AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON *
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
AMENDMENT #2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
Adar Alternative Two, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
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Florida 6770 Applied For
-------------------------------------------- ----------------------------------------- ------------------------------------------
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State or other jurisdiction of PRIMARY STANDARD INDUSTRIAL I.R.S. Employer Identification No.
incorporation or organization CLASSIFICATION CODE NUMBER
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</TABLE>
10 Troon Place
P.O. Box 289
Mashpee, MA 02649
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Michael T. Williams
2503 W. Gardner Ct.
Tampa, FL 33611
TELEPHONE: 813.831.9348
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As promptly as practicable after this registration statement becomes effective
and after the closing of the merger of the proposed merger described in this
registration statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b, under the securities act, check the following box and
list the securities act registration statement number of the earlier effective
registration statement for the same offering. *[ ] *registration number,
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the securities act, check the following box and list the securities act
registration statement number of the earlier effective registration statement
for the same offering. *[ ]
*registration number,
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. *[ ]
------------------------
CALCULATION OF REGISTRATION FEE
Title of each Proposed Proposed
class of Amount maximum maximum Amount of
securities to be offering price aggregate registration
to be registered per unit offering price fee
registered
Common * * * *
Stock, par
Value - no
(1) Represents an estimate of the maximum number of shares of common stock
of Registrant which may be issued to former holders of shares of common stock of
Xfone pursuant to the merger described herein. (2) The registration fee has been
calculated pursuant to Rule 457(f )(2). As of the filing of this registration
statement, Xfone had an accumulated capital deficit. In addition, Xfone's common
stock has $.001 par value. Accordingly, the proposed maximum offering price has
been calculated by multiplying one-third,1/3, of an assumed par value for
Xfone's Common Stock of, *par per share, pursuant to Nevada law by the maximum
number of shares to be issued to the holders of Xfone common stock in the
merger.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a)
MAY DETERMINE.
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<PAGE>
The company does not have key men insurance.
PROSPECTUS
Adar Alternative Two, Inc.
Xfone, Inc., a Nevada corporation, and Adar Alternative Two, Inc., a Florida
corporation have entered into a merger agreement. As a result of the merger,
each outstanding share of Xfone common stock, other than dissenting shares, as
discussed later in this document, will be exchanged for one share of Adar
Alternative Two common stock. When the merger closes, Adar Alternative Two will
change its name to Xfone and will be the surviving corporation. It will then
file to have its stock quoted on the OTC Bulletin Board.
The following table contains comparative share information for shareholders of
Xfone and Adar Alternative Two immediately after the closing of the merger.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
----------------- -------------------------------- ------------------------------- --------------------
The former shareholders of The current shareholders of Total
Xfone Adar Alternative Two
----------------- -------------------------------- ------------------------------- --------------------
----------------- -------------------------------- ------------------------------- --------------------
Number 4,800,000 200,000 5,000,000
----------------- -------------------------------- ------------------------------- --------------------
----------------- -------------------------------- ------------------------------- --------------------
Percentage 96% 4% 100%
----------------- -------------------------------- ------------------------------- --------------------
</TABLE>
The merger presents some risks. We suggest you review "Risk Factors" beginning
on page __. Shareholders of Xfone who do not wish to give their written consent
have dissenters' rights of appraisal under Nevada law. If you wish to exercise
these rights, you must not have given written consent to the merger, timely
notify Xfone in writing of your election to exercise these rights, and follow
other procedures. These rights and procedures are discussed in detail beginning
on page __.
Neither the Securities and Exchange Commission nor any state securities
regulators have approved or disapproved Adar Alternative Two common stock to be
issued in the merger or if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The date of this prospectus is ______ ,2001.
<PAGE>
SUMMARY
This summary provides a brief overview of the key aspects of this offering. The
merger agreement is filed as an exhibit to this registration statement.
The Companies
Adar Alternative Two, Inc.
10 Troon Place
P.O. Box 289
Mashpee, MA 02649
Telephone: 508.477.5000
Adar Alternative Two was organized as a corporation under the laws of the state
of Florida in April, 1999. Since inception, our primary activity has been
directed to organizational efforts. It was formed as a vehicle to acquire
through a registered securities offering a private company desiring to become an
SEC reporting company in order thereafter to secure a listing on the over the
counter bulletin board. Adar Alternative Two has now identified Xfone as the
entity Adar Alternative Two wishes to acquire. Adar Alternative Two is not
searching for additional acquisition candidates.
It has never offered or sold any securities in either a registered or
unregistered transaction except for issuing shares to its 15 stockholders upon
its formation.
Adar Alternative Two is not currently a company which is listed for trading on
the OTC Bulletin Board. Before securing approval of an application to be listed
on the OTC Bulletin Board, Adar Alternative Two must first have this
registration statement declared effective. Public Securities, an NASD Market
Maker, has agreed to file a form 211 to secure a listing on the OTC Bulletin
Board. Adar Alternative Two believes that the NASD will not approve this
application until this registration statement has been declared effective. After
this task has been accomplished, the NASD and the Market Maker must resolve all
outstanding issues that the NASD may have in order for trading to commence.
Xfone, Inc.
% Swiftnet Ltd.
Britannia House
960 High Road
London N12 9RY
United Kingdom
Telephone: 011.44.2084469494
Xfone was incorporated in Nevada in 2000. Xfone is a provider of long distance
voice and data telecommunications services primarily in the United Kingdom.
Xfone uses the network switching and transport facilities of Tier I and Tier II
long distance providers such as MCI/WorldCom to provide a broad array of
telephone, fax and e-mail methods of communication marketed through traditional
means by its wholly-owned subsidiary Swiftnet and through Xfone on the internet.
Comparison of the percentage of outstanding shares entitled to vote held by
directors, executive officers and their affiliates and the vote required for
approval of the merger
Fifty percent of Adar Alternative Two's shares are held by its director,
executive officer and his affiliates. A majority vote of the issued and
outstanding shares is required to approve the merger. Shareholders owning more
than 90% of Adar Alternative Two's common stock have executed a written consent
voting to approve the merger. No further consent or any of the shareholders of
Adar Alternative Two is necessary to approve the merger under the laws of the
state of Nevada.
More than 85% of Xfone's shares are held by its directors, executive officers
and their affiliates. A majority vote of the issued and outstanding shares is
required to approve the merger. Assuming consents are secured from shareholders
owning more than 50% of the stock of Xfone, shareholders who did not consent to
the merger will, by otherwise complying with Nevada corporate law, be entitled
to dissenters' rights with respect to the proposed merger. No consents will be
solicited or accepted until after the effective date of this prospectus. Based
upon the ownership of more than 50% of Xfone common stock by officers, directors
and affiliates, it appears that a favorable vote is assured.
Dissenters' rights
Dissenters' rights of appraisal exist. In general, under Nevada law, any
shareholder who does not give consent for the merger and files a written demand
for appraisal with Xfone within 10 days of the closing of the merger will be
paid the fair market value of the shares on the date of the closing of the
merger, as determined by the board of directors of Xfone. If you wish to
exercise these rights, you must not consent in writing or otherwise vote in
favor of the merger, must file a written demand within the prescribed time
period, and follow other procedures. These rights the way you exercise them are
discussed in greater detail beginning on page __.
Federal income tax consequences
Tax matters are very complicated and the tax consequences of the merger to you
will depend on the facts of your own situation. You should consult your tax
advisors for a full understanding of the tax consequences of the merger to you.
Neither Xfone nor its holders of its common stock should recognize gain or loss
for federal income tax purposes as a result of the merger.
Other Information for Xfone Stockholders:
o Do not send in your Xfone stock certificates now. If the merger is
completed, we will send you written instructions for exchanging
your shares.
o The merger has been structured as a tax-free reorganization. The
tax basis in your Xfone common stock will carryover and become the
tax basis in your new shares of Adar Alternative Two common stock.
o Like Xfone, Adar Alternative Two has never paid any dividends.
o If you have any questions about the merger, please call Guy
Nissenson, at Xfone, at 011.44.2084469494.
Selected Historical Financial Information
The following selected historical financial information of Xfone and Adar
Alternative Two has been derived from their respective historical financial
statements, and should be read in conjunction with the financial statements and
the notes , which are included in this prospectus.
RISK FACTORS
RISKS CONCERNING XFONE.
Xfone is a new company and has no operating history. However, its wholly owned
subsidiary, Swiftnet, has been in existence since 1991. Xfone's various
telephone, fax and e-mail methods of communication have traditionally been
marketed through agents. Xfone was formed to market them on the internet.
Xfone's internet marketing program has not been completely developed and may
never be successfully developed. These factors make it difficult to evaluate its
potential success in implementing its business plan and to forecast its
operating results.
Xfone was incorporated in 2000, and, as such, has no operating history. Although
formed in 1991, Swiftnet hasn't marketed its products and services on the
internet. The Internet in general and the marketing of various telephone, fax
and e-mail methods of communication marketed on the internet is new and
relatively uncertain. The new, competitive, fragmented and rapidly changing
nature of marketing various telephone, fax and e-mail methods of communication
on the internet increases these risks and uncertainties. Xfone cannot assure you
that its marketing program will be successful. If it isn't, Xfone will have to
rely on Swiftnet and its traditional methods of marketing.
Xfone's operations would be interrupted if its agreement with MCI Worldcom to
provide it with telephone routing and switching services is terminated or if MCI
Worldcom does not perform under its agreement, which would lead to reduced
revenues, hurting Xfone's operating results.
Xfone is dependent on a contract with MCI Worldcom to provide it with telephone
routing and switching services. The contract may be terminated immediately for a
material breach and with thirty days notice otherwise.
Although Xfone does have back-up suppliers for MCI Worldcom, should its
agreement with MCI Worldcom be terminated or should MCI Worldcom not perform
under the agreement, Xfone's business could be hurt and Xfone may not be able to
provide an acceptable level of service for customers using its various
telephone, fax and e-mail methods of communication. In addition, its costs could
significantly increase.
Xfone's customers can quickly and easily cease using its services. If customers
cease using its services, Xfone's revenues would be hurt.
Xfone anticipates that it will derive a significant portion of its revenues from
its telephone related services. As a result, its quarterly operating results
will depend heavily on fees paid by customers within the quarter and on its
ability to adjust spending in a timely manner to compensate for any unexpected
revenue shortfall. If customers cease using its services or if Xfone fails to
obtain new customers in any quarter, its business and operating results could be
harmed. In addition, in 1999, one customer, the United Nations World Economic
Forum located in Switzerland, accounted for slightly more than 10% of its
revenues. Except for Intouch UK, a fax broadcast reseller which recently signed
an exclusive contract with Xfone requiring certain minimum monthly sales which
may or may not account for more than 10% of its revenues, Xfone does not
anticipate that any customer will account for more than 10% of its revenues in
2000.
Even if marketing of Xfones telecommunications products and services on the
internet is accepted, concerns about fraud, privacy and other problems may mean
that a sufficiently broad base of customers will not adopt the internet as a
medium of commerce. These concerns may increase as additional publicity over
privacy issues over the internet increases. If there is not sufficient market
acceptance or if market acceptance declines for these or other reasons, our
revenues will be reduced.
A significant barrier to online commerce and communications is the secure
transmission of confidential information over public networks. Xfone's security
measures may not prevent security breaches. The failure by Xfone to prevent
security breaches could harm its business.
Advances in computer capabilities, new discoveries in the field of cryptography,
or other developments may result in a compromise or breach of the technology
used by Xfone to protect customer transaction data. Any such compromise of its
security could harm its reputation and, therefore, its business. In addition, a
party who is able to circumvent its security measures could misappropriate
proprietary information or cause interruptions in its operations.
The success of Xfone's business marketing various telephone, fax and e-mail
methods of communication on the internet will depend largely on the development
and maintenance of web infrastructure. Problems with development and maintenance
of this infrastructure could decrease the growth of customers on the web. It
could also increase costs of Xfone's products and services. These web-related
infrastructure problems could hurt Xfone's internet marketing program and lead
to reduced revenues.
Development and maintenance of the web infrastructure includes maintenance of a
reliable network backbone with the necessary speed, data capacity and security,
as well as timely development of complementary products such as high speed
modems, for providing reliable access to Xfone's web site.
The web has experienced, and is likely to continue to experience, significant
growth in the numbers of customers and amount of traffic. If the web continues
to experience increased numbers of customers, increased frequency of use or
increased bandwidth requirements, the web infrastructure may be unable to
support the demands placed on it. Specifically, if sufficient bandwidth is not
available, there may be a slower than anticipated growth of the internet as a
means of commerce.
The web could be damaged by outages and other delays as a result of damage to
portions of its infrastructure. Heavy stress placed on systems could cause them
to operate at unacceptably low speed or fail. Additionally, a natural disaster,
power or telecommunications failure or act of war may cause extended systems
failure. Computer viruses or unauthorized access to or sabotage of its network
by a third party could also result in system failures or service interruptions.
Although it has not experienced any of these problems to date, outages and
delays that occur in the future could reduce the level of usage of the web as
well as the level of traffic to and revenues generated from various telephone,
fax and e-mail methods of communication marketed on the internet on its site.
Problems with web infrastructure could also increase costs of use of the web. If
it costs customers more to access the internet, there may be fewer customers
than anticipates. If it costs Xfone more to maintain its site, its prices may
increase and demand may decrease.
Xfone's ability to successfully sell to customers and provide high quality
customer service largely depends on the efficient and uninterrupted operation of
its internal infrastructure. If Xfone's internal computer and communications
systems are inadequate or fail to perform, its revenues could be reduced.
Substantially all of its management systems are located at its corporate offices
in London. Xfone contracts with a third party for mission critical Internet
connectivity, and these systems are located at various locations throughout the
world. Xfone does not have a formal disaster recovery plan and does not carry
business interruption insurance to compensate Xfone for losses that may occur.
Application of existing laws and regulations governing issues such as property
ownership, copyrights and other intellectual property issues, taxation, libel,
obscenity and personal privacy by governmental agencies is uncertain. Any
adverse application of these laws and regulations or new laws or regulations
could reduce Xfone's revenues, increase the cost of doing business as a result
of litigation costs, increase service delivery costs, or otherwise decrease its
revenues.
The vast majority of the laws and regulations governing Xfone's operations were
adopted prior to the advent of the Internet and related technologies and, as a
result, do not contemplate or address the unique issues of the Internet and
related technologies.
Those laws that do reference the Internet, such as the recently passed Digital
Millennium Copyright Act, have not yet been interpreted by the courts and their
applicability and reach are therefore uncertain. The federal government or one
or more states may attempt to impose these regulations upon Xfone in the future.
Several states have proposed legislation that would limit the uses of personal
user information gathered online or require online its various products and
services and those of its third party customers to establish privacy policies.
The Federal Trade Commission also has recently settled a proceeding with one
online service regarding the manner in which personal information is collected
from customers and provided to third parties. Changes to existing laws or the
passage of new laws intended to address these issues could directly affect the
way Xfone does business or could create uncertainty in the marketplace. This
could reduce demand for its various products and services, increase the cost of
doing business as a result of litigation costs or increased service delivery
costs.
In addition, because its products and services are accessible worldwide, and
Xfone sells to customers worldwide, foreign jurisdictions may claim that Xfone
is required to comply with their laws. Swiftnet's operations are governed by the
laws of the England and Wales. Xfone's failure to comply with foreign laws could
subject Xfone to penalties ranging from fines to bans on its ability to offer
its various products and services.
Xfone's business may be subject to sales and other taxes. A successful assertion
by one or more states or any foreign country that Xfone should collect sales or
other taxes on revenues generated from its operations could reduce its revenues.
With the exception of the United Kingdom, Xfone does not plan to collect
sales or other similar taxes on revenues generated from various telephone, fax
and e-mail methods of communication marketed on the internet. One or more states
may seek to impose revenues tax collection obligations on companies such as
Xfone that engage in or facilitate online commerce. Several proposals have been
made at the state and local level that would impose additional taxes on revenues
generated from the sale of goods or services through the Internet. These
proposals, if adopted, could substantially impair the growth of electronic
commerce, and could diminish its opportunity to derive financial benefit from
its activities.
The U.S. federal government recently enacted legislation prohibiting states or
other local authorities from imposing new taxes on Internet commerce for a
period of three years. This tax moratorium will last only for a limited period
and does not prohibit states or the Internal Revenue Service from collecting
taxes on its income, if any, or from collecting taxes that are due under
existing tax rules.
Because its products and services are accessible worldwide and Xfone sells to
customers worldwide, foreign jurisdictions may claim that Xfone is required to
pay sales or other similar taxes. Swiftnet is required to pay sales tax in the
UK and may be required to pay sales tax on sales in countries in the European
Union.
Xfone's business may be harmed by litigation related to sale or use of various
telephone, fax and e-mail methods of communication marketed on the internet,
which could lead to reduced revenues.
The law relating to the liability of providers of online products and services
for their activities and the activities of their customers is currently
unsettled. Xfone could be sued for any problems which occur in or result from
revenues generated from various telephone, fax and e-mail methods of
communication marketed on the internet. These claims have been brought, and
sometimes successfully litigated, against online product and service providers.
Any resulting litigation could:
o Be costly for Xfone.
o Divert management attention from the operation of its business.
o Result in increased costs of doing business.
o Lead to adverse judgment.
o Otherwise harm its business.
In addition, in the event that Xfone implements a greater level of
interconnectivity on its site, Xfone will not and cannot practically screen all
of the content generated or accessed by its customers, and Xfone could be
exposed to liability with respect to this content.
Although Xfone carries insurance from Eastgate Assistance in the combined amount
of 500,000 Pounds Sterling for commercial legal expenses in the UK, its
insurance may not cover claims of these types or may not be adequate to
indemnify Xfone for all liability that may be imposed.
If Xfone becomes liable for any of these claims, particularly liability that is
not covered by insurance or is in excess of insurance coverage, Xfone could be
directly harmed and Xfone may be forced to implement new measures to reduce its
exposure to this liability. This may require Xfone to expend substantial
resources and to discontinue some product or service offerings. In addition, the
increased attention focused upon liability issues as a result of these lawsuits
could harm its reputation or the growth of its business.
Xfone may experience substantial demands and changes in the development and
expansion of its business and operations. If Xfone does not successfully cope
with problems arising from these demands and changes, its revenues could be
reduced.
Xfone anticipates that it will grow rapidly. This rapid growth is likely to
place a significant strain on its managerial, operating, financial and other
resources, including its ability to ensure customer satisfaction. Its expansion
efforts also require significant time commitments from its senior management and
place a strain on their ability to manage existing business. Xfone also may be
required to manage multiple relationships with third parties as Xfone expands
its enhanced value product or service offerings. Its future performance will
depend, in part, upon its ability to manage this growth effectively. To that
end, Xfone will have to undertake the following improvements, among others:
o Implement additional management information systems capabilities
o Upgrade existing or develop new telephone, fax and e-mail methods of
communication
o Further develop its operating, administrative and financial and
accounting systems and controls
o Improve coordination between its engineering, accounting, finance,
marketing and operations
o Hire and train additional personnel
Xfone may choose to expand its operations by developing and promoting new or
complementary telephone, fax and e-mail methods of communication or related
revenues formats, expanding the breadth and depth of its various telephone, fax
and e-mail methods of communication or expanding its market presence through
relationships with third parties.
In addition, Xfone may broaden the scope and content of its site through the
acquisition of existing online providers of various telephone, fax and e-mail
methods of communication marketed on the internet. Although no such acquisitions
are currently being negotiated, any future acquisitions would expose Xfone to
increased risks, including risks associated with the assimilation of new
operations, sites and personnel, the diversion of resources from its existing
businesses, sites and technologies, the inability to generate revenues from new
sites or content sufficient to offset associated acquisition costs, the
maintenance of uniform standards, controls, procedures and policies and the
impairment of relationships with employees and customers as a result of any
integration of new management personnel. Acquisitions may also result in
additional expenses associated with amortization of acquired intangible assets
or potential businesses.
Xfone's ability to increase revenues will depend in part on successful
development of its international operations. If it is not successful, its
revenues could be reduced.
Development of international operations will require significant management
attention and financial resources and may not produce desired levels of revenue.
Xfone's international business will be subject to inherent risks which could
harm its business, including:
o Difficulties in managing operations across disparate geographic areas
o Fluctuations in local economic, market and political conditions
o Currency exchange rate fluctuations
These issues and their related costs could reduce its revenues.
Xfone's operating results primarily depend upon the support of its various
telephone, fax and e-mail methods of communication by its sales and customer
service team. Their failure to do so could harm its business.
Xfone's success will continue to depend significantly on its ability to rapidly
and successfully market its various telephone, fax and e-mail methods of
communication for its customers. Its revenues and distribution strategy focuses
primarily on developing and maintaining an outside direct sales organization.
Xfone will also have to provide excellent customer service.
Xfone anticipates increased expenses as it expands its business. These expenses
may cause future operating results to fluctuate significantly and possibly fail
to meet or exceed the expectations of securities analysts or investors, causing
its stock price to decline.
Xfone plans to increase its operating expenses and to expand its product
development, sales, marketing and customer support activities. Its decisions
regarding its operating expenses and anticipated revenue trends may be
incorrect. Many of its expenses are relatively fixed in the short term. Xfone
may not be able to reduce its expenses if its revenues are lower than
anticipated, which could cause its operating results to be below the
expectations of public market analysts or investors, causing the price of its
common stock to fall after Xfone commences trading.
Xfone must retain and recruit key personnel. If it doesn't, its revenues may be
reduced if it cannot recruit or lose these key employees.
Xfone's business is dependent on the services of Abraham Keinan, president; Guy
Nissenson, manager of marketing and business development; and Bosmat Houston,
manager of research and development. There is no employment contract with Mr.
Keinan. The loss of any of its senior management or other key technical,
customer support, revenues and marketing personnel, particularly if lost to
competitors, could harm its business. Xfone maintains no key man insurance.
Xfone's success also depends upon its ability to attract and retain highly
skilled management and other personnel. Competition for highly skilled employees
with technical, management, marketing, revenues, product development and other
specialized training is intense and Xfone may not be successful in attracting
and retaining these kinds of personnel. In addition, it may experience increased
costs in order to attract and retain skilled employees.
Xfone's management has significant control over stockholder matters, which may
impact the ability of minority stockholders to influence Xfone's activities.
Xfone's officers and directors and their families control the outcome of all
matters submitted to a vote of the holders of common stock, including the
election of directors, amendments to its certificate of incorporation and
approval of significant corporate transactions. These persons will beneficially
own, in the aggregate, approximately 87% of our outstanding common stock. This
consolidation of voting power could also have the effect of delaying, deterring
or preventing a change in control of Xfone that might be beneficial to other
stockholders.
The price of Xfone's stock may fall if, after the merger, Xfone's insiders sell
a large number of their shares. It may also fall if non-insiders sell their
shares as well. This could reduce the price for which Xfone's shareholders may
be able to sell their shares.
After the merger, 3 of Xfone's principal executive officers and other insiders
will own an aggregate of 4,353,461 restricted shares. These shares may only be
sold in compliance with Rule 144, except that there is no one year holding
period because these shares are being issued under this registration statement.
After the merger, 131 shareholders will own an aggregate of 646,539 restricted
shares. These non-insiders are not subject to the restrictions of Rule 144, and
all of these non-insider shares may be sold immediately.
Rule 144 generally provides that a person owning shares subject to the Rule who
has satisfied or is not subject to a one year holding period for the restricted
securities may sell, within any three month period (provided we are current in
our reporting obligations under the Exchange Act) subject to certain manner of
resale provisions, an amount of restricted securities which does not exceed the
greater of 1% of a company's outstanding common stock or the average weekly
trading volume in such securities during the four calendar weeks prior to such
sale.
A sale of shares by these security holders, whether under Rule 144 or otherwise,
may have a depressing effect upon the price of our common stock in any market
that might develop after the merger.
MERGER APPROVALS
In July, 2000, Sidney J. Golub as the sole member of our board of directors
approved the merger proposal. Stockholders owning more than 90% of Adar
Alternative Two's stock approved the merger proposal at the same time.
In September, 2000, the board of directors of Xfone unanimously approved the
merger proposal. Based upon the ownership of more than 50% of Xfone common stock
by officers, directors and affiliates, it appears that a favorable vote by
stockholders of Xfone is assured.
MERGER TRANSACTION
The merger agreement provides each outstanding share of Xfone common stock,
other than dissenting shares, as discussed later in this document, will be
exchanged for one share of Adar Alternative Two common stock. The following
table contains comparative share information for shareholders of Xfone and Adar
Alternative Two immediately after the closing of the merger.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
--------------------- -------------------------------- ------------------------------- ---------------------
The former shareholders of The current shareholders of Total
Xfone Adar Alternative Two
--------------------- -------------------------------- ------------------------------- ---------------------
--------------------- -------------------------------- ------------------------------- ---------------------
Number 4,800,000 200,000 5,000,000
--------------------- -------------------------------- ------------------------------- ---------------------
--------------------- -------------------------------- ------------------------------- ---------------------
Percentage 96% 4% 100%
--------------------- -------------------------------- ------------------------------- ---------------------
</TABLE>
The agreement provides that at the closing of the merger, Adar Alternative Two
will
o Change its name to Xfone
o Change its state of incorporation to Nevada
o Adopt Xfone's articles and bylaws
o Elect, effective upon the effectiveness of the merger, new
officers and a new board of directors to consist of the current
officers and current directors of Xfone
The agreement provides that Xfone's shareholders who vote against the merger are
entitled to dissenters' rights with respect to the proposed receipt of shares of
our name common stock as set forth in your state's law. The agreement also
provides for the payment to our name of a Merger Fee in the amount of $135,000.
None of the shares of Adar Alternative Two common stock outstanding prior to the
closing of the merger will be converted or otherwise modified in the merger and
all of the shares of Adar Alternative will be outstanding capital stock of Adar
Alternative Two after the closing of the merger.
The merger will be consummated promptly after this prospectus is declared
effective by the SEC and upon the satisfaction or waiver of all of the
conditions to the closing of the merger. The merger will become effective on the
date and time a properly executed articles of merger are filed with the offices
of the secretary of state of Nevada. Thereafter, Xfone will cease to exist and
Adar Alternative Two will be the surviving corporation in the merger.
Fractional shares.
As of the date of this prospectus, there were no fractional shares of Xfone's
common stock outstanding. Because each outstanding share of Xfone's common stock
will be entitled to receive one share of Adar Alternative Two's common stock
under the terms of the merger agreement, there will be no fractional shares
issued in the merger.
Bulletin board listing
Adar Alternative Two will be subject to the reporting requirements of the
securities exchange act of 1934 after the merger as a result of its filing of a
form 8-A electing to be a reporting company subject to the requirements of the
1934 act.
Upon closing of the merger, our name will seek to become listed on the over the
counter bulletin board under the symbol "XFON." If and when listed, the Xfone's
shareholders will hold shares of a publicly-traded Nevada corporation subject to
compliance with the reporting requirements of the exchange act. Because the
state of incorporation, articles and bylaws of Adar Alternative Two will be the
same as those of Xfone prior to the merger, the rights of shareholders of Xfone
will not change as a result of the merger.
Background of the merger
As discussed under Adar Alternative Two Business, Adar Alternative Two was
formed as a vehicle to acquire through a registered securities offering a
private company desiring to become an SEC reporting company in order thereafter
to secure a listing on the over the counter bulletin board. Adar Alternative Two
agreed to acquire Xfone because this was Xfone's objective.
Although other methods of achieving its objectives were available, including
alternate forms of SEC registration statements, Xfone chose the method involving
a reverse merger with Adar Alternative Two because it believes the optimal way
for it to achieve its objectives of becoming an SEC reporting company in order
thereafter to secure a listing on the over the counter bulletin board is:
o To be acquired by an acquisition company
o To have securities to be issued to its shareholders upon the merger registered
on Form S-4
o To have that registration statement declared effective before holding
a formal vote on the proposed merger
Xfone also believes this method is the optimal way for it to:
o Increase the visibility of Xfone's business, which could be
helpful in further developing and commercializing Xfone's
products.
Xfone believes that public, trading companies have greater visibility than
private companies.
o Facilitate Xfone's ability to raise capital in the public markets.
Xfone believes that public, trading companies have an easier time raising
capital than private companies.
o Potentially improve Xfone's stockholders' ability to sell their shares in the
over-the-counter market.
Xfone believes that public, trading companies provide greater investor
liquidity than private companies.
Interests of Certain Persons in the Merger
Upon the closing of the merger, the current directors and executive officers of
Xfone will become the directors and executive officers of the parent
corporation.
Material Federal Income Tax Consequences
The following discussion summarizes all the material federal income tax
consequences of the merger. This discussion is based on currently existing
provisions of the Internal Revenue code of 1986, existing and proposed Treasury
Regulations and current administrative rulings and court decisions, all of which
are subject to change. Any change, which may or may not be retroactive, could
alter the tax consequences to the Xfone shareholders, as described below.
We have addressed this opinion to most of the typical shareholders of companies
such as Xfone. However, some special categories of shareholders listed below
will have special tax considerations that need to be addressed by their
individual tax advisors:
o Dealers in securities
o Banks
o Insurance companies
o Foreign persons
o Tax-exempt entities
o Taxpayers holding stock as part of a conversion, straddle, hedge or
other risk reduction transaction
o Taxpayers who acquired their shares in connection with stock option
or stock purchase plans or in other compensatory transactions
We also do not address the tax consequences of the merger under foreign, state
or local tax laws.
We strongly urge to consult their own tax advisors as to the specific
consequences of the merger to them, including the applicable federal, state,
local and foreign tax consequences of the merger in their particular
circumstances.
Neither Adar Alternative Two nor Xfone has requested, or will
request, a ruling from the Internal Revenue Service, IRS, with regard to any of
the federal income tax consequences of the merger. The tax opinions will not be
binding on the IRS or preclude the IRS from adopting a contrary position.
It is the opinion of Williams Law Group, P.A., counsel to Adar Alternative Two
Industry Co., that the merger will constitute a reorganization under Section
368(a) of the code. The tax description set forth below has been prepared and
reviewed by Williams Law Group, and in their opinion, to the extent the
description relates to statements of law, it is correct in all material
respects. In a prior filing of a similar transaction with the Securities and
Exchange Commission, the staff requested us to add a statement that the
following tax consequences are implicit in the firm's opinion that the merger is
a 368(a) reorganization.
As a result of the merger's qualifying as a reorganization, the following
federal income tax consequences will, under currently applicable law, result:
o No gain or loss will be recognized for federal income tax purposes by
the holders of Xfone common stock upon the receipt of Adar Alternative
Two common stock solely in exchange for Xfone common stock
in the merger, except to the extent that cash is received by the
exercise of dissenters' rights.
o The aggregate tax basis of Adar Alternative Two common
stock received by Xfone shareholders in the merger will be the same as
the aggregate tax basis of the Xfone common stock surrendered in
merger.
o The holding period of Adar Alternative Two common stock
received by each Xfone shareholder in the merger will include the
period for which the Xfone common stock surrendered in merger was
considered to be held, provided that the Xfone common stock so
surrendered is held as a capital asset at the closing of the merger.
o A holder of Xfone common stock who exercises dissenters' rights for the
Xfone common stock and receives a cash payment for the shares generally
will recognize capital gain or loss, if the share was held as a capital
asset at the closing of the merger, measured by the difference between
the shareholder's basis in the share and the amount of cash received,
provided that the payment is not essentially equivalent to a dividend
within the meaning of Section 302 of the code or does not have the
effect of a distribution of a dividend within the meaning of Section
356(a)(2) of the code after giving effect to the constructive ownership
rules of the code.
o Neither Adar Alternative Two nor Xfone will recognize gain
solely as a result of the merger.
o There is a continuity of interest for IRS purposes with respect to the
business of Xfone. This is because shareholders of Xfone have
represented to us that they will not, under a plan or intent existing
at or prior to the closing of the merger of the merger, dispose of so
much of their Xfone common stock in anticipation of the merger, plus
Adar Alternative Two common stock received in the merger
that the Xfone shareholders, as a group, would no longer have a
significant equity interest in the Xfone business being conducted by
Adar Alternative Two after the merger. Our opinion is
based upon IRS ruling guidelines that require eighty percent
continuity, although the guidelines do not purport to represent the
applicable substantive law.
A successful IRS challenge to the reorganization status of the merger would
result in significant tax consequences. For example,
o Xfone would recognize a corporate level gain or loss on the deemed sale
of all of its assets equal to the difference between
o the sum of the fair market value, as of the closing of the
merger, of Adar Alternative Two common stock
issued in the merger plus the amount of the liabilities of
Xfone assumed by Adar Alternative Two.
and
o Xfone's basis in the assets
o Xfone shareholders would recognize gain or loss with respect to
each share of Xfone common stock surrendered equal to the
difference between the shareholder's basis in the share and the
fair market value, as of the closing of the merger, of Adar
Alternative Two common stock received in merger
therefore.
In this event, a shareholder's aggregate basis in Adar Alternative Two
common stock so received would equal its fair market value and the shareholder's
holding period for this stock would begin the day after the merger is
consummated.
Even if the merger qualifies as a reorganization, a recipient of Adar
Alternative Two Industry Co. common stock would recognize income to the extent
if, among other reasons any shares were determined to have been received in
merger for services, to satisfy obligations or in consideration for anything
other than the Xfone common stock surrendered. Generally, income is taxable as
ordinary income upon receipt. In addition, to the extent that Xfone shareholders
were treated as receiving, directly or indirectly, consideration other than Adar
Alternative Two common stock in merger for Xfone's shareholder's
common stock, gain or loss would have to be recognized.
Termination.
At any time prior to the Effective Date, the merger agreement may be terminated,
and the merger abandoned under certain circumstances, including:
o By mutual consent of Adar Alternative Two and Xfone
o By either party if any of the other party's representations and
warranties contained in the merger agreement shall be or shall
have become inaccurate, or if any of the other party's covenants
contained in the merger agreement shall have been breached
o By either party if a court of competent jurisdiction or other
governmental body shall have issued a final and nonappealable
order, decree or ruling, or shall have taken any other action,
having the effect of permanently restraining, enjoining or
otherwise prohibiting the merger
o By Xfone if the consents have been solicited and the merger
agreement shall not have been adopted and approved by the required
vote
o By Xfone if Xfone reasonably determines that the timely
satisfaction of any condition to its obligations to consummate the
merger has become impossible or unlikely.
Dissenters' Rights
The following summary of dissenters' rights under Nevada law is qualified in its
entirety by reference to section 92, Nevada Statutes, but includes all material
aspects of that section.
Xfone stockholders who oppose the proposed merger will have the right to receive
payment for the value of their shares as set forth in sections 92a.300 through
92a.500 of the Nevada law. The dissenters' rights will be available only to
stockholders of Xfone who refrain from voting in favor of the merger.
Voting against the merger will not constitute notifying Xfone of the intention
to demand payment if the merger is closed.
A stockholder must exercise dissenters' rights for all of the shares that he or
she owns.
Since the vote to authorize the merger will take place by written consent, Xfone
will be required to notify by mail those stockholders who, by virtue of having
refrained from voting in favor of the merger, are entitled to payment for their
shares. Dissenters notices must be sent no later than ten days after
consummation of the merger. The notice must
o State where demand for payment must be sent
o State when certificates must be deposited
o State the restrictions on transfer of shares that are not evidenced
by a certificate once demand has been made
o Supply a form on which to demand payment
o Set a date by which demand must be received
o Include a copy of the relevant portions of the Nevada law
Unless a stockholder acquired his or her shares after Xfone sends the dissenters
notices, Xfone must calculate the fair market value of the shares plus interest,
and within 30 days of the date Xfone receives the demand, pay this amount to any
stockholder that properly exercised dissenters' rights and deposited
certificates with Xfone. If Xfone does not pay within 30 days, a stockholder may
enforce in court Xfone's obligation to pay. The payment must be accompanied by
o Xfone's interim balance sheet,
o A statement of the fair market value of the shares,
o An explanation of how the interest was calculated,
o A statement of dissenters' right to demand payment, and
o A copy of the relevant portions of the Nevada Law.
Within 30 days of when Xfone pays a dissenting stockholder for his or her
shares, the stockholder has the right to challenge Xfone's calculation of the
fair market value of the shares and interest due, and must state the amount that
he or she believes to represent the true fair market value and interest of the
shares. If Xfone and the stockholder are not able to settle on an amount, Xfone
may petition a court within 60 days of making payment to the dissenting
stockholder. If Xfone does not either settle with the stockholder or petition a
court for a determination within 60 days, Xfone is obligated to pay the
stockholder the amount demanded that exceeds Xfone's calculation of fair market
value plus interest. All dissenters are entitled to judgment for the amount by
which the fair market value of their shares is found to exceed the amount
previously remitted, with interest.
It is a condition to Xfone's obligations to consummate the merger that the
holders of no more than 10% of the outstanding shares of Xfone's common stock
are entitled to dissenters' rights. If demands for payment are made with respect
to more than 10%, of the outstanding shares of Xfone's common Stock, and, as a
consequence more than 10% of the shareholders of Xfone's become entitled to
exercise dissenters' rights, then Xfone will not be obligated to consummate the
merger.
Accounting Treatment
For accounting purposes, the merger will be treated as an acquisition by a
predecessor corporation.
Merger Procedures
Unless otherwise designated by a Xfone shareholder on the transmittal letter,
certificates representing shares of Adar Alternative Two common stock issued to
Xfone shareholders will be issued and delivered to the tendering Xfone
shareholder at the address on record with Xfone . In the event of a transfer of
ownership of shares of Xfone common Stock represented by certificates that are
not registered in the transfer records of Xfone , the shares may be issued to a
transferee if the certificates are delivered to the transfer agent, accompanied
by all documents required to evidence the transfer and by evidence satisfactory
to the transfer agent that any applicable stock transfer taxes have been paid.
If any certificates shall have been lost, stolen, mislaid or destroyed, upon
receipt of
o An affidavit of that fact from the holder reclaiming the certificates to be
lost, mislaid or destroyed.
o The bond, security or indemnity as the parent corporation and the merger
agent may reasonably require.
o Any other documents necessary to evidence and effect the bona fide merger,
the transfer agent shall issue to holder the shares into which the shares
represented by the lost, stolen, mislaid or destroyed.
o Certificates have been converted.
Neither Adar Alternative Two, Xfone, nor the transfer agent is liable to a
holder of Xfone's common stock for any amounts paid or property delivered in
good faith to a public official under any applicable abandoned property law.
Adoption of the merger agreement by the Xfone's shareholders constitutes
ratification of the appointment of the transfer agent.
After the closing of the merger, holders of certificates will have no rights
with respect to the shares of Xfone common stock represented thereby other than
the right to surrender the certificates and receive in merger the shares of Adar
Alternative Two common stock to which the holders are entitled.
XFONE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
Swiftnet Limited
We sell and develop telecommunication services, including telephony,
fax messages, Internet driven applications and telex for commercial and
residential use mainly in the UK and Europe. In addition we provide services and
telecom solutions to resellers and partners worldwide.
We were incorporated in 1991 under the laws of the state of England and
Wales. We believe that we should position our self as a "home" for all
telecommunication products by integrating new services and ideas to our website
and service options. As a retail business, reducing the dependency on one
technology will allow us to benefit from many possible directions that the
telecomm business will evolve to.
Six months ended June 30, 2000 and 1999
Consolidated Statement of Operations
Revenues. Revenues for the six months ended June 30, 2000 increase 77%
to (pound)577,560 ($850,604) from (pound)326,789 ($481,280) for the same period
in 1999. The increase in revenues is attributed mainly to accelerated growth in
revenues generated from our voice telephony services.
Cost of Revenues. Cost of revenues consists primarily of telephone
minutes purchased from telephone company's and other connection charges. During
the six months ended June 30, 2000 cost of revenues was (pound)390,556
($575,193) increasing 125%, as compared to cost of revenues of (pound)173,356
($255,311) for the same period in 1999. The cost of revenues as percentage of
revenues increased to 68% for the six month ended June 30, 2000 as compared with
53% for the six month ended June 30 , 1999. The increase is attributed to the
increase in revenues that derive from voice telephony services for which cost of
revenues are higher than ones incurred by providing the other services that the
company provides.
Gross Profit. Gross profit is total operating revenue less operating
expenses. Gross profit excludes general corporate expenses, interest expense,
interest income and income taxes. For the six months ended June 30, 2000 and
1999, respectively, gross profits were (pound)187,004 ($275,411) and
(pound)153,433 ($225,969), which represents a 22% increase. As a percentage of
revenue, gross profit decreased during the six months ended June 30, 2000 to 32%
from 47% for the same period in 1999. The decrease of gross profit as percentage
of revenues is attributed to the growth in revenues derived from voice telephony
services, where the gross profit is lower than the one generated from other
services provided by the company.
Research and Development Expenses. Research and development expenses
were (pound)14,332 ($21,108)and (pound)14,300 ($21,060) for the six months ended
June 30, 2000 and 1999, respectively. Research and development expenses as a
percentage of revenue were 2.5% and 4.4% for the six months ended June 30, 2000
and 1999, respectively. The expenses consist of labor costs of the R&D manager.
Bosmat develops and upgrades software for our telephone platforms, billing
systems, messaging services and interconnections with resellers.
Marketing and Selling Expenses. Marketing and Selling expenses
increased to (pound)36,335 ($53,513), or 109%, from (pound)17,367 ($25,577) for
the six months ended June 30, 2000 and 1999, respectively. Marketing and Selling
expenses as a percentage of revenue were 6.3% and 5.3% for the six months ended
June 30, 2000 and 1999, respectively.
General and Administrative Expenses. General and Administrative
Expenses increased to (pound)100,147 ($147,492) from (pound)98,195 ($144,617)
for the six months ended June 30, 2000 and 1999, respectively and decreased to
17% of gross revenues, from 30% of gross revenues for the six months ended June
30, 2000 and 1999, respectively.
Financing Expenses. Financing Expenses, net, increased to(pound)5,680
($8,365) for the six months ended June 30, 2000 as compared to (pound)1,033
($1,521) for the same period during 1999.
Income before Taxes. Income before Taxes for the six month ended June
30, 2000 was (pound)30,670 ($45,169) as compared to (pound)22,675 ($33,394) for
the same period of 1999 - an increase of 35%. Income before taxes decreased to
5.3% of revenues from 6.9% for the six month ended June 30, 2000 and 1999
respectively. The increase of profits before taxes is attributed to 77% growth
in our revenues while the decrease in the percentage of revenues is attributed
to the decrease in our gross profit margin.
Taxes on Income. UK companies are usually subject to income tax at the
corporate tax rate of 20%. Taxes on income for the six month ended June 30, 2000
increased to (pound)6,156 ($9,066)- 20% of the income before taxes as compared
with (pound) 2,148 ($3,161) - 9.4% of the income before taxes for the six month
ended June 30, 1999. The increase of the taxes on income is attributed to the
increase in the income before taxes, while the percentage of taxes out of income
before taxes increased due to carry forward losses used in June 1999.
Net Income. Net Income for the six months ended June 30, 2000
was(pound)24,514 ($36,103) as compared to net income of(pound)20,527 ($30,231)
for the same period during 1999. The increase in net results during 2000 is
attributed to the growth in our revenues.
Consolidated Balance Sheet.
Current Assets. The Company's Current Assets amounted to (pound)381,512
($561,873) as of June 30, 2000 as compared to (pound)242,852 ($357,661) as of
December 31, 1999. The increase is due to an increase in account receivables in
the amount of (pound)121,062 at June 30, 2000. The increase in account
receivables is attributed primarily to the 77% growth in our revenues.
Loan to Shareholder. Loan to shareholder amounted to (pound)176,480
($259,913) as of June 30, 2000 as compared to (pound)138,201 ($203,536) as of
December 31, 1999. After balance sheet date, the Company has entered into an
agreement with the Shareholder. Pursuant to the agreement, the loan will be
payable in annual installments of (pound)13,820 beginning on January 1, 2002 and
continuing until January 1, 2011 at which time the remaining unpaid principal
will be due in full. The loan can be payable prior to the due date with no
prepayment penalty. The loan bears no interest.
Fixed Assets. Fixed Assets decreased to (pound)89,094 ($131,214) at
June 30, 2000 as compared to (pound)89,197 ($131,365) at December 31, 1999.
Purchases of equipment during the six months ended March 31, 2000 were
(pound)12,621 ($18,588) and depreciation for the same period was (pound)12,724
($18,739).
Trade Payables amounted to (pound)336,647 ($495,798) as of June 30,
2000 as compared to (pound)224,250 ($330,264) at December 31, 1999. The increase
of 50% in trade payables is attributed to the growth in our revenues.
Liquidity and Capital Resources at June 30, 2000.
Since our inception we have fininaced our operations primarily through cash
generated by operations and to a lesser extent by private placements of our
share capital issued to our shareholders. As of June 30, 2000 the accumilated
amount of (pound)92,156 ($135,723) was invested in the company and additonal
amount of (pound)89.516 ($131,835) was contributed by retained earnings.
Net Cash provided by operating activities for the six months
ended June 30, 2000 was (pound)16,501 ($24,300) as compared to net cash provided
of (pound)32,950 ($48,527) at the same period in 1999. The decrease in the cash
provided by operating activities is primarily attributed to the increase in
trade receivables.
Net Cash used in Investing Activities for the six months ended
June 30, 2000 were (pound)29,244 ($43,070) as compared to net cash used of
(pound)68,464 ($100,831) at the same period in 1999. The cash used in investing
activities was primarily used for the director's loan and the purchase of
equipment.
Net Cash used in Financing Activities for the six months ended
June 30, 2000 were (pound)2,422 ($3,567) as compared to net cash provided by
financing activities of (pound)28,664 ($42,215) at the same period in 1999. The
cash generated by financial activities is derived from the issuance of long term
debt.
Years ended December 31, 1999 and 1998.
Consolidated Statement of Operations.
Revenues. Revenues for year ended December 31, 1999 increased 16%
to(pound)758,846 ($1,117,594) from(pound)652,964 ($961,655) for the same period
in 1998.
Cost of Revenues. During the year ended December 31, 1999 cost of
revenues was (pound)427,233 ($629,209) increasing 15%, as compared to cost of
revenues of (pound)370,349 ($545,433) for the year ended 1998. The growth in
cost of revenues is attributed to equivalent growth in our revenues.
Gross Profits. For the year ended December 31, 1999 and 1998,
respectively, gross profits were (pound)331,613 ($488,385) and (pound)282,615
($416,222), which represents a 17% increase. As a percentage of revenues, gross
profits increased during the year ended December 31, 1999 to 43.7% from 43.3%
for the year ended in December 31, 1998.
Research and Development Expenses. Research and development expenses
were (pound)28,663 ($42,214) and (pound)26,715 ($39,345) for the year ended
December 31, 1999 and 1998, respectively. Research and development expenses as a
percentage of revenue were 3.8% and 4.1% for the year ended December 31, 1999
and 1998, respectively.
Marketing and Selling Expenses. Marketing and Selling expenses slightly
increased to (pound)40,305 ($59,359) from (pound)39,383 ($58,001) years ended
December 31, 1999 and 1998, respectively. Marketing and selling expenses as a
percentage of revenues were 5.3% and 6% for the years ended December 31, 1999
and 1998, respectively.
General and Administrative Expenses. General and Administrative
expenses slightly decreased to (pound)213,176 ($313,956) from (pound)213,848
($314,946) for the years ended December 31, 1999 and 1998, respectively and
decreased to 28.1% of gross revenues, from 32.8% of gross revenues for years
ended December 31, 1999 and 1998, respectively.
Financing Expenses. Financing Expenses, net, increased to(pound)6,576
($9,685) for the year ended December 31, 1999 as compared to (pound)3,992
($5,879) for the year ended December 31, 1998.
Net Income. Net Income for the year ended December 31, 1999 was
(pound)39,159 ($57,672) as compared to a loss of (pound)1,282 ($1,888) for the
year ended December 31, 1998. The increase in net results during 1999 is
attributed to the increase in revenues and growth profit while operating
expences slightly decrease.
Consolidated Balance Sheet.
Current Assets. The Company's current assets amounted to (pound)242,852
($357,661) as of December 31, 1999 as compared to (pound)194,021 ($285,745) as
of December 31, 1998. The increase is due to an increase in accounts receivable
in the amount of (pound)39,762 at December 31, 1999. The increase in accounts
receivable is attributed primarily to an increase in trade receivables in the
amount of (pound)39,762 ($60,436) at December 31, 1999.
Loan to Shareholder. Loan to shareholder amounted to(pound)138,201
($203,536) as of December 31, 1999 as compared to(pound)68,628 ($101,072) as of
December 31, 1998.
Fixed Assets. Fixed assets increased to (pound)89,197 ($131,365) at
December 31, 1999 as compared to (pound)86,344 ($127,163) at December 31, 1998.
Purchases of equipment during the year ended December 31, 1999 were
(pound)38,890 ($57,275) and depreciation for the same period was (pound)29,732
($43,788).
Trade Payables amounted to (pound)224,250 ($330,264) as of December
31, 1999 as compared to (pound)197,809 ($291,324) at December 31, 1998. The
increase in trade payable is attributed the growth in our revenues.
Other Liabilities and Accrued Expenses amounted to (pound)88,489
($130,322) as of December 31, 1999 as compared to (pound)58,757 ($86,535) at
December 31, 1998. The increase in other liabilities and accrued expenses is
attributed primarly to an increase of the liability to the tax authorities.
Liquidity and Capital Resources at December 31, 1999.
Net Cash provided by operating activities for the year ended December
31, 1999 were (pound)84,824 ($124,925) as compared to net cash provided of
(pound)10,476 ($15,429) at the year ended December 31, 1998. The cash provided
by operating activities was primarily provided by the net income, the increase
in trade payables and in other liabilities and accrued expences.
Net Cash used in Investing Activities for the year ended December
31, 1999 were (pound)102,158 ($150,453) as compared to net cash used of
(pound)31,193 ($45,940) at the year ended December 31, 1998. The cash used in
investing activities was primarily used for the director's loan and the purchase
of equipment.
Years ended December 31, 1998 and 1997.
Consolidated Statement of Operations.
Revenues. Revenues for year ended December 31, 1998 increase 3.4%
to(pound)652,964 ($961,655) from(pound)631,781 ($930,458) for the same period in
1997.
Cost of Revenues. During the year ended December 31, 1998 cost of
revenues was (pound)370,349 ($545,433) increasing 3.3%, as compared to cost of
revenues of (pound)358,469 ($527,937) for the year ended 1997.
Gross Profits. For the year ended December 31, 1998 and 1997,
respectively, gross profits were (pound)282,615 ($416,222) and (pound)273,312
($402,521), which represents a 3.4% increase. As a percentage of revenue, gross
profit for the years ended December 31, 1998 and 1997 were 43.3%.
Research and Development Expenses. Research and development expenses
were (pound)26,715 ($39,345) and (pound)23,760 ($34,993) for the year ended
December 31, 1998 and 1997, respectively. Research and development expenses as a
percentage of revenue were 4.1% and 3.8% for the year ended December 31, 1998
and 1997, respectively.
Marketing and Selling Expenses. Marketing and selling expenses
increased to (pound)39,383 ($58,001) from (pound)38,331 ($56,452) in the years
ended December 31, 1998 and 1997, respectively. Marketing and selling expenses
as a percentage of revenue were 6% and 6.1% for the years ended December 31,
1998 and 1997, respectively.
General and Administrative Expenses. General and administrative
expenses decreased to (pound)213,848 ($314,946) from (pound)214,909 ($316,508)
for the years ended December 31, 1998 and 1997, respectively and decreased to
32.8% of gross revenues, from 34% of gross revenues for years ended December 31,
1998 and 1997, respectively.
Financing Expenses. Financing Expenses, net, decreased to(pound)3,992
($5,879) for the year ended December 31, 1998 as compared to (pound)5,429
($7,996) for the year ended December 31, 1997.
Loss. Loss for the year ended December 31, 1998 was (pound)1,282
($1,888) as compared loss of (pound)7,228 ($10,645) for the year ended December
31, 1997. The decrease in the loss is primarly attributed to the minor operating
profit that the company generated in the year ended December 31, 1998 as
compared with an operating loss in 1997.
XFONE BUSINESS
Xfone is a provider of long distance voice and data telecommunications services
primarily in the United Kingdom. Xfone uses the network switching and transport
facilities of Tier I and Tier II long distance providers such as MCI/WorldCom to
provide a broad array of telephone, fax and e-mail methods of communication
marketed through traditional means by its wholly-owned subsidiary Swiftnet and
through Xfone on the internet.
Swiftnet was incorporated in 1991. Swiftnet is licensed by the Department
of Trade and Industry to provide telecommunication services in the United
Kingdom. Xfone was formed in September 2000. In October 2000 Xfone acquired all
of the issued and outstanding stock of Swiftnet in a share exchange and
reorganization. Swiftnet is now a wholly owned subsidiary of Xfone.
Products and Services
Xfone offers an integrated set of telecommunications products and services
including
o Indirect telephone service using 1XXX access [similar to XX-XX-XXXX in
the US] reselling services provided by other carriers or using its own
platform
Using a technique called indirect access, Xfone is able to take calls
originated by customers and route them to virtually any destination.
Some customers are billed monthly and some are required to pre-pay. The
pre-pay customers are disconnected automatically when their balance hits
zero.
o PIN access using 0800 free numbers.
Customers of Xfone can use this service to call from almost any phone,
including British Telecom pay phones, to access Xfone's platform remotely
in order to make calls to virtually any destination. Customer
identification of clients is done via a PIN code. This is essentially a
cardless calling card program.
o Mobile access using 0800 free numbers.
This service is similar to PIN access but for mobile phones. In this
case, however, the identification of the client is automatic; there is no
need for a PIN.
o Email to Fax
Email2Fax allows anyone with an Internet email account to send faxes
usually at a discount cost. The email arrives at Xfone's Internet server
and is faxed through high-speed fax modems to the proper destination.
Email2Fax confirms every 15 minutes:
o All successful or failed fax transmissions
o A complete list including date and time of delivery
o Destination number
o Pages
o Duration
o Subject
o Answerback of the transmission
Email2Fax will try to send a fax based on a pre-defined table of retries.
If a fax does not go through, within the pre-defined number of hours
Email2Fax will cancel the fax and a confirmation will be included in the
next status report.
o Print to Fax
Similar to Email2Fax, Print2Fax will allow anyone with Windows 95
[Windows 98 is under development, anticipated to be completed by the end
of 2001] and an Internet browser to send faxes usually at a discount
cost. When a user wants to send a fax, he or she composes the message
with any Windows application that supports printing. The user then
selects the printer driver to send the fax. The printer driver
automatically displays a dialog box that allows the user to enter
o The recipient name and fax number - multiple recipients, both "To" and
"CC," can also be entered
o The sender's name
o The subject
The Print2Fax software supports the user address book for insertion of
one or more recipients. The user can also specify that one of three
possible standard cover pages be attached to the fax. Once the user
clicks "OK," the fax is sent out over the network to the Xfone server
and routed, over the Internet, to its final destination. A queue
management window allows the user to track the progress and final status
of each fax. Status messages are displayed in clear language.
o Fax to Email or Cyber Number
This service allows receiving fax messages directly to an email address
via a personal number.
o Fax Broadcast
This service enables businesses to send thousands of faxes to various
destinations with merged fields quickly.
o Email to Telex
Email2telex allows anyone with an Internet email account to send
telexes at a discount cost. Email2Telex users can send a telex anywhere
in the world. Email2Telex bills in six-seconds increments with no
minimum. Email2Telex sends back the same information to the user as
Email2fax.
o Nodal Services
Business partners can use this product, which is essentially a small
platform located in their country, to establish their own messaging
services in their own country. This module provides nodal partners the
ability to send and receive customer faxes utilizing store and forward
delivery.
The level of demand for its products/services is generally greater in January -
March, May - July and September - November because there are no major holidays
during those months.
Xfone charges its customers on the basis of minutes or partial minutes of usage.
Its rates may vary with the distance, duration, time of day of the call and the
type of call. The facilities selected for call transmission do not affect its
rates, but the type of call does.
Contractual terms on regular telephone customers are 21 days from date of
invoice. Average customers pay 60 days after being invoiced. Its prepay
telephone services represent around 20 percent of revenues. Its suppliers
standard terms are 30 days from invoice date however practically payments are
being made up to 90 days from date of invoice without interest or penalty.
We will have monthly promotions to different destinations. For example, in a
certain month Xfone may sell a minute to a country for less than the retail
price. Also, we intend to offer discounts for volume users.
Its wholly-owned subsidiary, Swiftnet, does its billing for us.
We currently have contracts with MCI WorldCom, Teleglobe and GTS for telephone
routing and switching services. In general, these contracts may be terminated
immediately for a material breach and with thirty days notice otherwise. They
also supply the same service to its competitors.
Although Xfone does have back-up supplier for MCI WorldCom, should its agreement
with MCI Worldcom be terminated, Xfone would have to reprogram the systems for
all direct access customers from the MCI WorldCom switch to another switch. In
addition, the cost of purchasing these services could significantly increase.
United Kingdom Market Information
According to the market information update of Office of Telecommunications
Department of Trade and Industry, call minutes increased for all call types,
except for local calls. Total call minutes have risen constantly (in millions):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
----------------------- -------------------- -------------------- --------------------- --------------------
1997/98Q4: 1998/99Q1: 1998/99Q2: 1998/99Q3: 1998/99Q4:
----------------------- -------------------- -------------------- --------------------- --------------------
----------------------- -------------------- -------------------- --------------------- --------------------
41,254 41,394 42,156 44,859 45,988
----------------------- -------------------- -------------------- --------------------- --------------------
Total revenues have risen as well ((pound)Millions):
----------------------- -------------------- -------------------- --------------------- --------------------
1997/98Q4: 1998/99Q1: 1998/99Q2: 1998/99Q3: 1998/99Q4:
----------------------- -------------------- -------------------- --------------------- --------------------
----------------------- -------------------- -------------------- --------------------- --------------------
1,972 2,092 2,147 2,174 2,239
----------------------- -------------------- -------------------- --------------------- --------------------
</TABLE>
More importantly call revenues and minutes have risen to all other alternative")
carriers such as Swiftnet but not including British Telecom, Kingston, Cable &
Wireless and other cable operators: Minutes (in millions):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
----------------------- -------------------- -------------------- --------------------- --------------------
1997/98Q4: 1998/99Q1: 1998/99Q2: 1998/99Q3: 1998/99Q4:
----------------------- -------------------- -------------------- --------------------- --------------------
----------------------- -------------------- -------------------- --------------------- --------------------
2,625 2,925 3,231 3,438 3,692
----------------------- -------------------- -------------------- --------------------- --------------------
Revenues have also increased ((pound)Millions):
----------------------- -------------------- -------------------- --------------------- --------------------
1997/98Q4: 1998/99Q1: 1998/99Q2: 1998/99Q3: 1998/99Q4:
----------------------- -------------------- -------------------- --------------------- --------------------
----------------------- -------------------- -------------------- --------------------- --------------------
178 219 222 228 239
----------------------- -------------------- -------------------- --------------------- --------------------
</TABLE>
Marketing
Swiftnet
Swiftnet markets through agents, resellers and direct marketing using mainly fax
broadcast. Resellers include Voicenet and Worldnet. These contracts may be
terminated upon 60 and 7 days notice, respectively. The Voicenet agreement has a
monthly minimum rising to 10,000 UK pounds in November, 2000. Resellers receive
lower wholesale prices and sell at their own pricelists. Swiftnet provides them
with the services, inform them of price changes, and continue to hold a British
carrier license.
Swiftnet recently entered into a contract with InTouchUK.com who will have
exclusive rights to sell the fax broadcast services in the United Kingdom,
including northern Ireland. Swiftnet will keep its own customers that registered
prior to the agreement and refer all prospective customers of Fax Broadcast to
the reseller. All clients referred by Swiftnet must be connected to Swiftnet
services and not to any other competitive services. The exclusivity rights will
be revoked in case the reseller does not attain certain revenues to Swiftnet
(actual monthly payments) as listed below:
Month Minimum payment to Swiftnet (UK Pounds)
May 2000 At least 0
June 2000 At least 5000
July 2000 At least 10000
August 2000 At least 15000
September 2000 At least 20000
October 2000 At least 20000
November 2000 At least 20000
December 2000 At least 25000
January 2001 At least 25000
February 2001 At least 25000
March 2001 At least 30000
April 2001 At least 30000
May 2001 At least 30000
June 2001 At least 35000
July 2001 - December 2001 (inclusive) At least 35000 per month
January 2002 - June 2002 (inclusive) At least 40000 per month
July 2002 - December 2002 (inclusive) At least 45000 per month
January 2003 onwards At least 50000 per month and a
minimum growth of ten percent per
annum.
The reseller could pay Swiftnet the difference between its actual payment
and the minimum payment in order to keep the exclusivity.
Agents such as InTouchUK.com sell Swiftnet's services directly and receive
commissions of approximately 10%.
Xfone
We believe that the telephone and e-commerce market will merge in such a way
that consumers will be able to buy telecommunication services through Internet
tools, thus creating an opportunity.
xfone.com will be its brand name for or new e-commerce telecommunications
operations. We intend to build a brand name with the launch of "xfone.com" - an
easy to recognize name, advertisement and customers that will be satisfied with
its rates and quality of lines. We anticipate that xfone.com will be operational
by January 2001.
We will promote it primarily through advertising and partnering with other
websites.
We intend to build and increase its revenues by:
o Greater ease of access to its potential customers using the Internet.
o Wide range of other marketing tools such as advertisement.
o Recruiting new agents, resellers and high-level employees utilizing
option schemes and performance related pay methods.
o Considering expansion via the acquisition of other companies.
o Prices
o Quality of service.
o Personal relations between the agents and clients in specific
communities.
o Added value services such as cyber number, email2fax and others.
o Customers
---------
Xfone has four types of customers:
o Residential - These customers either must dial 1XXX or acquire a box
that will do so automatically.
o Business - Smaller businesses are treated the same as residential
customers. Larger businesses PBX units are reprogrammed.
o Government Agencies - Includes the United Nations World Economic
Forum, the Argentine embassy, and the Israeli embassy.
o Resellers, such as WorldNet and Voicenet - We provide them with its
services (telephony and messaging) for a wholesale price. For WorldNet
we supply also the billing system.
Currently Xfone has customers in Angola, Australia, Austria, Bangladesh,
Belgium, Benin, Brazil, Bulgaria, Cambodia, Cameroon, Canada, China, Congo,
Croatia, Cyprus, Czech Republic, Denmark, Egypt, Finland, France, Germany,
Gibraltar, Greece, Guinea, Hong Kong, India, Indonesia, Iran, Irish Republic,
Israel, Italy, Ivory Coast, Japan, North Korea , South Korea, Kuwait, Latvia,
Lebanon, Liberia, Lithuania, Malawi, Malaysia, Maldives Isles, Mauritius, Nepal,
Netherlands, New Zealand, Niger, Nigeria, Norway, Oman, Pakistan, Panama,
Philippines, Poland, Portugal, Qatar, Russia, Saudi Arabia, Sierra Leone,
Singapore, Slovak Republic, South Africa, Spain, Sri Lanka, Sweden, Switzerland,
Taiwan, Tanzania, Thailand, Togo, Turkey, U.A.E, Uganda, Ukraine, USA and
Vietnam.
In 1999, one customer, the United Nations World Economic Forum located in
Switzerland, accounted for slightly more than 10% of its revenues. Except for
the UK and Switzerland, no other country accounted for more than 10% of its
revenues. Except for Intouch UK, a fax broadcast reseller which recently signed
an exclusive contract with Xfone requiring certain minimum monthly sales which
may or may not account for more than 10% of its revenues, Xfone does not
anticipate than any customer or country will account for more than 10% of its
revenues in 2000.
Future Products and Services
o Developing a database and web interface to enable the integration with a new
SS7 telephone switch.
This will allow us to register their phone line through xfone.com and
have immediate access. This should reduce its overhead because we can
more easily implement least cost routing.
We expect this to be implemented with the opening of its web site in
January 2000.
o Incoming and outgoing interconnection with various telephone carriers
and total incorporation of the switch to the current systems for
pre-pay and messaging platform and billing systems.
The British government, much like the American government, has directed
its largest telecommunications company, British Telecom, to open access
to its lines to more carriers such as Swiftnet. In that connection,
Swiftnet signed an incoming interconnect agreement with British Telecom
in August 2000. It can be terminated upon 24 months notice and earlier
under certain conditions. Xfone also intends to negotiate outgoing
interconnect with a variety of carriers to assure it receives the most
competitive cost.
o Research and implementation of GSM interface to the switching system
allowing us to sell mobile phone calls at a reduced rate.
Xfone is currently negotiating with a company which can provide us with
the necessary technology to implement this program. We may ultimately
decide not to implement this program.
Competitive Business Conditions
The communications and information services industry is highly competitive. Many
of its existing and potential competitors have financial, personnel, marketing,
customer bases and other resources significantly greater than ours.
Its principal competitor for Xfone services in the UK is Quip.com. The market
for Swiftnet's services is fragment in that there are approximately 160 licensed
telecom carriers operating in the UK market. However, most all of these entities
have much greater financial, sales and marketing, personnel and other resources
than we do. As a result, they may be able to grow faster and more profitably. We
believe that consolidation in the telecommunications industry will increase
competition.
Xfone is subject to competition that is expected to intensify in the future
because the number of competitors is increasing. For example, 10 years ago there
were only 3 carriers vs. now when 160 carriers exist.
There are barriers to entry into its market:
o License from the OFTEL -Department of Trade and Industry - United
Kingdom Government:
o Knowledge of market
o Potential customer base
o Proof of Network
o International Links
o Interconnect agreements with various other carriers
o Capital of around(pound)100,000
o Technical and market knowledge
The marketing and pricing activities of major competitors such as BT
MCI/WorldCom and Cable & Wireless significantly influence the industry. BT,
MCI/WorldCom and Cable & Wireless have also introduced new service and pricing
options that are attractive to its potential customers, and they may market to
these customers more aggressively in the future. New entrants in the industry
compete directly with us by concentrating their marketing and direct sales
efforts on specific classes of customers. These activities include national
advertising campaigns and telemarketing programs.
The suppliers with whom we contract for call transmission may also be its
competitors.
We believe that its ability to compete favorably is enhanced by its personal
contact with the end user through its local agents on one hand and in the future
the ability to give its clients the option to control and see their account over
the Internet. Some of its competitors are very large corporations that we
believe have less flexibility and employ traditional methods of operation. Xfone
is flexible enough to change and introduce new technologies and marketing
methods such as xfone.com.
Management believes it will be continue to be successful as a provider of basic
telephone services because of the volume discounts it has been able to negotiate
with underlying carriers and its ability to direct customer call traffic over
the transmission networks of more than one carrier. Xfone has negotiated pricing
discounts ranging from 20% to 40% less than its charges to its customers.
Regulatory Matters
Xfone has a license to operate a telecommunications system from the Secretary of
State for Trade and Industry granted in 1996. The license may be revoked upon
certain conditions upon one month's notice.
Xfone is affected by regulations introduced by Secretary of State for Trade and
Industry. Since the break up of the United Kingdom telecommunications duopoly
consisting of British Telecom and Mercury in 1991 it has been the stated goal of
Secretary of State for Trade and Industry to create a competitive marketplace.
Secretary of State for Trade and Industry has imposed mandatory rate reductions
on British Telecom in the past, which are expected to continue for the
foreseeable future. We do not believe that any regulations introduced by
Secretary of State for Trade and Industry will interfere with or substantially
hurt its business.
We believe that Xfone is in substantial compliance with applicable laws and
regulations. To the extent that these laws and regulations are changed or new
laws or regulations are adopted, we may be required to obtain additional
licenses or renew, modify or replace existing licenses. If we failed to be in
compliance with these laws, OFTEL could impose sanctions on us. This could
result in substantial costs to us.
Currently, since only messaging services but no calls by its customers originate
in the United States, we do not believe that Xfone is subject to any
telecommunications laws or regulations in the United States. In the future, if
its services expand, it is possible that we may become subject to the
telecommunications laws and regulations of the United States. If this occurs,
compliance with such laws would probably involve higher costs than we currently
have in Europe.
Research and Development
Other than developing and expanding its telecommunications network and
xfone.com web site, Xfone does not intend to undertake any research and
development activities. Including Swiftnet, Xfone has not incurred less than
%50,000 aggregate research and development expenses since January 1, 1998.
Number of Employees and Facilities
Xfone has 8 full-time employees, 2 in management, 5 in administration and one in
research and development.
Xfone has its corporate headquarters at 960 High Road, London N12 9RY - UK. The
telephone number is 020-84469494. Most of its business is conducted from its
office above that has four offices, one computer room, one operation room that
controls the computer room, entrance hall, main hall accounting, secretarial and
administration and a kitchen. The office is in on the fifth floor (out of six)
in a building with a concierge, two elevators and parking facilities. Its
premises are leased on a 5 years term, expiring: 12.12.2001 and the yearly
payments are (pound)15,900.
We believe its facilities will be adequate for its anticipated growth and that
we will be able to obtain additional space as needed on commercially reasonable
terms.
Legal Proceedings
Xfone is not currently a party to any material legal proceedings.
Swiftnet is currently involved in a dispute with one of its former
shareholders who we believe had a representative who was formerly a director of
Swiftnet. The shareholder is claiming that additional shares should be issued,
certain information has not been furnished, certain director's compensation has
not been paid and other minor matters. Xfone disputes these claims. No
litigation has been filed on this matter as of the date of this prospectus.
XFONE MANAGEMENT
The names and ages of its executive officers and directors as of September, 2000
are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
----------------------------------- ---------- -----------------------------------
Name Age Position
----------------------------------- ---------- -----------------------------------
----------------------------------- ---------- -----------------------------------
Abraham Keinan 50 President/Director
----------------------------------- ---------- -----------------------------------
----------------------------------- ---------- -----------------------------------
Bosmat Houston 39 R&D Manager
----------------------------------- ---------- -----------------------------------
----------------------------------- ---------- -----------------------------------
Guy Nissenson 26 Marketing and Business Development
/Director
----------------------------------- ---------- -----------------------------------
</TABLE>
Mr. Abraham Keinan, its President and Founder, founded Swiftnet in January 1991
and Xfone in 2000. Mr. Keinan received a BSc in Mechanical Engineering from
Ben-Gurion University, Beer-Sheeva - Israel.
Mrs. Bosmat Houston, joined Swiftnet in September 1991 and became R&D Manager in
the same month. Mrs. Houston received a BSc in Computer Science from the
Technion - Institution of technology, Haifa - Israel.
Mr. Guy Nissenson, MARKETING AND BUSINESS development manager joined Swiftnet in
October 1999 and became a director of Swiftnet in May 2000. He was a marketing
manager of RADA Electronics Industries from May 1997 to October 1998. He was an
audit and control officer with the rank of lieutenant of the Israeli Defense
Forces - Central Drafting Base and other posts from March 1993 to May 1997. Mr.
Nissenson received In July 2000 a BSc in Business Management from KINGS College
- University of London. Mr. Nissenson and his family own Cambeltown Business
Ltd. Cambeltown has invest $100,000 in Swiftnet.
Directors serve for the a one year term. Its Bylaws currently provide for a
Board of Directors comprised of 2 directors.
Executive Compensation
The following table sets forth summary information concerning the compensation
received for services rendered to us during the years ended December 31, 1999
and 1998 respectively by the president as managing director of Swiftnet. No
other executive officers received aggregate compensation during its last fiscal
year which exceeded, or would exceed on an annualized basis, $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Name and All Other Annual
Principal Position Year Salary (1) Bonus Compensation
------------------------------------- ----------- --------------- ------------ ------------------
<S> <C> <C> <C> <C>
Abraham Keinan, 1999 (pound)12000 - -
president
1998 (pound)12000 - -
</TABLE>
Its managing director, Mr. Abraham Keinan does not have an employment agreement
with the company. Xfone has agreed to pay him a salary of(pound)1250 per month.
Mr. Keinan also receives pension benefits and a company car. He is not subject
to a covenant not to compete.
Xfone has entered into an employment agreement with Guy Nissenson. The agreement
commenced May 11, 2000. Under the agreement, Mr. Nissenson will work on business
development, sales and marketing. Xfone has agreed to pay him a salary of
(pound)1000 per month, subject to a future increase of (pound)1000 if Swiftnet
reaches average sales of (pound)175,000 per month. He is not subject to a
covenant not to compete. In addition, Xfone has agreed that if we grant options
to Mr. Keinan, we will also grant Mr. Nissenson options to buy Swiftnet or Xfone
according to the following formula: 50% of the options with same price and
conditions that Mr. Keinan will receive, subject to the company reaching a
benchmark of (pound)120,000 average sales per month during Mr. Nissenson
activities or in the 12 months thereafter. The agreement with Mr. Nissenson can
be terminated with one month notice.
Its research and development manager, Mrs. Bosmat Houston also has an employment
agreement with us. Xfone has agreed to pay her a salary of (pound)2266 per
month. She is not subject to a covenant not to compete. Her agreement can be
terminate by the company with 8 weeks notice by us and one week notice by her.
Board Compensation
Its directors do not receive cash compensation for their services as directors,
although some directors are reimbursed for reasonable expenses incurred in
attending board or committee meetings.
RELATED PARTY TRANSACTIONS WITH DIRECTORS, OFFICERS AND 5% STOCKHOLDERS
Since inception through June 30, 2000, Swiftnet has loaned Mr. Keinan
(pound)181,980 or approximately $ 266,013 based upon the exchange rate at June
30, 2000. This note is not reflected in a promissory note. The terms and
conditions of repayment are as follows:
Xfone has entered into a consulting agreement dated May 5, 2000 and for a term
of 18 months thereafter, renewable as mutually agreed, with Campbeltown
Business, Ltd., an affiliate of Mr. Nissenson. Under the agreement, we will pay
Campbeltown 2,000 UK pounds per month, with the following performance bonus:
<TABLE>
<CAPTION>
<S> <C> <C>
-------------------------------------------- ----------------------------------------- ------------------------------------------
Month that revenues are between 125,000 Month that revenues are between 150,000 Month that revenues are in excess of
and 150,000 UK pounds and 175,000 UK pounds 175,000 UK pounds
-------------------------------------------- ----------------------------------------- ------------------------------------------
-------------------------------------------- ----------------------------------------- ------------------------------------------
1,250 UK pounds 2,500 UK pounds 2,750 UK pounds
-------------------------------------------- ----------------------------------------- ------------------------------------------
</TABLE>
There is a stock purchase agreement dated the 19th of June 2000, between
Swiftnet, Keinan and Campbeltown which provides that:
o Keinan confirms that all his businesses activities and initiatives in
the field of telecommunication are conducted through Swiftnet, and will
continue to do so at least 18 months after the conclusion of this
transaction.
o Campbeltown declares that it is not involved in any business that
competes with Swiftnet and will not be involved in such business at
least for 18 months after this transaction is concluded.
o Campbeltown will invest in Swiftnet the amount of 100,000 USD. In
exchange for its investment Swiftnet will issue new shares that will
represent 20% of the total issued shares of Swiftnet and will have
equal rights as the rest of the in voting and equity. Campbeltown will
also own 5% of the issued and outstanding shares of Xfone before the
merger with Adar Alternative Two has closed.
o Campbeltown will have in total at least 15% of Adar Alternative Two
after the merger closes.
o Campbeltown will have the right to nominate 33% of the members of the
board of directors of Swiftnet and Adar Alternative Two. If and when
Campbeltown ownership in Adar Alternative Two will be less than 7%,
Campbeltown will have the right to nominate only 20% of Adar
Alternative Two board members but always at least one member. In the
case that Campbeltown ownership in Adar Alternative Two will be less
than 2%, this right will expire. In the case that Adar group
transaction is not concluded and Campbeltown sells all of its shares in
Swiftnet, the right for 33% board members in Swiftnet will expire.
o Campbeltown will have the right to nominate a vice president in
Swiftnet and/or Adar Alternative Two. It is agreed that Mr. Guy
Nissenson is nominated now. If for any reason Guy Nissenson will leave
his position, Campbeltown and Mr. Keinan will agree on another nominee.
The VP will be employed with suitable conditions. This right will
expire when both conditions happen: Campbeltown is no longer a
shareholder in Swiftnet and it owns less than 2% of Adar Alternative
Two.
o Campbeltown has the option to purchase additional shares of Swiftnet
that will represent 10% of all issued shares after the transaction for
the amount of $200,000 US. This transaction can be executed either by
Swiftnet issuing new shares, or by Mr. Keinan selling his private
shares (as long as he has an adequate amount of shares), as Mr. Keinan
will decide. This option will expire on Dec 31, 2005. Campbeltown can
exercise this option in parts. If this option is exercised before the
conclusion of Adar Group transaction Keinan and Swiftnet will make sure
and guarantee that the shares owned by Campbeltown as a result of
exercising this option will be exchanged by the same percentage of
ownership in Adar Alternative Two. It is agreed that if Campbeltown
exercised only part of the option buying Swiftnet shares it will have
the right to exercise the reminder of the option for Adar Alternative
Two shares at the same terms. As long as Swiftnet is not a public
company or is merged / bought / taken over by a third party only
half of the option above could be taken.
o Alternatively to the right described in the point above after the
conclusion of Adar group transaction Campbeltown will have the option
to purchase shares of Adar Alternative Two that will represent 10% of
all issued and outstanding shares at the first day of flotation (after
the transaction) for the amount of $200,000 US. It is Campbeltown
decision what alternative to choose. This transaction can be executed
either by Adar Alternative Two issuing new shares, or by Mr. Keinan
selling his private shares in Adar Alternative Two (as long as he has
an adequate amount of shares), as Mr. Keinan will decide. The option
can be executed in parts and will expire on Dec 31,2005.
o Campbeltown will have the right to participate under the same terms and
conditions in any investment or transaction that involve equity rights
in Swiftnet or Adar Alternative Two conducted by Mr. Keinan at the
relative ownership portion.
o In the event that Swiftnet or Adar Alternative Two will seek for money
in a private placement for equity or any other rights, Campbeltown will
have the right of first refusal on any transaction or part of it until
Dec 31, 2005 or as long as it owns over 7% of Swiftnet equity or 4% of
Adar Alternative Two.
o Keinan and Campbeltown have signed a right of first refusal agreement
for the sale of their shares.
o Until Swiftnet or Adar Alternative Two conducts a public offering or is
traded on a stock market, Adar Alternative Two and Swiftnet will not
issue any additional shares or equity rights without a written
agreement from Campbeltown. This right will expire when Campbeltown
will have no interest or shares in Swiftnet and Adar Alternative Two.
PRINCIPAL STOCKHOLDERS
The following table sets forth ownership of its Common Stock as of
October 1, 2000 by
o Each shareholder known by us to own beneficially more than 5% of the
common stock
o Each executive officer
o Each director and all directors and executive officers as a group:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
------------------------------------------ ----------------------------- ---------------------- ---------------------
Name Number of Shares Percentage before Percentage after
---- ---------------- ------------------ -----------------
merger merger
------ ------
------------------------------------------ ----------------------------- ---------------------- ---------------------
------------------------------------------ ----------------------------- ---------------------- ---------------------
Abraham Keinan 2,342,333 50 47
4 WYCOMBE GARDENS
LONDON NW11 8AL
UNITED KINGDOM
------------------------------------------ ----------------------------- ---------------------- ---------------------
------------------------------------------ ----------------------------- ---------------------- ---------------------
Vision Consultants (2) 1,302,331 27 26
KINGS COURT
POB N-3944
BAY STREET
NASSAU BAHAMAS
------------------------------------------ ----------------------------- ---------------------- ---------------------
------------------------------------------ ----------------------------- ---------------------- ---------------------
Campbeltown Business Ltd. (3) 720,336 15 14.5
P.O. BOX 3152
ROAD TOWN, TORTOLA
BRITISH VIRGIN ISLANDS
------------------------------------------ ----------------------------- ---------------------- ---------------------
------------------------------------------ ----------------------------- ---------------------- ---------------------
All directors and named executive 4,365,006 92 87.5
officers as a group (2 persons)
------------------------------------------ ----------------------------- ---------------------- ---------------------
</TABLE>
(1) This table is based upon information derived from our stock
records. Unless otherwise indicated in the footnotes to this
table and subject to community property laws where applicable,
we believe that each of the shareholders named in this table has
sole or shared voting and investment power with respect to the
shares indicated as beneficially owned. Applicable percentages
are based upon 4,800,000 shares of Common Stock outstanding as
of October 1, 2000.
(2) Beneficially owned by Mr. Keinan.
(3) Mr. Nissenson and his father are shareholders in this company.
DESCRIPTION OF XFONE CAPITAL STOCK
<TABLE>
<CAPTION>
<S> <C>
------------------------------------------------ ----------------------------------------------------
Authorized Capital Stock Shares Of Capital Stock Outstanding
------------------------------------------------ ----------------------------------------------------
------------------------------------------------ ----------------------------------------------------
50,000,000 4,800,000
------------------------------------------------ ----------------------------------------------------
------------------------------------------------ ----------------------------------------------------
20,000,000 none
------------------------------------------------ ----------------------------------------------------
</TABLE>
Common Stock
Xfone is authorized to issue 50,000,000 shares of $.001 par common stock.
As of October, 2000, there were 4,800,000 shares of common stock outstanding
held of record by 123 stockholders. There will be 5,000,000 shares of common
stock outstanding after giving effect to the issuance of the shares of common
stock under this prospectus.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The common stock
has no preemptive or conversion rights or other subscription rights. There are
no sinking fund provisions applicable to the common stock. The outstanding
shares of common stock are, and the shares of common stock to be issued upon
completion of this offering will be, fully paid and non-assessable.
Preferred Stock
Xfone is authorized to issue 20,000,000 shares of preferred stock. There are no
shares of preferred stock outstanding. We currently have no plans to issue any
shares of preferred stock.
Options
Campbeltown has the option from Xfone and Mr. Keinan to purchase 500,000
additional shares of Xfone for the amount of 200,000 USD. This transaction can
be executed either by Xfone issuing new shares, or by Mr. Keinan selling his
private shares as long as he has an adequate amount of shares, as Mr. Keinan
will decide. This option will expire on Dec 31, 2005.
Dividends
Xfone has never paid any dividends and do not expect to do so after the closing
of the merger and thereafter for the foreseeable future.
Transfer Agent And Registrar
Transfer Online, Inc. is the transfer agent and registrar for its common stock.
ADAR ALTERNATIVE TWO'S BUSINESS
History and Organization
We were organized under the laws of the state of Florida in April, 1999. Since
inception, our primary activity has been directed to organizational efforts. We
were formed as a vehicle to acquire a private company desiring to become an SEC
reporting company in order thereafter to secure a listing on the over the
counter bulletin board.
In April, 2000 Mr. Williams resigned as officer and director and Mr. Sidney
Golub was elected president and director. On July, 2000,we changed our name
from Tenth Enterprise Service Group, Inc. to Adar Alternative Two, Inc.
Operations
We do not currently engage in any business activities that provide any cash
flow. The costs of identifying, investigating, and analyzing the merger with
Xfone have been and will continue to be paid with money in our treasury or
loaned by management. This is based on an oral agreement between management and
us.
Employees
We presently have no employees. Our officer and director is engaged in business
activities outside of us. It is anticipated that management will devote the time
necessary each month to our affairs of until a successful business opportunity
has been acquired.
Selected Financial Data
The following information concerning our financial position and operations is as
of and for the period ended December 31, 1999.
--------------------------------------------------------------------------
Total assets $ 0
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Total liabilities 0
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Equity 0
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Sales 0
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net loss 79
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net loss per share 0
--------------------------------------------------------------------------
Management Discussion And Analysis Or Plan Of Operation
We are a development stage entity, and have neither engaged in any operations
nor generated any revenues to date. We have no assets. Our expenses to date,
all funded by a loan from management, are $79. We have agreed to pay our
management a salary of $60,000 and the Williams Law Group a legal fee for
preparation of this registration statement in the amount of $75,000, to be paid
from the merger fee.
Substantially all of our expenses that must be funded by management have been
and will be from our efforts to identify a suitable acquisition candidate and
close the acquisition. Management has orally agreed to fund our cash
requirements until an acquisition is closed. So long as management does so, we
will have sufficient funds to satisfy our cash requirements. This is primarily
because we anticipate incurring no significant expenditures. Before the
conclusion of the acquisition of Xfone, we our expenses have been and will
continue to be limited to accounting fees, legal fees, telephone, mailing,
filing fees, occupational license fees, and transfer agent fees.
We do not intend to seek additional financing. At this time we believe that the
funds to be provided by management will be sufficient for funding our operations
until we close the acquisition of Xfone and therefore do not expect to issue any
additional securities before the closing of the acquisition of Xfone.
Properties.
We are presently using the office of Mr. Golub in Massachusetts at no cost as
our office. This arrangement is expected to continue only until a business
combination is closed, although there is currently no agreement between us and
Mr. Golub. We at present own no equipment, and do not intend to own any.
Security Ownership of Some Beneficial Owners and Management.
-----------------------------------------------------------
The following table sets forth some information regarding the beneficial
ownership of our Common Stock as of June, 2000 by
o Each shareholder known by us to own beneficially more than 5% of the
common stock
o Each executive officer
o Each director and all directors and executive officers as a group:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
------------------------------------ ----------------------- ---------------- ------------------ ----------------
Name Number of Shares Percentage Number of Shares Percentage
---- ----------------- ----------- ----------------- -----------
Pre-Merger(1) before merger Post-Merger after merger
------------- ------------- ------------ ------------
(1)(2)
------------------------------------ ----------------------- ---------------- ------------------ ----------------
------------------------------------ ----------------------- ---------------- ------------------ ----------------
Michael T. Williams(1) 1,000,000 50% 87,000 1.8%
100 100%
2503 W. Gardner Ct.
Tampa FL 33611
------------------------------------ ----------------------- ---------------- ------------------ ----------------
------------------------------------ ----------------------- ---------------- ------------------ ----------------
Sidney J. Golub 1,000,000 50% 100,000 2%
10 Troon Place
P.O. Box 289
Mashpee, MA 02649
------------------------------------ ----------------------- ---------------- ------------------ ----------------
------------------------------------ ----------------------- ---------------- ------------------ ----------------
All directors and named 1,000,000 50% 187,000 3.8%
executive officers as a group (one
person)
------------------------------------ ----------------------- ---------------- ------------------ ----------------
</TABLE>
This table is based upon information derived from our stock records. Unless
otherwise indicated in the footnotes to this table and subject to community
property laws where applicable, we believe that each of the shareholders named
in this table has sole or shared voting and investment power with respect to the
shares indicated as beneficially owned. Applicable percentages are based upon
2,000,000 shares of Common Stock outstanding as of July 1, 2000.
(1) Includes 187,000 shares owned by the Williams Trust, with beneficiaries as
Tenants by the Entireties of Michael Williams and Donna Williams, his wife.
Under the terms of the trust, all sales decisions will be made exclusively by
the trustee. Excludes 1,000 shares owned by Brandon Williams Revocable Trust.
Brandon is the son of Mr. and Mrs. Williams. Also excludes 1,000 shares each
owned by 10 of Mr. and Mrs. Williams nieces and nephews, current and to-be, and
a trust related to a family property in Vermont of which Mr. and Mrs. Williams
are currently a beneficiary and one employee of Mr. Williams' law firm. They
disclaim beneficial ownership of these 13,000 shares. In connection with the
merger, we agreed to effect a reverse split such that Mr. Williams' Trust will
own 187,000 shares prior to the closing of the merger. The shares held by other
shareholders are subject to anti-dilution provisions and thus won't be affected
by this reverse split.
(2) In connection with the merger, Adar Alternative Two agreed to effect a
reverse split such that Mr. Williams' Trust and Mr. Golub will each own 200,000
shares prior to the closing of the merger.
Mr. Williams and Mr. Golub may be deemed our founders, as that term is defined
under the securities act of 1933.
Director and Executive Officer.
------------------------------
The following table and subsequent discussion sets forth information about our
director and executive officer, who will resign upon the closing of the
acquisition transaction. Our director and executive officer was elected to his
position in April 2000
Name Age Title
Sidney J. Golub 58 President, Treasurer and Director
Since prior to 1995, Mr. Golub has been president of Adar Group, Inc., a
management consulting firm.
Executive Compensation.
The following table sets forth all compensation awarded to, earned by, or paid
for services rendered to us in all capacities during the period ended December
31, 1999, by our prior chief executive officer.
Summary Compensation Table
Name and Principal Position Annual Compensation - 1999
--------------------------- --------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Salary, $, Bonus, $, Number of Shares Underlying Options, #,
---------- --------- ------------
Michael T. Williams, President None None None
</TABLE>
Future Compensation and Relationships and Related Transactions.
Of the $135,000 merger fee to be paid to us by Impulse Communications under the
terms of the merger agreement, Mr. Golub will receive $60,000 for his role as
current president and director. The remaining $75,000 will be paid to Williams
Law Group for legal services in preparing this registration statement.
In connection with the merger, Adar Alternative Two agreed to effect a reverse
split with the result that Mr. Williams' Trust and Mr. Golub will each own
187,000 and 200,000 shares respectively prior to the closing of the merger.
Legal Proceedings.
We not a party to or aware of any pending or threatened lawsuits or other legal
actions.
Indemnification of Directors and Officers.
Our director is bound by the general standards for directors provisions in
Florida law. These provisions allow him in making decisions to consider any
factors as he deems relevant, including our long-term prospects and interests
and the social, economic, legal or other effects of any proposed action on the
employees, suppliers or our customers, the community in which the we operate and
the economy. Florida law limits our director's liability.
We have agreed to indemnify our director, meaning that we will pay for damages
they incur for properly acting as director. The SEC believes that this
indemnification may not be given for violations of the securities act of 1933.
Insofar as indemnification for liabilities arising under the securities act may
be permitted to directors, officers or persons controlling the registrant under
the foregoing provisions, the registrant has been informed that in the opinion
of the Securities and Exchange Commission this indemnification is against the
public policy and is therefore, unenforceable.
Provisions With Possible Anti-Takeover Effects
Section 607.0902 of Florida law restricts the voting rights of some shares of a
corporation's stock when those shares are acquired by a party who, by this
acquisition, would control at least one-fifth of all voting rights of the
corporation's issued and outstanding stock. The statute provides that the
acquired shares, the control shares, will, upon this acquisition, cease to have
any voting rights. The acquiring party may, however, petition the corporation to
have voting rights re-assigned to the control shares by way of an acquiring
person's statement submitted to the corporation in compliance with the
requirements of the statute. Upon receipt of this request, the corporation must
submit, for shareholder approval, the acquiring person's request to have voting
rights re-assigned to the control shares. Voting rights may be reassigned to the
control shares by a resolution of a majority of the corporation's shareholders
for each class and series of stock. If this resolution is approved, and the
voting rights re-assigned to the control shares represent a majority of all
voting rights of the corporation's outstanding voting stock, then, unless the
corporation's articles of incorporation or Bylaws provide otherwise, all
shareholders of the corporation will be able to exercise dissenter's rights in
accordance with Florida law.
A corporation may, by amendment to its articles of incorporation or bylaws,
provide that, if the party acquiring the control shares does not submit an
acquiring person's statement in accordance with the statute, the corporation may
redeem the control shares at any time during the period ending 60 days after the
acquisition of control shares. If the acquiring party files an acquiring
person's statement, the control shares are not subject to redemption by the
corporation unless the shareholders, acting on the acquiring party's request,
deny full voting rights to the control shares.
The statute does not alter the voting rights of any stock of the corporation
acquired in any of the following manners:
o Under the laws of intestate succession or under a gift or testamentary
transfer
o Under the satisfaction of a pledge or other security interest created
in good faith and not for the purpose of circumventing the statute
o Under either a share exchange or share exchange if the corporation is
a party to the agreement or plan of merger or share exchange
o Under any savings, employee stock ownership or other benefit plan
of the corporation
o Under an acquisition of shares specifically approved by the board
of directors of the corporation
DESCRIPTION OF ADAR ALTERNATIVE TWO'S CAPITAL STOCK
<TABLE>
<CAPTION>
<S> <C>
------------------------------------------------ ----------------------------------------------------
Authorized Capital Stock Shares Of Capital Stock Outstanding
------------------------------------------------ ----------------------------------------------------
------------------------------------------------ ----------------------------------------------------
50,000,000 2,000,000
------------------------------------------------ ----------------------------------------------------
------------------------------------------------ ----------------------------------------------------
20,000,000 none
------------------------------------------------ ----------------------------------------------------
</TABLE>
Common Stock
As of December 31, 1999, there were 2,000,000 shares of common stock outstanding
held of record by 15 stockholders. There will be 5,000,000 post merger shares of
common stock outstanding after giving effect to the issuance of the shares of
common stock to the public under this prospectus and the reverse split and
return of shares prior to the merger.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The common stock
has no preemptive or conversion rights or other subscription rights. There are
no sinking fund provisions applicable to the common stock. The outstanding
shares of common stock are, and the shares of common stock to be issued upon
completion of this offering will be, fully paid and non-assessable.
Preferred Stock
We are authorized to issue 20,000,000 shares of Class A preferred stock. There
are no shares of preferred stock outstanding. Issuance of preferred stock with
voting and conversion rights may adversely affect the voting power of the
holders of common stock, including voting rights of the holders of common stock.
In some circumstances, an issuance of preferred stock could have the effect of
decreasing the market price of the common stock. We currently have no plans to
issue any shares of preferred stock.
Options
We have no options outstanding. We will issue options in the merger with the
same conditions, in the same amounts, on the same terms and to the same people
as Xfone's options outstanding on the closing of the merger.
Dividends
We have never paid any dividends and do not expect to do so after the closing of
the merger and thereafter for the foreseeable future.
Transfer Agent and Registrar
We are the transfer agent and registrar for our common stock.
COMPARISON OF RIGHTS OF ADAR ALTERNATIVE TWO STOCKHOLDERS AND XFONE SHAREHOLDERS
Because Adar Alternative Two will change its state of incorporation, and bylaws
to be the same as those of Xfone, the rights of shareholders of Xfone will not
change as a result of the merger.
AVAILABLE INFORMATION
Xfone is not and until the effectiveness of this registration statement Adar
Alternative Two was not, subject to the reporting requirements of the Exchange
Act and the rules and regulations promulgated thereunder, and, therefore, do not
file reports, information statements or other information with the Commission.
Under the rules and regulations of the Commission, the solicitation of proxies
from the shareholders of Xfone to approve the merger constitutes an offering of
Adar Alternative Two common stock to be issued in connection with the merger.
Accordingly, Adar Alternative Two has filed with the Commission a registration
statement on Form S-4 under the Securities Act, with respect to such offering
from time to time, the registration statement. This prospectus constitutes the
prospectus of Adar Alternative Two that is filed as part of the Registration
Statement in accordance with the rules and regulations of the Commission. Copies
of the registration statement, including the exhibits to the Registration
Statement and other material that is not included herein, may be inspected,
without charge, at the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549, and may be
available at the following Regional Offices of the Commission: Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
7 World Trade Center, New York, New York 10048. Copies of such materials may be
obtained at prescribed rates from the Public Reference Section of the Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549. Information on
the operation of the Public Reference Room may be obtained by calling the
Commission at 1-800-SEC-0330. In addition, the Commission maintains a site on
the World Wide Web at http://www.sec.gov that contains reports, information and
information statements and other information regarding registrants that file
electronically with the Commission.
EXPERTS
No financial statements of Adar Alternative Two are included because the
acquisition for accounting purposes is treated as Xfone acquiring Adar
Alternative Two and the acquisition is immaterial. The Financial Statements of
Swiftnet Limited, now a wholly-owned subsidiary of Xfone, for the periods ended
December 31, 1999 and December 31,1998 also included in this prospectus and
elsewhere in the Registration Statement have been included herein in reliance on
the report of Chaifetz & Schreiber, p.c., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of Adar Alternative Two common stock being offered by
this prospectus and certain federal income tax matters related to the exchange
are being passed upon for Adar Alternative Two by Williams Law Group, P.A.,
Tampa, FL. Mr. Williams is the sole officer and director of and owns 1,000,000
shares pre merger and 200,000 shares post merger of the stock of Adar
Alternative Two.
<PAGE>
--------------------------------------------------------------------------------
Swiftnet Limited
--------------------------------------------------------------------------------
UNAUDITED FINANCIAL STATEMENTS
as of June 30, 2000
All Financial amounts are in UK Pounds. US Dollar equivalents are
provided for convenience use only.
--------------------------------------------------------------------------------
Swiftnet Limited
--------------------------------------------------------------------------------
UNAUDITED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
CONTENTS
Page
REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS 1
Balance Sheets 2-3
Statements of Operations 4
Statements of Changes in Shareholders' Equity 5
Statements of Cash Flows 6-7
Notes to the Financial Statements 8-15
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Swiftnet Limited
We have audited the accompanying balance sheets of Swiftnet Limited as of
December 31, 1999 and 1998, the related statements of operations, changes in
shareholders' equity and cash flows for each of the three years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. 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 audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Swiftnet Limited as of December
31, 1999 and 1998, and the results of its operations its and cash flows for each
of the three years in the period ended December 31, 1999 in conformity with
generally accepted accounting principles in the United States.
Chaifetz & Schreiber, p.c.
September 24, 2000
F-1
<PAGE>
--------------------------------------------------------------------------------
Swiftnet Limited
--------------------------------------------------------------------------------
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999 1998
Unaudited Audited Audited
<S> <C> <C> <C>
Current assets
Cash and cash equivalents 72,405 87,570 78,979(UK Pound)
Trade receivables 252,069 131,007 91,245(UK Pound)
Other receivables and prepaid expenses (Note 3) 57,038 24,275 23,797(UK Pound)
Total Current Assets 381,512 242,852 194,021(UK Pound)
Loan to Shareholder (Note 4) 176,480 138,201 68,628(UK Pound)
Fixed assets (Note 5)
Cost 284,059 271,438 252,476(UK Pound)
Less - accumulated depreciation (194,965) (182,241) (166,132)(UK Pound)
Total fixed assets 89,094 89,197 86,344(UK Pound)
Total assets 647,086 470,250 348,993(UK Pound)
June 30, December 31,
2000 1999
Unaudited Audited
Convenience translation into U.S. $
$ 106,635 $ 128,969
371,236 192,941
84,002 35,751
84,002 35,751
561,873 357,661
259,913 203,536
418,349 399,761
(287,135) (268,396)
131,214 131,365
$ 953,000 $ 692,562
=============================================================================================================================
</TABLE>
F-2
--------------------------------------------------------------------------------
Swiftnet Limited
--------------------------------------------------------------------------------
BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
June 30, December 31,
2000 1999 1998
Unaudited Audited Audited
Current liabilities
Capital lease obligation - current portion (Note 7) 4,528 4,528 1,267(UK Pound)
Trade payables 336,647 224,250 197,809(UK Pound)
Other liabilities and accrued expenses (Note 6) 103,680 88,489 58,757(UK Pound)
Total current liabilities 444,855 317,267 257,833(UK Pound)
Long-term liabilities
Capital lease obligation (Note 7) 20,559 22,981 317(UK Pound)
Total long-term liabilities 20,559 22,981 317(UK Pound)
Shareholders' equity (Note 8)
Common stock
Authorized & outstanding - ordinary shares of (UK Pound)1 par value:
11,000 `A' Common stock 11,000 11,000 500(UK Pound)
11,000 `B' Common stock 11,000 11,000 500(UK Pound)
Contributions in excess of par value 43,000 43,000 -
Receipt on account of shares 27,156 - 64,000(UK Pound)
Retained earnings 89,516 65,002 25,843(UK Pound)
Total shareholders' equity 181,672 130,002 90,843(UK Pound)
Total liabilities and shareholders' equity 647,086 470,250 348,993(UK Pound)
June 30, December 31,
2000 1999
Unaudited Audited
Convenience translation into U.S. $
$ 6,670 $ 6,670
495,798 330,264
152,695 130,322
655,163 467,256
30,279 33,845
30,279 33,845
16,200 16,200
16,200 16,200
63,329 63,329
39,994 -
131,835 95,732
267,558 191,461
$ 953,000 $ 692,562
=============================================================================================================================
</TABLE>
F-3
--------------------------------------------------------------------------------
Swiftnet Limited
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Six months Three months Year
ended Ended ended
June 30, June 30, December 31,
2000 1999 2000 1999 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Revenues 577,560 326,789 310,030 185,542 758,846 652,964
Cost of Revenues 390,556 173,356 210,674 104,200 427,233 370,349
Gross Profit 187,004 153,433 99,356 81,342 331,613 282,615
Operating expenses:
Research & development 14,332 14,300 7,166 7,160 28,663 26,715
Marketing and selling Note (9a) 36,335 17,367 21,842 8,649 40,305 39,383
General & administrative Note (9b) 100,147 98,195 49,053 51,749 213,176 213,848
Total operating expenses 150,814 129,862 78,061 67,558 282,144 279,946
Operating Profit (loss) 36,190 23,571 21,295 13,784 49,469 2,669
Financing expenses, net Note (9c) ( 5,680) ( 1,033) ( 2,835) ( 509) ( 6,576) ( 3,992)
Other income 160 137 89 71 457 41
Income (Loss) before taxes 30,670 22,675 18,549 13,346 43,350 ( 1,282)
Taxes on Income ( 6,156) ( 2,148) ( 3,500) ( 1,390) ( 4,191) -
Net Income (loss) 24,514 20,527 15,049 11,956 39,159 ( 1,282)
Six months Year
ended Ended
June 30, December 31,
1997 2000 1999
Convenience translation into U.S. $
631,781 (UK Pound) $ 850,604 $1,117,594
358,469 (UK Pound) 575,193 629,209
273,312 (UK Pound) 275,411 488,385
23,760 (UK Pound) 21,108 42,214
38,331 (UK Pound) 53,513 59,359
214,909 (UK Pound) 147,492 313,956
277,000 (UK Pound) 222,113 415,529
( 3,688)(UK Pound) 53,298 72,856
( 5,429)(UK Pound) (8,365) (9,685)
224 (UK Pound) 236 673
( 8,893)(UK Pound) 45,169 63,844
1,665 (UK Pound) (9,066) (6,172)
( 7,228)(UK Pound) $ 36,103 $ 57,672
=============================================================================================================================
</TABLE>
F-4
--------------------------------------------------------------------------------
Swiftnet Limited
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Number of Contributions Receipt
Ordinary in excess of on account of
Shares Share capital par value Shares
<S> <C> <C> <C> <C>
Balance at January 1, 1997 1,000 1,000 - -
Net loss - - - -
Balance at January 1, 1998 1,000 1,000 - -
Receipt on account of shares - - - 64,000
Net loss - - - -
Balance at January 1, 1999 1,000 1,000 - 64,000
Issuance of ordinary shares 21,000 21,000 43,000 (64,000)
Net income - - - -
Balance at December 31, 1999 22,000 22,000 43,000 -
Receipt on account of shares - - - 27,156
Net income - - - -
Balance at June 30, 2000 22,000 22,000 64,000 27,156
Balance at January 1, 1999 1,000 1,000 - 64,000
Net income - - - -
Balance at June 30, 1999 1,000 1,000 - 64,000
Convenience translation into U.S. $:
Balance at January 1, 2000 22,000 $ 32,400 $ 63,329 $ -
Receipt on account of shares - - - 39,994
Net income - - - -
Balance at June 30, 2000 22,000 $ 32,400 $ 63,329 $ 39,994
Total
Retained Shareholders'
Earnings Equity
34,353 35,353 (UK Pound)
( 7,228) ( 7,228)(UK Pound)
27,125 28,125 (UK Pound)
- 64,000 (UK Pound)
( 1,282) ( 1,282)(UK Pound)
25,843 90,843 (UK Pound)
- -
39,159 39,159 (UK Pound)
65,002 130,002 (UK Pound)
- 27,156 (UK Pound)
24,514 24,514 (UK Pound)
89,516 181,672 (UK Pound)
25,843 90,843 (UK Pound)
20,527 20,527 (UK Pound)
46,370 111,370 (UK Pound)
$ 95,732 $ 191,461
- 39,994
36,103 36,103
$ 131,835 $ 267,558
=============================================================================================================================
</TABLE>
F-5
--------------------------------------------------------------------------------
Swiftnet Limited
--------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months Three months Year
ended Ended ended
June 30, June 30, December 31,
2000 1999 2000 1999 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Cash flow from operating activities
Net Income (Loss) 24,514 20,527 15,049 11,956 39,159 ( 1,282)
Adjustments to reconcile net cash provided
by operating activities (1) ( 8,013) 12,423 5,972 27,482 45,665 11,758
Net cash provided by operating activities 16,501 32,950 21,021 39,438 84,824 10,476
Cash flow from investing activities
Directors loans (16,623) (30,979) 6,725 (16,554) ( 63,268) 5,444
Purchase of equipment (12,621) (37,485) (12,153) (35,303) ( 38,890) (36,637)
Net cash used in investing activities (29,244) (68,464) ( 5,428) (51,857) (102,158) (31,193)
Cash flow from financing activities
Repayment of long term debt ( 2,422) ( 1,336) ( 1,055) ( 1,020) ( 4,075) ( 9,094)
Proceeds from issuance of long term debt - 30,000 - 30,000 30,000 -
Proceeds from issuance of common stock - - - - - 64,000
Net cash (used in ) provided by financing ( 2,422) 28,664 ( 1,055) 28,980 25,925 54,906
activities
Net decrease in cash & cash equivalents (15,165) (6,850) 14,538 16,561 8,591 34,189
Cash & cash equivalents at beginning of year 87,570 78,979 57,867 55,568 78,979 44,790
Cash & cash equivalents at end of year 72,405 72,129 72,405 72,129 87,570 78,979
Supplement disclosures of cash flow information:
Net cash paid during the year
Income taxes - - - - -
Interest 1,075 472 505 401 1,681 1,331
Six months Year
ended ended
June 30, December 31,
1997 2000 1999
Convenience translation into U.S. $
( 7,228)(UK Pound) $ 36,103 $ 57,672
72,145 (UK Pound) ( 11,803) 67,253
64,917 (UK Pound) 24,300 124,925
(56,902)(UK Pound) (24,482) ( 93,178)
(21,644)(UK Pound) (18,588) ( 57,275)
(78,546)(UK Pound) (43,070) (150,453)
( 6,502)(UK Pound) ( 3,567) ( 6,002)
- - 44,182
- - -
( 6,502)(UK Pound) ( 3,567) 38,180
(20,131)(UK Pound) (22,337) 12,652
64,921 (UK Pound) 128,969 116,317
44,790 (UK Pound) $106,632 $128,969
- $ - $ -
1,603 (UK Pound) $ 1,583 $ 2,476
=============================================================================================================================
</TABLE>
F-6
--------------------------------------------------------------------------------
Swiftnet Limited
--------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS (Cont.)
<TABLE>
<CAPTION>
(1) Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Six months Three months Year
Ended Ended ended
June 30, June 30, December 31,
2000 1999 2000 1999 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Depreciation 12,724 14,866 6,362 7,433 29,732 28,783
Change in assets and liabilities:
Decrease (Increase) in trade receivables (121,062) 78,585 ( 80,256) (12,427) (39,762) 48,164
Decrease (Increase) in other receivables and
prepaid expenses ( 27,268) 24,343 ( 34,347) 1,491 ( 478) 13,091
(Decrease) increase in trade payables 112,402 (102,663) 105,704 19,932 26,441 (87,794)
Increase (decrease) in other liabilities and
accrued expenses 15,191 ( 2,708) 8,509 11,053 29,732 9,514
Total adjustments ( 20,737) ( 2,443) ( 390) 20,049 15,933 (17,025)
( 8,013) 12,423 5,972 27,482 45,665 11,758
Six months Year
ended ended
June 30, December 31,
1997 2000 1999
Convenience translation into U.S. $
14,060 (UK Pound) $ 18,739 $ 43,788
151,969 (UK Pound) (178,295) (58,560)
( 41,272)(UK Pound) ( 40,159) ( 704)
( 43,498)(UK Pound) 165,540 38,941
( 9,114)(UK Pound) 22,372 43,788
58,085 (UK Pound) ( 30,542) 23,465
72,145 (UK Pound) $( 11,803) $ 67,253
=============================================================================================================================
</TABLE>
F-7
<PAGE>
--------------------------------------------------------------------------------
Swiftnet Limited
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Note 1 - General
A. Swiftnet Limited ("the Company") is engaged in the provision of
telecommunications services to business and individuals.
B. The financial statements of the Company have been prepared
in Sterling since the currency of the primary economic
environment in which the operations of the Company are
conducted is the UK Sterling ("(UK Pound)"). Transactions and
balances denominated in Sterling are presented at their
original amounts. Transactions and balances in other
currencies are translated into Sterling in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 52
of the U.S. Financial Accounting Standards Board ("FASB").
Accordingly, items have been translated as follows:
Monetary items - at the exchange rate in effect on balance sheet date.
Nonmonetary items - at historical exchange rates.
Revenues and expense items - at the exchange rates in effect as of the date
of recognition of those items (excluding depreciation and other items
deriving from non-monetary items).
Exchange gains and losses from the aforementioned translation are included
in financing expenses, net.
3rd. The financial statements as of June 30, 2000 and as of December 31,
1999 has been translated into U.S. dollars using the rate of exchange of
the U.S. dollar at June 30, 2000. The translation was made solely for the
convenience of the readers. It should be noted that the (UK Pound) figures
do not necessarily represent the current cost amounts of the various
elements presented and that the translated U.S. dollars figures should
not be construed as a representation that the (UK Pound) currency amounts
actually represent, or could be converted into, U.S. dollars. The
representative rate of exchange of the (UK Pound) at June 30, 2000 was U.S.
$1 =(UK Pound)0.679 (June 1999 -(UK Pound)0.617) December 31, 1999 was U.S.
$1 = (UK Pound)0.615 (1998 - (UK Pound)0.598; 1997 -(UK Pound)0.592).
F-8
--------------------------------------------------------------------------------
Swiftnet Limited
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont.)
Note 2 - Significant Accounting Policies
The financial statements are prepared in accordance with generally
accepted accounting principles in the United States. The
significant accounting policies followed in the preparation of the
financial statements, applied on a consistent basis, are as
follows:
A. Cash and Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less to be cash equivalents.
B. Allowance For Doubtful Accounts
The allowance is determined based upon management's
evaluation of receivables doubtful of collection on a
speicific basis.
C. Equipment
Equipment is stated at cost. Depreciation is calculated by
the declining balance method over the estimated useful
lives of the assets (4 years). Annual rates of depreciation
are as follows:
Machinery and equipment 25%
Office furniture and equipment 25%
Motor vehicles 25%
D. Revenue Recognition
Revenues from services are recognized upon performance of
services.
E. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of
revenues and expenses during the reported period. Actual
results could differ from those estimates.
F-9
<PAGE>
--------------------------------------------------------------------------------
Swiftnet Limited
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont.)
Note 3 - Other Receivables and Prepaid Expenses
<TABLE>
<CAPTION>
June 30, December 31, June 30, December 31,
2000 1999 1998 2000 1999
Unaudited Audited Audited Unaudited Audited
Convenience translation into U.S. $
<S> <C> <C> <C> <C> <C>
Adar International Inc. (1) 33,532 - -(UK Pound) $ 49,384 $ -
Prepaid expenses and other receivables 8,428 9,197 8,737(UK Pound) 12,412 13,545
Others 15,078 15,078 15,060(UK Pound) 22,206 22,206
57,038 24,275 23,797(UK Pound) $ 84,002 $ 35,751
</TABLE>
(1)The Company has entered an agreement with Adar International
Inc. ("Adar") (see note 12). Pursuant to this agreement, Adar
will reimburse the Company for all expenditures made by the
Company in connection with Adar becoming a company reporting to
the Security and Exchange Commission.
================================================================================
Note 4 - Loan to Shareholder
The Company has a non-interest bearing loan to a shareholder.
During October 2000, Swiftnet entered into an agreement with such
shareholder which requires the loan to be repaid in annual
installments of (UK Pound)13,820 beginning on January 1, 2002 and
continuing until January 1, 2011. The loan can be payable prior
to the due date with no prepayment penalty.
F-10
--------------------------------------------------------------------------------
Swiftnet Limited
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont.)
<TABLE>
<CAPTION>
June 30, December 31, June 30, December 31,
2000 1999 1998 2000 1999
Unaudited Audited Audited Unaudited Audited
Convenience translation into U.S. $
<S> <C> <C> <C> <C> <C>
Note 5 -Fixed Assets
Cost
Machinery and equipment 203,588 191,843 187,953(UK Pound) $ 299,835 $ 282,538
Motor vehicles 35,000 35,000 19,928(UK Pound) 51,546 51,546
Office furniture and equipment 45,471 44,595 44,595(UK Pound) 66,968 65,677
284,059 271,438 252,476(UK Pound) $ 418,349 $ 399,761
=============================================================================================================================
Accumulated Depreciation
Machinery and equipment 143,472 134,886 115,901(UK Pound) $ 211,299 $ 198,654
Motor vehicles 12,030 8,750 13,623(UK Pound) 17,717 12,887
Office furniture and equipment 39,463 38,605 36,608(UK Pound) 58,119 56,855
194,965 182,241 166,132(UK Pound) $ 287,135 $ 268,396
=============================================================================================================================
Note 6 - Other Liabilities and Accrued Expenses
Accrued professional fees 556 6,806 5,706(UK Pound) $ 819 $ 10,024
Tax authorities 18,998 20,221 8,608(UK Pound) 27,979 29,781
Other 84,126 61,462 44,443(UK Pound) 123,897 90,517
103,680 88,489 58,757(UK Pound) $ 152,695 $ 130,322
=============================================================================================================================
</TABLE>
F-11
--------------------------------------------------------------------------------
Swiftnet Limited
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont.)
Note 7 - Long-Term lease obligations
A. The Company is the lessee of a car under a capital lease
expiring in 2002. The asset and liability under a capital lease
are recorded at the lower of the present value of the minimum
lease payments or the fair value of the asset. The asset is
amortized over the lower of its related lease terms or its
estimated productive life. Amortization of assets under capital
leases is included in depreciation expenses.
<TABLE>
<CAPTION>
June 30, December 31, June 30, December 31,
2000 1999 1998 2000 1999
Unaudited Audited Audited Unaudited Audited
Convenience translation into U.S. $
<S> <C> <C> <C> <C> <C>
Lease obligations and others
Lease obligations and others 25,087 27,509 1,584(UK Pound) $ 36,949 $ 40,515
Less - current maturities ( 4,528) ( 4,528) (1,267)(UK Pound) ( 6,670) ( 6,670)
20,559 22,981 317(UK Pound) $ 30,279 $ 33,845
</TABLE>
The loans are in (UK Pound) and bear interest at a rate of 4%.
B. Aggregate minimum future lease payments
As of June 30, 2000
Unaudited
2001 4,528(UK Pound)
2002 20,559(UK Pound)
25,087(UK Pound)
================================================================================
F-12
--------------------------------------------------------------------------------
Swiftnet Limited
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont.)
Note 8 - Common Stock
June 30, 2000
Unaudited
Authorized Outstanding
"A" common stock (1) 100,000 11,000
"B" common stock (2) 100,000 11,000
(1) Holders of "A" common stock are entitled to distribution of profits.
(2) Holders of "B" common stock are entitled to voting rights.
--------------------------------------------------------------------------------
Note 9 - Selected Statement of Operations Data
<TABLE>
<CAPTION>
Six months Three months Year
Ended Ended ended
June 30, June 30, December 31,
2000 1999 2000 1999 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Salaries & employee benefits 3,600 - 1,800 - 1,800 -
Advertising 699 6,824 99 2,590 9,699 7,705
Commissions 20,600 4,273 13,282 3,930 18,186 21,550
Others 11,436 6,270 6,661 2,129 10,620 10,128
36,335 17,367 21,842 8,649 40,305 39,383
B. General & Administration Costs:
Salaries & employee benefits 48,069 43,662 25,355 22,988 93,970 95,206
Rent & maintenance 17,781 16,969 8,359 8,985 29,968 34,497
Communications 9,915 6,851 4,738 3,723 18,529 16,412
Professional fees 10,412 4,115 4,138 1,785 13,315 10,672
Bad & doubtful debts - - - - 26,517 21,613
Depreciation 12,724 14,866 6,362 7,433 29,732 28,783
Others 1,246 11,732 101 6,835 1,145 6,665
100,147 98,195 49,053 51,749 213,176 213,848
Six months Year
ended ended
June 30, December 31,
1997 2000 1999
Convenience translation into U.S. $
- $ 5,303 $ 2,651
319(UK Pound) 1,029 14,284
28,600(UK Pound) 30,339 26,784
9,412(UK Pound) 16,842 15,640
38,331(UK Pound) $ 53,513 $59,359
101,524(UK Pound) $ 70,795 $ 138,395
35,164(UK Pound) 26,187 44,135
15,105(UK Pound) 14,602 27,289
18,846(UK Pound) 15,334 19,610
15,970(UK Pound) - 39,053
14,060(UK Pound) 18,739 43,788
14,240(UK Pound) 1,835 1,686
214,909(UK Pound) $ 147,492 $ 313,956
F-13
=============================================================================================================================
</TABLE>
--------------------------------------------------------------------------------
Swiftnet Limited
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont.)
Note 9 - Selected Statement of Operations Data (con.)
<TABLE>
<CAPTION>
Six months Three months Year
Ended Ended ended
June 30, June 30, December 31,
2000 1999 2000 1999 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Bank Interest & other charges 4,605 561 2,330 108 4,419 2,665
Hire Purchase Interest 1,075 472 505 401 1,611 1,238
Foreign currency exchange - - - - 508 ( 3)
Interest on overdue tax - - - - 38 92
5,680 1,033 2,835 509 6,576 3,992
Six months Year
ended ended
June 30, December 31,
1997 2000 1999
Convenience translation into U.S. $
2,767(UK Pound) $ 6,782 $ 6,508
1,603(UK Pound) 1,583 2,373
1,059(UK Pound) - 747
- (UK Pound) - 57
5,429(UK Pound) $ 8,365 $ 9,685
=============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Note 10 - Related Party Transactions
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Directors salaries 8,500 6,000 4,750 3,000 15,045 15,000 15,000(UK Pound) $ 12,518 $ 22,158
Directors Pensions 1,800 300 900 - 2,100 - 2,400(UK Pound) $ 2,651 $ 3,093
</TABLE>
F-14
<PAGE>
--------------------------------------------------------------------------------
Swiftnet Limited
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont.)
Note 11 - Financial Commitments
The Company has annual rent commitment under a non-cancelable
operating lease of (UK Pound)15,900 which terminates on December
2001.
Note 12 - Subsequent Event
Xfone Inc. ("Xfone") was incorporated after June 30, 2000 in
Nevada U.S.A. After its incorporation, Xfone acquired 100% of the
common stock of Swiftnet and then entered into a merger agreement
with Adar Alternative Two Inc. ("Adar"), a Florida U.S.A.
corporation under which Xfone will be merged into Adar. For
accounting purposes, the acquisition is being treated as a
recapitalization of Adar with Swiftnet as the acquirer (reverse
acquisition). Since Adar, the acquirer, is a shell company, no
goodwill will be recorded on the acquisition and no pro forma
information is presented in accordance with SEC Rule 3-05.
F-15
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
SOLICITATION OF WRITTEN CONSENTS............................................................................................4
--------------------------------
WRITTEN CONSENT.............................................................................................................5
---------------
TABLE OF CONTENTS...........................................................................................................6
-----------------
SUMMARY.....................................................................................................................7
-------
RISK FACTORS................................................................................................................9
------------
MERGER APPROVALS...........................................................................................................15
----------------
MERGER TRANSACTION.........................................................................................................15
------------------
XFONE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................22
-------------------------------------------------------------------------------------------
XFONE BUSINESS.............................................................................................................22
--------------
XFONE MANAGEMENT...........................................................................................................29
----------------
RELATED PARTY TRANSACTIONS WITH DIRECTORS, OFFICERS AND 5% STOCKHOLDERS....................................................31
-----------------------------------------------------------------------
PRINCIPAL STOCKHOLDERS.....................................................................................................31
----------------------
DESCRIPTION OF XFONE CAPITAL STOCK.........................................................................................32
----------------------------------
Adar Alternative Two'S BUSINESS............................................................................................32
-------------------------------
DESCRIPTION OF Adar Alternative Two'S CAPITAL STOCK..............................................Error! Bookmark not defined.
---------------------------------------------------
COMPARISON OF RIGHTS OF Adar Alternative Two STOCKHOLDERS AND XFONE SHAREHOLDERS...........................................33
--------------------------------------------------------------------------------
AVAILABLE INFORMATION......................................................................................................37
---------------------
EXPERTS....................................................................................................................38
-------
LEGAL MATTERS..............................................................................................................38
-------------
</TABLE>
Dealer prospectus delivery obligation
Until , all dealers that effect transactions in these securities, whether or not
participating in this offering, are required to deliver a prospectus.
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Florida Business Corporation Act. Section 607.0850(1) of the Florida
Business Corporation Act (the "FBCA") provides that a Florida corporation, such
as the Company, shall have the power to indemnify any person who was or is a
party to any proceeding (other than an action by, or in the right of, the
corporation), by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, or agent of the corporation or is
or was serving at the request of the corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust, or
other enterprise against liability incurred in connection with such proceeding,
including any appeal thereof, if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Section 607.0850(2) of the FBCA provides that a Florida corporation
shall have the power to indemnify any person, who was or is a party to any
proceeding by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he is or was a director, officer, employee, or
agent of the corporation or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses and amounts paid in
settlement not exceeding, in the judgment of the board of directors, the
estimated expense of litigating the proceeding to conclusion, actually and
reasonably incurred in connection with the defense or settlement of such
proceeding, including any appeal thereof. Such indemnification shall be
authorized if such person acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation,
except that no indemnification shall be made under this subsection in respect of
any claim, issue, or matter as to which such person shall have been adjudged to
be liable unless, and only to the extent that, the court in which such
proceeding was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.
Section 607.850 of the FBCA further provides that: (i) to the extent
that a director, officer, employee or agent of a corporation has been successful
on the merits or otherwise in defense of any proceeding referred to in
subsection (1) or subsection (2), or in defense of any proceeding referred to in
subsection (1) or subsection (2), or in defense of any claim, issue, or matter
therein, he shall be indemnified against expense actually and reasonably
incurred by him in connection therewith; (ii) indemnification provided pursuant
to Section 607.0850 is not exclusive; and (iii) the corporation may purchase and
maintain insurance on behalf of a director or officer of the corporation against
any liability asserted against him or incurred by him in any such capacity or
arising out of his status as such whether or not the corporation would have the
power to indemnify him against such liabilities under Section 607.0850.
Notwithstanding the foregoing, Section 607.0850 of the FBCA provides
that indemnification or advancement of expenses shall not be made to or on
behalf of any director, officer, employee or agent if a judgment or other final
adjudication establishes that his actions, or omissions to act, were material to
the cause of action so adjudicated and constitute: (i) a violation of the
criminal law, unless the director, officer, employee or agent had reasonable
cause to believe his conduct was lawful or had no reasonable cause to believe
his conduct was unlawful; (ii) a transaction from which the director, officer,
employee or agent derived an improper personal benefit; (iii) in the case of a
director, a circumstance under which the liability provisions regarding unlawful
distributions are applicable; or (iv) willful misconduct or a conscious
disregard for the best interests of the corporation in a proceeding by or in the
right of the corporation to procure a judgment in its favor or in a proceeding
by or in the right of a shareholder.
Section 607.0831 of the FBCA provides that a director of a Florida
corporation is not personally liable for monetary damages to the corporation or
any other person for any statement, vote, decision, or failure to act, regarding
corporate management or policy, by a director, unless: (i) the director breached
or failed to perform his duties as a director; and (ii) the director's breach
of, or failure to perform, those duties constitutes: (A) a violation of criminal
law, unless the director had reasonable cause to believe his conduct was lawful
or had no reasonable cause to believe his conduct was unlawful; (B) a
transaction from which the director derived an improper personal benefit, either
directly or indirectly; (C) a circumstance under which the liability provisions
regarding unlawful distributions are applicable; (D) in a proceeding by or in
the right of the corporation to procure a judgment in its favor or by or in the
right of a shareholder, conscious disregard for the best interest of the
corporation, or willful misconduct; or (E) in a proceeding by or in the right of
someone other than the corporation or a shareholder, recklessness or an act or
omission which was committed in bad faith or with malicious purpose or in a
manner exhibiting wanton and willful disregard of human rights, safety, or
property.
Articles and Bylaws. The Company's Articles of Incorporation and the
Company's Bylaws provide that the Company shall, to the fullest extent permitted
by law, indemnify all directors of the Company, as well as any officers or
employees of the Company to whom the Company has agreed to grant
indemnification.
Item 2
1 Agreement and Plan of Merger and Reorganization
Item 3
1 Articles of Incorporation of the Registrant.(1)
2 Bylaws of the Registrant (1)
3 Amended and Restated Articles of Incorporation of Registrant, to be
effective after consummation of the proposed Merger.
4. Amended and Restated Bylaws of the Registrant, to be effective after
consummation of the proposed Merger.
Item 4
1 Form of Common Stock Certificate of the Registrant.(1)
Item 5
1 Legal Opinion of Williams Law Group, P.A.
Item 8
1 Tax Opinion of Williams Law Group, P.A.
Item 10
1. Employment Agreement with Guy Nissenson
2. Employment Agreement with Bosmat Houston
3. Stock Purchase Agreement with Campbelltown Business, Ltd.
4. Consulting Agreement with Campbelltown Business, Ltd.
5. Contracts with MCI/WorldCom
6. Loan agreement with Mr. Levy
7. Contract with InTouchUK.com
Item 11
1 Statement of computation of per share earnings.
Item 23
1 Chaifetz & Schreiber, p.c..
2 Consent of *your accountant.
3 Consent of WILLIAMS LAW GROUP, P.A. (to be included in Exhibits 5.1
and 8.1).
All other Exhibits called for by Rule 601 of Regulation S-1 are not
applicable to this filing.
Information pertaining to our Common Stock is contained in our Articles of
Incorporation and By-Laws.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes:
(1) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request;
(2) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective;
(3) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(4) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (3) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
