our technical staff's review of the
initial commercial development of these software applications has led us to
believe that we will be able to readily adapt the necessary software products as
improved versions of this technology becomes available without significant
additional expenditures for research and development.
HARRIS IXP SWITCH
We have purchased and installed Harris IXP switches. The IXP switch is
based on the most recent commercial communication switching technology developed
by Harris, and represents a significant progression over older communication
switching systems in which components were assigned a single dedicated function.
The older switches are based on technology that we consider to be inflexible
because it required customers to plan for change well in advance, and even
simple changes could require significant effort and result in down time and loss
of revenue. The IXP was inspired by the easily-interchangeable components
technology that underlies the internet, often referred to as "plug-and-play"
technology. Various component parts used in the switch to perform various
functions are easily replaceable, thus the reference as "plug-and-play," making
expansion and replacement simple and convenient. The Harris IXP switch supports
call control, networking, and internet access. The IXP switch also allows for
different vendors' component parts to be used, and gives us the flexibility to
add and update processes by using a range of add-on components. The switch
allows us to scale up as we grow.
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With the IXP switch, all domestic and international signaling protocols
are fully integrated, meaning it can support many standard-based protocols on
digital and analog lines and trunks, and can mix and match protocols. We believe
that this is important in an environment that is subject to rapid change, with
varying technologies and differing signaling protocols.
EMPLOYEES
As of December 15, 1999, we have seven full-time employees and three
part-time employees. All of the part-time employees are being paid for their
services on an hourly basis. We consider our relations with our employees to be
excellent, and none of our employees are covered by a collective bargaining
agreement. We expect to hire up to an additional six full-time employees within
the next six months in the customer service, accounting, and administration
departments, and one to two additional technical support employees.
TECHNICAL TEAM
We have engaged a technical team who provide technical solutions
regarding our switching, network engineering, billing, and toll fraud control.
The technical team currently has four members, including Richard Sablon,
whose responsibilities include customer service and data engineering, and
Jacquie Capote, whose responsibilities include switch and network engineering.
See "Management." We believe that our technical support team is equipped to
design, install and maintain our switching systems and meet our foreseeable
technology requirements.
BILLING AGREEMENTS
We have an agreement for an initial term of two years with Bell Canada
for the billing and collection of telephone long distance calling charges made
by our customers on the Bell local line network. Under Canadian regulations,
Bell Canada must continue to offer us these billing and collection services. The
billing and collection agreement covers all long distance calls made through our
dial around switching long distance service and routing system. We track all
such calls made, record information about the source, destination, and duration
of the call, rate the call, and provide Bell Canada with this data
electronically. The Bell billing cycle is several times a month and includes
these charges to the customer on the Bell invoice termed as "other carrier"
charges. Bell Canada then collects these amounts. Under the terms of the Billing
& Collection Agreement, Bell Canada is obligated to pay us within 75 days of the
invoices being generated and sent to the customer (subject to offsets for
non-collectible accounts).
In addition, we have an agreement with Stentor Canadian Network
Management which is an unincorporated association made up of the provincial
local phone companies in Canada. This agreement allows for the handling,
transporting and delivery of our billing records generated by our switching and
billing system to Bell Canada for invoicing and collection. In conjunction with
the Stentor agreement, we have developed software and implemented hardware that
allows for electronic encrypted signaling and online transmission of the
billable records between our system and Stentor's
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which will allow them to process the billable records. This online transmission
process significantly minimizes delays and errors in the billing.
GOVERNMENTAL REGULATION
We are registered with the Canadian Radio-and-Telecommunication
Commission as a reseller of telecommunication services in Canada, which is a
requirement under Canadian law in order to provide resale services in Canada.
For the past five years, this has been the only requirement under Canadian law
in order to be allowed to resell telecommunication services. As of January 1,
1999, new regulation requires resellers to apply for an international
telecommunications license. Once an applicant's license information is received
by the Canadian authorities, it is placed on the public record and if no adverse
comments are received, a license is issued in 21 days. We applied for a Class B
international telecommunications license and have received this license from the
Canadian Radio-and-Telecommunication Commission. We intend to apply during
January 2000 for a Class A international license that will allow us to lease
transmission lines and private line capacity to the USA for the switch that we
expect to install in January 2000 in New York as part of our growth plans. We
believe that we will receive a Class A license upon application.
We have registered with the United States Federal Communication
Commission for a Section 214 Telecommunication License, which would grant us
full international common carrier status. Presently, we are not providing any
resale of long distance traffic in the United States. However, in the near
future when we anticipate providing such resale in the United States, we expect
to file the necessary tariffs containing rates, terms and conditions prior to
offering U.S.-based international telecommunication service.
REAL ESTATE
CORPORATE OFFICES
We lease approximately 1,000 square feet of office space at 55 Town
Centre Court, #506, Toronto, Ontario, for our corporate and customer service
operations. This lease continues to July 1, 2000, at approximately $1,800 per
month, and contains an option for us to extend the lease through June 30, 2002.
SWITCH LOCATIONS
We currently lease space at 151 Front Street, Toronto, Ontario and 60
Hudson Street, New York, to house our IXP communication switches. Both locations
are in buildings which house many other carriers. This provides us with the
advantage of ease of access to other carriers. These switches are installed in
rooms that are environmentally modified, cooled and designed for switching
equipment. They also have full battery backup for a full 24 hours in case of
power failure.
LITIGATION
We are not involved in any lawsuits or other pending legal proceedings.
Neither our company nor any of its affiliates has ever been the subject of
governmental or regulatory investigation.
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FORWARD-LOOKING STATEMENTS
This prospectus contains statements, including statements of management's
belief or expectation, which may be forward-looking. Such statements are subject
to known and unknown risks and uncertainties that could cause actual future
results and developments to differ materially from those currently projected.
Such risks and uncertainties include, among others, the following:
/bullet/ access to adequate debt or equity capital to meet our operating
and financial needs;
/bullet/ our ability to respond to growing competition in our markets for
discount long distance services;
/bullet/ our ability to expand into new markets and to effectively manage
our growth, including our recent addition of a gateway switch in
and our expected future services from New York;
/bullet/ customer acceptance and effectiveness of us as a discount long
distance provider and our ability to assimilate new technology
and to adapt to technological change in the telecommunications
industry;
/bullet/ our ability to develop and provide voice over internet and
web-based communications services;
/bullet/ customer acceptance and effectiveness of us as an internet and
web-based telecommunications provider and our ability to
assimilate the still-developing technology necessary for us to
deliver web-based communications with consistent quality;
/bullet/ the risk that our assessment of the year 2000 issue may be
incorrect because it is based upon management's beliefs, which
were derived from numerous assumptions regarding future events,
third-party remediation plans, the accuracy of testing, and
other factors;
/bullet/ changes in, or failure to comply with, governmental regulation,
including telecommunications regulations;
/bullet/ our reliance on our key personnel and the availability of
qualified personnel;
/bullet/ general economic conditions in our markets;
/bullet/ the risk that our analyses of these risks could be incorrect and
that the strategies developed to address them could be
unsuccessful; and
/bullet/ various other factors discussed in this prospectus.
22
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information regarding our directors and
executive officers:
NAME AGE POSITION
---- --- --------
Charles Zwebner 41 President, CEO and Director
Vincent Genova 35 Vice President of Sales and Director
Mitchell Shore 40 Vice President of Design, Product Marketing and
Advertising
Murray Ruben 40 Vice President of Finance
Bernard Gropper 37 Secretary and Director
Anthony Heller 48 Director
CHARLES ZWEBNER. Mr. Zwebner is the founder of our company, and has
served as our President, Chief Executive Officer, and Chairman of our Board of
Directors since our inception in December 1998. Prior to organizing our company,
he served as the President of CardCaller Canada Inc. (1992-1998) and was a
member of its Board of Directors. Mr. Zwebner founded CardCaller Canada in 1992,
which developed the first Canadian fixed amount prepaid, multilingual telephone
calling card. In June 1997, the shareholders, including Mr. Zwebner, of CardCall
International ("CCI"), the parent of CardCaller Canada, sold all of their shares
in CCI to a U.S. corporation for approximately $28 million in stock of the
buyer. Mr. Zwebner continued as President and a director of CardCaller Canada
until his resignation in August 1998. Prior to Mr. Zwebner's resignation, the
new owner of CCI disposed of substantially all of the assets of that company,
and thereafter in October 1998, put CardCaller Canada into bankruptcy in Canada.
Mr. Zwebner holds a B.A. in Computer Science and Business Administration from
York University.
VINCENT GENOVA. Mr. Genova has served as our Vice President of Sales and
a Director since January 1999. Since August 1990, he has served as the General
Manager of Cash Money Chequing Inc., a chain of check cashing stores in Toronto,
Canada. Since December 1998, Mr. Genova has also served as the owner and
president of First Debit Corporation which issues and distributes pre-paid
calling cards. First Debit Corporation owns and maintains their own switching
and carrier interconnection.
MITCHEL ANDREW SHORE. Mr. Shore has served as our Vice President of
Design, Product Marketing and Advertising since January 1999. Since 1984, Mr.
Shore has operated Mitchel Shore Creative Services, Inc., which has provided
marketing and advertising services for an array of small, medium and large
companies, including London Radio, TV Ontario, AES, BIC Shavers, Bata Shoes,
Friedberg Mercantile, and Shell Canada. Mitchel Shore holds an Honours B.A. from
23
<PAGE>
York University (1977) and an M.A. from University of Western Ontario (1981)
specializing in Marketing and Advertising.
MURRAY RUBEN. Mr. Ruben has served as our Vice President of Finance since
January 1999. Since November 1996, Mr. Ruben has been providing corporate
finance consulting services. From February 1996 to November 1996 he served as
vice president of individual client services for Levesque Securities Inc. From
August 1984 to February 1996, Mr. Ruben served in a variety of positions for the
Bank of Montreal, ultimately serving as Manager of Private Client Services. Mr.
Ruben is a member of the Investors Dealers Association and the Canadian
Securities Institute. Mr. Ruben received a B.A. in Finance from Dawson College
in 1983.
BERNARD GROPPER. Mr. Gropper has served as a Director of our company
since December 1998. Since 1987, he has been an attorney in private practice;
from 1995 to the present as a senior partner in the law firm of Gropper,
Greenwood in Toronto, Canada. Mr. Gropper specializes in Canadian business law.
Mr. Gropper received a B. Comm. from McGill University in 1983, and a LL.B in
1986 and an LL.M. in 1992 from York University.
ANTHONY HELLER. Mr. Heller has served as a Director of our company since
December 1998. He has served as the President of Plazacorp Investments Limited
(a real estate development company based in Toronto, Canada) since 1994. Since
1994, Plazacorp has completed over $100 million worth of real estate
developments principally in Canada. Mr. Heller has also been involved in venture
capital financings and has consulted to both privately held and publicly traded
companies in which he has made investments.
RICHARD SABLON. Since December 1998, we have employed Mr. Sablon as an
engineer whose focus is on our customer service and data engineering. From 1991
to 1998, Mr. Sablon owned Dominator Technologies, Inc., which manufactured and
operated pre-paid telephone calling card switching equipment. Mr. Sablon is a
member of the Institute of Electronic Engineers and the U.S. Telecard
Association. Mr. Sablon received an A.S. degree in Computer Sciences from Miami
Dade Community College in 1982.
JACQUIE CAPOTE. Since December 1998, we have employed Mrs. Capote as an
engineer whose focus is on our systems design, planning, maintenance, and
hardware and software integration. From 1993 until 1998, she worked for AT&T
Canada (formerly ITS prior to its acquisition), most recently as a supervisor
and systems administrator. Mrs. Capote received a B.S. in Computer Programming
from Siena College in 1992, and holds certification from Harris Corp. (1994) for
its 20-20 Switch, and from Centennial College (1996) as a Telecommunications
Specialist.
All of our Directors hold office until our next annual meeting of
shareholders, and until their successors are elected and qualified. Officers
hold office until the first meeting of directors following the annual meeting of
shareholders and until their successors are elected and qualified, subject to
earlier removal by the Board of Directors.
* * * *
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<PAGE>
EXECUTIVE COMPENSATION
On July 1, 1999, our Canadian subsidiary entered into an employment
agreement with Charles Zwebner, our President and Chief Executive Officer, which
provides him an annual salary of $100,000 for serving as our President and CEO.
This agreement expires on December 31, 2004. The agreement provides for an
annual salary of $100,000, with annual increases as determined by our Board of
Directors.
The following table sets forth the total compensation paid during 1999 to
Charles Zwebner. No other executive officer received an annualized salary and
bonus in excess of $100,000.
NAME AND OTHER ANNUAL
PRINCIPAL POSITION SALARY ($) BONUS ($) COMPENSATION $
------------------ ---------- --------- --------------
Charles Zwebner, $85,000 0 0
President and
Chief Executive Officer
STOCK OPTION PLAN
In June 1999, we established a stock option plan for key employees which
covers 640,000 shares of our common stock. Of this amount, options for 240,000
shares, with an exercise price of $5.00 per share, were granted to Charles
Zwebner, our President and Chief Executive Officer. Mr. Zwebner's options are
fully vested. 20,000 shares, with an exercise price of $5.00 per share, were
granted to Robin Clarke, our executive administrator. Ms. Clarke's options may
be exercised over a five-year period, in exercisable amounts increasing by 4,000
shares per year. We have created a committee composed of two outside directors
to administer the stock option plan.
<TABLE>
<CAPTION>
OPTION GRANTS DURING 1999
NUMBER OF SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS OPTIONS GRANTED TO EXERCISE PRICE EXPIRATION
NAME GRANTED EMPLOYEES IN 1999 ($/SH) DATE
---- -------------------- ------------------ -------------- ----------
<S> <C> <C> <C> <C>
Charles Zwebner 240,000 92.3% $ 5.00 December 31, 2003
Robin Clarke 20,000 7.7% $ 5.00 December 31, 2004
</TABLE>
CONSULTANTS
We have retained Dillon Capital Inc. for one year from November 30, 1999,
to provide management review, capital market advisory services, and merger and
acquisition advisory and consulting services. Dillon Capital is to report to our
Board of Directors at least one time per calendar quarter. We have agreed to pay
Dillon Capital $175,000 and grant them an option to purchase 75,000 shares of
our common stock for $7.50 per share. The option expires November 30, 2003.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We supply, on a wholesale basis, "least cost" routed long distance
telephone traffic, through our switches, to First Debit Corporation, a Canadian
corporation ("First Debit"). First Debit is controlled by Vincent Genova, who is
one of our directors and shareholders. The service may be terminated by either
party at will. We believe the consideration we receive from First Debit for our
wholesale switching services is as favorable as what we would expect to receive
from an unrelated entity purchasing similar wholesale switching services from
us.
Our Canadian subsidiary has entered into an agreement with a corporation
controlled by Anthony Heller, a shareholder and director of the Company, to
provide cash advances or arrange for third-party financing of up to $435,000 to
our Canadian subsidiary, based upon available accounts receivable from Bell
Canada. The cash advances will bear interest at a rate of 12% per year, which
will be waived if the credit is not in default. Mr. Heller's corporation has the
right to arrange for receivable financing from a commercial lender which would
replace its receivable financing to us. If substitute receivable financing is
arranged, we do not have to accept it as a substitute for the existing financing
if the interest rate exceeds the rate published as the "prime rate" for various
chartered Canadian banks plus 1.5% per year. If our accounts receivable from
Bell Canada exceed $435,000, Mr. Heller's corporation will subordinate its
position, if necessary, to allow us to secure additional receivable financing.
This agreement expires on March 15, 2006.
26
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth the beneficial ownership of shares of our
common stock by (i) each person who is known to us to be the beneficial owner of
more than 5% of our common stock; (ii) each director and named executive officer
(defined above) individually; and (iii) all directors and executive officers as
a group. Beneficial ownership of common stock has been determined for this
purpose in accordance with Rules 13d-3 and 13d-5 of the Securities and Exchange
Commission, under the Securities Exchange Act of 1934, as amended, which
provide, among other things, that a person is deemed to be the beneficial owner
of common stock if such person, directly or indirectly, has or shares voting
power or investment power with respect to the common stock or has the right to
acquire such ownership within sixty days after the date of this prospectus.
SHARES
BENEFICIALLY PERCENT
PRINCIPAL SHAREHOLDER OWNED OF CLASS
--------------------- ------------ --------
Charles Zwebner 856,400(1) 20.9
121 Westgate Boulevard
Toronto, Ontario, M3H 1P5
Anthony Heller 302,400 7.8
77 Caribou Road
Toronto, Ontario, M5N 2A7
Vincent Genova 318,200 8.3
1 Deerchase Circle
Woodbridge, Ontario L4H 1B4
Mitchell Shore 201,600 5.2
45 Palm Drive
Toronto, Ontario, M3H 2B5
Murray Ruben 27,200 *
179 Arnold Avenue
Thornhill, Ontario, L4J 1B8
Bernard Gropper 20,000 *
551 Woburn Avenue
Toronto, Ontario, M5M 1L8
Michael Zwebner (2) 253,200 6.6
Melvin Hall
Golders Gleen Road
London, England NW11
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<PAGE>
SHARES
BENEFICIALLY PERCENT
PRINCIPAL SHAREHOLDER OWNED OF CLASS
--------------------- ------------ --------
Joseph Genova (3) 318,200 8.3
35 Orkney Crescent
Etobicoke, Ontario M9A 2T4
All Directors and Executive
Officers as a Group
(6 persons) 1,725,800 42.2
--------- ----
- ----------
(1) Includes an option for 240,000 shares at $5.00 per share.
(2) Mr. Michael Zwebner is the brother of Charles Zwebner.
(3) Mr. Joseph Genova is the brother of Vincent Genova.
* Less than 1%
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<PAGE>
SELLING SHAREHOLDER
188,000 shares of the common stock offered for sale pursuant to this
prospectus are being offered by a selling shareholder.
We issued warrants to the selling shareholder in August 1999, in
connection with a one year loan in the principal amount of $100,000. Pursuant to
the loan, we issued a note in the principal amount of $100,000 and the warrants
to purchase 188,000 shares of common stock to the selling shareholder. The note
bears interest at the rate of 10% per annum and all principal and accrued
interest under the note are due on August 15, 2000. The warrants are exercisable
at an exercise price of $5.00 at any time until such time as our common stock is
listed on a public trading exchange or market, at which time the exercise price
shall be an amount equal to the average closing bid price of our common stock
for the five trading days immediately preceding the exercise of the warrants.
For additional information concerning the warrants, please see "Description of
Securities -- Warrants."
Information with respect to the shares of common stock beneficially owned
by the selling shareholder follows.
SHARES TO BE OWNED
SHARES OF COMMON AFTER THE OFFERING(1)
STOCK OWNED PRIOR SHARES OFFERED ----------------------
SELLING SHAREHOLDER TO OFFERING FOR SALE HEREBY NUMBER PERCENT
- ------------------- ----------------- --------------- ------ -------
Firmvest Capital Corp. 188,000(1) 188,000(2) 0 0
3625 Dufferin Street
No. 130
Toronto, Canada
M3K122
- ----------
(1) Assumes sale of all shares offered by the selling shareholder.
(2) Consists of shares of common stock subject to exercise of warrants
assuming the full exercise. Excludes additional shares of common stock
which may be issued upon subsequent adjustment of the warrants.
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<PAGE>
SELLING SHAREHOLDER'S PLAN OF DISTRIBUTION
The shares of common stock offered by the selling shareholder may be sold
from time to time by the selling shareholder. The selling shareholder will act
independently of us in making decisions with respect to the timing, manner and
size of each sale. The distribution of the shares of common stock that we are
offering is described in the section of this prospectus entitled "Company's Plan
of Distribution." Each sale by the selling shareholder may be made at prices and
on terms then prevailing or at prices related to the then market price, or in
negotiated transactions. The shares may be sold by the selling shareholder by
one or more of the following methods:
(a) a block trade in which a broker-dealer engaged by the selling
shareholder will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to
facilitate the transaction;
(b) purchases by the broker-dealer as principal and resale by such
broker-dealer for its account;
(c) ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
(d) privately negotiated transactions;
(e) in accordance with Rule 144 promulgated under the Securities Act of
1933, as amended, rather than pursuant to this prospectus;
(f) a combination of any such methods of sale; or
(g) any other method permitted pursuant to applicable law.
To our knowledge, the selling shareholder has not, as of the date hereof,
entered into any agreements with a broker-dealer for the sale of the shares
through a block trade, in a special offering or in a secondary distribution of a
purchase by a broker-dealer. In affecting sales, broker-dealers engaged by the
selling shareholder may arrange for other broker-dealers to participate. Broker-
dealers will receive commissions or discounts from the selling shareholder in
amounts to be negotiated.
In offering the shares, the selling shareholder and any broker-dealers
who execute sales for the selling shareholder may be deemed to be "underwriters"
within the meaning of the Securities Act of 1933, as amended, in connection with
such sales, and any profits realized by the selling shareholder and the
compensation of such broker-dealer may be deemed to be underwriting discounts
and/or commissions.
Rule 10b-6 under the Securities Exchange Act of 1934, as amended,
prohibits participants in a distribution from bidding for or purchasing for an
account in which the participant has a beneficial interest, any securities that
are the subject of the distribution. Rule 10b-7 under the
30
<PAGE>
Exchange Act governs bids and purchases made to stabilize the price of a
security in connection with a distribution of the security.
This offering will terminate on the earlier of (a) the date on which the
selling shareholder's shares may be resold pursuant to Rule 144 under the
Securities Act, or (b) the date on which all shares offered by this prospectus
have been sold by the selling shareholder. There can be no assurance that the
selling shareholder will sell any or all of the shares offered by this
prospectus.
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<PAGE>
COMPANY'S PLAN OF DISTRIBUTION
We propose to offer directly to the general public a minimum of 600,000
shares and a maximum of 1,500,000 shares of common stock at the public offering
price set forth on the cover page of this prospectus, as this price is
determined by the process described immediately below.
The public offering price set forth on the cover page of this prospectus
will be based on the results of an auction process.
The auction process will proceed as follows:
/bullet/ After the effectiveness of the registration statement relating
to this offering, we will solicit offers to purchase from
prospective investors through the internet as well as by
traditional means. The auction is open for purposes of receiving
offers to purchase following the posting of the final prospectus
on the web site of MainStreet IPO, which is located at
www.MainStreetIPO.com. The offers to purchase will specify the
number of shares the potential investor proposes to purchase and
the price the investor is willing to pay for the shares. After
an offer to purchase has been confirmed, it may be modified or
withdrawn at any time until the auction is closed. Similarly,
new bids may be placed at any time prior to the close of the
auction. The principal factor in establishing the initial price
the public pays the company for the shares will be the price per
share, or "clearing price," resulting from the auction that
equals the lowest price set forth in valid firm bids at which
all of the shares in an amount we elect to sell between the
600,000 share minimum to the 1,500,000 share maximum may be sold
to potential investors. The clearing price may be equal to or
greater than the public offering price set by the company, but
it will not be lower. The clearing price will always determine
the allocation of shares to successful bidders. All bids which
are below the clearing price will be rejected even if they are
higher than the public offering price. If sufficient bids are
not received or the clearing price is not equal to or greater
than the public offering price, we will either postpone or
cancel the offering or file a post-effective amendment and
conduct a new auction.
/bullet/ A simplified example of the auction process is as follows:
Company X offers to sell 1,000,000 shares in its public offering
through this auction process, and sets the public offering price
at $5. Company X receives offers to purchase, all of which are
kept confidential until the auction process ends, as set forth
in the following table.
PERCENT OF BID
NUMBER OF SHARES SALE PRICE OR ALLOCATED TO
REQUESTED BY BIDDERS BID PRICE "CLEARING PRICE" SUCCESSFUL BIDDERS
-------------------- --------- ---------------- ------------------
200,000 $9 $6 100%
150,000 $8 $6 100%
350,000 $7 $6 100%
400,000 $6 $6 75%
700,000 $5 $6 0%
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<PAGE>
The offers in the above table include offers to purchase 700,000
shares at $7 to $9, leaving 300,000 of the 1,000,000 shares offered still
available. 400,000 shares are requested at $6. The 300,000 available
shares will be equally allocated among the 400,000 shares bid for at $6.
Thus, $6 is the "clearing" price, and everyone who bid $6 will be able to
purchase 75% of the number of shares for which they bid. All of the
1,000,000 shares sold to the public in the offering will be sold by
Company X at $6 per share. All bids at $5, which was the public offering
price, would be rejected.
We are offering a minimum of 600,000 shares of our common stock, and a
maximum of 1,500,000 shares of our common stock by this auction process. When
the bidding process is completed, we will examine the number of offers to
purchase and the amounts per share of the offers. We will then select the number
of shares from our minimum offering of 600,000 shares to our maximum offering of
1,500,000 shares to be included in this offering. The following table
illustrates a hypothetical bid process for our offering.
NUMBER OF SHARES AGGREGATE NUMBER OF SHARES
REQUESTED BY BIDDERS BID PRICE AT BID PRICE AND GREATER
-------------------- --------- --------------------------
100,000 $11.00 100,000
100,000 $10.50 200,000
150,000 $10.00 350,000
75,000 $9.50 425,000
350,000 $9.00 775,000
325,000 $8.50 1,100,000
500,000 $8.00 1,600,000
600,000 $7.50 2,200,000
Using the above hypothetical, we could fix the number of share offered
to the public at 600,000 to 775,000 thus having a clearing price for all 600,000
to 775,000 shares sold in the offering at $9.00 per share, at between 775,001
shares to 1,100,000 shares with a resulting clearing price at $8.50 for all such
shares offered to the public, or at over 1,100,000 shares up to 1,500,000 shares
with a resulting clearing price of $8.00 per shares. We will select the number
of shares between the 600,000 share minimum and the 1,500,000 share maximum, and
thus the resulting clearing price for all the shares in this offering based on
our desire to raise adequate funds to support our expansion plans and also
maximizing shareholder value in light of the actual offers to purchase. We do
not know how many offers to purchase will be submitted, or what the prices will
be for any offers to purchase. The above hypothetical table is included merely
to explain our auction process.
The auction may remain open for up to 90 days after the effective date
of this prospectus, or we may elect to close the auction at any time prior to
the 90-day maximum period.
For a bid to be accepted by us as a valid offer to purchase shares, it
must be accompanied by adequate funds to purchase the shares at the price
contained in the offer to purchase. The document evidencing the offer to
purchase and the funds will be held in escrow by our planned transfer agent,
American Stock Transfer and Trust Company. Any excess funds sent with successful
offers to
33
<PAGE>
purchase, and all funds sent with unsuccessful offers to purchase, will be
returned to the person or entity that offered to purchase our shares.
We will close the auction on a date within 90 days following the date
of this prospectus, based on the rate at which we receive purchase orders for
our shares, and the number of shares and price range contained in those purchase
orders. The offered shares will be sold by us to investors who have submitted
offers to purchase at or in excess of the clearing price, and these investors
will be notified by e-mail, telephone, voice mail, facsimile or mail as soon as
practicable following the close of the auction that their offers to purchase
have been accepted. The number of shares sold to an investor submitting an offer
to purchase precisely at the clearing price may be subject to a pro rata
reduction. We reserve the right to reject bids that we deem manipulative, or
disruptive, or if we deem it to be necessary or beneficial to facilitate the
orderly completion of the offering, and we reserve the right, in exceptional
circumstances, to alter this method of allocation as we deem necessary to effect
a fair and orderly distribution of the shares. For example, large orders may be
reduced to insure a public distribution.
Immediately following the effective date of our registration statement,
our prospectus will be posted on the web site of Main Street IPO.com, Inc.,
which is located at www.MainStreetIPO.com. MainStreetIPO.com was established to
provide companies with a web site to, and advice regarding, offering their
capital stock to the public through an electronic auction. We have licensed
space on their web site for up to 90 days to conduct our offering, and have
consulted with their management regarding our offering. Main Street IPO.com,
Inc. is not serving as an underwriter, broker or agent for our offering. Main
Street IPO.com states its purpose to be to enable "any individual to bid on any
IPO of their choice. The site enables any corporation the ability to perform
their own self underwritten (Direct IPO) using a Dutch Auction of their
registered shares." We have been informed that we are likely to be the first
company to conduct an offering using MainStreet IPO.com, therefore, we are not
able to determine their ability to realize their stated purpose or if this
format of conducting a direct initial public offering will be successful.
Price and volume volatility in the market for our common stock may
result from the somewhat unique nature of the proposed plan of distribution.
Price and volume volatility in the market for our common stock after the
completion of this offering may adversely affect the market price of our common
stock.
Prior to the offering, there has been no public market for our common
stock. The initial public offering price for the common stock will be determined
by the process described above and does not necessarily bear any direct
relationship to our assets, current earnings or book value or to any other
established criteria of value, although these factors were considered in
establishing the initial public offering price range. Other factors considered
in determining the initial public offering price range include:
/bullet/ market conditions;
/bullet/ the industry in which we operate;
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<PAGE>
/bullet/ an assessment of our management;
/bullet/ our initial operating results;
/bullet/ our business potential; and
/bullet/ other factors deemed relevant.
If securities broker-dealers seek to participate in our distribution by
soliciting purchase orders which the broker-dealers place for our shares, and
those orders result in them receiving shares in our auction, we may allow those
broker-dealers a discount within NASD guidelines. We have not sought any
securities broker-dealers to solicit purchase orders for our shares in this
auction process, we cannot assure whether or not we will choose to seek
participating broker-dealers, and we have made no decision regarding the amount
of any discount or if any discounts will be provided.
35
<PAGE>
DESCRIPTION OF SECURITIES
We are authorized to issue 100,000,000 shares of common stock, no par
value. There are 3,852,400 of shares of our common stock currently issued and
outstanding, which are held of record by 33 shareholders. There are options to
purchase 260,000 shares of our stock currently held by our employees. There also
are warrants to purchase up to 188,000 shares of our common stock, which are
held by the selling shareholder. There currently is no public market for our
common stock. We are offering a minimum of 600,000 shares and a maximum of
1,500,00 shares of our common stock to the general public in this offering. In
this offering, the selling shareholder is offering 188,000 shares of our common
stock that underlie its warrants. Following this offering, the market price of
our common stock could decline as a result of the perception that a large number
of shares of our common stock could be offered for sale in the market. After
this offering, assuming the sale of the maximum number of 1,500,000 shares,
5,352,400 shares of common stock will be outstanding. An additional 188,000
shares would be outstanding upon exercise of the selling shareholder's warrants.
Aggregated, these would be 5,540,400 shares of which 1,688,000 would be freely
tradable shares eligible for sale in the public market. Together with shares not
freely tradable upon the initial sale of our shares to the general public in
this offering, our 5,540,400 outstanding shares would be eligible for sale in
the public market as follows:
NUMBER OF SHARES DATE
---------------- ----
1,688,000 After the date of this prospectus.
240,000 Upon the filing of a registration statement to
register for resale shares of common stock issuable
upon the exercise of options granted under our stock
option plan.
20,000 Upon vesting of 4,000 per year and the filing of a
registration statement to register for resale,
shares of common stock issuable upon exercise of
options granted under our stock option plan.
2,328,400 At various times after December 24, 1999, as
permitted under Rule 144 under the Securities Act.
1,524,000 At various times after December 24, 1999, in limited
amounts as permitted under Rule 144 under the
Securities Act.
In general, under Rule 144, as currently in effect, our affiliates or a
person (or persons whose shares are required to be aggregated) who has
beneficially owned shares for at least one year will be entitled to sell, within
any three-month period, a number of shares that does not exceed the greater of:
/bullet/ 1% of the then outstanding shares of common stock (approximately
55,404 shares immediately after this offering, assuming the
maximum offering); or
36
<PAGE>
/bullet/ the average weekly trading volume in the common stock during the
four calendar weeks preceding the date on which notice of such
sale is filed, subject to certain restrictions.
In addition, a person who is not deemed to have been our affiliate at any
time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least one year, would be entitled to sell such
shares under Rule 144(k) without regard to the requirements described above. To
the extent that shares were acquired from one of our affiliates, such person's
holding period for the purpose of effecting a sale under Rule 144 commences on
the date of transfer from the affiliate.
COMMON STOCK
The holders of the common stock are entitled to one vote for each share
held, and have the sole right and power to vote on all matters on which a vote
of stockholders is taken. Voting rights are non-cumulative. The holders of
shares of our common stock are entitled to receive dividends when, as and if
declared by the Board of Directors, out of funds legally available therefore and
to share pro rata in any distribution to stockholders. Upon liquidation,
dissolution, or winding up of the company, the holders of our common stock are
entitled to receive our net assets in proportion to the respective number of
shares held by them after our payment of liabilities and liquidation preference
on any preferred stock which may be outstanding. The holders of our common stock
do not have any preemptive right to subscribe for or purchase any shares of any
class of stock.
WARRANTS
Our warrants, the underlying shares of which are being registered under
this prospectus, were issued in connection with a one-year term loan. Warrants
to purchase 188,000 shares of common stock were issued in August 1999. The
warrants are exercisable at an exercise price of $5.00 per share at any time
until such time as our common stock is traded on a national market or listing
system, at which time the exercise price shall be an amount equal to the average
closing bid price of our common stock on the exchange or listing system for the
five trading days immediately preceding the exercise of the warrants.
The exercise price of $5.00 per share for these warrants was based upon
the most recent sale of our common stock when we entered into the warrant
agreement. The warrant agreement was entered into in August 1999, and in July
1999 we sold 50,000 shares at $1.00 per share. In December 1999, we
reverse-split our stock so that each five shares outstanding would equal one
share.
We have also granted the right to purchase 75,000 shares of our common
stock at $7.50 per share to a consultant in November 1999. This right expires
November 30, 2003. See "Management -- Consultants."
The exercise price and number of shares of our common stock purchasable
upon the exercise of the warrants are subject to adjustment upon the occurrence
of certain events, including stock dividends, stock splits, combinations and
reclassification of the common stock, or by our issuance
37
<PAGE>
of shares of our common stock or other securities convertible into common stock
at a price below the fair market value of our common stock.
The warrants do not confer upon their holders any voting, dividend or
other rights as shareholders of the company.
PREFERRED STOCK
Within the limits and restrictions contained in our Articles of
Incorporation, the Board of Directors has the authority, without further action
by the stockholders, to issue up to 1,000,000 shares of preferred stock, no par
value per share in one or more series, and to fix, as to any such series, the
dividend rate, redemption prices, preferences on liquidation or dissolution,
sinking fund terms, if any, conversion rights, voting rights and any other
preference or special rights and qualifications. There are presently authorized
500,000 shares of Series A Convertible Preferred Stock (as described below), of
which we have issued 247,000 shares to 1231912 Ontario Inc., a Canadian
corporation, of which 197,000 are currently outstanding.
Shares of our preferred stock could be utilized, under certain
circumstances, to make an attempt to gain control of the company more difficult
or time consuming. For example, shares of our preferred stock could be issued
with certain rights which might have the effect of diluting the percentage of
our common stock owned by a significant stockholder, or issued to purchasers who
might side with management in opposing a takeover bid, which our Board of
Directors determines is not in the best interests of our company and its
shareholders. A takeover transaction frequently affords shareholders the
opportunity to sell their shares at a premium over current market prices. Our
Board of Directors has not authorized any series of preferred stock other than
the Series A Convertible Preferred Stock.
SERIES A CONVERTIBLE PREFERRED STOCK
The holders of the Series A Convertible Preferred Stock will earn an
annual dividend of 4%. The Series A Preferred Stock is non-voting and
non-participating. The Series A Preferred Stock has a liquidation preference of
$1.00 per share.
The company has the right to redeem, in whole or in part, upon 30 days'
written notice, the Series A Preferred Stock at a redemption price of $1.00 per
share plus all accumulated dividends thereon.
STOCK TRANSFER AGENT
The stock transfer agent for our common stock is Nevada Transfer and
Trust Company.
38
<PAGE>
STOCKHOLDER REPORTS
We furnish our stockholders with annual reports containing audited
financial statements and may furnish our stockholders with quarterly or
semi-annual reports containing unaudited financial information.
DIVIDEND POLICY
We have not paid any dividends on our common stock and we intend to
retain all earnings for use in our operations and to finance the development and
the expansion of our business. We do not anticipate paying any dividends on the
common stock in the foreseeable future. The payment of dividends is within the
discretion of our Board of Directors. Any future decision with respect to
dividends will depend on future earnings, future capital needs and our operating
and financial condition, among other factors.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be
passed upon for the company by Adorno & Zeder, P.A., 2601 S. Bayshore Drive,
Suite 1600, Miami, Florida 33133.
EXPERTS
Our audited, consolidated financial statements for the period from
inception (December 24, 1998) to June 30, 1999, included in this prospectus have
been included in reliance on the report of Edward Isaacs & Company, LLP,
independent auditors, as set forth in their report appearing elsewhere herein,
and have been included upon our reliance on their report, given on their
authority as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form SB-2 under
the Securities Act of 1933, as amended, with respect to the shares of common
stock being offered in this prospectus. This prospectus, which is a part of the
registration statement, does not contain all of the information included in the
registration statement. Certain information is omitted and you should refer to
the registration statement and its exhibits. For further information about us
and the common stock being offered by this prospectus, you may read the
materials we have filed with the SEC without charge at the Public Reference
Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the SEC located at
Northwestern Atrium Center, Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661-2511 or Seven World Trade Center, New York, New York 10048. You
can also obtain copies of these materials at prescribed rates from the Public
Reference Section of the SEC in Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms.
Our SEC filings and the registration statement can also be reviewed by
accessing the SEC's internet site at http://www.sec.gov, which contains reports,
proxy and information statements and other information regarding registrants
that are filed electronically with the SEC.
39
<PAGE>
AUDITED FINANCIAL STATEMENTS
<PAGE>
YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD DECEMBER 24, 1998
(INCEPTION) TO JUNE 30, 1999 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1999
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
CONSOLIDATED FINANCIAL STATEMENTS:
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets - June 30, 1999 and September 30, 1999 (Unaudited) F-3
Consolidated Statements of Operations and Deficit for the Period
December 24, 1998 (Inception) to June 30, 1999 and for the
Three Months Ended September 30, 1999 (Unuaudited) F-4
Consolidated Statements of Cash Flows for the Period December 24, 1998
(Inception) to June 30, 1999 and for the Three Months Ended
September 30, 1999 (Unuaudited) F-5
Notes to Consolidated Financial Statements F-6 - F-12
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Yak Communications (USA), Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Yak
Communications (USA), Inc. and subsidiary as of June 30, 1999, and the related
consolidated statements of operations and deficit, and cash flows for the period
December 24, 1998 (inception) to June 30, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit 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 made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Yak
Communications (USA), Inc. and subsidiary as of June 30, 1999, and the
consolidated results of their operations and cash flows for the period December
24, 1998 (inception) to June 30, 1999, in conformity with generally accepted
accounting principles.
EDWARD ISAACS & COMPANY LLP
New York, New York
August 15, 1999, except Note 5 as to which
the date is December 17, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, SEPTEMBER 30,
1999 1999
----------- -----------
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 42,279 $ 122,991
Accounts receivable -- 142,738
Other receivables 53,758 --
Prepaid expenses -- 16,358
----------- -----------
TOTAL CURRENT ASSETS 96,037 282,087
----------- -----------
PROPERTY AND EQUIPMENT 609,965 779,047
----------- -----------
OTHER ASSETS:
Deposits with long distance carriers 84,688 85,196
Security deposits 19,132 19,084
----------- -----------
TOTAL OTHER ASSETS 103,820 104,280
----------- -----------
$ 809,822 $ 1,165,414
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 110,830 $ 411,053
Notes payable - credit facility -- 63,573
Current maturities of capital lease obligations 72,903 120,121
Loan payable -- 100,000
----------- -----------
TOTAL CURRENT LIABILITIES 183,733 694,747
----------- -----------
LONG-TERM DEBT:
Obligations under capital leases, less current maturities 35,507 75,680
----------- -----------
SHAREHOLDERS' EQUITY:
Capital stock 727,510 772,510
Unearned services (10,000) --
Other comprehensive income - translation adjustment 18,396 19,938
Deficit (145,324) (397,461)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 590,582 394,987
----------- -----------
$ 809,822 $ 1,165,414
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE PERIOD
DECEMBER 24,
1998 THREE MONTHS
(INCEPTION) TO ENDED
JUNE 30, SEPTEMBER 30,
1999 1999
----------- -----------
(UNAUDITED)
SALES:
Dial-A-Round $ -- $ 111,002
Carrier resale -- 449,992
----------- -----------
-- 560,994
----------- -----------
COST OF SALES:
Long Distance Services:
Dial-A-Round -- 77,244
Carrier resale -- 433,257
----------- -----------
-- 510,501
Switch costs 30,445 51,292
Processing costs -- 14,933
----------- -----------
30,445 576,726
----------- -----------
GROSS PROFIT (LOSS) (30,445) (15,732)
----------- -----------
OPERATING EXPENSES:
Selling, general and administrative 106,690 189,413
Depreciation -- 41,000
Interest 8,189 5,992
----------- -----------
114,879 236,405
----------- -----------
NET LOSS (145,324) (252,137)
DEFICIT at beginning -- (145,324)
----------- -----------
DEFICIT at end $ (145,324) $ (397,461)
=========== ===========
BASIC AND DILUTED LOSS PER SHARE $ (0.04) $ (0.07)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES 3,788,128 3,844,022
=========== ===========
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD
DECEMBER 24,
1998 THREE MONTHS
(INCEPTION) TO ENDED
JUNE 30, SEPTEMBER 30,
1999 1999
-------------- -------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(145,324) $(252,137)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation -- 41,000
Amortization of unearned services -- 10,000
Increase (decrease) in cash attributable to changes in assets and
liabilities:
Accounts receivable -- (142,738)
Other receivables (53,758) 53,758
Prepaid expenses -- (16,358)
Accounts payable 37,594 300,223
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (161,488) (6,252)
--------- ---------
INVESTING ACTIVITIES:
Purchase of property and equipment (557,495) (103,561)
Deposits with long distance carriers (84,688) (508)
Security deposits (19,132) 48
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (661,315) (104,021)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from short-term debt -- 163,573
Proceeds from long-term debt 133,655 --
Repayment of long-term debt (25,245) (19,884)
Proceeds from issuance of common and preferred stock 775,000 50,000
Offering costs (41,260) (5,000)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 842,150 188,689
--------- ---------
EFFECTS OF FOREIGN EXCHANGE:
Translation adjustment 18,396 1,542
Foreign exchange gain - net 4,536 754
--------- ---------
NET EFFECT OF FOREIGN EXCHANGE 22,932 2,296
--------- ---------
NET INCREASE IN CASH 42,279 80,712
CASH at beginning of period -- 42,279
--------- ---------
CASH at end of period $ 42,279 $ 122,991
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 5,434 $ 5,992
========= =========
NON-CASH TRANSACTIONS:
Capital lease obligation for equipment $ -- $ 107,275
========= =========
Payable for acquisition of equipment and offering costs $ 73,236 $ 60,202
========= =========
Issuance of common stock for services $ 10,000 $ --
========= =========
Redemption of Series A Preferred Stock in satisfaction of payable
for common stock $ 50,000 $ --
========= =========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of Yak
Communications (USA), Inc., which was incorporated on December 24, 1998
in the state of Florida, and its wholly-owned Canadian subsidiary, Yak
Communications (Canada), Inc. (collectively hereinafter referred to as
the "Company"). These statements reflect the transactions of Canada
from the date it commenced activities on October 15, 1998. The Company
is a switch based reseller specializing in offering dial-around
services to consumers. In July 1999, the Company began offering its
services to consumers.
The Company was in the development stage through June 30, 1999 and its
efforts were principally devoted to organizational activities, raising
capital and developing facilities to provide long distance services. In
the third calendar quarter, the Company began providing calling
services. The Company is dependent upon its ability to obtain
additional sources of financing to fund its working capital
requirements for continuing development and operations. The Company is
considering several financing alternatives, including equity financing
to fund such requirements. While the Company has in the past, been able
to maintain access to adequate external financing sources on acceptable
terms, no assurance can be given that such access will continue.
USE OF ESTIMATES:
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 and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
COMPUTATION OF LOSS PER SHARE:
Basic loss per share is computed by dividing the loss attributable to
common shareholders by the weighted average number of common shares
outstanding for the period. Diluted loss per share is computed giving
effect to all dilutive potential common shares that were outstanding
during the period. Dilutive potential common shares consist of
incremental common shares issuable upon exercise of convertible
preferred stock and stock options. Computation of diluted earnings per
share is not reflected, because including potential common shares will
result in an anti-dilutive per share amount due to the loss in the
periods presented.
FOREIGN CURRENCY TRANSLATION AND FOREIGN ASSETS:
In accordance with the provisions of Statement of Financial Accounting
Standards, No. 52, "Foreign Currency Translation," assets and
liabilities of the Company's foreign subsidiary were translated into
United States dollars at their year-end exchange rates. Operations for
the three month period ended September 30, 1999 were translated at an
average exchange rate for the period. For the foreign entity which
utilizes its local currency as its functional currency, resulting
translation gains and losses are included in other comprehensive
income. Gains or losses resulting from foreign exchange transactions
are reflected in earnings.
Foreign exchange gains of approximately $4,536 are reflected in
earnings for the period ended June 30, 1999.
Significant foreign assets of the Company are as follows at June 30,
1999:
Deposits with long distance carriers $ 84,688
Property and equipment, at cost $ 609,965
F-6
<PAGE>
YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PROPERTY AND EQUIPMENT:
Depreciation of property and equipment is provided for by the
straight-line method over the estimated useful lives of the assets.
Maintenance, repairs and minor renewals are charged to income as
incurred, whereas the cost of significant improvements is capitalized.
No depreciation has been recorded at June 30, 1999 as operations had
not yet commenced. Depreciation of $41,000 was charged to operations
for the three months ended September 30, 1999.
UNAUDITED INTERIM FINANCIAL STATEMENTS:
The accompanying financial statements of the Company as of September
30, 1999 and for the three months then ended are unaudited. All
adjustments (consisting only of normal recurring adjustments) have been
made which, in the opinion of management, are necessary for a fair
presentation thereof. Results of operations for the three months ended
September 30, 1999 are not necessarily indicative of the results that
may be expected for the full year or for any future period.
ADVERTISING EXPENSE:
Advertising costs are expensed as incurred.
STOCK OPTION PLAN:
The Company accounted for stock options issued to employees in
accordance with SFAS No. 123, Accounting for Stock-Based Compensation,
which permits entities to continue to apply the provisions of
Accounting Principles Board ("APB") Opinion No. 25 and provide pro
forma net income or loss disclosures for employee stock option grants
as if the fair value based method, as defined in SFAS No. 123, has been
applied. The Company has elected to apply the provisions of APB Opinion
No. 25 and provide the pro forma disclosures required by SFAS No. 123.
COMPREHENSIVE INCOME:
The Company reports and presents comprehensive income and its
components in accordance with SFAS No. 130, Reporting Comprehensive
Income. SFAS No. 130 requires only additional disclosures in the
financial statements; it does not affect the Company's financial
position or results of operations.
F-7
<PAGE>
YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
COMPREHENSIVE INCOME: (Continued)
Other comprehensive income is comprised of the foreign translation
adjustment arising from the conversion from Canadian dollars to U.S.
dollars and is presented as a separate item in the shareholders' equity
section. Comprehensive income for the period ended June 30, 1999 and
the three months ended September 30, 1999 consists of:
JUNE 30, SEPTEMBER 30,
1999 1999
-------------- -------------
(UNAUDITED)
Net loss $ (145,324) $ (252,137)
Foreign currency translation gain 18,396 1,542
------------ ------------
Comprehensive Income $ (126,928) $ (250,595)
============ ============
FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards ("SFAS") No. 107,
Disclosures About Fair Value of Financial Instruments, requires
disclosure of the fair value of certain financial instruments for which
it is practicable to estimate fair value. For purpose of the disclosure
requirements, the fair value of a financial instrument is the amount at
which the instrument could be exchanged in a current transaction
between willing parties, other than in a forced sale or liquidation.
The carrying values of cash, receivables, accounts payable, notes
payable - credit facility and loan payable are reasonable estimates of
their fair value due to the short-term maturity of underlying financial
instruments. The carrying value of the long-term debt is a reasonable
estimate of its fair value based on current rates for equipment
obligations.
2. PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and consist of the following
at June 30, 1999:
Telecom switching systems $ 408,574
Billing, administrative and customer service systems 190,880
Furniture, fixtures and office equipment 10,511
----------
$ 609,965
==========
F-8
<PAGE>
YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1999 IS UNAUDITED)
3. DEBT
CREDIT FACILITY:
The Company has entered into an agreement with a corporation (lender),
controlled by a shareholder and director of the Company, to provide
cash advances or third party loans up to $435,000 based upon available
accounts receivable. The cash advances bear interest at 12% and the
interest rate on any third party advances shall not exceed the bank's
prime rate plus 1-1/2%. The lender has agreed to waive any interest
calculated on its cash advances provided the credit is not in default.
As security for these advances, the Company has agreed to pledge its
accounts receivable and has provided a general security agreement over
all its assets. This agreement expires March 15, 2006. As of June 30,
1999, there were no advances under this agreement ($63,573 was advanced
as of September 30, 1999).
LONG-TERM DEBT:
Long-term debt consists of the following at June 30, 1999:
Obligation under a capital lease $ 108,410
Less: Current maturities 72,903
---------
Long-term portion, maturing in fiscal 2001 $ 35,507
=========
On August 15, 1999, the Company received a $100,000 loan which bears
interest at 10% per annum. Principal and interest are due in one year.
As consideration for the loan the Company issued warrants for the right
to purchase 188,000 common shares for a two-year term. Each warrant is
exercisable at the average closing price per share for the previous
five trading days or, if the stock does not trade on a National
Securities Exchange, $5.00 per share.
4. RELATED PARTY TRANSACTIONS
All of the carrier resale revenue is generated from the sale of
wholesale dial-around services to a corporation controlled by a
shareholder and director. Carrier resale revenue for the three months
ended September 30, 1999 was $449,992 (there was none at June 30,
1999).
5. CAPITAL STOCK
COMMON STOCK:
At inception, the Company issued 3,760,000 shares of common stock at
$.01 per share. 201,600 of these shares were issued in consideration
for $10,000 in future marketing services to be rendered.
Pursuant to a private placement offering in March 1999, the Company
issued 80,000 shares of common stock in April 1999. The total proceeds
for the private offering were $400,000. Total costs associated with the
offering were $57,490.
STOCK SPLIT:
On December 17, 1999, the Board of Directors authorized a 1 for 5
reverse stock split of the common stock. All share and per share data
have been restated in these financial statements for all periods
presented to reflect this stock split.
F-9
<PAGE>
YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1999 IS UNAUDITED)
5. CAPITAL STOCK (Continued)
SERIES A CONVERTIBLE PREFERRED STOCK:
In January 1999, the Company issued 247,000 shares of Series A
Convertible Preferred Stock at $1.00 per share. These shares are
convertible at the holders option into common stock at a conversion
rate of one share of common stock for each share of Series A Preferred
Stock. The holders of Series A Preferred Stock are entitled to receive
an annual cash dividend of 4% per share. The Company may redeem the
Series A Preferred Stock at a redemption price of $1.00 per share.
As of June 30, 1999, 50,000 shares of Series A Preferred Stock were
redeemed for $50,000 and the payment was applied to the shareholder's
purchase of common stock.
Capital stock consists of:
<TABLE>
<CAPTION>
JUNE 30 SEPTEMBER 30,
1999 1999
---------- -------------
(UNAUDITED)
<S> <C> <C>
Series A Convertible Preferred shares - 500,000 shares authorized, par
value $1.00 per share; issued and outstanding - 197,000 shares $ 197,000 $ 197,000
Common shares - 100,000,000 shares authorized, No par value, stated
value $0.05 per share, issued and outstanding - 3,840,000 and
3,850,000 shares at June 30, 1999 and September 30, 1999, respectively 192,000 192,500
Additional paid-in capital 338,510 382,510
--------- ---------
$ 727,510 $ 772,510
========= =========
</TABLE>
On August 24, 1999, the Company issued 10,000 shares of common stock
for $50,000.
6. INCOME TAXES
As of June 30, 1999, the Company has a net operating loss ("NOL") of
$145,324, that may be applied against earnings of future years, not
later than 2006. The deferred tax benefit of $64,000 applicable to the
NOL has been offset by a valuation allowance.
7. COMMITMENTS
LEASES:
The Company leases space for its office and switch facilities under
operating leases with month-to-month terms. Rent expense was $9,249 for
the period ended June 30, 1999.
F-10
<PAGE>
YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1999 IS UNAUDITED)
7. COMMITMENTS (Continued)
LEASES: (Continued)
The Company leases equipment under capital leases which expire through
2001. At June 30, 1999, future minimum lease payments under capital
leases (including a capital lease entered into subsequent to the
balance sheet date) are as follows:
2000 $ 139,738
2001 95,571
----------
Total minimum payments 235,309
Less: Amounts representing interest 19,624
----------
$ 215,685
==========
On August 1, 1999, the Company added approximately $150,000 to its
telephone switching systems. These additions were funded by working
capital and a capital lease obligation of $107,275.
EMPLOYMENT AGREEMENT:
Effective July 1, 1999, the Company executed a five-year employment
agreement with its chief executive which provides for annual
compensation of $100,000 in the initial year and is subject to review
annually thereafter.
8. STOCK OPTION PLAN
Effective June 30, 1999, the Company adopted a Stock Option Plan (the
Plan) which permits the issuance of stock options to selected employees
and directors. The Company reserved 640,000 shares of common stock for
grant. Options granted may be either nonqualified or incentive stock
options and will expire not later than 20 years from the date of grant
(10 years for incentive options).
On June 30, 1999, nonqualified options for 260,000 shares were granted
and are exercisable at $5.00 per share through December 31, 2004. As
the grant date of the options was the last day in the fiscal period,
the pro forma disclosures required by SFAS No. 123 have not been
presented as the effect on reported net loss is immaterial.
9. ECONOMIC DEPENDENCE
The Company is economically dependent upon Bell Canada to provide
billing and collection services to its customers under a renewable
agreement which expires in August 2000. The Company is also dependent
upon a renewable agreement expiring in June 2000 with Stentor (an
association of Canadian Provincial telephone companies) to provide
billing, transport and handling services to its member companies.
F-11
<PAGE>
YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1999 IS UNAUDITED)
10. YEAR 2000 ISSUE
The Year 2000 issue arises because many computerized systems use two
digits rather than four to identify a year. Data-sensitive systems may
recognize the Year 2000 as 1900 or some other date, resulting in errors
when information using Year 2000 dates is processed. In addition,
similar problems may arise in some systems which use certain dates in
1999 to represent something other than a date. The effects of the Year
2000 issue may be experienced before, on, or after January 1, 2000 and
if not addressed, the impact on operations and financial reporting may
range from minor errors to significant systems failure that could
affect an entity's ability to conduct normal business operations.
Although the Company has addressed its internal Year 2000 readiness, it
is not possible to be certain that all aspects of the Year 2000 issue
affecting the Company, including those related to the efforts of
customers, suppliers, or other third parties, will be fully resolved.
11. SUBSEQUENT EVENTS (UNAUDITED)
On December 16, 1999, the Company executed a website license agreement
with Main Street IPO.com to effectuate a proposed initial public
offering of a minimum of 600,000, shares by way of electronic auction
through Main Street IPO.com's website.
In November 1999, the Company entered into a factoring agreement with a
commercial lender for a $3,000,000 accounts receivable credit facility,
subject to minimum monthly volume of $200,000.
In November 1999, the Company entered into a one-year agreement for
management consulting services which provides for fees of $175,000 and
grants an option to purchase 75,000 shares of common stock for $7.50
per share. The option expires November 30, 2003.
In December 1999, the Company issued 2,400 shares of common stock for
consulting services rendered.
F-12
<PAGE>
PART TWO
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Florida Business Corporation Act (the "Corporation Act") permits the
indemnification of directors, employees, officers and agents of Florida
corporations. The Company's Articles of Incorporation (the "Articles") and
Bylaws provide that the Company shall indemnify its directors and officers to
the fullest extent permitted by the Corporation Act.
The provisions of the Corporation Act that authorize indemnification do
not eliminate the duty of care of a director, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Florida law. In addition, each director will continue to
be subject to liability for (i) violations of criminal laws, unless the director
had reasonable cause to believe his conduct was lawful or had no reasonable
cause to believe his conduct was unlawful, (ii) deriving an improper personal
benefit from a transaction, (iii) voting for or assenting to an unlawful
distribution and (iv) willful misconduct or conscious disregard for the best
interests of the Company in a proceeding by or in the right of a shareholder.
The statute does not affect a director's responsibilities under any other law,
such as the Federal securities laws.
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such persons
in their official capacities if such person acted in good faith and in a manner
that he reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had not
reasonable cause to believe his conduct was unlawful.
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 foregoing provisions, the Company has been informed that
in the opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by the Company in connection with the
distribution of the securities being registered are as follows:
SEC Registration and Filing Fee .................................. $4,692.65
Web Site Licensing Fee ........................................... $100,000.00
Legal Fees and Expenses* ........................................ $80,000.00
Video Presentation*............................................... $10,000.00
Accounting Fees and Expenses* ................................... $20,000.00
Financial Printing* ............................................. $10,000.00
Transfer Agent Fees* ............................................ $10,000.00
Blue Sky Fees and Expenses* ..................................... $15,000.00
Miscellaneous* .................................................. $2,500.00
-----------
TOTAL* .................................................... $252,192.65
===========
- ----------
* Estimated
None of the foregoing expenses are being paid by the selling security holder.
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Upon incorporation, on December 24,1998, the Company issued an
aggregate of 18,800,000 shares of "founders" Common Stock (subsequently reduced
to 3,760,000 shares as a result of a 1 for 5 reverse stock split) to the
following 24 individuals, all of whom are officers, directors, founders or
entities for founders of the Company:
SUBSCRIBER NUMBER OF SHARES
- ---------- ----------------
Charles Zwebner 636,400
Joseph Genova 318,200
Vince Genova 318,200
Anthony Heller 302,400
Michael Zwebner 253,200
Mitchell Shore 201,600
Murray Ruben 27,200
Richard Sablon 20,000
Jacquie Capote 20,000
Bernard Gropper 20,000
Ben Distaulo 67,200
Sarah Wertheimer 50,000
Evelyn Jacobs 33,600
Mario Perez 15,000
Minko Holdings Limited 170,000
David Brothman 168,000
David Heller 168,000
Lipmann Heller 168,000
Evelyn E. Gestetner 168,000
Overseas Development Corporation 150,000
the Ralquina Group Holdings Limited 125,000
Calidon International Corporation Inc. 120,000
Mcgovern & Mccowan Investment Corporation 120,000
Balforita Investment Corporation 120,000
The foregoing transaction was a transaction not involving a public offering and
was exempt from the registration provisions of the securities act of 1933, as
amended (the "act"), pursuant to section 4(2) thereof. Because the individuals
and entities had access to all information pertaining to the company, the
issuance was exempt from the registration requirements of the act, pursuant to
section 4(2) of the act. The issuances under 4(2) to officers, directors,
employees or legal counsel were to persons familiar with the operations of the
company. Other issuances under 4(2) were to advisors. The Company believed that
these advisors were sufficiently sophisticated
II-2
<PAGE>
to qualify for the exemption because they are in the business of advising
corporations on marketing, finance or public relations, as the case may be, and
are familiar with the business of the company.
The Company sold 450,000 shares of Common Stock at $1.00 per share
(90,000 shares at $5 per share as adjusted for the 1 for 5 reverse stock split)
pursuant to a Confidential Private Offering Memorandum dated March 19, 1999, in
which the Company offered a minimum of $250,000 (250,000 shares -- 50,000 as
adjusted -- of Common Stock) and a maximum of $1,000,000 (1,000,000 shares --
200,000 as adjusted -- of Common Stock) of the Company at $1.00 per share ($5.00
as adjusted) (the "Offering"). The 450,000 shares (90,000 as adjusted) of Common
Stock were sold to the investors below. The offering resulted in receipt by the
Company of $450,000.
SUBSCRIBER NUMBER OF SHARES
- ---------- ----------------
GZNT Corporation 50,000 (10,000 as adjusted)
Evelyn Jacobs 2,500 (500 as adjusted)
Calidon International 250,000 (50,000 as adjusted)
David Heller 25,000 (5,000 as adjusted)
Evelyn E. Gestetner 35,000 (7,000 as adjusted)
David Brothman 12,500 (2,500 as adjusted)
Apropo Developments Limited 75,000 (15,000 as adjusted)
This Offering was exempt from registration under the Securities Act in reliance
upon Rule 504 of Regulation D as a transaction by an issuer not involving a
public offering. The recipients of securities in the Offering represented their
intention to acquire the securities for investment only and not with a view to
or sale in connection with any distribution. All recipients either received
adequate information about the Company or had access, through employment or
other relationships, to such information.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT NO. DESCRIPTION OF DOCUMENT
----------- -----------------------
3.1 Articles of Incorporation of the Company as filed on
December 24, 1998, with the Secretary of State of the State
of Florida.*
3.2 Articles of Amendment to the Articles of Incorporation of
the Company, increasing the number of authorized common
stock from 50 million shares to 100 million shares, as filed
on June 4, 1999, with the Secretary of State of the State of
Florida.*
3.3 Articles of Amendment to the Articles of Incorporation of
the Company, designating Series A Convertible Preferred
Stock, as filed on July 27, 1999, with the Secretary of
State of the State of Florida.
3.4 Bylaws of the Company.*
4 Warrant Agreement, dated August 15,1999, between the Company
and Firmvest Capital Corp.*
II-3
<PAGE>
5.1 Opinion of Adorno & Zeder, P.A. re: legality*
10.1 1999 Stock Option Plan.*
10.2 Promissory Note, dated August 15, 1999, from the Company to
Firmvest Capital Corp.*
10.3 Credit Facility, dated June 14, 1999, between the Company
and 1054311 Ontario Limited.*
10.4 Billing and Collection Services Agreement, dated August 26,
1998, between the Company and Bell Canada.*
10.5 Service Agreement, dated June 16, 1999, between Bell Canada,
BE TEL, Island Telecom Inc., MTS Communications Inc.,
Maritime Tel & Tel Limited, NBTel Inc., NewTel
Communications Inc., Saskatchewan Telecommunications, TELUS
Communications Inc. (collectively referred to as "Stentor")
and the Company.*
10.6 Non-Qualified Stock Option Plan, dated June 30, 1999, from
the Company to Charles Zwebner.*
10.7 Employment Agreement between the Company, Yak Communications
(Canada), Inc. and Charles Zwebner, dated July 1, 1999.*
10.8 Management Consulting Agreement between the Company and
Dillon Capital, Inc. dated November 30, 1999.
10.9 Website License Agreement between the Company and Main
Street IPO.com, Inc. dated December 16, 1999.
10.10 $3,000,000 Credit Facility
21 Subsidiaries
23.1 Consent of Edward Isaacs & Company, LLP.
23.2 Consent of Adorno & Zeder, P.A. (see Exhibit 5.1*)
24 Power of Attorney*
27 Financial Data Schedule
-----------
* Previously filed
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
posteffective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
II-4
<PAGE>
(ii) 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;
(iii) 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;
Provided, however, that paragraphs (l)(i) and (l)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference 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.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission (the "Commission") such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
The undersigned Registrant also undertakes that it will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as a part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant under Rule 424(b)(1), or (4) or 497(h) under
the Securities Act as part of this registration statement as of the time the
Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, "hereunto duly
authorized, in Toronto, Ontario, on December 28, 1999.
YAK COMMUNICATIONS (USA), INC.
BY:/s/ CHARLES ZWEBNER
---------------------
CHARLES ZWEBNER
Pursuant to the requirements of the Securities Act of 1933, this Form
SB-2 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/ CHARLES ZWEBNER Chairman of the Board, Chief Executive December 28, 1999
- ------------------- Officer, President and Director (Principal
CHARLES ZWEBNER Financial and Accounting Officer)
/s/ ANTHONY HELLER Director December 28, 1999
- -------------------
ANTHONY HELLER
/s/ BERNARD GROPPER Secretary, Director December 28, 1999
- -------------------
BERNARD GROPPER
/s/ VINCENT GENOVA Director December 28, 1999
- -------------------
VINCENT GENOVA
</TABLE>
II-6
<PAGE>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -----------------------
3.1 Articles of Incorporation of the Company as filed on
December 24, 1998, with the Secretary of State of the State
of Florida.*
3.2 Articles of Amendment to the Articles of Incorporation of
the Company, increasing the number of authorized common
stock from 50 million shares to 100 million shares, as filed
on June 4, 1999, with the Secretary of State of the State of
Florida.*
3.3 Articles of Amendment to the Articles of Incorporation of
the Company, designating Series A Convertible Preferred
Stock, as filed on July 27, 1999, with the Secretary of
State of the State of Florida.*
3.4 Bylaws of the Company.*
4 Warrant Agreement, dated August 15, 1999, between the
Company and Firmvest Capital Corp.*
5.1 Opinion of Adorno & Zeder, P.A. re: legality *
10.1 1999 Stock Option Plan.*
10.2 Promissory Note, dated August 15, 1999, from the Company to
Firmvest Capital Corp.*
10.3 Credit Facility, dated June 14, 1999, between the Company
and 1054311 Ontario Limited.*
10.4 Billing and Collection Services Agreement, dated August 26,
1998, between the Company and Bell Canada.*
10.5 Service Agreement, dated June 16, 1999, between Bell Canada,
BE TEL, Island Telecom Inc., MTS Communications Inc.,
Maritime Tel & Tel Limited, NBTel Inc., NewTel
Communications Inc., Saskatchewan Telecommunications, TELUS
Communications Inc. (collectively referred to as "Stentor")
and the Company.*
10.6 Non-Qualified Stock Option Plan, dated June 30, 1999, from
the Company to Charles Zwebner.*
10.7 Employment Agreement between the Company, Yak Communications
(Canada), Inc. and Charles Zwebner, dated July 1, 1999.*
10.8 Management Consulting Agreement between the Company and
Dillon Capital, Inc. dated November 30, 1999.
10.9 Website License Agreement between the Company and Main
Street IPO.com, Inc. dated December 16, 1999.
10.10 $3,000,000 Credit Facility
21 Subsidiaries.
23.1 Consent of Edward Isaacs & Company, LLP.
23.2 Consent of Adorno & Zeder, P.A. (see Exhibit 5.1*).
24 Power of Attorney.*
27 Financial Data Schedule.
------------
* Previously filed
EXHIBIT 10.8
MANAGEMENT CONSULTING AGREEMENT
THIS MANAGEMENT CONSULTING AGREEMENT (the "Agreement") has been entered
into by and between YAK Communications (U.S.A.) Inc. having its principal place
of business at 55 Town Centre Court, Suite 506, Toronto (the "Company"), and
Dillon Capital Inc. ("Dillon"), reflecting the agreement between the Company and
Dillon as of November 30,1999.
WHEREAS, Dillon possesses significant expertise in analyzing and
addressing management requirements, identifying and structuring strategic
alliances and mergers and acquisitions, negotiating purchase and merger
agreements and certain other areas of strategic planning;
WHEREAS, the Company desires to avail itself of the services of Dillon
and Dillon desires to provide to the Company the benefit of such services; and
WHEREAS, the Company and Dillon expect to benefit from the carrying out
of the subject matter of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein contained
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and Dillon hereby agree as follows:
1. ENGAGEMENT. The Company hereby engages Dillon and Dillon accepts such
engagement and agrees to use its best efforts in a good and business like manner
to provide services to the Company in accordance with the terms of this
Agreement.
2. NATURE OF SERVICES. Upon the request of the Company, Dillon shall
render assistance to the Company by (a) analyzing and addressing the Company's
management requirements; (b) developing strategic initiatives and related
industry partnerships, including providing assistance with respect to
acquisitions, joint ventures, and strategic business alliances; (c) assisting
with the negotiations of contracts between the Company and its customers; and
(d) meeting with the advising the Company's board of directors at the request of
the Board at least 1 time per quarter.
3. TERM. The term of this Agreement shall commence as of November 30,
1999, and continue for a period of one year.
4. REMUNERATION. The consideration to be paid by the Company to Dillon
for services to be rendered hereunder shall be as follows:
i. The Company shall immediately issue to Dillon an option to purchase
an aggregate of 75,000 new consolidated shares of Common Stock, as arrived at as
below, at an exercise price of $7.50(U.S.) per share. Such options shall be
exercisable for a period of four years from the date of issuance and shall be
those that will result shares from the reorganization contemplated by the
company. Such reorganization will be the consolidation of the present 19,262,000
shares of common stock (before the exercise of any options) on a one for five
basis resulting in 3,852,400 new consolidated common shares of stock.
<PAGE>
ii. The Company shall pay to Dillon a fee of $175,000 per year
throughout the Term of this Agreement. Such payments shall be payable no later
than 3 months from the date of this Agreement.
iii. In the event that Dillon is instrumental in introducing the
Company to a particular merger or acquisition candidate, if upon the closing of
a merger or acquisition with such candidate there results in an increase in the
Company's revenues or pre-tax profits of at least two million dollars, the
Company and Dillon agree to mutually arrive at a fair arrangement to provide for
extra compensation.
5. REGISTRATION. The Company grants to Dillion Registration Rights in
relation to the shares underlying the options granted in this agreement
consistent with the registration rights of the company's officers, granted stock
options.
6. REIMBURSEMENT OF EXPENSES. The Company shall reimburse Dillon for its
out-of-pocket expenses incurred in the performance of his services hereunder,
including all costs associated with travel to the Company.
7. STATUS OF DILLON. The services of Dillon provided pursuant to this
Agreement shall be performed for the benefit of the Company by Dillon in the
capacity of an independent contractor. Dillon shall not be considered, at any
time that this Agreement is in force, to be an employee of the Company.
8. CONFIDENTIALITY. Dillon will not at any time disclose or use for his
own benefit or purposes or the benefit or purposes of any other person, firm,
partnership, joint venture, association, corporation or other business
organization, entity or enterprise other than the Company and any of its
subsidiaries or affiliates, any trade secrets, information, data or other
confidential information relating to customers, development programs, costs,
marketing, trading, investment, sales activities, promotion, credit and
financial data, financing methods, plans, or the business and affairs of the
Company generally, or of any subsidiary or affiliate of the Company; PROVIDED,
HOWEVER, that the foregoing shall not apply to information that is not unique to
the Company or that is or becomes through no fault of Dillon generally known to
the industry or the public. All files and records relating to the Company
compiled by Dillon shall be the property of the Company and shall be returned to
the Company upon termination of this Agreement.
9. WAIVER OF RIGHTS. The failure of either party to insist, in one or
more instances, upon the performance of any of the terms, covenants, agreements,
or conditions of this Agreement, or to exercise any rights hereunder, shall not
be construed as a waiver or relinquishment of such party's right to insist upon
the future performance of such term, covenant, agreement, or condition, or to
the future exercise of any such right, and the obligations of the other party
with respect to such future performance shall continue in full force and effect.
10. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby and shall remain in full force and
effect as if the invalidated provision had nor been included herein. 1.
<PAGE>
11. NOTICES. Any notice required or desired to be given pursuant to this
Agreement shall be in writing and shall be deemed given when delivered by
facsimile transmission or three (3) days after it is deposited in the mail to
the addresses set forth below, or at such subsequent address provided by the
parties:
If to Dillon Attention Art Kraus
4950 Yonge Street
Suite 2200
Toronto, Ontario
M2N 6K1
If to the Company 55 Town Centre Court
Suite 506
Toronto, Ontario
M1P 4X4
12. APPLICABLE LAW This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
13. ENTIRE AGREEMENT This Agreement constitutes the entire agreement and
understanding between the parties regarding services to be furnished to the
Company by Dillon, and any and all prior agreements and/or understandings
relating thereto are superseded in their entirety by this Agreement.
IN WITNESS WHEREOF, the Company and Dillon have executed this Agreement
as of the date and year first above written.
----------------------------------------
By: /s/ CHARLES ZWEBNER
-------------------------
Title: President,
YAK Communications (USA), Inc.
By: /s/GERRY GOLDBERG
-------------------------
per Dillon Capital Inc.
EXHIBIT 10.9
WEBSITE LICENSE AGREEMENT
AGREEMENT made this____day of December, 1999, by and between YAK
COMMUNICATIONS, INC. ("YAK"), a Florida corporation with principal offices
located at 55 Town Centre Court, Suite 506, Toronto, Ontario M1P 4X4, Canada and
MAIN STREET IPO.COM, INC. ("MainStreet"), a Delaware corporation with principal
offices at 171 Church Lane, North Brunswick, NJ 08902.
WHEREAS, MainStreet maintains a site on the Internet World Wide Web (the
"Website") having a uniform resource locator address ("URL") at
www.MainStreetIPO.com or such other URLs as may hereinafter be registered, which
has been established to provide corporations with the opportunity to make
registered public offerings of their stock through a registered prospectus (a
"Registered Prospectus") by way of electronic auction to members of the public
in states of the United States of America where such offerings are duly
authorized by the laws of the said respective states and of the United States
through a revocable limited license to use space on the Website for such
purpose; and
WHEREAS, YAK is desirous of making a public offering of its securities
and is desirous of licensing the facilities of the Website owned by MainStreet.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree as follows:
1. MAINSTREET SERVICES. Subject to YAK fulfilling all of the terms and
conditions hereinafter set forth, MainStreet shall provide the following
Services:
(a) LICENCE OF WEBSITE SPACE. MainStreet shall grant a license to YAK
of sufficient space on its Website for a period not to exceed ninety (90)
consecutive days (Saturdays,
<PAGE>
Sundays and holidays included), such a period to be known as the "Offering
Period," to enable YAK to publish its Registered Prospectus for the purpose of
offering and selling its securities to members of the public. In connection with
the licensing, MainStreet shall also publish the name of YAK on its Website,
together with a brief description of YAK's business, which description shall be
consistent with the terms of the Prospectus.
(b) TRAFFIC. In connection with the grant of the license, MainStreet
agrees that it shall maintain, administer and manage the Website so as to insure
sufficient bandwidth to facilitate continuous data traffic of YAK's Registered
Prospectus and any and all bids submitted by users for the purchase of YAK's
stock.
(c) INFORMATION TO BE PROVIDED. MainStreet shall provide to YAK and
its lawfully appointed agents, during the Offering Period and for a period of
seven (7) business days after the termination of the Offering Period, access to
all information regarding bids and bidders, including each bidder's address,
e-mail address, Social Security Number, telephone number and respective bid,
and, in addition, shall provide such information, when requested by YAK, in a
usable paper or electronic format.
2. MAINSTREET'S RELATIONSHIP TO YAK . The relationship between MainStreet
and YAK shall be that of a licensor and licensee, which license may be revoked
pursuant to the terms of paragraph 10 herein. Nothing contained herein nor any
of the services to be performed by MainStreet shall be construed to mean or
infer that MainStreet is engaged in or selling YAK's securities, nor that
MainStreet is acting in any capacity as an underwriter as that term is defined
under Section 2(a)(11) of the Securities Act of 1933 (the "Act"), nor that
MainStreet is acting as a broker, dealer or member of a selling group, nor that
MainStreet is acting as an agent, affiliate,
2
<PAGE>
patron or joint venturer of YAK or as underwriter as that term may be defined
under any state law within the United States.
3. PUBLIC OFFERING. The information relating to YAK's public offering on
the Website shall be limited solely to the publication of the Registered
Prospectus that has been declared effective by the United States Securities and
Exchange Commission (the "SEC"). YAK shall be required to deliver to MainStreet
at least five (5) business days before the first publication of the Registered
Prospectus on the Website a printed prospectus (including text of any
video-style portion of the prospectus) and an electronic version (floppy
diskette, CD-ROM, or DVD) of the prospectus together with a certification from
YAK's legal counsel that said printed version and electronic version of the
prospectus as delivered to MainStreet are the same as the Registered Prospectus
declared effective by the SEC. MainStreet will not accept any other data or
material for publication on the Website in connection with YAK's public
offering.
4. PROHIBITIONS. At all times during the Offering Period on the Website,
YAK shall not publish or disseminate information through any medium including
financial information concerning YAK which information or financial information
is not fully consistent with the information contained in the Registered
Prospectus published on the Website. Prior to any such publication or
dissemination of such information, YAK shall obtain the opinion of its counsel
that such publication or dissemination of such additional information is not in
violation of the Securities Act of 1933, which opinion shall be provided to
MainStreet's counsel prior to any publication or dissemination. Nothing in this
Section 4 or otherwise herein shall limit or otherwise effect YAK's publication
or dissemination of any information or materials in its ordinary course of
business, nor shall this Section 4 or any other provision of this Agreement
require any opinion of counsel prior to or in relation to the publication or
dissemination of any such information or materials.
3
<PAGE>
5. CONDITIONS TO LISTING. Subject to the payment of the fee by YAK
described in paragraph 6 herein, and not less than five (5) business days prior
to the publication of the Registered Prospectus on the Website, YAK shall have
fulfilled the following conditions:
(a) COMPLIANCE WITH SEC. YAK shall have duly and lawfully completed
all filings with the SEC and the registration statement covering the offering to
be offered on the Website shall have been declared effective by the SEC. Proof
thereof in form satisfactory to MainStreet's counsel must be furnished to
MainStreet's counsel prior to the commencement of the Offering Period.
(b) COMPLIANCE WITH FILING STATES. YAK shall have duly and lawfully
completed all filings required by the laws of those states (the "Filing States")
in which YAK intends to offer its securities and shall have notified each Filing
State of its plan of distribution, and YAK shall have furnished to MainStreet's
counsel, at least five business days prior to the commencement of the Offering
Period, satisfactory proof that said offerings have been approved or qualified
for sale in each of the Filing States. YAK understands that MainStreet will not
accept any bids from any person residing in a state where the securities have
not been so registered or qualified for sale.
(c) APPOINTMENT OF TRANSFER AGENT. YAK shall have retained American
Stock Transfer & Trust Company ("American Stock Transfer") or such other
transfer agent so approved by MainStreet to act as transfer agent (the "Transfer
Agent") for YAK in connection with the issuance of its shares and to further act
as escrow agent (the "Escrow Agent") for the receipt of the funds representing
bids for the purchase of YAK stock through the facilities of the Website. YAK
shall furnish to counsel for MainStreet copies of the appointment of such
Transfer Agent and Escrow Agent together with all executed contracts as may be
required by such Transfer Agent and Escrow
4
<PAGE>
Agent and evidence of payment of any and all fees and charges required by such
Transfer Agent and Escrow Agent in connection with their respective
undertakings.
(d) APPOINTMENT OF INDEPENDENT AUDITORS. YAK shall appoint the
independent auditors who appear as "Experts" in the Prospectus for the purpose
of examining and certifying all bids received by YAK during the Offering Period.
YAK shall be required to furnish MainStreet with a written acknowledgment from
said auditors that they agree to undertake such examination and certification of
all bids at the close of the Offering Period and to furnish said certification
to the Transfer Agent with instructions regarding the delivery of securities,
the refund of any bids and the delivery of funds representing the proceeds of
the offering to YAK.
(e) COMPLIANCE. YAK shall at all times fully comply with all
applicable present and future provisions of the laws of the United States and
all Filing States, including but not limited to the filings of any post
effective amendments to the registration statement and prospectus.
(f) EXCHANGE LISTING. Prior to the commencement of the Offering
Period, YAK must have applied and satisfied MainStreet that they are likely to
meet the listing criteria for listing on one of the following exchanges: NASDAQ
Small Cap, The American Stock Exchange (the "AMEX") or the New York Stock
Exchange ("NYSE"). At or prior to the completion of the Offering Period YAK
shall have been formally accepted for listing on one of the aforementioned
exchanges, which listing shall take effect upon the completion of the public
offering.
(g) Contemporaneously with the execution of this Agreement, YAK shall
furnish to MainStreet a duly executed Certificate of a Resolution of the Board
of Directors of YAK authorizing the officers of YAK to enter into, execute and
bind YAK to this Agreement.
6. CONSIDERATION FOR THE LICENSE. The consideration for the grant of the
license to YAK shall be One Hundred Thousand Dollars ($100,000). Simultaneously
with the execution
5
<PAGE>
of this Agreement by the parties hereto, YAK shall pay to MainStreet the sum of
twenty-five thousand ($25,000.00) dollars as initial payment on account of the
full consideration, receipt of which is hereby acknowledged by MainStreet.
Notwithstanding anything to the contrary contained herein, no portion of the
initial payment shall be refundable under any circumstances. Upon a successful
offering wherein all shares have been sold within the Offering Period, YAK shall
then instruct the Escrow Agent to deduct from the proceeds of the public
offering the sum of seventy-five thousand dollars ($75,000.00) and remit such
sum directly to MainStreet. In the event that fewer than all of the shares
offered have been sold within the Offering Period, the sum of seventy-five
thousand ($75,000.00) shall nonetheless be due and payable to MainStreet within
ten (10) days after the termination of the offering.
7. RESPONSIBILITY OF YAK . YAK shall bear all responsibility for
arranging for the collection of funds, the return of any funds and the delivery
of all securities through its duly appointed Transfer Agent and Escrow Agent.
Nothing contained herein shall create any obligation on the part of MainStreet
to insure the collection of any funds, the return of any funds or the delivery
of any securities. YAK shall instruct each bidder to transmit all funds to the
appointed Transfer Agent or Escrow Agent.
8. THE BIDDING PROCESS. It is understood and agreed that the bidding
price for YAK stock shall be determined in accordance with a "Dutch style
auction," which for the purposes of this Agreement shall mean the following.
Prior to the Offering Period, YAK shall, at the time of listing on the Internet,
establish the number of shares to be offered and sold and the minimum acceptable
bid price to YAK for each share. The winning bid price to be paid by all bidders
shall be the lowest priced bid from the group of the highest priced bids (the
"Last Bid") included among successful offers for purchase upon the closing the
of the auction, provided that such bid is greater
6
<PAGE>
than or equal to the minimum acceptable bid price as established by YAK. In the
event any bid received is greater than the Last Bid, then such bidder shall be
entitled to a refund of the excess over the Last Bid.
9. SYSTEM FAILURE. In the event that the MainStreet Website encounters
technical difficulties with hardware, software, or connectivity which renders
users unable to view the Registered Prospectus and/or place bides, MainStreet
agrees to extend the Offering Period for that period equivalent to the time the
site or the information on the site was inaccessible to the user.
10. REVOCATION. MainStreet reserves the right to revoke the license
granted herein at any time in the event of any of the following occurrences or
events:
(a) Any representation, whether orally or in writing, by YAK or its
officers, directors, agents, servants or employees that MainStreet is acting in
any capacity other than a licensor.
(b) Any publication or dissemination by YAK of information which is
inconsistent with the information contained in the Registered Prospectus.
(c) Any material misrepresentation or omission of a material fact in
the Registered Prospectus.
(d) Any material misrepresentation regarding the effectiveness of the
Registered Prospectus.
(e) Any misrepresentation regarding the status of the State Filings.
(f) Failure to obtain and contract with a Transfer Agent and/or Escrow
Agent approved by MainStreet.
(g) Any failure to file a Post Effective Amendment to the Registration
Statement where such Post Effective Amendment is required.
7
<PAGE>
(h) Any misrepresentation regarding YAK qualification for listing on
the NASDAQ SmallCap exchange, the American Stock Exchange or New York Stock
Exchange.
(i) Any misrepresentation, or course of conduct which causes any
adverse injury to the business reputation of MainStreet.
11. LICENSEE'S DAMAGE.
(a) In no event shall Licensor be liable to Licensee for any indirect,
special or consequential damages or lost profits arising out of or related to
this License Agreement or the performance or breach hereof, even if Licensor has
been advised of the possibility thereof. Licensor's liability to licensee
hereunder, if any, shall in no event exceed the total of the license fees paid
to Licensor hereunder by Licensee.
(b) In no event shall Licensor be liable to Licensee for any damages
resulting from or related to any failure of the software system, including, but
not limited to, loss of data. Licensor's sole remedy shall be a credit of time
as set forth in paragraph 9 above.
12. INDEMNITY. Provided that YAK is found to have violated the Securities
Act of 1933, as amended, and solely to the extent of the damages so caused by
such violation in connection with its sale of securities through a prospectus
posted on MainStreet's Internet site, YAK shall defend, indemnify and hold
MainStreet harmless, including reimbursement of all reasonable attorney's fees,
from any and all claims based on or related to the public offering of YAK,
including, but not limited to, any and all claims that YAK published a false and
misleading prospectus or misrepresented itself, its financial condition, or its
business prospects, or its intended use of the proceeds of the offering, or the
background of its principals, or any improper or incorrect computation of bids;
or a failure to refund monies due bidders, or a failure to deliver securities to
purchasers thereof or for any other reason whatsoever.
8
<PAGE>
13. MAINSTREET'S REPRESENTATIONS. MainStreet represents and warrants to
YAK the following:
(a) MainStreet shall comply with any and all laws and regulations
applicable to it, including any and all Federal and State securities laws.
(b) MainStreet shall use its best commercial efforts to maintain its
Internet site in good working order, accessible to the public, and shall monitor
its site to determine that it is accessible and in good working order.
(c) MainStreet shall not take any action or undertake any course of
conduct that materially injures YAK's offering posted on MainStreet's site, or
that materially injures the business or reputation of YAK.
(d) Except as specifically provided in this Agreement to the contrary,
YAK shall have no liability to MainStreet for anything contained in its
prospectus or otherwise, or that relates to its offering of its shares or this
Agreement.
14. CLAIMS.Any claims or disputes arising out of or related to this
Agreement must be brought no later than one year after the date when the event,
act or omission upon which such claim or dispute is predicated first arises and
all such claims or disputes shall be resolved by binding arbitration to be held
in New York City before three arbitrators in accordance with the Commercial
Rules of Arbitration of the American Arbitration Association. Judgment upon the
award rendered by the arbitrators may be entered in any court.
15. GENERAL.
(a) The rights and obligations under Paragraphs 6, 7 and 11 shall
survive and continue after any expiration, termination or cancellation of this
Agreement or any portion thereof.
9
<PAGE>
(b) This Agreement shall be deemed made under the laws of the State of
New York and shall be interpreted in accordance with the laws of such state.
(c) This is the entire agreement between the parties relating to the
subject matter thereof, and it may not be modified, except by a written
amendment thereto executed by authorized representatives of both parties.
(d) This Agreement and all rights hereunder may not be assigned by YAK
or MainStreet.
(e) All notices required to be sent by either party shall be in
writing and shall be sent by registered or certified mail, postage prepaid, to
the address of the other party set forth on the first page hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives and to be effective as of the
date first above written.
MAIN STREET IPO.COM, INC.
a Delaware corporation
By: /s/ JIM SALVANI, CEO
----------------------------
Name of Officer and Title
YAK COMMUNICATIONS (USA), INC.
By: /s/CHARLES ZWEBNER
----------------------------
10
EXHIBIT 10.10
SALES LINKED FINANCE LTD.
PROGRESSIVE FINANCING FOR SUCCESS
YAK COMMUNICATIONS
55 TOWN CENTRE DRIVE UNIT 506
SCARBOROUGH, ONTARIO
M1P 4X4
ATTN: CHARLES ZWEBNER
DECEMBER 2, 1999
DEAR MR. ZWEBNER:
AS EXPRESSED IN OUR LETTER OF INTENTION TO YAK COMMUNICATIONS, DATED NOVEMBER
28, 1999, THE TERMS AND CONDITIONS PROPOSED TO YOUR COMPANY INDICATE THERE IS A
MINIMUM EXPECTED VOLUME OF $200,000.00 A MONTH.
PROVIDED THE EXPECTED VOLUME IS ACHIEVED, SLF WILL BE ABLE TO FINANCE ANY
TRANSACTIONS UP TO $3,000,000.00 A MONTH. UNDERWRITING OF THE INVOICES WILL BE
DONE ACCORDING TO THE COMPANY'S DUE DILIGENCE PROCESS.
THANK YOU, VERY MUCH FOR YOUR PROMPT ATTENTION.
YOURS TRULY,
/S/OSCAR ROMBOLA
OSCAR ROMBOLA
STRATEGIC BUSINESS DEVELOPMENT DIRECTOR
SLF SALES LINKED FINANCE LTD.
940 The East Mall
Suite 303
Toronto, ON M9B 6J7
Tel: 416.621.2258
Fax:416.621.7242
1.888.503.4528
[email protected]
www.ezcapital.com
EXHIBIT 21
YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARY
December 17, 1999
Edward Isaacs & Company LLP
380 Madison Avenue
New York, NY 10017
In connection with your audit of the financial statements of Yak Communications
(USA), Inc. and Subsidiary as of June 30, 1999, and for the period December 24,
1998 (Inception) to June 30, 1999, for the purpose of expressing an opinion that
there are no material modifications that should be made to the statements in
order for them to be in conformity with generally accepted accounting
principles, we confirm, to the best of our knowledge and belief, the following
representations made to you during your audit.
1. The financial statements referred to above present the financial
position and results of operations and cash flows of Yak
Communications (USA), Inc. and Subsidiary in conformity with generally
accepted accounting principles. In that connection, we specifically
confirm that:
a. The Company's accounting principles, and the practices and
methods followed in applying them, are as disclosed in the
financial statements.
b. There have been no changes during the period in the Company's
accounting principles and practices.
c. We have no plans or intentions that may materially affect the
carrying value or classification of assets and liabilities.
d. There are no material transactions that have not been properly
reflected in the financial statements.
e. There are no material losses (such as from obsolete inventory or
purchase or sales commitments) that have not been properly
accrued or disclosed in the financial statements.
f. There are no violations or possible violations of laws or
regulations whose effects should be considered for disclosure in
the financial statements or as a basis for recording a loss
contingency, and there are no other material liabilities or gain
or loss contingencies that are required to be accrued or
disclosed.
g. The Company has satisfactory title of all owned assets, and
there are no liens or encumbrances on such assets nor has any
asset been pledged, except as disclosed in the financial
statements.
h. There are no related transactions or related amounts receivable
or payable that have not been properly disclosed in the
financial statements.
i. We have complied with all aspects of contractual agreements that
would have a material effect on the financial statements in the
event of noncompliance.
<PAGE>
-2-
j. No events have occurred subsequent to the balance sheet date
that would require adjustment to, or disclosure in, the
financial statements that have not been properly disclosed.
2. There are no outstanding amounts due to Charles Zwebner for
compensation or management fees not previously recorded in the
financial statements as of June 30, 1999.
3. We have advised you of all actions taken at meetings of shareholders,
board of directors, and committees of the board of directors that may
affect the financial statements.
4. We have responded fully to all your inquiries made to us by you during
your audit.
YAK COMMUNICATIONS (USA), INC.
AND SUBSIDIARY
______________________________
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No.1 to Registration Statement No.
33-88031 of Yak Communications (USA), Inc. and subsidiary of our report dated
August 15, 1999 appearing in the Prospectus, which is a part of such
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.
EDWARD ISAACS & COMPANY LLP
New York, New York
December 23, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of YAK Communications (USA), Inc. and subsidiary included
in the Company's Form SB-2 for the periods ended June 30, 1999 and September 30,
1999, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1990
<PERIOD-END> JUN-30-1999 SEP-30-1999
<CASH> 42,279 122,991
<SECURITIES> 0 0
<RECEIVABLES> 53,758 142,738
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 96,037 282,087
<PP&E> 609,965 820,047
<DEPRECIATION> 0 41,000
<TOTAL-ASSETS> 809,822 1,165,414
<CURRENT-LIABILITIES> 183,733 694,747
<BONDS> 0 0
0 0
197,000 197,000
<COMMON> 192,000 192,500
<OTHER-SE> 201,582 5,487
<TOTAL-LIABILITY-AND-EQUITY> 809,822 1,165,414
<SALES> 0 0
<TOTAL-REVENUES> 0 560,994
<CGS> 0 0
<TOTAL-COSTS> 0 576,726
<OTHER-EXPENSES> 137,135 230,413
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 8,189 5,992
<INCOME-PRETAX> (145,324) (252,137)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (145,324) (252,137)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (145,324) (252,137)
<EPS-BASIC> (0.04) (0.07)
<EPS-DILUTED> (0.04) (0.07)
</TABLE>
