As filed with the Securities and Exchange Commission on April 13, 2001
Registration No. 333-43368
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
POST-EFFECTIVE AMENDMENT NO. 1 ON FORM S-3 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------
ePHONE Telecom, Inc.
(Exact name of Registrant as Specified in Its Charter)
Florida 98-0204749
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(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
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Suite 100
1145 Herndon Parkway
Herndon, Virginia 20170-5535
(703) 787-7000
(Address, Including Zip Code and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
Charlie Rodriguez
Vice President - Corporate Affairs and Chief Financial Officer
1145 Herndon Parkway
Herndon, Virginia 20170-5535
(703) 787-7006
Fax No. (703) 787-7009
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(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
Please send copies of communications to:
Paul D. Freshour, Esq.
Arnold & Porter
555 12th Street, N.W.
Washington, DC 20004
(202) 942-5872
Fax No. (202) 942-5999
Approximate date of commencement of proposed sale of
the securities to the public: As soon as possible
after this Registration Statement becomes
effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. |_|
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
- ------------------------------------------- ----------------- ------------------------- --------------------------- ----------------
Proposed maximum Proposed maximum
Title of each class of securities to be Amount to be offering price per aggregate offering Amount of
registered registered share(1) price(1) registration fee
- ------------------------------------------- ----------------- ------------------------- --------------------------- ----------------
- ------------------------------------------- ----------------- ------------------------- --------------------------- ----------------
Common Stock, par value $0.001 per 42,407,423 $1.11 $47,072,240 $12,435.00(3)
share(2)
- ------------------------------------------- ----------------- ------------------------- --------------------------- ----------------
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457.
(2) Of these shares, (i) 13,436,316 are shares to be received by holders of
special warrants upon exercise of such special warrants for no
additional consideration; (ii) 13,436,316 are shares to be received by
holder of purchase warrants (which will be received by holder of the
Special Warrants upon exercise of such special warrants); (iii)
2,028,502 are shares to be received by Groomecapital.com, Inc. upon
exercise of warrants and options issued to Groome in connection with
acting as agent for ePHONE in the sale of the special warrants; (iv)
738,833 are shares to be received by Sobois-Livert Investment
Corporation upon exercise of warrants and options issued to
Sobois-Livert in connection with a consulting agreement; (v) 345,000
are shares which have been issued to Cornwall Management Ltd. in
connection with a consulting agreement; (vi) 1,350,000 are shares
issued in a Regulation S offering in November 1999; (vii) 1,350,000 are
shares to be issued upon exercise of warrants received by the
purchasers of shares in the November 1999 Regulation S offering; (viii)
3,500,000 are shares to be issued upon exercise of options granted to
the founders of ePHONE and related parties on June 7, 1999, (ix)
3,666,447 are shares issued to former officers and consultants of
ePhone in lieu of participation in a rescinded performance share plan
and (x) 400,000 are shares issued to a former officer pursuant to a
settlement agreement.
(3) A fee of $10,545 was previously paid in connection with the filing of
this Registration Statement on August 9, 2000 and a fee of $1,890 was
previously paid in connection with the filing of Pre-Effective
Amendment No. 1 to this Registration Statement on September 25, 2000.
The Registrant hereby amends the Post-Effective Amendment to the 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 Post-Effective Amendment to the Registration Statement shall
thereafter become effective in accordance with Section 8(c) of the Securities
Act of 1933, as amended, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(c),
may determine.
SUBJECT TO COMPLETION
PROSPECTUS
April 1__, 2001
ePHONE Telecom, Inc.
Common Stock, par value $.001 per share
Investing in our Common Stock involves a high degree of risk.
See "Risk Factors" beginning on page 5.
This prospectus relates to the offer and sale by certain selling
stockholders of up to 40,251,414 shares of our common stock, par value $.001 per
share, that are currently held by the selling stockholders or that the selling
stockholders are entitled to receive upon exercise of warrants or options held
by the selling stockholders. We issued certain shares of common stock or
warrants or options to purchase shares of common stock to the selling
stockholders in connection with the following private placements:
o On March 31, 2000, April 10, 2000 and April 20, 2000 we sold special
warrants to investors outside of the United States pursuant to
Regulation S under the Securities Act of 1933, as amended (referred to
herein as the Securities Act). Each special warrant was purchased for
$1.10, and each special warrant when exercised entitles the holder to
one share of common stock for no additional consideration and one
purchase warrant to purchase an additional share of common stock for
$1.60. Holders of special warrants are entitled to receive up to
13,436,316 shares of common stock in the aggregate upon exercise of the
special warrants and up to an additional 13,436,316 shares of common
stock in the aggregate upon exercise of the purchase warrants. The
purchase warrants expire on March 30, 2002. The holders of the special
warrants are offering up to 26,872,632 shares of common stock for
resale under this prospectus.
o In connection with the sale of special warrants described above, we
granted GroomeCapital.com, Inc., which served as our agent in the sale
of the special warrants, pursuant to Regulation S under the Securities
Act, units exercisable into 889,251 shares of common stock and 889,251
warrants exercisable at $1.10 per unit. The warrant received with each
unit is exercisable into a share of common stock at $1.60 per share. We
also issued Groome options to purchase 250,000 shares of common stock
at $0.60 per share. The warrants and options expire on March 31, 2002.
Groome is offering up to 2,028,502 shares of common stock for resale
under this prospectus.
o Beginning in November 1999 and ending in February, 2000, we sold
1,350,000 "units" for $0.75 a unit to investors outside the United
States pursuant to Regulation S under the Securities Act. Each "unit"
consisted of one share of our common stock and one warrant to purchase
an additional share of common stock at $1.25. These investors currently
hold 1,350,000 shares of common stock in the aggregate and are entitled
to receive up to 1,350,000 shares of common stock in the aggregate upon
exercise of the warrants. These investors are offering 2,700,000 shares
of common stock for resale under this prospectus.
o As partial consideration for services rendered under a consulting
agreement entered into on May 24, 2000, pursuant to Regulation S under
the Securities Act, we granted Sobois-Livert Investment Corporation
warrants to purchase 488,833 shares of common stock at $1.10 per share
and 250,000 warrants to purchase shares of common stock at $0.60 per
share. These warrants expire on May 24, 2002. Sobois-Livert is offering
up to 738,833 shares of common stock for resale under this prospectus.
o On May 9, 2000, we granted 345,000 shares of common stock to Cornwall
Management Ltd. as partial consideration for services to be rendered
under a consulting agreement. These shares were issued to Cornwall
pursuant to Section 4(2) of the Securities Act. Cornwall is offering up
to 345,000 shares of common stock for resale under this prospectus.
o On June 7, 1999, we granted options to purchase up to 3,500,000 shares
of common stock at $0.50 per share to certain persons who were
responsible for founding ePHONE and establishing its current business
plan. These options were issued pursuant to Section 4(2) of the
Securities Act and Rule 701 under the Securities Act. These individuals
are offering up to 3,500,000 shares of common stock for resale under
this prospectus.
o On July 12, 2000, our Board of Directors voted to rescind a performance
share plan previously adopted in 1999 pursuant to which up to
15,000,000 shares of our common stock would have been issued for no
additional consideration if ePHONE were to meet certain performance
objectives by the end of fiscal year 2002. The performance share plan
was rescinded because of changes in our business plan since the
adoption of the performance share plan. Concurrently with rescinding
the performance share plan, the Board of Directors agreed to grant for
no additional consideration a total of 3,666,447 shares of our common
stock to four individuals who were officers of, or consultants to,
ePHONE and who would have been eligible to receive shares of common
stock under the performance share plan. The shares were granted in
consideration for services rendered to ePHONE during the period from
the fourth quarter of 1998 through the first quarter of 2000. These
individuals are offering up to 3,666,447 shares of common stock for
resale under this prospectus.
o On March 23, 2001, we entered into a Settlement Agreement and Mutual
General Release with Charles Yang, a former President of the Company,
to resolve all claims and disputes between us and Mr. Yang, including
all claims relating to Mr. Yang's employment by and separation from the
Company. Pursuant to the terms of this agreement, we issued Mr. Yang
and individuals he designated 400,000 shares of our common stock. These
individuals are offering up to 400,000 shares of common stock for
resale under this prospectus.
In connection with any sales pursuant to this prospectus, the selling
stockholders and any brokers participating in such sales may be deemed to be
"underwriters" within the meaning of the Securities Act. The selling
stockholders may sell any or all of their shares from time to time. See "Plan of
Distribution" and "Selling Stockholders."
Our common stock is currently quoted on the National Association of
Securities Dealer Inc.'s (NASD) Over-the-Counter Bulletin Board, referred to
herein as the OTC Bulletin Board, under the symbol "EPHO." Prior to June 12,
2000, our outstanding common shares were quoted on the quotation system operated
by the National Quotation Bureau Electronic Quotation Service, also known as the
Pink Sheets under the symbol "EPHO." On April 11, 2001, the closing sale price
of our common stock, as reported on the OTC Bulletin Board, was $0.15 per
share.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
April __, 2001
TABLE OF CONTENTS
Page
FORWARD-LOOKING STATEMENTS.....................................................2
PROSPECTUS SUMMARY.............................................................3
RISK FACTORS...................................................................5
USE OF PROCEEDS...............................................................14
DIVIDEND POLICY...............................................................14
SELLING STOCKHOLDERS..........................................................14
PLAN OF DISTRIBUTION..........................................................25
DESCRIPTION OF CAPITAL STOCK..................................................27
MARKET FOR COMMON STOCK AND MARKET PRICES.....................................28
MATERIAL UNITED STATES FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK......................................29
EXPERTS.......................................................................31
LEGAL MATTERS.................................................................31
WHERE YOU CAN FIND MORE INFORMATION...........................................31
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...............................31
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. The selling stockholders are offering to sell
shares of common stock and seeking offers to buy shares of 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 the common stock.
In this prospectus, the "ePHONE," "we," "us" and "our" refer to ePHONE Telecom,
Inc.
-----------------------------
Our principal executive offices are located at 1145 Herndon Parkway, Suite
100, Herndon, VA 20170 and our telephone number is 703/787-7000. Our World Wide
Web site address is www.ephonetelecom.com. The information on our web site is
not incorporated by reference into this prospectus.
FORWARD-LOOKING STATEMENTS
Some of the statements under "Risk Factors" and elsewhere in this prospectus
are forward-looking statements. These statements involve known and unknown
risks, uncertainties and other factors which may cause our actual results,
performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by the forward-looking
statements. These statements reflect the reasonable judgement of our management
with respect to future events and are subject to the risks and uncertainties
that could cause actual results to differ materially from those in
Forwarding-Looking Statements contained in this prospectus.
In addition to factors that may be described in this prospectus, the
following factors, among others, could cause our actual results to differ
materially from those expressed in any forward-looking statements we make:
o the rate of expansion of our network and/or customer base
o inaccuracies in our forecasts of customer or market demand
o highly competitive market conditions
o changes in or developments under laws, regulations and licensing
requirements
o changes in telecommunications and internet related technologies
o changes in economic conditions in the countries in which we plan to
operate
o our ability to successfully implement our business plan
These factors should not be construed as exhaustive. We will not update or
revise any forward-looking statements. See also "Risk Factors" for additional
cautionary statements identifying important factors with respect to
forward-looking statements contained in this prospectus that could cause actual
results to differ materially from results or expectations referred to in the
forward-looking statements.
.........
-2-
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding us and our financial statements and notes thereto
appearing elsewhere in this prospectus.
ePHONE
ePHONE's vision is to be a leading provider of managed Internet based
telephony services with applications that utilize convergent technologies
combining voice, data and video transmission over an Internet Protocol ("IP")
network.
ePHONE's strategy is to deploy and manage a global Internet telephony
services network and to create Internet telephony solutions and products. ePHONE
intends to market and sell these products through key partnerships while
increasing shareholder value by delivering growth in revenue and profit.
The full services network will be owned and operated by ePHONE. Some of the
components of the full services network include, points of presence ("POPs") in
key cities/locations in the world, global call termination capability and
agreements, ePHONE Network Operations Center ("eNOC"), back end processes such
as settlement and billing, reporting functions and second level customer
services functions.
ePHONE's technology platform is the Array Series 3000 Voice over Internet
Protocol gateway. The Series 3000 gateway software technology and the
integration with specialized telephony and digital signal processing hardware is
in its third generation from when it was first developed in 1996. The systems
platform is based on general-purpose computers utilizing the Windows NT
operating system. ePHONE utilizes this gateway or switch as POPs in ePHONE's
global network in the offering of long-distance services in the regions where a
POP is deployed.
The Array Series 3000 Internet telephony gateway/router, which includes a
calling card platform and integration of the gateway with customer premise
devices for direct-dial services comprise the main areas of technology ePHONE
possesses today. The long distance telephony services originate from end-user
customers in a country or region by:
1. calling the regional gateway from any public switched telephone network
("PSTN") phone, including pay phones, thus utilizing the Prepaid
Calling Card service;
2. connecting over IP to the regional gateway by means of an on-site IP
gateway device thus utilizing the Business Direct service; and
3. automatically dialling the regional gateway and performing
authentication by means of an on-site programmable auto-dialler from a
business or residential phone thus utilizing the Business or
Residential Connect service.
In all cases above, the gateway obtains the user's authentication
information such as account number and PIN, authenticates the user from
information in a centralized database, takes the user's destination telephone
number and based on a pre-identified routing table sends the call over IP to the
IP address of the gateway that will complete the call, or where an ePHONE
gateway is not installed send the call to the least cost call termination
partner network for completion.
-3-
ePHONE believes that it has significant business potential in long distance
telecommunications over the Internet where ePHONE can pass on savings derived
from its innovative technology based network to entice early adopting customers.
To date ePHONE has a limited global network including key cities in Europe and
North America and world-wide call termination agreements and capability in
place.
Headquarters. Our principal executive offices are located at 1145 Herndon
Parkway, Suite 100, Herndon, Virginia 20170, and our telephone number is (703)
787-7000.
Selling Stockholders
Certain stockholders of ePHONE who have purchased or received shares of our
common stock or warrants or options to purchase shares of our common stock in
private transactions may sell up to 40,251,414 shares of our common stock using
this prospectus. Each stockholder offering shares of common stock and the number
of such shares being offered by such stockholder pursuant to this prospectus is
set forth in "Selling Stockholders." Sales of common stock by the selling
stockholders may be made from time to time in a variety of manners. See "Plan of
Distribution."
-4-
RISK FACTORS
You should carefully consider the risks described below together with all of
the other information provided and incorporated by reference in this prospectus
before making an investment decision. The risks and uncertainties described
below are not the only ones facing our company. Additional risks not presently
known to us or that we currently consider insignificant may also impair our
business operations in the future.
Our business, financial condition and plan of operations could be materially
adversely affected by any of the following risks. The trading price of shares of
our common stock could decline due to any of these risks, and you might lose all
or part of your investment. This prospectus also contains forward-looking
statements that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including the risks faced by us described below or
elsewhere.
The market for our common stock is limited
There is currently only a limited trading market for our common stock.
ePHONE common stock trades on the OTC Bulletin Board under the symbol "EPHO,"
which is a limited market in comparison to the NASDAQ National Market, the
American Stock Exchange and other national securities exchanges.
We cannot assure investors that our common stock will ever qualify for
inclusion on the NASDAQ National Market or that more than a limited market will
ever develop for our common stock.
Penny stock rules limit the liquidity of our common stock
Our common stock may now and in the future be subject to the penny stock
rules under the Securities Exchange Act of 1934, as amended (referred to herein
as the Exchange Act). These rules regulate broker-dealer practices for
transactions in "penny stocks." Penny stocks generally are equity securities
with a price of less than $5.00. The penny stock rules require broker-dealers to
deliver a standardized risk disclosure document that provides information about
penny stocks and the nature and level of risks in the penny stock market. The
broker-dealer must also provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson and monthly account statements showing the market value of each
penny stock held in the customer's account. The bid and offer quotations, and
the broker-dealer and salesperson compensation information, must be given to the
customer orally or in writing prior to completing the transaction and must be
given to the customer in writing before or with the customer's confirmation.
In addition, the penny stock rules require that prior to a transaction, the
broker and/or dealer must make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. These additional penny stock disclosure
requirements are burdensome and may reduce the trading activity in the market
for our common stock. As long as our common stock is subject to the penny stock
rules, holders of such ePHONE common stock may find it more difficult to sell
their securities.
An investment in ePHONE may be diluted
We may issue a substantial number of shares of our common stock without
investor approval. Any such issuance of ePHONE securities in the future could
reduce an investor's ownership percentage and voting rights in ePHONE and
further dilute the value of his or her investment.
We may be unable to raise the additional capital necessary to continue growing
our business
-5-
We will require significant amounts of additional capital to fund:
o the expansion of our network;
o the acquisition of businesses and investments in joint ventures and
strategic alliances; and
o working capital.
Implementing the phased build-out of our network will require significant
amounts of additional capital not currently accessible to us. We cannot assure
you that we will be able to obtain sufficient capital on acceptable terms to
fund the full reach of our planned network.
The exact amount and timing of our future capital requirements will depend
upon many factors, including:
o the cost of developing and expanding our networks and services;
o the development of new services;
o our ability to penetrate new markets;
o regulatory changes;
o the status of competing services;
o the magnitude of potential acquisitions, investments and strategic
alliances; and
o our plan of operations.
We have not been operating very long and have a history of incurring losses
which may make it difficult to fund operations
We have a limited operating history on which you can evaluate our business
and prospects, and we have not yet commenced commercial operations in the long
distance sector of our business. We have incurred net losses since our
inception. In 1999 and 2000, we incurred net losses of approximately $1,591,000
and $13,701,000, respectively. Our ability to achieve and sustain profitable
operations depends on many circumstances, including our ability to establish
effective distribution channels, market demand, and pricing and competition in
the telecommunications industry in the countries where we operate. If we do not
achieve and sustain profitability, our ability to respond effectively to market
conditions, to make capital expenditures and to take advantage of business
opportunities could be negatively affected. In addition, our prospects must be
considered in light of the risks encountered by companies like us developing
products and services in new and rapidly evolving markets. Our failure to
perform in these areas could have a material adverse effect on our business,
plan of operations and financial condition.
We may never generate sufficient revenue to attain profitability if our future
customers, telecommunications carriers and other communications service
providers are reluctant to use our services or do not use our services,
including any new services, in sufficient volume
If the market for Internet telephony and new services does not develop as we
expect, or develops more slowly than we expect, our business, financial
condition and plan of operations will be materially adversely affected.
-6-
Our future customers may be reluctant to use our services for a number of
reasons, including:
o perceptions that the quality of voice transmitted over the Internet is
low;
o perceptions that Internet telephony is unreliable;
o lack of acceptance of our business model by customers; and
o our inability to originate and deliver traffic over the Internet easily
and with significant cost advantages.
The growth of our business depends on our distribution channels and partners
generating an increased volume of customers with adequate international voice
traffic. If the volume of international voice traffic fails to increase, or
decreases, and these third-parties do not succeed in their selling activities,
our ability to become profitable will be materially adversely affected.
We may face quality and capacity problems over our network upon failures by
third parties
Our business model depends on the availability of the Internet to transmit
voice and fax calls, and to provide other value-added services. Third parties
also maintain, and in many cases own, the traditional voice networks as well as
data networks and other components that comprise the Internet. Some of these
third parties are national telephone companies. They may increase their charges
for using these lines at any time and decrease our profitability. 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 could discourage our customers from using our network, which
could have the effect of delaying or preventing our ability to become
profitable. Our CPE devices, billing system and other components of our
technology are provided by third party organizations. Lack of performance or
significant price changes by these providers will also lead to a material
disruption of our ability to offer our products in an easy, efficient and cost
effective manner, which could have the effect of delaying or preventing our
ability to become profitable.
We may not be able to succeed in the intensely competitive market for our
services
The market for Internet voice, fax and other value-added services is
extremely competitive and will likely become more competitive. Internet protocol
and Internet telephony service providers, such as GRIC Communications and ITXC
Corp., route traffic to destinations worldwide and compete directly with us,
along with Internet telephony service providers, such as Net2Phone. In addition,
major telecommunications carriers, such as AT&T, Deutsche Telekom, MCI WorldCom
and Qwest Communications, have all entered or announced plans to enter the
Internet telephony market. Many of these companies are larger than we are and
have substantially greater managerial and financial resources than we do.
Intense competition in our markets can be expected to continue to put downward
pressure on prices and adversely affect our profitability. We cannot assure you
that we will be able to compete successfully against our competitors and we may
lose customers or fail to grow our business as a result of this competition.
Growth of our business depends upon our ability to manage expansion and
development effectively
Our ability to grow effectively will require us to implement and improve our
operating, financial and accounting systems and to hire, train and manage new
employees. Among other things, the continued expansion and development of our
business will also depend upon our ability to:
o construct our planned Network;
-7-
o secure financing;
o install telecommunications infrastructure;
o obtain any required government authorizations;
o evaluate and penetrate potential new markets;
o hire enough qualified employees; and
o build an effective distribution channel.
In addition, we must perform these tasks in a timely manner, at reasonable costs
and on satisfactory terms and conditions.
Our expansion may involve acquiring other companies or assets. These
acquisitions could divert our resources and management and require integration
with our existing operations. Failure to effectively manage our planned
expansion could have a material adverse effect on our business, growth,
financial condition and plan of operations and the market price of our common
stock. We cannot assure you that we will be successful or timely in developing
and marketing service enhancements or new services that respond to technological
change, changes in customer requirements and emerging industry standards. Even
if we are successful, we cannot assure you that our lack of significant
experience with respect to a new service or market will not hinder our ability
to successfully capitalize on any such opportunity.
We may undertake strategic acquisitions in the future and any difficulties from
integrating such acquisitions could damage our ability to attain or maintain
profitability
We may acquire businesses and technologies that complement or augment our
existing businesses, services and technologies. Integrating any newly acquired
businesses or technologies could be expensive and time-consuming. We may not be
able to integrate any acquired business successfully. Moreover, we may need to
raise additional funds through public or private debt or equity financing to
acquire any businesses, which may result in dilution for stockholders and the
incurrence of indebtedness. We may not be able to operate acquired businesses
profitably or otherwise implement our growth strategy successfully.
If we are not able to keep up with rapid technological change in a
cost-effective way, the relative quality of our services could suffer
The technology upon which the services we intend to provide is changing
rapidly. Significant technological changes could render the equipment which we
use obsolete, and competitors may begin to offer new services that we are unable
to offer. We must adapt to our rapidly changing market by continually improving
the responsiveness, reliability, services and features of our network and by
developing new features and applications to meet customer needs. If we are
unable to successfully respond to these developments or do not respond in a
cost-effective way, we may not be able to offer competitive services.
Our failure to acquire, integrate and operate new technology could harm our
competitive position
The telecommunications industry is characterized by rapid and significant
technological advancements and the related introduction of new products and
services. We do not possess significant intellectual property rights with
respect to all of the technologies we use and we are dependent on third parties
for the development of and access to new technology. The effect of technological
changes on our business plan cannot be predicted. In addition, it is impossible
for us to predict with any certainty whether demand for VoIP services in our
future markets will develop or will prove to be an economical and efficient
technology that is capable of attracting customer usage. Failure by us to obtain
and adapt to new technology in our future markets could have a material adverse
effect on our business and plan of operations.
-8-
We face multiple risks associated with the Internet
As is typical in newer industries, demand and market acceptance remain
unknown factors in the provision of Internet-related services. In addition,
critical issues concerning the commercial use of the Internet remain unresolved
and may impact the growth of Internet use. Despite growing interest in the many
commercial uses of the Internet, many businesses around the world have been
deterred from purchasing Internet-related services. These businesses have been
deterred for a number of reasons, including:
o inconsistent service;
o lack of cost-effective, high-speed options;
o limited access points;
o inability to integrate business applications on the Internet;
o the need to deal with multiple and frequently incompatible vendors;
o inadequate protection of information moving across the Internet;
o a lack of tools to simplify Internet access and use.
Published reports have also indicated that capacity constraints caused by
growth in the use of the Internet may, unless resolved, constrain development of
the Internet to the extent that users experience delays, transmission errors and
other difficulties. For example, inadequate transmission infrastructure in
developing countries in which we plan to operate (such as an insufficiency of
telephone lines for Internet access) could forestall the growth of
Internet-related services in that region. Furthermore, in some parts the world,
the Internet is not seen as an alternative method of exchanging information or
doing business and we cannot guarantee that the Internet will be widely accepted
in these regions as an alternative means of communicating and conducting
business.
The nature and scope of existing or future laws in various jurisdictions
relating to the Internet is uncertain and may take years to resolve. This
uncertainty could expose us to substantial liability for which we might not be
indemnified. Any new or existing legislation or regulation relating to the
Internet could have a material adverse effect on our business, plan of
operations and financial condition.
If the Internet infrastructure is not adequately maintained, we may be unable to
maintain the quality of our services and provide them in a timely and consistent
manner
Our future success will depend upon the maintenance of the Internet
infrastructure, including a reliable network backbone with the necessary speed,
data capacity and security for providing reliability and timely Internet access
and services. To the extent that the Internet continues to experience increased
numbers of users, frequency of use or bandwidth requirements, the Internet may
become congested and be unable to support the demands placed on it and its
performance or reliability may decline thereby impairing our ability to complete
calls using the Internet at consistently high quality. The Internet has
experienced a variety of outages and other delays as a result of failures of
portions of its infrastructure or otherwise. Any future outages or delays could
adversely affect our ability to complete calls. Moreover, critical issues
concerning the commercial use of the Internet, including security, cost, ease of
use and access, intellectual property ownership and other legal liability
issues, remain unresolved and could materially and adversely affect both the
growth of Internet usage generally and our business in particular.
-9-
We are dependent on key personnel for our future success
Our success depends to a significant degree on members of our senior
management and certain key employees, who generally are not bound by employment
contracts with us. Our success also depends in part upon our ability to hire and
retain highly skilled and qualified operating, marketing, financial and
technical personnel. Competition for qualified employees in the
telecommunications industry is intense and, accordingly, we cannot assure you
that we will be able to hire or retain necessary personnel.
In addition, the successful implementation of our network will require us to
recruit, hire and retain a significant number of highly skilled employees. There
may be a limited supply of qualified personnel in the countries in which we plan
development of our operations.
A variety of risks associated with our international operations could materially
adversely affect our business
Because we intend to provide substantially all of our services
internationally, we are subject to additional risks related to operating in
foreign countries. These risks include:
o unexpected changes in tariffs, trade barriers and regulatory
requirements relating to Internet access or Internet telephony;
o economic weakness, including inflation, or political instability in
particular foreign economies and markets;
o difficulty in collecting accounts receivable;
o foreign taxes; and
o foreign currency fluctuations, which could result in increased
operating expenses and reduced revenues.
These and other risks associated with our international operations may
materially adversely affect our ability to attain or maintain profitable
operations.
International governmental regulation and legal uncertainties could limit our
ability to provide our services or make them more expensive
The regulatory treatment of Internet telephony outside of the United States
varies widely from country to country. A number of countries currently prohibit
or limit competition in the provision of traditional voice telephony services.
Some countries prohibit, limit or regulate how companies provide Internet
telephony. Some countries have indicated they will evaluate proposed Internet
telephony service on a case-by-case basis and determine whether to regulate it
as a voice service or as another telecommunications service, and in doing so
potentially imposing settlement rates on Internet telephony providers. Finally,
many countries have not yet addressed Internet telephony in their legislation or
regulations. Increased regulation of the Internet and/or Internet telephony
providers, or the prohibition of Internet telephony in one or more countries,
could limit our ability to provide our services or make them more expensive.
-10-
In addition, as we make our services available in foreign countries, and as
we work to enable sales by our customers to end-users in foreign countries, such
countries may claim that we are required to qualify to do business in that
particular country, that we are otherwise subject to regulation, including
requirements to obtain authorization, or that we are prohibited in all cases
from conducting our business in that foreign country. Our failure to qualify as
a foreign corporation in a jurisdiction in which we are required to do so or to
comply with foreign laws and regulations could seriously restrict our ability to
provide services in such jurisdiction, or limit our ability to enforce contracts
in that jurisdiction. Our customers also currently are, or in the future may
become, subject to these same requirements. We cannot assure you that our
customers are currently in compliance with any such requirements or that they
will be able to continue to comply with any such requirements. The failure of
our customers to comply with applicable laws and regulations could prevent us
from being able to conduct business with them. Additionally, it is possible that
laws may be applied by the United States and/or other countries to transport
services provided over the Internet, including laws governing:
o sales and other taxes;
o user privacy;
o pricing controls;
o characteristics and quality of products and services;
o consumer protection;
o cross-border commerce, including laws that would impose tariffs, duties
and other import restrictions;
o copyright, trademark and patent infringement; and
o claims based on the nature and content of Internet materials, including
defamation, negligence and the failure to meet necessary obligations.
If foreign governments or other bodies begin to regulate or prohibit
Internet telephony, this regulation could have a material adverse effect on our
ability to attain or maintain profitability.
We do not intend to pay dividends on our common stock
We have never paid dividends on our common stock and do not currently intend
to pay cash dividends on our common stock. Any future decisions as to the
payment of dividends will be at the discretion of our Board of Directors,
subject to applicable law. See "Dividend Policy."
Internet-related stock prices are especially volatile and this volatility may
depress our stock price
The stock market has from time to time experienced significant price and
volume fluctuations which have particularly affected the market prices of the
stocks of high technology and Internet-related companies, including companies
like us, and which may be unrelated or disproportionate to the operating
performance of particular companies. Factors such as quarterly variations in
actual or anticipated operating results, changes in earnings estimates by
analysts, market conditions in the industry, analysts' reports, announcements by
competitors, regulatory actions or other events or factors, including the risk
factors described in this registration statement and general economic conditions
may have a significant effect on the market price of our common stock. This
broad market and industry volatility may reduce the value of our common stock,
regardless of our operating performance. Due to this volatility, the value of
our common stock could significantly decrease.
-11-
Our success and competitive position depends on our ability to protect our
proprietary technology
Our success depends, in part, upon our intellectual property rights. To
date, we have relied primarily on a combination of trade secret, trademark and
copyright laws, and non-disclosure and other contractual restrictions on copying
and distribution to protect our proprietary technology and our brand names. We
have not yet filed any patents related to our technology. Litigation to enforce
our intellectual property rights or protect our trade secrets could result in
substantial costs and may not be successful. Any inability to protect our
intellectual property rights could seriously harm our business, operating
results and financial condition. Furthermore, the laws of some foreign countries
may not protect intellectual property rights to the same extent as do the laws
of the United States. It may be difficult for us to enforce certain of our
intellectual property rights against third parties who may have acquired
intellectual property rights by filing unauthorized applications in foreign
countries to register the marks that we use because of their familiarity with
our worldwide operations. Since Internet-related industries such as ours are
exposed to the intellectual property laws of numerous foreign countries and
trademark rights are territorial, the enforceability and scope of protection of
our intellectual property is uncertain. The unauthorized use of our intellectual
property by third parties may damage our brand.
Defending against intellectual property infringement claims could be
expensive and disruptive to our business.
We are subject to claims of intellectual property infringement, which could
divert management resources and harm our reputation
We cannot be certain that our products and services do not or will not
infringe upon valid patents, trademarks, copyrights or other intellectual
property rights held or claimed by third parties. Third parties may claim that
we have infringed their patent, trademark, copyright or other proprietary
rights. It is also possible that claims will be made for indemnification
resulting from allegations of infringement. Claims like these could divert
management's attention, affect our reputation and otherwise harm our business.
In addition, intellectual property claims could be asserted against us as a
result of the use by us, our customers or other third parties of our products.
These claims could include claims by our consultants and employees that
intellectual property they developed does not belong to us. Any claims, with or
without merit, could be time consuming, costly, cause product shipment delays or
require that we enter into royalty or licensing agreements. These licenses might
not be available on reasonable terms, or at all. As a result, any claim like
this could harm our business. Additionally, we may incur substantial expenses in
defending against these third party infringement claims, regardless of their
merit. Successful infringement claims against us may result in substantial
monetary liability or may materially disrupt the conduct of our business.
We rely on third-party technologies, and a termination of any of our
relationships with third-party vendors could adversely affect our revenues and
business
We rely in part on technology that we license from third parties. We
integrate this technology with our own technology in order to provide a complete
solution. This technology may contain defects that we cannot control. The loss
of any of these technologies could cause delays introducing our products or
services until equivalent technology, if available, is identified, licensed and
integrated.
Our articles of incorporation provide our officers and directors with certain
indemnification.
Our Articles of Incorporation provide that our directors and officers will
not be personally liable to ePHONE or its shareholders for money damages for
breach of the fiduciary duty of care as a director or officer. Conversely,
directors and officers are liable for:
o any breach of duty of loyalty to ePHONE or its shareholders,
-12-
o facts and omissions not in good faith or those which involve
intentional misconduct or a knowing violation of law,
o willful or negligent violation of Florida law with respect to payments
of dividends, and
o any transaction from which a director involved derived an improper
personal benefit.
Thus, under certain circumstances, neither ePHONE nor the stockholders would
be able to recover damages even if directors take actions that harm ePHONE.
-13-
USE OF PROCEEDS
We will not receive any of the proceeds directly from the sale of the common
stock being offered by the selling stockholders by this prospectus. The selling
stockholders will receive all of the direct proceeds from the sale of common
stock offered by this prospectus.
However, if all of the selling stockholders were to exercise all of the
warrants and options to purchase shares of common stock they hold, we could
receive cash proceeds of up to $27,196,124. Any proceeds we receive from the
exercise of warrants or options will be used to fund our business operations,
future growth and other general corporate purposes.
DIVIDEND POLICY
We have not paid any cash dividends on our common stock and we do not intend
to pay cash dividends in the foreseeable future. We plan to retain earnings, if
any, for use in the operation of our business and to fund future growth.
SELLING STOCKHOLDERS
The following table sets forth information with respect to the amount of
common stock beneficially held by each selling stockholder as of the date of
this prospectus and the shares being offered by the selling stockholders. The
table indicates the nature of any position, office or other material
relationship that the selling stockholder has had within the past three years
with ePHONE or any of its predecessors or affiliates. This prospectus relates to
the offer and sale of the selling stockholders of up to 40,251,414 shares of
common stock, including 20,164,400 shares of common stock issuable upon the
exercise of outstanding warrants or options issued by ePHONE. The selling
stockholders may offer all or part of the shares of common stock covered by this
prospectus. Information with respect to shares owned beneficially after this
offering assumes the sale of all of the shares offered and no other purchases or
sales of common stock. The common stock offered by this prospectus may be
offered from time to time by the selling stockholders named below.
For purposes of calculating the beneficial ownership percentage of each
selling stockholder we have assumed that all special warrants, warrants and
options held by such selling stockholder have been exercised and the shares of
common stock issuable upon such exercise have been issued to such selling
stockholder. All special warrants, warrants and options held by the selling
stockholders are exercisable within 60 days of the date of this prospectus.
-14-
Number Number
of Shares of
to be Shares
Number of Shares of Total Number of Offered to be
Common Stock, not Number of Shares Shares of Common Percentage for the Owned
including Warrants Represented by Stock Beneficially Account of after
or Options, Warrants or Options Beneficially Owned Before the Selling this
Name Beneficially Owned Beneficially Owned Owned Offering Stockholder Offering
Robert G. Clarke 33,334(1) 33,334(2) 1,066,668 5.77% 1,066,668 0
Director, President and CEO 1,000,000(3)
Suite 616
1489 Marine Drive
West Vancouver, B.C.
Canada
J. P. Langlais 1,500,000(9) 1,000,000(3) 2,500,000 13.55% 2,500,000 0
Promoter
4840 Acorn Street
Suite 102, Montreal,
P.Q. H4C 1L6
Canada
Marc Hebert 1,500,000(9) 0 1,500,000 8.59% 1,500,000 0
P.P. Box 556
Charlestown, Nevie, West Indies
Michael Dyde 200,000(9) 0 200,000 1.15% 200,000 0
1 Pinetree Close
Tankerton, Whitstable
Kent, United Kingdom CT2 2DQ
Peter Francis 0 250,000(3) 250,000 1.41% 250,000 0
Former Director
Apt. 3C
Tung Shan Villa
2 Tung Shan Terrace
Stubbs Road
Hong Kong
Hans van Yzeren 0 250,000(3) 250,000 1.41% 250,000 0
Former Director
Gorzendreef 12
2360 Oud-Turnhout
Belgium
John G. Fraser 33,334(1) 33,334(2) 316,668 1.79% 316,668 0
Director 250,000(3)
104 Elm Avenue
Toronto, Ontario
M4W 1P2
Canada
Charlie Rodriguez 0 250,000(3) 250,000 1.41% 250,000 0
Exec. Officer
1662 W. Petunia Place
Tucson, Arizona 85737
-15-
Number Number
of Shares of
to be Shares
Number of Shares of Total Number of Offered to be
Common Stock, not Number of Shares Shares of Common Percentage for the Owned
including Warrants Represented by Stock Beneficially Account of after
or Options, Warrants or Options Beneficially Owned Before the Selling this
Name Beneficially Owned Beneficially Owned Owned Offering Stockholder Offering
Ben D. Leboe 0 250,000(3) 250,000 1.41% 250,000 0
Former Exec. Officer
16730 Carrs Landing Road
Lake Country, B.C.,
V4V 1B2
Canada
Benoit Langlais 466,447(9) 175,000(3) 641,447 3.64% 641,447 0
Former Exec. Officer
4084 Robert Street
Terre Bonne
P.Q. J6X 2N8
Canada
Nada Guirguis 0 50,000(3) 50,000 0.29% 50,000 0
Former Consultant
3710 Saint Hubert
Montreal,
P.Q. H2L 4A2
Canada
Caroline Locher-Lo 0 25,000(3) 25,000 0.14% 25,000 0
Former Consultant
Suite 1000
355 Burrard Street
Vancouver, B.C.
V6C 2G8
Pierre Arbour 90,280(4) 90,280(5) 180,560 1.03% 180,560 0
3420 Drummond
Montreal, QC
H3G 1Y1
Brouillette Charpentier 1,329,545(4) 1,329,545(5) 2,659,090 14.16% 2,659,090 0
1100 Rene Levesque
Blvd., Suite 1100
Montreal, QC
H3B 5C9
Can-Am Trust Ltd. 352,7674(4) 352,767(5) 705,534 3.96% 705,534 0
P.O. Box 185, Kelsick
Building, Plymouth,
British Colony of
Montserrat
Michael Corber 97,500(4) 97,500(5) 195,000 1.11% 195,000 0
2 Place Alexis Nihin,
Suite 2000, Montreal,
QC H3Z 3C2
Eleemosynary 60,187(4) 60,187(5) 120,374 0.69% 120,374 0
Directions Inc.
300, 417-14th Street, N.W.
Calgary, AB T2N 2A1
-16-
Number Number
of Shares of
to be Shares
Number of Shares of Total Number of Offered to be
Common Stock, not Number of Shares Shares of Common Percentage for the Owned
including Warrants Represented by Stock Beneficially Account of after
or Options, Warrants or Options Beneficially Owned Before the Selling this
Name Beneficially Owned Beneficially Owned Owned Offering Stockholder Offering
Nick Geer & Associates Inc. 90,285(4) 90,285 (5) 180,570 1.03% 180,570 0
537 Eastcot Road
West Vancouver, BC
V7S 1E5
Gestion CD Lam Inc. 90,280(4) 90,280(5) 180,560 1.03% 180,560 0
1801 McGill College
Avenue, Suite 1260
Montreal, QC H3A 2N4
GroomeCapital.com Inc. 438,750(4) 438,750(5) 2,906,002 14.59% 2,906,002 0
1 Place Ville Marie, 2,028,502(6)
Suite 2707
Montreal, QC
Grovest Investments 90,285(4) 90,285(5) 180,570 1.03% 180,570 0
1 Place Ville Marie,
Suite 2707
Montreal, QC
Kinked Investments 2,003,181(4) 2,003,181(5) 4,006,362 20.59% 4,006,362 0
Limited
Bolam House, King & George
Streets
P.O. Box CB il, 343,
Nassau Bahamas
MDL Investments 641,727(4) 641,727(5) 1,283,454 7.09% 1,283,454 0
999 de Maisonneuve West Suite
1775
Montreal, QC,
H3A 3L4
Fraser D. Latta 180,560(4) 180,560(5) 361,120 2.05% 361,120 0
75 The Bridle Path
North York, ON
M3B 2B2
Richard Leroux 97,500(4) 97,500(5) 195,000 1.11% 195,000 0
5115 De l'Assumption
Montreal, QC HIT 4B2
Roland Michaud 97,500(4) 97,500(5) 195,000 1.11% 195,000 0
2490 De Lotbiniere
LaVal, QC H7E 5B4
John Viron 90,285(4) 90,285(5) 180,570 1.03% 180,570 0
1161 Rue Jose
LaVal, QC H7Y 1E7
9084-8953 Quebec Inc. 655,909(4) 655,909(5) 1,311,818 7.24% 1,311,818 0
625 Roul Rene Levesque Blvd.;
Suite 205
Montreal, QC H3B 1R2
-17-
Number Number
of Shares of
to be Shares
Number of Shares of Total Number of Offered to be
Common Stock, not Number of Shares Shares of Common Percentage for the Owned
including Warrants Represented by Stock Beneficially Account of after
or Options, Warrants or Options Beneficially Owned Before the Selling this
Name Beneficially Owned Beneficially Owned Owned Offering Stockholder Offering
80144 Canada Ltd. 97,500(4) 97,500(5) 195,000 1.11% 195,000 0
2 Place Alexis Nihon,
Suite 1900
Montreal, QC H3Z 3C2
9060-7177 Quebec Inc. (Cobra 180,560(4) 180,560(5) 361,120 2.05% 361,120 0
Financial Inc.)
45 des Pionniers
St. Charles
Pierre Boivin 90,285(4) 90,285(5) 180,570 1.03% 180,570 0
386 Portland, TMR,
PQ H3R 1V5
Beluga N.V. 265,910(4) 265,910(5) 531,820 3.00% 531,820 0
Dreefstraat, 3001
Leuven Belgium
Gordon Haight 90,285(4) 90,285(5) 180,570 1.03% 180,570 0
CP 606, Station B
Montreal, PQ
H3B 3K3
Lazard Lufkin 110,263(4) 110,263(5) 220,526 1.26% 220,526 0
P.O. Box 3321
Road Town, Tortola, BVI
Ken Nickerson 90,285(4) 90,285(5) 180,570 1.03% 180,570 0
15 Steeplechase Ave.
Aurora, ON L4G 6W6
Robert Aston 81,900(4) 81,900(5) 163,800 0.93% 163,800 0
258 Mt. Douglas Circle S.E.
Calgary, AB T2Z 3N9
Normand Balthazard 90,285(4) 90,285(5) 180,570 1.03% 180,570 0
c/o BioCapital
3690 rue de la Montagne
Montreal, PQ H3G 2A8
Prameya Chaitanya 58,500(4) 58,500(5) 117,000 0.67% 117,000 0
471 East 11th Avenue
Vancouver, BC
Donald Davis 58,500(4) 58,500(5) 117,000 0.67% 117,000 0
12107 Lake Louise Way, S.E.
Calgary, AB T2J 2M2
Pierre Desormeau 132,954(4) 132,954(5) 265,908 1.51% 265,908 0
52 Feu-Follet
Morin Heights, PQ
J0R 1H0
-18-
Number Number
of Shares of
to be Shares
Number of Shares of Total Number of Offered to be
Common Stock, not Number of Shares Shares of Common Percentage for the Owned
including Warrants Represented by Stock Beneficially Account of after
or Options, Warrants or Options Beneficially Owned Before the Selling this
Name Beneficially Owned Beneficially Owned Owned Offering Stockholder Offering
Ralph Gerstein 151,125(4) 151,125(5) 302,250 1.72% 302,250 0
4175 St. Catharines St.
West, Suite 1804
Montreal, PQ
H3Z 3C9
Gary Hassard 90,285(4) 90,285(5) 180,570 1.03% 180,570 0
28 York Ridge Rd.
Toronto, ON M4P 1R7
Bobby John 90,285(4) 90,285(5) 180,570 1.03% 180,570 0
5 Jewetts Court
Markham, ON
L4S 2W3
Bryan Kerdman 90,285(4) 90,285(5) 180,570 1.03% 180,570 0
37 Rollscourt Dr.
Toronto, ON M2L 1X6
Edward Mercaldo 90,285(4) 90,285(5) 180,570 1.03% 180,570 0
565 Robin Hood Road
West Vancouver, BC
V7S 1T4
Joe Neumark 90,285(4) 90,285(5) 180,570 1.03% 180,570 0
(Yorkton Securities)
390 Woodsworth Rd., #5
North York, ON M2L 2T9
Joe Neumark 90,285(4) 90,285(5) 180,570 1.03% 180,570 0
(Merrill Lynch)
390 Woodsworth Rd., #5
North York, ON M2L 2T9
Hasanain Panju 120,377(4) 120,377(5) 240,754 1.37% 240,754 0
1055 Rene Levesque
Blvd. East
Montreal, PQ H2L 4S5
Geeta Prathipati 90,285(4) 90,285(5) 180,570 1.03% 180,570 0
37 Long Furlong
Rugby, Wales, UK CV225QT
Fred Purich 97,500(4) 97,500(5) 195,000 1.11% 195,000 0
2917 Linden Drive, S.W.
Calgary, AB T3E 6C8
Stephen Sadler 263,250(4) 263,250(5) 526,500 2.97% 526,500 0
14088 Leslie Street
Aurora, ON L4G 7C2
Graham Savage 90,285(4) 90,285(5) 180,570 1.03% 180,570 0
113 Coldstream Ave.
Toronto, ON M5N 1X7
-19-
Number Number
of Shares of
to be Shares
Number of Shares of Total Number of Offered to be
Common Stock, not Number of Shares Shares of Common Percentage for the Owned
including Warrants Represented by Stock Beneficially Account of after
or Options, Warrants or Options Beneficially Owned Before the Selling this
Name Beneficially Owned Beneficially Owned Owned Offering Stockholder Offering
Heinz W. Siemens 87,750(4) 87,750(5) 175,500 1.00% 175,500 0
#20, 2337 Townlinet
Rd., RR #1
Abbotsford, BC
Philip Vineberg 90,285(4) 90,285(5) 180,570 1.03% 180,570 0
1501 McGill College
26th Floor
Montreal, PQ H3A 3N9
Craig Wallace 90,285(4) 90,285(5) 180,570 1.03% 180,570 0
209 St. Leonards
Avenue
Toronto, ON M4N 1K8
Randy & Cathy 120,900(4) 120,900(5) 241,800 1.38% 241,800 0
Yozipovic
1016 Lake Bonavista
Dr., S.E.
Calgary, AB T2J 0N7
9047-1913 Quebec Inc. 102,375(4) 102,375(5) 204,750 1.17% 204,750 0
c/o Arvin Thomas
101 Amherst
Beaconsfield, PQ
H9W 5Y7
3050581 Canada Inc. 90,285(4) 90,285(5) 180,570 1.03% 180,570 0
c/o Bruce Cowper
423 Elm Avenue
Westmount, Quebec
H3Y 3H9
Bank Von Ernst et Co. 90,285(4) 90,285(5) 180,570 1.03% 180,570 0
c/o Raymond Steck
6 Straussacher Blatz,
CH 8004
Zurich, Switzerland
Casurina Limited 658,125(4) 658,125(5) 1,316,250 7.27% 1,316,250 0
Partnership
c/o Frank Mersch
200 King Street West
Suite 2004
Toronto, ON M5H 3T4
Corporation Financier 90,280(4) 90,280(5) 180,560 1.03% 180,560 0
MSP
c/o Michel St. Pierre
1 Place Ville Marie
Suite 2125
Montreal, PQ H3B 2C6
-20-
Number Number
of Shares of
to be Shares
Number of Shares of Total Number of Offered to be
Common Stock, not Number of Shares Shares of Common Percentage for the Owned
including Warrants Represented by Stock Beneficially Account of after
or Options, Warrants or Options Beneficially Owned Before the Selling this
Name Beneficially Owned Beneficially Owned Owned Offering Stockholder Offering
Dapsilis Enterprises Inc. 155,269(4) 155,269(5) 310,538 1.76% 310,538 0
c/o Gordon Echenberg
116 Aberdeen
Westmount, PQ H3Y 3A7
First Wave 73,125(4) 73,125(5) 146,250 0.83% 146,250 0
c/o DGM Bank & Trust Inc.
Warrens Great House
Warrens, St. Michael
Barbados, West Indies
Ghazi Ltd. 243,750(4) 243,750(5) 487,500 2.75% 487,500 0
c/o Derek Buntain
4th Floor Jardine House
33 Reid St.
Hamilton HM
Bermuda
Goldberg Management Inc. 233,610(4) 233,610(5) 467,220 2.64% 467,220 0
c/o Martin Tremblay
Providence House,
East Hill St.
P.O. Box 55-6827
Nassau Bahamas
Jefrob Glorich Ltd. 90,285(4) 90,285(5) 180,570 1.03% 180,570 0
c/o Richard Cole
228 Forest Hill Road
Toronto, ON M5P 2N5
MDL Investments 443,181(4) 443,181(5) 886,362 4.95% 886,362 0
c/o Murray Lester
999 de Maisonneuve
Suite 1775
Montreal, PQ H3A 3L4
Melbourne Disraeli 90,285(4) 90,285(5) 180,570 1.03% 180,570 0
c/o Michael Vineberg
1501 McGill College
26th Floor
Montreal, PQ H3A 3N9
MoiMeme Holdings Inc. 180,570(4) 180,570(5) 361,140 2.05% 361,140 0
c/o Jonathan Wener
200 Peel Street
Suite 900
Montreal, PQ H3B 2W5
Tamarack North Ltd. 90,285(4) 90,285(5) 180,570 1.03% 180,570 0
c/o Steve Madden
P.O. Box 486
Port Carling, ON
-21-
Number Number
of Shares of
to be Shares
Number of Shares of Total Number of Offered to be
Common Stock, not Number of Shares Shares of Common Percentage for the Owned
including Warrants Represented by Stock Beneficially Account of after
or Options, Warrants or Options Beneficially Owned Before the Selling this
Name Beneficially Owned Beneficially Owned Owned Offering Stockholder Offering
Wu & Wong 90,285(4) 90,285(5) 180,570 1.03% 180,570 0
Investments
c/o Casey Wu
1023 Old Orchard
Montreal, PQ H4A 3A3
Canaccord Capital 361,140(4) 361,140(5) 722,280 4.05% 722,280 0
125, rue des Distributeurs
Val d'Or (Quebec) J9P 6Y1
National Bank 156,000(4) 156,000(5) 312,000 1.77% 312,000 0
Financial
125, rue des
Distributeurs
Val d'Or, PQ J9P 6Y1
Jean-Pierre Ayotte 97,500(4) 97,500(5) 195,000 1.11% 195,000 0
72 4th Avenue East
Amos, PQ J9T 1C5
John Quinn 97,500(4) 97,500(5) 195,000 1.11% 195,000 0
51 boul. Mistassine
Mintassini, PQ G0W 1C0
Roger Couillemette 97,500(4) 97,500(5) 195,000 1.11% 195,000 0
2001 Blvd. J. Jacques
Cossette
CP 280, Val d'Or
PQ J9P 4P3
138613 Canada, Inc. 316,875(4) 316,875(5) 633,750 3.57% 633,750 0
Attn: Jeffrey Mandel
Cote St-Luc, Quebec HW4 1L5
William Whalen 90,286(4) 90,286(5) 180,572 1.03% 180,572 0
4700 Ste-Catherine St. West
Apt. 710
Westmount, Quebec H32 156
Vista Capital Corp. Ltd. 166,666(1) 166,666(2) 333,332 1.89% 333,332 0
Ansbacher (Bahamas) Limited
in Nassau
P.O. Box N-7768
Telecom Ventures S.A. 133,333(1) 133,333(2) 266,666 1.52% 266,666 0
Ansbacher (Bahamas) Limited
in Nassau
P.O. Box N-7768
First Atlantic Equities Ltd. 233,333(1) 233,333(2) 466,666 2.64% 466,666 0
Ansbacher (Bahamas) Limited
in Nassau
P.O. Box N-7768
Miramar Capital Investment 200,000(1) 200,000(2) 400,000 2.27% 400,000 0
Lim.
P.O. Box F-42563
Freeport, Bahamas
-22-
Number Number
of Shares of
to be Shares
Number of Shares of Total Number of Offered to be
Common Stock, not Number of Shares Shares of Common Percentage for the Owned
including Warrants Represented by Stock Beneficially Account of after
or Options, Warrants or Options Beneficially Owned Before the Selling this
Name Beneficially Owned Beneficially Owned Owned Offering Stockholder Offering
Taurus Capital 188,000(1) 188,000(2) 376,000 2.13% 376,000 0
Management Inc.
P.O. Box N596
Nassau, Bahamas
Carlin Investment Inc. 41,333(1) 41,333(2) 82,666 0.47% 82,666 0
P.O. Box F-44959
Freeport, Bahamas
Tristar Inc. 179,333(1) 179,333(2) 358,666 2.03% 358,666 0
Nine Queen's Road
Suite 605-6 Central
Hong Kong
Translink International 108,000(1) 108,000(2) 216,000 1.23% 216,000 0
Limited
48, YbrY #2
92200 Neuilly-sur-Seine
France
Nino Aidi 33,334(1) 33,334(2) 66,668 0.38% 66,668 0
Cajeme 598 NTE
C.D. Obregon,
Sonora 85010
Mexico
Cornwall Management Ltd. 345,000(7) 0 345,000 1.09% 345,000 0
P.O. Box N-7768
Ansbacher House
Bank Lane
Nassau, Bahamas
Sobois-Livert Investment 0 738,833(8) 738,833 4.06% 738,833 0
Corporation
10, Chemin DS
Parpatriotes SUD
St. Hilaire, QC
J3H 3G3
Charles Yang 266,667(10) 0 266,667 266,667 0
3984 Washington Blvd.
#353
Fremont, Ca 94538
Stuart Mackenzie 133,333(10) 0 133,333 133,333 0
9057 Skyline Blvd.
Oakland, CA 94611
(1) Shares of common stock acquired in the November 1999 Regulation S
offering.
(2) Warrants having an exercise price of $1.25 per share acquired in the
November 1999 Regulation S offering.
(3) Options to purchase common stock having an exercise price of $0.50 per
share granted on June 7, 1999.
(4) Shares of common stock to be received for no additional consideration
upon exercise of special warrants acquired in the March and April 2000
Regulation S offering.
(5) Purchase warrants having an exercise price of $1.60 per share to be
received upon exercise of special warrants acquired in the March and
April 2000 Regulation S offering.
-23-
(6) Includes 250,000 broker options at an exercise price of $0.60 per
option and 889,251 broker special warrants. The special warrants are
exercisable without payment of additional compensation into
Compensation Warrants which entitle the broker to purchase 889,251
units consisting of an aggregate of 889,251 common shares and 889,251
warrants at a price of $1.10 per unit. The warrants received with each
unit are exercisable at a price of $1.60 per warrant. The options and
warrants expire on March 30, 2002.
(7) Shares of common stock issued as consideration for services rendered
under a consulting agreement dated May 9, 2000.
(8) Includes 488,833 warrants having an exercise price of $1.10 per share
and 250,000 warrants having an exercise price of $0.60 per share
granted as consideration for services rendered under a consulting
agreement dated May 24, 2000.
(9) Shares of common stock issued in lieu of participation in the rescinded
performance share plan.
(10) Shares received pursuant to the Settlement Agreement and Mutual General
Release, dated March 23, 2001, between the Company and Charles Yang.
-24-
PLAN OF DISTRIBUTION
The shares of common stock covered by this prospectus are owned by the
selling stockholders. As used in the rest of this section of the prospectus, the
term "selling stockholders" includes the named selling stockholders and any of
their pledgees, donees, transferees or other successors in interest selling
shares received from a named selling stockholder after the date of this
prospectus. The selling stockholders may offer and sell, from time to time, some
or all of the shares of common stock registered hereby. We have registered the
shares for sale by the selling stockholders so that the shares will be freely
tradable by them. Registration of the shares does not mean, however, that the
shares necessarily will be offered or sold. We will not receive any proceeds
from any offering or sale by the selling stockholders of the shares. We have
advised the selling stockholders that Regulation M under the Exchange Act may
apply to the activities of the selling stockholders or broker-dealers in
connection therewith. We will pay all costs, expenses and fees in connection
with the registration of the shares. The selling stockholders will pay all
brokerage commissions and similar selling expenses, if any, attributable to the
sale of the shares.
The selling stockholders will act independently of us in making decisions
with respect to the timing, manner and size of each sale. The shares may be sold
by or for the account of the selling stockholders from time to time in
transactions on the OTC Bulletin Board or otherwise. These sales may be at fixed
prices or prices that may be changed, at market prices prevailing at the time of
sale, at prices related to these prevailing market prices or at negotiated
prices. The shares may be sold by means of one or more of the following methods:
o in a block trade in which a broker-dealer will attempt to sell a block
of shares as agent but may purchase and resell a portion of the block
as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by that
broker-dealer for its account pursuant to this prospectus;
o on markets where our common stock is traded or in an exchange
distribution in accordance with the rules of the exchange;
o through broker-dealers, that may act as agents or principals;
o directly to one or more purchasers;
o through agents;
o in connection with the loan or pledge of shares to a broker-dealer, and
the sale of the shares so loaned or the sale of the shares so pledged
upon a default;
o in connection with put or call option transactions, in hedge
transactions, and in settlement of other transactions in standardized
or over-the-counter options;
o through short sales of the shares by the selling stockholders or
counterparties to those transactions, in privately negotiated
transactions; or
o in any combination of the above.
In addition, any of the shares that qualify for sale pursuant to Rule 144
under the Securities Act may be sold under Rule 144 promulgated under the
Securities Act rather than pursuant to this prospectus.
-25-
In effecting sales, brokers or dealers engaged by the selling stockholders
may arrange for other brokers or dealers to participate. The broker-dealer
transactions may include:
o purchases of the shares by a broker-dealer as principal and resales of
the shares by the broker-dealer for its account pursuant to this
prospectus;
o ordinary brokerage transactions; or
o transactions in which the broker-dealer solicits purchasers.
If a material arrangement with any broker-dealer or other agent is entered
into for the sale of any shares of common stock through a block trade, special
offering, exchange distribution, secondary distribution, or a purchase by a
broker or dealer, a prospectus supplement will be filed, if necessary, pursuant
to Rule 424(b) under the Securities Act disclosing the material terms and
conditions of these arrangements.
The selling stockholders and any broker-dealers or agents participating in
the distribution of the shares may be deemed to be "underwriters" within the
meaning of the Securities Act, and any profit on the sale of the shares of
common stock by the selling stockholders and any commissions received by a
broker-dealer or agent, acting in this capacity, may be deemed to be
underwriting commissions under the Securities Act. The selling stockholders may
agree to indemnify any agent or broker-dealer that participates in transactions
involving sales of the shares of common stock against certain liabilities,
including liabilities arising under the Securities Act.
The selling stockholders are not restricted as to the price or prices at
which they may sell their shares of common stock. Sales of such shares may have
an adverse effect on the market price of the common stock. Moreover, the selling
stockholders are not restricted as to the number of shares that may be sold at
any time, and it is possible that a significant number of shares could be sold
at the same time, which may have an adverse effect on the market price of the
common stock.
-26-
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 150,000,000 shares of common stock
having a par value of $.001 per share. Of the authorized common stock,
40,251,414 shares are being offered under this prospectus. 6,000,000 shares of
common stock have been reserved for issuance under the long-term incentive plan.
The following description of our capital stock does not purport to be complete
and is subject to and qualified in its entirety by our articles of incorporation
and bylaws, which are included as exhibits to the registration statement of
which this prospectus forms a part, and by the provisions of applicable Florida
law.
Common Stock
Voting Rights. The holders of common stock are entitled to one vote for each
share on all matters voted upon by stockholders, including the election of
directors. Such holders are not entitled to vote cumulatively for the election
of directors. Generally, all matters to be voted on by stockholders must be
approved by a majority (or, in the case of election of directors, by a
plurality) of the votes entitled to be cast by all shares of common stock
present in person or represented by proxy, subject to any voting rights granted
to holders of any outstanding preferred stock.
Dividends. Holders of common stock are entitled to dividends on a pro rata
basis upon declaration of dividends by our board of directors. Dividends are
payable only out of funds legally available for the payment of dividends. Our
board of directors is not required to declare dividends, and it currently
expects to retain earnings to finance the development of our business. For a
further discussion on dividends see "Dividend Policy" above. Dividends to any
holders of common stock are subject to any preferential rights of any
outstanding preferred stock.
Other Rights. Upon a liquidation of our company, holders of the common stock
will be entitled to a pro rata distribution of our assets, after payment of all
amounts owed to our creditors, and subject to any preferential amount payable to
holders of our preferred stock, if any. Holders of common stock have no
preemptive, subscription, conversion, redemption or sinking fund rights.
Anti-Takeover Effects of Florida Law
Certain provisions of Florida law summarized below may be deemed to have an
anti-takeover effect and may discourage, delay, defer or prevent a tender offer
or takeover attempt that a stockholder might consider in its best interest,
including those attempts that might result in a premium over the market price
for shares held by our stockholders.
Florida law generally states that shares acquired above specified thresholds
will not possess any voting rights unless those voting rights are approved by a
majority of a corporation's disinterested stockholders. Florida law also
generally requires super majority approval by disinterested stockholders of
specified transactions between a public corporation and holders of more than 10%
of the outstanding voting shares of the corporation.
Indemnification and Limitation of Liability
Our articles of incorporation and our bylaws provide that our directors and
officers, and people who exercise the duties of directors or officers, may be
indemnified by us to the fullest extent permitted by Florida law against all
expenses and liabilities reasonably incurred in connection with service for or
on our behalf. We may also purchase and maintain insurance for the benefit of
any director or officer which may cover claims for which we could not indemnify
such person.
Transfer Agent And Registrar
Interwest Transfer Company serves as transfer agent and registrar for our
common stock.
-27-
MARKET FOR COMMON STOCK AND MARKET PRICES
Since June 12, 2000 and prior to December 15, 1999, our common shares did
trade and currently trade on the OTC Bulletin Board - under the symbol "EPHO."
From December 15, 1999 until June 11, 2000, our common shares traded on the
National Quotation Bureau's Electronic Quotation Service (the "Pink Sheets")
under the symbol "EPHO." Shares of our common stock do not trade on any stock
exchange or any other market.
EPHONE's shares were not publicly traded or quoted in 1997 or the first two
quarters of 1998. We began trading on the OTC Bulleting Board on May 18, 1998.
The following table sets for the closing high and low bid prices of our common
stock for the periods indicated as reported by publicly available sources to
which we have access. The quotations reflect inter-dealer prices and do not
represent retail mark-ups, mark-downs, commissions, and may not reflect active
transactions.
Year and Quarter High Bid $ Low Bid $
---------------- ---------- ---------
1999
1st Quarter $0.63 $0.50
2nd Quarter $2.13 $1.25
3rd Quarter $3.13 $0.75
4th Quarter $1.65 $0.59
2000
1st Quarter $4.23 $0.75
2nd Quarter $2.93 $1.10
3rd Quarter $1.66 $0.91
4th Quarter $0.94 $0.25
2001
1st Quarter $0.34 $0.16
2nd Quarter
(through April 11, 2001) $0.25 $0.15
As of December 31, 2000, there were 47 holders of record of the common
stock. This does not reflect persons or entities that hold stock in "Street"
name or through various brokerage firms.
We have not paid any cash dividends to date and we do not intend to pay
cash dividends. Payment of dividends is solely at the discretion of the Board of
Directors. See "Dividend Policy."
-28-
MATERIAL UNITED STATES FEDERAL INCOME AND ESTATE TAX
CONSIDERATIONS FOR NON-U.S. HOLDERS OF COMMON STOCK
The following is a general summary of the material United States federal
income and estate tax consequences of the purchase, ownership, and sale or other
taxable disposition of the common stock by any person or entity (a "non-U.S.
Holder") other than:
o a citizen or resident of the United States;
o a partnership, corporation or other entity created or organized in or
under the laws of the United States or of any political subdivision
thereof;
o a trust, if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or
more United States persons have the authority to control all
substantial decisions of the trust or the trust has a valid election in
effect under applicable U.S. Treasury regulations to be treated as U.S.
Person; or
o an estate, the income of which is includible in gross income for United
States federal income tax purposes regardless of its source.
This summary does not address all tax considerations that may be relevant to
non-U.S. Holders in light of their particular circumstances or to certain
non-U.S. Holders that may be subject to special treatment under United States
federal income or estate tax laws. This summary is based upon the Internal
Revenue Code, existing, temporary and proposed regulations promulgated
thereunder and administrative and judicial decisions, all of which are subject
to change, possibly with retroactive effect. In addition, this summary does not
address the effect of any state, local or foreign tax laws. Each prospective
purchaser of common stock should consult its tax advisor with respect to the tax
consequences of purchasing, owning and disposing of the common stock.
Dividends
Dividends paid to a non-U.S. Holder of common stock generally will be
subject to a withholding of United States federal income tax at a 30 percent
rate or such lower rate as may be specified by an applicable income tax treaty
unless:
o the dividend is effectively connected with the conduct of a trade or
business of the non-U.S. Holder within the United States; or
o if a tax treaty applies, it is attributable to a United States
permanent establishment of the non-U.S. Holder,
in which cases the dividend will be taxed at ordinary federal income tax rates.
If the non-U.S. Holder is a corporation, such effectively connected income may
also be subject to an additional "branch profits tax." A non-U.S. Holder may be
required to satisfy certain certification requirements in order to claim treaty
benefits or otherwise claim a reduction of, or exemption from, the withholding
above.
Sale or Other Disposition of Common Stock
A non-U.S. Holder generally will not be subject to United States federal
income tax in respect of any gain recognized on the sale or other taxable
disposition of common stock unless:
o the gain is effectively connected with the conduct of a trade or
business of the non-U.S. Holder within the United States;
-29-
o in the case of a non-U.S. Holder who is an individual and holds the
common stock as a capital asset, the holder is present in the United
States for 180 or more days in the taxable year of the sale or other
taxable disposition and certain other tests are met;
o the non-U.S. Holder is subject to tax pursuant to the provisions of
United State federal income tax law applicable to certain United States
expatriates; or
o ePHONE is or has been during certain periods preceding the sale or
other taxable disposition a United States real property holding
corporation ("USRPHC") for United States federal income tax purposes
and certain other requirements are met. ePHONE currently believes that
it is not a USRPHC and anticipates that it will not become a USRPHC.
Estate Tax
Common stock owned or treated as owned by an individual non-U.S. Holder at
the time of death will be includible in the individual's gross estate for United
States estate tax purposes, unless an applicable treaty provides otherwise, and
may be subject to United States federal estate tax.
Backup Withholding and Information Reporting
Dividends. United States backup withholding tax generally will not apply to
dividends paid on the common stock that are subject to the 30 percent or reduced
treaty rate of United States withholding tax previously discussed. ePHONE must
report annually to the Internal Revenue Service and to each non-U.S. Holder the
amount of dividends paid to, and the tax withheld with respect to, such holder,
regardless of whether any tax was withheld. This information may also be made
available to the tax authorities in the non-U.S. Holder's country of residence.
Sale or Other Disposition of Common Stock. Upon the sale or other taxable
disposition of common stock by a non-U.S. Holder to or through a United States
office of a broker, the broker must backup withhold at a rate of 31 percent and
report the sale to the Internal Revenue Service, unless the holder certifies its
non-U.S. Holder status under penalties of perjury or otherwise establishes an
exemption. Upon the sale or other taxable disposition of common stock by a
non-U.S. Holder to or through the foreign office of a United States broker, or a
foreign broker with a certain relationship to the United States, the broker must
report the sale to the Internal Revenue Service (but not backup withhold) unless
the broker has documentary evidence in its files that the seller is a non-U.S.
Holder and certain other conditions are met or the holder otherwise establishes
an exemption.
Backup withholding is not an additional tax. Amounts withheld under the
backup withholding rules generally are allowable as a refund or credit against a
non-U.S. Holder's United States federal income tax liability, if any, provided
that the required information is furnished to the Internal Revenue Service on a
timely basis.
The U.S. Treasury Department has issued regulations generally effective for
payments made after December 31, 2000 that will affect the procedures to be
followed by a non-U.S. Holder in establishing such holder's status as a non-U.S.
Holder for purposes of the withholding, backup withholding and information
reporting rules described herein. In general, such regulations do not
significantly alter the substantive withholding and information reporting
requirements, but unify current certification procedures and forms and clarify
reliance standards. Prospective investors should consult their tax advisors
concerning the effect of such regulations on an investment in the common stock.
-30-
EXPERTS
The financial statements as of December 31, 2000 and December 31, 1999
and for two years then ended incorporated by reference in this Registration
Statement and prospectus have been incorporated herein by reference in reliance
upon the report of Grant Thornton LLP given upon their authority as experts in
accounting and auditing.
LEGAL MATTERS
The validity of the shares of common stock being offered pursuant to this
prospective is being passed on for us by Arnold & Porter, Washington, D.C.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Act, and,
in accordance therewith, files reports and other information with the
Commission. These reports and other information can be inspected and copied at
the public reference facilities maintained by the Commission at: Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and
Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such
materials also can be obtained from the Public Reference Section of the
Commission, at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates.
We have filed with the Commission a Registration Statement on Form SB-2
under the Securities Act with respect to the common stock offered hereby. This
prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules to the Registration Statement. For
further information with respect to ePHONE and the common stock offered hereby,
reference is made to the Registration Statement and the exhibits and the
schedules filed as part of the Registration Statement. Statements contained in
this prospectus concerning the contents of any contract or any other document to
which this prospectus refers are not necessarily complete. Each such statement
is qualified in all respects to any underlying contract or document filed as an
exhibit to the Registration Statement. The Registration Statement, including
exhibits and schedules thereto, may be inspected without charge at the
Commission's principal office in Washington, D.C., and copies of all or any part
thereof may be obtained from such office after payment of fees prescribed by the
Commission. The Commission also maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
site is http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents we have filed with the Securities and Commission
(the "Commission") pursuant to the Exchange Act (File No. 000-27699) are
incorporated herein by reference and made a part hereof:
1. Our Annual Report on Form 10-KSB for the year ended December 31, 2000,
filed with the Commission on March 6, 2001, as amended by our Annual
Report on Form 10-KSB/A for the year ended December 31, 2000, filed
with the Commission on April 13, 2001;
2. Our current reports on Form 8-K, filed with the Commission on April 13,
2001
3. The description of the Company's common stock contained in the
Company's Registration Statement on Form 10-SB filed with the
Commission on October 15, 1999, including any amendment or report filed
for the purpose of updating such description.
All documents and reports subsequently filed by us with the Commission
pursuant to Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act after the
date of this Registration Statement and prior to the filing of a post-effective
amendment that indicates the termination of this offering shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
of such documents or reports.
-31-
Any statement contained herein or in a document incorporated by reference or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this prospectus and the Registration Statement to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this prospectus or the Registration Statement. The Company will provide
without charge to each person to whom this prospectus or the Registration
Statement is delivered, upon written or oral request, a copy of any or all of
the foregoing documents incorporated by reference in this Registration
statement. Requests for such documents should be directed to ePHONE Telcom,
Inc., 1145 Herndon Parkway, Suite 100, Herndon, Virginia 20170, (703) 787-7000,
Attn: Corporate Secretary.
II-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Registration fee $12,435
Legal fees and expenses $75,000
Accounting fees and expenses $20,000
Printing and related expenses $7,500
Miscellaneous $25,000
TOTAL $119,935
-----
With the exception of the SEC registration fee, all of the expenses listed
above are estimated. All of these expenses will be paid by ePHONE Telecom, Inc.
Item 15. Indemnification of Directors and Officers.
Florida Business Corporation Act
Subsection (1) of Section 607.0850 of the Florida Business Corporation Act,
referred to herein as the BCA, empowers a corporation to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise (including an employee
benefit plan), against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Subsection (2) of Section 607.0850 of the BCA empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted
under similar standards, except that no indemnification may be made in respect
to any claim, issue or matter as to which such person shall have been adjudged
to be liable for negligence or misconduct in the performance of his duty to the
corporation unless and only to the extent that the court in which such action or
suit was brought, or any other court of competent jurisdiction, shall determine
that despite the adjudication of liability, but in view of all of the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
BCA Section 607.0850 further provides that indemnification provided for by
Section 607.0850 shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled and empowers the corporation to purchase and
maintain insurance on behalf of a director, officer, employee or agent of the
corporation against any liability asserted against him and incurred by him in
the capacities set forth above, or arising out of his status as such, whether or
not the corporation would have the power to indemnify him against such
liabilities under Section 607.0850.
Who we indemnify
ePHONE's Articles of Incorporation and Bylaws state that ePHONE may provide
for the indemnification of any director, officer, employee, agent or other
controlling person of ePHONE affecting his or her liability in such capacity.
As of the date hereof, ePHONE has not agreed to grant indemnification to any
person pursuant to the foregoing statutory provisions.
Indemnification against public policy
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling us, we
have been informed 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.
The foregoing is only a general summary of certain aspects of Florida law
and the provisions of ePHONE Articles of Incorporation and Bylaws dealing with
indemnification of directors and officers and does not purport to be complete.
It is qualified in its entirety by references to the relevant statutes, which
contain detailed specific provisions regarding the circumstances under which and
the person for whose benefit indemnification shall or may be made, and
accordingly are incorporated herein by reference in the ePHONE Articles of
Incorporation and Bylaws, which are incorporated herein by reference.
Item 16. Exhibits.
The following exhibits are filed herewith or incorporated herein by
reference.
Exhibit
Number Description
3.1 -- Articles of Incorporation (1)
3.2 -- Amendment to Articles of Incorporation (1)
3.3 -- Bylaws (1)
3.4 Amended and Restated Articles of Incorporation (previously filed)
5.1 -- Opinion of Arnold & Porter regarding the validity of the common stock (including consent)(previously filed)
10.1 -- Engagement Agreement dated July 8,1999 of Charles Yang (1)
10.2 -- Specimen of form of Option Incentive Agreement (1)
10.3 -- Agreement in Principle dated October 22, 1999 with Saigon Post and Telecommunications Corp. (2)
10.4 -- Agency Agreement dated as of March 16, 2000 between ePHONE and GroomeCapital.com, Inc. (3)
10.5 -- Strategic Alliance Agreement dated as of March 31, 2000 between ePHONE and Comdial Corporation (4)
10.6 -- License Agreement dated as of March 31, 2000 between ePHONE, Array Telecom Corp. and Comdial
Corporation (4)
10.7 -- ePHONE Telecom, Inc. 2000 Long-Term Incentive Plan (previously filed).
10.8 -- Strategic Alliance Agreement between ePHONE and 7Bridges Systems, Inc. dated as of July 7, 2000 (previously
filed).
10.9 -- ePHONE and Telemax Partnership for Prepaid Calling Card Products in Europe (filed herewith)
10.10 -- Sales Partner Agent Agreement with MA&C Europe, NY dated August 17, 2000 (filed herewith)
23.1 -- Consent of Grant Thornton, LLP (previously filed).
23.2 -- Consent of Barry L. Friedman, P.C. (previously filed)
23.3 -- Consent of Arnold & Porter (contained in their opinion included as Exhibit 5.1)
23.4 -- Consent of Grant Thornton, LLP (previously filed).
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(1) Previously filed as an exhibit to ePHONE's Form 10-SB, filed with the Securities and Exchange Commission on October 15, 1999.
(2) Previously filed as an exhibit to Amendment No. 2 to ePHONE's Form 10-SB, filed with the Securities and Exchange Commission
on January 5, 2000.
(3) Previously filed as an exhibit to Amendment No. 5 to ePHONE's Form 10-SB, filed with the Securities and Exchange Commission
on June 5, 2000.
(4) Previously filed as an exhibit to ePHONE's Form 8-K, filed with the Securities and Exchange Commission on April 17, 2000.
Item 17. Undertakings
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by section 10(a)(3) of the
Securities Act;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
Prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement;
(iii) 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;
provided, however, that paragraphs (A)(1)(i) and (A)(1)(ii) do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
with or furnished to the Securities and Exchange Commission by the
Registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
B. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
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.
C. Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities 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 and will be governed by
the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this
Post-Effective Amendment on Form S-3 to this Registration Statement on Form SB-2
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Herndon, State of Virginia, this 13th day of April, 2001.
ePHONE TELECOM, INC.
By: /s/ ROBERT CLARKE
---------------------
Robert Clarke
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment on Form S-3 to this Registration Statement on Form SB-2
has been signed by the following persons in the capacities indicated on this
13th day of April, 2001.
By: /s/ CARMINE TAGLIALATELA, JR.
--------------------------
Carmine Taglialatela, Jr.
President, Chief
Operating Officer
and Director
By: /s/ CHARLIE RODRIGUEZ
-----------------------
Charlie Rodriguez
Chief Financial Officer and
Director
By: /s/ JOHN FRASER
---------------
John Fraser
Director
By: ----------------
Anthony Ballinger
Director
By: ---------------
Fariborz Ghadar
Director
By: ----------------
Walter Pickering
Director
INDEX TO EXHIBITS
Exhibit
Number Description
3.1 -- Articles of Incorporation (1)
3.2 -- Amendment to Articles of Incorporation (1)
3.3 -- Bylaws (1)
3.4 -- Amended and Restated Articles of Incorporation (previously filed).
5.1 -- Opinion of Arnold & Porter regarding the validity of the common stock (including consent) (previously filed)
10.1 -- Engagement Agreement dated July 8,1999 of Charles Yang (1)
10.2 -- Specimen of form of Option Incentive Agreement (1)
10.3 -- Agreement in Principle dated October 22, 1999 with Saigon Post and Telecommunications Corp. (2)
10.4 -- Agency Agreement dated as of March 16, 2000 between ePHONE and GroomeCapital.com, Inc. (3)
10.5 -- Strategic Alliance Agreement dated as of March 31, 2000 between ePHONE and Comdial Corporation (4)
10.6 -- License Agreement dated as of March 31, 2000 between ePHONE, Array Telecom Corp. and Comdial
Corporation (4)
10.7 -- ePHONE Telecom, Inc. 2000 Long-Term Incentive Plan (previously filed).
10.8 -- Strategic Alliance Agreement between ePHONE and 7Bridges Systems, Inc. dated as of July 7, 2000 (previously
filed).
10.9 -- ePHONE and Telemax Partnership for Prepaid Calling Card Products in Europe (filed herewith)
10.10 -- Sales Partner Agent Agreement with MA&C Europe, NY dated August 17, 2000 (filed herewith)
23.1 -- Consent of Grant Thornton, LLP (previously filed).
23.2 -- Consent of Barry L. Friedman, P.C. (previously filed)
23.3 -- Consent of Arnold & Porter (contained in their opinion included as Exhibit 5.1)
23.4 -- Consent of Grant Thornton, LLP (previously filed).
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(1) Previously filed as an exhibit to ePHONE's Form 10-SB, filed with the Securities and Exchange Commission on October 15, 1999.
(2) Previously filed as an exhibit to Amendment No. 2 to ePHONE's Form 10-SB, filed with the Securities and Exchange Commission
on January 5, 2000.
(3) Previously filed as an exhibit to Amendment No. 5 to ePHONE's Form 10-SB, filed with the Securities and Exchange Commission
on June 5, 2000.
(4) Previously filed as an exhibit to ePHONE's Form 8-K, filed with the Securities and Exchange Commission on April 17, 2000.