As filed with the Securities and Exchange Commission on May 6, 2003
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM S-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
BESTNET COMMUNICATIONS CORP.
(Exact name of registrant as specified in its charter)
Nevada 86-1006416
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
5075 Cascade Road SE, Suite A, Grand Rapids, Michigan 49546
(616) 977-9933
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Copies to:
Robert A. Blanchard Gregory R. Hall, Esq.
BestNet Communications Corp. Squire, Sanders & Dempsey L.L.P.
5075 Cascade Road SE, Suite A Two Renaissance Square
Grand Rapids, Michigan 49546 40 North Central Avenue, Suite 2700
(616) 977-9933 Phoenix, Arizona 85004-4498
(602) 528-4000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: As soon as practicable after
the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------
Proposed maximum Proposed maximum Amount of
Title of each class of Amount to be offering price aggregate offering registration
securities to be registered registered (1) per unit price fee
- -----------------------------------------------------------------------------------------------------------
Units 3,563,593 $0.30 (2) $1,069,078.00 (2) $ 86.49
Common Stock, $.001 par value
per share 10,690,779 -- -- --
Series A Preferred Stock 3,563,593 -- -- --
Common Stock, $.001 par
value per share 7,127,186 $0.10 (3) $ 712,719.00 (3) $ 57.66
Warrants 3,563,593 -- -- --
Common Stock, $.001 par
value per share 3,563,593 $0.30 (4) $1,069,078.00 (4) $ 86.49
Common Stock, $.001 par value
per share 57,500 $0.31 (5) $ 17,825.00 (5) $ 1.44
TOTAL FEE: $232.08
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(1) There are being registered under this registration statement: (i) 3,055,399
units issued in a private placement transaction completed in March 2003,
each unit consisting of three shares of common stock, a three-year warrant
to purchase one share of common stock, and one share of Series A Preferred
Stock; (ii) 508,194 units issuable upon conversion of $150,000 in aggregate
principal plus $2,458 of accrued interest of our 10% Senior Secured Notes
due April 26, 2003; (iii) 10,690,779 shares of common stock underlying the
units; (iv) 3,563,593 shares of Series A Preferred Stock underlying the
units; (v) warrants to purchase an aggregate of 3,563,593 shares of common
stock underlying the units; (vi) 7,127,186 shares of common stock issuable
upon conversion of the Series A Preferred Stock; (vii) 3,563,593 shares of
common stock issuable upon exercise of the warrants; and (viii) 57,500
shares of common stock issued as consideration for the 10% Senior Secured
Notes. Pursuant to Rule 416(a), this registration statement also covers an
indeterminate number of additional securities that may be offered or issued
in connection with any stock split, stock dividend or similar transaction,
or pursuant to the anti-dilution provision of the Series A Preferred Stock
and the warrants. This registration statement also covers an indeterminate
number of additional securities that may be offered or issued in connection
with any stock split, stock dividend or similar transaction, or pursuant to
the anti-dilution provisions of the Series A Preferred Stock and the
warrants.
(2) Based on the offering price of each unit.
(3) Calculated pursuant to Rule 457(i) under the Securities Act of 1933, as
amended, based on the price at which the Series A Preferred Stock may be
converted into shares of common stock.
(4) Calculated pursuant to Rule 457(g) under the Securities Act of 1933, as
amended, based on the price at which the warrants may be exercised.
(5) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(C) and (o) under the Securities Act of 1933, as
amended, on the basis of the closing price for shares of our common stock
as reported by the Nasdaq Over the Counter Bulletin Board on May 1, 2003.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED MAY 6, 2003
BESTNET COMMUNICATIONS CORP.
In February 2003, we completed a financing transaction that consisted of
the issuance of $150,000 in aggregate principal amount of our 10% Senior Secured
Convertible Promissory Notes. The principal and accrued interest outstanding
under the notes is convertible into units of the Company at a conversion price
equal to $0.30 per unit. BestNet Communications Corp. received conversion
requests to convert the principal and accrued interest of the 10% Senior Secured
Notes on April 24, 2003. In March 2003, we privately placed 3,055,399 additional
units to qualified investors at a per unit price of $0.30. Each unit consists of
the following securities: three shares of our common stock, par value $.001 per
share; one three-year warrant to purchase one share of common stock at a per
share exercise price of $0.30; and one share of Series A Preferred Stock,
convertible into two shares of common stock at a conversion price of $0.10 per
share of common stock. This prospectus relates to the resale of the following
securities: the 3,563,593 units, the 3,563,593 shares of Series A Preferred
Stock, the 3,563,593 warrants and the 10,690,779 shares of common stock that
comprise the units, as well as the issuance and resale of 7,127,186 shares of
common stock issuable upon conversion of the Series A Preferred Stock and
3,563,593 shares of common stock issuable upon exercise of the warrants. Holders
of the units may not separately trade the warrants, the Series A Preferred
Stock, or the common stock underlying the warrants and the Series A Preferred
Stock until such time as determined by our board of directors. See "Description
of Securities" on page 29.
As of April 21, 2003, we had 50,000,000 shares of common stock authorized,
19,257,325 of which shares were issued and outstanding. Upon completion of the
unit private placement, 29,948,104 shares of common stock were issued and
outstanding, exclusive of any shares issuable upon either the exercise of the
warrants or the conversion of the Series A Preferred Stock. The issuance of the
shares of common stock underlying the warrants and the Series A Preferred Stock
is subject to approval by our shareholders of a proposal to increase the
authorized capital stock to accommodate the exercise of the warrants and the
conversion of the Series A Preferred Stock. Assuming such approval is granted,
an additional 10,690,779 shares of common stock will be reserved for issuance
upon exercise of the warrants and conversion of the Series A Preferred Stock.
The 21,439,058 shares of common stock that may be resold by the selling
stockholders constitute 111.3% of our issued and outstanding stock as of April
21, 2003. 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 beginning on page 23 in this prospectus
for a complete description of all of the selling stockholders.
Gross proceeds from the sale of the units were $916,620.00, which will be
used for working capital purposes. We will also receive up to an additional
$1,069,078 if all of the warrants are exercised and $712,719 if all of the
Series A Preferred Stock is converted, which amounts will also be used for
working capital purposes. The selling stockholders will receive all of the
amounts received upon any sale by them of the units, the Series A Preferred
Stock and the common stock, less any brokerage commissions or other expenses
incurred by them. We will not receive any proceeds from the subsequent resale of
such securities.
Our common stock is traded on the NASDAQ Over-the-Counter Bulletin Board
under the symbol BESC.OB. On May 1, 2003, the closing sale price of our common
stock was $0.31 per share.
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 May 6, 2003.
TABLE OF CONTENTS
Page
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WHERE YOU CAN FIND MORE INFORMATION........................................ 1
INCORPORATION OF DOCUMENTS BY REFERENCE.................................... 1
SUMMARY ................................................................... 2
THE OFFERING............................................................... 5
RISK FACTORS............................................................... 7
COMPANY OVERVIEW........................................................... 12
USE OF PROCEEDS............................................................ 21
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................... 21
SELLING STOCKHOLDERS....................................................... 22
PLAN OF DISTRIBUTION....................................................... 27
DETERMINATION OF OFFERING PRICE............................................ 28
DESCRIPTION OF SECURITIES TO BE REGISTERED................................. 28
LEGAL MATTERS.............................................................. 29
EXPERTS ................................................................... 29
INFORMATION WITH RESPECT TO THE REGISTRANT................................. 29
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES .............................................. 29
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, units and Series A Preferred Stock than this
prospectus, including exhibits and schedules. You should refer to the
registration statement for additional information about us and the common stock,
units and Series A Preferred 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,
2002;
* our quarterly reports on Form 10-QSB for the quarterly periods ended
November 30, 2002 and February 28, 2003; and
* the description of our common stock included in our Registration
Statement on Form 8-A, filed March 11, 1987.
If you would like a copy of any of these documents, at no cost, please
write or call us at:
BestNet Communications Corp.
5075 Cascade Road SE, Suite A
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.
We are a facilities-based, global communication solutions provider. Our
patented, proprietary technology uses widely available Internet access to
control, enable, and manage voice communications over the public switched
telecommunication network ("PSTN"). We are a product development, marketing,
sales, sub-licensing, customer service and billing organization for patented,
packet-based Internet telephony software applications that control, manage and
enable global telecommunications services. We are presently focusing
substantially all of our financial and other resources on developing, marketing,
licensing and selling our Internet-based telecommunications applications,
technologies and services to corporate and residential clients worldwide. We
market our Internet telephony services to individual clients and selected
companies with international locations and/or clients worldwide. As of the date
of this Report, we have approximately 13,000 clients, making calls from 142
countries and calling to 198 countries.
Our flagship product, Bestnetcall, is the industry's first patented,
phone-to-phone, Internet-enabled long distance service, which combines global
internet access and the public switched telephone network ("PSTN") via our
internet website at Bestnetcall.com. This service was first made available to
the public on April 17, 2000 and is marketed under the brand name "Bestnetcall."
Although founded as a Nevada Corp. on July 10, 1986, we did not commence
operations until 1995. From 1995 until 1999, we operated under the name
"Wavetech International, Inc." and 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 service. Since then, we have focused
substantially all of our efforts and resources on developing and commercializing
our Bestnetcall web-enabled long distance services. On September 27, 2000, we
changed our name to BestNet Communications Corp.
At August 31, 2002, and February 28, 2003, we had an accumulated deficit of
$23,488,980 and $26,161,984 (unaudited), respectively. We had net losses
available to common shareholders for the fiscal year ended August 31, 2002 and
six-month period ended February 28, 2003 of $6,468,448 and $2,673,004
(unaudited), respectively. We expect to continue to spend considerable financial
and management resources on the further roll-out of our Bestnetcall and other
related services, which is described below.
Users of our Bestnetcall services are able to do the following by accessing
our website at www.Bestnetcall.com:
* Register to use our Bestnetcall services
* Access and launch communication applications
* Access current rate tables and time zone charts
* Access a full suite of call management features
* Access customer service immediately via the Internet
* Maintain call account security
* Obtain real time billing detail
2
Our Bestnetcall service does not require the purchase of special hardware
or software by the customer and uses existing telephone equipment. Users only
need access to the Internet and an available phone line (land line or cellular).
Bestnetcall also offers immediate real time billing detail to all users and
accepts various payment methods, including pre-paid or post-paid credit card
payments and invoicing options. The architecture of Bestnetcall allows for total
security regarding both the FROM and TO legs of each call. The FROM and TO
numbers are never displayed, thus it is impossible to determine from where a
call is being placed.
We offer our Bestnetcall service through both direct sales and indirect
sales channels. Our initial target markets include:
* Large Corporate / Enterprise Clients
* Internet Service Providers
* Mid-sized to SOHO Business (Small Office Home Office)
* Marketing and Channel Partners
* Reseller, VAR and Integrators
* Technology and Telecommunications Consultants
* Consumers
Our marketing efforts are targeted at international long distance and
conference calling clients in a number of key geographic areas in the world. Our
priorities are focused primarily on the following geographic regions:
* Central and South America
* North America
* Asia Pacific
* Europe
* Middle East
* Caribbean
Our principal executive offices are located at 5075 Cascade Road SE, Suite
A, Grand Rapids, Michigan 49546. Our telephone number is (616) 977-9933. We
wholly own our three subsidiaries, Interpretel, Inc., Interpretel (Canada) Inc.,
and Telplex International Communications, 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 included in our
Form 10-KSB for the year ended August 31, 2002 and the related notes included
elsewhere in this prospectus. The selected consolidated statement of operations
data for the fiscal years ended August 31, 1997, 1998, 1999, 2000, 2001 and 2002
are derived from information in our financial statements not included elsewhere
in this prospectus.
YEAR ENDED AUGUST 31,
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1997 1998 1999 2000 2001 2002
----------- ----------- ----------- ----------- ----------- -----------
Statement of Operations
Data:
Revenue $ 719,142 $ 157,838 $ 13,580 $ 28,670 $ 360,615 $ 1,060,582
Cost of revenue 679,930 85,082 9,468 51,722 382,298 1,432,196
Selling, general and administration 1,584,747 794,004 691,479 1,188,032 2,044,720 2,028,732
Depreciation & amortization 211,786 156,965 146,977 1,545,636 1,979,975 2,277,525
----------- ----------- ----------- ----------- ----------- -----------
Total cost and expenses 2,476,463 1,036,051 847,924 2,785,390 4,024,695 4,306,257
Loss from operations (1,757,321) (878,213) (834,344) (2,756,720) (4,046,378) (4,677,871)
Other Income and Expenses:
Interest income 8,500 6,565 70,519 76,129 227,691 3,023
Rental income 0 8,833 36,000 22,500 0 0
Misc income 0 0 0 4,014 0 0
Interest expense (26,893) (45,182) (8,995) (60,512) (36) (764,688)
License agreement termination income 0 236,906 0 0 0 0
Loss on sale of investment in Switch 0 (216,165) 0 0 0 0
Debt conversion expense 0 (92,894) 0 0 0 0
Proposed merger costs 0 (236,737) (118,450) 0 0 0
Write-off of intangibles & other
assets 0 0 (36,125) 0 0 0
Foreign asset tax expense 0 0 0 0 (50) (30,050)
Preferred stock conversion penalty 0 0 (144,000) (221,226) 0 (35,944)
Gain on sale of fixed assets 0 0 0 0 0 2,405
Other misc expenses 0 0 (15,000) 0 (1,304) (800)
----------- ----------- ----------- ----------- ----------- -----------
Total Other Income and Expenses (18,393) (338,674) (216,051) (179,095) 226,301 (826,054)
----------- ----------- ----------- ----------- ----------- -----------
Net loss from continuing operations $(1,775,714) $(1,216,887) $(1,050,395) $(2,935,815) (3,820,077) $(5,503,925)
Income (loss) from discontinued
operations 0 0 0 0 17,280 (5,800)
Cumulative preferred dividends
declared and preferred stock
conversion benefit 0 135,994 36,500 2,602,046 212,013 958,723
----------- ----------- ----------- ----------- ----------- -----------
Net loss available to common
shareholders $(1,775,714) $(1,352,881) $(1,086,895) $(5,537,861) $(4,014,810) $(6,468,448)
Net loss per share, basic & diluted $ (.74) $ (0.51) $ (0.37) $ (1.72) $ (0.45) $ (0.41)
Weighted average shares outstanding,
basic & diluted 2,409,195(1) 2,663,257(1) 2,904,693 3,221,225 9,013,669 15,933,908
YEAR ENDED AUGUST 31,
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1997 1998 1999 2000 2001 2002
------------ ------------ ------------ ------------ ------------ ------------
Balance Sheet Data:
Cash & Cash Equivalents $ 13,329 $ 2,202,573 $ 889,620 $ 2,581,492 $ 285,518 $ 351,784
Working Capital (650,761) 1,863,442 618,440 2,394,852 197,796 (526,923)
Total Assets 2,840,796 2,542,171 1,574,395 13,862,867 11,264,956 9,500,400
Total Liabilities 828,981 389,219 281,288 210,542 164,196 1,046,125
Accumulated Deficit (5,028,085) (6,380,966) (7,467,861) (13,005,722) (17,020,532) (23,488,980)
Stockholders' Equity 2,011,815 2,152,952 1,293,107 13,652,325 11,100,760 8,454,275
- ----------
(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 of the units and the securities
underlying the units. Each unit consists of three shares of common stock, one
three-year warrant to purchase one share of common stock at an exercise price of
$0.30 per share of common stock, and one share of Series A Preferred Stock,
convertible into two shares of common stock at a conversion price of $0.10 per
share of common stock. The offered securities include the units, the common
stock issued pursuant to the sale of the units, the warrants, the Series A
Preferred Stock, and the shares of common stock underlying the warrants and the
Series A Preferred Stock. In particular, this prospectus covers the resale, by
the selling stockholders, of 3,563,593 units, 3,563,593 warrants, 3,563,593
shares of Series A Preferred Stock and 10,690,779 shares of common stock, issued
to the selling shareholders pursuant to the sale of the units. This prospectus
also covers the issuance, subject to shareholder approval of an increase in the
authorized capital stock of the Company to accommodate such issuance, and resale
of the 10,690,779 shares of the underlying common stock, 3,563,593 shares of
which are issuable upon exercise of the warrants, and 7,127,186 shares of which
are issuable upon conversion of the Series A Preferred Stock.
As of April 21, 2003, we had 19,257,325 shares of common stock issued and
outstanding. The total number of shares of common stock subject to this
prospectus - of 21,439,058 shares of common stock, including 10,690,779 shares
issued pursuant to the Unit Issuance, 3,563,593 shares issuable upon exercise of
the warrants and 7,127,186 shares issuable upon conversion of the Series A
Preferred Stock, and 57,500 shares issued as consideration of the 10% Secior
Secured Notes - represents 111.3% of our issued and outstanding stock as of
April 21, 2003,
SECURITIES BEING ISSUED
UNITS
In this prospectus we are registering the resale by the selling
shareholders of 3,563,593 units. Of the 3,563,593 units being registered,
3,055,399 units were issued pursuant to a Unit Purchase Agreement entered into
with investors at a per unit purchase price of $0.30. The remaining 508,194
units are issuable upon conversion of $150,000 in aggregate principal amount
plus accrued interest of the Senior Secured Convertible Notes issued in February
2003. Each unit consists of three shares of common stock, one three-year warrant
to purchase one share of common stock at an exercise price of $0.30 per share of
common stock, and one share of Series A Preferred Stock, convertible into two
shares of common stock at a conversion price of $0.10 per share of common stock.
WARRANTS
In this prospectus we are registering the resale by the selling
shareholders of 3,563,593 warrants. The warrants, which were issued as part of
the units, entitle the warrant holders to purchase one share of common stock at
the exercise price of $0.30 per share of common stock. The warrants may be
exercised at any time following the date, if ever, the Company's shareholders
adopt a proposal authorizing an increase in the Company's authorized capital
stock. The warrants expire on the third anniversary of their issuance date. The
exercise price and the number of shares of common stock purchasable upon
exercise of the warrants are subject to adjustment upon the occurrence of
certain events, including stock dividends, stock splits and reverse stock
splits, combinations and reclassifications of common stock, and any
reorganization, merger or combination of the Company with or into another Corp.
or the sale of all or substantially all of our assets. Warrant holders do not
have any voting or other rights as common shareholders. As of the date of this
prospectus, the warrants remain unexercised. Although we are registering the
resale of the warrants in this registration statement as part of the units, the
warrants will not be separately tradable or transferable apart from the units.
SERIES A CONVERTIBLE PREFERRED STOCK
In this prospectus, we are registering the resale by the selling
shareholders of 3,563,593 shares of Series A Convertible Preferred Stock. The
shares of Series A Preferred Stock, which were issued as part of the sale of the
units, are entitled to a liquidation preference amount of $0.001 per share, and
each share is convertible into two shares of common stock at an exercise price
of $0.10 per common share. The Series A Preferred Stock may be converted at any
time following the date, if ever, the Company's shareholders adopt a proposal
authorizing an increase in the Company's authorized capital stock. Series A
Preferred Stockholders do not have any voting or other rights as common
shareholders.
5
As of the date of this prospectus, all of the 3,563,593 outstanding shares
of the Series A Preferred Stock remain outstanding. The Series A Preferred Stock
will not be separately tradable or transferable apart from the units until such
time as determined by our board of directors.
COMMON STOCK ISSUED AS PART OF THE UNITS
In this prospectus, we are also registering the resale by the selling
shareholders of 10,690,779 shares of common stock issued pursuant to the sale of
the units. For a description of our common stock, see our Registration Statement
on Form 8-A filed with the SEC on March 11, 1987.
COMMON STOCK UNDERLYING THE WARRANTS AND THE SERIES A PREFERRED STOCK
In this prospectus we are also registering the issuance and resale of
10,690,779 shares of common stock underlying the warrants and the Series A
Preferred Stock. Subject to the approval by the stockholders of an increase in
our capital stock, an aggregate of 10,690,779 shares of common stock, including
3,563,593 shares underlying the warrants and 7,127,186 shares underlying the
Series A Preferred Stock, will be reserved for issuance upon the exercise of the
warrants and the conversion of the Series A Preferred Stock. The common stock
underlying the warrants and the Series A Preferred Stock will not be separately
tradable or transferable apart from the units until such time as determined by
our board of directors.
COMMON STOCK ISSUED AS PART OF THE 10% SENIOR SECURED CONVERTIBLE PROMISSORY
NOTES
In this prospectus, we are also registering 57,500 shares of common stock
issued to the accredited investors as consideration for the 10% Senior Secured
Convertible Promissory Notes.
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.
SINCE WE ARE DEPENDENT ON COMPONENTS OF OUR LICENSE AGREEMENT WITH SOFTALK, ANY
MATERIAL CHANGES IN THIS AGREEMENT COULD ADVERSELY IMPACT OUR BUSINESS AND
FUTURE OPERATIONS.
We are dependent on components of our license agreement with Softalk, which
gives us a worldwide exclusive license to distribute, market, service, sell and
sublicense current and future Softalk communication software to commercial
accounts. Softalk is a privately held Canadian software development company.
This agreement also grants us a worldwide nonexclusive license to distribute,
market, service, sell and sublicense current and future Softalk communication
software to individual customer accounts. In September of 2002, we began legal
proceedings against Softalk in Canada to address numerous breaches of its
obligations under the various agreements in place between our companies. In
September 2002, we obtained a court order/injunction requiring Softalk to
monitor and maintain our communication network during a commercially reasonable
transition period. Softalk failed to comply with this court order/injunction and
has, instead, responded by making allegations of its own against us for alleged
breaches of the Softalk license agreement. On making its allegations, Softalk
has threatened to terminate the license agreement. We believe Softalk's
allegations are without merit and we are responding by asserting our rights
under our agreements with Softalk and at law. We have moved under the
contractual agreements to resolve matters in arbitration proceedings with
Softalk. In the event such proceedings, or any other proceedings arising out of
the context of these arbitration proceedings, result in material changes in the
agreements, or the termination thereof, such an outcome could materially
adversely impact our business and future operations.
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 ten years. Our Bestnetcall service
is a unique value-generating product. It has yet to be determined if the
Bestnetcall service will achieve broad commercial acceptance by Internet users.
The failure to achieve broad market acceptance will have a material adverse
effect on our business, financial condition and results of operations. Our risks
include the following:
* evolving and unpredictable business models;
* management and funding of growth;
* our ability to anticipate and adapt to developing international
markets;
* acceptance by Internet users;
* our ability to establish relationships with additional strategic
partners; and
* commercial acceptance of Bestnetcall.
To address these risks we must, among other things:
* attract and retain frequent users in targeted markets;
* continue to provide value creating services for current and future
customers;
* grow usage by our existing customer base;
* attract a significant number of new Internet telephony business
customers in target markets;
7
* expand value-added services;
* successfully respond to competitive developments;
* continue to form and maintain relationships with strategic partners;
* continue to attract, retain and motivate qualified personnel;
* provide superior customer service; and
* continue to develop technologies and commercialize value creating
communication services.
A FAILURE BY PARTIES THAT MAINTAIN PHONE AND DATA LINES TO SERVICE SUCH LINES OR
AN INCREASE IN THE PRICE FOR MAINTAINING PHONE AND DATA LINES MAY DISRUPT
BESTNET'S BUSINESS.
Our business strategy depends on the availability of the Internet to
transmit data packets. 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, which has become
increasingly likely in light of the deregulation, then our profitability will be
materially adversely affected. They may also fail to properly maintain their
lines and disrupt our ability to provide service to our customers. Any failure
by these third parties to maintain these lines and networks that leads to a
material disruption of our ability to complete calls over the Internet would
have a material adverse affect on our business, financial condition and results
of operations. 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 its network as currently configured,
then our business, financial condition and results of operations would be
materially adversely affected.
THE TELECOMMUNICATIONS INDUSTRY IS SUBJECT TO DOMESTIC GOVERNMENTAL REGULATION
AND LEGAL UNCERTAINTIES, WHICH, IF INCREASED OR CHANGED, COULD MATERIALLY
ADVERSELY AFFECT THE COMPANY'S BUSINESS.
While the FCC 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 FCC, and the FCC could impose greater
or lesser regulation on our industry. For Example, the FCC is currently
considering, whether to impose surcharges or other regulations upon certain
providers of Internet telephony, primarily those that provide Internet telephone
services to end-users located within the U.S. To date this has not been done
however, the imposition of such surcharges or the regulation of Internet
telephony providers both in the U.S. and internationally could increase the cost
of doing business over the Internet and materially adversely affect our
business, financial condition and results of operations.
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. There can be no assurance that
government agencies will not increasingly regulate 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
materially adversely affect our business, financial condition and results of
operations.
THE TELECOMMUNICATIONS INDUSTRY IS SUBJECT TO INTERNATIONAL GOVERNMENTAL
REGULATION AND LEGAL UNCERTAINTIES, WHICH COULD MATERIALLY ADVERSELY AFFECT OUR
BUSINESS.
We are marketing our services to international long distance callers in
over 142 countries around the world. Because we conduct business
internationally, we are subject to certain direct or indirect risks. These risks
could 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;
8
* foreign taxation; and
* the burdens of complying with a variety of foreign laws, trade
standards, tariffs and trade barriers.
Changes in regulations and tax could have an adverse effect on our revenue
and costs.
BESTNET HAS A HISTORY OF OPERATING LOSSES AND MAY NEVER GENERATE OPERATING
INCOME FROM THE SALE OF ITS BESTNETCALL SERVICE.
As of August 31, 2002 and February 28, 2003, we had an accumulated deficit
of $23,488,980 and $26,161,984 (unaudited), respectively.
We believe that our future profitability and success will depend in large
part on our ability to generate revenue from the sale of our Bestnetcall service
to businesses. Revenues are also anticipated from the sub-licensing of
proprietary technology and business systems to partners around the world. The
profitability and success of BestNet will depend on:
* our ability to maintain existing corporate relationships and our
ability to enter into new relationships.
* our ability to retain the right to sell value added Internet based
services;
* our ability to effectively create and maintain relationships with
multinational partners;
* our ability to successfully enter into new strategic relationships for
distribution and increased usage of the Bestnetcall services; and
* our ability to generate sufficient sales volume.
Accordingly, we expect to continue to expend considerable financial and
management resources on the rollout of our Bestnetcall and other related
services, strategic relationships, sales and marketing along with operating
improvements to meet specific client needs. As a result, we expect to incur
significant additional losses and continued negative cash flow from operations
for the foreseeable future. Further, we may not achieve or maintain
profitability or generate cash from operations in future periods.
CONFLICTS OF INTEREST COULD CONTINUE TO ARISE WHICH MATERIALLY ADVERSELY AFFECT
BESTNET, ITS BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Conflicts of interest could continue to arise between our affiliates, and
us, including Softalk, in areas relating to past, ongoing and future
relationships, including:
* the Bestnetcall license agreement, corporate opportunities, indemnity
arrangements, tax and intellectual property ownership matters;
* potential acquisitions or financing transactions; and
* sales or other dispositions by BestNet principals.
These conflicts also may include disagreements regarding the Bestnetcall
license agreement, including with respect to possible amendments to, or
modifications or waivers of provisions of such agreement arising out of the
active arbitration. Such amendments, modifications or waivers may adversely
affect our business, financial condition and results of operations. Ownership
interests of directors or officers in BestNet common stock, or serving as both a
director/officer of BestNet could create or appear to create potential conflicts
of interest when directors and officers are faced with decisions that could have
different implications for BestNet.
OUR INABILITY TO BE COMPETITIVE INTERNATIONALLY OR TO SATISFY REGULATORY
REQUIREMENTS WHEN WE EXPAND GLOBALLY COULD MATERIALLY ADVERSELY AFFECT OUR
BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
9
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
international markets. These risks could impair our ability to expand
internationally as well as have a material adverse effect upon our overall
business operations, growth and financial condition. In addition, international
regulations continue to change and could effect adversely business that we
currently have along with business that we will develop in the future.
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 are able to ensure the secure transmission of confidential
customer information both voice and data. 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 the Internet is not secure, even if unfounded,
means that fewer consumers might use our services. 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.
In our Articles of Incorporation, we are authorized to issue up to
50,000,000 million shares of common stock. The Board of Directors may authorize
the issuance of shares of stock for such consideration, as it deems adequate.
Additional shares of common stock may be issued to raise capital, to purchase
property or rights, and upon exercise of warrants, options, or other derivative
instruments. We are also authorized to issue up to 10,000,000 million shares of
Series A Preferred Stock, in one or more series, and to determine the price,
rights, preferences and privileges of the shares of each such series without any
further vote or action by the stockholders. The rights of the holders of common
stock will be subject to, and may be adversely affected by, the rights of the
holders of any shares of Series A Preferred Stock that may be issued in the
future. Series A Preferred Stock may be issued that is convertible into shares
of common stock at conversion prices that might not be related to the then
current market price. The market price of our common stock may decrease as more
shares of common stock become available for trading. The equity interest of the
shareholders in BestNet also may be reduced through the issuance of new common
stock required to further fund our company.
THE CURRENT CAPITALIZATION COULD DELAY, DEFER, OR PREVENT A CHANGE OF CONTROL.
We are authorized to issue up to 50,000,000 shares of common stock and up
to 10,000,000 shares of Series A Preferred Stock, in one or more series, and to
determine the price, rights, preferences and privileges of the shares of each
such series without any further vote or action by the stockholders. The issuance
of Series A Preferred Stock could have the effect of making it more difficult
for a third party to acquire a majority of the outstanding voting stock of the
Company, thereby delaying, deferring, or preventing a change of control of the
Company.
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
* to increase the number of customers 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
10
These forward looking statements include statements regarding the belief or
current expectation of management and are 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 previously described, as well as those discussed
elsewhere in this prospectus.
11
COMPANY OVERVIEW
BUSINESS DEVELOPMENT
We are a facilities-based, global communication solutions provider. Our
patented, proprietary technology uses widely available Internet access to
control, enable, and manage voice communications over the public switched
telecommunication network ("PSTN"). We our a product development, marketing,
sales, sub-licensing, customer service and billing organization for patented,
packet-based Internet telephony software applications that control, manage and
enable global telecommunications services. We are presently focusing
substantially all of our financial and other resources on developing, marketing,
licensing and selling our Internet-based telecommunications applications,
technologies and services to corporate and residential clients worldwide. We
market our Internet telephony services to individual clients and selected
companies with international locations and/or clients worldwide. As of the date
of this Report, we have approximately 13,000 clients, making calls from 142
countries and calling to 198 countries.
Our flagship product, Bestnetcall, is the industry's first patented,
phone-to-phone, Internet-enabled long distance service, which combines global
internet access and the public switched telephone network ("PSTN") via our
internet website at Bestnetcall.com. This service was first made available to
the public on April 17, 2000 and is marketed under the brand name "Bestnetcall."
Although founded as a Nevada Corp. on July 10, 1986, we did not commence
operations until 1995. From 1995 until 1999, we operated under the name
"Wavetech International, Inc." and 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 service. Since then, we have focused
substantially all of our efforts and resources on developing and commercializing
our Bestnetcall web-enabled long distance services. On September 27, 2000, we
changed our name to BestNet Communications Corp.
BESTNET SOLUTIONS
Users of our Bestnetcall services are able to perform the following
functions by accessing our website at www.Bestnetcall.com:
* Register to use our Bestnetcall service
* Access and launch communication applications
* Access current rate tables and time zone charts
* Access a full suite of call management features
* Access customer service immediately via the Internet
* Maintain call account security
* Obtain real time billing detail
Bestnetcall does not require the purchase of special hardware or software
by the customer and uses existing telephone equipment. Users only need access to
the Internet and an available phone line (land line or cellular). Bestnetcall
also offers immediate real time billing detail to all users and accepts various
payment methods, including pre-paid or post-paid credit card payments and
invoicing options. The architecture of Bestnetcall allows for total security
regarding both the FROM and TO legs of each call. The FROM and TO numbers are
never displayed, thus it is impossible to determine from where a call is being
placed.
12
Following the completion of a telephone call, the total cost for that call
can be viewed on the caller's online account. Call detail records may be printed
or copied to Microsoft Word or Microsoft 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 our website. Account administrators may add or delete
users, view a user's calling activity and create reports detailing call
activity.
The technology upon which our Bestnetcall service is based is subject to a
license agreement with Softalk, Inc., an Ontario, Canada-based technology
company. We entered into this licensing arrangement in April 1999 and later
amended and restated that arrangement in October 1999. Under the terms of our
license agreement with Softalk, we were granted 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 own and operate facilities in Toronto, Canada and New York, New York
including high-capacity switches, web servers, data base servers, calling
servers and security systems. In addition, we make use of specialized software
for data management, billing and customer service requirements. For cost
optimization reasons, we shut down our facilities in Los Angeles in the third
quarter of fiscal 2002. The equipment remains ready for redeployment when
necessary.
PRODUCT SUITE
Our Bestnetcall service includes the following suite of communication
features:
BestNet WEBCALL - Long Distance Calling
Clients utilizing our Bestnetcall service can decrease the cost of their
long distance service while still retaining the toll quality for global
communication needs. 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, e-mail calling, billing
codes, country and city code look-up, time zone information and dialing
examples.
BestNet CONFERENCECALL - 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. We have compared the value of this conference-calling service to
similar services available in the marketplace and believe it highly competitive.
BestNet DESKTOPCALL - Desktop Application
Bestnetcall also has a desktop application that can be downloaded from
our website. Calls can then be launched from the desktop application instead of
from a web browser. This feature is particularly useful for clients with slow
Internet connections. Calls are launched in a similar manner to our web product.
All calls are still charged to the same account and on-line billing information
may also be viewed. Calls can also be launched directly from Microsoft Outlook
using a Bestnetcall Outlook add-in and the desktop.
BestNet EMAILCALL - E-mail Application
Bestnetcall e-mail application can be used from any e-mail device such as
MS Outlook, Blackberry and cell phones to initiate calls. This patent-pending
technology uses simple commands sent by e-mail to launch calls to any nearby
phone, such as a pay phone, home phone or cell phone. Clients enter defined
calling instructions to the destination of their choice. EmailCall has many
convenience features, such as using your personal webCall directories and
billing codes.
13
BestNet SATCALL - Satellite Calls
Bestnetcall has a direct circuit to an international satellite uplink
carrier for launching the Inmarsat satellite leg of calls. This circuit provides
our Bestnetcall service with the capability to complete calls to remote
platforms such as ships, airplanes and oil rigs via our web site at
www.bestnetsat.com.
BestNet PDACALL - Mobile Calling
Bestnetcall has developed a Palm OS application, which is ideal for
wireless PDA devices, including devices offered by Palm, Handspring and Kyocera.
Our software, which emulates our BestNet desktop service, gives the user the
ability to launch low-cost long distance calls or conference calls using a PDA
device to control the call. Applications also have been developed for
micro-browser equipped PDA's such as Compaq's iPAQ.
All calls from these devices are billed in the same way as calls placed
through our web product.
MARKETING STRATEGIES
We offer our Bestnetcall service through both direct sales and indirect
sales channels. Our initial target markets include:
* Large Corporate / Enterprise Clients
* Internet Service Providers
* Mid-sized to SOHO Business (Small Office Home Office)
* Marketing and Channel Partners
* Reseller, VAR and Integrators
* Technology and Telecommunications Consultants
* Consumers
Our marketing efforts are targeted at clients in key geographic areas of
the world that regularly utilize international long distance and conference
calling services. Our present marketing efforts are focused primarily on the
following geographic regions:
* Central and South America
* North America
* Asia Pacific
* Europe
* Middle East
* Caribbean
DIRECT SALES
Our direct sales activities are comprised of the following marketing and
sales strategies designed to generate revenue and increase customer usage of our
Bestnetcall service:
* Web Channel - This method of marketing, which represents the majority
of our revenue, consists of marketing all of our branded service
offerings to individuals and businesses through a combination of
Internet-based marketing and third party sales relationships.
14
* Sales Calls - We call directly on potential clients whom we believe we
can create value for, and where relationships are built, to help
establish a user base that has synergy with BestNet's product line.
* Direct Mail and E-mail Solicitations - We send solicitation materials
to pre-qualified potential users of our Bestnetcall service. These
materials refer or link the potential user to www.Bestnetcall.com to
facilitate activation of our 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.
* Media Advertising and Promotion - We have initiated limited
advertising in print and electronic media targeted at specific market
segments in the form of national or international publications. We
will consider additional initiatives such as advertising in specific
trade publications and Internet advertising during Fiscal 2003 based
on an analysis of the cost-effectiveness and results of these initial
activities.
* Public Relations Activities - We have a corporate communications and
public relations strategy in place for developing a comprehensive
communications program. This communications program will include
initiating appropriate news releases, feature print articles in
industry and trade specific publications, local print media and
editorial support. Our Bestnetcom.com website is also being
redeveloped to include a frequently asked questions section to
facilitate direct communication with shareholders, customers and the
public-at-large. In fiscal 2002 we retained an investor relations firm
to deal specifically with shareholders and the investment community.
INDIRECT SALES
Our indirect sales efforts are centered on the following four types of
organizations:
* Agent/Distributors - We are establishing a global network of agents
and distributors who will market our services to corporate
organizations and consumers via private labeled Internet web sites.
* Telecom Providers - The Bestnetcall services are being made available
to other telecommunication providers, resellers, and Internet service
providers for resale to their clients. These types of indirect sales
organizations solicit through direct mail, e-mail, fax, and direct
sales calls by their personnel.
* Professional Service Firms - Accounting firms, consultants,
integrators 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.
* Licensed Services Channel - Seek to offer a sub-licensed program
through this sales channel in an effort to generate additional revenue
and to offer others in our industry the features and benefits of our
intellectual property.
INDUSTRY BACKGROUND AND MARKET DEMAND
The Internet represents a significant interactive worldwide medium for
communications, collaborative technologies, and the telecommunications market.
Meanwhile, global deregulation, the proliferation of new technologies enabling
convergence between computers, software 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. We expect the following trends
to have a direct and positive effect on the communications market and
demand for our applications.
* 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.
15
* Globalization of the world's economies increase the international
mobility of workforces, and the opportunities that exist in the global
Internet roaming marketplace are vast. A recent report published by
Frost & Sullivan projected that the global roaming services market is
set to grow from $285 million in 2000 to $7.6 billion in 2006.
* Forrester Research has 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.
* 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 global conferencing market, which is negligible today, is
projected to grow to $11 billion by 2005 according to multimedia
consultancy Wainhouse Research.
We believe the above market trends and projections reflect a large and
growing market for potential users of internet telephony services. We believe
these market trends and projections will translate into increased demand for
providers of internet telephony services and that we are well positioned to
capture a portion of this market with our bestnetcall services.
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,
as well as following the events of September 11, 2001. We hope to capture the
promise of this sector.
THE OPPORTUNITY
We believe our most strategic business opportunity is in servicing the
telecommunication needs of the business and mobile markets, which still rely on
traditional carriers for supplying their international long distance and
conferencing services. Presently, there exists a notable price disparity between
the costs of long distance service originating from the U.S., versus origination
from most international locations. The advantage of BestNet's service is
three-fold. The first advantage is our web-based interface, which provides
universal access to our network without the requirement for special software.
The second advantage is our patented methodology, which uses a two-leg call
(origination and destination leg), which works with any telephone or legacy
phone system. The third advantage is our long-distance transport. Our
intelligent network is connected to multiple tier-1 carriers where routes are
chosen on the basis of price and quality. With our network architecture, we can
easily route calls over Voice over Internet Protocol (VoIP) networks - if there
is an advantage for certain routes.
This hybrid approach to routing calls allows the universal access and cost
advantages associated with VoIP transport, without any of the disadvantages. For
this reason, business and mobile users in over 142 countries rely on BestNet to
provide a simple, viable alternative to their existing long distance provider.
BestNet provides its service without contracts or hidden charges. Our service
easily integrates within any existing legacy or PBX system.
Our marketing efforts seek to emphasize the following advantages:
* Speed of communication - easy deployment within any environment
* Quality of communication - interconnection with tier-1 carriers ensure
highest standards
* Reliability of communication - carrier-class network with full
redundancy
* Ease of operation - user adoption is simple and straight forward
* Interoperability - operation with legacy systems, fixed or mobile
phones
* Capital requirement - investment by users is not required
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We use the Internet to enable, control and manage the public switch
telephone network calls accessed from our central offices in New York and
Toronto. Accordingly, our technology allows us to bring the best wholesale long
distance rates, which are in the U.S., to our clients anywhere in the 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.
INTERNET AND TELEPHONY
We believe Voice over Internet Protocol, which is commonly referred to as
VoIP, has changed the face of global telephony, as such technology has provided
millions of users worldwide a viable alternative to expensive long-distance
services provided in highly regulated or closed markets. Use of the Internet to
transport voice has many advantages, including global access and low cost per
minute rates. Providers of VoIP services, more specifically PC-to-phone
services, which terminate calls over the public switched network, have
experienced the greatest adoption by personal home users, versus business users.
However, the disadvantages of PC-to-phone services are notable. VoIP is not
available for cellular users and is difficult to use with legacy PBX systems.
Other disadvantages include the requirement to buy software, configuration of
hardware and reduction in voice quality - notably echoes and delay. The new VoIP
technology has greatly improved the quality - however interoperability within
legacy phone systems remains the biggest challenge. For this reason, the
business market has been slower to adopt VoIP on any large scale.
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.
INMARSAT TELEPHONY MARKET
One of the fastest growing telephony markets in the world is global
satellite telephony communications. The Inmarsat communication system consists
of five geostationary satellites circling the globe. These satellites provide
voice and data services to remote locations through a global network of
terrestrial uplink carriers. The major sectors for satellite communication
include maritime, land and aeronautical markets, with the oil and gas, mining
and merchant marine industry being the largest customers. According to Inmarsat,
there are currently 240,000 Inmarsat terminals in use, distributed in 150
countries, generating an estimated $1.3 billion in long distance charges.
In 2000, BestNet developed a site specifically for the Inmarsat market
called BestNetSat.com In 2002, BestNet upgraded its service to interconnect
directly with Stratos Global, a leading Land Earth Station operator and Inmarsat
carrier. The direct connectivity to Stratos, and to the Inmarsat network, gives
us a pricing advantage over other providers - particularly foreign telecoms.
This pricing advantage, coupled with our patented call-initiation methodology,
gives us a unique advantage in this market. We are actively developing new
customer relationships and markets for the BestNetSat.com service, as the
tangible cost benefits associated with our patented technology is easily
quantified in a highly competitive and lucrative global market.
FUTURE PRODUCT STRATEGY
Communication around the globe is rapidly changing, as voice and data
networks converge, and as mediums such as instant messaging and Internet
delivery cross from the domain of desktop users to mobile devices. The
Internet's reach is wider than imagined and its growth faster than expected. The
Internet has become one of the world's largest distribution systems. It was
designed and engineered to have an abundance of routes, connections, and
elasticity. Recognizing this trend, we continue to look for new value added
service applications for Bestnetcall to bring to our existing and future
clients.
The growth and universal acceptance of the Internet is creating new
opportunities for BestNet, where its core technology can be leveraged in unique
and creative ways. Our patented technology allows us to provide a highly
17
efficient interface, linking traditional circuit switched networks (PSTN) with
the global access of the Internet. Our goal is to make access to our long
distance and conference network as transparent as possible, using a variety of
interfaces and devices. For enterprise markets, this could include integration
into CRM applications, company Intranets, websites, PBX systems and IP devices.
For personal users, the BestNet application can be easily integrated into
Internet appliances, PDA's, and mobile devices, using technology such as WAP,
SMS or instant messaging as a conduit to BestNet's network.
We intend to further develop our core network to be a universal interface,
where intelligence and functionality can easily be added to the front-end,
without having to modify its core database and call control functionality. As an
example, this universal interface can be a platform where third parties, using
industry compliant standards, develop customized web-based services such as
foreign currency billing and directories that are localized for specific
customers, or foreign markets.
In fiscal 2003, we plan to introduce a variety of new services and product
enhancements - all based on our core technology platform. These new services and
products include the following:
* Call Button - Currently on the Bestnetcall website as a feature, the
BestNet subscriber can configure a graphical button to be used as an
alternative 1-800 service. The button can be sent via e-mail or
included in an electronic document such as a Word document or
PowerPoint presentation. Unlike conventional toll-free services, the
subscriber will pay less per minute, can direct the incoming call to
any phone, protect the privacy of their own phone number and provide
access beyond the geographic limitations imposed by traditional
services.
* Call-enabled websites / banners - Similar in operation to the Call
Button - the underlying technology can be used to enable a web visitor
to click on an icon, or a banner to initiate a call. For example, a
sales organization can have an icon on its website, inviting foreign
customers to initiate a toll-free call to the sales organization's
call center. We believe the market potential for this application is
promising: According to Datamonitor, e-retailers will spend $460
million on e-service solutions. In addition, Forrester Research has
reported that 67% of online transactions are aborted because of poor
interactivity. BestNet's technology is an ideal solution to poor
interactivity and inefficient access to customer service
* Mobile Access - Recognizing the enormous growth in the mobile market
and wide-scale adoption of data-communication, such as SMS and WAP.
BestNet intends to introduce services specific to the needs of the
mobile market. SMS (Short Messaging Service), which was introduced to
allow simple user-to-user communication, can be an efficient
communication medium to BestNet's network. Text messaging has caught
fire in Europe and Asia. The U.S market is lagging behind, but is
poised to catch-up. According to Mobile Lifestreams, monthly SMS
volume will reach 62.4 billion minutes by the end of the year.
* Conferencing - Over the last year, use of BestNet's conferencing
application has increased dramatically. BestNet's conferencing service
can connect up to 64 participants, which is easily controlled by a
conference host using the Desktop, Web or Palm (OS) application.
BestNet can connect any phone, including home, office or mobile, to
the conference. As a result of customer feedback, BestNet intends to
enhance the functionality of its service. This may include the
addition of dial-in capability (800 or toll), call recording, operator
services and collaborative white-boards.
18
NETWORK STRUCTURE
Our network equipment is currently housed in central office facilities
located in New York and Toronto. Our system is designed to support over 20
million minutes of voice traffic per month. Our system capacity can be easily
increased as demand for our services increases. Currently we have substantial
excess capacity. We perform our own network monitoring and maintenance.
Our switching matrix is located in our central office facilities and
includes direct connectivity to tier-1 carriers. We have multiple carrier
connections at each switch location, which provides excellent back-up coverage
and the ability to re-route calls to obtain the highest quality connections
available. Our carrier configuration also allows us to take advantage of the
highest value, i.e., highest quality/lowest price, service offered by our
carriers to each country and region we service.
Currently, all of our voice traffic is carried by our tier-1 carriers via
their preferred traffic routes. As VoIP continues to evolve, we will continue to
evaluate its application as a means of delivering quality service for our
customers.
SOFTALK LICENSE AGREEMENT
Under the terms of our license agreement with Softalk, we pay Softalk an
amount equal to the sum of 100% of Softalk's actual direct expenses incurred in
connection with the sale, license and delivery of Softalk products and a 5%
markup of the total traffic on the wholesale long distance per minute line costs
on a monthly basis.
Both parties have the right to terminate the license agreement under
certain conditions, including:
* Upon 30 days written notice to the other party, if such other party
fails to comply in any material respect with certain terms or
conditions of the license agreement and such failure to comply is not
corrected within such 30 day notice period;
* 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.
Softalk also has the right to terminate the license agreement upon 60 days
written notice following a change of control of BestNet.
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, upon the point of termination.
We presently have several ongoing disputes with Softalk that are in active
arbitration over matters involving the license agreement and several other
related contractual agreements. These disputes involve allegations that Softalk
has breached its contractual obligations. Based on our efforts to pursue our
rights under the contractual agreements in place, and at law, Softalk has
responded with allegations of its own in an effort to terminate the license
agreement. We believe Softalk's allegations are without merit and we will
continue to vigorously pursue our rights under the contractual agreements, and
defend against Softalk's allegations. See the disclosure under the caption "Item
13. Certain Relationships and Related Transactions" in our Form 10-KSB for the
fiscal year ended August 31, 2002, for more information regarding the various
agreements entered into between BestNet and Softalk. See also the disclosure
under "Item 3. Legal Proceedings" in our Form 10-KSB for a discussion regarding
our present legal issues with Softalk.
19
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 the markets we currently compete, and will compete, in the
future competition is intense. Competitors range from large well established
telephone companies to upstart service providers. 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 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.
However, recent competitor operating performance has been poor, resulting
in price increases for services like long distance and conference calling. We,
in response, have held prices steady and therefore increased/improved our value
proposition to current and potential clients.
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 REGULATIONS
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 of 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
20
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 our cost of doing business over the Internet. In
preparation of this prospectus, we specifically sought any changes in
regulations and or tax relative to services we provide in the United States. We
found no changes.
EMPLOYEES
On April 21, 2003, we employed eight[8] full-time employees. We believe 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 our relations with employees to be
good.
USE OF PROCEEDS
Gross proceeds of $916,620 from the sale of the units and $150,000 from the
conversion of the Senior Secured Notes are being used for working capital
purposes. Assuming all of the notes are converted into units, we will also
receive up to an additional $1,069,078 if all of the warrants are exercised and
$712,719 if all of the Series A Preferred Stock is converted, which amounts will
also be used for working capital purposes. Because the exercise price of the
warrants and the conversion price of the Series A Preferred Stock are each
subject to adjustments upon the occurrence of certain events, the actual
proceeds we receive upon the sale of the underlying common stock may fluctuate
and cannot be determined with certainty at this time. See "Description of
Securities to be Registered" on page 28. We will not receive any proceeds from
the subsequent resale by the selling shareholders of any of the common stock.
MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's common stock was quoted on the Nasdaq SmallCap Market until
May 4, 1999, and then on the OTC Bulletin Board from June 28, 1999 to the
present. The high and low bid prices of the Company's common stock as reported
for the periods presented, by fiscal quarter, (i.e., 1st Quarter = September 1
through November 30) were as follows.
HIGH LOW
---- ---
FISCAL YEAR ENDED: August 31, 2000
First Quarter 4.25 1.46875
Second Quarter 10.25 4.125
Third Quarter 9.5 5.00
Fourth Quarter 7.25 3.81
FISCAL YEAR ENDED: August 31, 2001
First Quarter 6.125 .875
Second Quarter 3.375 .5625
Third Quarter 3.60 .55
Fourth Quarter 4.40 2.05
FISCAL YEAR ENDED: August 31, 2002
First Quarter 3.00 1.55
Second Quarter 1.56 .65
Third Quarter 1.58 .35
Fourth Quarter 2.50 .71
FISCAL YEAR ENDED: August 31, 2003
First Quarter 1.61 .72
Second Quarter .75 .35
Third Quarter (through May 1, 2003) .45 .26
21
The bid and asked price of our common stock on May 1, 2003, was $0.30 and
$0.31, respectively. We have never declared any cash dividends on common stock
and currently plan to retain future earnings, if any, for business operations.
As of April 21, 2003, the Company had 145 shareholders of record of its
common stock. This does not reflect persons or entities that hold stock through
various brokerage firms or depositories.
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 tables below set forth information concerning the resale by the selling
stockholders of the units, the common stock, warrants and Series A Preferred
Stock that comprise the units, and the common stock underlying the warrants and
the Series A Preferred Stock. Although we will receive a maximum of $1,777,700
from the initial sale of the common stock upon exercise of the warrants and
conversion of the Series A Preferred Stock, we will not receive any proceeds
from the resale of the units, warrants, Series A Preferred Stock or common stock
by the selling stockholders. Because the selling stockholders 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.
Table 1 below sets forth the name of each selling stockholder who may offer
the resale of the units, and the common stock, warrants and Series A Preferred
Stock that comprise the units, the number of such securities beneficially owned
by such selling stockholder, the number of such securities that may be sold in
this offering and the number of such securities each selling stockholder will
own after the offering, assuming they sell all of the shares offered. Table 2
below sets forth the name of each selling stockholder who may offer 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.
SELLING STOCKHOLDERS TABLE 1: UNITS, SERIES A PREFERRED STOCK AND WARRANTS
BENEFICIAL % OF UNITS BENEFICIAL
TOTAL UNITS OWNERSHIP OF OWNED OWNERSHIP OF % OF UNITS
INCLUDED IN UNITS BEFORE BEFORE UNITS AFTER OWNED AFTER
SELLING SHAREHOLDER PROSPECTUS(1) OFFERING(2) OFFERING(2) OFFERING(3) OFFERING(3)
- ------------------- ------------- ----------- ----------- ----------- -----------
Ulrich Printzen 33,333 33,333 0.9% -0- -0-
Schlegel Ranch Company 35,000 35,000 1.0% -0- -0-
Robert H. Kite 100,000 100,000 2.8% -0- -0-
Neil F. Kidwell & Elizabeth Gaynor, JTWROS 50,000 50,000 1.4% -0- -0-
Sean R. Ryan 17,000 17,000 0.5% -0- -0-
Neil F. Kidwell 100,000 100,000 2.8% -0- -0-
Southwest Ventures Investment Club 34,000 34,000 1.0% -0- -0-
Western Growth Partners 34,000 34,000 1.0% -0- -0-
Schloz Family 1998 Trust 66,667 66,667 1.9% -0- -0-
John Charles 80,000 80,000 2.2% -0- -0-
Kay S. Silverman Revocable Trust UA DTD 83,333 83,333 2.3% -0- -0-
Marlin Hull, LLC. 100,000 100,000 2.8% -0- -0-
Sanders Family Ltd. Partnership #3 100,000 100,000 2.8% -0- -0-
Thomas F. Miller 100,000 100,000 2.8% -0- -0-
Mountainview Asset Management Ltd. 160,000 160,000 4.5% -0- -0-
David Johnson 33,333 33,333 0.9% -0- -0-
John D. Schipfer, Jr. 33,333 33,333 0.9% -0- -0-
Bob Dee Parris, Jr. 10,000 10,000 0.3% -0- -0-
22
BENEFICIAL % OF UNITS BENEFICIAL
TOTAL UNITS OWNERSHIP OF OWNED OWNERSHIP OF % OF UNITS
INCLUDED IN UNITS BEFORE BEFORE UNITS AFTER OWNED AFTER
SELLING SHAREHOLDER PROSPECTUS(1) OFFERING(2) OFFERING(2) OFFERING(3) OFFERING(3)
- ------------------- ------------- ----------- ----------- ----------- -----------
Gary L. Boster 100,000 100,000 2.8% -0- -0-
William C. Saul 10,000 10,000 0.3% -0- -0-
E. Thomas Deutsch III 10,000 10,000 0.3% -0- -0-
M. Brian Zelek 14,000 14,000 0.4% -0- -0-
Ernesto Zaragoza 20,000 20,000 0.6% -0- -0-
Morgan Stanley: For the Benefit of Jerry
Peterson, IRA. 500,000 500,000 14.0% -0- -0-
Mark E. Ward 34,000 34,000 1.0% -0- -0-
Ward Real Estate Development Co. Defined
Benefit Pension 34,000 34,000 1.0% -0- -0-
Scott Ward 34,000 34,000 1.0% -0- -0-
William A. Vice 20,000 20,000 0.6% -0- -0-
K. Michael Hood 17,000 17,000 0.5% -0- -0-
David H. Dudley 20,000 20,000 0.6% -0- -0-
James R. Hood 10,000 10,000 0.3% -0- -0-
Michael Herman 30,000 30,000 0.8% -0- -0-
Elaine Artt 10,000 10,000 0.3% -0- -0-
William J. Felsenthal 10,000 10,000 0.3% -0- -0-
Anna A. Kravetz 60,000 60,000 1.7% -0- -0-
Delta Marketing Group 17,000 17,000 0.5% -0- -0-
Michael Hankerson 17,000 17,000 0.5% -0- -0-
Anne Tuat Nguyen 45,000 45,000 1.3% -0- -0-
Morgan E. North 117,000 117,000 3.3% -0- -0-
Robert R. McGowen 17,000 17,000 0.5% -0- -0-
W.R. Durbin Construction Co. 40,000 40,000 1.1% -0- -0-
Edward Conn 5,000 5,000 0.1% -0- -0-
Wexford Clearing C/F Anthony Silverman, IRA#
LFW-802079-AE 170,000 170,000 4.8% -0- -0-
Donald G. Montgomery 17,000 17,000 0.5% -0- -0-
DCG&T FBO Neil F. Kidwell IRA 20,000 20,000 0.6% -0- -0-
DCG&T FBO Robert Delmastro Roth IRA 20,000 20,000 0.6% -0- -0-
Olson Precast Company 20,000 20,000 0.6% -0- -0-
Wexford Clearing C/F Gary L. Boster, IRA#
LFW-802087-AE 20,000 20,000 0.6% -0- -0-
Wexford Clearing C/F Fred Burstein, IRA#
LFW-802109-AE 120,000 120,000 3.4% -0- -0-
Earnest B. Bunch, III 7,000 7,000 0.2% -0- -0-
Jerome E. Bowie 17,000 17,000 0.5% -0- -0-
Timothy O. Devlin 25,000 25,000 0.7% -0- -0-
Martin J. Mair 10,000 10,000 0.3% -0- -0-
Wendy Hankerson 4,000 4,000 0.1% -0- -0-
DCG&T FBO Jeffrey Eells IRA 10,000 10,000 0.3% -0- -0-
Deborah E. Foi 10,000 10,000 0.3% -0- -0-
Hondliang Liu 7,000 7,000 0.2% -0- -0-
Southwest Ventures Investment Club 30,000 30,000 0.8% -0- -0-
John L. Hanna 7,000 7,000 0.2% -0- -0-
Patrick Foi 3,400 3,400 0.1% -0- -0-
John Boesel 177,000 177,000 5.0% -0- -0-
Anthony Silverman 254,097 254,097 7.1% -0- -0-
Bavispe Limited Partnership 254,097 254,097 7.1% -0- -0-
TOTAL: 3,563,593 3,563,593 100%
23
(1) Each unit is comprised of one warrant and one share of Series A
Preferred Stock, in addition to the common stock included in Table 2.
Accordingly, the figures represent not only the number of units, but also the
number of warrants and the number of shares of Series A Preferred Stock held by
each selling shareholder.
(2) 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 that the selling stockholder has the right to acquire
within 60 days.
(3) Assumes that all securities registered will be sold, either as units,
or separately as warrants or shares of Series A Preferred Stock.
SELLING SHAREHOLDER'S TABLE 2: COMMON STOCK
COMMON COMMON AGGREGATE BENEFICIAL BENEFICIAL
STOCK STOCK SHARES OF OWNERSHIP % OF OWNERSHIP
ISSUABLE ISSUABLE COMMON OF COMMON COMMON OF COMMON % OF COMMON
PURSUANT UPON STOCK STOCK STOCK STOCK STOCK OWNED
TO SALE OF CONVERSION/ INCLUDED IN BEFORE BEFORE AFTER AFTER
UNITS(1) EXERCISE(2) PROSPECTUS(3) OFFERING (4) OFFERING (5) OFFERING(6) OFFERING (6)
-------- ----------- ------------- ------------ ------------ ----------- ------------
Ulrich Printzen 99,999 99,999 199,998 199,998 0.5% 0 0.0%
Schlegel Ranch Company 105,000 105,000 210,000 240,000 0.6% 30,000 0.1%
Robert H. Kite 300,000 300,000 600,000 730,000 1.8% 130,000 0.3%
Neil F. Kidwell & Elizabeth
Gaynor, JTWROS 150,000 150,000 300,000 1,100,000 2.7% 800,000 2.0%
Sean R. Ryan 51,000 51,000 102,000 122,000 0.3% 20,000 0.0%
Neil F. Kidwell 300,000 300,000 600,000 1,100,000 2.7% 500,000 1.2%
Southwest Ventures
Investment Club 102,000 102,000 204,000 585,000 1.4% 381,000 0.9%
Western Growth Partners 102,000 102,000 204,000 484,000 1.2% 280,000 0.7%
Schloz Family 1998 Trust 200,001 200,001 400,002 400,002 1.0% 0 0.0%
John Charles 240,000 240,000 480,000 795,000 2.0% 315,000 0.8%
Kay S. Silverman Revocable
Trust UA DTD 249,999 249,999 499,998 529,998 1.3% 30,000 0.1%
Marlin Hull, LLC. 300,000 300,000 600,000 657,500 1.6% 57,500 0.1%
Sanders Family Ltd.
Partnership #3 300,000 300,000 600,000 1,200,000 2.9% 600,000 1.5%
Thomas F. Miller 300,000 300,000 600,000 805,000 2.0% 205,000 0.5%
Mountainview Asset
Management Ltd. 480,000 480,000 960,000 960,000 2.4% 0 0.0%
David Johnson 99,999 99,999 199,998 319,998 0.8% 120,000 0.3%
John D. Schipfer, Jr. 99,999 99,999 199,998 217,598 0.5% 17,600 0.0%
Bob Dee Parris, Jr. 30,000 30,000 60,000 60,000 0.1% 0 0.0%
Gary L. Boster 300,000 300,000 600,000 852,500 2.1% 252,500 0.6%
William C. Saul 30,000 30,000 60,000 60,000 0.1% 0 0.0%
E. Thomas Deutsch III 30,000 30,000 60,000 70,000 0.2% 10,000 0.0%
M. Brian Zelek 42,000 42,000 84,000 94,000 0.2% 10,000 0.0%
Ernesto Zaragoza 60,000 60,000 120,000 195,000 0.5% 75,000 0.2%
Morgan Stanley: For the Benefit
of Jerry Peterson, IRA. 1,500,000 1,500,000 3,000,000 3,300,000 8.1% 300,000 0.7%
Mark E. Ward 102,000 102,000 204,000 244,000 0.6% 40,000 0.1%
Ward Real Estate
Development Co. Defined
Benefit Pension 102,000 102,000 204,000 448,000 1.1% 244,000 0.6%
Scott Ward 102,000 102,000 204,000 448,000 1.1% 244,000 0.6%
William A. Vice 60,000 60,000 120,000 150,000 0.4% 30,000 0.1%
K. Michael Hood 51,000 51,000 102,000 134,000 0.3% 32,000 0.1%
David H. Dudley 60,000 60,000 120,000 140,000 0.3% 20,000 0.0%
James R. Hood 30,000 30,000 60,000 75,000 0.2% 15,000 0.0%
24
COMMON COMMON AGGREGATE BENEFICIAL BENEFICIAL
STOCK STOCK SHARES OF OWNERSHIP % OF OWNERSHIP
ISSUABLE ISSUABLE COMMON OF COMMON COMMON OF COMMON % OF COMMON
PURSUANT UPON STOCK STOCK STOCK STOCK STOCK OWNED
TO SALE OF CONVERSION/ INCLUDED IN BEFORE BEFORE AFTER AFTER
UNITS(1) EXERCISE(2) PROSPECTUS(3) OFFERING (4) OFFERING (5) OFFERING(6) OFFERING (6)
-------- ----------- ------------- ------------ ------------ ----------- ------------
Michael Herman 90,000 90,000 180,000 192,000 0.5% 12,000 0.0%
Elaine Artt 30,000 30,000 60,000 70,000 0.2% 10,000 0.0%
William J. Felsenthal 30,000 30,000 60,000 80,000 0.2% 20,000 0.0%
Anna A. Kravetz 180,000 180,000 360,000 380,000 0.9% 20,000 0.0%
Delta Marketing Group 51,000 51,000 102,000 132,000 0.3% 30,000 0.1%
Michael Hankerson 51,000 51,000 102,000 132,000 0.3% 30,000 0.1%
Anne Tuat Nguyen 135,000 135,000 270,000 270,000 0.7% 0 0.0%
Morgan E. North 351,000 351,000 702,000 1,292,000 3.2% 590,000 1.4%
Robert R. McGowen 51,000 51,000 102,000 112,000 0.3% 10,000 0.0%
W.R. Durbin Construction Co. 120,000 120,000 240,000 270,000 0.7% 30,000 0.1%
Edward Conn 15,000 15,000 30,000 35,000 0.1% 5,000 0.0%
Wexford Clearing C/F Anthony
Silverman, IRA# LFW-802079-AE 510,000 510,000 1,020,000 4,362,632 10.6% 3,342,632 8.1%
Donald G. Montgomery 51,000 51,000 102,000 130,000 0.3% 28,000 0.1%
DCG&T FBO Neil F. Kidwell IRA 60,000 60,000 120,000 1,100,000 2.7% 980,000 2.4%
DCG&T FBO Robert Delmastro
Roth IRA 60,000 60,000 120,000 150,000 0.4% 30,000 0.1%
Olson Precast Company 60,000 60,000 120,000 145,000 0.4% 25,000 0.1%
Wexford Clearing C/F Gary L.
Boster, IRA# LFW-802087-AE 60,000 60,000 120,000 852,500 2.1% 732,500 1.8%
Wexford Clearing C/F Fred
Burstein, IRA# LFW-802109-AE 360,000 360,000 720,000 805,000 2.0% 85,000 0.2%
Earnest B. Bunch, III 21,000 21,000 42,000 48,000 0.1% 6,000 0.0%
Jerome E. Bowie 51,000 51,000 102,000 105,000 0.3% 3,000 0.0%
Timothy O. Devlin 75,000 75,000 150,000 252,700 0.6% 102,700 0.3%
Martin J. Mair 30,000 30,000 60,000 70,000 0.2% 10,000 0.0%
Wendy Hankerson 12,000 12,000 24,000 36,000 0.1% 12,000 0.0%
DCG&T FBO Jeffrey Eells IRA 30,000 30,000 60,000 80,000 0.2% 20,000 0.0%
Deborah E. Foi 30,000 30,000 60,000 60,000 0.1% 0 0.0%
Hondliang Liu 21,000 21,000 42,000 45,000 0.1% 3,000 0.0%
Southwest Ventures
Investment Club 90,000 90,000 180,000 585,000 1.4% 405,000 1.0%
John L. Hanna 21,000 21,000 42,000 42,000 0.1% 0 0.0%
Patrick Foi 10,200 10,200 20,400 20,400 0.1% 0 0.0%
John Boesel 531,000 531,000 1,062,000 1,118,000 2.8% 56,000 0.1%
Anthony Silverman 762,291 762,291 1,524,582 4,362,632 10.6% 2,838,050 6.9%
Bavispe Limited Partnership 762,291 762,291 1,524,582 2,246,480 5.5% 721,898 1.8%
TOTAL: 10,690,779 10,690,779 21,381,558 33,896,458
- ----------
(1) Represents the 9,166,197 shares of common stock issued pursuant to the
sale of units, and 1,524,582 chares of common stock issuable upon conversion of
the 10% Senior Secured Notes into units.
(2) Represents the 10,690,779 shares of common stock underlying the
warrants and the Series A Preferred Stock, including the 3,563,593 shares of
common stock issuable upon exercise of the warrants, and the 7,127,186 shares of
common stock issuable upon conversion of the Series A Preferred Stock.
(3) Represents all shares of common stock included in this prospectus, as
set forth in the previous two columns, with the exception of the 57,500 shares
of common stock issued as consideration for the 10% Secior Secured Notes.
25
(4) 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 that the selling stockholder has the right to acquire
within 60 days. The actual number of shares of common stock issuable upon the
exercise of the warrants and upon the conversion of the Series A Preferred Stock
is subject to adjustment depending on the occurrence of various events, and
could materially depart from the number estimated in the table.
(5) Amounts and percentages are based upon 19,257,325 shares of our common
stock outstanding as of April 21, 2003, plus, for each person or entity in this
table, the shares to be issued either directly or upon exercise of warrants or
conversion of Series A Preferred Stock, as the case may be.
(6) Assumes that all securities registered will be sold.
The selling stockholders have not held any positions or offices or had
material relationships with us or any of our affiliates within the past three
years other than as a result of the ownership of our common stock. We may amend
or supplement this prospectus, from time to time to update the disclosure.
26
PLAN OF DISTRIBUTION
Any or all of the Offered Securities may be sold from time to time by the
selling shareholders, or by pledgees, donees, transferees or other successors in
interest. Such sales may be made on one or more exchanges or in the
over-the-counter market or otherwise, at prices and at terms then prevailing or
at prices related to the then current market price, or in negotiated
transactions. There is no assurance that the selling stockholders will sell any
or all of the Offered Securities in this offering. The Offered Securities may be
sold in one or more of the following types of transactions:
(a) a block trade in which a selling shareholder will engage a
broker-dealer who will then attempt to sell the common stock, or position and
resell a portion of the block as principal to facilitate the transaction;
(b) purchases by a broker-dealer as principal and resale by such
broker-dealer for its account pursuant to this prospectus;
(c) an exchange distribution in accordance with the rules of such exchange;
(d) ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
(e) any combination of the foregoing, or by any other legally available
means. In effecting sales, broker-dealers engaged by the selling shareholders
may arrange for other broker-dealers to participate in the resales.
In connection with distributions of the common stock, the selling
shareholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the common stock in the course of hedging the positions they assume with selling
shareholders. The selling shareholders may also sell common stock short and
redeliver the common stock to close out such short positions. The selling
shareholders may also enter into option or other transactions with
broker-dealers that require the delivery to the broker-dealer of the common
stock, which the broker-dealer may resell or otherwise transfer pursuant to this
prospectus. The selling shareholders may also loan or pledge common stock to a
broker-dealer and the broker-dealer may sell the common stock so loaned or, upon
a default, the broker-dealer may effect sales of the pledged common stock
pursuant to this prospectus.
UNDERWRITER STATUS. The selling stockholders, and any broker-dealers or
agents that are involved in selling the Offered Securities, 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. In addition, any of the Offered Securities
covered by this prospectus that qualify for sale pursuant to Rule 144
promulgated under the Securities Act may be sold in an unregistered transaction
under Rule 144 rather than pursuant to this prospectus.
Additionally, under applicable rules and regulations of the Exchange Act,
any person engaged in the distribution of the common stock may not
simultaneously engage in market-making activities with respect to our common
stock for a period of up to five business days prior to the commencement of such
distribution. In addition to those restrictions, each selling shareholder will
be subject to the Exchange Act and the rules and regulations under the Exchange
Act, including, Regulation M and Rule 10b-7, which provisions may limit the
timing of the purchases and sales of our securities by the selling shareholders.
We have agreed to indemnify the selling shareholders against certain
liabilities in connection with the offering of the common stock, including
liabilities arising under the Securities Act. The selling shareholders may agree
to indemnify any broker-dealer or agent that participates in transactions
involving sales of the common stock against various liabilities, including
liabilities arising under the Securities Act.
PENNY STOCK RULES. Our common stock is subject to the "penny stock" rules
that impose additional sales practice requirements because the price of our
common stock is below $5.00 per share. For transactions covered by these rules,
broker-dealers must make special suitability determinations for the purchase of
our common stock and must have received a purchaser's written consent to the
transaction prior to the purchase. The "penny stock" rules also require the
27
delivery, prior to the transaction, of a risk disclosure document mandated by
the Securities and Exchange Commission relating to the penny stock market.
Broker-dealers must also disclose:
* the commission payable to both the broker-dealer and the registered
representative,
* 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 stock trades above $5.00 per share.
Consequently, the "penny stock" rules may restrict the ability of broker-dealers
to sell our common stock, and may affect the ability to sell our common stock 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.
EXPENSES OF THE DISTRIBUTION. We will bear all of the costs and expenses of
registering under the Securities Act the sale of securities offered by this
prospectus. Commissions and discounts, if any, attributable to the sales of the
common stock will be borne by the selling shareholders.
STATE SECURITIES LAWS. In order to comply with the securities laws of
various states, if applicable, sales of the common stock made in those states
will only be made through registered or licensed brokers or dealers. In
addition, some states do not allow the securities to be sold unless they have
been registered or qualified for sale in the applicable state or an exemption
from the registration or qualification requirement is available and is complied
with by us and the selling shareholders. We have no obligation to obtain such
registrations or qualifications.
DETERMINATION OF OFFERING PRICE
The price at which the Offered Securities are 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 TO BE REGISTERED
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.
UNITS
In this prospectus we are registering the resale by the selling
shareholders of 3,563,593 units. Of the 3,563,593 units being registered,
3,055,399 units were issued pursuant to a Unit Purchase Agreement entered into
with investors at a per unit purchase price of $0.30. The remaining 508,194
units were issued upon conversion of $150,000 in aggregate principal and accrued
interest of the Senior Secured Convertible Notes issued in February 2003. Each
unit consists of three shares of common stock, one three-year warrant to
purchase one share of common stock at an exercise price of $0.30 per share of
common stock, and one share of Series A Preferred Stock, convertible into two
shares of common stock at a conversion price of $0.10 per share of common stock.
WARRANTS
In this prospectus we are registering the resale by the selling
shareholders of 3,563,593 warrants. The warrants, which were issued as part of
the units, entitle the warrant holders to purchase one share of common stock at
the exercise price of $0.30 per share of common stock. The warrants may be
exercised at any time following the date, if ever, the Company's shareholders
28
adopt a proposal authorizing an increase in the Company's authorized capital
stock. The warrants expire on the third anniversary of their issuance date. The
exercise price and the number of shares of common stock purchasable upon
exercise of the warrants are subject to adjustment upon the occurrence of
certain events, including stock dividends, stock splits and reverse stock
splits, combinations and reclassifications of common stock, and any
reorganization, merger or combination of the Company with or into another Corp.
or the sale of all or substantially all of our assets. Warrant holders do not
have any voting or other rights as common shareholders. As of the date of this
prospectus, the warrants remain unexercised. The warrants will not be separately
tradable or transferable apart from the units until such time as determined by
our board of directors.
SERIES A CONVERTIBLE PREFERRED STOCK
In this prospectus, we are registering the resale by the selling
shareholders of 3,563,593 shares of Series A Convertible Preferred Stock. The
shares of Series A Preferred Stock, which were issued as part of the sale of the
units, are entitled to a liquidation preference amount of $0.001 per share, and
each share is convertible into our common stock at an exercise price of $0.10
per share. The Series A Preferred Stock may be converted at any time following
the date, if ever, the Company's shareholders adopt a proposal authorizing an
increase in the Company's authorized capital stock. Series A Preferred
Stockholders to not have any voting or other rights as common shareholders.
As of the date of this prospectus, all of the 3,563,593 outstanding shares
of the Series A Preferred Stock remain outstanding. The Series A Preferred Stock
will not be separately tradable or transferable apart from the units until such
time as determined by our board of directors.
LEGAL MATTERS
Certain legal matters have been passed upon for us by Squire, Sanders &
Dempsey L.L.P., Phoenix, Arizona and Weirfoulds LLP., Toronto, Ontario.
EXPERTS
Our consolidated financial statements included in our Annual Report on Form
10-KSB for the fiscal years ended August 31, 2002 and 2001, 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, 2002 and copies of our quarterly reports on Form
10-QSB for the quarterly periods ended November 30, 2002 and February 28, 2003.
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.
29
PART II TO FORM S-2
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth our estimated costs and expenses in
connection with the offering other than commissions and discounts, if any.
SEC Registration Fee $ 232
Legal Fees and Expenses 5,000
Accounting Fees and Expenses 5,000
Printing and Engraving Expenses 1,000
Miscellaneous 3,770
--------
Total $ 15,002
========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Articles 11 and 12 of our Articles of Incorporation provide as follows:
1. To the fullest extent permitted by the laws of the State of Nevada, as
the same exist or may hereinafter be amended, no director or officer of the
Corp. shall be personally liable to the Corp. or its shareholders for monetary
damages for breach of fiduciary duty as a director or officer, provided,
however, that nothing contained herein shall eliminate or limit the liability of
a director or officer of the Corp. to the extent provided by applicable laws (i)
for acts or omissions which involve intentional misconduct, fraud or knowing
violation of law or (ii) for authorizing the payment of dividends in violation
of Nevada Revised Statutes Section 78.300. The limitation of liability provided
herein shall continue after a director or officer has ceased to occupy such
position as to acts or omissions occurring during such director's or officer's
term or terms of office. No repeal, amendment or modification of this Article,
whether direct or indirect, shall eliminate or reduce its effect with respect to
any act or omission of a director or officer of the Corp. occurring prior to
such repeal, amendment or modification.
2. The Corp. shall indemnify, defend and hold harmless any person who
incurs expenses, claims, damages or liability by reason of the fact that he or
she is, or was, an officer, director, employee or agent of the Corp., to the
fullest extent allowed under Nevada law.
30
ITEM 17. UNDERTAKINGS
1. The undersigned registrant hereby undertakes to file, during any period
in which offers or sales are being made, a post-effective amendment to this
registration statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(b) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
provided, however, that paragraphs (a) and (b) shall not apply if such
information is contained in periodic reports filed by the registrant under
Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended,
that is incorporated by reference into this Registration Statement.
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
2. The undersigned registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, as amended, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
3. The undersigned registrant hereby undertakes to remove from registration
by means of a post-effective amendment any of the securities being registered
that remain unsold at the termination of the offering.
4. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the registrant's annual report under Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934, as amended (and, where applicable, each
filing of an employee benefit plan's annual report under Section 15(d) of the
Securities Exchange Act of 1934, as amended) that is incorporated by reference
into this registration statement 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.
5. The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished under and meeting the requirements of
Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934, as amended;
and, where interim financial information required to be presented by Article 3
of Regulation S-X are not set forth in the prospectus, to deliver, or cause to
be delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
6. 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 undersigned registrant according the foregoing provisions, or
otherwise, the undersigned 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
Securities Act of 1933, as amended, and will be governed by the final
adjudication of such issue.
31
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Grand Rapids, State of Michigan, on May 6, 2003.
BESTNET COMMUNICATIONS CORP.
By: /s/ Robert A. Blanchard
-------------------------------------
Robert A. Blanchard,
President and Chief Executive Officer
By: /s/ Paul H. Jachim
-------------------------------------
Paul H. Jachim,
Chief Financial Officer and Chief
Operating Officer (Principal
Financial and Accounting Officer)
The officers and directors of BestNet Communications Corp. whose signatures
appear below, hereby constitute and appoint Robert A. Blanchard and Paul H.
Jachim as their true and lawful attorneys-in-fact and agents, with full power of
substitution, with power to act alone, to sign and execute on behalf of the
undersigned any amendment or amendments to this registration statement on Form
S-2, and each of the undersigned does hereby ratify and confirm all that said
attorneys-in-fact and agents, or his substitutes, shall do or cause to be done
by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, as
amended, this post-effective amendment to Registration Statement has been signed
below by the following persons on behalf of the Registrant and in the capacities
and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Robert A. Blanchard President, Chief Executive May 6, 2003
- ----------------------- Officer, Acting Chairman
Robert A. Blanchard and Director
/s/ Paul H. Jachim Chief Financial Officer, May 6, 2003
- ----------------------- Chief Operating Officer and
Paul H. Jachim Director (Principal Financial
and Accounting Officer)
/s/ Chris J. Grant Director May 6, 2003
- -----------------------
Chris J. Grant
/s/ Randy S. Moore Director May 6, 2003
- -----------------------
Randy S. Moore
/s/ James B. Woodcock Director May 6, 2003
- -----------------------
James B. Woodcock
32
EXHIBIT INDEX
EXHIBIT PAGE NUMBER OR
NUMBER DESCRIPTION METHOD OF FILING
- ------ ----------- ----------------
4.1 Form of Warrant Filed herewith
4.2 Series A Convertible Preferred Stock, $.001 par Filed herewith
value per share, Certificate of Designation
5 Opinion re: legality of the securities being Filed herewith
registered
10.1 Form of Unit Purchase Agreement (excluding Filed herewith
exhibits)
10.2 Form of Registration Rights Agreement Filed herewith
23 Consent of Independent Auditors, Semple & Filed herewith
Cooper LLP
24 Powers of Attorney See signature page