<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
---------------------
Amendment No. 1
Form SB-2
Registration Statement Under The Securities Act of 1933
---------------------
Innofone.com, Incorporated
(Name of Small Business Issuer in its Charter)
Nevada 4813 98-020313
- ------------------------------ ---------------------------- -------------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
---------------------
241 Applewood Crescent, Suite 4
Vaughan, Ontario
Canada
(416) 207-0046
(Address and Telephone Number of Principal Executive Offices
and Principal Place of Business )
---------------------
Larry Hunt
President and Chief Executive Officer
241 Applewood Crescent, Suite 4
Vaughan, Ontario
Canada
(416) 207-0046
(Name, Address, and Telephone number of Agent for Service)
Copies to:
James Berns, Esq.
Berns & Berns
One Rockefeller Plaza
Suite 210
New York, New York 10020
<PAGE>
Approximate date of Proposed Sale to the Public: From time to time after the
effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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 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, please 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 of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
---------------------
Calculation of Registration Fee
<TABLE>
<CAPTION>
TITLE OF
EACH CLASS
OF PROPOSED
SECURITIES MAXIMUM PROPOSED
OFFERING TO DOLLAR OFFERING PRICE MAXIMUM AMOUNT OF
BE AMOUNT TO BE PER SHARE OF AGGREGATE REGISTRATION
REGISTERED REGISTERED COMMON STOCK OFFERING PRICE FEE
- ----------- ---------- ------------ -------------- ---
<S> <C> <C> <C> <C>
COMMON $944,300 $0.40 $3,023,300 $910
</TABLE>
<PAGE>
STOCK, PAR $ 2,079,000 $0.80
VALUE $.001
PER SHARE
---------------------
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 or dates as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
Disclosure alternative used (check one): Alternative 1
Alternative 2 [X]
================================================================================
<PAGE>
Innofone.com, Incorporated
Common Stock
4,959,500 shares
This prospectus is being used in connection with the offer and sale,
from time to time, by stockholders of up to 4,959,500 shares of our common
stock. We will receive no funds from any of these sales. The selling
stockholders may sell their common stock either directly to purchasers or
through brokers, dealers or agents. Our common stock is not traded on any
securities exchange or the NASD OTC Bulletin Board and there is only a very
limited trading market in our common stock on the over-the-counter market in the
United States. Investment in our common stock involves substantial risks. See
"Risk Factors" beginning on page 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The information in this prospectus is not complete and may be changed.
The securities covered by this registration statement may not be sold until the
registration statement covering the common stock is declared effective by the
Securities and Exchange Commission. This prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in
any state or foreign jurisdiction where the offer or sale is not permitted.
The date of this prospectus is May 24, 2000.
1
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
RISK FACTORS......................................................................................................5
General ................................................................................................5
There is the risk that we may not have sufficient funds to develop our business
and pay off loans which are due this year. If we are unable to generate
profits from operations or raise money from outside sources, we will be
unable to remain in business...........................................................5
It is very likely that we will sell additional common stock or other securities
which are exchangeable for, or convertible into, common stock, and
investors must be prepared to accept the risk that their investment in
our common stock will be diluted.......................................................6
There is the risk that our business will suffer if there are problems with the
telephone and internet infrastructure..................................................6
There is the risk that, because we are a development stage company with limited
financial and marketing resources which competes against huge
multinational telecommunications companies and others, we may be unable
to market our services and capture a meaningful portion of the market..................6
There is the risk that our operations and planned internet-based service offerings
in the future could be hurt by new laws and regulations................................7
There is the risk that the existing control of Innofone by our management could
result in management blocking another person from trying to buy all of
our outstanding common stock from shareholders, possibly depriving the
shareholders of a premium to the then current market price of the common
stock..................................................................................7
Management's right to receive additional common stock from the conversion of
preferred stock may conflict with the company, resulting in the risk that
we could pursue a business strategy which may not be desirable........................7
4,959,500 shares of common stock or 20 % of the outstanding common stock is
restricted from resale but may be sold into the market soon. This could
cause the market for our common stock to drop, even if our business is
doing well.............................................................................8
There is the risk that our business will be harmed if our outside contractors and
independent sales representatives don't perform as expected............................8
Our agreement with Rogers Wireless Inc. imposes substantial conditions on us
which we may not be able to satisfy, causing us to make substantial
payments to Rogers.....................................................................9
The penny stock rules could adversely affect liquidity of common stock..........................9
Enforceability of Certain Civil Liabilities..............................................................9
USE OF PROCEEDS...................................................................................................9
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SELLING STOCKHOLDERS..............................................................................................9
PLAN OF DISTRIBUTION.............................................................................................14
LEGAL PROCEEDINGS................................................................................................16
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.....................................................16
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
.......................................................................................................17
COMMON STOCK.....................................................................................................18
DESCRIPTION OF SECURITIES........................................................................................19
INTEREST OF NAMED EXPERTS AND COUNSEL............................................................................20
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES.........................................................................................20
DESCRIPTION OF BUSINESS..........................................................................................20
General ...............................................................................................20
Supplying Long Distance Telephone Services..............................................................21
Billing ...............................................................................................22
Marketing...............................................................................................22
AGREEMENT WITH ROGERS WIRELESS INC...............................................................................23
PLANNED BUSINESS OPERATIONS......................................................................................24
Innofone's Strategy.....................................................................................25
The Canadian Telecommunications Industry................................................................26
Long Distance Services Market...........................................................................26
Competition.............................................................................................27
Corporate Development & Financing.......................................................................27
Acquisition of APC Telecom..............................................................................27
Financings..............................................................................................28
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION........................................................28
PLAN OF OPERATIONS...............................................................................................29
Overview ...............................................................................................29
Raising Capital.........................................................................................29
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Results of Operations..........................................................................30
Year Ended June 30, 1999 with comparative figures for 1998.....................................30
Revenues ...............................................................................................30
Operating Expenses......................................................................................31
Cost of Services...............................................................................31
SG&A Costs.....................................................................................31
Amortization...................................................................................31
Sales and Cost of Sales........................................................................31
Selling, general and administrative expenses...................................................31
Amortization...................................................................................32
Interest and financing charges.................................................................32
Loss on sale of investment.....................................................................32
Interim Financial Statements for the Quarter Ended December 31, 1999....................................32
Revenues and cost of sales....................................................................33
Selling, general and administrative expenses...................................................33
Amortization...................................................................................34
Interest and bank charges......................................................................34
Liquidity and Capital Resources.........................................................................34
DESCRIPTION OF PROPERTY..........................................................................................35
EXECUTIVE COMPENSATION...........................................................................................35
OPTIONS TO PURCHASE SECURITIES...................................................................................36
Employee Stock Compensation Plan........................................................................37
Compensatory Stock Option Plan..........................................................................37
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................................................37
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.........................................................37
OTC BULLETIN BOARD...............................................................................................37
DIVIDEND INFORMATION.............................................................................................39
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL
DISCLOSURE..............................................................................................39
SECURITIES BEING OFFERED.........................................................................................39
Transfer Agent and Registrar............................................................................40
LEGAL MATTERS....................................................................................................40
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
EXPERTS ........................................................................................................40
WHERE YOU CAN FIND ADDITIONAL INFORMATION........................................................................41
FINANCIAL STATEMENTS.............................................................................................41
INDEX TO FINANCIAL STATEMENTS....................................................................................41
AUDITORS' REPORT TO THE SHAREHOLDERS.............................................................................42
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA - U.S. REPORTING
DIFFERENCE..............................................................................................43
Item 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.....................................................44
Item 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION...................................................45
Item 26. RECENT SALES OF UNREGISTERED SECURITIES.......................................................45
Item 27. EXHIBITS......................................................................................47
Item 28. UNDERTAKINGS..................................................................................48
</TABLE>
Our principal offices are located at 241 Applewood Crescent Vaughan,
Ontario Canada. Our telephone number is (416) 207-0046. References herein to
"we," "us," "our," the company and Innofone includes Innofone.com Incorporated
and Innofone Canada Inc., unless the context otherwise requires.
The information on our website, www.Innofone.com, is not part of this
prospectus.
RISK FACTORS
General
Investing in our common stock involves substantial risk. Investors
should carefully consider the risks described below and the other information in
this prospectus, including our financial statements and the related notes,
before purchasing our common stock. Our common stock should not be purchased by
persons who cannot afford the loss of their entire investment.
1. There is the risk that we may not have sufficient funds to develop our
business and pay off loans which are due this year. If we are unable to generate
profits from operations or raise money from outside sources, we will be unable
to remain in business. We first began providing long distance telephone service
in Canada in 1999 and are currently losing money. On July 31, 2000, we must
repay a loan in the principal amount of $501,100 plus accrued interest; on
5
<PAGE>
December 31, 2000 we must repay a loan in the principal amount of $1,039,500
plus accrued interest. Both of these loans may be converted into our common
stock by the holders, at their sole option. We estimate that we require
approximately $4,000,000 in additional financing over the next twelve months in
order to carry out our planned activities and repay the loans. We may not be
successful in rasing any additional funds; and if we are able to raise it, the
terms that this funding may be available to us could be expensive. If we don't
raise enough funds or are unable to generate profits from operations, we will go
out of business. At March 31, 2000 we had $524,000 in cash, which we estimate is
sufficient to sustain operations for 4 months, provided the note due on July 31,
2000 is converted into common stock by its holders; none of the holders have
notified us of their intention to do so, however.
2. It is very likely that we will sell additional common stock or other
securities which are exchangeable for, or convertible into, common stock, and
investors must be prepared to accept the risk that their investment in our
common stock will be diluted.
3. There is the risk that our business will suffer if there are problems with
the telephone and internet infrastructure. Since we do not own or operate any
portion of the infrastructure, we are dependent upon the telephone companies,
internet service providers and their vendors for the smooth, reliable and
efficient performance of the telephone system and the internet. We are unable to
control, manage or repair this infrastructure. Although our competitors and all
internet- dependent businesses face similar issues, we believe that we may be
less able to tolerate performance issues than they can and our business will be
hurt more because we do not have their financial strength, national market
presence or associated goodwill.
4. There is the risk that, because we are a development stage company with
limited financial and marketing resources which competes against huge
multinational telecommunications companies and others, we may be unable to
market our services and capture a meaningful portion of the market. We compete
against such companies as Bell Canada, AT&T, MCI/Worldcom and Sprint, all of
which have substantial customer bases, financial and marketing resources and
goodwill. Notwithstanding the fact that we are offering a service which promises
to provide the lowest telephone rates of all major telephone carriers, our
competition could respond by offering a similar plan or even undercutting our
rate structure. Furthermore, traditional telecommunications companies themselves
face competition from a growing number of companies which offer low-cost
internet-based services. Overall, competition is significant and could even
increase. The telecommunications industry is one of the most competitive
industries in the world, marked by rapid technological change, an unpredictable
regulatory climate, an ever increasing array of telecommunications services
being offered and enormous capital spending. Moreover, various cable TV
operators in the United States have begun (and others have announced their
intention to begin) offering telephone service through existing cable TV lines.
These companies pose a substantial threat to traditional telephone companies
because of the cable TV industry's superior technology enabling greater
transmission capacity, versatility and speed. The impact of cable TV companies
entering the telephone business will increase competition, having unpredictable
effects on the industry in general, and upon us, in particular.
6
<PAGE>
These companies, as well, have substantial subscriber bases, financial and
marketing resources which place our present and planned business operations at a
serious competitive disadvantage.
.
5. There is the risk that our operations and planned internet-based service
offerings in the future could be hurt by new laws and regulations. It is
impossible to predict the regulatory climate, controls, regulations and rules
affecting telephone, broadcast, and internet-related businesses. We are
presently unaware of laws, regulations or rules that prevent or restrict us from
offering our services. It is possible, however, that with the integration and
merger of telecommunication, computing, television and broadcast services, which
some observers predict is inevitable, laws, regulations and rules may be passed
and promulgated that could prevent or restrict us from pursuing our business.
Furthermore, such events, if not preventing or restricting our right to pursue
our business, could result in an increased competitive environment.
6. There is the risk that the existing control of Innofone by our management
could result in management blocking another person from trying to buy all of our
outstanding common stock from shareholders, possibly depriving the shareholders
of a premium to the then current market price of the common stock. Our officers,
directors, and principal shareholders, and their family members and business
associates, in the aggregate, beneficially own approximately 61% of our
outstanding common stock and voting rights attached to 2,500,000 shares of
preferred stock so that management and persons affiliated with them presently
have approximately 65% voting control of the company. In addition, management
and persons affiliated with them have the right to acquire voting rights to an
additional 7,500,000 shares of common stock See "Security Ownership Of Certain
Beneficial Owners and Management." Our management is therefore able to exert
substantial influence over the company and control most matters requiring
shareholder approval, including, without limitation, the election of directors,
modification of our capital structure, adoption of stock option plans and award
of grants thereunder, terms and conditions of a merger or consolidation of
Innofone with another company, and negotiation of the terms and conditions of a
tender offer for our common stock made by another company. Such control could
result in substantial shareholder dilution and, in certain circumstances,
prevent shareholders from receiving a premium over the then current market value
for their common stock.
7. Management's right to receive additional common stock from the conversion of
preferred stock may conflict with the company, resulting in the risk that we
could pursue a business strategy which may not be desirable. Management and
certain founding shareholders who are either friends, family members or business
associates of management have the right to receive a maximum of 7,500,000 shares
of common stock pursuant to rights attached to 2,500,000 shares of preferred
stock held by them. The holders of the preferred stock have the right to convert
the 2,500,000 shares of the preferred stock into common stock when we have
generated $7,000,000 Can. in revenues. See "Corporate Development & Financing."
Although management believes that its near-term goal of generating revenues and
expanding our customer base is in the best interests of the company,
management's view may be in conflict with our overall objective of achieving
profitable operations. There is the risk to shareholders that the company could
pursue
7
<PAGE>
a business strategy of generating revenues which could result in management
increasing its stockholdings at the expense of achieving profitability.
8. 4,959,500 shares of common stock or 20 % of the outstanding common stock is
restricted from resale but may be sold into the market soon. This could cause
the market for our common stock to drop, even if our business is doing well.
After this offering, we will have outstanding 24,481,500 shares of common stock.
This includes the 4,959,500 shares of common stock offered by the selling
shareholders listed in this registration statement, which may be immediately
resold. The remaining 80%, or 19,522,000 shares of common stock are currently
available for resale in the public market, subject to the limitations imposed on
resales by the approximately 8,846,720 shares of common stock held by
affiliates, i.e. officers and directors of Innofone. The affiliates of Innofone
may sell their shares in accordance with the provisions of Rule 144, promulgated
under the Securities Act of 1933, as amended, which provides, in part, that they
each may sell, in any 90 day period, up to one percent of Innofone's outstanding
stock in a regular brokerage transaction.
Our common stock is not traded on any securities exchange or the NASD
OTC Bulletin Board and there is only a very limited trading market in our common
stock in the over-the-counter market in the United States. Our common stock has
not traded on the NASD OTC Bulletin Board since September 1, 1999. We have no
plans to list our common stock on NASDAQ or on any securities exchange in the
near future; moreover, our common stock does not qualify for a NASDAQ listing,
or listing on any major stock exchange.
Assuming conversion of the outstanding preferred stock into 7,500,000
shares of common stock, and issuance of 5,500,000 shares of common stock
pursuant to rights granted to a key consultant, we will have a total of
37,481,500 shares of common stock outstanding. All the shares of common stock
received from conversion of the preferred stock may be resold immediately in the
public market, subject to limitations on such resales by persons considered
company affiliates under federal securities laws.
As restrictions on resales end, and more common stock not subject to
resale restrictions is issued, the market price could drop significantly if the
holders of this common stock sell it or are perceived by the market as intending
to sell it.
9. There is the risk that our business will be harmed if our outside contractors
and independent sales representatives don't perform as expected. All major
facets of our present business operations, supplying long distance telephone
services, billing and marketing, are primarily managed by, and are dependent
upon the services and technologies of, outside contractors and independent sales
representatives. The failure of any of these parties to perform in accordance
with the terms and conditions of their contracts with us or to achieve
forecasted levels of performance, as the case may be, would harm our business.
If this happens, we may not be able to find others which are willing and able to
carry out our business operations and plans without any interruptions in our
routine business activities, or at all.
8
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10. Our agreement with Rogers Wireless Inc. imposes substantial conditions on us
which we may not be able to satisfy, causing us to make substantial payments to
Rogers. Our agreement with Rogers requires that we arrange for a minimum of
5,000 new telephone numbers (accounts) by April 20, 2001; 15,000 new telephone
numbers by April 20, 2002; and 25,000 new telephone numbers by April 20, 2003.
If we do not reach these minimums we are obligated to pay Rogers an amount equal
to $20 Can. times the number of telephone numbers we are short of the minimum.
In addition, we are required to deposit with Rogers a security deposit of
$100,000 Can. If we are unable to arrange a letter of credit, we would be forced
to make a cash deposit to satisfy the condition or risk Rogers terminating the
contract. The payment of $100,000 Can. at the present time would adversely
affect our ability to undertake other projects or fund other operations.
11. The penny stock rules will adversely affect liquidity of common stock.
There is the risk that brokers and dealers may be prohibited from or voluntarily
decline to trade our common stock because of regulations which require extensive
record keeping and disclosures by brokers and dealers in connection with
low-priced stocks, or so-called penny stocks, such as ours. This will result in
a market of limited liquidity in which it is difficult for investors to sell
stock.
ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES
The enforcement by investors of civil liabilities under the United
States federal securities laws may be adversely affected by the fact that all of
our officers and directors are neither citizens nor residents of the United
States. There can be no assurance that (a) U.S. stockholders will be able to
effect service of process within the United States upon such persons, (b) U.S.
stockholders will be able to enforce, in United States courts, judgments against
such persons obtained in such courts predicated upon the civil liability
provisions of United States federal securities laws, (c) appropriate foreign
courts would enforce judgments of United States courts obtained in actions
against such persons predicated upon the civil liability provisions of the
federal securities laws, and (d) the appropriate foreign courts would enforce,
in original actions, liabilities against such persons predicated solely upon the
United States federal securities laws.
USE OF PROCEEDS
We will not receive any proceeds from the sale of common stock made by
the selling stockholders. The funds received from the sale of the convertible
debentures have been used for working capital.
SELLING STOCKHOLDERS
The following tables sets forth, as of April 30, 2000, information
regarding stockholders
9
<PAGE>
for whom we are registering for resale to the public an aggregate of 4,959,500
shares of common stock. The tables assume that ( the total number of outstanding
shares of common stock is 24,481,500.
<TABLE>
<CAPTION>
AMOUNT OF
AMOUNT OF SHARES AND
SHARES OWNED PERCENTAGE
PRIOR TO AMOUNT OF OF COMPANY
RELATIONSHIP TO OFFERING(1) SHARES TO BE OWNED
NAME COMPANY OFFERED AFTER THE
OFFERING
<S> <C> <C> <C> <C>
Anzaldi, Giovanni None 37,500 37,500 0/0
Beland, Guy None 15,000 15,000 0/0
Blades, S.B. None 25,000 25,000 0/0
Berk, Aaron None 100,000 100,000 0/0
Berk, Carolyn None 100,000 100,000 0/0
Berk, David None 25,000 25,000 0/0
Berk, Lorraine None 25,000 25,000 0/0
Casselmam, Brian None 62,500 62,500 0/0
Chilsholm, John None 125,000 125,000 0/0
C.M. Design Ltd. None 25,000 25,000 0/0
Crowe, Ron Executive Officer & 132,500 70,000 62,500/<1%
Director
Curry, Brian None 62,500 62,500 0/0
Dean, Jackie Controller 174,750 18,500 156,250/<1%
Dilligaf Investments Inc. None 25,000 25,000 0/0
Donahue, John None 12,500 12,500 0/0
Douris, Kelly None 12,500 12,500 0/0
Duncan, Dean None 12,500 12,500 0/0
Earle, Michael None 77,500 77,500 0/0
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
AMOUNT OF
AMOUNT OF SHARES AND
SHARES OWNED PERCENTAGE
PRIOR TO AMOUNT OF OF COMPANY
RELATIONSHIP TO OFFERING(1) SHARES TO BE OWNED
NAME COMPANY OFFERED AFTER THE
OFFERING
<S> <C> <C> <C> <C>
Fergusson, Al None 75,000 75,000 0/0
Flabbi, Laura None 125,000 125,000 0/0
Gore-Hickman, Tim None 12,500 12,500 0/0
Hayes, Frank None 20,000 20,000 0/0
Humanatech Inc. None 52,500 52,500 0/0
Hunt, Tracey Wife of Larry Hunt - 70,000 70,000 0/0
Executive Officer
and Director
Jamal, Farhan None 117,500 117,500 0/0
Jamani, Nurali None 15,000 15,000 0/0
Kasam, Amir None 20,000 20,000 0/0
Labrecque, Denis None 27,000 27,000 0/0
Leddy, Donald None 155,000 155,000 0/0
Maiorano, Giuseppe #1 None 12,500 12,500 0/0
Maiorano, Giuseppe #2 None 25,000 25,000 0/0
Mactaggart, John None 50,00 50,000 0/0
Mactaggart, Leslie None 187,500 187,500 0/0
Marra, Rob None 62,500 62,500 0/0
May, John None 125,000 125,000 0/0
MCM Holdings None 399,062 110,000 289,062/
1.18%
Mehta Robin None 37,500 37,500 0/0
Menard, Frank None 18,750 18,750 0/0
</TABLE>
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<TABLE>
<CAPTION>
AMOUNT OF
AMOUNT OF SHARES AND
SHARES OWNED PERCENTAGE
PRIOR TO AMOUNT OF OF COMPANY
RELATIONSHIP TO OFFERING(1) SHARES TO BE OWNED
NAME COMPANY OFFERED AFTER THE
OFFERING
<S> <C> <C> <C> <C>
Michaels, Robert & Linda None 20,000 20,000 0/0
Miller, Robert None 75,000 75,000 0/0
Mithcell, Tom None 20,000 20,000 0/0
Moledina, Riyaz None 15,000 15,000 0/0
Molyneux, Robert None 125,000 125,000 0/0
Mondoux, Michel None 20,000 20,000 0/0
Natale, Frank None 75,000 75,000 0/0
Packham, William None 125,000 125,000 0/0
Pellerin, Guy None 87,500 87,500 0/0
Pogor, Paul None 31,250 31,250 0/0
Primex Network Inc. None 15,000 15,000 0/0
Quinney, Dian Rick Quinney's 25,000 25,000 0/0
sister-in-law
Quinney, Jason Rick Quinney's son 6,250 6,250 0/0
Quinney, Lisa Rick Quinney's 6,250 6,250 0/0
daughter
Quinney, Rick Executive Officer 1,632,500 70,000 1,562,500/
and Director 6.38%
Rawecki, Richard None 203,125 125,000 78,125/<1%
Redmond, Andy None 125,000 125,000 0/0
R.J. Rawecki Sales None 62,500 62,500 0/0
Ruppert, Roy None 700,000 387,500 312,500/
1.28%
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
AMOUNT OF
AMOUNT OF SHARES AND
SHARES OWNED PERCENTAGE
PRIOR TO AMOUNT OF OF COMPANY
RELATIONSHIP TO OFFERING(1) SHARES TO BE OWNED
NAME COMPANY OFFERED AFTER THE
OFFERING
<S> <C> <C> <C> <C>
Ruso, Francesco None 12,500 12,500 0/0
Saul, Perry None 75,000 75,000 0/0
Schultz, Robert None 125,000 125,000 0/0
Serota, Sheldon & Ethel None 17,500 17,500 0/0
Sgambelluri, Sal None 75,000 75,000 0/0
Sgambelluri, Vince None 12,500 12,500 0/0
Siskos, Terry None 12,500 12,500 0/0
Siskos, Tom None 16,500 16,500 0/0
Smith, Neil None 125,000 125,000 0/0
Smith, Robert None 50,000 50,000 0/0
St. Croix, Lester None 25,000 25,000 0/0
Steinman, Larry None 25,000 25,000 0/0
Rahim Suleman None 25,000 25,000 0/0
Taurus Capital None 212,500 62,500 150,000/<1%
Thomson, Ron None 40,000 40,000 0/0
Ursini, Christopher None 62,500 62,500 0/0
Vista Capital Corporation None 305,000 125,000 180,000/<1%
Volpe, Jill Rick Quinney's 98,125 20,000 78,125/<1%
sister-in-law
Volpe,Frank Rick Quinney's 52,342 25,000 27,342/<1%
brother-in-law
Volpe, Mike Rick Quinney's 90,625 12,500 78,125/<1%
brother-in-law
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
AMOUNT OF
AMOUNT OF SHARES AND
SHARES OWNED PERCENTAGE
PRIOR TO AMOUNT OF OF COMPANY
RELATIONSHIP TO OFFERING(1) SHARES TO BE OWNED
NAME COMPANY OFFERED AFTER THE
OFFERING
<S> <C> <C> <C> <C>
Volpe, Paul Rick Quinney's 507,812 312,500 195,312/<1%
father-in-law
Wilhelm, Lynn None 75,000 75,000 0/0
Witkowski, R.J. None 12,500 12,500 0/0
Zuchter Berk None 50,000 50,000 0/0
</TABLE>
(1). Under the rules of the Securities and Exchange Commission, a person is
deemed to be the beneficial owner of a security if such person has or shares the
power to vote or direct the voting of such security or the power to dispose or
direct the disposition of such security. A person is also deemed to be a
beneficial owner of any securities if that person has the right to acquire
beneficial ownership within 60 days. Accordingly, more than one person may be
deemed to be a beneficial owner of the same securities. Unless otherwise
indicated by footnote, the named individuals have sole voting and investment
power with respect to the securities beneficially owned.
PLAN OF DISTRIBUTION
Selling stockholders may from time to time offer and sell common stock
directly to purchasers. They may also from time to time offer all or any of
their common stock through brokers, dealers or agents. The sellers and/or the
purchasers of the common stock may offer discounts, concessions or commissions
to participating brokers, dealers or agents.
The sellers and any brokers, dealers or agents who participate in the
distribution of the common stock may be deemed to be underwriters. Any profits
on the sale of the common stock by them and any discounts, commissions or
concessions which they receive may be deemed to be underwriting discounts and
commissions under the Securities Act. If the sellers are deemed to be
underwriters they may be subject to certain statutory liabilities under the
Securities Act, including, but not limited to, Sections 11, 12 and 17 of the
Securities Act and Rule 10b-5 under the Securities Exchange Act.
The sellers may sell the common stock from time to time in one or more
transactions at:
o fixed prices;
14
<PAGE>
o prevailing market prices at the time of sale;
o varying prices determined at the time of sale; or
o negotiated prices.
The common stock may be sold by one or more of the following methods,
without limitation:
o a block trade in which the broker or dealer so engaged will attempt
to sell the shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
o purchase by a broker or dealer as principal and resale by such broker
or dealer for its account pursuant to this prospectus;
o ordinary brokerage transactions and transactions in which a broker
solicits purchasers;
o face-to-face transactions between sellers and purchasers without a
broker-dealer; and the writing of options.
In addition, subject to applicable state and foreign laws, the sellers
may sell their common stock outside the United States pursuant to Rules 903 and
904 of Regulation S, in private transactions or under Rule 144, rather than
pursuant to this prospectus.
To the best of our knowledge, there are currently no plans,
arrangements or understandings between any of the sellers and any broker,
dealer, agent or underwriter regarding the sale of common stock by the selling
shareholders. There is no assurance that any seller will sell any or all of the
common stock offered by it pursuant to this prospectus or that any seller will
not transfer, devise or donate such shares by means not described in this
prospectus.
The selling stockholders and any other person participating in the
offering will be subject to applicable provisions of the Securities Exchange Act
and the rules and regulations thereunder, including Regulation M, which may
limit the timing of purchases and sales. These restrictions may affect the
marketability of the common stock and the ability of any person to engage in
market-making activities with respect to the common stock.
We will pay substantially all of the expenses incidental to the
registration, offering and sale of the common stock covered by this prospectus,
except expenses for commissions, fees and discounts of underwriters, brokers,
dealers and agents.
As used in this prospectus, reference to a selling stockholder includes
its pledgees who sell common stock received from the selling stockholder after
the date of this prospectus.
Copies of this prospectus will be made available to the selling
stockholders. At or prior to the time of any sale of common stock by a selling
stockholder pursuant to this prospectus, the
15
<PAGE>
selling stockholder must deliver a copy of this prospectus to the purchaser.
LEGAL PROCEEDINGS
We are not involved in any lawsuits and are unaware of any legal
proceedings known to be contemplated by any governmental authorities.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Ronald Crowe 60 Chairman of the Board of
Directors
Larry Hunt 41 President, Chief Executive
Officer, Director
Richard Quinney 50 Chief Financial Officer,
Director
Charles Blaquiere 40 President, Innofone Canada
Inc.
</TABLE>
Directors were elected on June 26, 1998 and are expected to hold these
positions until the next annual general meeting of shareholders, scheduled to be
held later this year.
There are no arrangements or understandings among any of the directors
regarding their election as directors. Ron Crowe is married to Rick Quinney's
sister and is Larry Hunt's uncle.
Ronald Crowe - In 1989, Mr. Crowe formed Metrowide Communications, a
company that offered a flat rate long distance service along with a per minute
long distance service primarily in the Greater Toronto Area. In 1995 Metrowide
Communications was sold to ACC Telecommunications. (ACC Telecommunications was
subsequently acquired by AT&T Canada) After the buyout, Mr. Crowe continued on
as a consultant to Metrowide to assist with the transition to the new owners
until the fall of 1995. As part of the sale of Metrowide, Mr. Crowe was subject
to a non-compete clause preventing him from doing business in the
telecommunications industry for a period of two years.
16
<PAGE>
After leaving Metrowide, Mr. Crowe went into semi-retirement. In the
spring of 1996, he began working part-time on an internet related worldwide
yellow page directory project referred to as Yelp. Mr. Crowe worked on the Yelp
project with two other partners until the fall of 1997 when they decided to
abandon the project. After the the expiration of the non-compete clause, in
April 1998, Mr. Crowe, Larry Hunt and Richard Quinney started Innofone Canada
Inc.
Larry Hunt - From 1994 through 1996, he was the Director of Sales and
Marketing for DGI, located in Whitby, Ontario. From 1996 through 1997 he was the
President of Direct Quest Inc., a U.S. based Internet service which provided a
multilingual business direction for communities throughout North America. While
at Direct Quest, he established internet service operations in Canada and the
United States. From 1997 through the present, he has served as President and
Chief Executive Officer of APC Telecom, a subsidiary of the Company. In October
1999 he stepped down as President of Innofone Canada.
Richard Quinney - From 1972 through early 1998 Mr. Quinney was
employed by KPMG (and its predecessor Peat Marwick Mitchell) in various
capacities, becoming a partner in 1981. In February 1998 Mr. Quinney resigned
from KPMG and entered into an affiliation with Collins Barrow, Chartered
Accountants, in order to achieve flexibility to pursue other business interests.
Charles Blaquiere - Prior to joining Innofone in October 1999, Mr.
Blaquiere was Manager, Methods & Standards for Sprint Canada where he was
responsible for planning and forecasting resources to achieve revenue goals for
Sprint's Enterprise Customer Canadian subscribers. Prior to his employment with
Sprint, Mr. Blaquiere was Director of Operations with eForce from May 1998 to
February 1999 where he developed business strategy and progress requirements for
a long distance telephone marketing company. Prior eForce, Mr. Blaquiere had a
18 year career with Sears Canada, spending the last four years of the developing
and managing the national Sears Phone Plan.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Our authorized capital consists of (a) 100,000,000 shares of common
stock, per share, and (b) 25,000,000 shares of preferred stock.
At April 30, 2000, there were 20,630,000 shares of common stock and
2,500,000 shares of preferred stock outstanding. The outstanding preferred stock
is designated as Class A Voting Convertible Preferred Stock. The preferred stock
may be converted into a maximum of 7,500,000 shares of common stock. See
"Corporate Development & Financing - Acquisition of APC Telecom"
At such date, the stockholdings of our officers and directors and
persons owning at least
17
<PAGE>
five percent of our common stock were as follows:(1)
COMMON STOCK
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL % OF
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP* CLASS
- -------------- ---------------- --------- -----
<S> <C> <C> <C>
Common Stock Larry Hunt 5,070,000** 18.02%
Ronald Crowe 170,000***
Richard Quinney 3,820,000/3**** 13.58%
Angela Quinney/4 1,250,000***** 4.44%
Merryl Crowe/5 3,718,752****** 13.22%
Officers and Directors, as 14,028,752 49.87%
a Group
</TABLE>
- - ----------
o There are 2,500,000 shares of preferred stock outstanding. The
preferred stock, depending upon certain factors, may be converted into
a maximum of 7,500,000 of common stock, but no less than 1,250,000
shares of common stock. Reference is made to "Corporate Development &
Financing - Acquisition of APC Telecom." For purposes of this table it
is assumed that the outstanding 2,500,000 shares of preferred stock
have been converted into 7,500,000 shares of common stock, and that a
total of 28,130,000 shares of common stock are outstanding.
- --------
(1) Under the rules of the Securities and Exchange Commission, a person
is deemed to be the beneficial owner of a security if such person has or shares
the power to vote or direct the voting of such security or the power to dispose
or direct the disposition of such security. A person is also deemed to be a
beneficial owner of any securities if that person has the right to acquire
beneficial ownership within 60 days. Accordingly, more than one person may be
deemed to be a beneficial owner of the same securities. Unless otherwise
indicated by footnote, the named individuals have sole voting and investment
power with respect to the securities beneficially owned.
18
<PAGE>
o
** This amount includes 1,875,000 shares of common stock which may be
issued to Mr. Hunt pursuant to the conversion of 625,000 shares of
preferred stock.
*** This amount includes 37,500 shares of common stock which may be issued
to Mr. Crowe pursuant to the conversion of 12,500 shares of preferred
stock.
**** This amount includes 1,406,250 shares of common stock which may be
issued to Mr. Quinney pursuant to the conversion of 468,750 shares of
preferred stock.
***** This amount includes 468,750 shares of common stock which may be issued
to Mrs. Quinney pursuant to the conversion of 156,250 shares of
preferred stock.
***** This amount includes 1,394,532 shares of common stock which may be
issued to Mrs. Crowe pursuant to the conversion of 464,844 shares of
preferred stock.
1/ All addresses are in our care at our principal offices.
2/ Except as otherwise indicated in a footnote to this chart each
person named in the table has sole voting and dispositive power with respect to
the common stock held by that person.
3/ Includes 312,500 shares of common stock owned by a company owned by
Richard Quinney and his wife, Angela.
4/ Angela Quinney is the wife of Rick Quinney.
5/ Merryl Crowe is the wife of Ronald Crowe.
There is no other class of common stock which is authorized.
Mr. Douglas Burdon, a consultant to Innofone, has been granted
options to purchase 2,750,000 shares of common stock, at an exercise price of
$0.50 per share, and may be granted options to purchase an additional 2,750,000
shares, at an exercise price of $0.50 per share. Any options granted vest over
an eighteen month period, except for options covering 1 million shares which are
already vested.
Management is unaware of any arrangements, the operation of which may
at a subsequent date result in a change in control of our company.
19
<PAGE>
DESCRIPTION OF SECURITIES
Our authorized capital consists of (a) 100,000,000 shares of common
stock, par value $.001 per share, and (b) 25,000,000 shares of preferred stock,
par value $.001 per share. There are 2,500,000 shares of preferred stock
presently outstanding, which is designated as Class A Voting Convertible
Preferred Stock.
Holders of common stock are entitled to receive dividends in cash,
property or common stock when and if dividends are declared by the board of
directors out of funds legally available therefor. The by-laws impose no
limitations on the payment of dividends. A quorum for any meeting of
shareholders is a majority of all common stock and preferred stock then issued
and outstanding and entitled to be voted at the meeting. Holders of common stock
and preferred stock are entitled to one vote per share of common stock. There is
no cumulative voting with respect to the election of directors, with the result
that the holders of more than 50% of the shares voted can elect all of the
directors then being elected. Upon any liquidation, dissolution or winding up of
our business, any assets will be distributed to shareholders after payment or
provision for payment of all of our debts, obligations and liabilities,
including the liquidation preference to holders of the preferred stock.
There are no preemptive rights, subscription rights, conversion rights
or redemption provisions relating to the common stock. The common stock carries
no liability for further calls. The rights of holders of common stock may not be
modified other than by vote of two-thirds of the shares voting on such
modification.
INTEREST OF NAMED EXPERTS AND COUNSEL
None.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions, or otherwise, 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. If a claim for
indemnification against such liabilities (other than the payment by us of
expenses incurred or paid by a director, officer or controlling person in the
successful defense of any action, suit or proceeding) is asserted by any
director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by us is against public policy as
expressed in the Securities Act. We will be governed by the final adjudication
of such issue.
20
<PAGE>
DESCRIPTION OF BUSINESS
General
We are in the business of providing low-cost bundled communications
services in Canada. Although we were incorporated in Nevada in 1995, we were
essentially inactive, with no assets or operations, until June 1998 when we
acquired all of the outstanding capital stock of APC Telecom Inc., a
privately-held, federally chartered, Canadian corporation in order to enter the
Canadian telecommunications market. We changed APC Telecom's name to Innofone
Canada Inc. on March 30,1999 and presently conduct all of our operations through
this subsidiary company. We are a development stage company that has no
substantial revenues to date from operations.
At the time of our acquisition of APC Telecom, it held rights to
market certain internet-based, telephone technology in Canada. APC Telecom's
rights to this technology terminated on December 11, 1998. Notwithstanding the
termination of these rights, we plan to eventually expand our current operations
which presently consists of offering traditional long distance telephone
services in Canada to include offering a full range of traditional
telecommunications services throughout Canada and the United States and
internet-based and wireless telecommunication services worldwide. See "Planned
Business Operations."
Presently, our business involves providing traditional long distance
telephone service at competitive rates to individuals and small businesses in
Canada. In order to penetrate this market aggressively, while controlling costs,
all major facets of our business operations - supplying long distance telephone
service, billing and marketing - are primarily conducted by third parties for
us.
* * * *
Supplying Long Distance Telephone Services
We supply long distance telephone service to our customers pursuant to
an agreement dated March 3, 1999 with the Canadian Telecom Resellers Alliance
("Canadian Resellers"), a subsidiary company of Optel Communications
Corporation. Canadian Resellers is in the business of purchasing long distance
telephone service from major carriers, such as AT&T and Sprint, at bulk rates
and reselling such service to smaller companies such as ours. We believe that
the rates charged to us by Canadian Resellers are substantially lower than we
would receive if we were to contract directly with the major carriers. Under the
agreement with Canadian Resellers, we route our customers' long distance
telephone calls through Canadian Resellers'
21
<PAGE>
carrier networks. This agreement expires March 20, 2003, and automatically
renews every three years unless either party notifies the other at least thirty
days prior to the expiration of the term that it does not wish to renew. If
Canadian Resellers does not renew the agreement, and we are unable to replace
Canadian Resellers with another supplier of long distance services, our business
could be materially adversely affected.
Under our agreement with Canadian Resellers, we are obligated to
generate minimum revenues of $50,000 Can. per month. If we don't generate at
least $50,000 Can. in monthly revenues, Canadian Resellers has the right to
charge us a fee equal to fifty percent of the difference between actual revenues
and $50,000 Can. for each month actual billings are less than $50,000 Can. for
so long as the Canadian Resellers agreement continues. Since December 31, 1999
actual revenues have been in excess of $50,000 Can. per month.
- ---------
9/ The following table sets forth the exchange rates for one Canadian
dollar expressed in terms of one U.S. dollar for the past five years.
Average Low - High Year End
------- ---------- --------
1995 .7305 .7023 - .7527 .7323
1996 .7332 .7140 - .7472 .7301
1997 .7286 .7145 - .7513 .7233
1998 .6742 .6490 - .7020 .6521
1999 .6744 .6535 - .6944 .6944
The following table sets forth the exchange rates for one Canadian
dollar expressed in terms of one U.S. dollar for the nine months ended March 31,
2000.
Average Low - High Period End
------- ---------- --------
.6809 .6607 - .6969 .6879
The exchange rates are based upon the noon buying rate in New York City
for cable transfers in foreign currencies as certified for customs purposes by
the Federal Reserve Bank of New York.
- -----------
At May 19, 2000, one Canadian dollar, as quoted by Reuters and other
sources at 4 P.M. Eastern Time for New York foreign exchange selling rates (for
bank transactions of at least
22
<PAGE>
$1,000,000), equaled $.6686 in U.S. dollars. (Source: The Wall Street Journal.)
Our agreement with Canadian Resellers may be terminated by either party
upon thirty days notice; if we terminate this agreement, we are obligated to pay
Canadian Resellers $50,000 Can., as a termination charge.
Billing
Our billing of our customers is principally performed by ACS
Communications Industry Services, Inc., pursuant to an agreement dated March 2,
2000 utilizing custom designed software.
Under the ACS agreement, ACS handles not only routine functions
including order entry, customer service functions, accounting, sales tracking
and receipts processing functions but also provides other billing functions
including invoice preparation and mailing. ACS also furnishes us with monthly
management reports which are comprised of profit, loss, and margin reports, tax
summaries, price per minute, rate program and calling analyses, and other
services. The ACS agreement expires March 2, 2003, and will automatically be
renewed for two years unless either party notifies the other of its desire to
terminate so at least sixty days in advance of termination.
Marketing
Currently, our marketing efforts are primarily focused on developing
relationships with businesses which can market our long distance telephone
service to their own customers, and share in the revenues generated. On November
30, 1999, we engaged the services of Mr. Burdon to manage this marketing
effort. Under the terms of the agreement with Mr. Burdon, which expired on March
31, 2000, Mr. Burdon was to receive a royalty equal to 2% of gross revenues
generated from any accounts he facilitates in establishing for us. Mr. Burdon
had the right to exchange the royalty for stock options on or before November
30, 2001. See "Options to Purchase Securities." On April 5, 2000 Innofone
entered into a new agreement with Mr. Burdon, superceding the November 30, 1999
agreement. Under the terms of the revised agreement, Mr. Burdon was not to
receive any royalties but would receive options of up to 5,500,000 shares of
common stock, at an exercise price of $0.50 per share, subject to the
satisfaction of certain conditions. Options covering 2,750,000 shares were
granted to Mr. Burdon in connection with his efforts in facilitating Innofone's
business arrangement with Visa Dejardins. One million shares of this option are
deemed to have vested, with the remaining 1,750,000 shares vesting over an
eighteen month period. Mr. Burdon may be granted another option for 2,750,000
shares upon the execution of a second agreement with a bank respecting use of
Innofone's services. Innofone is paying Mr. Burdon $8,250 per month as an
advisory fee.
Prior to engaging Mr. Burdon, our marketing efforts were
principally directed at signing up residential and small business customers
utilizing independent sales representatives, which were, and continue to be,
compensated through commissions ranging from 2.0-3.5% of
23
<PAGE>
monthly revenues generated. We presently utilize the services of 25 independent
sales representatives and expect to continue doing so. At April 30, 2000,
independent sales representatives were responsible for obtaining all of our
3,000 customers.
We believe that the key selling point for our services is our promise to
our subscribers that they will always receive a lower telephone bill from us
than they would receive from any of the major telephone carriers. We accomplish
this by utilizing software, supplied by ACS, which guarantees that all
customers, each month, are billed less than the lowest telephone rates offered
by the major Canadian telephone carriers, Bell Canada, AT&T and Sprint Canada.
We refer to this guaranty as our Guaranteed Lowest Rate, or GLR (Trademark).
In January and February 2000 the Company sold $1,039,500 of convertible
debentures
Agreement With Rogers Wireless Inc.
Pursuant to an agreement dated as of April 20, 2000 with Rogers
Wireless Inc. ("Rogers"), we agreed to resell Rogers' cellular based radio-based
telecommunications services, including personal communications services, to
customers of VISA Desjardin, and other financial institutions in Canada.
According to the terms of our agreement, Rogers will bill us monthly for all
telecommunications services provided which we would then bill the customer at
higher rates. Our agreement with Rogers requires that we arrange for a minimum
of 5,000 new telephone numbers (accounts) by April 20, 2001; 15,000 new
telephone numbers by April 20, 2002; and 25,000 new telephone numbers by April
20, 2003. If we do not reach these minimums we are obligated to pay Rogers an
amount equal to $20 Can. times the number of telephone numbers we are short of
the minimum. Rogers would also have the right to terminate the agreement on ten
day written notice if these minimums are not met. In addition, we are required
to deposit with Rogers a security deposit of $100,000 Can. We can satisfy this
requirement by posting an irrevocable letter of credit. At the present time we
are attempting to arrange a letter of credit through a Canadian bank. However,
there can be no assurance we will be successful. If we are unable to secure an
irrevocable letter of credit, we would be forced to deposit cash with Rogers to
satisfy the security interest requirement or Rogers could terminate the
agreement. The payment of $100,000 Can. to Rogers at the present time would
adversely affect our ability to undertake other projects or fund other
operations.
PLANNED BUSINESS OPERATIONS
Subject to securing adequate financing, of which there can be no
assurance, we plan to eventually expand our current operations of providing
traditional long distance telephone service in Canada to providing local
telephone service in Canada, traditional telephone services in the United States
and a variety of telecommunication services based upon the internet and wireless
technology.
24
<PAGE>
Telephone service routed over the internet, or internet telephony,
requires that customers be connected to the internet. Internet connections are
provided through local telephone companies or so-called internet service
providers. Therefore, customers pay only for the cost of a local telephone call
for long distance calls routed over the internet because the internet carries
any data, including telephone calls, free all over the world.
Unlike traditional telephone service which is based upon a system
designed to handle principally voice and relies upon dedicated circuits which
connect callers from end-to-end, the internet does not rely upon dedicated
circuits, having been established to handle only computer data. Accordingly, at
points where local, traditional traffic connects to the internet, the traffic
must be converted to the protocol of the connecting system. The device which
performs such conversions are called gateways.
After establishment of a sufficient number of gateways, and subject to
obtaining the necessary financing, which cannot be assured, we plan to commence
marketing internet telephony services. Initially, we plan to offer PC to phone
service. In order to utilize our services, it will be necessary for subscribers
to download enabling software from our website. We have established six such
gateways and believe that this number is sufficient for us to begin offering
internet-based services.
In 1999, we incorporated a new company called Hot Caller.Com Inc. which
eventually, subject to arranging sufficient financing of which there can be no
assurance, will offer a service enabling subscribers connected to the internet
to make free long distance phone calls to over 60 countries. A recipient of a
telephone call initiated by a Hot Caller subscriber will not need a computer or
an internet connection in order to receive the telephone call. In order to place
a free phone call, a Hot Caller subscriber is required to first view
advertisements on his PC. The duration of the subscriber's call is related to
the length of time the subscriber views the advertisements. The longer the
subscriber views the advertisements, the longer the duration of the telephone
call. Hot Caller's sole source of revenue will be from paid advertisements. We
anticipate it will cost at least $2 million to launch this service; accordingly,
because of our present financial condition, we will not launch this service
during the fiscal year ended June 30, 2000.
Subject to our ability to finance these activities, we plan to
eventually offer the following internet-based services:
PCs to phone
Free e-mail
Free reminder service
Free PC to phone long distance calling
***************
25
<PAGE>
Long distance telephone service has historically been offered through
public switched telephone networks which operate on dedicated transmission
circuits utilizing lines established for that purpose. The internet, on the
other hand, was developed to transmit computer data and operates on a different
system referred to internet protocol. However, technological advances have made
it possible for audio text, pictures, and even video to be transmitted over the
internet, albeit with varying and inconsistent levels of reliability and
quality.
These advances have established the internet as a powerful
communications medium because of its versatility and cost. A user only pays for
the cost of a local telephone call, which connects into the internet. Once
connected, the transmission travels free over the internet anywhere in the
world. As a result, the nature of all communications is changing as the internet
expands low-cost communication possibilities.
Innofone's Strategy
Our long range objective is to provide full-service, one-stop shopping
for telecommunications services.
We will seek to exploit the confusing, overcrowded telecommunications
systems and services which result in customers receiving multiple services from
multiple providers, and multiple bills. We intend to offer many services for
which consumers will receive only one monthly bill. The services we presently
plan to offer include (1) long distance telephone service, (2) local telephone
service, (3) internet telephony, (4) paging services, (5) mobile phone service,
(6) calling cards, and (7) mobile phone international access. We believe that
this strategy of bundling a complete range of telecommunications services for
which the customer receives only one monthly itemized bill greatly simplifies
the consumer's management of these services. This, together with our policy of
guaranteeing our customers lower long distance rates than would be charged by
the major Canadian telephone companies, could enable us to successfully compete
in the intensely competitive telecommunications industry.
We believe that one of the keys to establishing successful, profitable
operations is to rapidly expand our subscriber base. Once a subscriber is
obtained for one of its telecommunications services, we intend to offer that
person additional services.
The Canadian Telecommunications Industry
According to the Canadian government, in 1997 the Canadian
telecommunications service industry generated approximately $23.5 Can. billion
in revenues. These revenues can be broken down into the following service market
segments:
o Wired local line revenues of $8.0 billion (33%)
o Wired and wireless long distance services revenues of $9.0
billion (38%)
26
<PAGE>
o Cellular, paging and other wireless revenues of $3.0 billion
(13%) and,
o Other telecom related services revenues of $3.6 billion (16%)
The Canadian telecommunications industry is currently dominated by The
Canadian Stentor Alliance, a coalition of major provincial and regional
telephone service providers. In 1997, the companies comprising The Canadian
Stentor Alliance accounted for $17.5 Can. billion of telecommunication revenues,
or 74.6% of the total. These companies provide both local and long distance
services, with long distance services representing approximately $6.7 Can.
billion in revenues. Bell Canada was responsible for approximately 55% of the
total revenues generated by the companies in The Canadian Stentor Alliance.
Long Distance Services Market
In 1992 the Canadian Radio-television and Telecommunications Commission
(CRTC), which regulates the telecommunications industry in Canada, opened
avenues for long distance competition. The CRTC eliminated the incumbent
telecommunications carriers' monopoly on the provision of public inter-exchange
voice services in Canada and paved the way for Equal Access in 1994.
Canadian industry sources estimate that the Canadian long distance
market generated revenues of close to $9 Can. billion in 1997, up from $8.6 Can.
billion in 1996. The long distance market is composed primarily of revenues
earned from the provision of inter-exchange communication services to
residential and business customers.
Long distance revenues alone, however, do not reflect the significant
growth that has occurred in the long distance market since 1992, as a result of
competition, Recent submissions to the CRTC suggest that minutes of long
distance communication have grown on average by 10% per year since 1993.
Increased competition has also made a significant change in the
carriers' long distance market share. In 1992, Bell Canada and other carriers
controlled 92% of the estimated long distance revenues of $7.94 Can. billion. By
1997, Bell Canada and the other carriers' market share had declined to 67% of
the total estimated revenues of $9.0 Can. billion. The new major competitors to
the The Canadian Stentor Alliance companies are Sprint (14% market share), AT&T
(10% market share), cellular carriers (3% market share), and other smaller
carriers
Competition
We compete with many companies in the increasingly competitive
telecommunications industry, including some of the largest corporations in the
world. Bell Canada continues to dominate the market. The other large competitors
are Sprint Canada, AT&T and, MCI/ Worldcom, Inc.
27
<PAGE>
Corporate Development & Financing
Acquisition of APC Telecom
We began our entry into the Canadian telecommunications industry on
June 12, 1998, when we signed an Agreement and Plan of Reorganization with APC
Telecom and its shareholders pursuant to which we acquired all of the capital
stock of APC Telecom on June 26, 1998 (the "Acquisition Agreement"). We paid for
the purchase of this company by issuing 5,000,000 shares of our common stock and
5,000,000 shares of our preferred stock to the sellers. We presently conduct all
of our operations through this subsidiary company of ours; we changed its name
to Innofone Canada Inc. on March 30, 1999. Holders of the preferred stock, which
include Messrs. Hunt, Quinney, and Crowe , all of whom are senior management,
have converted 2,500,000 shares of preferred stock into 7,500,000 shares of
common stock and have the right to convert the remaining outstanding preferred
stock into a maximum of 7,500,000 shares of common stock prior to June 26, 2003
as set forth below:
1. When we have generated $2,000,000 Can. in cumulative revenues, holders
have the right to convert 1,250,000 shares of preferred stock into 3,750,000
shares of common stock.
2. When we have generated $7,000,0000 Can. in cumulative revenues, including
the $2,000,000 Can. in cumulative revenues above, holders have the right to
convert 1,250,000 shares of preferred stock into 3,750,000 shares of common
stock.
Any shares of preferred stock which have not been converted into common
stock before June 26, 2003 will automatically convert into common stock, and
holders will receive one share of common stock for every two shares of preferred
stock held.
We have the right until June 26, 2000 to redeem, at a price of $0.01
per share, all shares of common and preferred stock held byMessrs. Crowe, Hunt,
and Quinney in the event that any of these persons' employment with us is
terminated.
Financings
From July 28, 1998 through October 14, 1998 we sold a total of
2,000,000 Units, at a price of $0.05 per Unit, netting $100,000. Each Unit
consisted of (a) one share of common stock; (b) one "A" warrant, exercisable
until April 30, 1999, to purchase common stock at a price of $0.10 per share;
(c) one "B" warrant, exercisable until April 30, 1999, to purchase common stock
at a price of $.14 per share; and (d) one "C" warrant, exercisable until April
30, 1999, to purchase common stock at a price of $0.20 per share.
A total of (a) 1,848,000 "A" warrants were exercised between December
23, 1998 and April 30, 1999, netting $184,800, (b) 1,820,000 "B" warrants were
exercised between
28
<PAGE>
December 8, 1998 and April 30, 1999, netting $254,800, and (c) 462,000 "C"
warrants were exercised between April 10, 1999 and April 30, 1999, netting
$92,400. The Units were sold pursuant to the exemption from registration set
forth in Rule 504, promulgated under the Securities Act; the common stock issued
pursuant to the exercise of the " A," " B," and "C" warrants were also issued
pursuant to the exemption from registration set forth in Rule 504, promulgated
under the Securities Act.
In August 1999, we raised $501,100 in a private placement of our
convertible promissory notes to 23 subscribers in Canada. Each holder of the
notes is entitled to convert the note plus accrued interest into common stock at
the rate of $0.40 per share. The notes are unsecured, bear interest at the
annual rate of 8% and are due on July 31, 2000.
In January 2000, we raised $1,039,500 in a private placement of our
convertible promissory notes to 50 subscribers in Canada, Bermuda and the
Bahamas. Each holder of the notes is entitled to convert the note plus accrued
interest into common stock at the rate of $0.40 per share. The notes are
unsecured, bear interest at the annual rate of 8% and are due on December 31,
2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND NOTES THERETO AND THE OTHER FINANCIAL INFORMATION
INCLUDED ELSEWHERE IN THIS FILING.
PLAN OF OPERATIONS
Overview
Raising Capital
At April 30 ,2000, Innofone had insufficient cash to fund its
operations over the next 12 months and undertake new projects, such as offering
internet-based telecommunications and wireless services. Accordingly, we are
dependent on securing additional financing, of which there can be no assurance.
We estimate that we require approximately $4 million over the next twelve months
in order to execute our business plan. There can be no assurance that we will be
successful in raising all or a portion of these funds. Accordingly, there is
substantial doubt as to whether Innofone will be able to continue as a going
concern.
During January and February 2000, we raised $1,039,500 through a
convertible debt offering. At March 31, 2000, we had $524,000 in cash. These
funds are being used to finance current operations. Management believes its
fixed monthly expenses are approximately $90,000 Can. ($63,000). Management
believes that the funds Innofone currently has and should provide
29
<PAGE>
sufficient capital for Innofone to continue operations for four months.
Continued operations depend upon our ability to attain profitable operations and
obtain sufficient cash from external financing to meet our liabilities as they
become payable. These conditions cast substantial doubt on Innofone's ability to
continue as a going concern. Management is of the opinion that sufficient
working capital will be obtained from operations and external financing to meet
the Innofone's liabilities and commitments as they become payable.
We anticipate that cash flows from our recently launched project with
Visa Desjardins should be sufficient to cover our ongoing operating costs in the
summer of 2000. In addition, Mr. Douglas Burdon, a consultant to Innofone, has
indicated to management that he will be exercising options to acquire 1,000,000
shares at a price of $.50 per share, when our shares of common stock begin
trading again on the OTC Bulletin Board. However, there can be no assurance that
Mr. Burdon will exercise any or all of this option. We are also negotiating a
$500,000 Can. working capital line of credit with a Canadian bank. Management
intends that this line of credit would only be used for emergency purposes.
In connection with our January - February 2000 offering of convertible
debentures, we issued warrants entitling the holders to purchase a total of
2,598,750 shares of common stock at an exercise price of $1.00 per share. A
number of the persons holding the warrants have informally expressed to
management their desire to exercise the warrants. If all the warrants are
exercised, we would receive $2,598,750 in proceeds. However, there can be no
assurance that any warrants will be exercised. Additionally, Management has
received informal, non-binding indications from certain holders of the July 1999
convertible debentures of their interest in converting the debt into shares at a
price of $0.40 per share. However, there can be no assurance that any
convertible debentures will be converted.
Finally, we have the options in Optel which can be exercised later
during 2000. There are 39,062 options at $6.00 Can. that can be exercised on
October 30, 2000, and a further 25,000 options that can be exercised after
December 31, 2000. The closing price of the Optel shares on May 2, 2000 was
$15.50 Can. per share.
Results of Operations
Year Ended June 30, 1999 with comparative figures for 1998
On June 26, 1998 Innofone acquired all of the outstanding shares of
Innofone Canada, a private company. Under the terms of the transaction, the
shareholders of Innofone Canada received 5,000,0000 shares of common stock and
5,000,0000 shares of preferred stock of Innofone or 83% of the outstanding
shares of common stock, on a fully diluted basis. Since the former shareholders
of Innofone Canada control Innofone subsequent to these transactions, the
business combination of the two companies has been accounted for as a reverse
takeover of
30
<PAGE>
Innofone by Innofone Canada. Application of reverse takeover accounting results
in the consolidated financial statements of the combined entity are issued under
the name of the legal parent (Innofone) but are considered a continuation of the
financial statements of the legal subsidiary, Innofone Canada. As Innofone
Canada is deemed to be the acquirer for accounting purposes, its assets and
liabilities are included in the consolidated financial statements at their
historical carrying values. In addition, control of the net assets and
operations is deemed to be acquired by Innofone Canada and for the purposes of
this transaction, the deemed consideration is the net book value of Innofone as
at June 26, 1998. A result of the reverse takeover is that the continuing entity
is deemed to be the acquiring company which is the legal subsidiary.
Consequently, the comparative figures for the Statements of Operations and
Deficit and Changes in Financial Position are from the date of the subsidiary's
incorporation, being April 24, 1998 to Innofone's first fiscal year ended June
30, 1998.
Revenues
To date, Innofone has generated its revenues solely from the resale of
long distance voice services to residential and small to medium sized
businesses in Canada. Since Innofone.com, Incorporated is a United States
Corporation and it is publicly traded in the United States, it was determined
that the reporting currency should be in U.S. dollars. In future periods, and
subject to arranging financing, Innofone expects to continue to expand its long
distance customer base while offering other bundled services including pagers,
internet, calling cards, prepaid calling cards, and cellular services.
In addition, Innofone plans to launch its HotCaller business, subject
to arranging the required funding for this venture, estimated by management to
be $2,000,000. The HotCaller business plan calls for advertising revenues to be
generated from bannerads and targeted advertisements which would be viewed over
the internet by a subscriber prior to placing a free long distance call.
Innofone would be the carrier of the long distance call which would be directed
from the HotCaller web site to Innofone's gateway to local public switched
network. However, because of a lack of funds, management has postponed
indefinitely all plans regarding HotCaller. Innofone's ability to implement any
of its plans and commence generating revenues from any sources is dependent upon
its ability to raise adequate financing, of which there can be no assurance.
Operating Expenses
Innofone's operating costs consist of cost of services, selling,
general and administrative costs ("SG&A"), interest and financing costs and
amortization costs.
Cost of Services. Through June 30, 1999, cost of services consisted of
expenditures to the underlying carriers of the long distance services that
Innofone resells to its customers. The main carriers selling services to
Innofone through the Canadian Resellers Agreement are Sprint Canada and AT&T
Canada. For future periods, cost of services will also include the cost of
related bundled communications services which Innofone plans to offer, subject
to it securing financing.
31
<PAGE>
SG&A Costs. SG&A costs include the personnel cost to acquire and retain
customers, billing costs, premises costs and related administrative expenses.
Amortization. Amortization expense includes depreciation and amortization of
capital assets including computer hardware and software, furniture and fixtures,
leasehold improvements, and telephone and technical equipment.
Sales and Cost of Sales. Innofone realized no revenues from its inception
through the end of fiscal 1998. For the year ended June 30, 1999, revenues were
$105,100 from the sale of traditional long-distance services and cost of sales
were $71,273, resulting in a gross operating profit of $33,827 or 32% of sales.
Innofone carried out testing of its internet gateways during the period but no
revenues were generated. Related costs were expensed to operations.
Selling, general and administrative expenses. Included in these expenses are
management and consulting fees of $180,000 as remuneration to three senior
officers, Mr. Rick Quinney, Mr. Ron Crowe and Mr. Larry Hunt. During this first
year of operations, these persons have agreed to accept, in total, payments of
$113,000 with the balance of $67,000 being accrued in the accounts until cash
flow permits. The following schedule details the costs included in selling,
general and administrative expenses for the year ended June 30, 1999.
<TABLE>
<S> <C>
management and consulting fees $180,000
o personnel costs to acquire and retain customers 83,498
o billing costs 61,391
o professional fees 51,866
o server maintenance costs 40,284
o telephone switching, network and internet costs 37,103
o printing and video kit costs 37,901
o travel and accommodation 30,085
o advertising 27,286
o write off of franchise fee 23,729
o rent 21,767
</TABLE>
32
<PAGE>
<TABLE>
<S> <C>
o compensation expense of options 112,470
o other operating expenses 93,879
--------
Total selling, general and administrative costs. $801,259
========
</TABLE>
Amortization. Amortization expenses represents the amortization of
capital costs for computer equipment and software, leasehold improvements,
furniture and fixtures, and telephone and technical equipment for a total of
$56,075 for the fiscal year ended June 30, 1999.
Interest and financing charges. Interest on long term debt represents
interest on the bank loan for a total of $15,037 for the year. Innofone also
incurred interest and bank charges of $8,732 for the year ended June 30,1999.
Loss on sale of investment. On June 17, 1999, Innofone sold its
investment in Canadian Telecom Resellers Alliance Inc. ("Canadian Resellers") to
Optel Communications Corp. ("Optel") and received 156,250 warrants to purchase
156,250 Class B non-voting shares in Optel. The warrants have been assigned no
value and, consequently, a loss of $89,118 has been recorded on the sale of the
investment.
Innofone incurred losses of $936,394 for the year ended June 30, 1999
compared to a loss of $51,841 for the comparative period from the date of
inception to June 30, 1998. Innofone has total cumulative losses to date of
$988,235.
33
<PAGE>
Interim Financial Statements for the Quarter Ended March 31, 2000
Revenues and cost of sales. Revenues for the quarter ended March 31, 2000
were $186,234 compared to $34,068 for the quarter ended March 31, 1999. Revenues
for the nine months ended March 31, 2000 were $531,465 compared to $54,929 for
the nine month period ended March 31, 1999. These revenues are from the resale
of long distance voice services to residential and small and medium sized
businesses.
The cost of sales increased to $142,870 for the quarter ended March 31,
2000 generating a gross profit of $43,364, as compared to cost of sales of
$18,339 for the quarter ended March 31, 1999, and a gross profit of $15,729.
Cost of sales for the nine months ended March 31, 2000 were $375,622, compared
to $31,527 for the nine months ended March 31, 1999. The gross margin of 29% for
the nine months ended March 31, 2000 shows a slight decline in the gross margin
of 32% reflected in the financial statements for the year ended June 30, 1999.
This is due to a combination of changing customer mix, changes made to the
billing plan and different pricing between the two periods.
Selling, general and administrative expenses. Selling, general and
administrative expenses totaled $316,783 for the quarter ending March 31, 2000,
as compared to $177,257 for the quarter ended March 31, 1999. Selling, general
and administrative expenses for the nine months ending March 31, 1999 were
$916,973, as compared to $437,683 for the comparable nine month period ended
March 31, 1999. The details of these expenses are summarized in the table below.
<TABLE>
<CAPTION>
NINE NINE QUARTER QUARTER
MONTHS MONTHS ENDED ENDED
ENDED ENDED 3/31/00 3/31/99
3/31/00 3/31/99
<S> <C> <C> <C> <C>
Management and consulting fees $258,803 140,948 $105,992 $48,138
Personnel and customer acquisition costs 190,209 38,754 18,748 19,503
Billing costs 53,920 31,704 32,208 14,038
Professional fees 124,478 22,142 47,273 8,588
Server maintenance costs 39,395 33,537 16,478 23,301
Switching, network and internet costs 20,322 30,294 7,681 6,421
Printing and video kit costs 19,483 15,771 1,469 12,337
Travel and accommodation 19,415 22,525 9,231 5,203
Advertising 76,030 15,047 22,705 1,192
Rent 23,074 16,074 7,081 5,180
Other operating expenses 91,842 71,067 47,916 38,740
------ ------ ------ ------
Total selling general and administrative costs $916,973 $437,683 $316,783 $177,257
======== ======== ======== ========
</TABLE>
34
<PAGE>
Management and consulting fees include the fees paid to a marketing consultant
as well as payment to the three principal officers. Personnel and customer
acquisition costs are higher relative to last year, primarily as a result of
increased sales activity. Professional fees reflect additional legal and
accounting costs accrued for the expenses of the SEC filing. Advertising costs
in the first half of the year are primarily public relation costs which were
considerably less in the last fiscal year.
Amortization. Amortization expense of $62,751 for the nine months ended
March 31, 2000 and $21,151 for the third quarter ending March 31,2000, includes
depreciation and amortization of capital assets and is slightly higher relative
to last year's expense due to the additional computer equipment acquired during
the first nine months of the current year.
Development costs for bundled services program. During the third quarter,
the company incurred training, marketing, and software development costs in
connection with developing its reseller program of bundled telecommunications
products and services to be offered under branded loyalty programs with
strategic partners. The first of these programs was launched in April 2000.
Interest and bank charges Interest and bank charges for the nine months
ended March 31, 2000, includes a charge of $1,312,750 because the fair value of
our common stock on the dates when the convertible debt was issued was higher
than the conversion price per share. This embedded beneficial conversion feature
has been added to interest expense and has been included in additional paid-in
capital effective the date of the notes.
We incurred losses of $1,177,334 for the quarter ending March 31, 2000 and
$2,154,025 in losses for the nine months ended March 31, 2000, for cumulative
losses to date of $3,143,260.
Liquidity and Capital Resources
Since its inception Innofone has financed its operations through the
proceeds from the sale and issuance of equity securities, loans from
stockholders and from bank financing. Innofone borrowed approximately $170,000
from a bank for the acquisition of five internet gateways. The bank loan is
secured by a first charge on the assets of Innofone, bears interest at prime
plus 3% and is repayable at the rate of $3,418 per month. Innofone raised
$632,000 in 1999 from the sale of common stock and the subsequent exercise of
common stock purchase warrants. As at June 30, 1999, Innofone had borrowed
$312,000 from investors and certain stockholders. The stockholder loans are
unsecured, non-interest bearing, and are repayable in monthly installments of
$1,733 beginning July 1, 2003 and ending in 2018. Innofone raised $501,100 in
1999 from a convertible debt offering, and in January-February, 2000, raised
$1,039,500 in another private convertible debt offering. Funds from these
sources have been used for working capital to fund the testing of the internet
telephony gateways, marketing and development costs for the Visa Desjardins
project, and other general corporate purposes.
The timing and amount of Innofone's capital requirements over the next
twelve months
35
<PAGE>
will depend on a number of factors, including the number of new customers that
are signed, the demand for Innofone's products and services, and the number of
gateways that may be added to its network. Innofone has no commitment for
further financing and there can be no assurance that it will be able to raise
additional capital.
DESCRIPTION OF PROPERTY
We do not own any real estate. We lease approximately 3,950 square feet
of office space which houses our headquarters, executive offices and
administrative offices at 241 Applewood Crescent, Vaughan, Ontario, Canada.
Approximately 1,000 square feet of the premises are not being used, and are
available for future expansion. The lease commenced in July 1998, and expires in
July 2003, unless we exercise an option to extend it for an additional five
years. Average monthly rental and associated expenses are $3,000 Can. Management
believes that its existing facilities are adequate for our current needs.
EXECUTIVE COMPENSATION
The following table sets forth all compensation for all periods
indicated for Mr. Ron Crowe who was, as of June 30, 1999, our chief executive
officer. No persons received in excess of $100,000 for the year ended June 30,
1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Restricted
Shares or
Restricted Share All other
Securities Units LTIP Compen-
Name and Other Annual Under Options Units Payouts
sation Compensation Options
Principal Position Year Salary Bonus ($) ($) ($) (#) ($) ($) ($)
- - ------------------ ---- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ronald Crowe 1999 $60,000 0 0 250,000
Chairman of the Board
</TABLE>
Messrs. Crowe, Hunt and Quinney are employed at annual salaries of
$90,000 Can. ($7,500 Can. per month). For the fiscal year ended June 30, 1999,
Messrs. Crowe and Hunt
36
<PAGE>
were paid $6,000 Can. per month (and accrued $1,500 Can. per month). Mr. Quinney
received $3,000 per month, and accrued $4,500 per month. From July 1, 1999
through February 29, 2000, Messrs. Hunt and Crowe were paid $7,500 Can. per
month with no amounts accruing. From July 1, 1999 Mr. Quinney was paid $6,000
Can. per month, accruing $1,500 Can. per month. Effective March 1, 2000 Mr. Hunt
began receiving $11,000 Can. per month and Mr. Crowe began receiving $9,000 Can.
per month. The amount of the payments over $7,500 Can. per month are
reimbursement for the amounts that had been accrued by Messrs. Crowe and Hunt.
Option/SAR Grants in Last Fiscal Year
OPTIONS TO PURCHASE SECURITIES
- --------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE
- --------------------------------------------------------------------------------
Ronald Crowe 250,000 30% 1.00 June 30, 2001
- --------------------------------------------------------------------------------
Larry Hunt 250,000 30% 1.00 June 30, 2001
- --------------------------------------------------------------------------------
Richard Quinney 250,000 30% 1.00 June 30, 2001
- --------------------------------------------------------------------------------
Subsequent to year end, we agreed to grant options to purchase
7,330,000 shares of common stock, none of which will be granted to officers and
directors, at prices ranging from $.001 per share to $0.40 per share.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-
UNEXERCISED THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
VALUE FY-END (#) FY-END ($)
SHARES ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
---- --------------- --- ------------- -------------
<S> <C> <C> <C> <C>
Ronald Crowe 2 50,000/0 $92,500
</TABLE>
37
<PAGE>
Larry Hunt 250,000/0 $92,500
Richard Quinney 250,000/0 $92,500
No executive officer exercised any options during the fiscal year ended
June 30, 1999.
Employee Stock Compensation Plan
We have adopted the 1997 Employee Stock Compensation Plan for
employees, officers, directors and advisors (the "ESC Plan") and reserved a
maximum of 1,000,000 shares of common stock to be issued upon the grant of
awards under the ESC Plan. The ESC Plan will be administered by the board of
directors. No common stock has been awarded under the ESC Plan.
Compensatory Stock Option Plan
We have also adopted the Compensatory Stock Option Plan for officers,
employees, directors and advisors (the "CSO Plan"). We have reserved a maximum
of 1,500,000 shares of common stock to be issued upon the exercise of options
granted under the CSO Plan. Options will be granted under the CSO Plan at
exercise prices to be determined by the board of directors. The CSO Plan will be
administered by the board of directors. Options covering 1,380,000 shares of
common stock have been granted under the CSO Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock traded on National Association of Securities Dealers
Over the Counter Bulletin Board ("OTC Bulletin Board") from October 1998 to
September 1, 1999. The price range of trading in our common stock, on a
quarterly basis, during that period was as follows:
OTC BULLETIN BOARD
1998
----
High Low
---- ---
4th Quarter .85 .54
38
<PAGE>
1999
----
High Low
---- ---
1st Quarter .90 .3125
2nd Quarter .75 .125
3rd Quarter 1.40 .35
(through
August
31, 1999)
Please note that quotations on the OTC Bulletin Board represent
inter-dealer prices, without mark-ups, commissions, etc., and they may not
necessarily be indicative of actual sales prices.
On September 1, 1999 our common stock was de-listed from the OTC
Bulletin Board for failure to become a reporting issuer with the SEC by such
date. Since that date, our common stock has traded on the over-the-counter
market in the United States. The price range of trading in our common stock, on
a monthly basis, since that time, is as follows:
<TABLE>
<CAPTION>
1999 High - Low
---- ----------
<S> <C>
September 1.10 - .375
October 1.00 - .45
November .75 - .25
December .55 - .28
2000 High - Low
January .80 - .45
February 1.016 - .60
</TABLE>
39
<PAGE>
March 2.00 - .80
The closing price of our common stock in on the over-the-counter market
on May 23, 2000 was $0.80 per share.
Upon the effectiveness of our registration statement, of which this
prospectus is a part, we will become a reporting issuer with the SEC. As a
reporting issuer we will be required to file periodic reports with the SEC and
our common stock will be eligible for trading on the OTC Bulletin Board. We
intend to take the necessary steps for our common stock to be listed on the OTC
Bulletin Board.
At May 2, 2000, we had 66 shareholders of record.
DIVIDEND INFORMATION
We have not paid any cash dividends to date, and no cash dividends will
be declared or paid during the next twelve months. Payment of dividends is
solely at the discretion of our board of directors.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL
DISCLOSURE
None.
SECURITIES BEING OFFERED
Our common stock is the only security being offered pursuant to this
prospectus.
Each share of common stock is identical in all respects to all other
shares of common stock and entitles a stockholder to the same rights and
privileges enjoyed by all other stockholders, and subjects all stockholders to
identical qualifications, limitations and restrictions.
Stockholders are entitled to one vote, together with the holders of the
2,500,000 shares of preferred stock outstanding, for each share held of record
on all matters submitted to a vote of the stockholders. Stockholders do not have
cumulative voting rights. Accordingly, subject to the voting rights of preferred
stockholders may then possess, holders of a plurality of the shares present at a
meeting at which a quorum is present are able to elect all of the directors
eligible for election in a given year. The holders of a majority of the voting
power of the issued and outstanding capital stock constitutes a quorum for the
purpose of convening a stockholder meeting.
40
<PAGE>
Stockholders are entitled to dividends when declared by our board of
directors from legally available funds. Stockholders are also entitled to share
pro rata in any distribution to stockholders upon our liquidation or
dissolution. We do not anticipate declaring or paying any cash dividends during
the next twelve months.
None of our shares of common stock:
o have preemptive voting rights;
o are redeemable;
o are liable for assessments or further calls;
o have conversion rights; or
o have sinking fund provisions.
The common stock being offered hereby is being offered for sale from
time to time by certain of our stockholders as indicated on the Selling
Stockholder chart beginning on page 10, and any supplement thereto.
Transfer Agent and Registrar
Our transfer agent and registrar is Interwest Transfer Company Inc.,
located at 1981 East 4800 South Street, Suite 100, Salt Lake City, Utah. Its
telephone number is (801) 272-9294.
LEGAL MATTERS
The legality of the securities offered hereby has been passed upon for
us by Berns & Berns, One Rockefeller Plaza, Suite 210, New York, New York 10020.
EXPERTS
Our financial statements at June 30, 1999, appearing in this prospectus
and the registration statement, have been audited by KPMG LLP, independent
auditors, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing in giving said report.
41
<PAGE>
WHERE YOU CAN FIND ADDITIONAL INFORMATION
This prospectus is part of a registration statement on Form SB-2 under
the Securities Act that we filed with the Securities and Exchange Commission
with respect to the securities offered by this prospectus. This prospectus does
not contain all of the information set forth in the registration statement and
the exhibits and schedule filed with it. For further information about us and
the securities offered by th is prospectus, reference is made to the
registration statement and the exhibits and schedule filed with it. Statements
contained in this prospectus regarding the contents of any contract or any other
document to which reference is made are not necessarily complete, and, in each
instance, reference is made to the copy of such contract or other document filed
as an exhibit to the registration statement, each such statement being qualified
in all respects by such reference. A copy of the registration statement and the
exhibits and schedule filed therewith may be inspected without charge at the
public reference facilities maintained by the Commission in Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New
York 10048, and copies of all or any part of the registration statement may be
obtained from such offices upon the payment of the fees prescribed by the
Commission. Please call the Commission at 1-800-SEC-0330 for further information
about its public reference room. The Commission maintains a World Wide Web site
that contains reports, proxy and information statements and other information
regarding registrants, including us, that file electronically with the
Commission. The address of the site is http://www.sec.gov. Our registration
statement and the exhibits and schedules we filed electronically with the
Commission are available on this site.
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements for the Year ended June 30, 1999 and for the period from
April 24, 1998 to June 30, 1998.................................................................................F-3
Independent Auditors' Report....................................................................................F-4
Consolidated Balance............................................................................................F-5
Consolidated Statements of Operations...........................................................................F-6
Consolidated Statements Shareholders' Deficiency................................................................F-7
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Consolidated Statements of Cash Flows...........................................................................F-8
Notes to Consolidated Financial Statements......................................................................F-9
Unaudited Financial Statements at March 31, 2000 With Comparative Figures
for the Year ended June 30, 1999:...............................................................................F-26
Consolidated Balance Sheet......................................................................................F-27
Consolidated Statements of Operations...........................................................................F-28
Consolidated Statements Shareholders' Deficiency................................................................F-29
Consolidated Statements of Changes in Financial
Position........................................................................................................F-30
Notes to Consolidated Financial Statements......................................................................F-31
</TABLE>
43
<PAGE>
Consolidated Financial Statements
(Stated in United States dollars)
INNOFONE.COM,
INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
A Development Stage Company
Year ended June 30, 1999 and the period
from April 24, 1998 to June 30, 1998
<PAGE>
AUDITORS' REPORT
To the Directors of Innofone.com, Incorporated
We have audited the consolidated balance sheets of Innofone.com, Incorporated
(formerly APC Telecommunications, Inc.) as at June 30, 1999 and 1998 and the
consolidated statements of operations, shareholders' deficiency and
comprehensive loss and cash flows for the year ended June 30, 1999, the period
from April 24, 1998 to June 30, 1998 and the period from April 24, 1998 to June
30, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at June 30, 1999 and
1998 and the results of its operations and its cash flows for the year ended
June 30, 1999, the period from April 24, 1998 to June 30, 1998 and the period
from April 24, 1998 to June 30, 1999 in accordance with United States generally
accepted accounting principles.
Chartered Accountants
Toronto, Canada
September 3, 1999, except as to notes 7, 10(b) and 19
which are as of May 10, 2000
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA - U.S. REPORTING
DIFFERENCE
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph when the financial statements are affected by
conditions and events that cast substantial doubt on the Company's ability to
continue as a going concern, such as those described in note 1(b) to the
financial statements. Our report to the shareholders dated September 3, 1999,
except as to notes 7, 10(b) and 19 which are as of April 10, 2000, is expressed
in accordance with Canadian reporting standards which do not permit a reference
to such events and conditions in the auditors' report when these are adequately
disclosed in the financial statements.
Chartered Accountants
Toronto, Canada
<PAGE>
September 3, 1999, except as to notes 7, 10(b) and 19
which are as of May 10, 2000
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Consolidated Balance Sheets
(Stated in United States dollars)
June 30, 1999 and 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ - $ 310,285
Term deposit, redeemable,
maturing on May 15, 2000 102,477 -
Accounts receivable, net of allowance for doubtful accounts
of nil (1998 - nil) 73,167 16,232
Prepaid expenses and deposits 18,792 50,738
- ---------------------------------------------------------------------------------------------------------------
194,436 377,255
Fixed assets (note 3) 286,370 181,722
Franchise fee (note 4) - 23,729
- ---------------------------------------------------------------------------------------------------------------
$ 480,806 $ 582,706
===============================================================================================================
Liabilities and Shareholders' Deficiency
Current liabilities:
Bank indebtedness $ 28,816 $ -
Accounts payable and accrued liabilities 253,725 213,407
Advances from ultimate shareholders (note 5) 67,000 -
Current portion of long-term debt (note 6) 41,012 42,968
Obligation under capital lease 3,695 -
- ---------------------------------------------------------------------------------------------------------------
394,248 256,375
Advances from ultimate shareholders (note 5) 245,405 229,388
Long-term debt (note 6) 89,176 127,541
Shareholders' deficiency:
Share capital (note 8) 765,308 20,838
Deficit accumulated during the development stage (988,235) (51,841)
Accumulated other comprehensive income (loss) (25,096) 405
- ---------------------------------------------------------------------------------------------------------------
(248,023) (30,598)
Commitment (note 10)
Contingency (note 18)
Subsequent events (note 19)
- ---------------------------------------------------------------------------------------------------------------
$ 480,806 $ 582,706
===============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
2
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Consolidated Statements of Operations
(Stated in United States dollars)
Year ended June 30, 1999, the period from April 24, 1998 to June 30, 1998 and
the period from April 24, 1998 to June 30, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Cumulative total
from April 24,
1998 to June 30,
- ---------------------------------------------------------------------------------------------------------------
1999 1998 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 105,100 $ - $ 105,100
Cost of sales 71,273 - 71,273
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Gross profit 33,827 - 33,827
Selling, general and administrative expenses 801,259 51,809 853,068
Loss on sale of investment (note 7) 89,118 - 89,118
Amortization 56,075 - 56,075
Interest on long-term debt 15,037 - 15,037
Interest and bank charges 8,732 32 8,764
- ---------------------------------------------------------------------------------------------------------------
970,221 51,841 1,022,062
- ---------------------------------------------------------------------------------------------------------------
Net loss $ (936,394) $ (51,841) $ (988,235)
===============================================================================================================
Basic net loss per common share (note 12) $ (0.17) $ (0.01)
===============================================================================================================
Weighted average number of common
shares outstanding 5,447,507 10,074,600
===============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATION, INC.)
Consolidated Statements of Shareholders' Deficiency and Comprehensive Loss
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Deficit
- ------------------------------------------------------------------------------------------------------------------------------------
Common accumulated Accumulated
Additional share during other
Common Preferred paid-in purchase development comprehensive
shares shares capital warrants stage income (loss) Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares issued in connection with:
Issuance of common shares for cash $ - $ - $ 563 $ - $ - $ - $ 563
Issuance of shares for reverse takeover
transaction (note 1) 5,000 5,000 437 9,838 - - 20,275
- -----------------------------------------------------------------------------------------------------------------------------------
5,000 5,000 1,000 9,838 - - 20,838
Net loss - - - - (51,841) - (51,841)
Other comprehensive income, net of tax:
Foreign currency translation adjustment - - - - - 405 405
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income (loss) - - - - (51,841) 405 (51,436)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1998 5,000 5,000 1,000 9,838 (51,841) 405 (30,598)
Shares issued in connection with:
Issuance of common shares for cash 2,000 - 98,000 - - - 100,000
Exercise of warrants for
common shares 4,130 - 527,870 (9,838) - - 522,162
Exercise of common share purchase
warrants for common shares 1,000 - 8,838 - - - 9,838
- -----------------------------------------------------------------------------------------------------------------------------------
7,130 - 634,708 (9,838) - - 632,000
Stock options - - 112,470 - - - 112,470
- -----------------------------------------------------------------------------------------------------------------------------------
Net loss - - - - (936,394) - (936,394)
Other comprehensive loss, net of tax:
Foreign currency translation adjustment - - - - - (25,501) (25,501)
- -----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive loss - - - - (936,394) (25,501) (961,895)
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1999 $ 12,130 $ 5,000 $ 748,178 $ - $ (988,235) $ (25,096) $(248,023)
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Consolidated Statements of Cash Flows
(Stated in United States dollars)
Year ended June 30, 1999, the period from April 24, 1998 to June 30, 1998 and
the period from April 24, 1998 to June 30, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Cumulative total
from April 24,
1998 to June 30,
- ---------------------------------------------------------------------------------------------------------------
1999 1998 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows provided by (used in):
Operations:
Net loss $ (936,394) $ (51,841) $ (988,235)
Items not involving cash:
Amortization 56,075 - 56,075
Write off of franchise fee 23,729 - 23,729
Loss on disposal of fixed asset 17,071 - 17,071
Loss on sale of investment 89,118 - 89,118
Compensation expense on stock options 112,470 - 112,470
Change in non-cash operating working capital:
Accounts receivable (56,900) (16,232) (73,132)
Prepaid expenses and deposits 32,049 (30,463) 1,586
Accounts payable and accrued liabilities 39,800 213,407 253,207
- ---------------------------------------------------------------------------------------------------------------
(622,982) 114,871 (508,111)
Financing:
Increase in bank indebtedness 28,816 - 28,816
Advances from ultimate shareholders 83,017 229,388 312,405
Proceeds on long-term debt - 170,509 170,509
Principal payments on long-term debt (40,321) - (40,321)
Principal payments on obligation
under capital lease (1,105) - (1,105)
Issuance of share capital 632,000 563 632,563
- ---------------------------------------------------------------------------------------------------------------
702,407 400,460 1,102,867
Investments:
Proceeds from disposal of fixed asset 106,330 - 106,330
Additions to fixed assets (285,963) (181,722) (467,685)
Purchase of term deposit (102,477) - (102,477)
Payment of franchise fee - (23,729) (23,729)
Investment in CTRA (89,118) - (89,118)
Proceeds on sale of investment in CTRA 40,000 - 40,000
Payment of note payable to CTRA (40,000) -D (40,000)
- ---------------------------------------------------------------------------------------------------------------
(371,228) (205,451) (576,679)
Effect of exchange rate changes on cash (18,482) 405 (18,077)
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (310,285) 310,285 -
Cash and cash equivalents, beginning of period 310,285 - D
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ - $ 310,285 $ D
===============================================================================================================
</TABLE>
Cash interest and income taxes paid for the year ended June 30, 1999 was $20,458
(1998 - $32) and nil (1998 - nil), respectively.
4
<PAGE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
Innofone.com, Incorporated (the "Company") is incorporated under the laws of the
State of Nevada. On March 30, 1999, the Company changed its name from APC
Telecommunications, Inc. to Innofone.com, Incorporated. The Company commenced
commercial operations in fiscal 1999, however, they are still considered to be
in the development stage due to the fact that there has been no significant
revenue derived from the operations. The Company, through its legal subsidiary
that operates in Canada, is engaged in the business of long distance telephone
and internet telephony. All of the Company's sales are to Canadian customers in
the residential and business sectors. The Company is not dependent on a single
customer. However, the Company uses only a few carriers of long distance
services that they are dependent on for the usage of their telephone lines.
1 Basis of presentation:
(a) Business combination of the Company and Innofone
Canada Inc. ("Innofone Canada") (formerly APC Telecom Inc.):
On June 26, 1998, the shareholders of the Company approved a share
exchange takeover bid whereby, on June 26, 1998, the Company
acquired all of the outstanding shares of Innofone Canada, a private
company. Under the terms of the transaction, the shareholders of
Innofone Canada received 5,000,000 common shares and 5,000,000
Series A, voting convertible preferred shares of the Company. The
result of this transaction is that the former shareholders of
Innofone Canada acquired 83% of the outstanding common shares of the
Company on a fully diluted basis.
Accounting for the business combination:
As former shareholders of Innofone Canada hold 83% of the outstanding
shares of the Company subsequent to these transactions, the business
combination of the two companies has been accounted for as a reverse
takeover of the Company by Innofone Canada.
Application of reverse takeover accounting results in the following:
(i) The consolidated financial statements of the combined entity are
issued under the name of the legal parent (the Company) but are
considered a continuation of the financial statements of the
legal subsidiary (Innofone Canada);
1
<PAGE>
(ii) As Innofone Canada is deemed to be the acquirer for accounting
purposes, its assets and liabilities are included in the
consolidated financial statements at their historical carrying
values;
2
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
1. Basis of presentation (continued):
(iii) Control of the net assets and operations of the Company is
deemed to be acquired by Innofone Canada. For purposes of this
transaction, the deemed consideration is considered to be
equivalent to the net book value of the Company as at June 26,
1998.
----------------------------------------------------------------
Deemed consideration $ 20,275
Assigned value of net assets:
Prepaid expenses and deposits $ 20,275
----------------------------------------------------------------
(b) Future operations:
These financial statements have been prepared on the going concern
basis, which assumes the realizations of assets and settlement of
liabilities in the normal course of operations, notwithstanding the
significant operating losses since incorporation, negative working
capital and deficiency in shareholders' equity at June 30, 1999 and
the Company's shares being delisted from the National Association of
Securities Dealers ("NASD") over- the-counter Bulletin Board (note
19(b)). Continued operations depend upon the Company's ability to
attain profitable operations and obtain sufficient cash from external
financing to meet the Company's liabilities as they become payable.
These conditions and events cast substantial doubt on the Company's
ability to continue as a going concern. Management is of the opinion
that sufficient working capital will be obtained from operations and
external financing (note 19(e)) to meet the Company's liabilities and
commitments as they become payable.
2. Significant accounting policies:
These consolidated financial statements have been prepared by management
in accordance with accounting principles generally accepted in the United
States, the more significant of which are outlined below.
3
<PAGE>
(a) Basis of presentation:
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, Innofone Canada. All
significant intercompany transactions and balances have been
eliminated on consolidation.
4
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
2. Significant accounting policies (continued):
(b) Cash equivalents:
Cash equivalents are nil as at June 30, 1999 and 1998.
For purposes of the statements of cash flows, the Company considers
all highly liquid debt instruments with original maturities of three
months or less to be cash equivalents.
(c) Fixed assets:
Fixed assets are recorded at cost and are amortized over the
estimated useful life of the asset using the following methods and
annual rates:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Asset Basis Rate
----------------------------------------------------------------------------------------
<S> <C> <C>
Computer servers and software Declining balance 30%
Furniture and fixtures Declining balance 20%
Leasehold improvements Straight line Over the lease term
Telephone Declining balance 30%
Technical equipment Declining balance 30%
----------------------------------------------------------------------------------------
</TABLE>
(d) Use of estimates:
The preparation of financial statements in conformity with United
States generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the period. Actual results
could differ from those estimates.
(e) Income taxes:
Income taxes are accounted for under the asset and liability method.
Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax
5
<PAGE>
credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
6
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
2. Significant accounting policies (continued):
(f) Foreign currency translation:
The Canadian dollar is the functional currency, being the currency in
which the Company carries out most of its operations. The
consolidated statement of operations is translated into United States
dollars using the average exchange rates for the year. The
consolidated balance sheet is translated into United States dollars
using the year end exchange rate. The translation gains or losses are
included in the consolidated statement of shareholders' deficiency as
accumulated other comprehensive income or loss.
(g) Comprehensive income:
On July 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, Reporting Comprehensive
Income. SFAS No. 130 establishes standards for reporting and
presentation of comprehensive income and its components in a full set
of financial statements. Comprehensive income consists of net loss
and foreign currency translation adjustments and is presented in the
consolidated statements of shareholders' deficiency and comprehensive
loss. The statement requires only additional disclosures in the
consolidated financial statements; it does not affect the Company's
financial position or results of operations. Prior year financial
statements conform to the requirements of SFAS No. 130.
(h) Stock option plan:
The Company applies the fair value based method of accounting
prescribed by SFAS No. 123, Accounting for Stock-Based Compensation
in accounting for its stock option plan. As such, compensation
expense is recorded on the date of grant based on the value of the
award and is recognized over the service period.
7
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
2. Significant accounting policies (continued):
(i) Impairment of long-lived assets and long-lived assets to be disposed
of:
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of. This
statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs
to sell.
(j) Revenue recognition:
The Company recognizes revenue primarily from the resale of long
distance services. Long distance services revenue is recorded as
revenue when the services are rendered.
3. Fixed assets:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1999
- --------------------------------------------------------------------------------------------------------
Accumulated Net book
Cost amortization value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computer servers and software $ 267,378 $ 263 $ 267,115
Furniture and fixtures 13,526 1,087 12,439
Leasehold improvements 5,456 1,059 4,397
Telephone 1,654 248 1,406
Technical equipment 1,192 179 1,013
- --------------------------------------------------------------------------------------------------------
$ 289,206 $ 2,836 $ 286,370
========================================================================================================
- --------------------------------------------------------------------------------------------------------
1998
- --------------------------------------------------------------------------------------------------------
Accumulated Net book
Cost amortization value
- --------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<S> <C> <C> <C>
Computer servers and software $ 176,266 $ - $ 176,266
Leasehold improvements 5,456 - 5,456
- --------------------------------------------------------------------------------------------------------
$ 181,722 $ - $ 181,722
========================================================================================================
</TABLE>
9
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
4. Franchise fee:
On April 26, 1998, the Company signed a franchise agreement with Access
Power Inc. giving it exclusive rights to develop internet telephony
throughout Canada using the innovative technologies trademarked by Access
Power Inc. for a period of thirty years. On December 11, 1998, this
agreement was voluntarily terminated resulting in full mutual releases
for both parties to the agreement. Accordingly, the capitalized franchise
fee has been charged to current operations and is included in selling,
general and administrative expenses.
5. Advances from ultimate shareholders:
Advances from ultimate shareholders, classified as long term, are
unsecured, non-interest bearing providing the Company is not in default
of any payments required to be made starting July 1, 2003, and are
repayable in equal monthly installments beginning July 1, 2003 to 2018.
The current advances from ultimate shareholders are due on demand.
6. Long-term debt:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bank loan bearing interest at the bank's
prime rate plus 3%, repayable in monthly principal payments of $4,774
from October 1998 to April 1999 and $3,418 commencing in May 1999,
interest repayable monthly effective upon inception of the loan
$ 130,188 $ 170,509
Less current portion 41,012 42,968
--------------------------------------------------------------------------------------------------------------
$ 89,176 $ 127,541
==============================================================================================================
</TABLE>
The loan is secured by a first charge against the assets of the Company.
Certain shareholders have signed personal guarantees totalling $42,500 to
secure the loan.
10
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
6. Long-term debt (continued):
Principal repayments are as follows:
---------------------------------------------------------
2000 $ 41,012
2001 41,012
2002 41,012
2003 7,152
---------------------------------------------------------
$ 130,188
=========================================================
7. Loss on sale of investment:
During fiscal 1999, the Company purchased a 12.5% investment in Canadian
Telecom Resellers Alliance Inc. ("CTRA"), a corporation incorporated
under the laws of the Province of Ontario for consideration consisting of
cash of $89,118 and a note payable to CTRA for $40,000.
Effective June 17, 1999, the Company sold its investment in CTRA to Optel
Communications Corp. ("Optel") an arm's length Canadian controlled
private corporation and received $40,000 in cash to repay the note
payable to CTRA and 156,250 warrants to purchase 156,250 Class B
non-voting shares in Optel. The warrants have been assigned a value of
nil. Accordingly, a loss of $89,118 has been recorded on the sale of the
investment. The warrants are exercisable in four six month intervals
commencing June 17, 1999 at a price of Cdn. $2.00 per warrant and expire
on June 17, 2004. The Company is also entitled to exercise up to 93,750
additional warrants at a price of Cdn. $2.00 per warrant at any time
after November 30, 2000 if CTRA meets certain business targets during the
period from June 17, 1999 until November 30, 2000. The additional
warrants expire on June 17, 2004. As of June 30, 1999, no warrants have
been exercised.
On October 27, 1999 Optel completed a reorganization of its issued and
outstanding share capital. As a result of this reorganization, the
warrants to purchase Class B non-voting shares in Optel were consolidated
on a three-for-one basis.
11
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
8. Share capital:
As described in note 1(a), Innofone Canada is deemed, for accounting
purposes, to have acquired the Company effective June 26, 1998.
As at June 26, 1998, the authorized share capital of Innofone Canada
consisted of an unlimited number of common shares. The change in share
capital of Innofone Canada for the period from April 24, 1998 (date of
incorporation) to June 26, 1998, the effective date of the business
combination with the Company was as follows:
-------------------------------------------------------------------------
Issued for cash $ 563
-------------------------------------------------------------------------
Share capital of Innofone Canada, June 26, 1998 $ 563
-------------------------------------------------------------------------
Additional paid-in capital was received in the amount of $437 cash. The
total of $563 and $437 represents total additional paid-in capital for
1,000,000 common shares at June 30, 1998. The 5,000,000 preferred and
5,000,000 common shares issued to effect the business combination on June
26, 1998 were assigned a value of $5,000 each based on their par value.
The ascribed share capital of the Company, the continuing consolidated
entity, as at June 30, 1999 for accounting purposes, is computed as
follows:
<TABLE>
<S> <C>
Existing share capital of Innofone Canada, June 26, 1998 $ 563
Ascribed value of the shares of the Company as a result
of business combination 10,000
Common share purchase warrants 9,838
Additional paid-in-capital 437
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
Share capital of the Company, June 30, 1998 20,838
Proceeds from sale of units 2,000
Warrants exercised 5,130
Common share purchase warrants exercised (9,838)
Additional paid-in-capital 747,178
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
-------------------------------------------------------------------------------------------------
Share capital of the Company, June 30, 1999 $ 765,308
=================================================================================================
</TABLE>
13
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
8. Share capital (continued):
As a result of the business combination, Innofone Canada became a
wholly-owned subsidiary of the Company. For accounting purposes, at June
26, 1998, the outstanding shares of the Company, the continuing
consolidated entity, consisted of the number of the Company shares issued
to date with an ascribed value equal to the share capital of the
continuing consolidated entity as computed above. The number of
outstanding common shares of the Company as at June 30, 1999 is computed
as follows:
<TABLE>
<CAPTION>
Common
share
Common Preferred purchase
shares shares warrants
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Existing outstanding shares and
warrants as at June 26, 1998 1,000,000 - 1,000,000
Shares issued to effect the business
combination with Innofone Canada 5,000,000 5,000,000 -
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
Outstanding shares and warrants
as at June 30, 1998 6,000,000 5,000,000 1,000,000
Common share purchase warrants exercised 1,000,000 - (1,000,000)
Sale of units 2,000,000 - 6,000,000
Warrants exercised 4,130,000 - (4,130,000)
Warrants expired - - (1,870,000)
-------------------------------------------------------------------------------------------------
Outstanding shares and warrants
as at June 30, 1999 13,130,000 5,000,000 -
=================================================================================================
</TABLE>
The Company's authorized share capital consists of 100,000,000 common
shares and 25,000,000 preferred shares each with a par value of $0.001
per share. The preferred shares are voting, convertible to common shares
on a 3 for 1 basis at the option of the holder based on certain business
targets being met and participate equally as to dividends with each
common
14
<PAGE>
share. Any dividends declared and paid by the Company would be declared
and paid in United States dollars.
15
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
8. Share capital (continued):
The Company has the right, until June 26, 2000, to redeem, at a price of
$0.01 per share, all shares issued to the founders ("Founder Shares") of
Innofone Canada who are now officers, directors and significant
shareholders of the Company (the "Executives") and shares issued to an
affiliate of the founders of Innofone Canada, to effect the business
combination with Innofone Canada, in the event that any Executives
employment with the Company or its affiliates is terminated. Any
shareholder has the right to judicially enforce this provision at the
expense of the Company. The Founder Shares are excluded from the weighted
average number of common shares used in the basic net loss per share
calculation until June 26, 2000 (note 12).
On June 15, 1998, the Company issued 1,000,000 common share purchase
warrants to a shareholder of the Company as consideration for services
provided, related to the reverse take- over transaction (note 1). A value
of $9,838 was assigned to the common share purchase warrants. Each common
share purchase warrant was exercisable until June 30, 1999 to acquire one
common share at $0.02 per share. On January 5, 1999, the common share
purchase warrants were exercised. Upon exercise of the 1,000,000 common
share purchase warrants, 1,000,000 common shares were issued at $0.02 per
share. The payment for these shares was offset by a $20,000 payable for
services provided to the Company and the $9,838 value assigned to common
share purchase warrants was reallocated $1,000 to common shares based on
their par value and $8,838 as additional paid-in capital.
On July 7, 1998, the Company made an offering of 2,000,000 units, under
rule 504 of Regulation D of the Securities Act of 1933, at a price of
$0.05 per unit. Each unit consisted of one common share, $0.001 par value
per share and three common share purchase warrants exercisable at $0.10,
$0.14 and $0.20 respectively, each of which was exercisable until April
30, 1999. Cash in the amount of $100,000 was received on the sale of the
units and $2,000 was allocated to common shares based on their par value
and $98,000 to additional paid-in capital. As at April 30, 1999,
4,130,000 share purchase warrants were exercised for $532,000. This cash
was allocated $4,130 to common shares based on their par value and
$527,870 to additional paid-in capital. The remaining share purchase
warrants expired.
16
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
9. Stock option plan:
In 1997, the Company adopted a Compensatory Stock Option Plan (the
"Plan") pursuant to which the Company's Board of Directors may grant
stock options to employees, consultants, advisors or directors of the
Company. The Plan authorizes grants of options to purchase up to
1,500,000 shares of authorized but unissued common stock. Stock options
are granted with an exercise price equal to or greater than 85% of the
stock's fair market value at the date of grant and the vesting period is
limited to no more than 10 years.
On August 11, 1998 and June 30, 1999, the Company granted 630,000 and
750,000 stock options respectively to consultants, a director and
employees of the Company pursuant to the Company's compensatory stock
option plan for the purchase of common shares ranging from $0.10 to $1.00
per share, expiring from August 10, 2000 to June 30, 2001 and vesting
either on the date of grant or 6 months after date of grant. As of June
30, 1999, no stock options were exercised.
The following table summarizes the activity for the Plan:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Number of Weighted-average
options exercise price
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at April 24, 1998 and June 30, 1998 - N/A
-------------------------------------------------------------------------------------------------
Granted 1,380,000 $ 0.64
-------------------------------------------------------------------------------------------------
Exercised - N/A
-------------------------------------------------------------------------------------------------
Forfeited - N/A
-------------------------------------------------------------------------------------------------
Expired - N/A
-------------------------------------------------------------------------------------------------
Balance at June 30, 1999 1,380,000 $ 0.64
-------------------------------------------------------------------------------------------------
Options exerciseable at June 30, 1999 1,380,000 $ 0.64
=================================================================================================
</TABLE>
17
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
9. Stock option plan (continued):
The weighted average grant date fair value of options granted during the
year is summarized in the following table:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Weighted-average
------------------------------------------------------------------------------------------------------
Weighted-average grant date
exercise price fair value of options
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Options whose exercise price is at fair market value $ 0.10 $ 11,000
Options whose exercise price is greater
than market value 0.73 101,470
------------------------------------------------------------------------------------------------------
Total weighted-average grant date fair value of options $ 112,470
======================================================================================================
</TABLE>
The weighted average remaining contractual life for all outstanding
options is 1.5 years.
The fair value of each option was estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions
used for 1999: dividend yield of 0%, expected volatility of 100%,
risk-free interest rate of approximately 5% and expected life of 2 years.
Compensation costs recorded under the 1997 Compensatory Stock Option Plan
in 1999 aggregated $112,470. The full amount was assigned as additional
paid-in capital.
In 1997, the Company also adopted an Employee Stock Option plan pursuant
to which the Company's Board of Directors may grant stock options to
employees of the Company. The plan authorizes grants of options to
purchase up to 1,000,000 shares of authorized but unissued common stock.
No stock options have been granted to employees under this plan as of
June 30, 1999.
18
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
10. Commitments:
(a) Lease commitments:
The Company has entered into an operating lease agreement for its
premises for a five-year term expiring in June 2003. The Company has the
option to renew the lease for a further five-year period at then market
rates. The annual lease payments for the next four years are as follows:
---------------------------------------------------------------------
2000 $ 15,000
2001 16,000
2002 16,000
2003 17,000
---------------------------------------------------------------------
$ 64,000
=====================================================================
(b) CTRA Agreement:
The Company has entered into an agreement with CTRA ("CTRA Agreement") to
resell the Company's long distance services. The agreement expires on
March 20, 2002, and automatically renews every three years unless either
party notifies the other at least 30 days prior to the expiration of the
term that it does not wish to renew. The Company has guaranteed that its
monthly billings with CTRA will not be less than $50,000 Canadian dollars
per month ("monthly minimum") by December 31, 1999 and every month
thereafter for the term of the agreement. In the event that the monthly
minimum billing to CTRA is not reached in any month after December 31,
1999, and throughout the term of the contract, the Company is committed
to pay to CTRA 50% of the difference between the actual billing and the
monthly minimum billing amount. The CTRA Agreement may be terminated by
either party upon thirty days notice. If the Company exercises its right
of termination, it is obligated to pay CTRA $50,000 Canadian dollars as a
termination charge. As of April 10, 2000, the Company met the monthly
minimum billings from January 2000 up until March 31, 2000 and has not
terminated the CTRA Agreement.
19
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
11. Fair value of financial assets and financial liabilities
(a) Financial instruments:
The following table presents the carrying amounts and estimated fair
values of the Company's financial instruments at June 30, 1999 and 1998.
The estimated fair value of a financial instrument is the amount at which
the instrument could be exchanged in a current transaction between
willing parties, other than a forced or liquidation sale. These
estimates, although based on the relevant market information about the
financial instrument, are subjective in nature and involve uncertainties
and matters of significant judgment and therefore cannot be determined
with precision.
Changes in assumptions could significantly affect the estimates.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
1999 1999
Carrying Fair
amount value
------------------------------------------------------------------------------
------------------------------------------------------------------------------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ - $ -
Accounts receivable 73,167 73,167
Deposits 5,105 5,105
Financial liabilities:
Accounts payable and accrued liabilities 253,725 253,725
Long-term debt 130,188 130,188
Obligation under capital lease 3,695 3,695
Advances from ultimate shareholders 312,405 312,405
------------------------------------------------------------------------------
------------------------------------------------------------------------------
1999 1999
Carrying Fair
amount value
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Financial assets:
Cash and cash equivalents $ 310,285 $ 310,285
Accounts receivable 16,232 16,232
Deposits 5,137 5,137
Financial liabilities:
Accounts payable and accrued liabilities 213,407 213,407
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Long-term debt 170,509 170,509
Advances from ultimate shareholders 229,388 229,388
------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
11. Fair value of financial assets and financial liabilities
(continued):
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Cash and cash equivalents, accounts receivable, deposits, accounts
payable and accrued liabilities.
The carrying amounts approximate fair value because of the short maturity
of these instruments.
Long-term debt:
The fair value is estimated by discounting the future cash flows at rates
currently offered to the Company for similar debt instruments of
comparable maturity by the Company's bankers.
Advances from ultimate shareholders:
Imputed interest computed at comparable market rates on the interest free
advances from ultimate shareholders is not considered to be material to
the financial statements. Consequently, the financial statements do not
include a charge for imputed interest on the interest free advances and
the fair value is considered to be comparable to the carrying value.
(b) Currency rate risk:
The Company's current operations are headquartered in Canada and all
sales are generated in Canada. Since the financial results are reported
in United States dollars, fluctuations in the value of the United States
dollar relative to the Canadian dollar could materially affect the
Company's results.
12. Basic net loss per share:
Basic net loss per share figures are calculated using the weighted average
number of common shares outstanding computed on a daily basis. The Founder
Shares are excluded from the weighted average number of common shares until
June 26, 2000 (note 8). The effect of the conversion of the preferred shares
on an if-converted basis and stock options has an anti-dilutive effect.
22
<PAGE>
23
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
13. Income taxes:
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at June 30, 1999 and 1998 are
presented below:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 318,000 $ 23,000
Net capital loss carryforwards 30,000 -
Capital assets, principally due to differences
in amortization 32,000 -
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
Total gross deferred tax assets 380,000 23,000
Less valuation allowance (380,000) (23,000)
-------------------------------------------------------------------------------------------------
Net deferred tax assets $ - $ -
-------------------------------------------------------------------------------------------------
</TABLE>
The valuation allowance for deferred tax assets as of July 1, 1998 and
April 24, 1998 was $23,000 and nil, respectively. The net change in the
total valuation allowance for the year ended June 30, 1999 and the period
from April 24, 1998 to June 30, 1998 was an increase of $357,000 and
$23,000, respectively. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers projected
future taxable income and tax planning strategies in making this
assessment. In order to fully realize the deferred tax asset, the Company
will need to generate future taxable income of approximately $656,000 and
$50,500 prior to the expiration of the net operating loss carryforwards
in 2006 and 2005 respectively and future taxable capital gains of
approximately $67,000 to utilize the net capital loss carryforward
available indefinitely. Based upon the level of historical taxable income
and that the Company is considered a development stage company, it cannot
be reasonably estimated at this time if its more likely than not the
Company will realize the benefits of the deferred tax assets.
Consequently, the deferred tax assets have been reduced by an equivalent
valuation allowance. The valuation allowance will be adjusted in the
period that is determined with reasonable certainty that it is more
likely than not that some portion or all of the deferred tax assets
will be realized.
24
<PAGE>
25
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
13. Income taxes (continued):
At June 30, 1999, the Company has net operating loss carryforwards for
income tax purposes of approximately $656,000 and $50,500 (1998 -
$50,500) which are available to offset future taxable income, if any,
through 2006 and 2005, respectively. In addition, the Company has net
capital loss carryforwards for income tax purposes of approximately
$67,000 (1998 - nil) which are available to offset future taxable capital
gains.
14. Non-cash financing and investing activities:
(a) In 1999, a capital lease obligation of $4,800 was incurred when the
Company entered into a lease for furniture and fixtures.
(b) In 1999, 1,000,000 shares of common stock were issued upon the
conversion of 1,000,000 common share purchase warrants to settle an
outstanding liability.
(c) In 1999, a note payable of $40,000 was issued when the Company
purchased an investment in CTRA.
(d) In 1998, a business combination with the Company and Innofone Canada
(note 1) was effected.
15. Segmented information:
(a) Reportable segment:
The Company has one reportable segment; resale of long distance
services. The resale of long distance services is provided to
residential and small to medium sized businesses. This segment
represents the result of operations for the Company.
(b) Geographic information:
The Company derives all of its revenue from Canada and all of its
capital assets are physically located in Canada.
26
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
16. New US Accounting Standards:
(a) In April 1998, the American Institute of Certified Public Accountants
issued statement of position 98-5 (SOP 98-5) "Reporting on the Costs
of Start-Up Activities", which requires costs of start-up activities
to be expensed as incurred. SOP 98-5 is effective for fiscal years
beginning after December 15, 1998 and requires initial application to
be reported as the cumulative effect of a change in accounting
principle. Management has not determined the impact of adoption of
SOP 98-5 on its financial statements.
(b) In June 1998, the FASB issued SFAS No. 133 "Derivative Instruments
and Hedging Activities" effective for fiscal quarters beginning after
June 15, 2000. SFAS No. 133 requires that the Company report all
derivative instruments on the balance sheet at fair value. Management
has not determined the impact of adoption of SFAS No. 133 on its
financial statements.
17. Comparative figures:
Certain of the 1998 comparative figures have been reclassified to conform
with the financial statement presentation adopted in 1999.
18. Uncertainty due to the Year 2000 Issue:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effect of the Year 2000 Issue may
be experienced before, on, or after January 1, 2000, and if not addressed,
the impact on operations and financial reporting may range from minor errors
to significant systems failure which could affect an entity's ability to
conduct normal business operations. It is not possible to be certain that
all aspects of the Year 2000 Issue affecting the Company, including those
related to the efforts of customers, suppliers, or other third parties, will
be fully resolved.
27
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
19. Subsequent events:
(a) On August 5 and 6, 1999, the Company raised $501,100 through the
subscription of 8% unsecured convertible promissory notes (amended on
October 5, 1999) which are due July 31, 2000. The notes are
convertible into common shares of the Company with a par value of
$0.001 per share at a price of $0.40 per share. The fair value of the
Company's common shares on August 5, 1999 and August 6, 1999 was
higher than the conversion price per share. Therefore, these
convertible promissory notes have an embedded beneficial conversion
feature that will be charged to interest expense and additional
paid-in capital on the dates the notes are issued. As of April 10,
2000, no notes have been converted into common shares.
(b) Effective September 1, 1999, the Company's shares were delisted from
the NASD over-the-counter Bulletin Board. The Company is in the
process of preparing a Registration Statement to be filed with the
United States Securities and Exchange Commission in order for the
Company's shares to be eligible for trading in the United States on
the NASD over-the-counter Bulletin Board.
(c) On various dates subsequent to June 30, 1999 up to November 30, 1999,
the Company committed to grant up to 7,330,000 stock options to
employees and consultants of the Company if certain business targets
and conversion requirements are met. The Company is in the process of
amending their stock option plans to increase the number of common
shares reserved for issuance under the stock option plans in order to
grant the options.
As of April 10, 2000, no stock options have been granted.
(d) Effective January 5, 2000, 2,500,000 preferred shares are eligible to
be converted into 7,500,000 common shares. On February 14, 2000 and
February 15, 2000, the conversion was effected and 7,500,000 common
shares were issued to the respective shareholders.
28
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
19. Subsequent events, (continued):
(e) During the period December 1999 to February 2000, the Company raised
$1,039,500 through the subscription of 8% unsecured convertible
promissory notes which are due December 31, 2000. The notes are
convertible into common shares of the Company with a par value of
$0.001 per share at a price of $0.40 per share. The notes also
include a warrant to purchase one common share of the Company with a
par value of $0.001 at a price of $1 per share for each $0.40 of
notes purchased. As of April 10, 2000 no notes have been converted
into common shares and no warrants have been exercised. The average
fair value of the Company's common shares during the period December
1999 to February 2000 was higher than the conversion price per share.
Therefore, these convertible promissory notes have an embedded
beneficial conversion feature that will be charged to interest
expense and additional paid-in capital on the dates the notes are
issued.
(f) Effective April 20, 2000, the Company entered into a three year
agreement with Rogers Wireless Inc. ("Rogers") to resell their
cellular based telecommunications services to customers of financial
institutions in Canada for which the Company is offering bundled
services. Under the terms of the agreement, the Company is obligated
to arrange for 5,000 new customers by April 20, 2001, 15,000 new
customers by April 20, 2002, and 25,000 new customers by April 20,
2003. If these minimums are not reached, the Company is obligated to
pay to Rogers $20 Cdn. times the number of customers that the Company
is short of the minimum. Rogers would also have the option to
terminate the contract upon 10 days notice if the anniversary dates
minimums are not met. The Company is also required to post a security
deposit with Rogers in the amount of $100,000 Cdn. After three years,
this agreement shall deem to continue on a month-to-month basis,
unless either party terminates after giving thirty days written
notice.
20. Other events:
On June 29, 1999, Hotcaller.com Inc. ("Hotcaller") was incorporated.
No shares have been issued to date. However, it is management's
intention that Hotcaller will be a wholly owned subsidiary of the
Company.
29
<PAGE>
Consolidated Financial Statements
(Stated in United States dollars)
INNOFONE.COM,
INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
A Development Stage Company
For the quarter ended March 31, 2000
(Unaudited)
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Consolidated Balance Sheets
(Stated in United States dollars)
(Unaudited)
March 31, 2000 with comparative figures as at June 30, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
March 31, 2000 June 30,1999
- --------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 523,001 $ -
Term deposit - 102,477
Accounts receivable, net of allowance for doubtful accounts
of $15,000 252,177 73,167
Prepaid expenses and deposits 26,706 18,792
---------------------------------------------------------------------------------------------------------
801,884 194,436
Fixed assets (note 3) 308,228 286,370
- --------------------------------------------------------------------------------------------------------------
$ 1,110,112 $ 480,806
==============================================================================================================
Liabilities and Shareholders' Deficiency
Current liabilities:
Bank indebtedness $ - $ 28,816
Accounts payable and accrued liabilities 770,784 253,725
Advances from ultimate shareholders (note 5) 75,000 67,000
Current portion of long-term debt (note 6) 41,016 41,012
Obligation under capital lease 2,389 3,695
- --------------------------------------------------------------------------------------------------------------
889,189 394,248
Advances from ultimate shareholders (note 5) 229,903 245,405
Long-term debt (note 6) 58,380 89,176
Convertible debt (note 18(c) and (d)) 1,540,600 -
Shareholders' deficiency:
Share capital (note 8) 2,088,058 765,308
Deficit accumulated during the development stage (3,650,487) (988,235)
Accumulated other comprehensive loss (45,539) (25,096)
- --------------------------------------------------------------------------------------------------------------
(1,607,968) (248,023)
Commitments (note 10)
- --------------------------------------------------------------------------------------------------------------
$ 1,110,112 $ 480,806
==============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Consolidated Statements of Operations
(Stated in United States dollars)
(Unaudited)
For the nine month period ended March 31, 2000 with comparative figures for the
nine month period ended March 31, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
2000 1999
- ---------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C>
Sales $ 531,465 $ 54,929
Cost of sales 375,622 31,527
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Gross profit 155,843 23,402
Selling, general and administrative expenses 916,973 437,683
Amortization 62,751 44,075
Development costs for bundled services program 507,227 -
Interest on long-term debt 8,548 11,660
Interest and bank charges 1,322,596 5,745
- ---------------------------------------------------------------------------------------------------------------
2,818,095 499,163
- ---------------------------------------------------------------------------------------------------------------
Net loss (2,662,252) (475,761)
Deficit, beginning of period (988,235) (51,841)
- ---------------------------------------------------------------------------------------------------------------
Deficit, end of period $ (3,650,487) $ (527,602)
===============================================================================================================
Basic net loss per common share (note 12) $ (0.27) $ (0.11)
===============================================================================================================
Weighted average number of common shares outstanding 9,708,500 4,318,300
===============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Consolidated Statements of Operations
(Stated in United States dollars)
(Unaudited)
For the quarter ended March 31, 2000 with comparative figures for the quarter
ended March 31, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
2000 1999
- ---------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C>
Sales $ 186,234 $ 34,068
Cost of sales 142,870 18,339
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Gross profit 43,364 15,729
Selling, general and administrative expenses 316,783 177,257
Amortization 21,151 6,540
Development costs for bundled services program 507,227 -
Interest on long-term debt 2,686 2,901
Interest and bank charges 880,078 1,261
- ---------------------------------------------------------------------------------------------------------------
1,727,925 187,959
- ---------------------------------------------------------------------------------------------------------------
Net loss (1,684,561) (172,230)
Deficit, beginning of period (1,965,926) (355,372)
- ---------------------------------------------------------------------------------------------------------------
Deficit, end of period $ (3,650,487) $ (527,602)
===============================================================================================================
Basic net loss per common share (note 12) $ (0.16) $ (0.03)
===============================================================================================================
Weighted average number of common
shares outstanding 10,369,000 6,088,100
===============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATION, INC.)
Consolidated Statements of Shareholders' Deficiency
(Stated in United States dollars)
(Unaudited)
From inception to March 31, 2000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Common Accumulated
Additional share Deficit
Common Preferred paid-in purchase from
shares shares capital warrants operations
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares issued in connection with:
Issuance of common shares for cash $ - $ - $ 563 $ - $ -
Issuance of shares for reverse takeover
transaction (note 1) 5,000 5,000 437 9,838 -
- ------------------------------------------------------------------------------------------------------------------------------------
5,000 5,000 1,000 9,838 -
Net loss - - - - (51,841)
Other comprehensive income, net of tax:
Foreign currency translation adjustment - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive loss - - - - (51,841)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1998 5,000 5,000 1,000 9,838 (51,841)
Shares issued in connection with:
Issuance of common shares for cash 2,000 - 98,000 - -
Exercise of warrants for
common shares 4,130 - 527,870 (9,838) -
Exercise of common share purchase
warrants for common shares 1,000 - 8,838 - -
- ------------------------------------------------------------------------------------------------------------------------------------
7,130 - 634,708 (9,838) -
Net loss (936,394)
Other comprehensive loss, net of tax:
Foreign currency translation adjustment
Stock options - - 112,470 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Balance June 30, 1999 12,130 5,000 748,178 (988,235)
Net loss - - - - (2,155,025)
<CAPTION>
<S> <C>
Beneficial conversion feature of convertible notes (note 18(c)) 438,000
Beneficial conversion feature of convertible notes (note 18(d)) 874,750
Stock options 10,000
<CAPTION>
<S> <C> <C> <C> <C> <C>
Conversion of preferred shares 2,500 (2,500)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2000 $ 14,630 $ 2,500 $2,070,928 $ - $ (3,143,260)
====================================================================================================================================
<CAPTION>
- ----------------------------------------------------------------------------------------------
Accumulated
other
comprehensive
income Total
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Shares issued in connection with:
Issuance of common shares for cash $ - $ 563
Issuance of shares for reverse takeover
transaction (note 1) - 20,275
- ----------------------------------------------------------------------------------------------
- 20,838
Net loss - (51,841)
Other comprehensive income, net of tax:
Foreign currency translation adjustment 405 405
- ----------------------------------------------------------------------------------------------
Total comprehensive loss 405 (51,436)
- ----------------------------------------------------------------------------------------------
Balance, June 30, 1998 405 (30,598)
Shares issued in connection with:
Issuance of common shares for cash - 100,000
Exercise of warrants for
common shares - 522,162
Exercise of common share purchase
warrants for common shares - 9,838
- ----------------------------------------------------------------------------------------------
- 632,000
Net loss (936,394)
Other comprehensive loss, net of tax:
Foreign currency translation adjustment (25,501) (25,501)
Stock options - 112,470
- ----------------------------------------------------------------------------------------------
Balance June 30, 1999 (25,096) (248,023)
Net loss (20,443) (2,175,468)
Beneficial conversion feature of convertible notes (note 18(d)) 438,000
Beneficial conversion feature of convertible notes (note 18(e)) 874,750
Stock options 10,000
- ----------------------------------------------------------------------------------------------
Balance, March 31, 2000 $ (45,539) $(1,100,741)
==============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Consolidated Statements of Changes in Financial Position
(Stated in United States dollars)
(Unaudited)
For the nine month period ended March 31, 2000 with comparative figures for the
year ended June 30, 1999
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
March 31, 2000 June 30, 1999
- -------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Cash flows provided by (used in):
Operations:
Net loss $ (2,662,252) $ (936,394)
Items not involving cash:
Amortization 62,751 56,075
Write off of franchise fee - 23,729
Loss on disposal of fixed asset - 17,071
Loss on sale of investment - 89,118
Compensation expense on stock options - 112,470
Beneficial conversion feature of convertible notes 1,312,750 -
Change in non-cash operating working capital 330,135 14,948
- -------------------------------------------------------------------------------------------------------------------
(956,616) (622,982)
Financing:
Advances (to) from ultimate shareholders (7,502) 83,017
Increase(decrease) in bank indebtedness (28,816) 28,816
Principal payments on long-term debt (30,784) (40,321)
Principal payments on obligation
under capital lease (1,306) (1,105)
Increase in convertible debt 1,540,600 -
Proceeds from options exercised 10,000 -
Issuance of share capital - 632,000
- -------------------------------------------------------------------------------------------------------------------
1,482,192 702,407
Investments:
Additions to fixed assets (84,609) (285,963)
Proceeds from disposal of fixed assets - 106,330
Purchase of term deposit - (102,477)
Investment in CTRA - (89,118)
Proceeds on sale of investment in CTRA - 40,000
Payment of note payable to CTRA - (40,000)
Proceeds from term deposit 102,477 -
- -------------------------------------------------------------------------------------------------------------------
17,868 (371,228)
Effect of exchange rate changes on cash (20,442) (18,482)
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 523,001 (310,285)
Cash and cash equivalents, beginning of period - 310,285
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 523,001 $ -
===================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements..
4
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements
(Stated in United States dollars)
(Unaudited)
For the nine month period ended March 31, 2000 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
Innofone.com, Incorporated (the "Company") is incorporated under the laws of the
State of Nevada. On March 30, 1999, the Company changed its name from APC
Telecommunications, Inc. to Innofone.com, Incorporated. The Company commenced
commercial operations in fiscal 1999, however they are still considered to be in
the development stage due to the fact that there has been no significant revenue
derived from operations. The Company, through its legal subsidiary that operates
in Canada, is engaged in the business of long distance telephone and internet
telephony. All of the Company's sales are to Canadian customers in the
residential and business sectors. The Company is not dependent on a single
customer. However, the Company uses only a few carriers of long distance
services that they are dependent on for the usage of their telephone lines.
1. Basis of presentation:
(a) Business combination of the Company and Innofone Canada Inc.
("Innofone Canada") (formerly APC Telecom Inc.):
On June 26, 1998, the shareholders of the Company approved a share
exchange takeover bid whereby, on June 26, 1998, the Company acquired
all of the outstanding shares of Innofone Canada, a private company.
Under the terms of the transaction, the shareholders of Innofone
Canada received 5,000,000 common shares and 5,000,000 Series A,
voting convertible preferred shares of the Company. The result of
this transaction is that the former shareholders of Innofone Canada
acquired 83% of the outstanding common shares of the Company on a
fully diluted basis.
Accounting for the business combination:
As former shareholders of Innofone Canada hold 83% of the outstanding
shares of the Company subsequent to these transactions, the business
combination of the two companies has been accounted for as a reverse
takeover of the Company by Innofone Canada.
Application of reverse takeover accounting results in the following:
(i) The consolidated financial statements of the combined entity are
issued under the name of the legal parent (the Company) but are
considered a continuation of the financial statements of the
legal subsidiary (Innofone Canada);
(ii) As Innofone Canada is deemed to be the acquirer for accounting
purposes, its assets and liabilities are included in the
consolidated financial statements at their historical carrying
values;
5
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the nine month period ended March 31, 2000 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
1. Basis of presentation (continued):
(iii)Control of the net assets and operations of the Company is
deemed to be acquired by Innofone Canada. For purposes of this
transaction, the deemed consideration is considered to be
equivalent to the net book value of the Company as at June 26,
1998.
----------------------------------------------------------------
Deemed consideration $ 20,275
Assigned value of net assets:
Prepaid expenses and deposits $ 20,275
----------------------------------------------------------------
(b) Interim financial statements:
In the opinion of management, the unaudited interim consolidated
financial statements have been prepared on the same basis as the
audited consolidated financial statements and include all adjustments
(consisting only of normal recurring adjustments) necessary for the
fair presentation of the results of such periods. The results of
operations for the interim periods are not necessarily indicative of
the results of operations for the full year.
(c) Future operations:
These financial statements have been prepared on the going concern
basis, which assumes the realizations of assets and settlement of
liabilities in the normal course of operations, notwithstanding the
significant operating losses since incorporation, negative working
capital and deficiency in shareholders' equity at June 30, 1999 and
the Company's shares being delisted from the National Association of
Securities Dealers ("NASD") over-the-counter Bulletin Board (note
18(b)). Continued operations depend upon the Company's ability to
attain profitable operations and obtain sufficient cash from external
financing to meet the Company's liabilities as they become payable.
These conditions and events cast substantial doubt on the Company's
ability to continue as a going concern. Management is of the opinion
that sufficient working capital will be obtained from operations and
external financing (see notes 18(c) and (d)) to meet the Company's
liabilities and commitments as they become payable.
2. Significant accounting policies:
These consolidated financial statements have been prepared by management
in accordance with accounting principles generally accepted in the United
States, the more significant of which are outlined below.
(a) Basis of presentation:
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, Innofone Canada. All
significant intercompany transactions and balances have been
eliminated on consolidation.
6
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the nine month period ended March 31, 2000 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
2. Significant accounting policies (continued):
(b) Cash equivalents:
Cash equivalents are $523,001 and nil respectively as at March 31,
2000 and June 30, 1999. For purposes of the statements of cash
flows, the Company considers all highly liquid debt instruments with
original maturities of three months or less to be cash equivalents.
(c) Fixed assets:
Fixed assets are recorded at cost and are amortized over the
estimated useful life of the asset using the following methods and
annual rates:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Asset Basis Rate
------------------------------------------------------------------------------
<S> <C> <C>
Computer servers and software Declining balance 30%
Furniture and fixtures Declining balance 20%
Leasehold improvements Straight line Over the lease term
Telephone Declining balance 30%
Technical equipment Declining balance 30%
------------------------------------------------------------------------------
</TABLE>
(d) Use of estimates:
The preparation of financial statements in conformity with United
States generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the period. Actual
results could differ from those estimates.
(e) Income taxes:
Income taxes are accounted for under the asset and liability method.
Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
7
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the nine month period ended March 31, 2000 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
2. Significant accounting policies (continued):
(f) Foreign currency translation:
The Canadian dollar is the functional currency, being the currency in
which the Company carries out most of its operations. The
consolidated statement of operations is translated into United States
dollars using the average exchange rates for the year. The
consolidated balance sheet is translated into United States dollars
using the current exchange rate. The translation gains or losses are
included in the consolidated statement of shareholders' deficiency as
accumulated other comprehensive income or loss.
(g) Comprehensive income:
On July 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, Reporting Comprehensive
Income. SFAS No. 130 establishes standards for reporting and
presentation of comprehensive income and its components in a full set
of financial statements. Comprehensive income consists of net loss
and foreign currency translation adjustments and is presented in the
consolidated statements of shareholders' deficiency and comprehensive
income. The statement requires only additional disclosures in the
consolidated financial statements; it does not affect the Company's
financial position or results of operations. Prior year financial
statements conform to the requirements of SFAS No. 130.
(h) Stock option plan:
The Company applies the fair value based method of accounting
prescribed by SFAS No. 123, Accounting for Stock-Based Compensation
in accounting for its stock option plan. As such, compensation
expense is recorded on the date of grant based on the value of the
award and is recognized over the service period.
8
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Unaudited)
For the nine month period ended March 31, 2000 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
2. Significant accounting policies (continued):
(i) Impairment of long-lived assets and long-lived assets to be disposed
of:
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of. This
statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs
to sell.
(j) Revenue recognition:
The Company recognizes revenue primarily from the resale of long
distance services. Long distance services revenue is recorded as
revenue when the services are rendered.
3. Fixed assets:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
March 31, 2000
-------------------------------------------------------------------------------------------------------
Accumulated Net book
Cost amortization value
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computer servers and software $ 347,635 $ 62,056 $ 285,579
Furniture and fixtures 16,794 1,960 14,834
Leasehold improvements 6,275 784 5,491
Telephone 1,654 261 1,393
Technical equipment 1,192 261 931
-------------------------------------------------------------------------------------------------------
$ 373,550 $ 65,322 $ 308,228
=======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
June 30, 1999
-------------------------------------------------------------------------------------------------------
Accumulated Net book
Cost amortization value
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computer servers and software $ 267,378 $ 6,521 $ 170,180
Furniture and fixtures 13,526 242 12,439
Leasehold improvements 5,456 135 4,397
Telephone 1,654 248 1,406
Technical equipment 1,192 179 1,013
-------------------------------------------------------------------------------------------------------
$ 289,206 $ 2,836 $ 286,370
=======================================================================================================
</TABLE>
9
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the nine month period ended March 31, 2000 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
4. Franchise fee:
On April 26, 1998, the Company signed a franchise agreement with Access
Power Inc. giving it exclusive rights to develop internet telephony
throughout Canada using the innovative technologies trademarked by Access
Power Inc. for a period of thirty years. On December 11, 1998, this
agreement was voluntarily terminated resulting in full mutual releases
for both parties to the agreement. Accordingly, the capitalized franchise
fee from 1988 has been charged to operations for the year ended June 30,
1999.
5. Advances from ultimate shareholders:
Advances from ultimate shareholders, classified as long term, are
unsecured, non-interest bearing providing the Company is not in default
of any payments required to be made starting July 1, 2003, and are
repayable in equal monthly installments beginning July 1, 2003 to 2018.
The current advances from ultimate shareholders are due on demand.
6. Long-term debt:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
March 31, 2000 June 30, 1999
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bank loan bearing interest at the bank's
prime rate plus 3%, repayable in monthly
principal payments of $4,774 from October
1998 to April 1999 and $3,418 commencing
in May 1999, interest repayable monthly
effective upon inception of the loan $ 99,404 $ 130,188
Less current portion 41,016 41,012
-------------------------------------------------------------------------------------------------------
$ 58,388 $ 89,176
=======================================================================================================
</TABLE>
The loan is secured by a first charge against the assets of the Company.
Certain shareholders have signed personal guarantees totalling $42,500 to
secure the loan.
10
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the nine month period ended March 31, 2000 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
6. Long-term debt (continued):
Principal repayments are as follows:
-------------------------------------------------------------------------
2001 41,016
2002 41,016
2003 17,372
-------------------------------------------------------------------------
$ 99,404
=========================================================================
7. Loss on sale of investment:
During fiscal 1999, the Company purchased a 12.5% investment in Canadian
Telecom Resellers Alliance Inc. ("CTRA"), a corporation incorporated
under the laws of the Province of Ontario for consideration consisting of
cash of $89,118 and a note payable to CTRA for $40,000.
Effective June 17, 1999, the Company sold its investment in CTRA to Optel
Communications Corp. ("Optel") an arm's length Canadian controlled
private corporation and received $40,000 in cash to repay the note
payable to CTRA and 156,250 warrants to purchase 156,250 Class B
non-voting shares in Optel. The warrants have been assigned a value of
nil. Accordingly, a loss of $89,118 has been recorded on the sale of the
investment for the Company's year ended June 30, 1999. The warrants are
exercisable in four six month intervals commencing June 17, 1999 at a
price of Cdn. $2.00 per warrant and expire on June 17, 2004. The Company
is also entitled to exercise up to 93,750 additional warrants at a price
of Cdn. $2.00 per warrant at any time after November 30, 2000 if CTRA
meets certain business targets during the period from June 17, 1999 until
November 30, 2000. The additional warrants expire on June 17, 2004. As of
March 31, 1999, no warrants have been exercised.
On October 27, 1999 Optel completed a reorganization of its issued and
outstanding share capital. As a result of this reorganization, the
warrants to purchase Class B non-voting shares in Optel were consolidated
on a three-for-one-basis.
11
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the nine month period ended March 31, 2000 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
8. Share capital:
As described in note 1(a), Innofone Canada is deemed, for accounting
purposes, to have acquired the Company effective June 26, 1998.
As at June 26, 1998, the authorized share capital of Innofone Canada
consisted of an unlimited number of common shares. The change in share
capital of Innofone Canada for the period from April 24, 1998 (date of
incorporation) to June 26, 1998, the effective date of the business
combination with the Company was as follows:
-------------------------------------------------------------------------
Issued for cash $ 563
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Share capital of Innofone Canada, June 26, 1998 $ 563
-------------------------------------------------------------------------
Additional paid-in capital was received in the amount of $437 cash. The
total of $563 and $437 represents total additional paid-in capital for
1,000,000 common shares at June 30, 1998. The 5,000,000 preferred and
5,000,000 common shares issued to effect the business combination on June
26, 1998 were assigned a value of $5,000 each based on their par value.
The ascribed share capital of the Company, the continuing consolidated
entity, as at June 30, 1999 for accounting purposes, is computed as
follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
<S> <C>
Existing share capital of Innofone Canada, June 26, 1998 $ 563
Ascribed value of the shares of the Company as a result
of business combination 10,000
Common share purchase warrants 9,838
Additional paid-in-capital 437
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
Share capital of the Company, June 30, 1998 20,838
Proceeds from sale of units 2,000
Warrants exercised 5,130
Common share purchase warrants exercised (9,838)
Additional paid-in-capital 747,178
-------------------------------------------------------------------------------------------------------
Share capital of the Company, June 30, 1999 $ 765,308
-------------------------------------------------------------------------------------------------------
Additional paid in capital from debt conversion (notes 18(d) and (e)) 1,312,750
-------------------------------------------------------------------------------------------------------
Additional paid in capital from exercise of stock options 10,000
-------------------------------------------------------------------------------------------------------
Share capital of the Company, March 31, 2000 $ 2,088,058
=======================================================================================================
</TABLE>
12
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the nine month period ended March 31, 2000 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
8. Share capital (continued):
As a result of the business combination, Innofone Canada became a
wholly-owned subsidiary of the Company. For accounting purposes, at June
26, 1998, the outstanding shares of the Company, the continuing
consolidated entity, consisted of the number of the Company shares issued
to date with an ascribed value equal to the share capital of the
continuing consolidated entity as computed above. The number of
outstanding common shares of the Company as at March 31, 2000 is computed
as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
Common
shares
Common Preferred purchase
shares shares warrants
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Existing outstanding shares and
warrants as at June 26, 1998 1,000,000 - 1,000,000
Shares issued to effect the business
combination with Innofone Canada 5,000,000 5,000,000 -
-------------------------------------------------------------------------------------------------------
Outstanding shares and warrants
as at June 30, 1998 6,000,000 5,000,000 1,000,000
Common share purchase warrants exercised 1,000,000 - (1,000,000)
Sale of units 2,000,000 - 6,000,000
Warrants exercised 4,130,000 - (4,130,000)
Warrants expired - - (1,870,000)
-------------------------------------------------------------------------------------------------------
Outstanding shares and warrants,
June 30, 1999 13,130,000 5,000,000 -
Preferred shares converted to commons shares 7,500,000 (2,500,000) -
-------------------------------------------------------------------------------------------------------
Outstanding shares and warrants
as at March 31, 2000 20,630,000 2,500,000 -
=======================================================================================================
</TABLE>
The Company's authorized share capital consists of 100,000,000 common
shares and 25,000,000 preferred shares each with a par value of $0.001
per share. The preferred shares are voting, convertible to common shares
on a 3 for 1 basis at the option of the holder based on certain business
targets being met and participate equally as to dividends with each
common share. Any dividends declared and paid by the Company would be
declared and paid in United States dollars.
13
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the nine month period ended March 31, 2000 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
8. Share capital (continued):
The Company has the right, until June 26, 2000, to redeem, at a price of
$0.01 per share, all shares issued to the founders ("Founder Shares") of
Innofone Canada who are now officers, directors and significant
shareholders of the Company (the "Executives"), to effect the business
combination with Innofone Canada, in the event that any Executives
employment with the Company or its affiliates is terminated. Any
shareholder has the right to judicially enforce this provision at the
expense of the Company.
On June 15, 1998, the Company issued 1,000,000 common share purchase
warrants to a shareholder of the Company as consideration for services
provided, related to the reverse take-over transaction (note 1). A value
of $9,838 was assigned to the common share purchase warrants. Each common
share purchase warrant was exercisable until June 30, 1999 to acquire one
common share at $0.02 per share. On January 5, 1999, the common share
purchase warrants were exercised. Upon exercise of the 1,000,000 common
share purchase warrants, 1,000,000 common shares were issued at $0.02 per
share. The payment for these shares was offset by a $20,000 payable for
services provided to the Company and the $9,838 value assigned to common
share purchase warrants was reallocated $1,000 to common shares based on
their par value and $8,838 as additional paid-in capital.
On July 7, 1998, the Company made an offering of 2,000,000 units, under
rule 504 of Regulation D of the Securities Act of 1933, at a price of
$0.05 per unit. Each unit consisted of one common share, $0.001 par value
per share and three common share purchase warrants exercisable at $0.10,
$0.14 and $0.20 respectively, each of which was exercisable until April
30, 1999. Cash in the amount of $100,000 was received on the sale of the
units and $2,000 was allocated to common shares based on their par value
and $98,000 to additional paid-in capital. As at April 30, 1999,
4,130,000 share purchase warrants were exercised for $532,000. This cash
was allocated $4,130 to common shares based on their par value and
$527,870 to additional paid-in capital. The remaining share purchase
warrants expired.
Effective January 5, 2000, 2,500,000 preferred shares were eligible
to be converted into 7,500,000 common shares. On February 24, 2000,
the conversion was effected and 7,500,000 common shares were issued
to the respective shareholders.
9. Stock option plan:
In 1997, the Company adopted a Compensatory Stock Option Plan (the
"Plan") pursuant to which the Company's Board of Directors may grant
stock options to employees, consultants, advisors or directors of the
Company. The Plan authorizes grants of options to purchase up to
1,500,000 shares of authorized but unissued common stock. Stock options
are granted with an exercise price equal to or greater than 85% of the
stock's fair market value at the date of grant and the vesting period is
limited to no more than 10 years.
14
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the nine month period ended March 31, 2000 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
9. Stock option plan (continued):
On August 11, 1998 and June 30, 1999 the Company granted 630,000 and
750,000 stock options respectively to consultants, directors and
employees of the Company pursuant to the Company's compensatory stock
option plan for the purchase of common shares ranging from $0.10 to $1.00
per share, expiring from August 10, 2000 to June 30, 2001 and vesting
either on the date of grant or 6 months after date of grant.
The following table summarizes the activity for the Plan:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Number of Weighted-average
options exercise price
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at April 24, 1998 and June 30, 1998 - N/A
Granted 1,380,000 $ 0.64
Forfeited - N/A
Expired - N/A
Exercised (20,000) .50
-------------------------------------------------------------------------------------------------
Options exerciseable at March 31, 2000 1,360,000 $ 0.64
=================================================================================================
</TABLE>
The weighted average grant date fair value of options granted during the
year is summarized in the following table:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Weighted-average
Weighted-average grant date
exercise price fair value of options
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Options whose exercise price is at fair market value $ 0.10 $ 11,000
Options whose exercise price is greater than market value 0.73 101,470
-------------------------------------------------------------------------------------------------
Total weighted-average grant date fair value of options $ 112,470
=================================================================================================
</TABLE>
15
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the nine month period ended March 31, 2000 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
9. Stock option plan (continued):
The weighted average remaining contractual life for all outstanding
options is approximately one year.
The fair value of each option was estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions
used for 1999: dividend yield of 0%, expected volatility of 100%,
risk-free interest rate of approximately 5% and expected life of 2 years.
Compensation costs recorded under the 1997 Compensatory Stock Option Plan
in 1999 aggregated $112,470. The full amount was assigned as additional
paid-in capital.
In 1997, the Company also adopted an Employee Stock Compensation Plan
pursuant to which the Company's Board of Directors may grant stock to
employees of the Company. The plan authorizes grants of up to 1,000,000
shares of authorized but unissued common stock. No stock has been granted
to employees under this plan as of March 31, 1999.
10. Commitments:
(a) Lease commitments:
The Company has entered into an operating lease agreement for its
premises for a five-year term expiring in June 2003. The Company has
the option to renew the lease for a further five-year period at then
market rates. The annual lease payments for the next four years are
as follows:
---------------------------------------------------------------------
2001 16,000
2002 16,000
2003 17,000
2004 4,000
---------------------------------------------------------------------
$ 53,000
=====================================================================
16
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the nine month period ended March 31, 2000 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
10. Commitment (continued):
(b) CTRA Agreement:
The Company has entered into an agreement with CTRA ("CTRA
Agreement") to resell its long distance services. The agreement
expires on March 20, 2002, and automatically renews every three years
unless either party notifies the other at least 30 days prior to the
expiration of the term that it does not wish to renew. The Company
has guaranteed that its monthly billings with CTRA will not be less
that $50,000 Canadian dollars per month ("monthly minimum") by
December 31, 2000 and every month thereafter for the term of the
agreement. In the event that the monthly minimum billing to CTRA is
not reached in any month after December 31, 2000, and throughout the
term of the contract, the Company is committed to pay to CTRA 50% of
the difference between the actual billing and the monthly minimum
billing amount. The CTRA Agreement may be terminated by the Company
upon thirty days notice. If the Company exercises its right of
termination, it is obligated to pay CTRA $50,000 Canadian dollars as
a termination charge. As of March 31, 2000, the Company met the
monthly minimum billings and has not terminated the CTRA Agreement.
11. Fair value of financial assets and financial liabilities:
(a) Financial instruments:
The following table presents the carrying amounts and estimated fair
values of the Company's financial instruments at March 31, 2000 and
June 30, 1999. The estimated fair value of a financial instrument is
the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than a forced or
liquidation sale. These estimates, although based on the relevant
market information about the financial instrument, are subjective in
nature and involve uncertainties and matters of significant judgment
and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
17
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the nine month period ended March 31, 2000 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
11. Fair value of financial assets and financial liabilities (continued):
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
March 31, 2000 March 31, 2000
---------------------------------------------------------------------------------------------------
Carrying Fair
amount value
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 523,001 $ 523,001
Accounts receivable 252,177 252,177
Prepaid expenses and deposits 26,706 26,706
Financial liabilities:
Accounts payable and accrued liabilities 770,784 770,784
Long-term debt 99,404 99,404
Obligation under capital lease 2,389 2,389
Advances from ultimate shareholders 304,903 304,903
===================================================================================================
---------------------------------------------------------------------------------------------------
June 30, 1999 June 30, 1999
---------------------------------------------------------------------------------------------------
Carrying Fair
amount value
---------------------------------------------------------------------------------------------------
Financial assets:
Cash and cash equivalents $ - $ -
Accounts receivable 73,167 73,167
Prepaid expenses and deposits 5,105 5,105
Financial liabilities:
Accounts payable and accrued liabilities 253,725 253,725
Long-term debt 130,188 130,188
Obligation under capital lease 3,695 3,695
Advances from ultimate shareholders 312,405 312,405
===================================================================================================
</TABLE>
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Cash and cash equivalents, accounts receivable, deposits, accounts
payable and accrued liabilities.
The carrying amounts approximate fair value because of the short
maturity of these instruments.
18
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the nine month period ended March 31, 2000 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
11. Fair value of financial assets and financial liabilities (continued):
Long-term debt:
The fair value is estimated by discounting the future cash flows at
rates currently offered to the Company for similar debt instruments
of comparable maturity by the Company's bankers.
Advances from ultimate shareholders:
Imputed interest computed at comparable market rates on the interest
free advances from ultimate shareholders is not considered to be
material to the financial statements. Consequently, the financial
statements do not include a charge for imputed interest on the
interest free advances and the fair value is considered to be
comparable to the carrying value.
(b) Currency rate risk:
The Company's current operations are headquartered in Canada and all
sales are generated in Canada. Since the financial results are
reported in United States dollars, fluctuations in the value of the
United States dollar relative to the Canadian dollar could materially
affect the Company's results.
12. Basic net loss per share:
Basic net loss per share figures are calculated using the weighted
average number of common shares outstanding computed on a daily basis.
The Founder Shares are excluded from the weighted average number of
common shares until June 26, 2000 (note 8). The effect of the conversion
of the preferred shares on an if-converted basis and stock options has an
anti-dilutive effect.
19
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the nine month period ended March 31, 2000 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
13. Income taxes:
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at March 31, 2000 and June 30, 1999
are presented below:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
March 31, 2000 June 30, 1999
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards 688,000 318,000
Net capital loss carryforwards 30,000 30,000
Capital assets, principally due to differences
in amortization 11,000 32,000
-------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 729,000 380,000
Less valuation allowance (729,000) (380,000)
-------------------------------------------------------------------------------------------------------
Net deferred tax assets $ - $ -
=======================================================================================================
</TABLE>
The valuation allowance for deferred tax assets for the nine month period
ended March 31, 2000 was $729,000. The net change in the total valuation
allowance for the year ended June 30, 1999 and the nine month period
ended March 31, 2000 was an increase of $357,000 and $349,000,
respectively. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Management considers projected future
taxable income and tax planning strategies in making this assessment. In
order to fully realize the deferred tax asset, the Company will need to
generate future taxable income of approximately $1,560,000 prior to the
expiration of the net operating loss carryforwards in 2005 and 2006 and
future taxable capital gains of approximately $67,000 to utilize the net
capital loss carryforward available indefinitely. Based upon the level of
historical taxable income and that the Company is considered a
development stage company, it cannot be reasonably estimated at this time
if its more likely than not the Company will realize the benefits of the
deferred tax assets. Consequently, the deferred tax assets have been
reduced by an equivalent valuation allowance. The valuation allowance
will be adjusted in the period that is determined with reasonable
certainty that it is more likely than not that some portion or all of the
deferred tax assets will be realized.
20
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the nine month period ended March 31, 2000 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
14. Non-cash financing and investing activities:
(a) In 1999, a capital lease obligation of $4,800 was incurred when the
Company entered into a lease for furniture and fixtures.
(b) In 1999, 1,000,000 shares of common stock were issued upon the
conversion of 1,000,000 common share purchase warrants to settle an
outstanding liability.
(c) In 1999, a note payable of $40,000 was issued when the Company
purchased an investment in CTRA.
(d) In 1998, a business combination with the Company and Innofone Canada
(note 1) was effected.
15. Segmented information:
(a) Reportable segment:
The Company has one reportable segment; resale of long distance
services. The resale of long distance services is provided to
residential and small to medium sized businesses. This segment
represents the result of operations for the Company.
(b) Geographic information:
The Company derives all of its revenue from Canada and all of its
capital assets are physically located in Canada.
21
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the nine month period ended March 31, 2000 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
16. New US Accounting Standards:
(a) In April 1998, the American Institute of Certified Public
Accountants issued statement of position 98-5 (SOP 98-5) "Reporting
on the Costs of Start-Up Activities", which requires costs of
start-up activities to be expensed as incurred. Effective July 1,
1999 the Company adopted the accounting principles of SOP 98-5,
however management has determined that SOP 98-5 would have no impact
on its financial statements.
(b) In June 1998, the FASB issued SFAS No. 133 "Derivative Instruments
and Hedging Activities" effective for fiscal quarters beginning
after June 15, 2000. SFAS No. 133 requires that the Company report
all derivative instruments on the balance sheet at fair value.
Management has not determined the impact of adoption of SFAS No. 133
on its financial statements.
17. Subsequent event:
Effective April 20, 2000, the Company entered into a three year agreement
with Rogers Wireless Inc. ("Rogers") to resell their cellular based
telecommunications services to customers of financial institutions in
Canada for which Innofone is offering bundled services. Under the terms
of the agreement, the Company is obligated to arrange for 5,000 new
customers by April 20, 2001, 15,000 new customers by April 20, 2002, and
25,000 new customers by April 20, 2003. If these minimums are not
reached, the Company is obligated to pay Rogers Cdn. $20 times the number
of customers that the Company is short of the minimum. Rogers would also
have the option to terminate the contract upon 10 days notice, if the
anniversary date minimums are not met. The Company is also required to
post a security deposit with Rogers in the amount of Cdn. $100,000. After
three years, this agreement shall deem to continue on a month-to-month
basis, unless either party terminates after giving thirty days written
notice.
22
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the nine month period ended March 31, 2000 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
18. Other events:
(a) On June 29, 1999, Hotcaller.com Inc. ("Hotcaller") was incorporated.
No shares have been issued to date. However, it is management's
intention that Hotcaller will be a wholly owned subsidiary of the
Company.
(b) Effective September 1, 1999, the Company's shares were delisted from
the NASD over-the-counter Bulletin Board. The Company is in the
process of preparing a Registration Statement to be filed with the
United States Securities and Exchange Commission in order for the
Company's shares to be eligible for trading in the United States on
the NASD over-the-counter Bulletin Board.
(c) On August 5 and 6, 1999, the Company raised $501,100 through the
subscription of 8% unsecured convertible promissory notes (amended
on October 5, 1999) which are due July 31, 2000. The notes are
convertible into common shares of the Company with a par value of
$0.001 per share at a price of $0.40 per share. The total fair value
of the Company's conversion common shares on August 5, 1999 and
August 6, 1999 was $438,000 higher than the total conversion price.
Therefore, these convertible promissory notes have an embedded
beneficial conversion feature that has been charged to interest
expense and additional paid in capital effective the dates the notes
are issued. As of March 31, 2000, no notes have been converted into
common shares.
(d) During the period December 1999 to February 2000, the Company raised
$1,039,500 through the subscription of 8% unsecured convertible
promissory notes which were due December 31, 2000. The notes are
convertible into common shares of the Company with a par value of
$0.001 per share at a price of $0.40 per share. The total fair value
of the Company's conversion common shares at the dates when the
notes were signed was $874,750, higher than the total conversion
price. Therefore, these convertible promissory notes have a similar
embedded beneficial conversion feature as stated in note 18(c),
which has been charged to interest expense and added to additional
paid in capital. The notes also include a warrant to purchase one
common share of the Company with a par value of $0.001 at a price of
$1 per share for each $0.40 of notes purchased. As of March 31, 2000
no notes have been converted into common shares and no warrants have
been exercised.
23
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the nine month period ended March 31, 2000 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
18. Other events:
(e) On various dates subsequent to June 30, 1999 up to March 31, 2000,
the Company committed to grant up to 7,330,000 stock options to
employees and consultants of the Company if certain business targets
and conversion requirements are met. The Company is in the process
of amending their stock option plans to increase the number of
common shares reserved for issuance under the stock option plans in
order to grant the options. As of March 31, 2000, none of these
stock options have been granted.
24
<PAGE>
PART II
Item 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Nevada law, Innofone's Certificate of Incorporation
provides that Innofone will indemnify its officers and directors against
attorneys' fees and other expenses and liabilities they incur to defend, settle
or satisfy any civil or criminal action brought against them arising out of
their association with or activities on behalf of Innofone unless, in any such
action, they are adjudged to have acted with gross negligence or to have engaged
in willful misconduct. Innofone may also bear the expenses of such litigation
for any such persons upon their promise to repay such sums if it is ultimately
determined that they are not entitled to indemnification. Such expenditures
could be substantial and may not be recouped, even if Innofone is so entitled.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling Innofone
pursuant to the foregoing provisions, Innofone believes that, in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in that Act and is, therefore, unenforceable.
Item 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth Innofone's estimates of the expenses to
be incurred by it in connection with the issuance and distribution of the
securities being registered, other than underwriting discounts and commissions:
Securities and Exchange Commission registration fee $ 910
Fees and expenses of Registration _______*
Accounting fees and expenses _______*
Miscellaneous -------
Total $______
* Estimated
Item 26. RECENT SALES OF UNREGISTERED SECURITIES
1. On June 15, 1998, Innofone issued 1,000,000 common share purchase warrants to
a shareholder of Innofone as consideration for services provided, related to the
reverse take-over
II-1
<PAGE>
transaction with APC Telecom Inc. described in paragraph 2. A value of $9,838
was assigned to the common share purchase warrants. Each common share purchase
warrant was exercisable until June 30, 1999 to acquire one common share at $0.02
per share. On January 5, 1999, the common share purchase warrants were
exercised. Upon exercise of the 1,000,000 common share purchase warrants,
1,000,000 common shares were issued at $0.02 per share. The share purchase
warrants and the shares issued upon exercise of the warrants were issued
pursuant to the exemptions from registration set forth in Rule 504 of the
Securities Act of 1933, as amended (the "Securities Act").
II-2
<PAGE>
2. On June 26, 1998, APC Telecom Inc., a federally chartered Canadian company
("APC"), was acquired by Innofone in a stock-for-stock exchange pursuant to an
Agreement and Plan of Reorganization dated June 12, 1998 among Innofone, APC and
the shareholders of APC. As a result of the exchange, APC became a wholly owned
subsidiary of Innofone. Innofone issued to the shareholders of APC (i) 5,000,000
shares of its common stock, par value $.001 per share ("Shares"), and (ii)
5,000,000 shares of Series A, Convertible Preferred Stock, pursuant to the
exemptions from registration set forth in Section 4(2) of the Securities Act of
1933, as amended (the "Securities Act"), as a transaction not involving a public
offering.
3. From July 28, 1998 through October 14, 1998 Innofone sold a total of
2,000,000 Units, at a price of $0.05 per Unit, to 13 investors located in the
Bahamas, Hong Kong, and Mexico, netting Innofone $100,000. Each Unit consisted
of (i) one Share; (ii) One Class A common stock purchase warrant exercisable
April 30, 1999, to purchase one Share at a price of $0.10 per Share; (iii) One
Class B common stock purchase warrant exercisable until April 30, 1999, to
purchase one Share at a price of $.14 per Share; and (iv) One Class C common
stock purchase warrant exercisable until April 30, 1999, to purchase one Share
at a price of $0.20 per Share. A total of (i) 1,848,000 Class A Warrants were
exercised, between December 23, 1998 and April 30, 1999, netting Innofone
$184,800, (ii) 1,820,000 Class B Warrants were exercised, between December 8,
1998 and April 30, 1999, netting Innofone $254,800, and (iii) 462,000 Class C
Warrants were exercised, between April 10, 1999 and April 30, 1999, netting
Innofone $92,400. The Units were sold pursuant to the exemption from
registration set forth in Rule 504, promulgated under the Securities Act; the
Shares issued pursuant to the exercise of the Class A, B, and C Warrants were
issued pursuant to the exemption from registration set forth in Rule 504,
promulgated under the Securities Act.
4. During August through October 1999, Innofone raised a total of $501,100 U.S.
in a private placement of its convertible promissory notes to 23 subscribers in
Canada. Each holder of the notes is entitled to convert the note plus accrued
interest with shares at the rate of $0.40 U.S. per share. The notes are
unsecured, bear interest at the annual rate of 8% and are due on July 31,
II-3
<PAGE>
2000. The notes were sold pursuant to the exemption from registration set forth
in section 4(2) of the Securities Act, as a transaction not involving a public
offering.
5. During January and February 2000, Innofone raised a total of $1,039,5000 U.S.
in a private placement of its convertible promissory notes to 50 subscribers in
Canada. Each holder of the notes is entitled to convert the note plus accrued
interest to shares at the rate of $0.40 U.S. per share. The notes are unsecured,
bear interest at the annual rate of 8% and are due beginning in January 2001.
Each note also has a warrant allowing the holder to purchase 2.5 shares of
common stock, for every $1.00 of notes, at an exercise price of $1.00 per share.
The warrants expire December 31, 2000. The notes and warrants were sold pursuant
to the exemption from registration set forth in section 4(2) of the Securities
Act, as a transaction not involving a public offering.
Item 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- ---------------- ----------------------
<S> <C>
**2.02 Agreement and Plan of Reorganization among Registrant,
APC Telecommunications Inc. ("APC"), and the
Shareholders of APC.
**3.01(i) Certificate of Incorporation of the Registrant.
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
**3.01(ii) By-Laws of the Registrant.
*5.01 Opinion of Berns & Berns.
**10.01 Agreement dated March 3, 1999 between Canadian Telecom
Resellers Alliance and Registrant.
*10.02 Agreement dated March 2, 2000 ACS Communications
Industry Services, Inc. and Registrant.
**10.03 Memorandum of Understanding dated November 30, 1999
between Registrant and Douglas Burdon.
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C>
* 10.04 Amended Memorandum of Understanding dated April 5, 2000
between Registrant and Douglas Burdon
**10.05 1997 Employee Stock Option Plan
**10.065 1997 Compensatory Stock Option Plan
**10.07 Joint Subscription Agreement to Innofone.com Incorporated
and Hot Caller Com Inc.
**10.08 Amending Agreement Between Innofone,com Incorporated, Hot
Caller.Com Inc., and Larry Hunt, Rick Quinney and Ron
Crowe
*10.09 Reseller Agreement between Rogers Wireless Inc. and
Innofone Canada Inc., dated April 20, 2000.
**21.01 Subsidiaries of the Registrant.
*23.01 Consent of Berns & Berns (included in Exhibit 5)
*23.02 Consent of KPMG LLP
- -----------
* Filed herewith
** Previously filed.
</TABLE>
Item 28. UNDERTAKINGS
Innofone 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 by Section 10(a)(3) of the
Securities Act of 1933;
II-6
<PAGE>
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(iii) and 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;
(2) that, for the purpose of determining any liability under the 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) to provide to the Underwriter at the closing specified in the Underwriting
Agreement certificates in such denominations and registered in such names as
required by the Underwriter to permit prompt delivery to each purchaser;
(5) insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of Innofone
pursuant to the foregoing provisions, or otherwise, Innofone 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 Innofone of expenses
incurred or paid by a director, officer or controlling person of Innofone 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, Innofone 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-7
<PAGE>
(6) for purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective;
(7) for the purpose of determining any liability under the Securities Act, 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.
II-8
<PAGE>
SIGNATURES
IN ACCORDANCE WITH 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 OF FILING ON FORM SB-2 AND AUTHORIZED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, IN THE CITY OF VAUGHAN,
ONTARIO, CANADA, ON MAY 24, 2000.
Innofone,com, Incorporated
By: /Larry Hunt/
- ------------------
Larry Hunt,
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
II-9
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------- ---------------------------------- ----------------
SIGNATURE TITLE DATE
- ----------------------------------------- ---------------------------------- ----------------
<S> <C> <C>
/s/ Larry Hunt President, Chief Executive May 24, 2000
- ----------------------- Officer, Director (Principal
Larry Hunt Executive Officer)
- ----------------------------------------- ---------------------------------- ----------------
/s/ Richard Quinney Chief Financial Officer, Director May 24, 2000
- ----------------------- (Principal Financial and
Richard Quinney Accounting Officer)
- ----------------------------------------- ---------------------------------- ----------------
/s/ Ronald Crowe Director May 24, 2000
- -----------------------
Ronald Crowe
- -------------------------------------------------------------------------------------------------------
</TABLE>
II-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------
<S> <C>
**2.02 Agreement and Plan of Reorganization among Registrant,
APC Telecommunications Inc. ("APC"), and the Shareholders
of APC.
**3.01(i) Certificate of Incorporation of the Registrant.
**3.01(ii) By-Laws of the Registrant.
*5.01 Opinion of Berns & Berns.
**10.01 Agreement dated March 3, 1999 between Canadian Telecom
Resellers Alliance and Registrant.
*10.02 Agreement dated March 2, 2000 ACS Communications Industry
Services, Inc. and Registrant.
**10.03 Memorandum of Understanding dated November 30, 1999
between Registrant and Douglas Burdon.
* 10.04 Amended Memorandum of Understanding dated April 5, 2000
between Registrant and Douglas Burdon
**10.05 1997 Employee Stock Option Plan
**10.065 1997 Compensatory Stock Option Plan
**10.07 Joint Subscription Agreement to Innofone.com Incorporated
and Hot Caller Com Inc.
**10.08 Amending Agreement Between Innofone,com Incorporated, Hot
Caller.Com Inc., and Larry Hunt, Rick Quinney and Ron
Crowe
*10.09 Reseller Agreement between Rogers Wireless Inc. and
Innofone Canada Inc., dated April 20, 2000.
**21.01 Subsidiaries of the Registrant.
*23.01 Consent of Berns & Berns (included in Exhibit 5)
*23.02 Consent of KPMG LLP
- ------------
* Filed herewith
** Previously filed.
</TABLE>
<PAGE>
Exhibit 5.01
Exhibit 5.01 Opinion of Berns & Berns.
May 24, 2000
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Re: Innofone.com, Incorporated
Registration No.
--------------------------
Ladies and Gentlemen:
We refer to the registration statement on Form SB-2, Registration No.
333-94497 (as amended, the "Registration Statement") filed by Innofone.com,
Incorporated, a Nevada corporation (the "Company"), with the Securities and
Exchange Commission (the "Commission"), relating to the resale by certain
persons ("Selling Shareholders") of a maximum of 4,959,500 shares of Common
Stock, par value $.001 per share (the "Common Stock"), of the Company originally
offered and sold by the Company in 1999 and 2000.
We have examined copies of the Certificate of Incorporation, as amended
through the date hereof and By-Laws of the Company, the Registration Statement,
records of certain of the Company's corporate proceedings as reflected in the
Company's minute books and other records and documents that we have deemed
necessary for the purposes of this opinion. We have also examined such other
documents, papers, authorities and statutes as we have deemed necessary to form
the basis of the opinion hereinafter set forth.
In our review, we have assumed the genuineness of all signatures and
the conformity to original documents of all copies submitted to us. As to
various questions of fact material to our opinion, we have relied on statements
and certificates of officers and representatives of the Company and public
officials.
Based upon the foregoing, it is our opinion that the Common Stock
proposed to be resold
<PAGE>
by the Selling Shareholders, in the manner contemplated by the Registration
Statement, is validly issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Legal
Matters" in the prospectus which forms a part thereof. In giving this consent,
we do not admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
We are qualified to practice law in the State of New York and do not
purport to be experts on, or to express any opinion herein concerning any law,
other than the laws of the State of New York and the General Corporation Law of
Nevada.
Sincerely,
Berns & Berns
<PAGE>
Exhibit 10.08
Exhibit 10.08 Agreement dated March 2, 2000 between Innofone Canada
Inc. and ACS Communications Industry Services, Inc.
Contract:
<PAGE>
THIS AGREEMENT is made between Innofone Canada Inc., whose principle place of
business is 241 Applewood Crescent Suite 4 Vaughan, Ontario L4K 4E6
("Customer"), and ACS-Communications Industry Services, Inc., whose principle
place of business is 2828 N. Haskell, Dallas Texas 75204 ("ACS").
A. Customer has agreed to engage ACS, and ACS has agreed to be engaged, to
provide certain billing and related information technology services to Customer
in accordance with the terms of this Agreement.
B. ACS and Customer agree as follows:
1.01 General Overview: ACS, as a independent contractor agree to provide
access to certain software and perform certain services for the
Customer, at a defined cost as outlined in the following under the
terms herein set forth.
1.02 iCARS: ACS will make available to the Customer dial-in access to the
basic iCARS software at a cost outlined in "Attachment #1. Cost of
support and maintenance of the iCARS SQL tables is reflected within in
Attachment 1 accordingly.
1.03 Software: The Customer acknowledges that ACS is the sole owner of any
software, table structure and all related billing services and or
techniques, existing or developed in the future, and that the software
and or services / techniques are only made available to the Customer
through services performed as part of this agreement . The Customer
further acknowledges that it has no proprietary right or ownership,
either expressed or implied, to any existing or future developed
software, billing processes or techniques that ACS may develop or use,
in association with this particular application or project as agreed
upon by the parties.
1.04 Invoice Processing: ACS will provide the Customer invoic and all
additional processing at a cost outlined in "Attachment 1".
1.05 Minimum Monthly Service Bureau Fee: ACS will invoice the customer based
on the cost of service(s) provided within a given bill cycle as
outlined in Attachment #1 or $10,000.00 per month, which ever is the
greater.
1.06 Term: This agreement is for the term of 36 months and will be
automatically renewed for two years at the end of the term at the same
terms and conditions as outlined in this agreement and any other
mutually agreed upon terms or conditions that have been incorporated
into the agreement, unless written notice is given by either ACS or the
Customer at least 120 days prior to the date of termination.
Termination of this agreement by the Customer prior to the 36 month
anniversary date or the two year renewal date will be considered early
termination.
1.07 Early Termination: The Customer agrees that its early termination of
the contract must be
<PAGE>
communicated in writing and that such notice will be subject to a one
time financial penalty. Such penalty will be based upon the greater of
the previous three months average billing or 10,000 dollars, times 50%
of the number of months remaining in the contract. The Customer
acknowledges that termination fees do not include any migration work
that may be involved in the transfer of information from ACS to the
Customer. ACS will provide the Customer a written release from the
contract at such time that all outstanding invoices including early
termination fees are paid in full.
1.08 Service Level and Operational Performance. ACS will use commercially
reasonable efforts with regards to meeting all performance and
operational measurements as outlined in Attachment 3. If performance
measurements are not met, ACS will pay Customer the penalty fees noted
within the Attachment 2. If ACS does not meet the performance
measurements for either four consecutive months, or does not meet the
performance objectives for any of the six out of 12 previous months,
then Customer has the right to terminate this service agreement without
payment of termination fees as outlined in section 7.
ACS and Customer agree to provide a final version of Attachment 2
within 14 calendar days after execution of this agreement.
1.09 Communication: ACS and the Customer recognize the desirability of
publicizing their relationship with the prior approval of both parties,
which approval shall not be unreasonably withheld or delayed, and shall
be in keeping with the timely disclosure rules of the SEC.
10. Payment of Services: The Customer agrees to pay ACS a security deposit
equivalent to one months average billing and further agrees that this
deposit will be reviewed quarterly to reflect the Customer growth /
decline in business. Payment of ACS invoice is due upon receipt. A 1.5%
finance charge per month or the highest legal rate, whichever is lower,
will be applied to all invoice amounts over 30 days, less consideration
for any disputed amounts identified through the provisions of the SLA.
The Customer acknowledges that ACS has the unconditional right, without
penalty or liability, to cease all work for the Customer if the
Customer has ACS invoice(s) that are more than 30 days past due of full
payment.
11. Confidentiality: All information which the parties may exchange from
time to time may be considered by the party disclosing such information
to be confidential and proprietary in nature, including but not limited
to: (1) any information provided by Customer to ACS or processed by ACS
on behalf of Customer, (2) any ACS proprietary software made available
to Customer, (3) formats, techniques or any other technologies
developed or used by ACS on behalf of Customer and (4) any and all such
other information that the disclosing party specifies as confidential
and provides to the receiving party ("Confidential Information"). The
parties hereby agree to treat any and all Confidential Information,
which may be exchanged hereunder with the same degree of care with
which they treat their own similar information, which they consider to
be confidential or proprietary in nature.
The obligations of confidentiality set forth herein will not apply to
any Confidential
<PAGE>
Information that is (1) publicly available or becomes so in the future
without restriction, (2) rightfully received by either party from a
third party and not accompanied by confidentiality obligations, (3)
already in the receiving party's possession and lawfully received from
sources other than the disclosing party, (4) independently developed by
the receiving party, (5) approved in writing for release or disclosure
without restriction by the disclosing party.
The terms of this Section will not preclude the disclosure of
Confidential Information by either party if such disclosure is (1) in
response to a valid order of a court or other governmental body of the
United States or Canada or any political subdivision thereof, (2)
otherwise required by law or (3) necessary to establish rights under
this Agreement, provided however, that the parties will limit the
disclosure to the extent required for such purposes.
12. Warranty ACS services will be performed in accordance with generally
accepted consultant/contract business principals and practices. This
warranty is in lieu of all other warranties either expressed or
implied. Customer's remedyes under this Agreement shall be to require
ACS to rerun or rework any services incorrectly performed by ACS. The
parties' agree that ACS' cumulative liability, whether in contract or
in tort, for any and all cause of action arising out of or relating to
this Agreement shall be limited to the lesser of: (i) the actual amount
of damages incurred by the injured party as a result of the event(s)
giving rise to any cause of action or (ii) the Fees paid by Customer
for the Services under the applicable Services Schedule for the three
(3) month period immediately preceding any cause(s) of action. In no
event shall ACS be liable for any incidental, consequential or indirect
damages.
13. Applicable Law: This agreement in and schedule / attachments of cost hereto
shall be interpreted in accordance with the laws of the Province of Ontario,
Canada.
14. Severability: The invalidity of any particular provision of the agreement
shall not affect any other provision thereof, but the agreement shall be
continued as if such invalid provision were omitted.
15. Taxes: The Customer acknowledges that all quoted charges contained in this
agreement are net of taxes and that all invoices from ACS to the Customer will
include applicable taxes, customs, duties, levies, and similar charges payable
to any jurisdiction or authority.
16. Assignment. This Agreement will be binding on the parties and their
respective successors and assigns, except that no party may assign or
transfer its rights or obligations under this Agreement without the
prior written consent of the other party which consent will not be
unreasonably withheld; provided that the merger of either party with
another company or the assignment of this Agreement to the purchaser of
all or substantially all the assets of a party will not be deemed an
assignment in violation of this Section 22.0 Furthermore, either party
may assign its rights and obligations under this Agreement to any
parent, subsidiary or affiliate, provided that the assignee agrees in
writing to be bound by the terms and conditions of this Agreement;
provided that no such assignment will affect the liability of the
assignor, nor release
<PAGE>
such party from its obligations under the terms of this Agreement.
17. Exclusivity: Provided the billing service annual revenues generated
from this Agreement meet or exceed the schedule Attachment A, Customer
will have sole and exclusive rights to the rate and compare
functionality provided by ACS billing services which will facilitate
the customers Rate and Compare (TM) service as follows:
A) In support of marketing programs offered in Canada to Canadian
subscribers;
B) Rights are limited to the current Customer program structure, (i.e.
percent discounted from lowest cost provider);
18. Force Majeure. Each party to this Agreement will be excused (other than
obligations with respect to payments or credits) from performance, and
will not be liable, for any period and to the extent that such party is
prevented, hindered or delayed from performing any Services or other
obligations under this Agreement, in whole or in part, as a result of
acts, omissions, events, causes or conditions beyond the control of
such party, which include, by way of illustration and not limitation,
acts of God or public enemy; acts or omissions of Customer; acts of
government; civil disobedience or insurrection; lock-outs; freight
embargoes; acts of civil or military authority; national emergencies;
labor strikes or disputes; fire, flood or catastrophe; war or riots.
Notwithstanding the foregoing provisions of this Section, it is
expressly agreed that each party's performance and liability will only
be excused for such period of time that such party is exercising
commercially reasonable efforts to remedy the cause of such
nonperformance.
19. ALTERNATIVE DISPUTE RESOLUTION
a) Resolution By Parties. Prior to the initiation of any action or
proceeding under this Agreement to resolve disputes between the
parties, the parties will make a good faith effort to resolve any such
disputes by negotiation between representatives with decision-making
power, who will not have had substantive involvement in the matters
involved in the dispute, unless the parties otherwise agree.
b) Arbitration. Failing resolution pursuant to Section 25.0 (a) above,
all disputes, controversies, or differences arising out of this Agreement or any
breach thereof will be finally settled pursuant to arbitration in accordance
with the prevailing laws of the Province of Ontario, Canada or such other
jurisdiction as the parties may mutually agree upon.
The arbitration will take place in Dallas, Texas and will apply the governing
law of this Agreement. The decision of the arbitrators will be final and binding
and judgment on the award may be entered in any court of competent jurisdiction.
<PAGE>
20. Entire Agreement: This agreement supersedes any prior written or oral
agreements and constitutes the entire agreement between ACS and the
Customer which shall not be varied by any oral agreement or
representation of otherwise, except in writing and duly executed by
both parties. This agreement shall be governed by the laws of the
Province of Ontario, Canada.
<PAGE>
IN THE WITNESS WHEROF the parties have hereunto set their hands the date first
written above.
- --------------------------------- ---------------------------------
Customer Name and Title
Larry Hunt, CEO
- --------------------------------- ---------------------------------
Witness - Customer Name and Telephone
Accepted by ACS Communications Industry Services, Inc. this 2nd day of
March, 2000.
- --------------------------------- ---------------------------------
ACS Communications Industry Services, Inc. Name and Title
Fred Sabet, President
- --------------------------------- ---------------------------------
Witness - Name and Telephone
ACS Communications Industry Services, Inc.
Robert Foster (214) 841-8298
<PAGE>
Attachment 1
Monthly Access Fees
Fee
iCARS Base Access(1)
o First Product (i.e.., Equal Access,
long distance) $ 500.00 per month per product
o Additional Products $ 300.00 per month per product
iCARS Additional Users(2)
o Three (3) concurrent user access $ 100.00 per user
iCARS Invoice Viewing(3)
o Additional 0.5 GB invoice data $ 50.00 each 0.5 GB per month
ICARS access and SQL table maintenance
(1) Includes three (3) concurrent user access Includes 0.25 GB data storage for
invoice viewing (Adobe required to view PDF file format)
(2) Software access and SQL table maintenance
(3) Approximatly 50k impressions - actual number of print images dependent on
graphic intensity
<PAGE>
Attachment 1 continued
Bill-Cycle Processing Fees
<TABLE>
<CAPTION>
Fee
<S> <C>
Data Preparation(1)
o First Product (e.g., Equal Access, long
distance) $ 1,000.00 per bill-cycle
o Additional Products $ 600.00 per bill-cycle
Invoice Preparation(2)
Standard invoice
All invoices $ 0.75 per invoice
Invoice Processing(2)
o Call Records (CDRs) All CDRs $
$ 0.003 each
o Products
All products $ 0.030 each
Bill-Cycle Printing(2),(3)
o Paper, 20lb Bond $ 0.0125 each
o Toner (600 DPI) $ 0.05 per impression
Invoice Fulfillment
o Envelop #2 Booklet(4) $ 0.10 each
9x12 or larger(5) TBD, but not to exceed $1.00
each.
o Third Party Collateral Inserts
TBD
</TABLE>
(1) Product fee based 300 product codes.
(2) Includes basic set-up and processing, additional fees may be
applicable, does not include initial account set-up fees. Includes quality
control sampling checks and measures.
(3) Includes invoices and reports.
(4) Includes set-up, labor and machine time.
(5) Includes labor.
<PAGE>
Attachment 1 continued
Additional Processing Fees
<TABLE>
<CAPTION>
Fee
<S> <C>
Data Preparation(1)
o data stream(1) $ 250.00 each per bill-cycle
o New or revised rate table $ 300.00 minimum Set up(2)
$ 100.00 each per bill-cycle
o Product codes $ 3.00 each
o Exception rates $ 1.00 per line of data entry
Invoice Viewing and Data Output
o Invoice PDF print file format on CD-ROM(3) $ 75.00 each
o CallView basic software (single site $ 125.00 per site
access)(4)
Rated CDRs on diskette to view in CallView $ 10.00 each
</TABLE>
(1) Includes basic processing, additional fees may be applicable for initial set
up
(2) Separate quotation will be provided at point of request
(3) Required for online invoice viewing in iCARS.
(4) On premise software for users to view, manipulate and export call record
data from their invoice
<PAGE>
Exhibit 10.09
Exhibit 10.09 Memorandum of Understanding dated April 5, 2000 between
<PAGE>
Douglas Burdon and Innofone Canada Inc.
April 5, 2000
Mr. Douglas Burdon
27677 Briones Court
Los Altos Hills, CA 94022
Re: Amended Memorandum of Understanding
Dear Doug,
Douglas Burdon (herein Burdon)
Innofone Canada Inc. (herein Innofone)
The purpose of the within Memorandum of Understanding (M.O.U.) is to firstly
confirm that all prior agreements and arrangements hereto are null and void.
Further the purpose of this MOU is to outline and confirm the details of our
continuing business arrangements regarding your development of "major financial
institution client relationships and program service providers", on behalf of
and acceptable to Innofone and resulting in a substantial increase in Innofone's
subscriber base on or before September 30, 2000, or such further date that
Innofone may agree to (herein the property).
Both parties have agreed that you will not be entitled to any fees or monetary
compensation whatsoever from Innofone's acquisition of the property, save and
accept your strategic advisor / consulting fees as provided for herein, and
Innofone stock options as outlined in Annex "A" attached hereto and forming part
of this M.O.U.
In addition, Innofone wants you to work on developing additional business
opportunities. In return, you agree to offer Innofone an exclusive on any and
all other telecommunications rebiller, bundled service offerings 'business
opportunities' that you develop. Innofone undertakes that in the event that it
wants
<PAGE>
to pursue any of these opportunities that it will fully and adequately fund and
support them. Innofone will not offer you an additional number of Innofone stock
options regarding any new business opportunities beyond those outlined in Annex
"A". Innofone shall have 45 days from receipt of an executive summary and
financial projections prepared by Burdon, to accept or reject any and all new
business opportunities.
Annex "A" has been amended from the past arrangements so as to provide for the
immediate vesting of one million options (1,000,000). This amendment is granted
in consideration of the business opportunities that you have presented to date
and also in consideration of the following:
1. You have given up your entitlement to the license/royalt fees of 2% of
gross sales;
2. You have presented AOL Canada as another client relationship for Innofone
on the basis of a strategic partnership and an wholesale supplier basis;
3. Brought forward Telecommunications analyst Eamon Hoey as a candidate for
appointment to the Board of Directors of Innofone;
4. Increased the number of business relationship opportunities within the CIBC
from at least one to four;
5. Agreed to develop additional opportunities with other Financial
Institutions and Retailers on behalf of Innofone Canada, without additional
compensation.
You shall pursue your strategic advisory and business development role on a non-
exclusive basis and as an independent contractor. Innofone shall not provide you
with any benefits of any type that may otherwise possibly characterize our
relationship in any other form such as an employee We will however, reimburse
you for any pre-approved expenses that you may incur from time to time. You
acknowledge that the strategic advisor fee has been and shall be $8,250 USD per
month from April 1, 2000 until the earlier of the execution of the Primary and
Secondary contract agreements or September 31, 2000. The Primary contract
agreements shall mean the dates on which the contracts have been completed as
provided in Annex A.
We mutually acknowledge and agree that the relationship between us in regard to
the matters outlined in this letter is fiduciary in nature and one of mutual
trust and
<PAGE>
reliance and that they owe each other a duty of utmost loyalty and good faith.
We further mutually acknowledge that we each have and may have access to
information and knowledge, including confidential information, relating to all
aspects of each other's individual affairs. The unauthorized disclosure of any
of which to the competitors, customers, or the general public may be highly
detrimental to the best interests of either of us.
This letter and Annex A attached hereto details our understanding. To
acknowledge your acceptance of our agreement I would ask that you sign and
return a copy of this letter and initial Annex A.
Yours truly,
Larry Hunt
Acknowledged and accepted this day of 2000.
----- ------------
- --------------------------------
Douglas Burdon
Annex A
DOUGLAS BURDON or designate
Options shall be granted by Innofone Canada's parent company Innofone.com
Incorporated an U.S. Public Corporation at a price of $0.50USD and shall be
granted to Douglas Burdon or his designate as follows:
Primary Contracts
Amount Grant
2,750,000 Upon the earlier of the execution of Visa Desjardins Agreement
or the
<PAGE>
launch of the program with respect of the property;
2,750,000 Upon execution of a 2nd Bank Agreement with respect of the
property
Vesting
The vesting period for each individual grant shall be on a quarterly basis and
shall be divided over a 18-month period, with the exception of 1,000,000 options
from the Visa Desjardins agreement which shall be fully vested at the time of
grant. The vesting period for the remaining options will begin the first quarter
following the Qualification for the grant. As per the following example
Grant April 2000 Vest
2,250,000 375,000 July, 2000
375,000 October 2000
375,000 January 2001
375,000 April 2001
375,000 July 2001
375,000 October 2001
Exercising
Burdon shall have a period of (2) Two years from the date of grant, to exercise
each individual option granted.
---------
Initials
<PAGE>
Exhibit 10.10
Exhibit 10.10 Resellers Agreement between Rogers Wireless Inc. and
Innofone Canada Inc., dated as of April 20, 2000
RESELLER AGREEMENT
BETWEEN
ROGERS WIRELESS INC.
and
INNOFONE CANADA INC.
DATED APRIL 20, 2000
<PAGE>
TABLE OF CONTENTS
DEFINITIONS
5
- -
1.1 DEFINITIONS
5
-
1.2 GENDER.
7
-
1.3 HEADINGS.
7
-
1.4 SCHEDULES.
8
-
1.5 EFFECTIVE DATE.
8
-
APPOINTMENT OF RESELLER
8
- -
2.1 APPOINTMENT AS RESELLER.
8
-
2.2 RESALE MARKET.
8
-
2.3 COMPETITION.
8
-
2.4 NO RIGHTS TO ROGERS' FACILITIES.
8
-
ROGERS SERVICES
9
- -
3.1 PROVISION OF SERVICE.
9
-
3.2 LIMITATIONS ON SERVICE.
9
-
3.3 LIMITATIONS ON ROAMING SERVICE.
9
-
3.4 REASSIGNMENT OF/NO PROPERTY IN NUMBERS.
10
--
3.5 LACK OF PRIVACY.
10
--
3.6 DESIGN OF ROGERS FACILITIES.
10
--
3.7 CHANGES TO SERVICES.
10
--
3.8 ACTIVATION/DEACTIVATION.
10
--
3.9 DIRECTORY LISTINGS.
11
--
3.10 OPERATOR ASSISTANCE.
11
RESTRICTIONS ON USE OF SERVICE
11
--
4.1 ABUSE OR FRAUDULENT USE.
11
--
<PAGE>
4.2 CANCELLATION OF SERVICE TO END USER.
12
--
4.3 INTERFERENCE.
12
--
RATES AND TERMS OF PAYMENT
12
--
5.1 RATES.
12
--
5.2 PAYMENT OF CHARGES.
12
--
5.3 BILLING RECORDS
13
--
5.4 TIME OF PAYMENT
13
--
5.5 DISPUTED CHARGES.
13
--
5.6 SECURITY.
14
--
5.7 MIGRATION PROTECTION
15
--
EQUIPMENT
15
--
6.1 EQUIPMENT.
15
--
6.2 SUPPLY TERMS.
15
--
RESELLER'S OBLIGATIONS
16
--
7.1 OBLIGATIONS TO END USERS.
16
--
7.2 ETHICAL RESPONSIBILITIES.
16
--
7.3 RESPONSIBILITY FOR ACTIONS OR OMISSIONS
16
--
7.4 RESPONSIBILITY FOR AGENTS.
17
--
7.5 CONTRACTS WITH END USERS
17
--
7.6 RESELLER OPERATIONS MANUAL
18
--
7.7 INTERFERENCE WITH ROGERS DEALERS/CUSTOMERS
18
--
7.8 MINIMUM NUMBER OF CUSTOMERS.
19
--
7.9 COMMITMENT.
19
--
7.11 RIGHT OF FIRST OFFER
19
--
ROGERS' OBLIGATIONS
20
- --
<PAGE>
8.1 SERVICE.
20
--
8.2 REGULATORY APPROVAL
20
--
8.3 NOTICE OF MATERIAL CHANGE IN SERVICE.
20
--
LIMITATION OF LIABILITY/INDEMNITY/INSURANCE
20
--
9.1 LIMITATION OF ROGERS' LIABILITY.
20
--
9.2 LIMITATION OF LIABILITY.
21
--
9.3 INDEMNITY AND INSURANCE
22
--
9.4 MAINTENANCE OF INSURANCE
22
--
NO WARRANTY
22
--
10.1 NO WARRANTY.
22
--
10.2 ACKNOWLEDGEMENT.
23
--
TERM AND TERMINATION
23
--
11.1 TERM.
23
--
11.2 TERMINATION BY ROGERS.
23
--
11.3 TERMINATION BY RESELLER.
25
--
11.4 USE OF INFORMATION UPON TERMINATION.
25
--
11.5 CONTINUING OBLIGATIONS
25
--
11.6 NO OBLIGATION FOR CONTINUING SERVICE TO END USERS
25
--
RIGHT OF FIRST REFUSAL
26
--
12.1 RIGHT OF FIRST REFUSAL
26
--
12.2 EXTENSION OF RIGHT OF FIRST REFUSAL.
27
--
TRADE NAME AND TRADEMARK
27
--
13.1 ROGERS' RIGHTS.
27
--
13.2 EQUIPMENT BRANDING.
27
--
<PAGE>
CONFIDENTIALITY
28
--
14.1 CONFIDENTIAL INFORMATION.
28
--
14.2 REMEDY FOR BREACH
29
--
RESTRICTIONS
29
--
15.1 RESTRICTION ON BUNDLING.
29
--
15.2 NON-SOLICITATION.
29
--
GENERAL
30
- --
16.1 RELATIONSHIP OF PARTIES.
30
--
16.2 NOTICES.
30
--
16.3 FORCE MAJEURE
31
--
16.4 FURTHER ASSURANCES.
31
--
16.5 WAIVER.
31
--
16.6 SUCCESSORS AND ASSIGNS
31
--
16.7 SEVERABILITY
31
--
16.8 TIME.
32
--
16.9 GOVERNING LAW
32
--
16.10 EXECUTION IN COUNTERPARTS.
32
--
16.11 SURVIVAL.
32
--
16.12 ENTIRE AGREEMENT
32
--
16.13 AMENDING THE AGREEMENT
32
--
16.14 REVIEW BY COUNSEL
33
--
INDEPENDENT INVESTIGATION
33
- --
<PAGE>
RESELLER AGREEMENT
This Agreement shall be effective as of the 20 day of April, 2000.
BETWEEN:
ROGERS WIRELESS INC., a corporation incorporated
under the laws of Canada
(hereinafter referred to as "Rogers")
- and -
INNOFONE CANADA INC. a corporation incorporated
under the laws of Canada__
(hereinafter referred to as "Reseller")
WHEREAS Rogers is engaged in the business of providing a variety of
wireless communications services, including the Rogers Services (as defined
below);
AND WHEREAS Reseller desires to purchase and resell access to and use
of the Rogers Services to (i) VISA customers of Canadian Imperial Bank of
Commerce ("CIBC") through CIBC's "Guaranteed Proof" program, (ii) VISA customers
of VISA Desjardin and (iii) other customers who participate in similar programs
as may be approved by Rogers from time to time, on the terms set out in this
Agreement;
NOW THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, the parties agree as follows:
ARTICLE 1
DEFINITIONS
<PAGE>
1.1 Definitions
"Activate" means the establishment by Rogers of an initial connection
of a unit of Equipment to the Rogers Facilities, and "Activated" shall have a
corresponding meaning.
"Affiliates" means a relationship which exists where one corporation is
a subsidiary of the other, or where both are subsidiaries of the same
corporation, or where each of them are controlled, directly or indirectly, by
the same person or corporation or group of persons and/or corporations. Control,
for the purposes hereof, means effective control and one corporation shall be a
subsidiary of another if the first referred to corporation is controlled
directly or indirectly by the other.
"Agreement" means this reseller agreement and all schedules and
amendments to it. Allowed Migration Percentage" means, with respect to the
calendar year ending on (i) December 31, 2000, 16%, (ii) December 31, 2001, 18%,
and (iii) December 31, 2002, 20%.
"Bundle" means the promotion, marketing or offering by Reseller of the
cellular services together with one or more other services or products, where
the fees for the cellular services are not separately set out (i.e. a single
price point) or where a customer is required to purchase more than one product
or service from Reseller.
"Business Hours" means the hours during which Rogers offices are open
to conduct business as set out in the Reseller Operations Manual.
"Deactivate" means the termination of the provision of the Rogers
Services with respect to a unit of Equipment.
"End User" means a person or entity that (i) uses the Rogers Services
as a result of being offered the Rogers Services by Reseller, and (ii) that is
billed directly for the Rogers Services by Reseller as provided for in this
Agreement.
"Equipment" means a receiving/transmitting device which has been
approved by
<PAGE>
(i) Industry Canada for use in Canada, and (ii) Rogers for use as an end-user
terminal in connection with the Rogers Services.
"Monthly Migrated Customers" means, for any period of one month, the
total number New Customers during such period and who were formerly customers of
Rogers at any time during the period of three months prior to the commencement
of such monthly period.
"Monthly Migration Percentage" means for any calendar month, the
quotient obtained by dividing the (i) Monthly Migrated Customers for such month,
by (ii) number of New Customers for such month.
"New Customers" means, during any period, the aggregate of all
customers of Reseller that commenced receiving the Rogers Services during such
period, which would occur with respect to each customer once Rogers had
activated such customer's number in its billing system.
"Number" means any telephone number or e-mail address, assigned to
Reseller by Rogers
and associated with the Equipment of Reseller or its End Users, enabling use of
the Rogers Facilities.
"Person" includes an individual, partnership, firm, body corporate or
government body or department thereof and the legal representatives of such
person.
"Reseller Operations Manual" means the rules, policies and procedures
governing the operations of Reseller and the performance of its obligations
hereunder, as the same may be issued or amended from time to time by Rogers,
with any amendment becoming effective for the purposes of this Agreement upon
receipt by Reseller of written notice thereof. The initial Reseller Operations
Manual is attached hereto as Schedule "C".
"Rogers Facilities" means the telecommunications switching equipment,
cell site transceiver equipment and other equipment maintained, expanded,
modified or replaced by Rogers to provide the Rogers Services.
"Rogers Services" means the cellular radio-based telecommunications
services, both analogue and digital, offered by Rogers from time to time using
the
<PAGE>
Rogers Facilities, including Personal Communications Services (PCS), and which
Rogers is authorized or permitted by the appropriate regulatory authorities to
provide in Canada.
"Service Area" means the geographic locations in which the Rogers
Services are available from time to time.
"Unauthorized Use" means any use of the Rogers Facilities or any
Equipment or Number by any Person in any abusive or fraudulent manner or in a
manner that has not been authorized by Rogers, including but not limited to the
modification of the electronic serial number (ESN) originally installed by the
manufacturer in a cellular phone (which shall include the practices generally
referred to as "counterfeiting", "cloning fraud" or "tumbling fraud") or
engaging in any of the practices referred to in Section 4.1.
"VISA Customers" means VISA customers of (i) CIBC that participate in
CIBC's "Guaranteed Proof" program, and (ii) VISA Desjardin that participate in
VISA Desjardin's "Aim to Save" program.
1.2 Gender.
Except where the context otherwise indicates, words importing the
singular number only shall include the plural, and vice versa, and words
importing the masculine gender shall include the feminine gender.
1.3 Headings.
The headings of all Articles or Sections herein are inserted for
convenience of reference only and shall not affect the construction or
interpretation hereof.
1.4 Schedules.
The following are the Schedules attached to and incorporated in this
Agreement by reference and deemed to be part hereof:
Schedule "A" - Pricing
Schedule "B" - Billing Information
Schedule "C" - Reseller Operations Manual
<PAGE>
Schedule "D" - Reseller Supply Terms
1.5 Effective Date.
There shall be no agreement, oral or written, between the parties set
forth in this document with respect to the provisions set forth herein until
Reseller shall have signed and delivered two copies of this Agreement to Rogers
and two duly authorized signing officers of Rogers shall have executed this
Agreement and delivered a signed copy thereof to Reseller.
ARTICLE 2
APPOINTMENT OF RESELLER
2.1 Appointment as Reseller.
In reliance on the representations made by Reseller, Rogers hereby
appoints Reseller and Reseller agrees to act as an authorized reseller of the
Rogers Services upon the terms and conditions of this Agreement.
1.2 Resale Market.
Reseller agrees that it shall resell the Rogers Services and the
Equipment purchased in accordance with this Agreement only to (i) VISA Customers
, and (ii) other customers who participate in similar programs as may be
approved by Rogers in writing from time to time in its sole discretion.
2.3 Competition.
Rogers reserves the right to appoint other persons as resellers of the
Rogers Services in any area at any time and to itself engage, directly or
indirectly in the solicitation of customers and the sale of the Rogers Services
in competition with Reseller.
2.4 No Rights to Rogers' Facilities.
<PAGE>
No provision of this Agreement shall be construed as vesting in
Reseller any control or ownership interest whatsoever in any equipment,
facilities or operations of Rogers including the Rogers Facilities.
ARTICLE 3
ROGERS SERVICES
3.1 Provision of Service.
Rogers agrees to provide the Rogers Services to End Users with respect
to whom Reseller has requested the provision of the Rogers Services in
accordance with the provisions of this Agreement. In this regard, Rogers shall
register on the Rogers Facilities Equipment used by such End Users and provide
the Rogers Services to such End Users during the term of this Agreement, unless
it is notified by Reseller to cease the provision of the Rogers Services to such
End Users as specified in such notice. Reseller agrees to inform its End Users
of the Service limitations contained in this Section.
3.2 Limitations on Service.
Reseller acknowledges and agrees that the Rogers Services are made
available to End Users only when their Equipment is in operating range of the
Rogers Facilities. The Rogers Services may be temporarily refused, interrupted,
or limited because of: (i) limitations to the Rogers Facilities; (ii)
transmission limitations caused by atmospheric, topographical or other factors
reasonably outside of Rogers' control; or (iii) equipment modifications,
upgrades, relocations, repairs, and other similar activities necessary for the
proper or improved operation of the Rogers Services. Individual calls may be
involuntarily disconnected for a variety of reasons, including without
limitation atmospheric conditions, topography, weak batteries, system over-
capacity, movement outside a Service Area and gaps in coverage within a Service
Area.
3.3 Limitations on Roaming Service.
<PAGE>
Rogers will use reasonable commercial efforts to provide the same
roaming service to End Users that is available to Rogers' other customers.
Notwithstanding the preceding sentence,
Rogers, or another entity with which Rogers has a roaming agreement, may in its
sole discretion suspend roaming privileges to any end User if it discovers or
suspects that the Numbers assigned to such End-User are being used in a
fraudulent manner. Rogers agrees to use reasonable commercial efforts to provide
Reseller with prior or prompt subsequent, notification of any such suspension of
roaming service; provided, however, that Rogers shall have no liability arising
out of any failure to notify Reseller.
3.4 Reassignment of/No Property in Numbers.
Reseller acknowledges that Rogers may be required to change or reassign
Numbers previously provided to Reseller from time to time. Rogers will endeavour
to provide Reseller with notice of the intended change in advance of making any
such change. Reseller agrees to inform its End Users of the provisions of this
Section, and further acknowledges and agrees that neither it nor any End User
shall have or acquire any proprietary right in any specific Number provided by
Rogers.
3.5 Lack of Privacy.
Reseller acknowledges, and shall inform all End Users, that (i) it is
possible for third parties to monitor voice and data traffic over the Rogers
Facilities and privacy cannot be guaranteed, (ii) if Reseller or an End User
desires to secure transmission of data, Reseller or such End User must provide
for its own means of data encryption, and (iii) Reseller and the End User assume
full responsibility for the establishment of appropriate security measures
(including, without limitation, the selection of passwords and the like) to
control access to their own respective Equipment and information.
<PAGE>
3.6 Design of Rogers Facilities.
Reseller acknowledges and agrees that the design, engineering and
construction of the Rogers Facilities is entirely within Rogers' discretion and
Rogers is under no obligation to make any additions or modifications to the
Rogers Facilities to accommodate the needs or desires of Reseller or its End
Users.
3.7 Changes to Services.
Reseller acknowledges and agrees that the Rogers Services being
provided shall be subject to such modifications, additions and deletions as
Rogers may determine from time to time.
3.8 Activation/Deactivation.
(1) Rogers will use reasonable commercial efforts to Activate the Equipment of
End Users to the Rogers Facilities within four (4) Business Hours of Rogers'
receipt of a request from Reseller for the provision of the Rogers Services in
accordance with the procedures set out in this Agreement and the Reseller
Operations Manual.
(2) Rogers will use reasonable commercial efforts to Deactivate the Equipment of
End Users from the Rogers Facilities within four (4) Business Hours of Rogers'
receipt of a request from Reseller to effect such Deactivation in accordance
with the procedures set out in this Agreement and the Reseller Operations
Manual.
(3) Any requests from Reseller to Activate, Deactivate or make any change in the
Rogers Services will be accepted by Rogers only from Reseller, and not from
agents of Reseller or from End Users.
(4) Rogers shall use reasonable efforts to maintain a sufficient inventory of
Numbers in order to satisfy Reseller's requirements therefor from time to time.
If, at any time, Reseller requires an unusual number of Numbers in any
particular geographic location, it shall provide Rogers written notice of its
requirement for such Numbers not later than seventy-five (75) days prior to the
time when such Numbers are required. Failure to provide such a notice or
inaccurate forecasting could result in delays in receiving Numbers up to
seventy-five (75) days from the time of request.
<PAGE>
3.9 Directory Listings.
Rogers does not provide a directory listing service for the Numbers. It
is the responsibility of Reseller or the End Users to obtain such directory
listings at its or their expense.
3.10 Operator Assistance.
Rogers does not itself provide operator assistance to End Users, but
shall make available the operator assistance which is offered by the wireline
telephone companies, at the same rates as Rogers charges its retail customers.
ARTICLE 4
RESTRICTIONS ON USE OF SERVICE
4.1 Abuse or Fraudulent Use.
The Rogers Services are furnished by Rogers for use by Reseller and its
End Users in accordance with the terms of this Agreement and the Reseller
Operations Manual and subject to the condition that there will be no abuse or
fraudulent use thereof. Abuse and fraudulent use of the Rogers Services
includes, but is not limited to:
(a) attempting or assisting another to access, alte or interfere with
the communications of and/or information about another customer;
(b) tampering with or making an unauthorized connection to the Rogers
Facilities;
(c) using or assisting another to use any scheme, false representation
or false credit device, or other fraudulent means or devices in
connection with the Rogers Services;
(d) using the Rogers Services in such a manner so a to interfere
unreasonably with the use of the Rogers Service by one or more
other customers or End Users or to interfere unreasonably with
Rogers' ability to provide the Rogers Service; or
<PAGE>
(e) using the Rogers Services to convey information that is obscene,
salacious, prurient or unlawful.
4.2 Cancellation of Service to End User.
If Rogers determines that any End User has engaged in any Unauthorized
Use of the Rogers Services, Rogers may Deactivate such End User from the Rogers
Services. Further, Rogers reserves the right to disconnect or suspend the Rogers
Services to any Equipment that Rogers believes may not function properly on, or
that may adversely affect the operation of the Rogers Facilities.
4.3 Interference.
The parties understand that from time to time one or more End Users may
interfere with the Rogers Facilities in such as way as to impair the quality of
the Rogers Services. Upon either party's discovery of any such abuse by an End
User, such party shall promptly notify the other party, and Reseller shall
immediately order the End User to cease from engaging in such act(s) of
interference. Rogers shall have the right to discontinue the Rogers Service to
that End User should such act(s) continue. Reseller shall assist Rogers in
taking all actions reasonably necessary to prevent any further interference.
ARTICLE 5
RATES AND TERMS OF PAYMENT
5.1 Rates.
(1) Rogers agrees to sell to Reseller, and Reseller agrees t purchase from
Rogers, the Rogers Services at the rates and on the terms and
conditions described in Schedule "A".
(2) For purposes of calculating volume-based charges in accordance with the
pricing with respect to Rogers Services as set out on Schedule "A".
5.2 Payment of Charges.
<PAGE>
(1) Without limiting the generality of Section 5.1, Reseller agrees to pay to
Rogers all fees and other charges as set forth in Schedule "A" for each Number
assigned to Reseller, including, without limitation:
(a) the applicable charges for all calls originatin from, and all
charged calls accepted by an End User using, Equipment that uses
Numbers assigned to Reseller;
(b) the applicable charges for all services of othe telecommunications
carriers and the exercise of roaming privileges in those areas
served by other cellular telephone system operators with whom
Rogers has roaming agreements; and
(c) any minimum charges, early cancellation fees an other charges.
(2) Reseller shall be responsible for all charges associated with any
Equipment that is stolen, lost or destroyed until such time as Rogers
is notified of any such theft, loss or destruction in accordance with
the procedures outlined in the Reseller Operations Manual.
(3) No compensation or adjustment will be made to rates and charges owing
by Reseller in the event of any refusal or interruption of service or
equipment.
(4) Reseller agrees to pay all applicable taxes in connectio with the
transactions set out in this Agreement.
5.3 Billing Records
Reseller shall keep accurate books and records of all amounts owing to
it by its customers and by it to Rogers and of all calculations of such amounts.
Reseller agrees to provide monthly reports to Rogers of such items in a form
acceptable to Rogers. Unless otherwise specified by Rogers, such reports with
respect to a month shall be provided to Rogers contemporaneously with the
monthly payment for such month as set out in Section 5.4(1). In addition, Rogers
shall have the right to audit Reseller's books and records during normal
business hours in respect of all amounts owing under this Agreement and the
calculation thereof.
<PAGE>
5.4 Time of Payment
(1) Subject to Section 5.4(2), all amounts owing by Reseller to Rogers under
this Agreement with respect to any month shall be due on the 20th day of the
following month. Reseller agrees to pay to Rogers interest on all overdue
amounts at a rate of 1.5% per month (19.56% per annum) calculated and applied
monthly.
(2) In the event that a Reseller has incurred a material amount of non-recurring
charges or otherwise presents an unacceptable risk of loss to Rogers, as
determined by Rogers in its sole discretion, Rogers may request immediate
payment from Reseller on an interim basis. In such cases, the charges will be
considered past due three (3) days after Rogers demands payment thereof.
5.5 Disputed Charges.
(1) Reseller may provide Rogers with written notice of any disputed charges
within (i) 30 days, in the case of roaming charges, and (ii) 90 days, in the
case of all other charges, after the mailing date of the first invoice
containing such disputed charges. If Reseller fails to provide Rogers written
notice of any disputed charges within such time periods, Reseller shall have no
right to dispute such charges. Further, Reseller acknowledges and agrees that
sending such a notice of disputed charges does not excuse or defer Reseller's
obligations of full payment of the invoice in accordance with Section 5.4(1).
Rogers shall use reasonable commercial efforts to provide Reseller with its
determination with respect to disputed charges within 20 days after its receipt
of Reseller's notice of dispute and, if appropriate, will credit Reseller's
account.
(2) Without limiting the generality of any other provision hereof, it is
acknowledged that the failure of End Users to pay Reseller any amount or the
perpetration of any fraud or deceit upon Reseller or any direct or indirect
agent of Reseller shall not relieve Reseller of any of its obligations to pay
Rogers all amounts owing under Section 5.1.
5.6 Security.
(1) Contemporaneously with the execution of this Agreement, Reseller shall
provide to Rogers a security deposit or an irrevocable letter of credit
in a form satisfactory to Rogers in the amount of $100,000 to secure
the performance of Reseller's obligations under this Agreement and any
other agreement between Rogers and Reseller. Thereafter, Reseller
shall, upon Rogers' request, be obligated to increase the amount of
such security deposit or replace such letter of credit such that the
amount of the security deposit or letter of credit is equal to the
value of the amount of charges incurred by Reseller hereunder during
the three month period prior to such request. In the event that
Reseller provides
<PAGE>
Rogers with a cash deposit, Reseller hereby grants to Rogers a security
interest in such deposit.
(2) The provision of a deposit or letter of credit by Reseller does not in
any way modify Reseller's obligations under this Agreement with respect
to the payment of amounts due to Rogers. From time to time, Rogers may
apply all or any part of the deposit or amount available under the
letter of credit to sums due hereunder or to cure other breaches of
this Agreement by Reseller. This right of setoff is in addition to all
other rights and remedies available to Rogers under this Agreement or
at law or in equity. Reseller shall restore the deposit or amount
secured by the letter of credit to an amount that is acceptable to
Rogers within ten days of Rogers' written notice to do so.
(3) Any deposit paid to Rogers in accordance with Section 5.6(1) shall be
held by Rogers without interest payable to Reseller. Upon the expiry or
termination of this Agreement for any reason, Rogers shall have the
right to apply the deposit or letter of credit against any outstanding
balance in Reseller's account. In the event that there is no
outstanding balance or it is less than the amount of the deposit, the
deposit or the remainder of the deposit, as the case may be, shall be
refunded to Reseller.
(4) In the event that Reseller files for bankruptcy protection or an
involuntary bankruptcy petition is filed against Reseller, Rogers and
Reseller agree that Rogers shall be entitled to recoup against the
deposit any sums that are owed by Reseller to Rogers at that time.
Should Rogers seek relief from any stay in order to effect such
recoupment, although such relief may not be required under applicable
law, Reseller agrees to the entry of relief from the stay to allow
Rogers to recoup the deposit and to raise no defences thereto. Rogers
and Reseller agree that the deposit and Reseller's obligations under
this Agreement arise out of the same transaction.
5.7 Migration Protection
If at the end of each calendar year during the term of the Agreement,
the weighted average of the Monthly Migration Percentage for each month during
such year exceeds the Allowed Migration Percentage for such year, then Reseller
would pay to Rogers an amount equal to the product of A multiplied by B where:
<PAGE>
A equals $200; and
B equals the product of (i) the amount (expressed as a percentage) by
which the weighted average of the Monthly Migration Percentage for each
month during such year exceeds the Allowed Migration Percentage for
such year, multiplied by (ii) the sum of all New Customers during such
year.
ARTICLE 6
EQUIPMENT
6.1 Equipment.
(1) Reseller shall ensure that any Equipment used by it, its agents, or its
End Users in connection with the Rogers Services is approved by Rogers
for use in connection with the Rogers Facilities and meets the
standards of all applicable regulatory authorities. Rogers may, without
liability, refuse to Activate or Deactivate any Equipment that does not
comply with these standards.
(2) Rogers shall not be responsible to Reseller or any End User for the
installation, operation, quality of transmission, or testing and
maintenance of any cellular telephone unit or cellular terminal
equipment. Rogers shall have no obligation to sell or otherwise provide
Equipment to Reseller's End Users.
6.2 Supply Terms.
(1) Rogers agrees to supply certain Equipment described in Section 6.2(2)
to Reseller from time to time in accordance with the Reseller Supply
Terms attached hereto as Schedule "D"(as the same may be amended by
Rogers at any time in its sole discretion upon notice to Reseller),
provided, however, that if Rogers provides not less than sixty (60)
days prior written notice to Reseller that it will no longer be
supplying Equipment to its distributors of Rogers Services, then Rogers
shall have no further obligation to supply Equipment to Reseller under
this Section 6.2(1).
<PAGE>
(2) During the term of the Reseller Agreement, Rogers agrees to make
the Nokia 5160 available to Reseller for a price of $99. Upon the request of
Reseller, Rogers agrees to make available for purchase by Reseller, cellular
phones of a particular make and model instead of such phone, which make and
model shall be determined from time to time by mutual agreement of the parties.
The price for such phones shall be determined by Rogers.
(3) In the event that a customer who has purchased a phone from Reseller and
such customer deactivates from the Rogers Facilities prior to the date that is
12 months following such customer's activation (the "Initial Term"), then
Reseller shall pay to Rogers an additional amount equal to the lesser of $200
and the amount determined by multiplying (i) the number of months (for the
purpose of this calculation, partial months shall be counted as full months)
from the date of such deactivation remaining in the Initial Term, by (ii) $20.
Also, if a phone purchased from Rogers is not activated by Reseller within 75
days of its purchase, then Reseller shall be required to pay Rogers' full retail
rate for such phone.
ARTICLE 7
RESELLER'S OBLIGATIONS
7.1 Obligations to End Users.
(1) With respect to the matters covered by this Agreement, Rogers shall be
obligated only to Reseller and not to End Users. End Users shall not be deemed
to be third-party beneficiaries of this Agreement.
(2) Reseller shall be solely responsible to provide an adequate and properly
trained staff to receive and investigate any complaints from its End Users
relating to the Rogers Services. Reseller agrees to report any trouble with the
Rogers Services to Rogers immediately upon Reseller's reasonable verification
that such trouble is due to reasons other than the misuse or malfunctioning of
the End User's Equipment or the failure of such Equipment to meet the technical
standards for compatibility with the Rogers Service.
7.2 Ethical Responsibilities.
<PAGE>
Neither party shall do anything that would tend to discredit,
dishonour, reflect adversely upon, or injure, in any manner, the reputation or
business of the other party, or in the case of Rogers, any other reseller, agent
or dealer of Rogers. Each party shall be governed in all its dealings with
respect to this Agreement by the highest standards of honesty, integrity, and
fair dealing.
7.3 Responsibility for Actions or Omissions
Reseller shall be solely responsible for all risks and expenses
incurred in connection with its actions or omissions in the sale of the Rogers
Services or otherwise relating to this Agreement. Reseller shall act in all
respects on its own account, and shall be solely responsible for such things as
credit verification, deposits, billing, collection, consolidation, rebilling,
customer complaints, charges for usage, bad debts, and except as provided in the
Reseller Operations Manual, Unauthorized Use of any Number assigned to Reseller,
whether by Reseller, an End User, or any third party.
7.4 Responsibility for Agents.
Reseller is responsible for the performance of its agents, if any, and
shall ensure that its agents are in compliance with any applicable terms of this
Agreement, and any other applicable industry standards.
7.5 Contracts with end Users
(2) Contract Required - Reseller agrees that each End
User will sign a contract containing the information
referenced in Sections 3.1, 3.4 and 3.5, together with
language similar in all material aspects to the subparagraphs
set forth below:
(i) [END USER] HAS NO PROPERTY RIGHT IN THE TELEPHONE ACCESS NUMBER
OR E-MAIL ADDRESS, IF APPLICABLE.
(ii) [END USER] EXPRESSLY UNDERSTANDS AND AGREES THA IT HAS NO
CONTRACTUAL RELATIONSHIP WHATSOEVER WITH UNDERLYING CARRIER AND
THAT [END USER] IS NOT A THIRD PARTY BENEFICIARY OF ANY AGREEMENT
BETWEEN [RESELLER] AND THE UNDERLYING CARRIER. IN
<PAGE>
ADDITION, [END USER] EXPRESSLY UNDERSTANDS AND AGREES THAT THE
UNDERLYING CARRIER SHALL HAVE NO LEGAL, EQUITABLE, OR OTHER
LIABILITY OF ANY KIND TO [END USER]. REGARDLESS OF THE FORM OF
THE ACTION, WHETHER FOR BREACH OF CONTRACT, WARRANTY, NEGLIGENCE,
STRICT LIABILITY IN TORT OR OTHERWISE, END USER'S EXCLUSIVE
REMEDY AND THE TOTAL LIABILITY OF THE UNDERLYING CARRIER ARISING
IN ANY WAY IN CONNECTION WITH THIS AGREEMENT, FOR ANY CAUSE
WHATSOEVER, INCLUDING, BUT NOT LIMITED TO, ANY FAILURE OR
DISRUPTION OF SERVICE PROVIDED HEREUNDER, IS LIMITED TO PAYMENT
OF DAMAGES IN AN AMOUNT EQUAL TO THE PORTION OF THE FIXED MONTHLY
(iii) CHARGE TO (END USER) FOR THE SERVICES RELATING TO THE PERIOD OF
SERVICE DURING WHICH SAID DAMAGES OCCUR.
(iv) UNLESS CAUSED BY THE NEGLIGENCE OF [RESELLER] [END USER] SHALL
INDEMNIFY AND HOLD HARMLESS THE UNDERLYING CARRIER SUPPLYING
SERVICES TO [RESELLER], AND ITS OFFICERS, EMPLOYEES, AND AGENTS
AGAINST ANY AND ALL CLAIMS, INCLUDING WITHOUT LIMITATION CLAIMS
FOR LIBEL, SLANDER, INFRINGEMENT OF COPYRIGHT, OR PERSONAL INJURY
OR DEATH, ARISING IN ANY WAY DIRECTLY OR INDIRECTLY IN CONNECTION
WITH THIS AGREEMENT OR THE USE, FAILURE TO USE, OR INABILITY TO
USE THE ACCESS TELEPHONE NUMBER. THIS INDEMNITY SHALL SURVIVE THE
TERMINATION OF THIS AGREEMENT.
(2) Reseller may, at its option, include such other
provisions or modify the foregoing provisions to apply to
Reseller as well as to Rogers, so long as such additions or
modifications do not mitigate the effect of the foregoing.
<PAGE>
7.6 Reseller Operations Manual
Reseller shall at all times comply with the rules, policies, and
procedures and other matters set out in the Reseller Operations Manual,
including, without limitation, all fraud management procedures.
7.7 Interference with Rogers Dealers/Customers
Reseller shall not contract with, enter into arrangements with or
otherwise deal with or accept subscriptions or sales leads from any Rogers
agent, dealer or sales representative. Similarly, Reseller shall not, directly
or indirectly, target Rogers' customers for the purpose of contracting them as
End Users.
<PAGE>
7.8 Minimum Number of Customers.
Reseller agrees that during the period commencing eighteen months
following the date of this Agreement and ending on the expiry of this Agreement,
Reseller agrees to maintain at all times at least 10,000 End Users Activated to
the Rogers Facilities.
7.9 Commitment.
Reseller shall be required to have not less than 5,000 Numbers
activated on the first anniversary of the date of the Agreement, 15,000 Numbers
activated on the second anniversary of the date of the Agreement, and 25,000
Numbers activated on the third anniversary of the date of the Agreement. If, on
any such anniversary, Reseller does not have the applicable Numbers activated as
set out above, then it would be required to pay to Rogers an amount equal to the
product of $20 and the amount by which the applicable number of Numbers for such
anniversary exceeds the actual number of Numbers activated by Reseller on such
anniversary date. Reseller acknowledges that any amounts that become payable by
it to Rogers pursuant to this Section 7.9 are a genuine pre-estimate of Rogers
damages in connection with the Retailer's failure to meet its commitments and
not a penalty. In addition to Rogers' right to receive such payments, if, on any
such anniversary, Reseller does not have the applicable Numbers activated as set
out above, then Rogers would be permitted to terminate the Reseller Agreement on
ten days written notice to Reseller.
7.10 Restrictions on Numbers.
Reseller shall ensure that there is a single unique MIN/ESN or MAN
number combination, as applicable associated with each unit of Equipment.
7.11 Right of First Offer
(1) In the event that Reseller wishes to offer, sell or resell any wireless
communications services, including without limitation cellular/PCS,
paging and data services, to any other person, then it would first
offer Rogers the
<PAGE>
opportunity to sell such services to Reseller for resale to such person
on the terms specified in the Agreement or on other terms by notice in
writing clearly specifying such terms.
(2) Rogers agrees to notify Reseller within 15 days of receiving such
notice whether it wishes to provide the services to Reseller on such
terms. If Rogers notifies Reseller that such terms are not acceptable
to Rogers, then during the period commencing on the date of Reseller's
receipt of such notice from Rogers and ending 45 days thereafter, at
Rogers' discretion, Reseller shall be obligated to negotiate in good
faith terms for the provision of the services that are mutually
agreeable.
(3) If, after the end of such 45 day period, the parties are unable to
agree on the terms for the sale by Rogers of such services to Reseller,
then Reseller would be permitted to, but need not, obtain such services
from a third party for purposes of offering, selling or reselling such
services only such services only to such person, provided such services
are obtained on terms no less favourable than the terms on which Rogers
was willing to make such services available to Reseller.
(4) If the services are not obtained from a third party within 90 days from
the end of such thirty day period, then the above provisions would
reapply.
ARTICLE 8
ROGERS' OBLIGATIONS
8.1 Service.
Rogers agrees to provide the Rogers Services to Reseller in accordance
with the terms and conditions specified in this Agreement. Rogers' obligation to
provide the Rogers Services is conditional upon Rogers' ability to obtain,
retain and maintain, without unreasonable expense, suitable facilities,
equipment, licenses and rights to provide the Rogers Services. Rogers'
obligation to provide the Rogers Services is further conditional upon Reseller's
compliance with the terms and conditions of this Agreement.
<PAGE>
8.2 Regulatory Approval.
Rogers will use reasonable commercial efforts to obtain and comply with
all regulatory approvals and licences necessary to provide the Rogers Services.
8.3 Notice of Material Change in Service.
Rogers agrees to use commercially reasonable efforts to provide advance
notice to Reseller of any material changes in the Rogers Services of either a
permanent or temporary nature.
ARTICLE 9
LIMITATION OF LIABILITY/INDEMNITY/INSURANCE
9.1 Limitation of Rogers' Liability.
(1) ROGERS' TOTAL LIABILITY WITH RESPECT TO ANY AND ALL CLAIMS, REGARDLESS
OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE
AND PRODUCT LIABILITY), STRICT LIABILITY OR
OTHERWISE, ARISING OUT OF OR IN CONNECTION WITH THE PERFORMANCE OR
NON-PERFORMANCE OF ANY OF ROGERS' OBLIGATION'S UNDER THIS AGREEMENT, OR THE USE
OF THE ROGERS SERVICES BY OR ON BEHALF OF RESELLER OR ANY END USERS SHALL NOT
EXCEED, WHERE APPLICABLE, RESELLER'S DIRECT DAMAGES, IF ANY, LIMITED SOLELY TO
THE PURCHASE PRICE ALLOCABLE TO SUCH ROGERS SERVICES AND PAID TO ROGERS WHICH
GIVES RISE TO THE CLAIM.
(2) NOTWITHSTANDING ANY OTHER PROVISION IN THIS AGREEMENT, ROGERS, ITS
AFFILIATES AND THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS
AND DEALERS SHALL NOT BE LIABLE TO RESELLER FOR, AND RESELLER FOR
ITSELF AND THE END USERS HEREBY WAIVES THE RIGHT TO
<PAGE>
CLAIM ANY DIRECT, INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL COST,
LOSS, EXPENSE, DAMAGES OR LIABILITY OF ANY NATURE (INCLUDING WITHOUT
LIMITATION LOSS OF PROFITS, OR REVENUE, LOSS OF DATA, COST OF CAPITAL,
DOWN TIME COSTS, COSTS OF SUBSTITUTE GOODS OR SERVICES, LOSS OF
BUSINESS OPPORTUNITIES OR LOSS OF PROPERTY) (i) ARISING OUT OF THE
FAILURE OF THE ROGERS SERVICES TO OPERATE AT ANY TIME OR TIMES, OR (ii)
ARISING OUT OF A THIRD PARTY'S UNAUTHORIZED ACCESS TO DATA OR VOICE
COMMUNICATIONS TRANSMITTED OVER THE ROGERS FACILITIES OR THE
COMPLETENESS OR ACCURACY OF SUCH DATA OR VOICE COMMUNICATIONS AND
WHETHER OR NOT SUCH DAMAGES WERE FORSEEN OR UNFORSEEN.
(3) NOTWITHSTANDING SECTION 9.1(1), ROGERS SHALL NOT BE LIABLE TO RESELLER,
ANY END USER, OR ANY OTHER PERSON FOR ANY ACCIDENT OR INJURY CAUSED BY
OR TO A VEHICLE, WATERCRAFT OR AIRCRAFT OWNED OR OPERATED BY AN END
USER, SUCH END USER OR OTHER PERSON IF THE ACCIDENT RESULTED FROM THE
OPERATION OR FAILURE OF EQUIPMENT.
9.2 Limitation of Liability.
NOTWITHSTANDING ANY OTHER PROVISION IN THIS AGREEMENT, NEITHER PARTY,
ITS AFFILIATES AND THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND
DEALERS SHALL BE LIABLE TO THE OTHER PARTY FOR ANY DIRECT, INDIRECT, SPECIAL,
INCIDENTAL OR CONSEQUENTIAL COST, LOSS, EXPENSE, DAMAGES OR LIABILITY OF ANY
NATURE (INCLUDING WITHOUT LIMITATION LOSS OF PROFITS, OR REVENUE, LOSS OF DATA,
COST OF CAPITAL, DOWN TIME COSTS, COSTS OF SUBSTITUTE GOODS OR SERVICES, LOSS OF
BUSINESS OPPORTUNITIES OR LOSS OF PROPERTY) IN CONNECTION WITH THIS AGREEMENT
WHETHER OR NOT SUCH DAMAGES WERE FORSEEN OR UNFORSEEN.
<PAGE>
9.3 Indemnity and Insurance
Reseller agrees to indemnify and hold Rogers harmless against any and
all liabilities, claims, damages, costs or expenses (including legal fees and
expenses) directly or indirectly incurred by Rogers by reason of or arising out
of or relating to claims by End Users or to any acts, duties and obligations or
omissions of Reseller or of any personnel employed by, or agent of, Reseller and
Reseller shall, at the request of Rogers and at Reseller's expense, assume the
defence of any demands, claims, actions, suits or proceedings brought against
Rogers by reason thereof and pay any and all damages assessed against or that
are payable by Rogers as a result of the disposition of any such demands,
claims, actions, suits or proceedings. Notwithstanding the foregoing, Rogers may
be represented in any such demands, claims, actions, suits or proceedings by its
own counsel at the expense of Reseller. No settlement or compromise shall be
agreed to without the concurrence of Rogers.
9.4 Maintenance of Insurance
Reseller shall maintain, in full force and effect, a comprehensive
general liability insurance policy or policies with personal injury liability
blanket, contractual liability and complete operations liability insurance
endorsements protecting Reseller, Rogers, its Affiliates and their respective
directors, officers and employees and representatives against any loss,
liability or expense due to personal injury, death or property damage or
otherwise arising out of or occurring in connection with the business of
Reseller. Rogers shall be named as an additional insured in such policy or
policies which shall be written by a responsible insurance company or companies
licensed to do business in the province in which Reseller conducts its business
and meeting with the reasonable approval of Rogers, with a combined single limit
of not less than Three Million ($3,000,000) Dollars for bodily injury or death
and for property damage. Such policy or policies shall provide that they will
not be cancelled or materially altered without at least sixty (60) days prior
written notice to Rogers. Within ten (10) days after execution of this
Agreement, Reseller shall furnish Rogers with a certificate or certificates of
such insurance, together with evidence that the premiums therefore have been
paid. Maintenance of such insurance and the performance by Reseller of its
obligations under this Section shall not relieve Reseller of liability under the
indemnity provisions hereinabove set forth in Section 9.3.
ARTICLE 10
NO WARRANTY
10.1 No Warranty.
<PAGE>
ROGERS MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ROGERS
SERVICES, INCLUDING WITHOUT LIMITATION, ANY IMPLIED WARRANTIES AS TO
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, NOR DOES ROGERS
WARRANT UNINTERRUPTED WORKING OF THE ROGERS SERVICES OR THE ROGERS
FACILITIES, AND RESELLER SHALL MAKE NO WARRANTY, WRITTEN OR ORAL, ON
ROGERS' BEHALF, AND NO EMPLOYEE OR REPRESENTATIVE OF ROGERS IS
AUTHORIZED TO PERMIT RESELLER TO DO SO.
10.2 Acknowledgement.
Reseller acknowledges that the Rogers Services may be interrupted
because of capacity or equipment limitations, equipment modifications, upgrades,
relocations and repairs and similar activities necessary for the proper
operation of the Rogers Facilities.
ARTICLE 11
TERM AND TERMINATION
11.1 Term.
This Agreement shall be effective commencing on the date indicated on
the first page of this Agreement and shall remain in force for a period of three
(3) years. In the event this Agreement expires, and the parties do not enter
into a new agreement governing the subject matter hereof and Rogers continues to
provide the Rogers Services to Reseller, this Agreement shall be deemed to
continue on a month-to-month basis until one party, upon thirty (30) days
written notice to the other, terminates this Agreement.
11.2 Termination by Rogers.
(1) Rogers may, immediately upon written notice, terminate this
Agreement if:
(a) Reseller fails to pay any amount owed to Rogers when due
and
<PAGE>
such failure is not cured within five (5) days after
written notice of such failure is given to Reseller by
Rogers;
(b) Reseller fails to provide or maintain deposit or letter of
credit when required to do so pursuant to this Agreement
and such failure is not cured within ten (10) days of
written notice thereof;
(c) Reseller fails to abide by the terms and conditions of this
Agreement or any other agreement with Rogers and such
failure is not cured within ten (10) days of written notice
thereof;
(d) Reseller fails to meet its sales commitment in any calendar
year as set out in Section 7.9.
(e) Reseller provides false or misleading information to Rogers
in connection with any application for the Rogers Services;
(f) Reseller uses or permits an End User o other person to use
the Rogers Services or the Rogers Facilities in a manner
that adversely affects Rogers' operations or the use of the
Rogers Services by other customers;
(g) Reseller initiates proceedings for its winding up,
liquidation or dissolution, or takes action to become a
voluntary bankrupt, or consents to the filing of bankruptcy
proceedings against it or files a petition or answer or
consent seeking reorganization, readjustment, arrangement,
composition or similar relief under any bankruptcy law or
consents to the filing of such petition or consents to the
appointment of a receiver, liquidator, trustee or assignee
in bankruptcy or insolvency or makes an assignment for the
benefit of creditors, or admits in writing its inability to
pay its debts generally as they become due or commits any
other act of bankruptcy, or suspends transaction of its
usual business, or any action is taken against Reseller by
a third party in furtherance of any of the foregoing and
such action by a third party is not dismissed within thirty
(30) days;
(h) a material part of the assets used in the operation of
Reseller's
<PAGE>
wireless resale business are sold or conveyed to a wireless
carrier, reseller or dealer without the prior written
consent of Rogers;
(i) Reseller agrees to assign, purports to assign or is deemed
to have assigned this Agreement or if an assignment occurs
by operation of law, without the prior written consent of
Rogers;
(j) a wireless carrier, reseller or dealer acquires control of
Reseller without the prior written consent of Rogers; (k)
Reseller commits or participates in an fraudulent or
improper actions in the course of acting as a reseller of
the Rogers Service including, without limitation, the
intentional submission to Rogers of any false or fraudulent
claims for refund, credit, rebate, allowance, discount or
other payment;
(l) the conviction in any court of competent jurisdiction of
Reseller, key shareholders, director or officer of Reseller
for any crime or violation of law if, in the opinion of
Rogers, such conviction is likely to adversely affect the
operations or business of Reseller or tend to be harmful to
the goodwill or reputation of Rogers or the Rogers
Facilities; or
(m) any conduct or practice by Reseller, its directors,
officers, employees or key shareholders not already
enumerated above is in the reasonable opinion of Rogers
injurious to the goodwill or reputation of Rogers or the
Rogers Facilities.
(2) The termination of this Agreement or suspension of the
Rogers Service in whole or part does not affect Reseller's
obligation to pay any amount owing to Rogers.
11.3 Termination by Reseller.
Reseller may, immediately upon written notice, terminate this Agreement
if:
(a) Rogers fails to abide by the terms and conditions of this
Agreement and such default is not cured within ten (10)
days of written notice thereof; or
<PAGE>
(b) Rogers initiates proceedings for its winding up liquidation
or dissolution, or takes action to become a voluntary
bankrupt, or consents to the filing of bankruptcy
proceedings against it or files a petition or answer or
consent seeking reorganization, readjustment, arrangement,
composition or similar relief under any bankruptcy law or
consents to the filing of such petition or consents to the
appointment of a receiver, liquidator, trustee or assignee
in bankruptcy or insolvency or makes an assignment for the
benefit of creditors, or admits in writing its inability to
pay its debts generally as they become due or commits any
other act of bankruptcy, or suspends transaction of its
usual business, or any action is taken against Rogers by a
third party in furtherance of any of the foregoing and such
action by a third party is not dismissed within thirty (30)
days.
11.4 Use of Information Upon Termination.
If this Agreement expires or is terminated by Rogers pursuant to
Section 11.2, Rogers may use any information in its possession regarding
Reseller or the End Users in any manner whatsoever, so as to retain the End
Users as users of the Rogers Facilities, and without limiting the generality of
the foregoing, may contact End Users directly.
11.5 Continuing Obligations
Termination pursuant to the terms of this Agreement, regardless of
cause or nature, shall be without prejudice to any other rights or remedies of
the parties, and Reseller shall remain solely responsible for its obligations to
the End Users. The termination of this Agreement with or without cause shall not
release either party hereto from any liability which at the time of termination
has already accrued to the other party or which thereafter may accrue with
respect to any act or omission prior to termination, or from any obligation
which is expressly stated herein to survive termination. Rogers may, without
liability, cancel any previously accepted orders for Numbers which have not been
assigned to End Users on or before the date of termination.
<PAGE>
11.6 No Obligation for Continuing Service to End Users
Upon termination, Rogers shall have no further obligation to provide
the Rogers Services to Reseller. However, in order to avoid disruption of the
Rogers Services to End Users, Rogers may, in its discretion, continue the Rogers
Services directly to any End User who meets Rogers' credit requirements and
enters into a contract for the Rogers Services with Rogers. Such continuation of
the Rogers Services shall not entitle Reseller to any compensation. Upon
termination, Rogers may re-route calls using any Numbers previously assigned to
Reseller so that any attempts to access the Rogers Services will result in
connection to Rogers, which will advise callers how they may obtain the Rogers
Services directly from Rogers.
ARTICLE 12
RIGHT OF FIRST REFUSAL
12.1 Right of First Refusal
(1) Reseller agrees that it will not transfer (i) the wireless
communications business of Reseller operated in accordance with this
Agreement, (ii) the customer lists or End User service accounts, or a
significant portion of the assets of Reseller used in connection with
such business, or (iii) control (as such term is defined in the
Business Corporations Act (Ontario)) of a permitted assignee of this
Agreement without first complying with this Section 12.1.
(2) In the event that Reseller receives a bona fide cash offer in writing from
an arm's-length purchaser to purchase (i) the wireless communications business
of Reseller operated in accordance with this Agreement or all or a significant
portion of the assets of Reseller, (ii) the customer lists or End User service
accounts, or a significant portion of the assets of Reseller used in connection
with such business, or (iii) a controlling interest in the shares of a permitted
assignee of this Agreement (an "Offer"), which Offer Reseller is prepared to
accept, Reseller shall first offer to Rogers the opportunity to purchase the
said business, assets or securities for the same cash consideration as is
contained in the Offer.
<PAGE>
(3) If Rogers elects to purchase the business, assets or securities, as the case
may be, such purchase and sale shall be completed on the terms and conditions
contained in the Offer. In the event that Rogers fails to advise Reseller in
writing within thirty (30) days following such Offer that it agrees to purchase
the said business, assets or securities on the same terms and conditions as are
contained in the Offer, then Reseller may complete the sale under the Offer upon
the terms and conditions contained in the Offer during a period of ninety (90)
days following the lapse of such thirty (30) day period.
(4) If Reseller completes the sale under the Offer to such third party as
provided above, Reseller may assign its rights and obligations under this
Agreement to such third party with Rogers' prior written consent, which shall
not be unreasonably withheld or delayed by Rogers. Without limiting the
generality of the foregoing, Rogers may withhold its consent to any such
assignment if the third party purchaser:
(a) has not agreed in writing to be subject to all of the terms and
conditions of this Agreement, mutatis mutandis, including this
Section 12.1,as if said purchaser had executed this Agreement and
such other conditions as Rogers may reasonably require;
(b) has not provided such financial information as Rogers may
reasonably require, together with a letter of credit or security
deposit in an amount that Rogers determines, in its discretion
acting reasonably, is necessary to secure such third party's
present and future obligations under this Agreement; or
(c) is a reseller, dealer or is a carrier of wireless communications
products or services.
(5) If such sale pursuant to the Offer is not completed within the ninety (90)
day period specified above, the right of Reseller to sell its business, assets
or securities hereunder pursuant to the Offer shall be terminated and this
Section shall again apply to any such proposed sale of such business or assets,
and so on from time to time.
12.2 Extension of Right of First Refusal.
<PAGE>
Section 12.1 hereof shall survive the termination of this Agreement by
a period of one hundred and twenty (120) days.
ARTICLE 13
TRADE NAME AND TRADEMARK
13.1 Rogers' Rights.
Reseller recognizes the right, title and interest of Rogers and its
Affiliates through ownership or licence in and to all service marks, trademarks
and trade names used by Rogers in connection with the Rogers Services (the
"Marks"). Reseller agrees not to engage in any activities or commit any acts,
directly or indirectly, which may contest, dispute, or otherwise impair such
right, title and interest of Rogers and its Affiliates therein. Reseller has no
rights to the Marks, shall not use the Marks and shall not refer to "Rogers" or
"AT&T" in connection with the Rogers Service, without the express prior written
consent of Rogers. Reseller shall not acquire or claim any right, title or
interest in or to the Marks through the resale of the Rogers Services or
otherwise. Reseller is specifically prohibited from incorporating any of the
Marks into its own service marks, trademarks and trade names or from using any
service mark, trademark or trade name which is confusingly similar to any of the
Marks.
13.2 Equipment Branding.
Without limiting the generality of Section 13, Reseller agrees that it
shall, at its sole cost and expense, remove the Marks, including the "Rogers
AT&T" label, from all Equipment sold to End Users and arrange for the
re-programming of all Equipment to remove references to the Marks.
ARTICLE 14
CONFIDENTIALITY
14.1 Confidential Information.
(1) Each party agrees that any and all information, written or oral, which is
proprietary or confidential in nature and which is disclosed by a party to the
other party concerning the business
<PAGE>
or affairs of the receiving party, shall be treated as confidential and that
such information shall not be disclosed during the term of this Agreement or at
any time thereafter, directly or indirectly, to any other person, firm or
corporation without the prior written consent of the disclosing party.
Notwithstanding the foregoing, nothing in this section shall preclude the
receiving party from disclosing or using confidential information if it can
demonstrate that the information:
(a) is publicly available prior to the date of this Agreement;
(b) becomes publicly available after the date of this Agreement
through no wrongful act of the receiving party;
(c) is furnished to others by the disclosing party without similar
restrictions on their right to use or disclose;
(d) is rightfully known by the receiving party without any proprietary
restrictions at the time of receipt of such information from the
disclosing party or becomes rightfully known to the receiving
party without proprietary restrictions from a source other than
the disclosing party;
(e) is independently developed by the receiving party by persons who
did not have access, directly or indirectly, to the information;
or
(f) is obligated to be produced under order of a court of competent
jurisdiction or a valid administrative or congressional subpoena,
provided that the receiving party promptly notifies the disclosing
party of such event so that the disclosing party may seek an
appropriate protective order.
(2) Nothing in this Section 14.1 shall prohibit Rogers from disclosing
any information concerning End Users to:
(a) another telecommunications carrier or other person providing
services to a telecommunications carrier, provided the information
is to be used for the establishment of, or the efficient and cost
effective provision of services to the End User or Reseller and
disclosure is made on a confidential basis with the information to
be used solely for that purpose;
(b) an agent retained by Rogers to collect outstanding balances owed
to Rogers by Reseller, or to perform other administrative
functions for Rogers, provided that the information is released
solely for those purposes; or
(c) to a law enforcement agency whenever Rogers has reasonable grounds
to believe that Reseller or an End User has knowingly supplied
Rogers with false or misleading information or Reseller or an End
User is otherwise involved in unlawful activities.
<PAGE>
14.2 Remedy for Breach
Each receiving party acknowledges that damages would not be an adequate
remedy for any breach of this Agreement by the receiving party or its
Representatives and that the disclosing party may obtain injunctive or other
equitable relief to remedy or prevent any breach or threatened breach of this
Agreement by the receiving party or any of its Representatives. Such remedy
shall not be deemed to be the exclusive remedy for any such breach of this
Agreement, but shall be in addition to all other remedies available at law or in
equity to the disclosing party.
ARTICLE 15
RESTRICTIONS
15.1 Restriction on Bundling.
Reseller agrees not to Bundle the Rogers Services with a product or
service that is:
(a) the same or similar to any wireless communications product or
service that is offered by Rogers;
(b) a broadcast distribution product or service including, without
limitation, direct to home satellite service, multi-channel,
multi-point distribution service, or any other cable distribution
service; or
(c) a high speed internet access service.
15.2 Non-Solicitation.
Rogers and Reseller acknowledge and agree that the primary purpose of
this Agreement is to expand the cellular marketplace. Reseller accordingly
agrees that it will not knowingly directly solicit existing customers of Rogers
for the purpose of selling the Rogers Services to such customers. Similarly,
Reseller agrees that it shall not solicit or appoint the dealers, agents or
other distributors and sales representatives of Rogers as representatives of
Reseller for the purpose of selling the Rogers Services to prospective End
Users.
ARTICLE 16
GENERAL
16.1 Relationship of Parties.
<PAGE>
Nothing in this Agreement shall be construed as in any way placing
either party in the position of an agent of the other party and neither party
shall have the power to bind the other party or to contract in the name of or
create a liability against the other party in any way for any purpose. Neither
party shall be responsible for the acts or defaults of the other party or any of
the other party's employees or agents. This Agreement does not create a
partnership or joint venture between the parties. The relationship of the
parties is that of independent contractors.
16.2 Notices.
Any notice, waiver or other document or communications required or
permitted to be given to any party under this Agreement shall be validly given
only if in writing and if delivered personally or by over-night courier or if
telecopied to that party at the following address:
To Rogers: Rogers Wireless Inc.
One Mount Pleasant Road
Toronto, Ontario
M4Y 2Y5
Telecopier No.: (416) 935-7758
Attention: General Manager, Resale
with a copy sent to: Rogers Wireless Inc.
One Mount Pleasant Road
Toronto, Ontario
M4Y 2Y5
Telecopier No.: (416) 935-762
Attention: Legal Department
To Reseller: Innofone Canada Inc._________________________
Suite 4 - 241 Applewoood Crescent______________
Vaughan, Ontario L4K 4E6____________________
Telecopier No.: (416) 207-0334_________________
Attention: Larry Hunt, CEO
Any such notice delivered or telecopied as aforesaid shall be deemed to
have been given or made on the date on which it was telecopied or, if delivered,
on the day following delivery, as the case may be. Any party may at any time
give notice in writing to the other party of any change of address of the party
giving such notice and from and after the giving of such notice the address
therein specified shall be deemed to be the address of such party for the giving
of notice hereunder.
16.3 Force Majeure
<PAGE>
Rogers shall promptly notify Reseller in writing of any situation or
event arising from circumstances beyond its control and which it could not
reasonably foresee which prevent Rogers from carrying out in whole or in part
its obligations under this Agreement. Upon the occurrence of such a situation or
event the Rogers Services shall be deemed to be postponed for a period of time
equal to that caused by the force majeure event and a reasonable period to
remobilize for the continuation of the Rogers Services.
16.4 Further Assurances.
The parties agree to do all such things and to execute such further
documents as may reasonably be required to give full effect to this Agreement.
16.5 Waiver.
No provision of this Agreement shall be deemed waived by a course of
conduct unless such waiver is in writing signed by all parties and stating
specifically that it was intended to modify this Agreement.
16.6 Successors and Assigns
This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns. Neither this
Agreement, nor any of the rights or obligations of the parties hereunder may be
assigned by Reseller without the prior written consent of Rogers. Any request
for assignment shall be accompanied with reasonably detailed terms of the
proposed assignment (including copies of relevant proposed agreements) and such
financial information pertaining to the proposed assignee and, if applicable,
the shareholders thereof, as Rogers may request. This Agreement shall be deemed
to be assigned by Reseller in the event of a change, directly or indirectly, in
the ultimate effective control of Reseller from those persons having such
control at the date hereof, but no such assignment shall relieve Reseller of
their covenant hereunder.
16.7 Severability
If any term or provision of this Agreement shall to any extent be found
to be invalid, void or unenforceable, the remaining terms and provisions shall
nevertheless continue in full force and effect.
16.8 Time.
Time shall be of the essence hereof.
16.9 Governing Law
<PAGE>
This Agreement shall be construed and enforced in accordance with the
laws of the Province of Ontario and the parties hereto irrevocably attorn to the
exclusive jurisdiction of the courts of such Province. This Agreement and the
parties' obligations hereunder, are also subject to any orders, rules and
regulations issued by any regulatory authority having jurisdiction over the
Rogers Service.
16.10 Execution in Counterparts.
This Agreement may be executed in one or more counterparts, each of
which so executed shall constitute an original and all of which together shall
constitute one and the same agreement.
16.11 Survival.
The terms of Sections 5.1, 5.2, 5.5, 5.6, 11.4, 11.5, 11.6, 12.1, and
12.2 and Articles 9, 10, 13 and 14 shall survive any termination or expiry of
this Agreement and shall continue in force thereafter for the period
contemplated by the Agreement or indefinitely if no such period is specified.
Other provisions of this Agreement which, by the nature of the rights or
obligations set out therein, might reasonably be expected to be intended to so
survive, shall survive termination or expiry of this Agreement until they are
satisfied or by their nature expire.
16.12 Entire Agreement
This Agreement, including the schedules hereto, constitutes the entire
agreement of the parties relating to the subject matter hereof and supersedes
all prior agreements, understandings, negotiations, memoranda, correspondence
and discussions, whether written or oral, relative to the subject matter hereof.
Except as otherwise specifically set forth in this Agreement, neither party
makes any representation, warranty or condition express or implied, collateral,
or otherwise to the other.
16.13 Amending the Agreement
This agreement may not, except as provided herein, be amended or
modified except by a written instrument executed by both parties, provided
however that Rogers shall have the right upon thirty (30) days written notice to
the Reseller to amend any or all of the Schedules hereto in any respect.
16.14 Review by Counsel
The parties acknowledge that their respective legal counsel have
reviewed and participated in settling the terms of this Agreement, and that any
rule of construction to the effect that any ambiguity is to be resolved against
the drafting party shall not be applicable in the interpretation of this
Agreement.
<PAGE>
ARTICLE 17
INDEPENDENT INVESTIGATION
RESELLER ACKNOWLEDGES IT HAS READ THIS AGREEMENT AND UNDERSTANDS AND
ACCEPTS THE TERMS, CONDITIONS AND COVENANTS CONTAINED HEREIN AS BEING REASONABLY
NECESSARY TO MAINTAIN ROGERS' HIGH STANDARDS FOR THE ROGERS SERVICES. RESELLER
ACKNOWLEDGES AND UNDERSTANDS THAT ROGERS MAY AT ANY TIME ALSO BE ENGAGED
DIRECTLY OR INDIRECTLY THROUGH OTHER DEALERS, OR OUTLETS OF ANY KIND, IN
SOLICITING POTENTIAL CUSTOMERS FOR THE ROGERS SERVICES. RESELLER ALSO
ACKNOWLEDGES AND UNDERSTANDS THAT ROGERS MAY SELL THE ROGERS SERVICES TO OTHERS
WHO MAY RESELL IT. RESELLER HAS INDEPENDENTLY
INVESTIGATED THE ROGERS SERVICES OR EQUIPMENT AND THE PROFITABILITY (IF
ANY) AND RISKS THEREOF AND IS NOT RELYING ON ANY REPRESENTATION, GUARANTEE OR
STATEMENT OF ROGERS OTHER THAN AS SET FORTH IN THIS AGREEMENT.
IN PARTICULAR, RESELLER ACKNOWLEDGES THAT ROGERS HAS NOT REPRESENTED:
(a) RESELLER'S PROSPECTS OR CHANCES FOR SUCCESS SELLING THE ROGERS SERVICES
UNDER THIS AGREEMENT; (b) THE TOTAL INVESTMENT THAT RESELLER MAY NEED TO MAKE TO
OPERATE UNDER THIS AGREEMENT (ROGERS DOES NOT KNOW THE AMOUNT OF THE TOTAL
INVESTMENT THAT MAY BE REQUIRED FOR THIS PURPOSE); OR (c) THAT ROGERS WILL LIMIT
ITS EFFORTS TO SELL THE ROGERS SERVICES OR ESTABLISH OTHER RESELLERS.
RESELLER ALSO ACKNOWLEDGES THAT ROGERS HAS NOT REPRESENTED TO IT THAT:
(a) ROGERS WILL PROVIDE LOCATIONS OR ASSIST RESELLER TO FIND LOCATIONS TO
PROMOTE THE SALE OF THE ROGERS SERVICE UNDER THIS AGREEMENT; (b) ROGERS WILL
PURCHASE ANY PRODUCTS MADE BY RESELLER THAT ARE IN ANY WAY ASSOCIATED WITH THE
ROGERS SERVICES SOLD BY RESELLER UNDER THIS AGREEMENT; (c) RESELLER WILL DERIVE
INCOME FROM THE SALE OF THE ROGERS SERVICE SUNDER THIS AGREEMENT, OR ROGERS WILL
REFUND ANY PAYMENTS MADE BY RESELLER TO ROGERS UNDER THIS AGREEMENT; OR (d)
ROGERS WILL PROVIDE A SALES OR MARKETING PROGRAM THAT WILL ENABLE RESELLER TO
DERIVE INCOME UNDER THIS AGREEMENT.
RESELLER FURTHER ACKNOWLEDGES THAT ROGERS HAS NOT MADE ANY
REPRESENTATIONS REGARDING: (a) THE QUANTITY OR QUALITY OF THE ROGERS SERVICES TO
BE SOLD BY RESELLER; (b) THE PROVISION BY ROGERS TO RESELLER OF TRAINING AND
MANAGEMENT ASSISTANCE; (c) THE AMOUNT OF PROFITS, NET OR GROSS, THAT RESELLER
CAN EXPECT FROM ITS OPERATIONS UNDER THIS AGREEMENT; (d) THE SIZE, CHOICE,
POTENTIAL, OR DEMOGRAPHIC NATURE OF THE AREA IN WHICH THE ROGERS SERVICES IS
AVAILABLE OR THE NUMBER OF THE AREAS IN WHICH THE ROGERS SERVICE IS AVAILABLE OR
THE NUMBER OF OTHER DEALERS OR RESELLERS THAT ARE OR MAY IN THE FUTURE OPERATE
IN THAT AREA; OR (e) THE TERMINATION, TRANSFER, OR RENEWAL PROVISIONS OF THIS
AGREEMENT OTHER THAN AS SET FORTH IN THIS AGREEMENT. RESELLER ACKNOWLEDGES THAT
IT UNDERSTANDS THAT IT WILL NOT OBTAIN ANY EXCLUSIVE RIGHTS UNDER THIS
AGREEMENT, EITHER WITH RESPECT TO A TERRITORY OR OTHERWISE, AND UNDERSTANDS THAT
ROGERS MAY APPOINT
<PAGE>
OTHER DEALERS OR RESELLERS IN ANY AREA. RESELLER ALSO ACKNOWLEDGES THAT ROGERS
CANNOT CALCULATE IN ADVANCE THE TOTAL AMOUNT THAT RESELLER MUST PAY TO ROGERS
UNDER THIS AGREEMENT AS THAT AMOUNT DEPENDS ON THE QUANTITY OF THE ROGERS
SERVICES THAT THE END USERS PURCHASE.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
INNOFONE CANADA INC. ROGERS WIRELESS INC.
Per: Per:
------------------------------ ------------------------------
By: Larry Hunt By: Daniel J. Fowler
Title: CEO Title: V.P. National Sales
Per: Per:
------------------------------ ------------------------------
By: By: M. Relano
Title: Title: SRN V.P. & CFO
<PAGE>
SCHEDULE "A"
PRICING
The pricing at which Rogers agrees to sell the Rogers Services to
Reseller shall be determined based on the following principles:
(a) No less than once during each period of six months during the term
of the Agreement, Rogers and Reseller shall select a separate rate
plan from both (i) Rogers' retail pricing rate card and (ii) the
retail pricing rate cards of no more than three of Rogers'
competitors that will be applicable for use by VISA Customers. At
such times, Rogers and Reseller shall also agree on any specific
rules that would govern the comparison of such selected rate plans
for purposes of determining the Best Price Amount (as defined
below). Such rules would address, without limitation, matters
relating to special promotions with respect to such plans, unusual
pricing features (for example, Fido's present caller
identification charge) and the use of analogue services on certain
rate plans. Rogers will not, at any time, agree to select any rate
plan that would require Rogers to sell the cellular services to
Reseller (as described in (c) below) at a rate that is less than
the rate that Rogers generally makes available to its resellers in
accordance with its then applicable reseller rate card. If Rogers
and Reseller are unable to agree on the applicable retail pricing
rate cards, either party shall be entitled to terminate the
agreement on 30 days notice.
(b) Reseller agrees to charge each of its customers for such
customer's actual use of the Rogers Services during any monthly
billing period (i) the applicable airtime and monthly service fees
for such use based on the lowest rate from such selected rate
plans having regard to such customer's actual use of the cellular
services during such billing period and the rules described in (a)
above (the "Best Price Amount"), plus (ii) an amount determined by
Reseller with respect to all other charges for call features, long
distance, roaming, and voicemail and other optional services, less
(iii) any additional discount offered by Reseller.
(c) Reseller agrees to pay to Rogers on a monthly basis with respect
to each VISA Customer, an amount equal to the product of (i)
79.09%, and (ii) the Best Price Amount with respect to such
customer for the previous monthly billing period.
Reseller shall also pay Rogers for all other charges for call
features, long distance, roaming, and voicemail and other optional
services based on Rogers' reseller rate card as it exists from
time to time. Initially, such rates shall be as set out below.
(d) Without limiting section (a) above, it shall be assumed that at
least 25% of a customers use of the Rogers Services will be
analogue for purposes of calculating the rate with respect to any
selected Fido rate plan.
<PAGE>
(e) The initial rate (which may be changed by Roger upon notice to
Reseller) for the optional features referred to in (c) above shall
be as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------------
Optional Services Rate
- -------------------------------------------------------------------------------------------------------------
Enhanced Voicemail $3/month
- -------------------------------------------------------------------------------------------------------------
Text Messaging $2.50/month
- -------------------------------------------------------------------------------------------------------------
E-mail Messaging $2.50/month
- -------------------------------------------------------------------------------------------------------------
Combined Enhanced Voicemail, Text Messaging, E- $5.50/month
mail Messaging
- -------------------------------------------------------------------------------------------------------------
Long Distance within Canada and to the U.S. $0.15/minute
- -------------------------------------------------------------------------------------------------------------
Long Distance from within U.S. and to Canada $0.75/minute airtime + U.S. Telco long distance
pass through charges
- -------------------------------------------------------------------------------------------------------------
Caller ID No charge
- -------------------------------------------------------------------------------------------------------------
Per Second Billing No charge (note: per second billing after 1st minute)
- -------------------------------------------------------------------------------------------------------------
Call Transfer & Conference Calling No charge
- -------------------------------------------------------------------------------------------------------------
Activation Fee No charge
- -------------------------------------------------------------------------------------------------------------
Call Forwarding No charge up to 1000 minutes thereafter $0.10 per
minute
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Service Charges Rate - Per Transaction
- -------------------------------------------------------------------------------------------------------------
$5
Telephone Number Change
- -------------------------------------------------------------------------------------------------------------
Adding/Deleting Optional Services After Initial $5
Activation
- -------------------------------------------------------------------------------------------------------------
Deactivating Account No Charge - Subject to Early Cancellation Fee of
$20 per month remaining in the one-year term to a
maximum $200
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE "B"
BILLING INFORMATION
1. (a) Access, optional feature, monthly service charges and other
recurring charges are billed in advance based on actuals as of
the billing date. Some features are billed in arrears. All
recurring charges are prorated for the portion of the month that
the phone has been in use.
(b) Airtime usage is billed in arrears for the billing period.
2. The billing date for Reseller may be established by Rogers at its
discretion.
3. Rogers shall provide call detail records for each Mobile Identification
Number (MIN) activated for Reseller within five (5) business days of
the bill close date. Initially, Rogers shall provide the call detail
records electronically using FTP protocol. Eventually a system will be
established to transmit the results from Rogers to Reseller
electronically by means of a telecommunication data link. At that time,
magnetic tape records will become the default method of record transfer
and will continue to be available. A separate charge may be levied for
the telecommunication data line.
4. The call detail record for each Number shall include:
(i) the number, location, rate period
(ii) all optional usage charges;
(iii) all toll charges, identifying number called, time and date of
call and length of call;
(iv) international roaming charges; and (v) any miscellaneous
charges.
5. Any changes to Rogers' standard billing format or processes required by
Reseller shall be at Reseller's cost. These changes will be considered
by Rogers and will be developed at Reseller's costs at Rogers' sole
discretion.
6. Timing of Calls
(a) Usage rate apply for completed calls originated or received on
each Mobile Identification Number (MIN):
(i) Chargeable time for a completed call originated from a
MIN begins when a connection to the Rogers facilities is
established, which is when the "SEND" button is pressed,
and ends when the Cellular Equipment unit disconnects
from the system, which is shortly after the "END" button
is pressed or the cellular call is otherwise
disconnected.
<PAGE>
(ii) Chargeable time for a completed call received by a MIN
begins when connection is made with provider's equipment,
and ends when the cellular equipment unit disconnects
from the Cellular System.
(iii) Chargeable time is also incurred for use of enhanced
services such as Call Waiting, Conference Call and
automatic call delivery for each call which is set up.
(iv) There is a flat fee as outlined in Schedule "A" for Call
Forwarding, No Answer Transfers and Busy Transfers.
(b) The minimum usage charge for each call is one minute and the
airtime charges are billed in full minute increments. For
example, a one minute 20 second call will be billed as two
minutes.
(c) When a connection is established in one time period and ends in
another, the rate in effect for each period applies to that
portion of the connection occurring within each period.
7. Timing Periods for Usage Charges
(a) Usage rates apply based on the time of day and day of week.
(b) Calls made on statutory holidays will be rated at the normal
rate applicable for that day of the week.
(c) Refer to Schedule A for a schedule of Time Periods for Usage
Rates.
8. Discounts
Discounts may be applied to access and/or usage charges as set forth in
Schedule "A".
9. Landline Charges
(a) Rogers shall charge back to Reseller any third party charges or
operator assisted calls charged to the cellular number. These
calls cannot be restricted at this time. Electronic billing for
these calls cannot be provided, however a paper addendum is
provided in support of the charges.
(b) An additional charge per call shall apply for directory
assistance and directly assisted call completion. These charges
are levied separately and provided with the Rogers invoice.
(c) Any services provided by information providers (such as 900 NPA
or 976 NXX
<PAGE>
services) will be barred as it cannot be charged back to the end
customer.
(d) Usage rates do not apply on calls placed to the 911 emergency
service operator. Rogers will route these calls in the same
manner as our retail service.
(e) Any future compensation payable to local landline companies
resulting from regulatory decisions will be passed through to
Reseller.
10. Cellular Long Distance Charges
(a) Reseller shall be charged cellular long distanc charges as set
forth in this section. Charges are in addition to usual airtime
rates set forth in Schedule "A". Cellular long distance rates
are Rogers' standard retail rates. A discount on domestic long
distance will be applied as per Schedule "A".
(b) Charges apply to cellular long distance calls initiated from
within and applicable cellular local calling area to points
outside that area and are in addition to local airtime rate. A
long distance call is rated at time of originating VH
co-ordinates to the end VH co-ordinates. A long distance call
made while being mobile is rated from its point of inception. A
long distance call crossing over to another rate period will be
prorated based on the portion of the call in each rate period.
11. Call Following and Roaming
(a) CALL FOLLOWING is the network capability for Reseller's
customers to automatically make calls, receive calls, or
activate network features anywhere in Canada. Reseller's
customers do not have to notify their callers of their location
or have callers use special access codes. Reseller is charged
Rogers' long distance rates for incoming calls when travelling
away from their home area in the network. The roam number for
that location can be used to avoid the long distance charges on
the incoming call.
(b) Reseller's customers will be able to use their cellular
telephone in all major markets in the United States where Rogers
has roaming agreements between carriers. In some U.S. markets
where CALL FOLLOWING is not available, the roamer will receive
incoming calls if the caller uses a special roaming access code
in addition to the roamer's cellular telephone number. Roaming
charges are the applicable roaming rates of the local cellular
network operator. Roaming rates vary from carrier to carrier and
may include a daily set up fee and a per minute airtime rate,
miscellaneous charges, plus applicable long distance charges.
Foreign and Canadian taxes may also apply. All roaming charges
will be billed at retail rates to Reseller.
12. Rogers will provide an invoice to Reseller consisting of all applicable
charges as outlined above in points 1 through 11, monthly service
charges and taxes. The standard invoice
<PAGE>
format will be an electronic (soft) copy.
SCHEDULE "C"
RESELLER OPERATIONS MANUAL
See attached.
<PAGE>
SCHEDULE "D"
RESELLER SUPPLY TERMS
ARTICLE 1
2. PURCHASE AND SALE OF EQUIPMENT
1.1 Equipment Available for Purchase.
Rogers agrees to make available for sale to Reseller Equipment in
accordance with Section 6.2 of the main body of the Agreement.
1.2 Purchased Equipment.
Subject to the terms and conditions hereof, Reseller may purchase
Equipment from time to time in accordance with the procedures set out in Article
2 of this Schedule (the "Purchased Equipment"). Reseller acknowledges that
availability of the Purchased Equipment is dependent on the manufacturer thereof
and Rogers is not responsible for ensuring that any Equipment desired to be
purchased by Reseller is available.
1.3 Additional Purchase Terms.
All Purchased Equipment shall be for the sole purpose of resale by
Reseller to customers for use in connection with the Rogers Services. The
purchase and sale of Equipment hereunder shall also be subject to such other
rules, procedures, policies and guidelines established by Rogers from time to
time and provided to Reseller ("Purchasing Procedures").
1.4. Non-Exclusivity.
Reseller hereby acknowledges that the rights granted to it pursuant to
this Agreement are non- exclusive and that Rogers reserves the right to enter
into the same or similar agreements with other dealers and resellers, both third
party and those affiliated with Rogers, in relation to the same or similar
Equipment. Rogers further reserves the right to solicit orders and sell the
Equipment directly to end users pursuant to terms and conditions determined by
Rogers at its sole discretion.
ARTICLE 2
ORDERS AND PROCESSING
1.1 Forecasts
On or before the tenth day of each calendar month during the term of
this Agreement, Reseller shall provide to Rogers a written forecast (a
"Forecast") in a manner acceptable to Rogers, indicating the number of units of
Equipment that Reseller anticipates it will purchase form Rogers during the next
calendar month. Provided that such Forecasts are made by such dates and without
limiting Section 1.2 of this Schedule, Rogers will use commercially reasonable
<PAGE>
efforts to make such Equipment available for purchase by Reseller.
2.2 Placement of Orders.
Reseller shall submit all orders for Purchased Equipment directly to
Watts, Rogers' fulfilment agent on an authorized purchase order form or other
confirmation of purchase approved by Rogers (each, a "Purchase Order") or in
such other manner that is acceptable to Rogers and Watts. No Purchase Order may
be modified without Rogers' express written approval. The parties hereto agree
that the terms and conditions of this Agreement shall supersede and take
precedence over any inconsistent terms or conditions appearing on a Purchase
Order. All Purchase Orders shall be made by Reseller in accordance with the then
current Purchasing Procedures.
2.3 Acceptance by Rogers.
A Purchase Order will be considered accepted by Rogers when the
Purchased Equipment is delivered by Rogers in accordance herewith or when
acceptance of the Purchase Order is given to the Reseller by Rogers in writing.
Rogers reserves the right to accept or reject any Purchase Order at its sole
discretion and subject to availability and no Purchase Order will be effective
unless and until so accepted by Rogers.
ARTICLE 3
PAYMENT TERMS
2.1 Purchases Invoiced.
The Purchased Equipment shall be invoiced to Reseller weekly in arrears
at prices described in Section 6.2 of the main body of the Agreement. In
addition, Reseller agrees to pay to Rogers a stocking fee in respect of each
month in an amount equal to the product of $5.00 multiplied by the greater of
(i) the number of units of Equipment actually purchased by Reseller from Rogers
in such month, and (ii) the number of units of Equipment set out in the Forecast
for such month; provided that if, during any month, Rogers is unable to deliver
any Equipment specified in the Forecast for such month such stocking fee shall
be in an amount equal to the product of $5.00 multiplied by the number of Units
of Equipment actually purchased by Reseller from Rogers in such month.
2.2 Payment Due.
All payments for Purchased Equipment shall be due within ten (10) days
of the date of the invoice therefor.
2.3 Overdue Accounts.
All amounts which are not paid when due shall accrue and shall be
subject to the payment of interest at the rate of one and one-half (1.5%)
percent, compounded monthly (19.56% per annum). Rogers reserves the right to
withhold delivery of any Purchased Equipment if Reseller has failed to meet any
of its payment obligations hereunder.
<PAGE>
ARTICLE 4
DELIVERY
3.1 Delivery of Equipment.
Delivery of the Purchased Equipment shall be F.O.B. manufacturer's
warehouse or Rogers' fulfilment agent, as indicated to Reseller by Rogers. All
freight charges incidental to delivery shall be paid by Rogers.
4.2 Delays in Delivery.
Rogers shall not be liable for any failure to fill, or delay in
filling, Purchase Orders received from Reseller and accepted by Rogers, for any
reason whatsoever, including but not limited to, force majeure. Rogers will use
reasonable commercial efforts to notify Reseller of any delays or inability to
deliver the Purchased Equipment; however, if any conditions arise which prevent
compliance with delivery schedules, Rogers shall not be liable for failure to
give such notice of delay or to deliver the Purchased Equipment.
4.3 Title to Equipment and Risk of Loss.
Title to all Purchased Equipment shall pass to Reseller at the moment
it is made available to Reseller by Rogers at manufacturer's warehouse and,
thereafter, Reseller shall be responsible for any loss, theft and/or damage to
the Purchased Equipment, including any loss, theft or damage caused to the
Purchased Equipment as a result of, or during, shipment.
ARTICLE 5
RETURNS AND SHORT SHIPMENTS
4.1 Deficiency in a Shipment.
In the event of a shortage or deficiency in a shipment of Purchased
Equipment, Reseller shall give written notice to Rogers of such claim within two
(2) business days of receipt of the subject delivery, failing which the
applicable invoice shall be considered payable in accordance with the terms
hereof.
4.2 Return Policy.
Within two (2) business days of receiving the Purchased Equipment,
Reseller will have the right to return directly to Rogers or to the
manufacturer, at Rogers' option, any damaged or defective equipment which is
under manufacturer's warranty as well as any equipment which does not comply
<PAGE>
with the applicable Purchase Order, including overshipments. At its sole
discretion, Rogers may refund, repair or replace equipment which it determines
to be under warranty or which fails to comply with the applicable Purchase
Order. Rogers has the discretion to refuse the return where it determines that
the equipment in question was improperly used or handled.
5.3 Equipment Returned.
Any return shall be in accordance with this Agreement, whether returned
upon termination of this Agreement or at any other time, and shall be in its
original packaging and in a condition which is saleable pursuant to Rogers'
normal commercial terms and shall be delivered at Reseller's expense, to
manufacturer's warehouse where such equipment was delivered to Reseller.
ARTICLE 6
SECURITY GRANTED
5.1 Purchase Money Security Interest.
Without limiting the foregoing, Rogers reserves, until full payment is
received, a purchase money security interest in all Purchased Equipment and in
all proceeds derived from the resale of same. The Reseller shall provide such
information, execute and deliver such further agreements, documents and
instruments as Rogers may request so that Rogers may perfect and maintain such
security interest. If, in the event of default, such security interest is not
sufficient to satisfy any indebtedness of the Reseller, the Reseller
acknowledges and agrees that the Reseller shall continue to be liable for any
indebtedness remaining outstanding and Rogers shall be entitled to pursue full
payment thereof.
6.2 Moveable Hypothec.
As security for any amounts owing by the Reseller to Rogers and for all other
obligations of the Reseller toward Rogers under this Agreement, or under any
other present or future agreement entered into between Reseller and Rogers, the
Reseller hereby grants to Rogers a moveable hypothec on the universality of all
the undertakings, properties and assets which the Reseller owns or has an
interest in whether such ownership or interest exists at any time thereafter and
said hypothec shall extend to all proceeds arising therefrom. The present
moveable hypothec is granted for a maximum amount of FIVE HUNDRED THOUSAND
DOLLARS ($500,000.00). It is agreed that Rogers shall have the right at its sole
discretion, at any time, to register and publish such moveable hypothec and/or
to renew such registration and/or publication.
6.3 Reseller Default.
In the event that Reseller is in default of any of its obligations
under this Agreement, Rogers shall have the right to draw on the security
granted hereunder or any letter of credit or security deposit given by Reseller
to Rogers pursuant to this Agreement or any other agreement.
<PAGE>
ARTICLE 7
TERMINATION
6.1 Effect of Termination
The termination of this Agreement shall not relieve or release either
party from any of its obligations accrued hereunder prior to the effective date
of such termination. Notwithstanding the foregoing, all outstanding orders which
have not yet been delivered will automatically be cancelled and Rogers will have
the option to require Reseller to return, at Reseller's expense, all unsold
Purchased Equipment.
ARTICLE 8
WARRANTY
9.1 No Warranty.
ANY WARRANTY WITH RESPECT TO THE PURCHASED EQUIPMENT SHALL BE LIMITED TO THAT
OFFERED BY THE MANUFACTURER, IF APPLICABLE. OTHER THAN ANY WARRANTY PROVIDED BY
THE MANUFACTURER OF THE PURCHASED EQUIPMENT, ROGERS HEREBY DISCLAIMS ALL EXPRESS
OR IMPLIED WARRANTIES ON ANY PURCHASED EQUIPMENT, INCLUDING, WITHOUT LIMITATION,
ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, WARRANTY OF MERCHANTABILITY OR
NONINFRINGEMENT OF THIRD PARTY RIGHTS. ROGERS' SOLE LIABILITY WILL BE TO ASSIGN
TO THE RESELLER, AT THE RESELLER'S REQUEST AND TO THE EXTENT PERMITTED BY LAW,
THE BENEFIT OF ANY WARRANTY EXTENDED BY THE MANUFACTURER OF THE PURCHASED
EQUIPMENT.
<PAGE>
The Board of Directors
Innofone.com, Incorporated
We consent to the use of our audit report dated September 3, 1999, except as to
notes 7, 10(b) and 19 which are as of May 10, 2000, on the consolidated balance
sheets of Innofone.com, Incorporated as at June 30, 1999 and June 30, 1998 and
the consolidated statements of operations, shareholders' deficiency and
comprehensive loss and cash flows for each of the years in the two-year period
ended June 30, 1999 included herein and to the reference to our firm under the
heading "Experts" in the prospectus.
Our audit report dated September 3, 1999, except as to notes 7, 10(b) and 19
which are as of May 10, 2000, includes "Comments by Auditors for U.S. Readers on
Canada -- U.S. Reporting Difference" indicating that under U.S. reporting
standards for auditors, our audit report would contain an explanatory paragraph
when the financial statements are affected by conditions and events that cast
substantial doubt on the Company's ability to continue as a going concern, such
as those described in note 1(b) to the financial statements.
Toronto, Canada
May 23, 2000
