U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A1
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
NETVOICE TECHNOLOGIES CORPORATION
---------------------------------
(Name of small business issuer in its charter)
Nevada 91-1986538
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13747 MONTFORT DRIVE, SUITE 250
DALLAS, TX 75240
---------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (972) 788-2988
----------------
Securities to be registered under Section 12(b) of the Act: NONE
------
Securities registered under Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
-----------------------------
<PAGE>
PART I
IN THIS REGISTRATION STATEMENT THE TERMS "NETVOICE," "COMPANY," "WE,"
"US" AND "OUR" REFER TO NETVOICE TECHNOLOGIES CORPORATION AND OUR WHOLLY
OWNED SUBSIDIARIES, NETVOICE TECHNOLOGIES, INC. AND NETLD.COM, INC. WE
REFER TO NETVOICE TECHNOLOGIES, INC. AS NVT, INC.; WE REFER TO NETLD.COM,
INC. AS NLD; AND WE REFER TO OUR $.001 PAR VALUE COMMON STOCK AS COMMON
STOCK. ALL REFERENCE TO THE NUMBER OF SHARES OUTSTANDING AND OTHER RELATED
CALCULATIONS AND DATA ARE ADJUSTED THROUGHOUT THIS REGISTRATION STATEMENT
TO REFLECT THE 2 FOR 1 STOCK SPLIT WHICH OCCURRED ON MARCH 14, 2000 UNLESS
THE CONTEXT REQUIRES OTHERWISE. A GLOSSARY OF THE TECHNICAL TERMS USED
THROUGHOUT THIS REGISTRATION STATEMENT IS INCLUDED AFTER PART III.
ITEM 1. DESCRIPTION OF BUSINESS.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Business," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and elsewhere in this Registration Statement constitute forward-looking
statements. These statements involve known and unknown risks, significant
uncertainties and other factors what may cause our actual results, levels
of activity, performance or achievements to be materially different from
any future results, levels of activity, performance or achievements
expressed or implied by such forward-looking statements. Such factors
include, among other things, those listed under "Risk Factors" including,
but not limited to, "Our limited operating history," "Our operating losses
and anticipate losses will continue in the foreseeable future," "We intend
to pursue multiple streams of revenue," "We may experience difficulties
managing our expanding operations," "We may fail to establish and maintain
strategic relationships" and "We are dependent on sales agents to market
and distribute our products and services."
HISTORY
Our Company is a Nevada corporation. We and our wholly-owned
operating subsidiaries, NetVoice Technologies, Inc. and NetLD.com, Inc.,
both Nevada corporations, have executive and operating offices at 13747
Montfort Drive, Suite 250, Dallas, Texas 75240. Our telephone number is
(972) 788-2988. Our Website address is www.netvoice.net and
www.netvoice.com.
The Company is the successor company to NetVoice Technologies, LLC,
a Texas limited liability company that began operations on January 7, 1998.
NetVoice Technologies, LLC was formed for the purpose of developing, acquiring
and operating telephone communication facilities and networks that were
intended to transmit voice over the Internet utilizing conventional and
Internet technologies. NetVoice Technologies, LLC was reincorporated in
Nevada on June 30, 1998, as NetVoice Technologies, Inc.
On August 13, 1998, the Company ("legal acquirer") concluded a
reorganization agreement with NVT, Inc. ("accounting acquirer"). Pursuant
to the reorganization agreement, the Company issued 6,000,000 shares of our
common stock to the six shareholders, in exchange
-2-
<PAGE>
for all of the outstanding shares of common stock of NVT, Inc. As a result
of concluding the reorganization agreement, NVT, Inc. became a wholly-owned
subsidiary of the Company, and the six former shareholders of NVT, Inc.
became the holders of approximately seventy five percent (75%) of our
outstanding shares of common stock. The remaining 25% of the shares not
exchanged were owned by various non-affiliated shareholders who may have
resold their shares into the open market since the reorganization. The
value of assets that NVT, Inc. ("accounting acquirer") acquired as a result
of the reorganization with the Company was negligible because the Company
was an inactive shell at the time of the reorganization. There was no
prior affiliation between the parties. See "Principal Shareholders" and
"Certain Transactions."
NetLD.com, Inc. was incorporated in the State of Nevada as a wholly-
owned subsidiary of the Company on October 14, 1999. This corporation was
initially formed for the purpose of conducting the traditional long
distance telephone services of the Company. Currently, we have had no
activity in this subsidiary and it is not anticipated traditional long
distance will be pursued as part of our business model. We may disband
this entity or use it for other corporate purposes as yet to be determined.
OVERVIEW
We are a provider of voice transmission over the Internet, which
allows our customers to make high-quality, low-cost telephone calls on
their personal computers or traditional telephones with a technology known
as Voice over Internet Protocol ("VoIP"). The technology has advanced so
that we now communicate from:
* one personal computer to another
* personal computer to a conventional telephone
* conventional phone to conventional phone
We commenced offering our long distance Internet services during the
past year as part of our current business plan. We have aggressively been
deploying VoIP gateways in 25 markets located throughout the United States
with leading manufacturers such as Cisco Systems, Inc. and leading Internet
backbone suppliers. Currently, Cisco Systems supplies us with much of the
equipment involved in establishing our VoIP gateways and building our
network. Furthermore, we participate in the "Jump Start" program with
Cisco, where we receive marketing dollars from them in exchange for our
purchase of Cisco equipment and use of their name in conjunction with our
marketing efforts. To date, we have only received approximately $25,000
from Cisco through this program. For a more detailed discussion of our
relationship with Cisco and other suppliers, see "Contractual
Relationships" below.
The Company's IP telephony network is built to handle and transport IP
telephony minutes. This is accomplished through leased lines that allow us
to connect and expand our network between various cities. Currently each
market has sufficient capacity to provide 50 million minutes of
communication time per year, and this represents our break-even point.
-3-
<PAGE>
However, this number will increase as we continue to expand our network.
Thus, the communication time we provide on our network is limited by the
size of the network.
Our goal is to expand our gateway network after an assessment of
locations which provide high potential traffic and investigate new VoIP
applications and develop new installation sites.
Our operations currently do not require the use of any raw materials.
Our major customers in 1999, included IXC Communications, Inc., Caprock
Communications Corporation, World Access, Inc., Landmark Community News and
Z-Tel, Inc. These customers purchase minutes at either a flat rate or on
a per minute basis. We do not believe that the loss of these customers
would have a significant impact on our revenues in the year 2000 due to our
current marketing efforts to other large customers.
We have filed a patent application for a communications enabled
browser and have filed a trademark application for the mark "CAB" as
applied to the browser software. Both of these applications are currently
pending.
Since inception, we have spent approximately $25,000 on research and
development involving our network, however none of these costs were borne
directly by our customers.
The Company is not currently subject to any environmental laws.
INDUSTRY BACKGROUND
The Internet is experiencing unprecedented growth as a global medium
for communications and commerce. International Data Corporation estimates
that the number of Internet users worldwide will grow from approximately
142 million at the end of 1998 to 399 million by the end of 2002. These
users are increasingly using the Internet as a communications medium. A
recent study by E-Marketer, a market research firm, estimated that 9.4
billion e-mail messages are delivered daily. Instant text communication
through online "chat" rooms is also gaining widespread acceptance.
Online commerce is also becoming widely accepted as a means of doing
business, however, projections for Internet commerce growth involve a
multitude of variables, many of which cannot be readily predicted.
According to International Data Corporation, Internet users worldwide
purchased more than $50 billion of goods and services in 1998.
International Data Corporation projects that commerce over the Internet
will grow to approximately $1.3 trillion in 2003. Projections for Internet
commerce growth involve a multitude of variables, none of which can be
reliably predicted.
The use of the Internet to make long distance calls will enable
consumers the ability to talk directly to online sellers and facilitate the
online purchasing experience at lower prices. We believe Internet long
distance will become an important component of online purchasing and
communicating with customers.
-4-
<PAGE>
EMERGENCE OF INTERNET TELEPHONY
Internet telephony has emerged as a low cost alternative to
traditional long distance calls. The revenue of an IP telephony service
provider depends on the volume of minutes that it originates, it
terminates, or that transits its network, or a combination of the three.
Thus, the minutes of use is the critical metric for assessing an IP
telephony service providers opportunity. According to International Data
Corporation, VoIP Telephony will be 135 billion minutes by 2004, up from
2.7 billion today. IDC also estimates the IP telephony services annual
revenue will reach $19 billion by 2004. International services will remain
as the largest portion of the market, consisting of $17.25 billion by 2004.
However, it is estimated that as IP technology improves, domestic use will
increase substantially.
Internet telephone calls are currently less expensive than traditional
long distance calls primarily because the technology by which Internet
phone calls are made is more cost-effective than the technology by which
traditional long distance calls are made. First, no modifications are
necessary to existing home telephones. Second, transport of the calls
between users is more efficient than traditional long distance technology
that uses circuit-switching technology. Third, calls carried over the
Internet or our network bypass a significant portion of long distance
tariffs and taxes because Internet telephony is currently an unregulated
industry. Finally, our network provides a more cost effective solution
because it allows for the transmission of Internet, data, voice and video
over the same network. See "Regulation of the Internet" for a more
detailed description. Management estimates that Internet telephony is on
average approximately 35% cheaper than traditional long distance rates.
We use a technology called "packet-switching" to break voice and fax
calls into discrete data packets, route them over the Internet or our
network and reassemble them into their original form for delivery to the
recipient. Traditional long distance calls, in contrast, are made using a
technology called "circuit switching" which carries these calls over voice
telephone networks. These networks are typically owned by governments or
carriers who charge a tariff for their use. Circuit switching requires a
dedicated connection between the caller and the recipient that must remain
open for the duration of the call. As a result, circuit-switching
technology does not allow multiple conversations to be carried over the
same line. The greater efficiency involved in packet-switching technology
creates network cost savings that can be passed on to the consumer in the
form of lower long distance rates.
Currently, there exists certain barriers to entry into the telephony
market which consist of the time to order the necessary hardware and
circuits; develop internal expertise to build and monitor the network and
the capital investment required. We feel our need for capital and the
ability to raise capital over the next twelve (12) months is our major
barrier to continue to expand and grow our network. We also will need to
hire and retain key technical personnel.
INTEGRATION OF VOICE INTO THE INTERNET
We believe that Internet telephony offers significant benefits to
consumers and businesses beyond long distance cost savings. The
technologies that enable Internet telephony can be applied to integrate
live voice capabilities into the Web. We believe that this integration can
-5-
<PAGE>
enhance the potential for the Internet to become the preferred medium for
both communications and commerce. For example, the integration of voice
into the Web could supplement existing text-based modes of Internet
communication such as e-mail and online chat by adding a live, secure, low-
cost or free voice alternative. We believe that this will be attractive
both to consumers and businesses and allow us to combine our long distance
network, Internet access and voice telephony into a single business model.
In addition, voice-enabling the Web should give Internet shoppers the
ability to speak directly with customer service representatives of online
retailers in order to ask questions and alleviate concerns about online
security. This may increase the probability that a sale is made and may
give online retailers a key competitive advantage by providing them with
opportunities to sell higher margin and additional products to these
customers. Voice-enabling a commercial Web site may also give online
retailers the ability to provide more responsive customer support and service.
Integrating live voice capabilities into the Web would also enable
Internet companies to offer enhanced communications services, such as
providing Internet users with a central source for retrieving voicemail,
e-mail, faxes and pages. We believe this would allow these companies to
attract more users to their sites and to increase the amount of time these
users spend on their sites. This increased usage will allow these Internet
companies to attract advertisers and secure higher advertising rates,
thereby increasing revenue.
LIMITATIONS OF EXISTING INTERNET TELEPHONY SOLUTIONS
The growth of Internet telephony has been limited to date due to poor
sound quality attributable to technological issues such as delays in packet
transmission and network capacity limitations. However, recent
improvements in packet-switching technology, new software algorithms and
improved hardware have substantially reduced delays in packet
transmissions. In addition, the use of private networks such as our leased
facilities to transmit calls as an alternative to the public Internet is
helping to alleviate network capacity constraints. These networks are
profitable due to the efficiencies obtained with the use of IP as a method
of transport.
Several large long distance carriers, including AT&T and Sprint, have
announced Internet telephony service offerings. However, to date certain
of these announced service offerings have not been deployed on a large
scale. Many also require users to purchase other telecommunications
services such as voice messaging and Internet access. Smaller Internet
telephony service providers also offer low-cost Internet telephony services
from personal computers to telephones and from telephones to telephones.
These services, however, are available only in limited geographic areas.
We also believe that existing Internet telephony service providers rely
upon technologies and systems that lack large-scale billing, network
management and monitoring systems, and customer service capabilities
required for the integration of voice communication into the Web.
In addition, many companies currently provide Internet telephony
software and services that allow Internet telephone calls to be made
between personal computers. However, most of
-6-
<PAGE>
these companies require both the initiator and the recipient of the call to
have the same software installed on their personal computers and to be
online at the same time.
We view the competition from the large long distance carriers which
can offer Internet telephony at a lower costs as our major limitation to
becoming profitable. This competition will be in the form of lower prices,
greater technological resources and larger amounts of capital to upgrade
and expand their existing long distance networks.
OUR SOLUTION
We will deliver high-quality Internet and telephony services to
consumers and businesses. Our solution provides the following benefits to
our customers:
* NATIONAL NETWORK. Currently we offer VoIP services to 25 markets
and are expanding to a nationwide network. Through our network
that includes 25 points of presence (POP's), we are able to offer
dial up Internet service in 13 major markets and full service
domestic long distance nationwide. As we expand our network our
costs will continue to significantly decrease while we continue
to offer coast to coast access.
* LOW COST. Our services allow our customers to make telephone
calls, often at a fraction of the cost of traditional long
distance service. Because the technology that enables long
distance calls to be routed over the Internet is more cost-
effective than the technology by which traditional long distance
calls are made, we are able to charge lower rates than
traditional long distance carriers.
* HIGH VOICE QUALITY. We offer high voice and data transmission
quality through our packet-switching network, which reduce packet
loss and delay, route packets efficiently and perform quality-
enhancing functions, such as echo cancellation. We intend to
continue to enhance the voice quality of our services as our
customer base and business grow.
* EASE OF USE AND ACCESS. Our services are designed to be
convenient and easy to access. Access to our network for
organizational and reseller customers is 100% seamless after
network initiated implementation.
* RELIABLE SERVICE. Our network is reliable because its design is
technologically advanced. Fault tolerant design allows us to
expand our network and add capacity by adding switches and
gateways to the existing network. Our system also provides
seamless service and high-quality voice transmission through our
ability to dynamically reroute packets if problems arise. We
believe that our ability to provide reliable service is essential
to the success of the company.
-7-
<PAGE>
OUR STRATEGY
While a large number of VoIP companies have been formed in recent
years, most VoIP companies focus on the build out and development of
international VoIP networks, in the effort to capture an ever shrinking
high margin revenue base. Little attention has been given to domestic VoIP
with bundled service offerings. We believe that, in this very competitive
landscape that offering many voice and data transmission options, leasing
time (or purchasing minutes) on VoIP networks will quickly become a
commodity business, as the various competitors whittle margins to gain
growth and market share. We feel it is imperative to not only offer a
quality, nationwide network but to also be an aggressive marketing
organization seeking to provide value added products and services. The
following points summarize our overall strategy:
NETWORK STRATEGY
* Build out POP's (points of presence) across the United States in
major cities and grow into markets dominated by the largest long
distance carriers;
* Attract large carrier customers as a means to push telephony
usage minutes through our network; and
* Focus on the domestic market through strategic relationships.
MARKETING STRATEGY
* Search for additional value added products and services in
telephony and forms of communications for our product portfolio;
* Focus on purchasing or licensing products from outside
development organizations; and
* Promote significant effort towards building brand name awareness.
WEBSITE STRATEGY
Currently we have two operational Websites:
* Netvoice.net or netvoice.com is a site devoted to marketing the
Company to the general community of potential customers, and
their employees. This site also includes limited e-commerce
capabilities for residential customers to purchase pre-paid long
distance services. We have not yet begun marketing the ability
to purchase low cost, long distance on-line.
-8-
<PAGE>
* CorporateLD.com, is a marketing site emphasizing NetVoice
corporate solutions. The site will eventually allow corporate
customers to access call history and use and make payments
towards accounts on-line. This site will include:
1) Agents corner - information for existing agents and
recruiting information; and
2) Account Information - full, real time access to account
information, provisioning and deactivation.
The Company expects to launch two more sites by the end of the second
quarter 2000. These sites are:
* CollegiateLD.com., a fully functional e-commerce and provisioning
web site focusing on selling Internet and telephony related
products into the college market;
* ResidentialLD.com., a fully functional e-commerce and
provisioning site focusing on selling Internet and telephony
related products into the residential market.
We are focusing on the finalization of all programming related to
billing and provisioning accounts in order to launch the sites. We have
spent approximately $50,000 to build our 4 sites and $30,000 to build an
on-line billing package. We expect to spend $500,000 to market our sites
in the first year. Currently, we have not developed any securities
measures with respect to our sales on our sites. The Company currently has
no strategic relationships associated with our websites other than the
contractual relationships described elsewhere herein.
We have acquired licenses with Call Vision.com, Inc. and Portal
Software, Inc. in order to bill and provision services on-line. Our
agreement with Call Vision.com, Inc. is for an initial one-year term and
includes a $30,000 license fee and minimal monthly fees based on the number
of customers who eventually use this service. Our agreement with Portal
Software, Inc. is for an indefinite term and includes an initial licensing
fee of $90,000.
WEBSITE TRAFFIC AND SALES
* www.netvoice.net (netvoice.com) is currently receiving
approximately 14,000 individual visitors per month.
* CorporateLD.com has only been up and running since March 6, 2000,
and accordingly we do not yet have any statistics to date
regarding traffic levels on this site.
At this time, revenue generated via these two sites is insignificant
as the Company has yet to implement an all-out marketing campaign to
generate traffic for these sites.
-9-
<PAGE>
WEBSITE AGENTS
Agents will be used in the promotion and sales of our services. We
intend to recruit agents via our websites, where they can apply online for
our agent program, and through our direct sales force. We do not intend to
use a multi-level marketing strategy, but intend to work directly with our
agents and compensate them on a commission basis based on revenue generated.
OUR NETWORK
Voice transmission over the Internet is of very recent origin and was
initially limited to communication from one personal computer to another.
The technology enabling such communication is known as Voice over Internet
Protocol or "VoIP". This technology has become so advanced as to enable
voice communication over the Internet.
* from one personal computer to another
* from a personal computer to a conventional telephone
* from a conventional telephone instrument to another such instrument
CURRENT NETWORK
We have provided long distance services over the Internet for the past
year. We have been working on an aggressive schedule to increase the size
of our network, establish alliances with other long distance carriers with
existing networks, exploit our current installations, and generally attempt
to capture a larger portion of the long distance market. Our VoIP gateway
network is expanding in multiple geographic locations. We currently have
operational gateways in 25 markets:
Albuquerque Fort Worth New Jersey San Antonio
Atlanta Houston New Orleans Tampa
Austin Jacksonville New York Tulsa
Chicago Kansas City Oklahoma City Waco
Dallas Little Rock Omaha
Denver Los Angeles Phoenix
El Paso Miami/Ft. Lauderdale Portland
Our largest markets are in Dallas, Houston, Miami/Ft. Lauderdale,
Atlanta, Chicago, Los Angeles, Tampa and New York. These markets each have
the capacity of 7.0 to 10.0 million minutes per month. Our second tier
consists of San Antonio, Portland, Denver, Kansas City, Jacksonville and
Phoenix. These markets have the capacity of 1.0 million minutes per month.
The remaining markets have the capacity of 500,000 per month. Currently,
we are only utilizing approximately 4.0 million minutes per month for all
locations which is below our breakeven-point.
In each of the foregoing operating cities we utilize our VoIP
gateways, acquired from leading manufacturers such as Cisco Systems
("Cisco"). Our Internet telephony services are
-10-
<PAGE>
provided by a combination of our own leased fiber, leased PSTN facilities
and leased Internet services from leading Internet backbone suppliers.
NETWORK EXPANSION
Our current expansion plans are as follows:
* Expand existing long distance traffic utilizing the Internet
* Establish new installation sites
* Evaluate sites for needed upgrades
* Maintain existing hardware and software
* Investigate additional applications for VoIP
We are planning to have our VoIP gateways installed in 50 cities by
the end of 2000. The bulk of the equipment costs will be financed through
Cisco's financing program for small businesses and additional private and
public equity and/or debt offering. Currently our revenues do not exceed
network costs and we experience short falls each month requiring additional
infusions of capital, which may or may not be available in the future.
NETWORK ADVANTAGES
The principal advantages of our use of the Internet and the VoIP network:
* Utilization of packet-switching technology that converts natural
voice into data packets that are transmitted over our network to
our destination gateways where the packets are returned to
natural voice.
* Cost savings that we can pass on to our customers in the form of
lower long distance charges.
* Ability to transmit faxes routed over our VoIP network without
purchasing additional hardware or software.
* Delivery of high voice quality and faxes transmitted without
delay with immediate delivery confirmation.
CONTRACTUAL RELATIONSHIPS
We have entered into certain contractual relationships to provide our
customers communication products and establish a high quality VoIP network.
Each relationship is important to our continuing operations. The
agreements include:
* CISCO SYSTEMS, INC. We utilize a Cisco Systems Powered
Network(TM) that uses a technology called "packet-switching" to
break voice and fax calls into discrete data packets, route them
over the Internet or our network and reassemble them
-11-
<PAGE>
into their original form for delivery to the recipient. This greater
efficiency creates network cost savings that can be passed on to the
consumer in the form of lower long distance rates. Our relationship
with Cisco allows us to benefit from their newly-developed products
and services as they become available. Equipment was originally
leased from Cisco on a 2-year basis, for a monthly lease payment of
approximately $2,400. However, because of the expansion of our
network, we have entered into several amendments to our original
lease with Cisco. Through the amendments, we have incorporated
additional Cisco equipment into our network and have extended the
term of our lease. Due to our utilization of more Cisco equipment,
our monthly payments have increased to approximately $40,000 per
month and will continue to increase as we build and expand our
network.
* VIRTUALPLUS, INC. Virtualplus, Inc. ("Virtualplus") is a leading
supplier of outsourced, value-added, enhanced telecommunications
service to the Internet and telecommunications industries. The
company was formed in 1995, when it designed a voicemail and fax
distribution system. This system was later migrated onto the
Internet and within this process the Internet's first unified
messaging system was created. The Virtualplus services include
Messagepoint, Messagejet and JustPhone and are available
worldwide in over 100 area codes. Pursuant to our agreement and
in return for the Company's payment of an initial set-up fee of
$10,000, NetVoice is able to distribute the Virtualplus unified
messaging products privately labeled under the NetVoice name.
The agreement is for an indefinite period of time and may be
terminated by either party on 30 days notice.
* SIGNUPSERVER. SignUpServer(TM) provides back end technical
capabilities for ISPs. Providing all server space, tunneling,
filtering, NOC facilities and technical service to end customers,
SignUpServer(TM) allows ISPs to simply manage their front end -
web development, marketing and content. The Company and
SignUpServer(TM) will jointly market Internet service with
private branding capabilities through our combined network of
agents. The agreement is for an indefinite term and includes an
initial set-up fee of $35,000 and monthly fees based on number of
users.
* LEVEL 3 COMMUNICATIONS, INC. Our contractual relationship for
co-location with Level 3 Communications. allows NetVoice to offer
high quality voice communications at a lower cost over a managed
VoIP network. In utilizing Level 3's co-location facilities and
IP CrossRoads products, we will have access to sufficient
bandwidth on demand that will allow us the ability to meet
increased demand for rapid growth and flexibility in managing the
cost of our network. We have several contracts with Level 3,
representing our co-location in various cities. Each agreement is
for a one year term and ranges in amount from approximately $700
to $3,000 per month depending on the products utilized at each
facility. Our latest monthly billing with Level 3 was
approximately $40,000.
-12-
<PAGE>
PRODUCTS AND SERVICES
VoIP
Currently, substantially all of our revenues come from sales of high
volume minutes to large long distance carriers transmitted over our VoIP
network and pre-paid calling companies. Revenues derived from sales over
our VoIP network constituted $967,000 in 1999 and comprised 80% of our
total revenues. The remaining 20% of our revenue was from our abandoned
traditional long distance traffic. Currently, our revenues do not exceed
our costs and we have been financing the shortfalls with outside, private
financing.
Based on available funding, it is our intention to enter into the
corporate market beginning in the second quarter 2000 to deliver voice,
internet, data and video conferencing to small- and medium-size businesses.
Our existing network is capable of handling this varied traffic at its
present size. We will market these services through a to be developed,
in-house sales staff and independent agents.
INTERNET SERVICE
We offer dial up Internet access in our gateway cities and dedicated
Internet service to our corporate customers. We will also host all
Internet service back office functions to offer virtual ISP capabilities to
our customers including radius servers, filtering, e-mail, technical
support and billing. Internet service can be provided under the NetVoice
name or can be private labeled for our customers.
As previously noted, we have entered into an agreement with
Virtualplus, Inc., the world's largest provider of unified messaging with
over 500,000 virtual mailboxes under their management. We will distribute
this service on a private label basis under our Company's name and logo.
Unified messaging allows the user to pick up voicemail, e-mail and fax from
a single unified box.
PRE-PAID LONG DISTANCE CALLING CARDS
Currently we are focusing on selling prepaid long distance calling
cards to the college student market. To date, this market has only been
tested on a small scale. Our initial, informal investigation has indicated
this market to be viable for the following reasons:
* The cost of acquiring these customers is relatively low due to
geographical concentration.
* Campus newspapers and other media expenses are relatively low.
* Our sales personnel have easy access to students.
* The students are characteristically well acquainted with the
Internet, and, therefore, receptive to our offering of long
distance calling on the Internet.
-13-
<PAGE>
* These college and university students (and their parents) are
also receptive to the convenience of purchasing minutes by
accessing our website and/or calling our 800 telephone number.
THE NETVOICE COMMUNICATION APPLICATION BROWSER
We currently have under development the NetVoice CAB, an Internet
browser that allows the user to have access to a suite of communication
functions such as long distance and fax while browsing the world wide web.
Access to all functionality features of the browser will be available in
the borders of the screen while the Internet runs in the center of the
screen. Functionality features include:
* Free PC to PC calls provided both parties have our browser
downloaded onto their PC's;
* Address book with ability to import address book from Microsoft
Outlook(TM);
* Unified messaging capabilities;
* Search engine access; and
* Access to "favorites" much like traditional Internet bookmarking
functionality.
Our browser will be distributed free of charge and downloaded via our
Company website or through marketing agreements. Our browser is currently
under beta review and we expect to launch by May 1, 2000. We believe there
will be several revenue opportunities within the browser:
* commission earned on merchandise purchased from affiliate sites
that are programmed into the browser;
* revenue earned from banner advertisement;
* revenue earned from the preprogrammed favorites within the
browser; and
* revenue earned on PC to phone calling, when available.
Our successful distribution of the browser is key to achieve these revenue
streams.
SALES, MARKETING AND DISTRIBUTION
Our strategy for building a viable position in the Internet telephony
market includes the following key elements:
* Marketing our services through multiple channels;
-14-
<PAGE>
* Pursuing multiple sources of revenue;
* Enhancing brand recognition;
* Expanding and enhancing our products and services; and
* Pursuing acquisitions of other telecommunications companies to
expand our revenues and technological base.
INTERNET SERVICE PROVIDERS MARKETS
We expect to offer virtual ISP services and will distribute VoIP
products to ISP's to distribute to their consumer and business customers.
These products will offer revenue-generating opportunities for the ISP's as
well as their e-commerce customers. We will become the wholesale provider
to the ISP for these services. We will attempt to seek out products that
allow us to co-brand with our NetVoice logo.
CORPORATIONS
Corporations are focused on cost cutting opportunities and
communication improvements that allow information systems to be both
simplified and enhanced as a means to stay competitive. Accordingly, we
believe this segment will readily embrace the cost savings and enhanced
services that VoIP can offer over existing LAN's/WAN's.
RESIDENTIAL
While the residential VoIP market may be difficult to penetrate due to
high customer acquisition costs vs. number of minutes purchased per
customer, we believe there are niche residential areas, such as colleges
and universities, which we can enter with relatively low competition and
marketing costs, while allowing us to build a brand name recognizable by
the typical consumer. As NetVoice Technologies grows we can use these
niche segments as a launching pad from which to enter the general
residential market. The initial residential niches may include the college
market, which affords access to opinion leaders and early adapters to new
technology.
WHOLESALE MARKET
The wholesale market consists of agents, carriers and pre-pay service
providers. All entities requiring large volume of minutes at low costs are
our potential customers, including the more traditional long distance PSTN
carriers who can resell our minutes with a higher margin than PSTN minutes.
We feel that we are uniquely poised to capture clients in this segment,
because of our ability to offer lower cost minutes, due to the current lack
of regulation in our technology and consequent absence of tariffs, which
many of our potential customers in this segment cannot avoid on their own
networks.
-15-
<PAGE>
DISTRIBUTION CHANNELS
IN-HOUSE SALES
We currently have two, full time individuals whose responsibilities
are sales and marketing. It is our intention, as funds become available,
to hire more sales personnel who will be based in our Dallas office.
AGENTS
We intend to expand our use of existing long distance and telephony
agent networks as a means to sell our low cost, high quality VoIP products
to carriers, pre-pay providers, institutional organizations and
corporations.
WORLD WIDE WEB
Virtual agents will be sought, as a means to distribute VoIP minutes
via ISP's, and in turn individual e-commerce web sites. E-commerce web
sites operated by virtual agents can sell our products as revenue
generating opportunities for their site and NetVoice's.
Through targeted advertising and word of mouth, we intend to direct
customers to purchase low cost long distance services via our website. We
plan to initially drive our website sales to universities and colleges.
This very price sensitive market segment is an ideal potential revenue
stream due to their need for low cost long distance and the relatively
inexpensive access to a university population. Low cost college newspaper
and radio advertising as well as on-site visits allow us to quickly and
inexpensively reach this segment with our message. Also, across the board
access and acceptance of Internet usage for the typical college student
will drive on-line registration and purchase of products through our
website. We believe this segment will find our program attractive due to
our ability to offer low prices.
TECHNOLOGY
As discussed above, we are currently developing a communications
applications browser that allows the user to have access to a suite of
online communications devices and other functionality while browsing or
searching the world wide web. Our browser will be distributed to the end
user for free via our websites. This browser will be designed to allow the
NetVoice logo to appear on users desktops which will build brand awareness
while the applet will allow NetVoice to have access to these users as we
market Internet and Telephony related products and services.
CUSTOMERS
During the fiscal year ending December 31, 1998, IXC Communications,
Inc. (formerly Coastal Telephone, Inc.) ("IXC") accounted for approximately
61% of our total revenues and for the year ending December 31, 1999, IXC
accounted for 23% of our revenues. Caprock Communications Corporation and
World Access, Inc. accounted for 11% and 30% of our
-16-
<PAGE>
revenues, respectively, during the fiscal year ending December 31, 1999.
Recently, we signed two new wholesale agreements with Landmark Community
News, Inc. ("Landmark") and Z-Tel, Inc. ("Z-Tel").
* Landmark is a publisher of 48 local newspapers in 12 states. Our
agreement with Landmark is to provide VoIP related products and
services, including Internet service, Internet telephony and
unified messaging for resale to Landmark customers. The
agreement is for an indefinite period of time and may be
terminated by either party with notice. NetVoice will be
compensated by Landmark customers who utilize the various
services that NetVoice may provide, and NetVoice will pay
Landmark a commission per customer.
* Our agreement with Z-Tel will allow us to provide Internet access
to their local customers for a period of two years. Z-Tel will
pay the Company a fee on graduated basis according to the number
of customers we are providing Internet access for.
We do not believe the loss of these customers would have a significant
impact on our revenues in the year 2000 due to our current and future
marketing efforts to other large customers.
PATENTS AND TRADEMARKS
We are the owner of a pending provisional patent application for a
communications enabled browse. Follow-up, non-provisional applications are
being prepared to cover the communications tools embedded in the browser,
the ability to display thumbnail sketches (graphic links) on the browser,
and the placement of permanent icons on the browser border that can be
addressed to key retailers.
We are the owner of a pending trademark application for the mark
("CAB") as applied to browser software.
COMPETITION
The long distance telephony market and the Internet telephony market
are highly competitive. There are several large and numerous small
competitors, and we expect to face continuing competition based on price
and service offerings from existing competitors and new market entrants in
the future. The principal competitive factors include price, quality of
service, breadth of geographic presence, customer service, reliability,
network capacity and the availability of enhanced communications services.
Our competitors include AT&T, MCI WorldCom and Sprint, as well as a number
of smaller companies.
Many of our competitors have substantially greater financial,
technical and marketing resources, larger customer bases, longer operating
histories, greater name recognition and more established relationships in
the industry than we have. As a result, certain of these competitors may
be able to adopt more aggressive pricing policies, which could hinder our
ability to market
-17-
<PAGE>
our Internet telephony services. We believe that our key competitive
advantages are our ability to deliver reliable, high quality voice service
over the Internet in a cost-effective manner and the size and rapid growth
of our network. We cannot assure you, however, that this advantage will
enable us to succeed against comparable service offerings from our
competitors.
REGULATION
REGULATION OF INTERNET TELEPHONY
The use of the Internet to provide telephone service is a recent
market development. Currently, the Federal Communications Commission is
considering whether to impose surcharges or additional regulations upon
certain providers of Internet telephony. On April 10, 1998, the FCC issued
its report to Congress concerning the implementation of the universal
service provisions of the Telecommunications Act. In the report, the FCC
indicated that it would examine the question of whether certain forms of
phone-to-phone Internet telephony are properly classified as information
services or as telecommunications services. The FCC noted that it did not
have, as of the date of the report, an adequate record on which to make a
definitive pronouncement, but that the record suggested that certain forms
of phone-to-phone Internet telephony appear to have the same functionality
as non-Internet telecommunications services and lack the characteristics
that would render them information services. If the FCC were to determine
that certain services are subject to FCC regulation as telecommunications
services, the FCC may require providers of Internet telephony services to
make universal service contributions, pay access charges or be subject to
traditional common carrier regulation. Such a determination would have a
material adverse effect on the price structure for the Company's VoIP
services. It is also possible that some services may be regulated by the
FCC differently. In addition, the FCC sets the access charges on
traditional telephony traffic, and if it reduces these access charges, the
cost of traditional long distance telephone calls will probably be lowered,
thereby decreasing some of our competitive pricing advantage.
In September 1998, two regional Bell operating companies, US WEST and
BellSouth, advised Internet telephony providers that the regional companies
would impose access charges on Internet telephony traffic. In addition, US
WEST has petitioned the FCC for a declaratory ruling that providers of
interstate Internet telephony must pay federal access charges, and has
petitioned the public utilities commissions of Nebraska and Colorado for
similar rulings concerning payment of access charges for intrastate
Internet telephone calls. At this time, it is not known whether these
companies, US WEST and BellSouth, will actually impose access charges or
when such changes will become effective. If these companies succeed in
imposing access charges, such changes are expected to reduce the cost
savings afforded by Internet telephony as compared to traditional telephone
service. Access charges would materially adversely affect the development
of our Internet telephony business. In February 1999, the FCC adopted an
order concerning payment of reciprocal compensation, which provides
legislative support for a possible future finding by the FCC that providers
of Internet telephony must pay access charges for at least some subset of
Internet telephony services. If the FCC were to make such a finding, the
payment of access charges could materially adversely effect our business,
results of operations and financial condition. Many of our competitors are
lobbying the FCC for the imposition of access charges on Internet telephony
traffic.
-18-
<PAGE>
To our knowledge, there are currently no domestic and few foreign laws
or regulations that prohibit voice communications over the Internet. State
public utility commissions may retain jurisdiction to regulate the
provision of intrastate Internet telephony services. A number of countries
that currently prohibit competition in the provision of voice telephony
have also prohibited Internet telephony. Many countries permit but
regulate Internet telephony. If Congress, the FCC, state regulatory
agencies or foreign governments begin to regulate Internet telephony, such
regulation may materially adversely affect our business, financial
condition or results of operations.
The Federal Communications Commission (the "FCC") has recently issued
a Notice of Inquiry ("NOI"), soliciting comments on whether Section 255 of
the Telecommunications Act of 1996 should apply to IP telephony. The rules
and policies released by the FCC will require manufacturers of
telecommunications equipment and providers of telecommunication services to
ensure that such equipment and services are accessible to and useable by
persons with disabilities. Management currently does not believe that
these FCC rules and policies, if applied to IP telephony, will have a
significant impact on our operations.
REGULATION OF THE INTERNET
Congress has recently adopted legislation which regulates certain
aspects of the Internet, including online content, user privacy, taxation,
access charges, liability for third-party activities and jurisdiction. The
European Union has also enacted several directives relating to the
Internet, one of which addresses online commerce. In addition, federal,
state, local and foreign governmental organizations currently are
considering other legislative and regulatory proposals which would regulate
the Internet. Increased regulation of the Internet may decrease its growth
and eliminate or reduce its competitive advantage, which may increase the
cost of doing business via the Internet or otherwise materially adversely
affect our business, results of operations and financial condition.
The Federal Trade Commission has proposed regulations regarding the
collection and use of personal identifying information obtained from
individuals when accessing Web sites, with particular emphasis on access by
minors. These regulations may include requirements that companies
establish certain expensive procedures to disclose and notify users of
privacy and security policies, obtain consent from users for certain
collection and use of information and to provide users with the ability to
access, correct and delete personal information stored by the company.
These regulations may also include enforcement and redress provisions.
There can be no assurance that we will adopt policies that conform with any
regulations adopted by the FTC, or that our cost will remain competitive
after adopting compliance procedures. Moreover, even in the absence of
those regulations, the FTC has begun investigations into the privacy
practices of companies that collect information on the Internet. One
investigation resulted in a consent decree pursuant to which an Internet
company agreed to establish programs to implement the principles noted
above. We may become subject to a similar investigation or the FTC's
regulatory and enforcement efforts may adversely affect the ability to
collect demographic and personal information from users which could have an
adverse effect on our ability to provide highly targeted opportunities for
advertisers and electronic commerce marketers. We may increase our
regulatory risk by targeting university populations, despite the
attractiveness of this market segment. Any of the foregoing adverse
regulatory developments would materially adversely affect our business,
results of operation and financial condition.
-19-
<PAGE>
Recently, the European Union adopted a directive that imposes
restrictions on the collection and use of personal data. Under the
directive, citizens of the European Union are guaranteed rights to access
their data, rights to know where the data originated, rights to have
inaccurate data rectified, rights to recourse in the event of unlawful
processing and rights to withhold permission to use their data for direct
marketing. The directive could, among other things, affect United State
companies that collect information over the Internet from individuals
located in European Union member countries, and may impose restrictions
that are more stringent than current Internet privacy standards in the
United States. In particular, companies with offices located in European
Union countries will not be allowed to send personal information to
countries that do not maintain adequate standards of privacy. The
directive does not, however, define what standards of privacy are adequate.
As a result, the directive may adversely affect the activities of entities
such as us that may engage in data collection from users in European Union
member countries.
EMPLOYEES
As of March 20, 2000, we had twenty two (22) full time employees,
including eight (8) technical personnel, seven (7) in sales and marketing
and seven (7) in management and finance. As noted elsewhere in this
Report, a top priority of our marketing strategy is to hire additional
sales personnel in an attempt to create additional traffic for the network.
RISK FACTORS
The risks described below are not the only ones that we face.
Additional risks that are not yet known to us or that we currently think
are immaterial could also impair our business, operating results or
financial condition. Other information set forth in this Report, including
our consolidated financial statements and the related notes detail other
risks effecting our business. If any of the following risks actually
occur, our business, financial condition or results of operations could be
materially adversely affected.
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY ON WHICH TO EVALUATE OUR POTENTIAL FOR
FUTURE SUCCESS
We only began operations in January of 1998 when we acquired NVT.
Therefore, we have only a limited operating history. As an early stage
company in the new and rapidly evolving Internet telephony market, we face
numerous risks and uncertainties. Since commencement of operations, we
have primarily been investing our capital into the expansion of our
network. We will be unable to continue the expansion of our network
without the proceeds from future private and/or public financing. Our
limited operating history does not provide meaningful historical financial
or operational information upon which to make plans or forecasts. We
cannot assure you that our business strategy will be successful or that we
will successfully address these risks.
-20-
<PAGE>
WE HAVE A HISTORY OF OPERATING LOSSES, CURRENT LIABILITIES OF $5.4 MILLION
AND ANTICIPATE LOSSES FOR THE FORESEEABLE FUTURE
We have incurred net losses of $1,723,367 for the year ended December 31,
1998 and $4,950,222 for the year ended December 31, 1999. As of
December 31, 1999, we had an accumulated deficit of $6,673,589 and current
liabilities of $5,389,141 million which includes notes due to noteholders
in year 2000. The Company has never had any profits. We expect to
continue to incur operating losses for at least the next eighteen months.
We expect that operating and marketing expenses will increase significantly
during the next several years. In order to achieve and maintain
profitability, we will need to generate significant revenue and we cannot
assure you that we will generate sufficient revenue for profitability.
Even if we do achieve profitability, we cannot assure you that we will be
able to sustain or increase profitability. If revenue grows more slowly
than we anticipate or if operating and marketing expenses exceed our
expectations or cannot be managed in proportion to revenues, our business,
results of operations and financial condition will be materially adversely
affected.
WE INTEND TO PURSUE NEW MARKETS AND PRODUCTS, MANY OF WHICH ARE UNPROVEN
To date, we have generated revenue from routing minutes of use of our
services over the Internet and to a limited degree from the sale of
traditional one-plus long distance. In the future, we intend to pursue new
revenue streams by leveraging our Internet telephony network to integrate
real-time voice communication capabilities into the Web. For example, we
intend to pursue new Web-based revenue opportunities from personal computer
to phone applications, as well as offering integrated voice and data
service to corporations. We intend to market our various products as
single packages to various groups of end-users. We have no experience in
the specific markets we intend to enter and have never generated revenues
from this type of business. We intend to devote significant capital and
resources to create these new revenue streams and we cannot ensure that our
investments will be profitable. To be successful, we must, among other
things, develop and market products and services that achieve broad market
acceptance by individuals, businesses, online retailers and advertisers.
We cannot assure you that the market for our new products and services will
develop or that demand for our new products and services will emerge, grow
or generate sufficient revenue to become profitable.
WE MAY HAVE DIFFICULTIES MANAGING OUR EXPANDING OPERATIONS, AND WE MAY HAVE
A NEED TO DEVELOP AND IMPLEMENT SYSTEMS AND CONTROLS
Our expected growth will place a significant strain on our managerial,
operating, financial and other resources. We expect this rapid growth to
continue and expect these strains to continue over time. Our future
performance will depend, in part, on our ability to manage this growth
effectively. To that end, we will have to undertake the following tasks,
among others:
* develop our operating, administrative and financial and
accounting systems and controls;
* improve coordination among our engineering, accounting, finance,
marketing and operations personnel;
-21-
<PAGE>
* enhance our management information systems capabilities; and
* hire and train additional qualified personnel, including
personnel with technical skills and experience which we do not
now have.
We cannot assure you that we will be able to accomplish these tasks,
and if we are unable to accomplish any of them, our business would be
materially adversely affected.
A FAILURE TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS COULD LIMIT OUR
ABILITY TO INCREASE OUR SALES
We believe that our success depends, in part, on our ability to
develop and maintain strategic relationships with leading Internet
companies and computer hardware and software companies, as well as with key
marketing distribution partners. If any of our strategic relationships are
discontinued, sales of our products and services and our ability to
maintain or increase our customer base may be substantially diminished. We
will depend on these relationships to:
* distribute our products to potential customers;
* increase usage of our services;
* build brand awareness; and
* cooperatively market our products and services.
WE WILL NEED TO HIRE ADDITIONAL AGENTS TO MARKET AND DISTRIBUTE OUR
PRODUCTS AND SERVICES; TO PROVIDE LOCAL CUSTOMER SUPPORT; AND THE LOSS OF
KEY AGENTS COULD ADVERSELY AFFECT OUR BUSINESS
We must forge new relationships with agents in markets where our
products and services are not adequately marketed and maintain and deepen
relationships in those markets where we seek greater penetration. Agents
also typically provide local customers with front-line support. If we hire
an agent who fails to market our products and services effectively, or
fails to provide adequate front-line customer support, we could lose market
share. Additionally, if an agent provides poor customer service, we could
lose brand equity. Therefore, we must maintain and hire additional agents
that are capable of providing high-quality sales and service efforts. The
loss of an agent in a key market, or the failure of a current or future
seller to adequately provide customer support could materially adversely
affect our business, results of operations and financial condition.
COMPETITION COULD REDUCE OUR MARKET SHARE AND DECREASE OUR REVENUE
The market for our services has been extremely competitive, and is
expected to remain extremely competitive for the foreseeable future. Many
companies offer Internet telephony
-22-
<PAGE>
products and services, and many of these companies already have a
substantial presence in this market in which we are only a recent entrant.
In addition, a number of large telecommunications providers, such as
ICG Commun-ications, IPVoice.com, ITXC, RSL Communications (through its
Delta Three subsidiary) and ibasis, Inc., route Internet telephony traffic
to destinations on a worldwide basis, while our operations are focused on
the United States only. In addition, major long distance providers, such
as AT&T, Deutsche Telekom, Frontier, MCI WorldCom, Qwest Communications and
Net2Phone, as well as other major companies such as Motorola and Intel,
have all entered or plan to enter the Internet telephony market. Many of
our competitors are larger than us and have substantially greater
financial, distribution and marketing resources than we have. We cannot be
certain that we will be able to compete successfully in the developing
Internet telephony market.
WE FACE PRICING PRESSURES, WHICH MAY LESSEN OUR COMPETITIVE PRICING ADVANTAGE
Any success of our product and service offerings must be based on our
ability to provide discounted voice communications by taking advantage of
cost savings achieved through Internet telephony. In recent years, the
price of traditional domestic and international long distance calls has
been declining. In response to these declines, we have lowered the price
of our service offerings. Should prices of traditional long distance calls
decline to a point where we no longer have a price advantage over our
competitors, we would lose our anticipated significant competitive
advantage and would have to rely on factors other than price to
differentiate our product and service offerings. If we fail to do so, our
business could be materially adversely affected.
OUR PERFORMANCE IS DEPENDENT ON THE CONTINUED EMPLOYMENT OF OUR EXECUTIVE
OFFICERS AND WE NEED TO HIRE AND RETAIN HIGHLY-SKILLED TECHNICAL AND
MANAGEMENT PERSONNEL TO SUSTAIN OUR BUSINESS
Our performance is highly dependent on the continued services of our
executive officers and other key personnel, the loss of any of whom could
materially adversely affect our business, results of operations and
financial condition.
We need to attract and retain other highly skilled technical and
managerial personnel, for whom there is intense competition. Certain of
such individuals must have skills and experience, which we do not have. We
cannot assure you that we will be able to attract and retain the personnel
necessary for the development of our business. The inability to attract
and retain qualified technical and managerial personnel would materially
adversely affect our business, results of operations and financial
condition. Currently, we do not have any employment contracts with any of
our key personnel, with the exception of our President, Jeff Rothell, and
our Chief Financial Officer, Garth Cook. In addition, we do not maintain
any key man insurance on any of these individuals.
-23-
<PAGE>
WE NEED TO DEVELOP BRAND RECOGNITION AND NEED TO ESTABLISH AND MAINTAIN
HIGH QUALITY PRODUCTS AND SERVICES
We believe we must establish and maintain a brand and name recognition
in order to attract and expand our targeted client base. We believe the
importance of reputation and name recognition will increase as competition
increases in the Internet telephony market. Promotion and enhancement of
our name will depend on the effectiveness of our marketing and advertising
efforts. Success in establishing brand and name recognition will also
depend upon our success in continuing to provide high-quality products and
services. We cannot assure you that our advertising, marketing or quality
control efforts will be successful. If our customers do not perceive our
service to be effective or of high quality, our brand and name recognition
would be materially adversely affected.
WE DEPEND ON LOCAL EXCHANGE TELECOMMUNICATIONS CARRIERS TO LEASE
TRANSMISSION FACILITIES AND WE ARE SUBJECT TO PRICE AND COMPETITIVE
UNCERTAINTIES FROM LOCAL CARRIERS
We do not own any local exchange transmission. All of the telephone
calls made by our customers are connected at least in part through leased
transmission facilities. In addition, national telephone companies may not
be required by law to allow us to lease necessary transmission lines and
may be unwilling to enter into such agreements on a cost-effective basis,
considering terms and price. Further, even if applicable law requires
national telephone companies to lease transmission lines to us, we expect
to encounter delays of unknown duration in negotiating leases and
interconnection agreements, and commencing operations. Additionally,
disputes may arise, relating to pricing, terms and billing, after
commencing operations.
In the United States, the providers of local exchange transmission
facilities are generally the incumbent local exchange carriers, including
the regional Bell operating companies. The permitted pricing of local
exchange facilities that we lease in the United States is subject to
uncertainties. The Federal Communications Commission issued an order
requiring local exchange carriers to establish a pricing standard for those
facilities that may be charged to competitors and the United States Supreme
Court recently upheld the FCC's jurisdiction in this regard. However, the
incumbent local exchange carriers can be expected to bring further legal
challenges to the FCC's decision. If they succeed, the result may be to
increase our cost to obtain incumbent local exchange carrier facilities.
Local exchange carriers from which we intend to lease facilities are
also our competitors, such as the regional Bell operating companies. We
generally lease lines on a fixed-cost basis. These include leases of
transmission capacity for point-to-point circuits on a monthly or longer-term
fixed-cost basis. There is every reason to expect that our local
telephone operating company competitors will have advantages, including a
lower internal price and greater transmission capacity than that expected
to be available to us.
-24-
<PAGE>
OUR SYSTEMS MAY NOT ACCOMMODATE SIGNIFICANT GROWTH IN THE NUMBER OF USERS
Our success depends on our ability to handle a large number of
simultaneous calls. We expect that the volume of simultaneous calls will
increase significantly as we expand our operations. If this occurs,
additional stress will be placed upon the network hardware and software
that manages our traffic. We cannot assure you of our ability to
efficiently manage a large number of simultaneous calls. If we are not
able to maintain an appropriate level of operating performance, or if our
service is disrupted, then we may develop a negative reputation and our
business, results of operations and financial condition would be materially
adversely affected.
BECAUSE WE ARE UNABLE TO PREDICT THE VOLUME OF USAGE AND OUR CAPACITY
NEEDS, WE MAY ENTER INTO DISADVANTAGEOUS CONTRACTS
Our business plan projects that the number of calls that we handle
over our network will continue to grow in the future. If our plans are
realized, we may be required to enter into additional long-term agreements
for leased capacity. To the extent that we over-estimate the anticipated
volume of calls, we may become obligated to pay for more transmission
capacity than we actually use, resulting in our incurring costs without
achieving corresponding revenue. Conversely, if we underestimate our
capacity needs, we may be required to obtain additional transmission
capacity through more expensive means because the capacity is added prior
to our expected delivery time. We cannot assume that such capacity will be
available either on a planned or emergency basis. The occurrence of either
over-estimation or under-estimation of capacity needs could significantly
reduce our operating margins.
WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL FUNDS NECESSARY TO TAKE ADVANTAGE
OF NEW OPPORTUNITIES AND MEET OUR OBLIGATIONS
Due to our limited operating history, current liabilities of $5.4
million including notes due to our existing noteholders and the rapid
evolution of the Internet telephony market, our future capital needs are
difficult to predict. We currently have approximately $3.65 million due on
the Notes in the calendar year 2000. All of the Notes will be due and
payable through September, 2000, unless extended for nine (9) months at the
option of the noteholder. At this time, we have the ability to repay all
the notes as such obligations come due. Repayment of the Notes will be at
the expense of our efforts to become profitable due to our need for
additional funds. We will require additional capital in order to take
advantage of increasing the size of our network, unanticipated
opportunities, including strategic alliances and potential acquisitions, or
to respond to changing business conditions and unanticipated competitive
pressures. Additionally, funds from operations may be less than
anticipated. Should these circumstances arise, we will need to raise
additional funds, either by borrowing money or issuing additional equity.
We cannot assure you that we will be able to raise such funds on favorable
terms or at all. If we are unable to obtain additional funds as needed,
then we may be unable to take advantage of new opportunities or take other
actions that otherwise might be important to our business, results of
operations and financial condition.
-25-
<PAGE>
WE ARE SUBJECT TO RISKS ASSOCIATED WITH SYSTEM FAILURES, DELAYS AND
INADEQUACIES
Our success depends on our ability to provide efficient and
uninterrupted, high-quality Internet telephony services. Any damage to or
failure of our systems or operations could result in reductions in, or
terminations of, our services. In addition, in the case of frequent or
persistent system failures, our brand and reputation could be materially
adversely affected. Our systems and operations are vulnerable to damage or
interruption from natural disasters, power loss, telecommunication system
failures, physical or electronic break-ins, sabotage, intentional acts of
vandalism and similar events that are expected to be generally beyond our
control. The occurrence of any or all of these events could materially
adversely affect our business, results of operations and financial condition.
AT THIS POINT WE HAVE NOT OBTAINED DIRECTORS AND OFFICERS INSURANCE
We have investigated the cost of insurance against liabilities arising
out of the negligence of Officers and Director(s). The Company has not
obtained such insurance, because the availability thereof is extremely
limited and, where available, the cost is excessive. The Company is
required to indemnify certain costs and liabilities for negligence of its
officers and directors. Therefore, the Company will have to satisfy any
such liabilities out of its assets. Any such liabilities which might arise
could be substantial and may exceed the assets of the Company.
WE HAVE A LIMITED NUMBER OF SHAREHOLDERS AND A LIMITED NUMBER OF SHARES
AVAILABLE FOR TRADING
To our knowledge, there are 1,100 record holders of our Common Stock
although we believe the actual number of shareholders who hold our stock in
their brokerage accounts or "street name" accounts to be higher. The
public float or shares available for sale at any given time is extremely
limited which can cause significant price swings when large blocks of our
Common Stock are bought or sold in the market. Also, our daily trading
volume is limited with a small number of brokerage firms making a market in
our stock. Accordingly, the price you pay or receive when you buy and sell
your shares may not be reflective of an active, arms-length trading market.
THE MARKET PRICE OF OUR SHARES MAY EXPERIENCE EXTREME PRICE AND VOLUME
FLUCTUATIONS FOR REASONS OVER WHICH WE HAVE LITTLE CONTROL
The stock market has, from time to time, experienced extreme price and
volume fluctuations. Prices of securities of Internet-related companies
have been especially volatile and have often fluctuated for reasons that
are unrelated to the operating performance of the affected companies. The
market price of shares of our Common Stock could fluctuate greatly due to
a variety of factors. In the past, companies that have experienced
volatility in the market price of their stock have been the objects of
securities, class action litigation. If we were the object of securities
class action litigation, it could result in substantial costs and a
diversion of our management's attention and resources.
-26-
<PAGE>
OUR EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS OWN A MAJORITY
OF OUR VOTING STOCK AND WILL BE ABLE TO EXERT SIGNIFICANT INFLUENCE OVER
DECISIONS REQUIRING A STOCKHOLDER VOTE
Our Executive Officers, Directors, employees and principal
stockholders and their affiliates own in the aggregate, beneficially
approximately 61% of our outstanding Common Stock. This does not include
2,582,000 outstanding options with exercise prices that range from $1 to
$18 exercisable over the next five years. As a result, our Executive
Officers, Directors and principal stockholders are able to exercise
significant control over all matters requiring approval by our
stockholders, including the election of directors and approval of mergers
and other significant corporate transactions. This concentration of
ownership may also have the effect of delaying or preventing a change in
control that might otherwise benefit our stockholders.
STOCKHOLDERS MAY SELL SHARES OF OUR COMMON STOCK IN A MANNER THAT
NEGATIVELY AFFECTS THE PRICE OF COMMON STOCK
If any of our principal stockholders sell a substantial number of
their shares of Common Stock, those sales could adversely affect the market
price of our Common Stock and could impair our future ability to raise
capital through the sale of equity securities. We currently have
13,416,600 shares of Common Stock outstanding. In addition, as of March 20,
2000, we had reserved for issuance 2,582,000 shares of Common Stock
issuable upon exercise of stock options. All of our outstanding shares of
Common Stock are freely transferable without restriction under the
Securities Act, unless they are held by our "affiliates" or sold in an
offering of restricted common stock.
RISKS RELATED TO OUR INDUSTRY
OUR FUTURE GROWTH DEPENDS UPON AN INCREASE IN THE USE OF THE INTERNET AS A
MEDIUM FOR VOICE COMMUNICATIONS
The Internet telephony market is new and rapidly evolving, and the
technology is still in the early stages of development. Historically, the
audible sound quality of Internet telephony calls was poor. As the
industry has grown, substantial improvements to sound quality have been
made but technological hurdles still need to be resolved. Additionally,
the capacity constraints of the public Internet network may, if not
resolved, impede further development of Internet telephony to the extent
that callers experience delays, errors in transmissions or other
difficulties. As is typical in the case of a new and rapidly evolving
industry, demand and market acceptance for our services are subject to a
high level of uncertainty and risk. In particular, the Internet must be
accepted by business and residential users as a viable alternative to
traditional telephone service. Customers who have already invested
substantial resources in integrating traditional telephony service with
their operations may be particularly reluctant or slow to adopt a new
technology which makes their existing infrastructure obsolete. Because the
Internet telephony market is new and evolving, it is difficult to predict
the size of this market or its growth rate. If the Internet telephony
market fails to develop, develops more slowly than we expect or becomes
saturated with competitors, then our business, results of operations and
financial condition will be materially adversely affected.
-27-
<PAGE>
OUR FUTURE SUCCESS DEPENDS UPON THE INCREASED USE OF THE INTERNET
The use of the Internet as a commercial marketplace is at an early
stage of development. Demand and market acceptance for recently introduced
products and services over the Internet are still uncertain. We cannot
predict whether customers will be willing to shift their traditional
activities online. For example, we do not know if people will increase
their usage of online directories or make online purchases. The Internet
may not grow as a viable commercial marketplace for a number of reasons,
including:
* concerns about security;
* Internet network congestion;
* inconsistent quality of service; and
* lack of cost-effective, high-speed access.
If the use of the Internet as a commercial marketplace does not continue to
grow, then our business, results of operations and financial condition will
be materially adversely affected.
OUR SUCCESS DEPENDS, IN PART, ON OUR ABILITY TO KEEP PACE WITH RAPID
TECHNOLOGICAL CHANGE
Our continued success depends, in part, on our ability to keep pace
with rapid technological change, new product development and evolving
industry standards and practices. Technological advancements have allowed
the use of packet-switching technology for the transmission of calls. The
development of voice applications for the Internet is part of a larger
trend of convergence of standard voice and data networks. We believe that
the providers of packet-switching technology will be able to offer quality
communications services at rates that are significantly less than the rates
currently charged for long distance calls. However, our failure to respond
quickly and cost-effectively to these developments would materially
adversely affect our business, results of operations and financial condition.
GOVERNMENTAL REGULATIONS REGARDING THE INTERNET MAY BE ENACTED, WHICH COULD
IMPEDE OUR BUSINESS
To date, governmental regulations have not materially restricted use
of the Internet in our markets. Nevertheless, the FCC has engaged in
substantial regulation of the traditional telephony markets. Accordingly,
the legal and regulatory environment that pertains to the Internet in which
our business would operate is uncertain and may change. Uncertainty
regarding the regulatory environment and new regulations could increase our
costs of doing business and may even prevent us from delivering our
products and services over the Internet. The growth of the Internet may
also be significantly slowed by industry specific or more general
regulation of the Internet. Such regulation could delay growth in demand
for our products and services and limit the growth of our revenue.
-28-
<PAGE>
In addition to new regulations being adopted, existing laws may be
applied to the Internet. New and existing laws may cover issues which include:
* sales and other taxes;
* access charges;
* user privacy;
* pricing controls;
* characteristics and quality of products and services;
* consumer protection;
* cross-border commerce;
* copyright, trademark and patent infringement; and
* other claims based on the nature and content of Internet materials.
WE MAY BE THE VICTIM OF FRAUD OR THEFT OF SERVICE.
From time to time, callers have obtained our services without
rendering payment by unlawfully using our access numbers and personal
identification numbers. At this time, due to our limited operating
history, such instances of theft have been insignificant. Theft of service
is a widespread issue for the telephony market. As Internet telephony
services are more heavily used, theft of service is expected to be a
problem in the Internet telephony market, which will require industry
action to protect consumers. We attempt to manage these theft and fraud
risks through our internal controls and our monitoring and blocking
systems. To date, we have not experienced material losses from the
unauthorized use of access numbers and personal identification numbers.
However, we can provide no assurance that our risk management practices
will be sufficient to protect us in the future from unauthorized
transactions or thefts of services that could materially adversely affect
our business.
-29-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "could," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "intends," "potential"
or "continue" or the negative of such terms or other comparable
terminology. These statements are only predictions. In evaluating these
statements, you should specifically consider various factors, including the
risks outlined within. These factors may cause our actual results to
differ materially from any forward-looking statement.
Although we believe that the expectations reflected in the forward-
looking statements are reasonable, we cannot guarantee future results, our
ability to repay noteholders and other debt, levels of activity,
performance or achievements. Moreover, neither we nor any other person
assume responsibility for the accuracy and completeness of such statements.
We are under no duty to update any of the forward-looking statements after
the date of this report
OVERVIEW
We currently provide long distance services via our Internet Protocol
network in 25 markets throughout the United States, wholesale dedicated and
dial-up internet services in 13 markets and in the past to a very limited
degree, provided traditional long distance. Our current VoIP business
consists primarily of wholesale services marketed to other long distance
carriers and prepaid calling card companies. In 1999, approximately 80% of
our revenue came from our VoIP network and currently all of our revenues
are derived from our IP network . We currently market our services
directly and through agents.
During 1998 we began operations in our present form. NVT was a Texas
limited liability company that was formed in December 1997, which was
reincorporated as a Nevada corporation (NVT, Inc.) and then reorganized as
a wholly-owned subsidiary of the Company, which prior to the merger was an
inactive public company. In September of 1998 our first VoIP gateway was
installed in Dallas, Texas. The initial focus was to build out our Texas
network and move into other areas of the United States. Accordingly,
during 1999, we continued to expand our domestic network with the greatest
amount of traffic terminating or originating in Jacksonville, Tampa,
Portland and Dallas. We currently have our VoIP network operational in 6
cities in Texas and a total of 25 markets throughout the U.S.
The Company is the successor company to NetVoice Technologies, LLC, a
Texas limited liability company that began operations on January 7, 1998.
NetVoice Technologies, LLC was formed for the purpose of developing,
acquiring and operating telephone communication facilities and networks
that were intended to transmit voice over the Internet utilizing
conventional and Internet technologies. NetVoice Technologies, LLC was
reincorporated in Nevada on June 30, 1998, as NetVoice Technologies, Inc.
On August 13, 1998, the Company ("legal acquirer") concluded a
reorganization agreement with NVT, Inc. ("accounting acquirer"). Pursuant
to the reorganization agreement,
-30-
<PAGE>
the Company issued 6,000,000 shares of our common stock to the six
shareholders, in exchange for all of the outstanding shares of common stock
of NVT, Inc. As a result of concluding the reorganization agreement, NVT,
Inc. became a wholly-owned subsidiary of the Company, and the six former
shareholders of NVT, Inc. became the holders of approximately seventy five
percent (75%) of our outstanding shares of common stock. The remaining 25%
of the shares not exchanged were owned by various non-affiliated
shareholders who may have resold their shares into the open market since
the reorganization. The value of assets that NVT, Inc. ("accounting
acquirer") acquired as a result of the reorganization with the Company was
negligible because the Company was an inactive shell at the time of the
reorganization. There was no prior affiliation between the parties. See
"Principal Shareholders" and "Certain Transactions."
NetLD.com, Inc. was incorporated in the State of Nevada as a wholly-
owned subsidiary of the Company on October 14, 1999. This corporation was
initially formed for the purpose of conducting the traditional long
distance telephone services of the Company. Currently, we have had no
activity in this subsidiary and it is not anticipated traditional long
distance will be pursued as part of our business model. We may disband
this entity or use it for other corporate purposes as yet to be determined,
and in December 1999, we closed an Agreement to dispose of our long
distance bases for $175,000. We currently have had no activity in this
subsidiary. See "Management's Discussion and Analysis - Financing Sources"
and "Certain Relationships and Related Transactions" for a more detailed
description of the transaction.
FINANCING SOURCES
In February 2000, we entered into a letter of agreement with Cisco
Systems Capital Corporation ("Cisco") that provides $28 million in funding.
This is only a letter of interest and not a definitive Agreement. At this
time the funding is contingent and if obtained will be used primarily to
fund equipment purchases in order to expand our network. The funding, in
the form of a loan, is to be used for equipment purchases from Cisco, soft
costs to install that equipment and for working capital. The Company will
receive the funding from Cisco over a period of 5 years and will be
required to repay the principal plus interest at an adjustable rate.
The agreement gives Cisco warrants to purchase shares of the Company's Common
Stock. The warrants will be exercisable for 5 years from the date of issuance.
In February 2000, we sold to all accredited investors 1,200,000 shares
of our Common Stock through a Private Placement Memorandum for $5.1
million. The costs of the offering were $20,000 for printing costs and
related fees. The net proceeds will primarily be used for marketing,
network expansion and working capital.
From January 1999 through April 1999, we privately placed 986,500
shares of our Common Stock at $1.00 per share for a total of $986,500. Net
proceeds of the offering after expenses was approximately $960,000.
Expenses of the offering included the payment of fees to broker-dealers
($25,000) and costs of the offering including legal, accounting, printing,
marketing-related expenses, due diligence expenses, travel related
expenses, and preparation and distribution of sales literature. The net
proceeds were primarily used by our subsidiary, NVT,
-31-
<PAGE>
Inc., to repay short-term loans and for working capital ($310,000), provide
marketing funds ($150,000), and to begin the building of our Internet VoIP
telephony network ($500,000).
Since January of 1998 NVT, Inc. has privately issued a series of
promissory notes. These funds were used primarily to continue the build-out
of our VoIP network, which included equipment purchases, and for working
capital. The terms of these notes are nine-months with an interest rate of
13.35%. The notes are secured by revenues from contracts, equipment and a
10% cash reserve. At December 31, 1999 the Company was not in compliance
with the 10% cash reserve. The Company received a waiver from the
paymaster of the Trustee, and as of February 23, 2000 the Company has now
complied with the cash reserve requirement.
At January 31, 2000, we had approximately $4.0 million outstanding in
such notes. During 1999, we repaid $2.5 million together with all accrued
interest due. Approximately $4.0 million falls due throughout the calendar
year 2000. All of the Notes will be due and payable in or before
September, 2000, unless extended for nine (9) months at the option of the
noteholder. At this time, we intend to offer conversion of these notes or
to repay them in accordance with the terms of the notes with proceeds from
existing funds or future public or private offerings. Currently, there
are no conversion rights on behalf of the note holders.
In October 1998 and June 1999, we purchased customer bases and mailing
lists of two long distance resellers. The purchase prices were for cash of
$110,000 and $60,000, respectively. In December of 1999 the Company sold
these bases to an affiliated entity for $175,000 for the forgiveness of a
note to Jim Chambas, a former Director, for $175,000. The Company still
owes the former Director $96,000. The note is non-interest bearing and
the original proceeds were used to fund the working capital of the Company.
The Company recognized a gain on the sale of approximately $80,000.
The Company did not obtain a fairness opinion on the transaction, but
believes that the base was at a fair market price. New management, brought
on in August, determined that these customer bases did not fit well with
our current VoIP network.
As of December 31, 1999, the Company currently has an accumulated
deficit of $6.7 million.
REVENUE FROM OPERATIONS
Currently, all of our revenues are derived from long distance services
sold over our IP network. One of the Company's initial strategies is to
continue to acquire existing customer bases concentrated in specific
geographical areas which complement our current markets and convert them to
our VoIP network. We also anticipate deriving revenues through direct
sales by our existing employees, independent agents and selling through
ISPs to their existing customer base. In the future, in order to
diversify, we plan to introduce a variety of value added services utilizing
our VoIP network including:
* dial-up Internet access;
-32-
<PAGE>
* unified messaging;
* revenue through our browser;
* prepaid calling;
* wholesale internet services; and
* video services.
Revenues from operations for the year ended December 31, 1999 derived
80% from sales to wholesale customers and 20% from sales to our retail
customers. Almost the entire retail base was sold in December 1999 to a
related party as described under "Management Discussions and Analysis of
Operations - Financing Sources". Margins from both wholesale and retail
sales are not currently sufficient to cover our network costs which include
leased bandwidth, connection to the Internet, and local lines within a
local calling area. Expansion of our network and the addition of services
will have to be financed by an increase in traffic and additional
financings. We expect this trend to continue for a period of time as we
continue to concentrate on the expansion of our VoIP network and customer
traffic. In the second quarter of 2000, we plan to offer Internet services
and voice over the same facilities to corporate customers.
The Company will continue to expand its network to handle projected
volume. The Company's cost drops by approximately 30% by converting the
network from a DS-1 level to DS-3 level. This coupled with converging
various products (voice, video, data, internet) over the same network are
the key ingredients to approach profitability. The Company, as it
continues to grow and build network, is not expected to be profitable in
the foreseeable future.
There are little or no seasonal changes in the revenue stream of the
business.
COST STRUCTURE
Our costs and expenses include:
* network costs;
* selling and marketing;
* general and administrative; and
* interest and depreciation.
Network costs primarily consist of costs associated with the routing
and termination of our customers' traffic. The costs include:
* leased bandwidth and connection to the Internet;
-33-
<PAGE>
* leased network equipment;
* local lines used to carry calls to and from our network
locations; and
* our network facilities.
We expect these costs to increase into the future as we further expand
our network in the United States and throughout the world. The majority of
these costs are fixed. The Company will continue to add fixed cost network
in order to continue to grow revenue. The network will have to be expanded
to handle additional volume in excess of 50,000,000 minutes per month.
Sales and marketing expenses include the expenses anticipated to be
associated with acquiring customers, establishing brand recognition,
commissions paid to our sales personnel, advertising costs and customer
referral fees. We expect sales and marketing expenses to increase over time
as we aggressively market our products and services.
During 1998 and 1999, sales and marketing expenses were relatively
fixed costs. Sales and marketing expenses are expected to increase both in
terms of absolute dollars and as a percentage of revenue as our revenue
grows. We expect to spend significant capital to build brand recognition to
the extent possible due to our relatively small size. Much of our sales
and marketing expenses are anticipated to be expanded to obtain strategic
relationships with a variety of agents, portals, content providers, and
other key customer destinations on the Web.
General and administrative expenses consist of the salaries of our
employees and associated benefits, and the cost of travel, business
entertainment, rent and utilities. A large portion of our general and
administrative expenses is allocated to operations and customer support.
Customer support expenses include the costs associated with customer
service and technical support, and consist primarily of the salaries and
employment costs of the employees responsible for those efforts. We expect
operations and customer support expenses to increase over time to support
new and existing customers. We expect general and administrative costs to
increase to support our growth, particularly as we establish a larger
organization to implement our business plan. Historically, we have included
our development and start-up costs, comprised primarily of payroll expenses
for our technical team of engineers and developers, in general and
administrative expenses. We plan to incur additional costs for research
and development, though they are not expected to increase as a percentage
of revenue. Over time, we expect these relatively fixed general and
administrative expenses to decrease as a percentage of revenue, primarily
as a consequence of increased revenues.
Interest consists of the cost incurred including commission
(recognized over the life of the notes) on the issuance of the short-term
notes and interest on the notes. The notes have a term of nine-months with
an interest rate of 13.35%. During the fiscal years 1998 and 1999, we had
net interest expense in the aggregate amount of $369,000 and $675,000,
respectively. Interest payable on the Notes in 2000 will be approximately
$445,000, assuming the Notes are repaid in full on their respective due
dates, and not extended by the option of the several payees for nine (9) months.
-34-
<PAGE>
Depreciation primarily relates to our hardware infrastructure. We
depreciate our infrastructure over its estimated five-year useful life
using the straight-line method. In addition, we will be adding more
originating and terminating VoIP Gateways as traffic volumes justify. We
expect depreciation to increase in absolute terms as we grow our networks
to support new and acquired customers, but to decrease as a percentage of
total revenue. In February of 2000, we have entered into a letter of
interest with Cisco for $28 million in funding with the majority to be used
for equipment purchases over the next two years. See "Management's
Discussion and analysis or Plan of Operation - Financing Sources" for a
more detailed discussion of the letter of interest.
RESULTS OF OPERATIONS -
Subsequent to the issuance of the Company's 1998 financial statements
for the period from January 7, 1998 (date of inception) to December 31,
1998, management determined that it should restate its fiscal 1998
financial statements and related disclosures to reflect misclassification
of operating leases as capital leases. The balance sheet at December 31,
1998, reflects the assets and liabilities related to the capital leases.
This restatement does not change the Company's net loss or loss per share.
See "Consolidated Financial Statements - Note 12" for the balance sheet
effect of the restatement.
-35-
<PAGE>
===========================================================================
Period from
Year January 7, 1998
Ending (date of inception)
December 31, to December 31,
1999 1998, as restated
===========================================================================
Revenues $ 1,212,363 $ 120,737
----------- -----------
Expenses:
Direct Costs 2,043,399 252,194
General and Admin. Expenses 3,412,473 983,549
----------- -----------
Total Expenses 5,455,872 1,235,743
----------- -----------
Net Operating Loss (4,243,509) (1,115,006)
----------- -----------
Other Income (Expenses):
Net Interest (675,195) (368,561)
Gain (Loss) on Investment (31,518) (239,800)
----------- -----------
Total Other Expenses (706,713) (608,361)
----------- -----------
Net Loss $(4,950,222) $(1,723,367)
=========== ===========
===========================================================================
COMPARISON OF YEAR ENDED DECEMBER 31, 1999 TO THE PERIOD FROM JANUARY 7,
1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
Revenue increased from $120,737 for the period ending December 31,
1998 to $1,212,363 for the year ending December 31, 1999. The increase is
a result of our business moving from the start-up phase into an operational
entity. Of revenue generated in 1999, revenue from wholesale sales over
our VoIP network accounted for 80%. Additionally, as we expanded our
network, we had more locations to offer existing customers. We expect our
wholesale revenue to continue to grow, as we continue to expand our network
into additional locations. Currently, we are expanding our "points of
presence" in major markets to handle DS-3 traffic and above. The focus on
the wholesale revenue is expected to give us the ability to grow our
network and eventually begin to offer more on net locations when we enter
the retail sector. This retail sector will primarily consist of corporate
customers and various target and niche markets.
To date all of our revenue has been earned in our voice telephony
business. However, in November of 1999, we entered into several
contractual agreements to provide Internet services over our network. See
"Overview" and "Product and Services" section for a more detailed
-36-
<PAGE>
explanation of these services. We expect to continue to offer other value-
added services utilizing our network in the future.
Total direct costs increased from $252,194 to $2,043,399 for the
period ending December 31, 1998 and for the year ending December 31, 1999,
respectively. The increase of costs in the year ending December 31, 1999
over the period ending December 31, 1998 is a result of our business moving
from the start-up phase into an operational entity. As we expand our
network to DS-3 level service in each of our major markets, we expect
network cost to increase by $50,000 per month. We have continued to
purchase additional equipment to expand our VoIP network and direct costs
have increased as a result. As we implement several of the new wholesale
contracts, in the first quarter of fiscal year 2000, direct costs as a
percentage of revenue are expected to decrease with J.D. Services, Inc.,
IDS Long Distance, Inc., Caprock Communication and General Communication
Corporation.
General and Administrative costs increased from $983,549 to $3,412,473
for the period ending December 31, 1998 and for the year ending December 31,
1999, respectively. As we continue to grow our network, expand our
product offering and execute our business plan, we expect these expenses to
continue to grow. The primary reason for this increase is the expense for
marketing and costs of additional personnel. Also, the Company has hired
several key individuals since August 1999 and incurred stock compensation
expense in the amount of approximately $1,237,000 as a result. They will
grow as a percentage of revenue for a period, until all necessary personnel
and systems are in place to handle future revenue and support future
products. Thereafter, we anticipate that general and administrative costs
will decrease as a proportion of revenues.
Depreciation and Amortization costs increased from $36,627 to $167,668
for the period ending December 31, 1998 and for the year ending December 31,
1999, respectively. It is anticipated depreciation for currently owned
equipment in 2000 will be $200,000. Depreciation consists primarily of the
depreciation of our VoIP gateways. We depreciate this network equipment
over five years on a straight-line basis. It can be expected that
depreciation will continue to increase as we continue to expand our
network. Amortization consists of the amortization of the cost of two
customer bases. In December of 1999, we sold these two bases to an
affiliated company for forgiveness of a note and cash. We intend to
acquire customer bases in the future that have synergies with our network
and business plan. These synergies include profitability, location and
type of customer.
Net Interest expense increased from $368,561 to $675,195 for the
period ending December 31, 1998 and for the year ending December 31, 1999,
respectively. This increase is the result of the increase in the issuance
of short-term notes, the commissions paid to broker-dealers for the sale of
these notes and the cost of our financing for capital equipment.
Gain (Loss) on Investment changed from $(239,800) to $(31,518) for the
period ending December 31, 1998 and for the year ending December 31, 1999,
respectively. In 1998 we incurred a loss of $239,800 of a write-down of an
investment in Mezzanine Capital to $200. In 1999, these costs represent a
loss of $31,518 incurred with a potential acquisition. We expect these
gains (losses) to vary based on changes in the Company's business.
-37-
<PAGE>
Our Net Loss increased from $(1,723,367) to $(4,950,22) for the period
ending December 31, 1998 and for the year ending December 31, 1999,
respectively. This increase is due primarily to the continued expansion of
our network and an increase in personnel and overhead. We expect continued
and increasing losses as we continue to pursue our growth strategy.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception in January of 1998, we have financed our
operations through a series of private placements of our Common Stock for
$960,000 in net proceeds, and from the sale of $5.4 million, nine-month
notes beginning in January 1998 through December 1999. As of December 31,
1999, we have a total of $3.7 million outstanding in these notes. In
February of 2000 we completed a private placement from the sale of
1,200,000 shares of our restricted common stock for $5.1 million. Most of
our equipment has been leased with our equipment vendors primarily through
Cisco Systems, Inc.
As of December 31, 1999 we had approximately $20,000 in cash and cash
equivalents. Our operating activities generated negative cash flow of
approximately $2,840,000 for the year ending December 31, 1999, compared to
negative cash flow of approximately $1,146,000, for the period ending
December 31, 1998. Cash used in investing activities was approximately
$330,000 and $691,000 for the year ending December 31, 1999 and the period
ending December 31, 1998, respectively. Our cash used in investing
activities was principally for the purchase of telecommunications and
Internet equipment. Our financing activities generated cash of
approximately $3,182,000 and $1,844,000 for the year ending December 31,
1999 and the period ending December 31, 1998, respectively. The principal
reason for the cash generated was a result of additional funding from the
sale of notes and a common stock offering in 1999.
Our future capital requirements will depend on numerous factors, including:
* market acceptance of our services;
* brand promotions;
* the amount of resources we devote to the development of our
current and future products; and
* the expansion of our in-house sales force and marketing our services.
We may experience a substantial increase in our capital expenditures
and lease arrangements consistent with the growth in our operations and
adding additional Personnel. Our current cash flow from operations is not
sufficient to meet our working capital and capital expenditure needs for at
least the next 12 months and accordingly, we have obtained and will
continue to seek additional financing. Accordingly, there can be no
assurance that we will have sufficient capital to finance potential
acquisitions or other growth oriented activities, and may issue additional
equity securities, incur debt or obtain other financing.
-38-
<PAGE>
In 1998 and 1999, we entered into various contracts for the purchase
of network facilities. Our currently outstanding network costs will
require us to expend approximately $220,000 per month in 2000, but we
expect to increase network costs as we continue to expand.
Additional commitments for the year 2000 are as follows:
* repayment of indebtedness on the nine-month notes in the
aggregated amount of $3.7 million;
* leases on existing corporate offices, equipment and network
facilities in the aggregate amount of $105,000;
* leases on new corporate offices in the aggregate amount of $72,000;
* operating leases on existing equipment in the aggregate amount of
$436,000;
* operating leases on new equipment purchased in January 2000 of
$372,000; and
* network expenditures in the aggregate amount of $2,600,000.
The Company expects to fund these year 2000 commitments from cash from
operations and from the funds raised in future private and public
offerings. As of December 31, 1999, our working capital deficit is $5.1
million.
In February 2000, the Company sold 1,200,000 shares of its Common
Stock at $4.25 to 79 investors for a total of $5,100,000. The shares of
Common Stock issued by the Company in connection with this offering are
deemed "restricted securities" within the meaning of that term as defined
in Rule 144 of the Securities Act of 1933, as amended ("Act") and were
issued pursuant to certain "private placement" exemptions under Section
4(2) and Rule 506 of Regulation D of the Act, as promulgated by the
Securities and Exchange Commission.
In March of 2000 the Company entered into a letter of interest with
Cisco Systems, Inc. for $28 million of financing. This is only a letter of
interest and not a definitive Agreement. The funding would be used for the
purchase of equipment and working capital and amortized over 5 years.
The Company has no material capital commitments.
COMMITMENTS AND CONTINGENCIES
We have entered into various Agreements with Service Providers, on an
order by order basis, to lease bandwidth, purchase dedicated Internet
access, lease local lines, and to rent space to locate our network
equipment. These service orders range in term from month to month to five
year agreements. Below is a schedule that details the significant terms of
these commitments:
-39-
<PAGE>
MONTHLY
PAYMENTS TERM CANCELLATION PENALTY INITIAL ORDER
-------- ---- -------------------- -------------
Sprint(TM) $45,000 3 yr. 100% of year 1; 50% of October 1998
Commercial Year 2; 50% of year 3
Global $35,000 2 yr. $25,000 per month August 1999
Crossing commitment
E.Spire $35,000 1-3 yr. Commitment for the total August 1998
period for value of orders
Cox $9,000 5 yr. Commitment for full January 1999
amount for entire period
Electric $21,000 1 yr. Commitment for full July 1999
Lightwave amount for the entire period
MCI $11,000 1 yr. Commitment for 50% of Sept 1999
WorldCom the remaining due
Level 3 $40,000 1 yr. Commitment for total August 1999
Communications, Inc. amount for the full term
Caprock $5,000 1 yr. Take or Pay Commitment July 1999
Communications
In December of 1999, we terminated services with Sprint because of
continual network failure. Management believes because of the quality of
service with Sprint that we will be able to cancel the existing contracts.
We are currently trying to negotiate a final settlement. We are in good
standing with respect to all of our other commitments.
ITEM 3. DESCRIPTION OF PROPERTY.
Our address is 13747 Montfort Drive, Suite 250, Dallas, Texas 75240.
The Company's telephone number is (972) 788-2988. The Company leases
approximately 5,640 square feet at $8,695 per month for a period of three
(3) years which will expire March 31, 2001. The Company believes this
space is adequate for its current needs.
At each of our points of presence we co-located with other competitive
local exchange carriers or other telecommunications providers for rack
space for our Cisco gateways. We typically enter into one (1) year lease
agreements which range from $450 to $700 per month per rack.
-40-
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the
beneficial ownership of our outstanding Common Stock as of March 20, 2000
and as adjusted to reflect this offering by:
* each person who is the beneficial owner of more than 5% of our
common stock;
* each of our Directors;
* each of our named Executive Officers in the summary compensation
table;
* all of our named Executive Officers and Directors as a group.
<TABLE>
<CAPTION>
Amount and Nature of
Name and Address of Shareholder Beneficial Ownership(1) Percent of Class
- ------------------------------- -------------------- ----------------
<S> <C> <C>
William Bedri(2) 1,400,000 6.00%
13747 Montfort Dr., Suite 250
Dallas, Texas 75240
Jeff Rothell(3) 600,000 4.50%
13747 Montfort Dr., Suite 250
Dallas, Texas 75240
Garth Cook(4) 600,000 4.50%
13747 Montfort Dr., Suite 250
Dallas, Texas 75240
Maya Crothers(5) 120,000 0.90%
13747 Montfort Dr., Suite 250
Dallas, Texas 75240
Dave McEvilly 100,000 0.70%
13747 Montfort Dr., Suite 250
Dallas, Texas 75240
Ron Howard 900,000 6.70%
13747 Montfort Dr., Suite 250
Dallas, Texas 75240
-41-
<PAGE>
William D. Yotty(6) 3,810,000 23.9%
13747 Montfort Dr., Suite 250
Dallas, Texas 75240
Jim Chambas(7) 1,700,000 8.20%
13747 Montfort Dr., Suite 250
Dallas, TX 75240
All Officers and Directors as a 2,600,000 14.90%
group (3 persons)
</TABLE>
________________________
(1) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
1934. Unless otherwise stated below, each such person has sole voting
and investment power with respect to all such shares. Under Rule 13d-
3(d), shares not outstanding which are subject to options, warrants,
rights or conversion privileges exercisable within 60 days are deemed
outstanding for the purpose of calculating the number and percentage
owned by such person, but are not deemed outstanding for the purpose
of calculating the percentage owned by each other person listed.
(2) Mr. Bedri is the beneficial owner of options to purchase 600,000
shares of Common Stock.
(3) Mr. Rothell may be deemed the beneficial owner of 600,000 shares of
Common Stock although pursuant to his employment agreement he receives
his shares over the next year and a half.
(4) Mr. Cook may be deemed the beneficial owner of 600,000 shares of
Common Stock although pursuant to his employment agreement he receives
his shares over the next year and a half.
(5) Ms. Crothers may be deemed the beneficial owner of 120,000 shares of
Common Stock.
(6) Mr. Yotty, a former Director, is the beneficial owner of options to
purchase 600,000 shares of Common Stock.
(7) Mr. Chambas, a former Director, is the beneficial owner of options to
purchase 600,000 shares of Common Stock.
CHANGES IN CONTROL
There are no understandings, arrangements or agreements known by
management at this time which would result in a change in control of the
Company.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The following persons are our Executive Officers and Directors:
Name Age Position
- ---- --- --------
William Bedri 60 Director and Secretary
Jeff Rothell 37 President, Chief Executive Officer and Director
Garth Cook 34 Chief Financial Officer, Treasurer and Director
Maya Crothers 32 Director of Business Development of NVT
Dave McEvilly 38 Vice-President of Information Technology of NVT
-42-
<PAGE>
WILLIAM BEDRI, DIRECTOR, SECRETARY Mr. Bedri has been a Director of
the Company since August 13, 1998 and the Secretary since January 2000.
Mr. Bedri has 25 years of experience in sales and marketing management in
the telecommunications and computer industries. From January 1995 to August
1998, Mr. Bedri was with Brooks Fiber Communication as Director of National
Accounts for Resale Services in their Western Region. From 1988 to 1995,
Mr. Bedri was with ComSystems as Branch Manager of the Los Angeles and San
Fernando Valley offices. In 1984, Mr. Bedri was with Digital Computer
Graphic (DCG) as partner and Vice President of Sales and Marketing. DCG
sold graphic design computers to the architectural and building industries
in the United States. Mr. Bedri spent 10 years with Western Union in
marketing and sales management for Telex and TWX services. Mr. Bedri
received a Bachelor of Science Degree from Rutgers University in 1976. Mr.
Bedri holds 800,000 shares of Common Stock and options to acquire 600,000
additional shares. Mr. Bedri devotes approximately 50% of his time to the
Company.
JEFFREY ROTHELL, PRESIDENT, CEO AND DIRECTOR Mr. Rothell has been
NVT's President and the Chief Executive Officer since August 1, 1999 and
the Company's President since January 2000 and a Director since March 2000.
Mr. Rothell has 15 years of operations and marketing experience in
telecommunications companies. From 1989 to 1997, Mr. Rothell served as
president of Security Telecom Corp. (a $20 million corporation). In 1997 he
partnered in the sale of Security Telecom to Evercom Inc., which became the
largest inmate telephone provider in the United States with $225 million in
annual revenue in 1998, retaining Security Telecom as the corporate hub for
a venture capital roll-up of the correctional institution
telecommunications business. Mr. Rothell's experience encompasses
planning, design, development and management, operations management,
operational integration of merger & acquisitions, sales and marketing,
product management and software design and development. Several of the
companies to which Mr. Rothell is an affiliate may also compete with the
Company now, or in the future, in the Internet telephony business. Mr.
Rothell holds 600,000 shares of Common Stock and no options to acquire any
additional shares. Mr. Rothell devotes 100% of his time to the Company.
GARTH COOK, CFO, TREASURER AND DIRECTOR Mr. Cook has been the Chief
Financial Officer and Treasurer since August 1, 1999 and a Director since
March 2000. Mr. Cook is a Certified Public Accountant with separate
bachelor's degrees in finance and accounting from University of New
Orleans, awarded in 1988. He previously worked for Deloitte and Touche LLP
where he specialized in the audits of publicly traded companies. In 1993,
he left Deloitte and Touche to become regional controller for Chemfix
Technologies Inc. where he was responsible for the completion of public
filings and budgets. In 1994, Cook joined the telecommunications industry
as CFO of a company focusing on international arbitrage and prepaid calling
services which was sold in 1998. He has extensive experience in the
telecommunications industry from financial, sales and operational
perspectives, and extensive experience in the public markets. Several of
the companies to which Mr. Cook is an affiliate may also compete with the
Company now, or in the future, in the Internet telephony business. Mr.
Cook beneficially owns 600,000 shares of Common Stock and no options. Mr.
Cook devotes 100% of his time to the Company.
MAYA CROTHERS, VICE PRESIDENT OF MARKETING AND DIRECTOR OF BUSINESS
Development of NVT Ms. Crothers has been Director of Business Development
of our subsidiary NVT since August 15, 1999. Ms. Crothers earned her
undergraduate degree in Mechanical Engineering and
-43-
<PAGE>
International Studies from the University of Michigan and went on to join
Westinghouse Electric's Power Generation Business Unit. In 1993 she became
the Regional Sales Engineer for the Houston office where she negotiated
over $100 million in power equipment sales and was awarded the Westinghouse
Market Leader Award for Sales & Marketing efforts. She completed her
masters in business administration at the Wharton Business School in 1996,
when she began work as a consultant to Bain & Company until becoming a full
time employee of the Company. Ms. Crothers has experience in several
industries and a variety of initiatives including marketing and sales
strategies, engineering and process design, acquisition feasibility, and
due diligence, complexity reduction, customer loyalty and supplier
management. Several of the companies to which Ms. Crothers is an affiliate
may also compete with the Company now, or in the future, in the Internet
telephony business. Ms. Crothers holds 120,000 shares of Common Stock and
no options to acquire additional shares.
DAVE MCEVILLY, VICE-PRESIDENT OF INFORMATION TECHNOLOGY OF NVT. Mr.
McEvilly has been Vice-President of Information Technology of our
subsidiary NVT since August 15, 1999. Mr. McEvilly has numerous
certificates in Computer Science and has an extensive background in network
and data. From 1989-1991, Mr. McEvilly served as the Software
Configuration Manager for Intellicall's Vending Department where he oversaw
all service installation and support and configuration management for call
routing and billing. In 1991, he became the Director of Software for ATMC.
In 1993 Mr. McEvilly joined Security Telecom as Director of Information
Services to develop the LEMS (Law Enforcement Management Systems) product
and was responsible for product development, video imaging and digital
solutions for the Corrections Industry. In 1997, when Security Telcom was
purchased by Evercom, Inc., Mr. McEvilly was responsible for all corporate
infrastructure, WAN connectivity, data management, application and
development management for back office systems, integrating technologies
across 14 acquisitions and management of 150 local areas of LEMS. Several
of the companies to which Mr. McEvilly is an affiliate may also compete
with the Company now, or in the future, in the Internet telephony business.
Mr. McEvilly holds 100,000 shares of Common Stock and no options to acquire
additional shares.
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
Our Articles of Incorporation, as amended, provide that the number of
members of our Board of Directors shall be not less than one and not more
than nine. Our current number of Directors is three. At each annual
meeting of stockholders, all Directors' terms expire and successors are
elected to hold office for a term of one year, until their respective
successors are elected and qualified. All of our Directors are up for
re-election at our Annual Meeting. All of the officers of the Company serve
at the discretion of our Board of Directors.
We intend to establish an audit committee, a compensation committee
and a technology committee. It is anticipated the initial members will be
Messrs. Bedri and Cook. The audit committee will be initially composed of
Mr. Rothell, assisted by Mr. Garth Cook, our Chief Financial Officer, and
the members of the technology committee will be Messrs. Bedri, Jeff Rothell
and David McEvilly. The audit committee will oversee the retention,
performance and compensation of the independent public accountants, and the
establishment and oversight of such systems of internal accounting and
auditing control as it deems appropriate. The compensation
-44-
<PAGE>
committee will review and approve the compensation of our executive
officers, including payment of salaries, bonuses and incentive
compensation, determine our compensation policies and programs, and
administer our stock option plans. The technology committee will review
and evaluate current technology as it relates to the Company's business.
We anticipate that we will add two additional independent members to our
Board and the committees during the upcoming fiscal year.
RESIGNATION OF DIRECTORS
On March 13, 2000, the Company was notified that the state of
Pennsylvania had entered a Cease and Desist Order on December 7, 1999
against William D. Yotty and indirectly against James Chambas as a Director
of Paystar Communications, Inc. The Cease and Desist Order alleged that
these individuals and other were selling unregistered securities in the
state of Pennsylvania and elsewhere. Although Messrs. Yotty and Chambas
intend to vigorously defend this action, they deemed it to be in the best
interests of the Company to resign as Directors of the Company and
discontinue any direct relationship with the Company except as shareholders
as of March 20, 2000.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our Articles of Incorporation contain a provision designed to limit
directors' liability to the extent permitted by the Nevada General
Corporation Law. Specifically, directors will not be held liable to us or
our stockholders for monetary damages for any breach of fiduciary duty as
a director, except for liability as a result of:
* any breach of the duty of loyalty to us or our stockholders;
* actions or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
* payment of an improper dividend or improper repurchase of our
stock under the Nevada General Corporation law; or
* actions or omissions pursuant to which the director received an
improper personal benefit.
The principal effect of the limitation of liability provision is that
a stockholder is unable to prosecute an action for monetary damages against
a director of ours, unless the stockholder can demonstrate one of the
specified bases for liability. The provision, however, does not eliminate
or limit director liability arising in connection with causes of action
brought under the federal or state securities laws. Further, the articles
of incorporation do not eliminate a director's duty of care. The inclusion
of this provision in the certificate of incorporation may discourage or
deter stockholders or management from bringing a lawsuit against directors
for a breach of their fiduciary duties, even though such an action, if
successful, might otherwise have benefited us and our stockholders. This
provision should not affect the availability of equitable remedies such as
injunction or rescission based upon a director's breach of the duties of care.
-45-
<PAGE>
The bylaws also provide that we will indemnify our directors and
officers, and may indemnify any of our employees and agents, to the fullest
extent permitted by Nevada law. We are generally required to indemnify our
directors and officers for all judgments, fines, penalties, settlements,
legal fees and other expenses incurred in connection with pending,
threatened or completed legal proceedings because of the director's or
officer's position with us or another entity that the director or officer
serves at our request, subject to certain conditions, and to advance funds
to its directors and officers to enable them to defend against such
proceedings. The Board of Directors must affirmatively vote to invoke the
indemnification of an officer or director, but the bylaw provisions may
constitute a custodial obligation of the Company regardless of such vote.
Currently, the Company has no insurance to fund its indemnification obligation.
At present, there is no pending or threatened litigation or proceeding
involving any Director or Officer, employee or agent of ours where such
indemnification will be required or permitted.
ITEM 6. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding compensation paid
to our Chief Executive Officer and those other individuals who serve as
executive officers at the end of fiscal 1999 who earned in excess of
$100,000 as compensation for services rendered on our behalf.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation Awards
--------------------------------------------------------------
Name Restricted All
And Stock Options/ Other
Principal Salary Bonus Award(s) SARs Compensation
Position Year(1) ($) ($) ($) (#) ($)(2)
- -------- ------ ------- ----- ------- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey W. Rothell, 1999 $78,000 $ 0 $50,000 -0- $1,200
President and Chief 1998 $ 0 $ 0 -0- -0- $ 0
Executive Officer 1997 $ 0 $ 0 -0- -0- $ 0
Garth Cook, 1999 $78,000 $ 0 $50,000 -0- $1,200
Chief Financial 1998 $ 0 $ 0 -0- -0- $ 0
Officer 1997 $ 0 $ 0 -0- -0- $ 0
</TABLE>
________________________
(1) Messrs. Rothell and Cook commenced their employment in August 1999.
Pursuant to their employment agreements each received 600,000 shares
of Common Stock valued at $1.00 per share. Initially, they received
100,000 shares valued at $.50 with the remainder vesting over the next
year through January 1, 2001.
(2) The Company pays Messrs. Rothell and Cook's health insurance of
approximately $100 per month.
(3) No other Company executive officer will earn in excess of $100,000,
considering all forms of compensation, in the upcoming fiscal year
ending December 31, 2000.
-46-
<PAGE>
STOCK OPTIONS
OPTIONS GRANTED
The following table sets forth the options that have been granted to
those persons listed in the Summary Compensation Table as of December 31, 1999.
Option/SAR Grants
-----------------
Individual Grants
- --------------------------------------------------------------------------
(a) (b) (c) (d) (e)
% of Total
Options/ Options/SARs Exercise
SARs Granted to or Base
Granted Employees Price Expiration
Name (#) in Fiscal Year ($/Share) Date
---- ------- -------------- -------- ----
Jeffrey W. Rothell 0 0% $0 0
Garth Cook 0 0% $0 0
______________________________
COMPENSATION OF DIRECTORS
The Company had no arrangements pursuant to which any director of the
Company was compensated during the year ended December 31, 1999, for
services as a Director. All Directors are reimbursed for reasonable
expenses incurred in connection with their attendance at Board meetings.
Members of the Board of Directors have been granted options and have
received shares of our Common Stock as described elsewhere.
EMPLOYMENT CONTRACTS
In August 1999, the Company entered into one (1) year employment
agreements with Mr. Jeffrey Rothell, our President and Chief Executive
Officer and Mr. Garth Cook, our Chief Financial Officer and Treasurer.
Each individual receives $78,000 per year in salary. In addition, each
received 100,000 shares of Common Stock upon signing of their agreements
and will each receive an additional 350,000 shares of Common Stock on
January 1, 2000 with three (3) quarterly bonuses of 50,000 shares in March
2000, June 2000 and January 2001. The Company also pays each individual's
health insurance.
-47-
<PAGE>
STOCK OPTIONS
DIRECTOR OPTIONS
In January 1999, our Board of Directors issued to Mr. Bedri 600,000
options to purchase our Common Stock exercisable at $1.00 per share. All
currently outstanding options are exercisable for five years. At that
time, two former Directors also each received 600,000 options to purchase
Common Stock exercisable at $1.00 per share.
2000 STOCK OPTION PLAN
On January 20, 2000, we adopted the 2000 Stock Plan (the "Plan") which
provides the issuance of options to purchase up to 2,000,000 shares of
Common Stock to our employees, officers, directors and consultants. The
Plan is subject to shareholder approval at our Annual Meeting of
Shareholders on May 19, 2000. As of March 23, 2000, 700,000 options have
been awarded to our employees which vest over the next five years. Unless
sooner terminated, the Plan will expire on January 20, 2010.
The purpose of the Plan is to encourage stock ownership by our
employees, officers, directors and consultants so that they may acquire or
increase their proprietary interest in the Company, to (i) induce qualified
persons to become our employees, officers or consultants; (ii) compensate
our employees officers, directors and consultants for past services to the
Company; and (iii) encourage such persons to become employed by or remain
in the employ of or otherwise continue their association with the Company
and to put forth maximum efforts for the success of our business.
The Plan states that it is not intended to be the exclusive means by
which the Company may issue options or warrants to acquire its Common
Stock, stock awards or any other type of award. To the extent permitted by
applicable law, we may issue any other options, warrants or awards other
than pursuant to the Plan without shareholder approval.
The Plan is administered by a Committee consisting of not less than
two members of the Board of Directors. At its discretion, the Committee
may determine the persons to whom options may be granted and the terms thereof.
The terms of any options granted under the Plan are not required to be
identical as long as they are not inconsistent with the express provisions
of the Plan. In addition, the Committee may interpret the Plan and may
adopt, amend and rescind rules and regulations for the administration of
the Plan.
Options may be granted as incentive stock options ("Incentive
Options") intended to qualify for special treatment under the Internal
Revenue Code of 1986, as amended (the "Code"), or as non-qualified stock
options ("Non-Qualified Options") which are not intended to so qualify.
Only employees of the Company are eligible to receive Incentive Options.
The period during which options may be exercised may not exceed ten years.
The exercise price for Incentive Options may not be less than 100% of the
fair market value of the Common Stock on the date of grant; except that the
exercise price for Incentive Options granted to persons owning more than
10% of the total combined voting power of the Common Stock may not be less
than 110% of the fair market value of the Common Stock on the date of
-48-
<PAGE>
grant and may not be exercisable for more than 5 years. The exercise price
for Non-Qualified Options may not be less than 85% of the fair market value
of the Common Stock on the date of grant. The Plan defines "fair market
value" as the value of the stock on a given date as determined by the
Committee in accordance with the Treasury department regulations applicable
to "incentive stock options" within the meaning of Section 422 of the Code.
The Plan contains provisions for proportionate adjustment of the
number of shares issuable upon the exercise of outstanding options and the
exercise price per share in the event of stock dividends, recapitalization
resulting in stock splits or combinations or exchange of shares.
If the Company is subject to a Change in Control as a result of its
sale, transfer or other disposition of all or substantially all of its
assets, the Company may elect to cancel all outstanding Options, pursuant
to 15 days notice, upon consummation of the sale, transfer or other
disposition. If the Company merges or consolidates with another
corporation, whether or not the Company is the surviving corporation,
outstanding Options shall be subject to the agreement of merger or
consolidation which without participant's consent may provide for: (i) the
continuation of outstanding Options by the Company (if it is the surviving
corporation), (ii) the assumption of the Plan and outstanding Options by
the surviving corporation or its parent, (iii) the substitution by the
surviving corporation or its parent of options with substantially the same
terms for the outstanding Options, or (iv) if a change in control is
involved, the termination of the outstanding Options as described above.
Except as otherwise provided under the Plan, an option may not be
exercised unless the recipient then is an employee, officer or director of
or consultant to the Company, and unless the recipient has remained
continuously as an employee, officer or director of or consultant to the
Company since the grant of the option.
If an optionholder ceases to be an employee, officer or director of,
or consultant to the Company (other than by reason of death or permanent
disability), other than for cause, the holder may exercise any options or
Stock Appreciation Rights ("SARs") that are vested but unexercised on the
date his or her service is terminated until earlier of (i) 30 days after
the date of termination of service, or (ii) the expiration date of the
options or SARs. However, termination of employment at any time for cause
immediately terminates all options or SARs held by the terminated employee.
If termination is by reason of disability, however, the holder may exercise
his or her options or SARs until the earlier of (i) 12 months after the
termination of service, or (ii) the expiration of the term of the option or
SAR. If the holder dies while in service to the Company, the holder's
estate or successor by bequest or inheritance may exercise any options or
SARs that the holder was entitled to exercise on the date of his or her
death at any time until the earlier of (i) the period ending one year after
the holder's death, or (ii) the expiration of the term of the option or SAR.
Options granted under the Plan are not transferable other than by will
or by the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the
-49-
<PAGE>
Code or Title I of the Employee Retirement Income Security Act of 1974, or
the rules thereunder. Options may be exercised, during the lifetime of the
recipient, only by the recipient and thereafter only by his legal
representative.
The Board of Directors may suspend, terminate, modify or amend the
Plan but no amendment, modification, extension, assumption, cancellation or
discontinuation shall be made (except those specifically permitted under
other provisions of the Plan) (I) which would impair the rights of an
optionee or participant under a Stock Option theretofore granted or which
would cause an optionee's or participant's existing Incentive Stock Option
to no longer qualify as an Incentive Stock Option, without the optionee's
or participant's consent, or (ii) which, without approval of the
shareholders of the Company, would cause the Plan to no longer comply with
(A) the rules promulgated by the Securities and Exchange Commission under
authority granted in Section 16 of the Securities Exchange Act of 1934, as
amended, if the Company is then a Reporting Company, (B) Section 422 of the
Code or (C) any other statutory or regulatory requirements.
SARs will entitle the recipient to receive a payment equal to the
appreciation in market value of a stated number of shares of Common Stock
from the price on the date the SAR was granted or became effective to the
market value of the Common Stock on the date first exercised or
surrendered. The Committee or the Board may determine such other terms,
conditions or limitations, if any, on any Awards granted pursuant to the Plan.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
We believe that all of the transactions set forth below were made on
an arms-length basis. All future transactions between us and our Officers,
Directors, Principal Stockholders and affiliates will be approved by a
majority of the Board of Directors, including a majority of outside
Directors, and will continue to be on terms no less favorable to us than
could be obtained from unaffiliated.
In August 1998, we entered into a Merger and Plan of Reorganization
with NVT, Inc. wherein we issued 3,000,000 shares of our Common Stock to
Messrs. Bedri, Chambas, Yotty and other shareholders of NVT, Inc. After
the merger, these individuals became Officers and Directors of the Company
and collectively own 2,555,000 shares of Common Stock.
In October 1998, we purchased two (2) long distance customer bases
from Quantum Communications, Inc. a company owned by Mr. William Yotty, one
of our former Directors, for $110,000 and $60,000, respectively. Because
of the geographical location of the customer bases compared to our network,
we sold these bases to Nationwide Hospitality, Inc. ("Nationwide") in
December 1999 for a total of $175,000 for the forgiveness of a note to Jim
Chambas, a former Director, for $175,000. The Company still owes the
former Director $96,000. The note is non-interest bearing and the original
proceeds were used to fund the working capital of the Company. Nationwide
is owned by our former Director Jim Chambas and as such, may be deemed to
be an affiliate. Due to the related nature of this transaction, it may not
be deemed to be as favorable as might be obtained in a non-related transaction.
-50-
<PAGE>
ITEM 8. DESCRIPTION OF SECURITIES.
AUTHORIZED CAPITAL STOCK
Our Articles of Incorporation, as amended, authorize shares of capital
stock consisting of:
* 50,000,000 shares of Preferred Stock, $0.001 par value; and
* 100,000,000 shares of Common Stock, $0.001 par value.
COMMON STOCK
The Company is authorized to issue up to 100,000,000 shares of Common
Stock, $0.001 par value. There are presently 13,416,600 shares of Common
Stock issued and outstanding or reserved to be issued to officers,
directors and employees. Additionally, there are 2,582,000 options to
purchase the Company's common stock at $1 to $18 per share. All shares of
Common Stock have equal voting rights and, when validly issued and
outstanding, have one vote per share in all matters to be voted upon by
shareholders. We believe there are approximately 1,100 holders of record
of the Company's Common Stock.
The shares of Common Stock have no preemptive, subscription,
conversion or redemption rights and may be issued only as fully paid and
non-assessable shares. Cumulative voting in the election of directors is
not allowed, which means that the holders of a majority of the outstanding
shares represented at any meeting at which a quorum is present will be able
to elect all of the directors if they choose to do so and, in such event,
the holders of the remaining shares will not be able to elect any
directors. On liquidation of the Company, each common shareholder is
entitled to receive a pro rata share of the Company's assets available for
distribution to common stockholders.
PREFERRED STOCK
Our Articles of Incorporation provides that we may issue up to
50,000,00 shares of Preferred Stock in one or more series as may be
determined by our Board of Directors who may establish the number of shares
to be included in each such series, fix the designation, powers,
preferences and relative rights of the shares of each such series and any
qualifications, limitations, or restrictions thereof, and increase or
decrease the number of shares of any such series without any vote or action
by the stockholders. The Board of Directors may authorize, without
stockholder approval, the issuance of preferred stock with voting and
conversion rights that could adversely affect the voting power and other
rights of holders of common stock. Preferred Stock could be issued quickly
with terms designated to delay or prevent a change in our control or to
make the removal of management more difficult. This could have the effect
of decreasing the market price of the Common Stock.
-51-
<PAGE>
We believe that the ability of our Board to issue one or more series
of preferred stock will provide us with flexibility in structuring possible
future financings and acquisitions, and in meeting other corporate needs
that might arise. The authorized shares of Preferred Stock, as well as
shares of Common stock, will be available for issuance without action by
our stockholders, unless such action is required by applicable law or the
rules of any stock exchange or automated system on which our securities may
be listed or traded.
The Board could issue a series of preferred stock that could,
depending on the terms of such series, impede the completion of a merger,
tender offer or other takeover attempt. The Board will make any
determination to issue such shares based on its judgment as to our best
interests and the best interests of our stockholders. The Board could
issue preferred stock having terms that could discourage an acquisition
attempt through which an acquirer may be able to change the composition of
the Board, including a tender offer or other transaction that some, or a
majority, of our stockholders might believe to be in their best interests
or in which stockholders might receive a premium for their stock over the
then current market price.
DIVIDEND POLICY
Dividends are payable on Common Stock when, as, and if declared by the
Board of Directors out of funds legally available to pay dividends, subject
to any preferences which may be given to holders of preferred stock. The
Company has paid no cash dividends on its Common Stock to date and it does
not anticipate payment of cash dividends in the foreseeable future.
REPORTS TO SHAREHOLDERS
The Company is a publicly held company which, upon the effectiveness
of the Registration Statement, will file periodic reports, including Annual
Reports containing consolidated financial statements of the Company audited
by independent public accountants, and quarterly reports, which contain
unaudited financial statements, with the Securities and Exchange Commission.
STOCK TRANSFER AGENT AND WARRANT AGENT
The transfer agent for the Company's Common Stock is Interwest
Transfer Company, P.O. Box 17316, Salt Lake City, Utah 84117.
-52-
<PAGE>
PART II
ITEM 1. MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
MARKET INFORMATION
Our Common Stock began trading on the Over the Counter Bulletin Board
beginning in February 1999 and the National Quotation Bureau "Pink Sheets"
as of February 2000. Accordingly, there is insufficient market history to
establish or identify any trend in the market for the Common Stock.
The following table sets forth the high and low bid prices for our
Common Stock for the past year. The quotations reflect inter-dealer
prices, with retail mark-up, mark-down or commissions, and may not
represent actual transactions. The information presented was obtained from
the OTCBB.com, a website maintained by OTC Bulletin Board(R) (OTCBB) and
the National Quotation Bureau "Pink Sheets" as of March 2000.
In February, 2000, the Company declared a 2-for-1 stock split of all
outstanding shares for all record holders as of that date March 1, 2000.
THE BELOW MARKET PRICES REFLECT THAT STOCK SPLIT AS IF IT HAD OCCURRED AS
OF THE DATES IDENTIFIED.
High Low
Bid Bid
--- ---
1999 Fiscal Year
----------------
First Quarter. . . . . . . . . . . $2.75 $0.50
Second Quarter . . . . . . . . . . $2.25 $1.25
Third Quarter. . . . . . . . . . . $1.38 $1.25
Fourth Quarter . . . . . . . . . . $4.44 $1.63
On April 3, 2000, the last reported bid and asked prices for the Common
Stock were $16.00 and $20.00, respectively.
As referenced above, our shares are currently traded on the "Pink
Sheets" of the National Quotation Bureau. Our shares were de-listed from
the OTCBB in February 2000 as our shares were not then registered under
Section 12(g) of the Securities Exchange Act of 1934. On January 17, 2000,
we filed with the Securities Exchange Commission ("SEC") a Form 10SB to
register our shares with the Securities and Exchange Commission and as
required by the OTCBB for further listing. We intend to re-apply to OTCBB
or the Nasdaq National Markets at such time as we have received and
responded to all comments of the staff of the SEC with respect to the Form 10SB.
-53-
<PAGE>
HOLDERS
As of March 22, 2000, the Company believes it had approximately 1,100
beneficial owners of record of the Company's Common Stock based on reports
of the Depository Trust Corporation. Although there is a trading market
for our stock, it is lightly traded, there is no substantial public float
at the present time.
ITEM 2. LEGAL PROCEEDINGS
We are not currently a party to any legal proceedings, nor are we
aware of pending or threatened litigation.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
In December 1999, we engaged the accounting service of Deloitte &
Touche, LLP as our auditors for the fiscal year ending December 1999.
Previously, Schvanevedt & Company were the Company's auditors and provided
accounting services until their dismissal in December 1999. Schvanevedt &
Company's report on the financial statements for the last year did not
contain an adverse opinion or disclaimer of opinion, nor were they modified
as to uncertainty, audit scope, or accounting principles except that their
previous report included an explanatory paragraph concerning our ability to
continue as a going concern. The decision to change auditors was
unanimously approved by the Company's Board of Directors in December 1999.
There were no disagreements with Schvanevedt & Company on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which if not resolved to Schvanevedt &
Company's satisfaction, would have caused it to make reference to the
subject matter of the disagreement in connection with their reports.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the Registrant and its subsidiary NVT,
Inc. have issued their securities to the following persons for the cash or
other consideration indicated in transactions that were not registered
under the Securities Act of 1933 (the "1933 Act"). As of March 14, 2000,
we have 13,416,600 shares outstanding of which 9,440,000 shares is
restricted stock subject to Rule 144. Of the restricted shares, 1,475,000
are shares reserved to be issued to officers and employees over a vesting
period.
I.
In August 1998, the Registrant entered into a Merger and Plan of
Reorganization where it acquired all of the issued and outstanding shares
of NVT, Inc. and issued a total of 6,000,000 shares of Common Stock to six
(6) individuals, three (3) of which are current Officers and Directors.
The share exchange was made pursuant to the exemption provided by Section
4(2) of the 1933 Act and Rule 506 of Regulation D promulgated thereunder.
-54-
<PAGE>
II.
In August 1998, the Company issued 400,000 shares of its "restricted"
Common Stock to Mezzanine Capital Limited ("Mezzanine") for 40,000 of their
shares and certain financial advisory services valued at $240,000 which
included locating the public "shell" into which NVT, Inc. was ultimately
merged and structuring the transaction. The shares received have recently
been written off as worthless which included locating the public "shell"
into which NVT, Inc. was ultimately merged and structuring the transaction.
Further, in August 1998, Mezzanine was issued an additional 600,000 shares
of Common Stock for continuing investment banking and advisory services
valued at $.125 per share. This issuance was pursuant to the exemption
from registration provided by Section 4(2) of the 1933 Act. Mezzanine
represented that it purchased the securities for investment, and all
certificates issued were impressed with a restrictive legend advising that
the shares represented by the certificates may not be sold, transferred,
pledged or hypothecated without having first been registered or the
availability of an exemption from registration established. No commissions
were paid and no broker/dealer was involved in this transaction.
III.
In January 1999, the Company issued 740,000 shares of stock to
directors and certain employees. At the time the shares were issued there
was no market in the Company's stock. The Company valued the shares at
$.195 per share and compensation expense of $145,000 was recorded in during
the year ending December 31, 1999. The stock vested immediately and these
shares reflect the split on March 14, 2000. The Company offered these
employees their shares pursuant to the exemption from registration provided
by Section 4(2) of the Securities Act of 1933. All employees took their
shares for investment purposes without a view to distribution and had
access to information concerning the Company. All certificates bear
"restricted" legends prohibiting their transfer.
IV.
In February of 1999, one of the original shareholders returned 145,000
shares to the Company. The shares were forfeited because of the lack of
effort the individual could devote to Company matters. The Company
cancelled the shares upon receipt.
V.
In March and April 1999, the Registrant issued 986,500 shares of
Common Stock at $1.00 to forty-one (41) individuals primarily through
certain Officers and Directors at the time without the payment of
commissions. The purchasers consisted primarily of friends and associates
of these individuals The Registrant claims the exemption from registration
provided by Section 3(b) and 4(2) of the Securities Act of 1933, as amended
(the "1933 Act") and Rule 504 pursuant to Regulation D adopted thereunder.
A finders fee of 3% or approximately $30,000 in cash was paid in connection
with the sale of the shares to a finder.
-55-
<PAGE>
VI.
From January 1998 to December 1999, the Registrant's subsidiary NVT,
Inc. has issued from time to time, a series of promissory notes to certain
"accredited investors" and non-accredited investors. The issuance of NVT,
Inc.'s notes to the 64 noteholders was made in reliance upon the exemption
from registration provided by Section 4(2) of the 1933 Act and/or
Regulation D and Rule 506 adopted thereunder. A total of 16 noteholders
are non-accredited and forty-eight are accredited as defined pursuant to
Rule 501 of regulation D. A finders fee of 10% was paid in connection with
the sale of the notes. All purchasers represented by way of Subscription
Agreements, that they had access to information regarding the Company and
purchased the securities for investment and not with a view to
distribution. All notes issued to the purchasers were impressed with a
restrictive legend advising that the shares represented by the certificates
were "restricted" securities and may not be sold, transferred, pledged or
hypothecated without having first been registered or the availability of an
exemption from registration established. These purchasers who have renewed
their notes have received updated information from the Company and executed
amended subscription agreements.
VII.
From August to November 1999, the Company issued 315,000 shares of
stock to directors and certain employees. The Company valued the shares at
a range of $.73 to $1.62 per share and compensation expense of $257,150 was
recorded during the year ending December 31, 1999. The stock vested
immediately . These numbers reflect the split on March 14, 2000. The
Company offered these employees their shares pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act of 1933. All
employees took their shares for investment purposes without a view to
distribution and had access to information concerning the Company. All
certificates bear "restricted" legends prohibiting their transfer.
VIII.
From August to November 1999, the Company reserved to be issued
1,475,000 shares of stock to officers and certain employees. The Company
valued the shares between $.73 and $1.73 per share depending on the date of
grant. The stock vests based upon continued employment over a period of
approximately 18 months. These numbers reflect the split on March 14,
2000. The Company recorded $1,201,200 as unearned compensation on the date
of the grants of which $834,386 was amortized as compensation expense
during the year ending December 31, 1999. The remaining $366,814 will be
amortized as compensation expense on a straight-line basis over the vesting
period. The Company offered these employees their shares pursuant to the
exemption from registration provided by Section 4(2) of the Securities Act
of 1933. All employees took their shares for investment purposes without
a view to distribution and had access to information concerning the
Company. All certificates bear "restricted" legends prohibiting their
transfer.
-56-
<PAGE>
IX.
In February 2000, the Company sold 1,200,000 shares of its Common
Stock at $4.25 to 79 investors for a total of $5,100,000. No commissions
or fees were paid to any individual or entity in connection with the sales.
The shares of Common Stock issued by the Company in connection with this
offering are deemed "restricted securities" within the meaning of that term
as defined in Rule 144 of the Securities Act of 1933, as amended ("Act")
and were issued pursuant to certain "private placement" exemptions under
Section 4(2) and rule 506 of Regulation D of the Act, as promulgated by the
Securities and Exchange Commission. The sales of the Common Stock were to
"accredited" investors, as that term is defined in rule 501 of Regulation
D of the Act, and were transactions by the Company not involving any public
offering. Although not required, all such accredited investors had access
to information on the Company necessary to make an informed investment
decision. All of the aforesaid purchasers were fully informed and advised
concerning the Company, its business, financial and other matters by way of
a Private Placement Memorandum. All of the aforesaid securities have been
appropriately marked with a restricted legend and are "restricted
securities," as defined in Rule 144 of the rules and regulations of the
Securities and Exchange Commission. The Company's transfer agent has been
instructed to mark "stop transfer" on its ledgers to assure that these
securities will not be transferred absent registration or until the
availability of an exemption therefrom is determined.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation and the Bylaws of the Company, filed as
Exhibits 3.1 and 3.2, respectively, provide that the Company will indemnify
its Officers and Directors for costs and expenses incurred in connection
with the defense of actions, suits, or proceedings where the Officer or
Director acted in good faith and in a manner he reasonably believed to be
in the Company's best interest and is a party by reason of his status as an
Officer or Director, absent a finding of negligence or misconduct in the
performance of duty.
-57-
<PAGE>
GLOSSARY
APPLET - A small application that performs a specific task within an
operating system such as the calculator or calendar in a Microsoft Windows
97(TM) program.
BRAND EQUITY - The long-term value of a marketers brand in the marketplace
(which usually occurs when customers see the brand as more than the sum of
elements in the package).
CIRCUIT SWITCHING - The process of setting up and keeping a circuit open
between two or more users, such that the users have exclusive and full use
of the circuit until the connection is released.
COMMUNICATIONS APPLICATIONS BROWSER ("CAB") - A software application,
loaded onto a computer that allows users to locate and retrieve data over
the Internet and to make phone calls and send and retrieve voice, text and
fax messages while browsing the World Wide Web.
DATA PACKETS - The method which information is transferred through
electronic media. Information is transformed into data packets, traversed
across the electronic medium and at the destination is reassembled into the
original information.
DS-3 - Digital Service, level 3 is a high-speed equivalent of 28 T-1
channels and operating at 44.736 Mbps. Also called T-3.
FILTERING - The ability to limit the type of information available via the
World Wide Web. A filtering device is typically used to filter
objectionable information, profanity or pornography.
INTEGRATED VOICE AND DATA is the combination of voice and data signals
transmitted via a single channel.
INTERNET - Several large computer networks containing information on a
variety of subjects joined together over high speed data links allowing the
free flow of information across the data links.
ISP - Internet Service Provider is an entity which provides Internet access
to its customers typically for a fee.
LAN/WAN - Local Area Network/Wide Area Network. is a short distance data
communications network used to link together computers and peripheral
devices under some form of standard control. A Wide Area Network uses
common-carrier provided lines that cover an extended geographical area. In
contrast with LAN, this network uses links provided by local telephone
companies and usually connects disparate sites.
LATAS AND INTERLATA SERVICES - Local Access and Transport Area is one of
161 local geographical areas in the US within which a local telephone
company may offer telecommunications services - local or long distance.
Inter LATA - Telecommunications services that originate in one and
terminate in another Local Area Transport Area.
-58-
<PAGE>
LEMs - Law Enforcement Management Systems are proprietary software
application developed and maintained by Security Telcom used to manage
systems and information for jails and correctional facilities.
NOC - Networks Operation Centers are organization and systems responsible
for the day-to-day care and management of a network.
NTVT - The Company's bulletin board trading symbol.
POINTS OF PRESENCE ("POPs") - are physical places within a LATA where a
long distance carrier, ISP or other provider interfaces with the network of
the local exchange carrier.
PSTN - Public Switched Telephone Network is a name which refers to a public
phone company.
RBOCs - The Regional Bell Operating companies are seven RBOCs which split
out of the old AT&T/Bell System by the FCC upon divestiture of the Bell
Operating Companies.
REAL-TIME is a term used to describe no perceived delay in transmission of
information between the actual event and the transmission of the event or
information related to the event.
ROUTING is the process of selecting the correct circuit path for a message
throughout a network to specific geographical locations.
SWITCHED CARRIERS are the traditional long distance carriers using the PSTN
like AT&T, MCI, etc.
TELEPHONY is the science of transmitting voice, data, video or image
signals over a distance via a network of a communication conduit, typically
copper or fiber and hardware used to route signals.
TUNNELING is to temporarily change the destination of a packet in order to
traverse one or more routers that are incapable of routing to the real
destination.
UNIFIED MESSAGING is a telecommunications application that allows the user
to retrieve a variety of messaging mediums, i.e. Voicemail, e-mail and fax
from one unified box. Messages can be retrieved via phone or e-mail.
VoIP NETWORK is the Voice over Internet Protocol Network. It is a
communications network utilizing Internet Protocol technology in the
delivery of voice and data transmissions. Internet Protocol technology
uses packet switching to deliver voice and rata rather than the traditional
method of circuit switching.
www.NetVoice.net is the NetVoice Technologies Corporation URL.
-59-
<PAGE>
NETVOICE TECHNOLOGIES CORPORATION
TABLE OF CONTENTS
Page
----
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . F-2
Predecessor Auditor's Report . . . . . . . . . . . . . . . . . . . F-3
Consolidated Balance Sheets for December 31, 1999 and 1998
(Restated). . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statement of Operations for the year ended
December 31, 1999 and the period from January 7, 1998
(date of inception) to December 31, 1998 (Restated) . . . . . . . F-5
Consolidated Statements of Stockholders' Deficit for the
year ended December 31, 1999 and the period from January 7,
1998 (date of inception) to December 31, 1998 (Restated). . . . . F-6
Consolidated Statements of Cash Flow for the year ended
December 31, 1999 and the period from January 7, 1998
(date of inception) to December 31, 1998 (Restated) . . . . . . . F-7
Notes to Consolidated Financial Statements . . . . . . . . . . F-8 - F-17
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
NetVoice Technologies Corporation:
We have audited the accompanying consolidated balance sheet of NetVoice
Technologies Corporation (the "Company") as of December 31, 1999, and the
related consolidated statements of operations, stockholders' deficit and
cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. As described in Note 12 to the
consolidated financial statements, subsequent to the issuance of the
report of the other auditors, the consolidated financial statements of
the Company for the period from January 7, 1998 (date of inception) to
December 31, 1998, were restated.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, based on our audit, such consolidated financial
statements present fairly, in all material respects, the financial
position of the Company at December 31, 1999, and the results of its
operations and its cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE, LLP
Dallas, Texas
March 14, 2000
F-2
<PAGE>
Independent Auditor's Report
-----------------------------------
Board of Directors
NetVoice Technologies Corporation
(A Development Stage Company)
I have audited the accompanying consolidated balance sheets of NetVoice
Technologies Corporation, (a development stage company), as of December 31,
1998, and the related statements of operations, stockholders' equity, and
cash flows for the period January 7, 1998 (Inception) to December 31, 1998.
These consolidated financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
financial statements based on my audit. As described in Note #12, to the
financial statements, subsequent to the issuance of the report the
financial statements of the Company for the period January 7, 1998 (date of
inception) to December 31, 1998, were restated.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the consolidated financial statements. An audit also includes assessing
the accounting principles used and the significant estimates made by
management, as well as evaluating the overall consolidated financial
statements presentation. I believe that my audit provides a reasonable
basis for my opinion.
In my opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the financial position of NetVoice
Technologies Corporation, (a development stage company), as of December 31,
1998, and the results of its operations and its cash flows for the period
January 7, 1998 (Inception) to December 31, 1998, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming NetVoice Technologies Corporation, (a development stage company),
will continue as a going concern. As discussed in Note #10 to the
consolidated financial statements, the Company has an accumulated deficit
and a negative net worth at December 31, 1998. These factors raise
substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also discussed
in Note #10. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ SCHVANEVELDT & COMPANY
Salt Lake City, Utah
December 15, 1999
F-3
<PAGE>
<TABLE>
NETVOICE TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998(RESTATED)
- -------------------------------------------------------------------------------------------------
<CAPTION>
1998
(AS RESTATED,
ASSETS 1999 NOTE 12)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 20,085 $ 7,990
Restricted cash and cash equivalents 167,100
Accounts receivable - trade 190,733 75,068
Prepaid expenses 86,505 6,063
----------- -----------
Total current assets 297,323 256,221
PROPERTY AND EQUIPMENT, NET 860,534 495,376
OTHER ASSETS 300,787 174,074
----------- -----------
TOTAL $ 1,458,644 $ 925,671
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 1,519,154 $ 426,161
Accrued expenses 180,082 63,568
Current portion of notes payable and capital lease obligations 3,659,905 1,834,309
Unearned revenue 30,000
----------- -----------
Total current liabilities 5,389,141 2,324,038
LONG-TERM DEBT, LESS CURRENT PORTION 223,056
----------- -----------
Total liabilities 5,612,197 2,324,038
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' DEFICIT:
Preferred stock; 50,000,000 shares authorized at $0.001 par value,
none issued
Common stock, 200,000,000 shares authorized at $0.005 par value;
10,741,600 and 8,990,100 shares issued and outstanding,
respectively 5,371 4,495
Paid-in capital 2,881,479 320,505
Unearned compensation (366,814)
Accumulated deficit (6,673,589) (1,723,367)
----------- -----------
Total stockholders' deficit (4,153,553) (1,398,367)
----------- -----------
TOTAL $ 1,458,644 $ 925,671
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
NETVOICE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999, AND
PERIOD FROM JANUARY 7, 1998 (DATE OF INCEPTION) TO
DECEMBER 31, 1998 (RESTATED)
- -------------------------------------------------------------------------------------------------
<CAPTION>
1999 1998
(AS RESTATED,
NOTE 12)
<S> <C> <C>
REVENUES $ 1,212,363 $ 120,737
EXPENSES:
Direct expenses 2,043,399 252,194
General and administrative expenses 3,412,473 983,549
----------- -----------
Total expenses 5,455,872 1,235,743
----------- -----------
NET OPERATING LOSS (4,243,509) (1,115,006)
OTHER INCOME (EXPENSE):
Interest income 4,316 3,540
Interest expense (679,511) (372,101)
Loss on investments (31,518) (239,800)
----------- -----------
Total other expense (706,713) (608,361)
----------- -----------
NET LOSS $(4,950,222) $(1,723,367)
=========== ===========
BASIC AND DILUTED LOSS PER SHARE $ (0.48) $ (0.24)
=========== ===========
WEIGHTED AVERAGE BASIC AND DILUTED SHARES OUTSTANDING 10,404,446 7,246,064
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
NETVOICE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
YEAR ENDED DECEMBER 31, 1999, AND
PERIOD FROM JANUARY 7, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998 (RESTATED)
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
COMMON STOCK
--------------------
PAID-IN UNEARNED ACCUMULATED
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 7, 1998 (DATE OF
INCEPTION) - $ - $ - $ - $ - $ -
Shares issued to incorporators 6,000,000 3,000 7,000 10,000
Shares issued for "reverse acquisition"
of Blue Pine, Inc. 1,990,100 995 (995) -
Shares issued for investment in Mezzanine
Capital, Ltd. at $.60 per share 400,000 200 239,800 240,000
Shares issued for services 600,000 300 74,700 75,000
Net loss (1,723,367) (1,723,367)
---------- ------ ---------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1998 (AS
RESTATED, NOTE 12) 8,990,100 4,495 320,505 - (1,723,367) (1,398,367)
Restricted shares issued (1,055,000
shares) and granted (1,475,000 shares)
to officers, directors and employees 1,055,000 528 1,602,882 (1,603,350) -
Shares sold as part of private placement
memorandum at $1.00 per share, net of
issuance costs 986,500 493 958,007 958,500
Canceled stock (290,000) (145) 145 -
Amortization of unearned compensation 1,236,536 1,236,536
Net loss (4,950,222) (4,950,222)
---------- ------ ---------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1999 10,741,600 $5,371 $2,881,479 $ (366,814) $(6,673,589) $(4,153,553)
========== ====== ========== ========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
NETVOICE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999, AND
PERIOD FROM JANUARY 7, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
(RESTATED)
- -------------------------------------------------------------------------------------------------
<CAPTION>
1999 1998
(AS RESTATED,
NOTE 12)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(4,950,222) $(1,723,367)
Adjustments to reconcile net loss to net cash used in operating
activities:
(Gain) loss on investments and sale of customer lists (48,994) 239,800
Depreciation and amortization 167,668 36,627
Expenses paid by stock in lieu of cash 75,000
Stock issued to employees, officers and directors 1,236,536
Changes in operating assets and liabilities:
Accounts receivable (115,665) (75,068)
Prepaid expenses (80,442) (6,063)
Accounts payable 1,092,993 426,161
Accrued expenses 116,514 63,568
Unearned revenue 30,000
Other assets (288,380) (182,208)
----------- -----------
Net cash used in operating activities (2,839,992) (1,145,550)
----------- -----------
INVESTING ACTIVITIES:
Purchase of property and equipment (462,129) (523,669)
Decrease (increase) in restricted cash and cash equivalents 167,100 (167,100)
Purchase of investments (35,036)
----------- -----------
Net cash used in investing activities (330,065) (690,769)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from the sale of common stock 958,500 10,000
Proceeds from long-term debt 3,892,989 2,039,309
Payments on long-term debt (1,669,337) (205,000)
----------- -----------
Net cash provided by financial activities 3,182,152 1,844,309
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 12,095 7,990
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD 7,990
----------- -----------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 20,085 $ 7,990
=========== ===========
SUPPLEMENTAL DISCLOSURES - Interest paid $ 368,774 $ 372,101
=========== ===========
NONCASH TRANSACTIONS:
Issued 400,000 shares of common stock to acquire 40,000 shares
of Mezzanine Capital, Ltd. $ - $ 240,000
=========== ===========
Issued 600,000 shares of common stock for services $ - $ 75,000
=========== ===========
Issued 1,055,000 compensatory shares to officers, directors
and employees $ 1,602,822 $ -
=========== ===========
Assets acquired through capital leases $ 31,631 $ -
=========== ===========
Forgiveness of debt in exchange for customer lists $ 175,000 $ -
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
NETVOICE TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999, AND
PERIOD FROM JANUARY 7, 1998 (DATE OF INCEPTION) TO
DECEMBER 31, 1998 (RESTATED)
- -------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - NetVoice Technologies Corporation (the "Company") is
the successor company to NetVoice Technologies, LLC ("NVT, LLC"), a
Texas limited liability company that began operations on January 7,
1998. NVT, LLC was formed for the purpose of developing, acquiring
and operating telephone communication facilities and networks that
were intended to transmit voice over the Internet utilizing
conventional and Internet technologies. NVT, LLC was reincorporated
in Nevada on June 30, 1998, as NetVoice Technologies, Inc. ("NVT,
Inc.").
On August 13, 1998, NVT, Inc. concluded a reverse acquisition of
Blue Pines, Inc. in which Blue Pines, Inc. issued 6,000,000 shares
of common stock in exchange for all of the outstanding shares of
common stock of NVT, Inc. As a result of the reverse acquisition,
NVT, Inc. became a wholly owned subsidiary of Blue Pines, Inc., and
the six former stockholders of NVT, Inc. became the holders of
approximately 75% of the outstanding shares of common stock of the
Company. The remaining 25% of the shares were owned by the original
non-affiliated stockholders of Blue Pines, Inc. On August 11, 1998,
Blue Pines, Inc. changed its name to NetVoice Technologies
Corporation. The value of assets that NVT, Inc. acquired as a
result of the reverse acquisition was negligible because Blue Pines,
Inc. was an inactive shell at the time of the reverse acquisition.
There was no prior affiliation between the parties.
NetLD.com, Inc. was incorporated in the State of Nevada as a wholly
owned subsidiary of the Company on October 14, 1999. This
corporation was initially formed for the purpose of conducting the
traditional long distance telephone services of the Company.
Currently, there has been no activity in this subsidiary, and it is
not anticipated that traditional long distance will be pursued as
part of the business model. The Company may disband this entity or
use it for other corporate purposes.
RISKS AND UNCERTAINTIES - The Company has experienced cumulative
operating losses, and its operations are subject to certain risks
and uncertainties, including, among others, risks associated with
technology and regulatory trends, evolving industry standards,
growth and acquisitions, actual and prospective competition by
entities with greater financial and other resources, the development
of the Internet market and the need for additional capital.
REVENUES AND EXPENSES RECOGNITION POLICY - Revenues and expenses are
recognized in the period when the services are provided to the
customer.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany transactions and
balances between the Company and its subsidiaries have been
eliminated in consolidation.
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these
estimates.
F-8
<PAGE>
CASH AND CASH EQUIVALENTS - The Company considers all short-term,
highly liquid investments that are readily convertible, within three
months, to known amounts as cash equivalents.
PROPERTY AND EQUIPMENT - The cost of property and equipment is
depreciated over the estimated useful lives of the related assets.
Depreciation and amortization are computed on the straight-line
method. The following is a summary of useful lives of the major
categories of property and equipment:
Furniture and equipment 3 to 10 years
Computer and telephone equipment 3 to 10 years
INCOME TAXES - The Company and its subsidiaries file a consolidated
tax return. Deferred income taxes are recognized for the tax
consequences of temporary differences by applying enacted statutory
tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax basis of existing
assets and liabilities. The effect on deferred taxes of a change in
tax rates is recognized in income in the period that includes the
enactment date. The Company periodically evaluates the
collectibility of deferred tax assets and provides a valuation
allowance for the portion of such assets not considered likely of
realization.
EARNINGS PER SHARE - Basic earnings per share are computed by
dividing income (loss) available to common stockholders by the
weighted average number of common shares outstanding during the
period. Diluted earnings per share are computed by including
contingently issuable shares with the weighted average shares
outstanding during the period. When inclusion of the contingently
issuable shares would have an antidilutive effect upon earnings per
share, no diluted earnings per share is presented. At December 31,
1999 and 1998, the Company had 3,347,500 and 1,872,500,
respectively, of contingently issuable shares of common stock that
were not included in the Company's earnings per share calculation.
COMPREHENSIVE INCOME - The Company has no elements of comprehensive
income.
SEGMENTS - The Company is in a single-market segment.
LONG-LIVED ASSETS - Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," requires that
they be stated at the lower of the expected net realizable value or
cost. The carrying value of long-lived assets is periodically
reviewed to determine whether impairment exists. The review is
based on comparing the carrying amount of the assets to the
undiscounted estimated cash flows over the remaining useful lives.
No impairment is indicated as of December 31, 1999.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," was
issued in June 1998 and establishes standards for accounting and
reporting for derivative instruments. It requires entities to
record all derivative instruments on the balance sheet at fair
value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending
on whether a derivative is designated as part of a hedge transaction
and on the type of hedge transaction. The portion of all hedges not
effective in achieving offsetting changes in fair value is
recognized in earnings. SFAS No. 133, as amended, is effective for
all fiscal quarters of all fiscal years beginning after June 15,
2000. Management has not completed an evaluation of the impact of
the provisions of this statement on the Company's financial
statements.
RECLASSIFICATIONS - Certain reclassifications have been made in the
prior year's financial statements in order to conform to the
classifications used in the current year.
F-9
<PAGE>
2. PROPERTY AND EQUIPMENT
Property and equipment at December 31 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Furniture and equipment $ 10,033 $ 8,160
Computer and telephone equipment 975,765 515,509
----------- -----------
Total cost 985,798 523,669
Less accumulated depreciation (125,264) (28,293)
----------- -----------
$ 806,534 $ 495,376
=========== ===========
</TABLE>
3. OTHER ASSETS
Other assets at December 31 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Vendor security deposits $ 300,587 $ 72,208
Investments 200 200
Customer lists, net 101,666
----------- -----------
$ 300,787 $ 174,074
=========== ===========
</TABLE>
The customer list was amortized on a straight-line basis over two
years. For the year ended December 31, 1999, and the period from
January 7, 1998 (date of inception) to December 31, 1998,
amortization expense was $70,696 and $8,529, respectively (see Note 8).
Investments consist of 40,000 shares of common stock of Mezzanine
Capital, Ltd. ("Mezzanine"), a Bermuda corporation. The stock of
Mezzanine is trading on the Bermuda exchange. At December 31, 1998,
the Company wrote the investment down because there had been no
trading activity in the stock and its market value was permanently
impaired.
F-10
<PAGE>
4. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
Notes payable and capital lease obligations at December 31 consisted
of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Notes payable $ 3,651,932 $ 1,669,337
Loans from stockholders, no interest rate, maturing from
October 2004 to December 2004 206,672 164,972
Capital lease obligations, with interest rates of 15%
to 15.3%, maturing August 2003 24,357
----------- -----------
3,882,961 1,834,309
Less current portion of long-term debt (3,659,905) (1,834,309)
----------- -----------
$ 223,056 $ -
=========== ===========
</TABLE>
Future minimum lease payments for capital lease obligations at
December 31, 1999, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ended December 31:
2000 $11,127
2001 11,127
2002 5,615
2003 2,256
-------
Total 30,125
Less interest of capital lease obligations (5,768)
-------
Present value of net minimum capital lease payments $24,357
=======
</TABLE>
The aggregate future maturities of long-term debt, excluding capital
lease obligations, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ended December 31:
2000 $3,651,932
2001
2002
2003
2004 206,672
----------
$3,858,604
==========
</TABLE>
Notes payable are secured by a security interest in revenues from
contracts, equipment and a cash reserve equal to 10% of total notes
payable. The notes bear a fixed rate of interest at a rate of
13.35% per annum, payable on the first day of each quarter during
the term. All principal and unpaid accrued interest is due and
payable nine months from issuance. The notes are due from January
2000 to September 2000. The note holder has the right to extend the
terms of the notes for an additional nine months at the same terms.
F-11
<PAGE>
The aggregated principal amount of the notes that may be delivered
under the Indenture Agreement is limited to $5,000,000, of which
$3,651,932 has been issued through December 31, 1999. At December
31, 1999, the Company was not in compliance with its debt covenants;
however, subsequently, the Company received a waiver for its
noncompliance.
5. INCOME TAXES
From January 7, 1998 (date of inception) to June 30, 1998, the
Company operated as an LLC. On June 30, 1998, the Company filed
Articles of Incorporation in the State of Nevada and continued its
business activities as a corporation. For income tax purposes, the
Company has filed a partnership return for the period when it
operated as an LLC and a corporate tax return will be filed thereafter.
The Company has net operating losses to carry forward for future tax
purposes, as follows:
YEAR AMOUNT EXPIRATION
OF LOSS OF LOSS DATE
1998 $1,156,628 2018
1999 4,022,882 2019
Net deferred taxes in the accompanying consolidated balance sheets
include the following components as of December 31:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Deferred tax asset:
Net operating loss carryforward $ 1,968,213 $ 439,519
Miscellaneous tax asset items 91,124 93,668
----------- -----------
Total deferred tax asset 2,059,337 533,187
Valuation allowance (2,059,337) (533,187)
----------- -----------
Net deferred tax asset $ - $ -
=========== ===========
</TABLE>
The Company annually evaluates the recoverability of the
deferred tax asset and adjusts the valuation allowance for the
portion of such asset not considered likely to be realized.
A reconciliation of income taxes computed at the U.S. federal
statutory tax rate to the provision for income tax is as follows as
of December 31:
<TABLE>
<CAPTION>
1999 1998
------------------------- ----------------------
<S> <C> <C> <C> <C>
Income tax benefit at U.S. federal
statutory rates $(1,559,846) (34.00)% $(585,945) (34.00)%
State tax benefit (183,511) (4.00) (68,935) 0.04
Other, primarily permanent differences 217,206 4.70 121,692 7.06
Valuation allowance 1,526,151 33.30 533,187 26.98
----------- ------ --------- ------
$ - 0.00 % $ - 0.00 %
=========== ====== ========= ======
</TABLE>
F-12
<PAGE>
6. STOCKHOLDERS' EQUITY
PREFERRED STOCK - The Company is authorized to issue 50,000,000
shares of preferred stock with a par value of $0.001 per share in
one or more series as may be determined by the Board of Directors.
The Board of Directors may fix the designation, power, preference
and relative rights of the shares of each series and any
qualifications, limitations or restrictions thereof, and increase or
decrease the number of shares of any series without stockholders'
approval or action by the stockholders. The Board of Directors may
authorize, without stockholders' approval, the issuance of preferred
stock with voting rights and conversion rights that could adversely
affect the voting power and other rights of the common stock.
COMMON STOCK - The total authorized stock of the Company is
200,000,000 shares of common stock, with a par value of $.0005. All
stocks when issued shall be deemed fully paid and nonassessable. No
cumulative voting on any matter to which stockholders shall be
entitled to vote shall be allowed for any purpose. Stockholders
have no preemptive rights to acquire unissued shares of stock of the
Company.
During 1998, the Company issued 400,000 shares of common stock to
acquire 40,000 shares of Mezzanine, a Bermuda corporation (see Note 3).
During 1998, the Company issued 600,000 shares of common stock to
two providers of promotional services. The value of the services
provided was $75,000, which was expensed.
STOCK SPLIT - In February 2000, the Company declared a 2-for-1 stock
split of all outstanding shares for all stockholders of record as
of March 14, 2000. Retroactive effect has been given to the stock
split in stockholders' equity accounts as of December 31, 1999 and
1998, and in all share and per-share data in the accompanying
financial statements.
STOCK-BASED COMPENSATION - In January 1999, the Company issued
740,000 shares of stock to directors and certain employees. At the
time the shares were issued, there was no market in the Company's
stock. The Company valued the shares at $.195 per share, and
compensation expense of $145,000 was recorded in the Company's
financial statements. The stock vested immediately. All
certificates bear "restricted" legends prohibiting their transfer.
From August to November 1999, the Company issued 315,500 shares of
stock to officers and certain employees. The Company valued the
shares between $.73 and $1.62 per share, and compensation expense of
$257,150 was recorded in the Company's financial statements. The
stock vested immediately. All certificates bear "restricted"
legends prohibiting their transfer.
From August to November 1999, the Company reserved to be issued
1,475,000 shares of stock to officers and certain employees. The
Company valued the shares between $.73 and $1.73 per share,
depending on the date of grant. The stock vests based upon
continued employment over a period of approximately 18 months. The
Company recorded $1,201,200 as unearned compensation on date of
grant, of which $834,386 was amortized as compensation expense in
the year ended December 31, 1999, and the remainder is to be
recognized on a straight-line basis over the vesting period. All
certificates bear "restricted" legends prohibiting their transfer.
F-13
<PAGE>
The following is the vesting schedule for the granted shares:
882,500 shares to vest in the first calendar quarter of 2000
177,500 shares to vest in the second calendar quarter of 2000
177,500 shares to vest in the third calendar quarter of 2000
42,500 shares to vest in the fourth calendar quarter of 2000
195,000 shares to vest in the first calendar quarter of 2001
The grant of options with no exercise price is accounted for as a
grant of restricted shares.
CANCELED STOCK - In February 1999, one of the original stockholders
of the Company returned 290,000 shares to the Company. The shares
were forfeited because of the lack of effort the individual could
devote to Company matters. The Company canceled the shares upon receipt.
PRIVATE PLACEMENT - In March and April 1999, the Company issued
986,500 shares of common stock at $1.00 in a private placement.
7. STOCK-BASED COMPENSATION
Effective January 25, 1999, the Board approved the adoption of a
stock option plan to be administered by a committee. Each option is
exercisable in accordance with certain price restrictions and were
vested on the date of grant. During 1999, 1,872,500 options were
granted at an exercise price of $.50 per share, the estimated fair
value of the underlying stock at the date of grant. As of December
1999, all 1,872,500 options were vested and exercisable.
The Company applies the provisions of APB No. 25 and related
Interpretations in accounting for its stock option plan.
Accordingly, no compensation cost has been recognized for its stock
option plan, since the exercise price of the Company's stock option
grants was the estimated fair market value of the underlying stock
on the date of the grant. Had compensation costs for the stock
option plan been determined based on the fair value at the grant
date consistent with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net loss for 1999 would not have been
significantly adjusted. The weighted average remaining life of
these options is four years.
8. RELATED PARTY TRANSACTIONS
In October 1998, the Company purchased a customer list for $110,000
in cash. The list was used by the Company in its long distance and
other marketing efforts, and the Company estimated its useful life
as two years. The Company recognized $8,334 as amortization expense
in 1998. In June 1999, the Company purchased an additional customer
list for $60,000 in cash from Quantum Network Services, Inc.
("Quantum") with an estimated useful life of two years. The
President of Quantum, the seller of the customer lists, is also a
member of the Board of Directors of the Company. In December 1999,
the Company sold the customer lists to Nationwide Hospitality, a
company also owned by a member of the Board of Directors of the
Company, for $175,000 in the form of a settlement of a note payable
of the same amount, recognizing a gain of $80,512 on the
transaction.
As of December 31, 1999 and 1998, the Company had loans payable to
stockholders in the amounts of $206,672 and $164,972, respectively.
These notes include no interest rate and have maturity dates from
October through December 2004.
F-14
<PAGE>
9. COMMITMENTS AND CONTINGENCIES
LEGAL - The Company is not currently subject to any legal
proceedings that management believes will have a material impact on
the Company's financial position or results of operations.
The legal acquirer was involved in the gold mining industry; the
extent of its mining activity was to acquire a mineral lease, which
was subsequently abandoned due to lack of lease payments and
exploration activity. The applicable statute of limitations has not
expired, and no claims have been made against Blue Pines, Inc. The
Company believes it unlikely that any contingent claims will be made
against the Company.
AGREEMENTS AND COMMITMENTS - The Company has entered into various
agreements with service providers, on an order-by-order basis, to
lease bandwidth, purchase dedicated Internet access, lease local
lines and rent space to locate its network equipment. These service
orders range in term from month-to-month to five-year agreements.
Below is a schedule that details the significant terms of these
commitments:
<TABLE>
<CAPTION>
MONTHLY CANCELLATION INITIAL
PAYMENTS TERM PENALTY ORDER
<S> <C> <C> <C> <C>
Sprint(TM) Commercial $45,000 3 years 100% of year 1; 50% of October 1998
("Sprint") Year 2; 50% of year 3
Global Crossing 35,000 2 years $25,000-per-month of the August 1999
remaining commitment
E.Spire 35,000 1-3 years Commitment for the total August 1998
period for value of orders
Cox 9,000 5 years Commitment for full January 1999
amount for entire period
Electric Lightwave 21,000 1 year Commitment for full July 1999
amount for the entire period
MCI WorldCom 11,000 1 year Commitment for 50% of September 1999
the remaining amount due
Level 3 Communications 40,000 1 year Commitment for total August 1999
Inc. amount for the full term
Caprock Communications 5,000 1 year Take-or-pay Commitment July 1999
</TABLE>
In December 1999, the Company terminated services with Sprint
because of network problems. Management believes, because of the
quality of service with Sprint, that the Company will be able to
cancel the existing contracts. The Company is currently trying to
negotiate a final settlement. The Company is in good standing with
respect to all of its other commitments.
F-15
<PAGE>
OPERATING LEASES - The Company conducts its operations in leased
facilities and has entered into leases for office space and
equipment. The future minimum lease payments under these operating
leases as of December 31, 1999, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Years ending December 31:
2000 $536,590
2001 204,314
2002 40,281
--------
Total $781,185
========
</TABLE>
The Company recorded operating lease expense of $44,035 and $27,372
in 1999 and 1998, respectively.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No.
107, "Disclosures about Fair Value of Financial Instruments." The
estimated fair value amounts have been determined by the Company
using available market information and appropriate valuation
methodologies. However, considerable judgment is required in
interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 20,085 $ 20,085 $ 7,990 $ 7,990
Accounts receivable - trade 190,733 190,733 75,068 75,068
Liabilities:
Accounts payable 1,519,154 1,519,154 426,161 426,161
Long-term debt 3,858,604 3,382,233 1,834,309 1,607,851
</TABLE>
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE
- The carrying amounts of these items are a reasonable estimate of
their fair value.
LONG-TERM DEBT - The fair values of long-term debt are estimated
based on interest rates that are currently available to the Company
for the issuance of debt with similar terms and remaining
maturities.
The fair value estimates are based on pertinent information
available to management as of December 31, 1999. Although
management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements
since that date, and current estimates of fair value may differ
significantly from the amounts presented.
F-16
<PAGE>
11. SUBSEQUENT EVENTS
Filing of Form 10-SB - In January 2000, the Company filed Form 10-SB
with the Securities and Exchange Commission ("SEC") under Section
12(b) or (g) of the Securities Exchange Act of 1934 in order to
register its common stock. The registration statement has not been
declared effective as of March 10, 2000.
PRIVATE PLACEMENT MEMORANDUM - In February 2000, the Company
effected a private placement of 1,200,000 shares of its common stock
for $5,100,000. Subscribers may not sell, transfer or otherwise
dispose of the shares unless it is in compliance with Rule 144 of
the Securities Act of 1933.
FACILITY WITH CISCO SYSTEMS CAPITAL CORPORATION - In February 2000,
the Company entered into a letter of intent for a $28 million credit
facility with Cisco Systems, divided into three tranches. Tranche A
provides $20 million for the purchase of Cisco Systems networking
hardware; Tranche B provides $5 million for the soft costs
associated with the network; and Tranche C provides $3 million to be
used for working capital purposes exclusive of acquisitions. The
applicable interest rate is London Interbank Offered Rate ("LIBOR")
plus 5.50% per annum, calculated on a 360-day year for actual days
elapsed, and accrued from the date of initial funding. After two
consecutive quarters of positive earnings before income taxes,
depreciation and amortization ("EBITDA"), the interest rate will be
based on a sliding scale over LIBOR with a margin range from 4.00%
to 5.25%. The final maturity date for all debt is five years from
the closing date of the facility agreement, or February 25, 2005.
The agreement also gives Cisco Systems warrants to purchase 2.5% of
the Company's common stock for $11.25 per share. The warrants will
be exercisable for five years from the date of issuance.
12. RESTATEMENT
Subsequent to the issuance of the Company's 1998 financial
statements for the period from January 7, 1998 (date of inception)
to December 31, 1998, management determined that it should restate
its fiscal 1998 financial statements and related disclosures to
reflect misclassification of some operating leases as capital
leases. The balance sheet at December 31, 1998, reflects the assets
and liabilities related to the capital leases.
A summary of the significant effects of the restatement is as follows:
<TABLE>
<CAPTION>
AS PREVIOUSLY AS
REPORTED RESTATED
<S> <C> <C>
Property and equipment, net $ 681,856 $ 495,376
Total assets 1,112,151 925,671
Notes payable and current portion of capital lease
obligations 1,951,390 1,834,309
Total current liabilities 2,441,119 2,324,038
Long-term debt 69,399
Total liabilities and stockholders' deficit 1,112,151 925,671
</TABLE>
* * * * * *
F-17
<PAGE>
PART III
ITEMS 1 AND 2. INDEX AND DESCRIPTION TO EXHIBITS
The Exhibits listed below are filed as part of this Registration
Statement.
Exhibit
Number Description
- ------ -----------
3.1 Articles of Incorporation of Eastco, Inc. dated June 16, 1977*
3.2 Certificate of Amendment of Articles of Incorporation of
Eastco, Inc. dated December 8, 1997*
3.3 Certificate of Amendment of Articles of Incorporation of
Blue Pines, Inc. dated August 11, 1998*
3.4 Bylaws of NetVoice Technologies Corporation*
3.5 Amendments to Bylaws of NetVoice Technologies Corporation*
3.6 Certificate of Correction*
10.1 Agreement and Plan of Reorganization*
10.2 Memorandum of Understanding between NetVoice Technologies, Inc.
and MultiCom Services*
10.3 Memorandum of Understanding between NetVoice Technologies, Inc.
and Diversified Data Distributors*
10.4 Agreement between NetVoice Technologies, Inc. and Interwest
Transfer Co., Inc.*
10.5 Broker Agreement between NetVoice Technologies, Inc. and
Unlimited Tech, Inc.*
10.6 Carrier Service Agreement between NetVoice Technologies, Inc.
and IDT Corporation*
10.7 Carrier Service Agreement between NetVoice Technologies, Inc.
and IDS Long Distance, Inc.*
10.8 Carrier Service Agreement between NetVoice Technologies, Inc.
and Intercomm Americas, Inc.*
10.9 Internet Telephony Service Agreement between NetVoice
Technologies, Inc. and Intercomm Americas, Inc.*
10.10 Carrier Service Agreement between NetVoice Technologies, Inc.
and JD Services, Incorporated*
10.11 Carrier Service Agreement between NetVoice Technologies, Inc.
and SuperNet*
<PAGE>
10.12 Carrier Service Agreement between NetVoice Technologies, Inc.
and ValuLine, Inc.*
10.13 Telecommunications Service Agreement between NetVoice
Technologies, Inc. and Brooks Fiber Communications*
10.14 Carrier Service Agreement between NetVoice Technologies, Inc.
and CapRock Communications*
10.15 Letter of Agreement between NetVoice Technologies
Corporation and Duncan & Hill, LLC*
10.16 Agreement between NetVoice Technologies, Inc. and Frontier
Communications*
10.17 Agreement between NetVoice Technologies, Inc. and Electric
Lightwave, Inc.*
10.18 Agreement between NetVoice Technologies, Inc. and GTE
Internetworking*
10.19 Software License and Support Agreement between NetVoice
Technologies, Inc. and Portal Software, Inc.*
10.20 Master Lease Agreement between NetVoice Technologies, Inc.
and Sunrise Leasing Corporation (Cisco Systems)*
10.21 Addendum to Master Lease Agreement (AA) between NetVoice
Technologies, Inc. and Sunrise Leasing Corporation (Cisco
Systems)*
10.22 Addendum to Master Lease Agreement (AB) between NetVoice
Technologies, Inc. and Cisco Systems Capital Corporation*
10.23 Addendum to Master Lease Agreement (AC) between NetVoice
Technologies, Inc. and Sunrise Leasing Corporation (Cisco
Systems)*
10.24 Addendum to Master Lease Agreement (AD) between NetVoice
Technologies, Inc. and Sunrise Leasing Corporation (Cisco
Systems)*
10.25 Addendum to Master Lease Agreement (AE) between NetVoice
Technologies, Inc. and Sunrise Leasing Corporation (Cisco
Systems)*
10.26 Addendum to Master Lease Agreement (AF) between NetVoice
Technologies, Inc. and Sunrise Leasing Corporation (Cisco
Systems)*
10.27 Lease Agreement between NetVoice Technologies, LLC and
Inter-Tel Leasing, Inc.*
10.28 Network Agreement between NetVoice Technologies, Inc. and
Inter-Tel.net, Inc.*
10.29 Master Services Agreement with Signup Server, Inc.*
10.30 Office Lease and First Amendment thereto*
10.31 Employment Agreement with Jeff Rothell*
10.32 Employment Agreement with Garth Cook*
<PAGE>
10.33 Agreement with Z-Tel Communications, Inc. and NetVoice
Technologies Corporation
10.34 Agreement with Landmark Community Newspapers, Inc. and
NetVoice Technologies Corporation
10.35 Agreement with Level 3 Communications and NetVoice
Technologies Corporation (Dallas)
10.36 Agreement with Virtualplus and NetVoice Technologies Corporation
10.37 NetVoice Technologies Corporation 2000 Stock Option Plan
21 Subsidiaries of the Company*
27.1 Financial Data Schedule*
27.2 Financial Data Schedule
__________
* previously filed
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
NETVOICE TECHNOLOGIES CORPORATION
By: /s/ JEFFREY ROTHELL
----------------------------------
Jeffrey Rothell, President, Chief
Executive Officer
In accordance with the requirements of the Securities Exchange Act of
1933, this registration statement was signed by the following persons in
the capacities and on the dates stated.
Signatures Title Date
---------- ----- ----
/s/ JEFFREY ROTHELL President, Chief Executive Officer April 17, 2000
- --------------------- (Principal Executive Officer)
Jeffrey Rothell
/s/ GARTH COOK Chief Financial Officer April 17, 2000
- --------------------- (Principal Financial and
Garth Cook Accounting Officer)
/s/ WILLIAM BEDRI Director and Secretary April 17, 2000
- ---------------------
William Bedri
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
NETVOICE TECHNOLOGIES CORPORATION
---------------------------------
(Name of small business issuer in its charter)
Nevada 91-1986538
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13747 MONTFORT DRIVE, SUITE 250
DALLAS, TX 75240
---------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (972) 788-2988
----------------
EXHIBIT INDEX
-------------
Exhibit Page Number in
No. Document Sequentially Numbered System
- ------- -------- ----------------------------
3.1 Articles of Incorporation of Eastco, Inc. dated June 16, 1977*
3.2 Certificate of Amendment of Articles of Incorporation of
Eastco, Inc. dated December 8, 1997*
3.3 Certificate of Amendment of Articles of Incorporation of
Blue Pines, Inc. dated August 11, 1998*
3.4 Bylaws of NetVoice Technologies Corporation*
3.5 Amendments to Bylaws of NetVoice Technologies Corporation*
3.6 Certificate of Correction*
10.1 Agreement and Plan of Reorganization*
<PAGE>
10.2 Memorandum of Understanding between NetVoice Technologies, Inc.
and MultiCom Services*
10.3 Memorandum of Understanding between NetVoice Technologies, Inc.
and Diversified Data Distributors*
10.4 Agreement between NetVoice Technologies, Inc. and Interwest
Transfer Co., Inc.*
10.5 Broker Agreement between NetVoice Technologies, Inc. and
Unlimited Tech, Inc.*
10.6 Carrier Service Agreement between NetVoice Technologies, Inc.
and IDT Corporation*
10.7 Carrier Service Agreement between NetVoice Technologies, Inc.
and IDS Long Distance, Inc.*
10.8 Carrier Service Agreement between NetVoice Technologies, Inc.
and Intercomm Americas, Inc.*
10.9 Internet Telephony Service Agreement between NetVoice
Technologies, Inc. and Intercomm Americas, Inc.*
10.10 Carrier Service Agreement between NetVoice Technologies, Inc.
and JD Services, Incorporated*
10.11 Carrier Service Agreement between NetVoice Technologies, Inc.
and SuperNet*
10.12 Carrier Service Agreement between NetVoice Technologies, Inc.
and ValuLine, Inc.*
10.13 Telecommunications Service Agreement between NetVoice
Technologies, Inc. and Brooks Fiber Communications*
10.14 Carrier Service Agreement between NetVoice Technologies, Inc.
and CapRock Communications*
10.15 Letter of Agreement between NetVoice Technologies
Corporation and Duncan & Hill, LLC*
10.16 Agreement between NetVoice Technologies, Inc. and Frontier
Communications*
10.17 Agreement between NetVoice Technologies, Inc. and Electric
Lightwave, Inc.*
10.18 Agreement between NetVoice Technologies, Inc. and GTE
Internetworking*
10.19 Software License and Support Agreement between NetVoice
Technologies, Inc. and Portal Software, Inc.*
10.20 Master Lease Agreement between NetVoice Technologies, Inc.
and Sunrise Leasing Corporation (Cisco Systems)*
<PAGE>
10.21 Addendum to Master Lease Agreement (AA) between NetVoice
Technologies, Inc. and Sunrise Leasing Corporation (Cisco
Systems)*
10.22 Addendum to Master Lease Agreement (AB) between NetVoice
Technologies, Inc. and Cisco Systems Capital Corporation*
10.23 Addendum to Master Lease Agreement (AC) between NetVoice
Technologies, Inc. and Sunrise Leasing Corporation (Cisco
Systems)*
10.24 Addendum to Master Lease Agreement (AD) between NetVoice
Technologies, Inc. and Sunrise Leasing Corporation (Cisco
Systems)*
10.25 Addendum to Master Lease Agreement (AE) between NetVoice
Technologies, Inc. and Sunrise Leasing Corporation (Cisco
Systems)*
10.26 Addendum to Master Lease Agreement (AF) between NetVoice
Technologies, Inc. and Sunrise Leasing Corporation (Cisco
Systems)*
10.27 Lease Agreement between NetVoice Technologies, LLC and
Inter-Tel Leasing, Inc.*
10.28 Network Agreement between NetVoice Technologies, Inc. and
Inter-Tel.net, Inc.*
10.29 Master Services Agreement with Signup Server, Inc.*
10.30 Office Lease and First Amendment thereto*
10.31 Employment Agreement with Jeff Rothell*
10.32 Employment Agreement with Garth Cook*
10.33 Agreement with Z-Tel Communications, Inc. and NetVoice
Technologies Corporation
10.34 Agreement with Landmark Community Newspapers, Inc. and
NetVoice Technologies Corporation
10.35 Agreement with Level 3 Communications and NetVoice
Technologies Corporation (Dallas)
10.36 Agreement with Virtualplus and NetVoice Technologies Corporation
10.37 NetVoice Technologies Corporation 2000 Stock Option Plan
21 Subsidiaries of the Company*
27.1 Financial Data Schedule*
27.2 Financial Data Schedule
__________
*previously filed
EXHIBIT 10.33
INTERNET DIAL-UP RESALE AGREEMENT
THIS AGREEMENT dated as of this 22nd day of December, 1999 by and between
NetVoice Corporation, a Nevada corporation, located at 13747 Montfort
Drive, Suite 250, Dallas, Texas 75240 (hereinafter referred to as
"NetVoice") and Z-Tel Communications Inc. (hereinafter referred to as
"Reseller"), a Delaware corporation located at 601 S. Harbour Island Blvd.
Suite 220, Tampa, Florida 33602.
WITNESSETH
----------
WHEREAS, NetVoice is a provider of Internet services and NetVoice maintains
an Internet network (the "NetVoice Network"); and
WHEREAS, Reseller is a provider of Internet Services, and is desirous of
branding under its own name and reselling NetVoice's Internet services to
Reseller's independent distributors and other customers ("Reseller's
Customers" or "Customers") according to the terms set forth herein; and
WHEREAS, the parties have agreed to cooperate with each other under the
terms and conditions contained herein for the parties' mutual benefit.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
herein contained, the parties hereto do hereby agree as follows:
1. NETVOICE'S OBLIGATIONS
----------------------
1.1 NetVoice agrees to provide the Internet Services described in
Exhibit A attached hereto and incorporated herein by reference ("Internet
Service") to Reseller's Customers of a quality equal to or exceeding that
which is provided by NetVoice to its other Internet customers and
consistent with the standards set forth in Exhibit C attached hereto. The
Internet Services will be provided under Reseller's brand.
1.2 NetVoice shall create a new account for each of Reseller's
Customers for whom a request for service is submitted to NetVoice by
Reseller, and shall set up such account according to the provisions
provided by Reseller.
1.3 NetVoice shall provide to Reseller its first shipment and all
subsequent shipments of necessary start-up materials (the "Starter Kit")
within ten business days following NetVoice's receipt of an order from
Reseller. The Starter Kit shall include the set-up software applications
on a CD ROM. Reseller must provide NetVoice with any customized
information to be contained within the Starter Kit prior to dissemination
for NetVoice's prior written approval, which approval shall not
unreasonably be withheld. If NetVoice does not object to the customized
information in writing within two business days after receipt, approval
will be deemed given.
1.4 Reseller shall retrieve any defective Starter Kit from Reseller's
Customer and promptly return such Kit to NetVoice. Upon receipt of a
returned defective Kit, NetVoice will deliver a new Kit to Reseller no
later than 10 business days after receipt of this list. Reseller will be
responsible for delivering the new Kit to Reseller's Customer. Reseller
acknowledges that the Starter Kit may contain proprietary software from
NetVoice, third parties and Reseller. NetVoice hereby grants Reseller and
its Customers a non-exclusive right and license to use NetVoice proprietary
software products and
INTERNET DIAL-UP RESALE AGREEMENT - Page 1 of 11
<PAGE>
third-party products provided on the Starter Kit. All proprietary software
is protected under applicable intellectual property laws. Reseller agrees
that copies of the Starter Kit will only be obtained directly from Net
Voice. Reseller agrees not to reproduce the Starter Kit independently from
NetVoice.
1.5 NetVoice shall provide each of Reseller's Customers with a
standard account consisting of unlimited Internet access, an e-mail address
for each account and provide such Customers with 10 megabytes of storage
space for personal Web Hosting (the "Standard Account").
1.6 Reseller shall electronically transmit to NetVoice cancellations
of Customer's accounts for the Internet Services. Within ninety-six (96)
hours of receiving written notice from Reseller, NetVoice shall terminate
the rights of such Reseller's Customer to access the Internet Services.
Reseller shall indemnify and defend NetVoice from and against any and all
claims, liabilities or other damages resulting from the termination of any
Customer's service done at the direction of Reseller.
1.7 NetVoice hereby reserves the right to review and approve, and
change if it reasonably deems appropriate, any forms, including order forms
to be used by Reseller in connection with the services provided hereunder
to assure consistency and compliance with current practices and procedures
of NetVoice; provided, however that any changes to such forms shall only be
made after consultation between the parties.
2. RESELLER'S OBLIGATIONS
----------------------
2.1 Reseller agrees to use its best efforts to market the Internet
Services under Reseller's name. Reseller agrees to act in a good faith
manner and to not unlawfully or negligently misrepresent NetVoice or the
Internet Services. Reseller is responsible for any and all expenses
incurred as Reseller sells the Internet Services, including but not limited
to, any calls and/or mailing that Reseller makes.
2.2 Reseller shall provide NetVoice with all Customer startup
information that NetVoice requires to provision a new Internet account on
a daily basis.
2.3 Reseller will provide customer service to Reseller's Customers at
Reseller's own expense and at Reseller's own premises, or as otherwise
arranged by Reseller with Reseller's Customers unle4ss such service is
expressly to be provided by NetVoice under this Agreement. Reseller's
Customer Service shall include, but not be limited to, all billing and
cancellation issues that may arise with regard to Reseller's Customers.
2.4 NetVoice is not responsible for the installation, operation or
maintenance of any of Reseller's Customers' computer equip
ent nor any computer equipment owned or used by Reseller.
2.5 Each party agrees not to knowingly solicit the business of any
current customers or accounts of the other party that are active during the
term of this Agreement and after its termination for a period of one (1) year.
INTERNET DIAL-UP RESALE AGREEMENT - Page 2 of 11
<PAGE>
2.6 Reseller warrants and represents that it has and covenants to
maintain all authority and governmental licenses and approvals necessary to
lawfully perform its obligations under this Agreement.
3. PAYMENT FOR SERVICES
--------------------
3.1 Reseller shall establish and maintain a deposit with NetVoice
equal to $10,190, which may be increased from time to time in accordance
with Paragraph 3.4 (the "Deposit").
3.2 Reseller shall pay for the Internet Service at rates determined
from the schedule on Exhibit A attached hereto and incorporated herein by
reference. Within 6 months of the date service is commenced (the "Ramp
Period"), Reseller will provide services to the minimum number of accounts
as set forth in Exhibit A. In each full calendar month thereafter,
Reseller shall pay to Provider an amount equal to the lesser of (a) the
charges determined from Exhibit A based on the actual number of accounts or
(b) the charges determined from Exhibit A that would be incurred if
Customer had the minimum number of accounts as set forth in Exhibit A.
3.3 Reseller shall prepay on the first day of each month for the
Internet Services each month an amount equal to the product obtained by
multiplying the number of monthly accounts that are active on that date,
which after the Ramp Period will be not less than the minimum set forth in
Exhibit A, times and applicable price per account.
3.4 At the end of each month NetVoice shall render an invoice for
NetVoice's Internet Services that were rendered that month, or after the
Ramp Period, the greater of the minimum set for the Exhibit A or the actual
number of accounts on line. NetVoice shall pay such invoice from the
prepayment and Deposit. If the invoice amount exceeds the prepayment and
Deposit, Reseller will pay such excess within fifteen (15) days of receipt
of the invoice, and the amount of the Deposit will be increased by an
amount equal to such excess. If any part of the Deposit is used to pay the
invoice, Reseller will pay NetVoice an amount to re-establish the Deposit
within fifteen (15) days of receipt of the invoice. If the invoice is less
than the prepayment, the excess will be added to the Deposit.
4. TERM OF THE AGREEMENT
---------------------
4.1 The initial term of this Agreement is two years. This Agreement
shall automatically renew for successive one year terms following the
initial term, until terminated at the end of any term by either party upon
30 days prior written notice to the other or as otherwise set forth in this
Agreement.
4.2 Either party shall have the right to terminate this Agreement
prior to the expiration of the Initial Term or any renewal term:
4.2.1 If either party provides the other with written notice
of termination at least ninety days (90) prior to the date of
termination.
4.2.2 Upon a material breach of this Agreement by the other
party, including, but not limited to, NetVoice's failure to meet the
service standards set forth in Exhibit C, which breach remains uncured
for thirty (30) calendar days
INTERNET DIAL-UP RESALE AGREEMENT - Page 3 of 11
<PAGE>
following receipt by the breaching party of written notice of such
breach from the non-breaching party;
4.2.3 If the other party voluntarily files a bankruptcy
petition; or if such party makes an assignment for the benefit of
creditors; or if such party consents to or acquiesces in the
appointment of a trustee, receiver, or liquidator of it or of all or
any substantial part of its assets and properties; or if such party
takes or suffers similar action in consequence of indebtedness;
4.2.4 If a petition in bankruptcy is filed against the other
party and is not dismissed within 60 days of being filed or, without
the party's consent or acquiescence, a trustee, receiver or liquidator
of it or of all or any substantial part of its assets and properties
is appointed and such appointment is not vacated within thirty (30)
days thereafter;
4.2.5 Upon a determination by any governmental authority with
jurisdiction over the parties that the provision of the service sunder
this Agreement is contrary to existing laws, rules or regulations;
4.2.6 If Reseller or any of Reseller's Customers materially
violate applicable tariffs, laws, or regulations or use the NetVoice
Network in violation of the terms of the Agreement; or
4.2.7 If Reseller lacks the requisite authority to resell the
Internet Services hereunder.
4.3 NetVoice shall have the right to terminate this Agreement upon
the passage or adoption of any law, rule or regulation that in the
reasonable judgment of NetVoice will make it materially more expensive or
difficult to provide the services under this Agreement, upon ninety (90)
days' prior written notice to Reseller of such determination by NetVoice.
4.4 Upon the termination of this Agreement for any reason, NetVoice
will be entitled to immediately crease providing services to Reseller and
Reseller'' Customers, and all amounts due to NetVoice from Reseller will
become immediately due and payable. If Reseller maintains a deposit with
NetVoice, NetVoice will return such deposit.
5. TRADEMARKS AND INTELLECTUAL PROPERTY
------------------------------------
5.1 Neither party shall use the name, trademarks, trade names, nor
logos of the other party in connection with the operation of its business
except as expressly provided for in this Agreement. Neither party shall
use the other party's name, trademarks or logos in either its own corporate
name or any fictitious name.
5.2 Title to and ownership of all copies of any products or
documentation developed by or for NetVoice, or owned by NetVoice, whether
in machine-readable or printed form, and including, without limitation, any
derivative works, compilations, or collective works thereof and all related
technical know-how and all rights therein (including without limitation
rights in patents, copyrights, trademarks, service marks, trade secrets and
other and other intellectual property rights applicable thereto), are an
shall remain the exclusive property of NetVoice. Reseller shall not take
any action to
INTERNET DIAL-UP RESALE AGREEMENT - Page 4 of 11
<PAGE>
jeopardize, limit or interfere in any manner with NetVoice's ownership of
and rights with respect to the NetVoice products and documentation granted
to it pursuant to this Agreement. Title to and ownership of all copies of
any products or documentation developed by or for Reseller, or owned by
Reseller, whether in machine-readable or printed form, and including,
without limitation, any derivative works, compilations, or collective works
thereof and all related technical know-how and all rights therein
(including without limitation rights in patents, copyrights, trademarks,
service marks, trade secrets and other and other intellectual property
rights applicable thereto), are and shall remain the exclusive property of
Reseller. NetVoice shall not take any action to jeopardize, limit or
interfere in any manner with Reseller's ownership of and rights with
respect to the Reseller's products and documentation.
5.3 Reseller agrees not to dissemble, decompile or reverse engineer
any of NetVoice's Internet software.
5.4 Neither party shall take any action or intentionally omit to take
any action, that would jeopardize, limit or interfere in any manner with
the ownership of the other party in the other party's products or
documentation or intellectual property.
5.5 Neither party nor its employees or agents shall knowingly remove
or alter the other party's trademark, trade name, copyright, or other
proprietary notices, legends, or symbols.
6. WARRANTIES
----------
6.1 NetVoice will make every reasonable effort to deliver the
Internet Services, 24 hours a day, seven days a week; however, NetVoice
cannot and does not warrant or guaranty such availability. NetVoice's sole
liability to Reseller or to any third party for claimed error(s) or
omissions(s) by NetVoice in the delivery or failure to deliver any Internet
Service shall be to restore services and/or to correct said error(s) or
omission(s) as soon as is practicable following notice thereof by Reseller
to NetVoice, unless such error(s) or omission(s) are due to the negligence
or intentional misconduct of NetVoice, its agents or employees, in which
event NetVoice will be liable for the amount of damages caused by its, or
its agents' or employees', negligence or intentional misconduct. In
addition, NetVoice will refund or excuse payment for a proportional amount
of the fees due from Reseller to NetVoice for such Internet Services, in
accordance with NetVoice's standard refund/credit policies, which may from
time-to-time change, upon thirty (30) days notice to Reseller. Except as
aforesaid, NetVoice shall not under any circumstances be liable to Reseller
or to third parties for monetary damages.
6.2 NetVoice warrants that the software provided hereunder is and
will be Year 2000 compliant, meaning that the software will function
correctly into and beyond the Year 2000, and accurately process date and
time data, and that it will neither contain nor create any logical or
mathematical inconsistency, will not malfunction, and will not cease to
function when processing date and time data. NetVoice further warrants
that the Internet Services will conform, in all material respects, to the
specifications provided to Reseller. NetVoice further represents and
warrants that it has the authority to enter into this Agreement and that
the execution and performance of this Agreement will not violate any
agreement to which it is bound and that it has no knowledge of any claim
that its products or services infringe any patent, copyright, trademark or
any other intellectual property of any third party. UNLESS OTHERWISE
SPECIFIED HEREIN, ALL SERVICES PROVIDED BY NETVOICE ARE PROVIDED "AS IS."
NETVOICE MAKES
INTERNET DIAL-UP RESALE AGREEMENT - Page 5 of 11
<PAGE>
NO WARRANTY WHETHER EXPRESS, IMPLIED OR STATUTORY, AS TO THE DESCRIPTION,
QUALITY, MERCHANTABILITY, NON-INFRINGEMENT, COMPLETENESS OR FITNESS FOR ANY
PURPOSE IN CONNECTION WITH ITS NETWORK OR OF THE INTERNET SERVICE OR LOCAL
ACCESS OR AS TO ANY OTHER MATTER, ALL OF WHICH WARRANTIES BY NETVOICE ARE
HEREBY EXCLUDED AND DISCLAIMED.
6.3 UNLESS OTHERWISE STATED HEREIN, IN NO EVENT SHALL EITHER PARTY BE
LIABLE TO THE OTHER OR ANY OF RESELLER'S CUSTOMERS OR ANY OTHER PERSON,
FIRM OR ENTITY IN ANY OTHER RESPECT, FOR DIRECT, INDIRECT, CONSEQUENTIAL,
SPECIAL, INCIDENTAL, ACTUAL, OR PUNITIVE DAMGES, OR FOR ANY LOST PROFITS OF
ANY KIND OR NATURE WHATSOEVER, EVEN IF FORESEEABLE, ARISING OUT OF ANY
MISTAKE, ACCIDENT, ERROR, OMISSION, INTERRUPTION, OR DEFECT IN
TRANSMISSION, OR DELAY ARISING OUT OF OR RELATING TO THE INTERNET SERVICES
OR THE OBLIGATIONS OF NETVOICE UNDER THIS AGREEMENT AND ANY EXHIBITS OR
SHCEDULES HERETO, INCLUDING, WITHOUT LIMITATION, (I) ANY FAILURE TO TIMELY
OR ACCURATELY PROVIDE OR INSTALL ANY PORTION OF THE INTERNET SERVICES, OR
(II) ADVERSE CONDITIONS THAT MAY RESULT FROM ACTIONS BY REGULATORY OR
JUDICAL AUTHORITIES. EXCEPT FOR LOSS, DAMAGE OR EXPENSE ARISING FROM
ERRORS OR OMISSIONS CAUSED BY NETVOICE'S, OR ITS AGENTS' OR
REPRESENTATIVES' NEGLIGENCE OR INTENTIONAL MISCONDUCT, A BREACH OF WARRANTY
CONTAINED IN PARAGRAPH 6.2 HEREOF OR ANY ACT OR OMISSION THAT GIVES RISE TO
A DUTY TO INDEMNIFY RESELLER UNDER PARAGRAPH 7, NETVOICE'S ENTIRE LIABILITY
FOR ANY CLAIM OR LOSS, DAMAGE OR EXPENSE FROM ANY CAUSE WHATSOEVER SHALL IN
NO EVENT EXCEED THE MONIES ACTUALLY PAID TO NETVOICE UNDER THIS AGREEMENT
BY RESELLER FOR THE SPECIFIC SERVICES THAT GIVE RISE TO THE CLAIM.
7. INDEMNIFICATION
---------------
Reseller agrees to indemnify and hold NetVoice and NetVoice's shareholders,
directors, officers, employees, agents and advisors, from and against any
and all claims, demands, actions, costs, liabilities, and losses arising
out of (i) any willful or negligent act or omission of Reseller; (ii) any
actual or alleged infringement involving material, data, information or
other content transmitted by Reseller's Customers and other acts or
omissions of Reseller's Customers; (iii) any material misstatements or
misrepresentations made by Reseller or its employees, or agents; (iv) any
sales, use or other taxes or duties, payable with respect to any product
sales made by Reseller in its business operations; (v) any fraudulent
and/or illegal dial-up Internet access of any nature which may comprise a
portion of the Internet Services provided hereunder, but only in the event
that the party claiming the fraudulent dial-up Internet access is (or had
been at the time of the incident) Reseller's Customer, provided to any of
Reseller's Customers who claims fraudulent and/or illegal dial-up Internet
access with respect to such Internet Services, as a result of such claim;
and (iv) any breach of this Agreement by Reseller.
INTERNET DIAL-UP RESALE AGREEMENT - Page 6 of 11
<PAGE>
NetVoice agrees to indemnify and hold Reseller and Reseller's
shareholders, directors, officers, employees, agents and advisors harmless
from and against any and all claims, demands, actions, costs, liabilities
and losses arising out of (i) any willful or negligent act or omission of
NetVoice; (ii) any actual or alleged infringement by NetVoice or another's
patent, copyright, trademark or any other intellectual property of any
third party; (iii) any material misstatements or misrepresentations made by
NetVoice or its employees or agents; and (iv) any breach of this Agreement
by NetVoice.
8. FORCE MAJEURE
-------------
The Parties' obligations under this Agreement are subject to, and
neither party shall be liable for, delays, failures to perform, damages,
losses or destruction, or malfunction of any equipment or any consequent
thereof caused or occasioned by, or due to fire, flood, water, the
elements, labor disputes, utility curtailments, power failures, explosions,
civil disturbances, governmental actions, shortages of equipment for
supplies, unavailability of transportation, acts or omissions of third
parties, or any other cause beyond the party's reasonable control.
Notwithstanding the occurrence of any of the foregoing, Reseller shall
remain liable for the payment of any outstanding invoices and for prior
services rendered hereunder by NetVoice. Reseller shall not represent to
any person or entity that NetVoice is responsible for any such delay or
interruption of the Internet Services provided to Reseller's Customers.
9. NO AGENCY
---------
Neither party has the authority to bind the other by contract or
otherwise make any representations or guarantees on behalf of the other.
Each party acknowledges and agrees that the relationship arising from this
Agreement does not constitute an agency, joint venture, partnership,
employee relationship or franchise. Reseller acknowledges and agrees that
it is an independent contractor.
10. ASSIGNMENT
----------
This Agreement is binding upon each party and its respective
affiliates, successors, and assigns. Neither party may assign this
Agreement, except to its affiliates or its successors-in-interest without
the prior written consent of the other party, which consent will not
unreasonably be withheld.
11. NO WAIVER
---------
The failure of either party to enforce or insist upon compliance with
any of the provisions of the Agreement or the waiver thereof, in any
instance, shall not be construed as a general waiver or relinquishment of
any other provision of this Agreement.
12. AMENDMENT
---------
This Agreement may not be amended except by an instrument in writing,
executed by both parties. No amendment shall be effected by the
acknowledgment or acceptance by either party of any purchaser order, sales
acknowledgment or other similar form from the other party.
INTERNET DIAL-UP RESALE AGREEMENT - Page 7 of 11
<PAGE>
13. TITLES AND SUBTITLES
--------------------
The titles of the Articles and Sections of this Agreement are for
convenience of reference only and are not to be considered in construing
this Agreement.
14. MERGER
------
This Agreement (including its attached schedules and exhibits)
supersedes and merges all prior agreements, promises, understandings,
statements, representations, warranties, indemnities and covenants and all
inducements to the making of this Agreement relied upon by either party
herein, whether written or oral, and embodies the parties' complete and
entire agreement with respect to the subject matter hereof. No statement
or agreement, oral or written, made before the execution of this Agreement
shall vary or modify the written terms hereof in any way whatsoever.
15. INTERPRETATION
--------------
The words and phrases used herein shall have the meaning generally
understood in the telecommunications/Internet industry. This Agreement
shall be construed in accordance with its fair meaning and not against the
drafting party.
16. THIRD PARTY BENEFICIARIES
-------------------------
This Agreement has been made and is made solely for the benefit of
NetVoice and Reseller, and their respective successors and permitted
assigns. Nothing in this Agreement is intended to confer any
rights/remedies under or by reason of this Agreement on any third party.
17. SEVERABILITY
------------
If any term or provision of this Agreement is determined to be
illegal, unenforceable, or invalid in whole or in part for any reason, such
illegal, unenforceable, or invalid provisions or part(s) thereof shall be
stricken from this Agreement and such provision shall not affect the
legality, enforceability, or validity of the remainder of this Agreement.
18. REPRESENTATION OF AUTHORITY
---------------------------
Each party represents and warrants that: (i) the person executing this
Agreement has the authority to bind the party on whose behalf he/she is
signing to the terms of this Agreement; (ii) the execution and delivery of
this Agreement and performance of such party's obligations hereunder have
been duly authorized; and (iii) the Agreement is a valid and legal
Agreement binding on such party and enforceable in accordance with its terms.
INTERNET DIAL-UP RESALE AGREEMENT - Page 8 of 11
<PAGE>
19. CHOICE OF LAW
-------------
Any disputes that may arise under this Agreement shall be resolved in
accordance with the laws of the State of Texas without regard to choice of
laws, rules or principles. Each party agrees that jurisdiction and venue
for any and all disputes under this Agreement will be proper in Dallas
County, Texas.
20. NOTICES
-------
All notices required or permitted to be given hereunder shall be in
writing and shall be valid and sufficient if dispatched (i) by hand
delivery, (ii) by facsimile transceiver, with confirming letter mailed
promptly thereafter by first class mail, postage prepaid, (iii) by
reputable overnight express courier or (iv) by certified mail, postage
prepaid, return receipt requested, deposited in any post office in the
United States, in any case, addressed to the addresses set forth on the
first page of this Agreement, or such other addresses as may be provided
from time to time in the manner set forth above. When sent by facsimile,
notices shall be considered to have been received at the beginning of
recipient's next business day following their confirmed transmission;
otherwise, notices shall be considered to have been received only upon
delivery or attempted delivery during normal business hours.
21. SURVIVAL OF OBLIGATIONS
-----------------------
The parties' rights and obligations that, by their nature, would
continue beyond the termination, cancellation, or expiration of this
Agreement, shall survive such termination, cancellation or expiration.
22. CONFIDENTALITY
--------------
22.1 Both parties agree to keep the terms of this Agreement
confidential, unless otherwise required by law.
22.2 NetVoice acknowledges that the following materials and
information, and all copies thereof, constitute confidential information
belonging exclusively to Reseller ("Reseller's Confidential Information");
(i) lists of subscribers to Reseller's Internet Services (the
"Subscribers"), including without limitation information about their
occupation, credit card numbers, information, and preferences; (ii) the
results of market research performed or obtained by Reseller concerning any
or all Subscribers; (iii) information belonging to and/or concerning
Reseller that is not generally known by or disclosed to the public,
including without limitation information regarding Reseller's hardware,
software, personnel, finances, business plans, computer programs, code,
algorithms, expertise of employees and consultants, know-how, formulas,
processes, ideas, inventions (whether patentable or not), schematics and
other technical, business, financial and product development plans,
forecasts, strategies and other such information. NetVoice hereby agrees
not to disclose or use, and to assure that its employees and agents not
disclose or use, any of Reseller's Confidential Information in connection
with any competitor or potential competitor of Reseller or any other
systems operator or person. NetVoice further agrees not to use such
information in connection with any obligations that are now owed, or in the
future may be owed, by NetVoice to any other person or entity during the
term of this Agreement.
INTERNET DIAL-UP RESALE AGREEMENT - Page 9 of 11
<PAGE>
22.3 Reseller acknowledges that the following materials and
information, and all copies thereof, constitute confidential information
belonging exclusively to NetVoice ("NetVoice's Confidential Information"),
(i) the results of market research performed or obtained by NetVoice
concerning any or all of its customers; (ii) information belonging to
and/or concerning NetVoice that is not generally known by or disclosed to
the public, including without limitation information regarding NetVoice's
hardware, software, personnel, finances, business plans, computer programs,
code, algorithms, expertise of employees and consultants, know-how,
formulas, processes, ideas, inventions (whether patentable or not),
schematics and other technical, business, financial and product development
plans, forecasts, strategies and other such information. Reseller hereby
agrees not to disclose or use, and to assure that its employees and agents
not disclose or use, any of NetVoice's Confidential Information in
connection with any competitor or potential competitor of NetVoice or any
other systems operator or person. Reseller further agrees not to use such
information in connection with any obligations that are now owed, or in the
future may be owed, by Reseller to any other person or entity during the
term of this Agreement.
22.4 Each party acknowledges that Reseller's Confidential Information
and NetVoice's Confidential Information (collectively, the "Confidential
Information") is valuable, special and unique, that its unauthorized
disclosure or use will cause irreparable injury to the other party and that
immediate injunctive and/or other equitable relief that will be necessary
and appropriate to remedy an unauthorized disclosure or use of such
information, which may include without limitation a Temporary Restraining
Order as well as permanent injunctive relief.
22.5 Neither party will cause or attempt to cause any employee or
agent of the other party to its subsidiaries or parent company, to
terminate his/her employment during the term of this Agreement and for a
period of 2 years following the expiration or earlier termination of this
Agreement.
22.6 Upon the termination of this Agreement, each party agrees to
promptly return to THE OTHER PARTY, any and all Confidential Information
and other materials belonging to the other party, then in its possession or
control.
22.7 Confidential Information shall not include information which (i)
is or becomes public knowledge through no fault of the receiving party;
(ii) is in the lawful possession of the receiving party prior to disclosure
to it by the disclosing party (as confirmed by the receiving party's
records); or (iii) is disclosed to the receiving party without restriction
on disclosure by a person who has the lawful right to disclose the
information.
22.8 Paragraph 22 will survive the termination of this Agreement.
INTERNET DIAL-UP RESALE AGREEMENT - Page 10 of 11
<PAGE>
23. MEDIA RELEASES
--------------
Neither party shall issue any public statement regarding this
Agreement, its terms, or the fact that NetVoice is providing services to
Reseller or that Reseller is purchasing such services from NetVoice, unless
approved in writing by a authorized representative of the other party.
NETVOICE CORPORATION Z-TEL COMMUNICATIONS, INC.
By: /s/ By: /s/
-------------------------- ---------------------------
Title: President/CEO Title: Chief Technology Officer
----------------------- -------------------------
Date: 1/19/2000 Date: 1/19/2000
------------------------ --------------------------
INTERNET DIAL-UP RESALE AGREEMENT - Page 11 of 11
<PAGE>
EXHIBIT A
PRICE FOR SERVICES
1. "Full Service"
Full Service Pricing includes: Unlimited Internet Access with dial-up
service, NOC Services, Technical support, Hosting Services and E-Mail
Services meeting or exceeding industry standards priced as follows:
BUNDLED "FULL SERVICE"
- -----------------------------------------------------------------
ACCESS ACCOUNTS PRICE PER ACCOUNT
- -----------------------------------------------------------------
0-50,000 $10.19
- -----------------------------------------------------------------
50,001-100,000 $10.10
- -----------------------------------------------------------------
100,001-150,000 $ 9.90
- -----------------------------------------------------------------
150,001-200,000 $ 9.75
- -----------------------------------------------------------------
200,001-250,000 $ 9.50
- -----------------------------------------------------------------
250,000 and up $ 9.30
- -----------------------------------------------------------------
2. "Port Direct Product"
Port Direct Product includes access to Dial-up ports in all NetVoice
P.O.P.s, and comes with N.O.C. and Internet Bandwidth. Technical support
is separate, and priced on a per subscriber basis. NetVoice hereby
acknowledges that Reseller is a telecommunications carrier and is subject
to regulatory oversight in the provision of certain components of its
services. NetVoice, therefore, agrees to use its best efforts to conduct
itself in a manner consistent with such carrier/carrier relationship, and
to provide carrier grade service to Reseller, including, but not limited
to, providing prompt and full access to NetVoice P.O.P.s, prompt
responsiveness to deployment of features requested by Reseller and prompt
responsiveness to technical and other problems arising out of the use of
the Port Direct Product.
1 PORT DIRECT PRODUCT
- ----------------------------------------------------------------------
2 TOTAL SUBSCRIBERS 3 COST PER TECHNICAL SUPPORT PER
SUBSCRIBER SUBSCRIBER
- ----------------------------------------------------------------------
0-50,000 $4.50 $1.80
- ----------------------------------------------------------------------
50,001-100,000 $4.35 $1.70
- ----------------------------------------------------------------------
100,000-500,000 $4.20 $1.60
- ----------------------------------------------------------------------
3. MINIMUM NUMBER OF ACCOUNTS
1000 Accounts
----
EXHIBIT A TO INTERNET DIAL-UP RESALE AGREEMENT - Page 1 of 1
<PAGE>
EXHIBIT B
---------
CD PRICING
1. CD Pricing below includes customized printed cardboard sleeve.
QUANTITY LICENSE FEE CD BURN IN FEE
- ----------------------------------------------------------------------
0-30,000 1.75 .75
- ----------------------------------------------------------------------
30,001-50,000 1.50 .72
- ----------------------------------------------------------------------
50,001-60,000 1.45 .69
- ----------------------------------------------------------------------
60,001-70,000 1.40 .66
- ----------------------------------------------------------------------
70,001-80,000 1.35 .63
- ----------------------------------------------------------------------
80,001-90,000 1.30 .60
- ----------------------------------------------------------------------
90,001-100,000 1.25 .58
- ----------------------------------------------------------------------
100,001-190,000 1.20 .56
- ----------------------------------------------------------------------
190,001-290,000 1.15 .54
- ----------------------------------------------------------------------
290,001-390,000 1.10 .52
- ----------------------------------------------------------------------
390,001-490,000 1.05 .49
- ----------------------------------------------------------------------
490,001-990,000 1.00 .46
- ----------------------------------------------------------------------
990,001-1,490,000 .95 .43
- ----------------------------------------------------------------------
1,490,001-1,990,000 .90 .40
- ----------------------------------------------------------------------
1,990,001 and up .85 .37
- ----------------------------------------------------------------------
2. The license fee and CD burn in fee applicable to an Order will be based
on the total quantity of licenses and CDs ordered by Reseller during the
term, including such order.
3. Reseller is not required to purchase the same number of licenses ass it
does CDs, e.g., Reseller may purchase one license for every five CDs ordered.
EXHIBIT B TO INTERNET DIAL-UP RESALE AGREEMENT - Page 1 of 1
<PAGE>
EXHIBIT C
---------
SERVICE STANDARDS
-----------------
NetVoice shall provide Internet Services that meet the following standards:
* NetVoice shall not fail to provide Internet Services more than 5% of
the total number of minutes, or any fraction thereof, during any one
calendar month from any single access point.
* Reseller's Customers shall not experience busy signals when dialing
up NetVoice's Internet Services more than 5% of the number of times
Reseller's Customers attempt to dial up such Internet Services from
any single access point in any one calendar month.
EXHIBIT C TO INTERNET DIAL-UP RESALE AGREEMENT - Page 1 of 1
EXHIBIT 10.34
AGREEMENT
THIS AGREEMENT ("Agreement") is entered into and effective as of
December 15, 1999, by and between NETVOICE CORPORATION ("NetVoice"), a
Nevada corporation, and LANDMARK COMMUNITY NEWSPAPERS, INC. ("Landmark"),
a Virginia corporation.
RECITALS:
A. NetVoice is a provider of Internet services and maintains as
Internet network.
B. Landmark is a provider of print and electronic information and is
involved in a wide array of communications services.
C. NetVoice desires to provide compensation to Landmark for
promotional activities by Landmark, under the terms and conditions of this
Agreement.
AGREEMENT:
NOW THEREFORE, the parties hereby agree as follows:
1. INTERNET ACCESS; PRICING.
1.1 LOCAL ACCESS. NetVoice shall provide, in the "Markets" (as
defined in Section 6), Internet access, e-mail, unified messaging and web
hosting, via a local telephone number as further described on Exhibit A
hereto in a manner consistent with industry standards ("Internet Access")
to customers who subscribe with NetVoice for such Internet access
("Customers"). NetVoice shall not subcontract that portion of the
provision of Internet Access that involves dial-up access, including since
involving modems and servers, for any Internet Access in the Markets.
1.2 PRICING. Landmark shall set the pricing for all Internet
Access provided by NetVoice in each Market ("Price for Access"), and the
Price for Access may vary in all or some of the Markets. Landmark shall
give NetVoice notice 45 days prior to the first day of the month in which
Landmark desires a change in any Price for Access ("Price Change Date"),
which change shall be effected by NetVoice upon the Price Change Date.
NetVoice shall not enter into any contracts with Customers for a term
greater than one year, and in the case of any such contracts that have a
term greater than one month, NetVoice shall not increase any Price for
Access during the term of such contract but, in the event of a decrease by
Landmark in the Price for Access, shall decrease the Price for Access on
the Price Change Date if Landmark so requests.
<PAGE>
2. PAYMENT TO LANDMARK.
2.1 NETVOICE PAYMENT TO LANDMARK. For each Customer to whom
NetVoice provides Internet Access in the Markets, NetVoice will pay to
Landmark a fee per month Customer equal to the amount by which the Price
for Access exceeds $12.95 ("Fees"), which Fees shall be paid to Landmark by
the 15th day of each month for all Customers for the immediately preceding
month. In the event of a discontinuance of a Customer's Internet Access,
if NetVoice pro-rates the amount due from Customer for the remaining term
of Customer's contract with NetVoice, Landmark's Fees shall be pro-rated
according to the pro-ration by NetVoice of the amount due NetVoice from
Customer.
2.2 RIGHT TO AUDIT. Along with the payment described in Section
2.1, NetVoice shall provide to Landmark a report setting forth the number
of Customers as well as the number that subscribed or canceled their
subscription for the month to which such payment pertains. Landmark shall
have the right to review the books and records of NetVoice which pertain to
the Fees and the Customers to verify the accuracy of such reports during
normal business hours and with five days prior notice. Landmark shall be
responsible for all costs of each such audit except, in the event the
payments to Landmark are determined by the audit to be deficient by 5%,
NetVoice shall pay all audit costs and all additional amounts determined by
the audit to be due to Landmark.
2.3 VoIP SERVICE. During the Term, NetVoice shall provide to
Landmark offices that are participating in the promotion of Internet
Access, free of charge, Voice over Internet Protocol ("VoIP") service
between such Landmark offices, enabling all such Landmark offices to make
unlimited long-distance telephone calls (including, facsimile transmissions
and long-distance service as requested) free of charge through NetVoice's
VoIP service systems.
3. PROMOTION OF INTERNET ACCESS. Landmark shall actively promote
the Internet Access through its print (and in Landmark's sole discretion,
electronic) publications in the Markets ("Promotion"). The method and
frequency of such Promotion shall be in the sole discretion of Landmark.
4. LICENSE.
4.1 LICENSE TO MARKS. Subject to the terms and conditions of
this Agreement, NetVoice hereby granted to Landmark, during the Term, a
non-exclusive, nonassignable, nonsublicensable, nontransferable, royalty-free
license to use, reproduce and display the NetVoice name, logo and other
distinctive brand features of NetVoice ("Marks") used in connection
with the Promotion.
4.2 GOODWILL. Landmark shall not display or use the Marks in
any manner which denigrates the Marks, NetVoice or its affiliates.
Landmark acknowledges that particular and substantial goodwill is
associated with the Marks as well as the name "NetVoice" and its related
-2-
<PAGE>
corporate names and trademarks. Landmark shall not jeopardize or damage
such goodwill, and any goodwill relating to NetVoice or the Marks shall
accrue to the benefit of NetVoice.
4.3 TERMINATION OF USE. Landmark acknowledges NetVoice's
exclusive right, title and interest in and to the Marks and has not and
shall not at any time in the future do or cause to be done any act or thing
contesting or in any way impairing any such right, title or interest or
portion in the Marks or registration thereof, and Landmark acknowledges
that use of the Marks shall not create in Landmark's favor any right, title
or interest in or to the Marks, but all uses of the Marks shall inure to
the benefit of NetVoice.
4.4 COPIES OF ADVERTISEMENTS. Landmark shall provide to
NetVoice a copy of each advertisement that Landmark may place in any of
Landmark's publications in connection with the Promotion within 10 days of
the date of such advertisement is published.
5. TERM; TERMINATION OF INTERNET ACCESS.
5.1. TERM. The term of this Agreement ("Term") shall commence
on the date hereof and, unless sooner terminate as provided in Section 12,
shall continue until 90 days after the date either party gives notice to
the other of termination of this Agreement.
5.2 TERMINATION OF INTERNET ACCESS. In the event of termination
of this Agreement, NetVoice shall give all Customers 30 days prior written
notice of cancellation of Internet Access. No Customer's Internet Access
shall be terminated with less than 30 days prior written notice unless such
Customer is otherwise in default of its obligations to NetVoice pursuant to
such Customer's subscription for Internet Access.
6. MARKETS; PHASE-IN. NetVoice shall provide Internet Access to
Customers in the counties served by publications owned by Landmark or its
affiliates ("Markets") and within the time frames described on Exhibit B.
Additional Markets may be added by mutual agreement of the parties upon the
same terms and conditions contained in this Agreement.
7. SIMULTANEOUS ACCESS. Beginning with initiation of Internet
Access in each Market and continuing throughout the Term, NetVoice shall
install, operate and maintain a system of service for the Internet Access
that allows simultaneous Internet Access to the number of Customers in a
particular Market set forth in Exhibit C attached hereto.
8. BILLING, CUSTOMER SERVICE; START-UP MATERIALS.
8.1 MARKETING; BILLING; COLLECTION. Except as provided in
Section 3, NetVoice shall market and sell Internet Access to Customers
within the Markets and shall be responsible for all billing, collecting,
technical support and customer service in addition to its other obligations
under this Agreement. NetVoice shall not disclose Landmark's involvement
in the
-3-
<PAGE>
Promotion and shall have no right to use Landmark's name, trademarks, trade
names or logos or those of any Landmark affiliate in any manner or under
any circumstances.
8.2 START-UP MATERIALS. NetVoice shall provide, at NetVoice's
sole cost and expense, to each Customer upon such Customer's subscription
for Internet Access (a) assistance with downloading online the necessary
software applications to obtain Internet Access or (b) a start-up kit which
kit shall include the set-up software applications on a CD ROM or diskette,
depending on the particular Customer's installation method of choice, and
other materials necessary for such Customer to obtain Internet Access on
such Customer's personal computer.
9. NONSOLICITATION OF EMPLOYEES. Neither party shall, during the
Term and for a period of one year from the termination of this Agreement,
directly or indirectly, individually or on behalf of any other person or
entity, (a) entice or induce any employee of the other party or an
affiliate of the other party to leave the employment of the other party or
an affiliate of the other party to work with the soliciting party or an
affiliate of the soliciting party, or (b) in any way interfere with the
relationship between the other party and any employee of the other party or
an affiliate of the other party.
10. REPRESENTATIONS AND WARRANTIES OF NETVOICE.
10.1 OWNERSHIP OF MARKS. NetVoice owns all of the rights, title
and interest in and to the Marks free of all liens, security interests,
encumbrances and other adverse claims and has the right to use the Marks
without payment to any third party. The Marks have not been, nor are they
now, involved in any opposition, invalidation or infringement action and no
such action is threatened against the Marks. The Marks do not infringe nor
are they alleged to infringe on any trade name, trademark or service mark
of any third party, nor is there any potentially interfering trademark or
trademark application of any third party.
10.2. CORPORATE EXISTENCE. NetVoice is a corporation which is
duly organized and validly existing and in good standing under the laws of
the state of Nevada.
10.3 AUTHORITY. NetVoice has the requisite corporate power and
capacity to enter into this Agreement and to carry out and perform its
obligations under the terms of this Agreement and to consummate the
transactions contemplated thereby.
10.4 ABILITY TO PERFORM. NetVoice has all necessary skills and
facilities to perform all of its obligations under this Agreement.
10.5 COMPLIANCE WITH LAWS. NetVoice has complied and will
comply, in all material respects, with all laws, decrees, rules,
regulations, orders, ordinances, actions and requests of all federal, state
and governmental bodies and courts applicable to NetVoice in performing its
obligations hereunder.
-4-
<PAGE>
11. REPRESENTATIONS AND WARRANTIES OF LANDMARK.
11.1 CORPORATE EXISTENCE. Landmark is a corporation which is
duly organized and validly existing and in good standing under the laws of
the state of Virginia.
11.2 AUTHORITY. Landmark has the requisite corporate power and
capacity to enter into this Agreement and to carry out and perform its
obligations under the terms of this Agreement and to consummate the
transactions contemplated thereby.
11.3 COMPLIANCE WITH LAWS. Landmark has complied and will
comply, in all material respects, will all laws, decrees, rules,
regulations, orders, ordinances, actions and requests of all federal, state
and governmental bodies and courts applicable to Landmark in performing its
obligations hereunder.
12. TERMINATION. Either party shall have the right to terminate this
Agreement without further obligation of any party (except for the rights
and obligations under Sections 2.1, 2.2, 5.2, 9, 10, 11, 13, 15, and 16 and
except as provided below), upon a date 30 days after Notice to the other
party of the occurrence of any of the following events if the party
receiving Notice fails to cure the breach or failure within such 30-day period.
12.1 FAILURE TO PERFORM. Either party's material failure to
perform its obligations hereunder, including (a) NetVoice's failure to
provide Internet Access to the Customers and VoIP to Landmark under the
terms and conditions of this Agreement; or (b) Landmark's failure to
promote Internet Access in its print publications in the Markets as
described in Section 3.
12.2 BREACH OF REPRESENTATION OR WARRANTY. Any breach of any
representation or warranty made by either party in this Agreement.
12.3 INSOLVENCY. Either party's insolvency, the appointment of
a receiver for all or any part of either party's business, an assignment
for the benefit of creditors, or the commencement of any proceedings under
the applicable bankruptcy laws against either party if such proceedings are
unstayed for a period of 60 days after filing.
In the event the breach or failure described above involves a failure to
pay money hereunder, such 30 day period to cure shall be reduced to 10 days.
13. INDEMNIFICATION.
13.1 INDEMNIFICATION BY NETVOICE. NetVoice shall indemnify and
hold Landmark and its affiliates and their directors, officers, employees,
shareholders, agents, successors and permitted assigns harmless from and
against any and all claims, losses, orders, liabilities, debts,
obligations, costs, damages, deficiencies, actions, suits, proceedings,
demands, assessments, orders, judgments, writs, decrees, or other expenses,
including reasonable attorneys' fees, or diminution of value, whether or
not involving a third party claim, of any nature or of any kind
-5-
<PAGE>
whatsoever, arising, directly or indirectly, out of or in any manner
connected with (a) any misrepresentation or breach or failure of any
representation or warranty of NetVoice hereunder, (b) the nonfulfillment of
any covenant, agreement or obligation of NetVoice hereunder, (c) the
provision by NetVoice of Internet Access, (d) any infringement by NetVoice
of any trademark (registered or common law) or patent, or (e) the use by
Landmark of the Marks.
13.2 INDEMNIFICATION BY LANDMARK. Landmark shall indemnify and
hold NetVoice and its affiliates and their directors, officers, employees,
shareholders, agents, successors and permitted assigns harmless from and
against any and all claims, losses, orders, liabilities, debts,
obligations, costs, damages, deficiencies, actions, suits, proceedings,
demands, assessments, orders, judgments, writs, decrees, or other expenses,
including reasonable attorneys' fees, or diminution of value, whether or
not involving a third party claim, of any nature or of any kind whatsoever,
arising, directly or indirectly, out of or in any manner connected with (a)
any misrepresentation or breach or failure of any representation or
warranty of Landmark hereunder, or (b) the nonfulfillment of any covenant,
agreement or obligation of Landmark hereunder.
14. SURVIVAL. The provisions of Sections 2.2, 5.2, 9, 10, 11, 13,
15, and 16 and the obligation to pay any amounts due Landmark under Section
2.1 shall survive the Term and termination of this Agreement.
15. MEDIATION; ARBITRATION.
15.1 PARTY MEDIATION. In the event there is a dispute between
the parties under this Agreement, the parties will attempt in good faith to
resolve the dispute promptly by mediation. Within 10 days after receipt of
Notice form the other party, the party receiving Notice shall submit to the
other party a written response. The response shall (a) describe the
specific facts and circumstances in reasonable detail regarding the dispute
and (b) give the name and title of the person who will represent the party
receiving Notice. The representatives of the parties shall each have the
authority to settle the dispute. The representative shall meet at a
mutually acceptable time and place within 20 days of the date of the
response of the party receiving Notice and thereafter as often as they
reasonably deem necessary to exchange relevant information and to attempt
to resolve the dispute.
15.2 ARBITRATION. If a dispute has not been resolved pursuant
to the mediation procedures outlined in Section 15.1 within 40 days of the
initiation of such procedure, or if either party will not participate in
the mediation, the dispute shall be exclusively determined, and the dispute
shall be settled, by arbitration in accordance with the American
Arbitration Association ("AAA") Commercial Arbitration Rules then in
effect, except as provided below in this Section 15.2. The arbitration
shall be conducted by one arbitrator, who shall be appointed by AAA from a
panel of at least 10 qualified arbitrators. Each party shall have the
right to strike three names from the panel proposed by the AAA. The
arbitrator is not empowered to award any damages, including punitive
damages, in excess of compensatory damages and each party hereby
irrevocably waives the right to receive any damages in excess of
compensatory damages. The parties shall furnish each other with the
originals or true copies of all books, records and other
-6-
<PAGE>
documents in their possession which may be requested by the other party.
No additional discovery shall be permitted. Any decision or award of the
arbitrator shall be final and binding upon the parties. Judgment upon the
award rendered may be entered in any court having jurisdiction, or
application may be made to such court for a judicial acceptance of the
award or any order of enforcement, as the case may be. The arbitrator may
grant injunctive relief, including temporary, preliminary, permanent and
mandatory injunctive relief. The arbitrator is empowered to apportion the
costs and expenses of arbitration, including costs of investigation and
reasonable attorneys' fees, among the parties in such manner as the
arbitrator shall deem reasonable. In the conduct of the arbitration:
(a) Summaries of any expert testimony, along with copies of
all documents to be submitted as exhibits, shall be exchanged at least 10
days before the arbitration under procedures set up by the arbitrator.
(b) Each party's direct presentation at the arbitration
hearing shall be limited to a maximum of five hours, and the hearing shall
be completed within a maximum of three days.
(c) The arbitration decision shall be rendered no later
than 30 days after that final day of the hearing.
(d) The arbitration shall be held in Louisville, Kentucky
and governed by the laws of the Commonwealth of Kentucky and the United
States Arbitration Act, 9 U.S. Sections 1-16, except as otherwise provided
in this Section 15.2.
15.3 EXCLUSIVE PROCEDURES. The procedures specified in Section
15 shall be the sole and exclusive procedures for the resolution of
disputes between the parties arising out of or relating to the matters
subject to mediation and arbitration as provided herein, provided, that a
party may seek a preliminary injunction or other provisional judicial
relief if, in its judgment, such action is necessary to avoid irreparable
damage or to preserve the status quo. Despite such action the parties will
continue to participate in good faith in the procedures specified in this
Section 15.
16. MISCELLANEOUS.
16.1 AMENDMENT; WAIVER. This Agreement may be amended, modified
or superseded only by a written instrument signed by both parties to this
Agreement. No party shall be deemed to have waived compliance by the other
party of any provision of this Agreement unless such waiver is contained in
a written instrument signed by the waiving party and no waiver that may be
given by a party will be applicable except in the specific instance for
which it is given. The failure of any party to enforce at any time any of
the provisions of this Agreement or to exercise any right or option
contained in this Agreement or to require at any time performance of any of
the provisions of this Agreement, by any of the other parties shall not be
construed to be a waiver of such provisions and shall not affect the
validity of this Agreement or
-7-
<PAGE>
any of its provisions or the right of such party thereafter to enforce each
provision of this Agreement. No course of dealing shall operate as a
waiver or modification of any provision of this Agreement or otherwise
prejudice such party's rights, powers and remedies.
16.2 ASSIGNMENT. This Agreement shall not be assigned or
performance of the duties hereunder delegated without the express consent
of the parties hereto, which shall not be unreasonably withheld, except
that this Agreement may be assigned to an affiliate of Landmark.
16.3 CONFIDENTIALITY. Unless otherwise "legally compelled" (by
deposition, interrogatory, request for documents, subpoena, civil
investigative demand, other demand or request by a governmental agency) to
do so, no party shall disclose either the terms or existence of this
Agreement to any person or entity other than a party's counsel and its
other representatives or such other third parties with whom it must
communicate to consummate the transactions described in this Agreement.
Notwithstanding anything herein to the contrary, if a party becomes legally
compelled to disclose either the terms or existence of this Agreement, the
disclosing party shall give prompt prior written notice of such requirement
to the other party before such disclosure such that the disclosing party
shall have the opportunity to seek an appropriate protective order or
related relief or action.
16.4 CONSENT TO JURISDICTION. Each of the parties consents and
voluntarily submits to personal jurisdiction in Kentucky and in the courts
in such state located in Jefferson County and the United States District
Court for the Western District of Kentucky in any proceeding arising out of
or relating to this Agreement, and agrees that all claims raised in such
proceeding may be heard and determined in such court. Each of the parties
further consents and agrees that such party may be served with process in
the same manner as a notice may be given under this Agreement.
16.5 CONSTRUCTION AND INTERPRETATION OF AGREEMENT. The parties
have participated jointly in the negotiation and drafting of his Agreement.
In the event an ambiguity or question of intent or interpretation arises,
this Agreement shall be construed as if drafted jointly by the parties and
no presumption or burden of proof shall arise favoring or disfavoring any
party by virtue of the authorship of any of the provisions of this
Agreement. Unless the context clearly states otherwise, the use of the
singular or plural in this Agreement shall include the other. All
references to "Section" or "Sections" refer to the corresponding Section or
Sections of this Agreement. Unless otherwise expressly provided, the word
"including" does not limited the preceding words or terms.
16.6 ENTIRE AGREEMENT; MODIFICATION. This Agreement embodies
the entire agreement and understanding of the parties related to its
subject matter, supersedes and cancels all prior proposals, understandings,
agreements, correspondence, arrangements and previous and contemporaneous
oral agreements relating to the subject matter of this Agreement, and
constitutes a complete and exclusive statement of the terms of the
agreement between the parties with respect to its subject matter. This
Agreement may be amended, modified, superseded, or canceled only by a
written instrument signed by all of the parties hereto, and any of the
terms,
-8-
<PAGE>
provisions, and conditions hereof may be waived, only by a written
instrument signed by the waiving party.
16.7 EXHIBITS. The Exhibits attached hereto constitute a part
of this Agreement and are incorporated herein by reference in their
entirety as if fully set forth in this Agreement at the point where first
mentioned.
16.8 GOVERNING LAW. This Agreement shall be governed by and
shall be construed and enforced in accordance with, the laws of the
Commonwealth of Kentucky applicable to contracts to be wholly performed
within such state without giving effect to any conflict of law rule or
principle of such state.
16.9 HEADINGS. The headings contained herein are for the
purpose of convenience only and will not be deemed to constitute part of
this Agreement or to affect the meaning of interpretation of this Agreement
in any way.
16.10 INVALIDITY OF PROVISIONS; SEVERABILITY. If any provision
of this Agreement shall to any extent be held in any proceeding to be
invalid, illegal or unenforceable, the remainder of this Agreement, or the
application of such provision to persons or circumstances other than those
to which it was held to be invalid, illegal or unenforceable, shall not be
affected, and shall be valid, legal and enforceable to the fullest extent
permitted by law, but only if and to the extent such enforcement would not
materially and adversely frustrate the parties' essential objectives as
expressed in this Agreement. Furthermore, in lieu of any such invalid or
unenforceable term or provision, the parties intend that in such proceeding
there be added to this Agreement a provision as similar in terms to such
invalid or unenforceable provision as may be valid and enforceable, so as
to effect the original intent of the parties to the greatest extent
possible. Notwithstanding the foregoing, each party hereto agrees that it
has reviewed the provisions of this Agreement, and that the same, taken as
a whole, are fair and reasonable. The parties hereto shall endeavor in
good faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions, the economic effect of which comes as
close as possible to that of the invalid, illegal or unenforceable provisions.
16.11 NO OTHER RELATIONSHIP BETWEEN PARTIES. It is not the
purpose or intention of this Agreement to create a partnership or similar
relationship between the parties hereto. Each of the parties shall be
responsible only for its obligations and liabilities as set forth in this
Agreement, and neither party shall have any authority to act for or to
assume any obligation or responsibility on behalf of the other party.
16.12 NOTICES.
(a) GIVING OF NOTICES. All notices, requests, consents,
approvals, waivers, demands and other communications hereunder
(collectively, "Notices") shall be deemed to have been given if in writing
and (1) personally delivered against a written receipt, or (2) sent by
confirmed telephonic facsimile, (3) delivered to a reputable express
messenger services (such as
-9-
<PAGE>
Federal Express, DHL Courier, United Parcel Service or United States
Express Mail) for overnight delivery, or (4) sent by United States Mail,
postage prepaid, registered or certified, in each case addressed as follows
(or to such other address as a party shall have given Notice to the other):
If to NetVoice: NetVoice Corporation
13747 Montfort Drive, Suite 250
Dallas, Texas 75240
Attn: President
Fax: 972/788-2995
If to Landmark: Landmark Community Newspapers, Inc.
P.O. Box 549
Shelbyville, KY 40066-0549
Attn: President
Fax: 502/633-4447
(b) TIME NOTICES DEEMED GIVEN. All Notices shall be
effective upon being properly personally delivered, or upon confirmation of
a telephonic facsimile, or upon the delivery to a reputable express
messenger service or upon deposit in the United States Mail. The period in
which a response to any such Notice must be given shall commence to run
from the date on the receipt of a personally delivered notice, or the date
of confirmation of a telephonic facsimile or two business days following
the proper delivery of the Notice to a reputable express messenger service,
or three business days following proper deposit in the United States Mail,
as the case may be.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the date first written above.
NETVOICE CORPORATION
By: /s/
----------------------------------------
Title: President
-------------------------------------
("NetVoice")
LANDMARK COMMUNITY NEWSPAPERS, INC.
By: /s/
----------------------------------------
Title: President
-------------------------------------
("Landmark")
-10-
<PAGE>
EXHIBIT A
INTERNET ACCESS SERVICES
Unlimited Internet access via a local access telephone number through a
system of modems with minimum access speed of 56 kbps and adequate
equipment and bandwidth for quick responsiveness after access
E-mail services free of charge (2 e-mail addresses for each Customer
account)
10 megabytes of storage space for personal Web Hosting
Technical support via a local or toll-free telephone number, 24 hours per
day seven days per week
<PAGE>
EXHIBIT B
MARKETS; SCHEDULE OF INTERNET ACCESS ROLL-OUT
FIRST-PHASE MARKETS
Within 30 days from the date hereof-Shelby County, Kentucky
Beginning within 30 days from the date hereof and completed within 90 days
of the date hereof in the order as listed-Bullitt County, Kentucky, Taylor
County, Kentucky, Perry County, Indiana, Spencer County, Indiana, Spencer
County, Kentucky and Owen County, Kentucky.
SECOND-PHASE MARKETS
As requested by Landmark, NetVoice will add Internet Access in six
additional Markets within 180 days from the date hereof; six additional
Markets within 270 days from the date hereof and six additional Markets
within one year from the date hereof for a total of up to 25 Markets within
one year from the date hereof (depending on the number requested by Landmark).
<PAGE>
EXHIBIT C
NUMBER OF CUSTOMERS WITH SIMULTANEOUS ACCESS
For the initial roll-out in each Market, 192 modem ports will be installed
by NetVoice which will give 192 Customers in each such Market simultaneous
access. After six months from the date hereof, the number of Customers in
each Market will be reviewed and additional equipment will be installed by
NetVoice as necessary to insure Customer satisfaction with ease of
obtaining the Internet Access.
EXHIBIT 10.35
AGREEMENT BETWEEN NETVOICE TECHNOLOGIES, INC.
AND LEVEL (3) COMMUNICATIONS,
DATED AUGUST 11, 1999 FOR DALLAS POP
Customer Order Summary
- ----------------------
Order Date: 11-Aug-99
Quote ID: 000008166
Customer Information: Billing Information:
- --------------------- --------------------
Site ID: 9501 Site ID:
Name: NetVoice Technologies Inc. Name:
Address: 13747 Montfort Dr Address:
Ste 250
City: Dallas City:
State: TX State:
Zip: 75240 Zip:
Contact: Scott Ference
Phone: (972) 788-2988
Fax: (972) 788-2995
Product Description and Charges:
- --------------------------------
<TABLE>
<CAPTION>
Monthly
Recurring Non-Recurring
SO# Product Quantity Amount Amount Order Type
______________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
10000 Telephony Colocation 1 $700.00 $0.00 New
10001 CrossRoads 1 $900.00 $0.00 New
10002 Private Line Metro 1 $204.00 $0.00 New
10003 Private Line Metro 1 $204.00 $0.00 New
10004 Private Line Metro 1 $204.00 $0.00 New
10005 Private Line Metro 1 $204.00 $0.00 New
10006 Private Line Metro 1 $204.00 $0.00 New
10007 Private Line Metro 1 $204.00 $0.00 New
10008 CrossRoads 1 $525.00 $0.00 New
Total: 9 $3,349.00 $0.00
</TABLE>
Customer Commitment:
- --------------------
Volume: $0.00 Term: 1 Year Ramp Up (Months): 12
Customer Approval:
- -----------------
This Customer Order is governed by Level 3 Communications LLC's Terms and
Conditions for Delivery of Service (which are available for Customer's
review either upon request or on Level 3's web site), which are hereby
incorporated into this Customer Order. Neither party shall be liable for
any indirect, incidental, special, consequential, exemplary or punitive
damages (including but not limited to damages for lost profits or lost
revenues), whether or not caused by the acts or omissions or negligence of
its employees or agents, and regardless of whether such party has been
informed of the possibility or likelihood of such damages. Relevant
Ser5vice Detail Forms are attached hereto, setting forth specific
information regarding the Services ordered by Customer.
Authorized Customer Signature: /s/ SCOTT FERENCE
------------------------
Authorized Customer Name: Scott Ference Title: Operations Manager
-------------------
EXHIBIT 10.36
BACKGROUND AND DEFINITIONS
- --------------------------
1. This agreement details the outsourcing arrangement of a 1) unified
messaging service within the US. VIRTUALPLUS will supply a service
based upon the R2 Worldmail and RE ETTS platforms. Worldmail delivers
Voicemail and Fax from a phone number to an pre-determined e-mail
address. ETTS provides a telephone interface to a POP3 account to
allow collection of E-mail (via a text to speech system) and Voicemail
(which has been delivered by the Worldmail system). Worldmail and
ETTS make up a Unified Messaging Service, which will hence be referred
to as a UMS.
2. The UMS can be provided on two telephone numbering plans. EXTENSION
UMS where each user is given a shared phone number and unique
extension to enable messages to be sent to their account. And UNIQUE
NUMBER UMS where each user is furnished with their own their own
unique phone number to enable messages to be sent to their account.
3. The UMS be operated on hardware and software systems which is hereby
referred to as a NODE.
4. 1st LINE SUPPORT is defined as where NetVoice customers call into
NetVoice support staff for training and common problems. 2nd LINE
SUPPORT is where advanced NetVoice support people deal with
complicated server end issues which the 1st line support people cannot
fix. They also deal with issues documented by Virtualplus concerning
the UMS. 3rd LINE SUPPORT is handled by Virtualplus and is defined as
the handling problems that have not been documented before or new
feature requests.
VIRTUALPLUS OBLIGATIONS
- -----------------------
5. VIRTUALPLUS will provide the UMS to the OPERATOR on a non-exclusive
basis. The UMS will be serviced on a NODE which will remain the sole
property of VIRTUALPLUS. The NODE will reside in the OPERATORS
hosting facility in Dallas.
6. VIRTUALPLUS will provide on-going hardware upgrades to the NODE to
ensure that the UMS has a user to line capacity ratio of 100:1 for
UNIQUE NUMBER UMS and 5000:1 for EXTENSION UMS. The NODE Hardware
will remain the property of VIRTUALPLUS at all times. VIRTUALPLUS
will also provide on-going software upgrades to the UMS as and when
they become available.
<PAGE>
7. VIRTUALPLUS will also use best efforts to provide the OPERATOR with a
UMS with access phone numbers in London, New York, Tokyo and other
cities for the same cost as the numbers provided on the NODE located
at the OPERATOR site.
8. VIRTUALPLUS will provide the OPERATOR a branded version of the UMS to
the OPERATOR. The branding will include a "Powered by Virtualplus"
icon located in a prominent position on the Web Site of the OPERATOR
and a text line in the message delivery stating "Powered by
Virtualplus." Position of the VIRTUALPLUS logo will be on the bottom
of the web page on which it is placed. The logo will be no larger
than 1.5 inches wide and 1 inches high as viewed on a 14" screen with
800x600 resolution.
9. Private branding for NetVoice customers for resale will be provided at
the cost of $160/hour with a general understanding that most private
branding, with standard changes of logos and names will not require
more than 4 hours of work.
10. VIRTUALPLUS will provide 3rd LINE SUPPORT from 9-5 EST daily. Should
this total more than 2 hours per week then a charge of $200 per hour
will be levied. VIRTUALPLUS will not deal with any users of the
OPERATOR direct only to the 2nd LINE SUPPORT staff of the OPERATOR
(who will have documented and researched any problem before passing to
VIRTUALPLUS).
11. VIRTUALPLUS warrants that (i) it has good title to the UMS and the
NODE and the right to permit its use by OPERATOR free of any
proprietary rights, liens, or encumbrances of any other party.
12. VIRTUALPLUS warrants that the UMS and NODE are and will be Year 2000
Compliant (as defined below). Year 2000 Compliant Software that is
intended to inter-operate with third party products as described
herein will be compatible and inter-operate in such manner as to
process between them, as applicable, date related data correctly as
described in the definition of "Year 2000 Compliant." Except as set
forth in the preceding sentence, (i) VIRTUALPLUS assumes no
responsibilities or obligations to cause third party products to
function with the NODE or the UMS; and (ii) VIRTUALPLUS will not be in
breach of this warranty for any failure of the UMS to be Year 2000
Compliant if such failure results from the inability of any software,
hardware, or systems of OPERATOR or any third party to be Year 2000
Compliant. "Year 2000 Compliant" means that (a) neither the
performance nor functionality of the UMS or the NODE will be affected
by dates prior to, during and after the year 2000, (b) no value for
current date will cause any interruption in the operation of the UMS
or the NODE; (c) the year 2000 is recognized as a leap year; (d) in
all interfaces and data storage the century, in any date, is specified
either explicitly or by unambiguous algorithms or inferencing rules;
and (e) date-based functionality of the UMS behaves and will behave
consistently for dates prior to, during and after the year 2000.
<PAGE>
OPERATOR OBLIGATIONS
- --------------------
13. The OPERATOR will provide the following hosting requirements on-net
within their Dallas hosting facility.
<TABLE>
<CAPTION>
<S> <C>
One T1 PRI Line (initially scaling up in future) 24 out of 24 lines enabled
- ---------------------------------------------------------------------------------------
800 Area DID numbers for Unique Number UMS 800 Area code
- ---------------------------------------------------------------------------------------
Incoming 800 Service Terminated on T1
- ---------------------------------------------------------------------------------------
Co-location Space 19" Rack space
- ---------------------------------------------------------------------------------------
Internet Feed Minimum 256K dedicated bandwidth
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
</TABLE>
14. The OPERATOR will offer the EXTENSION UMS service free to all its
users. The OPERATOR will use best efforts to promote UNIQUE NUMBER
UMS on an 800 number as a premium service to its customer base and
attempt to Up-sell every user of the Free service to the premium
service. The OPERATOR will have customer ownership at all times.
15. The OPERATOR will commence a beta pilot program of the UMS on (or
before) November 15, 1999. After a 1 month beta period the UMS will
go live on December 15, 1999.
16. The OPERATOR will promote and preserve the goodwill and reputation
associated with the UMS and VIRTUALPLUS.
17. The OPERATOR will to ensure that all users of the UMS enter into an
agreement with the OPERATOR in terms substantially the same as those
contained on the sign up screen of the VIRTUALPLUS Messagejet site
www.messagejet.com, before being permitted to use the UMS.
TERMINATION
- -----------
18. This agreement will remain in place until further notice. Either side
may terminate by giving 30 days notice to the other side. This
agreement will terminate should either party become insolvent or file
bankruptcy protection. Notices are deemed to be delivered when posted
first class mail AND E-mailed.
19. Should termination occur then the OPERATOR has the option to purchase
the NODE and license to operate the UMS at a total cost of $1 per user
on the system (subject to a $30000 minimum). Any VIRTUALPLUS
proprietary software on the NODE shall remain of VIRTUALPLUS, but will
be licensed on a non-exclusive basis to the OPERATOR for the number of
users on the system immediately prior to termination if the purchase
option is exercised. Should this offer not be accepted within 10 days
then the NODE will be returned to VIRTUALPLUS immediately.
<PAGE>
GENERAL
- -------
20. Neither party will issue or release, directly or indirectly, any press
release, marketing material or other communication to or for the media
or the public that pertains to this Agreement (collectively, a "Press
Release") unless the form and content of such Press Release have been
approved by the other party hereto, such approval not to be
unreasonably withheld or delayed.
21. This Agreement is made in New York, New York. This Agreement and all
rights and obligations of the parties hereto shall be governed and
construed in accordance with the Law of the State of New York.
22. Both parties hereby agree and undertake fully and effectively to
indemnify and keep indemnified each other after as well as before the
expiry or termination of service hereof for and against all damages,
loss, claims, demands, expenses (including legal and professional
expenses), costs and liabilities which either party may at any time
incur as a result of any actions by either party.
Signed on Behalf of the NETVOICE Signed on Behalf of VIRTUALPLUS
Maya Crothers, VP of
Marketing /s/ JOHN PITCHER
Name: /s/ MAYA CROTHERS Name: JOHN PITCHER
Date: 11/4/99 Date: 11-25-99
<PAGE>
SCHEDULE
INITIAL PAYMENTS FROM OPERATOR TO VIRTUALPLUS
- ---------------------------------------------
- --------------------------------------------------------------------------
Set-up of UMS, Branding for NetVoice, API $10000*
Configuration, Interfaces for Operator,
Initial Training on UMS API, Linking of Virtualplus
host system to Operator Web Site, Set-up of up
to 50 demo Extension accounts.
- --------------------------------------------------------------------------
Dallas Set up, on site training, line $80000 (optional**)
configuration and interfacing, transport of the
server, transport of staff for initial training
and 1 day technical training.
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
*To be paid on delivery of UMS hardware node to NetVoice location.
**$4000 to be paid before 30 days after live date, $4000 be paid 60 days
after live date.
MONTHLY PAYMENTS FROM OPERATOR TO VIRTUALPLUS*
- ----------------------------------------------
- --------------------------------------------------------------------------
Item On or off-Net with Off Net in a
NetVoice Virtualplus and/or
International location
- --------------------------------------------------------------------------
One Off Sign-up charge Free $0.35
EXTENSION UMS
- --------------------------------------------------------------------------
Monthly rental charge for Free $0.25
EXTENSION UMS
- --------------------------------------------------------------------------
One Off Sign-up charge $2.50 $2.50
UNIQUE NUMBER UMS
- --------------------------------------------------------------------------
Monthly rental charge for $1.50 $1.50
UNIQUE NUMBER UMS
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
*Subject to a minimum total monthly charge of $3750 (This minimum total
monthly charge will NOT apply when the total cumulative amount of monthly
payments reaches over $50,000 HOWEVER the minimum monthly charge will apply
if that in any one month period NetVoice does not sell 1 Unique Number UMS
for every 100 Extension UMS accounts it provides free).
OTHER PAYMENTS FROM OPERATOR TO VIRTUALPLUS
- -------------------------------------------
- --------------------------------------------------------------------------
Offsite Engineer Visit (i.e. Dallas POP)* $750 per day + out of
pocket expenses
- --------------------------------------------------------------------------
Re-branding for NetVoice and their $160 per hour performed in
Resellers Virtualplus office.
- --------------------------------------------------------------------------
*The initial set up of the Node is not considered an offsite visit.
EXHIBIT 10.38
NETVOICE TECHNOLOGIES CORPORATION
---------------------------------
2000 STOCK PLAN
---------------
SECTION 1. General Purpose of Plan; Definitions.
------------------------------------
The name of this plan is the NetVoice Technologies Corporation
2000 Stock Plan (the "Plan"). The purpose of the Plan is to enable NetVoice
Technologies Corporation (the "Company") and its Subsidiaries to retain and
attract executives, employees (whether full or part-time), consultants and
non-employee directors who contribute to the Company's success by their
ability, ingenuity and industry, and to enable such individuals to
participate in the long-term success and growth of the Company by giving
them a proprietary interest in the Company.
For purposes of the Plan, the following terms shall be defined as
set forth below:
a "BOARD" means the Board of Directors of the Company.
b. "CAUSE" means (i) a felony conviction of the
participant or the failure of the participant to
contest prosecution for a felony, (ii) the
participant's willful misconduct or dishonesty in
connection with his employment, (iii) the participant's
breach of any proprietary information agreement,
covenant not to compete, employment contract or similar
agreement with the Company, or (iv) the participant's
continued failure to perform his duties after written
notice of such failure
c. "CHANGE IN CONTROL" means: (i) the consummation of a
merger or consolidation of the Company with or into
another entity or any other corporate reorganization,
if more than fifty percent of the combined voting power
of the continuing or surviving entity's securities
outstanding immediately after such merger,
consolidation or other reorganization is owned by
persons who are not shareholders of the Company
immediately prior to such merger, consolidation or
reorganization or (ii) the sale, transfer or other
disposition of all or substantially all of the
Company's assets. A transaction shall not constitute
a Change in Control if its sole purpose is to create a
holding company that will be owned in substantially the
same proportions by persons who held the Company's
securities immediately before such transaction.
d. "CODE" means the Internal Revenue Code of 1986, as
amended.
e. "COMMITTEE" means the Committee referred to in Section
2 of the Plan. If at any time no Committee shall be in
office, then the
<PAGE>
functions of the Committee specified in the Plan shall
be exercised by the Board.
f. "COMPANY" means NetVoice Technologies Corporation, a
corporation organized under the laws of the State of
Nevada (or any successor corporation).
g. "CONSULTANT" means a person or entity who performs bona
fide services for the Company, a Parent Corporation or
a Subsidiary as a consultant, adviser or other
independent contractor excluding employees and Non-
Employee Directors.
h. "DISABILITY" means permanent and total disability
within the meaning of Section 22(e)(3) of the Code as
determined by the Committee in its absolute discretion.
i. "DISINTERESTED PERSON" shall have the meaning set forth
in Rule 16b-3 as promulgated by the Securities and
Exchange Commission under the Securities Exchange Act
of 1934, or any successor definition adopted by the
Commission.
j. "FAIR MARKET VALUE" means the value of the Stock on a
given date as determined by the Committee in accordance
with the Treasury Department regulations applicable to
"incentive stock options" within the meaning of Section
422 of the Code.
k. "INCENTIVE STOCK OPTION" means any Stock Option
intended to be and designated as an "Incentive Stock
Option" within the meaning of Section 422 of the Code.
l. "NONQUALIFIED STOCK OPTION" means any Stock Option that
is not an Incentive Stock Option, and is intended to be
and is designated as a "Nonqualified Stock Option."
m. "NON-EMPLOYEE DIRECTOR" means any member of the Board
who is not an employee of the Company, any Parent
Corporation or Subsidiary.
n. "PARENT CORPORATION" means any corporation (other than
the Company) in an unbroken chain of corporations
ending with the Company if, at the time of the granting
of the Stock Option, each of the corporations (other
than the Company) owns stock possessing 50% or more of
the total combined voting power of all classes of stock
in one of the other corporations in the chain.
2
<PAGE>
o. "REPORTING COMPANY" shall mean a company which has any
class of equity security (other than an exempt
security) registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended.
p. "STOCK" means the Common Stock of the Company and any
other securities of the Company which may hereafter
become subject to Stock Options pursuant to Section 8.
q. "STOCK APPRECIATION RIGHT" means the right pursuant to
an award granted under Section 6 below to surrender to
the Company all or a portion of a Stock Option in
exchange for an amount equal to the difference between
(i) the Fair Market Value, as of the date such Stock
Option or such portion thereof is surrendered, of the
shares of Stock covered by such Stock Option or such
portion thereof, and (ii) the aggregate exercise price
of such Stock Option or such portion thereof.
r. "STOCK OPTION" or "OPTION" means any option to purchase
shares of Stock granted pursuant to Section 5 below.
s. "SUBSIDIARY" means any corporation (other than the
Company) in an unbroken chain of corporations beginning
with the Company if, at the time of the granting of the
Stock Option, each of the corporations (other than the
last corporation in the unbroken chain) owns stock
possessing 50% or more of the total combined voting
power of all classes of stock in one of the other
corporations in the chain.
SECTION 2. Administration.
--------------
The Plan shall be administered by the Board of Directors or by a
Committee of not less than two directors, who shall be appointed by the
Board of Directors of the Company and who shall serve at the pleasure of
the Board. At all times after the Company becomes a Reporting Company, all
members of the Committee or Board of Directors (if no Committee has been
appointed) must be Disinterested Persons.
The Committee shall have the power and authority to grant Stock
Options to eligible persons, pursuant to the terms of the Plan.
In particular, the Committee shall have the authority:
(i) to select the officers, other employees, Non-
Employee Directors and Consultants of the Company
to whom Stock Options may from time to time be
granted hereunder;
3
<PAGE>
(ii) to determine whether and to what extent Incentive
Stock Options and Nonqualified Stock Options, or
a combination of the foregoing, are to be granted
hereunder;
(iii) to determine the number of shares to be covered
by each such award granted hereunder;
(iv) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any
award granted hereunder (including, but not
limited to, any restriction on any Stock Option
and/or the shares of Stock relating thereto) and
to amend such terms and conditions (including,
but not limited to, any amendment which
accelerates the vesting of any award); and
(v) subject to the provisions of the Plan to
determine whether, to what extent, and under what
circumstances, Stock Options may be exercised
following termination of employment.
The Committee shall have the authority to adopt, alter and repeal
such administrative rules, guidelines and practices governing the Plan as
it shall, from time to time, deem advisable; to interpret the terms and
provisions of the Plan and any award issued under the Plan (and any
agreements relating thereto); and to otherwise supervise the administration
of the Plan. The Committee may delegate its authority to the President
and/or the Chief Executive Officer of the Company for the purpose of
selecting employees who are not officers or directors of the Company for
purposes of clause (i) above.
All decisions made by the Committee pursuant to the provisions of
the Plan shall be final and binding on all persons, including the Company
and Plan participants.
SECTION 3. Stock Subject to Plan.
---------------------
The total number of shares of Stock reserved and available for
distribution under the Plan shall be 2,000,000 shares, subject to increase
or decrease as provided in Section 8. Such shares may consist, in whole or
in part, of authorized and unissued shares and treasury shares, including
shares which may become treasury shares as a result of purchases of
outstanding shares which may be made from time to time by the Company. If
any shares that have been optioned under this Plan cease to be subject to
Options, are forfeited or such award otherwise terminates without Stock
being issued or in the event that shares issued under the Plan are acquired
by the Company pursuant to a right of repurchase or right of first refusal,
such shares shall be available for distribution in connection with future
awards under the Plan.
4
<PAGE>
SECTION 4. Eligibility.
-----------
Officers, employees, Non-Employee Directors and Consultants of
the Company or its Subsidiaries who are responsible for or contribute to
the management, growth and/or profitability of the business of the Company
and its Subsidiaries are eligible to be granted Stock Option awards under
the Plan; provided that only officers (who are employees) and other
employees shall be eligible to receive Incentive Stock Options. The
optionees and participants under the Plan shall be selected from time to
time by the Committee, in its sole discretion, from among those eligible,
and the Committee shall determine, in its sole discretion, the number of
shares covered by each award.
SECTION 5. Stock Options.
-------------
Any Stock Option granted under the Plan shall be in such form as
the Committee may from time to time approve.
The Stock Options granted under the Plan may be of two types: (i)
Incentive Stock Options and (ii) Nonqualified Stock Options. No Stock
Options shall be granted under the Plan on or after the tenth anniversary
of the effective date of the Plan.
The Committee shall have the authority to grant any optionee
Incentive Stock Options, Nonqualified Stock Options, or both types of
options. To the extent that any option does not qualify as an Incentive
Stock Option, it shall constitute a separate Nonqualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of
this Plan relating to Incentive Stock Options shall be interpreted, amended
or altered, nor shall any discretion or authority granted under the Plan be
so exercised, so as to disqualify either the Plan or any Incentive Stock
Option under Section 422 of the Code. The preceding sentence shall not
preclude any modification or amendment to an outstanding Incentive Stock
Option, whether or not such modification or amendment results in
disqualification of such Option as an Incentive Stock Option; provided the
optionee consents in writing to the modification or amendment.
Stock Options granted under the Plan shall be subject to the
following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of the Plan, as the Committee
shall deem desirable.
(a) OPTION PRICE. The option price per share of Stock
purchasable under a Stock Option shall be determined by the Committee at
the time of grant and may not be less than 85% of the Fair Market Value of
the Stock on the date of the grant of the Option. In no event shall the
option price per share of Stock purchasable under an Incentive Stock Option
be less than 100% of the Fair Market Value of the Stock on the date of the
grant of the option. If a participant owns or is deemed to own (by reason
of the attribution rules applicable under Section 424(d) of the Code) more
than 10% of the combined voting power of all classes of stock of the
Company or any Parent Corporation or Subsidiary, the option price shall be
no less than 110% of the Fair Market Value of the Stock on the date the
option is granted.
5
<PAGE>
(b) OPTION TERM. The term of each Stock Option shall be
fixed by the Committee, but no Incentive Stock Option shall be exercisable
more than ten years after the date the option is granted. If an employee
owns or is deemed to own (by reason of the attribution rules of Section
424(d) of the Code) more than 10% of the combined voting power of all
classes of stock of the Company or any Parent Corporation or Subsidiary and
an Incentive Stock Option is granted to such employee, the term of such
option shall be no more than five years from the date of grant.
(c) EXERCISABILITY. Stock Options shall be exercisable at
such time or times as determined by the Committee at or after grant. If
the Committee provides, in its discretion, that any option is exercisable
only in installments, the Committee may waive such installment exercise
provisions at any time. Installment exercise restrictions may be based
upon the lapse of time, the attainment of specified performance goals, or
a combination of each. If the participant is not an officer, director or
Consultant of the Company, the Options shall become exercisable at least as
rapidly as 20% per year over the five year period commencing on the date of
grant.
(d) METHOD OF EXERCISE. Stock Options may be exercised in
whole or in part at any time during the option period by giving written
notice of exercise to the Company specifying the number of shares to be
purchased. Such notice shall be accompanied by payment in full of the
purchase price, either by certified or bank check, or by any other form of
legal consideration deemed sufficient by the Committee and consistent with
the Plan's purpose and applicable law. If permitted in each case by the
Committee, in its sole discretion, payment in full or in part may also be
made in the form of unrestricted Stock already owned by the optionee (based
on the Fair Market Value of the Stock on the date the option is exercised,
as determined by the Committee); provided, however, that, in the case of an
Incentive Stock Option, the right to make a payment in the form of already
owned shares may be authorized only at the time the option is granted. If
the terms of an option so permit, or the Committee agrees, in its sole
discretion, an optionee may elect to pay all or part of the option exercise
price by having the Company withhold from the shares of Stock that would
otherwise be issued upon exercise that number of shares of Stock having a
Fair Market Value equal to the aggregate option exercise price for the
shares with respect to which such election is made. No shares of Stock
shall be issued until full payment therefor has been made. An optionee
shall generally have the rights to dividends and other rights of a
shareholder with respect to shares subject to the option when the optionee
has given written notice of exercise, has paid in full for such shares,
and, if requested, has given the representation described in paragraph (a)
of Section 10.
(e) NON-TRANSFERABILITY OF OPTIONS. No Stock Option shall
be transferable by the optionee otherwise than by will or by the laws of
descent and distribution, and all Stock Options shall be exercisable,
during the optionee's lifetime, only by the optionee.
No Option or interest therein may be transferred, assigned,
pledged or hypothecated by a participant during the participant's lifetime,
whether by operation of law or otherwise, or made subject to execution,
attachment or similar process.
6
<PAGE>
(f) TERMINATION UPON DEATH. If an optionee's employment by
the Company and any Subsidiary or Parent Corporation terminates by reason
of death, the Stock Option may thereafter be immediately exercised, to the
extent then exercisable (or on such accelerated basis as the Committee
shall determine at or after grant), by the legal representative of the
estate or by the legatee of the optionee under the will of the optionee or
by the heirs of the optionee under the laws of descent and distribution,
for a period of one year (or such shorter period (not less than six months)
as the Committee shall specify at grant) from the date of such death or
until the expiration of the stated term of the option, whichever period is
shorter.
(g) TERMINATION BY REASON OF DISABILITY. If an optionee's
employment by the Company and any Subsidiary or Parent Corporation
terminates by reason of Disability, any Stock Option held by such optionee
may thereafter be exercised, to the extent it was exercisable at the time
of termination due to Disability (or on such accelerated basis as the
Committee shall determine at or after grant), but may not be exercised
after one year (or such shorter period (not less than six months) as the
Committee shall specify at grant) from the date of such termination of
employment or the expiration of the stated term of the option, whichever
period is the shorter.
(h) OTHER TERMINATION OF EMPLOYMENT. If an optionee's
employment by the Company, any Subsidiary or Parent Corporation terminates
for any reason other than death or Disability, any Stock Option held by
such optionee may thereafter be exercised to the extent it was exercisable
at such termination, but may not be exercised after 30 days after the date
of such termination of employment (or such longer (not to exceed three
months for Incentive Stock Options) period as the Committee shall determine
at or after grant) or the expiration of the stated term of the option,
whichever period is the shorter; provided, however, that if the optionee's
employment is terminated for Cause, all rights under the Stock Option shall
terminate and expire upon such termination unless the Committee elects to
extend the exercise period (at any time at or after grant), provided that
for Incentive Stock Options such extensions shall not go beyond the stated
termination date of the Option or three months after the date of
termination of employment, whichever is earlier.
(i) CONDITION TO EXERCISE. Notwithstanding any other
provision of the Plan, all Options shall be subject to the condition that
if at any time the Committee shall determine in its discretion that the
listing, registration or qualification of any Option or Stock subject to
any Option upon any securities exchange or under any state or federal law,
or the consent or approval of any governmental regulatory body or the
disclosure of material information about the Company, is necessary or
desirable as a condition of, or in connection with, any Option or the
issuance or purchase of Stock subject thereto, the Option may not be
exercised in whole or in part unless such listing, registration,
qualification, consent, approval or disclosure shall have been effected or
obtained free of any condition not acceptable to the Committee. If because
of the foregoing restrictions an Option cannot be exercised during any part
of the 30-day period provided for under subparagraph (h) above after a
termination of employment (other than as a result of death or Disability
and other than for Cause), the period during which any Option held by the
terminated employee may be exercised shall be extended by the amount of
time during such 30-day period that the Option could not be exercised as a
result of the restriction set forth above in this subparagraph;
7
<PAGE>
provided that in no event will Incentive Stock Options be exercisable after
the stated termination date of the Option or three months after the date of
termination of employment, whichever is earlier.
(j) NON-EMPLOYEE OPTIONS. The Company shall have the right
to grant Nonqualified Stock Options to Non-Employee Directors or
Consultants. in which event references to termination of employment in the
Plan shall refer to the termination of engagement of a Consultant or the
resignation, death, disability, removal, refusal to serve or failure to re-
elect a Non-Employee Director.
(k) ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS. The aggregate
Fair Market Value (determined as of the date the Option is granted) of the
Common Stock with respect to which Incentive Stock Options (under this Plan
and any other plan of the Company, any Subsidiary or Parent Corporation)
are exercisable for the first time by an optionee during any calendar year
shall not exceed $100,000.
(l) RESTRICTIONS ON TRANSFER OF SHARES. Any shares issued
upon exercise of an Option may be made subject to such special forfeiture
conditions, rights of repurchase, rights of first refusal and other
transfer restrictions as the Committee may determine and which are set
forth in the Stock Option Agreement. In the case of a participant who is
not an officer, director or Consultant of the Company, (i) any right to
repurchase at the original exercise price must lapse at least as rapidly as
20% per year over a five year period commencing on the date the Option is
granted, (ii) any repurchase right may be exercised only for cash or for
cancellation of indebtedness incurred in purchasing the shares issued upon
exercise of the Option, and (iii) any such right may only be exercised
within 90 days after the later of the termination of the participant's
service or the date the Option is exercised.
(m) CHANGE IN CONTROL. If the Company is subject to a
Change in Control as a result of its sale, transfer or other disposition of
all or substantially all of its assets, the Company may, upon at least 15
days prior written notice to participants, elect to cancel all outstanding
Options upon consummation of the sale, transfer or other disposition. If
the Company is subject to a Change in Control involving a merger or
consolidation, outstanding Options shall be subject to the agreement of
merger or consolidation as provided in Section 8 and, if such agreement
does not provide for the continuation of outstanding Options by the Company
(if it is a surviving corporation), the assumption of the Plan and
outstanding Options by the surviving corporation or its parent or the
substitution by the surviving corporation or its parent of options with
substantially the same terms, then all outstanding Options will terminate
upon consummation of merger or consolidation. In the event of the
termination of all outstanding Option in connection with a Change in
Control, all outstanding Options shall be exercisable in full (without
regard to any installment exercise provisions) for a period of at least 15
days prior to such termination, but in no event will any Option be
exercisable after its stated term or after the period of time provided for
following a termination of employment or service.
8
<PAGE>
SECTION 6. Transfer; Leave of Absence. etc.
-------------------------------
For purposes of the Plan, the following events shall not be
deemed a termination of employment:
(a) a transfer of an employee from the Company to a Parent
Corporation or Subsidiary, or from a Parent Corporation or Subsidiary to
the Company, or from one Subsidiary to another;
(b) a leave of absence, approved in writing by the
Committee, for military service or sickness, or for any other purpose
approved by the Company if the period of such leave does not exceed ninety
(90) days (or such longer period as the Committee may approve, in its sole
discretion; provided that the period of leave for Incentive Stock Options
cannot exceed 90 days unless the optionee's right to return to work is
guaranteed by law or agreement); provided that, in the case of any leave of
absence, the employee returns to work on the day after the last day of such
leave unless he is terminated earlier by the Company.
SECTION 7. Amendments and Termination.
--------------------------
The Board may (a) amend, alter or discontinue the Plan, (b)
modify, amend, extend or assume outstanding Options or accept the
cancellation of outstanding Options (whether granted by the Company or
another issuer) in return for the grant of new Options for the same or a
different number of shares and at the same or a different exercise price
but no amendment, modification, extension, assumption, cancellation or
discontinuation shall be made (except those specifically permitted under
other provisions of this Plan) (i) which would impair the rights of an
optionee or participant under a Stock Option theretofore granted or which
would cause an optionee's or participant's existing Incentive Stock Option
to no longer qualify as an Incentive Stock Option, without the optionee's
or participant's consent, or (ii) which, without the approval of the
shareholders of the Company, would cause the Plan to no longer comply with
(A) the rules promulgated by the Securities and Exchange Commission under
authority granted in Section 16 of the Securities Exchange Act of 1934, as
amended, if the Company is then a Reporting Company, (B) Section 422 of the
Code or (C) any other statutory or regulatory requirements.
SECTION 8. Changes in the Company's Capital Structure.
------------------------------------------
The existence of outstanding Options shall not affect in any way
the right or power of the Company or its shareholders to make or authorize
any or all adjustments, recapitalizations, reorganizations or any other
changes in the Company's capital structure or its business or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred
or prior preference stock ahead of or affecting the Common Stock or the
rights thereof, or the dissolution or liquidation of the Company, or any
sale or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.
9
<PAGE>
If the Company effects a stock split or reverse stock split,
declares a dividend on its Common Stock payable in securities of the
Company, otherwise effects a reclassification or recapitalization whereby
the holders of its Common Stock receive other securities in exchange for or
as a distribution on the Common Stock without the payment of any
consideration therefor, or effects a merger where the Company is the
surviving corporation and which provides for the continuation of
outstanding Options, then (a) the number, class and per share price of
shares of stock subject to outstanding Options hereunder shall be
appropriately adjusted in such manner as to entitle the optionee to receive
upon exercise of an Option, for the same aggregate cash consideration, the
same total number and class or classes of shares as he would have received
had he exercised his Option in full immediately prior to the applicable
date for the event requiring the adjustment; and (b) the number and class
of shares then reserved for issuance under the Plan shall be adjusted by
substituting for the total number and class of shares of stock then
reserved for ("Prior Shares") the number and class of shares of stock that
would have been received by the holder of record of the Prior Shares as the
result of the event requiring the adjustment.
If the Company merges or consolidates with another corporation,
whether or not the Company is a surviving corporation, outstanding Options
shall be subject to the agreement of merger or consolidation which without
the participant's consent may provide for: (i) the continuation of
outstanding Options by the Company ( if it is the surviving corporation),
(ii) the assumption of the Plan and outstanding Options by the surviving
corporation or its parent, (iii) the substitution by the surviving
corporation or its parent of options with substantially the same terms for
the outstanding Options or (iv) if a Change of Control is involved, the
termination of outstanding Options in accordance with paragraph (m) of
Section 5. If the agreement of merger or consolidation provides for the
assumption of the Plan and outstanding Options by the surviving corporation
or its parent, the assuming corporation shall be entitled to the benefit of
and shall be assigned any right of repurchase, right of first refusal,
market standoff or other restriction or agreement with respect to the stock
issued or issuable upon exercise of Options.
Except as specifically provided in this Section, (i) a
participant shall have no rights by reason of the payment of any dividend
or any other increase or decrease in the number of shares of stock of any
class, and (ii) any issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class shall
not affect, and no adjustment by reason thereof shall be made with respect
to, the number or exercise price of shares subject to any Option.
SECTION 9. Indemnification of the Board.
----------------------------
The Company will, to the fullest extent permitted by law,
indemnify, defend and hold harmless any person who at any time is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding (whether civil, criminal, administrative or
investigative) in any way relating to or arising out of this Plan or any
Option or Options granted hereunder by reason of the fact that such person
is or was at any time a director of the Company or a member of the
Committee against judgments, fines, penalties, settlements and reasonable
expenses (including attorneys' fees) actually incurred by such person in
connection with such action, suit or proceeding. This right of
indemnification shall inure to the benefit of the heirs, executors and
10
<PAGE>
administrators of each such person and is in addition to all other rights
to which such person may be entitled by virtue of the Bylaws of the Company
or as a matter of law, contract or otherwise.
SECTION 10. General Provisions.
------------------
(a) The Committee may require each person receiving and
exercising a Stock Option under the Plan to sign an investment letter at
the time of receipt of the Stock Option and upon each exercise, which
investment letter will be in the form approved by the Committee from time
to time. The certificates for such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock delivered under the Plan
shall be subject to such stock transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange
upon which the Stock is then listed, and any applicable Federal or state
securities laws, and the Committee may cause a legend or legends to be put
on any such certificates to make appropriate reference to such restrictions.
(b) Subject to paragraph (d) below, recipients of Options
under the Plan are not required to make any payment or provide
consideration in connection with the grant of an Option.
(c) Nothing contained in this Plan shall prevent the Board
of Directors from adopting other or additional compensation arrangements,
subject to shareholder approval (if such approval is required); and such
arrangements may be either generally applicable or applicable only in
specific cases. The adoption of the Plan shall not confer upon any
employee of the Company or any Subsidiary any right to continued employment
with the Company or a Subsidiary, as the case may be, nor shall it
interfere in any way with the right of the Company or a Subsidiary to
terminate the employment of any of its employees at any time.
(d) Each participant shall, no later than the date as of
which any part of the value of an award or exercise first becomes
includible as compensation in the gross income of the participant for
Federal state or local income tax purposes, pay to the Company, or make
arrangements satisfactory to the Committee regarding payment of, any
Federal, state, or local taxes of any kind required by law to be withheld
with respect to the award or exercise. The obligations of the Company
under the Plan shall be conditional on such payment or arrangements and the
Company and any Parent Corporation or Subsidiary shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment
of any kind otherwise due to the participant. With respect to any award or
purchase under the Plan, if the written terms of such award so permit, a
participant may elect by written notice to the Company to satisfy part or
all of the withholding tax requirements associated with the award or
purchase by (i) authorizing the Company to retain from the number of shares
of Stock that would otherwise be deliverable to the participant, or (ii)
delivering to the Company from shares of Stock already owned by the
participant, that number of shares having an aggregate Fair Market Value
equal to part or all of the tax payable by the
11
<PAGE>
participant under this Section 10(d). Any such election shall be in
accordance with, and subject to, applicable tax and securities laws,
regulations and rulings.
(e) The Committee may require in connection with the grant
of a Stock Option that the participant agree that in connection with an
underwritten registration of the offering of any securities of the Company
under the Securities Act of 1933, as amended, that the participant will not
directly or indirectly sell, make any short sale of, loan, hypothecate,
pledge, offer, grant or sell any option or other contract for the purchase
of, purchase any option or other contract for the sale of, or otherwise
dispose of or transfer, or agree to engage in any of the foregoing
transactions with respect to any shares of Common Stock or other securities
of the Company during such period (not to exceed 180 days) following the
effective date of the registration statement of the Company filed under Act
as may be requested by the Company or the representative of the
underwriters. The provision may further permit the Company to impose stock
transfer orders and require the participant to escrow his shares in
connection with such public offering at the request of the Company or
representative of the underwriters and may require the participant to sign
an underwriter's form of lock-up agreement.
(f) The Company may hold in escrow any shares issued upon
exercise of an Option as long as such shares are subject to any repurchase
option, right of first refusal, market standoff or other restriction on
their sale or transfer.
(g) Each year, the Company shall furnish to holders of
Options and participants who have received stock upon exercise of Options,
its balance sheet and income statement (which need not be audited);
provided that the Company need not provide its balance sheet or income
statement to any person whose duties with the Company assure them of access
to equivalent information.
(h) This Plan and all determinations made and actions taken
pursuant hereto shall be governed by the internal laws of the State of
Nevada without giving effect to the principles of conflict of laws.
SECTION 13. Effective Date of Plan.
----------------------
The Plan shall be effective on January 20, 2000 (the date of
approval by the Board of Directors), but must be approved within one year
after the effective date by a vote of the holders of a majority of the
votes attributable to the capital stock of the Company present and entitled
to vote at an Annual or Special Meeting of the Company's shareholders or by
written consent of the holders of a majority of the votes attributable to
all outstanding capital stock of the Company. The Plan shall expire
(unless terminated earlier) ten years after the effective date. Awards may
be granted under the Plan prior to shareholder approval, provided such
awards are made subject to shareholder approval being obtained prior to the
first anniversary of the effective date, and all such awards are rescinded
if shareholder approval is not obtained prior to the first anniversary of
the effective date.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR OTHER
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-07-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 20 8
<SECURITIES> 0 0
<RECEIVABLES> 191 75
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 297 256
<PP&E> 986 524
<DEPRECIATION> 125 28
<TOTAL-ASSETS> 1,459 926
<CURRENT-LIABILITIES> 5,389 2,159
<BONDS> 0 0
0 0
0 0
<COMMON> 5 4
<OTHER-SE> (4,159) (1,402)
<TOTAL-LIABILITY-AND-EQUITY> 1,459 926
<SALES> 1,212 121
<TOTAL-REVENUES> 1,212 121
<CGS> 2,043 252
<TOTAL-COSTS> 5,456 1,236
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 32 240
<INTEREST-EXPENSE> 676 368
<INCOME-PRETAX> (4,950) (1,723)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (4,950) (1,723)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,950) (1,723)
<EPS-BASIC> (.48) (.24)
<EPS-DILUTED> (.48) (.24)
</TABLE>
