AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 16, 1999
Registration No. 333-86031
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
PHON-NET.COM, INC.
(Name of Small Business Issuer in Its Charter)
<TABLE>
<CAPTION>
Florida 7372 98-0198225
<S> <C> <C>
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Number) Identification No.)
</TABLE>
750 West Pender Street
Suite 600
Vancouver, British Columbia V6C 2T7
(604) 437-3787
(Address and Telephone Number of Principal Executive Offices)
-------------------------
Brian Collins
750 West Pender Street
Suite 600
Vancouver, British Columbia V6C 2T7
(604) 437-3787
(Name, Address and Telephone Number of Agent For Service)
------------------------------
Copies of all communications to:
Steven I. Weinberger, Esq.
Atlas, Pearlman, Trop & Borkson, P.A.
200 East Las Olas Boulevard, Suite 1900
Fort Lauderdale, FL 33301
Telephone: (954) 763-1200
Facsimile No. (954) 766-7800
Approximate Date of Proposed Sale to the Public: As soon as practicable after
the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED
TITLE OF EACH MAXIMUM MAXIMUM
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER SECURITY(1) OFFERING PRICE(1) REGISTRATION FEE(1)
- -------------------- -------------- ---------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.001 per share 5,785,000(2) $0.20 $1,157,000 $321.65
-------
Total Registration Fee $321.65
=======
</TABLE>
- --------------------------
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457. Based upon the average of the closing bid and
asked prices for the common stock on August 25, 1999.
(2) This amendment deregisters 200,000 shares previously included in the
initial registration statement. The total registration fee previously
paid was 332.77.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
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Subject to Completion November 16, 1999
PROSPECTUS
PHON-NET.COM, INC.
5,785,000 SHARES OF COMMON STOCK
This prospectus covers the 5,785,000 shares of common stock of
Phon-Net.com, Inc. being offered by certain selling securityholders. We will not
receive any proceeds from the sale of the shares by the selling securityholders.
Our common stock is traded on the OTC Bulletin Board under the trading
symbol "PNET". On November 8, 1999, the closing bid price for our common stock
was $.15.
------------------------------
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE
SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS OF YOUR INVESTMENT. SEE "RISK
FACTORS" BEGINNING ON PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------------
The date of this prospectus is ____________, 1999
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PROSPECTUS SUMMARY
THE COMPANY
Phon-Net.com, Inc. is a Florida corporation that develops and markets
software products primarily to benefit Internet users, persons and businesses
who operate Internet web sites and advertisers on the Internet. Our two current
products incorporate Direct Connect, our patent- pending software that enables
an Internet user whose computer modem and telephone share a single phone line to
establish telephone contact with the web site operator or advertiser without
disconnecting the computer's modem. Following completion of the call, computer
contact with the web site is seamlessly reconnected.
We have recently entered into distribution and license agreements for
the marketing of our products in the United States and Canada. We are in the
process of negotiating license rights for Australia and New Zealand.
For each of the two years ended July 31, 1999 and 1998, we generated
revenues of $23,354 and $134,378, respectively. For each of those years we
incurred losses of $(2,714,276) and $(625,266), respectively.
Our executive offices are located at 750 West Pender Street, Suite 600,
Vancouver, British Columbia V6C 2T7, and our telephone number is (604) 437-3787.
References throughout this prospectus to "we", "us" and "our" are to
Phon-Net.com, Inc. and its subsidiaries.
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Common Stock Offered by
Selling Securityholders........................................ 5,785,000 shares
Common Stock Outstanding:
Prior to the Offering .................................... 36,127,430 shares
After the Offering ...................................... 36,127,430 shares
Common Stock Reserved ........................................ 4,400,000 shares issuable upon exercise
of options that have been granted
OTC Bulletin Board
Trading Symbol for Common Stock........................... PNET
Risk Factors .................................................. The offering involves a high degree of
risk. Carefully consider the information
under "Risk Factors" prior to investing.
</TABLE>
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SELECTED FINANCIAL DATA
The following summary of our financial information has been derived
from our audited financial statements that are included in this prospectus. We
also refer you to "Management's Discussion and Analysis or Plan of Operation"
for a discussion of our financial statements and condition.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
1999 1998
---- ----
<S> <C> <C>
Revenues $23,354 $134,378
Operating Expenses $2,737,630 $759,644
Net (Loss) $(2,741,276) $(625,266)
Net (Loss) Per Share $(0.16) $(0.17)
JULY 31,
--------
1999 1998
---- ----
Working Capital
(Deficit) $(27,441) $(96,511)
Total Assets $1,507,781 $449,064
Current Liabilities $247,893 $206,352
Notes Payable $ -0- $ 35,486
Shareholder's Equity
(Deficit) $1,259,888 $207,226
</TABLE>
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RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS SPECULATIVE IN NATURE
AND INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS, THE FOLLOWING FACTORS SHOULD BE CONSIDERED
CAREFULLY IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE
SECURITIES OFFERED HEREBY.
OUR NET LOSSES MAY CONTINUE
For the fiscal years ended July 31, 1999 and 1998, we experienced net
losses of $(2,741,276) and $(625,266), respectively. Our operating results for
future periods will include significant expenses, including product and service
development expenses, sales and marketing costs, programming and administrative
expenses, and will be subject to numerous uncertainties. As a result, we may
continue to incur losses and we are unable to predict whether we will be
profitable in the future.
WE MAY HAVE DIFFICULTY OBTAINING ADDITIONAL CAPITAL
We have funded our operations to date through the sale of our
securities. However, our operations, particularly product development and
marketing, are capital intensive and our growth will consume a substantial
portion of our available working capital. Therefore, depending upon the timing
and rate at which we are able to generate revenues from operations, we may
require additional capital in order to fund our operations. We don't know
whether additional financing will be available to us on acceptable terms.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT OR IMPOSSIBLE FOR YOU TO
EVALUATE OUR PERFORMANCE AND MAKE PREDICTIONS ABOUT OUR FUTURE
We began marketing our first product during the third quarter of 1999.
Accordingly, we have a limited operating history upon which you can evaluate our
performance. Before investing in our common stock, you should consider the risks
and difficulties we may encounter as an early-stage company in the new and
rapidly evolving e-commerce market. These risks include our ability to:
o implement our business model;
o successfully develop our products;
o attract new customers and maintain customer satisfaction; and
o identify and align with strategic partners whose access to
business databases can enhance our revenues.
If we do not successfully manage these risks, our business will suffer.
We cannot assure you that we will successfully address these risks or that our
business strategy will be successful.
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OUR INABILITY TO MANAGE GROWTH COULD HURT OUR RESULTS OF OPERATIONS
Further expansion of our operations will be required to address
potential growth of our customer base and market opportunities. Expansion will
place a significant strain on our management, operational and financial
resources. Currently, we have only a limited number of employees, to do this and
will need to improve existing and implement new transaction processing,
operational and financial systems, procedures and controls, and to expand, train
and manage our employee base. We also will be required to expand our finance,
administrative and operations staff. Furthermore, we will need to enter into
relationships with various strategic partners, web site owners and operators,
product manufacturers and distributors and other online service providers and
other third parties necessary to develop our business. Our failure to manage
growth effectively could have a damaging effect on our business, results of
operations and financial condition.
WE DEPEND ON CONTINUED GROWTH OF ONLINE PERSON-TO-PERSON INTERNET COMMERCE
The market for the sale of goods over the Internet, particularly
through person-to-person contact, is a new and emerging market. Revenues from
Direct Connect license fees depend upon continued growth of e-commerce by
consumers. We cannot predict whether acceptance and use of the Internet will
continue to develop, or that a sufficiently broad base of consumers will adopt,
and continue to use the Internet as a method of commerce.
OUR LACK OF PRODUCT DIVERSIFICATION COULD HEIGHTEN THE EFFECTS OF ANY SETBACKS
WE SUFFER
Our two products use the same technology. In the event of unforeseen
adverse events in the development, enhancement, marketing or acceptance of our
product, we will be unable to ameliorate its effects by relying upon sales of
other products. While we are developing a limited number of other products, we
do not currently know when they will generate revenues, or whether they can be
successfully marketed.
DIRECT CONNECT IS USED IN EMERGING TECHNOLOGY, THE ACCEPTANCE OF WHICH IS
UNCERTAIN
The Internet-related software industry is an emerging business
characterized by an increasing number of market entrants who have introduced or
are developing an array of new products and services. As is typically the case
in an emerging industry, demand and market acceptance for newly introduced
products and services is uncertain. While we believe that Direct Connect is
unique and provides attractive marketing capability and a viable e-commerce
security alternative, at this time we don't know the ultimate level of demand or
market acceptance for our products and services. Acceptance of Direct Connect
substantially depends upon continued development and acceptance of the Internet,
and we are unable to predict whether the present trends in growth of Internet
use and users will continue or whether the capacity of the Internet in general
will be sufficient to meet anticipated demands.
5
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WE EXPECT TO EXPERIENCE VOLATILITY IN OUR STOCK PRICE
The market for securities of Internet-related technology companies and
companies that participate in emerging markets historically has been more
volatile than the market for stocks in general. The price of our common stock
may be subject to wide fluctuations in response to the following:
o quarter-to-quarter variations in our operating results;
o our announcement of material events that affect our business;
o price fluctuations in sympathy to others engaged in our industry;
o creation or elimination of banking or other funding opportunities;
o the effects of coverage of our business or our management by the
press; and
o our introduction of new products, technology, or services.
IF WE DO NOT KEEP UP WITH RAPID TECHNOLOGICAL ADVANCES AND EVOLVING INDUSTRY
STANDARDS OUR SUCCESS WILL BE LIMITED
Compatibility with industry standards in areas such as operating
systems and communications protocols is material to our marketing strategy and
product development efforts. In order to remain competitive, we must respond
effectively to technological changes by continuing to enhance and improve Direct
Connect to incorporate emerging or evolving standards, and by successfully
developing and introducing new products that allow us to remain competitive. If
we fail to successfully develop, market, or support such products or respond
effectively to technological changes or new product announcements or
introductions by others, our sales and financial results will be materially and
adversely affected.
ONLINE COMMERCE SECURITY RISKS COULD PROVE A BURDEN TO US
Secure transmission of confidential information over public networks is
a significant obstacle to the development of online commerce and communications.
Technology developments could compromise or breach the technology the industry
currently uses to protect customer transaction data. If concerns over the
security of transactions on the Internet and online services, and the privacy of
users, limit the growth of the Internet and online services, the market for our
products will be reduced.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD AFFECT OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
We are subject, both directly and indirectly, to various laws and
governmental regulations relating to our business. We believe we are currently
in compliance with such laws and that they will not have a material impact on
our operations. Moreover, there are currently few laws or regulations directly
applicable to access to or commerce on the Internet. However, due to the
increasing popularity and use of the Internet, we expect that laws and
regulations will be
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adopted. The enactment of any such laws or regulations in the future may slow
the growth of the Internet, which could in turn decrease the demand for our
services and increase our cost of doing business or otherwise have an adverse
effect on our business, results of operations and financial condition.
THE LOSS OF SERVICES OF OUR KEY EXECUTIVE OFFICER WILL HURT OUR CHANCES TO
SUCCEED
Our success depends greatly on Brian Collins, our key executive. While
we have entered into a contractual agreement with him, the loss of his services
would be highly damaging to us. We currently have $100,000 in key-man insurance
on Mr. Collins' life.
SHARES OFFERED BY THIS PROSPECTUS AND OTHERS AVAILABLE FOR SALE COULD HURT THE
MARKET PRICE FOR OUR SHARES
Prior to this offering, approximately 7,500,000 shares of our common
stock were freely tradeable in the public market. The addition to the public
market of the 5,785,000 shares covered by this prospectus could cause the market
price of our shares to fall or remain at lower levels.
The sale, or availability for sale, of a substantial number of shares
of common stock in the public market subsequent to the offering under Rule 144
under the Securities Act or this prospectus or otherwise, could have a major
negative effect on the market price of our common stock. It could also limit our
ability to raise additional capital from the sale of our equity securities or
debt financing.
SECURITIES AND EXCHANGE COMMISSION RULES ON "PENNY STOCKS" COULD GREATLY AFFECT
THE MARKET FOR OUR STOCK
The Securities and Exchange Commission has adopted regulations which
generally define a "penny stock" to be any equity security that has a market
price of less than $5.00 per share, subject to certain exceptions. Depending on
market fluctuations, our common stock would be considered a "penny stock". As a
result, it may be subject to rules that impose additional sales practice
requirements on broker/dealers who sell these securities to persons other than
established customers and accredited investors. For transactions covered by
these rules, the broker-dealer must make a special suitability determination for
the purchase of our securities. In addition he must receive the purchaser's
written consent to the transaction prior to the purchase. He must also provide
certain written disclosures to the purchaser. Consequently, the "penny stock"
rules may restrict the ability of broker/dealers to sell our securities, and may
negatively affect the ability of holders of our shares to resell them.
7
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CAPITALIZATION
The following table sets forth our capitalization as of July 31, 1999.
The table does not reflect the exercise of any options. The table should be read
in conjunction with our consolidated financial statements and related notes
included elsewhere in this prospectus.
JULY 31, 1999
-------------
Shareholder's equity (deficit):
Common Stock, $.001 par value,
80,000,000 shares authorized,
36,027,430 shares issued and
outstanding $4,803,245
Preferred Stock, $.01 par value,
10,000,000 shares authorized,
no shares issued or outstanding - 0 -
Accumulated deficit (3,544,370)
Translation Adjustment 1,013
Total shareholder's equity $1,259,888
----------
Total capitalization $1,507,781
==========
USE OF PROCEEDS
We will not receive any proceeds upon the sale of shares by the selling
securityholders.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our shares of common stock are traded over-the-counter and quoted on
the OTC Electronic Bulletin Board under the symbol "PNET". The reported high and
low bid prices for the common stock are shown below for the period from
inception of trading in April 1998 through September 30, 1999. The closing bid
price on November 8, 1999 is also shown. Until January 1998, the symbol for our
common stock was "XGAG". The prices do not always represent actual transactions.
8
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<TABLE>
<CAPTION>
PERIOD HIGH LOW
- ------ ---- ---
<S> <C> <C>
April 1, 1998 - June 30, 1998 $3.25 $.75
July 1, 1998 - September 30, 1998 $2.375 $.0625
October 1, 1998 - December 31, 1998 $.37375 $.0625
January 1, 1999 - March 31, 1999 $1.50 $.12
April 1, 1999 - June 30, 1999 $.69 $.19
July 1, 1999 - September 30, 1999 $.41 $.19
November 8, 1999 $.15
</TABLE>
We have never paid cash dividends on our common stock. We intend to
keep future earnings, if any, to finance the expansion of our business, and we
do not anticipate that any cash dividends will be paid for the foreseeable
future. The future dividend policy will depend on our earnings, capital
requirements, expansion plans, financial condition and other relevant factors.
FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus discuss further expectations
or state other forward-looking information. Those statements are subject to
known and unknown risks, uncertainties and other factors that could cause our
actual results to differ materially from those contemplated by the statements.
Factors that might cause a difference include, but are not limited to, those
discussed in "Risk Factors" and elsewhere in this prospectus.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
RESULTS OF OPERATIONS
Fiscal Year Ended July 31, 1999 Compared to Fiscal Year Ended July 31, 1998
For the fiscal year ended July 31, 1999, we generated revenues of
$23,354, a 83% decrease from revenues of $134,378 for the fiscal year ended July
31, 1998. This decrease was primarily caused by a shift in our focus to
development and beta testing of our Direct Connect software.
For the 1999 fiscal year, we incurred a net loss of $(2,714,276) or
approximately $(.16) per share, compared to a net loss of $(625,266) or
approximately $(.17) per share for the 1998 fiscal year. The 334% increase in
our net loss was primarily attributable to reduced revenues and
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expenses we incurred in developing, testing and preliminary marketing and
promotion activities relating to Direct Connect.
Expenses of $2,737,276 for the year ended July 31, 1999 reflect an
increase of 260% over expenses of $759,644 incurred during the fiscal year ended
July 31, 1998. This increase in expenses results mainly from increased
advertising and promotion costs and management salaries and professional fees,
as well as travel expenses related to sales and marketing efforts, for the most
recent fiscal year.
Fiscal Year Ended July 31, 1998 Compared to Fiscal Year Ended July 31, 1997
For the fiscal year ended July 31, 1998, we generated revenues of
$134,378, a 48% decrease from revenues of $259,742 for the fiscal year ended
July 31, 1997. This decrease was primarily caused by our focus on development of
our Search Engine product and market testing.
For the 1998 fiscal year, we incurred a net loss of $(625,266) or
approximately $(.17) per share, compared to a net loss of $(95,741) or
approximately $(.03) per share for the 1997 fiscal year. The 553% increase in
our net loss was due to expenses we incurred in developing, testing and
preliminary marketing activities relating to our Search Engine product.
Expenses of $759,644 for the year ended July 31, 1998 reflect an
increase of 56% over expenses of $487,416 incurred during the fiscal year ended
July 31, 1997. This increase in expenses results mainly from increased
advertising and promotion costs and management and professional fees, as well as
travel expenses related to sales and marketing efforts, for the most recent
fiscal year.
LIQUIDITY, CAPITAL RESOURCES AND PLAN OF OPERATIONS
As of July 31, 1998, our auditors indicated in their audit report that
our net loss and working capital deficit raised substantial doubt that we would
be able to continue as a going concern. In light of our lack of meaningful
revenues, the auditor's report covering our current fiscal year contains a going
concern qualification similar to the one included with last year's report.
To date, we have funded our cash requirements from limited revenues
from operations and from the sale of shares of our common stock. As of July 31,
1999, we had cash reserves of approximately $200,000, and a working capital
deficit of $27,441. We anticipate that revenues from Direct Connect license fees
will commence in early 2000 and become significant by the third quarter of 2000.
Our business model includes our establishing marketing agreements and
strategic alliances with companies who have access to large databases of
business directories. We believe that this strategy will enable us to reach our
target customer-web site operators and advertisers.
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In so doing, we will use the database resources of a third party, without the
time and expense of developing and maintaining that resource. In furtherance of
implementing our business model, we have entered into a distribution agreement
with Wazzu Corporation and a license agreement with G.T.C. Transcontinental
Group Ltd. These agreements are designed to generate revenues through
third-party marketing of our products. We have also commenced discussions with
other entities which we anticipate will result in similar agreements in the near
future. We will continue to seek out strategic partners whose access to our
target customer base can increase our sales and profitability.
It is also possible that our proprietary Direct Connect software will
be of sufficient value to a third party to warrant an offer to acquire it. We
will consider all proposals designed to enhance shareholder values. Until such
time as we generate meaningful revenues, we will require additional funds in
order to fund our operations, including our payment of rent at our Vancouver
offices, the salaries of our executive officers and stock appreciation to the
extent required to be paid to Mr. Collins. If we are unable to generate
sufficient revenues and proceeds from the sale of our securities, we may be
required to borrow funds to sustain our operations. We are engaged in active
discussions with several lenders to secure interim funding. None of these
discussions has yet resulted in our receipt of financing. We may not be able to
secure financing on acceptable terms.
YEAR 2000 ISSUE
The year 2000 issue relates to whether computer systems will properly
recognize and process information relating to dates in and after the year 2000.
These systems could fail or produce erroneous results if they cannot process
dates beyond the year 1999 and are not corrected. Significant uncertainty exists
in the software industry concerning the potential consequences that may result
from the failure of software to adequately address the year 2000 issue.
We have reviewed all software and hardware used internally by us in
order to determine whether they are year 2000 compliant. Our review indicates
that our internal operations will not be materially impacted by the year 2000
issue, nor will we be required to expend material sums in order to modify our
systems so that they are year 2000 compliant. We have also confirmed that the
computer systems of third parties with whom we have material relationships are
year 2000 compliant and our relationships with them will not be materially
impacted by the year 2000 issue.
Our success is dependent upon continued use of computers and the
Internet by the general public, and particularly by businesses who own and
operate web sites. Any widespread failure of computer systems used by our target
market as a result of the year 2000 issue could have a material adverse effect
on our current and future business, financial condition and results of
operations. Each web site operator and advertiser whose Internet business is
disrupted by the year 2000 issue represents the possible loss of a customer to
us. We have not established a
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contingency plan in the event the year 2000 issue adversely affects us, and we
currently have no plans to do so.
BUSINESS
We are a Florida corporation that develops and markets software
products that primarily benefit Internet users, persons and businesses who
operate Internet web sites and advertisers on the Internet. We currently have
two products. One is our "Phon-Net Direct Connect" software.
The other is our "Phon-Net Search Engine".
PHON-NET DIRECT CONNECT
Direct Connect provides increased capability to the Internet user whose
computer and telephone share the same phone line. A visitor to an Internet web
site can establish telephone contact with the web site operator or web site
advertiser, while continuing to view the web site.
Among the features of Direct Connect are that:
o the computer's modem connection is not disconnected during a
Direct Connect telephone call;
o web site operators and advertisers can increase e-commerce
revenues by additional sales assisted by telephone
communication between the Internet consumer and the web site
retailer;
o security risks are reduced by providing personal and credit
card data by telephone, rather than transmitting it over the
Internet;
o following termination of a Direct Connect telephone call,
computer contact with the web site is seamlessly
reestablished; and
o the software is licensed by us to the web site operator or
advertiser - we retain all ownership rights - and it is free
to the consumer.
Our experience leads us to believe that security concerns, primarily
the transmission of personal and credit card information over the Internet, have
prevented Internet commerce from achieving widespread acceptance as a method of
commerce. A significant advantage that Direct Connect provides for Internet
commerce is that credit card payment may be made during the telephone portion of
the transaction, rather than transmitting personal and credit card information
over the Internet.
Direct Connect is currently available directly from us at our web site,
as well as through distributors who market Direct Connect along with their own
Internet related products and services. We license our Direct Connect software
to businesses. At the time of purchase, the customer is provided with a password
that allows the customer to download the information directly to its web site.
Our customers license Direct Connect for an initial one year license fee of $99.
After the expiration of one year, Direct Connect has a mechanism that makes it
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inoperable unless the customer renews the license. Prior to the end of the year,
an E-Mail is sent to the customer advising that the license will terminate and
that the customer can then renew the license on a year to year basis.
A Direct Connect software function routes all telephone calls using
Direct Connect through a central computer server. This enables us to:
o activate a customer's initial use of Direct Connect;
o monitor usage to ensure that only licensed customers are
using Direct Connect;
o monitor the termination dates of customers' licenses so they
may be notified that it is time to renew; and
o gather data concerning usage of direct connect.
We currently use the services of Netcom Canada Inc. of Toronto, Canada,
to host our central server. We pay Netcom a fee for its services on an invoice
basis, however, there are numerous companies that provide server host services
and we are not dependent upon Netcom for this purpose.
PHON-NET SEARCH ENGINE
Our other product is the Phon-Net Search Engine. The Search Engine
incorporates Direct Connect and functions as a yellow pages. This product
enables the user to search the world wide web and a local interactive telephone
database for a desired business listing. Once the business is identified and its
telephone number is found, the user can command Direct Connect to contact the
party by telephone.
Our Search Engine provides a service to consumers seeking to locate a
business. It is also designed to enable businesses to expand their presence in
the marketplace and to enable them to provide desired information to consumers
seeking their services. We intend to market the Search Engine to businesses for
an annual fee, including a license fee for Direct Connect.
We have beta-tested our Search Engine in Vancouver for over twelve
months. In November 1999, we delivered a customized Search Engine to Wazzu
Corporation under our agreement with them, for marketing to their customer base.
A description of our agreement with Wazzu is contained in the following section.
PRODUCT DEVELOPMENT AND PRODUCTION
We have an agreement with Quad-Linq Software, Inc., of British
Columbia, Canada, to develop, maintain, support, upgrade and enhance our Direct
Connect software. We retain exclusive ownership of the software, and Quad-Linq
agrees not to develop similar software for others. As payment to Quad-Linq, we
issued 3,000,000 shares of our stock, and options to
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<PAGE>
purchase an additional 2,000,000 shares, to Quad-Linq and its principals. The
options are exercisable at $.40 per share, until June 30, 2001.
SALES AND MARKETING
We are actively marketing Direct Connect using several strategies to
reach Internet web site operators. The target market for Direct Connect
includes:
o web site operators;
o businesses that advertise on web sites;
o businesses that create and/or host web sites for others;
o distributors and resellers who "bundle" our software with
other Internet-related software products;
o developers of Internet-related software products, for
incorporation into their products; and
o resellers who believe that Direct Connect offers a viable
alternative to e- commerce security concerns.
We market Direct Connect through third parties with whom we have
contracted.
In September 1999, we entered into an agreement with Wazzu Corporation
to serve as a non-exclusive distributor of our Direct Connect software
throughout the United States. Wazzu is a California-based web page designer and
host and distributor of e-commerce solutions. We agree to assist Wazzu in
promoting our Direct Connect software to its customer database, by offering an
initial six months' use of Direct Connect without charge. Wazzu will pay us a
$99 annual license fee, for each customer who agrees to license Direct Connect
on an annual basis following the initial six month period. Wazzu is permitted to
provide additional services to its customers in conjunction with sales of Direct
Connect licenses and to charge its customers directly for those added services.
We expect that this marketing promotion will expose Direct Connect to over
18,000 business web pages owners and operators. The agreement with Wazzu cannot
be canceled prior to September 8, 2000 without the mutual consent of the
parties, except in the event of uncured material breaches or a party's
bankruptcy.
In September 1999, we also entered into a license agreement with G.T.C.
Transcontinental Group Ltd., a Canadian corporation, and licensed our Direct
Connect software to Transcontinental. Transcontinental, which is based in
Montreal, publishes and markets interactive Internet and print media business
directories, newspapers and flyers, in strategic partnership with companies
including Bell Actimedia. The agreement grants Transcontinental the exclusive
right to use, market and sublicense Direct Connect in Canada, throughout the two
year initial, and one year renewal term of the agreement. We will receive CAN$80
for each Direct Connect we activate as a result of a product sale by
Transcontinental.
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<PAGE>
We have granted Transcontinental a right of first refusal for exclusive
distribution rights to Direct Connect in countries other than Canada, the United
States, Japan, Korea, Australia and New Zealand. We have agreed to deposit the
source code for Direct Connect with a trust company, and to grant
Transcontinental access to the source code in the event of our bankruptcy,
insolvency or breach of the agreement. The agreement may be terminated by either
party in the event of an uncured breach, after notice, by the other party. The
agreement will terminate without notice in the event of the dissolution or
bankruptcy of a party.
On November 5, 1999, we entered into a letter of intent with Volt
Information Sciences, Inc. to establish a joint venture or other contractual
relationship between us. Volt, with executive offices located in New York City,
is a leading national provider of staffing services, telecommunications and
information solutions and electronic publication, including telephone
directories. The relationship will exploit the synergies between our Phon-Net
Search Engine with Direct Connect and Volt's directory of United States business
listings and other business database directories. This arrangement will provide
Volt, or the joint venture to be established, with exclusive rights to our
Search Engine with Direct Connect for use in connection with United States
business database directories. The agreement with Volt will permit us to
continue our current agreement with Wazzu. The letter of intent contemplates a
formal agreement between the parties prior to January 5, 2000, and if such
agreement is not executed prior to February 5, 2000, that the letter of intent
will become null and void.
On November 5, 1999, we received written confirmation that Brocker
Technology Group, a publicly held New Zealand corporation, desires to acquire
Direct Connect licenses for New Zealand and Australia. We understand that
Brocker has established relationships with Telecom New Zealand and Telstra in
Australia, that will enable it to reach a large segment of the New Zealand and
Australian market for Direct Connect.
Proposed business transactions with Volt Information Sciences, Inc. and
Brocker Technology Group are in their formative stages and no binding agreements
have yet been executed. We may not reach formal agreement with either or both of
these parties.
COMPETITION
The market for online commerce over the Internet is new, rapidly
evolving and intensely competitive. Competition will likely increase in the
future. Barriers to entry are relatively low, and current and new competitors
can launch new sites at a relatively low cost using commercially available
software.
We do not believe there is any software product currently available or
under development that performs the functions of our Direct Connect software. To
the extent that Direct Connect receives patent protection, it is our
understanding that substantially new technology must be developed in order for a
third party to market software that performs the primary functions of Direct
Connect.
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<PAGE>
Our Phon-Net Search Engine will compete with a wide range of
interactive and printed business directories, including those published and/or
marketed by large regional telephone companies such as the Baby Bells and their
affiliates. Interactive search engine directories have become increasingly
popular, and we anticipate that continued competition for our Search Engine will
come from Internet-related and technology companies. These companies are
substantially larger and have greater financial and other resources that we
have. We believe that we can compete successfully with other search engine
directories because the Phon-Net Search Engine incorporates our proprietary
Direct Connect software.
PATENT APPLICATION
On October 27, 1999, we filed a patent application for our Direct
Connect software with the United States Patent and Trademark Office. The
application is entitled "Communications Method Allowing for Alternating Voice
and Data Connections Over a Single Line". In the event our application results
in a patent being issued, the ability of others to develop technology that
performs substantially similar functions will be limited. However, the
application and review process can take considerable time and we are unable to
predict whether a patent for Direct Connect will issue.
CORPORATE HISTORY
Phon-Net.com, Inc. is a corporation organized under the laws of the
State of Florida on January 16, 1997, under the name XGA Golf International,
Inc. From its inception until May 1998, XGA Golf sought to engage, through
proposed business combinations and/or asset acquisitions with third parties, in
various aspects of the golf and golf-travel industries. While various third
parties were identified and negotiations undertaken, no business combinations or
acquisitions were consummated. In June 1998, XGA Golf changed its name to
Agrosol, Inc.
Phon-Net Corp. was organized under the laws of the State of Nevada on
August 28, 1998. Effective September 25, 1999, Phon-Net Corp. acquired all of
the outstanding shares of Piedmont Technologies, Inc. and its subsidiaries, The
National-For-Sale Phone Company and VNETT Enterprises Inc. Contemporaneous with
this transaction, Brian Collins, an officer, director and principal shareholder
of Piedmont, transferred all of his rights as inventor of the technologies used
in Phon-Net Direct Connect and Phon-Net Search Engine to Phon-Net Corp.
Following this transaction, Piedmont became a wholly-owned subsidiary of
Phon-Net Corp. and National and VNETT remain wholly-owned subsidiaries of
Piedmont.
On October 5, 1998, Agrosol, Inc. exchanged 11,410,000 shares of its
common stock for all of the outstanding shares of Phon-Net Corp., and changed
its name to Phon-Net Corporation. At the time of the share exchange, the sole
officer and director of Agrosol, Inc. was Lana Bea Turner. The assets we
acquired from Phon-Net Corp. at the time of the share exchange consisted of
ownership of the rights to our Phon-Net Direct Connect and Phon-Net Search
Engine, as well as the operations of National.
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<PAGE>
In January 1999, we changed our name to Phon-Net.com, Inc. On April 15,
1999, we increased the number of shares of common stock we are authorized to
issue to 80,000,000.
All ownership rights to our Direct Connect and Search Engine products
are owned by Phon-Net.com, Inc. Piedmont's operations are limited to performing
beta-testing of our products. National operates an interactive real estate and
professional listing service which, through an "800" telephone number, allows
users to access real estate listings, as well as providers of related services
such as real estate attorneys, surveyors and title companies. National's
operations are not currently material to our business or financial condition.
VNETT owns the rights to a search engine concept that enables users to locate
and reserve video tapes from retail video rental locations. VNETT is not
currently engaged in active operations.
EMPLOYEES
We currently employ seven people, six of whom are full-time employees,
in the following capacities: two executive officers, one administrative
employee, one sales and marketing person and two programmers. Our employees are
not represented by a collective bargaining unit. We believe relations with our
employees are good.
LEGAL PROCEEDINGS
We are not a party to any material legal proceeding, nor are any of our
officers, directors or affiliates a party adverse to us in any legal proceeding.
DESCRIPTION OF PROPERTY
On July 9, 1999, we entered into a three year lease for approximately
1,300 square feet of office space in Vancouver, British Columbia. We use this
space for our executive headquarters. The lease is for a term of three years
ending July 31, 2002, and we will pay the landlord monthly base rent of
approximately $889 (or $10,668 per year). We are also obligated to pay all
utility charges for our use of the space, as well as our proportionate share of
all operating expenses in the building. We are not permitted to assign or sublet
our lease without the landlord's prior written consent.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table includes the names, positions held and ages of our
executive officers and directors. All directors serve for one year and until
their successors are elected and qualify. Directors do not presently receive
compensation for their services as directors. Officers are
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<PAGE>
elected by the Board and their terms of office are, except as otherwise stated
in employment contracts, at the discretion of the Board.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Brian Collins 44 Chairman of the Board of Directors,
Chief Executive Officer, President,
Chief Operating Officer, Secretary,
Treasurer and Director
Sloan Young 30 Vice President of Technology and
Operations
</TABLE>
Brian Collins has served as our Chief Executive Officer, President and
a Director since our acquisition of Phon-Net Corp., a Nevada corporation, in
October 1998. In 1998, Mr. Collins founded Phon-Net Corp., which owns the
intellectual property of its wholly-owned subsidiaries, Piedmont Technology,
Inc., a British Columbia corporation and National For Sale Phone, Inc., a
British Columbia corporation. Mr. Collins continues to serve as the President,
Chief Executive Officer and Chairman of Phon-Net Corp., Piedmont and National
For Sale Phone. In 1995, he founded Piedmont, which developed early versions of
our search engine product. In May 1993, Mr. Collins founded National, which
operates an interactive "1-800" real estate telephone channel coast-to-coast in
Canada.
Sloan Young has served as our Vice President of Technology and
Operations since October 1998. From 1993 until he joined us, Mr. Young was
employed as a restaurant manager for Cactus Club Cafe from November 1996 to June
1997, and Zachary's Restaurant from June 1995 to September 1996. He attended CDI
College of Business and Technology from September 1997 to November 1998 and
received a Programmer Analyst Diploma in 1998.
BOARD COMMITTEES: We do not as yet have an audit committee or a
compensation committee. We may organize these committees in the future.
EMPLOYMENT AGREEMENTS. Effective July 1, 1999, we entered into an
employment agreement with Brian Collins to serve as our President and Chief
Executive Officer for an initial three year term, with two renewal terms, each
for two years. If we decide not to renew, and we do not have cause for our
decision, we must pay Mr. Collins the equivalent of one year's compensation. For
his services, we pay Mr. Collins a salary of $150,000 each year and provide a
monthly automobile allowance of $700.
We have also granted annual stock appreciation rights to Mr. Collins,
which provide for our payment of amounts to Mr. Collins based upon appreciation
in the market price of our stock. Mr. Collins is entitled to 400,000 SARs during
the first year, and 600,000 SARs for each of the second and third years, of the
term of the employment term. Each year we have agreed to pay
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<PAGE>
Mr. Collins an amount equal to the (a) difference between the market price of
our shares at the beginning and end of each year, multiplied by (b) the number
of SARs granted for the corresponding year. Volatility or other increases in our
stock price could require us to pay Mr. Collins substantial amounts attributable
to his stock appreciation rights at a time when our stock price may not be an
accurate reflection of our financial condition or results of operations, and
when such payment could have a material adverse effect on our financial
condition. We have agreed with Mr. Collins that not more than 50% of our net
income in excess of $50,000 in any fiscal year may be paid to Mr. Collins under
the SARs. Amounts not paid will be accrued and paid in subsequent years, to the
extent of 50% of annual net income in excess of $50,000.
Mr. Collins is our founder, and our future success depends upon his
services. In order to induce him to serve as our President and enter into the
employment agreement, we issued him 5,000,000 shares of our stock and granted
him options to purchase 2,000,000 additional shares.
The options are exercisable at $.40 each, until May 26, 2009.
Effective November 1, 1999, we entered into a three year employment
agreement with Sloan Young, our Vice President of Technology and Operations. Mr.
Young's salary is CAN$80,000 for the first year, CAN$90,000 for the second year
and CAN$100,000 for the last year of the term. We granted Mr. Young options to
purchase 200,000 shares of our stock, exercisable at $.36 per share, which vest
one-third each year of the agreement, and expire on December 31, 2004. We also
agreed to issue Mr. Young 100,000 shares of our stock on each of November 1,
1999, 2000 and 2001. In addition, we have agreed to pay Mr. Young $1.00 for each
Direct Connect license sold, with such payment being made in the local currency
of sale. We may discontinue the payment of the $1.00 per license at any time, in
our discretion.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information relating to the compensation
we paid during the past three fiscal years to: (a) our President and Chief
Executive Officer; and (b) each of our executive officers who earned more than
$100,000 during the fiscal year ended July 31, 1999:
<TABLE>
<CAPTION>
FISCAL OTHER ANNUAL LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/ (#) PAYOUTS COMPENSATION
- --------------------------- ---- ------- ----- ------------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Brian Collins, CEO 1999 $178,716 - - - - $1,250,000
1998 $52,926 - - - - -
1997 $21,899 - - - - -
</TABLE>
19
<PAGE>
Other compensation for the 1999 fiscal year consists of 5,000,000
shares of our common stock, valued at $.25 per share, issued to Mr. Collins as
an inducement for him to enter into his employment agreement.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning our grant of
options to purchase shares of our common stock during the fiscal year ended July
31, 1999 to (a) our President and Chief Executive Officer; and (b) each of our
executive officers who earned more than $100,000 during the fiscal year ended
July 31, 1999.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL OPTIONS/
SECURITIES SARS GRANTED
UNDERLYING TO EMPLOYEES EXERCISE OR
OPTIONS/SARS IN FISCAL BASE PRICE
NAME GRANTED (#) YEAR ($/SH) EXPIRATION DATE
---- ----------- ---- ------ ---------------
<S> <C> <C> <C> <C> <C>
Brian Collins, CEO 2,000,000 83% $.40 5/26/2009
</TABLE>
INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
On May 27, 1999, the board of directors and shareholders adopted our
1999 stock option plan. We have reserved 3,000,000 shares of common stock for
issuance upon exercise of options granted from time to time under the 1999 stock
option plan. The 1999 stock option plan is intended to assist us in securing and
retaining key employees, directors and consultants by allowing them to
participate in our ownership and growth through the grant of incentive and
non-qualified options.
Under the stock option plan we may grant incentive stock options only
to key employees and employee directors, or we may grant non-qualified options
to our employees, officers, directors and consultants. The 1999 stock option
plan is currently run by our board of directors.
Subject to the provisions of each of the stock option plans, the board
will determine who shall receive options, the number of shares of common stock
that may be purchased under the options, the time and manner of exercise of
options and exercise prices. The term of options granted under the stock option
plan may not exceed ten years or five years for an inventive stock option
granted to an optionee owning more than 10% of our voting stock. The exercise
price for incentive stock options will be equal to or greater than 100% of the
fair market value of the shares of the common stock at the time granted.
However, the incentive stock options granted to a 10% holder of our voting stock
are exercisable at a price equal to or greater than 110% of the fair market
value of the common stock on the date of the grant. The exercise price for
non-qualified options will be set by the board, in its discretion, but in no
event shall the exercise price be less than 75% of the fair market value of the
shares of common stock on the date of grant. The exercise price may be payable
in cash or, with the approval of the board, by delivery of
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<PAGE>
shares or by a combination of cash and shares. Shares of common stock received
upon exercise of options will be subject to restrictions on sale or transfer. As
of the date of this prospectus, we have granted options to purchase 2,400,000
shares under the stock option plan.
OPTION EXERCISES AND HOLDINGS
The following table sets contains information with respect to the
exercise of options to purchase shares of common stock during the fiscal year
ended July 31, 1999 to (a) our President and Chief Executive Officer; and (b)
each of our executive officers who earned more than $100,000 during the fiscal
year ended July 31, 1999.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS/SARS OPTIONS/SARS
ON VALUE AT FY-END (#) AT FY-END ($)
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Brian Collins, CEO - - - -
</TABLE>
LONG-TERM INCENTIVE PLANS AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER PERFORMANCE
OF SHARES OR OTHER ESTIMATED FUTURE PAYOUTS UNDER
UNITS OR PERIOD UNTIL NON-STOCK PRICE-BASED PLANS
OTHER RIGHTS MATURATION THRESHOLD TARGET MAXIMUM
NAME (#) OR PAYOUT ($OR #) ($OR #) ($ OR #)
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Brian Collins, CEO - - - - --
</TABLE>
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
As authorized by the Florida Business Corporation Law, our articles of
incorporation provides that none of our directors shall be personally liable to
us or our shareholders for monetary damages for breach of fiduciary duty as a
director, except for liability for:
o any breach of the director's duty of loyalty to our
company or its shareholders;
o acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law
o unlawful payments of dividends or unlawful stock redemptions
or repurchases;
o any transaction from which the director derived an improper
personal benefit
This provision limits our rights and the rights of our shareholders to
recover monetary damages against a director for breach of the fiduciary duty of
care except in the situations
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<PAGE>
described above. This provision does not limit our rights or the rights of any
shareholder to seek injunctive relief or rescission if a director breaches his
duty of care. These provisions will not alter the liability of directors under
federal securities laws.
Our articles of incorporation further provides for the indemnification
of any and all persons who serve as our director, officer, employee or agent to
the fullest extent permitted under Florida law.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the SEC, this indemnification is against public policy as expressed
in the securities laws, and is, therefore unenforceable.
CERTAIN TRANSACTIONS
In May 1999, in connection with our acquisition of the outstanding
shares of Phon-Net Corp. and as consideration for the satisfaction of certain
product development goals provided for as part of our share exchange with
Phon-Net Corp., we issued 8,085,000 additional shares to Brian Collins, our
President and CEO.
We have not entered into any other material transactions with our
officers, directors or affiliates except for employment arrangements which are
described elsewhere in this prospectus. While we have not adopted any corporate
policies for entering into transactions with affiliated parties,
o we are subject to Section 617.0832 of the Florida Business
Corporation Law which requires that transactions between
Phon-Net and one or more of its directors be approved by
disinterested directors, be approved by Phon-Net's
shareholders or be fair to Phon-Net; however,
o we are not subject to Section 617.0901 of the Florida Business
Corporation Law which places additional limitations and
restrictions on certain business transactions with affiliated
parties.
PRINCIPAL SHAREHOLDERS
The following table sets forth information known to us, as of November
8, 1999, relating to the beneficial ownership of shares of common stock by: each
person who is known by us to be the beneficial owner of more than five percent
of the outstanding shares of common stock; each director; each executive
officer; and all executive officers and directors as a group.
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<PAGE>
Unless otherwise indicated, the address of each beneficial owner in the
table set forth below is care of Phon-Net.com, Inc., 750 West Pender Street,
Suite 600, Vancouver, British Columbia V6C 2T7.
We believe that all persons named in the table have sole voting and
investment power with respect to all shares of common stock shown as being owned
by them. However, of the 5,000,000 shares and options issued to Quad-Linq, whose
address is 401-889 West Pender Street, Vancouver, British Columbia V6C 3B2,
1,733,333 are owned by Roger Betterton, 800,000 by Christopher E. Georgelin and
800,000 by Seidmehdi Seidbagherzadeh, each of whom is an affiliate of Quad-Linq.
Under securities laws, a person is considered to be the beneficial
owner of securities owned by him and that can be acquired by him within 60 days
from the date of this prospectus, including upon the exercise of options,
warrants or convertible securities. We determine a beneficial owner's percentage
ownership by assuming that options, warrants or convertible securities that are
held by him, but not those held by any other person, and which are exercisable
within 60 days of the date of this prospectus, have been exercised or converted.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENTAGE
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
---------------- -------------------- --------
<S> <C> <C>
Brian Collins 21,286,287 55.8%
Sloan Young 194,667 1.0%
Quad-Linq Software, Inc. 5,000,000 13.1%
Executive Officers and
Directors (as a group of 2) 21,480,954 56.2%
</TABLE>
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 80,000,000 shares of common
stock, $.001 par value per share and 10,000,000 shares of preferred stock, $.01
par value per share. As of the date of this prospectus, there are 36,127,430
shares of common stock issued and outstanding, which are held of record by
approximately 120 holders. As of the date of this prospectus, there are no
shares of preferred stock outstanding.
COMMON STOCK
Holders of our common stock are entitled to one vote for each share on
all matters submitted to a shareholder vote. Holders of common stock do not have
cumulative voting rights.
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<PAGE>
Therefore, holders of a majority of the shares of common stock voting for the
election of directors can elect all of the directors. Holders of common stock
are entitled to share in all dividends that the board of directors, in its
discretion, declares from legally available funds. In the event of our
liquidation, dissolution or winding up, each outstanding share entitles its
holder to participate in all assets that remain after payment of liabilities and
after providing for each class of stock, if any, having preference over the
common stock.
Holders of our common stock have no conversion, preemptive or other
subscription rights, and there are no redemption provisions for the common
stock. The rights of the holders of common stock are subject to any rights that
may be fixed for holders of preferred stock, when and if any preferred stock is
authorized and issued. All outstanding shares of common stock are, and the
shares underlying all option and warrants will be, duly authorized, validly
issued, fully paid an non-assessable upon our issuance of these shares.
PREFERRED STOCK
We may issue preferred stock from time to time, with such designations,
preferences, conversion rights, cumulative, relative, participating, optional or
other rights, including voting rights, qualifications, limitations or
restrictions as are determined by our Board of Directors. We have no present
intention of issuing shares of preferred stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent for our common stock is Florida Atlantic Stock
Transfer, Inc. Its address is 7130 Nob Hill Road, Tamarac, Florida 33321, and
its telephone number is (954) 726- 4954.
REPORTS TO SECURITYHOLDERS
We intend to furnish our stockholders with annual reports containing
audited financial statements. We may disseminate such other unaudited interim
reports to securityholders as we deem appropriate.
SELLING SECURITYHOLDERS
The following table sets forth (a) the name of each selling
securityholder, (b) the number or shares of common stock beneficially owned by
each selling securityholder as of the date of this prospectus, giving effect to
the exercise of the selling securityholders' warrants into shares of common
stock, and (c) the number of shares being offered by each selling
securityholder. The shares of common stock being offered are being registered to
permit public sales and the selling securityholders may offer all or part of the
shares for resale from time to time. All expenses of
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<PAGE>
the registration of the common stock on behalf of the selling securityholder are
being borne by us. We will receive none of the proceeds of this offering.
The following table is derived from our books and records, as well as
from those of our transfer agent. No selling securityholder is affiliated with
us except Brian Collins, our President and CEO, and Sloan Young, our Vice
President. Jerry Collins, Matthew Collins, Phyllis Collins and Susan Collins are
family members of Brian Collins. Jan Douglas Atlas, Roxanne K. Beilly, Robin C.
Campbell, Joel D. Mayersohn, Charles B. Pearlman and the spouse of Susan
Schneider are members of Atlas, Pearlman, Trop & Borkson, P.A., our counsel.
Quad-Linq Software, Inc. is the developer of our Direct Connect software and
Roger Betterton, Christopher Georgelin and Seidmehdi Seidbagherzadeh are
affiliates of Quad-Linq. An "*" indicates less than one percent.
<TABLE>
<CAPTION>
SHARES OWNED SHARES AVAILABLE SHARES PERCENT OF
PRIOR TO THIS PURSUANT TO OWNED AFTER CLASS
SELLING SECURITYHOLDER OFFERING THIS PROSPECTUS OFFERING AFTER OFFERING
- ---------------------- -------- --------------- -------- --------------
<S> <C> <C> <C> <C>
1st Net Technologies, Inc. 60,000 60,000 - 0 - *
Jan Douglas Atlas 25,000 25,000 - 0 - *
Roxanne K. Beilly 5,000 5,000 - 0 - *
Roger Betterton 1,012,666 1,012,666 - 0 - *
Robin C. Campbell and
Les Campbell Ten Ent 5,000 5,000 - 0 - *
Brian Collins 19,286,287 1,000,000 18,286,287 49.5%
Jerry Collins 15,000 15,000 - 0 - *
Matthew Collins 15,000 15,000 - 0 - *
Phyllis Collins 15,000 15,000 - 0 - *
Susan Collins 327,587 290,000 37,587 *
Tim Collins 15,000 15,000 - 0 - *
Christopher E. Georgelin 493,677 493,677 - 0 - *
Jim Hall 400,000 400,000 - 0 - *
Market Surveys
International, Inc. 400,000 400,000 - 0 - *
Joel D. Mayersohn and
Jamie Mayersohn Ten Ent 5,000 5,000 - 0 - *
Jerry McCoy 683,426 100,000 583,426 1.5%
Tony Musfelt 15,000 15,000 - 0 - *
Charles B. Pearlman 25,000 25,000 - 0 - *
Quad-Linq Software, Inc. 1,000,000 1,000,000 - 0 - *
Kathleen Roberts 22,000 22,000 - 0 - *
Susan Schneider 25,000 25,000 - 0 - *
Seidmehdi
Seidbagherzadeh 493,657 493,657 - 0 - *
Tom Ward 310,000 310,000 - 0 - *
Steven I. Weinberger 10,000 10,000 - 0 - *
Sloan Young 28,000 28,000 - 0 - *
-----------
Total 5,785,000
===========
</TABLE>
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<PAGE>
PLAN OF DISTRIBUTION
The shares covered by this prospectus may be distributed from time to
time by the selling securityholders in one or more transactions that may take
place on the over-the-counter market. These include ordinary broker's
transactions, privately-negotiated transactions or through sales to one or more
broker-dealers for resale of these shares as principals, at market prices
existing at the time of sale, at prices related to existing market prices,
through Rule 144 transactions or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the selling
securityholders in connection with sales of securities.
The selling securityholders may sell the securities in one or more of
the following methods:
o a block trade in which a broker or dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principals to facilitate the transaction;
o purchasers by a broker or dealer as principal and resale by
the broker or dealer for its account under this prospectus;
o ordinary brokerage transactions and transactions which the
broker solicits purchases, and
o face-to-face transactions between sellers and purchasers
without a broker-dealer.
In making sales, brokers or dealers used by the selling securityholders
may arrange for other brokers or dealers to participate. The selling
securityholders and others through whom such securities are sold may be
"underwriters" within the meaning of the Securities Act for the securities
offered, and any profits realized or commission received may be considered
underwriting compensation.
At the time a particular offer of the securities is made by or on
behalf of a selling securityholder, to the extent required, a prospectus is to
delivered. The prospectus will include the number of shares of common stock
being offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, the purchase price paid by any underwriter for
the shares of common stock purchased from the selling securityholder, and any
discounts, commissions or concessions allowed or reallowed or paid to dealers,
and the proposed selling price to the public.
We have told the selling securityholders that the anti-manipulative
rules under the Securities Exchange Act of 1934, including Regulation M, may
apply to their sales in the market. We have provided each of the selling
securityholders with a copy of these rules. We have also
26
<PAGE>
told the selling securityholders of the need for delivery of copies of this
prospectus in connection with any sale of securities that are registered by this
prospectus.
Sales of securities by us and the selling securityholders or even the
potential of these sales may have a negative effect on the market price for
shares of our common stock.
SHARES ELIGIBLE FOR FUTURE SALE
On the date of this prospectus, we have 36,127,430 shares of common
stock issued and outstanding. Of those shares, 13,307,430 shares, including the
5,785,000 shares covered by this prospectus, are freely tradeable without
restriction or further registration under the Securities Act, except for any
shares purchased by an affiliate of ours. This does not include shares that may
be issued upon exercise of options.
The remaining 22,820,000 shares of common stock currently outstanding
are restricted securities, and will become eligible for public sale at various
times, provided the requirements of Rule 144 are complied with. In general, Rule
144 permits a shareholder who has owned restricted shares for at least one year,
to sell without registration, within a three month period, up to one percent of
our then outstanding common stock. We must be current in our reporting
obligations in order for a shareholder to sell shares under Rule 144. In
addition, shareholders other than our officers, directors or 5% or greater
shareholders who have owned their shares for at least two years, may sell them
without volume limitation or the need for our reports to be current.
We cannot predict the effect, if any, that market sales of common stock
or the availability of these shares for sale will have on the market price of
our shares from time to time. Nevertheless, the possibility that substantial
amounts of common stock may be sold in the public market could negatively damage
affect market prices for the common stock and could damage our ability to raise
capital through the sale of our equity securities.
LEGAL MATTERS
The validity of the securities offered by this prospectus will be
passed upon for us by Atlas, Pearlman, Trop & Borkson, P.A., 200 East Las Olas
Boulevard, Suite 1900, Fort Lauderdale, FL 33301, Florida. Affiliates of that
firm own an aggregate of 100,000 shares of our
common stock.
EXPERTS
The consolidated financial statements as of July 31, 1999 and July 31,
1998, and for each of the two years in the period ended July 31, 1999, appearing
in this prospectus and registration
27
<PAGE>
statement have been audited by Morgan & Company, independent auditors, as set
forth in their report thereon appearing elsewhere in this prospectus, and are
included in reliance upon this report given on the authority of Morgan & Company
as experts in auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the SEC the registration statement on Form SB-2
under the Securities Act for the common stock offered by this prospectus. This
prospectus, which is a part of the registration statement, does not contain all
of the information in the registration statement and the exhibits filed with it,
portions of which have been omitted as permitted by SEC rules and regulations.
For further information concerning us and the securities offered by this
prospectus, we refer to the registration statement and to the exhibits filed
with it. Statements contained in this prospectus as to the content of any
contract or other document referred to are not necessarily complete. In each
instance, we refer you to the copy of the contracts and/or other documents filed
as exhibits to the registration statement, and these statements are qualified in
their entirety by reference to the contract or document The registration
statement, including all exhibits, may be inspected without charge at the SEC's
Public Reference Room at 450 Fifth Street, N.W. Washington, D.C. 20549, and at
the SEC's regional offices located at Seven World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of these materials may also be obtained from the
SEC's Public Reference at 450 Fifth Street, N.W., Room 1024, Washington D.C.
20549, upon the payment of prescribed fees. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In
addition, registration statements and other filings made with the SEC through
its Electronic Data Gathering, Analysis and Retrieval Systems are publicly
available through the SEC's site on the world wide web located at
http//www.sec.gov.
The registration statement, including all exhibits and schedules and
amendments, has been filed with the SEC through the Electronic Data Gathering,
Analysis and Retrieval system. At your written or telephonic request, we will
provide you, without charge, a copy of any of the information that is
incorporated by reference (excluding exhibits to the information that is
incorporated by reference unless the exhibits are themselves specifically
incorporated by reference). Please direct your request to the Company at
Phon-Net.com, Inc., 750 West Pender Street, Suite 600, Vancouver, British
Columbia V6C 2T7, Attention: Chief Executive Officer, telephone (604) 437-3787.
Following the effective date of the registration statement relating to
this prospectus, we will become subject to the reporting requirements of the
Exchange Act and in accordance with these requirements, will file quarterly and
annual financial reports and other information with the SEC. We intend to
furnish our shareholders with annual reports containing audited financial
statements and other periodic reports as we think appropriate or as may be
required by law.
28
<PAGE>
PHON-NET.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998
(STATED IN U.S. DOLLARS)
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Directors
Phon-Net.com, Inc.
(a development stage company)
We have audited the consolidated balance sheets of Phon-Net.com, Inc. (a
development stage company) as at July 31, 1999 and 1998, and the consolidated
statements of operations and deficit, cash flows, and stockholders' equity for
the years ended July 31, 1999, 1998, and 1997. 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 audits in accordance with United States and Canadian generally
accepted auditing standards. Those standards require that we plan and perform an
audit to obtain reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at July 31, 1999 and
1998 and the results of its operations and its cash flows for the years ended
July 31, 1999, 1998, and 1997 in accordance with United States generally
accepted accounting principles.
Without qualifying our opinion we draw attention to Note 1 to the consolidated
financial statements. The Company incurred a net loss of $2,714,276 during the
year ended July 31, 1999, and as at that date, has not attained profitable
operations and is dependent upon obtaining adequate financing to fulfil its
development activities. These factors raise substantial doubt that the Company
will be able to continue as a going concern.
Vancouver, Canada
/s/ Morgan & Co.
----------------
November 1, 1999 Chartered Accountants
Comments by Auditors on United States - Canada Difference
In Canada, reporting standards for auditors do not permit the addition of an
explanatory paragraph when the financial statements account for, disclose and
present in accordance with generally accepted accounting principles conditions
and events that cast substantial doubt on the Company's ability to continue as a
going concern. Although our audit was conducted in accordance with both United
States and Canadian generally accepted auditing standards, our report to the
shareholders dated November 1, 1999 is expressed in accordance with United
States reporting standards which require a reference to such conditions and
events in the auditors' report.
Vancouver, Canada
/s/ Morgan & Co.
November 1, 1999 ----------------
Chartered Accountants
F-1
<PAGE>
<TABLE>
<CAPTION>
PHON-NET.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(STATED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------------------------------------------
JULY 31
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT
Cash $ 203,161 $ 43,039
Accounts and advances receivable 17,291 28,920
Due from related parties - 29,932
Prepaid expenses - 7,950
--------------------------------------
220,452 109,841
CAPITAL ASSETS (Note 4) 96,297 160,725
INTANGIBLES (Note 5) 1,191,032 178,498
--------------------------------------
$ 1,507,781 $ 449,064
===================================================================================================================
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $ 146,376 $ 179,694
Due to related parties 66,031 26,658
Current portion of notes payable (Note 6) 35,486 -
--------------------------------------
247,893 206,352
NOTES PAYABLE (Note 6) - 35,486
--------------------------------------
247,893 241,838
--------------------------------------
STOCKHOLDERS' EQUITY CAPITAL STOCK (Note 7)
Authorized:
At July 31, 1999
80,000,000 common shares, par value $0.001
10,000,000 preferred shares, par value $0.01
At July 31, 1998
100,000 common shares without par value
100,000,000 Class `A' preference shares, par value $10
100,000,000 Class `B' preference shares, par value $50
Issued and outstanding
36,027,430 common shares at July 31, 1999 and
9,422,000 common shares at July 31, 1998 4,803,245 1,033,358
DEFICIT (3,544,370) (830,094)
CUMULATIVE TRANSLATION ADJUSTMENT 1,013 3,962
--------------------------------------
1,259,888 207,226
--------------------------------------
$ 1,507,781 $ 449,064
===================================================================================================================
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
PHON-NET.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(STATED IN U.S. DOLLARS)
- ------------------------------------------------------------------------------------------------------------------------------------
INCEPTION
MARCH 19, 1996
YEAR ENDED JULY 31 TO JULY 31
1999 1998 1997 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE $ 23,354 $ 134,378 $ 259,742 $ 444,951
------------------------------------------------------------------------------
EXPENSES
Advertising and promotion 346,829 28,777 10,426 403,190
Amortization of intangibles 105,553 66,936 66,936 261,737
Amortization of capital assets 80,041 54,295 21,111 165,865
Bank charges and interest 334,354 2,544 3,687 340,585
Office and sundry 55,295 84,351 28,243 170,510
Professional fees 87,015 8,532 18,272 138,421
Rent and utilities 34,439 31,292 15,066 84,593
Telephone 52,130 85,662 77,428 240,030
Transfer agent and filing fees 6,500 - - 6,500
Travel 18,608 88,319 15,997 126,912
Salaries and benefits 1,616,866 308,936 230,250 2,196,411
------------------------------------------------------------------------------
2,737,630 759,644 487,416 4,134,754
------------------------------------------------------------------------------
LOSS BEFORE THE FOLLOWING 2,714,276 625,266 227,674 3,689,803
Forgiveness of debt - - (230,961) (230,961)
Write-down of investments - - 99,028 99,028
------------------------------------------------------------------------------
NET LOSS FOR THE YEAR $ 2,714,276 $ 625,266 $ 95,741 $ 3,557,870
====================================================================================================================================
LOSS PER SHARE $ 0.16 $ 0.17 $ 0.03
===============================================================================================================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 16,923,300 3,650,000 3,650,000
===============================================================================================================
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
PHON-NET.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOW
(STATED IN U.S. DOLLARS)
- ------------------------------------------------------------------------------------------------------------------------------------
INCEPTION
MARCH 19, 1996
YEAR ENDED JULY 31 TO JULY 31
1999 1998 1997 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Loss for the year $ (2,714,276) $ (625,266) $ (95,741) $ (3,557,870)
---------------------------------------------------------------------------
ADJUSTMENTS TO RECONCILE LOSS TO NET CASH USED BY
OPERATING ACTIVITIES
Stock issued for other than cash 1,840,357 - - 1,853,857
Amortization 185,594 121,231 88,047 427,602
Write-down of investments - - 99,028 99,028
Forgiveness of debt - - (230,961) (230,961)
Change in accounts and advances receivable
11,629 (17,300) (7,047) (17,291)
Change in due from related parties 29,932 (4,427) (10,906) -
Change in prepaid expenses 7,950 (7,950) - -
Change in accounts payable and accrued liabilities (33,318) 112,421 (373) 146,376
Change in due to related parties 39,373 15,938 (78) 66,031
---------------------------------------------------------------------------
TOTAL ADJUSTMENTS 2,081,517 219,913 (62,290) 2,344,642
---------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (632,759) (405,353) (158,031) (1,213,228)
---------------------------------------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES
Capital assets (15,615) (174,225) (167) (262,164)
Intangibles - - - (334,682)
Investments - - - (160,068)
Proceeds on sale of investments - - 61,040 61,040
---------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (15,615) (174,225) 60,873 (695,874)
CASH FLOW FROM FINANCING ACTIVITIES
Common stock issued 232,365 618,259 78,103 1,265,723
Stock issue costs (157,920) - - (157,920)
Notes receivable 737,000 - - 737,000
Notes payable - (3,343) (283) 266,447
---------------------------------------------------------------------------
NET CASH FROM FINANCING ACTIVITIES 811,445 614,916 77,820 2,111,250
---------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (2,949) 987 532 1,013
---------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 160,122 36,325 (18,806) 203,161
CASH, BEGINNING OF YEAR 43,039 6,714 25,520 -
---------------------------------------------------------------------------
CASH, END OF YEAR $ 203,161 $ 43,039 $ 6,714 $ 203,161
====================================================================================================================================
</TABLE>
F-4
<PAGE>
PHON-NET.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOW
(STATED IN U.S. DOLLARS)
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES
Effective October 5, 1998, the Company acquired 100% of the issued and
outstanding shares of Phon-Net Corp. by issuing 11,410,000 common shares at an
ascribed value of $7,000.
The Company issued 8,085,000 common shares at an ascribed value of $8,085 to a
director for the acquisition of technology and issued 5,000,000 common shares to
the same director at an ascribed value of $1,250,000 pursuant to an employment
agreement commencing July 1, 1999.
The Company issued 3,000,000 common shares at an ascribed value of $1,110,000
for the acquisition of 49% of the right to future cash flows from certain
company technology.
The Company issued 1,715,000 common shares for advertising, promotion services,
stock issue costs and for legal services at an ascribed value of $349,500.
The Company issued 2,707,430 common shares on the conversion of promissory notes
totalling $737,000 (Note 7a).
F-5
<PAGE>
<TABLE>
<CAPTION>
PHON-NET.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(STATED IN U.S. DOLLARS)
COMMON STOCK
----------------------------------------------------
ADDITIONAL
NUMBER PAID-IN
OF SHARES AMOUNT CAPITAL
----------------------------------------------------
<S> <C> <C> <C>
Balance, August 1, 1996 2,308,580 $ 336,996 $ -
Issuance of common stock 5,147,096 78,103 -
Translation adjustment - - -
Loss for the year - - -
---------------------------------------------------
Balance, July 31, 1997 7,455,676 415,099 -
Issuance of common stock 1,966,324 618,259 -
Translation adjustment - - -
Loss for the year - - -
---------------------------------------------------
Balance, July 31, 1998 9,422,000 1,033,358 -
Issuance of common stock 578,000 77,365 -
---------------------------------------------------
10,000,000 1,110,723 -
Consolidation of stock on 1 for 2 basis (5,000,000) - -
---------------------------------------------------
5,000,000 1,110,723 -
Adjustment to number of shares issued and outstanding
as a result of the reverse take-over transaction
Piedmont Technologies Inc. (5,000,000) - -
Phon-Net Corp. 3,650,000 - -
---------------------------------------------------
3,650,000 1,110,723 -
Issuance of common stock to acquire subsidiaries 11,410,000 7,000 -
Issuance of common stock
for cash 460,000 460 154,540
for services 1,715,000 1,715 320,785
for technology 11,085,000 11,085 1,107,000
for compensation expense 5,000,000 5,000 1,245,000
on conversion of promissory notes 2,707,430 2,707 1,050,150
Stock issue costs - - (212,920)
Translation adjustment - - -
Loss for the year - - -
---------------------------------------------------
Balance July 31, 1999 36,027,430 $ 1,138,690 $ 3,664,555
===================================================
(RESTUBBED TABLE)
CUMULATIVE
TRANSLATION ACCUMULATED
ADJUSTMENT DEFICIT TOTAL
---------------------------------------------------------
<C> <C> <C>
Balance, August 1, 1996 $ 2,443 $ (109,087) $ 230,352
Issuance of common stock - - 78,103
Translation adjustment 532 - 532
Loss for the year - (95,741) (95,741)
----------------------------------------------------------
Balance, July 31, 1997 2,975 (204,828) 213,246
Issuance of common stock - - 618,259
Translation adjustment 987 - 987
Loss for the year - (625,266) (625,266)
----------------------------------------------------------
Balance, July 31, 1998 3,962 (830,094) 207,226
Issuance of common stock - - 77,365
----------------------------------------------------------
3,962 (830,094) 284,591
Consolidation of stock on 1 for 2 basis - - -
----------------------------------------------------------
3,962 (830,094) 284,591
Adjustment to number of shares issued and outstanding
as a result of the reverse take-over transaction
Piedmont Technologies Inc. - - -
Phon-Net Corporation - - -
----------------------------------------------------------
3,962 (830,094) 284,591
Issuance of common stock to acquire subsidiaries - - 7,000
Issuance of common stock
for cash - - 155,000
for services - - 322,500
for technology - - 1,118,085
for compensation expense - - 1,250,000
on conversion of promissory notes - - 1,052,857
Stock issue costs - - (212,920)
Translation adjustment (2,949) - (2,949)
Loss for the year - (2,714,276) (2,714,276)
----------------------------------------------------------
Balance July 31, 1999 $ 1,013 $ (3,544,370) $ 1,259,888
==========================================================
</TABLE>
F-6
<PAGE>
PHON-NET.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998
(STATED IN U.S. DOLLARS)
1. NATURE OF OPERATIONS
Development Stage Activities
Phon-net. com Inc. was organized to provide consumers with quick and easy
access through any touch tone telephone, cellular/PCS phone, screenphone
and the Internet to instantly access interactive information on area
business and their current product and services, special promotions and
other source information. Phon-net. com Inc. provides information services
in a published directory format or through telephone information input to
locate a business, product or service, by either a generic category search,
or by entering a specific ad number listed in the Company's director.
Phon-net. com Inc. is in the development stage; therefore recovery of its
assets is dependent upon future events, the outcome of which is
indeterminable. In addition, successful completion of Phon-net. com Inc.'s
development program and its transition, ultimately to the attainment of
profitable operations is dependent upon obtaining adequate financing to
fulfil its development activities and achieve a level of sales adequate to
support its cost structure.
Management is of the opinion that sufficient short-term funding will be
obtained and that current negotiations with potential users of its products
will be successful.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Company have been prepared in accordance
with generally accepted accounting principles in the United States. Because
a precise determination of many assets and liabilities is dependent upon
future events, the preparation of financial statements for a period
necessarily involves the use of estimates which have been made using
careful judgement.
The financial statements have, in management's opinion, been properly
prepared within reasonable limits of materiality and within the framework
of the significant accounting policies summarized below:
a) Consolidation
These financial statements include the accounts of the Company and its
wholly-owned subsidiaries, Phon-Net Corp., (incorporated in Nevada,
U.S.A.), Piedmont Technologies Inc., The National For Sale Phone
Company Inc., and V NETT Enterprises Inc., all incorporated in Canada.
F-7
<PAGE>
PHON-NET.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998
(STATED IN U.S. DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
b) Revenue Recognition
Fees are invoiced on an annual basis, payable in advance and are
non-refundable. Revenue is recognized over the term of the contracts.
Revenue earned up to July 31, 1999 arises from income from beta-tested
products and is recognized over the terms of the contracts, generally
twelve months.
c) Capital Assets
Capital assets are recorded at cost and amortized as follows:
Computer equipment 3 years straight line basis
Computer software 3 years straight line basis
Telephone and equipment 2 and 3 years straight line basis
Leasehold improvements Lease term
d) Intangibles
Intangibles are recorded at cost and amortized as follows:
Goodwill 5 years straight line basis
Technology costs Economic life of the associated product
Management reviews goodwill and technology costs for impairment
whenever events or changes in circumstances indicate that the carrying
amounts may not be recoverable.
e) Capitalized Costs
Costs for developing computer software are capitalized when
technological feasibility has been established for the computer
software product. Capitalization of computer software costs is
discontinued when the product is available for general release to
customers and such costs are amortized on a product-by-product basis
over the estimated lives of the products. All costs capitalized to date
are for purchased technology.
Purchased computer software, which includes programs used for company
management and software development are capitalized and amortized as
disclosed in the capital assets significant accounting policy note.
F-8
<PAGE>
PHON-NET.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998
(STATED IN U.S. DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
f) Income Taxes
The Company has adopted Statement of Financial Accounting Standards No.
109 - "Accounting for Income Taxes" (SFAS 109). This standard requires
the use of an asset and liability approach for financial accounting and
reporting on income taxes. If it is more likely than not that some
portion of all of a deferred tax asset will not be realized, a
valuation allowance is recognized.
g) Foreign Currency Translation
The Company's subsidiary's operations are located in Canada, and its
functional currency is the Canadian dollar. The financial statements of
the subsidiary have been translated using the current method whereby
the assets and liabilities are translated at the year end exchange
rate, capital accounts at the historical exchange rate, and revenues
and expenses at the average exchange rate for the period. Adjustments
arising from the translation of the Company's subsidiary's financial
statements are included as a separate component of shareholders'
equity.
h) Financial Instruments
The Company's financial instruments consist of cash, accounts and
advances receivable, accounts payable, and amounts due to and from
related parties.
Unless otherwise noted, it is management's opinion that this Company is
not exposed to significant interest or credit risks arising from these
financial instruments. The fair value of these financial instruments
approximate their carrying values, unless otherwise noted.
i) Loss Per Share
The loss per share is calculated using the weighted average number of
common shares outstanding during the year. Fully diluted loss per share
is not presented, as the impact of the exercise of options is
anti-dilutive.
F-9
<PAGE>
PHON-NET.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998
(Stated in U.S. Dollars)
3. ACQUISITION OF SUBSIDIARIES
a) Effective October 5, 1998, Phon-net Corp. acquired 100% of the issued
and outstanding shares of Piedmont Technologies Inc., by issuing
5,000,000 common shares. Effective the same date, Phon-net.com Inc.
acquired 100% of the issued and outstanding shares of Phone-net Corp.,
by issuing 11,410,000. Since the transaction resulted in the former
shareholders of Piedmont Technologies Inc. owning the majority of the
issued shares of Phon-net.com Inc., the transaction, which is referred
to as a "reverse take-over", has been treated for accounting purposes
as an acquisition by Piedmont Technologies Inc. of the net assets and
liabilities of Phon-net.com Inc. Under this purchase method of
accounting, the results of operations of Phon-net.com Inc. are included
in these financial statements from October 5, 1998.
Piedmont Technologies Inc. is deemed to be the purchaser for accounting
purposes. Accordingly, its net assets are included in the balance sheet
at their previously recorded values.
The statements of operations and cash flows consist of the operation of
Phon-net.com Inc. from October 5, 1998. Prior to that date, the
operations are those of Piedmont Technologies Inc.
Phon-net.com Inc. had a net assets of $Nil at the acquisition date,
therefore the 11,410,000 shares issued on the acquisition were issued
at an ascribed value of $Nil. The reverse acquisition was a
reorganization and recapitalization of a private operating company with
a public shell in which no goodwill or other intangibles were recorded
as part of the transaction.
Phon-net Corp. had net assets of $7,000 at the acquisition date,
therefore the shares issued on the acquisition were issued
at an ascribed value of $7,000.
<TABLE>
<CAPTION>
The acquisitions are summarized as follows:
PHON-NET.COM INC. PHON-NET CORP.
<S> <C> <C>
Current Assets $ - $ 7,000
=================== ================
Net Assets $ - $ 7,000
=================== ================
</TABLE>
F-10
<PAGE>
PHON-NET.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998
(STATED IN U.S. DOLLARS)
3. ACQUISITION OF SUBSIDIARIES (Continued)
b) i) By an agreement dated March 31, 1996, Piedmont Technologies
Inc. acquired 100% of the issued and outstanding shares of The
National For Sale Phone Company Inc., by issuing 1,324,180 common
shares at a value of $0.12 per share. Of the shares outstanding,
84% were held by two directors of Piedmont Technologies Inc.
The acquisition was accounted for using the purchase method
with the results of operations included in these financial
statements from the date of acquisition. The purchase price has
been allocated as follows:
<TABLE>
<CAPTION>
<S> <C>
Working capital (deficiency) $ (147,167)
Capital assets 72,688
Non-current liabilities assumed (6,065)
-----------------
(80,544)
Excess of purchase price over net assets acquired 239,062
-----------------
Consideration $ 158,518
=================
ii) By an agreement dated March 31, 1996, the Company acquired from a
director of Piedmont Technologies, Inc. 100 % of the issued and
outstanding shares of V NETT Enterprises Inc. for cash
consideration of $1.
The acquisition was accounted for using the purchase method. The
purchase price has been allocated as follows:
Working capital (deficiency) $ (14,217)
Excess of purchase price over net assets acquired 14,216
-----------------
Consideration $ 1
=================
</TABLE>
F-11
<PAGE>
PHON-NET.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998
(STATED IN U.S. DOLLARS)
3. ACQUISITION OF SUBSIDIARIES (Continued)
iii) By an agreement dated March 18, 1996, and as amended July 30,
1997, the Company purchased certain assets from a private company
for consideration of a note payable of $272,065.
The purchase price has been allocated as follows:
<TABLE>
<CAPTION>
<S> <C>
Investment - in listed company shares $ 161,245
Advance receivable from The National For Sale Phone Company Inc.
29,416
Goodwill, representing the right to purchase the issued and outstanding
shares of The National For Sale Company Inc. 81,404
----------------
$ 272,065
================
</TABLE>
On September 13, 1996, certain subscribers advanced $272,065 to
Piedmont Technologies Inc. for the purchase of 1,480,000 common
shares at a price of $0.18 per share. The Company did not accept
the subscriptions and did not issue shares to the subscribers. By
an agreement dated July 30, 1997, for consideration of the
issuance of promissory notes in the amount of $41,104, the
subscribers released and forgave the Company from the issue of any
shares subscribed for.
<TABLE>
<CAPTION>
4. CAPITAL ASSETS
1999 1998
------------------------------------------------------- ----------------
ACCUMULATED NET BOOK NET BOOK
COST DEPRECIATION VALUE VALUE
------------------------------------------------------- ----------------
<S> <C> <C> <C> <C>
Computer equipment $ 72,356 $ 44,961 $ 27,495 $ 34,607
Telephone and equipment 33,571 20,446 13,125 21,864
Computer software 154,620 98,943 55,677 102,411
Leasehold improvements - - - 1,843
------------------------------------------------------- ----------------
$ 260,547 $ 164,350 $ 96,297 $ 160,725
======================================================= ================
</TABLE>
F-12
<PAGE>
PHON-NET.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998
(STATED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
5. INTANGIBLES
1999 1998
------------------ -----------------
<S> <C> <C>
Goodwill, at cost $ 334,682 $ 334,682
Technology, at cost 1,118,085 -
------------------ -----------------
1,452,767 334,682
Less: accumulated amortization (261,735) (156,184)
------------------ -----------------
$ 1,191,032 $ 178,498
================== =================
</TABLE>
Goodwill arose on the acquisition of certain subsidiaries and other assets
(Note 3).
The Company issued 3,000,000 common shares and granted the vendors the
option to acquire 2,000,000 common shares of the Company at a price of
$0.36 per share in exchange for 49% of the right to future cash flows of
certain software technology at an ascribed value of $1,110,000.
The Company issued 8,085,000 common shares at an ascribed value of $8,085
to a director for the acquisition of certain software technology rights.
6. NOTES PAYABLE
<TABLE>
<CAPTION>
1999 1998
--------------- -----------------
<S> <C> <C>
Unsecured and due August 31, 1999, with interest at 5% p.a. $ 35,486 $ 35,486
=============== =================
</TABLE>
7. CAPITAL STOCK
a) During the year ended July 31, 1999, the Company issued promissory
notes in the amount of $737,000 convertible into common stock at the
lesser of $0.50 per share and 70% of the market price of the shares.
The notes bear interest at a rate of 10% per annum.
An amount of $315,857 has been charged to interest expense arising from
the 30% discount from fair market value of the shares at the date of
issue of the promissory notes.
The Company issued 2,707,430 common shares on conversion of the
promissory notes.
b) On May 29, 1999 the Company adopted a Stock Option Plan that
provides for the granting to employees of stock options designed to
qualify as "incentive stock options" under the Internal Revenue Code.
An option gives the participant the right to purchase from the company
a specified number of shares of common stock for a specified price
during a specified period not exceeding 10 years. Options become
exercisable two years after date of grant. A total of 3,000,000 shares
of common stock have been reserved for issuance under the Stock Option
Plan.
F-13
<PAGE>
PHON-NET.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998
(STATED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
7. CAPITAL STOCK(Continued)
Options issued as follows:
---------------------------------------------------------- ----------------
NUMBER OF EXERCISE PRICE WEIGHTED AVERAGE NUMBER
SHARES PER SHARE EXERCISE PRICE PER EXERCISABLE
SHARE
---------------------------------------------------------- ----------------
<S> <C> <C> <C> <C>
Outstanding August 1, 1998 0 - - 0
Granted 2,200,000 $0.36-0.40 0.39 2,100,000
============== ===============
Outstanding July 31, 1999 2,200,000 $0.36-0.40 0.39 2,100,000
============== ===============
</TABLE>
The options outstanding at July 31, 1999 expire May 26, 2009.
The weighted-average grant-date fair value of options granted in 1999 was
$0.15. The fair value of the options is estimated using the Black-Scholes
option pricing model with the following assumptions: dividend yield, Nil
percent for all years; expected volatility of 127%; risk free interest rate
of 5.25% ; and expected life of 10 years.
The Company has elected not to adopt the fair value method of accounting
for employee stock compensation plans as prescribed by Statement of
Financial Accounting Standards (SFAS) No. 123 issued by the Financial
Accounting Standards Board. Instead, as permitted by SFAS No.123, the
Company has elected to continue to apply the intrinsic value method of
accounting prescribed by Accounting Principles Board Opinion No.25. If the
fair value method of accounting under SFAS No. 123 had been followed, net
income and earnings per share of the Company would have been reduced by
amortization of the grant-date fair value of the options over the vesting
period.
The pro forma net loss and earnings per share for 1999, 1998 and 1997 as if
the fair value method had been used is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net loss $ 3,443,600 $ 625,266 $ 95,741
=================== ================== ==================
Per share: $ 0.20 $ 0.17 $ 0.03
=================== ================== ==================
</TABLE>
Under the Stock Option Plan the Company may grant non -qualifying stock
options at an exercisable price of not less than 75% of fair market value
at the date the option is granted. Compensation expense will be recognized
at the date of grant of any non-qualifying options at the difference
between the fair market value and the exercise price. No non-qualifying
stock options are granted as at July 31, 1999.
F-14
<PAGE>
PHON-NET.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998
(STATED IN U.S. DOLLARS)
8. RELATED PARTY TRANSACTIONS
(i) During the year ended July 31, 1999, the Company paid $ 1,428,716 (1998
- $52,926; 1997 - $21,899) to a director for salaries. The amount paid
includes the issue of 5,000,000 common shares of the Company, at a
value of $0.25 per share. The shares were issued on July 6, 1999
pursuant to an employment agreement dated July 1, 1999.
(ii) Amounts due to and from related parties are to a director of the
Company and to the director of a subsidiary company.
9. COMMITMENTS
The Company entered into an employment agreement dated July 1, 1999 with a
director for a period of three years at an annual remuneration of $150,000.
In addition, and as an inducement to enter into the employment contract,
the Company has agreed to issue to the director, 5,000,000 common shares.
The employment agreement also grants the director an annual Stock
Appreciation Right ("SAR"), pursuant to which, on (i) February 15, 2000,
the director shall be entitled to receive a sum of money in an amount equal
to four hundred thousand (400,000) times the difference between the "fair
market value" of the Company's common stock at the close of trading on June
30, 1999 and February 1, 2000, (ii) on February 15, 2001, the director
shall be entitled to receive a sum of money in an amount equal to six
hundred thousand (600,000) times the difference between the "fair market
value" of the Company's common stock at the close of trading on February 1,
2000 and February 1, 2001 and (iii) on February 15, 2002, the director
shall be entitled to receive a sum of money in an amount equal to six
hundred thousand (600,000) times the difference between the "fair market
value" of the Company's common stock at the close on February 1, 2001 and
February 1, 2002 (Note 12).
No expense has been accrued at July 31, 1999 as the market price of the
stock at July 31, 1999 is less than the market price at June 30, 1999.
F-15
<PAGE>
PHON-NET.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998
(STATED IN U.S. DOLLARS)
10. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 issue affecting the entity,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
11. OTHER
During the year the Company changed its name from Phon-net Corporation to
Phon-net.Com Inc.
12. SUBSEQUENT EVENTS
a) On November 1, 1999, the Company agreed to amend the employment
agreement dated July 1, 1999, whereby any amounts due for the Stock
Appreciation compensation will be paid out of net income in excess of
$50,000. Amounts unpaid will accrue and are payable in future years
from net income in excess of $50,000 to a maximum of 50% of the excess
in any one year.
b) On November 1, 1999, the Company entered into an employment contract
with a Vice President of the Company for a three-year term at a salary
of $53,000 in the first year ranging to $66,000 in the third year. In
addition, the Company granted the employee stock options to purchase
200,000 common shares of the Company at a price of $0.36 per share,
vesting one-third per year, and has agreed to issue 100,000 common
shares on each of November 1, 1999, 2000 and 2001.
F-16
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
ANY OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THE INFORMATION SET FORTH HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
TABLE OF CONTENTS
PAGE
----
Available Information........................
Prospectus Summary...........................
Risk Factors.................................
Capitalization...............................
Use of Proceeds..............................
Price Range of Common Stock
and Dividend Policy.......................
Forward-Looking Statements...................
Management's Discussion and
Analysis or Plan of Operation.............
Business.....................................
Management...................................
Executive Compensation.......................
Certain Transactions.........................
Principal Shareholders.......................
Description of Securities....................
Selling Securityholders......................
Plan of Distribution ........................
Shares Eligible for Future Sale..............
Legal Matters................................
Experts......................................
Additional Information.......................
Financial Statements.........................
5,785,000 SHARES
PHON-NET.COM, INC.
PROSPECTUS
________________, 1999
UNTIL _________, 199___ (90 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRI BUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<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 (a) 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, (b) deriving an improper personal
benefit from a transaction, (c) voting for or assenting to an unlawful
distribution and (d) 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 no
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:
<TABLE>
<CAPTION>
<S> <C>
SEC Registration and Filing Fee................................................. $ 333
Legal Fees and Expenses*........................................................ 20,000
Accounting Fees and Expenses*................................................... 7,500
Financial Printing*............................................................. 3,000
Transfer Agent Fees*............................................................ 1,250
Blue Sky Fees and Expenses*..................................................... 750
Miscellaneous*.................................................................. 2,167
-------
TOTAL................................................................. $35,000
=======
</TABLE>
* Estimated
II-1
<PAGE>
None of the foregoing expenses are being paid by the selling securityholders.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Effective September 25, 1998, Phon-Net Corp., acquired all of the
issued and outstanding shares of Piedmont Technologies, Inc. and its
subsidiaries, The National-For-Sale Phone Company and VNETT Enterprises Inc., in
consideration for the issuance of 5,000,000 shares of Phon-Net Corp. to the
former shareholders of Piedmont Technologies Inc. Each of such former
shareholders had access to information concerning Phon-Net Corp. and were able
to evaluate the risks and merits of the business combination with Phon-Net Corp.
As a result, the transaction was exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Act"), by reason of Section 4(2) of
the Act and the rules and regulations thereunder.
Effective October 5, 1998, the Company acquired all of the outstanding
shares of Phon-Net Corp., a Nevada corporation, and issued an aggregate of
11,410,000 shares of our common stock to the former shareholders of Phon-Net
Corp. Each of such persons had access to information concerning the Company and
were able to evaluate the risks and merits of the business combination with the
Company. As a result, the transaction was exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Act"), by reason of
Section 4(2) of the Act and the rules and regulations thereunder.
On or about November 1, 1998, the Company issued an aggregate of
550,000 shares of common stock to RCS Financial Group (as to 200,000 shares) and
New Iberian Equity (as to 350,000 shares), as consideration for services
provided to the Company valued at $55,000 or $.10 per share. These persons had
access to information concerning the Company and has such experience in
financial and business matters to enable it to evaluate the risks and merits of
acquiring such shares. Accordingly, the issuance of these shares was exempt from
the registration requirements of the Act by reason of Rule 504 under Regulation
D of the Act.
On or about January 15, 1999, the Company issued an aggregate of
115,000 shares of common stock to Patrick Braid (as to 45,000 shares), James
Kyle (as to 45,000 shares) and Todd Violet (as to 25,000 shares), as
consideration for services provided to the Company valued at $25,000 or
approximately $.217 per share. These persons had access to information
concerning the Company and has such experience in financial and business matters
to enable it to evaluate the risks and merits of acquiring such shares.
Accordingly, the issuance of these shares was exempt from the registration
requirements of the Act by reason of Rule 504 under Regulation D of the Act.
On or about January 15, 1999, the Company issued 10,000 shares of
common stock to L. J. Hassey for a purchase price of $5,000 or $.50 per share.
L. J. Hassey had access to information concerning the Company and has such
experience in financial and business matters to enable it to evaluate the risks
and merits of acquiring such shares. Accordingly, the issuance of these shares
was exempt from the registration requirements of the Act by reason of Rule 504
under Regulation D of the Act.
Between February 9 and 12, 1999, the Company issued 230,000 shares of
common stock to J. Prince, Inc., for a purchase price of $100,000 or
approximately $.435 per share. J. Prince, Inc. had access to information
concerning the Company and has such knowledge and experience in financial and
business matters that it was able to evaluate the risks and merits of acquiring
such shares. Accordingly, the issuance of these shares was exempt from the
registration requirements of the Act by reason of Rule 504 under Regulation D of
the Act.
On or about March 5, 1999, the Company issued 220,000 shares of common
stock to Roger Betterton for a purchase price of $50,000 or approximately $.23
per share. Mr. Betterton had access to information concerning the Company and
has such experience in financial and business matters to enable it to evaluate
the risks and merits of acquiring such shares. Accordingly, the issuance of
these shares was exempt from the registration requirements of the Act by reason
of Rule 504 under Regulation D of the Act.
II-2
<PAGE>
On or about March 5, 1999, the Company issued 40,000 shares of common
stock to Bryce Boucher as consideration for printing services provided to the
Company valued at $20,000 or $.50 per share. These persons had access to
information concerning the Company and has such experience in financial and
business matters to enable it to evaluate the risks and merits of acquiring such
shares. Accordingly, the issuance of these shares was exempt from the
registration requirements of the Act by reason of Rule 504 under Regulation D of
the Act.
On or about March 24, 1999, the Company issued convertible promissory
notes in the aggregate principal amount of $737,000 to five accredited
investors, pursuant to Rule 504 of Regulation D of the Act. The notes bear
interest at the rate of 10% per annum and are convertible into shares of the
Company's common stock at the lower of $.50 per share or 70% of the average
closing price for the common stock over the five trading days immediately
preceding the conversion date. As of April 30, 1999 all of the notes had been
converted into an aggregate of 2,707,430 shares of common stock. The Company
paid $4,278.91 in interest on the notes.
On or about April 15, 1999, the Company issued 8,085,000 shares of
common stock to Brian Collins, the Company's President, CEO and sole director,
an accredited investor. The shares were issued pursuant to the Company's
acquisition of Phon-Net Corp., as consideration for the satisfaction of certain
obligations contained in the acquisition agreement. In addition, the shares
issued contained a legend restricting their transferability absent registration
under the Act or an available exemption therefrom. The shares were issued in
reliance upon exemptions under Sections 4(2) and/or 4(6) of the Act and the
rules and regulations thereunder.
On or about May 19, 1999, the Company issued 400,000 shares of common
stock to Market Survey's International, Inc., as consideration for public
relations services to be provided to the Company. Market Survey's International,
Inc. had access to information concerning the Company and has such experience in
financial and business matters to enable it to evaluate the risks and merits of
acquiring such shares. In addition, the shares issued contained a legend
restricting their transferability absent registration under the Act or an
available exemption therefrom. Accordingly, this transaction was exempt from the
registration requirements of the Act by reason of Section 4(2) of the Act and
the rules and regulations thereunder.
On or about May 28, 1999, the Company issued 60,000 shares to 1st Net
Technologies, Inc., as partial consideration for public relations, marketing and
database services to be provided for the Company. 1st Net Technologies, Inc. had
access to information concerning the Company and has such experience in
financial and business matters to enable it to evaluate the risks and merits of
acquiring such shares. In addition, the shares issued contained a legend
restricting their transferability absent registration under the Act or an
available exemption therefrom. Accordingly, this transaction was exempt from the
registration requirements of the Act by reason of Section 4(2) of the Act and
the rules and regulations thereunder.
On or about March 5, 1999 the Company issued 250,000 shares of common
stock to KASON, Inc., in consideration of services rendered to the Company.
KASON, Inc. had access to information concerning the Company and has such
knowledge and experience in financial and business matters to enable it to
evaluate the risks and merits of acquiring such shares. In addition, the shares
issued contained a legend restricting their transferability absent registration
under the Act or an available
II-3
<PAGE>
exemption therefrom. Accordingly, the issuance of these shares is exempt from
the registration requirements of the Act by reason of Section 4(2) of the Act
and the rules and regulations thereunder.
On or about May 28, 1999, the Company issued an aggregate of 200,000
shares of common stock to two principals of BCD Online, in consideration of
product marketing services rendered to the Company. BCD Online had access to
information concerning the Company and has such knowledge and experience in
financial and business matters to enable it to evaluate the risks and merits of
acquiring such shares. In addition, the shares issued contained a legend
restricting their transferability absent registration under the Act or an
available exemption therefrom. Accordingly, the issuance of these shares is
exempt from the registration requirements of the Act by reason of Section 4(2)
of the Act and the rules and regulations thereunder.
On or about July 1, 1999, the Company issued 5,000,000 shares of common
stock to Brian Collins, as an inducement to provide his employment services to
the Company. Mr. Collins is an executive officer and director of the Company and
is fully familiar with the business of the Company. In addition, the shares
issued contained a legend restricting their transferability absent registration
under the Act or an available exemption therefrom. Accordingly, the issuance of
these shares is exempt from the registration requirements of the Act by reason
of Sections 4(2) and 4(6) of the Act and the rules and regulations thereunder.
On or about July 1, 1999, the Company issued an aggregate of 3,000,000
shares of common stock and options to purchase 2,000,000 shares of common stock
to Quad-Linq Software, Inc. and three of its principals, in consideration of
software development services rendered to the Company. Quad-Linq Software, Inc.
had access to information concerning the Company and has such knowledge and
experience in financial and business matters to enable it to evaluate the risks
and merits of acquiring such shares. In addition, the shares issued contained a
legend restricting their transferability absent registration under the Act or an
available exemption therefrom. Accordingly, the issuance of these shares is
exempt from the registration requirements of the Act by reason of Section 4(2)
of the Act and the rules and regulations thereunder.
On or about July 1, 1999, the Company issued 100,000 shares of common
stock to Atlas, Pearlman, Trop & Borkson, P.A. ("APTB"), counsel to the Company,
in consideration of legal services rendered to the Company. APTB had access to
information concerning the Company and has such knowledge and experience in
financial and business matters to enable it to evaluate the risks and merits of
acquiring such shares. In addition, the shares issued contained a legend
restricting their transferability absent registration under the Act or an
available exemption therefrom. Accordingly, the issuance of these shares is
exempt from the registration requirements of the Act by reason of Section 4(2)
of the Act and the rules and regulations thereunder.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
Exhibit No. Description of Document
- ----------- -----------------------
<S> <C>
2 Agreement of Share Exchange between XGA Golf International, Inc. and Phon-Net Corp.(1)
3.1(a) Articles of Incorporation of XGA Golf International, Inc.(1)
3.1(b) Articles of Amendment changing name to Agrosol, Inc.(1)
II-4
<PAGE>
3.1(c) Articles of Amendment changing name to Phon-Net Corporation (1)
3.1(d) Articles of Amendment changing name to Phon-Net.com, Inc.(1)
3.1(e) Articles of Amendment increasing authorized capital (1)
3.2 Bylaws (1)
5 Opinion and Consent of Atlas, Pearlman, Trop & Borkson, P.A.(2)
10.1 Stock Option Plan (1)
10.2 Employment Agreement with Brian Collins (1)
10.3 Office Lease for 750 Pender Street (1)
10.4 Agreement, as amended, with Quad-Linq Software, Inc.(1)
10.5 Employment Agreement with Solan Young(2)
10.6 Agreement with Transcontinental Group(2)
10.7 Agreement with Wazzu Corporation(2) 10.8 Agreement with Brian Collins re: SARs(2)
23(i) Consent of Atlas, Pearlman, Trop & Borkson, P.A. (see Exhibit 5)(2)
23(ii) Consent of Morgan & Company (2)
21 Subsidiaries of Registrant (1)
27 Financial Data Schedule (2)
</TABLE>
- ------------------
(1) Previously filed.
(2) Filed herewith.
ITEM 28. UNDERTAKINGS
The undersigned Registrant undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(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 (a)(1)(i) and (a)(1)(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.
II-5
<PAGE>
(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. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or preceding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-6
<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, thereunto duly
authorized, in Vancouver, British Columbia on November 16, 1999.
PHON-NET.COM, INC.
By: /S/ BRIAN COLLINS
---------------------
Brian Collins
Chairman, Chief Executive
Officer, Principal Financial
and Accounting Officer
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/ BRIAN COLLINS Chairman of the Board, Chief November 16, 1999
- ------------------------------------ Executive Officer, President and
Brian Collins Sole Director (Principal Financial
Officer and Principal Accounting
Officer)
/S/ SLOAN YOUNG Vice President of Technology November 16, 1999
- ------------------------------------ and Operations
Sloan Young
</TABLE>
II-7
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
200 East Las Olas Boulevard, Suite 1900
Fort Lauderdale, Florida 33301
November 16, 1999
Phon-Net.com, Inc.
750 West Pender Street
Suite 600
Vancouver, British Columbia V6C 2T7
RE: REGISTRATION STATEMENT ON FORM SB-2; PHON-NET.COM, INC., A
FLORIDA CORPORATION (THE "COMPANY")
Gentlemen:
This opinion is submitted pursuant to the applicable rules of the
Securities and Exchange Commission with respect to the registration for public
sale of 5,785,000 shares (the "Shares") of the Company's Common Stock, $.001 par
value ("Common Stock").
In connection therewith, we have examined and relied upon original,
certified, conformed, photostat or other copies of (i) the Articles of
Incorporation, as amended, and Bylaws of the Company; (ii) resolutions of the
Board of Directors of the Company authorizing the offering and related matters;
(iii) the Registration Statement and the exhibits thereto; and (iv) such other
matters of law as we have deemed necessary for the expression of the opinion
herein contained. In all such examinations, we have assumed the genuineness of
all signatures on original documents, and the conformity to originals or
certified documents of all copies submitted to us as conformed, photostat or
other copies. In passing upon certain corporate records and documents of the
Company, we have necessarily assumed the correctness and completeness of the
statements made or included therein by the Company, and we express no opinion
thereon. As to the various questions of fact material to this opinion, we have
relied, to the extent we deemed reasonably appropriate, upon representations or
certificates of officers or directors of the Company and upon documents, records
and instruments furnished to us by the Company, without independently checking
or verifying the accuracy of such documents, records and instruments.
<PAGE>
Based upon the foregoing, we are of the opinion under the laws of the
State of Florida, that the Shares have been duly and validly issued and are
fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to use our name under the caption "Legal Matters" in
the prospectus comprising part of the Registration Statement.
Sincerely,
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
/s/ Atlas, Pearlman, Trop & Borkson, P.A.
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made the 29th day of October 1999, by and between
PHON-NET.COM, INC. (the "Company") and SLOAN YOUNG, whose residence address is
2531 East 46th Avenue, Vancouver, BC V5N 5W1 (the "Executive").
The Company and the Executive hereby agree as follows with respect to the
Executive's employment with the Company:
1. EMPLOYMENT.
-----------
The Company hereby employs the Executive, and the Executive hereby accepts
employment with the Company, on the terms and conditions hereafter set forth,
commencing November 1, 1999 and for a term of three (3) years thereafter (the
"Term"). During the Term, the Executive shall serve as the Company's Vice
President of Technology and Operations, and shall report to the Company's Chief
Executive Officer and its Board of Directors.
2. EXCLUSIVE EFFORTS.
------------------
The Executive shall devote his best efforts, skills and attention exclusively to
the business and affairs of the Company, shall serve the Company faithfully and
competently and shall, at all times, act in the Company's best interest. The
services to be rendered by Executive during the Term shall be the normal duties
of a person employed as a Vice President of Technology and Operations by a
corporation in the Company's business, subject at all times to the direction and
control of the Company's Chief Executive Officer and its Board of Directors.
During his employment by the Company, the Executive shall not, either directly
or indirectly, have any interest in or involvement with any person, firm or
corporation, the business of which is competitive with any aspect of the
business of the Company; provided, however, that nothing herein shall be
construed to prevent Executive from investing his personal assets in other
entities which do not compete with the Company.
3. BASE COMPENSATION.
------------------
The Company shall pay to the Executive, and the Executive agrees to accept,
minimum base compensation of Eighty Thousand Dollars (CAN$80,000) during the
first year of the Term, Ninety Thousand Dollars (CAN$90,000) during the second
year of the Term, and One Hundred Thousand Dollars (CAN$100,000) during the
third year of the Term.
<PAGE>
4. STOCK OPTIONS.
--------------
The Executive is hereby granted options to purchase 200,000 shares of the
Company's common stock (the "Options"). These are the Options authorized by the
Company's Board of directors on May 27, 1999, and are the sole options to which
the Executive is entitled. The Options are exercisable at $.36 per share and are
granted pursuant to the Company's 1999 Stock Option Plan (the "Plan"). The
Options shall expire on December 31, 2004 and shall vest one-third on the first
day of the Term, one third one year thereafter and one-third two years
thereafter. The Options and their exercise shall at all times remain subject to
the terms and conditions of the Plan.
5. GRANT OF COMMON STOCK.
----------------------
As an inducement to the Executive to enter into this Agreement and subject to
his continued employment throughout the Term, on the first day of the Term, and
on each anniversary of the Term, the Company shall issue to Executive One
Hundred Thousand (100,000) shares of the Company's common stock (the "Shares").
The Shares will not have been registered under the Securities Act of 1933, as
amended, and may not be sold, assigned, transferred, pledged or otherwise
disposed of absent registration or an opinion of counsel satisfactory to the
Company that such registration is not required.
6. BENEFIT PLANS.
--------------
The Executive shall be entitled to participate, to the extent eligible, in
medical, dental, hospital, group life insurance and other fringe benefit
programs from time to time made available to the Company's executives.
7. BUSINESS EXPENSE.
-----------------
The Executive shall be reimbursed for all usual expenses incurred on behalf of
the Company, in accordance with Company practices and procedures, provided that:
(a) each such expenditure is of a nature qualifying it as a proper
deduction on the federal and state income tax returns of the Company as a
business expense and not as deductible compensation to Executive; and
(b) the Executive furnishes the Company with adequate documentary
evidence substantiating such expenditures as deductible business expenses of the
Company and not as deductible compensation to Executive.
2
<PAGE>
8. VACATION.
---------
Employee shall be entitled to a paid vacation of two calendar weeks during the
first year of the Term and three calendar weeks during each of the second and
third years of the Term. Any unused vacation time shall be forfeited by
Executive if not used during the year in which earned. Executive shall also be
entitled to all paid holidays made generally available by the Company to its
executive officers.
9. DEATH OR DISABILITY.
--------------------
Notwithstanding anything to the contrary contained in Paragraph 1 above, if,
while the Executive is employed by the Company, he dies or suffers a physical or
mental disability which prevents him, for a period of three (3) consecutive
months, from performing his duties hereunder in a satisfactory manner, his
employment shall terminate effective on the date of death or the end of such
three (3) month period, as may be the case. In the event of such termination,
(a) all compensation earned as of the date of termination shall be paid by the
Company and (b) the Executive's base compensation shall be continued for a
period of six (6) months after such termination, and shall be paid to the
Executive if he is alive, or to his estate, if deceased.
10. TERMINATION.
-------------
(a) This Agreement may be immediately terminated by the Company at
anytime during the Term for cause.
(b) This Agreement may be terminated by either the Company, without
cause, or the Executive upon sixty (60) days written notice to the other party.
(c) In the event of termination by the Company for cause or at the
election of the Executive, the Company shall be obligated only to pay the
Executive all compensation earned up to the date of termination.
(d) In the event of termination by the Company without cause, the
Company shall be obligated to continue to pay the Executive his compensation
earned up to the date of termination, plus an amount equal to the Executive's
base compensation then in effect, which shall be paid in twelve consecutive
equal monthly installments.
(e) For purpose of the Agreement, "cause" shall mean any act involving
gross negligence, gross misfeasance, gross malfeasance, willful misconduct,
failure to follow the reasonable instructions of the Company's Chief Executive
Officer or its Board of Directors, or the Executive's breach of any of the terms
and conditions of this Agreement.
3
<PAGE>
11. RESTRICTIVE COVENANTS.
----------------------
(a) The Executive recognizes that he has and will acquire knowledge of
certain trade secrets, information, data, know-how and knowledge (including, but
not limited to, trade secrets, information, date, know-how and knowledge
relating to customers, suppliers, sales market programs, costs, products,
apparatus, equipment, processes, manufacturing methods, compositions, designs,
plans and employees) belonging to, or relating to the affairs of the Company
(collectively referred to as "Trade Secrets"). Accordingly, during the Term and
at all times thereafter, Executive agrees not to divulge, communicate, use to
the detriment of the Company or for the benefit of any other person or persons,
or misuse in any way, any confidential information or Trade Secrets relating to
the Company and its business. The Executive acknowledges and agrees that any
information or data he has acquired or will acquire relating to the Company
which is not generally known was received in confidence and as a fiduciary of
the Company.
(b) At all times during the Term and thereafter, the Executive shall
not, directly or indirectly, induce, influence, combine or conspire with, or
attempt to induct, influence, combine or conspire with, any of the officers,
employees, or consultants of the Company to terminate their relationship with or
compete against the Company or any of its present or future subsidiaries,
parents or affiliates.
(c) The Executive acknowledges that his services and responsibilities
are unique in character and are of particular significance to the Company, that
the Company is a competitive business and the Executive's continued and
exclusive service to the Company under this Agreement is of a high degree of
importance to the Company. Therefore, if Executive is either terminated for
cause or voluntarily terminates his employment with the Company, for a period of
two (2) years following the date Executive is terminated or voluntarily
terminates his employment with the Company (the "Noncompete Period"), for any
reason whatsoever, Executive shall not, directly or indirectly, engage in any
business which is competitive with the business conducted by the Company, except
as an employee or agent of the Company, and shall not, directly or indirectly,
as owner, partner, joint venturer, employee, broker, agent, corporate officer,
principal, licensor, shareholder (unless as owner of no more than five percent
(5%) of the issued and outstanding capital stock of such entity if such stock is
traded on a major securities exchange or otherwise as a purely passive
shareholder) or in any other capacity whatsoever, engage in or have any
connection with any business which is competitive with the business of the
Company, and which operates anywhere in North America.
(d) If, in any judicial proceeding, a court shall refuse to enforce any
of the covenants included in this Paragraph 11, then such unenforceable covenant
shall be amended to relate to such lesser period or geographical area as shall
be enforceable. In the event the Company should bring any legal action or other
proceeding against Executive for enforcement of this Agreement, the calculation
of the Noncompete Period, if any, shall not include the period of time
commencing with the filing of legal action or other proceeding to enforce this
Agreement through the date of final judgment or final resolution,
4
<PAGE>
including all appeals, if any, of such legal action or other proceeding unless
the Company is receiving the practical benefits of this Paragraph 11 during such
time. The existence of any claim or cause of action by the Executive against the
Company predicated on this Agreement shall not constitute a defense to the
enforcement by the Company of these covenants.
(e) The Executive hereby acknowledges that the restrictions on his
activity as contained in this Agreement are required for the Company's
reasonable protection and is a material inducement to the Company to enter into
this Agreement. The Executive hereby agrees that in the event of the violation
by him of any of the provisions of this Agreement, the Company will be entitled
to institute and prosecute proceedings at law or in equity to obtain damages
with respect to such violation or to enforce the specific performance of this
Agreement by the Executive or to enjoin the Executive from engaging in any
activity in violation hereof.
12. ASSIGNMENT OF INVENTIONS; WORK FOR HIRE.
----------------------------------------
(a) Any and all ideas, inventions, improvements and other intellectual
property rights which the Executive may conceive, create or make, during the
period of his employment by the Company, shall be the sole and exclusive
property of the Company. The Executive hereby assigns and conveys to the Company
any and all such ideas, inventions, improvements and rights, and relinquishes
any and all rights thereto. The Executive hereby agrees and acknowledges that
any and all intellectual property rights conceived, created or developed by the
Executive during the period of this employment by the Company and within the
scope of the Executive's employment shall be "works made for hire" and shall be
the sole and exclusive property of the Company. To the extent that any such
copyrightable materials are determined not to be "works made for hire", the
Executive hereby conveys, transfers and assigns all rights thereto to the
Company.
(b) The Executive agrees to execute any and all documents, patent,
copyright or other applications and instruments that may be requested by the
Company, either during the term of this Agreement or thereafter, in order to
convey to the Company the ownership rights contemplated by this Section 12.
(c) The Executive hereby waives any and all moral rights that the
Executive may have with respect to the creation of any software, inventions,
devices, processes, intellectual property or any other discoveries made by the
Executive during the period of his employment by the Company and created within
the scope of his employment.
13. BINDING EFFECT.
---------------
Except as herein otherwise provided, this Agreement shall inure to the benefit
of and shall be binding upon the parties hereto, their personal representatives,
successors, heirs and assigns.
5
<PAGE>
14. SEVERABILITY.
-------------
Invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provisions.
15. TERMINOLOGY.
------------
All personal pronouns used in this Agreement, whether used in the masculine,
feminine or neuter gender, shall include all other genders; the singular shall
include the plural and vice versa. Titles of Paragraphs are for convenience
only, and neither limit nor amplify the provisions of the Agreement itself.
16. GOVERNING LAW.
--------------
This Agreement shall be governed and construed in accordance with the law of the
State of Florida.
17. ENTIRE AGREEMENT.
-----------------
This Agreement contains the entire understanding between the parties and may not
be changed or modified except by an agreement in writing signed by all the
parties. This Agreement supercedes any prior agreements or understandings
between the parties and any and all such prior Agreements are hereby canceled
and shall cease to be of any further force or effect.
18. NOTICE.
-------
Any notice requiring or permitted to be delivered hereunder shall be deemed to
be delivered when deposited in the United States mail, postage prepaid,
registered or certified mail, return receipt requested, addressed to the parties
at the addresses first stated herein, or to such other address as either party
hereto shall from time to time designate to the other party by notice in writing
as provided herein.
19. OTHER INSTRUMENTS.
------------------
The parties hereby covenant and agree that they will execute such other and
further instruments and documents as are or may become necessary or convenient
to effectuate and carry out the terms of this Agreement.
20. COUNTERPARTS.
-------------
This Agreement may be executed in any number of counterparts and each such
counterpart shall for all purposes be deemed an original.
6
<PAGE>
21. ASSIGNABILITY.
--------------
This Agreement shall not be assigned by either party, except with the written
consent of the other.
22. ATTORNEYS' FEES.
----------------
In any litigation arising out of this Agreement, the prevailing party shall be
entitled to all costs and expenses, including reasonable attorneys' fees.
IN WITNESS WHEREOF, this Agreement has been duly signed by the Executive and on
behalf of the Company on the day and year first above written.
PHON-NET.COM, INC. EXECUTIVE
By: /s/ Brian Collins /s/ Sloan Young
------------------------------ ----------------------------
Brian Collins Sloan Young
Chief Executive Officer
7
<PAGE>
October 21, 1999
Reference is made to the Employment Agreement dated to be effective
November 1, 1999 (the "Employment Agreement"), by and between Phon-Net.com, Inc.
(the "Company") and Sloan Young ("Employee"). This shall confirm that prior to
execution of the Employment Agreement, the Company paid Employee, as part of his
employment compensation, the sum of $1.00 per unit sold of the Company's Direct
Connect product, such sum to be paid quarterly, in the local currency of the
purchaser of the Direct Connect unit (the "Unit Compensation").
This shall further confirm that the Employment Agreement provides for
the payment of agreed upon compensation to the Employee for his services
rendered thereunder, but that such compensation does not include the payment of
Unit Compensation to the Employee. Notwithstanding the Employment Agreement:
1. the Company agrees to continue to pay the Unit Compensation to the Employee;
2. the Company may discontinue payment of the Unit Compensation to the Employee,
at any time, for any reason whatsoever, immediately upon notice to the Employee
(the "Termination Date");
3. in the event the Company discontinues payment of Unit Compensation to the
Employee, the Company shall continue to pay Unit Compensation to the Employee
for a period of 90 days from the Termination Date; and
4. except as set forth herein, the Employee shall have no right to the payment
of Unit Compensation.
PHON-NET.COM, INC.
By: /s/ Brian Collins /s/ Sloan Young
----------------------------- -------------------------
Brian Collins, CEO Sloan Young
8
LICENSE AGREEMENT
ENTERED INTO IN MONTREAL, this 8th day of September, 1999.
BETWEEN: PHON-NET.COM, INC., a Florida corporation duly constituted
under the laws of Florida, having its head office or principal
place of business at 600-750 W.Pender St., Vancouver, BC, V6C
2T7
(hereinafter referred to as the "LICENSOR")
AND: G.T.C. TRANSCONTINENTAL GROUP LTD., a corporation duly
constituted under the laws of Canada, having its head office
or principal place of business at 1 Place Ville Marie, Suite
3315, Montreal, Quebec, H3B 3N2
(hereinafter referred to as the "LICENSEE")
PREAMBLE
--------
WHEREAS the Licensor has created and is the owner of the "Direct Connect"
software (the "Software") that enables a detailed description of the Software's
functionalities and specifications being attached to this License Agreement (the
"Agreement") and identified as Schedule A;
WHEREAS Licensee intends to use the Software in conjunction with Licensee's
other licensed software enabling coupon data capture in its Ad-bag.ca business
operations;
WHEREAS the Licensor agrees to license the Licensee with the Software, subject
to the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the aforementioned premises and the mutual
covenants hereinafter set forth, the Preamble forming integral part of this
Agreement, the parties agree as follows:
SECTION 1
DEFINITIONS
-----------
1.1. For the purposes of the Agreement, unless otherwise expressly provided,
the following terms shall have the meaning set forth below:
"Effective Date" means the date referred to at the
beginning of the present Agreement;
2
<PAGE>
"License Fee" means the costs charged to the Licensee as
described in section 3 and Schedule B
hereof;
"Licensed Know-How" means and includes any and all technical
information, processes, uses, compositions,
detailed design information and any and all
modifications, improvements and
developments thereof owned by the Licensor
and necessary for the use of the Software;
"Licensee's Core Business" means Licensee's business of allowing
manufacturers, retailers, product and
service marketers and packaged goods
companies to distribute secure targeted
coupons and targeted promotions to
consumers via the Internet and, more
particularly, providing the necessary
products and services to (i) allow
consumers to use an internet browser
plug-in to access client promotion coupon
from any web site or banner advertisement
and to download and print associated
household targeted and secure coupons (ii)
aggregate relevant electronic flyer offers
to consumers based on living area (iii)
design online advertising to reach
consumers in a specific area and (iv)
connect consumers to retailers by telephone
while viewing the retailer's web page;
"Territory" means Canada;
"User Database" means the database comprising of all
information generated through the use of
the Software pursuant to this Agreement,
during the term of this Agreement and any
renewal periods thereafter; and
SECTION 2
LICENSE AND RIGHTS PERTAINING TO THE SOFTWARE
---------------------------------------------
2.1. The Licensor represents and warrants that it has the rights to use and
license the Software, that the present license is granted to the Licensee
pursuant to and in respect of those foregoing rights and that the
Licensor has full power and authority to enter into and perform this
Agreement.
2.2. Subject to the terms and conditions of the present Agreement, the
Licensor grants to the Licensee during the term of this Agreement, the
exclusive right to use, market and sublicense the Software in the
Territory.
2.3 Licensee may later on enter into a non-exclusive license agreement to
use, market and sublicense the Software in the U.S.A. or any other
country under terms to be negotiated with Licensor. Licensee shall have a
right of first refusal for thirty (30) days to enter into an exclusive
license to use, market and sublicense the Software in other countries
than the U.S.A. and Canada in Licensee's Core Business under the same
terms as offered by a third party to Licensor, this to exclude the
countries of Japan, Korea, New Zealand, and Australia.
3
<PAGE>
SECTION 3
LICENSE FEE
-----------
3.1. For the duration of this Agreement and any renewal periods thereafter,
the Licensee shall pay to the Licensor, in Canadian funds, on a quarterly
basis, the License Fee, the amount and particulars of which are further
detailed in Schedule B annexed hereto and forming part of this Agreement.
SECTION 4
TERM AND TERMINATION
--------------------
4.1. Unless otherwise terminated and subject to subsection 4.2 hereof, this
Agreement shall end two (2) years from the date of execution of this
Agreement.
4.2. The Licensee may, in its sole discretion, renew the term of this
Agreement for an additional one (1) year period from the expiry of the
term provided for at subsection 4.1 hereof or any lesser or greater term
as may be agreed to by the parties, by providing at least thirty (30)
days written notice to the Licensor prior to the expiry of the term
provided for at subsection 4.1 hereof.
4.3. The Licensor or the Licensee may terminate this Agreement at any time,
after written notice, for breach or default by the other party, unless
the other party has remedied such breach or default to the satisfaction
of the party complaining, within thirty (30) days after receipt by the
breaching party of said written notice of such default. A waiver by a
party of its right to terminate this Agreement due to any particular
breach or default shall be construed as a continuing waiver. In the event
where the Licensor has breached the exclusivity granted to the Licensee
under subsection 2.2 hereof, the Licensee, after having provided a
written notice to the Licensor detailing the breach and providing a
reasonable period to cure such breach, shall be relieved from paying the
License Fee, until such a time where the Licensor has provided to the
Licensee assurances and evidence that such breach has been cured.
4.4. This Agreement shall be terminated as of right, without notice or
formality if (a) either party proceeds to a liquidation of its assets;
(b) either party hereto makes an assignment of all its property for the
general benefit of its creditors, or if a bankruptcy petition is filed
against it and a final judgment is rendered pronouncing its bankruptcy;
(c) if a receiver, trustee, liquidator or any person possessing similar
powers is appointed to administer or liquidate either party's assets.
4.5. No termination of this Agreement shall prejudice the Licensor's rights
hereunder to the License Fee provided for in subsection 3.1 and to the
User Database Royalties provided for in section 8, in respect of sales or
licensing agreements which have been concluded prior to the termination
of this Agreement but for which an invoice has not been issued or payment
has not been received, as the case may be.
4
<PAGE>
SECTION 5
CONFIDENTIALITY
---------------
5.1. The Licensor and the Licensee agree to treat as confidential any
information disclosed to the other as it relates to the system use and
marketing of the Software both during and after the duration of this
Agreement. The Licensor and the Licensee shall use reasonable care,
consistent with the measures taken to safeguard each of their own
confidential information, to ensure that, each of their directors,
officers, employees, agents, representatives and customers to whom
confidential information needs to be disclosed to allow full execution of
this Agreement, shall keep all such information confidential.
5.2. Additionally and notwithstanding the standard of confidentiality provided
for in subsection 5.1 hereof, the Licensee's actual and future business
strategy as it relates to the Software shall be treated as confidential
information by the Licensor in compliance with the terms and conditions
set forth in a certain confidentiality and non-use agreement executed on
June 21, 1999.
SECTION 6
OTHER OBLIGATIONS AND REPRESENTATIONS
-------------------------------------
6.1. Nothing in this Agreement shall be construed as:
(a) granting any license or rights to the Licensee other than those
rights granted hereby with respect to the Software; or
(b) creating a partnership or employer/employee relationship, but the
relationship between the parties is acknowledged and agreed to be
that of arm's length independent contractors contracting with each
other.
6.2. The Licensor warrants that within the Territory, the Software is not
infringing on any existing copyrights, patents or trade-marks owned by
third parties; if any claim is made against the Licensee or a sublicensee
concerning a possible infringement on existing similar software, the
Licensor agrees to forthwith indemnify and save the Licensee harmless of
and from any consequences that may reasonably flow therefrom in the form
of any actions or proceedings taken by third parties or others effected
as a result thereof. Without limiting the generality of the above, the
Licensor hereby expressly agrees to assume liability for, and to
indemnify, protect, and hold harmless the Licensee and its agents,
employees, and sublicensees against any and all losses, damages
(including punitive, special and consequential damages), liabilities,
expenses, costs (including reasonable attorneys' fees), penalties and
obligations, loss of expected revenues, arising out of or incurred in
connection with any reasonable claim, demand, action, suit or proceeding
of any kind by any third party in any way relating to the Software. For
the duration of this agreement, Licensor shall maintain an insurance
coverage of at least $1,000,000 to cover for third party claims of any
nature including copyright infringement, and will name Licensee as a
co-insured.
6.3. The Licensor represents and warrants that the Software is and shall be
fully Year 2000 Compliant in accordance with industry standards. Year
2000 Compliance means that the
5
<PAGE>
Software can accurately process date/time data (including, calculating,
comparing and sequencing) from, into and between the twentieth and
twenty-first centuries including the years 1999 and 2000 and leap year
calculations.
If the Software is not Year 2000 Compliant, the Licensee shall instruct
the Licensor to replace or modify, at the Licensor's expense, all
relevant elements so that the Software and its use by the Licensee
becomes Year 2000 Compliant within thirty (30) calendar days of notice to
the Licensor and the Licensor shall compensate the Licensee forthwith of
any loss of expected revenues linked, directly or indirectly, from the
inability of the Software to be Year 2000 Compliant.
6.4. The Licensor warrants that the Software shall be free from defects in
material and workmanship, and shall conform to the specifications and
functionalities set forth in Schedule A hereof. Furthermore, the Licensor
warrants that the Software shall conform to any other specifications,
drawing, samples or instructions given at any time and from time to time
by the Licensee, provided that conformity, as defined with consideration
to accepted industry standards, is achievable and provided the Licensor
is afforded the time necessary to complete the required work. The
Licensor shall compensate the Licensee forthwith of any loss of expected
revenues stemming from the inability of the Software to perform up to the
specifications described in Schedule A hereof and those required from
time to time by the Licensee.
6.5. During the term of this Agreement and any renewal periods thereafter, the
Licensor will provide to the Licensee, free of charge, any new updates of
the Software as well as any improvements made to the Software as soon as
those updates and improvements are completed and in any event no later
than two business days from their commercial release, or other official
release within any stage of the development process. As well, the
Licensor will provide the Licensee with the required level of support and
training.
6.6. During the term of this Agreement and any renewal periods thereafter, the
Licensee will be responsible for data entry, sales materials,
implementation, monitoring and maintaining a sales plan/program for the
Software, designing, building and managing a web site through which the
Software may be accessed via the Internet.
SECTION 7
RIGHTS TO THE USER DATABASE
---------------------------
7.1. The parties to this Agreement agree that the User Database and all
copyright and other intellectual and proprietary rights therein are and
will remain, through the duration of this Agreement and after its expiry,
the property of the Licensee.
7.2 Upon execution and during the term of this License Agreement, the
Licensor shall deposit, at its own costs, the most current version of
the source code and any supporting documentation in paper or other
suitable fixed form developed for the software (the "Materials") with a
trust company. In addition, the Licensor shall provide the trust company
from time to time improvements, modifications, updates or changes to the
Materials. In the event of a default such as bankruptcy, insolvency or
breach by Licensor, Licensor agrees to guarantee Licensee full and
6
<PAGE>
complete access to Software server based in Toronto for the full term of
the contract and any renewal periods of the contract. Licensee will
always be able to use to their fullest capacity the Software in the
listed territory for the duration of the contract. The Trust Company
will have access to the Materials to ensure 100% term use.
SECTION 8
REPRESENTATION AND CONTACT
--------------------------
8.1 Both the Licensee and the Licensor will designate a contact person
responsible for regular reviews of data and projections between the
Licensor and the Licensee in order for both parties to adequately perform
their respective obligations.
SECTION 9
GENERAL PROVISIONS
------------------
9.1. Any notices or requests which the parties may be required to give
pursuant to this Agreement shall be sent by telecopier or by registered
mail, postage prepaid, to the addresses set out below:
IF TO THE LICENSOR, AT:
-----------------------
Phon-Net.com, Inc.
600-750 W.Pender St.
Vancouver, BC
V6C 2T7
Attention: Brian Collins
President and CEO
Telephone: (604) 437-3787
Fax: (604) 437-3070
IF TO THE LICENSEE, AT:
-----------------------
G.T.C. Transcontinental Group Ltd.
1 Place Ville-Marie
Suite 3315
Montreal, Quebec
H3B 3N2
Attention: Mario Mrvica
Director, Marketing and Development
Telephone: (514) 954-4011
Fax: (514) 954-4038
WITH A COPY TO:
7
<PAGE>
Mr. Yvon Bolduc, Vice-President, Legal Affairs and Secretary
Telephone: (514) 954-4000
Fax: (514) 954-4016
and shall be deemed to have been received three (3) days after the date
of mailing or fax.
9.2. This Agreement sets forth the entire agreement and understanding between
the parties as to the subject matter hereof and neither of the parties
shall be bound by any conditions, definitions, warranties or
representation with respect to the subject matter hereof, other than as
expressly provided in this Agreement.
9.3. This Agreement shall be governed by and interpreted in accordance with
the laws of Quebec and the laws of Canada applicable therein.
9.4. In the event that any section or subsection is held to be invalid or
unenforceable or inapplicable by a court of competent jurisdiction, such
invalidity or unenforceability shall not affect the remainder of the
provisions hereof, but such part shall be fully severable, and this
Agreement shall be construed and enforced as if such invalid or
unenforceable or inapplicable part had never been inserted herein and the
parties do hereby agree that they would have signed this Agreement
without such invalid or unenforceable part included herein.
9.5. This Agreement will be binding upon the respective parties hereto, and
their assignees, provided that neither party shall assign this Agreement
or any rights herein without the other party's written consent. It is
understood however that Licensee shall have the right to assign this
Agreement to one of its affiliates upon written notice to Licensor.
9.6. The obligations in section 5 and in subsections 6.2 and 6.4 shall survive
the termination of this Agreement.
IN WITNESS WHEREOF the parties have caused this Agreement to be executed by
their respective officers duly authorized, as of the date first mentioned in
this Agreement.
(Licensor) PHON-NET.COM, INC.
Per: /s/ Brian Collins
--------------------------------
Name: Brian Collins
Title: President and CEO
(Licensee) G.T.C. TRANSCONTINENTAL GROUP LTD.
Per: /s/ Mario Mrvica
--------------------------------
Name: Mario Mrvica
Title: Director, Marketing and Development
8
<PAGE>
SCHEDULE A
----------
SPECIFICATIONS OF THE SOFTWARE
------------------------------
The DIRECT CONNECT software, developed by PHON-NET.COM and Quad-Linq Software is
designed to:
1) Allows CONSUMERS, using a single line phone/modem connection to the
Internet, to utilize the features of the DIRECT CONNECT software.
2) Allows BUSINESSES, using a DIRECT CONNECT license (one-year term), to
set up DIRECT CONNECT icons on their business web pages, allowing
consumers to utilize the features of the DIRECT CONNECT software.
CONSUMERS FEATURES AND BENEFITS INCLUDE:
- ---------
- - DIRECT CONNECT software is free to all consumers.
- - DIRECT CONNECT software installs the first time the icon is used.
- - DIRECT CONNECT software will automatically upgrade to the newest version when
clicked any time after the initial installation. - DIRECT CONNECT features a
direct (voice) connection, allowing consumers to connect to businesses from the
Internet by placing a regular phone call with their single line phone/modem
connection while viewing the business' web page. Specifically:
a) Controls modem/phone connection.
b) Auto dials the business.
c) Alerts you to pick up the phone.
d) Allows the consumer to view the web page and talk to
business simultaneously.
e) When finished, the consumer hangs up and clicks the "DONE"
button.
f) The Internet link is re-established.
g) The Consumer can now talk to businesses without logging on
or off the Internet.
9
<PAGE>
- - DIRECT CONNECT also features an email option for consumers to receive an email
of the business' specials, promotions, coupons, and/or information from a
business by using the e-commerce (email) button. The consumer is able to enter
any email address to receive the e-commerce email from the business. - DIRECT
CONNECT'S Voice mail feature, when used by the consumer is identical to the
direct (voice) connection, except the call is placed to the business' message
service or/and answering machine.
- - Consumers will have free technical support (during designated business
hours) available Toll free in Canada and the USA.
DOWNLOAD SPEED COMPARISONS
- --------------------------
Current Size of Direct Connect: 348 KB
MODEM MAXIMUM RATE APPROXIMATE TIME TO DOWNLOAD IN MINUTES
AND SECONDS (MM:SS)
RATING OF DOWNLOAD * ACTUAL SIZE DOWNLOAD SIZE **
56,600 ** 6.5 KB/second 00:54 01:24
33,600 4.2 KB/second 01:24 02:06
28,800 3.6 KB/second 01:36 02:30
BUSINESS FEATURES AND BENEFITS INCLUDE:
- --------
<TABLE>
<CAPTION>
<S> <C>
- - The business will receive a one-year license for each DIRECT CONNECT account.
- - Unlimited use of each DIRECT CONNECT account on business web pages.
- - Easy to set up by a virtual on-line program.
- - 24 hr. a day, 7 days a week access to each DIRECT CONNECT account with complete control over account
information and features.
- - Illustrated printable instruction manual.
- - Technical support (during designated business hours) available toll free in Canada and the USA.
- - Technical support and/or training (during designated business hours) as
required, will be provided for Adbag.ca and the staff of Adbag.ca.
</TABLE>
Each account will include the features of:
<TABLE>
<CAPTION>
<S> <C>
- - A direct (voice) connection to any telephone number used by the business. A
second telephone number option is available and will be used by the
software if the consumer should get a busy signals from the primary
telephone number.
- - Email specials of unlimited length can be composed in standard ASCII
characters by the business for consumers to request and receive.
- - Voice mail: any telephone number and/or answering service may be used by business.
</TABLE>
10
<PAGE>
Development of new value added features for the DIRECT CONNECT software will
include, but will not be limited to: a ten telephone number memory call back
button and a ten telephone number, consumer programmable phone book. A release
date for these new features is not currently available.
DIRECT CONNECT is designed to work with a consumer's existing hardware. No
guarantee of service is offered if the consumer has no data modem with a regular
touch tone phone, or if single phone line is shared with a fax and/or custom fax
software, or if Internet connection is by ISDN, ADSL and/or cable modem, or if
computer is part of a LAN (Local Area Network) or WAN (Wide Area Network), or
any other hardware/software not identified as common for consumers. If a
consumer does not meet the pre-requisites needed to utilize the Direct Connect
software, the Direct Connect software, upon not find a modem, will assume the
consumer has a phone line available, and will display the business phone number
attached to the Direct Connect license.
INTERFACE AND INSTRUCTIONS for the Direct Connect software will be modified
jointly by both parties for clarity and understanding from the consumer's point
of view.
DIRECT CONNECT software is designed and tested to work with Windows 95 and
Windows 98 only. All operating systems including Unix and Macintosh may work
when running Microsoft Windows, however the software is not tested or supported
for alternative operating systems.
DIRECT CONNECT is designed to work with Java enabled Microsoft Internet Explorer
and Netscape Navigator. Pre-Java versions will not function properly with the
software.
ALTHOUGH DIRECT CONNECT MAY WORK WITH UNCOMMON AND/OR CUSTOM HARDWARE/SOFTWARE
------------------------------------------------------------------------------
USED BY CONSUMERS, DIRECT CONNECT IS DESIGNED FOR STANDARD COMPUTERS, STANDARD
------------------------------------------------------------------------------
DIAL-UP CONNECTIONS, AND A TOUCH TONE PHONE (CONNECTED TO THE MODEM
-------------------------------------------------------------------
AND/OR SAME TELEPHONE NUMBER).
------------------------------
11
<PAGE>
SCHEDULE B
----------
PARTICULARS OF THE LICENSING FEE
--------------------------------
Distributors/Sub-distributors selling DIRECT CONNECT licenses to businesses will
have a distributor account with as many as required number of blank accounts set
up to distribute to the businesses. All accounts will be available to
view/control by the Distributors/Sub-distributors on a master log-on screen.
PHON-NET.COM reserves the right to access all master log-on screens to verify
accounts purchased/invoiced.
PURCHASE PRICE
--------------
Transcontinental can purchase each unit for $80.00 CDN Funds, per year plus
taxes if applicable.
12
<PAGE>
SCHEDULE C
----------
COMPARISON OF CLOSEST COMPETITOR
--------------------------------
<TABLE>
<CAPTION>
===============================================================================================================
PHON-NET.COM'S VOICE OVER IP
DIRECT CONNECT ALTERNATIVE
===============================================================================================================
<S> <C> <C> <C>
SETUP Easy. Easy.
350kb - 2 minute download using 56k modem. 1250kb - 10 minute download using 56k modem.
Automated software (instant install). Manual software (activated by user)
NO REGISTRATION REQUIRED. Registration required (name, address and a
NO CREDIT CARD REQUIRED. lot of personal information).
NO PREPAYMENT REQUIRED. Credit card required.
===============================================================================================================
COST SOFTWARE - free to consumers. SOFTWARE - free to consumers. Account must
NO ACCOUNT NECESSARY. have $100 minimum to start.
Businesses charged an annual fee of Businesses charged an annual fee of $US
$US 149.95 (or less, depending on $US 500.00 (or more, depending on size of call
promotions) to put a direct-link icon center) to put a direct-link icon on Web page.
on Web page.
Consumer uses current telephone company Long distance charges to anyone using
while viewing web page. system with rates controlled by the company
and charged to your credit card.
LOCAL CALLS - FREE. Local calls - 4.9 cents per minute*.
Long distance calls - As per consumer's long Long distance calls - 4.9 cents per minute*.
distance carrier.
Toll free (1-800) calls - MOST are free,
otherwise 4.9 cents per minute*.
TOLL FREE (1-800) CALLS - FREE
===============================================================================================================
HARDWARE USES EXISTING HARDWARE. Requires a sound card, speakers and
& SOFTWARE Software is small and quick to download. microphone.
13
<PAGE>
===============================================================================================================
REQUIREMENTS Easy to install and use. Software is bulky and takes up to 5-6 times
longer to download.
Easy to install and use.
===============================================================================================================
SECURITY USES CONSUMER'S OWN PHONE TO PLACE THE CALL. Uses Internet, platform and company's phone
switches.
Purchases are secure.
Internet security issues still relevant.
===============================================================================================================
UPDATES INSTANT AND AUTOMATED. Notification of changes for long distance
charges are dependent on the company
e-mailing consumer with information.
Updates are not guaranteed.
===============================================================================================================
SOUND USES CONSUMER'S OWN PHONE. Filters through the Internet and switches.
QUALITY CALLS ARE AS CRISP AND CLEAR AS CAN NORMALLY Comparable to a static radio phone.
BE EXPECTED.
===============================================================================================================
SUMMARY FREE TO CONSUMERS. 24 hour voice mail.
Directly connect to business. Easy installation.
24 hour voice mail. Although software is free, revenue is
E-specials available. created through long distance and local
Auto-notification before commencing any long charges.
distance (toll) call. Cost of long distance and local calls is
Easy installation. controlled by this company.
Small and automated (works like a plug-in). Registration required.
Toll-free technical help desk. Credit card required.
Instantaneous updates. When asked about the poor sound quality of
the call, answer was "the system is new and
will be improved at a later date."
===============================================================================================================
</TABLE>
14
DISTRIBUTION AGREEMENT
----------------------
This Distribution Agreement ("Agreement") is made this 8th day of
September 1999, by and between PHON-NET.COM, Inc., a Florida corporation
("PHON-NET"), and Wazzu Corporation. ("Distributor").
RECITALS
--------
WHEREAS, PHON-NET is the owner of a software program called DIRECT
CONNECT ("Software").
WHEREAS, the Software permits calls to be made, using a modem and
single touch tone phone line, from the Internet, by causing a temporary
interruption of the Internet connection, and placing a call to a designated
number, determined by a limited license account, allowing the computer user to
engage in conversation while viewing their (business) web page, using a phone
and regular phone call, with a sales or marketing agent or any designate of the
web site owner or agent, and to re-establish connection by clicking an icon on a
web page or by whatever means currently exist within the Software, now or later,
and to allow computer user to utilize an e-coupon/information feature, a voice
mail feature, and any other feature that may be available now or later.
WHEREAS, the management of Distributor has sales and marketing
expertise.
WHEREAS, PHON-NET desires to engage Distributor as the non-exclusive
value added reseller/distributor of the Software throughout only the U.S.A.. All
other countries need prior written approval from PHON-NET to Distributor.
NOW, THEREFORE, the parties have agreed as follows:
1. APPOINTMENT. PHON-NET grants Distributor the non-exclusive right to
distribute, market and license the Software throughout the U.S.A. only, in
accordance with the terms and conditions of this Agreement.
2. OBLIGATIONS OF PHON-NET.COM
A) PROMOTIONAL MATERIAL. PHON-NET will provide Distributor with draft
marketing materials for use in marketing, installing and using the
Software, without charge to Distributor.
B) BUG FIXES. PHON-NET will provide and handle all bug fixes for the
Software, without charge to Distributor or any of its customers.
C) ENHANCEMENTS. PHON-NET, at its sole discretion, may provide
Distributor with enhancements for the Software, without cost to
Distributor or any of its customers.
D) TRAINING. PHON-NET will provide Distributor with technical training
without charge as requested from time to time by Distributor. All
technical support provided by PHON-NET to all customers.
E) RESERVED RIGHTS. PHON-NET reserves the right to substantially modify
the Software for the purpose of eliminating any code, which infringes
any third party's proprietary rights. In such event that a
modification is made by PHON-NET, PHON-NET agrees to provide such
number of free limited license units of Software that Distributor can
provide copies to all customers who currently hold a limited license
unit of Software that has not expired prior to the date the Software
is modified.
F) TECHNICAL REQUIREMENTS. PHON-NET shall ensure the technical
requirements for installing and running the Software and all technical
support for each customer are performed and provided by PHON-NET.
G) SOFTWARE SUPPORT. PHON-NET will provide full and complete Software
Support to all customers of the Software by providing a toll free
telephone number that will be staffed for a minimum of eight (8) hours
per day, seven days per week.
<PAGE>
3. OBLIGATIONS OF DISTRIBUTOR. Distributor will bear all expenses for its
operation and staff. Distributor will use best efforts to advertise and
promote the Software, including but not limited to the method of promotion
as set out in EXHIBIT "C", at Distributor's expense, and to license the
Software. Distributor may prepare marketing materials, which PHON-NET and
Distributor jointly shall review and approve prior to use. Any and all
marketing materials created and prepared by or for Distributor shall be
exclusively owned by PHON-NET, and any of its other value added resellers
or any third party shall have rights to those materials developed and owned
by PHON-NET, including, but not limited to, intellectual property rights
such as copyrights.
4. DEMONSTRATION COPIES. PHON-NET will provide 5 samples licenses for
demonstration purposes for the term of this agreement.
5. PRICE AND PAYMENT. PHON-NET will sell to Distributor and Distributor will
purchase from PHON-NET, Software on the following terms and conditions:
a) Orders and payment for the Software shall be as follows:
i) Distributor shall acquire limited use license for the Software as
set forth in EXHIBIT "A" attached hereto.
ii) The parties to this Agreement contemplate that the customer of
Distributor shall be charged an installation charge, monthly
charge and transaction charge as set forth in EXHIBIT "B".
Distributor shall pay PHON-NET the amounts set forth in EXHIBIT
"B" for each limited license unit of Software electronically
activated by PHON-NET, there being no charge for any monthly
charge or transaction fee, if any, that Distributor may charge
its customers. Distributor shall make payment for the Software by
check within ten (10) days of the end of the month for the
installation charges on new sales of Software licenses activated
by PHON-NET made in the prior calendar month. For example,
Distributor shall make payment on October 10, 1999 for charges
invoiced by each party in the month of September 1999. PHON-NET
may change the charges set forth on EXHIBIT "B" upon thirty (30)
days prior written notice. Distributor must disclose all final
sale figures and revenues to PHON-NET.
b) PHON-NET may add or delete Products from EXHIBIT "A" from time to
time; provided, however, Distributor shall be given fifteen (15) days
notice of any Software added or deleted, or changes in the license
thereto.
c) PHON-NET shall electronically activate the Software in the form of
blank license accounts, as required by Distributor's sales, and that
means to distribute, electronically by e-mail and manually by phone or
fax or mail or any other applicable means, all purchased accounts will
be provided to Distributor by PHON-NET. Orders may be placed by the
Distributor for any quantities at any time, provided such orders are
set forth in writing. PHON-NET shall confirm the orders with
Distributor prior to electronically activating the customer's license.
Distributor shall have the right to cancel all or any portion of any
order prior to electronic activation of the customer Software
license(s). PHON-NET shall use its best efforts to electronically
activate each customer's license account as soon as practicable, but
in all cases within 72 hours of date of order provided PHON-NET has
the appropriate client information. In the event that PHON-NET does
not have the ability to electronically activate the Software license
within 72 hours, it shall immediately inform Distributor in writing,
and Distributor shall pay the license fee to PHON-NET when such
Software is electronically activated.
6. PRODUCT PROMOTION; COSTS OF PROMOTION. Distributor agrees to take all steps
reasonably necessary to continue to protect the corporate image of the
Software and of the name of PHON-NET. Distributor agrees to provide
PHON-NET with all promotional and advertising materials that Distributor
may produce for the advertisement, promotion or sale of the Software prior
to the use thereof. PHON-NET has the right, in its sole discretion, to
approve or disapprove of the use of the promotional and advertising
materials. Distributor agrees to use no other promotional and advertising
materials relating to the Software unless it has first obtained the consent
to use such promotional and advertising materials from PHON-NET.
Distributor agrees to bear all costs and expenses related to the
promotional and advertising materials.
2
<PAGE>
7. LIMITATION OF LIABILITY. In no event shall either party be liable for any
indirect, special or consequential damages (including but not limited to
loss of anticipated profits) in connection with or arising out of this
Agreement or the furnishing, functioning, use, distribution or marketing of
the Software or any related item or service provided by PHON-NET or
Distributor.
8. TERM AND TERMINATION. This Agreement shall not be terminated or subject to
cancellation by either party for before September 8th, 2000, except as
provided for herein below.
a) Either party has materially defaulted on or breached any section of
this Agreement which has not been cured within ten (10) business days
of notice of the material default or breach alleged by the notifying
party;
b) Either party becomes insolvent, bankrupt or the subject of a
receivership;
c) Either party makes a general assignment for the benefit of creditors;
d) Mutual consent of the parties;
9. RELATIONSHIP OF PARTIES. Neither PHON-NET nor Distributor is authorized to
oblige the other party or act in the name of the other party other than as
stated in this Agreement. The Agreement does not create a joint venture,
partnership or association.
10. PROPRIETARY RIGHTS.
a) OWNERSHIP BY PHON-NET. The parties agree that PHON-NET owns all
proprietary rights, including copyrights, patents and trade secrets,
in and to the Software and that this Agreement does not transfer
ownership of any of these rights.
b) LIMITATION ON USE OF SOFTWARE. Distributor will use all computer
programs, documentation and information consisting of or containing
proprietary information related to the Software solely for the purpose
of performing under this Agreement if provided by PHON-NET.
Distributor will not modify or cause others to modify the Software,
without the prior written consent of PHON-NET.
11. INDEMNIFICATION. PHON-NET shall indemnify and hold harmless Distributor
against any and all liability, suits, claims, losses, damages and
judgements, and shall pay all costs (including reasonable attorney's fees)
and damages to the extent that such liability, costs or damages arise from
a claim that the Software infringes any third party's United States patent
or copyright. PHON-NET, at its option, may defend or settle any such
action, or any part thereof brought against Distributor arising from a
claim that such infringement as described herein has occurred. PHON-NET's
obligations under this Section are conditioned upon its being given (i)
prompt notice of each such claim received in writing by Distributor and
(ii) the right to control and direct the investigation, defense and
settlement of each such claim. The provisions of this Section shall survive
any termination of this Agreement.
12. NO WARRANTY TO DISTRIBUTOR. PHON-NET PROVIDES DISTRIBUTOR NO WARRANTIES,
CONDITIONS, GUARANTEES OR REPRESENTATIONS AS TO MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTIES, CONDITIONS, GUARANTEES OR
REPRESENTATIONS, EXPRESS OR IMPLIED, ORAL OR IN WRITING, REGARDING THE
SOFTWARE, ITS PERFORMANCE OR OTHERWISE RELATED TO THIS AGREEMENT.
13. ATTORNEY'S FEES. The parties will bear their own legal fees and costs in
connection with the disputed, negotiations and document preparation leading
up to and covered by this Agreement. If any party institutes any action or
proceeding in connection with this Agreement, the prevailing party shall be
entitled, in addition to such other relief as may be granted, to be
reimbursed by the losing party for all costs and expenses incurred thereby,
including, but not limited to, reasonable attorney's fees (including
pre-judgement and post-judgement) and costs.
3
<PAGE>
14. ENTIRE AGREEMENT. Except as provided herein, this Agreement is the entire
agreement between the parties, and all prior negotiations, representations
or agreements between the parties are merged into this Agreement.
15. SEVERABILITY. The invalidity, in whole or in part, of any provision of this
Agreement shall not affect the validity or enforceability of any other of
its provisions.
16. HEADINGS. The paragraph or section headings in this Agreement are used for
convenience only. They form no part of this Agreement and are in no way
intended to alter or affect the meaning of this Agreement.
17. APPLICABLE LAW; VENUE. This Agreement shall be construed in accordance with
and all disputes hereunder shall be governed by the laws of the State of
Florida and the United States of America. All actions or proceedings
connected with this Agreement shall be brought only in the Federal court of
the United States of America. The parties, including any assignee of this
Agreement, hereby consent to the jurisdiction and venue of such courts.
18. COUNTERPARTS. This Agreement may be executed in two or more counterparts,
each of which shall be an original, but all of which shall constitute one
and the same instrument.
19. BINDING EFFECT. This Agreement shall bind and inure to the benefit of the
heirs, personal representatives, successors and permitted assigns of the
parties.
20. NOTICES.
a) COMMUNICATION. All notices, requests, demands, or other communications
under the Agreement shall be in writing. Notice shall be sufficiently
given for all purposes as follows:
i) PERSONAL DELIVERY. When personally delivered to the recipient.
Notice is effective on delivery.
ii) FIRST-CLASS MAIL. When mailed first class to the last address of
the recipient known to the party giving notice. Notice is
effective three (3) mail delivery days after deposit in a United
States Postal Service office or mailbox.
iii) CERTIFIED MAIL. When mailed certified mail, return receipt
requested. Notice is effective on receipt, if delivery is
confirmed by a return receipt.
iv) OVERNIGHT DELIVERY. When delivered by overnight delivery Federal
Express/Airborne/United Parcel Service/DHL WorldWide Express,
charges prepaid or charged to the sender's account. Notice is
effective on delivery, if delivery is confirmed by the delivery
service.
v) TELEX OR FACSIMILE TRANSMISSION. When sent by telex or fax to the
last telex or fax number of the recipient known to the party
giving notice. Notice is effective on receipt, provided that (a)
a duplicate copy of the notice is promptly given by first-class
or certified mail or by overnight delivery, or (b) the receiving
party delivers a written confirmation of receipt. Any notice
given by telex or fax shall be deemed received on the next
business day if it is received after 5:00 p.m. (recipient's time)
or on a nonbusiness day. Addresses for purposes of giving notice
are as follows:
Distributor: WILL GET THIS INFORMATION
PHON-NET: Mr. Brian Collins, President
PHON-NET.COM
600-750 West Pender Street
Vancouver, British Columbia
Canada V6C 2T7
Facsimile (604) 437-3070
4
<PAGE>
b) Any correctly addressed notice that is refused, unclaimed, or
undeliverable because of an act or omission of the party to be notified
shall be deemed effective as of the first date that said notice was
refused, unclaimed, or deemed undeliverable by the postal authorities,
messenger, or overnight delivery service.
c) Any party may change its address or telex or fax number by giving the
other party notice of the change in any manner permitted by this
Agreement.
21. AMENDMENT. This Agreement and the exhibits set forth the entire
understanding of the parties with respect to the subject matter of this
Agreement and supersede all prior agreements, understandings and
negotiations with respect to the subject matter hereof. Any amendment to
this Agreement must be in writing and signed by both parties.
22. WAIVER. Failure by either party to enforce at any time or for any period of
time the provisions of this Agreement shall not be construed as a waiver of
such provisions, and shall in no way affect such party's right to later
enforce such provisions.
23. EXHIBITS. Each of the Exhibits described in this Agreement shall be deemed
to be incorporated herein by this reference as if fully set forth herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in duplicate
to be effective as of the date and year first above written.
"PHON-NET"
PHON-NET.COM, Inc.,
A Florida Corporation
By: /s/ Brian Collins
-----------------------------------------
Brian Collins, President and CEO
"Distributor"
WILL GET THIS INFORMATION
By: /s/ Jayme Amirie
-----------------------------------------
Jayme Amirie, CEO
5
<PAGE>
EXHIBIT A
---------
SOFTWARE LICENSE
PHON-NET.COM DIRECT CONNECT SOFTWARE LICENSE AGREEMENT
BY INSTALLING OR USING DIRECT CONNECT SOFTWARE (THE "PRODUCT"), THE INDIVIDUAL
OR ENTITY LICENSING THE PRODUCT ("LICENSEE") IS CONSENTING TO BE BOUND BY AND IS
BECOMING A PARTY TO THIS AGREEMENT. IF LICENSEE DOES NOT AGREE TO ALL OF THE
TERMS OF THIS AGREEMENT, THE LICENSEE MUST NOT INSTALL OR USE THE SOFTWARE.
1. LICENSE AGREEMENT. As used in this Agreement "Licensor" shall mean
PHON-NET.COM except under the following circumstance: if Licensee acquired the
Product through an authorized Distributor or as a bundled component of a third
party product or service, then such third party and/or Distributor shall be
Licensor.
2. RESTRICTIONS. Except as otherwise expressly permitted in this Agreement, or
in another PHON-NET.COM agreement to which Licensee is a party, Licensee may
not: (i) modify or create any derivative works of the Product or documentation,
including translation or localization; (ii) decompose, disassemble, reverse
engineer, or otherwise attempt to derive the source code for the Product; (iii)
redistribute, encumber, sell, rent, lease, sublicense, or otherwise transfer
rights to the Product; (iv) remove or alter any trademark, logo, copyright or
other proprietary notices, legends, symbols or labels in the Product; or (v)
publish any results of benchmark tests run on the Product to a third party
without PHON-NET.COM's prior written consent.
3. FEES. Purchase of the Product is for 12 months. Licensee will be notified of
expiry after 11 months with option to renew at whatever current market price is.
4. TERMINATION. Without prejudice to any other rights, Licensor may terminate
this Agreement if Licensee breaches any of its terms and conditions. Upon
termination, Licensor may delete license account.
5. PROPRIETARY RIGHTS. Title, ownership rights, and intellectual property rights
in the Product shall remain in PHON-NET.COM and/or its suppliers. Licensee
acknowledges such ownership and intellectual property rights and will not take
any action to jeopardize, limit or interfere in any manner with PHON-NET.COM's
or its suppliers' ownership of or rights with respect to the Product. The
Product is protected by copyright and other intellectual property laws and by
international treaties. Title and related rights in the content accessed through
the Product is the property of the applicable content owner and is protected by
applicable law. The license granted under this Agreement gives Licensee no
rights to such content.
6. DISCLAIMER OF WARRANTY. THE PRODUCT IS PROVIDED WITH A 365 DAY LICENSE, AND
WITH WARRANTIES THAT IT IS FREE OF DEFECTS, AS OUTLINED IN THE OWNER/TECHNICAL
MANUAL. MERCHANTABLE, FIT FOR A PARTICULAR PURPOSE OR NON-INFRINGING. SHOULD THE
PRODUCT PROVE DEFECTIVE IN ANY RESPECT, LICENSOR SHALL ASSUME THE RESPONSIBLITY
OF CORRECTING ANY SUCH DEFECT. NO USE OF THE PRODUCT IS AUTHORIZED HEREUNDER
EXCEPT UNDER THIS DISCLAIMER.
7. LIMITATION OF LIABILITY. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW,
IN NO EVENT WILL LICENSOR OR ITS SUPPLIERS OR RESELLERS BE LIABLE FOR ANY
INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE OF
OR INABILITY TO USE THE PRODUCT, INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS
OF GOODWILL, WORK STOPPAGE, COMPUTER FAILURE OR MALFUNCTION, OR ANY AND ALL
OTHER COMMERCIAL DAMAGES OR LOSSES, EVEN IF ADVISED OF THE POSSIBILITY THEREOF,
AND REGARDLESS OF THE LEGAL OR EQUITABLE THEORY (CONTRACT, TORT OR OTHERWISE)
UPON WHICH THE CLAIM IS BASED. IN ANY CASE, LICENSOR'S ENTIRE LIABILITY UNDER
ANY PROVISION OF THIS AGREEMENT SHALL NOT EXCEED IN THE AGGREGATE THE SUM OF THE
FEES LICENSEE PAID FOR THIS LICENSE (IF ANY).
8. MISCELLANEOUS. (a) This Agreement constitutes the entire agreement between
the parties concerning the subject matter hereof. (b) This Agreement may be
amended only by a writing signed by both parties. (c) Except to the extent
applicable law, if any, provides otherwise, this Agreement shall be governed by
the laws of the U.S.A. and CANADA, excluding its conflict of law provisions.
6
<PAGE>
EXHIBIT B
---------
Limited (one year) software license unit - $99.00 U.S. Dollars /each
Installation Charge - $0.00 U.S. Dollars
Monthly Charge - $0.00 U.S. Dollars
Per Transaction Charge $0.00 U.S. Dollars
7
<PAGE>
EXHIBIT C
---------
Distributor being a source of web page development and e-commerce solutions
for small and medium businesses in the U.S.A., Distributor agrees to
add the DIRECT CONNECT icon software limited license to all business
customer web pages (main index page) in Distributor's database for a
period of six months and to market for sale to said businesses for
continued limited license service of the Software.
PHON-NET.COM agrees to supply required number of limited licenses,
numbering approximately 20,000 (not to exceed 25,000), for a period of
six months, to Distributor's customers, to aid in promotion and sale of
the Software.
PHON-NET.COM and Distributor agrees to share and use the list of businesses
that receive the six month limited license Software for use in
promotion of the Software.
Thisagreement is based on providing limited license service to all members
of Distributor's database for an initial six months. Distributor agrees
to invoice all businesses that receive the limited license service,
within 30 days of the limited license service installation.
Promotion is not a six-month free limited license, but constitutes an
opportunity for businesses to receive 18 months of service for the cost
of twelve months of service. However businesses will not be obligated
to purchase a Software limited license for the installation and use of
the Software limited license in the first six months.
Any limited license issued to businesses and not purchase after the elapse
of six months, under the terms of this contract will be terminated. The
license issues under the terms of "EXHIBIT C" may be terminated at any
time it is determine that Distributor is unable to invoice businesses
or properly promote the sale of the software.
INDEPENDENT AUDITORS' CONSENT
We consent to the use in the Registration Statement of Phon-Net.com,
Inc. (formerly known as Phon-Net Corporation) on Form SB-2 of our review
engagement report dated July 15, 1999 on the consolidated balance sheets of
Phon-Net Corporation (formerly known as Phon-Net Corporation) as of April 30,
1999, and the consolidated statements of operations and deficit, cash flows and
stockholders' equity for the nine months then ended. We also consent to the use
of our audit report dated February 15, 1999 on the consolidated balance sheets
as of July 31, 1998 and 1997, and the consolidated statements of operations and
deficit, cash flows and stockholders' equity for the periods ended July 31,
1998, 1997 and 1996.
In addition, we also consent to the reference to us under the heading
"Experts" in such Registration Statement.
/S/ MORGAN & COMPANY
- --------------------
MORGAN & COMPANY
Chartered Accountants
Vancouver, British Columbia
November 16, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS OF PHON-NET.COM, INC. FOR THE YEAR ENDED JULY 31, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> JUL-31-1999
<CASH> 203,161
<SECURITIES> 0
<RECEIVABLES> 17,291
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 220,452
<PP&E> 96,297
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,507,781
<CURRENT-LIABILITIES> 247,893
<BONDS> 0
0
0
<COMMON> 4,487,388
<OTHER-SE> (3,228,513)
<TOTAL-LIABILITY-AND-EQUITY> 1,259,888
<SALES> 23,354
<TOTAL-REVENUES> 23,354
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,737,630
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,714,276)
<INCOME-TAX> 0
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