U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-K
(MARK ONE)
[X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the fiscal year ended June 30, 2000
[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from __________ to __________
Commission file number 0-27645
PLANET411.COM INC.
(Exact name of registrant as specified in its charter)
DELAWARE 88-0258277
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation of Organization)
440 Rene Levesque West, Suite 401, Montreal, Quebec Canada H2Z 1V7
(Address of principal executive offices)
Issuer's telephone number, including area code: (514) 866-4638
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
Common stock, $0.001 par value
Title of class
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days.
YES [X] NO [ ]
Indicate by check mark if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-K contained in this form, and no disclosure
will be contained, to the
<PAGE>
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _____
State the aggregate market value of the voting and non-voting common equity held
by nonaffiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the common equity was sold, or the average
bid and ask price of such common equity, as of a specified date within the past
60 days.
As of September 25, 2000: Approximately $19,527,807
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
2
<PAGE>
TABLE OF CONTENTS
ITEM 1. BUSINESS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
3
<PAGE>
PART I
ITEM 1. BUSINESS.
Forward Looking Statements
This report contains "forward looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") including, in particular, the
statements about the Company's plans, strategies, and prospects. Although
management believes that the Company's plans, intentions and expectations
reflected in or suggested by such forward-looking statements are reasonable,
management can give no assurance that such plans, intentions or expectations
will be achieved. These cautionary statements, however, are not intended to be
exhaustive, and should be read in conjunction with the other cautionary
statements made herein and in the Company's other publicly filed reports.
Important factors that could cause actual results to differ materially from the
forward-looking statements the Company makes in this report are described below
in the "Risk Factors" portion of management's discussion in Item 7, and
elsewhere in this report. All forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by these cautionary statements.
General
Planet411.com Inc. provides retailers seeking to engage in e-commerce and
seeking to develop an online sales distribution channel with a complete
e-business solution. The solution is comprised of the following bundled services
and features:
o advisory services in online business strategy,
o marketing and performance analysis,
o creation of and access to a fully scaleable online store
displaying the retailer's brand with catalogue hosting,
o easier access to Visa and MasterCard online merchant numbers and
negotiated preferential terms with respect thereto,
o third party and proprietary e-commerce application software,
o proprietary real-time payment processing,
o interfaces to the retailer's own or third party fulfillment
operations,
o interfaces to and reconciliation with third party shipping
arrangements, and
o interfaces to the retailer's own or third party customer support
services.
The Company believes that few new online merchants are in a position to
establish all of these capabilities efficiently, and that its providing
merchants with one integrated source for all of these functions will be more
attractive to the Company's intended market. The Company also believes that
these services and integrated technologies enable retailers to generate online
sales without the risks and long delays frequently associated with either
starting up a business or commencing sales operations via the Internet.
In June 2000, the Company completed the test phase for its products and
services. Its systems are fully operational and it currently has seven
merchant-clients with operational online stores. In July 2000 the Company
changed the focus of its marketing efforts to medium- and large-sized retailers
in select retail segments. The Company is now actively engaged in growing its
retailer base and building revenues from operations. There can be no assurance,
however, that it will be able to achieve these goals. As a result of the
Company's change in focus, the Company no longer intends to open and operate
walk-in business centers as had been previously planned.
The Company operates its business entirely through 9066-4871 Quebec Inc.
("9066"), which was organized in July 1998. All descriptions of a commercial
nature contained herein relate to the business as conducted by 9066. Two of the
Company's subsidiaries, 3560309 Canada Inc., a corporation existing under
1
<PAGE>
the laws of Canada ("Canco"), and Planet 411 (Nova Scotia) Company, a Nova
Scotia unlimited liability company ("Novaco"), were created in connection with
the reverse takeover through which the shareholders of 9066 acquired a
controlling interest in the Company. These entities do not conduct any material
business, but exist to hold the equity interests in the Company's subsidiaries
and to participate in the Voting and Combination Agreements described herein.
See Item 13, "Certain Relationships and Related Transactions" for a description
of these agreements.
References to the "Company" shall be deemed to mean (a) Planet411.com
Corporation, a Nevada corporation, and its predecessors in interest for all
periods prior to October 6, 1999, and (b) Planet411.com Inc., a Delaware
corporation, after such date. A description of the Company's predecessors is
contained at the end of this section.
Products and Services
Products and Services
The Company's core focus is to be an e-business service provider to medium
and large-sized retailers. The Company offers a package of services to medium
and large-sized retailers that the Company believes reduces these retailers'
financial and technological risks associated with engaging in e-commerce and in
establishing and growing their online sales. The first phase of that process is
to set up the retailer's on-line store. The Company believes that it reduces
these risks by bundling the following products and services:
o advisory services in online business strategy,
o marketing and performance analysis with store and catalogue
hosting,
o providing Visa and MasterCard online retailer numbers ,
o third party and proprietary e-commerce application software,
o real-time payment processing,
o interfaces to fulfillment and retailer service operations, and
o shipping arrangements.
-Advisory Services/ Marketing and Performance Analysis
The Company has divided its retail advisory services offering into three
components: strategy, marketing and performance analysis:
1 Strategy: The "strategy" component consists of the following:
o assisting with the set-up and implementation of the retailer's
on-line business model,
o determining how much volume the retailer's business is equipped
to handle,
o identifying opportunities and suggesting new online markets for
retailers to pursue, and
o advising retailers regarding their relationships with consumers.
2
<PAGE>
2 Marketing: The "marketing" component consists of the following:
o working with retailers to define a marketing strategy and to
identify the best advertising and promotion channels for the
retailer's online store,
o coordinating traditional and on-line marketing techniques,
o identifying the best communication channels and determining
placement and position of the retailer's products and website on
the internet, including recommendations regarding cost-efficient
alternatives, whether online or offline, to bring about an
increase in online sales, and
o determining how much to spend on each promotional element.
3 Performance Analysis: The Company's "performance analysis" consists of
the Company's assisting a retailer to extract pertinent data about
sales generally, and in particular about the behavior of online
visitors and buyers. This data is used with predictive mathematical
models similar to econometric models but applied to e-commerce
outcomes for each online retailer. These models allow the Company to
accomplish the following:
o to apply greater scientific rigor to its analysis of consumer
behavior and sales results,
o to perform trend analysis and to rate each store's performance,
and
o to re-orient online store design and content as well as the
allocation of the retailer's promotional resources.
The Company's goal is ultimately to enhance each retailer's online
traffic and the rate of online sales conversion.
-Providing Visa and MasterCard Merchant Numbers
The Company has negotiated master merchant agreements with TD Financial
Group, an affiliate of The Toronto-Dominion Bank, and a National Bank of Canada,
who will provide, respectively, Visa and MasterCard merchant numbers to the
Company for its Canadian retailers. (The Company is also finalizing a comparable
agreement for use with U.S. retailers and/or dollar-denominated transactions.)
In its role as a master merchant, the Company can usually provide these merchant
numbers within 48 to 72 hours, instead of a more typical six week period, which
is a service the Company emphasizes to its retailers. The Company also believes
its retailers have added liquidity and less risk, because instead of requiring
an up-front security deposit, the Company retains 25% of sales up to a security
deposit's expected ceiling. The Company has also negotiated what it believes to
be a favorable online discount rate, and retailers will not have to contend with
any account-opening fees, transaction fees, monthly fees or annual fees.
-Software Provided
The Company provides its retailers with the use of Transact software from
Open Market, Inc. The Company has also developed all of the interfaces and
proprietary applications necessary to establish and reconcile links among the
storefront, the TD Financial Group, the National Bank of Canada, delivery
systems at UPS, and the Company's own accounting software.
-Real time Payment Processing
Under the above-referenced agreements with the TD Financial Group and the
National Bank of Canada, the Company offers real-time processing of Visa and
MasterCard credit card transactions. These transactions involve no third-party
involvement. Additionally, the process by which the transactions are processed
includes credit card fraud detection.
3
<PAGE>
-Interfaces to Fulfillment and Retailer Service Operations
The Company's solution permits and facilitates a retailer's outsourcing to
third parties of both the fulfillment and the retailer's customer service
operations. The Company believes the flexibility of its solution, which permits
the a retailer to perform these functions or provides an infrastructure that
will connect with the legacy information systems of third party service
providers, will expedite the market's acceptance of the solution. However, there
is no assurance of market acceptance.
-Shipping Arrangements
The Company's solution is currently integrated with the UPS delivery
system, which permits the Company to confirm when delivery to the consumer has
been confirmed before the retailer is paid. Additionally, the Company's solution
interfaces with other competitive delivery services that may be preferred by
individual retailers. The Company expects to offer these other delivery
alternatives to its retailers as part of the integrated solution in the future.
Revenues
The Company's core revenues will be a fixed percentage of each online sale
by its retailers. Other revenues will be a minimal one time sign up fee (in
Canada about $1,325), interest earned on funds held on deposit, together with
fees for optional consulting services and ongoing performance analysis. The
Company charges retailers a fee which is expected to average five percent of
each online sale.
The Company's revenues are directly related to those of the retailers that
use the Company's solution. In light of the relatively low start-up costs
associated with the solution, the Company expects that it will generate its
revenues in part by requiring each retailer to commit to a minimum annual
promotion budget. This budget may vary by retail segment and country.
The Company earned revenues for the first time in the fourth quarter of
fiscal 2000. The Company does not depend on any one customer or supplier of
materials. No market segments, whether geographic or financial, have developed
during the Company's first two years of business.
Market
The Company's growth and success depend on the continued rapid expansion of
e-commerce, particularly the Internet business-to-consumer (B2C) market. It has
been estimated that in 1999, online retail activity represented less than one
percent of overall consumer spending in North America, but that by 2004, online
retailing will grow to about five to seven percent of this spending. Similarly,
the Canadian online B2C market was estimated to be about $450 million in June
1998 and is expected to increase to $8.5 billion in 2003. A recently published
Boston Consulting Group study indicates that in 1999, the growth rate of online
retailing (the B2C market) was 120%.
4
<PAGE>
The Company believes that the primary market for the Company's products and
services, and the customers to which the aforementioned products and services
offer the greatest benefit, are large and medium-sized retailers that are
already established as "brick and mortar" physical locations that can handle a
sharp increase in sales volume. The Company will continue to focus its initial
sales efforts in Montreal, and then plans to direct its efforts to the other
major cities in Canada, namely Toronto, Vancouver, Calgary and Ottawa. The
Company intends to undertake this expansion in fiscal year 2001, but such growth
depends on the Company's ability to raise additional capital. The Company's also
plans to export its concept to Europe and the United States in fiscal year 2001
by relying on strategic alliances to drive the recruitment of local e-retailers.
There is no assurance, however, that any such expansion will take place, in
light of the Company's need for immediate capital.
Within Canada, the Company will be focusing on the ten retail industry
segments listed below, which the Company selected based on independent market
research that points to these segments as having the greatest potential to
generate online sales at this time. These segments are:
o Computers and Electronics,
o Travel and Culture,
o Leisure, Amusements and Gifts,
o Clothing, Shoes and Accessories,
o Cosmetics and Health items,
o Home and Office Equipment,
o General Merchandise,
o Food and Beverages,
o Vehicles and Accessories, and
o Professional and financial services.
The Company will market its products and services to these segments as
described in the next section.
Sales and Marketing
Marketing Segments and Sales Strategy
Since the Company initially began marketing its solution, it has determined
that small-scale merchants will only be successful when they make an independent
effort to position themselves on the Internet through both a substantial
advertising budget and a highly specific market niche. The Company has concluded
that the companies with the most potential for profitable Internet-generated
business are medium- and large-scale retailers, and the Company decided in July
2000 to direct its marketing efforts toward these companies within the
industries noted above. The Company will tailor its marketing and sales
development efforts to what it perceives to be the needs of the particular
e-retailer, which is largely based upon which of the target segments below is
believed to be most applicable to the e-retailer. The Company will adapt its
selling efforts and has the capability to work with prospective clients in a
one-on-one meeting, a group meeting or via networking.
The Company has identified four key target segments within the ten
industries above:
o retailers experienced in catalog sales,
o established retailers with very significant offline sales
revenues,
o existing networks of retailers who share common characteristics,
and
o retailers exploiting profitable niche markets.
The Company expects that retailers with experience in catalog sales or mail
order business already have an infrastructure that allows them to adapt their
existing operations more easily to online sales. These retailers use databases
containing information that has been generated through long-distance sales. The
5
<PAGE>
Company believes that these retailers are more likely to be interested in the
Company's technical solution, which facilitates online sales by integrating a
variety of back-office components and functions.
For each of the ten market segments, the Company has established an
internal sales volume threshold. Retailers with offline sales revenues in excess
of this threshold are typically large, well-known companies with a brand image
that has been developed and sustained over many years. Because brand image is
extremely important to Internet sales and these large retailers are determined
to protect their image, the Company believes it is important for them to
transfer their commercial "personality" to the online store rather than lose it
or have the image diluted within a portal. These retailers have very specific
needs in the way the store is displayed and portrayed, and skilled marketing is
and will remain a priority for them. Thus, for these retailers the Company's
solution is a tailored support system that simplifies online selling when used
in conjunction with a retailer's concerted marketing effort in the early stages
of on-line selling.
The Company believes that merchant networks also can benefit from the
Company's solutions. This is true of commercial centers and encompasses product
groups, such as franchise/banner chains, and service providers such as marketing
agencies, banks and fulfillment houses. These networks are composed primarily of
small-scale merchants with common needs, to which the Company's solution
responds by permitting them to become known on the Internet through the
collective power of their retailing groups. The Company will attempt to access
these networks through joint marketing and joint promotional efforts by entering
into strategic alliances with companies that can provide such access to the
Company, including chambers of commerce and other business groups. These
organizations should be familiar to and instill confidence in the retailer. As a
result, the Company's strengths and expertise are particularly useful to these
groups. The Company's profitability depends in part on its ability to acquire
access to more e-retailers within these networks.
The fourth target segment is the area of niche sales. This segment is
attractive to the Company because it promotes distinctiveness on the Internet by
aiming its product at a highly specific type of consumer. The Company's efforts
to develop this target segment will be in partnership with start-up
organizations in e-commerce. This segment is the only segment not aimed at
medium- and large-sized retailers.
For the European and American markets, the Company intends to sign
licensing agreements strategic allies who already have a network of retailers.
These allies will provide the potential for e-commerce by supplying solutions or
retail services to the various parties, and will also attempt to improve their
actual value propositions by adding the Company's complete and integrated
e-commerce solution. These strategic alliances are ready for the Company's
solution because they will not have to invest in creating or installing an
infrastructure for operations or services in order to conduct e-business. The
advantage to the Company of these strategic allies is that their networks of
retailers are already in place.
Direct Selling
The Company has also launched a direct selling strategy intended to secure
a strong position in the Canadian marketplace. The marketing campaign will also
focus on established, medium- and large-sized retailers as described above.
These retailers will be selected by management based upon management's
perception that the Company's business model will not require significant
adaptation for implementation with these retailers, who will generally be
sellers of diverse lines of easily shipped consumer goods. The Company believes
that this change in methodology is appropriate because of, among other things,
the technological sophistication and internal marketing and Internet expertise
of these retailers when compared with that of smaller retailers.
Competition
The Company believes that the primary competitive factors for companies
seeking to provide retailers with products and services comparable to the
Company's are the following:
6
<PAGE>
o the ability of the retailer to leverage their own offline brand
on the provider's solution,
o the ability of the retailer to generate online sales quickly and
adapt online marketing strategies to the rapidly evolving
technological possibilities offered on the Internet,
o the ability of the provider to demonstrate how the total costs of
online sales relates to the costs of traditional offline sales,
o the integration and completeness of the products and services
provided - whether all products and services can be obtained from
or through one provider, including credit card access, delivery
services for the products sold, and the ease-of-use of software
used to set up store and payment-processing software,
o the ability of the provider to customize the products and
services sought, and
o retailer support, particularly technical support.
The Company classifies its competition as follows:
o local suppliers of Internet services,
o consulting firms and manufacturers of computer equipment,
o suppliers of integrated e-business solutions,
o other competition, such as traditional media, and
o in some cases, the retailer's internal information technology
staff.
Local Suppliers of Internet Services
Local suppliers of Internet services specialize in the development of Web
sites. A few of them offer e-commerce tools such as "shopping cart" software,
hosting and transaction processing. However, the Company believes that none of
these companies offers either an e-business solution that is as complete,
integrated or scaleable as the Company's or the advisory service in terms of
e-commerce strategy and marketing offered by the Company. Canadian companies
falling into this category include, Valadeo, Trellix, Performance Net, Business
Dynamics, Digital Commerce SWL, Strategic Profit, IBG Internet Broker Group,
Hyper Connect, Shadez and IrDesign.
The Company believes that the main advantage of these companies is that
they are close to their clientele, but that the Company's products and services
offer the following advantages (in addition to those noted in the preceding
paragraph):
o the Company offers assistance in terms of e-commerce strategy and
marketing,
o the Company's e-business solution integrates all components that
the Company believes are needed to open, manage and optimize an
online sales channel,
o the Company's solution allows the retailer to begin selling
online almost immediately with no significant upfront cost,
o the Company offers a proprietary payment service which should
reduce consumer concerns regarding making an online purchase,
o the Company offers advisory services based on, in part, analysis
of click stream and other data collected from each merchant's
online store applied to mathematical models for predicting
e-commerce outcomes generally and rates of online sales growth
more specifically.
Consulting Firms and Manufacturers of Computer Equipment
These companies offer their retailers a customized e-business solution.
These kinds of solutions typically require considerable financing and elapsed
time prior to the retailer's engaging in e-commerce. The retailer also bears the
full risk of selecting the appropriate technologies that will successfully adapt
to the changing Internet and e-commerce environment. These competitors primarily
focus on large and
7
<PAGE>
medium sized retailers, as does the Company. Competitors fitting into this group
are DMR-Metalink, BCE Emergis and Bellamy Jordan.
The main advantage of these companies is their ability to develop
e-business solutions that address the specific needs of their clients and that
can be integrated in their current business processes. However, relative to the
integrated solution being offered by the Company, management believes that these
types of e-business solutions involve relatively high development costs and
significant operational costs, while lacking the overall e-business advisory
relationship fostered by the Company. Furthermore, the Company believes these
competitors target several vertical markets, not just retailers, in order to
leverage their core competencies in software, hardware development and/or
consulting.
Suppliers of Integrated E-Business Solutions
These competitors of the Company offer retailers who want to start an
online business integrated e-business solutions that comprise many of the
fundamental components required to do e-commerce. Their business model usually
involves a monthly fee and transaction costs or a free base service and certain
fees for additional services. In the United States, companies like Yahoo Stores,
i-mall, Lycos, Big Step, Econgo and FreeMerchant are involved in such
activities, and have the greatest name recognition among the Company's
competitors. In Canada, Canada Shop, Clic Shop and nGage are illustrative of
this kind of competitor.
With respect to these larger and more established competitors offering
exposure on a portal, with reasonable pricing in addition to a search engine,
the Company believes (based on independent market research conducted at the
Company's request) that medium- and large-sized retailers will not be attracted
by the prospect of diluting their offline brand in a portal. Furthermore, the
Company believes that the focus of such companies has been on e-commerce for
multiple vertical markets and not specifically for retailers. In Canada, the
Company believes that its competitive advantages against these companies are its
provision of a retailer-specific solution including retailer service, shipping
arrangements and assistance in terms of e-commerce strategy and marketing
without diluting the retailer's brand image by including it in a portal with
other vendors.
Retailer's Internal Information Technology Services
Medium- and large-sized retailers typically have internal staff dedicated
to developing and operating their business applications based on use of
information technologies. Many already have an existing website. Rather than
contract with the Company or one of its competitors, these retailers could
undertake to develop their online sales channels using these internal resources.
The main advantage of this approach is the control it provides the retailer on
the rate of expenditure for the upfront development costs. Otherwise this
approach is similar, both in benefits and disadvantages, to using one of the
Company's competitors who develop custom e-commerce solutions, i.e. time to
first online sale, risks in selecting and integrating all e-commerce components
and no advisory services relating to online business and marketing strategy.
Because the Company has already integrated its solution and may have greater
negotiating leverage with third party vendors (by virtue of the incremental
volume by when its retailers are aggregated), the Company believes its solution
will be more cost-effective than a retailer's "in-house" development and
assembly of an e-commerce solution.
Other Competition
The Company also competes to a limited extent with traditional forms of
media, such as newspapers, magazines, radio and television, insofar as
advertising through these media can be viewed as an alternative to a retailer
operating a website. The traditional media companies are likely to have greater
capacity than the Company to invest in or to otherwise acquire the Company's
competition. The Company believes that the principal competitive factors in
attracting retailers to use the Company's products and services instead of
traditional media are the following:
o the ease-of-use of the Company's products and services,
8
<PAGE>
o the extent to which the Company can assist the retailer in
developing and evolving its online business strategy and
marketing strategy,
o the ability of the consumer to execute online purchases directly
through the system, and
o the cost-efficiency of the Company's products and services in
reaching and attracting potential consumers, as compared to
traditional media providers.
The Company's existing competition in the Internet sector, by virtue of
their already being operational and revenue-generating, all have greater name
recognition, established retailer bases and greater financial, technical and
marketing resources than the Company. Traditional media companies have
significantly greater resources. Such competitors are able to undertake more
extensive marketing campaigns for their products and services, and may be able
to adopt more aggressive advertising pricing policies and make more attractive
offers to potential employees, agents and third parties. There can be no
assurance that the package of products and services provided by the Company will
be found to be more useful or cost-efficient than those provided by other
companies. Nor can there can be any assurance that the Company's competitors and
potential competitors will not develop products and services that are equal or
superior to the Company's. There is also no assurance that the third party
providers with which the Company has established strategic arrangements will not
terminate or fail to renew these arrangements upon the respective termination
dates thereof, whether due to perceived benefits from other sources or other
currently unknown reasons.
Intellectual Property
The Company has filed a patent application with the Canadian Patent Office
for a statutory monopoly on the technological processes that comprise its
payment system. The Company intends to file an application for patent protection
in the United States, and has conducted patent searches in connection therewith.
However, there can be no assurance that the U.S. patent application will be
filed or that either a Canadian or U.S. patent will issue.
The Company intends to seek patent protection for other technologies that
it has developed, including the formulae for the mathematical predictive model
developed on its behalf under contract by the Center for Interuniversity
Research and Analysis on Organization. This formula provides the means by which
the Company predicts, on an ongoing basis, the business performance of each of
its merchant-clients' e-stores by analysis of a wide range of industry and
consumer behavior data. The Company has not yet initiated the requisite patent
searches, and there can be no assurance that a patent for a competitive
algorithm has not already been issued, or that a patent will be granted in any
jurisdiction.
The Company is not currently exploring the viability of franchising or
licensing out its intellectual property interests, and is neither a franchisee
or licensee under any material agreements, other than its arrangements with Open
Market, Inc., pursuant to which the Company is granted rights in the software
that it makes accessible to retailers to enable them to conduct business over
the Internet.
Research and Development
The Company is a development stage company. The following are estimates of
the Company's operating and administrative expenses that are attributable for
tax purposes to the research and development of the concept described in this
annual report:
Period Amount
------ ------
Eleven Months ended June 30, 1999 $61,683
Year ended June 30, 2000 $255,140
From July 31, 1998 (inception date ) through June 30, 2000 $316,823
9
<PAGE>
Additionally, the Company has spent an estimated aggregate amount of
$1,982,000 in salaries, subcontracts, hosting fees and maintenance, and the
acquisition of licenses in development of the Company's integrated solution,
including development of its payment system applications and the integration of
the components comprising the Company's solution. (It is not yet clear whether
these additional amounts would be classified as research and development for tax
purposes.)
The Company is not aware whether and to what extent its predecessors spent
funds on research and development during the years prior to July 1998. However,
as none of the Company's predecessors operated a business resembling that
described herein, any amounts spent by such predecessors were not used to fund
research and development for the operations of the Company as currently
operated.
Employees
The Company currently has 35 employees. These employees are divided into
production and development, merchant services, marketing and technology.
Although the Company's production and development team is able to meet the
Company's current requirements, implementation of the Company's growth plan
requires the Company to hire new personnel in this area to meet anticipated
demand. The increase in the production and development staff will be triggered
by growth in the merchant services generated by the Company, and by the
Company's ability to adapt its product to customer requirements. The Company
intends to hire additional human resource personnel to meet recruitment and
training requirements. The Company forecasts significant staffing increases in
its skilled technology, merchant services, marketing, management and recruiting
divisions in fiscal year 2001.
The Company's relationship with its employees is good. None of the
Company's employees is a member of a labor union.
The Company (Corporate History)
Planet411.com Corporation, the Company's predecessor, was incorporated in
Nevada on April 23, 1990, as Investor Club of the United States. The name was
changed to Noble Financing Group Inc. (in 1992), then to Newman Energy
Technologies Incorporated (1998), then World Star Asia, Inc. (1998), Comgen
Corp. (1998) and then to Planet411.com Corporation on February 11, 1999 to
reflect its current business objectives. Planet411.com Inc. was incorporated on
July 13, 1999. Planet411.com Corporation was merged with and into Planet411.com
Inc. on October 6, 1999 for the sole purpose of changing the Company's
jurisdiction of incorporation to Delaware.
The Company's headquarters are presently located at 440 Rene Levesque West,
Suite 401, Montreal, Quebec Canada.
[The remainder of this page intentionally left blank]
10
<PAGE>
ITEM 2. PROPERTIES
The Company does not own any real property. In December 1999, it increased
its total leased office space by approximately 8,000 square feet, to an
aggregate of 17,100 square feet, all of which is located at the the Company's
headquarters in Montreal. The Company's existing real property leases all expire
on May 31, 2003. Aggregate payments under the Company's real property leases are
expected to be $427,129 through the expiration date, with minimum lease payments
for the next three years (the duration of the leases) of $146,444 in fiscal
years 2001 and 2002, and $134,241 in fiscal year 2003. The Company has the right
to renew the leases for all of its office space through May 2006 on the same
terms. The Company believes that its present facilities as so increased are
adequate to meet its current and foreseeable business requirements.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any litigation and does not have any pending
claims against it. The Company's management is not aware of any threatened
claims or the basis therefor.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of its security holders in
the fourth quarter of fiscal year 2000.
[The remainder of this page intentionally left blank]
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market for Common Equity
The Company's Common Stock is quoted on the NASD OTC Bulletin Board under
the symbol "PFOO." The following table sets forth the high and low closing
prices for the Common Stock for the periods indicated.
High Low
---- ---
2000
----
Second Quarter $4.05 $1.37
First Quarter 5.00 1.50
1999
----
Fourth Quarter 2.5625 1.3750
Third Quarter 3.50 1.7812
Second Quarter 4.0625 3.25
First Quarter 5.00 3.4531
1998
----
Fourth Quarter 4.375 3.75
On October 7, 1999, pursuant to NASD Rule 6530, the Common Stock became
ineligible for quotation on the OTC Bulletin Board because the Company was not a
reporting company under the Exchange Act. The Company filed a registration
statement under the Exchange Act and on February 25th, the registration
statement went effective. The Common Stock became re-eligible for quotation on
the Over the Counter Bulletin Board on March 20, 2000. The prices in the table
above includes prices from when the Common Stock was not eligible for quotation.
On September 25, 2000, there were 49 holders of record of the Company's
26,037,876 issued and outstanding shares of Common Stock. On September 25, 2000,
the last published sale price for the Company's Common Stock was $0.75 per
share.
The Company has not paid any cash dividends on its Common Stock and does
not presently intend to do so. Future dividend policy will be determined by its
Board of Directors on the basis of its earnings, capital requirements, financial
condition and other factors deemed relevant. The Voting Agreement described in
Item 13 of this report also imposes restrictions on the Company's ability to pay
dividends and to make distributions to the holders of Common Stock.
Additionally, the number of Exchangeable Shares outstanding was reduced pursuant
to a 1:3 reverse stock split in September 2000, which reduced the voting rights
appurtenant to the share of Special Voting Stock and increased the voting power
of the holders of the Company's Common Stock. A more expansive discussion of the
respective rights attaching to the classes of the Company's shares is contained
in the description of related party transactions in Item 13 of this report.
The transfer agent and registrar of the Company's Common Stock is The
Nevada Agency and Trust Company.
Recent Sales of Unregistered Securities
On September 17, 1999, the Company issued 107,800 Units in consideration of
an aggregate of $539,000. Such consideration had previously been received by the
Company prior to July 1999 as an advance in respect of such private placement.
Each of such Units consisted of (a) one share of Common
12
<PAGE>
Stock, and (b) one warrant to purchase another share of Common Stock at a strike
price of $5.00. The warrants expired unexercised on August 30, 2000. The Company
relied on the exemption from registration provided in Regulation S with respect
to this security issuance.
On October 15, 1999, the Company issued 233,340 Units at a price of $1.50
per Unit to the same investor as in the preceding paragraph. Each Unit consisted
of (a) one share of Common Stock and (b) one warrant to purchase another share
of common stock at a strike price of $1.50 on or before October 15, 2000. The
aggregate consideration of $350,010 had previously been advanced to the Company
in respect of such private placement. A second subscription for 333,340 of such
Units (at the same price of $1.50 per Unit) was received from the same investor
and accepted by the Company on November 30, 1999. The $500,010 consideration for
such Units had previously been advanced to the Company by this investor. The
Company relied on the exemption from registration provided in Regulation S with
respect to each of these security issuances.
On December 30, 1999, the Company issued 111,940 Units at a price of $1.34
per Unit. Each of such Units consisted of (a) one share of Common Stock and (b)
one warrant to purchase another share of common stock at a strike price of $1.34
on or before December 30, 2001. The aggregate consideration of $150,000 had
previously been advanced to the Company by the same investor as above. The
Company relied on the exemption from registration provided in Regulation S with
respect to this security issuance.
On March 20, 2000, the Company issued 680,106 Units at a price of $1.67 per
Unit. Each of such Units consisted of (a) one share of Common Stock and (b) one
warrant to purchase another share of common stock at a strike price of $1.67 on
or before March 20, 2001. The aggregate consideration of $1,135,778 had
previously been advanced to the Company by the same investor. The Company relied
on the exemption from registration provided in Regulation S with respect to this
security issuance.
On June 22, 2000, the Company issued 1,087,035 Units at $1.20 per Unit.
Each Unit consists of one share of common stock and one share purchase warrant
entitling the holder to purchase one additional share of common stock of the
Company for $1.20 on or before June 22, 2001. The aggregate consideration of
$1,304,442 had previously been advanced to the Company by a new investor. The
Company relied on the exemption from registration provided in Regulation S with
respect to this security issuance. Although the transfer agent issued the share
certificates in first quarter of fiscal 2001, the shares issued are included in
all calculations of beneficial share ownership as of June 30, 2000.
With respect to each issuance of securities above, the Company relied on
representations of the purchaser of securities that it was not a U.S. person and
the offer was not being accepted or negotiated, and the shares not being
delivered to the purchaser, within the United States, so as to ensure that the
transaction was an "offshore transaction." Furthermore, the Company made no
directed selling efforts in the United States.
On June 1, 2000, in lieu of paying $61,549 in accrued salary, the Company
issued to the executive officers of the Company an aggregate of 523,889 options
to purchase shares of Common Stock at a strike price of $1.81. These options
expire on March 2, 2005. The Company relied on the exemption from registration
provided in Regulation S, as all of the Company's executive officers are
Canadian citizens who were located in Canada and did not undertake any
activities in the United States in connection with the issuance of the options.
The Company did not engage in any directed selling efforts in the United States
in connection with this share issuance.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data as of June 30, 2000 and June 30, 1999
and for the year ended June 30, 2000, and for the period July 31, 1998
(inception) through June 30, 1999, are derived from and qualified by the audited
consolidated financial statements of the Company that are included elsewhere in
this registration statement. The data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the audited financial statements, related notes and the other
financial information included elsewhere in this registration statement.
<TABLE>
<CAPTION>
For the period
July 31, 1998
(inception) through For the year ended
June 30,1999 June 30, 2000
------------------- ------------------
<S> <C> <C>
Statement of Consolidated Operations Data
Revenues $ 0 $ 6,660
Expenses:
Salaries 246,733 1,020,561
Fringe benefits 29,130 155,477
Subcontracts 10,805 711,546
Rent 52,472 113,527
Webhosting and maintenance of
licenses 58,856 540,776
Amortization of Capital assets 112,925 401,908
Advertising and Marketing research 47,950 453,480
Promotion 26,702 37,981
Professional fees 213,362 836,969
Travel 29,993 41,810
Service contracts 65,679 27,823
Interest Expense 3,051 1,563
Other Expenses 86,888 144,705
--------- -----------
Total expenses 984,546 4,488,126
========= ===========
Net loss for the period $(984,546) $(4,481,466)
========= ===========
Basic loss per share(1) $0.09 $0.14
<CAPTION>
Consolidated Balance Sheet Data June 30, 1999 June 30, 2000
------------- -------------
<S> <C> <C>
Current Assets $144,833 $338,958
Capital Assets 968,591 941,075
Total Assets 1,127,119 1,280,033
Current Liabilities 348,371 1,520,720
Long-Term Liabilities 292,245 298,994
Total Liabilities 640,616 1,819,714
Shareholders' Equity (Deficiency) 486,503 (539,681)
</TABLE>
(1) Due to a September 2000 1:3 reverse stock split with respect to the issued
and outstanding Exchangeable Shares of Canco, the weighted average number
of outstanding shares of Common Stock for accounting purposes decreased
from 27,942,964 to 11,212,966 for the period ended June 30, 1999, to and
decreased from 49,370,084 to 32,640,086 for the year ended June 30, 2000.
This increased the basic loss per share from $0.04 to $0.09 for the first
period, and from $0.09 to $0.14 for the second.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
This Report contains "forward looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act including,
in particular, the statements about the Company's plans, strategies, and
prospects. Although management believes that the Company's plans, intentions and
expectations reflected in or suggested by such forward-looking statements are
reasonable, management can give no assurance that such plans, intentions or
expectations will be achieved. These cautionary statements, however, are not
intended to be exhaustive, and should be read in conjunction with other
cautionary statements made herein and in the Company's other publicly filed
reports. Important factors that could cause actual results to differ materially
from the forward-looking statements the Company makes in this report are set
forth in the description of the Company's business in Item 1, in the "Risk
Factors" section below, and elsewhere in this report. All forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by these cautionary.
The Company's only material financial transactions have been capital
raising, including the sales of unregistered securities described in Item 5,
paying costs of forming and organizing the Company, completing the development
of its integrated e-commerce solution, launching the operations and establishing
relationships and/or entering into contracts with marketing and public relations
firms, financial institutions and the various other service providers described
herein. The Company is a corporation with a limited operating history. It
(through its current subsidiary 9066) commenced its present operations on July
31, 1998. Any evaluation of the Company, its financial condition and its
historical earnings must be made in light of the risks frequently encountered by
companies in their early stages of development, particularly for companies in
the rapidly evolving Internet sector. Among the risks faced by the Company are
the absence of an established retailer base, lack of a significant presence in
the marketplace, untested operating capacity, and the immediate and long-term
needs for additional capital, which are described in greater detail below. There
is no assurance that the Company will be successful in addressing these risks
and, if it fails to do so, its financial condition and results of operations
would be materially adversely affected.
Results of Operations.
Periods ended June 30, 2000 and 1999
Operating and administrative expenses incurred for the year ended June 30, 2000
and for period July 31, 1998 (inception) through June 30, 1999, were $4,488,126
and $984,546, respectively, and represent the cost of forming the Company,
building its infrastructure, hiring and paying employees and subcontractors,
advertising and marketing and expenses connected with arranging financing. The
increases in the June 2000 figures over the June 1999 figures reflect the
following:
o the Company had more employees, and those employees were earning
higher salaries (1999- $246,733; 2000 - $1,020,561);
o the Company has used consultants and subcontractors to manage the
development and the implementation of its integrated e-commerce
solution. Some of the consultants later became permanent employees and
formed the new management team of the Company;
o increased professional fees were incurred, primarily in connection
with the Company's review of interim financial statements, the ongoing
development of the Company's business plan, the preparation of
securities documents, fees related to the validation of the Company's
business model, and commissions in connection with the Company's
efforts to obtain financing (1999 - $213,362; 2000 - $836,969);
15
<PAGE>
o increased web hosting and maintenance of licenses, since these amounts
include a full year of hosting fees and maintenance costs associated
with the renewal of the licenses after the termination of the warranty
period (1999 - $58,856; 2000 - $540,776);
o increased advertising and marketing research costs were incurred, as
the Company used a significant portion of its resources to revise its
business plan and market its intended services, which had not been
fully developed during the period ended June 1999 (1999 - $47,950;
2000 - $453,480). The Company also incurred some market studies and
public relations costs; and
o increased miscellaneous other costs, commensurate with the Company's
increased planning, research and development, marketing and other
activities.
The Company believes that it has predominantly resolved remaining issues
with respect to its business plan. The Company does anticipate continued
significant professional fees in connection with the additional financings that
will be required to sustain the Company as a going concern. The Company believes
that these fees will be offset to some extent as the anticipated revenue stream
generates cash flow, although the anticipated staffing increases will also
generate a need for additional cash on hand.
As of June 30, 2000, the Company had an accumulated deficit of $5,466,012,
compared with $984,546 as of June 30, 1999.
Liquidity and Capital Resources.
On September 17, 1999, the Company issued 107,800 Units in consideration of
an aggregate of $539,000. Such consideration had previously been received by the
Company as an advance in respect of such private placement. Each of such Units
consisted of (a) one share of common stock, par value $0.001 ("Common Stock"),
and (b) one warrant to purchase another share of Common Stock at a strike price
of $5.00.
On October 15, 1999, the Company issued 233,340 Units at a price of $1.50
per Unit. Each of such Units consisted of (a) one share of Common Stock and (b)
one warrant to purchase another share of common stock at a strike price of
$1.50. The aggregate consideration of $350,010 had previously been advanced to
the Company in respect of such private placement. A second subscription for
333,340 of such Units (at the same price of $1.50 per Unit) was received from
the same investor and accepted by the Company on November 30, 1999. The $500,010
consideration for such Units had previously been advanced to the Company by the
same investor.
On December 30, 1999, the Company issued 111,940 Units at a price of $1.34
per Unit. Each of such Units consisted of (a) one share of Common Stock and (b)
one warrant to purchase another share of common stock at a strike price of $1.34
on or before December 30, 2001, the one year anniversary of the closing of the
issuance of such Units. The aggregate consideration of $150,000 had previously
been advanced to the Company as part of the same on-going private placement.
On March 20, 2000, the Company issued 680,106 Units at a price of $1.67 per
Unit. Each of such Units consisted of (a) one share of Common Stock and (b) one
warrant to purchase another share of common stock at a strike price of $1.67 on
or before March 20, 2001, the one year anniversary of the closing of the
issuance of such Units. The aggregate consideration of $1,135,778 had previously
been advanced to the Company by the same investor.
On June 22, 2000, the Company issued 1,087,035 Units at $1.20 per Unit.
Each Unit consists of one share of common stock and one share purchase warrant
entitling the holder to purchase one additional share of common stock of the
Company for $1.20 on or before June 22, 2001. The aggregate consideration of
$1,304,442 had previously been advanced to the Company by a new investor. The
transfer agent issued the share certificates in first quarter of fiscal 2001. As
previously described, for all purposes of calculating beneficial ownership
percentages, these shares are treated as issued and outstanding as of year end.
16
<PAGE>
The Company continues to require both short-term and long-term financing to
remain viable. On June 30, 2000, the Company had $89,837 in cash. Subsequent to
fiscal year end the Company received $545,000 in the form of a promissory note
at 5% interest, maturing on January 1, 2001. There were no further private sales
of securities prior to September 30, 2000. The Company anticipates that it will
require additional financing aggregating about $4,000,000 to enable it to
continue operations through May 2001. Additionally, the Company will require
about $16,000,000 to fund its planned operations for the 18 months thereafter,
including the deployment of the Company's products and services and the
completion of the Company's required infrastructure in terms of additional
equipment and personnel. The failure to obtain short-term financing over the
next six months could require the Company to substantially reduce or cease
operations. In addition, the failure to obtain long-term financing thereafter
would have a material adverse effect on the financial position and results of
operation of the Company, and would be likely to cause the Company to sharply
reduce the products and services offered and ongoing development of its
solution. The Company has no arrangements or commitments for such financing, and
there is no assurance that the Company will be able to raise anymore working
capital through equity financing, or that any such financing will be available
at commercially reasonable rates. Furthermore, any such financing may be at
terms that could dilute the Company's existing shareholders.
Subsequent Event
In September 2000, the holder of Canco's Exchangeable Shares approved a 1:3
reverse stock split, which means that an aggregate of only 8,364,998, not
25,094,996 shares of Common Stock can be issued upon the exchange of all of
Canco's Exchangeable Shares. This reverse split is intended to increase the
Company's liquidity, because management believes that increasing the voting
power of the holders of shares of Common Stock will increase prospective
investors' interest in the Company. (The share of Special Voting Stock carries
one vote per issued and outstanding Canco Exchangeable Share.)
Risk Factors
An investment in the Company's securities is highly speculative and
involves a high degree of risk. In reviewing this report, stockholders and other
readers should be cognizant that the Company's plans and intentions, and what
management forecasts and anticipates in the future, are all subject to the risks
set forth below, which are only a few of the risks associated with an investment
in the Company's securities and the Company's business generally.
BECAUSE OF THE COMPANY'S LIMITED OPERATING HISTORY, IT MAY NOT BE
SUCCESSFUL IN ADDRESSING RISKS ASSOCIATED WITH A NEW BUSINESS
The Company has a very limited operating history having commenced its
current operations in 1998. The Company has only just begun to make sales of its
proposed products and services and is a development stage company. The Company's
business and prospects must be considered in light of the risks encountered by
companies in their early stages of development, particularly companies in new
and rapidly evolving markets such as electronic commerce. Some of these risks
relate to the Company's ability to:
o maintain or develop relationships with software vendors, service
providers and online retailers,
o execute its business and marketing strategy,
o continue to develop and upgrade its technology and
transaction-processing systems,
o provide superior customer service and order fulfillment,
o respond to competitive developments, and
o hire, retain and motivate qualified personnel.
17
<PAGE>
THE COMPANY MAY NOT BE PROFITABLE FOR THE FORESEEABLE FUTURE
Through June 30, 2000, the Company has had revenues of $6,660. The Company
has incurred significant losses since commencement of its current operations in
July 1998, and its losses are continuing. The Company intends to continue to
expend significant financial and management resources on the development of its
proposed products and services, and other aspects of its business. As a result,
the Company expects operating losses and negative cash flows to continue for the
foreseeable future. In addition, the Company anticipates that its operating
losses will increase significantly from current levels.
THE COMPANY'S INABILITY TO OBTAIN SUBSTANTIAL ADDITIONAL FUNDING FOR FUTURE
CAPITAL NEEDS COULD HARM ITS BUSINESS
The Company requires substantial working capital to fund its business. In
light of the Company's growing losses, shareholders' deficiency ($539,681) and
working capital deficiency ($1,181,762), the Company's auditors inserted a note
into the Company's financial statements that there is substantial doubt about
the Company's ability to continue as a going concern without additional
financing. The Company's capital requirements will depend on several factors,
including the rate of market acceptance of its proposed services, the ability to
establish and expand a client base and the growth of sales and marketing.
Currently, the Company needs cash immediately. If additional funds are raised
through the issuance of equity securities, the percentage ownership of the
stockholders of the Company will be reduced, stockholders may experience
additional dilution, or such new equity securities may have rights, preferences
or privileges senior to those of the holders of the Company's Common Stock.
Additional financing may not be available when needed on terms favorable to the
Company, if at all. If adequate funds are not available or are not available on
acceptable terms, the Company may be unable to develop or enhance its services,
take advantage of future opportunities or respond to competitive pressures.
THE COMPANY'S OPERATING RESULTS IN FUTURE PERIODS ARE EXPECTED TO BE
SUBJECT TO SIGNIFICANT FLUCTUATIONS WHICH WOULD LIKELY AFFECT THE TRADING PRICE
OF ITS COMMON STOCK
The Company's quarterly and annual operating results are likely to
fluctuate significantly in the future due to a variety of factors, many of which
are outside of its control. Some of these factors include:
o its ability to attract and retain online retailers as clients,
o the introduction of new Web sites, Web stores, services or
products by others,
o price competition,
o the continued rapid development of the online retail market,
o its ability to remain competitive in its service offerings,
o the Company' ability to attract new personnel,
o its ability to increase sales from online retailers, and
o U.S. and foreign regulations relating to the Internet.
The Company's market is new and its services may not be generally accepted
by retailers. If the Company cannot establish and grow a customer base of online
retail merchants, the Company will not be able to generate sales and revenues or
create economies of scale to offset its fixed and operating costs. The Company's
future growth depends on the willingness of enterprises to utilize e-business
products and the Company's ability to market its services in a cost-effective
manner to a sufficiently large number of customers. If this market fails to
develop, or develops more slowly than expected, or if the Company's services do
not achieve market acceptance, its business would be adversely affected.
18
<PAGE>
A SLOWDOWN IN THE GROWTH OF ELECTRONIC COMMERCE AND THE FAILURE OF THE
INTERNET TO REMAIN A COMMERCIAL MARKETPLACE COULD HURT THE COMPANY'S BUSINESS
The Company depends on the growing use and acceptance of the Internet as an
effective medium of commerce by consumers. Under the Company's business plan,
the Company's revenues will be based upon the gross revenues generated by its
online retail merchants. Rapid growth in the use of and interest in the Internet
and other online services is a recent development. No one can be certain that
acceptance and use of the Internet and other online services will continue to
develop or that a sufficiently broad base of consumers will adopt, and continue
to use, the Internet and other online services as a medium of commerce.
THE COMPANY IS ENTIRELY DEPENDENT UPON SOFTWARE VENDORS AND THIRD PARTY
SERVICE PROVIDERS
The Company will be dependent on vendors to supply much of the software and
services that will comprise the Company's services. The Company has no long-term
or exclusive contracts or arrangements with any of these vendors or providers.
The Company cannot be certain that is current and proposed vendors and service
providers will continue to do business with the Company, or that it will be able
to establish relationships with new vendors and service providers, if necessary.
If the Company is unable to establish and maintain satisfactory relationships
and arrangements with these third parties, or if the quality of the product and
services they provided is not satisfactory, the Company's business could be
harmed.
THE COMPANY WILL BE FINANCIALLY RESPONSIBLE FOR OBLIGATIONS OF ITS
CUSTOMERS AND ITS PROPOSED SECURITY MEASURES MAY NOT SUFFICIENTLY PROTECT
AGAINST DEFAULTS
In connection with the credit card services the Company expects to provide
its online retail customers, the Company will be responsible for amounts charged
back to e-merchants by the issuing banks for failures of credit card users to
pay their bills. In addition , the Company will be responsible for amounts owed
by its customer who utilize UPS shipping services under discounted rate arranged
for by the Company. Lastly, the Company will have ultimate responsibility for
hosting services provided to the Company's e-retailers by Open Market. Although
the Company intends to take measure to ensure payment by its customers and to
protect itself from liability, including rolling security arrangements with
e-merchants, the Company cannot be certain these measures will be completely
effective.
THE COMPANY'S VULNERABILITY TO LACK OF CAPACITY, SYSTEM FAILURE AND SYSTEM
DEVELOPMENT RISKS COULD HURT ITS BUSINESS
The Company's commerce, marketing and other services will be provided to
online retailers through network servers and systems operated by others. The
satisfactory performance, reliability and availability of these networks will be
critical to the Company's operations, its level of customer service, and its
reputation and ability to attract and retain clients. These systems and
operations are vulnerable to damage or interruption from fire, flood and other
natural disasters, power loss, telecommunications failure, break-ins and similar
events.
Any systems interruption that impairs the Company's ability to provide its
proposed products and services will reduce the attractiveness of service
offerings to online retailers, which could have an adverse affect on its
revenues.
THE COMPANY IS SUBJECT TO ELECTRONIC COMMERCE SECURITY RISKS AND A SECURITY
BREAK COULD HURT ITS BUSINESS
A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. The
Company will rely on encryption and authentication technology licensed from
third parties to provide the security and authentication necessary for secure
transmission of confidential information, such as customer credit card numbers.
A party who is able to
19
<PAGE>
circumvent the Company's security measures could misappropriate proprietary
information or interrupt its operations. Any such compromise or elimination of
the Company's security could hinder the Company's ability to conduct its
business over the Internet.
The Company may be required to expend significant capital and other
resources to protect against such security breaches or to address problems
caused by such breaches. Concerns over the security of the Internet and other
online transactions and the privacy of users may also inhibit the growth of the
Internet and other online services generally, and the Web in particular,
especially as a means of conducting commercial transactions. To the extent that
activities of the Company or third-party contractors involve the storage and
transmission of proprietary information, such as credit card numbers, security
breaches could damage the Company's reputation and expose it to a risk of loss
or litigation. The Company may incur significant costs to protect against the
threat of security breaches or to alleviate problems caused by these breaches.
THE COMPANY FACES INTENSE COMPETITION AND COULD MAKE PRICING, SERVICE OR
MARKETING DECISIONS THAT COULD HARM ITS BUSINESS
The electronic commerce market is new, rapidly evolving and extremely
competitive. The Company expects competition to intensify in the future,
particularly in the area of providing services to the online B2C market. The
Company currently competes directly with other providers of electronic commerce
solutions, local suppliers of Internet services, consulting firms and
manufacturers of computer equipment, supplies of Internet e-business solutions,
and indirectly with traditional media that provide alternatives to websites
advertising.
Most of the Company's current and potential competitors have longer
operating histories, larger customer bases, greater name recognition and
significantly greater financial, marketing and other resources than the Company.
In addition, larger, well-established and well-financed entities may acquire,
invest in or form joint ventures with online competitors as the use of the
Internet and other online services increases. In addition, new technologies and
the expansion of existing technologies, are expected to result in additional
competition.
THE COMPANY IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE WHICH COULD RENDER THE
COMPANY'S TECHNOLOGY AND SYSTEMS OBSOLETE
The Company's future success will depend on its ability to offer services
that incorporate leading technology and address the increasingly sophisticated
and varied needs of our current and prospective customers. The Company's market
is characterized by rapidly changing and unproven technology, evolving industry
standards, changes in customer needs emerging competition and frequent new
service introductions. Future advances in technology may not be beneficial to or
compatible with, its business. In addition, the Company may not be able to
incorporate advances on a cost-effective and timely basis. Moreover, potential
technological advances may have the effect of encouraging customers to rely on
in-house personnel and equipment to furnish the services to be offered by. In
addition, keeping pace with the technological advances may require substantial
expenditures and lead time.
ANY LOSS OF THE COMPANY'S PERSONNEL OR INABILITY TO ADD NEW PERSONNEL COULD
HARM THE COMPANY'S BUSINESS
The Company's future success depends significantly on the continued
services and performance of its senior management. The Company's performance
also depends on its ability to retain and motivate its other executive officers
and key employees. The loss of the services of any of the Company's executive
officers or other key employees could cause significant disruption in the
Company's business. The Company has no long-term employment agreements with
senior management (although it may, in some cases, have long term obligations
under its employment agreement with Serge Bujold) and does not currently
maintain any "key person" life insurance. The Company's future success also
depends on its ability to identify, attract, hire, train, retain and motivate
other highly skilled technical, managerial, operations, merchandising, sales and
marketing and customer service personnel. Competition for such personnel is
20
<PAGE>
intense, and the Company may not successfully attract, assimilate or retain
sufficiently qualified personnel. The failure to retain and attract the
necessary personnel could impede its future success.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD ADD ADDITIONAL COSTS
AND RISKS TO DOING BUSINESS ON THE INTERNET AND COULD HARM THE COMPANY'S
BUSINESS
The Company is not currently subject to direct regulation by any
governmental agency, other than regulations applicable to businesses generally,
export control laws and laws or regulations directly applicable to electronic
commerce. However, due to the increasing popularity and use of the Internet, it
is possible that a number of laws and regulations may be adopted with respect to
the Internet covering issues such as: user privacy, pricing, content,
copyrights, distribution, and characteristics and quality of products and
services.
Furthermore, the growth and development of the market for electronic
commerce may prompt calls for more stringent consumer protection laws that may
impose additional burdens on those companies conducting business online. The
adoption of additional laws or regulations may decrease the growth of the
Internet or other online services, which could, in turn, decrease the demand for
the Company's products and services and increase its cost of doing business.
The applicability to the Internet of existing laws governing issues such as
property ownership, copyrights, encryption and other intellectual property
issues, taxation, libel, export or import matters, obscenity and personal
privacy is uncertain. The vast majority of such laws were adopted prior to the
advent of the Internet and related technologies. As a result, they do not
contemplate or address the unique issues of the Internet and related
technologies. Changes to such laws intended to address these issues, including
some recently proposed changes, could create uncertainty in the Internet
marketplace. Such uncertainty could reduce demand for the Company's services or
increase the cost of doing business due to increased costs of litigation or
increased service delivery costs.
THE COMPANY'S STOCK OWNERSHIP IS CONCENTRATED IN CERTAIN EXISTING
STOCKHOLDERS WHICH COULD MAKE CERTAIN TRANSACTIONS MORE DIFFICULT OR IMPOSSIBLE
TO COMPLETE
As of June 30, 2000, stockholders who purchased securities in a June 1998
private placement, many of whom appear to be members of four families, in the
aggregate own 15,000,000 shares, or 57.6%, of the outstanding Common Stock (or
43.6% of the voting power, after giving effect to the Special Voting Stock).
Additionally, the Company's executive officers and directors own approximately
6,745,926, or 19.6%, of the Company's Common Stock, assuming all Exchangeable
Shares owned by such individuals were exchanged for Common Stock. (Regardless of
whether the shares are exchanged, however, the share of Special Voting Stock
entitles these individuals to one vote per Exchangeable Share on all matters on
which the holders of Common Stock vote.) The executive officers and directors
also own unvested options to purchase an additional 5,357,222 shares of Common
Stock as of June 30, 2000, which, if vested and exercised, would increase their
fully diluted share ownership in the Company described in the preceding sentence
to 30.4%. The stockholders described in the first sentence, or in the absence of
a concerted action by those stockholders, the executive officers and directors
of the Company have the ability to control the Company and direct its affairs
and business, including the election of directors and approval of significant
corporate transactions. Such concentration of ownership may also have the effect
of delaying, deferring or preventing a change in control of the Company, and
make some transactions more difficult or impossible without the support of such
stockholders, including proxy contests, mergers involving the Company, tender
offers, open-market purchase programs or other purchases of common stock that
could give the Company's stockholders the opportunity to realize a premium over
the then-prevailing market price for shares of Common Stock.
21
<PAGE>
THE COMPANY'S STOCK PRICE HAS BEEN AND COULD BE HIGHLY VOLATILE
The trading price of the Company's common stock has been and is likely to
continue to be highly volatile and could be subject to wide fluctuations in
response to a number of factors including: variations in quarterly operating
results; new products or services offered by the Company or its competitors;
conditions or trends in the Internet and online commerce industries; changes in
the economic performance and/or market valuations of other Internet, online
service or retail companies; and other events or factors, many of which are
beyond the Company's control. In addition, the stock market in general, and the
market for Internet-related and technology companies in particular, has
experienced extreme price and volume fluctuations that have often been unrelated
or disproportionate to the operating performance of such companies. The trading
prices of many technology companies' stocks are at or near historical highs and
these trading prices and multiples are substantially above historical levels.
These trading prices and multiples may not be sustained. These broad market and
industry factors may materially adversely affect the market price of the
Company's common stock, regardless of the Company's actual operating
performance. In the past, following periods of volatility in the market price of
a company's securities, securities class-action litigation has often been
instituted against such companies. Such litigation, if instituted, could result
in substantial costs and a diversion of management's attention and resources.
THE COMPANY IS AT RISK FROM FOREIGN CURRENCY RATE FLUCTATIONS
A significant portion of the Company's expenses is paid in U.S. dollars,
while substantially all of its revenues are and, in the near term, will continue
to be earned in Canadian dollars. If the U.S. dollar becomes stronger relative
to the Canadian dollar, the effective cost of the Company's expenses will
increase. The Company has never hedged exchange rate risk, does not currently
plan to do so and may not be successful should it attempt to do so in the
future.
PROVISIONS OF THE COMPANY'S CHARTER DOCUMENTS, OTHER AGREEMENTS AND
DELAWARE LAW MAY INHIBIT POTENTIAL ACQUISITION BIDS
Certain provisions of the Company's Certificate of Incorporation, Bylaws,
other agreements described herein and Delaware law could make it more difficult
for a third party to acquire the Company, even if a change in control would be
beneficial to its stockholders.
22
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Credit Risk
Financial instruments that potentially subject the Company to
concentrations of risk consist primarily of capital leases, a term deposit and
advances to directors and shareholders. The cash is held by a high-credit
quality financial institution. The term deposit was purchased from a high-credit
quality financial institution.
Interest Rate Risk
The Company's exposure to interest rate risk is as follows:
Cash Non-interest bearing
Term deposits Fixed interest rate
Receivable from directors and shareholders Non-interest bearing
Accounts payable and accrued liabilities Non-interest bearing
Short-term Investments
Short term investments consist of the following:
June 30, 2000
-------------
Term deposits, from 4.25% to 4.80%, maturing in March $ 30,901
and April 2001
Long-term debt
Current installments on long-term debt include the following:
<TABLE>
<CAPTION>
As of June 30, 2000 Expected
Maturity Date
Interest included
2001 in payments Total Fair Value
(U.S. Dollar Equivalent)
<S> <C> <C> <C> <C>
Liabilities
Long Term
Obligations under
capital lease
Fixed rate (U.S.$) $8,737 $615 $8,122 Approximately equal to
carrying value
Average interest rate 16%
Fixed rate (Cdn.$) $12,925 $910 $12,015 Approximately equal to
carrying value
Average interest rate 16%
</TABLE>
Fair Value
Due to their short-term maturity, the carrying values of cash, the term
deposits and the accounts receivable and payable and accrued liabilities are
reasonable estimates of their fair values. Based upon the interest rate, the
maturity and current discount rates, the estimated value of the Company's
long-term debt is approximately equal to its carrying value.
The Company does not hedge against currency exchange rate risks.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
[The audited financial statements for the Company appear on the following
pages.]
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
24
<PAGE>
Planet 411.com Inc.
(Formerly known as Planet 411.com Corporation)
(A Development Stage Company)
Consolidated Financial Statements
June 30, 2000 and 1999
Report of Independent Auditors F-2 and F-3
Financial Statements
Consolidated Operations F-4
Consolidated Changes in Shareholders'
Equity (Deficiency) F-5
Consolidated Cash Flows F-6
Consolidated Balance Sheets F-7
Notes to Consolidated Financial
Statements F-8 to F-18
<PAGE>
F-2
Report of Independent Auditors
To the Board of Directors and Shareholders of
Planet 411.com Inc.
We have audited the consolidated balance sheets of Planet 411.com Inc. (a
Development Stage Company) as at June 30, 2000 and 1999 and the consolidated
statements of operations, changes in shareholders' equity (deficiency) and cash
flows for the year ended June 30, 2000 and the period July 31, 1998 (inception)
through June 30, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. 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. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred above present
fairly, in all material respects, the financial position of the Company as at
June 30, 2000 and 1999 and the results of its operations and its cash flows for
the year ended June 30, 2000 and the period July 31, 1998 (inception) through
June 30, 1999 in conformity with generally accepted accounting principles in the
United States of America.
<PAGE>
F-3
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and as of June 30, 2000, the Company has a substantial shareholders' and working
capital deficiency. These factors raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Raymond Chabot Grant Thornton
Chartered Accountants
Montreal, Canada
August 23, 2000
(Except as to Note 12 b), which is as of September 20, 2000)
<PAGE>
F-4
Planet 411.com Inc.
(A Development Stage Company)
Consolidated Operations
For the year ended June 30, 2000 and the period July 31, 1998 (inception)
through June 30, 1999
(In U.S. dollars)
================================================================================
<TABLE>
<CAPTION>
For the period For the period
1998-07-31 1998-07-31
(inception) (inception)
through Year ended through
1999-06-30 2000-06-30 2000-06-30
----------- ----------- -----------
$ $ $
<S> <C> <C> <C>
Revenue -- 6,660 6,660
----------- ----------- -----------
Operating and administrative expenses
Salaries 246,733 1,020,561 1,267,294
Fringe benefits 29,130 155,477 184,607
Subcontracts 10,805 711,546 722,351
Training 24,392 2,387 26,779
Advertising and marketing research 47,950 453,480 501,430
Transportation 1,654 1,794 3,448
Promotion 26,702 37,981 64,683
Rent 52,472 113,527 165,999
Web hosting and maintenance of licenses 58,856 540,776 599,632
Equipment rental 2,977 4,844 7,821
Maintenance and repairs 4,688 12,573 17,261
Taxes and permits 11,300 22,073 33,373
Insurance 2,469 3,322 5,791
Office supplies and courier 52,353 67,040 119,393
Communications 15,553 50,244 65,797
Professional fees 213,362 836,969 1,050,331
Bank charges 1,606 25,078 26,684
Interest on long-term debt 3,051 1,563 4,614
Service contracts 65,679 27,823 93,502
Travel 29,993 41,810 71,803
Foreign exchange (30,104) (44,650) (74,754)
Amortization of capital assets 112,925 401,908 514,833
----------- ----------- -----------
984,546 4,488,126 5,472,672
----------- ----------- -----------
Net loss 984,546 4,481,466 5,466,012
=========== =========== ===========
Basic loss per share 0.09 0.14 0.24
=========== =========== ===========
Weighted average number of outstanding shares of
common stock (the special voting stock considered as
8,364,998 shares of common stock) 11,212,966 32,640,086 22,400,307
=========== =========== ===========
</TABLE>
================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
F-5
Planet 411.com Inc.
(A Development Stage Company)
Consolidated Changes in Shareholders' Equity (Deficiency)
For the year ended June 30, 2000 and the period July 31, 1998 (inception)
through June 30, 1999
(In U.S. dollars)
================================================================================
<TABLE>
<CAPTION>
Special Common Contributed
voting stock stock surplus
-------------------------------- ---------------- --------------- ----------------
Number of Number of
shares Amount shares Amount Amount
-------------- -------------- ---------------- --------------- ----------------
$ $ $ $ $
<S> <C> <C> <C> <C> <C>
Special voting stock (8,364,998 votes) 1 104,444
Balance outstanding on April 20, 1999,
date of reverse takeover 8,484,315 8,484 (64,407)
June 1999 - exercise of warrants -
for cash 15,600,000 15,600 894,400
Advance payment on capital stock units
Foreign exchange translation adjustment
Net loss
-------------- -------------- ---------------- --------------- ----------------
Balance at June 30, 1999 1 -- 24,084,315 24,084 934,437
August 1999, cancellation of common
stock - for cash (600,000) (600) (34,400)
September 1999, capital stock units
issued 107,800 108 538,892
October 1999, capital
stock units issued - for cash 233,340 233 349,777
November 1999, capital
stock units issued - for cash 333,340 334 499,676
January 2000, capital
stock units issued - for cash 111,940 112 149,888
March 2000, capital stock
units issued - for cash 680,106 680 1,135,098
Advance payment on capital stock units
Foreign exchange translation adjustment
Net loss
-------------- -------------- ---------------- --------------- ----------------
Balance at June 30, 2000 1 -- 24,950,841 24,951 3,573,368
============== ============== ================ =============== ================
<CAPTION>
Deficit
Advance Accumulated accumulated Total
payment on other during the shareholders' Total
capital stock comprehensive development equity comprehensive
units income stage (deficiency) income (loss)
-------------- -------------- -------------- --------------- ----------------
Amount Amount Amount Amount Amount
-------------- -------------- -------------- --------------- ----------------
$ $ $ $ $
<S> <C> <C> <C> <C> <C>
Special voting stock (8,364,998 votes) 104,444
Balance outstanding on April 20, 1999,
date of reverse takeover (55,923)
June 1999 - exercise of warrants -
for cash 910,000
Advance payment on capital stock units 539,000 539,000
Foreign exchange translation adjustment (26,472) (26,472) (26,472)
Net loss (984,546) (984,546) (984,546)
-------------- -------------- -------------- --------------- ----------------
Balance at June 30, 1999 539,000 (26,472) (984,546) 486,503 (1,011,018)
August 1999, cancellation of common
stock - for cash (35,000)
September 1999, capital stock units
issued (539,000)
October 1999, capital
stock units issued - for cash 350,010
November 1999, capital
stock units issued - for cash 500,010
January 2000, capital
stock units issued - for cash 150,000
March 2000, capital stock
units issued - for cash 1,135,778
Advance payment on capital stock units 1,304,442 1,304,442
Foreign exchange translation adjustment 50,042 50,042 50,042
Net loss (4,481,466) (4,481,466) (4,481,466)
-------------- -------------- -------------- --------------- ----------------
Balance at June 30, 2000 1,304,442 23,570 (5,466,012) (539,681) (5,442,442)
============== ============== ============== =============== ================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
F-6
Planet 411.com Inc.
(A Development Stage Company)
Consolidated Cash Flows
For the year ended June 30, 2000 and the period July 31, 1998 (inception)
through June 30, 1999
(In U.S. dollars)
================================================================================
<TABLE>
<CAPTION>
For the period For the period
1998-07-31 1998-07-31
(inception) (inception)
through Year ended through
1999-06-30 2000-06-30 2000-06-30
-------------- ---------- --------------
$ $ $
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss (984,546) (4,481,466) (5,466,012)
Non-cash item
Amortization of capital assets 112,925 401,908 514,833
Changes in non-cash working capital items
Accounts receivable (5,904) (5,904)
Sales taxes receivable (37,782) (75,899) (113,681)
Prepaid expenses (31,212) (58,352) (89,564)
Accounts payable 20,655 756,520 777,175
Accrued liabilities 103,790 450,626 554,416
---------- ---------- ----------
Cash flows from operating activities (816,170) (3,012,567) (3,828,737)
---------- ---------- ----------
INVESTING ACTIVITIES
Cash position of acquired company (Note 3) 263 263
Term deposit (10,196) (20,705) (30,901)
Advances to directors and shareholders (3,127) (6,398) (9,525)
Other advances (13,695) 13,695
Capital assets (Note 4) (859,091) (439,961) (1,299,052)
Effect of exchange rate changes 3,079 (2,316) 763
---------- ---------- ----------
Cash flows from investing activities (882,767) (455,685) (1,338,452)
---------- ---------- ----------
FINANCING ACTIVITIES
Advances to related companies (44,242) (44,242)
Advance from directors 656 12,864 13,520
Repayment of long-term debt (6,953) (6,827) (13,780)
Proceeds demand note payable 33,800 33,800
Issuance of preferred shares of a subsidiary company - non-
controlling interest 285,474 285,474
Issuance of capital stock 1,014,444 2,135,798 3,150,242
Cancellation of capital stock (35,000) (35,000)
Advance payment on capital stock units 539,000 1,304,442 1,843,442
Effect of exchange rate changes (26,472) 50,042 23,570
---------- ---------- ----------
Cash flows from financing activities 1,761,907 3,495,119 5,257,026
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 62,970 26,867 89,837
Cash and cash equivalents, beginning of period 62,970
---------- ---------- ----------
Cash and cash equivalents, end of period 62,970 89,837 89,837
========== ========== ==========
SUPPLEMENTARY INFORMATION
Cash paid during the period for interest 3,051 842 3,893
========== ========== ==========
</TABLE>
================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
F-7
Planet 411.com Inc.
(A Development Stage Company)
Consolidated Balance Sheets
June 30, 2000 and 1999
(In U.S. dollars)
================================================================================
<TABLE>
<CAPTION>
1999-06-30 2000-06-30
---------- ----------
$ $
<S> <C> <C>
ASSETS
Current assets
Cash 62,970 89,837
Term deposits, 4.25% to 4.8% (3.75% in 1999), maturing on March and April 2001 10,196 30,901
Accounts receivable 5,904
Sales taxes receivable 37,782 113,681
Advances to directors and shareholders, without interest 2,673 9,071
Prepaid expenses 31,212 89,564
---------- ----------
144,833 338,958
Other advances, without interest or repayment terms 13,695
Capital assets (Note 4) 968,591 941,075
---------- ----------
1,127,119 1,280,033
========== ==========
LIABILITIES
Current liabilities
Accounts payable 235,747 924,382
Accrued liabilities 103,790 554,416
Demand note payable,10% 33,800
Instalments on long-term debt 8,834 8,122
---------- ----------
348,371 1,520,720
Advances from directors and shareholders, without interest or repayment terms 656 13,520
Long-term debt (Note 5) 6,115
Redeemable preferred stock of a subsidiary (Note 6) 285,474 285,474
---------- ----------
640,616 1,819,714
---------- ----------
SHAREHOLDERS' EQUITY (DEFICIENCY)
Capital stock (Note 7)
Special voting stock, having a par value of $0.001, holding a number of
votes equal to the number of exchangeable shares of 3560309 Canada Inc.
outstanding other than those held directly or indirectly by the Company, 1
share authorized; 1 share June 30, 2000 and 1999 issued and outstanding -- --
Preferred stock, having a par value of $0.001, 10,000,000 shares authorized;
none issued -- --
Common stock, having a par value of $0.001, 69,999,999 shares authorized;
24,950,841 (June 30, 2000) and 24,084,315 (June 30, 1999) issued and outstanding 24,084 24,951
Contributed surplus 934,437 3,573,368
Advance payment on capital stock units (Note 8) 539,000 1,304,442
Accumulated other comprehensive income (26,472) 23,570
Deficit accumulated during the development stage (984,546) (5,466,012)
---------- ----------
486,503 (539,681)
---------- ----------
1,127,119 1,280,033
========== ==========
</TABLE>
================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
F-8
Planet 411.com Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
(In U.S. dollars)
================================================================================
1 - INCORPORATION AND NATURE OF OPERATIONS
The Company, a Delaware Corporation (formerly incorporated in the State of
Nevada), in its development stage, is involved in the e-business industry. It
provides end-to-end quality e-business solutions to businesses interested in
doing e-tailing (selling of retail goods on the Internet).
On November 9, 1998, the Company increased its authorized capital from
100,000,000 shares of common stock having a par value of $0.001 to 300,000,000
shares of common stock having a par value of $0.001.
On March 30, 1999, the Company authorized one share of special voting stock
having a par value of $0.001.
Pursuant to a combination agreement entered into as of April 20, 1999 among the
Company, the Company's wholly-owned subsidiary, Planet 411 (Nova Scotia)
Company, the Company's indirect wholly-owned subsidiary, 3560309 Canada Inc.,
9066-4871 Quebec Inc. and the shareholders of 9066-4871 Quebec Inc., 3560309
Canada Inc. acquired all of the issued and outstanding shares of 9066-4871
Quebec Inc. in exchange for 25,094,996 exchangeable shares and 8,400 preferred
shares of 3560309 Canada Inc. The preferred shares of 3560309 Canada Inc. may be
converted into exchangeable shares of that corporation on the basis of one
preferred share and CA$5 for one exchangeable share. The exchangeable shares of
3560309 Canada Inc. may be exchanged at any time by their holders, on a
share-for-share basis, for shares of common stock of the Company. Pursuant to
the combination agreement, the Company has also issued one share of special
voting stock which is held for the benefit of the holders of the exchangeable
shares of 3560309 Canada Inc. The share of special voting stock entitles the
holder to such number of votes as is equal to the number of exchangeable shares
outstanding from time to time.
Since the shareholders of 9066-4871 Quebec Inc. controlled the Company
thereafter, 9066-4871 Quebec Inc. was considered to be the acquirer. As result
of the reverse takeover, the consolidated financial statements are a
continuation of the financial statements of 9066-4871 Quebec Inc.
On September 30, 1999, Planet 411.com Corporation entered into a merger
agreement to which Planet 411.com Corporation was merged with Planet 411.com
Inc., a Delaware Corporation, and ceased to exist. The surviving company whose
total assets and liabilities equal those of Planet 411.com Corporation prior to
the merger, issued shares to the shareholders of Planet 411.com Corporation in
the ratios provided within the agreement.
<PAGE>
F-9
Planet 411.com Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
(In U.S. dollars)
================================================================================
1 - INCORPORATION AND NATURE OF OPERATIONS (Continued)
The Company is a publicly traded company trading on the over the counter
bulletin board with stock symbol PFOO.
Going concern
The Company's consolidated financial statements for the year ended June 30, 2000
have been prepared on a going concern basis which contemplates the realization
of assets and the settlement of liabilities in the normal course of business.
The Company has incurred net losses of $4,481,466 in the year ended June 30,
2000, and $984,546 in the 11-month period ended June 30, 1999. In addition, the
Company has a shareholders' deficiency of $539,681 and a working capital
deficiency of $1,181,762. These factors raise substantial doubt about the
Company's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
The Company's management plans to raise capital to fund continuing operations by
the utilization of one or a combination of the following:
1) Private placement of equity securities and/or debenture financing through
negotiations with capital investors.
2) Formation of a joint venture of the Company with a stategic partner to
provide the capital resources to deploy the operations.
3) Agreement with an underwriter to undertake a public issuance of shares.
================================================================================
2 - ACCOUNTING POLICIES
Financial statements
The financial statements have been prepared in accordance with generally
accepted accounting principles in the United States of America.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Principles of consolidation
These financial statements include the accounts of the Company and all its
subsidiary companies. The Company has a 100% controlling interest in all its
subsidiary companies.
<PAGE>
F-10
Planet 411.com Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
(In U.S. dollars)
================================================================================
2 - ACCOUNTING POLICIES (Continued)
Reporting currency and translation of foreign currencies
The Company has adopted the United States dollar as its reporting currency. The
Company's financial statements have been translated from their functional
currency, the Canadian dollar, into the reporting currency as follows: assets
and liabilities have been translated at the exchange rate in effect at the end
of the period and revenues and expenses have been translated at the weighted
average exchange rate for the period. All cumulative translation gains or losses
from the translation into the Company's reporting currency have been included in
accumulated other comprehensive income. The changes in the accumulated other
comprehensive income account, from period to period, result solely from the
application of this translation method.
Transactions concluded in currencies other than the functional currency have
been translated as follows: monetary assets and liabilities are translated at
the exchange rate in effect at the end of the period, non-monetary assets and
liabilities are translated at rates in effect on the dates of the related
transactions and revenues and expenses have been translated at the weighted
average exchange rate for the period. Exchange gains and losses arising from
such transactions have been included in the statements of earnings.
Revenue recognition
The Company's core focus is to be an e-business service provider to medium and
large-sized businesses (virtual stores for on-line transactions). The Company
has divided its services into three components: first, strategy - assisting with
the set-up and implementation of the e-mechants on-line business model; second,
marketing - working with e-merchants to define a marketing strategy identifying
the best advertising and promotion channels for the virtual store; and third,
performance analysis - provide pertinent data about on line sales generally and
e-merchant visitors and buyers in particular. The Company plans to charge for
its services an industry - dependent fee based upon the gross on line sales of
its e-merchants. This revenue is recognized at the time of delivery and
acceptance of the e-merchants' products.
The Company also charges a one-time introductory fee to each merchant. This
revenue is recognized over the term of the contract.
Additional optional services are charged on a fee basis and the revenue is
recognized when the services are performed.
Advertising
Advertising costs are expensed in the year incurred.
<PAGE>
F-11
Planet 411.com Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
(In U.S. dollars)
================================================================================
2 - ACCOUNTING POLICIES (Continued)
Amortization
Capital assets are amortized on a straight-line basis over their estimated
useful lives as follows:
Office equipement, furniture and fixtures 5 years
Office equipment, furniture and fixtures
under capital leases 5 years
Computer equipment and software 3 years
Licenses 3 years
Management periodically reviews the carrying value of capital assets through an
assessment of estimated undiscounted future cash flows from the assets. In the
period that an impairment in value occurs, the capital assets are written down
to their fair value.
Financial instruments
The estimated fair value of cash, term deposits, accounts receivable, accounts
payable, accrued liabilities and demand note payable approximates their carrying
value due to their short-term maturity.
The estimated fair value of other advances, determined by discounting future
cash flows at current rates, is approximately $11,000 as of June 30, 1999.
Cash and cash equivalents
The Company's policy is to present cash and temporary investments having a term
of three months or less from the acquisition date as cash and cash equivalents.
New accounting standards
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"),
which is effective for financial statements for fiscal years beginning after
June 15, 2000, and which will apply to the Company beginning June 1, 2000. SFAS
133 establishes accounting and reporting standards for derivative instruments
and for hedging activities. The Company does not believe that the new standard
will have any significant effect on its future results of operations.
================================================================================
3 - BUSINESS ACQUISITION
On April 20, 1999, the Company executed a combination agreement (see Note 1). As
a result, the shareholders of 9066-4871 Quebec Inc. controlled Planet 411.com
Corporation after the share for share exchange and 9066-4871 Quebec Inc. was
considered to be the acquirer. Consequently, the operations of the Company are
included in earnings from the date of acquisition.
<PAGE>
F-12
Planet 411.com Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
(In U.S. dollars)
================================================================================
3 - BUSINESS ACQUISITION (Continued)
As at the date of acquisition, the fair value of net assets acquired were
accounted for as follows:
$
-----------
Cash 263
Loans payable to shareholders (454)
Accounts payable (55,732)
-----------
Excess of liabilities over assets acquired (55,923)
Consideration
8,484,315 common shares, at par value 8,484
-----------
Contributed surplus (64,407)
===========
================================================================================
4 - CAPITAL ASSETS
<TABLE>
<CAPTION>
1999-06-30
-----------------------------------------------
Accumulated
Cost amortization Net
--------- ------------ ---------
<S> <C> <C> <C>
$ $ $
Office equipment, furniture and fixtures 59,366 8,030 51,336
Office equipment, furniture and fixtures under capital
leases 38,894 7,413 31,481
Computer equipment 207,777 34,831 172,946
Computer software 288,467 24,889 263,578
Licenses 490,091 40,841 449,250
--------- --------- ---------
1,084,595 116,004 968,591
========= ========= =========
<CAPTION>
2000-06-30
-----------------------------------------------
Accumulated
Cost amortization Net
--------- ------------ ---------
<S> <C> <C> <C>
$ $ $
Office equipment, furniture and fixtures 198,635 33,754 164,881
Office equipment, furniture and fixtures under capital
leases 38,682 15,110 23,572
Computer equipment 317,991 122,080 195,911
Computer software 316,469 125,315 191,154
Licenses 584,894 219,337 365,557
--------- --------- ---------
1,456,671 515,596 941,075
========= ========= =========
</TABLE>
During the year ended June 30, 2000, capital assets were acquired at an
aggregate cost of $372,076 of which $91,475 still remain in accounts payable.
The $159,360 of accounts payable relating to the acquisition of capital assets
for the period July 31, 1998 (inception) through June 30, 1999 were paid in the
current year. Cash payments of $439,961 were made to purchase capital assets.
<PAGE>
F-13
Planet 411.com Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
(In U.S. dollars)
================================================================================
4 - CAPITAL ASSETS (Continued)
During the period July 31, 1998 (inception) through June 30, 1999, capital
assets were acquired at an aggregate cost of $1,084,595 of which $44,242 were
acquired by means of advances from related companies and $21,902 by means of
long-term debt, and of which $159,360 still remain in accounts payable. Cash
payments of $859,091 were made to purchase capital assets.
One of the Company's licenses allows customers to use third-party software in
developing marketing strategies for their products and tracking and invoicing
their products. Another license provides a host for the Company's Web sites.
================================================================================
5 - LONG-TERM DEBT
<TABLE>
<CAPTION>
1999-06-30 2000-06-30
-------------- --------------
<S> <C> <C>
$ $
Obligations under capital leases, 16%, payable in monthly instalments
of $883, capital and interest, maturing in February 2001 14,949 8,122
Instalments due within one year 8,834 8,122
-------------- --------------
6,115 --
============== ==============
As of June 30, 2000, the instalments on long-term debt for the next year is as
follows:
$
--------------
2001 8,737
Interest included in minimum lease payments 615
--------------
8,122
==============
</TABLE>
The estimated fair value of the Company's long-term debt, determined by
discounting future cash flows at current rates, is approximately equal to its
carrying value.
================================================================================
6 - REDEEMABLE PREFERRED STOCK OF A SUBSIDIARY
Non-controlling interest of $285,474 consists of 8,400 preferred shares issued
by a subsidiary company, non-voting, non-participating, non-cumulative
preferential dividend of 80% of the prime rate on commercial loan charges by the
financial institution of the Company, redeemable at a price equal to the fair
market value of the consideration received upon issuance, issued for cash. The
holders of the preferred shares have been granted an option to convert one
preferred share for one exchangeable share (exchangeable for shares of the
Company) at CA$5 per share. No preferred dividends have been declared.
<PAGE>
F-14
Planet 411.com Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
(In U.S. dollars)
================================================================================
7 - CAPITAL STOCK
Capital stock transactions during the period July 31, 1998 (inception) through
June 30, 2000
Special voting stock
Pursuant to the combination agreement (see Note 1), the Company issued one share
of special voting stock.
Common stock
On July 31, 1998, there were 2,828,105 issued and outstanding shares of common
stock of the Company.
In November 1998, the outstanding 2,828,105 shares of common stock were split 3
for 1 resulting in 8,484,315 shares of common stock outstanding.
Pursuant to the combination agreement (see Note 1), the Company acquired
9066-4871 Quebec Inc. (see Note 3), which resulted in a reverse takeover. At the
date of the reverse takeover, the shareholders of the Company owned 8,484,315
shares of common stock and the fair value of the net assets amounted to
($55,923) (see Note 3).
At June 30, 2000, in connection with the issuance of stock units, warrants to
purchase 107,800 shares of common stock for $5.00, 233,340 and 333,340 shares of
common stock for $1.50, 111,940 shares of common stock for $1.34 and 680,106
shares of common stock for $1.67 are outstanding. The warrants expire August 30,
October 15, November 30, December 30, 2000 and March 29, 2001 respectively.
Stock compensation plan
Effective March 2, 2000, the Company adopted the 2000 Stock Option Plan. Under
the plan, the Company may grant options to the directors, officers, employees
and service providers of the Company or any of its subsidiaries, for up to 10
million shares of common stock. The exercise price of each option equals the
market price of the Company's stock on the date preceding the grant of the
option. Options may be exercised over a period not exceeding 10 years from the
date granted and options vest over various periods up to March 1, 2002.
The Company applies Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations in accounting for its
plan. Accordingly, no compensation expense has been recognized for its stock
based compensation plan. Had compensation cost for the Company's stock option
plan been determined based upon the fair value at the grant date for awards
under these plans consistent with the methodology prescribed under Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation,
the Company's net loss and basic loss per share for the year ended June 30, 2000
would have been increased, by $1,671,338 and $0.05 respectively.
The fair value of options granted was estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions: risk-free
interest rate of 6.06%; annual dividends of nil, expected life of three and a
half years and expected volatility of 110% in 2000.
<PAGE>
F-15
Planet 411.com Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
(In U.S. dollars)
================================================================================
7 - CAPITAL STOCK (Continued)
The weighted average fair value of options granted was $1.45.
During the year, the Company granted 8,103,723 options with a weighted average
exercise price of $1.98. At June 30, 2000, no options are exercisable.
As at June 30, 2000, there are 8,103,723 stock options outstanding as follows:
Options outstanding
---------------------------------------------
Weighted Weighted
average average
Range of Number remaining exercisable
exercise price outstanding contractual life price
-------------- ------------ ---------------- ------------
$ $
1.38 - 1.81 732,475 9.50 1.79
2.00 7,371,248 9.50 2.00
------------
8,103,723
============
================================================================================
8 - ADVANCE PAYMENT ON CAPITAL STOCK UNITS
In the year ended June 30, 2000, the Company received $1,304,442 with respect to
a private placement for 1,087,035 units at $1.20 per unit. Each unit consists of
one share of common stock and one share purchase warrant. Each warrant will
entitle the holder to purchase one additional share of common stock of the
Company for $1.20 within one year from the date of closing of the offer, June
22, 2000. As of June 30, 2000, no shares of common stock have been issued with
respect to this private placement.
During the period July 31, 1998 (inception) to June 30, 1999, the Company
received $539,000 with respect to a private placement for 107,800 units at $5
per unit. Each unit consists of one share of common stock and one share purchase
warrant. Each warrant will entitle the holder to purchase one additional share
of common stock of the Company for $5 with in one year from the date of closing
of the offer, August 30, 1999. The units were issued September 1999.
<PAGE>
F-16
Planet 411.com Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
(In U.S. dollars)
================================================================================
9 - RELATED PARTY TRANSACTIONS
The Company entered into the following related party transactions concluded in
the normal course of operations, at exchange value which represents the amount
established and agreed by related parties:
<TABLE>
<CAPTION>
For the period For the period
1998-07-31 1998-07-31
(inception) (inception)
through Year ended through
1999-06-30 2000-06-30 2000-06-30
------------- ------------ --------------
<S> <C> <C> <C>
$ $ $
Professionnal fees for legal services were paid to a
shareholder of the Company(a) 22,487 30,384 52,871
============= ============ ==============
Subcontracting fees for computer support services and
equipment were paid to a company controlled by a
shareholder of the Company 5,293 134,440 139,733
============= ============ ==============
Subcontracting fees for professional services were paid
to shareholders, directors and companies controlled by
employees(a) -- 558,002 558,002
============= ============ ==============
</TABLE>
Included in accounts payable at June 30, 2000 is an amount payable for
subcontracting fees for professional services to shareholders, directors and
companies controlled by employees totalling $421,735 (nil in 1999).
(a) During the year, these related parties commenced employment with the
Company and as a result the professional services ceased.
The estimated fair value of advances to directors and shareholders approximates
the carrying value due to their short-term maturity.
The estimated fair value of advances from directors and shareholders, determined
by discounting future cash flows at current rates, is approximately equal to the
carrying value.
The advances to directors and shareholders are short-term loans and advances
from directors, and shareholders are for items purchased for use in the business
which have not been reimbursed.
<PAGE>
F-17
Planet 411.com Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
(In U.S. dollars)
================================================================================
10 - INCOME TAXES
a) Reconciliation of the effective tax rate is detailed as follows:
<TABLE>
<CAPTION>
For the period
1998-07-31
(inception)
through Year ended
1999-06-30 2000-06-30
-------------- --------------
<S> <C> <C>
$ $
Income tax benefit according to the statutory income tax rate in the
United States of America 334,746 1,523,698
Unutilized net operating losses and capital assets amortization for
income tax purposes (365,430) (1,645,610)
Income taxes of foreign subsidiaries subject to different rates 49,227 191,359
Other, net (18,543) (69,447)
-------------- --------------
Income taxes according to effective tax rate -- --
============== ==============
</TABLE>
b) The tax benefits arising from operating losses and capital assets
amortization for income tax purposes of approximately $5,350,000 (June 30,
2000) and $1,050,000 (June 30, 1999) are not recorded in the financial
statements. The operating loss carry-forwards for income tax purposes of
$3,898,000 (June 30, 2000) and $937,000 (June 30, 1999) expire in 2006 and
2007.
c) The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets are as follows:
<TABLE>
<CAPTION>
1999-06-30 2000-06-30
-------------- --------------
<S> <C> <C>
$ $
Operating loss carry-forwards 365,430 1,850,400
Capital assets, due to amortization taken for accounting purposes 44,070 197,100
-------------- --------------
409,500 2,047,500
Valuation allowance (409,500) (2,047,500)
-------------- --------------
Net deferred tax assets -- --
============== ==============
</TABLE>
The net increase in the valuation allowance amounted to $1,638,000 in the year
ended June 30, 2000.
<PAGE>
F-18
Planet 411.com Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
(In U.S. dollars)
================================================================================
11 - COMMITMENTS
The Company has entered into long-term lease agreements expiring on May 31, 2003
which call for lease payments of $427,129 for the rental of office space.
Minimum lease payments for the next years are $146,444 in 2001 and 2002 and
$134,241 in 2003.
The Company has entered into service contracts, which expire June 30, 2001 and
March 31, 2002 and are described as follows:
<TABLE>
<CAPTION>
Minimum payments
--------------------------------------
Nature
Licenses of services 2001 2002 Total
------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C>
$ $ $
EMC Internet Management Services Hosting 264,084 198,063 462,147
Open Market Inc. Processing 121,316 121,316
----------- ----------- -----------
385,400 198,063 583,463
=========== =========== ===========
</TABLE>
================================================================================
12 - SUBSEQUENT EVENTS
a) Subsequent to June 30, 2000, the Company received $545,000 and issued a 5%
promissory note due on demand at any time after January 1, 2001.
b) On September 20, 2000, the directors of 3560309 Canada Inc. reduced by
reverse split the number of issued and outstanding exchangeable shares (see
note 1) by a factor of 3:1 such that three (3) of such exchangeable shares
will become one (1) exchangeable share. The number of outstanding
exchangeable shares decreased from 25,094,996 to 8,364,998. As a result,
the number of votes available on the special voting stock issued by the
Company will be reduced by a factor of 3:1 to 8,364,998.
This reverse split has been reflected in these financial statements.
Consequently, the earnings per share figures and the number of votes
entitled by the holders of the special voting stock have been restated.
<PAGE>
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors and Officers
The names, ages, and offices of directors and executive officers of the Company
are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
---- --- ---------------------
<S> <C> <C>
Serge Bujold 52 President and Chief Executive Officer, Director
Stephane Chouinard 30 Vice President, Corporate Development; Director
Johnson Joseph 28 Vice President, Product Development and Operation; Director
Jonathan R. Levinson 31 Vice President, Corporate Secretary and Legal Counsel
George Cervinka 51 Chief Technology Officer
Laval Bolduc 47 Chief Financial Officer and Treasurer
Diane Laurence 48 Vice President, Marketing
Robert Lafleur 45 Vice President, Finance and Administration
Jacques Dubois 57 Vice President, Retailer Recruiting
Jean-Marie Grange 31 Vice President, e-Tail Advisory Services
Varujan Tasci 38 Vice President, Research and Development
</TABLE>
All offices and directorships are held for a term of one year and until a
successor is duly elected and qualified.
Serge BUJOLD. Mr. Bujold became a director and the Chief Executive Officer and
President of the Company in March 2000. Mr. Bujold has planned and developed
information management and e-commerce solutions for over 25 years. From
September 1997 through June 2000, Mr. Bujold was the founder and a principal at
SBA Serge Bujold and Associates, Inc., a consulting company that specializes in
strategic consulting in e-commerce. From May 1997 until September 1997, Mr.
Bujold was an independent consultant, and from 1987 through May 1997, Mr. Bujold
was a senior manager at DMR Consulting Group Inc.
Stephane CHOUINARD. Mr. Chouinard is a co-founder of the Company and has been
Vice President, Corporate Development for the Company and a director since July
1998. From 1997 through 1998, Mr. Chouinard was a director and executive officer
of 3415783 Canada Inc. (doing business as "CorporationNet"), for whom he
negotiated the exclusive worldwide rights related to the C.S.I. Virgil
Smartcard. Between 1995 and 1997, he was an independent marketing/ communication
consultant. From 1994 to 1995, Mr. Chouinard was a sales representative for an
automobile dealership. From 1993 to 1994, Mr. Chouinard was a sales manager for
Les Boulangeries St. Augustin, a major Canadian producer and distributor of
baked goods.
Johnson JOSEPH. Mr. Joseph has been Vice President, Product Development and
Operation of the Company since July 1998. Mr. Joseph was a director from July
1998 through March 2000, and was elected to the Board in August 2000. Since
April 1998, Mr. Joseph has been a director and executive officer of 9064-2448
Quebec Inc. (which did business as CorporationNet Web Development), which was
intended to be the Web Development division of CorporationNet, but which now
functions as a holding company for the Exchangeable Shares owned by Mr. Joseph
and others. From 1997 through April 1998, he was Development Counselor of an
Internet hub called "CityView". From 1996 through 1997, Mr. Joseph was a wide
receiver for the Ottawa Roughriders of the Canadian Football League. From 1993
through 1996, Mr. Joseph attended Texas Tech University, where he studied
business administration and finance.
Jonathan R. LEVINSON. Mr. Levinson served as outside counsel to the Company from
its inception in July 1998 through December 31, 1999. Effective January 1, 2000,
Mr. Levinson joined the Company as a Vice President and in-house Legal Counsel.
From 1997 through 1999, Mr. Levinson was a practicing
25
<PAGE>
attorney in Montreal. From 1995 through 1996 he was employed at Mendelsohn,
Rosentzveig Shacter, a law firm in Montreal. From prior to 1994 through 1995,
when he graduated, Mr. Levinson was a law student at McGill University in
Montreal, from which he received Bachelor of Common Law and Bachelor of Civil
Law degrees. Mr. Levinson has been admitted to the bar of New York State,
Massachusetts and the Province of Quebec. Mr. Levinson graduated from Queen's
University in Ontario with a B.A. (honors) in 1991.
George CERVINKA. Mr. Cervinka has been the Company's Chief Technology Officer
since May 2000, and is responsible for management of the Company's relations
with its technology and business partners. Prior to joining the Company, Mr.
Cervinka was the President of IQDX Inc. from September 1998 to April 2000. Mr.
Cervinka also was the Vice President, Product Development, of Proudfoot Inc.
from September 1997 to August 1998, and the Director of Business Development of
the DMR Group from June 1990 to August 1997.
Laval BOLDUC. Mr. Bolduc has been the Company's Chief Financial Officer and
Treasurer since joining the Company in April 2000. Prior to joining the Company,
Mr. Bolduc was President of L. Bolduc Consulting Services Inc. from May 1997 to
March 2000. For a period of 14 years before that, Mr. Bolduc served in several
capacities for DMR Consulting Group Inc., rising to Vice President, Financial
Planning - Major Projects. Mr. Bolduc is a Canadian chartered accountant.
Diane LAURENCE. Ms. Laurence has been the Company's Vice-President, Marketing
since April 2000. Ms. Laurence was an independent consultant for the three
months immediately preceding that, and for the prior eight years held several
executive positions at Leger and Leger, ending with Vice President, Corporate
Development. Ms. Laurence is responsible for marketing, planning and the
corporate image of the Company.
Robert LAFLEUR. Mr. Lafleur joined the Company as Vice-President, Finance and
Administration in May 2000. In such position, Mr. Lafleur is responsible for the
Company's financial administration. From January 1991 to May 2000, Mr. Lafleur
was the regional controller for Burns Philip Foods, Inc. Prior to that, Mr.
Burns has also held positions at such companies as Groupe Plastique Moderne Inc.
(Vice-President of Finance and Administration), Alfred Dallaire Inc.
(comptroller) and Miron Inc. (corporate comptroller).
Jacques DUBOIS. Mr. Dubois has been the Company's Vice-President, Retailer
Recruiting since April 2000. From January 1996 to March 2000, Mr. Dubois was the
President of TAJA Marketing, and for 15 years before that held several positions
with Berol Canada, a manufacturer of writing instruments, ending with Director
of Sales and National Sales Manager.
Jean-Marie GRANGE. Mr. Grange joined the Company as Vice-President, e-Tail
Advisory Services in April 2000. From November 1997 to March 2000, Mr. Grange
worked for Mr. Bujold's company SBA Serge Bujold & Associates Inc. From October
1996 until December 1996, Mr. Grange worked as a consultant at Communaute
Urbaine de Montreal (the Montreal Urban Community) and from June 1993 until
September 1996 served as a consultant for Societe Centrale pour l'equipement du
Territoire, a French quasi-public organization.
Varujan TASCI. Mr. Tasci has been with the Company as Chief Technical Officer of
9066 (the Company's operating subsidiary, of which he was an original founder)
since July 1998 and as Vice President, Research and Development of the Company
since March 2000. He is the founder of COSS'N CREW Corp., a computer consulting
firm, which he owns and for which he has served as President and Director for
over five years prior to joining the Company. He is one of the original founders
of the Company.
Advisory Board
The Advisory Board provides the Company with advice on financial matters,
securities issues, corporate governance and strategic planning. The following
three persons comprise the Company's Advisory Board: Mr. Don Tapscott, Chairman
of Digital 4Sight and the Alliance for Converging Technologies, Peter S. Martin,
senior partner at McCarthy Tetrault, and Mr. Steve Dong, President of AtlasMall.
26
<PAGE>
Section 16(a) Beneficial Ownership Reporting and Compliance
Upon the effectiveness of the Company's registration statement on Form 10
in February, the Company and its officers and directors, as well as the
beneficial owners of 10% of its Common Stock, became subject to the reporting
requirements of the Securities Exchange Act. Among the requirements of the
Securities Exchange Act is the obligation of such persons to file reports on
Forms 3, 4 and 5 to reflect their respective beneficial ownership in the
Company. Initial reports due from Messrs. Farag (the former Chief Executive
Officer), Chouinard, Levinson, Joseph and Tasci were due upon the effectiveness
of the registration statement, but were filed about 10 days thereafter. Filings
for the other executive officers and directors named herein were all made in
early April instead of by their due dates in mid-March. Additionally, no
affiliate has filed a Form 4 with respect to the 1:3 reverse split in the Canco
Exchangeable Shares.
[The remainder of this page intentionally left blank]
27
<PAGE>
Item 11. EXECUTIVE COMPENSATION.
The following table sets forth, for the period indicated, all compensation
awarded to, earned by or paid to the two individuals who served as the Company's
Chief Executive Officer during the last two years (the "Named Executive
Officers"). The Company as presently operated did not have any operations prior
to July 1998. No executive officer earned more than $100,000 in fiscal year 1999
or 2000.
Summary compensation table
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Long Term
Compensation-
Name and Principal Position (1) Fiscal Annual Compensation Securities underlying
Year -Salary (2) options
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Serge Bujold (3) 2000 $24,028 1,250,000
Chief Executive Officer, President
-----------------------------------------------------------------------------------------------------------
Joseph Farag (4) 2000 $68,142 775,000
Chief Executive Officer, President 1999 22,662 --
-----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Laval Bolduc, the Company's Chief Financial Officer and Treasurer, and
Mr. George Cervinka, the Company's Chief Technical Officer, are not
included in this table because each began his employment with the Company
in April and May, 2000, respectively. Each earns an annual salary of
$101,820.
(2) The amounts shown are based on a weighted average conversion rate of
$0.6788 = Can$ 1.00.
(3) Mr. Bujold was hired on March 27, 2000, at an annual salary of $135,760.
Mr. Bujold's annual compensation as disclosed in the table includes 108,333
options granted on June 1, 2000, in lieu of payment of $12,727 in cash.
These options have a strike price of $1.81, vest over 21 months (to
correspond with options granted under the Company's stock option plan) and
expire on March 2, 2005.
(4) Mr. Farag was the Chief Executive Officer and President for all of fiscal
year 1999 and approximately the first three quarters of fiscal year 2000.
Compensation of directors
No remuneration or directors fees were paid to directors of the Company
during the year ended June 30, 2000 with the exception of option grants to each
covering 25,000 shares of Common Stock and reimbursement of expenses. The Board
of Directors will determine the remuneration of the directors and officers of
the Company during the current and subsequent fiscal years.
Employment Agreement - Serge Bujold
Serge Bujold is the Company's President and Chief Executive Officer, and is
a member of the Company's board of directors pursuant to an employment agreement
effective March 27, 2000. The term of the Agreement has yet to be specified. The
agreement provides for an initial base annual salary of $135,760 (based on a
weighted average exchange rate of Cdn.$1 = $0.6788. For an initial period of 18
weeks, Mr. Bujold was remunerated on the basis of $84,850 annually. For each of
the 18 weeks during which his salary was at this lower level, Mr. Bujold was
entitled to 8,333.5 stock options, for a total of 150,000. The Company also
granted Mr. Bujold an option to acquire up to 1,000,000 shares of Common stock
as well as an option to acquire an additional 250,000 shares of Common stock
that are conditional upon certain performance criteria. Mr. Bujold is also
entitled to 25,000 stock options as a member of the board of directors.
Throughout the employment period and for a period of 12 months thereafter, an
agreement restricts Mr. Bujold's ability to engage in activities competitive
with those of the Company. The agreement may be terminated by the Company (I) in
the event of the bankruptcy, liquidation, or dissolution of the Company, (II) if
Mr. Bujold commits certain acts constituting cause or (III) if Mr. Bujold is in
material breach of the agreement. Mr. Bujold may terminate the employment
agreement upon written notice to the Company.
28
<PAGE>
Stock Option Plan
On March 2, 2000 the Company approved a stock option plan (the "Plan") for
its employees, its directors and officers and certain consultants. The Plan is
administered by the Board of Directors of the Company. The Board may from time
to time designate individuals to whom options to purchase shares of common stock
of the Company may be granted and the number of shares to be optioned to each.
The exercise price of each option equals the market price of the Company's stock
on the date preceding the grant of the option. Options may be exercised over a
period of up to 10 years from the date granted. The initial options granted
under the Plan vest over various periods up to March 1, 2002. During fiscal year
2000, a total of 8,103,723 options were granted under the Plan, all of which
have a term of five years from the date of grant.
The following table reflects the option grants to each of the Named
Executive Officers during fiscal year 2000.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Number of Percent of Potential Realizable
Name Securities Total Exercise Expiration Value at Assumed Rates
Underlying Options Price Date of Stock Price
Options Granted Granted to ($/Share) Appreciation for
Employees in Option Terms
Fiscal Year ------------------------
5% 10%
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Serge Bujold 1,025,000 (1) 12.6% $2.00 March 2, 2005 $566,377 $1,251,546
-------------------------------------------------------------------------------------------------------------
Serge Bujold 250,000 (2) 3.1% $2.00 March 2, 2005 $138,141 $305,255
-------------------------------------------------------------------------------------------------------------
Serge Bujold 108,333(1) (3) 1.3% $1.81 March 2, 2005 $51,140 $112,275
-------------------------------------------------------------------------------------------------------------
Joseph Farag 775,000 (4) 9.6% $2.00 March 2, 2005 $428,236 $946,291
-------------------------------------------------------------------------------------------------------------
</TABLE>
No options were vested during fiscal year 2000 and consequently no options
were exercised. The following table indicates for each of the Named Executive
Officers the value and amount of the exercisable and unexercisable options held
by each.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Number of Securities Underlying Value of the Unexercised In-the-Money
Name Unexercised Options at FY-End Options at FY-End
Exercisable/Unexercisable Exercisable/Unexercisable
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Serge Bujold 0/1,383,333(1) $0/$17,333
-------------------------------------------------------------------------------------------------------------
Joseph Farag 0/775,000 $0/$0
-------------------------------------------------------------------------------------------------------------
</TABLE>
----------
(1) Options vest 25% on March 1, 2001, 25% on September 1, 2001 and 50% on
March 1, 2002.
(2) Options vest subject to the vesting period in note (1) immediately above
but will not vest until, and are conditioned upon, the following: (a) the
Company has achieved the launch of its products, (b) the Company has at
least one merchant selling online, and (c) the Company's payment system has
been certified by The Toronto Dominion Bank and master merchant agreements
with The Toronto Dominion Bank and National Bank have been signed and
rendered executable. Furthermore, the employee must be in the employ of the
Company at June 1, 2000. If the employee terminates his or her employment
between June 1st and December 31, 2000, the number set forth above shall be
reduced on a pro rata basis to equal the number of days employed since June
1, 2000, inclusive, divided by 214 multiplied by the number of options
granted.
(3) 108,333 options were granted in lieu of payment of salary.
(4) Options vest 50% on September 1, 2000 and 50% on March 1, 2001.
Advisory Board Members
During the fiscal year ended June 30, 2000, non-employee advisory board
members were granted the following options to purchase Common Stock:
Don Tapscott was granted an option to acquire 25,000 shares at a price of
$1.75 vesting over various periods up to March 2, 2002, exercisable over a
period not exceeding five years from the date granted.
29
<PAGE>
Peter Martin was granted an option to acquire 25,000 shares at a price of
$1.75 vesting over various periods up to March 2, 2002, exercisable over a
period not exceeding five years from the date granted.
Steve Dong was granted an option to acquire 25,000 shares at a price of
$1.38 vesting over various periods up to March 2, 2002, exercisable over a
period not exceeding five years from the date granted.
Other compensation
The Company has no pension plan or other compensation plans for its
executive officers or directors, other than the Plan.
Indemnification of Directors and Officers
The personal liability of a director or officer of the Company to the
Company or the stockholders for damages for breach of fiduciary duty as a
director or officer is limited under the Company's articles to acts or omissions
which involve intentional misconduct, fraud or a knowing violation of law, to
the extent permissible under the Delaware General Corporation Law (the "GCL").
The articles also provide that each director and officer of the Company and
other persons permitted under the GCL may be indemnified by the Company, in
connection with a threatened, pending or completed action, suit or proceeding
brought against such person by reason of the fact that he is or was a director,
officer, employee or agent of the Company, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement, and/or
amounts actually and reasonably incurred by him in connection therewith, if he
acted in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interest of the Company, and with respect to any criminal
action or proceeding, if he had no reasonable cause to believe his conduct was
unlawful. In connection with actions by or against the Company or brought in the
Company's name, indemnification may not be made for any claim, issue or matter
as to which such a person has been adjudged to be liable to the Company or for
amounts paid in settlement to the Company, unless and only to the extent that
the court in which the action or suit was brought or other court of competent
jurisdiction determines upon application that in view of all the circumstances
of the case the person is fairly and reasonably entitled to indemnity for such
expenses as the court deems proper.
To the extent that a director, officer, employee or agent of the Company
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to above, or in defense of any claim, issue or matter
herein, he must be indemnified by the Company against expenses, including
attorneys' fees actually and reasonably incurred by him in connection with the
defense.
Expenses of officers and directors incurred in defending a civil or
criminal action, suit or proceeding must be paid by the Company as they are
incurred and in advance of the final disposition of the action, suit or
proceeding, upon receipt of an undertaking by or on behalf of the director or
officer to repay the amount if it is ultimately determined by a court of
competent jurisdiction that he is not entitled to be indemnified by the Company.
The right to indemnification continues for a person who has ceased to be a
director, officer, employee, or agent and inures to the benefit of the heirs,
executors and administrators of such a person.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or third parties controlling the
Company pursuant to Delaware law, in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
30
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the beneficial ownership of the Company's
Common Stock on June 30, 2000, by (i) each person known by the Company to
beneficially own five percent or more of the Company's 34,402,874 (including
Exchangeable Shares) shares of Common Stock outstanding, (ii) each of the
Company's executive officers and directors (there are no director nominees at
this time) and (iii) all of the Company's executive officers and directors as a
group. Except as otherwise indicated, all shares of Common Stock are
beneficially owned, and investment and voting power is held, by the person or
entity named as owner. The table reflects a 1:3 reverse share split in Canco,
which occurred in August 2000.
Name and Address of Number of Shares Percentage
Beneficial Owner Beneficially Owned Ownership
Joseph Farag 4,128,563(1)(2)(3) 12.0%
Ec-Assiste Inc. 3,300,000(4) 9.6%
Victor Cantore 3,300,000(4) 9.6%
David Cullen (5) 2,400,000 7.0%
Elaine Kavanagh (5) 2,400,000 7.0%
James Cullen (5) 1,800,000 5.2%
John Cullen (5) 2,400,000 7.0%
Monica Cullen (5) 1,800,000 5.2%
Sandra Cullen (5) 2,400,000 7.0%
Denise McCue (5) 2,400,000 7.0%
Paul McCue (5) 2,400,000 7.0%
David McNamara (5) 2,400,000 7.0%
Imelda McNamara (5) 2,400,000 7.0%
Janet Shanahan (5) 2,400,000 7.0%
Declan Sweeney (5) 2,400,000 7.0%
Management:
Stephane Chouinard 4,128,563(1)(2)(6) 12.0%
Johnson Joseph 2,026,584(1)(7)(8) 5.9%
9064-2448 Quebec Inc. 2,026,584(1)(8) 5.9%
Serge Bujold 0(9) 0%
Executive Officer and Directors 6,745,126 19.6%
As a group (10)(11 Total)
(1) All of such shares are Exchangeable Shares in Canco, which are currently
exchangeable into shares of Common Stock. Voting rights with respect to
such shares (embodied in one issued and outstanding share of Special Voting
Stock) are jointly held by Joseph Farag, Stephane Chouinard and Johnson
Joseph, as mandataries under the Voting Agreement described in Item 13,
which requires the mandataries to adhere to voting instructions received
from those for whom the mandataries hold such voting rights. No beneficial
ownership has been attributed to any of Messrs. Farag, Chouinard or Joseph
merely by virtue of their role as mandataries.
(2) Includes (a) 733,333 Exchangeable Shares owned personally by each such
beneficial owner, (b) 3,224,604 Exchangeable Shares owned by a holding
company, the equity and control of which is shared equally by such
beneficial owners, and (c) 170,626 Exchangeable Shares owned by a company
in which Messrs. Chouinard and Farag serve as directors and own all of the
voting shares. Each of Messrs. Farag and Chouinard disclaim beneficial
ownership of one-half of the Exchangeable Shares described in clause (b)
and all of the Exchangeable Shares described in clause (c) of the preceding
sentence.
(3) Excludes 775,000 options that were not exercisable within 60 days of June
30, 2000.
(4) ec-Assiste Inc. is owned by Mr. Cantore, who is also its sole director and
officer.
(5) All shares owned by these individuals are registered in the name of Bank
August Roth AG, Bellariastrasse 23, Zurich, Switzerland, as nominee. Based
on the Company's books and records, the address for David Cullen and Elaine
Kavanagh is 17 Oakwood Close, Dublin 11, Ireland; the address for James
Cullen and Monica Cullen is 20 Edenmore Drive, Dublin 5, Ireland; the
address for John and Sandra Cullen is 21 Blunden Drive, Dublin 5,
31
<PAGE>
Ireland; the address for Denise and Paul McCue is 12 The Green, Mulhuddart
Co., Dublin, Ireland; the address for David and Imelda McNamara is 21
Montpelier Drive, Dublin 7, Ireland; and the address for Janet Shanahan and
Declan Sweeney is 392 Bayouster, Celbridge Co., Kidare, Ireland. The
Company has inquired but has not received responses regarding the nature of
the relationships between the individuals living at the same address, or
whether any of these individuals act as a "group" for purposes of the
Exchange Act. Solely for purposes of this disclosure only, and without any
intent to attribute or disclaim the actual beneficial ownership of these
shares, the share ownership of those individuals having the same address
have been grouped together in the preceding table. Since the issuance of
the shares in 1999, the Company has not received any notification from Bank
August Roth AG that the number of shares owned by any of such individuals
has changed.
(6) Excludes 825,000 options that were not exercisable within 60 days of June
30, 2000.
(7) Excludes 280,000 options that were not exercisable within 60 days of June
30, 2000.
(8) All Exchangeable Shares are owned by 9064-2448 Quebec Inc., a company that
is one-quarter owned by Mr. Joseph and in which he serves as one of four
directors. Mr. Joseph controls the voting with respect to these shares. Mr.
Joseph disclaims beneficial ownership of all but 506,646 of such
Exchangeable Shares.
(9) Excludes 1,383,333 options that were not exercisable within 60 days of June
30, 2000.
(10) All parties other than those listed in note (5) above have an address
identical to that of the Company. Beneficial ownership is disclaimed as to
3,302,866 of such Exchangeable Shares. Excludes 5,357,222 options that were
not exercisable within 60 days of June 30, 2000.
32
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Merger Agreement
The Company, pursuant to a merger agreement dated as of September 30, 1999,
is the surviving company of the merger of Planet411.com Corporation, a Nevada
corporation ("Mergeco"), with and into Planet411.com Inc., a Delaware
corporation. Pursuant to the merger agreement, the separate legal existence of
Mergeco ceased on October 6, 1999, the effective date of the merger. The total
assets and liabilities of the Company upon the effectiveness of the merger
equalled those of Mergeco immediately prior to the merger. The articles of the
Company are substantially similar to that of Mergeco, with the primary
exceptions being that (a) there are 69,999,999 shares of Common Stock, par value
$0.001 authorized, not 300,000,000 shares, and (b) certain provisions of
Mergeco's articles have been conformed to reflect the Delaware General
Corporation Law. The Company was capitalized upon the consummation of the merger
agreement: each of Mergeco's holders of common stock received one share of
Common Stock in the Company pursuant to the merger agreement for each share of
common stock of Mergeco owned by such stockholder immediately prior to the
merger, and the share of Special Voting Stock issued by Mergeco was exchanged
for one share of Special Voting Stock in the Company. Mergeco's obligations
under outstanding warrants were assumed by the Company. The exchangeable shares
(the "Exchangeable Shares") of 3560309 Canada Inc. ("Canco") formerly
exchangeable into shares of Mergeco common stock are now exchangeable into
shares of the Company's Common Stock.
Combination Agreement and Voting, Support and Exchange Trust Agreement
Pursuant to a Combination Agreement entered into as of April 20, 1999 among
Mergeco, Planet 411 (Nova Scotia) Company (Mergeco's wholly-owned subsidiary,
hereinafter "Novaco"), Canco, 9066-4871 Quebec Inc. ("9066") and the
shareholders of 9066, Canco acquired all of the issued and outstanding shares of
9066 in consideration for the issuance to the former shareholders of 9066 of
25,094,996 Exchangeable Shares and 8,400 Preferred Shares of Canco. The
Preferred Shares of Canco are convertible into Canco Exchangeable Shares on the
basis of one Preferred Share and Cdn.$5.00 ($3.39 based on a weighted average
exchange rate for fiscal year 2000 of $0.6788 = Cdn.$1.00) for one Exchangeable
Share. Pursuant to the Combination Agreement, the Company has also issued one
share of Special Voting Stock, which is held for the benefit of the holders of
the Exchangeable Shares of Canco. The share of Special Voting Stock entitles the
holder to such number of votes as is equal to the number of Exchangeable Shares
outstanding from time to time that are not owned by the Company or its
subsidiaries. This agreement has been assigned to and assumed by the Company,
pursuant to the aforementioned merger agreement and an assignment and assumption
agreement.
On May 13, 1999, Mergeco, Canco, 9066, Novaco and the Company's three
directors, in their capacities as mandataries for Mergeco's shareholders,
entered into a Voting, Support and Exchange Trust Agreement (the "Voting
Agreement"), as required under the Combination Agreement. This agreement also
has been assigned to and assumed by the Company, pursuant to the merger
agreement and the aforementioned assignment and assumption agreement. In
addition to the rights with respect to the exchange of the Exchangeable Shares
in Canco for shares in the Company described in the paragraphs below, the Voting
Agreement and Canco's articles each provides that dividends and/or distributions
of any kind may not be paid on or with respect to the Company's Common Stock
unless Canco pays the same amount of dividends and/or distributions, as
applicable (or otherwise distributes the economic equivalent of same), to the
holders of Exchangeable Shares. Record and payment dates for all dividends and
distributions by the Company and Canco are to be identical. Furthermore, the
Voting Agreement and Canco's articles each provide that the Company may not
effect (a) any subdivisions, consolidations or reclassifications of the
Company's Common Stock or (b) any merger of the Company (or other similar
corporate event) affecting the Company's Common Stock, without the prior
approval of the holders of the Exchangeable Shares if such action would cause an
economic change in the rights of the holders of the Exchangeable Shares.
33
<PAGE>
For purposes of the preceding discussion, the three trustees under the
Voting Agreement, Messrs. Farag, Chouinard and Joseph, are acting as mandataries
under a special mandate executed by 9066 and its shareholders. The mandataries'
purposes thereunder are to sell, directly or indirectly, all of the 9066 shares
to the Company, to hold all of the Exchangeable Shares, to hold the share of the
Company's Special Voting Stock (including the exercising the voting rights
attaching thereto), and to exercise the retraction rights attaching to the
Exchangeable Shares. The Voting Agreement provides the mechanisms for carrying
out and administering these purposes.
Canco Exchangeable Shares
In addition to the rights appurtenant to the Exchangeable Shares of Canco
described in the preceding discussion of the Voting Agreement, the Exchangeable
Shares of Canco effectively may be exchanged at any time by their holders, on a
share-for-share basis, for shares of Common Stock of the Company, as follows:
(a) The Exchangeable Shares are redeemable at the option of the holder thereof
in consideration for shares of the Company's Common Stock plus accrued and
unpaid dividends thereon. (b) Alternatively, under the terms of the Voting
Agreement, the Company granted to the Trustee thereunder (as mandatary) for and
on behalf of, and for the use and benefit of, the beneficial owners of
Exchangeable Shares (other than subsidiaries of the Company) the right (the
"Exchange Right"), upon the occurrence and during the continuance of an
insolvency or liquidation event such as a bankruptcy or comparable event, to
require the Company to purchase from each or any of such beneficial owners all
or any part of the Exchangeable Shares held by such beneficial owner, all in
accordance with the provisions of the Voting Agreement. (c) The rights of the
beneficial holders are subject to the right of Novaco to acquire such
Exchangeable Shares from the owner thereof, for generally the same consideration
by virtue of Novaco's call right with respect to the Exchangeable Shares. The
purchase price payable by the Company for each Exchangeable Share to be
purchased by the Company shall be an amount per share equal to (a) the current
price of a share of the Company's common stock on the last business day prior to
the day of closing of the purchase and sale of such Exchangeable Share, which
shall be satisfied in full by causing to be delivered to such holder one share
of the Company's common stock, plus (b) accrued and unpaid dividends, if any.
The purchase price for each such Exchangeable Share so purchased may be
satisfied only by the Company delivering or causing to be delivered to the
Trustee, on behalf of the relevant beneficial owner, one share of the Company's
common stock and a check for the balance, if any, of the purchase price. To
cause the exercise of the Exchange Right by the Trustee, the aforementioned
beneficial owners shall deliver to the Trustee, in person or by certified or
registered mail, the certificates representing the Exchangeable Shares which
such owner desires the Company to purchase, duly endorsed in blank, and
accompanied by such other documents and instruments as may be required to effect
a transfer of Exchangeable Shares under the Canada Business Corporations Act and
such additional documents and instruments as the Trustee or the Corporation may
reasonably require together with (a) a duly completed form of notice of exercise
of the Exchange Right (along with the Exchangeable Share certificates), stating,
inter alia, (i) that such owner is instructing the Trustee to exercise the
Exchange Right so as to require the Company to purchase from such owner the
number of Exchangeable Shares specified therein, (ii) the names in which the new
certificates evidencing the Company's common stock are to be issued and (iii)
the names and addresses of the persons to whom such new certificates should be
delivered and (b) payment of the taxes (if any) payable as contemplated by the
Voting Agreement.
Additional provisions in Canco's articles related to the Exchangeable
Shares include the following:
Restrictions on Canco's Payments of Dividends and Distributions. Without
the consent of the holders of the Exchangeable Shares, for so long as any
Exchangeable Shares are outstanding (unless the conditions set forth in the
preceding discussion of the Voting Agreement are met):
o Canco shall pay no dividends (other than stock dividends paid in such
shares) on, redeem, make capital contributions with respect to, or
purchase junior shares shares ranking junior to the Exchangeable
Shares;
o Canco shall not issue any shares ranking superior to the Exchangeable
Shares;
34
<PAGE>
o Canco shall neither redeem nor purchase other shares of Canco ranking
equally with the Exchangeable Shares with respect to dividends or
liquidation distributions.
Liquidation Preference. Upon the liquidation or dissolution of Canco,
holders of Exchangeable Shares shall be entitled to receive an amount per
share equal to (a) the current price of a share of the Company's common
stock on the last business day prior to the day of closing of the purchase
and sale of such Exchangeable Share, which shall be satisfied in full by
causing to be delivered to such holder one share of the Company's common
stock, plus (b) accrued and unpaid dividends, if any.
Voting Rights. Holders of Exchangeable Shares are only entitled to notice
of and to vote at meetings of Canco's shareholders to the extent that same
relate to the dissolution of Canco or the sale, lease or exchange of all or
substantially all of Canco's property other than in the ordinary course of
business.
Other Related Party Transactions
In addition to the foregoing, the Company also entered into the following
related party transactions:
o Subcontracting fees aggregating $134,440 were accrued for
computer support services and equipment to a company controlled
by Varujan Tasci, an officer and equityholder of the Company, and
o Subcontracting fees aggregating $289,048 were accrued for
professional services to SBA Serge Bujold and Associates Inc.,
which is owned by Serge Bujold, at a time when Mr. Bujold was not
affiliated with the Company.
o Commissions of $211,214 were earned by Victor Cantore in
connection with the Company's raising of capital. Mr. Cantore
owns ec-Assiste Inc., which owns 12.7% of the Company's issued
and outstanding shares of Common Stock.
35
<PAGE>
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
3.1 Articles of Incorporation (including Certificate of Merger)*
3.2 By-laws*
4.1 Specimen stock certificate*
4.2 Form of Warrant*
9.1 Voting, Support and Exchange Trust Agreement*
9.2 Assignment and Assumption Agreement*
10.1 Internet Services Agreement with EMC Corporation*
10.2 Transact Software Order Form with Terms and Conditions
(Open Market)* **
10.3 UPS Contract*
10.4 Employment Contract - Serge Bujold
10.5 Employment Contract - Stephane Chouinard
10.6 Employment Contract - Johnson Joseph
21 Subsidiaries
27 Financial Data Schedule
* = Incorporated by reference to the same exhibit number of Company's
registration statement on Form 10 on file with the Securities and Exchange
Commission, file number 0-27645.
** = Portions of this document are subject to a confidentiality request.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
or 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: October 3, 2000 PLANET411.COM INC.
By: /s/ Serge Bujold
-------------------------------------
Serge Bujold
Chief Executive Officer and President
By: /s/ Laval Bolduc
-------------------------------------
Laval Bolduc
Chief Financial and Chief Operating
Officer
Pursuant to the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
October 3, 2000 By: /s/ Serge Bujold
-------------------------------------
Serge Bujold, Director
October 3, 2000 By: /s/ Stephane Chouinard
-------------------------------------
Stephane Chouinard, Director
October 3, 2000 By: /s/ Johnson Joseph
-------------------------------------
Johnson Joseph
37