Filed Pursuant to Rule 424(b)(3)
File No. 333-83188
Prospectus
BestNet Communications Corp.
Up to 920,235 Shares of Our Common Stock
This prospectus relates to the resale by the selling stockholders of up to
920,235 shares of our common stock consisting of 200,000 shares of our common
stock issuable upon exercise of warrants issued to Network Twentyone
International, Inc. on April 23, 2001, 194,915 shares of our common stock
issuable upon conversion of our series C 8% cumulative convertible preferred
stock, $.001 par value per share, issued to Laurus Master Fund, Ltd. on January
30, 2002, 5,750 shares of our common stock issuable upon exercise of warrants
issued to Laurus Master Fund, Ltd. on January 30, 2002, and up to 519,750 shares
of our common stock issuable pursuant to the Stock Purchase Agreement by and
between BestNet and Jay Greig, Ph.D., dated February 21, 2002. The selling
stockholders may sell the common stock from time to time in the principal market
on which the stock is traded at the prevailing market price or in negotiated
transactions. The selling stockholders may be deemed to be underwriters of the
shares of common stock, which they are offering. Please see the "Selling
Stockholders" section on page 23 in this prospectus for a complete description
of all of the selling stockholders.
The selling stockholders will receive all of the amounts received upon any
sale by them of the common stock, less any brokerage commissions or other
expenses incurred by them. We will not receive any proceeds from the sale of the
common stock by the selling stockholders. We will receive up to an aggregate of
$401,369 if all of the warrants are exercised.
Our common stock is traded on the NASDAQ Over-the-Counter Bulletin Board
under the symbol BESC.OB. On February 19, 2002, the closing sale price of our
common stock was $0.74.
Investing in our common stock involves a high degree of risk. See Risk
Factors on page 7.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is March 4, 2002.
TABLE OF CONTENTS
PAGE
----
WHERE YOU CAN FIND MORE INFORMATION ...................................... 1
INCORPORATION OF DOCUMENTS BY REFERENCE .................................. 1
SUMMARY .................................................................. 2
BESTNET COMMUNICATIONS CORP. ............................................. 2
SELECTED AND SUMMARY CONSOLIDATED FINANCIAL DATA ......................... 4
THE OFFERING ............................................................. 5
SECURITIES BEING ISSUED .................................................. 5
RISK FACTORS ............................................................. 7
BESTNET COMMUNICATIONS CORP. ............................................. 11
USE OF PROCEEDS .......................................................... 22
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.................. 22
SELLING STOCKHOLDERS ..................................................... 23
PLAN OF DISTRIBUTION ..................................................... 24
DETERMINATION OF OFFERING PRICE .......................................... 25
DESCRIPTION OF SECURITIES ................................................ 25
LEGAL MATTERS ............................................................ 25
EXPERTS .................................................................. 26
INFORMATION WITH RESPECT TO THE REGISTRANT ............................... 26
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES........................................... 26
i
WHERE YOU CAN FIND MORE INFORMATION
We file reports and other information with the U.S. Securities and Exchange
Commission. You may read and copy any document that we file at the SEC's public
reference facilities at 450 Fifth Street N.W., Room 1024, Washington, D.C.
20549. Please call the SEC at 1-800-732-0330 for more information about its
public reference facilities. Our SEC filings are also available to you free of
charge at the SEC's web site at http://www.sec.gov.
Copies of publicly available documents that we have filed with the SEC can
also be inspected and copied at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
This prospectus is a part of the registration statement that we filed on
Form S-2 with the SEC. The registration statement contains more information
about us and our common stock than this prospectus, including exhibits and
schedules. You should refer to the registration statement for additional
information about us and the common stock being offered in this prospectus.
Statements that we make in this prospectus relating to any documents filed as an
exhibit to the registration statement or any document incorporated by reference
into the registration statement may not be complete and you should review the
referenced document itself for a complete understanding of its terms.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference the information we file with
them. This means that we can disclose information to you by referring you to
those documents. The documents that have been incorporated by reference are an
important part of the prospectus, and you should review that information in
order to understand the nature of any investment by you in the common stock.
Information contained in this prospectus automatically updates and supersedes
previously filed information. We are incorporating by reference the documents
listed below and all of our filings under the Securities Exchange Act of 1934,
as amended, after the date of filing the initial registration statement and
prior to the effectiveness of the registration statement.
* our annual report on Form 10-KSB for the fiscal year ended August 31,
2001;
* our quarterly report on Form 10-QSB for the quarterly period ended
November 30, 2001;
* our current report on Form 8-K dated October 11, 2001;
* the description of our common stock included in our Registration
Statement on Form 8-A, filed March 11, 1987; and
* the description of our series C 8% cumulative convertible preferred
stock included in our Registration Statement on Form S-2, filed
November 21, 2001.
If you would like a copy of any of these documents, at no cost, please
write or call us at:
BestNet Communications Corp.
5075 East Cascade Road, Suite K, Grand Rapids, Michigan 49546
Attn: Corporate Secretary
Telephone: (616) 977-9933
You should only rely upon the information included in or incorporated by
reference into this prospectus or in any prospectus supplement that is delivered
to you. We have not authorized anyone to provide you with additional or
different information. You should not assume that the information included in or
incorporated by reference into this prospectus or any prospectus supplement is
accurate as of any date later than the date on the front of the prospectus or
prospectus supplement.
We have not authorized any person to provide you with information different
from that contained or incorporated by reference in this prospectus. The selling
shareholders are offering to sell, and seeking offers to buy, shares of our
common stock only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or of any sale
of common stock.
1
SUMMARY
The following summary should be read by you together with the more detailed
information in other sections of this prospectus. You should also carefully
consider the factors described under Risk Factors at page 7 of this prospectus.
Throughout this prospectus, we refer to BestNet Communications Corp. as BestNet,
we, our, ours, and us.
BESTNET COMMUNICATIONS CORP.
Founded on July 10, 1986, BestNet Communications Corp. is a Nevada
corporation that develops, markets and sells Internet-based telecommunications
technologies.
Although founded in 1986, we did not begin our operations until 1995. From
1995 until June 1999, we developed software for customized calling card services
and created an infrastructure to market and distribute our products and
services. During this period, our efforts were primarily focused on hiring
management and other key personnel, raising capital, procuring governmental
authorizations and space in central offices, acquiring equipment and facilities,
developing, acquiring and integrating billing and database systems. We marketed
these systems to the business traveler and to large organizations or companies
with a membership base. In the late 1990's, due to the wide scale deployment of
cellular telephones with messaging capability, the market for business related
calling card services greatly diminished. In June 1999, we discontinued our
calling card services.
At August 31, 2001 and November 30, 2001, we had an accumulated deficit of
$17,020,532 and $18,426,464, respectively. We had net losses for the fiscal year
ended August 31, 2001 and fiscal quarter ended November 30, 2001, of $4,014,810
and $1,405,932, respectively. We expect to continue to spend considerable
financial and management resources on the roll-out of our Bestnetcall service,
which is described below. Further, we have substantial future capital
requirements with respect to the roll-out of our Bestnetcall service.
Accordingly, we expect to continue to incur significant additional losses and
continued negative cash flow from operations for the foreseeable future.
Since June 1999, substantially all of our business and financial resources
have been focused on developing a web-enabled long distance service called
Bestnetcall, which is our only Internet-based telecommunications technology.
Bestnetcall was first made available to the public on April 17, 2000. We are
presently focusing substantially all of our resources on marketing Bestnetcall
to selected companies with international locations or clients. We are licensing
the technology that comprises our Bestnetcall service from Softalk, Inc. Softalk
is a technology company based in Ontario, Canada. Softalk develops
Internet-based telecommunication technologies, and has performed substantially
all of our development activities.
Our Bestnetcall service allows people to initiate and complete long
distance telephone calls by using the Internet. Users of Bestnetcall may enroll,
place calls, pay for service and access customer service real-time on the
Internet by accessing our website at www.bestnetcall.com. Bestnetcall does not
require the purchase of special hardware or software by the customer and uses
their existing telephone equipment. Users only need access to the Internet and
an available phone line. Bestnetcall also offers real-time billing to all users
and accepts various payment methods, including pre-paid or post-paid credit card
payments and invoicing options.
We intend to offer our Bestnetcall service through both direct sales and
indirect sales channels. Our initial target markets will include:
* Governments
* Business and Industry
* Commercial Development Companies
* Telecommunication Companies
* Companies that provide access to the internet
* Browser Based Services, such as Internet Explorer, Yahoo and
Amazon.com
* Affinity Groups
* Other organizations, including charities, religious organizations,
schools and alumni associations
2
Our marketing efforts will be targeted at international long distance users
in a number of key geographic areas in the world. Our priorities will be focused
primarily on the following geographic regions:
* Caribbean
* North America
* Asia Pacific
* Central & South America
* Europe
* Middle East
Today's telecom industry is being shaped dramatically by globalization, new
competition, and use of technology. The telecommunications market is one of the
largest markets in the world, second only to the financial markets. The
International Telecommunications Union forecasts the telecommunications services
market to be $1.1 trillion by the end of calendar year 2002. Our goal is to
become a leading provider of Web-enabled long distance and related services.
Our principal executive offices are located at 5075 East Cascade Road,
Suite K, Grand Rapids, Michigan 49546. Our telephone number is (616) 977-9933.
BestNet wholly owns its four subsidiaries, Interpretel, Inc., Interpretel
(Canada) Inc., Telplex International Communications, Inc. and Bestnet Travel,
Inc.
3
SELECTED AND SUMMARY CONSOLIDATED FINANCIAL DATA
The following selected and summary consolidated financial data should be
read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations and our financial statements and the related
notes included elsewhere in this prospectus. The selected consolidated statement
of operations data for the fiscal years ended August 31, 1996, 1997, 1998, 1999,
2000, and 2001 are derived from our audited financial statements not included
elsewhere in this prospectus.
YEAR ENDED AUGUST 31,
-------------------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001
----------- ----------- ----------- ----------- ----------- -----------
Statement of Operations
Data:
Revenue $ 19,895 $ 719,142 $ 157,838 $ 13,580 $ 28,670 $ 493,260
Cost of revenue 179,068 679,930 85,082 9,468 51,722 497,663
Development 297,935 0 0 0 0 0
Selling, general and administration 1,287,386 1,584,747 794,004 691,479 1,188,032 2,044,720
Depreciation & amortization 136,902 211,786 156,965 146,977 1,545,636 1,979,975
----------- ----------- ----------- ----------- ----------- -----------
Total cost and expenses 1,901,291 2,476,463 1,036,051 847,924 2,785,390 4,522,358
Loss from operations (1,881,396) (1,757,321) (878,213) (834,344) (2,756,720) (4,029,098)
Other Income and Expenses:
Interest income 32,777 8,500 6,565 70,519 76,129 227,691
Rental income 0 0 8,833 36,000 22,500 300
Misc income 0 0 0 0 4,014 43
Interest expense (11,585) (26,893) (45,182) (8,995) (60,512) (36)
License agreement termination income 0 0 236,906 0 0 0
Loss on sale of investment in Switch 0 0 (216,165) 0 0 0
Debt conversion expense 0 0 (92,894) 0 0 0
Proposed merger costs 0 0 (236,737) (118,450) 0 0
Write-off of intangibles & other
assets 0 0 0 (36,125) 0 0
Income tax expense 0 0 0 0 0 (50)
Preferred stock conversion penalty 0 0 0 (144,000) (221,226) 0
Exchange (loss) gain 0 0 0 0 0 (1,647)
Other misc expenses 0 0 0 (15,000) 0 0
----------- ----------- ----------- ----------- ----------- -----------
Total Other Income and Expenses 21,192 (18,393) (338,674) (216,051) (179,095) 226,301
----------- ----------- ----------- ----------- ----------- -----------
Net loss before preferred dividends $(1,860,204) $(1,775,714) $(1,216,887) $(1,050,395) $(2,935,815) (3,802,797)
Cumulative preferred dividends
declared and preferred stock
conversion benefit 0 0 135,994 36,500 2,602,046 212,013
----------- ----------- ----------- ----------- ----------- -----------
Net loss available to common
shareholders $(1,860,204) $(1,775,714) $(1,352,881) $(1,086,895) $(5,537,861) $(4,014,810)
Net loss per share, basic & diluted $ (1.00) $ (.74) $ (0.51) $ (0.37) $ (1.72) $ (0.45)
Weighted average shares outstanding,
basic & diluted 1,866,734(1) 2,409,195(1) 2,663,257(1) 2,904,693 3,221,225 9,013,669
YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001
----------- ----------- ----------- ----------- ------------ ------------
Balance Sheet Data:
Cash & Cash Equivalents $ 857,488 $ 13,329 $ 2,202,573 $ 889,620 $ 2,581,492 $ 285,518
Working Capital 665,483 (650,761) 1,863,442 618,440 2,394,852 197,796
Total Assets 4,580,239 2,840,796 2,542,171 1,574,395 13,862,867 11,264,956
Total Liabilities 1,070,529 828,981 389,219 281,288 210,542 164,196
Accumulated Deficit (3,252,371) (5,028,085) (6,380,966) (7,467,861) (13,005,722) (17,020,532)
Stockholders' Equity 3,509,710 2,011,815 2,152,952 1,293,107 13,652,325 11,100,760
(1) As restated to reflect a one-for-six reverse stock split effective December
18, 1998.
4
THE OFFERING
This prospectus relates to the resale by the selling stockholders of
200,000 shares of our common stock issuable upon exercise of warrants issued to
Network Twentyone International, Inc. on April 23, 2001, 194,915 shares of our
common stock issuable upon conversion of our series C 8% cumulative convertible
preferred stock, $.001 par value per share, issued to Laurus Master Fund, Ltd.
on January 30, 2002, 5,750 shares of our common stock issuable upon exercise of
warrants issued to Laurus Master Fund, Ltd. on January 30, 2002, and up to an
estimated 519,750 shares of our common stock issuable pursuant to the Stock
Purchase Agreement by and between BestNet and Jay Greig, Ph.D., dated February
21, 2002.
As of February 15, 2002, we had 15,325,755 shares of common stock issued
and outstanding.
SECURITIES BEING ISSUED
WARRANT TO PURCHASE COMMON STOCK
In this prospectus we are registering the resale of 200,000 shares of our
common stock underlying warrants issued to Network Twentyone International, Inc.
on April 23, 2001. These warrants have an exercise price of $1.00 per share for
100,000 of the shares and $3.00 per share for the other 100,000 shares. The
warrants expire on April 23, 2007. To date the purchase warrants remain
unexercised.
SECURITIES PURCHASE AGREEMENT
In this prospectus we are registering the resale of 194,915 shares of our
common stock underlying 1,150 shares of series C 8% cumulative convertible
preferred stock issued to Laurus Master Fund, Ltd. on January 30, 2002, pursuant
to a Securities Purchase Agreement between BestNet and Laurus Master Fund, Ltd.
The number of shares of our common stock issuable upon conversion of 1,150
shares of series C 8% cumulative convertible preferred stock is 194,915,
assuming a conversion price of $0.74 per share. In addition, 5,570 shares of our
common stock underlying warrants pursuant to this financing are being
registered.
The series C 8% cumulative convertible preferred shares are entitled to a
liquidation preference amount of $100 per share and an 8% annual cumulative
dividend, calculated on the liquidation preference amount, payable quarterly,
and each share is convertible into our common stock determined by the following
formula:
$100 plus, at the election of the holder, any accrued and unpaid dividends
divided by the lessor of:
* $2.40; or
* 80% of the average of the three lowest closing prices of our common
stock for the thirty days immediately prior to the conversion.
The common stock purchase warrants issued as part of this transaction have
an exercise price of $1.19 per share and expire on January 30, 2007. To date the
purchase warrants remain unexercised.
STOCK PURCHASE AGREEMENT
In this prospectus, we are registering the resale of 519,750 shares of our
common stock to be issued to Jay Greig, Ph.D., pursuant to a Stock Purchase
Agreement, by and between BestNet and Jay Greig, Ph.D., dated February 21, 2002.
The number and purchase price of shares of our common stock that will be issued
pursuant to the Stock Purchase Agreement is determined as follows:
250,000 / .65 x the average of the lowest bid price of
our common stock at closing as reported by Bloomberg
Financial for the NASD OTC Bulleting Board, for the ten
trading days preceding but not including the closing date
under the Stock Purchase Agreement.
5
The purchaser under the Stock Purchase Agreement is obligated to purchase
our common stock within five (5) days of the effective date of this registration
statement as long as on the date of closing:
* all representations and warranties made by BestNet in the stock
purchase agreement are correct in all material respects and we have
performed and satisfied in all material respects all agreements and
covenants required of us in the Stock Purchase Agreement;
* no suit, action or other proceeding, excluding any such matter
initiated by or on behalf of the purchaser, shall be pending or
threatened before any court or governmental agency seeking to restrain
the purchaser or prohibit the closing or seeking damages against the
purchaser or us as a result of the consummation of the Stock Purchase
Agreement; and
* we have provided the purchaser with a certified copy of all necessary
corporate action required on our behalf approving the execution,
delivery and performance of the Stock Purchase Agreement.
6
RISK FACTORS
BEFORE BUYING ANY OF THE SHARES OF COMMON STOCK BEING OFFERED BY THIS
PROSPECTUS, YOU SHOULD CAREFULLY READ AND CONSIDER EACH OF THE RISK FACTORS WE
HAVE DESCRIBED IN THIS SECTION.
RISKS RELATED TO OUR BUSINESS
IF OUR BESTNETCALL SERVICE IS NOT ACCEPTED BY TARGETED CUSTOMERS, OUR FUTURE
OPERATING RESULTS WILL BE MATERIALLY ADVERSELY AFFECTED.
We have operated at a loss for the last eight years. The Bestnetcall
service is a new product for us and therefore has no operating history upon
which an evaluation of us and our prospects can be based. Further, we have no
meaningful prior operating history in the telecommunications industry, which
could negatively impact our ability to successfully market our Bestnetcall
service. Our Bestnetcall service may never achieve commercial acceptance by
Internet users. The failure to achieve market acceptance will negatively impact
our ability to generate income in the future.
AN INCREASE IN THE PRICE FOR MAINTAINING PHONE AND DATA LINES MAY REDUCE OUR
REVENUES.
Our business strategy depends on the availability of the Internet to
transmit data packets for voice and fax calls. We also rely on third parties who
provide traditional phone lines. Some of these third parties are national
telephone carriers. If any of these carriers increase their charges for using
these lines at any time, which they may do in response to increased regulation
or other external factors that increase their cost of doing business, our costs
may increase and our revenues may decrease. We may be unable to continue
purchasing such services from these third parties on acceptable terms, if at
all. If we are unable to purchase the necessary services to maintain and expand
our network as currently configured, our revenues may decline.
WE DEPEND ON OUR STRATEGIC RELATIONSHIP WITH SOFTALK, WHICH, IF TERMINATED,
WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
We depend in large part on our joint product development efforts with
Softalk. Softalk may choose not to renew existing arrangements on commercially
acceptable terms, if at all. Our loss of this key strategic relationship, or the
failure to develop new relationships in the future, would likely materially
adversely impact our future revenues.
THE TELECOMMUNICATIONS INDUSTRY IS SUBJECT TO DOMESTIC GOVERNMENTAL REGULATION
AND LEGAL UNCERTAINTIES WHICH, IF INCREASED OR CHANGED, COULD REDUCE OUR
REVENUES.
While the Federal Communications Commission has tentatively decided that
information service providers, including Internet telephony providers, are not
telecommunications carriers for regulatory purposes, various companies have
challenged that decision. Congress continues to review the conclusions of the
Federal Communications Commission, and the Federal Communications Commission
could impose greater or lesser regulation on our industry. The Federal
Communications Commission is currently considering, for example, whether to
impose surcharges or other regulations upon certain providers of Internet
telephony, primarily those which provide Internet telephone services to
end-users located within the United States. The imposition of such surcharges or
the regulation of Internet telephony providers could increase the cost of doing
business over the Internet and decrease our revenue.
Aspects of our operations may be, or become, subject to state or federal
regulations governing universal service funding, disclosure of confidential
communications, copyright and excise taxes. Government agencies may in the
future increase regulation of Internet related services. Increased regulation of
the Internet may slow its growth. Such regulation may also negatively impact the
cost of doing business over the Internet and, therefore, increase our expenses
and decrease our revenues.
THE TELECOMMUNICATIONS INDUSTRY IS SUBJECT TO INTERNATIONAL GOVERNMENTAL
REGULATION AND LEGAL UNCERTAINTIES WHICH COULD MATERIALLY ADVERSELY AFFECT OUR
BUSINESS.
7
We intend on marketing our service to international long distance callers.
Because we will be conducting business internationally, we will be subject to
certain direct or indirect risks. These risks would include unexpected changes
in regulatory requirements for the Internet and/or Internet telephony; foreign
currency fluctuations, which could increase or decrease operating expenses and
increase or decrease revenue; foreign taxation; and the burdens of complying
with a variety of foreign laws, trade standards, tariffs and trade barriers.
THE ISSUANCE OF SHARES UPON CONVERSION OF OUR CONVERTIBLE NOTE, SERIES C 8%
CUMULATIVE CONVERTIBLE PREFERRED STOCK, AND THE EXERCISE OF OUTSTANDING OPTIONS
AND WARRANTS MAY CAUSE IMMEDIATE AND SUBSTANTIAL DILUTION TO OUR EXISTING
STOCKHOLDERS.
Our convertible notes and our series C 8% cumulative convertible preferred
stock are convertible into common stock at floating rates, therefore we do not
know the exact number of shares we will issue upon conversion of these
securities. The number of shares of common stock issuable upon conversion of the
outstanding convertible notes and series C 8% preferred stock will increase if
the market price of our stock declines.
The issuance of shares upon conversion of the convertible notes, series C
8% cumulative convertible preferred stock, and exercise of outstanding options
and warrants may result in substantial dilution to the interests of other
stockholders. Although our preferred stockholders may not convert their
securities and/or exercise their warrants into more than 4.99%, respectively, of
our outstanding common stock, this restriction does not prevent the investors
from converting and/or exercising some of their holdings and then converting the
rest of their holdings. In this way, the investor could sell more than this
limit while never holding more than this limit. In addition, preferred
stockholders may waive the 4.99% limitation upon an event of default. If this
limit is waived there is no upper limit on the number of shares that may be
issued, which will have the effect of further diluting the proportionate equity
interest and voting power of holders of our common stock and may result in a
change of control of BestNet Communications.
WE HAVE A HISTORY OF OPERATING LOSSES AND MAY NEVER GENERATE OPERATING INCOME
FROM THE SALE OF OUR BESTNETCALL SERVICE.
At August 31, 2001 and November 30, 2001, we had an accumulated deficit of
$17,020,532 and $18,426,464, respectively.
We believe that our future profitability and success will depend in large
part on our ability to generate sufficient revenue from Bestnetcall revenues and
websites to businesses. Revenues are also anticipated from the licensing of our
technology and business systems to partners setting up Internet telephony
services in partner-led foreign markets. Our profitability and success will
depend on:
* our ability to maintain existing relationships and enter into new
relationships with Post Telephone & Telegraph administrations and
other carriers for which we sell Internet telephony services
* our ability to obtain or retain for BestNet the right to sell Internet
telephony services and related value-added telecom services online
* our ability to effectively maintain existing relationships with our
multinational partners
* our ability to successfully enter into new strategic relationships for
distribution and increased usage of the Bestnetcall and Internet
telephony services
* our ability to generate sufficient online traffic and sales volume
Accordingly, we expect to expend significant financial and management resources
on the roll-out of the Internet telephony service, and on-site and content
development on our Bestnetcall websites, integration of the Internet telephony
and Bestnetcall services, strategic relationships, technology and operating
infrastructure. As a result, we expect to incur significant additional losses
and continued negative cash flow from operations for the foreseeable future. If
such losses continue to occur, our revenues may not increase or even continue at
their current levels. Further, we may not achieve or maintain profitability or
generate cash from operations in future periods. In view of the rapidly evolving
nature of our business, the limited operating history of both Internet telephony
and Bestnetcall and the risks associated with integrating these businesses, we
believe that period-to-period comparisons of operating results are not
meaningful and should not be relied upon as an indication of future performance.
8
CONFLICTS OF INTEREST MAY ARISE WHICH MATERIALLY ADVERSELY AFFECT OUR BUSINESS
AND OUR REVENUE
Conflicts of interest may arise between us and our affiliates, including
Softalk, in areas relating to past, ongoing and future relationships, including:
* the Bestnetcall license agreement, corporate opportunities, indemnity
arrangements, tax and intellectual property matters
* potential acquisitions or financing transactions
* sales or other dispositions by our principals
These conflicts also may include substantial disagreements with Softalk
regarding the nature and scope of the Bestnetcall license agreement, including
with respect to possible amendments to, or modifications or waivers of
provisions of such agreement. Such amendments, modifications or waivers may
adversely affect our business and our ability to earn revenue from the sale of
the Bestnetcall service. The substantial ownership interest of Softalk in our
common stock could create, or appear to create, potential conflicts of interest
when directors and officers are faced with decisions that could have different
implications for us and Softalk.
OUR INABILITY TO COMPETE INTERNATIONALLY OR TO SATISFY REGULATORY REQUIREMENTS
WHEN WE EXPAND GLOBALLY COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
A significant aspect of our growth strategy is to expand our business
internationally, through the Internet. Such expansion will place additional
burdens upon our management, personnel and financial resources and may cause us
to incur losses. We will also face different and additional competition in these
international markets with which we have no prior experience. These risks could
impair our ability to expand internationally as well as increase our operating
costs and decrease our revenues.
ON-LINE SECURITY BREACHES OR FAILURES MAY MATERIALLY ADVERSELY AFFECT BESTNET.
In order to successfully provide services over the Internet, it is
necessary that we be able to ensure the secure transmission of confidential
customer information over public telecommunications networks. We employ certain
technology in order to protect such information, including customer credit card
information. However, we may be unable to ensure that such information will not
be intercepted illegally. Advances in cryptography or other developments that
could compromise the security of confidential customer information could have a
direct negative impact upon our electronic commerce business. In addition, the
perception by consumers that communicating over the Internet is not secure, even
if unfounded, means that fewer consumers are likely to make communicate through
that medium. Finally, any breach in security, whether or not a result of our
acts or omissions, may cause us to be the subject of litigation, which could be
very time-consuming and expensive to defend.
OUR OUTSTANDING SHARES MAY BE DILUTED RESULTING IN LESS PERCENTAGE OF SHARES
HELD BY EACH SHAREHOLDER AND A LOWER MARKET PRICE PER SHARE OF OUR COMMON STOCK.
The market price of our common stock may decrease as more shares of common
stock become available for trading due to the exercise of outstanding warrants
and options to purchase our common stock and the conversion of outstanding
convertible notes and series C cumulative convertible preferred stock. The
participation of the shareholders in BestNet also may be reduced through the
issuance of new common stock.
THE FORWARD-LOOKING STATEMENTS IN THIS PROSPECTUS MAY NOT COME TRUE AND ACTUAL
RESULTS COULD MATERIALLY DIFFER FROM THE ANTICIPATED RESULTS.
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements may include our plans:
* to grow our Internet-based communications businesses
* to expand the range of services we offer
9
* to increase the number of customers and revenues using our services
and the minutes of use and price per minute of use of the traffic
booked through our websites and network
* to otherwise expand our business activities in new cities and foreign
countries
* to retain key personnel or otherwise to implement our strategy as well
as our beliefs regarding consumer acceptance of the Internet as a
means of commerce and the use of the Internet as a source of
advertising
These forward looking statements include statements regarding the belief or
current expectation of management and are necessarily based on management's
current understanding of the markets and industries in which we operate. That
understanding could change or could prove to be inconsistent with actual
developments. Our actual results could differ materially from the results
discussed in this prospectus, including those anticipated in or implied by any
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below, as well as those discussed elsewhere
in this prospectus.
10
BESTNET COMMUNICATIONS CORP.
BUSINESS DEVELOPMENT
Founded on July 10, 1986, BestNet Communications Corp., a Nevada
corporation, develops, markets and sells Internet-based telecom technologies.
Substantially all of our development activities are performed by Softalk, a
private Ontario, Canada-based company. Although founded in 1986, we did not
commence operations until 1995. From 1995 until June 1999, we developed software
for customized calling card services and created an infrastructure to market and
distribute our product and services. During this period, our efforts were
primarily focused on hiring management and other key personnel, raising capital,
procuring governmental authorizations and space in central offices, acquiring
equipment and facilities, developing, acquiring and integrating billing and
database systems. We marketed these systems to the business traveler and to
large organizations or companies with a membership base. In the late 1990's, due
to the wide scale deployment of cellular telephones with messaging capability,
the market for business related calling card services greatly diminished. In
June 1999, we discontinued our calling card services. Since then, we have
focused substantially all of our efforts and resources on developing our
Bestnetcall web-enabled long distance service. On September 27, 2000, we changed
our name to BestNet Communications Corp.
On April 23, 1999, we entered into a licensing agreement with Softalk.
Softalk develops Internet-based telecommunication technologies that enable users
to initiate long distance calls from anywhere in the world by accessing a
specific Internet website. This technology enables users to, among other things,
make international telephone calls at substantially reduced rates from those
offered by traditional long distance carriers. This licensing agreement granted
us certain marketing and customer service rights with respect to Softalk's
technologies. The licensing agreement was later amended and restated on October
25, 1999, to grant us exclusive global rights to distribute, market, service,
sell, and sublicense Softalk's services and products to commercial accounts, and
on a worldwide non-exclusive basis to individual consumer accounts. We also have
the exclusive right to provide billing and customer support services for all
customer accounts.
After entering into the Softalk licensing agreement, with Softalk's
assistance we began building telecommunications facilities in Toronto, Canada,
and in the U.S. in New York, New York and Los Angeles, California including the
installation of high-capacity switches and Internet servers. Softalk, under a
separate contract with us, completed the development of specialized software
used for data management, billing and customer service requirements.
The brand name for our web-enabled long distance service is Bestnetcall.
The service was first made available to the public on April 17, 2000. We are
presently focusing our resources on marketing Bestnetcall to selected companies
with international locations and/or clients.
Users of our Bestnetcall service are able to do the following by accessing
our website at www.bestnetcall.com:
* enroll;
* place calls;
* pay for service; and
* access customer service immediately on the Internet.
Bestnetcall does not require the purchase of special hardware or software
by the customer and uses their existing telephone equipment. Users only need
access to the Internet and an available phone line. Bestnetcall also offers
immediate billing to all users and accepts various payment methods, including
pre-paid or post-paid credit card payments and invoicing options.
Following the completion of a telephone call, the total cost for that call
may be viewed on the caller's online account. Call detail records may be printed
or copied to Word or Excel applications. The Bestnetcall service also includes
features such as speed dialing, personalized directories, client billing codes,
world-time country/city code lookup and immediate access to customer service via
the website. Account administrators may add or delete users, view a user's
calling activity and create reports detailing call activity.
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During the fiscal year ended August 31, 2001, using Softalk's patented
technology, we contracted with Softalk to create a wide range of
telecommunications products and services. We believe that any device that can
access the Internet can be used by us to enable telephone calls utilizing our
Bestnetcall services. The Bestnetcall suite of products include the following
services:
Long Distance Calling
Organizations can decrease the cost of their long distance bill while still
retaining the toll quality required to conduct business. Bestnetcall provides
the core benefits of lower prices, quality service and on-line real-time
billing. Other significant benefits include point and click FROM and TO
directories, point and click dialing using directories from Microsoft Outlook,
speed dialing, email calling, billing codes, country and city code look-up, time
zone information and dialing examples.
Conference Calling
Bestnetcall offers a conference-calling product that can be used to
initiate immediate or scheduled conference calls. The chairperson can either
launch successive legs for an immediate conference call or enter and save
information for a conference call to be launched automatically at a future date.
There are no set-up or administrative charges for the Bestnetcall conference
calling facility. This service can reduce the cost of conference calls by up to
80% as compared to traditional conferencing services currently offered by
carriers.
Call Me Services
Through our Bestnetcall service we are able to offer customers the
following services:
* Customer Service - Enable customers worldwide to contact us for
product information, enrollment, company information and other
assistance.
* Click Through Banner - The banner advertising industry can
voice-enable their banners to achieve far more effective sales
results. Potential customers who access the banner are able to click
on a banner to call through to the banner provider and obtain more
information about the product being advertised - thereby increasing
sales for the advertiser.
* Web Chat - click to join - Through the Bestnetcall architecture, Web
Chat providers enable users of their service to escalate from on-line
chat to a live conversation. In this situation, numbers remain private
and users do not have access to numbers of other users.
* Anonymous Calling - The architecture of Bestnetcall allows for total
security regarding both the FROM and TO legs. The FROM and TO numbers
are never displayed, thus it is not possible to determine from where a
call is being placed. Certain website providers need both numbers to
be anonymous or private, so the callers do not know the numbers they
are dialing, nor should the person being called know which number is
dialing them.
* Call Shacks - Our Internet telephone system can be used to enable
telephone calls in facilities that sell minutes to consumers for use
on one of the telephones within the "call shack" or "telephone store".
A web-enabled computer cannot only launch calls from any number of
extension phones or phones connected to direct lines within the call
shack, but can also monitor real-time use of the minutes and the
actual cost of each call. Call shacks are used by migrant workers in
the U.S. to call home and in many countries where consumers do not
have any other access to a telephone. Our system also allows us to
monitor real time activity that minimizes the occurrence of payment
fraud by the call shack.
Sales Calls
The Bestnetcall architecture provides the ability to supply sales
organizations, such as real estate companies and automobile sales companies, a
telecommunications infrastructure whereby customers can call in, review and
purchase products. Enrollment and billing infrastructures are also provided.
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Satellite Calls
Bestnetcall allows for terrestrial offices to call remote platforms such as
ships, airplanes and oilrigs. Bestnetcall has a direct circuit to an
international satellite uplink carrier for launching the Inmarsat satellite leg
of calls. The Inmarsat satellite provides telecommunication services through
terrestrial uplink carriers to areas not covered by traditional
telecommunication services.
Mobile Calling
Bestnetcall has developed a wireless application that operates on the Palm
VII and other wireless enabled Palm devices to enable users to place calls while
away from the office. Applications have also been developed for personal digital
assistant's such as Compaq's iPAQ.
Bestnetcall also enables calls to be launched via email devices such as the
Blackberry manufactured by Research in Motion, and mobile phones that have text
messaging. These capabilities expand the target customer-base for our services.
We believe the increased availability created by mobile calling makes the
product more attractive to users. We are currently investigating the opportunity
to offer pager calling, where the customer uses a pager to initiate a phone
call.
All calls from these devices are billed in the same way as calls placed
through our web product.
MARKET STRATEGIES
We offer our Bestnetcall service through both direct sales and indirect
sales channels. Our target markets include:
* Business and Industry
* Telecommunication Carriers
* Internet Service Providers
* Governmental agencies
* Browser Based Services such as AOL, Yahoo and Amazon.com
* Affinity Groups
* Other organizations, including charities, religious organizations,
schools and alumni associations
* Individual Consumers
Our marketing efforts are targeted at international long distance users in
a number of key geographic areas in the world. Initially, our marketing strategy
will focus primarily on the following geographic regions due to greatest savings
potential:
* Caribbean
* North America
* Asia Pacific
* Central & South America
* Europe
* the Middle East
DIRECT SALES
We utilize the following marketing and sales strategies to generate revenue
and increase customer usage:
* Direct Mail and e-mail Solicitations - We send solicitation materials
to prequalified potential users. These materials refer or link the
potential user to www.bestnetcall.com and offer a subscription to the
Bestnetcall service. Recipients are invited to use the service or
request more information. These direct mail or e-mail solicitations
are launched on a continuous basis currently by an in-house staff.
Future direct mail initiatives will be launched using a combination of
in-house resources and external resources.
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* Telemarketing - We currently market our services through special
incentive offerings to our existing customer base. Telemarketing
operations will be initiated through our customer service operations
during the fiscal year ending August 31, 2002.
* Media Advertising and Promotion - We have initiated limited
advertising in key print and electronic media targeted at specific
market segments in the form of national magazines. We will consider
additional initiatives such as advertising in specific trade
publications and Internet advertising during the coming year based on
an analysis of the cost-effectiveness of these present activities; and
* Public Relations Activities - An internal corporate communications and
public relations specialist is responsible for developing a
comprehensive global communications program. This communications
program will include initiating appropriate news releases, feature
print articles in industry and trade specific publications, local
print media and feature editorial support. The Bestnetcom.com website
is being redeveloped to include a frequently asked questions section
to facilitate direct communication with shareholders, stakeholders,
customers and the public-at-large.
INDIRECT SALES
Indirect sales efforts will be centered around the following four types of
organizations:
* Carriers - The Bestnetcall services are being made available to other
telecommunication carriers, resellers and internet service providers
for resale to their clients. These types of indirect sales
organizations will be solicited through direct mail, e-mail, fax and
direct sales calls by our personnel;
* Professional Service Firms - Accounting firms, consultants and legal
firms are being solicited to use our Bestnetcall service and to
provide this service to their clients as a means of saving money on
international long distance calls;
* Retailers and Special Service Providers - We are approaching large
retailers and special service providers such as dating services,
Internet advertisers and hardware manufacturers to offer our services
as a value-added service. These relationships are revenue sharing
initiatives with the client organization receiving a negotiated
percentage of gross revenue generated by our services; and
* Agent/Distributors - We are establishing a global network of agents
and distributors who will market our services to corporate
organizations and consumers.
PROJECT MANAGERS
To date, we have hired two project managers to sell, maintain and service
our major accounts.
INDUSTRY BACKGROUND AND MARKET DEMAND
The Internet is the significant interactive worldwide medium for
communications, collaborative technologies, and the telecommunications market.
Meanwhile, global deregulation, the proliferation of new technologies enabling
convergence between computers, applications, Internet, and the telephone are
significantly expanding the world's voice market.
We believe there are key trends influencing the telecommunications industry
and Internet deployment today. The following trends are having a direct and
positive effect on the communications market and demand for our applications:
* The rapid evolution of the Internet: Fortune Magazine predicts that by
the year 2003, 70% of the U.S. population will be using the Internet
and business-to-business revenue will approach $1.3 trillion according
to Forrester Research.
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* Globalization of the world's economies increase the international
mobility of workforces and, according to Frost & Sullivan, the
internet roaming market is expected to grow to $7.6 billion in
revenues from $62.7 million in 1999.
* New and improving technology: Telecommunications Magazine predicts
that by the year 2003, U.S. cell-phone penetration will be 60%, with
Japan approaching 70%, and Europe over 80%. As the technology
improves, the demand will increase.
* Worldwide, STRATEGY ANALYTICS expects cellular subscribers to increase
from nearly 900 million at the end of 2001, to 1.9 billion by the end
of 2006.
* The global conferencing market, which is negligible today, will grow
to $11 billion by 2005 according to multimedia consultancy Wainhouse
Research.
* Internet applications sales, which includes both devices that connect
to the Internet via a television and Internet terminals are expected
to grow at a rate of more than 40% per year and soar to $1.3 billion.
* The changing regulatory environment: Deregulation is encouraging
telecommunications companies to enter each other's markets. Increased
competition stimulates globalization as companies move to add
geography, customers, expertise, and technology to their business.
* The Gartner Group predicts that business-to-consumer transactions will
reach $380 billion by 2003, and business-to-business transactions will
exceed $7 trillion by 2004.
* Forrester Research predicted that 65% of corporate buyers planned to
buy at least some telecommunications services on-line; several
telecom-purchasing managers stated that, if their carriers are not
Web-enabled in two years, they will switch suppliers.
Market trends are strongly in our favor. Our ability to offer a cost
effective, highly efficient and dynamic product in terms of features and
capabilities is of key importance during poor economic periods as companies are
forced to find ways to trim budgets. Companies also have a general reticence
towards air travel during such poor economic periods. We can capture the promise
of this sector.
THE CHALLENGES
Perhaps one of the biggest challenges facing the Internet telephony market
is getting people to change their habits. Instead of using the keyboard on a
phone to place calls, vendors in this space have to convince potential customers
of the benefits of using the keyboard on a computer to place phone calls. The
inducement to make the change presently is the significant cost savings in
placing long distance calls via our Bestnetcall service.
Another perceived disadvantage of Internet telephony is the need to
purchase or install new hardware and/or software to enable the user to make
calls using the Internet. Voice-over IP requires a minimum of an internet
connection, a microphone and sound card; Web-enhanced telephony requires a
minimum of an internet connection and uses multiple combinations of audio and
video hardware. Phone-to-phone via PC requires an Internet connection and a
phone.
Despite the challenges, however, the Internet telephony market is expected
to grow substantially over the next five years. Moreover, according to an IDC
report, a leading technology research firm, the worldwide Internet telephony
market is estimated to grow from 310 million minutes of use in 1998 to 135
billion in 2004. Revenues for this service are projected to increase from $480
million in 1999 to $19 billion by 2004. The report also estimates that the
business market will implement extensive use of Internet telephony exceeding the
consumer market by 2004.
Our technology simply requires Internet access. No special hardware,
software, or start up costs is required. The inherent diversification of our
product suite addresses the above challenges directly.
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PUBLIC SWITCH TELEPHONE NETWORK - TOLL QUALITY
At the present time and for the foreseeable future, reliable, consistent
toll quality voice calls are best facilitated using the public switch telephone
network. For this reason, we believe business users will continue to use
telephone lines as the primary carriers of long distance service while consumers
will be the biggest users of voice-over IP. The public switch telephone network
will continue to be used by business as opposed to alternatives found in the
Internet and cable systems for the following reasons:
* Speed of communication
* Quality of communication
* Reliability of communication
* Ease of operation
LOW COST RATES
The global telecommunications industry has been highly regulated. However,
over the past several years, North America and parts of Europe have enjoyed
significant deregulation, which has resulted in a highly competitive long
distance service industry. The U.S. and Canada have among the lowest telephone
rates in the world and the U.S. has emerged as the lowest cost supplier of long
distance rates. U.S. deregulation has resulted in sizable reductions in the
wholesale cost of long distance services available to long distance resellers.
Although declining rates have been symbolic in the U.S., Canadian and some
European long distance markets, we believe international rates to and from many
other countries have been slow to decline for two major reasons:
* Foreign telephone company management are reluctant to reduce their
rates given their monopoly status; and
* In some areas of the world, governments have been reluctant to
antagonize strong foreign telephone company unions.
In the long term, we believe that it is unlikely that these high rates can
be maintained as new technologies render the foreign telephone company
monopolies ineffective. We believe that such new technologies will evolve around
the emergence of the Internet as a mass communications and commerce medium.
A number of companies started Internet telephony operations in the last few
years. The intense competition in the telecommunications market, in addition to
the growth of e-commerce, has necessitated a drive towards exploring new levels
of decreasing costs and resulted in the genesis of Internet telephony.
We believe usage and competitive pressures will drive down telephony
pricing on a global basis. Price, enhanced services and quality will become the
only major differentiators in the telecommunications market over the next 24
months.
We are concentrating our efforts on the corporate and business markets. We
use the Internet to enable, control and manage the public switch telephone
network calls accessed from our central offices in New York, Los Angeles and
Toronto. We are bringing the best wholesale long distance rates, which are in
the U.S., to the entire world. We can offer access to global markets including
direct access to North American business and consumer markets to any carrier
worldwide wishing to connect to our switches in the U.S. and Canada.
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THE INMARSAT TELEPHONY MARKET
One of the fastest growing telephony markets in the world is global
satellite telephony communications. The Inmarsat communication system consists
of four satellites circling the globe. These satellites provide
telecommunication services through terrestrial uplink carriers to areas not
covered by traditional telecommunication services.
BESTNET'S SOLUTION
Under our licenses from Softalk, we provide commercial voice quality
Internet-enabled long distance services to corporate and residential
subscribers. Our Web-based solution offers subscribers access to low cost long
distance rates by using the Internet as the means to launch calls and to view
billing within seconds after completing a call.
This technology endeavors to blend the best of current telecommunication
systems by using commercial telephone networks for voice quality and the
Internet for control and access. Our Bestnetcall service provides a user
anywhere in the world access to the U.S. telecom infrastructure while not
infringing upon international telecom agreements.
For example, users making calls from the Caribbean to the U.S. would
operate over the same network as users from the U.S. making calls to the
Caribbean. As a result, middle retailers of telecommunication services are
eliminated. This ensures the lowest pricing structure on a long-term basis.
We provide customers access to our network through our switches located in
New York, Los Angeles and Toronto. Additional switch locations are planned for
deployment in major cities in North America, Asia and Europe. The deployment of
these additional switches will follow as demand dictates and capital resources
become available.
BESTNETCALL - ENHANCEMENTS
During the past year, Bestnetcall service added a number of enhancements:
* Conference Calling - This feature allows users to connect up to 64
parties on a single call, using their personal computer to initiate
the calls. Conference calls may be launched immediately or
prescheduled for a specific time and date. All conference calls will
display the status to the conference administrator via the Bestnetcall
website and offer substantial rate reductions compared to conventional
conference call services provided by the major long distance
providers;
* An improved graphical user interface - This feature allows the user
access to more information, as well as provides much quicker load
times, which is critical where Internet connections are slow;
* A desktop application - This feature was designed for networked office
users without a dedicated Internet connection, or where Internet
connections are very slow. The desktop application resides on the
user's personal computer and uses small-packet transmission to quickly
initiate calls. Furthermore, this feature saves time by not requiring
a browser, website navigation or log-in; and
* Wireless Personal Digital Assistant - Designed for micro-web browsers,
such as employed by the Palm VII, users can launch Bestnetcall
telephone calls or conference calls at any time using their wireless
device.
In August 2001, we also introduced the availability of our long distance
and conference calling services via e-mail. These services allow a user to
initiate, on demand, a long distance telephone call by sending an e-mail. This
service is available through cell phones and other hand-held devices that are
equipped to send e-mail.
In August 2001, we also introduced the availability of our conference
calling services designed for handheld devices using the Palm Operating System.
The free software that can be downloaded from our bestnetcall.com website,
allows Palm users to initiate conference calls from any convenient telephone,
such as their office, home or cellular phone.
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BESTNETCALL - FUTURE PRODUCT STRATEGY
The Internet's reach is wider than imaged and its growth faster than
expected. The Internet has become the world's largest distributed system. It was
designed and engineered to have an abundance of routes, connections, and
elasticity. The Internet growth rate indicates that there will be one billion
Internet users by 2005. There is solid evidence that PC growth along with use of
Internet appliances, wireless connectivity to the Internet and Internet service
connections all will reach new record numbers in the coming years. Recognizing
this trend, we have contracted with Softalk to customize and develop variations
of Bestnetcall that use alternative methods for accessing our service, including
the following:
* Two Way Paging - We are developing applications for two-way paging to
launch calls transmitting packets from paging networks to our web
server and switching matrix;
* Internet Devices - Bestnetcall services will be designed for
non-personal computer Internet devices, such as Set-top boxes, like as
WebTV; Smart phones, like as iPhone; and Appliances, like I-Opener;
and we can enable any device that can access the Internet to provide access to
our Bestnetcall services. No assurance, however, can be given that we will be
able to successfully develop or, if developed, commercially exploit any of the
above-referenced devices.
NETWORK STRUCTURE
PHASE I - INITIAL DEPLOYMENT
Our network equipment is currently located in a central office facility
located in New York, Los Angeles and Toronto. Our system is designed to
initially support 15 million minutes of voice traffic per month. Our system can
be increased as support needs increase. Full network monitoring and diagnostics
are employed on a 24 x 7 basis.
Our Web server is hosted by Data Foundry located in Austin, Texas. Our
current network configuration will support 25,000 simultaneous hits and may
easily be expanded. Data Foundry provides support on a 24 x 7 basis and backup
power is supplied by on-site battery and off-site generators to ensure system
survivability.
Our switching matrix is located in our central office facilities with
direct T-1 connectivity to the wholesale public switch telephone network. The
initial deployment of 1,000 ports is configured for rapid expansion capability
of up to 10,000 ports. We work closely with the Softalk telecom and network
engineers and their software development team to monitor and maintain the system
in New York, Los Angeles and Toronto.
PHASE II - EXPANDING POINTS OF PRESENCE
We intend to expand our network worldwide. Additional locations of network
equipment will be deployed in key strategic locations to facilitate web, voice
and data traffic. These additional locations will provide network redundancy and
least inexpensive cost routing for voice traffic.
The point-of-presence in New York, at 60 Hudson Street, is the East Coast's
principal gateway for international telecommunication traffic. The New York
location contains a switching matrix. Each of these points-of-presence contain
telecommunications switches that can be expanded up to 10,000 ports. The New
York switching matrix is connected to several international public switch
telephone network carriers including the uplink carrier for Inmarsaat traffic.
From these locations we offer inexpensive international long distance services
to or from anywhere in the world using North American wholesale rates.
During the past year, we also expanded our points-of-presence to Los
Angeles at 1 Wilshire Boulevard, the West Coast's gateway for international
telecommunication traffic. The equipment and facility is similar to that of our
New York central offices. Our three central offices provide complete redundancy
for one another in the event of a failure by one or two locations. The cost of
deploying a central office or point-of-presence is approximately $250,000.
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PHASE III - VIRTUAL PRIVATE NETWORK
As voice traffic increases, we plan on deploying gateway servers to better
facilitate growing international traffic between certain locations. This
strategy will allow us to install a virtual private network along these
high-traffic routes to reduce costs for voice traffic. Employing dedicated data
circuits between these gateways will allow voice calls to be compressed and
transmitted using data packets, which significantly reduces the cost of routing
over normal telephone network channels.
TRANSACTIONS WITH SOFTALK
Our current and future business activities are substantially dependent on
the continuation of our relationship with Softalk. As discussed more fully below
and elsewhere in this prospectus, our ability to offer the Bestnetcall service
is subject to a license agreement with Softalk, which may be unilaterally
terminated by Softalk upon the occurrence of certain events. We have also
contracted with Softalk to perform substantially all of our development and
engineering activities with respect to the rollout, enhancement and maintenance
of the Bestnetcall service, related product offerings and the deployment of our
telecommunication network. Accordingly, we believe any disruption or termination
in our relationship with Softalk would have a material adverse effect on our
business, prospects, financial condition and results of operations.
LICENSE AGREEMENT
On October 25, 1999, we amended our license agreement with Softalk to grant
us and our subsidiaries a worldwide, exclusive license to distribute, market,
service, sell and sublicense Softalk's services and products to commercial
accounts. This agreement also grants us a worldwide nonexclusive license to
distribute, market, service, sell and sublicense Softalk's services and products
to individual customer accounts. In exchange for the license amendments, we
issued five-year warrants to purchase up to 5,246,753 shares of our common stock
to Softalk, 3,246,753 of which have an exercise price of $3.25 per share,
1,000,000 have an exercise price of $5.00 per share, and the remaining 1,000,000
have an exercise price of $10.00 per share.
Under the terms of the amended license agreement, we paid an initial
license fee of $200,000. We are also obligated to pay Softalk an amount equal to
the sum of (a) 100% of Softalk's actual direct expenses incurred in connection
with the sale, license and delivery of Softalk products and (b) a five percent
(5%) markup of the total traffic on the wholesale long distance per minute lines
costs on a monthly basis.
The amended license agreement may be terminated under the following
conditions:
* Either party has the right to terminate the license agreement upon 30
days written notice to the other party, if such other party fails to
comply in any material respect with any term or condition of the
license agreement and such failure to comply is not corrected within
such 30 day notice period;
* Either party has the right to terminate the license agreement in the
event the other party becomes bankrupt or insolvent, suffers a
receiver to be appointed, or makes an assignment for the benefit of
its creditors; and
* Softalk has the right to terminate the license agreement upon 60 days
written notice following a change of control in our ownership
structure. Under the license agreement, a change of control is deemed
to have occurred:
* when, after the date of the license agreement, any
person (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as
amended, is or becomes the beneficial owner (as defined
in Rule l3d-3 of the Securities Exchange Act of 1934,
as amended), directly or indirectly, of our securities
representing 51% or more of the combined voting power
of our then outstanding securities, other than (i) an
employee benefit plan established or maintained by us
or one of our subsidiaries, or (ii) any person who
presently owns such quantity of securities as of the
date hereof;
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* upon the approval by our stockholders of (i) our merger
or consolidation with or into another corporation other
than a merger or consolidation the definitive agreement
for which provides that at least a majority of the
directors of the surviving or resulting corporation
immediately after the transaction are continuing
directors, (ii) a sale or disposition of all or
substantially all of our assets, or (iii) a plan for
our liquidation or dissolution; or
* when individuals who, as of the date of the license
agreement, constitute our Board of Directors, known as
the Incumbent Board, cease for any reason to constitute
at least 80% of our Board; provided, however, that any
person becoming a member of the Board subsequent to the
date hereof whose election, or nomination for election
by our stockholders, was approved by a vote of at least
80% of the members then comprising the Incumbent Board
(other than an election or nomination of an individual
whose initial assumption of office is in connection
with an actual or threatened election contest relating
to the election of our directors, as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under
the Securities Exchange Act of 1934, as amended, or any
successor provision thereto), shall be, for purposes of
the License Agreement, considered as though such person
were a member of the Incumbent Board.
Upon termination of the license agreement for any reason whatsoever, we are
permitted to continue using Softalk's intellectual property in providing
services to all our existing clients, at the point of termination.
PURCHASE AGREEMENT
On November 13, 1999, we, through our subsidiary, Interpretel (Canada)
Inc., purchased all existing products and accounts of Softalk in exchange for
4,329,004 shares of Class A non-voting preferred stock of Interpretel (Canada).
Under this agreement, Softalk granted us a right of first refusal with respect
to purchasing Softalk, its intellectual property, software and/or patents. The
shares issued under this agreement were exchangeable on a one-for-one basis for
shares of our common stock at any time by Softalk. The issuance of the Class A
shares of Interpretel (Canada) was valued at $10,000,000, the value of our
common shares into which the Interpretel (Canada) shares could be converted. On
November 10, 2000, Softalk exercised its exchange rights, resulting in the
issuance of 4,329,004 restricted shares of our common stock in exchange for a
like number of shares of Class A Non-voting preferred stock of Interpretel
(Canada). As of February 15, 2002, Softalk held approximately 28% of the issued
and outstanding shares of our common stock.
LOAN FACILITY
On August 6, 1999, we entered into a loan facility with Softalk under which
we agreed to loan Softalk up to $2 million at an interest rate of prime plus 1%.
As of February 15, 2002, the outstanding balance of the loan was $1,384,000.
Under the original terms of this loan, Softalk could pay back the loan principal
plus interest on or before August 6, 2000, or elect to convert any amounts
outstanding, plus interest, on the loan into shares of Softalk common stock in
full satisfaction of money owed to us under the loan. On September 8, 2000, our
Board of Directors approved amending the loan to extend the term of the loan to
August 6, 2001. As of the date of this registration statement, the loan remains
outstanding and is due and payable upon our demand.
COMPETITION
The communications industry is highly competitive, and one of the primary
purposes of the U.S. Telecommunications Act of 1996 is to foster further
competition. In each of the markets we intend to operate, we will compete
principally with the established telephone company serving such market and, to a
lesser extent, cable providers who also offer telecommunications services over
their cable networks. We currently do not have a significant market share in any
of our markets. The established telephone companies have long-standing
relationships with their clients, financial, technical and marketing resources
substantially greater than ours and the potential to fund competitive services
with cash flows from a variety of businesses, and currently benefit from
existing regulations that favor the established telephone companies.
Furthermore, one large group of established telephone companies, the regional
Bell operating companies, have been granted, under particular conditions,
pricing flexibility from federal regulators with regard to some services with
20
which we compete. This flexibility may present established telephone companies
with an opportunity to subsidize services that compete with segments of our
services and offer competitive services at lower prices. To the extent such
activities occur, they may have a material adverse affect on our business
prospects and results of operations.
We expect to experience declining prices and increasing price competition.
We cannot assure that we will be able to achieve or maintain adequate market
share or margins, or compete effectively, in any of our markets. Moreover,
substantially all of our current and potential competitors have financial,
technical, marketing, personnel and other resources, including brand name
recognition, substantially greater than ours as well as other competitive
advantages over our business, financial condition and results of operations. Any
of the foregoing factors could have a material adverse effect on our business,
financial condition, results of operation and prospects.
REGULATORY OVERVIEW
The following summary of regulatory developments and legislation describes
the primary present and proposed federal, state, and local regulation and
legislation that is related to the Internet service and telecommunications
industries and could have a material effect on our business. Existing federal
and state regulations are currently subject to judicial proceedings, legislative
hearings and administrative proposals that could change, in varying degrees, the
manner in which our industries operate. We cannot predict the outcome of these
proceedings or their impact upon the Internet service and telecommunications
industries.
APPLICABLE REGULATION
Telecommunications services are generally subject to federal, state and
local regulation. The Federal Communications Commission exercises jurisdiction
over all facilities and services of telecommunications common carriers to the
extent those facilities are used to provide, originate, or terminate interstate
or international communications. State regulatory commissions exercise
jurisdiction over facilities and services to the extent those facilities are
used to provide, originate or terminate intrastate communications. In addition,
as a result of the passage of the Telecommunications Act of 1996, state and
federal regulators share responsibility for implementing and enforcing the
domestic pro-competitive policies of the Telecommunications Act of 1996. In
particular, state regulatory commissions have substantial oversight over the
provisions of interconnection and non-discriminatory network access to
established telephone companies. Local governments often regulate public
rights-of-way necessary to install and operate networks.
FEDERAL REGULATION
We do not believe our Internet operations are currently subject to direct
regulation by the Federal Communication Commission or any other
telecommunications regulatory agency, although they are subject to regulations
applicable to businesses generally. However, the future Internet service
provider regulatory status continues to be uncertain. In an April 1998 report,
the Federal Communication Commission concluded that while some Internet service
providers should not be treated as telecommunications carriers, some services
offered over the Internet, such as phone-to-phone telephony, may be functionally
indistinguishable from traditional telecommunications service offerings, and
that their non-regulated status may have to be re-examined. Despite the Federal
Communication Commission's decision not to allow local telephone companies to
impose per-minute access charges on Internet service providers, and that
decision being upheld by the reviewing court, further regulatory and legislative
consideration of this issue is likely. An imposition of an access charges would
affect our costs of serving dial-up clients and could have a material adverse
effect on our business, financial condition and results of operations. In
addition, Congress and other federal entities have adopted or are considering
other legislative and regulatory proposals that would further regulate the
Internet. Various states have adopted and are considering Internet-related
legislation. Increased U.S. regulation of the Internet may slow its growth or
reduce potential revenues, particularly if other governments follow suit, which
may in turn increase the cost of doing business over the Internet.
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EMPLOYEES
As of February 15, 2002, we had eleven employees. We believe that our
future success will depend on our ability to attract and retain highly skilled
and qualified employees. None of our employees are currently represented by
collective bargaining agreements. We believe that we enjoy good relationships
with our employees.
USE OF PROCEEDS
We will not receive any proceeds from the resale of the common stock. We
will use the proceeds from the exercise of the warrants exercisable for issuance
of common stock, the resale of which is registered herein, for working capital
purposes.
MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Our common stock was quoted on the Nasdaq SmallCap Market until May 4,
1999, and then on the OTC:BB from June 28, 1999 to the present. The high and low
bid prices of BestNet's common stock as reported from September 1, 1997 through
August 31, 2001 by fiscal quarters (i.e., 1st Quarter = September 1 through
November 30) were as follows, as adjusted for a one-for-six reverse split
effective December 18, 1998:
HIGH LOW
---- ---
FISCAL YEAR ENDED:
August 31, 1999
First Quarter 3.5625 1.5
Second Quarter 3.5625 2.0
Third Quarter 2.9375 0.125
Fourth Quarter 2.625 0.5
FISCAL YEAR ENDED:
August 31, 2000
First Quarter 4.25 1.46875
Second Quarter 10.25 4.125
Third Quarter 9.50 5.0
Fourth Quarter 7.25 3.81
FISCAL YEAR ENDED:
August 31, 2001
First Quarter 6.125 .875
Second Quarter 3.375 .5625
Third Quarter 3.80 .55
Fourth Quarter 4.40 2.05
FISCAL YEAR ENDED:
August 31, 2002
First Quarter 3.03 1.55
Second Quarter through February 15, 2002 1.58 .73
The bid and the ask price of our common stock on February 15, 2002, were $0.70
and $0.76, respectively.
As of February 15, 2002, we had 122 shareholders of record of our common
stock.
We have never declared any cash dividends on common stock and currently
plan to retain future earnings, if any, for its business operations.
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NASDAQ DELISTING. Our common stock was delisted from the NASDAQ Small Cap
Market on May 4, 1999, due to the fact that we were not in compliance with
Nasdaq's $1.00 minimum bid price requirement. Since June 28, 1999, our common
stock has been traded on the OTC Bulletin Board under the symbol BESC.
SELLING STOCKHOLDERS
The table below sets forth information concerning the resale of the shares
of common stock by the selling stockholders. We will not receive any proceeds
from the resale of the common stock by the selling stockholders. We will receive
up to an aggregate of $401,369 if all of the warrants are exercised. Because the
selling stockholder may sell all, a portion or none of their shares, no estimate
can be made of the aggregate number of shares that may actually be sold by any
selling stockholder or that may be subsequently owned by any selling
stockholder.
The following table also sets forth the name of each selling stockholder
who is offering the resale of shares of common stock by this prospectus, the
number of shares of common stock beneficially owned by such selling stockholder,
the number of shares of common stock that may be sold in this offering and the
number of shares of common stock each selling stockholder will own after the
offering, assuming they sell all of the shares offered.
TOTAL SHARES
OF COMMON
STOCK TOTAL
ISSUABLE PERCENTAGE
UPON OF COMMON PERCENTAGE
CONVERSION STOCK, SHARES OF BENEFICIAL PERCENTAGE BENEFICIAL OF COMMON
OF PREFERRED ASSUMING COMMON STOCK OWNERSHIP OF COMMON OWNERSHIP STOCK OWNED
STOCK AND FULL INCLUDED IN BEFORE STOCK BEFORE AFTER AFTER
WARRANTS CONVERSION(3) PROSPECTUS OFFERING (3) OFFERING (3) OFFERING (5) OFFERING(5)
-------- ------------- ---------- ------------ ------------ ------------ -----------
Network
Twentyone
International,
Inc. 200,000 1.2% 200,000(2) 200,000 1.2% -0- -0-
Laurus Master
Fund, Ltd. 200,485(1) 1.2% 200,485(1) 200,485 1.2% -0- -0-
Jay Greig, Ph.D. -- -- 519,750(5) 519,750 3.2% -0- -0-
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as amended,
and the information is not necessarily indicative of beneficial ownership for
any other purpose. Under such rule, beneficial ownership includes any shares as
to which the selling stockholder has sole or shared voting power or investment
power and also any shares which the selling stockholder has the right to acquire
within 60 days. The actual number of shares of common stock issuable upon the
conversion of the convertible preferred stock is subject to adjustment depending
on, among other factors, the future market price of our common stock, and could
be materially less or more than the number estimated in the table.
(1) Because the number of shares of our common stock issuable upon
conversion of the convertible preferred stock is dependent in part
upon the market price of our common stock prior to a conversion, the
actual number of shares of our common stock that will be issued upon
conversion will fluctuate daily and cannot be determined at this time.
However, the selling stockholder has contractually agreed to restrict
its ability to convert or exercise its warrants and receive shares of
our common stock such that the number of shares of common stock held
by it and its affiliates after such conversion or exercise does not
exceed 4.99% of the then issued and outstanding shares of common
stock. As a result of the contractual agreement not to exceed 4.99%
beneficial ownership, the selling as defined in the Securities
Exchange Act of 1934, as amended, or is required to file a Schedule
13D.
(2) Because the number of shares of our common stock issuable upon
conversion of the convertible preferred stock is dependent in part
upon the market price of our common stock prior to a conversion, the
23
actual number of shares of our common stock that will be issued upon
conversion will fluctuate daily and cannot be determined at this time.
(3) Amounts and percentages are based upon 15,325,755 shares of our common
stock outstanding as of February 15, 2002 plus an estimated 519,750
shares to be issued pursuant to the stock purchase agreement by and
between BestNet and Jay Greig, Ph.D., 200,485 shares to be issued to
Laurus Master Fund, Ltd. upon conversion of the convertible preferred
stock and exercise of the warrants Laurus holds, and 200,000 shares to
be issued to Network Twentyone International, Inc. upon the exercise
of its warrants.
(4) Because the number of shares of common stock issuable upon the closing
of the stock purchase agreement by and between BestNet and Jay Greig,
Ph.D. is dependent in part upon the market price of the common stock
for the ten days prior to the closing of the stock purchase agreement,
the actual number of shares of common stock that will be issued upon
closing of the stock purchase agreement and thus subject to
registration hereunder cannot be determined at this time.
(5) Assumes that all securities registered will be sold.
PLAN OF DISTRIBUTION
The selling stockholder may, from time to time, sell any or all of their
shares of common stock on any stock exchange, market, or trading facility on
which the shares are traded or in private transactions. These sales may be at
fixed or negotiated prices. There is no assurance that the selling stockholder
will sell any or all of the common stock in this offering. The selling
stockholder may use any one or more of the following methods when selling
shares:
* Ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers.
* Block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction.
* An exchange distribution following the rules of the applicable
exchange
* Privately negotiated transactions
* Short sales or sales of shares not previously owned by the seller
* A combination of any such methods of sale any other lawful method
The selling stockholder may also engage in:
* Short selling against the box, which is making a short sale when the
seller already owns the shares.
* Other transactions in our securities or in derivatives of our
securities and the subsequent sale or delivery of shares by the
stockholder.
* Pledging shares to their brokers under the margin provisions of
customer agreements. If a selling stockholder defaults on a margin
loan, the broker may, from time to time, offer to sell the pledged
shares.
Broker-dealers engaged by the selling stockholder may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from selling stockholder in amounts to be negotiated. If any
broker-dealer acts as agent for the purchaser of shares, the broker-dealer may
receive commission from the purchaser in amounts to be negotiated. The selling
stockholder does not expect these commissions and discounts to exceed what is
customary in the types of transactions involved.
Penny Stock Rules
Our common shares are subject to the "penny stock" rules that impose
additional sales practice requirements because our common shares are below $5.00
per share. For transactions covered by these rules, the broker-dealer must make
a special suitability determination for the purchase of the common shares and
must have received the purchaser's written consent to the transaction prior to
the purchase. The "penny stock" rules also require the delivery, prior to the
transaction, of a risk disclosure document mandated by the Securities and
Exchange Commission relating to the penny stock market. The broker-dealer must
also disclose:
* the commission payable to both the broker-dealer and the registered
representative,
24
* current quotations for the securities, and
* if the broker-dealer is the sole market maker, the broker-dealer must
disclose this fact and the broker-dealer's presumed control over the
market.
Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks.
These rules apply to sales by broker-dealers to persons other than
established customers and accredited investors (generally those with assets in
excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together
with their spouse), unless our common shares trade above $5.00 per share.
Consequently, the "penny stock" rules may restrict the ability of broker-dealers
to sell our common shares, and may affect the ability to sell the common shares
in the secondary market as well as the price at which such sales can be made.
Also, some brokerage firms will decide not to effect transactions in "penny
stocks" and it is unlikely that any bank or financial institution will accept
"penny stock" as collateral.
Underwriter Status
The selling stockholder and any broker-dealers or agents that are involved
in selling the shares may be considered to be "underwriters" within the meaning
of the Securities Act for such sales. An underwriter is a person who has
purchased shares from an issuer with a view towards distributing the shares to
the public. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
considered to be underwriting commissions or discounts under the Securities Act.
Because the selling shareholder is deemed an "underwriter" within the
meaning of Section 2(11) of the Securities Act, it will be subject to the
prospectus delivery requirements.
We are required to pay all fees and expenses incident to the registration
of the shares in this offering. However, we will not pay any commissions or any
other fees in connection with the resale of the common stock in this offering.
We have agreed to indemnify the selling shareholder and its officers, directors,
employees and agents, and each person who controls any selling shareholder, in
certain circumstances against liabilities, including liabilities arising under
the Securities Act. The selling shareholder has agreed to indemnify us and our
directors and officers in certain circumstances against certain liabilities,
including liabilities arising under the Securities Act.
If the selling stockholder notifies us that they have a material
arrangement with a broker-dealer for the resale of the common stock, then we
would be required to amend the registration statement of which this prospectus
is a part, and file a prospectus supplement to describe the agreements between
the selling stockholder and the broker-dealer.
DETERMINATION OF OFFERING PRICE
The price at which the common stock is sold may be based on market prices
prevailing at the time of sale, at prices relating to such prevailing market
prices, or at negotiated prices.
DESCRIPTION OF SECURITIES
COMMON STOCK
For a description of our common stock see our Registration Statement on
Form 8-A filed with the SEC on March 11, 1987.
LEGAL MATTERS
Certain legal matters have been passed upon for us by Squire, Sanders &
Dempsey L.L.P., Phoenix, Arizona.
25
EXPERTS
Our consolidated financial statements included in our Annual Report (Form
10-KSB) for the years ended August 31, 2001 and 2000, have been audited by
Semple & Cooper LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such financial statements
have been incorporated herein by reference, in reliance upon such reports given
on the authority of such firm as experts in accounting and auditing.
INFORMATION WITH RESPECT TO THE REGISTRANT
This prospectus is being delivered with a copy of our Form 10-KSB for the
fiscal year ended August 31, 2001 and our Form 10-QSB for the quarter ended
November 30, 2001.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the small business issuer according to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933, as amended, and is, therefore,
unenforceable.
26
WE HAVE NOT AUTHORIZED ANY PERSON TO
MAKE A STATEMENT THAT DIFFERS FROM
WHAT IS IN THIS PROSPECTUS. IF ANY
PERSON DOES MAKE A STATEMENT THAT
DIFFERS FROM WHAT IS IN THIS
PROSPECTUS, YOU SHOULD NOT RELY ON IT.
THIS PROSPECTUS IS NOT AN OFFER TO
SELL, NOR IS IT SEEKING AN OFFER TO
BUY, THESE SECURITIES IN ANY STATE IN
WHICH THE OFFER OR SALE IS NOT
PERMITTED. THE INFORMATION IN THIS
PROSPECTUS IS COMPLETE AND ACCURATE AS
OF ITS DATE, BUT THE INFORMATION MAY
CHANGE AFTER THAT DATE.
BESTNET COMMUNICATIONS CORP.
TABLE OF CONTENTS
PAGE
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WHERE YOU CAN FIND MORE
INFORMATION..........................1 920,235 SHARES OF COMMON STOCK
INCORPORATION OF DOCUMENTS BY
REFERENCE............................1
SUMMARY..............................2
BESTNET COMMUNICATIONS CORP..........2
SELECTED AND SUMMARY CONSOLIDATED
FINANCIAL DATA.......................4
THE OFFERING.........................5
SECURITIES BEING ISSUED..............5 March 4, 2002
RISK FACTORS.........................7
BESTNET COMMUNICATIONS CORP.........11
USE OF PROCEEDS.....................22
MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.........22
SELLING STOCKHOLDERS................23
PLAN OF DISTRIBUTION................24
DETERMINATION OF OFFERING PRICE.....25
DESCRIPTION OF SECURITIES...........25
LEGAL MATTERS.......................25
EXPERTS.............................26
INFORMATION WITH RESPECT TO
THE REGISTRANT......................26
DISCLOSURE OF COMMISSION POSITION
ON INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES.....................26