<PAGE>
AS FILED WITH SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 13, 2000
REGISTRATION NO. 333-________
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------------
2-INFINITY, INC.
(Exact name of the registrant as specified in its charter)
<TABLE>
<S> <C> <C>
COLORADO 4813 58-2230297
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
4828 LOOP CENTRAL DRIVE, SUITE 150
HOUSTON, TEXAS 77081
(713) 838-8853
(Address, including zip code and telephone number, including
area code, of the registrant's principal executive offices)
<TABLE>
<S> <C>
MAJED M. JALALI WITH A COPY TO:
CHIEF EXECUTIVE OFFICER & PRESIDENT RICHARD S. ROTH, ESQ.
4828 LOOP CENTRAL DRIVE, SUITE 150 JACKSON WALKER L.L.P.
HOUSTON, TEXAS 77081 1100 LOUISIANA STREET, SUITE 4200
(713) 838-8853 HOUSTON, TEXAS 77002
(Name, address, including zip code, and telephone (713) 752-4200
number, including area code, of agent for service for
the registrant)
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT HAS BEEN DECLARED
EFFECTIVE.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE(1) OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, no par value, issuable upon
conversion of the outstanding Series A
Preferred Stock, no par value, of the
Company(2)............................. 28,518,316 $0.18 $5,133,296.88 $1,355.19
Common Stock, no par value, issuable upon
the exercise of certain outstanding
warrants issued August and September,
2000 and expiring in August and
September, 2005(2)..................... 760,000 $0.18 $136,800.00 $36.12
Total................................ 29,278,316 $5,270,096.88 $1,391.31
</TABLE>
(1) Determined pursuant to Rule 457(c) under the Securities Act of 1933, as
amended, on the basis of fluctuating market prices, solely for the purpose
of calculating the registration fee, and is the average of the high and low
prices reported on the OTC bulletin board for October 9, 2000.
(2) Pursuant to Rule 416 of the Securities Act of 1933, as amended, the
Registrant hereby registers such additional shares as may be issuable
pursuant to certain anti-dilution provisions of any of the Series A
Preferred Stock and the outstanding warrants.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION DATED , 2000
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
OCTOBER 13, 2000
2-INFINITY, INC.
29,278,316 SHARES OF COMMON STOCK
----------------------------------------------------------------------
Shares of our common stock are quoted on the OTC bulletin board under the
symbol "TWIC."
The selling shareholders are offering up to 29,278,316 shares of the common
stock. 2-Infinity, Inc. will not receive any proceeds from the sale of the
shares by the selling shareholders.
SUBJECT TO COMPLETION, DATED OCTOBER 13, 2000. INFORMATION CONTAINED HEREIN IS
SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO
THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE
ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF
THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR
SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OF QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
--------------------------------------------------------------------------------
THIS INVESTMENT INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 6.
--------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
--------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 6
Forward-looking Statements.................................. 11
Use of Proceeds............................................. 11
Price Range of Common Stock and Dividend Policy............. 11
Corporate Information....................................... 12
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 12
Business.................................................... 16
Management.................................................. 22
Certain Transactions........................................ 25
Principal Shareholders...................................... 26
Description of Securities................................... 26
Plan of Distribution and Selling Shareholders............... 34
Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 35
Transfer Agent and Registrar................................ 35
Legal Matters............................................... 35
Experts..................................................... 35
Where You Can Find More Information......................... 35
Index to Financial Information.............................. F-1
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS CERTAIN INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL OF THE
INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU
SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY THE RISKS OF INVESTING
IN OUR COMMON STOCK DISCUSSED UNDER "RISK FACTORS" BEGINNING ON PAGE 6.
UNLESS THE CONTEXT OTHERWISE SUGGESTS, "WE," "OUR," "US," AND SIMILAR TERMS,
AS WELL AS REFERENCES TO "2-INFINITY," ALL REFER TO 2-INFINITY, INC.
2-INFINITY
2-Infinity, Inc. is an integrated communications provider offering voice and
data solutions and services to small- to mid-sized businesses and enterprise
branch locations. We are in the business of converging voice and data
communications over the local area network and delivering broadband Internet
access through our business-grade digital subscriber line, or DSL, service. Our
business model incorporates elements of an Internet service provider, a
value-added reseller, and competitive local exchange carrier.
CORPORATE INFORMATION
2-Infinity's Internet's address is www.2-Infinity.com. Information contained
in our Internet site does not constitute part of this prospectus. Our address is
4828 Loop Central Drive, Suite 150, Houston, Texas 77081, telephone number
(713) 838-8853, facsimile number (713) 838-8741, and e-mail
[email protected].
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock outstanding prior to
the offering..................... 86,476,339 shares(1)
Common stock offered by the selling
shareholders..................... 28,518,316 shares of common stock that are or may be
issuable upon conversion of the outstanding shares of
our Series A Preferred Stock(2); and
760,000 shares of common stock that may be issuable
upon exercise of outstanding warrants issued in August
and September, 2000 and expiring in August and
September 2005.
Use of proceeds.................... We will not receive any of the proceeds form the sale
of the shares of common stock offered by the selling
shareholders or upon conversion of any of the Series A
Preferred Stock described herein. We may receive
varying amounts upon exercise of the warrants. If all
the warrants are exercised without the selling
shareholders' exercising their cashless exercise
rights, we will receive approximately $232,800 which we
will use for general corporate purposes. Information
concerning the selling shareholders may change from
time to time and will be set forth in supplements to
this prospectus.
Risk factors....................... Investors in our common stock should have the ability
to lose their entire investment since an investment in
our common stock is speculative and involves a high
degree of risk, including questioning our ability to
continue as a going concern, our need to raise capital,
and our history of losses and accumulated deficit.
Offering price..................... The selling shareholders may sell all or part of the
shares of common stock offered hereby from time to time
in amounts and on terms to be determined at the time of
sale.
Common Stock outstanding following
the offering..................... 115,754,655 shares(3)
OTC bulletin board symbol.......... TWIC
</TABLE>
------------------------------
(1) Includes shares of the common stock issued and outstanding as of
October 13, 2000. Does not include shares which may be issued upon the
conversion of the Series A Preferred Stock or shares which may be issued
upon the exercise of outstanding options or warrants.
(2) On October 13, 2000, the outstanding shares of the Series A Preferred Stock
were, in the aggregate, convertible into 14,258,158 shares of common stock
based on an estimated average closing bid price of $0.18 on that date. Under
the terms of the offering documents related to the Series A Preferred Stock,
we are required to register twice that amount, or 28,518,316 shares, under
the registration statement of which this prospectus is a part because the
Series A Preferred Stock converts into shares of our common stock based on
the average closing bid price of the common stock for the five day period
immediately preceding conversion.
(3) Includes (i) 86,476,339 shares of the common stock issued and outstanding as
of October 13, 2000, (ii) 28,518,316 shares which may be issued upon the
conversion of 2-Infinity's Series A Preferred Stock and (ii) 760,000 shares
which may be issued upon the exercise of outstanding warrants issued in
August and September 2000.
4
<PAGE>
SUMMARY FINANCIAL DATA
You should read the summary financial and other data below in conjunction
with the "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our financial statements and notes thereto included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------- -------------------------
2000 1999 1999 1998
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues, net............................. $ 1,434,362 $ 118,726 $ 387,461 $ 289,950
Other Income.............................. 2,656 614 14,928 9,496
Total Revenue............................. 1,437,018 119,340 402,389 299,446
Loss from Operations...................... (3,104,806) (2,741,763) (8,017,649) (345,089)
Net income (loss)......................... 996,350 (3,332,857) (12,585,341) (341,084)
Net income (loss) per weighted share of
Common Stock outstanding
Basic................................... $ 0.02 $ (0.12) $ (0.36) $ (0.03)
Diluted................................. $ 0.01 $ (0.12) $ (0.36) $ (0.03)
Number of weighted-average share of Common
Stock outstanding
Basic................................... 66,350,427 27,354,022 34,613,638 13,371,602
Diluted................................. 70,829,689 27,354,022 34,613,638 13,371,602
Balance Sheet Data:
Current assets............................ 632,920 284,725 165,322 156,917
Total assets.............................. 1,291,981 433,351 242,319 211,227
Current liabilities....................... 1,033,945 787,555 8,712,013 92,775
Total liabilities......................... 1,033,945 787,555 8,712,013 92,775
Shareholders' equity (deficit)............ 258,036 (354,204) (8,469,694) 118,452
Working capital (deficit)................. (401,025) (502,830) (8,546,691) 64,142
</TABLE>
5
<PAGE>
RISK FACTORS
BEFORE YOU INVEST IN OUR COMMON STOCK, YOU SHOULD BE AWARE OF VARIOUS RISKS,
INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CAREFULLY CONSIDER THESE RISK
FACTORS, TOGETHER WITH ALL OTHER INFORMATION INCLUDED IN THIS PROSPECTUS, BEFORE
YOU DECIDE WHETHER TO PURCHASE SHARES OF OUR COMMON STOCK. OUR ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF MANY FACTORS. THAT THIS PROSPECTUS CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS BASED ON CURRENT EXPECTATIONS WHICH INVOLVE RISKS AND
UNCERTAINTIES IS MORE FULLY DESCRIBED ON PAGE 11. THE CAUTIONARY STATEMENTS MADE
IN THIS PROSPECTUS SHOULD BE READ AS BEING APPLICABLE TO ALL FORWARD-LOOKING
STATEMENTS WHEREVER THEY APPEAR IN THIS PROSPECTUS.
LIMITED OPERATING HISTORY
We began in the oil and gas exploration business in 1995, and our Internet
and technology subsidiaries have been in operation since early 1999. As a
result, we have only a limited operating history upon which you may evaluate our
business and prospects. In addition, you must consider our prospects in light of
the risks and uncertainties encountered by companies in an early stage of
development in new and rapidly evolving markets.
WE HAVE A HISTORY OF LOSSES
We have incurred losses in our business operation since inception. We expect
to continue to lose money for the foreseeable future, and we cannot be certain
when we will become profitable, if at all. Failure to achieve and maintain
profitability may adversely affect the market price of our common stock.
WE ARE PRESENTLY IN UNSOUND FINANCIAL CONDITION WHICH MAKES INVESTMENT IN OUR
SECURITIES HIGHLY RISKY
Our financial statements include an auditor's report containing a
modification regarding an uncertainty about our ability to continue as a going
concern. Our financial statements also include an accumulated deficit of
$13,146,312 as of June 30, 2000 and other indications of weakness in our present
financial position. We are consequently deemed by state securities regulators to
presently be in unsound financial condition. No person should purchase shares of
our common stock unless they can afford to lose their entire investment.
NEED FOR ADDITIONAL FINANCING
At June 30, 2000 we had cash and cash equivalents of approximately $242,604
and a negative working capital of approximately $401,025, and we are dependent
upon the receipt of additional financing in order to continue as a viable
entity. We will not be able to continue operations without additional financing.
The receipt of any additional net proceeds will be applied to our working
capital needs and outstanding obligations. We cannot assure you that additional
financing will be available when needed on acceptable terms, if at all.
OUR BUSINESS DEPENDS ON A FEW KEY INDIVIDUALS AND MAY BE NEGATIVELY AFFECTED IF
WE ARE UNABLE TO KEEP OUR KEY PERSONNEL
Our future success depends in large part on the skills, experience and
efforts of our key management personnel. The loss of the continued services of
any of these individuals could have a very significant negative effect on our
business. In particular, we rely upon the experience of Majed M. Jalali and
Patrick Cody Morgan, our chief executive officer/president and chief operating
officer/ secretary, respectively. We do not currently maintain a policy of key
man life insurance on any of our employees or management team.
6
<PAGE>
OUR BUSINESS PLAN REQUIRES ADDITIONAL PERSONNEL AND MAY BE NEGATIVELY AFFECTED
IF WE ARE UNABLE TO HIRE AND RETAIN NEW SKILLED PERSONNEL
Qualified personnel are in great demand throughout the software and Internet
start-up industries. Our success depends in large part upon our ability to
attract, train, motivate and retain highly skilled sales and marketing
personnel, web designers, software engineers and other senior personnel. Our
failure to attract and retain the highly trained technical personnel that are
integral to our direct sales, product development, service and support teams may
limit the rate at which we can generate sales and develop new products and
services or product and service enhancements. This could hurt our business,
operating results and financial condition.
WE MAY NEED TO ISSUE ADDITIONAL SHARES OF OUR COMMON STOCK IN THE FUTURE TO
OBTAIN NECESSARY CAPITAL.
In order to raise necessary capital in the future, we may issue additional
shares of our common stock to the general public. Should we issue any additional
shares, no investor will have any preemptive right to acquire additional shares
of our common stock or any other securities of 2-Infinity. Therefore, as a
result of the issuance of additional shares, each investor's ownership interest
in 2-Infinity would be proportionally reduced.
WE MAY NOT HAVE SUFFICIENT CUSTOMER INTEREST IN OUR INTERNET BUSINESSES TO BE
PROFITABLE
If the markets for the services offered by our technology subsidiaries do
not grow at a significant rate, our business, operating results and financial
condition will be negatively affected. Our Internet related services are a
relatively new concept. Future demand for recently introduced technologies is
highly uncertain, and therefore we cannot guaranty that our business will grow
as we expect.
OUR INTERNET BUSINESSES ARE IN HIGHLY COMPETITIVE INDUSTRIES, AND THUS THERE MAY
NOT BE ENOUGH DEMAND FOR OUR PRODUCTS OR SERVICES FOR US TO MAKE MONEY
There are numerous competitors offering the same services offered by our
technology subsidiaries. Many of our current and potential competitors have
longer operating histories, larger customer bases, greater brand recognition and
significantly greater financial, marketing and other resources than we do and
may enter into strategic or commercial relationships with larger, more
established and well-financed companies. Some of our competitors may be able to
enter into such strategic or commercial relationships on more favorable terms.
In addition, new technologies and the expansion of existing technologies may
increase competitive pressures on us. Increased competition may result in
reduced operating margins and loss of market share.
REVENUES FROM OUR INTERNET BUSINESSES WILL BE LESS LIKELY TO DEVELOP IF THE
INTERNET DOES NOT REMAIN A VIABLE COMMERCIAL MARKETPLACE
Our ability to generate revenues is substantially dependent upon continued
growth in the use of the Internet and the infrastructure for providing Internet
access and carrying Internet traffic. The necessary infrastructure or
complementary products may not be fully developed or the Internet may not prove
to be a viable commercial marketplace. As the Internet continues to experience
significant growth in the level of use and the number of users, the
infrastructure may be unable to support the demands placed upon it by further
growth. In addition, delays in the development or adoption of new standards or
protocols required to handle levels of Internet activity, or increased
governmental regulation, may restrict the growth of the Internet. If the
necessary infrastructure or complementary products and services are not
developed or if the Internet does not become a viable commercial marketplace,
our business, operating results and financial condition would be negatively
affected.
7
<PAGE>
WE MAY INCUR A LOSS OF REVENUES AND SIGNIFICANT COSTS IF WE CANNOT MAINTAIN THE
SECURITY OF OUR INTERNET PRODUCTS AND SERVICES
Internet companies rely on encryption and authentication technology to
provide the security and authentication necessary to effect secure transmission
of confidential information. It is possible that advances in computer
capabilities, new discoveries in the field of cryptography or other developments
will result in a compromise or breach of the algorithms used by companies to
protect consumer's transaction data. If any compromise of this security were to
occur, it could have a material adverse effect on our potential clients,
business, prospects, financial condition and results of operations. A party who
is able to circumvent security measures could misappropriate proprietary
information or cause interruptions in operations. We may be required to expend
significant capital and other resources to protect against security breaches or
to alleviate problems caused by breaches.
Concerns over the security of transactions conducted on the Internet and the
privacy of users may also hinder the growth of online services generally. To the
extent that our activities or third-party contractors involve the storage and
transmission of proprietary information, such as credit card numbers, or
personal data information, security breaches could damage our reputation and
expose us to a risk of loss or litigation and possible liability. The inability
of our security measures to prevent security breaches would have a material
adverse effect on our business.
IF GOVERNMENTAL REGULATIONS CHANGE, WE MAY INCUR SUBSTANTIAL INCREASED EXPENSES
Our oil and gas business is subject to a number of federal, state and local
laws and regulations relating to environmental and safety matters. Those laws
and regulations have generally become more stringent in recent years, often
imposing greater liability on a larger number of potentially responsible
parties. Because the requirements imposed by such laws and regulations are
frequently changed, we are unable to predict the ultimate cost of compliance
with such requirements and their effect on us. Additionally, in accordance with
customary industry practice, we are not fully insured against all risks incident
to our oil and gas operations. Because of the nature of industry hazards, it is
possible that liabilities for pollution and other damages arising from a major
occurrence could exceed insurance coverage or policy limits. Those potential
liabilities could have a materially adverse effect on our operations and
profitability.
OUR BOARD OF DIRECTORS CAN ISSUE PREFERRED STOCK WITHOUT SHAREHOLDER CONSENT AND
DILUTE OR OTHERWISE SIGNIFICANTLY AFFECT THE RIGHTS OF EXISTING SHAREHOLDERS
Our articles of incorporation provide that preferred stock may be issued
from time to time in one or more series. Our board of directors is authorized to
determine the rights, preferences, privileges and restrictions granted to and
imposed upon any wholly unissued series of preferred stock and the designation
of any such shares, without any vote or action by our shareholders. The board of
directors may authorize and issue preferred stock with voting power or other
rights that could adversely affect the voting power or other rights of the
holders of common stock. In addition, the issuance of preferred stock could have
the effect of delaying, deferring or preventing a change in control, because the
terms of preferred stock that might be issued could potentially prohibit the
consummation of any merger, reorganization, sale of substantially all of our
assets, liquidation or other extraordinary corporate transaction without the
approval of the holders of the outstanding shares of the preferred stock.
FLUCTUATING CONVERSION PRICE OF OUR SERIES A PREFERRED STOCK
We have issued shares of Series A Preferred Stock that are convertible into
shares of common stock. The shares of Series A Preferred Stock feature
fluctuating conversion prices, set as a percentage of the market price of our
common stock, and the existence of those shares could have a negative impact on
the market price of our common stock. The conversion price of the Series A
Preferred Stock
8
<PAGE>
is the lesser of $0.50 per share or 75% of the market price of our common stock.
The lower the price of the common stock at the time of conversion, the more
shares a holder of Series A Preferred Stock receives upon conversion; the higher
the price of the common stock at the time of conversion, the fewer shares a
holder receives upon conversion. As of October 13, 2000, 1,900 shares of the
Series A Preferred Stock were outstanding.
As of October 13, 2000, we had not issued any shares of common stock due to
conversion of the Series A Preferred Stock. We would have issued, approximately,
14,258,158 shares of common stock had conversion notices for all shares of the
outstanding Series A Preferred Stock been received as of that date. In
connection with the sale of the Series A Preferred Stock, we issued five-year
warrants to purchase 760,000 shares of common stock at an average exercise price
of $0.31 per share.
POTENTIAL DILUTION
Conversion of shares of the Series A Preferred Stock could have a
substantially dilutive effect on the interests of current holders of our common
stock. The issuance of common stock upon conversion of the Series A Preferred
Stock will have a dilutive effect on the interests of other holders of the
common stock. Depending on the amount of Series A Preferred Stock converted, any
downward movement of the price of our common stock, and the prices at which
holders of the Series A Preferred Stock convert and the number of shares issued,
the dilutive effect on existing holders of our common stock could be
substantial.
Conversions of the Series A Preferred Stock and sales of common stock issued
upon conversion could lower the price of the common stock due to the additional
supply of shares in the public marketplace. Subsequent conversions and sales,
putting additional shares of the common stock into the market, could lower the
price further. Any decrease in the price of the common stock could attract the
attention of investors, including holders of Series A Preferred Stock, and
encourage short sales of the common stock. Short sales could place additional
downward pressure on the price of the common stock.
DEFAULT ON OBLIGATIONS TO REGISTER SHARES OF COMMON STOCK
All common stock issuable upon the conversion of any portion of the
Series A Preferred Stock is "restricted" stock, meaning that it is not
registered under the Securities Act or 1933, as amended, and cannot be sold
except pursuant to an exemption. Accordingly, the applicable transaction
documents obligate us to register such common stock for the purpose of
permitting the holders to sell the common stock on the open markets at a time of
their choosing.
If the registration statement of which this prospectus is a part is not
declared effective prior to February 14, 2001 or sales cannot be made pursuant
to the registration statement once it becomes effective, we will be in default
of our registration obligations. In either case, the conversion price of the
Series A Preferred Stock will decrease incrementally for each month the
registration statement is not declared effective and/or sales cannot be made
pursuant to the effective registration statement. Any decrease in the conversion
price will increase the number of shares of common stock issuable upon the
conversion of the Series A Preferred Stock.
Additionally, if effectiveness of the registration statement is delayed by
more than 2 months or sales cannot be made pursuant to the effective
registration statement for a period of more than sixty days, the holders of
two-thirds of the issued Series A Preferred Stock may elect to require
2-Infinity to redeem all of the issued Series A Preferred Stock for cash. Any
redemption of the Series A Preferred Stock in this situation may deprive
2-Infinity of cash necessary for the continuation of its general operations.
9
<PAGE>
POSSIBLE EFFECTS OF THE SERIES A PREFERRED STOCK
The existence of the Series A Preferred Stock may discourage attempts to
acquire 2-Infinity. In response to information regarding a possible acquisition
attempt, holders of the Series A Preferred Stock could elect to convert any or
all of their holdings into common stock, thus raising the amount of common stock
an acquirer must acquire to gain control of 2-Infinity.
2-Infinity is required to provide notice to the holders of the Series A
Preferred Stock at least 10 days prior to the sale of all or substantially all
of its assets or the consummation of any merger in which 2-Infinity is not the
surviving entity. After receiving the notice, the holders of two-thirds of the
issued Series A Preferred Stock may elect to require 2-Infinity to redeem all of
the issued Series A Preferred Stock for cash. The forced redemption of the
Series A Preferred Stock may deprive 2-Infinity of cash necessary for the
completion of the transaction or for the continuation of its general operations.
If the holders of the Series A Preferred Stock do not elect to redeem their
shares, they will receive the merger consideration, if any, that would have been
receivable by them had they converted the Series A Preferred Stock to common
stock immediately prior to the applicable transaction.
YOU MAY NOT BE ABLE TO SELL YOUR STOCK, OR MAY BE FORCED TO SELL AT REDUCED
PRICES, BECAUSE THE MARKET FOR OUR COMMON STOCK IS VERY VOLATILE
Our common stock is presently quoted on the OTC bulletin board. The market
price of the shares of our common stock is likely to be highly volatile and may
be significantly affected by factors such as fluctuations in our operating
results, announcements of technological innovations or new products and/or
services by us or our competitors, governmental regulatory action, developments
with respect to patents or proprietary rights and general market conditions.
YOU MAY NOT BE ABLE TO SELL YOUR SHARES BECAUSE OF THE PENNY-STOCK RULES
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks in connection with
trades in any stock defined as a penny stock. The Commission has adopted
regulations that generally define a penny stock to be any equity security that
has a market price of less than $5.00 per share, subject to a few exceptions.
Such exceptions include any equity security listed on NASDAQ and any equity
security issued by an issuer that has
- net tangible assets of at least $2,000,000, if such issuer has been in
continuous operation for three years.
- net tangible assets of at least $5,000,000, if such issuer has been in
continuous operation for less than three years, or
- average annual revenue of at least $6,000,000, if such issuer has been in
continuous operation for less than three years.
Unless an exception is available, the regulations require the delivery,
prior to any transaction involving a penny stock, of a disclosure schedule
explaining the penny stock market and the risks associated therewith.
WE NEED TO MAINTAIN A CURRENT PROSPECTUS
We must maintain a current prospectus in order for the selling shareholders
to sell the shares of our common stock to which this prospectus relates. In the
event that we are unable to maintain a current prospectus due to lack of
sufficient financial resources or for other reasons, the selling shareholders
may be unable to resell their shares of our common stock in any public market.
Due to the foregoing factors, we cannot predict with certainty our quarterly
revenues and operating results. Further, we believe that period-to-period
comparisons of our operating results are not
10
<PAGE>
necessarily a meaningful indication of future performance. It is likely that in
one or more future quarters our results may fall below the expectations of
securities analysts and investors. If this occurs, the trading price of our
common stock would likely decline.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve substantial
risks and uncertainties. You can identify these statements by forward-looking
words such as "may," "will," "expect," "anticipate," "believe," "estimate," and
"continue," or similar words. You should read statements that contain these
words carefully because they discuss our future expectations, contain
projections of our future results of operations or of our financial condition or
state other "forward-looking" information. We believe that it is important to
communicate our future expectations to our investors. However, there may be
events in the future that we are not able to accurately predict or control. The
factors listed above in the section captioned "Risk Factors," as well as any
cautionary language in this prospectus, provide examples of risks, uncertainties
and events that may cause our actual results to differ materially from the
expectations we describe in our forward-looking statements. Before you invest in
our common stock, you should be aware that the occurrence of the events
described in these risk factors and elsewhere in this prospectus could have a
material adverse effect on our business, operating results and financial
condition.
USE OF PROCEEDS
2-Infinity will not receive any proceeds for the sale of the common stock by
the selling shareholders. We may receive varying amounts upon exercise of the
warrants related to the issuance of the Series A Preferred Stock. However, all
of the warrants contain provisions allowing for cashless exercise by the holder,
which, if exercised, would result in no proceeds to 2-Infinity. If all the
warrants are exercised without the selling shareholders' exercising their
cashless exercise rights, we would receive approximately $232,800, which we will
use for general corporate purposes.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
As of the date of this prospectus, our common stock is quoted on the OTC
bulletin board under the symbol "TWIC."
The market price of our common stock may be subject to significant
fluctuations in response to numerous factors, including: variations in our
annual or quarterly financial results or those of our competitors; conditions in
the economy in general or in the software and other technology industries;
announcements of key developments by competitors; loss of key personnel;
unfavorable publicity affecting our industry or us; adverse legal events
affecting us; and sales of our common stock by existing shareholders.
The range of the high and low bid information for the common stock for each
full quarterly period within the two most recent fiscal years is shown on the
following table.
<TABLE>
<CAPTION>
SEPT. 30, JUNE 30, MAR. 31, DEC. 31, SEPT. 30, JUNE 30, MAR. 31, DEC. 31,
QUARTER ENDED 2000 2000 2000 1999 1999 1999 1999 1998
------------- --------- -------- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High Bid Price...................... $0.51 $1.40 $2.55 $0.18 $0.34 $0.52 $0.15 $0.24
Low Bid Price....................... $0.18 $0.34 $0.09 $0.09 $0.14 $0.06 $0.07 $0.02
</TABLE>
The OTC bulletin board quotations represent inter-dealer prices, without
retail mark-ups, mark-downs, or commissions. The quotations may not represent
actual transactions.
From time to time, the stock market experiences significant price and volume
fluctuations, which may affect the market price of our common stock for reasons
unrelated to our performance. Recently,
11
<PAGE>
such volatility has particularly impacted the stock prices of publicly-traded
technology companies. In the past, securities class action litigation has been
initiated against companies following periods of volatility in the market price
of the companies' securities. If similar litigation were instituted against us,
it could result in substantial costs and a diversion of our management's
attention and resources, which could have an adverse effect on our business.
As of October 13, 2000, there were 86,476,339 shares of our common stock
issued and outstanding, held of record and beneficially owned by approximately
12,000 persons.
We have not paid or declared any dividends with respect to our common stock,
nor do we anticipate paying any cash dividends or other distributions on our
common stock in the foreseeable future. Any future dividends will be declared at
the discretion of our board of directors and will depend, among other things, on
our earnings, if any, our financial requirements for future operations and
growth, and such other facts as we may deem appropriate. Additionally, the terms
of our outstanding shares of Series A Preferred Stock restrict our ability to
declare dividends on our common stock.
CORPORATE INFORMATION
Our Internet address is www.2-Infinity.com. Information contained in our
Internet site does not constitute part of this prospectus. Our address is 4828
Loop Central Drive, Suite 150, Houston, Texas 77081, telephone number
(713) 838-8853, facsimile number (713) 838-8741, and e-mail
[email protected].
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Since inception in November 1995 through May 1999, 2-Infinity devoted
substantially all of its efforts to invest with joint partners in oil and gas
exploration projects. However, as a result of minimal revenue and continued
losses from these ventures, 2-Infinity decided to diversify into emerging areas
within the technology sector. In January 2000, new board members and senior
management were appointed to oversee operations and raise additional capital
through private placements. The new management adopted new strategies for
2-Infinity and developed a plan of action, which included:
- Raising additional capital through private placements to cover costs
associated with building the necessary operational infrastructure and a
service and support platform to execute our business plan.
- Forming strategic and technical alliances with leading manufacturers and
facilities-based network providers in order to expand the development of
our products and services.
- Implementing an aggressive customer acquisition effort in our target
market, consisting of a direct sales force approach and a comprehensive
marketing program and public relations campaign.
- Approving a plan to dispose of all remaining assets relating to the oil
and gas exploration projects and, where necessary, to plug and abandon all
other non-producing wells that could not be sold.
Management believes the completion of its plans will produce increased
revenues and cash flows.
12
<PAGE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000. Revenues for the six months ended June 30,
2000 increased $1,315,636, or 1,108%, to $1,434,362 from $118,726 reported for
the six months ended June 30, 1999. The increase was due to the acquisition of
our subsidiary, Maximum Return & Development, Inc., as well as sales of
commercial voice and data products and services.
Cost of sales for the six months ended June 30, 2000 increased $1,046,352,
or 1,179%, to $1,135,094 from $88,742 reported for the six months ended
June 30, 1999. The increase was due to the acquisition of Maximum Return, as
well as the cost of the commercial voice and data products sold by the Company.
Amortization expense for the six months ended June 30, 2000 decreased
$1,657,240, or 77%, to $503,200 from $2,160,440 reported for the six months
ended June 30, 1999. The decrease represented the difference between the
goodwill written off in 1999 relating to the acquisitions of our subsidiaries
2-Infinity.com, Inc., a Texas corporation, referred to in this prospectus as
2-Infinity-Texas, and Voice Design, Inc., which later changed its name to
AirNexus, Inc., and the goodwill written-off in 2000 relating to the acquisition
of our subsidiary, AGM, Inc. The goodwill was determined to be impaired because
the carrying amount of the assets acquired may not be recoverable. The total
goodwill was amortized because of the impairment.
Loss from oil and gas activities for the six months ended June 30, 2000
decreased $96,024, or 41%, to $139,467 from $235,491 in the six months ended
June 30, 1999. The decrease was due to our focus on technology and the decision
to discontinue our oil and gas activities. Costs included management and
consulting fees to our former officers.
General and administrative expenses for the six months ended June 30, 2000
increased $2,368,315, or 640%, to $2,738,587 from $370,271 reported for the six
months ended June 30, 1999. The increase was due to the acquisitions of
2-Infinity-Texas, AirNexus, AGM, and Maximum Return, as well as the general
growth of the company.
Other expense for the six months ended June 30, 2000 was $40,804. For the
same period in 1999, 2-Infinity had other income of $614. The increase was
primarily due to interest expense and estimated loss on the disposal of oil and
gas assets.
Net income for the six months ended June 30, 2000 was $996,350. For the same
period in 1999, 2-Infinity had a net loss of $3,332,857. The increase in
reported income was due to a one-time adjustment related to the cancellation of
stock awarded to employees, officers, and directors. The net loss from
operations for the six months ended June 30, 2000 was $3,104,806. The net loss
before the cancellation of stock was the result of the ongoing growth strategy
of the company, including the recruitment of key personnel and investment in
operational infrastructure.
FISCAL 1999-1998. Revenues for the year ended December 31, 1999 increased
$97,511, or 34%, to $387,461 from $289,950 reported for the year ended
December 31, 1998. The increase was primarily due to the acquisition of AirNexus
as well as the sales of commercial voice and data products and services offset
by a decrease in revenues from 1998 to 1999 by Maximum Return.
Cost of Sales for the year ended December 31, 1999 increased $82,872, or
51%, to $247,968 from $165,096 reported for the year ended December 31, 1998.
The increase was due to the acquisition of AirNexus as well as the cost of the
commercial voice and data products offset by a decrease in cost of sales from
1998 to 1999 by Maximum Return.
Amortization expense for the year ended December 31, 1999 increased
$2,172,528 from no amortization expense reported for the year ended
December 31, 1998. The increase was due to the write-off of goodwill associated
with the 2-Infinity-Texas and AirNexus acquisitions, which was
13
<PAGE>
determined to be impaired because of the circumstances that existed indicating
the carrying amount of those assets would not be recoverable. The total goodwill
was amortized because of the impairment.
Loss from oil and gas activities for the year ended December 31, 1999
increased $4,908,961, or 1,398%, to $5,260,100 from $351,139 reported for the
year ended December 31, 1998. The increase was primarily due to $4,107,638 of
additional compensation and stock issued to former officers for services
performed in 1999 and $547,959 of additional legal, consulting and professional
fees to complete convertible debt and equity financings and oil and gas related
transactions in 1999.
General and administrative expenses for the year ended December 31, 1999,
increased $599,609, or 543%, to $710,064 from $110,455 in the year ended
December 31, 1998. The increase was primarily due to the additional general and
administrative expense as a result of acquiring 2-Infinity-Texas, AirNexus and
Maximum Return.
Interest Expense for the year ended December 31, 1999 increased $431,649, or
7,861%, to $437,140 from $5,491 in the year ended December 31, 1998. The
increase was primarily due to the additional interest of $404,500 recorded as a
result of the settlement with the holders of $750,000 aggregate principal amount
of 8% convertible debentures completed in January, 2000. The Company completed a
settlement with the debenture holders, canceling all previous agreements in
exchange for 1,500,000 shares of our common stock and $324,750 aggregate
principal amount of 8% convertible debentures which were exercisable at 50% of
the fair market value of our common stock on the date of exercise. The
debentures were subsequently converted into 3,392,857 shares of common stock.
Total proceeds to the Company, net of the original $40,000 fee, was $460,000
relating to the transaction. We recorded the transaction as if the settlement
occurred prior to December 31, 1999. A charge to interest expense in the amount
of $404,500 has been recorded at December 31, 1999 relating to the transaction.
The convertible debentures of $500,000 and accrued interest of $419,500 were
recorded as equity at June 30, 2000 as a result of the conversion to common
stock.
Net loss for the year ended December 31, 1999 increased by $12,244,257, or
3,590%, to $12,585,341 from $341,084 for the year ended December 31, 1998. The
net loss in 1999 includes the compensation expense of $4,141,960 relating to
stock awards to current officers and employees for services performed in 1999.
The stock awards were valued at fair market value in April 2000 on the date the
board was authorized to grant the shares, which was $1.156. In August 2000, as a
result of the volatility in the stock price, with the current market price
valued materially below the valuation determined for payroll taxes, the
employees and directors cancelled the stock compensation agreements with
2-Infinity and cancelled and returned all shares. 2-Infinity has no further
obligation to the employees. We expect to incur additional losses until our
revised business strategy results in sufficient revenues to offset operating
expenses and infrastructure costs.
LIQUIDITY AND CAPITAL RESOURCES
In the six months ended June 30, 2000, 2-Infinity raised $2,292,500 in
private placement transactions. In addition, we raised $146,500 from the
exercise of warrants to acquire common stock. 2-Infinity's operating loss for
the fiscal six months ended June 30, 2000 was $3,113,665.
2-Infinity raised $1,187,500 from notes payable and the sale of convertible
debentures during the year ended December 31, 1999. In addition, we raised
$330,000 in private placements of our common stock to accredited investors,
$175,630 from the exercise of warrants to acquire common stock, and $100,000
from the issuance of options to purchase common stock. 2-Infinity's operating
loss for the fiscal year ended December 31, 1999 was $8,017,649.
We expect to incur additional losses until our revised business strategy
results in sufficient revenues to offset operating expenses and infrastructure
costs. We believe that this strategy, while initially requiring additional cash
outlays, will result in increased revenues and future profitability. We expect
14
<PAGE>
our existing operations to continue to result in negative cash flow and working
capital deficiencies that will require 2-Infinity to continue to obtain
additional capital. The necessary financing may be unavailable to 2-Infinity or,
if available, may not be on satisfactory or favorable terms. It is possible that
additional equity financing will be highly dilutive to existing shareholders.
ISSUANCE OF OUR SERIES A PREFERRED STOCK AND RELATED WARRANTS
On August 14, 2000, 2-Infinity entered into a Placement Agency Agreement
with J.P. Carey Securities, Inc., whereby J.P. Carey agreed to act as our
placement agent in selling, on a best efforts basis, 3,000 shares of our
Series A Preferred Stock and warrants to acquire 600,000 shares of our common
stock for $3,000,000. Under the terms of the Placement Agency Agreement, J.P.
Carey is entitled to a commission equal to 10% of the gross proceeds raised in
the offering. Additionally, J.P. Carey is entitled to receive warrants to
purchase 200,000 shares of our common stock for every $1,000,000 raised. The
warrants issued to J.P. Carey are exercisable for five years from the date of
issuance and include provisions for cashless exercise.
Concurrently with the execution of the Placement Agency Agreement,
2-Infinity executed a Securities Purchase Agreement related to the Placement
Agency Agreement with J.P. Carey. Under the terms of the Securities Purchase
Agreement, accredited investors receive 10 shares of our Series A Preferred
Stock and warrants to acquire 2,000 shares of our common stock for each $10,000
invested in 2-Infinity. The warrants issued to the accredited investors are
exercisable for five years from the date of issuance and include provisions for
cashless exercise. The shares of our common stock issuable upon exercise of the
warrants and conversion of the Series A Preferred Stock have certain
registration rights.
As of October 13, 2000, 2-Infinity had sold 1,900 shares of our Series A
Preferred Stock and issued warrants to acquire 380,000 shares of our common
stock to accredited investors. As of that date, we have paid J.P. Carey $190,000
in cash commissions and issued J.P. Carey warrants to acquire 380,000 shares of
our common stock. The exercise price of the warrants issued to the accredited
investors and J.P. Carey range from $0.22 to $0.37, with an average exercise
price of $0.31.
The shares of our common stock which may be issued upon the conversion of
our Series A Preferred Stock and the exercise of the warrants related to the
issuance of the Series A Preferred Stock, including those issued to J.P. Carey,
are being registered under the Securities Act of 1933 by means of the
registration statement of which this prospectus is a part. A complete
description of the rights and preferences of our Series A Preferred Stock and
the related warrants issued in connection with the issuance of the Series A
Preferred Stock is contained in this prospectus under the heading "Description
of Securities."
15
<PAGE>
BUSINESS
OVERVIEW
2-Infinity, Inc. is an integrated communications provider offering voice and
data solutions and services to small- to mid-sized businesses and enterprise
branch locations. We are in the business of converging voice and data
communications over the local area network and delivering broadband Internet
access through our business-grade DSL service. Our business model incorporates
elements of an Internet service provider, a value-added reseller, and
competitive local exchange carrier.
HISTORICAL BUSINESS AND EVOLUTION OF OUR BUSINESS STRATEGY
On November 14, 1995, Lakota Energy, Inc. was formed for the purpose of
engaging in oil and gas exploration and operations. On November 6, 1996, Lakota
Energy was merged with and into Chancellor Trading Group, Inc. As part of the
merger agreement, Chancellor issued 9,187,500 shares of its common stock to the
shareholders of Lakota Energy in exchange for 4,593,750 shares of Lakota
Energy's common stock. An additional 118,000 shares of Chancellor's common stock
were issued to third parties who assisted in closing the transaction. Chancellor
was a publicly traded corporation and had no significant operations prior to the
merger with Lakota Energy. As a result of the merger, Chancellor's name changed
to Lakota Energy, Inc.
Historically, the strategic plan of Lakota Energy was to participate in oil
and gas exploration projects that have been developed by other successful,
well-financed companies. Lakota Energy focused on projects primarily in Texas
and Louisiana, where its consultants had specific geological expertise. However,
as a result of continued losses from these ventures, Lakota Energy decided to
diversify into emerging areas of the technology sector.
On May 28, 1999, Lakota Energy acquired all of the outstanding capital stock
of 2-Infinity-Texas. As consideration for the acquisition, Lakota Energy issued
3,000,000 shares of its common stock to Majed M. Jalali, the sole shareholder of
2-Infinity-Texas. At the time of the acquisition, 2-Infinity-Texas focused on
providing digital subscriber line services, more commonly referred to as DSL, to
residential multi-dwelling unit customers such as hotels and apartment
complexes. The acquisition of 2-Infinity-Texas reinforced Lakota Energy's desire
to diversify into the technology and Internet markets.
On June 8, 1999, Lakota Energy acquired all of the outstanding capital stock
of AirNexus. As consideration for the acquisition, Lakota Energy issued
3,000,000 shares of its common stock and $60,000 cash to the three owners of
AirNexus, two of whom were Patrick Cody Morgan and his spouse. The acquisition
of AirNexus, a provider of LAN-based business telephony solutions, furthered the
business strategy to enter the technology sector.
On June 9, 1999, Lakota Energy organized a wholly owned Texas corporation
named Lakota Oil and Gas, Inc. Subsequently, on June 14, 1999, Lakota Energy
transferred its interest in two oil exploration projects, which constituted all
of Lakota Energy's oil and gas related assets at the time, to Lakota Oil. The
purpose of forming Lakota Oil was to organize Lakota Energy's oil and gas
related business into one operating subsidiary, separate and distinct from the
other operating subsidiaries, in order to more accurately reflect our
diversified operations.
On August 4, 1999, Lakota Energy changed its name to Lakota
Technologies, Inc. to promote its new diversified strategy with both the oil and
gas and technology sectors.
On January 18, 2000, Lakota Technologies entered into an agreement with the
shareholders of AGM, pursuant to which Lakota Technologies issued 2,200,000
shares of its common stock to acquire all the outstanding capital stock of AGM.
Lakota Technologies acquired AGM in order to become a reporting company under
the Securities Act of 1934. As part of the acquisition, Lakota Technologies
elected to have successor issuer status under Rule 12g-3 of that Act.
16
<PAGE>
On January 27, 2000, 2-Infinity-Texas and AirNexus merged, with
2-Infinity-Texas surviving the merger. The merger began the reformation of
Lakota Technologies business strategy to consolidate its DSL and LAN-based
telephony offerings into a cohesive service package. Following that merger,
Lakota Technologies hired a new management team and gained a direct sales force
to market both its DSL services and the LAN-based telephony solutions. As of
October 2000, 2-Infinity-Texas had approximately 150 business customers.
On April 18, 2000, the Company approved a plan to dispose of all remaining
assets relating to the oil and gas exploration projects and, where necessary, to
plug and abandon all other non-producing wells that could not be sold.
On May 8, 2000, Lakota Technologies changed its name to
2-Infinity.com, Inc. to further distinguish its emphasis on the technology
sector.
On June 28, 2000, 2-Infinity.com acquired all of the outstanding common
stock of Maximum Return, a network hardware and service provider. The
acquisition of Maximum Return provided 2-Infinity.com with an additional set of
products and services to offer its existing customers as well as a new base of
enterprise customers. As consideration for the acquisition, 2-Infinity.com
issued 900,000 shares of its common stock to the owners of Maximum Return, of
which 200,000 shares were placed in escrow. Under the terms of the escrow
agreement, if Maximum Return's net assets were not equal to or greater than
$47,500 as of May 31, 2000, 2-Infinity.com is entitled to the return of the
number of escrowed shares equal to two multiplied by the difference between the
net asset amount and $50,000. On August 31, 2000, we made a claim for the return
of all of the escrowed shares because, based on the information developed to
date, Maximum Return's net assets as of May 31, 2000 were less than $47,500. The
previous owners of Maximum Return have submitted a timely response to our claim
and the escrowed shares will continue to be held by the escrow agent pending a
resolution of the issue.
On August 31, 2000, 2-Infinity.com, Inc. changed its name to
2-Infinity, Inc. in order to eliminate public assumptions that it employed an
internet-based business model such as that of an online retailer or e-commerce
exchange.
INDUSTRY OVERVIEW
The telecom industry is undergoing important changes as convergence and
broadband technologies enable the integration of voice, data, and video services
over a single, high-bandwidth network infrastructure. These industry changes
include the entry of new and vigorous competition, increased choice and
bargaining power for buyers, and the alignment of manufacturers and service
providers to develop next generation networks based on alternative
communications media including copper wire, wireless, coaxial cable, and fiber
optics.
2-Infinity is actively involved within both the convergence and broadband
sectors of the telecom industry. Within the convergence sector, manufacturers
such as 3Com, Nortel, Cisco, and Lucent are leading the way in developing
solutions that enable businesses to integrate voice and data traffic over the
local area network. Sales of convergence technologies, such as LAN-based
telephony solutions, are expected to grow considerably over the coming years as
an increasing number of businesses become familiar with the enhanced set of
communication features and significant opportunities for cost savings inherent
in managing an integrated communications infrastructure. As a value-added
reseller and solution provider of convergence technologies manufactured by 3Com
and Nortel, 2-Infinity's role within this industry segment involves customer
acquisition and retention through conducting direct sales efforts and providing
ongoing service and support.
2-Infinity's participation in the broadband sector of the telecom industry
is through its sales and marketing of high-speed Internet access through its
business-grade DSL services. While the market for DSL services is still in its
infancy, industry analysts project the number of DSL lines in service within
17
<PAGE>
the US to reach 2.1 million in 2001 and 9.6 million in 2003. 2-Infinity believes
the demand for DSL services by business customers will increase dramatically
over the next few years as the need for high-speed Internet access and wide area
networking continues to grow due to the proliferation of commercial multimedia
and e-commerce applications such as telecommuting, video conferencing, and
online storefronts.
OUR MARKETS
2-Infinity's primary market is small- to mid-sized businesses and enterprise
branch locations within Houston, Texas. We plan to enter additional markets
within Texas, such as Dallas and Austin, in the early part of 2001. The Small
Business Administration estimates that there are roughly 370,000 businesses
within Texas with less than 500 employees, of which approximately 74,000 are
within the Houston metropolitan area. Our target customer segment is a business
site with between 20 to 100 employees, and where a local area network either
already exists or is planned to be installed.
COMPETITION
The industry and markets in which we operate are highly competitive and we
believe that competition is increasing. We may not be able to compete in those
markets effectively, especially against established competitors with a greater
market presence and more substantial financial resources.
The nature of competition in our current markets varies depending upon both
the type of business customer being targeted and the type of solution or service
being offered, namely convergence or broadband. While our competition in
offering convergence solutions to small to mid-sized businesses is typically
either a regional PBX provider or local interconnect, we often face direct
competition from manufacturers of alternative technologies when it comes to
larger enterprise clients. 2-Infinity has experienced a degree of success
against manufacturers in soliciting enterprise clients due to offering a
complete solution including high quality technical support and customer service.
While the intensity of competition in the broadband sector is noticeably
greater than many other sectors of the telecom industry, there has been a
limited effect on providers thus far due to a robust demand for such services.
2-Infinity not only competes against alternative broadband technologies such as
wireless providers, or in some special cases, fiber optic providers, but we also
face an abundance of competition from other DSL providers.
Competing DSL providers may be categorized as either facilities-based or
non-facilities-based. Facilities-based providers are typically either incumbent
local exchange carriers, such as Southwestern Bell Corporation, or data
competitive local exchange carriers, most notably Covad, Northpoint, and
Rhythms. While facilities-based providers have installed the actual DSL
multiplexing equipment in central offices to service customers in surrounding
areas, we do not face direct competition from such providers since they rarely
interact directly with the end user and most often wholesale their services to
the second category of our competition, the Internet service providers.
Most competing Internet service providers previously offered dial-up
Internet access and are accustomed to acquiring residential customers. However,
the proliferation of such providers has introduced a degree of downward price
pressures within the broadband sector. Since 2-infinity's target customer is the
business customer, our main competition within the broadband sector is a small
but growing group of Internet service providers that are focusing on
business-grade DSL services. While there is relatively less price-based
competition in this market segment, we do anticipate decreasing margins as
competing providers being to include additional services and features within
their primary offerings at increasingly discounted levels.
18
<PAGE>
GOVERNMENT REGULATIONS
INTERNET ACCESS AND VOICE AND DATA PRODUCT SECTOR. From a regulatory
perspective, 2-Infinity is at the same time an Internet service provider, a
value-added reseller, and a competitive local exchange carrier. As an Internet
service provider, we are not currently subject to direct regulation by the
Federal Communications Commission. Nevertheless, Internet-related regulatory
policies are continuing to develop and vigorous public debates regarding the
cost and benefits of regulating the Internet have emerged in federal, state and
local legislative, executive an regulatory agency forums. It is possible that we
could be exposed to regulation in the future. For example, the FCC has stated
it's intention to consider whether to regulate voice and fax telephony services
provided over the Internet as "telecommunications" even though Internet access
itself would not be regulated. The FCC recently initiated a Notice of Inquiry to
examine this issue. The FCC is also considering whether such Internet-based
telephone service should be subject to universal service support obligations, or
pay carrier access charges on the same basis as traditional telecommunications
companies.
A decision by congress or the FCC to regulate Internet telephony or Internet
access services may limit the growth of the Internet, increase our cost of doing
business or increase our legal exposure, any of which could cause our revenues
to decrease.
We also face government regulation regarding the content and communications
provided by third parties and carried over, or hosted on, our facilities. For
instance, we are obligated to comply with the requirements of the Digital
Millennium Copyright Act concerning responses to claims of copyright
infringement. We also are required to comply with state and federal privacy
requirements, including the Electronics Communications Privacy Act, which
imposes limitations on the interception, disclosure and use of communications
transmitted over and stored on our facilities. Additionally, the Children's
Online Privacy Protection Act, and the Federal Trade Commission rules
implementing that statute, requires us to safeguard personal information that we
know to be transmitted to our web site by children under age 13.
We also are subject to federal and state laws that regulate the advertising
and sale of certain products and services over the Internet. In addition to
existing statutes of this kind, such as state statutes that prohibit advertising
of gambling, a number of bills are pending in the Congress and state
legislatures that would prohibit or regulate particular marketing practices,
such as the transmission of unsolicited commercial email, or the advertisement
or sale of certain goods or services.
While 2-Infinity does not currently operate in the capacity of a competitive
local exchange carrier, we do plan to offer voice services such as local and
long distance services in the future. As a result, our future business will be
affected by FCC regulation of telecommunications, most notably through the
Telecommunications Act of 1996. In August 2000, 2-Infinity received approval
from the Texas Public Utilities Commission to transfer a previously acquired
CLEC license to 2-Infinity.
OIL AND GAS EXPLORATION SECTOR. The oil and gas industry is extensively
regulated by federal, state and local authorities. Legislation affecting the oil
and gas industry is under constant review for amendment or expansion. Numerous
departments and agencies, both federal and state, have issued rules and
regulations binding on the oil and gas industry and its individual members. Some
of those rules and regulations carry substantial penalties for failure to
comply. Because these laws and regulations are frequently amended, reinterpreted
or expanded, we are unable to predict the future cost or impact of complying
with these laws and regulations.
The production of oil and gas in Texas is regulated by The Texas Railroad
Commission, and in Louisiana, by The Louisiana Department of Natural Resources.
Both agencies have enacted several levels of regulations governing various
actions in the oil and gas industry, including requiring permits for the
drilling of wells, maintaining bonding requirements in order to drill or operate
wells, regulating
19
<PAGE>
the location of wells, the method of drilling and casing wells, the surface use
and restoration of properties upon which wells are drilling and the plugging and
abandonment of wells.
Our oil and gas operations are subject to extensive federal, state and local
laws and regulations dealing with environmental protection, including, but not
limited to, the Comprehensive Environmental Response, Compensation and Liability
Act, also known as "Superfund," and similar state statutes. Failure to comply
with these laws and regulations may result in the assessment of administrative,
civil, or criminal penalties.
Our onshore operations are subject to numerous laws and regulations
controlling the discharge of materials into the environment or otherwise
relating to the protection of the environment. These laws and regulations, among
other things, may: impose absolute liability on the lessee under a lease for the
cost of clean-up of pollution resulting from a lessee's operations; subject the
lessee to liability for pollution damages; require suspension or cessation of
operations in affected areas; and impose restrictions on the injection of
liquids into subsurface aquifers that may contaminate groundwater. Persons who
are or were responsible for releases of hazardous substances under CERCLA may be
subject to joint and several liability for the remediation and clean-up costs
and for damages to natural resources.
Our oil and gas operations are also subject to the Clean Water Act and the
Clean Air Act and comparable state statutes. Our operations may generate or
transport both hazardous and nonhazardous solid wastes that are subject to the
requirements of the Resource Conservation and Recovery Act and comparable state
laws and regulations. In addition, we currently own or lease, and have in the
past owned or leased, properties that have been used for oil and gas operations
for many years. Although we have utilized operating and disposal practices that
were standard in the industry at the time, hydrocarbons or other wastes may have
been disposed of or released on or under the properties owned or leased by us or
on or under other locations where such wastes have been taken for disposal. Many
of these properties have been operated by third parties whose operations were
not under our control. These properties and the wastes disposed thereon may be
subject to CERCLA, RCRA, and analogous state laws, and we could be required to
remove or remediate previously disposed wastes or property contamination or
perform remedial plugging operations to prevent future contamination.
EMPLOYEES
As of September 30, 2000, we had 64 full-time employees. None of our
employees are covered by a collective bargaining agreement. We believe that our
relations with our employees are good.
FACILITIES
2-Infinity's principal executive offices are located at 4828 Loop Central
Drive, Suite 150, Houston, Texas 77081, which is occupied under a lease ending
October 31, 2007. The current rent for the executive offices is $18,318 per
month. At the end of the term, we believe that we can lease the same or
comparable offices at approximately the same monthly rate.
Due to the acquisition of AirNexus, 2-Infinity is also responsible for the
rental payments related to office space located at 333 N. Sam Houston Parkway
East, Suite 870, Houston, Texas 77060. The current monthly rental under the
lease, which expires on October 1, 2004, is $5,492. 2-Infinity has currently
subleased the space to LynkTel, Inc. through May 2002 for the monthly rental
required under the lease.
2-Infinity is also party to a lease for office space located at 2849 Paces
Ferry Road, Atlanta, Georgia, 30339. The current monthly rental under the lease,
which expires on January 31, 2003, is $2,130. Since January 2000, the monthly
rental due under the lease has been paid by NuQuest, Inc., an entity owned by
Robert Kent Honeyman, one of our former executive officers. We are currently
20
<PAGE>
involved in negotiations with The Realty Associates Fund IV, L.P., the current
landlord on the lease, to assign the remaining term of the lease to NuQuest.
LITIGATION
2-Infinity filed a complaint in December 1999 in the 80th District Court of
Harris County, Texas against Tiger Petroleum, Inc. and Mr. Kenny Vincent. This
claim is based on a breach of a settlement agreement entered into by 2-Infinity
and the defendants on March 25, 1999. 2-Infinity is seeking the return of
300,000 shares of common stock, plus attorneys' fees and court costs. Discovery
has been commenced and it is anticipated that if this case is not resolved in
mediation, it will be docketed for trial in the last quarter of 2000.
2-Infinity is currently in the process of attempting to resolve a claim
alleged by Pilares Oil & Gas, Inc. through arbitration. Pilares alleges that
2-Infinity, known at the time as Lakota Energy, breached an agreement entered
into in November 1996 and a purported amendment entered into in December 1996
relating to the purchase of 80% of Pilares' net revenue in approximately 1,600
acres known as the Glass Mountain Lease "A West" Project. Pursuant to the
agreement, Lakota Energy was to acquire 99% of the outstanding capital stock of
West Bolt Energy, Inc., and Pilares was to transfer its interest in the Glass
Mountain Lease "A West" Project to West Bolt Energy. Lakota Energy issued
812,500 shares of common stock to Pilares and was to pay $400,000 in cash to
West Bolt Energy. Pilares is seeking damages in the amount of $400,000 plus
interest from 2-Infinity based on the purported amendment, which changes the
payee of the $400,000 to Pilares. 2-Infinity is challenging the effectiveness of
the purported amendment. Additionally, 2-Infinity is seeking, in a counterclaim
against Pilares, the return of the shares of the common stock issued to Pilares.
The counterclaim also alleges that Pilares fraudulently induced 2-Infinity to
enter into the original contract based on appraisals Pilares provided indicating
that its interest in the Glass Mountain Lease "A West" Project had a value of
approximately $30,000,000, which later proved to have a value of approximately
$300,000. The arbitration is scheduled to occur beginning on January 15, 2001.
21
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below are the directors and executive officers of 2-Infinity,
together with their ages as of October 13, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION DIRECTOR SINCE
---- -------- ----------------------------------------------------- --------------
<S> <C> <C> <C>
Majed M. Jalali Chairman of the Board, Chief Executive Officer and
27 President 2000
Patrick Cody Morgan 33 Chief Operating Officer, Secretary and Director 2000
Kelly E. Nispel 37 Chief Financial Officer, Treasurer and Director 2000
Jason B. Miller 26 Chief Technology Officer --
Ahmed D. Alumran 24 Chief Information Officer --
Scott E. Smith 30 Director 2000
Michael L. Omer 46 Director 2000
</TABLE>
The members of our board of directors are subject to change from time to
time by the vote of the shareholders at special or annual meetings to elect
directors. The current board of directors consists of five directors as
described below. The number of directors may be fixed from time to time by
resolution duly passed by the board of directors. The directors hold office
until the next annual meeting of the shareholders and until their successors are
duly elected and qualified. Directors who are elected at an annual meeting of
shareholders, and directors elected in the interim to fill vacancies and newly
created directorships, will hold office for the term for which elected and until
their successors are elected and qualified or until their earlier death,
resignation or removal. Officers are elected annually by the directors. There
are no family relationships among our directors and officers.
We may employ additional management personnel as the board of directors
deems necessary. We have not identified or reached an agreement or understanding
with any other individuals to serve in such management positions.
A description of the business experience during the past several years for
each of our directors and executive officers is set forth below.
Mr. Jalali has been the chairman of the board of directors, chief executive
officer and president of 2-Infinity since January 2000. Prior to that, he served
as president of 2-Infinity-Texas. From January 1998 to March 1999, Mr. Jalali
served as chief executive officer of Infinity International School. Prior
thereto, Mr. Jalali was a university student.
Mr. Morgan became 2-Infinity's vice president and secretary, and a director
of 2-Infinity, in January 2000, and became 2-Infinity's chief operating officer
in May 2000. Prior to that, he was the president of AirNexus beginning in
May 1998, as well as a member of that company's board of directors. From
October 1996 until May 1998, Mr. Morgan was a partner in Digiphone, a Houston,
Texas-based voice solution provider. From 1994 to October 1996, Mr. Morgan was
the general manager of Digitech Business Systems, a Houston, Texas-based company
that provided business telephones and voice mail systems.
Ms. Nispel has been the chief financial officer and treasurer of 2-Infinity
since March 2000. Ms. Nispel became a director of 2-Infinity in June 2000. From
1997 to 2000, Ms. Nispel was employed by Corporate Express Delivery
Systems, Inc., which was later acquired by United Shipping and
Technology, Inc., in a variety of positions from director of finance to vice
president of finance. Her responsibilities included SEC financial reporting,
senior lender reporting, banking relations and other
22
<PAGE>
financial, tax and treasury matters. From 1996 to 1997, Ms. Nispel was employed
by Corporate Express, Inc., the parent company of Corporate Express Delivery
Systems, as a regional assistant controller. From 1993 to 1996, Ms. Nispel was
the chief financial officer for Ovation Data Services, Inc., where she was
responsible for all financial related matters. From 1985 to 1993, Ms. Nispel was
employed by Price Waterhouse in the middle market and growth oriented division,
where she became a manager in 1991. Ms. Nispel is a certified public accountant
in the states of Texas and Colorado.
Mr. Miller became our chief technology officer on July 7, 2000. Mr. Miller
began his employment with 2-Infinity-Texas in April of 1999. From August 1998 to
April 1999, Mr. Miller was vice president of Infinity International School.
Prior to August 1998, Mr. Miller was a university student.
Mr. Alumran became our chief technology officer in July 2000. Prior to
joining 2-Infinity, Mr. Alumran was a consultant at the Mitchell Madison Group,
a global management consultancy that primarily served Fortune 500 companies in
areas such as business strategy, operations, sourcing and mergers and
acquisitions. From 1998 to early 2000, Mr. Alumran was involved in several
consulting relationships with the management of companies involved in the
telecommunications and banking sectors. Prior to 1998, Mr. Alumran was the
founder and president of AIT, an Internet consulting firm serving top executives
and government officials in the Middle East. Prior to that, Mr. Alumran was a
university student at the Massachusetts Institute of Technology, earning
Bachelor of Science and Master of Engineering degrees in electrical engineering.
Mr. Smith has been a director of 2-Infinity since June 2000. Mr. Smith is
currently the senior vice president of Capital Bank in Houston, Texas, where he
has been employed since 1994. Mr. Smith has served on the board of directors of
North Channel Chamber of Commerce since 1999.
Mr. Omer has served as a corporate consultant to 2-Infinity since May 1999
and as a director of 2-Infinity since June 2000. Since 1989, Mr. Omer has been
employed by Aramco Services Company in various capacities, most recently as
general attorney and corporate secretary. Mr. Omer also serves as the corporate
legal and regulatory counsel to Aramco's North American affiliates, including
Saudi Refining, Inc., Saudi Petroleum International, Inc., Aramco Associated
Company and Aramco Financial Services Company, as well as other companies and
cooperatives affiliated with Aramco. From 1991 through 1994, Mr. Omer also
served as a director and as chairman of the legal committee for the Clean
Caribbean Corporation, a non-profit cooperative organized by numerous
multinational oil companies operating within the Caribbean Basin and South
America, and he served as chairman of the board of directors for the Clean
Caribbean Corporation from 1994-1995. Mr. Omer is licensed to practice law in
the states of Texas and Hawaii.
EXECUTIVE COMPENSATION
DIRECTORS. The directors have not received any compensation for serving in
such capacity, and we do not currently contemplate compensating our directors in
the future for serving in such capacity.
EXECUTIVE OFFICERS. The following summary compensation table shows selected
compensation information for services rendered in all capacities for the fiscal
year ended December 31, 1999. Other than as set forth below, no executive
officer's salary and bonus exceeded $100,000 in any of the applicable years. The
following information includes the dollar value of base salaries and stock bonus
awards, whether paid or deferred.
23
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1) LONG TERM COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) RESTRICTED STOCK AWARDS ($)
--------------------------- -------- ----------------------- ---------------------------
<S> <C> <C> <C>
R. K. (Ken) Honeyman(2) 1999 222,328 134,114(4)
Former President and Director............ 1998 96,240 --
Howard N. Wilson(2) 1999 123,746 98,371(5)
Former Vice President and Secretary...... 1998 46,250 --
John B. Hayes(3) 1999 76,903 196,000(6)
Former President of Lakota Oil & Gas..... 1998 -- --
</TABLE>
------------------------------
(1) Excludes any perquisites and other benefits that do not exceed the lesser of
$50,000 or 10% of the total of annual salary and bonus reported for any
executive officer.
(2) Messrs. Honeyman and Wilson resigned from their positions as executive
officers and directors of 2-Infinity as of January 20, 2000.
(3) Mr. Hayes resigned as President of Lakota Oil & Gas on February 3, 2000.
(4) 2-Infinity issued as compensation 1,676,429 shares with a closing market
price on the date of issue of $0.08 per share.
(5) 2-Infinity issued as compensation 1,229,643 shares with a closing market
price on the date of issue of $0.08 per share.
(6) 2-Infinity issued as compensation 1,000,000 shares with a closing market
price on the date of issue of $0.10 per share and 300,000 shares with a
closing market price on the date of issue of $0.32 per share.
2000 LONG-TERM INCENTIVE PLAN
On August 25, 2000, our shareholders approved the 2-Infinity 2000 Long-Term
Incentive Plan, which management believes will allow us to provide additional
incentive and reward opportunities to our employees that are designed to enhance
our long-term profitable growth. The relevant terms of the plan are as follows:
- The aggregate number of shares of common stock that may be awarded under
the plan is limited to 30,000,000 shares, subject to adjustment due to the
recapitalization or reorganization of 2-Infinity.
- The plan is currently administered by our board of directors. However, the
plan grants the board of directors authority to appoint a committee to
administer the plan in the future.
- The committee may grant the following types of awards under the plan:
incentive stock options; options that do not constitute incentive stock
options; stock appreciation rights; restricted stock awards; performance
share awards; and stock value equivalent awards.
- The committee will have the sole authority to determine and designate the
individuals who will receive awards under the plan. However, incentive
stock options and performance share awards may only be granted to
employees of the Company.
- Our board of directors may terminate or amend the plan; provided that any
termination or amendment may not, without prior consent, impair the rights
of any holder with respect to an award granted prior to the time of the
termination or amendment.
As of October 13, 2000, our board of directors had granted options to
purchase, in the aggregate, 23,985,000 shares of our common stock, net of
cancellations, under the plan.
24
<PAGE>
EMPLOYMENT CONTRACTS
In June 1999, 2-Infinity entered into an employment agreement with Majed
Jalali. The agreement is for a term of three years and may be terminated at any
time for cause or good reason, as defined in the agreement. As of March 1, 2000,
Mr. Jalali's annual salary under the agreement is $325,000.
In June 1999, 2-Infinity entered into an employment agreement with Patrick
Cody Morgan. The agreement is for a term of three years and may be terminated at
any time for cause or good reason, as defined in the agreement. As of March 1,
2000, Mr. Morgan's annual salary under the agreement is $250,000.
RESTRICTED STOCK ISSUANCES
In February 1999, 2-Infinity issued 1,000,000 shares of restricted common
stock to Cactus Petroleum, Inc., an entity controlled by John B. Hayes, a former
director of 2-Infinity, as consideration for services provided pursuant to an
agreement with Optima Investments, Inc. in connection with the private placement
of securities under Rule 504 of Regulation D. Mr. Hayes assisted in the
identification, negotiation, and closing of the transaction with Optima.
In April 1999, 2-Infinity issued 1,676,429 and 1,229,643 shares of
restricted common stock to Ken Honeyman and Howard Wilson, respectively, as
consideration for accrued compensation for past services rendered. Mr. Honeyman
and Mr. Wilson had each verbally agreed to forego any cash compensation up to
the date of issuance for their services as chief executive officer and
secretary, respectively, in exchange for the shares.
In July 1999, 2-Infinity issued 300,000 shares of restricted common stock to
John B. Hayes as consideration for accrued compensation for past services
rendered. Mr. Hayes had verbally agreed to forego any cash compensation up to
the date of issuance for services rendered as president of our oil and gas
division, and subsequently as president of Lakota Oil and Gas.
CERTAIN TRANSACTIONS
In February 1999, 2-Infinity issued 1,000,000 shares of restricted common
stock to Cactus Petroleum, Inc., an entity controlled by John B. Hayes, as
consideration for services valued at $100,000 related to the negotiation and
consummation of the transaction with Optima.
In January and February 2000, 2-Infinity mutually separated from three
officers and directors, R. K. Honeyman, Howard N. Wilson and John B. Hayes.
Included in the settlement agreements with Mr. Honeyman, 2-Infinity issued
4,000,000 shares and $100,000 to compensate him for the past service and
2-Infinity paid $40,000 for execution of the settlement agreement and consulting
services during the transition to new management. Each party mutually discharged
any indebtedness owed to the other and Cam Am Resources, Inc, a related party of
Mr. Honeyman. As a result, 2-Infinity accrued, at December 31, 1999, $500,000
for compensation of past services at the fair market value of the shares and the
cash issued as a result of the agreement. In addition, included in the
settlement agreements with the Mr. Wilson and Mr. Hayes, 2-Infinity issued an
aggregate of 5,500,000 shares and $100,000 to compensate them for past services
and 2-Infinity paid an aggregate of $65,000 for the execution of the agreements
and consulting services during the transition to new management. As a result,
2-Infinity accrued, at December 31, 1999, $2,760,500 of compensation expense at
the fair market value of the shares and cash issued as a result of the
agreements.
Effective August 1, 1999, 2-Infinity approved and implemented the Omnibus
Stock Option Plan and the board of directors granted 2,000,000 options to
purchase 2-Infinity's common stock under the plan. In January 1999, the options
granted under the plan were cancelled as part of the settlement and separation
agreements with the option holders and the plan was terminated.
25
<PAGE>
In June 1999, 2-Infinity issued an aggregate of 3,000,000 shares, at $.38
per share, of restricted common stock to Majed M. Jalali, the sole shareholder
of 2-Infinity-Texas, pursuant to the acquisition agreement between 2-Infinity
and Mr. Jalali.
In June 1999, 2-Infinity issued an aggregate of 2,000,000 shares, at $.32
per share, of restricted common stock and $60,000 to Patrick Cody Morgan and his
spouse in connection with the acquisition of AirNexus.
PRINCIPAL SHAREHOLDERS
The following table presents certain information regarding the beneficial
ownership of all shares of our common stock at October 13, 2000 by (a) each
person who owns beneficially more than five percent of our outstanding shares of
the common stock, (b) each director, (c) each named executive officer, and
(d) all directors and officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED (2)
-----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER (1) NUMBER PERCENT (3)
---------------------------------------- --------- -----------
<S> <C> <C>
Majed M. Jalali............................................. 4,175,000 4.8
Patrick Cody Morgan(4)...................................... 3,115,000 3.6
Kelly E. Nispel............................................. 500,000 *
Jason B. Miller............................................. 500,000 *
Ahmed D. Alumran............................................ 500,000 *
Scott E. Smith.............................................. 250,000 *
Michael L. Omer............................................. 375,000 *
All directors and officers as a group (seven persons)....... 9,415,000 10.4
</TABLE>
------------------------------
* Less than one percent.
(1) The address for each of these shareholders is c/o 2-Infinity, Inc., 4828
Loop Central Drive, Suite 150, Houston, Texas 77081.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage of ownership of that
person, shares of Common Stock subject to warrants and options held by that
person that are currently exercisable or exercisable within 60 days of
October 13, 2000 are deemed outstanding. Therefore, the number of shares
indicated as being beneficially owned by each shareholder listed above
includes shares of common stock which may be acquired within 60 days of
October 13, 2000 by the shareholder pursuant to conversion privileges or
outstanding options or warrants as follows: 1,250,000 for Mr. Jalali;
1,250,000 for Mr. Morgan; 500,000 for each of Ms. Nispel, Mr. Miller and
Mr. Alumran; and 4,000,000 for all directors and officers as a group. The
shares, however, are not deemed to be outstanding for the purposes of
computing the percentage ownership of each other person. Except as indicated
in the footnotes to this table and pursuant to applicable community property
laws, the persons named in the table have sole voting and investment power
with respect to the shares set forth opposite such person's name.
(3) Based on 86,476,339 shares of common stock outstanding as of October 13,
2000.
(4) Includes shares held as joint tenants with spouse or directly in spouse's
name.
DESCRIPTION OF SECURITIES
The authorized capital stock of 2-Infinity consists of 300,000,000 shares of
common stock, no par value, and 25,000,000 shares of preferred stock, no par
value. As of October 13, 2000, 86,476,339 shares of the common stock and 1,900
shares of preferred stock were issued and outstanding. The following description
of certain matters relating to the common stock and the preferred stock is a
summary and is qualified in its entirety by the provisions of our articles of
incorporation and bylaws.
26
<PAGE>
COMMON STOCK
The holders of our common stock are entitled to one vote per share on all
matters submitted to a vote of our shareholders. The holders of our common stock
have the sole right to vote, except as otherwise provided by law or by our
articles of incorporation. In addition, such holders are entitled to receive
ratably such dividends, if any, as may be declared from time to time by the
board of directors out of legally available funds, subject to the preferences
granted to the holders of our preferred stock. In the event of the dissolution,
liquidation or winding up of 2-Infinity, the holders of our common stock are
entitled to share ratably in all assets remaining after payment of all our
liabilities, subject to the preferences granted to the holders of our preferred
stock.
The holders of our common stock do not have cumulative voting rights or
preemptive rights to acquire or subscribe for additional, unissued or treasury
shares in accordance with the laws of the state of Colorado. Accordingly, the
holders of more than 50 percent of the issued and outstanding shares of our
common stock voting for the election of directors can elect all of the directors
if they choose to do so, and in such event, the holders of the remaining shares
of our common stock voting for the election of the directors will be unable to
elect any person or persons to the board of directors. All outstanding shares of
our common stock are fully paid and nonassessable.
The laws of the state of Colorado provide that the affirmative vote of a
majority of the holders of the outstanding shares of our common stock is
required to authorize: (i) amendments to our articles of incorporation, with
some exceptions; (ii) mergers or consolidations with any corporation, with some
exceptions; or (iii) any liquidation or disposition of any of our substantial
assets other than in the usual and regular course of business.
PREFERRED STOCK
Our board of directors is authorized, without action by the holders of our
common stock, to provide for the issuance of the preferred stock in one or more
series, to establish the number of shares to be included in each series and to
fix the designations, powers, preferences and rights of the shares of each
series and the qualifications, limitations, or restrictions of each series. This
includes, among other things, voting rights, conversion privileges, dividend
rates, redemption rights, sinking fund provisions and liquidation rights which
shall be superior to our common stock. The issuance of one or more series of our
preferred stock could adversely affect the voting power of the holders of our
common stock and could have the effect of discouraging or making more difficult
any attempt by a person or group to attain control of 2-Infinity.
Currently, our board of directors has authorized the issuance of one series
of our preferred stock, the Series A Preferred Stock, which consists of 3,000
authorized shares. The relative rights and preferences of the Series A Preferred
Stock are as follows:
- Shares of the Series A Preferred Stock do not have voting rights except as
provided by law.
- The Series A Preferred Stock does not bear dividends.
- The holders of shares of the Series A Preferred Stock do not have
preemptive or preferential rights to purchase or subscribe to any shares
of any class of our capital stock.
- Unless consent is obtained from the holders of two-thirds of the
outstanding shares of the Series A Preferred Stock, 2-Infinity may not
declare a dividend on its common stock or redeem any of its capital stock
or other equity securities.
- Upon a merger or other similar transaction, a holder of Series A Preferred
Stock is entitled to receive the merger consideration, if any, which would
be receivable by the holder had the shares been converted to shares of our
common stock immediately prior to the merger or similar transaction.
27
<PAGE>
- At the option of the holders of the Series A Preferred Stock, shares of
the Series A Preferred Stock may be converted into shares of our common
stock based on the following standard conversion rate:
<TABLE>
<C> <S>
(0.8)(N/365)(1,000) + 1,000 N= Number of days held through
conversion price the date of conversion conversion
price = the lesser of $0.50 or
75% of the average closing bid
price for the five day period
immediately preceding the date of
conversion
</TABLE>
- Except in the case of mandatory conversion, a holder of shares of
Series A Preferred Stock may not convert in excess of the number of shares
of the Series A Preferred Stock which, after giving effect to such
conversion, would cause the holder to beneficially own in excess of 4.9%
of the then outstanding shares of common stock. Based on the number of
outstanding shares of common stock and the calculated conversion price as
of October 13, 2000, a holder of Series A Preferred Stock attempting to
convert on that date would, assuming the holder does not beneficially own
any shares of common stock, be entitled to convert up to 592 shares of
Series A Preferred Stock.
- Upon conversion of shares of the Series A Preferred Stock, 2-Infinity pays
the holder of the converted Preferred Stock an 8% per annum premium which
has accrued. The premium may be paid in cash or in shares of our common
stock based on the applicable conversion price.
- If 2-Infinity should fail to have the registration statement of which this
prospectus is a part declared effective by the Securities and Exchange
Commission by February 14, 2001 and/or (ii) sales cannot be made pursuant
to an effective registration statement for any reason, the conversion
price is subject to decrease based on additional formulas. Any decrease in
the conversion price would be directly related to the time of delay for
obtaining the effectiveness of the registration statement and/or the time
during which sales cannot occur, as applicable. The conversion price is
also subject to adjustment following 2-Infinity's authorization of any of
the following: a stock split, a reverse stock split, the granting of a
stock dividend, the recapitalization of our common stock, the combination
of our common stock, or any other change in our common stock which would
dilute the rights of the holders of the Series A Preferred Stock.
- If 2-Infinity is unable to convert all of a holder's shares of Series A
Preferred Stock into common stock that may be resold by the holder
pursuant to this prospectus, 2-Infinity must convert as many shares as
possible and return all unconverted shares of Series A Preferred Stock to
the holder. The holder may elect to void the conversion notice with
respect to the unconverted shares or, in certain situations, require
2-Infinity to issue restricted shares of the common stock to the holder
based on the standard conversion rate.
Alternatively, the holder of the unconverted shares of Series A Preferred
Stock may require 2-Infinity to redeem them at a price per share equal to
the greater or (i) 130% of the sum of the $1,000 original principal amount
plus the 8% annual premium, or (ii) the closing bid price of our common
stock on the date of attempted conversion multiplied by the number of
shares of common stock the share of the Series A Preferred Stock was
convertible into on the same date pursuant to the standard conversion rate.
If 2-Infinity is unable to timely pay the full redemption value to the
holder, the remaining balance bears interest at the rate of 2.5% per month.
Until the balance is paid in full, the holder may void the redemption
election and require the return of all unredeemed shares of the Series A
Preferred Stock.
- No sooner than 15 days nor later than 10 days prior to the occurrence, but
never earlier than the public announcement of, (i) the consummation of a
merger in which 2-Infinity is not the
28
<PAGE>
survivor, (ii) a sale of all or substantially all of 2-Infinity's assets,
(iii) the acquisition by a person or persons, excluding current
shareholders, of more than 50% of the voting power of all outstanding
common stock, or (iv) the failure of 2-Infinity to own all of the capital
stock of each of its material subsidiaries, other than due to mergers with
2-Infinity or any of its subsidiaries, 2-Infinity is required to provide
notice of the occurrence to each holder of the Series A Preferred Stock.
Any time after receiving the occurrence notice, the holders of at least
two-thirds of the outstanding shares of the Series A Preferred Stock may
elect to require 2-Infinity to redeem all of the outstanding shares of the
Series A Preferred Stock at a price per share equal to the greater or
(i) the $1,000 original principal amount plus the 8% annual premium, or
(ii) the closing bid price of our common stock on the date the applicable
occurrence is publicly announced, or the following date in certain
circumstances, multiplied by the number of shares of common stock the share
of Series A Preferred Stock was convertible into on the same date pursuant
to the standard conversion rate.
If 2-Infinity is unable to redeem all of the outstanding shares of the
Series A Preferred Stock in this situation, 2-Infinity is required to
redeem a pro-rata amount from each holder. The remaining unpaid redemption
price bears interest at 3% per month until paid in full. Until such amount
is fully paid, the holders of two-thirds of the then outstanding shares of
the Series A Preferred Stock may elect to void the decision to redeem and
cause 2-Infinity to return the unredeemed shares of the Series A Preferred
Stock to the respective holders. If the required number of holders elect
this option, the conversion price applicable to the returned shares of the
Series A Preferred Stock is subject to decrease based on additional
formulas.
- If (i) 2-Infinity breaches any of the covenants of the offering documents
related to the issuance of the Series A Preferred Stock or is found to
have made a false representation or warranty in those documents,
(ii) 2-Infinity notifies any holder of the Series A Preferred Stock of its
refusal to comply with a request for conversion, (iii) the registration
statement of which this prospectus is a part fails to be effective at any
time after April 15, 2001, or (iv) the common stock issuable upon
conversion of the Series A Preferred Stock cannot be sold pursuant to this
prospectus for a continuous period of 60 days following April 15, 2001,
2-Infinity is required to provide notice to each holder of the Series A
Preferred Stock within one day of the applicable triggering event.
Any time after receiving notice of a triggering event, the holders of at
least two-thirds of the outstanding shares of the Series A Preferred Stock
may elect to require 2-Infinity to redeem all of the outstanding shares of
the Series A Preferred Stock at a price per share equal to the greater or
(i) 130% of the sum of the $1,000 original principal amount plus the 8%
annual premium, or (ii) the closing bid price of our common stock on the
date immediately preceding the triggering event multiplied by the number of
shares of common stock the share of Series A Preferred Stock was
convertible into on the same date pursuant to the standard conversion rate.
If 2-Infinity is unable to redeem all the outstanding shares of the
Series A Preferred Stock in this situation, the obligations of 2-Infinity,
the rights of the holders of the Series A Preferred Stock and the potential
adjustments to the conversion price are the same as those discussed in the
last paragraph of the immediately preceding bullet point
- As long as 2-Infinity is not in default under the terms of the offering
documents relating to the issuance of the Series A Preferred Stock,
2-Infinity has the right to redeem all or any portion of the Series A
Preferred Stock. 2-Infinity may only redeem Series A Preferred Stock
having a minimum stated value of $500,000. For purposes of the Series A
Preferred Stock, stated value is equal to the total original principal
amount of the preferred stock subject to redemption plus the 8% annual
premium. For the first 90 days after issuance, 2-Infinity may redeem
shares of the Series A Preferred Stock at 110% of stated value. The
redemption price rises to 120% of stated
29
<PAGE>
value during the next 90 days, with additional 3% increases for each
additional 30 day period. If 2-Infinity elects to redeem less than all of
the shares of the Series A Preferred Stock, the redemption will be
pro-rata from each holder of the Series A Preferred Stock.
- The Series A Preferred Stock is subject to mandatory conversion on
August 14, 2002. On that date, all outstanding shares convert into shares
of our common stock using the standard conversion rate and a conversion
date of August 14, 2002.
- A holder of the Series A Preferred Stock is entitled to receive cash
penalties if 2-Infinity fails to issue the holder a common stock
certificate within 3 business days of 2-Infinity's receipt of the holder's
convertible Series A Preferred Stock certificate. For the first ten
business days after the deadline, the penalty to 2-Infinity is $10 per
business day per share of preferred stock converted. After the tenth
business day following the deadline, the penalty increases to $20 per
business day per share.
- Upon the dissolution, liquidation or winding up of 2-Infinity, whether
voluntary or involuntary, the holder of each outstanding share of the
Series A Preferred Stock will be entitled to receive, out of our assets,
$1,000 plus the 8% per annum premium before any payment or distribution
may be made on our common stock or any other class of our capital stock
ranking junior to the Series A Preferred Stock.
- After the payment to the holders of shares of the Series A Preferred Stock
of the full preferential amounts for those shares, the holders have no
further right or claim to any of our remaining assets.
- In the event our assets available for distribution to the holders of the
Series A Preferred Stock upon the dissolution, liquidation or winding up
of 2-Infinity are insufficient to fully pay all amounts to which the
holders of the Series A Preferred Stock are entitled, no distribution may
be made on account of any shares of a class or series of our capital stock
ranking on a parity with the shares of the Series A Preferred Stock, if
any, unless proportionate distributive amounts are paid on account of the
shares of the Series A Preferred Stock, ratably, in proportion to the full
distributive amounts for which holders of all parity shares are
respectively entitled upon a dissolution, liquidation or winding up.
WARRANTS
This prospectus also relates to the sale of 760,000 shares of our common
stock issuable upon the exercise of the warrants issued by 2-Infinity in the
transactions related to the issuance of the Series A Preferred Stock. The
following is a summary of certain terms of the warrants:
- Each warrant is exercisable in whole or in part.
- The following table describes the number of underlying shares, the
exercise price and the expiration date of each of the warrants:
<TABLE>
<CAPTION>
NUMBER OF UNDERLYING SHARES EXERCISE PRICE EXPIRATION DATE
--------------------------- -------------- ---------------
<S> <C> <C>
200,000 $0.37 08/15/05
200,000 $0.37 08/15/05
40,000 $0.29 09/12/05
40,000 $0.29 09/12/05
140,000 $0.22 09/26/05
140,000 $0.22 09/26/05
</TABLE>
30
<PAGE>
- In lieu of paying the exercise price, the warrants may be exercised on a
cashless basis. The number of shares of our common stock issuable upon a
cashless exercise is based on the following formula:
<TABLE>
<C> <S>
X = Y (A-B) X = number of shares to be received on cashless
A exercise
Y = number of warrant shares exercised
A = the average of the closing bid price of our
common stock for the five days immediately
preceding the date of exercise
B = the warrant exercise price
</TABLE>
- If 2-Infinity fails to timely issue a common stock certificate following
the exercise of any warrant, the holder is entitled to cash compensation
based on the number of shares and the applicable average closing bid
price.
- The warrant exercise price and number of shares exercisable under each
warrant are subject to adjustment in certain situations in order to
prevent dilution of the rights granted to the holders of the warrants.
CERTAIN PROVISION OF THE ARTICLES OF INCORPORATION AND BYLAWS
GENERAL. A number of provisions of our articles of incorporation and bylaws
concern matters of corporate governance and the rights of our shareholders.
Certain of these provisions may be deemed to have an anti-takeover effect and
may discourage takeover attempts not first approved by the board of directors,
including takeovers which certain shareholders may deem to be in their best
interests. To the extent takeover attempts are discouraged, temporary
fluctuations in the market price of our common stock, which may result from
actual or rumored takeover attempts, may be inhibited. These provisions could
delay or frustrate the removal of incumbent directors or the assumption of
control by the shareholders, even if such removal or assumption would be
beneficial to our shareholders. These provisions also could discourage or make
more difficult a merger, tender offer or proxy contest, even if they could be
favorable to the interests of the shareholders, and could potentially depress
the market price of our common stock. The board of directors believes that these
provisions are appropriate to protect the interests of 2-Infinity and all of its
shareholders.
MEETINGS OF SHAREHOLDERS. Our articles provide that a special meeting of
the shareholders may be called only by (a) the president, (b) the holders of at
least 10 percent of all of the shares entitled to vote at the proposed special
meeting, or (c) the board of directors. Special shareholder meetings may not be
called by any other person or persons or in any other manner. The request for a
special meeting must contain the purpose of the proposed meeting.
AMENDMENT OF BYLAWS. Our bylaws may be amended by our board of directors or
our shareholders. However, our board of directors may not adopt or amend any
bylaw if the new or amended bylaw would be inconsistent with any bylaw
previously adopted by our shareholders. Any bylaw adopted by our shareholders
may provide that the bylaw cannot be altered, amended or repealed by the board
of directors.
INDEMNIFICATION AND LIMITATION OF LIABILITY. Our board of directors is
authorized to do the following:
- Indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, other than an
action by or in the night of 2-Infinity, by reason of
31
<PAGE>
the fact that he is or was a director, officer, employee or agent of
2-Infinity or is or was serving at the request of 2-Infinity as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses, including
attorney's fees, judgments, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably
believed to be in the best interests of 2-Infinity and, with respect to
any criminal action or proceedings, had no reasonable cause to believe his
conduct was unlawful. Termination of any action, suit or proceeding by
judgment, order, settlement or conviction or upon a plea of nolo
contendere or its equivalent shall not of itself create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in the best interests of 2-Infinity and, with respect to
any criminal action or proceeding, had reasonable cause to believe that
his conduct was unlawful.
- Indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the
right of 2-Infinity to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of
2-Infinity or is or was serving at the request of 2-Infinity as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses, including
attorney's fees, actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good
faith and in a manner he reasonably believed to be in the best interests
of 2-Infinity; but no indemnification shall be made in respect of any
claim, issue or matter as to which such person has been adjudged to be
liable for negligence or misconduct in the performance of his duty to
2-Infinity unless and only to the extent that the court in which such
action or suit was brought determines upon application that, despite the
adjudication of liability, but in view of all circumstances of the case,
such person is fairly and reasonably entitled to indemnification for such
expenses which such court deems proper.
- Indemnify a director, officer, employee or agent of 2-Infinity to the
extent that such person has been successful on the merits in defense of
any action, suit or proceeding or in defense of any claim, issue, or
matter therein, against expenses, including attorney's fees, actually and
reasonably incurred by him in connection therewith.
- Authorize indemnification in a specific case upon a determination that
indemnification of the director, officer, employee or agent is proper
because he has met the applicable standard of conduct. Such determination
shall be made by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or
proceeding, or, if such a quorum is not obtainable or even if obtainable a
quorum of directors so directs, by independent legal counsel in a written
opinion, or by the shareholders.
- Authorize payment of expenses, including attorney's fees, incurred in
defending a civil or criminal action, suit or proceeding in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to
repay such amount unless it is ultimately determined that he is entitled
to be indemnified by 2-Infinity.
- Purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of 2-Infinity or who is or was
serving at the request of 2-Infinity as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him
in any such capacity or arising out of his status as such, whether or not
2-Infinity would have the power to indemnify him against such liability.
32
<PAGE>
The foregoing indemnification shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under our articles of
incorporation, or any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, and any procedure provided for by any of the foregoing,
both as to action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of
heirs, executors and administrators of such a person.
Our bylaws contain similar indemnification and limitation of liability
provisions. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, or persons controlling
2-Infinity pursuant to the foregoing provisions, or otherwise, we are aware
that, in the opinion of the SEC, such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
One of the effects of our authorized but unissued capital stock may be to
enable the board of directors to render more difficult or to discourage an
attempt to obtain control of 2-Infinity by means of a tender offer, proxy
contest or otherwise, and thereby to protect the continuity of our management.
If in the due exercise of its fiduciary obligations, for example, the board of
directors were to determine that a takeover proposal was not in 2-Infinity's
best interests, such shares could be issued by the board of directors without
shareholder approval in one or more private or public offerings or other
transactions that might prevent or render more difficult or costly the
completion of the proposed takeover transaction by diluting the voting or other
rights of the proposed acquirer or insurgent shareholder or shareholder group,
by creating a substantial voting block of institutional or other investors that
might undertake to support the position of the incumbent board of directors, by
effecting an acquisition that might complicate or preclude the takeover, or
otherwise. In this regard, our articles of incorporation grant our board of
directors broad power to establish the rights and preferences of the authorized
but unissued preferred stock, one or more series of which could be issued with
rights entitling holders to vote separately as a class on any proposed merger or
consolidation, or to exercise other rights designated to impede a takeover.
33
<PAGE>
PLAN OF DISTRIBUTION AND SELLING SHAREHOLDERS
This prospectus relates to the aggregate sale of 29,278,316 shares of our
common stock which may be sold by the selling shareholders. The shares of the
common stock include (i) 28,518,316 shares which may be issued upon the
conversion of 2-Infinity's Series A Preferred Stock and (ii) 760,000 shares
which may be issued upon the exercise of outstanding warrants. On October 13,
2000, the outstanding shares of the Series A Preferred Stock were, in the
aggregate, convertible into 14,258,158 shares of the common stock. However,
because the Series A Preferred Stock converts into shares of our common stock
based on the average closing bid price of the common stock for the five day
period immediately preceding conversion, the terms of the offering documents
related to the Series A Preferred Stock require us to register twice that
amount, or 28,518,316 shares, pursuant to the registration statement of which
this prospectus is a part. Additionally, the terms of the offering documents
limit the number of shares of common stock into which the Series A Preferred
Stock may be converted by a holder to 4.9% of the then outstanding shares of our
common stock, or 4,455,668 shares as of October 13, 2000 utilizing the
conversion price calculated as of that date.
The following table sets forth certain information with respect to the sale
of our common stock by the selling shareholders as described in this prospectus.
2-Infinity will not receive any proceeds from the sale of our common stock by
the selling shareholders.
SALES BY THE SELLING SHAREHOLDERS OF SHARES TO BE ISSUED
UPON THE CONVERSION OF SERIES A PREFERRED STOCK (PS)
AND THE EXERCISE OF OUTSTANDING WARRANTS (W)
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED BEFORE PERCENTAGE AMOUNT OWNER PERCENTAGE
SHAREHOLDER SALE(1) BEFORE SALE OFFERED(2) AFTER SALE AFTER SALE(3)
----------- ------------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Cache Capital "USA" LP (PS)........ 14,259,158(4) 14.2%(4) 14,259,15 -0- *
Cache Capital "USA" LP (W)......... 380,000 * 380,000 -0- *
J. P. Carey Securities, Inc. (W)... 380,000 * 380,000 -0- *
</TABLE>
------------------------------
* Less than one percent.
(1) Shares beneficially owned before sale include shares of the common stock
issuable upon conversion of the Series A Preferred Stock and exercise of our
outstanding warrants. For purposes of this table, ownership of shares
issuable on conversion of the Series A Preferred Stock is based on the
actual or estimated number of shares of the common stock underlying the
shares owned by such person as of October 13, 2000.
(2) Shares offered include shares of the common stock issuable on conversion of
the Series A Preferred Stock and exercise of our outstanding warrants.
(3) Percentage based on the number of shares of our common stock outstanding as
of October 13, 2000.
(4) Represents the number of shares of common stock into which the Series A
Preferred Stock would convert (based upon a conversion price calculated as
of October 13, 2000) upon mandatory conversion at August 14, 2002. Prior to
that date, the number of shares of common stock into which the Series A
Preferred Stock may be converted is limited to 4.9% of the then outstanding
shares of common stock (or 4,455,668 shares as of October 13, 2000).
The shares of our common stock offered by the selling shareholders may be
sold from time to time as market conditions permit in the market, or otherwise
at prices and terms then prevailing or at prices related to the current market
price, or in negotiated transactions. The selling shareholders may sell their
shares in unsolicited ordinary brokerage transactions or privately negotiated
transactions between the selling shareholders and purchasers without a broker.
A current prospectus must be in effect at the time of the sale of our common
stock to which this prospectus relates. Any selling shareholder or dealer
effecting a transaction in the registered securities, whether or not
participating in a distribution, is required to deliver a prospectus. Unless
otherwise
34
<PAGE>
exempted, the selling shareholders and their agents engaged in the sale of our
common stock may be deemed underwriters under the Securities Act.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On May 5, 2000, we engaged Mann Frankfort Stein & Lipp of Houston, Texas as
our principal independent accountants to audit our financial statements. On the
same date, we advised HJ & Associates, L.L.C., formerly named Jones, Jensen &
Company, of Salt Lake City, Utah that it would no longer serve as our
independent accountant. Our board of directors approved the engagement of Mann
Frankfort and the termination of HJ & Associates on May 5, 2000.
Except for an explanatory paragraph with respect to substantial doubt about
our ability to continue as a going concern in our consolidated financial
statements as of and for the years ended December 31, 1999 and 1998 and from
inception on November 14, 1995 through December 31, 1999, HJ & Associates'
reports on those financial statements have not contained an adverse opinion or a
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles. There have been no disagreements between
2-Infinity and HJ & Associates on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which,
if not resolved to HJ & Associates' satisfaction, would have caused HJ &
Associates to make reference to the subject matter of such disagreements in
connection with its report.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock and preferred stock is
Securities Transfer Corporation, PO Box 701629, Dallas, Texas 75370-1629,
telephone (469) 633-0101.
LEGAL MATTERS
Certain legal matters relating to the issuance and sale of the shares of our
common stock offered hereby will be passed upon for us by Holme, Roberts & Owen,
Denver, Colorado.
EXPERTS
The financial statements and schedules for the years ended December 31, 1999
and 1998 included in this prospectus and in the registration statement have been
audited by HJ & Associates, L.L.C., independent certified public accountant. to
the extent and for the periods set forth in its reports appearing elsewhere
herein and in the registration statement, and are included in reliance upon such
reports given upon the authority of said firm as an expert in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION
In accordance with the Exchange Act, we file reports, proxy statements, and
other information with the SEC. In addition, we intend to furnish our
shareholders with annual reports containing audited financial statements and
such interim reports as we deem appropriate. No person is authorized by
2-Infinity to give any information or to make any representations other than
those contained in this prospectus, and, if given or made, you should not rely
upon such information.
We have filed with the SEC a registration statement under the Securities Act
on Form SB-2 to register the shares of our common stock to be sold pursuant to
this prospectus. As allowed by SEC rules, this prospectus does not contain all
the information contained in the registration statement or in the exhibits to
the registration statement. For further information you may read and copy
documents at the principal office of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. The SEC charges a fee for copies.
Copies of this material should also be available through the Internet by using
the Quick Forms Lookup at the SEC EDGAR Archive, the address of which is
http://www.sec.gov.
35
<PAGE>
CONTENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheet.................................. F-3
Consolidated Statements of Operations....................... F-5
Consolidated Statements of Stockholders' Equity (Deficit)... F-6
Consolidated Statements of Cash Flows....................... F-7
Notes to the Consolidated Financial Statements.............. F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
2-Infinity, Inc. and Subsidiaries
(Formerly Lakota Technologies, Inc. and Subsidiaries,
A Development Stage Company)
Houston, Texas
We have audited the accompanying consolidated balance sheet of 2-Infinity, Inc.
(formerly Lakota Technologies, Inc. and Subsidiaries a development stage
company) as of December 31, 1999 and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for the years ended
December 31, 1999 and 1998 and from inception on November 14, 1995 through
December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 to above present
fairly, in all material respects, the financial position of 2-Infinity, Inc. and
Subsidiaries (formerly Lakota Technologies, Inc. and Subsidiaries, a development
stage company) as of December 31, 1999 and the results of their operations and
their cash flows for the years ended December 31, 1999 and 1998 in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 5 to the
consolidated financial statements, the Company is a development stage company
with no significant operating results to date, which 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 5. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
HJ & Associates, LLC (formerly Jones, Jensen & Company)
Salt Lake City, Utah
April 14, 2000, except for the pooling of interest section in Note 4
as to which the date is October 11, 2000
F-2
<PAGE>
2-INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
---------- ------------
UNAUDITED
<S> <C> <C>
CURRENT ASSETS
Cash...................................................... $ 242,604 $ 89,352
Accounts receivable, net of allowance for doubtful
accounts of $7,451 and $1,268........................... 233,833 29,256
Accounts receivable--other................................ 15,921 --
Accounts and notes receivable--employees.................. 104,349 1,290
Prepaid expenses.......................................... 20,254 29,233
Security deposit.......................................... 15,959 16,191
---------- --------
Total Current Assets.................................... 632,920 165,322
---------- --------
PROPERTY AND EQUIPMENT
Leasehold Improvements.................................... 3,207 --
Furniture and fixtures.................................... 71,058 44,951
Equipment................................................. 232,579 39,140
Less: accumulated depreciation............................ (35,083) (12,262)
---------- --------
Total Property and Equipment............................ 271,761 71,829
---------- --------
OTHER ASSETS
CLEC license.............................................. 387,300 --
Assets held for sale...................................... -- 5,168
---------- --------
Total Other Assets...................................... 387,300 5,168
---------- --------
TOTAL ASSETS............................................ $1,291,981 $242,319
========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
2-INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
UNAUDITED
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable.......................................... $ 689,951 $ 110,796
Notes payable............................................. 76,000 596,645
Accrued expenses.......................................... 224,867 75,613
Accrued compensation...................................... -- 7,509,459
Accrued interest payable.................................. -- 419,500
Other liability........................................... 43,127 --
----------- -----------
Total Current Liabilities............................... 1,033,945 8,712,013
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock 25,000,000 shares authorized, no par
value; no shares outstanding............................ -- --
Common stock 300,000,000 shares authorized, no par value;
85,116,339 shares issued and outstanding................ -- --
Additional paid in capital--common stock.................. 13,404,348 5,672,968
Accumulated deficit....................................... (13,146,312) (14,142,662)
----------- -----------
Total Stockholders' Equity (Deficit).................... 258,036 (8,469,694)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT).... $ 1,291,981 $ 242,319
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
2-INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS FOR THE YEARS
ENDED JUNE 30, ENDED DECEMBER 31,
---------------------------- --------------------------
2000 1999 1999 1998
----------- ----------- ------------ -----------
UNAUDITED
<S> <C> <C> <C> <C>
REVENUES............................... $ 1,434,362 $ 118,726 $ 387,461 $ 289,950
COST OF SALES.......................... 1,135,094 88,742 247,968 165,096
----------- ----------- ------------ -----------
GROSS MARGIN........................... 299,268 29,984 139,493 124,854
EXPENSES
Depreciation expense................. 22,820 5,545 14,450 8,349
Amortization expense................. 503,200 2,160,440 2,172,528 --
Loss from oil and gas activities..... 139,467 235,491 5,260,100 351,139
General and administrative........... 2,738,587 370,271 710,064 110,455
----------- ----------- ------------ -----------
Total Expenses..................... 3,404,074 2,771,747 8,157,142 469,943
----------- ----------- ------------ -----------
Loss from Operations............... (3,104,806) (2,741,763) (8,017,649) (345,089)
----------- ----------- ------------ -----------
OTHER INCOME (EXPENSE)
Interest expense..................... (12,187) -- (437,140) (5,491)
Interest income...................... 2,656 614 14,928 9,496
Loss on disposal of oil and gas
assets............................. (31,273) -- (3,520) --
----------- ----------- ------------ -----------
Total Other Income (Expense)....... (40,804) 614 (425,732) 4,005
----------- ----------- ------------ -----------
Loss Before Cancellation of
Stock............................ (3,145,610) (2,741,149) (8,443,381) (341,084)
Income (expense) from cancellation of
stock.............................. 4,141,960 (591,708) (4,141,960) --
----------- ----------- ------------ -----------
NET INCOME (LOSS)...................... 996,350 (3,332,857) (12,585,341) (341,084)
=========== =========== ============ ===========
INCOME (LOSS) PER SHARE
Basic................................ $ 0.02 $ (0.12) $ (0.36) $ (0.03)
Diluted.............................. $ 0.01 $ (0.12) $ (0.36) $ (0.03)
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING:
Basic................................ 66,350,427 27,354,022 34,613,638 13,371,602
Diluted.............................. 70,829,689 27,354,022 34,613,638 13,371,602
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
2-INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK AND
ADDITIONAL PAID IN CAPITAL
--------------------------- ACCUMULATED
SHARES AMOUNT EQUITY (DEFICIT)
------------ ------------ ----------------
<S> <C> <C> <C>
Balance, January 1, 1998................................ 12,141,500 1,158,158 (1,216,237)
Common stock issued for cash............................ 3,608,800 344,378 --
Common stock issued for services........................ 4,928,433 147,853 --
Net loss................................................ -- -- (341,084)
---------- ---------- -----------
Balance, December 31, 1998.............................. 20,678,733 1,650,389 (1,557,321)
Common stock issued for cash............................ 4,120,300 505,630 --
Common stock issued for debt............................ 7,685,581 550,000 --
Common stock issued in business combinations............ 6,000,000 2,100,000 --
Common stock issued for services........................ 5,454,977 652,858 --
Options issued for cash................................. -- 100,000 --
Common stock issued for debt and interest............... 1,185,216 104,091 --
Common stock cancelled (Note 13)........................ (3,846,325) -- --
Net loss................................................ -- -- (12,585,341)
---------- ---------- -----------
Balance, December 31, 1999.............................. 41,278,482 5,662,968 (14,142,662)
Common Stock issued for cash............................ 21,540,000 2,292,500 --
Common Stock issued for services........................ 2,235,000 809,180 --
Common stock issued in business combinations............ 4,600,000 513,200 --
Common stock issued for separation agreement of former
Directors............................................. 9,500,000 3,060,500 --
Common stock issued for debt and interest............... 4,892,857 919,500 --
Common stock issued for cash for exercise of warrants... 1,070,000 146,500 --
Common stock issued for compensation.................... 4,240,000 4,807,840 --
Common stock cancelled (Note 7)......................... (4,240,000) (4,807,840) --
Net Income (unaudited).................................. -- -- 996,350
---------- ---------- -----------
Balance, June 30, 2000 (unaudited)...................... 85,116,339 13,404,348 (13,146,312)
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
2-INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS FOR THE YEARS
ENDED JUNE 30, ENDED DECEMBER 31,
------------------------- ------------------------
2000 1999 1999 1998
----------- ----------- ------------ ---------
UNAUDITED
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)................................... $ 996,350 $(3,332,857) $(12,585,341) $(341,084)
Adjustments to reconcile net income (loss) to net
cash
used by operating activities:
Depreciation expense.............................. 22,820 5,545 14,450 8,349
Loss on disposal of oil and gas assets............ 31,273 -- 3,520 --
Amortization expense.............................. 503,200 2,160,440 2,172,528 --
Common stock issued (cancelled) for services,
net............................................... (3,751,924) 111,852 8,570,476 147,853
Changes in operating assets and liabilities
(Increase) decrease in accounts and other
receivable........................................ (323,557) (63,753) 7,725 6,710
Increase in accounts payable...................... 579,156 12,318 108,691 2,104
Increase in accrued expense and other
liabilities....................................... 108,120 611,321 (3,306) (2,089)
(Increase) decrease in prepaid expense and other
assets......................................... 9,212 -- (2,296) (6,199)
Increase in related party receivable.............. -- -- -- (33,870)
----------- ----------- ------------ ---------
Net Cash Used by Operating Activities............. (1,825,350) (495,134) (1,713,553) (218,226)
----------- ----------- ------------ ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of CLEC license............................ (217,000) -- -- --
Purchase of property and equipment.................. (222,753) (103,701) (46,794) --
----------- ----------- ------------ ---------
Net Cash Used by Investing Activities............. (439,753) (103,701) (46,794) --
----------- ----------- ------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of notes payable............................ (20,645) -- (60,000) (22,098)
Proceeds from notes payable and debentures.......... -- 100,800 1,187,500 --
Proceeds from issuance of common stock and
warrant............................................. 2,439,000 562,091 605,630 344,378
----------- ----------- ------------ ---------
Net Cash Provided by Financing Activities......... 2,418,355 662,891 1,733,130 322,280
----------- ----------- ------------ ---------
NET INCREASE (DECREASE) IN CASH....................... 153,252 64,056 (27,217) 104,054
CASH AT BEGINNING OF PERIOD........................... 89,352 116,569 116,569 12,515
----------- ----------- ------------ ---------
CASH AT END OF PERIOD................................. $ 242,604 $ 180,625 $ 89,352 $ 116,569
=========== =========== ============ =========
CASH PAID DURING THE PERIOD FOR:
Interest............................................ $ 12,187 $ -- $ 4,739 $ --
NON-CASH TRANSACTIONS
Common stock and debt issued for services........... 331,880 111,852 8,570,476 147,853
Cancellation of stock issued to employees........... (4,141,960) 591,708 -- --
Common stock issued to acquire CLEC license......... 170,300 -- -- --
Common stock issued for business acqusition......... 513,200 2,170,000 2,170,000 --
Common stock issued for debt and interest........... 919,500 -- -- --
----------- ----------- ------------ ---------
Total Non Cash Transaction........................ $(2,207,080) $ 2,873,560 $ 10,740,476 $ 147,853
=========== =========== ============ =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
2-INFINITY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
NOTE 1--HISTORY AND ORGANIZATION
The consolidated financial statements presented are those of
2-Infinity, Inc. (formerly 2-Infinity.com, Inc., Lakota Technologies, Inc.,
Lakota Energy, Inc., and Chancellor Trading Group, Inc.) ("the Company") and
it's wholly owned subsidiaries, 2-Infinity.com, Inc.("2-Infinity-Texas"),
AirNexus, Inc. ("AirNexus"), Lakota Oil and Gas, Inc. ("Lakota Oil") and Maximum
Return and Development, Inc. ("Maximum Return"). The Company was incorporated in
the state of Colorado on July 14, 1995 to engage in the acquisition and
exploration of oil and gas properties. In 1999, management diversified into the
technology and Internet markets, acquiring two companies 2-Infinity-Texas, and
AirNexus. In June 2000, the Company acquired Maximum Return.
On May 28, 1999, the Company acquired all of the outstanding stock of
2-Infinity-Texas, a Texas Corporation. As consideration for the acquisition, the
Company issued 3,000,000 shares of its common stock to the sole shareholder and
founder of 2-Infinity-Texas. 2-Infinity-Texas provides digital bundled services,
including high-speed Internet access. The acquisition was accounted for as a
purchase.
On June 8, 1999, the Company acquired all of the shares of Voice
Design, Inc., a Texas Corporation that later changed its name to AirNexus. As
consideration for the acquisition, the Company issued 3,000,000 shares of its
common stock and $60,000 cash to the shareholders of AirNexus. AirNexus is a
retail provider of commercial voice and data products and services. The
acquisition was accounted for as a purchase.
On June 9, 1999, the Company formed Lakota Oil & Gas, Inc. ("Lakota Oil"), a
100% owned subsidiary. As a result of the Company's decision to exit the oil
exploration business, there is no activity in the Lakota Oil subsidiary.
On June 28, 2000, the Company acquired all of the outstanding stock of
Maximum Return, a Pennsylvania Corporation. Under the terms of the agreement,
the Company received all of the outstanding common shares of Maximum Return for
900,000 shares of the Company's common stock, of which 200,000 shares are held
in escrow. Beginning in December 1999, Maximum Return was a network hardware and
service provider. Prior to December 1999, Maximum Return provided financial
consulting. The acquisition was accounted for as a pooling of interest.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Unaudited Interim Information
The accompanying financial information as of June 30, 2000 and for the six
months ended June 30, 2000 and 1999 has been prepared by the Company without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. The financial statements reflect all adjustments, consisting of
normal recurring accruals which are, in the opinion of management, necessary to
fairly present such information in accordance with generally accepted accounting
principals.
b. Basis of Presentation
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of 2-Infinity, Inc. and its wholly owned subsidiaries. All
inter-company balances and transactions have been eliminated in the
consolidation.
F-8
<PAGE>
2-INFINITY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
c. Revenue Recognition
Revenues for 1999 include revenues from the Company's newly acquired
technology subsidiary, AirNexus since June 8,1999. 2-Infinity-Texas reported no
revenues in 1999. Revenue From business telephone and voice mail systems
products are recorded when shipped and any related services revenue are recorded
when the services are rendered to the customer. Revenues for all periods
presented also include revenues from the Company's newly-acquired subsidiary,
Maximum Return, as if the Company had owned Maximum Return since inception.
d. Basic and Diluted Income (Loss) Per Share
Basic income (loss) per share excludes dilution and was computed by dividing
net income (loss) by the weighted average number of shares of common stock
outstanding during the period. Dilutive income (loss) per share reflects the
potential dilution that could occur if securities or other obligations to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that shared in the earnings or losses of the Company.
For the six months ended June 30, 2000, dilutive income per share includes
4,479,262 warrants to acquire shares of common stock. For the six months ended
June 30, 1999 and for the years ended December 31, 1999 and 1998, basic and
diluted loss per share were equal, as the inclusion of dilutive securities would
be anti-dilutive. Total warrants and options outstanding at June 30, 2000 and
1999 were 38,447,800 and 8,000,000, respectively. Total warrants and options
outstanding as of December 31, 1999 were 5,002,500. There were no warrants and
options outstanding at December 31, 1998.
e. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
f. Provision for Taxes
At December 31, 1999, the Company had net operating loss carryforwards of
approximately $3,062,000 that may be offset against future taxable income
through 2014. No tax benefit has been reported in the consolidated financial
statements. The related benefit has been offset by a valuation allowance due to
historical operating losses and the uncertainty if the net loss carryforwards
will be utilized in future periods.
g. Property and Equipment
Property and equipment are stated at cost. Expenditures for small tools,
ordinary maintenance and repairs are charged to operations as incurred. Major
additions and improvements are capitalized. Depreciation is computed using the
straight-line method over estimated useful lives of the assets of 3 to 5 years.
Depreciation expense for six months ended June 30, 2000 and 1999 and the
years ended December 31, 1999 and 1998 was $22,820, $5,545, $14,450 and $8,349,
respectively.
F-9
<PAGE>
2-INFINITY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
h. Advertising
The Company follows the policy of charging the costs of advertising to
expense as incurred. Advertising expenses were not material for all periods
presented.
i. Goodwill
The Company assesses long-lived assets for impairment under FASB Statement
No. 121, Accounting for the Impairment of Long-Lived Assets. Under those rules,
goodwill associated with assets acquired in a purchase business combination were
determined to be impaired because circumstances exist that indicate the carrying
amount of those assets may not be recoverable. The total goodwill of $2,662,200
has been amortized because of the impairment, $2,159,000 of which was amortized
in 1999 relating to the AirNexus and 2-Infinity-Texas acquisitions and $503,200
of which was amortized for the period ending June 30, 2000 relating to the
AGM, Inc. acquisition.
j. Reclassifications
Certain reclassifications have been made in the December 31, 1999 and 1998
financial statements to conform to the presentation at June 30, 2000 and 1999.
NOTE 3--LOSS ON SALE OF OIL AND GAS ASSETS
On April 18, 2000, the Company approved a plan to sell all remaining assets
relating to the oil and gas exploration projects and where necessary, to plug
and abandon all other non-producing wells that cannot be sold. The Company has
sold its interest in the Union Central Life Insurance Co. Well No. 1, receiving
cash proceeds of $54,000. All other non-producing wells are to be plugged and
abandoned. The Company expects to complete this process by year-end. The Company
has recorded a provision for estimated losses to be incurred on the sale and
disposal of the assets of ($31,000). The amounts the Company will ultimately
realize, if any, could differ from the amounts assumed in arriving at the loss
anticipated on disposal of the oil and gas assets.
As the Company was reporting as a development stage enterprise until second
quarter of 2000, all costs associated with oil and gas activities have been
included in "Loss from Oil and Gas Activities" in the accompanying statements of
operations.
NOTE 4--BUSINESS COMBINATIONS
POOLING OF INTERESTS
On June 28, 2000, the board of directors of the Company and the shareholders
of Maximum Return, a network hardware and service provider, completed the
acquisition of Maximum Return by the Company, which resulted in Maximum Return
becoming a wholly owned subsidiary of the Company. Under the terms of the
agreement, the Company received all of the outstanding common shares of Maximum
Return for 900,000 shares of the Company's common stock, of which 200,000 shares
are held in escrow. Under the terms of the escrow agreement, if Maximum Return's
net assets are not equal to or greater than $47,500 as of May 31, 2000, then the
Company is entitled to receive the number of escrowed shares equal to two
multiplied by the difference between the net asset amount and $50,000. On
August 31, 2000, the Company made a claim for the return of all of the escrowed
F-10
<PAGE>
2-INFINITY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
NOTE 4--BUSINESS COMBINATIONS (CONTINUED)
shares due to the inability and unwillingness of the owners of Maximum Return to
overturn financial records that are necessary to determine the net asset amount
as of May 31, 2000. The acquisition was accounted for as a pooling of interests.
Accordingly, the Company's financial statements have been restated to include
the results of Maximum Return for all periods presented. In connection with the
acquisition, the Company recorded transaction costs, primarily professional
fees, in the amount of $6,849. Maximum Return has two customers which account
for 22.33% and 11.15% of its sales.
Combined and separate results of the Company and Maximum Return during the
periods preceding the merger were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
------------------------------------------ MAXIMUM
2-INFINITY RETURN COMBINED
------------ ---------- ------------
<S> <C> <C> <C>
Net Revenue................................... $ 278,530 $1,155,832 $ 1,434,362
Net Income (Loss)............................. $ 977,184 $ 19,166 $ 996,350
------------ ---------- ------------
Year ended December 31, 1999
Net Revenue................................... $ 257,316 $ 130,145 $ 387,461
Net Income (Loss)............................. $(12,588,150) $ 2,809 $(12,585,341)
------------ ---------- ------------
Year ended December 31, 1998
Net Revenue................................... $ -- $ 289,950 $ 289,950
Net Income (Loss)............................. $ (356,468) $ 15,384 $ (341,084)
------------ ---------- ------------
</TABLE>
PURCHASE ACQUISITIONS
On May 28, 1999, the Company acquired all of the outstanding shares of
2-Infinity-Texas, a provider of high-speed Internet access products and
services, for 3,000,000 shares of the Company's common stock. 2-Infinity-Texas
had only been in existence for a short period of time and had no prior
operations. The acquisition has been accounted for as a purchase. The agreement
also provides additional consideration based upon achieving certain revenue
performance goals for up to an additional 6,000,000 shares. In January 2000, the
additional consideration was cancelled.
On June 9, 1999, the Company acquired all of the outstanding shares of
AirNexus, a retail provider of commercial voice and data products and services.
The Company issued 3,000,000 shares of common stock and $60,000 in cash in
exchange for all of the outstanding shares if AirNexus. The acquisition has been
accounted for as a purchase. The agreement also provides additional
consideration based upon achieving certain revenue performance goals for up to
an additional 3,000,000 shares. In January 2000, the additional consideration
was cancelled.
In January 2000, the Company acquired all of the outstanding shares of
AGM, Inc. (AGM), a Nevada corporation, a reporting public company with no prior
operations. The Company elected successor issuer status to become a reporting
public entity upon the acquisition of AGM. The purchase price was 2,200,000
shares of the Company's common stock at a fair market value of $.136 per share.
The acquisition has been accounted for as a purchase. In connection with this
transaction, the Company also issued 1,500,000 shares of common stock, also at a
fair market value of $.136 per share,
F-11
<PAGE>
2-INFINITY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
NOTE 4--BUSINESS COMBINATIONS (CONTINUED)
and $50,000 for consulting services to another corporation that assisted in the
negotiation and completion of the transaction.
Allocation of the purchase price for the acquisitions is as follows:
<TABLE>
<CAPTION>
2-INFINITY-
TEXAS AIRNEXUS AGM
----------- ---------- --------
<S> <C> <C> <C>
Goodwill........................................... $1,139,000 $1,020,000 $503,200
Cash............................................... 104,479 515 --
Property and equipment............................. 5,731 -- --
Other assets....................................... 1,669 9,238 --
Liabilities assumed................................ (50,879) (129,753) --
---------- ---------- --------
Total Purchase Price............................... $1,200,000 $ 900,000 $503,200
========== ========== ========
</TABLE>
The following pro forma financial information gives effect to the
2-Infinity-Texas, AirNexus and AGM acquisitions as if they had been acquired at
the beginning of fiscal years 1998 and 1999. The pro forma results were prepared
for comparative purposes only and are not indicative of the results of
operations which actually would result had the acquisitions occurred on the date
indicated, or which may result in the future:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
SIX MONTHS ENDED --------------------------
JUNE 30, 2000 1999 1998
---------------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Revenues................................... $ 1,434,362 $ 481,371 $ 491,401
Loss from operations....................... $(3,104,806) $ (8,014,420) $ (287,801)
Net Income (loss).......................... $ 996,350 $(12,579,045) $ (283,086)
Basic income (loss) per share.............. $ 0.02 $ (0.36) $ (0.02)
Diluted income (loss) per share............ $ 0.01 $ (0.36) $ (0.02)
Basic weighted average
common shares outstanding................ 66,350,427 34,613,638 13,371,602
Diluted weighted average
common shares outstanding................ 70,829,689 34,613,638 13,371,602
</TABLE>
NOTE 5--GOING CONCERN
Since inception in November 1995 through May 1999, 2-Infinity devoted
substantially all of its efforts to invest with joint partners in oil and gas
exploration projects. However, as a result of minimal revenue and continued
losses from these ventures, 2-Infinity decided to diversify into emerging areas
within the technology sector. The acquisitions of 2-Infinity-Texas and AirNexus
provided the Company with the ability to enter the technology sector.
The Company incurred net losses from operations of $(3,104,806) and
$(2,741,763) for the six months ended June 30, 2000 and 1999, respectively and
$(8,017,649) and $(345,089) for the years ended December 31, 1999 and 1998,
respectively. The Company's ability to operate as a going concern is
F-12
<PAGE>
2-INFINITY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
NOTE 5--GOING CONCERN (CONTINUED)
contingent upon its ability to obtain additional equity financing until positive
cash flows are achieved. The aforementioned factors raise substantial doubt
about the Company's ability to continue as a going concern.
In January 2000, new board members and senior management were appointed in
order to enhance operations and raise additional capital through equity
transactions. The new management adopted new strategies for the Company and
developed a plan of action which included:
- Completing it's plan to sell all remaining assets related to previous oil
and gas exploration projects, and where necessary, to plug and abandon all
other non-producing wells that cannot be sold.
- Raising additional capital through private placements to cover costs
associated with building the necessary operational infrastructure and
service and support platform to execute our business plan.
- Forming strategic and technical alliances with leading manufacturers and
facilities-based network providers in order to expand the development and
deployment of our products and services.
- Implementing an aggressive customer acquisition effort in our target
market, consisting of a direct sales force approach and a comprehensive
marketing program and public relations campaign.
Management believes the successful completion of its plans will produce
increased revenues and cash flows. However, no assurance can be given that the
Company will be successful in the implementation of its plans or that the
Company will be able to raise additional funds. In the event the Company's
activities do not result in increased revenues and cash flows and the Company is
not able to raise additional financing to meet its operating needs, the Company
may no longer be able to continue as a going concern. The financial statements
do not include any adjustments that might be necessary should the Company be
unable to continue as a going concern.
NOTE 6--RELATED PARTY TRANSACTIONS
In February 1999, the Company issued 1,000,000 shares of restricted common
stock to an entity controlled by the President of Lakota Oil, as consideration
for services valued at $100,000 related to the negotiation and consummation of a
transaction with an oil and gas project.
In January and February 2000, the Company mutually separated from three
officers and directors, its CEO, CFO and the President of Lakota Oil. Included
in the settlement agreements with the former CEO, the Company issued 4,000,000
shares and $100,000 to compensate him for past service and the Company paid
$40,000 for the execution of the settlement agreement and consulting services
during the transition to new management. Each party mutually discharged any
indebtedness owed to the other and Cam Am Resources, Inc, a related party of the
CEO. As a result, the Company has accrued at December 1999 $500,000 for
compensation of past services at the fair market value of the shares and cash
issued as a result of this agreement. In addition, included in the settlement
agreements with the former CFO and the President of Lakota Oil, the Company
issued an aggregate of 5,500,000 shares and $100,000 to compensate them for past
service and the Company paid an aggregate of $65,000 for the execution of the
agreements and consulting services during the transition to new management. As a
F-13
<PAGE>
2-INFINITY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
NOTE 6--RELATED PARTY TRANSACTIONS (CONTINUED)
result, the Company has accrued at December 31, 1999, $2,760,500 of compensation
expense at the fair market value of the shares and cash issued as a result of
these agreements.
Effective August 1, 1999, the Company approved and implemented the Omnibus
Stock Option Plan ("the Plan") and the board of directors granted 2,000,000
options to purchase the Company's common stock under the plan. In January 2000,
the options granted under the plan were cancelled as part of the settlement and
separation agreements with the option holders and the Plan was terminated.
NOTE 7--CANCELLATION OF STOCK
In April 2000, the board of directors approved the issuance of 4,240,000
common shares to employees, officers and directors of the Company as
compensation for services performed from June 1999 through January 2000. The
shares were valued at fair market value on the date the board was authorized to
grant the shares, which was $1.156. In August, as a result of the volatility in
the stock price, with the current market price valued materially below the
valuation determined for payroll taxes, the employees and directors cancelled
the stock compensation agreements with the Company and cancelled and returned
all shares. The Company has no further obligation to the employees. The effect
of the cancellation of stock in the accompanying financial statements resulted
in a one-time adjustment to increase income of $4,141,960 for the compensation
that was recorded in 1999. All amounts recorded in the first quarter of 2000
have been reversed.
NOTE 8--NOTES PAYABLE
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
NOTES PAYABLE CONSISTED OF THE FOLLOWING: 2000 1999
----------------------------------------- ----------- ------------
(UNAUDITED)
<S> <C> <C>
Line of credit with bank, interest at prime
plus 1%, Interest payable monthly, principal
due March 2001, guaranteed by an employee................. $ 36,000 $ 51,645
$750,000, 8% Convertible Debentures, $250,000
held in escrow (see Note 11).............................. -- 500,000
Notes payable to individuals; convertible to
stock at the option of the holder within
one to three years; interest at 9.75%,
paid quarterly until converted; unsecured................. 40,000 40,000
Notes payable, due on demand, unsecured,
non-interest bearing...................................... -- 5,000
-------- ---------
Total notes payable................................... $ 76,000 $ 596,645
Less: current portion................................. (76,000) (596,645)
-------- ---------
Long-term portion..................................... $ -- $ --
======== =========
</TABLE>
F-14
<PAGE>
2-INFINITY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
NOTE 9--COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
As a result of the acquisitions in 1999, the Company leases four offices
under lease agreements accounted for as operating leases, three in Houston and
one in Atlanta. Real estate taxes, insurance and maintenance expenses are
obligations of the Company.
Minimum rental payments under the non-cancelable operating leases are as
follows:
<TABLE>
<CAPTION>
PERIODS ENDED
DECEMBER 31,
-------------
<S> <C>
2000........................................................ $ 275,448
2001........................................................ 316,012
2002........................................................ 322,283
2003........................................................ 308,124
2004........................................................ 293,274
----------
$1,515,141
==========
</TABLE>
One lease expired in July 2000 and one lease was sublet in May for $5,492
per month through May 2004.
Rent expense was $89,652 and $26,013 for the years ended December 31, 1999
and 1998, respectively.
CONTINGENCIES
The Company is arbitrating a claim arising from the oil and gas activities.
In the opinion of the Company's legal counsel and management, any liability
resulting from such litigation would not be material in relation to the
Company's financial position or operations.
NOTE 10--INCOME TAXES
The income tax benefit differs from the amount computed at federal statutory
rates of approximately 38% as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
1999 1998
----------- ---------
<S> <C> <C>
Income tax benefit at statutory rate................. $ 4,783,000 $ 135,000
Change in valuation allowance........................ (4,783,000) (135,000)
----------- ---------
$ -- $ --
=========== =========
</TABLE>
F-15
<PAGE>
2-INFINITY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
NOTE 10--INCOME TAXES (CONTINUED)
Deferred tax assets (liabilities) at December 31, 1999 are comprised of the
following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
1999 1998
----------- ---------
<S> <C> <C>
Net operating loss carryforward...................... $ 1,164,000 $ 592,000
Valuation allowance.................................. (1,164,000) (592,000)
----------- ---------
$ -- $ --
=========== =========
</TABLE>
At December 31, 1999, the Company had total net loss carryforwards of
$3,062,000 expiring in 2011 through 2014. Due to the change in ownership
provisions of the Tax Reform Act of 1986, net operating loss carryforwards for
Federal income tax reporting purposes are subject to annual limitations. Should
a change in ownership occur, net operating loss carryforwards maybe limited as
to use in future years.
At the present time, the Company does not anticipate adjustments relating to
income taxes.
NOTE 11--CONVERTIBLE DEBENTURES
In March 1999, the Company issued $550,000 of 8% convertible debentures and
incurred a fee of $44,000 on the issuance. All the debentures were converted
prior to December 31, 1999 into 7,685,581 shares of common stock.
In August 1999, the Company issued $23,500 of 3% convertible debentures and
$74,000 of 1% convertible debentures. All the debentures were converted prior to
December 31, 1999 into 1,185,216 shares of common stock.
In August 1999, the Company issued $750,000 of 8% convertible debentures
exercisable at 75% of fair market value of the Company's common stock on the
date of conversion. In addition, the Company issued 5,000,000 warrants at an
exercise price of 50% of the fair market value of the Company's stock on the
date of exercise. The Company incurred a fee of $40,000 for the transaction. In
addition, $250,000 of the $750,000 was held in escrow until all requirements
under the agreements were met, to include an effective registration statement,
which the Company was in default on January 1, 2000. Effective January 18, 2000,
the Company completed a settlement with the debenture holders, canceling all
previous agreements in exchange for 1,500,000 shares of the Company's common
stock and $324,750 of 8% convertible debentures exercisable at 50% of the fair
market value of the Company's stock. The debentures were subsequently converted
into 3,392,857 shares. Total cash received, net of the original $40,000 fee, was
$460,000 relating to the transaction. The Company has recorded the transaction
as if the settlement occurred prior to year-end. A charge to interest expense in
the amount of $404,500 has been recorded at December 31, 1999 relating to this
transaction. The convertible debentures of $500,000 and accrued interest of
$419,500 were recorded as equity at June 30, 2000 as a result of the conversion
to common stock.
F-16
<PAGE>
2-INFINITY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
NOTE 12--WARRANTS & OPTIONS
A summary of the status of the Company's warrants as of December 31,1999 and
changes during the period ending December 31, 1999:
<TABLE>
<CAPTION>
AVERAGE
EXERCISE
SHARES PRICE
---------- ------------------
<S> <C> <C>
Outstanding, December 31 1998................ -- $ --
Granted.................................. 14,505,000 0.21
Expired.................................. (3,132,200) (0.18)
Exercised................................ (1,370,300) 0.13
Cancelled (note 9)....................... (5,000,000) 50% of share price
---------- ------------------
Outstanding, December 31, 1999............... 5,002,500 $ 0.25
========== ==================
Exercisable, December 31, 1999............... 5,002,500 $ 0.25
========== ==================
Granted.................................. 10,550,000 0.48
Expired.................................. (994,700) (0.37)
Exercised................................ (1,070,000) 0.14
---------- ------------------
Outstanding, June 30, 2000 (unaudited)....... 13,487,800 $ 0.44
========== ==================
Exercisable, June 30, 2000 (unaudited)....... 13,487,800 $ 0.44
========== ==================
</TABLE>
The Company issued 1,000,000 options to purchase the Company's common stock
in June 1999 at $0.10 per share. The options expired December 31, 1999.
On June 7, 2000, the board of directors approved the "2000 Long-term
Incentive Plan" reserving 30,000,000 shares of common stock for issuance under
the plan. The plan was approved by the Company's shareholders at the annual
shareholder meeting held on August 25, 2000. Under the plan, the board of
directors may grant incentive stock options, options which do not constitute
incentive stock options, stock appreciation rights, restricted stock awards,
performance share awards, stock value equivalent awards, or any combination of
the foregoing to eligible employees and consultants. All incentive stock options
must be granted at a price of not less than the fair market value at the time of
the grant. Total options granted to eligible employees under the plan are
24,960,000, at exercise prices ranging from $.41 to $.48. The weighted average
exercise price of the outstanding options is $.42.
NOTE 13--COMMON STOCK TRANSACTIONS
In 1997, the Company issued approximately 4,500,000 shares for services. In
1999, the Company renegotiated the number of shares since the services had not
been performed as anticipated. The Company received back and canceled
3,846,325 shares.
In January 2000, the Company issued in exchange for prior services an
aggregate of 775,000 shares of common stock to four professionals and
consultants. The aggregate amount of $206,150, representing the fair market
value of the stock on the date of issuance, was expensed in the six months ended
June 30, 2000. In addition, the Company issued 605,000 shares of common stock to
a professional for legal services performed in 1999 and 2000. The total amount
of $160,930, representing
F-17
<PAGE>
2-INFINITY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
NOTE 13--COMMON STOCK TRANSACTIONS (CONTINUED)
the fair market value of the stock on the date of issuance, was expensed half in
1999 and the remainder in the first quarter of 2000.
In the first quarter of 2000, the Company completed a private placement
raising $2,000,000 by offering 20,000,000 shares of the Company's common stock
at $.10 per share. The offering also includes for every two shares purchased, a
warrant to acquire an additional share of common stock at $.50, exercisable for
a period of one year from the date of issuance.
On March 22, 2000, the Company acquired a CLEC license, a contract that
entitles the Company to resell Southwestern Bell Telephone Company products and
services at a 32% discount, for $217,000 and 100,000 shares of common stock. In
August 2000, the Company received approval from the Texas Public Utilities
Commission to transfer the CLEC license to the Company.
In April 2000, the Company sold to accredited investors, 100,000 shares of
common stock valued at $.40 per share. Additionally, the Company issued 200,000
shares to an individual for consulting services valued at $.69 per share,
representing the fair market value of the stock on the date of issuance.
In May 2000, the Company issued 355,000 shares of common stock valued at
$.23 per share for public relations services performed by a services firm. On
May 2, 2000, the Company gave its 30-day notice to terminate the contract in
accordance with the agreement.
In June 2000, the Company sold to accredited investors, 890,000 shares of
common stock valued at $.25 per share.
NOTE 14--SUBSEQUENT EVENTS
On August 14, 2000, the Company signed a financing arrangement with an
investment banker whereby the Company would issue 8% Series A Convertible
Preferred Stock raising a minimum of $1,000,000, and up to $3,000,000. The
preferred stock is convertible into common stock based on a conversion price per
share equal to the lesser of $.50 or a 25% discount to the five-day average
closing bid price at the time of conversion. For each $100,000 invested, the
Company will issue to the preferred stockholder five-year warrants to acquire
20,000 shares of common stock with an exercise price per share equal to the
closing bid price of the common stock on the date of purchase. The Company
agreed to pay a 10% placement fee, five-year warrants to acquire 200,000 shares
of common stock for every $1,000,000 raised in the convertible preferred stock
offering. The Company has agreed to file a registration statement covering the
shares of the common stock underlying the foregoing warrants and convertible
preferred stock. The Company has certain rights to redeem the convertible
preferred stock prior to its conversion. The Company has issued 1,900 shares of
8% Series A Preferred Stock and warrants to acquire 760,000 shares of common
stock.
F-18
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our articles of incorporation authorize our board of directors to do the
following:
- Indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, other than an
action by or in the right of 2-Infinity, by reason of the fact that he is
or was a director, officer, employee or agent of 2-Infinity or is or was
serving at the request of 2-Infinity as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorney's fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in the best interests of
2-Infinity and, with respect to any criminal action or proceedings, had no
reasonable cause to believe his conduct was unlawful. Termination of any
action, suit or proceeding by judgment, order, settlement or conviction or
upon a plea of nolo contendere or its equivalent shall not of itself
create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in the best interests of
2-Infinity and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
- Indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the
right of 2-Infinity to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of
2-Infinity or is or was serving at the request of 2-Infinity as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses, including
attorney's fees, actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good
faith and in a manner he reasonably believed to be in the best interests
of 2-Infinity; but no indemnification shall be made in respect of any
claim, issue or matter as to which such person has been adjudged to be
liable for negligence or misconduct in the performance of his duty to
2-Infinity unless and only to the extent that the court in which such
action or suit was brought determines upon application that, despite the
adjudication of liability, but in view of all circumstances of the case,
such person is fairly and reasonably entitled to indemnification for such
expenses which such court deems proper.
- Indemnify a director, officer, employee or agent of 2-Infinity to the
extent that such person has been successful on the merits in defense of
any action, suit or proceeding or in defense of any claim, issue, or
matter therein, against expenses, including attorney's fees, actually and
reasonably incurred by him in connection therewith.
- Authorize indemnification in a specific case upon a determination that
indemnification of the director, officer, employee or agent is proper
because he has met the applicable standard of conduct. Such determination
shall be made by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or
proceeding, or, if such a quorum is not obtainable or even if obtainable a
quorum of directors so directs, by independent legal counsel in a written
opinion, or by the shareholders.
- Authorize payment of expenses, including attorney's fees, incurred in
defending a civil or criminal action, suit or proceeding in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director, officer, employee or
II-1
<PAGE>
agent to repay such amount unless it is ultimately determined that he is
entitled to be indemnified by 2-Infinity.
- Purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of 2-Infinity or who is or was
serving at the request of 2-Infinity as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him
in any such capacity or arising out of his status as such, whether or not
2-Infinity would have the power to indemnify him against such liability.
The foregoing indemnification shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under our articles of
incorporation, or any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, and any procedure provided for by any of the foregoing,
both as to action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of
heirs, executors and administrators of such a person.
Our bylaws contain similar indemnification and limitation of liability
provisions. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, or persons controlling
2-Infinity pursuant to the foregoing provisions, or otherwise, we are aware
that, in the opinion of the SEC, such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the distribution of the securities being registered. The
expenses shall be paid by the registrant. No expenses will be paid by the
security holders.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 1,391
Printing and Engraving Expenses............................. $10,000
Legal Fees and Expenses..................................... $50,000
Accounting Fees and Expenses................................ $15,000
Blue Sky Fees and Expenses.................................. $ 2,500
Transfer Agent Fees......................................... $ 1,000
Miscellaneous............................................... $ 2,000
-------
Total..................................................... $81,891
=======
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since October 1997, we have issued unregistered securities to various
entities and individuals as described below. For all securities transactions
discussed below, except where otherwise indicated:
-- No underwriter or placement agent was used in connection with any of the
above-referenced securities transactions, and no underwriting commissions
were paid.
-- No means of general solicitation was used in offering the securities.
-- The securities in each transaction were sold to a limited group of
accredited investors in private placement transactions, exempt from
registration under Section 4(2) of the Securities Act.
II-2
<PAGE>
-- All purchasers of the Company's securities were sophisticated investors
who qualified as accredited investors within the meaning of Rule 501(a)
of Regulation D under the Securities Act.
From March 1997 through June 1998, the Company issued an aggregate of
216,100 shares of restricted common stock at a price of $1.00 per share,
resulting in gross proceeds to the Company of $216,100, to the following
investors:
<TABLE>
<CAPTION>
INVESTOR SHARES
-------- --------
<S> <C>
Abraham L. Halpern.......................................... 10,000
Bruce Bullock............................................... 10,500
Bruce Grammar............................................... 1,000
Charles E. Pokorny.......................................... 2,500
Chrespin W. Noches.......................................... 10,000
Dan D. Lamping.............................................. 10,000
Devereaux Jarratt III....................................... 25,000
Diane Greenway.............................................. 5,000
Elbert Waffle............................................... 5,000
Eugene Campeau.............................................. 8,500
Eugene V. Galvan............................................ 23,800
Francis and Peter Klocek.................................... 17,500
Gregg Fesette............................................... 1,500
Jim Clifford................................................ 2,000
Lee C. Cleveland............................................ 20,000
Ray E. Egli................................................. 5,000
Robert Rankin............................................... 1,500
Robert Snowden.............................................. 15,000
Ronnie Boji................................................. 2,500
Thomas and Margaret Ward.................................... 2,500
Tracy Kiker................................................. 1,000
William Kohler.............................................. 23,800
William McKenney............................................ 10,000
William and Guinevere Reed.................................. 2,500
</TABLE>
From May 1997 through January 1999, and once in April 1999, the Company sold
an aggregate of 4,675,200 Units to a total of 41 investors. Each Unit consisted
of one share of restricted common stock, one warrant to acquire one share of
common stock within 12 months from the date of purchase, and one warrant to
acquire one share of common stock within 24 months from the date of purchase.
The prices paid for the Units, as well as the exercise price of the warrants,
varied depending on the market price of the Company's common stock at the time
of each transaction. In the aggregate, the proceeds from this offering were
$371,725. The Units were sold to the following investors:
<TABLE>
<CAPTION>
INVESTOR SHARES
-------- ---------
<S> <C>
Abraham L. Halpern.......................................... 60,000
Cathy J. Henrickson......................................... 20,000
Charles E. Pokorny.......................................... 55,000
Chrespin W. Noches.......................................... 20,000
Corey W. Martin............................................. 50,000
Devereaux Jarratt III....................................... 45,000
Dipak Bhatt................................................. 2,000,000
Donald O. Murray............................................ 100,000
Donna W. Jones.............................................. 10,000
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
INVESTOR SHARES
-------- ---------
<S> <C>
Elbert Waffle............................................... 20,000
Francis Klocek.............................................. 77,000
Francis and Peter Klocek.................................... 100,000
Hancock/Morrison............................................ 750,000
Harvey Bolkema.............................................. 80,000
James P. and Marjorie Hodgson............................... 20,000
James W. Schipper........................................... 10,000
Jamie Benrey................................................ 160,000
Jeffrey and Sally Runner.................................... 400,000
John David Clarke........................................... 10,000
John M. Pirie............................................... 20,000
Joseph Antoci............................................... 10,000
Martin Squillante, Sr....................................... 20,000
Michael and Barbara McGrey.................................. 40,000
Michael and Dana Baker...................................... 100,000
Michael H. and Diane S. Erdman.............................. 95,200
Paul and Dana Lee........................................... 20,000
Peter Klocek................................................ 15,000
Peter Klocek TTEE Dorothy D. Klocek Residuary Trust......... 8,000
Ray E. Elgi................................................. 30,000
Raymond Speeg............................................... 10,000
Robert Snowden.............................................. 40,000
Ron and Pauline Barber...................................... 40,000
Ron Barber.................................................. 10,000
Ronald A. Feaster........................................... 30,000
Ronald Allen Smith.......................................... 25,000
Ronnie Allen Smith and Pamela K. Smith...................... 15,000
Rosemary Weise.............................................. 10,000
Steven L. Fletcher.......................................... 20,000
Thomas P. Murphy............................................ 20,000
Walter J. Weldon............................................ 10,000
William Kohler.............................................. 100,000
</TABLE>
In November 1998, the Company issued an aggregate of 4,528,433 shares of
restricted common stock to five entities in connection with the purchase of two
leasehold interests through Optima Investments, Inc. The shares were issued to
the following:
<TABLE>
<CAPTION>
INVESTOR SHARES
-------- ----------
<S> <C>
Jorda America............................................... 1,800,000
SunShine Investments........................................ 682,109
Terra Group................................................. 682,108
Vigilant Investments........................................ 682,108
Pardo Investors............................................. 682,108
</TABLE>
In June 1999, pursuant to a settlement agreement with Optima, 3,846,325 shares
of common stock were returned and cancelled.
In November 1998 the Company issued an aggregate of 400,000 shares of
restricted common stock to David D. Tettleton (100,000) and Tiger Petroleum
(300,000) for services rendered in connection with the Optima transaction.
II-4
<PAGE>
In February 1999, the Company issued an aggregate of 1,000,000 shares of
restricted common stock to Cactus Petroleum, Inc., an entity controlled by John
B. Hayes, a former director of the Company. These shares were issued as
consideration for services provided in connection with the leasehold interests
purchased from Optima Investments, Inc. in November 1998. Mr. Hayes assisted in
the identification, negotiation, and closing of the transaction with Optima.
In March 1999, the Company issued an aggregate of 18,520 shares of common
stock to MRC Legal Services Corporation (16,668 shares) and Brian Lebrecht, Esq.
(1,852 shares), in exchange for legal services rendered.
In March 1999, the Company sold $10,000 aggregate principal amount of
convertible debentures to Southwest Securities. The debentures were convertible
into shares of common stock of the Company at the discretion of the holder. The
debentures were converted into an aggregate of 100,000 shares of common stock.
In March and April 1999, the Company issued an aggregate of 160,000 shares
of common stock to PMR & Associates, an entity providing public relations
services to the Company, in exchange for services rendered.
In March 1999, the Company sold an aggregate principal amount of $550,000 of
convertible debentures to the following three individuals located outside the
United States under Rule 504 of Regulation D:
<TABLE>
<CAPTION>
INVESTOR SHARES CONVERSION PRICE RANGE
-------- --------- ----------------------
<S> <C> <C>
Y. L. Hirsch.................................. 3,062,609 $0.05-$0.10
Amram Rothman................................. 2,739,842 $0.05-$0.10
Joshua Heimlich............................... 1,883,130 $0.05-$0.10
</TABLE>
The debentures were convertible into shares of the Company= common stock at
the discretion of the holders. All of the debentures were converted into an
aggregate of 7,685,581 shares of common stock.
In April 1999, the Company issued 1,676,429 and 1,229,643 shares of common
stock to Robert Kent Honeyman and Howard Wilson, respectively, in exchange for
deferred compensation due to them under verbal employment agreements with the
Company.
In June 1999, the Company issued an aggregate of 3,000,000 shares of
restricted common stock at $0.38 per share to Majed M. Jalali, the sole
shareholder of 2-Infinity.com, Inc., a Texas corporation, pursuant to an
acquisition agreement between the Company and Mr. Jalali.
In June through November 1999, the Company issued an aggregate of 365,000
shares of restricted common stock as follows:
<TABLE>
<CAPTION>
INVESTOR SHARES PRICE PER SHARE
-------- --------- ---------------
<S> <C> <C>
Jaime Benrey........................................ 160,000 $0.12
Abraham Halpern..................................... 30,000 $0.30
Donald Murray....................................... 100,000 $0.30
William Kohler...................................... 20,000 $0.30
Douglas Chadwick.................................... 10,000 $0.10
Chesprin Noches..................................... 5,000 $0.30
Michael McGrey...................................... 40,000 $0.12
</TABLE>
The shareholders exercised warrants acquired in a previous unit offering. As a
result of the exercise, the Company received $79,700.
II-5
<PAGE>
In June 1999, the Company issued an aggregate of 3,000,000 shares of
restricted common stock at $0.32 per share to Patrick Cody Morgan, Charles H.
Downey, Jr. and Candus Morgan in connection with the acquisition of Voice
Design, Inc., a Texas corporation.
In July 1999, the Company sold an aggregate principal amount of $74,000 of
convertible debentures to HLKT Holdings, LLC, a Colorado limited liability
company. The debentures were ultimately converted into an aggregate of 793,966
shares of common stock of the Company.
In July 1999, the Company issued 300,000 shares of common stock to John B.
Hayes in exchange for deferred compensation owed to him under a verbal
employment arrangement with the Company.
In July 1999, the Company issued an aggregate of 495,385 shares of
restricted common stock to Brent Cavazos, litigation counsel to the Company, in
exchange for services rendered.
In July 1999, the Company issued an aggregate of 75,000 shares of restricted
common stock to MRC Legal Services Corporation for legal services rendered.
In August 1999, the Company sold an aggregate principal amount of $23,500 of
convertible debentures to HLKT Holdings, LLC. The debentures were ultimately
converted into an aggregate of 391,250 shares of common stock of the Company.
In August 1999, the Company issued an aggregate principal amount of $750,000
of 8% convertible debentures exercisable at 75% of the fair market value of the
Company's common stock on the date of conversion. In addition, the Company
issued 5,000,000 warrants at an exercise price of 50% of the fair market value
of the Company's stock on the date of exercise. In addition, $250,000 of the
$750,000 of proceeds was held in escrow until all covenants under the
subscription agreements were met, including an effective registration statement
for the resale of the shares, which the Company did not fulfill. Effective
January 18, 2000, the Company completed a settlement with the debenture holders,
canceling all previous agreements in exchange for 1,500,000 shares of the
Company's common stock and $324,750 of 8% convertible debentures exercisable at
50% of the fair market value of the Company's stock on the date of conversion.
The debentures were subsequently converted into 3,392,857 shares of common
stock. The Company received total proceeds of $500,000 relating to the
transaction. The shares were issued to the following investors:
<TABLE>
<CAPTION>
INVESTOR SHARES PRICE PER SHARE
-------- --------- ---------------
<S> <C> <C>
HLKT Holdings, LLC.................................. 500,000 0$.17
HLKT Holdings, LLC.................................. 1,328,571 0$.081
DVH Holdings, LLC................................... 500,000 0$.17
DVH Holdings, LLC................................... 1,033,334 0$.105
M&B Trading......................................... 500,000 0$.17
M&B Trading......................................... 1,030,952 0$.105
</TABLE>
In August 1999, the Company issued an aggregate of 1,715,000 shares of
restricted common stock in the name of Jacob International, Inc., pursuant to a
public relations agreement. At the time of the transaction, no dollar value was
assigned to the issuance. Of the shares issued, 428,000 were delivered, and the
balance were held in escrow to be delivered when the closing bid price of the
Company's common stock reaches certain milestones. In November 1999, pursuant to
a cancellation of the contract with Jacob, all of the shares were returned to
the Company's counsel for retirement.
In September 1999, the Company issued an aggregate of 400,000 shares of
restricted common stock to MRC Legal Services Corporation (300,000 shares) and
Brian Lebrecht, Esq. (100,000 Shares) for legal services rendered.
II-6
<PAGE>
In September 1999, the Company issued 1,500,000 shares of restricted common
stock at $0.14 per share to Mathew Hensley for $210,000. Mr. Hensley also
received warrants to acquire 500,000 shares of common stock at $0.28 per share,
exercisable until September 28, 2001.
In January 2000, the Company issued 925,300 shares of common stock upon
exercise of outstanding warrants as follows:
<TABLE>
<CAPTION>
INVESTOR SHARES PRICE PER SHARE
-------- --------- ---------------
<S> <C> <C>
Joseph Antoci....................................... 10,000 $0.10
Harvey Bolkema...................................... 22,800 $0.10
Ray E. Egli......................................... 30,000 $0.10
Walter Weldon....................................... 10,000 $0.10
John David Clarke................................... 10,000 $0.10
Douglas S. Chadwick................................. 10,000 $0.10
Steve Fletcher...................................... 20,000 $0.10
Ron and Pauline Barber.............................. 50,000 $0.10
Steve D. Morrison................................... 125,000 $0.10
Michael Hancock..................................... 125,000 $0.10
Michael & Diana Erdman.............................. 92,500 $0.10
Jeffrey A. Runner................................... 400,000 $0.10
James Hodgson....................................... 20,000 $0.10
</TABLE>
In January 2000, the Company issued 2,200,000 shares of common stock to
former shareholders of AGM, Inc. to acquire all of the outstanding shares of
AGM, Inc., a Nevada corporation, a reporting public company with no operations.
In connection with this transaction, the Company also issued 1,500,000 shares of
stock to MRC Legal Services Corporation, as a result of their assistance in the
negotiation and completion of the transaction. The Company also issued 200,000
additional shares to MRC Legal Services Corporation for past legal services.
In January and February 2000, the Company mutually separated from three
officers and directors, its CEO, CFO and the President of Lakota Oil. As part of
the separation agreements and compensation for past services, the Company issued
4,000,000 shares of common stock to Ken Honeyman, former CEO, and 2,000,000
shares of common stock to Howard Wilson, former CFO. An additional 2,000,000
shares held in escrow subject to a payment to each party for $100,000. The
payments were made in March 2000 and the shares were canceled. In addition, the
Company issued 3,500,000 shares of common stock to John B. Hayes, former
President of Lakota Oil.
In January 2000, the Company issued Daniel Siefer 750,000 shares of common
stock at a purchase price of $0.067 per share, together with a warrant to
purchase 500,000 shares of common stock at a purchase price of $0.125 per share
for a period of one year.
In January 2000, the Company issued an aggregate of 1,380,000 shares of
common stock for services provided to the Company as follows:
<TABLE>
<CAPTION>
INVESTOR SHARES
-------- --------
<S> <C>
Michael Omer................................................ 475,000
Brent Cavazos............................................... 605,000
Pat Morgan.................................................. 100,000
Vencent Jalali.............................................. 100,000
Al Cooper................................................... 100,000
</TABLE>
II-7
<PAGE>
In April 2000, the Company issued the following individuals an aggregate of
100,000 shares of common stock at a purchase price of $0.40 per share, together
with warrants to purchase 50,000 shares of common stock at a purchase price of
$0.80 per share for a period of one year:
<TABLE>
<CAPTION>
INVESTOR SHARES
-------- --------
<S> <C>
Forrest E. Singletary....................................... 50,000
Billy J. Sonier............................................. 25,000
John R. Weaver.............................................. 25,000
</TABLE>
In May 2000, the Company issued an aggregate of 555,000 shares of common
stock for services provided to the Company as follows:
<TABLE>
<CAPTION>
INVESTOR SHARES
-------- --------
<S> <C>
David Bodie................................................. 200,000
Merger Communications....................................... 355,000
</TABLE>
In May 2000, the Company issued 100,000 shares of common stock to Mohammed
Afaneh as partial consideration for the CLEC license purchased by the Company.
In May 2000, the Company issued 4,240,000 shares of common stock to
employees, officers and directors of the Company that were cancelled in
August 2000:
<TABLE>
<CAPTION>
INVESTOR SHARES PRICE PER SHARE
-------- --------- ---------------
<S> <C> <C>
Majed Jalali........................................ 1,500,000 $1.15
Cody Morgan......................................... 1,500,000 $1.15
Jason Miller........................................ 400,000 $1.15
Charlie Downey...................................... 400,000 $1.15
Kelly Nispel........................................ 100,000 $1.15
Ahmed Alumran....................................... 100,000 $1.15
Andrea Gonzales..................................... 50,000 $1.15
Sherri Mercer....................................... 50,000 $1.15
Candus Morgan....................................... 50,000 $1.15
Nick Escobedo....................................... 30,000 $1.15
David Marron........................................ 30,000 $1.15
Mike Virata......................................... 30,000 $1.15
</TABLE>
In June 2000, the Company issued 900,000 shares of common stock, of which
200,000 shares are held in escrow, to the following shareholders of Maximum
Return & Development, Inc., in connection with the acquisition of all of the
outstanding shares of the capital stock of Maximum Return:
<TABLE>
<CAPTION>
ISSUED ESCROWED
PERSON SHARES SHARES
------ -------- --------
<S> <C> <C>
Alex Gonzalez............................................. 280,000 80,000
Grant Schanbacher......................................... 140,000 40,000
Laurie Schanbacher........................................ 140,000 40,000
Kevin Dwyer............................................... 70,000 20,000
Steve Holcomb............................................. 7,000 2,000
Ron Marosko............................................... 56,000 16,000
Firas Kadhum.............................................. 7,000 2,000
</TABLE>
II-8
<PAGE>
In June 2000, the Company issued an aggregate of 890,000 shares of common
stock at a purchase price of $0.25 per share to the following individuals:
<TABLE>
<CAPTION>
PERSON SHARES
------ --------
<S> <C>
Ahmed Al-Jumairi............................................ 400,000
Joseph Arrante.............................................. 54,000
Gerald and Dorothy Fancett.................................. 100,000
Mark A. Hurd................................................ 210,000
James Jr. Hurd.............................................. 60,000
Francis Roger McCann........................................ 16,000
Jack and Jacqueline Nispel.................................. 10,000
William L. Price............................................ 20,000
Thomas M. Sottile........................................... 10,000
David Withington............................................ 10,000
</TABLE>
In the first six months of 2000, the Company completed a private placement
raising $2,000,000 by offering 20,000,000 shares of the Company's common stock
at $0.10 per share. The offering was exempt from registration provided by
section 4(2) and/or 3(b) of the 1933 Act, and Rule 506 under Regulation D. The
offering also includes, for every two shares purchased, a warrant to acquire an
additional share of common stock at $0.50, exercisable for a period of one year
from the date of issuance. The Company paid an aggregate of $48,000 in sales
commissions as follows: $8,000 to Mike Kelly and $40,000 to Rick Methaney. The
shares of common stock were issued to the following investors:
<TABLE>
<CAPTION>
ACCREDITED INVESTORS SHARES
-------------------- ---------
<S> <C>
Kevin McCormack............................................. 1,313,000
Mustafa Jalali.............................................. 2,251,000
Michael S. Webb............................................. 35,000
Yahya AG Solara............................................. 100,000
Jennifer Longbotham......................................... 80,000
Dipak N. Bhatt.............................................. 1,300,000
Milton Smith................................................ 350,000
F. Thomas Siskron........................................... 65,000
Leo Paul Black.............................................. 65,000
Fremont Binder.............................................. 700,000
J. Michael Jaynes........................................... 50,000
Manzoor Hasan............................................... 300,000
Robert K. Gibbs............................................. 1,000,000
Patrizia Gentile............................................ 250,000
Dorothy Fancett............................................. 50,000
Naila Elkassas.............................................. 50,000
Hazem F. Elkassas........................................... 50,000
Danny Duzich................................................ 300,000
David Drake................................................. 40,000
Mark Dodd................................................... 100,000
Sharon Boone................................................ 100,000
Narmadashaker Bhatt......................................... 500,000
Ahmad B Ben-Naji............................................ 20,000
Jeff Austin III............................................. 250,000
Ali Alsaad.................................................. 215,000
Zubair A. Alqadi............................................ 100,000
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
ACCREDITED INVESTORS SHARES
-------------------- ---------
<S> <C>
Billy Scott................................................. 150,000
Thomas Schoeve.............................................. 500,000
Ken Samford................................................. 150,000
Duane Carl Radtke........................................... 75,000
Walter Putnam............................................... 300,000
Daryll Parrott.............................................. 20,000
Scott Nash.................................................. 250,000
Lori Nash................................................... 100,000
Mohammad Naseem............................................. 50,000
Jim McCanna................................................. 100,000
Thomas Marano............................................... 50,000
Strother Timberlands........................................ 100,000
Lee Magness................................................. 150,000
Howard Loyd III............................................. 150,000
Linda M. Long............................................... 100,000
Richard Lewins.............................................. 90,000
Stephen Kerns............................................... 100,000
David Jolly................................................. 50,000
John Goodman................................................ 20,000
Robert Sanz................................................. 200,000
Matthew Hensley............................................. 1,000,000
Brian Brinkman.............................................. 200,000
Nazar Jamsheer.............................................. 55,000
Mohamed Jamsheer............................................ 110,000
Laura Landry................................................ 100,000
Jack Wilson................................................. 20,000
Yousef Yousri............................................... 50,000
Raymond Landry.............................................. 100,000
David Michael Ballard....................................... 150,000
Ahmed Altwaijri............................................. 60,000
Diane Duzich................................................ 1,300,000
Eugene Lindsey.............................................. 100,000
Glen Terrell................................................ 12,000
Jukka Tolonen............................................... 200,000
Jack Walker................................................. 100,000
AndreVan Walleghem.......................................... 50,000
Scott Smith................................................. 250,000
Todd Smith.................................................. 60,000
Salman Alhasan.............................................. 20,000
Mohammed Y. Aldoseri........................................ 60,000
Robert D. Patman............................................ 10,000
Douglas Robertson........................................... 50,000
Steven Clark................................................ 50,000
Daniel Railey............................................... 50,000
Virgil McCall............................................... 50,000
James Rountree.............................................. 300,000
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
UNACCREDITED INVESTORS SHARES
---------------------- ---------
<S> <C>
Paul D. Pendergraft......................................... 50,000
Michael A. Kelly............................................ 70,000
Mitchell A. Weigand......................................... 100,000
Sohail Alam................................................. 100,000
Jill N. Boullion............................................ 100,000
David Michael Sanders....................................... 12,000
Dan J. Pulaski.............................................. 10,000
Norma L. Mills.............................................. 10,000
Paul J. Kolisch............................................. 60,000
Matthew B. Kock............................................. 50,000
Christine L. Hsing.......................................... 100,000
Abe Hakim................................................... 50,000
George A. Dearing III....................................... 50,000
Richard Cash Cooper......................................... 200,000
Daren H. Collymore.......................................... 170,000
Manaf Mannai................................................ 40,000
Dewayne L. Weatherford...................................... 50,000
Vernita J. Gonzales......................................... 1,000
Roy Shultz.................................................. 15,000
Cheryl A. Mik............................................... 30,000
Jason Jobst................................................. 1,000
Christopher V. Bures........................................ 885,000
Byron B. Jones.............................................. 120,000
Charles K. Ward............................................. 120,000
Sharon Garrett.............................................. 300,000
Virgilio T. Virata.......................................... 40,000
Mark Alfred Siebert......................................... 30,000
Khalid Nabi................................................. 40,000
Jason McCall................................................ 110,000
Otis Carlisle, Jr........................................... 50,000
Lynn Laha................................................... 30,000
John M. Butler.............................................. 30,000
Juan Valdez................................................. 100,000
Patrick Segosebe............................................ 30,000
</TABLE>
In June and July 2000, the Company issued an aggregate of 1,360,000 shares
of common stock at a purchase price of $0.25 per share to the following
individuals:
<TABLE>
<CAPTION>
PERSON SHARES
------ --------
<S> <C>
Bichmai Nguyen.............................................. 400,000
Richard Roth................................................ 20,000
Clayton Rawlings............................................ 40,000
Robert K. Gibbs............................................. 800,000
Russell W. Jackson.......................................... 100,000
</TABLE>
In August and September 2000, the Company issued Cache Capital "USA" LP an
aggregate of 1,900 shares of Series A Preferred Stock at a purchase price of
$1,000 per share, together with warrants to purchase up to 380,000 shares of
common stock, at an average exercise price of $0.31, for a period of five years.
In connection with the sale of the Series A Preferred Stock to Cache Capital
"USA" LP, the Company issued J.P. Carey Securities, Inc. warrants to purchase up
to 380,000 shares of common stock, at an average exercise price of $0.31, for a
period of five years.
II-11
<PAGE>
ITEM 27. EXHIBITS
The following exhibits are filed as part of this registration statement:
<TABLE>
<CAPTION>
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
--------------------- ------------------------------------------------------------
<C> <S>
2.1* Agreement and Plan of Reorganization dated November 6, 1996
between Lakota Energy, Inc. and Chancellor Trading Group,
Inc. (incorporated herein by reference to Exhibit 2.1 of the
Company's Registration Statement on Form SB-2 (File No.
333-88575) filed with the Commission on October 7, 1999 (the
"Company's October 1999 SB-2")).
2.2* Reorganization and Stock Purchase Agreement dated May 28,
1999 between Lakota Energy, Inc., 2-Infinity.com, Inc., a
Texas corporation, and Majed Jalali (incorporated herein by
reference to Exhibit 2.2 of the Company's October 1999
SB-2).
2.3* Reorganization and Stock Purchase Agreement dated June 8,
1999 between Lakota Energy, Inc. and Voice Design, Inc. and
its shareholders (incorporated herein by reference to
Exhibit 2.3 of the Company's October 1999 SB-2).
2.4* Stock Transfer Agreement dated June 14, 1999 between Lakota
Energy, Inc. and Lakota Oil and Gas, Inc (incorporated
herein by reference to Exhibit 2.4 of the Company's October
1999 SB-2).
2.5* Exchange Agreement between Lakota Technologies, Inc. and
certain AGM shareholders dated as of January 18, 2000
(incorporated herein by reference to the Company's Current
Report on Form 8-K filed with the Commission on January 18,
2000).
2.6* Agreement and Plan of Merger of 2-Infinity.com, Inc., a
Texas corporation, and AirNexus, Inc., a Texas Corporation,
dated January 27, 2000 (incorporated herein by reference to
Exhibit 1.1 of the Company's Current Report on Form 8-K
filed with the Commission on February 8, 2000).
2.7 Stock Purchase Agreement dated as of April 1, 2000 between
2-Infinity.com, Inc. and the Shareholders of Maximum Return
& Development, Inc., a Pennsylvania corporation.
3.1* Articles of Incorporation of Chancellor Trading Group, Inc.
filed July 14, 1995 (incorporated herein by reference to
Exhibit 3.1 of the Company's October 1999 SB-2).
3.2* Articles of Merger between Lakota Energy, Inc. and
Chancellor Trading Group, Inc. filed December 27, 1996
(incorporated herein by reference to Exhibit 3.2 of the
Company's October 1999 SB-2).
3.3* Articles of Amendment to the Articles of Incorporation of
Lakota Energy, Inc. filed August 4, 1999 (incorporated
herein by reference to Exhibit 3.3 of the Company's October
1999 SB-2).
3.4* Articles of Amendment to the Articles of Incorporation of
Lakota Technologies, Inc. filed May 8, 2000 (incorporated
herein by reference to Exhibit 3.5 of the Company's
Quarterly Report on Form 10-QSB for the quarter ended March
31, 2000).
3.5 Articles of Amendment to the Articles of Incorporation of
2-Infinity.com, Inc. filed August 17, 2000.
3.6 Articles of Amendment to the Articles of Incorporation of
2-Infinity.com, Inc. filed August 31, 2000.
3.7* Bylaws, as amended (incorporated herein by reference to
Exhibit 3.4 of the Company's October 1999 SB-2).
4.1 Text of Common Stock Certificate
4.2 Text of Series A Preferred Stock Certificate
5** Opinion regarding legality.
</TABLE>
II-12
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
--------------------- ------------------------------------------------------------
<C> <S>
10.1 Office Space Lease dated June 16, 1999 between W9/LWS II
Real Estate Limited Partnership, a Delaware limited
partnership, and 2-Infinity.com,, Inc., a Texas corporation,
for the premises located at 4828 Loop Central Drive, Suite
150, Houston, Texas 77081.
10.2 License Agreement dated July 14, 1999 between W9/LWS II Real
Estate Limited Partnership, a Delaware limited partnership,
and 2-Infinity.com,, Inc., a Texas corporation, related to
the installation of a satellite dish.
10.3 First Amendment to Lease dated September 27, 1999 between
W9/LWS II Real Estate Limited Partnership, a Delaware
limited partnership, and 2-Infinity.com,, Inc., a Texas
corporation.
10.4 Second Amendment to Lease dated March 29, 2000 between
W9/LWS II Real Estate Limited Partnership, a Delaware
limited partnership, and 2-Infinity.com,, Inc., a Texas
corporation.
10.5 Lease Agreement dated July 12, 1999 between Harvard Property
(333 Sam Houston) L.P. and AirNexus, Inc., a Texas
corporation, for the premises located at 333 N. Sam Houston
Parkway E., Suite 820, Houston, Texas 77060.
10.6 Sublease dated May 5, 2000 between 2-Infinity.com, Inc. and
LynkTel, Inc., for the premises located at 333 N. Sam
Houston Parkway E., Suite 820, Houston, Texas 77060.
10.7* Lease Agreement dated December 17, 1996 between Lakota
Energy, Inc. and Cigna Real Estate Fund T, Limited
Partnership, for the premises located at 2849 Paces Ferry
Road, Suite 710, Atlanta, Georgia, 30339 (incorporated
herein by reference to Exhibit 10.4 of the Company's October
1999 SB-2).
10.8 First Amendment to Lease Agreement dated January 19, 2000
between The Realty Associates Fund IV, L.P., a Delaware
limited partnership, and Lakota Technologies, Inc., for the
premises located at 2849 Paces Ferry Road, Suite 710,
Atlanta, Georgia, 30339.
10.9* Oil and Gas Lease dated October 23, 1995 for the Bernard
project (incorporated herein by reference to Exhibit 10.1 of
the Company's October 1999 SB-2).
10.10* Assignment of Oil, Gas and Mineral Lease dated March 15,
1996 for the Bernard project (incorporated herein by
reference to Exhibit 10.2 of the Company's October 1999
SB-2).
10.11* Oil Gas and Mineral Lease dated April 26, 1996 for the Glass
Mountain project (incorporated herein by reference to
Exhibit 10.3 of the Company's October 1999 SB-2).
10.12* Employment Agreement between 2-Infinity.com, Inc. and Majed
Jalali, effective June 1, 1999 (incorporated herein by
reference to Exhibit 10.5 of the Company's October 1999
SB-2).
10.13* Letter Agreement and Amendment to Employment Agreement dated
as of March 1, 2000 between Lakota Technologies, Inc. and
Majed Jalali (incorporated herein by reference to Exhibit
10.13 of the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1999 (the "Company's 1999 10-KSB").
10.14* Employment Agreement between Voice Design, Inc. and Patrick
Cody Morgan effective June 14, 1999 (incorporated herein by
reference to Exhibit 10.7 of the Company's October 1999
SB-2).
10.15* Letter Agreement and Amendment to Employment Agreement dated
as of March 1, 2000 between Lakota Technologies, Inc. and
Patrick Cody Morgan (incorporated herein by reference to
Exhibit 10.14 of the Company's 1999 10-KSB).
10.16* Agreement and General Mutual Release dated January 6, 2000
for Ken Honeyman (incorporated herein by reference to
Exhibit 10.1 of the Company's Registration Statement
</TABLE>
II-13
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
--------------------- ------------------------------------------------------------
<C> <S>
on Form S-8 (File No. 333-38304) filed with the Commission
on June 1, 2000 (the "Company's June 2000 S-8")).
10.17* Addendum to Agreement and General Mutual Release and Escrow
Agreement for Ken Honeyman dated January 20, 2000
(incorporated herein by reference to Exhibit 10.2 to the
Company's June 2000 S-8).
10.18* Agreement and General Mutual Release dated January 6, 2000
for Howard Wilson (incorporated herein by reference to
Exhibit 10.3 to the Company's June 2000 S-8).
10.19* Addendum to Agreement and General Mutual Release and Escrow
Agreement for Howard Wilson dated January 20, 2000
(incorporated herein by reference to Exhibit 10.4 to the
Company's June 2000 S-8).
10.20* Escrow Agreement dated January 6, 2000 (incorporated herein
by reference to Exhibit 10.5 to the Company's June 2000
S-8).
10.21* Agreement and General Mutual Release dated February 3, 2000
for John B. Hayes. (incorporated herein by reference to
Exhibit 10.6 to the Company's June 2000 S-8).
10.22* Tut Systems, Inc. Value Added Reseller Agreement dated May
20, 1999 (incorporated herein by reference to Exhibit 10.43
of the Company's October 1999 SB-2).
10.23* Voice Solutions Reseller Agreement dated as of November 23,
1999, between 3Com Corporation and Air Nexus, Inc.
(incorporated herein by reference to Exhibit 10.56 of the
Company's October 1999 SB-2).
10.24* Agreement for the Purchase and Sale of Assets dated as of
March 22, 2000, between 2-Infinity.com, Inc. and Afaneh,
Inc. (incorporated herein by reference to Exhibit 10.16 of
the Company's 1999 10-KSB).
10.25* Warrant executed in favor of Dipak Bhatt to purchase
1,250,000 shares of common stock, expiring November 30, 2000
(incorporated herein by reference to Exhibit 10.45 of the
Company's October 1999 SB-2).
10.26* Warrant executed in favor of Dipak Bhatt to purchase 750,000
shares of common stock, expiring December 22, 2000
(incorporated herein by reference to Exhibit 10.47 of the
Company's October 1999 SB-2).
10.27* Warrant executed in favor of Michael A. Hancock and Steven
D. Morrison to purchase 500,000 shares of common stock,
expiring December 10, 2000 (incorporated herein by reference
to Exhibit 10.49 of the Company's October 1999 SB-2).
10.28* Warrant executed in favor of Michael A. Hancock and Steven
D. Morrison to purchase 250,000 shares of common stock,
expiring December 17, 2000 (incorporated herein by reference
to Exhibit 10.51 of the Company's October 1999 SB-2).
10.29* Stock Purchase Agreement dated September 28, 1999 by and
between the Company and Matt Hensley (incorporated herein by
reference to Exhibit 10.52 of the Company's October 1999
SB-2).
10.30* Warrant dated September 28, 1999 by and between the Company
and Matt Hensley (incorporated herein by reference to
Exhibit 10.53 of the Company's October 1999 SB-2).
10.31 Warrant executed in favor of H.L. Bolkema to purchase 22,800
shares of common stock, expiring February 2, 2001.
10.32 Form of one-year Warrant, exercisable at $0.50 per share of
common stock, issued to investors in the Company's
$2,000,000 private placement during the first six months of
2000.
</TABLE>
II-14
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
--------------------- ------------------------------------------------------------
<C> <S>
10.33 Warrant executed in favor of Billy Sonnier to purchase
12,500 shares of common stock, expiring April 24, 2001.
10.34 Warrant executed in favor of John R. Weaver to purchase
12,500 shares of common stock, expiring April 24, 2001.
10.35 Warrant exercised in favor of Forrest E. Singletary to
purchase 25,000 shares of common stock, expiring April 24,
2001.
10.36* 2000 Long-Term Incentive Plan (incorporated herein by
reference to Appendix A to the Company's Proxy Statement on
Schedule 14A filed with the Commission on July 11, 2000.
10.37 Form of Securities Purchase Agreement entered into between
Cache Capital "USA" LP and 2-Infinity.com, Inc. related to
the sale of the Series A Preferred Stock.
10.38 Form of Registration Rights Agreement entered into between
Cache Capital "USA" LP and 2-Infinity.com, Inc. related to
the sale of the Series A Preferred Stock.
10.39 Placement Agency Agreement dated as of August 14, 2000
between J.P. Carey Securities, Inc. and 2-Infinity.com, Inc.
related to the sale of the Series A Preferred Stock.
10.40 Escrow Agreement dated as of August 11, 2000 between The
Bank of New York, J.P. Carey Securities, Inc. and
2-Infinity.com, Inc. related to the sale of the Series A
Preferred Stock.
10.41 Form of Warrant executed in favor of Cache Capital "USA" LP
relating to the sale of the Series A Preferred Stock.
10.42 Form of Warrant executed in favor of J.P. Carey Securities,
Inc. relating to the sale of the Series A Preferred Stock.
10.43 Notice of Approval of Transfer of CLEC License
16 Letter on change in certifying accountants.
21 Subsidiaries of 2-Infinity, Inc.
23.1 Consent of Counsel (included in Exhibit 5).
23.2 Consent of HJ & Associates, L.L.C., CPA.
27.1 Financial Data Schedule (June 30, 2000).
27.2 Financial Data Schedule (December 31, 1999).
</TABLE>
------------------------
* Incorporated herein as indicated.
** To be filed by amendment.
ITEM 28. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required in Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
II-15
<PAGE>
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
(4) That for purposes of determining any liability under the Securities Act,
(i) the information omitted from the prospectus filed as part of this
registration statement, as permitted by Rule 430A of the Securities Act
and to be contained in the form of prospectus to be filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act, shall be deemed to be incorporated by reference into this
registration statement at the time it is declared effective, and
(ii) each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on the registration statement on Form SB-2 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Houston,
Texas, on the 13th day of October, 2000.
<TABLE>
<S> <C> <C>
2-INFINITY, INC.
By: /s/ MAJED M. JALALI
-----------------------------------------
Majed M. Jalali, Chairman of the Board,
Chief Executive Officer and President
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MAJED M. JALALI Chairman of the Board,
------------------------------------------- Chief Executive Officer and October 13, 2000
Majed M. Jalali President
/s/ PATRICK CODY MORGAN
------------------------------------------- Director October 13, 2000
Patrick Cody Morgan
Chief Financial Officer,
/s/ KELLY E. NISPEL Treasurer and Director
------------------------------------------- (Principal Financial and October 13, 2000
Kelly E. Nispel Accounting Officer)
/s/ SCOTT E. SMITH
------------------------------------------- Director October 13, 2000
Scott E. Smith
/s/ MICHAEL L. OMER
------------------------------------------- Director October 13, 2000
Michael L. Omer
</TABLE>
II-17
