AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 2000
Registration No. 333-86031
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------------
AMENDMENT NO. 2 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, P.A.
350 East Las Olas Boulevard, Suite 1700
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. |_|
<PAGE>
<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 OFFERING PRICE(1) REGISTRATION FEE(1)
- -------------------- --------------- ---------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.001 per share 5,785,000 $0.20(1) $1,157,000 $321.65(2)
Common Stock, par value
$.001 per share 1,230,000(3) $3.56 $4,378,800 $1,217.31
Common Stock, par value
$.001 per share(4) 1,000,000(5) $.40 $400,000 $111.20
Common Stock, par value
$.001 per share(4) 1,000,000(5) $1.00 $1,000,000 $278.00
Total Registration Fee $1,928.16
</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) Fee previously paid.
(3) 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 February 28, 2000.
(4) Shares issuable upon exercise of options.
(5) Fee based upon exercise price of options.
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.
ii
<PAGE>
Subject to Completion March 3, 2000
PROSPECTUS
PHON-NET.COM, INC.
9,015,000 SHARES OF COMMON STOCK
This prospectus covers the 9,015,000 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 February 28, 2000, the closing bid price for our common stock
was $3.56.
-----------------------
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 4.
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 ____________, 2000
<PAGE>
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, Canada, Australia and New Zealand.
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
Common Stock Outstanding:
<S> <C>
Prior to the Offering .................................... 40,759,430 shares
After the Offering ...................................... 42,759,430 shares, including 2,000,000
shares covered by this prospectus that are
issuable upon exercise of options
Common Stock Reserved ........................................ 5,430,000 shares issuable upon exercise
of options that have been granted, and
2,572,500 shares issuable upon
conversion of promissory notes and
exercise of warrants issuable upon
conversion
</TABLE>
2
<PAGE>
SELECTED FINANCIAL DATA
The following summary of our financial information has been derived
from our audited financial statements that are included in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JULY 31, OCTOBER 31,
----------------------------- -----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $43,867 $120,904 $51 $16,790
Operating Expenses $5,919,358 $708,989 $256,444 $136,928
Net (Loss) $(5,875,491) $(588,085) $(256,393) $(120,138)
Net (Loss) Per Share $(0.35) $(0.04) $(0.01) $(0.01)
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 31,
---------------------------------
1999 1998
---- ----
<S> <C> <C>
Working Capital
(Deficit) $(226,401) $(30,903)
Total Assets $1,154,117 $1,413,421
Current Liabilities $252,463 $247,893
Notes Payable $36,452 $35,486
Shareholder's Equity
(Deficit) $901,654 $1,165,528
</TABLE>
3
<PAGE>
RISK FACTORS
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.
REVENUE GROWTH MAY NOT OCCUR ON SCHEDULE, AND, DEPENDING ON THE RATE OF REVENUE
GROWTH, OUR CONTINUED NET LOSSES COULD HINDER OUR ABILITY TO OBTAIN ADDITIONAL
FINANCING
We anticipate that we will begin to receive material license fee
revenues from our product distributors during the second calendar quarter of
2000. Our operations, particularly product development and marketing, are
capital intensive, and our growth will consume a substantial portion of our
available working capital. Prior to our receipt of license fee revenues, we will
be required to fund our operations through borrowings and sales of our
securities, the required amount of which will depend upon the timing and rate at
which we are able to generate revenues from operations. For the fiscal years
ended July 31, 1999 and 1998, we experienced net losses of $(5,875,491) and
$(588,085), respectively. To the extent that additional funding is required to
implement our business plans, our net losses may make obtaining additional
funding more difficult and we may be required to accept funding on terms less
favorable to us than had we achieved profitable operations.
IF THE MARKETING EFFORTS OF THIRD PARTIES TO WHOM WE HAVE GRANTED DISTRIBUTION
RIGHTS ARE NOT SUCCESSFUL, WE CANNOT ACHIEVE PROFITABILITY
We have granted third parties the right to license and distribute our
Direct Connect software in the United States, Canada, Australia and New Zealand.
We intend to grant additional distribution arrangements in other parts of the
world. These marketing arrangements enable us to take advantage of the existing
broad customer bases of our distributors, without expending the financial and
other resources we would be required to expend in order to develop our own
customer base. As a result of these distribution arrangements, we are dependent
on the efforts of third party distributors of our revenues. To the extent that
third party distributors are delayed or unsuccessful in marketing Direct
Connect, market penetration of our product will be delayed, we may require
additional funding in order to sustain operations pending our receipt of license
fee revenues from distributors, and our financial condition will be adversely
affected.
4
<PAGE>
DURING THE LAG TIME BETWEEN OUR EXECUTION OF LICENSE AND DISTRIBUTION
AGREEMENTS, THE DEVELOPMENT OF RELATED MARKETING PROGRAMS AND OUR RECEIPT OF
FEES FROM THOSE AGREEMENTS, WE MAY REQUIRE ADDITIONAL FUNDING IN ORDER TO
SUSTAIN OUR OPERATIONS
We have entered into several agreements granting third parties the
right to market our Direct Connect product. There will be a time delay between
the time we signed those agreements and our receipt of fee income from the
agreements. We anticipate that fee income will begin to be generated during the
second and third quarters of calendar year 2000. However, we may need additional
funding prior to our receipt of sufficient fee income in order for us to sustain
our operations. We cannot predict whether additional funding, if needed, will be
available to us on favorable terms.
WE DEPEND ON ONLY ONE PERSON FOR SUBSTANTIALLY ALL OF OUR SALES AND MARKETING
EFFORTS, AS A RESULT OF WHICH OUR MARKETING CAPABILITIES ARE LIMITED; AND IF WE
LOSE THE SERVICES OF THAT PERSON, OUR OPERATIONS AND FINANCIAL RESULTS WILL BE
ADVERSELY AFFECTED
Brian Collins, who conceived the technology used in our Direct Connect
software, is our only employee engaged in sales and marketing activities. As a
result, our marketing efforts may not have developed as quickly and effectively
as if we had engaged a team of full-time sales and marketing personnel. In order
to preserve the funds available to us, we do not intend to supplement our sales
and marketing force at this time. In the event we lose the services of Mr.
Collins for any reason, we will also lose additional time while we seek and
recruit other qualified sales and marketing persons to replace him. This delay
could enable others to develop similar products to ours, and result in
additional competition and a loss of revenues to us.
THE LICENSE AND DISTRIBUTION AGREEMENTS WE HAVE ENTERED INTO GENERALLY PROVIDE
FOR SHORT INITIAL TERMS, AND IF THEY ARE NOT RENEWED UPON EXPIRATION, WE WILL BE
FORCED TO DEVELOP NEW MARKETING ALLIANCES AND CAPABILITIES
Most of the license and distribution agreements we have entered into
provide for an initial term of one year. Upon expiration of the initial term,
the other parties to the agreements generally have the ability to renew the
agreements. If one or more of the agreements is not renewed, we will be forced
to seek other parties to replace the non-renewing parties. This could delay our
penetration of the markets covered by the agreements that are not renewed, and
could serve to delay our receipt of revenues from the territories covered by
those agreements. We do not know whether any of our license and distribution
agreements will be renewed upon expiration of their initial terms.
5
<PAGE>
OUR DIRECT CONNECT SOFTWARE IS DESIGNED EXCLUSIVELY FOR CONSUMERS AND BUSINESSES
THAT USE THE INTERNET, AND OUR PROSPECTS FOR SUCCESS DEPEND UPON THE CONTINUED
USE AND ACCEPTANCE OF THE INTERNET AS A MEDIUM FOR COMMERCE
Direct Connect was developed as a tool for consumers and business who
engage in e- commerce. The e-commerce marketplace is a new and emerging market.
Revenues to be derived by us from Direct Connect license fees depends upon
continued use of the Internet and growth of e-commerce. 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 rely upon the same technology. In the event of
unforeseen adverse events in the development, enhancement, marketing or
acceptance of Direct Connect, 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.
OUR INABILITY TO MANAGE GROWTH COULD HURT OUR RESULTS OF OPERATIONS
Expansion of our operations will be required to address anticipated
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, and we 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 and 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 we deem 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.
SHARES OFFERED BY THIS PROSPECTUS AND THOSE AVAILABLE FOR SALE UNDER RULE 144
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 9,015,000 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.
6
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of October 31,
1999. The table should be read in conjunction with our consolidated financial
statements and related notes included elsewhere in this prospectus. The table
does not give effect to:
o the sale of $600,250 principal amount of our 8% promissory
notes in January 2000;
o the issuance of up to 4,430,000 shares in the event options
that have been granted, are exercised;
o the issuance of up to 2,572,500 shares in the event
outstanding promissory notes are converted and common stock
purchase warrants issuable upon conversion, are exercised; and
o the issuance of 4,732,000 shares subsequent to October 31,
1999.
<TABLE>
<CAPTION>
OCTOBER 31, 1999
----------------
<S> <C>
Notes Payable $36,452
------------
Shareholder's equity (deficit):
Common Stock, $.001 par value,
80,000,000 shares authorized,
36,027,430 shares issued and
outstanding $8,029,160
Preferred Stock, $.01 par value,
10,000,000 shares authorized,
no shares issued or outstanding - 0 -
Accumulated deficit (7,121,038)
Translation Adjustment (6,468)
------------
Total shareholder's equity $901,654
------------
Total capitalization $938,106
============
</TABLE>
USE OF PROCEEDS
We will not receive any proceeds upon the sale of shares by the selling
securityholders.
7
<PAGE>
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 February 28, 2000 is also shown. Until January 1998, the symbol for our
common stock was "XGAG". The quotations reflect inter- dealer prices, without
retail mark-up, mark-down or commissions, and may not represent actual
transactions.
<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
October 1, 1999 - December 31, 1999 $.81 $.07
February 28, 2000 $3.56
</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.
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 and other
factors:
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; and
o the effects of coverage of our business or our management by the
press.
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
8
<PAGE>
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.
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
$43,867, a 64% decrease from revenues of $120,904 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 $(5,875,491) or
approximately $(.35) per share, compared to a net loss of $(588,085) or
approximately $(.04) per share for the 1998 fiscal year. The 899% increase in
our net loss was primarily attributable to reduced revenues and expenses we
incurred in developing, testing and preliminary marketing and promotion
activities relating to Direct Connect.
Expenses of $5,919,358 for the year ended July 31, 1999 reflect an
increase of 735% over expenses of $708,989 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.
9
<PAGE>
Three Months Ended October 31, 1999 Compared to Three Months Ended
October 31, 1998
For the three months ended October 31, 1999, we generated revenues of
$51, a 99% decrease from revenues of $16,790 for the three months ended October
31, 1998. This decrease was primarily caused by the time lag between our
entering into license and distribution agreements, the development of related
marketing programs and our receipt of revenues from those activities. In light
of the license and distribution agreements we have entered into, we do believe
that we will achieve substantial revenue growth and that historic revenues are
not indicative of future operating results.
For the 1999 third quarter, we incurred a net loss of $(256,393) or
approximately $(.01) per share, compared to a net loss of $(120,138) or
approximately $(.01) per share for the 1998 fiscal quarter. The 87% increase in
our net loss resulted from lower revenues due to the time lag described in the
preceding paragraph, and the wind-down of beta sales of products previously
under development, as well as higher development costs attributable to new
products.
Expenses of $256,444 for the three months ended October 31, 1999
reflect an increase of 87% over expenses of $136,928 incurred during the fiscal
year ended October 31, 1998. This increase in expenses results mainly from
increased development costs associated with our Internet software product.
LIQUIDITY, CAPITAL RESOURCES AND PLAN OF OPERATIONS
As of July 31, 1999 and 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.
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 October
31, 1999, we had cash reserves of approximately $8,912, and a working capital
deficit of $226,401. 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. 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 distribution agreements with Wazzu Corporation,
G.T.C. Transcontinental Group Ltd. and Brocker Technology Group (NZ) Limited
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.
10
<PAGE>
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. We have reviewed all software
and hardware used internally by us and have determined that they are year 2000
compliant and that our internal operations were not impacted by the year 2000
issue. Moreover, we were not required to expend material sums in order to assure
that our systems are year 2000 compliant. We have also confirmed that the
computer systems of third parties with whom we have material relationships were
not 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. It is possible that all adverse effects of the year 2000 issue have not yet
been discovered. We have not established a contingency plan in the event the
year 2000 issue has a future adverse affect on 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".
11
<PAGE>
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
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
12
<PAGE>
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 below.
PRODUCT DEVELOPMENT AND PRODUCTION
We have an agreement with Quad-Linq Software, Inc., of British
Columbia, Canada, and its successor, Quad-Linq Systems, Inc., 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, we issued 3,000,000 shares of our stock, and
options to 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;
13
<PAGE>
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 exclusive and non-exclusive
territorial licenses granted to third parties with whom we have contracted.
UNITED STATES: 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.
On December 2, 1999, we entered into an exclusive license distribution
agreement with Volt Information Sciences, Inc. 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. This 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. The
agreement grants Volt the exclusive license to use, market, distribute and
sublicense our Phon-Net Direct Connect software throughout the United States,
subject to the terms of our agreement with Wazzu.
We are entitled to a license fee from Volt for each Direct Connect
license activated by reason of agreements established between Volt and its
customers and end-users. Volt is obligated to pay us license fees based upon its
receipt of payment from its customers and end- users, however, Volt must pay us
at least a pro-rated three month license fee irrespective of its actual receipt
of payment. License fees from Volt are payable monthly. We are also entitled to
receive 20% of all sales or license fees generated by Volt from the user
database arising by reason of our agreement with Volt. In the event Volt does
not sell average annual software licenses of at least 1,000,000 for any two
successive years of the agreement, we have the right to terminate exclusivity of
the license granted to Volt.
14
<PAGE>
The term of our agreement with Volt is one year. Volt may renew the
agreement for additional successive one-year terms provided that it is not in
material default of the agreement and has paid us all fees it is required to pay
to us. The agreement may be terminated by either party following an uncured
breach of the agreement by the other party, or upon a party's liquidation,
bankruptcy or similar event. We have agreed to place the source code for Direct
Connect software into a third-party escrow depository account. The source code
may be released to Volt so that it can continue to use Direct Connect in the
manner provided in the agreement, in the event of our uncured material breach of
the agreement, or our bankruptcy, liquidation or similar event.
CANADA: 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
non-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 a license fee from Transcontinental for each Direct Connect
software license we activate as a result of a product sale by Transcontinental.
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.
AUSTRALIA AND NEW ZEALAND: On December 9, 1999, we entered into two
License Agreements with Brocker Technology Group (NZ) Limited, a publicly-held
New Zealand corporation. One license agreement covers New Zealand and the other
covers Australia. The agreements grant Brocker the exclusive license to use,
market, distribute and sublicense our Phon-Net Direct Connect software
throughout Australia and New Zealand. We understand that Brocker has established
relationships with Telecom New Zealand and Telstra in Australia, that will
provide Brocker with access to a large segment of the New Zealand and Australian
market for Direct Connect.
We are entitled to a license fee from Brocker for each Direct Connect
license activated for Brocker. License fees from Brocker are payable quarterly.
We also share ownership with Brocker of the user database arising by reason of
our license agreement with Brocker. The term of our agreement with Brocker is
one year, upon expiration of which, Brocker may renew the agreement for one
additional year. The agreement may be terminated by either party following an
uncured breach of the agreement by the other party, or upon a party's
liquidation, bankruptcy or similar event. We have agreed to deposit a current
version of the source code for Direct Connect software with a third-party trust
company. The source code may be released to Brocker
15
<PAGE>
so that it can continue to use Direct Connect in the manner provided in the
agreement, in the event of our uncured material breach of the agreement, or our
bankruptcy, liquidation or similar event.
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.
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.
GOVERNMENT REGULATION
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
16
<PAGE>
increasing popularity and use of the Internet, we expect that laws and
regulations will be 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.
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. XGA Golf was formed for the purpose of acquiring three companies engaged in
various aspects of the golf and golf-travel industries. However, these
acquisitions were not completed. In June 1998, XGA Golf changed its name to
Agrosol, Inc. From June 1998 until October 1998, XGA Golf could be considered a
shell company seeking to acquire an operating business. Its officers and
directors during this period were Lana Bea Turner, Eric Redd and Steven Dadson.
Its principal shareholders at the time were Eric Redd, John Canavan, Dorothy A.
Cleveland and Richard Dibona.
Phon-Net Corp. was organized under the laws of the State of Nevada on
August 28, 1998. Effective October 5, 1998, 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. At the time of the
acquisition, Phon-Net Corp. was the owner of certain intellectual property
developed by Brian Collins and incorporated in various interactive voice and
text products, and Brian Collins was the principal executive officer and
principal shareholder of Phon-Net Corp. At the time of the acquisition,
Piedmont, through its subsidiaries, had a Canadian operating license for the
technology that was then owned by Phon-Net Corp. At that time, Brian Collins was
also an officer and directors of Piedmont, and owned approximately 20% of
Piedmont common stock. 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. 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 rights and
assets of Piedmont including the operations of National.
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.
Currently 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.
17
<PAGE>
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 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>
18
<PAGE>
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.
Our original agreement with Mr. Collins included our obligation to pay
Mr. Collins stock appreciation rights. These payments were to be calculated
based upon the difference between the market price of our stock at the beginning
and end of each year of the term of the employment agreement. An annual one
dollar change in the price of our stock during each year of the agreement could
have required us to pay Mr. Collins an aggregate of $1,600,000 during the term
of the agreement. Greater than annual one dollar market price increases could
substantially increase our obligation to Mr. Collins, and 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. As a result, on December 30,
1999, we agreed to issue Mr. Collins 3,200,000 shares of our common stock, and
Mr. Collins agreed to relinquish any stock appreciation rights that were granted
to him.
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.
19
<PAGE>
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 $55,000 for the first year, $59,500 for the second year and
$66,000 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 our President and Chief Executive
Officer; and to 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 - - 2,000,000 - $4,484,000
1998 $52,926 - - - - -
1997 $21,899 - - - - -
</TABLE>
The reference in the table to All 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 and SARs during the fiscal year
ended July 31, 1999 to our President and Chief Executive Officer and to 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 options 83% $.40 5/26/2009
1,600,000 SARs 100% $.36 2/15/2002
</TABLE>
20
<PAGE>
Effective December 30, 1999, we terminated all SARs previously granted
to Mr. Collins and issued 3,200,000 shares to Mr. Collins in exchange for the
terminated SARs.
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 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 2,430,000 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 our President and Chief Executive Officer and to each of
our executive officers who earned more than $100,000 during the fiscal year
ended July 31, 1999.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
21
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS/SARS OPTIONS/SARS
ON VALUE AT FY-END (#) AT FY-END ($)
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Brian Collins, CEO - - 2,000,000/-0- -0-/-0-
- - -0-/1,600,000 -0-/-0-
</TABLE>
Effective December 30, 1999, we terminated all SARs previously granted
to Mr. Collins and issued 3,200,000 shares to Mr. Collins in exchange for the
terminated SARs.
<TABLE>
<CAPTION>
LONG-TERM INCENTIVE PLANS AWARDS IN LAST FISCAL YEAR
NUMBER PERFORMANCE ESTIMATED FUTURE PAYOUTS UNDER
OF SHARES OR OTHER NON-STOCK PRICE-BASED PLANS
UNITS OR PERIOD UNTIL ------------------------------
OTHER RIGHTS MATURATION THRESHOLD TARGET MAXIMUM
NAME (#) OR PAYOUT ($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 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.
22
<PAGE>
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 April 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.
On December 30, 1999, we agreed to issue Mr. Collins 3,200,000 shares
of our common stock, and Mr. Collins agreed to relinquish the stock appreciation
rights that were granted to him.
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 February
23, 2000, 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.
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.
23
<PAGE>
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.
The table does not give effect to:
o except with respect to beneficial ownership of shares
attributed to the named person, the issuance of up to
4,430,000 shares in the event options that have been granted,
are exercised; and
o the issuance of up to 2,572,500 shares in the event in the
event outstanding promissory notes are converted and common
stock purchase warrants issuable upon conversion, are
exercised.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENTAGE
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
---------------- -------------------- --------
<S> <C> <C>
Brian Collins 24,486,287 57.3%
Sloan Young 194,667 0.5%
Roger L. Betterton 2,932,666 7.0%
R.R. 3, Box 142
Pana, Illinois 62557
Executive Officers and
Directors (as a group of 2) 24,680,954 57.6%
</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 40,759,430
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.
24
<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.
CONVERTIBLE PROMISSORY NOTES
We have authorized, and there are currently outstanding, an aggregate
of $600,250 principal amount of our 8% convertible promissory notes. The notes
bear interest at the rate of 8% per year. Commencing in April, 2000 and
continuing through not later than January 23, 2001, the outstanding principal
amount of the notes, and accrued but unpaid dividends thereon, may be converted
at the option of the holder into our common stock at a price of $.35 per share.
Upon conversion, and in addition to the shares issuable upon conversion, we will
issue a number of common stock purchase warrants equal to one-half the number of
shares issued upon conversion of the promissory notes. Each warrant, which is
not freely transferable, entitles the owner to purchase one share, until not
later than January 23, 2001, for an exercise price of $.50. For example, in the
event of conversion of $35,000 principal amount promissory note, the holder will
receive 100,000 shares of common stock and warrants to purchase an additional
50,000 shares. To the extent not converted, the promissory notes mature on
various dates through January 23, 2001.
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.
25
<PAGE>
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 the name of each selling securityholder,
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 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 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, Steven I. Weinberger and the
spouse of Susan Schneider are affiliated with Atlas Pearlman, P.A., our counsel.
Roger Betterton, Christopher Georgelin and Seidmehdi Seidbagherzadeh are current
and former affiliates of Quad-Linq Software, Inc. and/or Quad-Linq Systems,
Inc., the developers of our Direct Connect software. Mark Vinci is the sole
beneficial owner of Market Surveys International, Inc. An "*" indicates less
than one percent.
<TABLE>
<CAPTION>
SHARES OWNED SHARES
BENEFICIALLY SHARES AVAILABLE BENEFICIALLY PERCENT OF
PRIOR TO THIS PURSUANT TO OWNED AFTER CLASS
SELLING SECURITYHOLDER OFFERING THIS PROSPECTUS OFFERING AFTER OFFERING
- ---------------------- ----------------- ------------------ -------------- --------------
<S> <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 2,932,666 2,292,666 640,000 *
Robin C. Campbell and
Les Campbell Ten Ent 5,000 5,000 - 0 - *
Brian Collins 24,486,287 1,000,000 23,486,287 50.2%
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 1,513,677 1,213,677 360,000 *
26
<PAGE>
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 1.6%
Tony Musfelt 15,000 15,000 - 0 - *
Charles B. Pearlman 25,000 25,000 - 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 194,667 28,000 166,667 *
Bryce Boucher 45,000 5,000 40,000 *
Alliance Corporate
Services, Inc. 225,000 125,000 100,000 *
Peter Laipnieks 50,000 50,000 - 0 - *
Randy Hayward 50,000 50,000 - 0 - *
AMYX Corporation 1,500,000 1,500,000 - 0 - *
Jim Mitchell 500,000 500,000 - 0 - *
Total 9,015,000
</TABLE>
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;
27
<PAGE>
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 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 40,759,430 shares of common
stock issued and outstanding. Of those shares, 13,307,430 shares, including the
9,015,000 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 33,452,000 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
28
<PAGE>
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, P.A., 350 East Las Olas Boulevard, Suite
1700, 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 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
29
<PAGE>
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. 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.
30
<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 $5,875,491 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 "Morgan & Company"
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 "Morgan & Company"
November 1, 1999 Chartered Accountants
<PAGE>
PHON-NET.COM, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Stated in U.S. Dollars)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
JULY 31
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current
Cash $ 203,161 $ 43,039
Accounts and advances receivable 13,829 4,943
Due from related parties -- 29,932
Prepaid expenses -- 7,950
------------------------------------
216,990 85,864
Capital Assets (Note 4) 96,297 160,725
Intangibles (Note 5) 1,100,134 43,415
------------------------------------
$ 1,413,421 $ 290,004
===================================================================================================================================
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:
80,000,000 common shares, par value $0.001
10,000,000 preferred shares, par value $0.01
Issued and outstanding
36,027,430 common shares at July 31, 1999 and
15,060,000 common shares at July 31, 1998 1,136,690 1,033,358
Additional paid in capital 6,892,470 --
Deficit (6,864,645) (989,154)
Cumulative Translation Adjustment 1,013 3,962
------------------------------------
1,165,528 48,166
------------------------------------
$ 1,413,421 $ 290,004
===================================================================================================================================
</TABLE>
Approved by the Sole Director:
- --------------------------------------------------
<PAGE>
PHON-NET.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Stated in U.S. Dollars)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
INCEPTION
MARCH 19, 1996
YEAR ENDED JULY 31 TO JULY 31
1999 1998 1997 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 43,867 $ 120,904 $ 249,239 $ 441,489
----------- ----------- ----------- -----------
Expenses
Advertising and promotion 346,829 28,777 10,426 389,690
Amortization of intangibles 53,281 16,281 16,281 91,270
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 4,850,866 308,936 230,250 5,430,411
---------------------------------------------------------------
5,919,358 708,989 436,761 7,184,787
---------------------------------------------------------------
Loss Before The Following 5,875,491 588,085 187,522 6,743,298
Forgiveness of debt -- -- (230,961) (230,961)
Write-down of investments -- -- 99,028 99,028
---------------------------------------------------------------
Net Loss For The Year 5,875,491 588,085 55,589 $ 6,611,365
===========
Accumulated Deficit, Beginning of Year 989,154 401,069 345,480
---------------------------------------------
Accumulated Deficit, End of Year $ 6,864,645 $ 989,154 $ 401,069
=================================================================================================================
Loss Per Share $ 0.35 $ 0.04 $ 0.01
=================================================================================================================
Weighted Average Number Of Shares Outstanding 16,923,300 15,060,000 15,060,000
=================================================================================================================
</TABLE>
<PAGE>
PHON-NET.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOW
(Stated in U.S. Dollars)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
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 $(5,875,491) $ (588,085) $ (55,589) $(6,611,365)
--------------------------------------------------------------
Adjustments To Reconcile Loss To Net Cash Used By
Operating Activities
Stock issued for other than cash 5,074,357 -- -- 5,074,357
Amortization 133,322 70,576 37,392 257,135
Write-down of investments -- -- 99,028 99,028
Forgiveness of debt -- -- (230,961) (230,961)
Change in accounts and advances receivable (8,886) (3,826) 3,456 (13,829)
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 5,242,730 182,732 (102,442) 5,398,137
--------------------------------------------------------------
Net Cash Used In Operating Activities (632,761) (405,353) (158,031) (1,213,228)
--------------------------------------------------------------
Cash Flow From Investing Activities
Capital assets (15,613) (174,225) (167) (262,164)
Intangibles -- -- -- (81,404)
Excess of purchase price over net assets of
subsidiaries acquired -- -- -- (253,278)
Investments -- -- -- (160,068)
Proceeds on sale of investments -- -- 61,040 61,040
--------------------------------------------------------------
Net Cash Used In Investing Activities (15,613) (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>
<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 $Nil.
The Company issued 8,085,000 common shares at an ascribed value of $3,234,000 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).
<PAGE>
PHON-NET.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Stated in U.S. Dollars)
<TABLE>
<CAPTION>
Common Stock
---------------------------------------------------
Additional
Number Paid-in
of Shares Amount Capital
--------------- ------------------ ----------------
<S> <C> <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. 7,000,000 -- --
---------------------------------------------------
7,000,000 -- --
Ascribed value of the shares issued in connection with the acquisition
of Piedmont Technologies Inc. 5,000,000 5,000 2,000
---------------------------------------------------
12,000,000 1,115,723 2,000
</TABLE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Cumulative
Translation Accumulated
Adjustment Deficit Total
----------------- ------------------- --------------
<S> <C> <C> <C> <C>
Balance, August 1, 1996 $ 2,443 $ (345,480) $ (6,041)
Issuance of common stock -- -- 78,103
Translation adjustment 532 -- 532
Loss for the year -- (55,589) (55,589)
-----------------------------------------------------
Balance, July 31, 1997 2,975 (401,069) 17,005
Issuance of common stock -- -- 618,259
Translation adjustment 987 -- 987
Loss for the year -- (588,085) (588,085)
-----------------------------------------------------
Balance, July 31, 1998 3,962 (989,154) 48,166
Issuance of common stock -- -- 77,365
-----------------------------------------------------
3,962 (989,154) 125,531
Consolidation of stock on 1 for 2 basis -- -- --
-----------------------------------------------------
3,962 (989,154) 125,531
Adjustment to number of shares issued and outstanding
as a result of the reverse take-over transaction
Piedmont Technologies Inc. -- -- --
Phon-net Corp. -- -- --
-----------------------------------------------------
-- -- 125,531
Ascribed value of the shares issued in connection with the acquisition
of Piedmont Technologies Inc. -- -- 7,000
-----------------------------------------------------
3,962 (989,154) 132,531
</TABLE>
<PAGE>
PHON-NET.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Stated in U.S. Dollars)
<TABLE>
<CAPTION>
Common Stock
-------------------------------------------
Additional
Number Paid-in
of Shares Amount Capital
--------------------------------------------
<S> <C> <C> <C>
Balances carried forward 12,000,000 1,115,723 2,000
Adjustment to number of shares issued and outstanding as a result of
the reverse take-over transaction
Phon-net Corp. (12,000,000) -- --
Phon-net.com, Inc. 3,650,000 -- --
-------------------------------------------
3,650,000 1,115,723 2,000
Ascribed value of the shares issued in connection with the acquisition
of Phon-net Corp. 11,410,000 -- --
--------------------------------------------
15,060,000 1,115,723 2,000
Issuance of common stock
for cash 460,000 460 154,540
for services 1,715,000 1,715 320,785
for technology 3,000,000 3,000 1,107,000
for compensation expense 13,085,000 13,085 4,470,915
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 $1,136,690 $6,892,470
============================================
</TABLE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Cumulative
Translation Accumulated
Adjustment Deficit Total
---------------------------------------------------
<S> <C> <C> <C>
Balances carried forward 3,962 (989,154) 132,531
Adjustment to number of shares issued and outstanding as a result of
the reverse take-over transaction
Phon-net Corp. -- -- --
Phon-net.com, Inc. -- -- --
-------------------------------------------------
3,962 (989,154) 132,531
Ascribed value of the shares issued in connection with the acquisition
of Phon-net Corp. -- -- --
-------------------------------------------------
3,962 (989,154) 132,531
Issuance of common stock
for cash -- -- 155,000
for services -- -- 322,500
for technology -- -- 1,110,000
for compensation expense -- -- 4,484,000
on conversion of promissory notes -- -- 1,052,857
Stock issue costs -- -- (212,920)
Translation adjustment (2,949) -- (2,949)
Loss for the year -- (5,875,491) (5,875,491)
-------------------------------------------------
Balance July 31, 1999 $ 1,013 $(6,864,645) $1,165,528
=================================================
</TABLE>
<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.
<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
The Company's revenue arises from contracts entered into to facilitate
beta-testing of its various products and is recognized over the term of
the contract. The Company's revenues through July 31, 1999 were
generated from contracts relating to its interactive real estate and
professional listing service which was the initial product under
development, as well as the search engine product. No revenue has been
generated to July 31, 1999 from the Direct Connect product. Once
revenue is generated by the Direct Connect or Search Engine products,
the revenue allocated to post contract support will be recognized
rateably over the term of the support and revenue allocated to service
elements will be recognized as the services are performed.
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 will be capitalized when
technological feasibility has been established for the computer
software product. Capitalization of computer software costs will be
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. At each balance sheet date,
the unamortized capitalized costs of a computer software product shall
be compared to the net realizable value of that product. The amount by
which the unamortized capitalized costs of a computer software product
exceed the net realizable value of that asset shall be written off. To
date, the Company has not capitalized any costs related to the
development of computer software.
<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)
e) Capitalized Costs (Continued)
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) 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.
<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
b) 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 Phon-net Corp.,
by issuing 11,410,000. Since the transactions resulted in the former
shareholders of Piedmont Technologies Inc. owning the majority of the
issued shares of Phon-net,com, Inc., the transactions, which are
referred to as a "reverse take-over", have been treated for accounting
purposes as an acquisition by Piedmont Technologies Inc. of the net
assets and liabilities of Phon-net Corp. and Phon-net.com, Inc. Under
this purchase method of accounting, the results of operations of
Phon-net Corp. and 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 operations
of Phon-net Corp. and Phon-net.com, Inc. from October 5, 1998. Prior
to that date, the operations are those of Piedmont Technologies Inc.
Phon-net Corp. had net assets of $7,000 at the acquisition date while
Phon-net.com, Inc. had net assets of $Nil. As a result, the shares
issued on the acquisition of Phon-net Corp. were issued at an ascribed
value of $7,000, and the shares issued on the acquisition of
Phon-net.com, Inc. 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.
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:
Working capital (deficiency) $ (147,167)
Capital assets 72,688
Non-current liabilities assumed (6,065)
------------
(80,544)
Consideration (158,518)
------------
Excess of purchase price
over net assets acquired $ (239,062)
============
<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)
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) $ (14,215)
Consideration --
-----------
Excess of purchase price
over net assets acquired $ (14,215)
==========
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.
<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>
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
============================================== ========
5. INTANGIBLES
1999 1998
------------------------
Goodwill, at cost $ 81,404 $ 81,404
Technology, at cost 1,110,000 --
------------------------
1,191,404 81,404
Less: accumulated amortization (91,270) (37,989)
------------------------
$ 1,100,134 $ 43,415
========================
Goodwill arose on the acquisition of certain assets (Note 3(b) (iii)).
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.
6. NOTES PAYABLE
1999 1998
-------------------------
Unsecured and due August 31, 1999, with interest at 5% p.a. $ 35,486 $ 35,486
=========================
</TABLE>
<PAGE>
PHON-NET.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998
(Stated in U.S. Dollars)
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.
Options issued as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Number of Exercise Price Weighted Average Number
Shares Per Share Exercise Price Per Exercisable
Share
---------------------------------------------------------------------------
<S> <C> <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.
<PAGE>
PHON-NET.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998
(Stated in U.S. Dollars)
7. CAPITAL STOCK (Continued)
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:
1999 1998 1997
Net loss $ 6,604,815 $ 588,085 $ 55,589
----------- ---------- ----------
Per share: $ 0.39 $ 0.03 $ 0.01
=========== ========== ==========
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.
7. 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.
<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. 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.
9. 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.
10. OTHER
During the year the Company changed its name from Phon-net Corporation to
Phon-net.com, Inc.
<PAGE>
PHON-NET.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998
(Stated in U.S. Dollars)
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.
<PAGE>
PHON-NET.COM, INC.
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999
(Stated in U.S. Dollars)
<PAGE>
PHON-NET.COM, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Stated in U.S. Dollars)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
OCTOBER 31 JULY 31
1999 1999
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current
Cash $ 8,912 $ 203,161
Accounts and advances receivable 15,319 13,829
Prepaid expenses 1,831 --
--------------------------------
26,062 216,990
Capital Assets 87,491 96,297
Intangibles 1,040,564 1,100,134
--------------------------------
$ 1,154,117 $ 1,413,421
===================================================================================================================================
LIABILITIES
Current
Accounts payable and accrued liabilities $ 157,493 $ 146,376
Due to related parties 58,518 66,031
Notes payable 36,452 35,486
--------------------------------
252,463 247,893
--------------------------------
STOCKHOLDERS' EQUITY
Capital Stock
Authorized:
80,000,000 common shares, par value $0.001
10,000,000 preferred shares, par value $0.01
Issued and outstanding
36,027,430 common shares at July 31, 1999 and October 31, 1999 1,136,690 1,136,690
Additional paid in capital 6,892,470 6,892,470
Deficit (7,121,038) (6,864,645)
Cumulative Translation Adjustment (6,468) 1,013
--------------------------------
901,654 1,165,528
--------------------------------
$ 1,154,117 $ 1,413,421
===================================================================================================================================
</TABLE>
Approved by the Sole Director:
- --------------------------------------------------
<PAGE>
PHON-NET.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Stated in U.S. Dollars)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
INCEPTION
THREE MONTHS ENDED OCTOBER 31 MARCH 19, 1996
TO OCTOBER 31
1999 1998 1999
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 51 $ 16,790 $ 441,540
--------------------------------------------------------
Expenses
Advertising and promotion 13,601 10,790 403,291
Amortization of intangibles 59,570 4,070 150,840
Amortization of capital assets 15,799 20,284 181,664
Bank charges and interest 3,509 3,210 344,094
Office and sundry 10,915 7,227 181,425
Professional fees 55,890 2,982 194,311
Rent and utilities 7,588 7,633 92,181
Telephone 4,692 15,476 244,722
Transfer agent and filing fees 3,000 -- 9,500
Travel 11,783 2,343 138,695
Salaries and benefits 70,097 62,913 5,500,508
--------------------------------------------------------
256,444 136,928 7,441,231
--------------------------------------------------------
Loss Before The Following 256,393 120,138 6,999,691
Forgiveness of debt -- -- (230,961)
Write-down of investments -- -- 99,028
--------------------------------------------------------
Net Loss For The Period 256,393 120,138 $ 6,867,758
============
Deficit, Beginning Of Period 6,864,645 989,154
----------------------------------
Deficit, End Of Period $ 7,121,038 $ 1,109,292
=============================================================================================================
Loss Per Share $ (0.01) $ (0.01)
=============================================================================================================
Weighted Average Number Of Shares Outstanding 36,027,430 15,060,000
=============================================================================================================
</TABLE>
<PAGE>
PHON-NET.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOW
(Stated in U.S. Dollars)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
INCEPTION
THREE MONTHS ENDED OCTOBER 31 MARCH 19, 1996
TO OCTOBER 31
1999 1998 1999
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flow From Operating Activities
Loss for the period $ (256,393) $ (120,138) $(6,867,758)
-----------------------------------------------------
Adjustments To Reconcile Loss To Net Cash Used By
Operating Activities
Stock issued for other than cash -- -- 5,074,357
Amortization 75,369 24,354 332,504
Write-down of investments -- -- 99,028
Forgiveness of debt -- -- (230,961)
Change in accounts and advances receivable (1,490) (8,751) (15,319)
Change in due from related parties -- 728 --
Change in prepaid expenses (1,831) 3,570 (1,831)
Change in accounts payable and accrued liabilities 11,117 18,905 157,493
Change in due to related parties (7,513) (26,658) 58,518
-----------------------------------------------------
Total Adjustments 75,652 12,148 5,473,789
-----------------------------------------------------
Net Cash Used In Operating Activities (180,741) (107,990) (1,393,969)
-----------------------------------------------------
Cash Flow From Investing Activities
Capital assets (6,993) -- (269,157)
Intangibles -- -- (81,404)
Excess of purchase price over net assets of
subsidiaries acquired -- -- (253,278)
Investments -- -- (160,068)
Proceeds on sale of investments -- -- 61,040
-----------------------------------------------------
Net Cash Used In Investing Activities (6,993) -- (702,867)
-----------------------------------------------------
Cash Flow From Financing Activities
Common stock issued -- 84,365 1,265,723
Stock issue costs -- -- (157,920)
Notes receivable -- -- 737,000
Notes payable 966 (691) 267,413
-----------------------------------------------------
Net Cash From Financing Activities 966 83,674 2,112,216
-----------------------------------------------------
Effect Of Exchange Rate Changes On Cash (7,481) 3,787 (6,468)
-----------------------------------------------------
Net Increase (Decrease) In Cash (194,249) (20,529) 8,912
Cash, Beginning Of Period 203,161 43,039 --
-----------------------------------------------------
Cash, End Of Period $ 8,912 $ 22,510 $ 8,912
===================================================================================================================================
</TABLE>
<PAGE>
PHON-NET.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Stated in U.S. Dollars)
<TABLE>
<CAPTION>
Common Stock
-----------------------------------------------------
Additional
Number Paid-in
of Shares Amount Capital
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
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. 7,000,000 -- --
-----------------------------------------------------
7,000,000 -- --
Ascribed value of the shares issued in connection with the acquisition
of Piedmont Technologies Inc. 5,000,000 5,000 2,000
-----------------------------------------------------
12,000,000 1,115,723 2,000
Adjustment to number of shares issued and outstanding as a result of
the reverse take-over transaction
Phon-net Corp. (12,000,000) -- --
Phon-net.com, Inc. 3,650,000 -- --
-----------------------------------------------------
3,650,000 1,115,723 2,000
Ascribed value of the shares issued in connection with the acquisition
of Phon-net Corp. 11,410,000 -- --
-----------------------------------------------------
15,060,000 1,115,723 2,000
</TABLE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Cumulative
Translation Accumulated
Adjustment Deficit Total
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, July 31, 1998 3,962 (989,154) 48,166
Issuance of common stock -- -- 77,365
-----------------------------------------------------
3,962 (989,154) 125,531
Consolidation of stock on 1 for 2 basis -- -- --
-----------------------------------------------------
3,962 (989,154) 125,531
Adjustment to number of shares issued and outstanding
as a result of the reverse take-over transaction
Piedmont Technologies Inc. -- -- --
Phon-net Corp. -- -- --
-----------------------------------------------------
-- -- 125,531
Ascribed value of the shares issued in connection with the acquisition
of Piedmont Technologies Inc. -- -- 7,000
-----------------------------------------------------
3,962 (989,154) 132,531
Adjustment to number of shares issued and outstanding as a result of
the reverse take-over transaction
Phon-net Corp. -- -- --
Phon-net.com, Inc. -- -- --
-----------------------------------------------------
3,962 (989,154) 132,531
Ascribed value of the shares issued in connection with the acquisition
of Phon-net Corp. -- -- --
-----------------------------------------------------
3,962 (989,154) 132,531
</TABLE>
<PAGE>
PHON-NET.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Stated in U.S. Dollars)
<TABLE>
<CAPTION>
Common Stock
-------------------------------------------
Additional Cumulative
Number Paid-in Translation Accumulated
of Shares Amount Capital Adjustment Deficit Total
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance carried forward 15,060,000 1,115,723 2,000 3,962 (989,154) 132,531
Issuance of common stock
for cash 460,000 460 154,540 -- -- 155,000
for services 1,715,000 1,715 320,785 -- -- 322,500
for technology 3,000,000 3,000 1,107,000 -- -- 1,110,000
for compensation expense 13,085,000 13,085 4,470,915 -- -- 4,484,000
on conversion of promissory notes 2,707,430 2,707 1,050,150 -- -- 1,052,857
Stock issue costs -- -- (212,920) -- -- (212,920)
Translation adjustment -- -- -- (2,949) -- (2,949)
Loss for the year -- -- -- -- (5,875,491) (5,875,491)
----------- ----------- ----------- ----------- ----------- -----------
Balance July 31, 1999 36,027,430 1,136,690 6,892,470 1,013 (6,864,645) 1,165,528
Loss for the period -- -- -- -- (256,393) (256,393)
Translation adjustment -- -- -- (7,481) -- (7,481)
----------- ----------- ----------- ----------- ----------- -----------
Balance October 31, 1999 36,027,430 $ 1,136,690 $ 6,892,470 $ (6,468) $(7,121,038) $ 901,654
=========== =========== =========== =========== =========== ===========
</TABLE>
<PAGE>
PHON-NET.COM, INC.
(A Development Stage Company)
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999
(Unaudited)
(Stated In U.S. Dollars)
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements as of October 31, 1999
included herein have been prepared without audit pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with United States generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
It is suggested that these consolidated financial statements be read in
conjunction with the July 31, 1999 audited consolidated financial
statements and notes thereto.
<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.........................
9,015,000 SHARES
PHON-NET.COM, INC.
PROSPECTUS
________________, 2000
31
<PAGE>
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.
32
<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:
II-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SEC Registration and Filing Fee................................................. $ 1,928
Legal Fees and Expenses*........................................................ 30,000
Accounting Fees and Expenses*................................................... 7,500
Financial Printing*............................................................. 3,000
Transfer Agent Fees*............................................................ 1,250
Blue Sky Fees and Expenses*..................................................... 750
Miscellaneous*.................................................................. 2,572
---------
TOTAL................................................................. $47,000
=========
</TABLE>
* Estimated
None of the foregoing expenses are being paid by the selling securityholders.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Effective October 5, 1998, Phon-Net Corp., a Nevada corporation,
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., were able to
evaluate the risks and merits of the business combination with Phon-Net Corp.,
and were, therefore, "sophisticated" within the meaning of regulations
promulgated under Federal securities laws. As a result, this 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. Moreover, this was an extraterritorial transaction,
effected outside the United States, to non-U.S. persons, and was not subject to
the registration provisions of the Act based upon regulatory interpretations of
Federal securities laws.
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,
were able to evaluate the risks and merits of the business combination with the
Company, and were, therefore, "sophisticated" within the meaning of regulations
promulgated under Federal securities laws. As a result, the 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. Moreover, this was an
extraterritorial transaction, effected outside the United States, to non-U.S.
persons, and was not subject to the registration provisions of the Act based
upon regulatory interpretations of Federal securities laws.
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
II-2
<PAGE>
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.
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. The investor 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
II-3
<PAGE>
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 May 1, 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. Moreover, this was an extraterritorial
transaction, effected outside the United States, to a non-U.S. person, and was
not subject to the registration provisions of the Act based upon regulatory
interpretations of Federal securities laws.
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, has such experience in
financial and business matters to enable it to evaluate the risks and merits of
acquiring such shares, and was, therefore, "sophisticated" within the meaning of
regulations promulgated under Federal securities laws. 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, has such experience in financial
and business matters to enable it to evaluate the risks and merits of acquiring
such shares, and was, therefore, "sophisticated" within the meaning of
regulations promulgated under Federal securities laws. 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. In
February 2000, we issued an additional 200,000 shares to KASON, Inc. and its
affiliate in consideration of termination of a prior contractual relationship
between the parties. KASON, Inc. and its affiliate The investors had access to
information concerning the Company, have such knowledge and experience in
financial and business matters to enable it to evaluate the risks and merits of
acquiring such shares, and were, therefore, "sophisticated" within the meaning
of regulations promulgated under Federal securities laws. In addition, the
shares issued contained a legend restricting their transferability absent
registration under the Act or an available exemption
II-4
<PAGE>
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 and its
principals had access to information concerning the Company, has such knowledge
and experience in financial and business matters to enable it to evaluate the
risks and merits of acquiring such shares, and were, therefore, "sophisticated"
within the meaning of regulations promulgated under Federal securities laws. 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.
Moreover, this was an extraterritorial transaction, effected outside the United
States, to a non-U.S. person, and was not subject to the registration provisions
of the Act based upon regulatory interpretations of Federal securities laws.
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. The investors had access
to information concerning the Company, have such knowledge and experience in
financial and business matters to enable them to evaluate the risks and merits
of acquiring such shares, and were, therefore, "sophisticated" within the
meaning of regulations promulgated under Federal securities laws. 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.
Moreover, this was an extraterritorial transaction, effected outside the United
States, to non-U.S. persons, and was not subject to the registration provisions
of the Act based upon regulatory interpretations of Federal securities laws.
On or about July 1, 1999, the Company issued 100,000 shares of common
stock to attorneys with Atlas Pearlman, P.A. ("AP"), counsel to the Company. The
investors had access to information concerning the Company and has such
knowledge and experience in financial and
II-5
<PAGE>
business matters to enable it to evaluate the risks and merits of acquiring such
shares, and were, therefore, "sophisticated" within the meaning of regulations
promulgated under Federal securities laws. 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 December 1, 1999, the Company granted an option to AMYX Corporation
to purchase 1,000,000 shares of common stock at an exercise price of $.40 per
share until July 31, 2000. Subject to exercise of such option, the Company
granted AMYX Corporation a second option to purchase 1,000,000 shares at an
exercise price of $1.00 per share until December 31, 2000. The options were
granted as consideration for investor relations services to be provided to
European investors, including providing introductions to members of the European
investment community, disseminating corporate promotional materials, drafting
corporate promotional materials including press releases and assisting in
capital raising, if so requested by the Company. AMYZ Corporation had access to
information concerning the Company, has such knowledge and experience in
financial and business matters to enable it to evaluate the risks and merits of
investing in the Company, and was, therefore, "sophisticated" within the meaning
of regulations promulgated under Federal securities laws. On December 31, 1999,
AMYX Corporation exercised the initial option to purchase 1,000,000 shares. The
shares that were issued contained a legend restricting their transferability
absent registration under the Act or an available exemption therefrom.
Accordingly, the grant of options and issuance of 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. Moreover, this was an extraterritorial
transaction, effected outside the United States, to non-U.S. persons, and was
not subject to the registration provisions of the Act based upon regulatory
interpretations of Federal securities laws.
In December 1999, the Company issued 125,000 shares of common stock,
and granted an option to purchase 200,000 shares of common stock to Alliance
Corporate Services, Inc. Options to purchase 100,000 shares carry an exercise
price of $.40 per share and may be exercised until February 15, 2000. Options to
purchase the remaining 100,000 shares carry an exercise price of $.50 per share
and may be exercised until May 15, 2000. The shares were issued and options were
granted as consideration for investor relations and marketing consulting
services to be provided to Canadian investors, including providing introductions
to members of the Canadian investment community, disseminating corporate
promotional materials, drafting corporate promotional materials including press
releases and assisting in capital raising, if so requested by the Company.
Alliance Corporate Services, Inc. had access to information concerning the
Company, has such knowledge and experience in financial and business matters to
enable it to evaluate the risks and merits of investing in the Company, and was,
therefore, "sophisticated" within the meaning of regulations promulgated under
Federal securities laws. On December 3, 1999, Alliance Corporate Services, Inc.
exercised the option to purchase 100,000 shares, on behalf of its principals
Peter Laipnieks and Randy Hayward. The shares that were issued contained a
legend restricting their transferability absent registration under the Act or an
II-6
<PAGE>
available exemption therefrom. Accordingly, the grant of options and issuance of
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. Moreover, this
was an extraterritorial transaction, effected outside the United States, to
non-U.S. persons, and was not subject to the registration provisions of the Act
based upon regulatory interpretations of Federal securities laws.
In December 1999 and January 2000, we issued an aggregate of $600,250
principal amount of our 8% convertible promissory notes, for an aggregate
purchase price of $600,250. The securities were sold to 27 non-U.S. persons.
This was an extraterritorial transaction, effected outside the United States, to
non-U.S. persons, and was (a) not subject to the registration provisions of
Federal securities laws and (b) was exempt from the registration requirements
thereof pursuant to the provisions of Regulation S. The purchasers had access to
financial and other information about us and was afforded the opportunity to ask
questions of us concerning our operations and the terms of the offering. The
notes that were issued contained a legend restricting their transferability
absent registration under the Act or an available exemption therefrom. Each
purchaser represented that he was acquiring the shares for investment purposes
and the documentation evidencing the transaction contained the disclosure
required by Regulation S.
<TABLE>
<CAPTION>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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)
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, 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 (1)
10.6 License Agreement with Transcontinental Group (1)
10.7 Agreement with Wazzu Corporation(2)
10.8 Agreements with Brian Collins re: SARs(2)
10.9 License Agreement with Brocker Technology Group (NZ) Ltd.(Australia)(2)
10.10 License Agreement with Brocker Technology Group (NZ) Ltd.(New Zealand)(2)
10.11 License Distribution Agreement with Volt Information Sciences, Inc.(2)
II-7
<PAGE>
10.12 Form of 8% Convertible Promissory Note, including Form of
Common Stock Purchase Warrant (2)
10.13 Amendment to License Agreement with Transcontinental Group (2)
23(i) Consent of Atlas Pearlman, P.A. (see Exhibit 5)(2)
23(ii) Consent of Morgan & Company (2)
21 Subsidiaries of Registrant (1)
27(i) Financial Data Schedule (2)
27(ii) 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.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
II-8
<PAGE>
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-9
<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 March 2, 2000.
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 March 2, 2000
- ------------------------------------ Executive Officer, President and
Brian Collins Sole Director (Principal Financial
Officer and Principal Accounting
Officer)
/S/ SLOAN YOUNG Vice President of Technology March 2, 2000
- --------------------------- and Operations
Sloan Young
</TABLE>
II-10
ATLAS PEARLMAN, P.A.
350 East Las Olas Boulevard, Suite 1700
Fort Lauderdale, Florida 33301
March 3, 2000
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 9,015,000 shares (the "Registerable Shares") of common stock, $.01 par
value ("Common Stock"), including up to 2,000,000 shares of Common Stock
reserved for issuance upon exercise of certain outstanding options (the
"Reserved Shares").
In connection therewith, we have examined and relied upon original,
certified, conformed, photostat or other copies of (a) the Articles of
Incorporation, as amended, and Bylaws of the Company; (b) resolutions of the
Board of Directors of the Company authorizing the offering and the issuance of
the Common Stock and related matters; (c) the Registration Statement and the
exhibits thereto; (d) the instruments defining the terms and conditions of the
Reserved Shares; and (e) 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.
Based upon and subject to the foregoing, we are of the opinion that (1)
the currently outstanding Registerable Shares have been legally issued and are
fully paid and non-assessable, and (2) the Reserved Shares, when issued and upon
payment of the agreed upon consideration therefore, will be legally issued,
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, P.A.
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
1
<PAGE>
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.
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
2
<PAGE>
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.
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.
3
<PAGE>
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.
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.
4
<PAGE>
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: Mr. Jayme Amirie, CEO
Wazzu Corporation
10175 Slater Avenue, Suite 200
Fountain Valley, CA 92708
PHON-NET: Mr. Brian Collins, President
PHON-NET.COM
600-750 West Pender Street
Vancouver, British Columbia
Canada V6C 2T7
Facsimile (604) 437-3070
b) Any correctly addressed notice that is refused, unclaimed, or
undeliverable because of an act or omission of the party to be notified
5
<PAGE>
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.,
By: /S/ BRIAN COLLINS
----------------------------------
Brian Collins, President and CEO
Wazzu Corporatioin
10175 Slater Avenue, Suite 200
Fountain Valley, CA 92708
By: /S/ JAYME AMIRIE 9/23/99
------------------------------
Jayme Amirie, CEO
6
<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 RESPONSIBILITY
<PAGE>
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.
<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
<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.
November 1, 1999
Reference is made to the Employment Agreement dated May 26, 1999 (the
"Employment Agreement") by and between Phon-Net.com, Inc., a Florida
corporation ("Employer") and Brian Collins, an individual resident in
the City of Vancouver, Province of British Columbia ("Employee").
In particular, reference is made to Section 4(d) of the Employment
Agreement, which provides for the grant of Stock Appreciation Rights
("SARs") to Employee. In connection with the SARs, Employer and
Employee agree as follows:
1. Not more than 50% of Employer's net income in excess of $50,000
attributable to any fiscal year may be paid to Employee for amounts due
under SARs granted to Employee.
2. Any amounts due to Employee for SARs in excess of 50% of such net
income shall be deferred and accrued, and paid to Employee from not
more than 50% of net income in excess of $50,000 for subsequent fiscal
years.
3. Deferred and accrued SARs due to Employee shall be paid in the order
earned, prior to the payment of SARs that are subsequently earned.
4. For purposes hereof, "net income" shall mean the net income reported on
Employer's annual audited financial statements, the reporting of which
shall be conclusive and binding on the parties.
5. The obligation of Employer for the payment of SARs pursuant to this
Agreement shall survive termination of the Employment Agreement.
6. Notwithstanding the foregoing, all deferred and accrued SARs payable to
Employee pursuant to this Agreement shall be paid to Employee at the
closing of any transaction which results in a change of control of
Employer, or upon termination of Employee's employment by Employer
other than for cause. For purposes hereof, (a) "change of control"
shall mean a business combination to which Employer is not the
surviving party, a transaction following which Brian Collins does not
control Employer's board of directors, or the sale of all or
substantially all of Employer's assets, and (b) "for cause" shall have
the meaning set forth in the Employment Agreement.
<PAGE>
7. Except as set forth herein, the Employment Agreement shall remain in
full force and effect.
PHON-NET.COM, INC.
By: /S/ BRIAN COLLINS
---------------------
Brian Collins, CEO
/S/ BRIAN COLLINS
-----------------
BRIAN COLLINS
<PAGE>
December 31, 1999
Reference is made to (a) the Employment Agreement dated May 26, 1999
(the "Employment Agreement") by and between Phon-Net.com, Inc., a Florida
corporation ("Employer") and Brian Collins, an individual resident in the City
of Vancouver, Province of British Columbia ("Employee") and (b) the Amendment to
Employment dated November 1, 1999 by and between Employer and Employee (the
"First Amendment").
With respect to the Employment Agreement and the First Amendment,
Employer and Employee agree as follows:
1. Section 4(d) of the Employment Agreement is hereby deleted in its entirety.
2. The First Amendment is hereby canceled in its entirety and shall cease to be
of any further force or effect.
3. Employee hereby relinquishes all of his right, title and interest in and to
any stock appreciation rights in Employer previously granted to Employee.
4. As consideration for the foregoing, Employer hereby agrees to issue to
Employee 3,200,000 shares of Employer's common stock and to cause share
certificates for such shares, registered in the name of Employee, to be
forthwith issued by Employer.
5. Except as set forth herein, the Employment Agreement shall remain in full
force and effect.
PHON-NET.COM, INC.
By: /S/ BRIAN COLLINS
---------------------
Brian Collins, CEO
/S/ BRIAN COLLINS
-----------------
BRIAN COLLINS
LICENSE DISTRIBUTION AGREEMENT
------------------------------
ENTERED INTO IN NEW YORK, UNITED STATES, this __th day of December 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: VOLT INFORMATION SCIENCES, INC. a New York corporation
having an office at 1221 Avenue of the Americas, New
York, NY 10020, for itself and its subsidiaries and
divisions (hereinafter collectively referred to as
"Volt" or the "Licensee")
PREAMBLE
--------
WHEREAS the Licensor has created and is the owner of the PHON-NET.COM Inc.
"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 ventures and new ventures, to sublicense the Software or otherwise
distribute or make the Software available to its customers and/or their
customers;
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:
"Listing" a business name and
telephone number found in a
database of Licensee or its
relevant Customer(s).
1
<PAGE>
"Listed Business" a business for which a
Listing appears in the
relevant directory in
respect of which business a
Sub-License to the Software
has been executed.
"Customer" either a telephone company
customer of Licensee or any
other business entity which
provides, in written or
electronic form, a
directory containing
Listings.
"Notional Sub-License Fee" the sub-license fee
determined in accordance
with Schedule B,
paragraph 3.
"Actual Sub-License Fee" in each case, the
sub-license fee for the
Software charged by
Licensee to (i) its
relevant Customer, (ii) a
Listed Business which
advertises in any written
or electronic directory
published by Volt's
Directory Division or (iii)
any other Listed Business
which enters into a
sub-license agreement for
the Software directly with
Licensee.
"Screen" electronic device from
which the end-user derives
visual information.
"Icon" a symbol created by the
Software which appears on a
Screen next to or otherwise
associated with a Listing
which provides "highlight,
click and Connect"
capability.
"Website" a website maintained by a
business.
"Volt Directory" a directory of Listings in
written or electronic form
published by Volt's
Directory Division.
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 and that
the agreement with Wazzu Inc. referred to in section 2.2(a) in
no way conflicts with this Agreement or any of the rights
granted to Licensee hereunder.
2.2. Subject to the terms and conditions of the present Agreement;
a) the Licensor grants to the Licensee during the entire
term of this Agreement, the exclusive right to use,
2
<PAGE>
market and distribute and sublicense the Software in
the Territory and the exclusive right to use the
domain name "411CALLME.com"; provided, however, that
the sole exception to the exclusivity of Licensee's
right to use, market and distribute the Software is
any rights granted by Licensor under the pre-existing
US distribution agreement in effect with Wazzu Inc..
b) during the term of this Agreement, the Licensor will
not utilize or permit any third party (including, but
not limited to Wazzu Inc.) to utilize any of the
following domain names in the Territory: CALLME
411.COM; CALLME411.NET; CALLME411.ORG; 411CALLME.NET;
411 CALLME.ORG.
c) Nothing in this Section shall preclude the Licensor
from directly marketing licenses for the Software,
provided that (i) the sale of any such licenses shall
be made through the Licensee, at a price reasonably
acceptable to the Licensee, (ii) the Licensee shall
undertake to sell any such licenses and (iii) the
Licensee shall pay the License Fees described on
Schedule B to the Licensor in connection with any
such license sales.
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 US
funds, on a monthly basis, the License Fee, the amount and
particulars of which are further detailed in Schedule B
annexed hereto and forming part of this Agreement.
3.2. Payment of the License Fee described in Section 3.1 shall be
accounted for and paid monthly, within thirty (30) days after
the close of the preceding month. The Licensee may pay the
entire License Fee attributable to each Software license sold
during the preceding month, or may remit such portion of the
License Fee as is attributable to the frequency of payment
agreed to between the Licensee and its end-user; provided,
however, that the Licensee shall be responsible for payment of
the License Fee to the Licensor irrespective of its actual
receipt of payment from the Licensee's end-user. In the event
of non-payment by a Sub-Licensor, Licensee may, by disabling
the Software for each Listed Business covered by the
Sub-License, reduce its License Fee obligation to Licensor to
a pro-rated amount, determinede by the duration of the
Software activation. The License Fee shall be paid to the
Licensor at its address set forth in Section 9.1, or to such
other address as may be specified by the Licensor in
accordance with said Section.
3.3. The Licensee shall deliver to the Licensor, at the time each
License Fee payment is due, a statement signed by a duly
authorized representative of the Licensee certifying (a) the
number of Software licenses sold during the monthly period
covered by such License Fee payment; and, (b) the basis for
3
<PAGE>
computation of the amount of the License Fee accompanying such
statement. Such statement shall be furnished to the Licensor
whether or not any Software licenses were sold during the
month for which such statement is due.
3.4. The Licensee shall prepare and maintain complete and accurate
records reflecting all transactions required to be reported to
the Licensor under this Agreement. At the Licensor's sole
cost, the Licensor and its duly authorized representatives
have the right, upon reasonable notice, during regular
business hours at the Licensee's principal offices, for the
duration of the period during which the License Fee is payable
and for three (3) years thereafter, to audit said records of
the Licensee and examine all other documents and materials,
other than books of account, in the possession or under the
control of the Licensee with respect to matters which are
required to be reported to the Licensor under this Agreement,
and to make extracts and copies thereof. The Licensee's
records of sales shall be maintained separately from the
Licensee's accounting records relating to other items marketed
by the Licensee. All such books of account, records and
documents shall be kept available by the Licensee for at least
three (3) years after the end of each year to which they
relate.
SECTION 4
TERM AND TERMINATION
--------------------
4.1. Unless otherwise terminated and subject to subsection 4.2
hereof, this Agreement shall end one (1) year from the date of
execution of this Agreement.
4.2. The Licensee shall have the right to renew the term of this
Agreement for one (1) year following termination of the
initial one (1) year term described in Section 4.1, provided
that:
a) The Licensee provides the Licensor written notice of
the Licensee's intent to renew, not less than sixty
(60) days prior to expiration of the current term;
and
b) The Licensee shall have paid all License Fees and
other amounts due to the Licensor under this
Agreement, and shall otherwise be in material
compliance with the other terms and conditions
hereof, both on the date the Licensee provides the
notice described in subsection (a), above, and on the
commencement date of the renewal term.
4.3. The Licensee shall have the right to renew the term of this
Agreement for successive one (1) year terms following
expiration of the one (1) year renewal term described in
Section 4.2, provided that the Licensee has complied with the
provisions of subsections (a) and (b) of Section 4.2, and
further provided that if average annual sublicenses of the
Software by or through the Licensee (with a sublicense term of
at least one year) are less than 1,000,000 units for any two
(2) successive years commencing with the first renewal term of
4
<PAGE>
this Agreement, the Licensor may, at its option, terminate the
exclusivity granted in Section 2.2(a), above.
4.4. The Licensor or the Licensee may terminate this Agreement at
any time, after written notice, due to the material breach or
default by the other party, unless the other party has
remedied such material 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 not 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.
4.5. 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.
4.6. 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.
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.
SECTION 6
OTHER OBLIGATIONS AND REPRESENTATIONS
-------------------------------------
5
<PAGE>
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 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, in
writing, by the Licensee ("New Features"), provided (a) that
(i) conformity, as defined with consideration to accepted
6
<PAGE>
industry standards, is achievable based upon existing
non-proprietary technology available to the Licensor, and
provided that (ii) the Licensor is afforded the time
reasonably necessary to complete the required work and (iii)
the Licensor reasonably determines that the New Features are
cost justifiable, (b) that, in the event the Licensor
determines that the New Features are not cost justifiable, the
Licensor will, nonetheless, develop such new Features if the
Licensee pays the cost of such development, in which case the
Licensee shall be the sole owner of all property rights in and
to such New Feature (but shall gain no property rights in the
Software, other than in the New Feature); and (c) that in the
case of the enhancement known as the "2-line Solution," as
described in the specifications to be furnished by Licensee,
such enhancement shall be completed by the later of 90 days
after (y) the commencement by Licensee of offering services
utilizing the Software or (z) the Licensee's delivery to
Licensor of such specifications. The Licensor shall compensate
the Licensee forthwith of any loss of non-speculative, but
demonstrably 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 terms
thereafter, the Licensor will provide to the Licensee, free of
charge and in addition to its obligations under section 6.4,
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; provided,
however, that Licensee shall not be obligated to incorporate
such improvements into its version of the Software. 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.
6.7. Distribution contemplated by Licensee:
a) Use of the Software (including any one or more of the
following features: Voice Connect, E-Specials; and
Voice Mail)in connection with (i) a Website to be
created by Volt containing Listed Businesses
representing some or all of approximately 53,000
Listings listed in Volt Directories and/or (ii) the
individual Websites of some or all such Listed
Businesses;
b) Use of the Software (including any one or more of the
following features: Voice Connect, E-Specials and
Voice Mail) in connection with a Website containing
some or all of Volt's national directory Listings;
c) Sublicensing the Software to any or all Customers
(for example, Bell Atlantic's Big Yellow service) for
use on their own Websites.
7
<PAGE>
6.8. During the term of this Agreement, the Licensee shall use its
reasonable commercial efforts to promote and market the sale
of licenses for the Software, and to maximize License Fees
hereunder.
6.9. The Licensee acknowledges and agrees, subject to the exclusion
in Section 6.4, that the Software is the sole and exclusive
property of the Licensor and the Licensee has no ownership
interest whatsoever in all or any aspect of the Software.
Licensee shall not alter, modify, change or engineer the
Software, or any portion thereof, in any manner, without the
prior written consent of the Licensor.
6.10. The Licensee acknowledges and agrees that the Licensee Fees
contemplated by this Agreement are based upon one (1) year
renewable license terms; except that, Licensee may sublicense
the Software to first time sublicensees for such shorter
periods, of not less than three months, as Licensee deems
appropriate to secure the business. The License Fee
corresponding to each such shorter sublicense period shall be
prorated on the basis of the duration of the corresponding
sublicense period. To the extent the Licensee markets software
licenses for terms greater than one (1) year, the Licensor
shall be entitled to its License Fee for each year included in
the term of a Software license.
6.11. The Licensee understands that the Licensor's ownership rights
in and to the Software constitute valuable proprietary
information and that the Licensor's interest in the Software
may be diluted and diminished in the event third parties
improperly obtain and/or use the Software and related
intellectual property. Accordingly, the Licensee agrees (i) to
take all reasonable steps to protect the Licensor's ownership
rights in and to the Software and related intellectual
property rights, (ii) to notify the Licensor promptly upon
learning that a third party has violated or is violating the
proprietary rights of the Licensor in and to the Software or
related intellectual property rights, and not to permit or
participate with any third party in the unauthorized use of
the Software or related intellectual property rights.
6.12. 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 7
RIGHTS TO THE USER DATABASE
---------------------------
7.1. The parties to this Agreement agree that all rights to 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; provided, however, that Licensee will pay to
Licensor 20% of the sales or license fees actually received by
Licensee from any third party for use of the User Database.
7.2. The Licensee shall prepare and maintain complete and accurate
records reflecting all sales and fees received by it from any
third party for use of the User Database. The provisions of
Section 3.4, relating to the Licensor's audit rights, shall
apply to the records contemplated by this Agreement.
8
<PAGE>
SECTION 8
ESCROW
------
8.1. Licensor shall at its own expense on an ongoing basis deposit
with an escrow agent a copy of the latest version of the
Source Code of all Software (including necessary software
tools) and the applicable documentation (including a
description of the necessary hardware environment), pursuant
to the standard escrow agreement ("Escrow Agreement") set
forth in Schedule C annexed hereto and forming part of this
Agreement.
8.2. The escrow agent shall be entitled to conduct the appropriate
procedures to establish that the deposited version of the
Source Code is identical to the then-current Source Code of
the operational Software.
8.3. To the extent that the Licensee obtains the Source Code of the
Software in accordance with the terms of the Escrow Agreement,
the Licensee's right to use the Software and/or Source Code
shall be limited to its use solely for purposes of providing
it with the benefits to which it is entitled under this
Agreement, and solely for the term hereof, including any
available renewal terms.
8.4. The Licensee shall remain obligated to pay all applicable
License Fees required by this Agreement payable to the
Licensor in the event the Source Code has been released to the
Licensee pursuant to the Escrow Agreement.
8.5. To the extent that the Licensee obtains the Source Code of all
Software in accordance with the terms of the Escrow Agreement,
the Licensee shall protect the confidentiality and proprietary
nature of the Software and Source Codes. Licensee shall take
all reasonable precautions to prevent a third party from
infringing upon the Licensor's ownership of the Software and
Source Codes, and shall immediately notify the Licensor of any
actual or threatened infringement of the Licensor's
proprietary rights thereto.
8.6. Section 4.1 of the Escrow Agreement in the form of Exhibit C
shall be deleted in its entirety and replaced with the
following:
"4.1 Release Conditions. As used in this Agreement, "Release
Conditions" shall mean the following:
a. an uncured default or material breach by Depositor as
described in the first sentence of Section 4.4 of the
License Agreement;
b. the occurrence of an event, as to Depositor,
described in Section 4.5(a) through (c) of the
license agreement; or
c. Depositor's failure to conduct business in the
ordinary course of its business such that Preferred
Beneficiary is deprived of a material right and/or
9
<PAGE>
benefit to be enjoyed by it under the license
agreement, including without limitation, those set
forth in Sections 2 and 6 of this Agreement.
Notwithstanding the foregoing, the merger of the Licensor with
a third party, the sale of all or substantially all of the
assets of the Licensor or transaction which results in a
change in control of the Licensor shall not constitute a
"Release Condition" for so long as, following such merger,
sale or transaction, the Preferred Beneficiary is not deprived
of any material rights and/or benefits to be enjoyed by it
under the License Agreement.
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 (until and unless the other party is notified in writing
of a change):
If to the Licensor, at:
Phon-Net.com, Inc.
Attention: Brian Collins, President and CEO
600-750 West Pender St.
Vancouver, BC V6C 2T7
Telephone: (604) 437-3787
Fax: (604) 437-3070
With a copy to:
Steven I. Weinberger, Esq.
Atlas, Pearlman, Trop & Borkson, P.A.
350 East Las Olas Blvd.
Fort Lauderdale, Florida 33301
Telephone: (954) 763-1200
Fax: (954) 766-7800
If to the Licensee, at:
Volt Information Sciences, Inc.
Attention: Albert G. Franco, Vice President
Volt Delta Resources
1221 Avenue of the Americas
New York, NY 10020
Telephone: (212) 704-2402
Fax: (212) 944-1639
10
<PAGE>
With a copy to:
Howard B. Weinreich, General Counsel
Volt Information Sciences, Inc.
1221 Avenue of the Americas
New York, NY 10020
Telephone: (212) 704-2435
Fax: (212) 704-2435
and shall be deemed to have been received three (3) days after
the date of mailing or on the date faxed, if transmission is
received prior to 5:00 p.m. local time of the recipient,
otherwise the following business day. A party may change any
of the above addressees by giving written notice to the other
party.
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 deemed made in and governed by and
interpreted in accordance with the laws of the State of New
York.
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.
11
<PAGE>
(Licensor) PHON-NET.COM, INC.
Per: /S/ BRIAN COLLINS
----------------------
Name: Brian Collins
Title: President and CEO
(Licensee) VOLT INFORMATION SCIENCES, INC.
Per: /S/ GERARD L. DIPIPPO
--------------------------
Name: Gerard L. DiPippo
Title: Vice President
12
<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 and 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:
1.) Direct Connect software is free to all consumers.
2.) Direct Connect software installs the first time the icon is used.
3.) Direct Connect software will automatically upgrade to the newest
version when clicked any time after the initial installation.
4.) 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 and 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.
<PAGE>
5.) 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. Personal directories are provided for the consumer
and include a Personal Phone Book and a History of the last 10
Businesses called. Personal directories are available to the consumer
through the Desktop and/or System Tray and can be used at any time
whether connected to the Internet or not.
6.) Consumers will have free technical support (during designated business
hours)
DOWNLOAD SPEED COMPARISONS
- --------------------------
SECTION 7 Current Size of Direct Connect: 184 KB
MODEM MAXIMUM RATE APPROXIMATE TIME TO DOWNLOAD IN MINUTES AND SECONDS
(MM:SS)
RATING OF DOWNLOAD TIME TO DOWNLOAD
(BITS/SEC) (KBYTES/SEC)
56,600 6.5 00:25
33,600 4.2 00:39
28,800 3.6 00:44
SECTION 8 BUSINESS features and benefits include:
- --------- --------
1.) The business will receive a one-year license for each Direct
Connect account.
2.) Unlimited use of each Direct Connect account on business web
pages.
3.) Easy to set up by a virtual on-line program.
4.) 24 hr. a day, 7 days a week access to each Direct Connect
account with complete control over account information and
features.
5.) Illustrated printable instruction manual.
6.) Technical support (during designated business hours)
Each account will include the features of:
<PAGE>
7.) 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.
8.) Email specials of unlimited length can be composed in standard
ASCII characters by the business for consumers to request and
receive.
9.) Voice mail: any telephone number and/or answering service may
be used by business.
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 By
Phon-net upon agreement by both parties as to what will enhance 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
(version 4.0 and higher) and Netscape Navigator (version 4.0 and higher).
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).
<PAGE>
SCHEDULE B
----------
PARTICULARS OF THE LICENSING FEE
--------------------------------
1. Upon activation of the Software, for each Listed Business in a
Volt Directory, Licensee shall incur the obligation to pay to
Licensor fifty (50%) percent of the Notional License Fee, in
accordance with the payment terms set forth in Section 3.
2. Upon activation of the Software, for each Listed Business in
any other directory, Licensee shall incur the obligation to
pay to Licensor the greater of fifty (50%) percent of the
Actual Sub-License Fee collected by Licensee in respect of
such Listed Business or thirty-five (35%) of the Notional
Sub-License Fee for such Listed Business, in accordance with
the payment terms set forth in Section 3.
3. The Notional License Fee shall be determined as follows:
(a) For a Listed Business for whom an Icon appears next to
its Listing and whose Listing is linked to the Website
of such Listed Business where its own Icon appears:
$149.95
(b) For any other Listed Business for whom an Icon appears
next to its Listing: $99.95
NEITHER THIS PROMISSORY NOTE NOR THE UNDERLYING COMMON STOCK AND WARRANTS
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAW, OR AN OPINION OF COUNSEL TO THE
PAYEE SATISFACTORY TO COUNSEL OF THE COMPANY THAT AN EXEMPTION
FROM REGISTRATION UNDER THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS IS AVAILABLE. HEDGING TRANSACTIONS IN THESE SECURITIES
MAY NOT BE CONDUCTED, EXCEPT IN COMPLIANCE WITH THE ACT.
FORM OF
8% CONVERTIBLE PROMISSORY NOTE
------------------------------
(This 8% Convertible Promissory Note is one of
a series of promissory notes of like tenor and terms)
________________, 2000. $____________
FOR VALUE RECEIVED, the undersigned, PHON-NET.COM, INC., an Florida
corporation ("Maker"), hereby promises to pay to the order of
_____________________ ("Payee") the principal sum of ___________________________
($________) with interest on the unpaid principal amount at the rate of 8% per
annum and on any overdue payment of principal or interest at the rate of 1 1/2%
per month (18% per annum), and with the principal balance and all accrued
interest being due and payable on ___________, ____, all as hereinafter
provided.
This Note is being issued pursuant to a Subscription Agreement relating
thereto between the Maker and the Payee.
1 PAYMENTS OF INTEREST AND PRINCIPAL.
1 INTEREST. Maker shall pay interest to Payee on the unpaid
outstanding principal balance owed to Payee hereunder at the rate of 8% per
annum. Interest shall be payable upon conversion, as hereinafter provided, or at
the time of maturity of this Note on _____________, ____.
1
<PAGE>
2 PRINCIPAL. Maker shall have no duty or obligation to pay any
portion of the outstanding principal owed hereunder, except as hereinafter
provided, until ___________, ____. On ___________, ____ all accrued interest and
outstanding principal shall be due and payable, and shall be paid to Payee.
3 PAYMENTS. All payments made hereunder shall be applied as made
first to the payment of interest then due, and the balance of said payment shall
be applied to the payment of the principal sum.
2 PLACE OF PAYMENT. So long as Payee shall hold this Note, all payments
of principal and interest shall be made at the address of Payee at its address
specified in the Subscription Agreement, or as otherwise specified by Payee, in
writing, to Maker.
3 CONVERSION AND REDEMPTION.
1 CONVERSION. Commencing 120 days following the date hereof, and
continuing until 5:00 p.m. Florida time, twelve (12) months from the date
hereof, the Payee may convert all, or portions of the principal amount hereof
and accrued interest thereon in increments of at least $10,000, into shares of
Common Stock ("Conversion Shares") and Common Stock Purchase Warrants
("Warrants") of the Maker. The number of Conversion Shares shall be equal to the
principal plus accrued interest thereon to be converted, divided by $.35. The
number of Warrants shall be equal to the number of Conversion Shares, divided by
two. The form of Warrant is attached to this Note as Exhibit "A". The Payee
shall exercise the option to convert by sending this Note and written election
to such effect to the Maker, which election shall specify the amount of
principal and accrued to be converted. If this Note is converted as to less than
the entire unpaid principal amount hereof, a new Note for the unconverted
balance of this Note shall be delivered to the Payee.
2 ADJUSTMENTS. In the event that the outstanding Common Stock of the
Maker hereafter is restructured or revised by recapitalization,
reclassification, combination of shares, stock split or split-up or stock
dividend, the aggregate number and kind of Common Stock subject to conversion
under this Note shall be adjusted appropriately, both as to the number of shares
of Common Stock and the conversion price. No fractional shares will be issued
upon any conversion, but an adjustment therefor in cash will be made with
respect to any fraction of a share which would otherwise be issuable based upon
the market price for one share of the Maker's Common Stock on the trading day
immediately preceding any notice of conversion hereunder multiplied by such
fraction or, in the alternative, at the election of the Maker, the fractional
share may be rounded up to the nearest whole share.
3 SALE, EXCHANGE, ETC. In case of any sale, exchange, tender offer,
redemption or buyout of the Maker's shares, or any consolidation of the Maker
with or merger of the Maker into another corporation, or in case of any sale,
transfer or lease to another corporation of all or substantially all other
property of the Maker, the Maker or such successor or purchasing corporation, as
2
<PAGE>
the case may be, shall execute with the Payee an agreement that the Payee shall
have the right thereafter, upon payment of the per share conversion price in
effect immediately prior to such action, to convert, on the same basis which it
would have or have been entitled to receive after the happening of such
consolidation, merger, sale, transfer or lease had such conversion been
accomplished immediately prior to such action. Such agreement shall provide for
adjustments, which shall be as nearly equivalent as may be practicable to the
adjustments provided herein. These provisions shall similarly apply to
successive consolidations, mergers, sales, transfers or leases.
4 COVENANTS. The Maker covenants and agrees that: (i) all shares of
Common Stock delivered upon conversion (in accordance with the terms and
conditions set forth herein) of this Note will, upon delivery, be duly and
validly authorized and issued, fully paid and non-assessable and free from all
liens and charges with respect to the purchase thereof; and (ii) it will at all
times reserve and keep available an authorized number of shares of its Common
Stock sufficient to permit the conversion rights under this Note to be fully
exercised, including shares issuable upon exercise of the Warrants.
4 DEFAULT AND REMEDIES.
1 DEFAULT. The occurrence of any of the following shall constitute an
event of default ("Event of Default"):
(1) FAILURE TO PAY. Maker fails to pay, when due, any of the
obligations provided for in this Note at their due date, and such failure
continues unremedied for a period of three (3) business days after written
notice from Payee to Maker of such failure.
(2) DENOMINATED EVENTS. The occurrence of any event expressly
denominated as an Event of Default in this Note;
(3) FAILURE TO PERFORM. Maker fails to perform or observe any
material covenant, term or condition of this Note to be performed or observed by
Maker and such failure continues unremedied for a period of ten (10) business
days after written notice from Payee to Maker of such failure;
(4) PETITION BY OR AGAINST MAKER. There is filed by or against
Maker any petition or complaint with respect to its own financial condition
under any state or federal bankruptcy law or any amendment thereto (including
without limitation a petition for reorganization, arrangement or extension of
debts) or under any other similar insolvency laws providing for the relief of
debtors and such petition or complaint is not set aside, stayed or terminated
within sixty (60) days after filing; or
3
<PAGE>
(5) APPOINTMENT OF RECEIVER. A receiver, trustee, conservator or
liquidator is appointed for Maker, or for all or a substantial part of its
assets; or Maker shall be adjudicated bankrupt, insolvent or in need of any
relief provided to debtors by any court and such appointment or adjudication is
not set aside, stayed or terminated within sixty (60) days after filing.
2 REMEDIES. Upon the occurrence of an Event of Default and for so
long as such default is continuing:
(1) The outstanding principal amount of this Note and interest
thereon at the rate of 1 1/2% per month from said occurrence until paid in full
(the "Default Amount") shall, at the option of Payee, become immediately due and
payable.
(2) Payee may exercise any of the other remedies provided under
applicable laws.
(3) Maker shall be liable for all costs, charges and expenses
incurred by Payees by reason of the occurrence of any Event of Default or the
exercise of Payees' remedies with respect thereto.
5 INVESTMENT INTENT. This Note is given to Payee with the understanding
that Payee is acquiring this Note and, upon conversion, the Conversion Shares
and Warrants, for investment purposes and not with a view to, for resale in
connection with, or with an intent of participating directly or indirectly in
any distribution within the meaning of the Securities Act of 1933, as amended.
Payee shall not divide his participation with others or resell, assign or
otherwise dispose of all or any part of this Note.
6 MISCELLANEOUS.
1 WAIVERS. No waiver of any term or condition of this Note shall be
construed to be a waiver of any succeeding breach of the same term or condition.
No failure or delay of Payee to exercise any power hereunder, or to insist upon
strict compliance by Maker of any obligations hereunder, and no custom or other
practice at variance with the terms hereof shall constitute a waiver of the
right of Payee to demand exact compliance with such terms.
2 INVALID TERMS. In the event any provision contained in this Note
shall, for any reason, be held invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision of this Note, and this Note shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.
4
<PAGE>
3 SUCCESSORS. This Note shall be binding upon Maker, its legal
representatives, successors and assigns, and inure to the benefit of Payee, its
legal representatives, successors and assigns.
4 CONTROLLING LAW. This Note shall be read, construed and governed in
all respects in accordance with the laws of the State of Florida.
5 AMENDMENTS. This Note may be amended only by an instrument in
writing executed by the party against which enforcement of the amendment is
sought.
6 NOTICES. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be sufficiently given if
addressed to the Maker at 600-750 West Pender Street, Vancouver, British
Columbia, Canada V6C 2T7 and to Payee at the address specified in the
Subscription Agreement executed by Payee, posted in the U.S. mail by certified
or registered mail, return receipt requested. Any party may change said address
by giving the other party hereto notice of such change of address. Notice given
as hereinabove described shall be deemed given on the date of its deposit in the
U.S. mail and, unless sooner received, shall be deemed received by the party to
whom it is addressed on the fifth calendar day following the date on which said
notice is deposited in the mail.
7 CONSTRUCTION OF TERMS. Whenever the context so requires, any gender
is deemed to include any other, and the singular is deemed to include the
plural, and conversely.
8 TIME OF ESSENCE. Time is of the essence in this Note and each and
every provision hereof.
9 HEADINGS. All section and subsection headings herein, wherever they
appear, are for convenience only and shall not affect the construction of any
terms herein.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed
by its duly authorized officer and its seal affixed hereto, as of the day and
year first above written.
PHON-NET.COM, INC.
By:______________________________________
Brian Collins, Chief Executive Officer
5
<PAGE>
EXHIBIT A
TO
8% CONVERTIBLE PROMISSORY NOTE
FORM OF COMMON STOCK PURCHASE WARRANT
-------------------------------------
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS,
OR AN OPINION OF COUNSEL SATISFACTORY TO COUNSEL TO THE COMPANY THAT AN
EXEMPTION FROM REGISTRATION THEREUNDER IS AVAILABLE. HEDGING
TRANSACTIONS IN THESE SECURITIES MAY NOT BE CONDUCTED, EXCEPT IN
COMPLIANCE WITH THE ACT.
W-__________
WARRANT TO PURCHASE
COMMON STOCK
OF
PHON-NET.COM, INC.
This is to certify that _________________________________ (the
"Holder") is entitled, subject to the terms and conditions hereinafter set
forth, to purchase _______________________ (_______) shares (the "Common
Shares") of Common Stock, $.001 par value per share (the "Common Stock"),
PHON-NET.COM, INC., a Florida corporation (the "Company"), from the Company at
the price per share and on the terms set forth herein and to receive a
certificate for the Common Shares so purchased on presentation and surrender to
the Company with the subscription form attached, duly executed and accompanied
by payment of the exercise price of each share purchased, either in cash or by
certified or bank cashier's check or other check payable to the order of the
Company. This Warrant is issued in connection with the Company's offering of
$500,000 in Convertible Promissory Notes (the "Offering").
EXERCISE
The purchase rights represented by this Warrant are exercisable at a
price per Common Share of Fifty Cents ($0.50), beginning on the date hereof and
terminating at 5:00 p.m., Florida time, twelve (12) months from the date hereof,
subject to adjustment as hereinafter provided.
The purchase rights represented by this Warrant are exercisable at the
option of the registered owner hereof in whole or in part, from time to time,
within the period specified; provided, however, that such purchase rights shall
not be exercisable with respect to a fraction of a Common Share. In case of the
purchase of less than all the Common Shares purchasable under this Warrant, the
Company shall cancel this Warrant on surrender hereof and shall execute and
deliver a new Warrant of like tenor and date for the balance of the shares
purchasable hereunder.
<PAGE>
The Company agrees at all times to take appropriate action to reserve
or hold available a sufficient number of Common Shares to cover the number of
shares issuable on exercise of this and all other Warrants of like tenor then
outstanding. The Company agrees to obtain any authorization required from its
shareholders in order to amend its Articles of Incorporation to increase the
authorized capitalization to permit the exercise of this Warrant and other
Warrants of like tenor.
NO SHAREHOLDER RIGHTS
This Warrant shall not entitle the holder hereof to any voting rights
or other rights as a shareholder of the Company, or to any other rights whatever
except the rights herein expressed, and no dividends shall be payable or accrue
in respect of this Warrant or the interest represented hereby or the Common
Shares purchasable hereunder until or unless, and except to the extent that,
this Warrant shall be exercised.
ADJUSTMENTS
The number of shares of Common Stock purchasable upon exercise of this
Warrant and the Purchase Price shall be subject to adjustments from time to time
as follows:
If the Company shall at any time prior to the expiration of this
Warrant subdivide or combine its Common Stock, by forward or reverse stock split
or otherwise, or issue additional shares of its Common Stock as a dividend with
respect to any shares of its Common Stock, the number of Common Shares issuable
upon exercise of this Warrant shall forthwith be proportionately increased or
decreased. Appropriate adjustments shall also be made to the per share purchase
price, but the aggregate purchase price payable for the total number of Common
Shares purchasable under this Warrant (as adjusted) shall remain the same. Any
adjustment under this paragraph shall become effective at the close of business
on the date the subdivision or combination becomes effective, or as of the
record date of such dividend, or in the event that no record date is fixed, upon
the making of such dividend. The good faith determination of the Company's Board
of Directors in connection with any adjustment required under this paragraph
shall be conclusive.
In the event of any reclassification, capital reorganization or other
change in the Common Stock of the Company or in the event of any sale of all or
substantially all of the Company's assets or any merger, consolidation or
restructuring to which the Company is a party in which the Company's
stockholders before the transaction or series of transactions hold 50% or more
of the voting power of the surviving entity immediately after the transaction or
series of transactions (other than as a result of a subdivision, combination or
stock dividend provided for above), lawful provision shall be made, and duly
executed documents evidencing the same shall be made and shall be delivered to
the Holder in substitution for the Holder's rights under this Warrant, so that
the Holder shall have the right at any time and from time to time prior to the
expiration of this Warrant to purchase at a total price equal to that payable
upon exercise of this Warrant immediately prior to such event, the kind and
amount of shares of stock or other securities or property receivable in
connection with such reclassification, reorganization or change by a Holder of
same number of shares of Common Stock as were purchasable by the Holder
immediately prior to such reclassification, reorganization or change. In any
<PAGE>
such case, appropriate provisions shall be made with respect to the rights and
interest of the Holder so that the provisions hereof shall hereafter be
applicable with respect to any shares of stock or other securities or property
deliverable upon exercise hereof, and appropriate adjustment shall be made to
the purchase price per Common Share payable hereunder, provided the aggregate
purchase price shall remain the same. The good faith determination of the
Company's Board of Directors in connection with any adjustment required under
this paragraph shall be conclusive.
In the event of dissolution, liquidation, merger or combination of the
Company in which the Company is not a surviving corporation, this Warrant shall
terminate, but the registered owner of this Warrant shall have the right, until
5:00 p.m., Florida time, on the day prior to the effective date of such
dissolution, liquidation, merger or combination, to exercise this Warrant in
whole or in part, to the extent that it shall not have theretofore been
exercised.
Upon any adjustments of the number of Common Shares issuable upon
exercise of this Warrant or the purchase price pursuant to this paragraph, the
Company within thirty (30) days thereafter shall cause to be prepared a
certificate of the Chief Financial or Accounting Officer of the Company setting
forth the number of Common Shares issuable upon exercise of this Warrant and the
purchase price after such adjustments, and setting forth in reasonable detail
the method of calculation used and cause a copy of such certificate to be mailed
to the Holder of the Warrant.
The foregoing adjustments and the manner of application of the
foregoing provisions may provide for the elimination of fractional share
interests.
MISCELLANEOUS
The Company shall not be required to issue or deliver any certificate
for Common Shares purchased on exercise of this Warrant or any portion thereof
prior to fulfillment of all the following conditions:
(U) the completion of any registration or other
qualification of such Common Shares under any federal
or state law or under the rulings or regulations of
the Securities and Exchange Commission or any other
government regulatory body which is necessary;
(V) the obtaining of any approval or other clearance
from any federal or state government agency which is
necessary;
(C) the obtaining from the registered owner of the Warrant a
representation in writing that the owner is acquiring such Common
Shares for the owner's own account for investment and not with a view
to, or for sale in connection with, the distribution of any part
<PAGE>
thereof, if the Warrants and the related shares have not been
registered under the Act; and
(D) the placing on the certificate of an appropriate legend
and the issuance of stop transfer instructions in connection therewith
if this Warrant and the related, Common Shares have not been registered
under the Act to the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE LAWS OF ANY STATE
AND HAVE BEEN ISSUED PURSUANT TO AN EXEMPTION FROM REGISTRATION. THESE
SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF REGISTRATION OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
The Company may make any changes or corrections in this Warrant (i)
that it shall deem appropriate to cure any ambiguity or to correct any defective
or inconsistent provision or manifest mistake or error herein contained; or (ii)
that it may deem necessary or desirable and which shall not adversely affect the
interests of the Holder; provided, however, that this Warrant shall not
otherwise be modified, supplemented or altered in any respect except with the
consent in writing of the Holder of not less than 50% of the aggregate number of
Warrants issued of the tenor and kind then outstanding; and provided, further,
that no change in the number or nature of the securities purchasable upon the
exercise of any Warrant, or any increase in the purchase price therefor, or any
shortening of the Warrant exercise period shall be made without the consent in
writing of the Holders representing such Warrant, other than such changes as are
specifically prescribed by this Warrant.
The terms and provisions of this Warrant shall inure to the benefit of,
and be binding upon, the Company and its successors and assigns.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by the signature of its duly authorized officer.
PHON-NET.COM, INC.
By:______________________
Brian Collins
President and CEO
Dated: ___________, ____
<PAGE>
EXHIBIT B
AMENDMENT NO. 1 TO FORM SB-2
----------------------------
The following Registration Statement has been filed with the United
States Securities and Exchange Commission but has not yet become
effective under applicable law. The Registration Statement is being
furnished to provide prospective purchasers of the Convertible Notes
and Warrants pursuant to Regulation S with information concerning
Phon-Net.com, Inc. No representation is made that the information set
forth in the following Registration Statement will not change.
LICENSE AGREEMENT
-----------------
ENTERED INTO IN MONTREAL, this 4th day of February 2000.
BETWEEN: PHON-NET.COM, INC., a Florida corporation duly
constituted under the laws of Florida, having its
heard 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 Maria, Suite 3315, Montreal, Quebec, H3B 3N2
(hereinafter referred to as the "Licensee")
SECTION 1
AMENDMENT
---------
1.1 License Agreement between Licensor and Licensee remains intact
excepting:
a) SECTION 2 sub-section 2.2 "exclusive right to use, market and
sublicense the Software in the Territory" is herein changed by the
Licensor and Licensee to "non-exclusive right to use, market and
sublicense the Software in the Territory."
b) SECTION 2 sub-section 2.3 is herein deleted from the License Agreement.
IN WITNESS WHEREOF the parties have caused this Amendment to the Agreement to be
executed by their respective officers duly authorized, as of the date first
mentioned in this Amendment.
(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/ JEAN-FRANCOIS COUTURIER
--------------------------------
Name: Jean-Francois Couturier
Title President Transcontinental
E-media
CONTRACT
--------
THIS AGREEMENT IS DATED FOR REFERENCE the 3rd day of December, 1999
(hereinafter referred to as the "Agreement").
BETWEEN:
ROGER L. BETTERTON, at the postal address of #1903-198
Aquarius Mews, Vancouver, British Columbia (hereinafter
referred to as "Betterton")
CHRISTOPHER E. GEORGELIN, at the postal address of 3340
Blundell Road, Vancouver, British Columbia (hereinafter
referred to as ("Georgelin")
AND:
PHON-NET.COM, INC., a British Columbia company with a place of
business and postal address at #600-750 West Pender Street,
Vancouver, British Columbia (hereinafter referred to as the
"Client")
WHEREAS:
A. Georgelin provides services relating to the design and
development of software programs and systems;
B. The Client wishes to hire Georgelin as a contractor for the
purpose of providing the remaining services set out in an
Agreement between Quad-Ling Software, Inc. dated the 30th day
of June 1999.
THEREFORE, in consideration of the mutual promises contained in this
Agreement, Betterton, Georgelin, and the Client agree as follows:
1. SERVICES PROVIDED
Georgelin will honor remaining services and agreements in Exhibit "A"
(hereinafter referred to as "Exhibit A") between Client and Quad-Ling Software,
Inc. dated the 30th day of June 1999.
<PAGE>
2. PAYMENT FOR SERVICES PROVIDED
As full compensation for all services rendered hereunder, and in lieu of any and
all amounts that may have been payable to Quad-Ling Software, Inc. under the
initial Amended Agreement referred to as Exhibit A, the Client (i) agrees to
issue to those persons identified on Exhibit "B" (hereinafter referred to as
"Exhibit B"), an aggregate of one million (1,000,000) shares of the Client's
Common Stock (hereinafter referred to as "Common Shares"), on December 1, 1999
and (ii) hereby grants to those persons identified on Exhibit B hereto, options
to purchase two million (2,000,000) shares of the Client's Common Stock
(hereinafter referred to as "Option Shares"), exercisable at $.40 per share
beginning on the date of December 1, 1999, and continuing for a period of
eighteen (18) months hereafter. This agreement is to replace the Amended
Agreement between Quad-Ling Software, Inc. and the Client due to
non-performance. The Common Shares and Options received will be the remaining
balance of the Amended Agreement referred to in Exhibit A.
3. CHOICE OF LAW
The laws of the Province of British Columbia shall govern this
Agreement and any disputes arising from this Agreement.
4. DISPUTE RESOLUTION
All disputes arising out of or in connection with this Agreement, or in
respect of any defined legal relationship associated therewith or derived
therefrom, shall be referred to and finally resolved by arbitration administered
by the British Columbia International Commercial Arbitration Centre ("BCICAC")
pursuant to its rules, or if the Parties otherwise agree, by any other
arbitrator and pursuant to rules as agreed upon.
If the parties agree not to have their dispute arbitrated by the
BCICAC, then any legal action with respect to this Agreement shall be commenced
at a court registry and be heard by a court within the City of Vancouver.
5. ENTIRE AGREEMENT
This Agreement, including the Exhibits, attached hereto, comprise the
entire Agreement between Betterton, Georgelin and the Client.
6. EFFECTIVE DATE
This Agreement comes into force on the 3rd of December, 1999.
<PAGE>
7. EXECUTION BY TELECOPY
This Agreement may be executed by the parties and transmitted by
facsimile transmission and if so executed and transmitted this agreement will be
for all purposes as effective as if the parties had delivered an unexecuted
original agreement.
IN WITNESS of the foregoing, this Agreement has been signed by the
authorized signatories for Betterton, Georgelin, and the Client on the dates
noted below.
SIGNED by Roger L. Betterton )
on the 3RD day of DECEMBER, 2000 )
in the presence of: ) /S/ ROGER L. BETTERTON
-----------------------
) Roger L. Betterton
Name: Mayumi Karoda )
Address:806 L1600 Beach Ave )
Van Couver, BC )
SIGNED by Christopher E. Georgelin )
on the 3RD day of DECEMBER, 2000 )
in the presence of: ) /S/ CHRISTOPHER E. GEORGELIN
-----------------------------
) Christopher E. Georgelin
Name: Mayumi Karoda )
Address:806 L1600 Beach Ave )
Van Couver, BC )
SIGNED by Brian Collins, authorized )
signatory for PHON-NET.COM, INC., )
on the 3RD day of DECEMBER, 2000 ) PHON-NET.COM, INC., by its
in the presence of: ) authorized signatory:
)
Name: Mayumi Karoda )
Address:806 L1600 Beach Ave )
Vancouver, BC ) /S/
-----------------------------
<PAGE>
EXHIBIT A
Contract between Quad-Ling Software, Inc. and Phon-Net.com, Inc. dated
the 30th day of June, 1999.
<PAGE>
EXHIBIT B
NUMBER OF SHARES NUMBER OF
NAME COMMON SHARES OPTIONS
- ---- ------------- -------
Roger L. Betterton 640,000 1,280,000
RR 3, Box 142
Pana, IL 62557 S.S.#: ###-##-####
Christopher E. Georgelin 360,000 720,000
3340 Blundell Road
Richmond, BC V7C 1G3
S.S.#: 731-986-063
THIS AGREEMENT IS DATED FOR REFERENCE the 2nd day of February, 2000 (hereinafter
referred to as the "Agreement").
BETWEEN:
QUAD-LINQ SYSTEMS INC., a British Columbia company with a place of
business and postal address at #401-889 West Pender Street, Vancouver, British
Columbia (hereinafter referred to as "QUAD-LINQ")
AND:
PHON-NET, a British Columbia company with a place of business and postal address
at #600-750 West Pender Street, Vancouver, British Columbia (hereinafter
referred to as the "Client")
WHEREAS:
A. QUAD-LINQ is a corporation providing services relating to the design and
development of software programs and systems;
B. The Client wishes to hire QUAD-LINQ as a contractor for the purpose of
providing the services set out in Schedule "A" to this Agreement (hereinafter
referred to as "Schedule A");
THEREFORE, in consideration of the mutual promises contained in this agreement,
QUAD-LINQ and the Client agree as follows:
GENERAL
1. QUAD-LINQ's authorized representative is Christopher E. Georgelin, who
has full authority to act as agent of QUAD-LINQ in all matters
pertaining to this agreement.
2. The Client's authorized representative is Brian Collins (the "Client's
Representative").
3. The Client's Representative has full authority to act as agent of the
Client in all matters pertaining to this Agreement.
EMPLOYMENT RELATIONSHIP
4. QUAD-LINQ is an independent contractor and is not an employee of the
Client and is therefore not entitled to any benefits or payments other
than as set out in this Agreement and schedules to this Agreement.
<PAGE>
SERVICES PROVIDED
5. QUAD-LINQ will provide services to the Client according to the terms
set out in Schedule A.
6. If a change to this Agreement or its schedule(s) is required by
QUAD-LINQ or the Client after this Agreement has been executed, any
such change must be in writing and signed by QUAD-LINQ and the Client
(hereinafter referred to as the "Parties") in order to be binding on
either or both of the Parties.
7. The services provided by QUAD-LINQ under this Agreement are subject to
review by the Client according to the terms and on the dates specified
in Review Schedule to this Agreement (hereinafter referred to as
"Schedule B").
PAYMENT FOR SERVICES PROVIDED
8. QUAD-LINQ's fee (the "Fee") and Payment Schedule, for providing the
services set out in Schedule A, are set out in Schedule "C" to this
Agreement (hereinafter referred to as "Schedule C").
9. QUAD-LINQ may submit interim statements of account for services
rendered to the Client from time to time for payment by the Client.
10. The Client shall pay the Fee to QUAD-LINQ on the terms set out in this
Agreement and in Schedule C.
11. QUAD-LINQ may incur certain expenses (hereinafter referred to as the
"Disbursements") in carrying out this Agreement and in providing the
services as set out in Schedule A. Upon QUAD-LINQ providing the Client
with a statement of the Disbursements, the Client shall pay QUAD-LINQ
for those Disbursements notwithstanding that the Disbursements may not
be disclosed in Schedule A or in Schedule C.
CONFLICT OF INTEREST
12. QUAD-LINQ represents that it has made every reasonable effort to
ascertain that it may perform the services set out in Schedule A
without placing itself in a situation of conflict of interest. If a
situation arises or new facts become evident which, in the opinion of
QUAD-LINQ, places QUAD-LINQ in a conflict of interest should it perform
the services set out in Schedule A then QUAD-LINQ may, upon notice to
the Client, terminate this Agreement (hereinafter referred to as a
"Conflict Termination"). If there is a Conflict Termination, the Client
shall pay QUAD-LINQ for services rendered up to the time when the
conflict of interest arose or was discovered. In either case, the
Client shall also pay QUAD-LINQ for any Disbursements incurred by
QUAD-LINQ to the date of Conflict Termination.
ASSIGNMENT OF AGREEMENT/EMPLOYMENT OF SUB-CONTRACTORS
13. QUAD-LINQ may not assign the whole of this Agreement except with the
Client's written consent.
14. Notwithstanding the foregoing, QUAD-LINQ may hire any person, firm, or
corporation as subcontractor to perform any or all of the services set
out in Schedule A.
ACKNOWLEDGEMENT OF DEVELOPER
15. QUAD-LINQ will be recognized on the introduction of the software as the
original developer.
PROPERTY IN MATERIALS AND PROGRAMS
16. Quad-Linq agrees that the Client will hold all rights to the software
developed under Schedule A, provided all terms and conditions as set
out in this agreement are met. The development of this two-line
solution does not in any way rely on the existing one-line software
already in use, nor is its code based on anything developed under
previous contracts.
<PAGE>
CONFIDENTIALITY, ACCESS TO CLIENT DOCUMENTS AND INFORMATION
17. The Client shall provide all information and copies of documents which
may be reasonably necessary for QUAD-LINQ (or its assignee or
sub-contractor) to be able to provide the services as set out in
Schedule A.
18. QUAD-LINQ shall take all reasonable precautions to ensure that no
information or documents provided to QUAD-LINQ (or its assignee or
sub-contractor) by the Client shall be made public or shall be provided
to any person by any means unless specifically authorized in writing by
the Client.
TERMINATION BY QUAD-LINQ
19. QUAD-LINQ may terminate this Agreement if:
a) completion or continuation of this Agreement would place
QUAD-LINQ or its employees, assignees or sub-contractors, in a
position of conflict of interest which was not consented to by
the parties whose interests might be compromised; or
b) the Client has failed to pay QUAD-LINQ's statements of
account when due; or
c) the Client has not provided information, documents or
participation reasonably required by QUAD-LINQ to perform the
services set out in Schedule A.
20. If QUAD-LINQ terminates this Agreement for the reasons set out in (b)
or (c) above, the Client shall pay QUAD-LINQ the entire amount due to
QUAD-LINQ (notwithstanding that QUAD-LINQ has not completed the
services set out in Schedule A) pursuant to the Payment Schedule which
amount shall become immediately due and payable.
TERMINATION BY THE CLIENT
21. The Client may terminate this Agreement:
a) at any time and without cause upon 10 days written notice
to QUAD-LINQ if QUAD-LINQ or its employees, assignees or
sub-contractors unreasonably fails to perform the services set
out in Schedule A upon payment of the Disbursements incurred
by QUAD-LINQ (or its assignee or sub-contractor) including any
amounts owing by QUAD-LINQ to its assignee or sub-contractor.
b) at the time of any scheduled review as set out in Schedule
B, if the services provided by QUAD-LINQ at that time do not
reasonably satisfy the criteria set out in the Schedule B and
provided that the Client shall pay QUAD-LINQ for all services
rendered and Disbursements incurred up to that time.
c) at any time, with 10 days written notice to QUAD-LINQ, if
the subject matter of the services set out in Schedule A
ceases to exist and upon payment of:
i) QUAD-LINQ's Disbursements incurred to the date of
termination; and
ii) QUAD-LINQ's fee (including applicable taxes) for services
provided to the date of termination; and
iii) payment to QUAD-LINQ of an amount equal to 50% of the fee
which QUAD-LINQ would have been entitled to charge for
the services remaining to be performed as set out in
Schedule A.
<PAGE>
AGENCY RELATIONSHIP BETWEEN THE PARTIES
22. QUAD-LINQ, its shareholders, directors, agents, employees, and
assignees are the agents of the Client in all matters pertaining to the
carrying out of this Agreement.
INDEMNITY
23. The Client agrees that the Client shall indemnify and save harmless
QUAD-LINQ and its shareholders, directors, agents, employees, and
assignees from all actions and claims against QUAD-LINQ or its
shareholders, directors, agents, employees, and assignees arising from
the performance of this Agreement or use of the Resources.
24. Withrespect to any action in defamation arising from the performance of
this Agreement or use of the Resources, the Client shall be deemed to
have published all reports, memoranda, recommendations and oral
statements in connection with the subject matter of this Agreement and
all other matters reasonably arising from the subject matter of the
services set out in Schedule A to this Agreement.
WARRANTIES
25. QUAD-LINQ makes no warranties or conditions, express or implied, and
there are expressly excluded all implied or statutory warranties or
conditions of merchantability or fitness for a particular purpose and
those arising by statute or otherwise in law or from a course of
dealing or usage of trade. Any stated express warranties are in lieu of
all liabilities or obligations for damages arising out of or in
connection with the delivery, use, performance or licensing of the
Resources or in connection with any services performed under this
Agreement.
LIMITATION OF LIABILITY
26. QUAD-LINQ will only be liable for work done directly by QUAD-LINQ or
its employees. QUAD-LINQ will not be liable for any consequences which
are the direct or indirect result of any unauthorized work performed by
anyone not an employee of QUAD-LINQ.
27. In no event whatsoever will QUAD-LINQ be liable for indirect,
consequential, exemplary, incidental, special or other similar damages,
including but not limited to lost profits, lost business revenue,
failure to realize expected savings, other commercial or economic loss
of any kind or any claim against the Client by any other party arising
out of or in connection with the delivery, use, performance or
licensing of the Resources or in connection with any services performed
under this Agreement or any breach of this Agreement, even if the
Client has been advised of the possibility of such damages.
CHOICE OF LAW
28. The laws of the Province of British Columbia shall govern this
Agreement and any disputes arising from this Agreement.
DISPUTE RESOLUTION
29. All disputes arising out of or in connection with this Agreement, or in
respect of any defined legal relationship associated therewith or
derived therefrom, shall be referred to and finally resolved by
arbitration administered by the British Columbia International
Commercial Arbitration Centre ("BCICAC") pursuant to its rules, or if
the Parties otherwise agree, by any other arbitrator and pursuant to
rules as agreed upon.
30. If the Parties agree not to have their dispute arbitrated by the
BCICAC, then any legal action with respect to this Agreement shall be
commenced at a court registry and be heard by a court within the City
of Vancouver.
ENTIRE AGREEMENT
31. This Agreement, including the Schedules attached hereto, comprise the
entire Agreement between QUAD-LINQ and the Client.
<PAGE>
EFFECTIVE DATE
32. This Agreement comes into force on the date on which it is signed by
QUAD-LINQ or by the Client, whichever is the later date.
IN WITNESS of the foregoing this Agreement has been signed by the authorized
signatories for QUAD-LINQ and the Client on the dates noted below:
SIGNED by Christopher E. Georgelin, ) QUAD-LINQ SYSTEMS INC., by
authorized signatory for QUAD-LINQ ) its authorized signatory:
SYSTEMS INC., on the _____ day of )
____________, 19___ in the presence of: )
Name: _________________________ )
Address: _________________________ )
SIGNED by Brian Collins, ) PHON-NET.COM CORPORATION, by
authorized signatory for PHON-NET.COM., ) its authorized signatory:
on the _____ day of )
____________, 19___ in the presence of: )
Name: _________________________ )
Address: _________________________ )
<PAGE>
SCHEDULE A
----------
Schedule of Services
This software development contract consists of the following components needed
to implement a "two-line solution":
1. User Interface
a) Additional option in the Direct Connect plug-in software to
initiate a two-line connection.
b) Changes to the licensing server to enable/disable the use of the
two-line solution.
2. Back-End
a) Installation of initial development server at Quad-Linq's office
at #401-889 W Pender
b) Server software to handle 11 simultaneous two-line calls between
businesses located in Canada/USA and their clients.
3. Testing
THIS DEVELOPMENT PROJECT, AS OUTLINED IN SCHEDULE A, AND THE FEES AS INDICATED
IN SCHEDULE C COVERS ONLY THE SOFTWARE DEVELOPMENT AND HARDWARE SETUP LABOR
ASSOCIATED WITH THE "TWO-LINE SOLUTION" FOR USE WITH CANADIAN/USA BUSINESSES.
HARDWARE COSTS, PSTN AND ASSOCIATED LINE COSTS AND OTHER COSTS INCURRED DURING
DEVELOPMENT OR USE OF THIS PRODUCT IS NOT COVERED BY THIS CONTRACT.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE B
----------
Review Schedule
MODULE COMPLETION DATE AUTHORIZED REPRESENTATIVE
------ --------------- -------------------------
<S> <C> <C>
Installation of development server ________________ ______
Demonstrative sample of back-end software ________________ ______
User Interface: Plug-in ________________ ______
User Interface: Licensing server ________________ ______
Final server-side development ________________ ______
Testing ________________ ______
</TABLE>
IF THE PROGRAM DOES NOT SUBSTANTIALLY PERFORM THE FUNCTIONS OR GENERALLY CONFORM
TO THE SPECIFICATIONS IN SCHEDULE A, THE CLIENT MAY WITHIN 90 DAYS AFTER
DELIVERY WRITE QUAD-LINQ TO REPORT A SIGNIFICANT DEFECT. QUAD-LINQ WILL CORRECT
THE DEFECT WITHIN 90 DAYS, OR AS REASONABLE, AFTER RECEIVING YOUR REPORT.
<PAGE>
SCHEDULE C
----------
Flat Fee
1. QUAD-LINQ's total fee shall be $54,000 for the services set out in
Schedule A (hereinafter referred to as the "Fee"). The client shall pay
the Fee under the following terms:
a) 1/3 (One-Third) the total Fee (an amount of $18,000), shall
be made payable to QUAD-LINQ at the time this agreement is
executed by the Parties.
b) 1/3 (One-Third) the total Fee (an amount of $18,000), shall be
made payable to QUAD-LINQ one month after this agreement is
executed by the Parties.
c) The remaining amount owning, (an amount of $18,000), shall be
made payable to QUAD-LINQ two months after this agreement is
executed by the Parties
2. QUAD-LINQ may charge interest on accounts remaining outstanding more
than 30 days at a rate of 18% per annum calculated monthly.
THIS DEVELOPMENT PROJECT, AS OUTLINED IN SCHEDULE A, AND THE FEES AS INDICATED
IN SCHEDULE C COVERS ONLY THE SOFTWARE DEVELOPMENT AND HARDWARE SETUP LABOR
ASSOCIATED WITH THE "TWO-LINE SOLUTION" FOR USE WITH CANADIAN/USA BUSINESSES.
HARDWARE COSTS, PSTN AND ASSOCIATED LINE COSTS AND OTHER COSTS INCURRED DURING
DEVELOPMENT OR USE OF THIS PRODUCT IS NOT COVERED BY THIS CONTRACT.
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
March 3, 2000
<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> 13,829
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 216,990
<PP&E> 96,297
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,413,421
<CURRENT-LIABILITIES> 247,893
<BONDS> 0
0
0
<COMMON> 8,029,160
<OTHER-SE> (6,863,632)
<TOTAL-LIABILITY-AND-EQUITY> 1,413,421
<SALES> 43,867
<TOTAL-REVENUES> 43,867
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,919,358
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,875,491)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,875,491)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,875,491)
<EPS-BASIC> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF PHON-NET.COM, INC. FOR THE THREE MONTHS ENDED
OCTOBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> OCT-31-1999
<CASH> 8,912
<SECURITIES> 0
<RECEIVABLES> 15,319
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 26,062
<PP&E> 87,491
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,154,117
<CURRENT-LIABILITIES> 252,463
<BONDS> 0
0
0
<COMMON> 8,029,160
<OTHER-SE> (7,127,506)
<TOTAL-LIABILITY-AND-EQUITY> 1,154,117
<SALES> 51
<TOTAL-REVENUES> 51
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 256,444
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (256,393)
<INCOME-TAX> 0
<INCOME-CONTINUING> (256,393)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (256,393)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
