U. S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended August 31, 2001
---------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________________ to ___________________
Commission File No. 0-25773
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Information Highway.com, Inc.
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(Name of Small Business Issuer in its Charter)
Florida 65-0154103
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(State or Other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No)
#185 - 10751 Shellbridge Way
----------------------------
Richmond, BC V6X 2W8 Canada
(Address of Principal Executive Offices)
(604) 278-5996
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Issuer's Telephone Number
N/A
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(Former Name or Former Address, if changed since last Report)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Company was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
(1) Yes X No (2) Yes X No
--- --- --- ---
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Not applicable
(APPLICABLE ONLY TO CORPORATE ISSUERS)
State the number of shares outstanding of each of the Issuer's classes of common
equity, as of the latest practicable date:
October 4, 2001
Common - 9,382,352 shares
DOCUMENTS INCORPORATED BY REFERENCE
A description of any "Documents Incorporated by Reference" is contained in Item
6 of this Report.
Transitional Small Business Issuer Format Yes No X
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Information Highway.com, Inc.
INDEX
Part I Financial Information
Item 1. Financial Statements
Balance Sheet as of August 31, 2001
Statement of Operations for the quarter and three months
ended August 31, 2001
Statement of Cash Flows for three months ended August 31, 2001
Notes to Financial Statements
Item 2. Management's Discussion and Analysis or Plan of Operation
PART II - Other Information
Information Highway.com, Inc.
Interim Consolidated Balance Sheets
August 31, May 31,
2001 2001
$ $
(unaudited) (audited)
Assets
Current Assets
Accounts receivable 91,486 20,424
Inventory (Note 2(f)) 24,922 24,921
Prepaid expenses 13,198 13,680
------------------------------------------------------------------------------------------------
Total Current Assets 129,606 59,025
Property, Plant and Equipment (Note 4) 264,761 288,981
------------------------------------------------------------------------------------------------
Total Assets 394,367 348,006
================================================================================================
Liabilities and Stockholders' Equity Deficit
Current Liabilities
Cheques issued in excess of funds on deposit 1,863 2,117
Accounts payable 371,653 362,077
Accrued liabilities 448,333 413,212
Deferred revenue 43,583 52,986
Bank loan - 55,613
Advances from related parties (Note 7) 420,333 236,387
Convertible Debentures (Note 5) 1,300,805 1,297,964
Current portion of obligations under capital leases (Note 6) 44,355 31,611
------------------------------------------------------------------------------------------------
Total Current Liabilities 2,630,925 2,451,967
------------------------------------------------------------------------------------------------
Obligations Under Capital Leases (Note 6) 9,571 22,192
------------------------------------------------------------------------------------------------
Total Liabilities 2,640,496 2,474,159
------------------------------------------------------------------------------------------------
Stockholders' Equity Deficit
Common Stock (Note 8), 50,000,000 shares authorized, par value
$.0001 per share, 9,382,352 and 9,148,500 issued and
outstanding respectively 937 914
Additional Paid in Capital - Common Stock 5,102,335 5,086,269
Additional Paid in Capital - Stock Warrants 651,120 651,120
Common Stock paid for but unissued (representing 310,000 shares) 46,500 46,500
------------------------------------------------------------------------------------------------
5,800,892 5,784,803
------------------------------------------------------------------------------------------------
Preferred Stock, 10,000,000 shares authorized, par value $.0001 per
share, none issued - -
------------------------------------------------------------------------------------------------
Translation adjustments (606) (5,805)
------------------------------------------------------------------------------------------------
5,800,286 5,778,998
Accumulated Deficit (8,046,415) (7,905,151)
------------------------------------------------------------------------------------------------
Total Stockholders' Deficit (2,246,129) (2,126,153)
------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Deficit 394,367 348,006
================================================================================================
Subsequent Events (Note 11)
Contingencies (Notes 1 and 9)
Information Highway.com, Inc.
Interim Consolidated Statements of Operations and Deficit
Three months ended
August 31,
2001 2000
$ $
(unaudited) (unaudited)
Revenues 26,400 42,042
Cost of Revenues 72,272 105,636
--------------------------------------------------------------------------------------------
Gross Profit (Loss) (45,872) (63,594)
--------------------------------------------------------------------------------------------
Operating Expenses
Marketing and sales 13,782 76,146
General and administrative 77,613 485,258
Product development 3,997 88,507
--------------------------------------------------------------------------------------------
Total Operating Expenses 95,392 649,911
--------------------------------------------------------------------------------------------
Loss from Continuing Operations (141,264) (713,505)
Discontinued Operations (Note 3)
Income (Loss) from Operations from YESIC Communications, Inc. - (188,613)
--------------------------------------------------------------------------------------------
Net Loss For the Period (141,264) (902,118)
Deficit - Beginning of Period (7,905,151) (5,791,319)
--------------------------------------------------------------------------------------------
Deficit - End of Period (8,046,415) (6,693,437)
============================================================================================
Basic loss from continuing operations (0.02) (0.09)
Basic loss from discontinued operations - (0.02)
--------------------------------------------------------------------------------------------
Basic loss per share (0.02) (0.11)
============================================================================================
Weighted average shares used to compute basic loss per share 9,187,000 8,148,000
============================================================================================
Diluted loss per share has not been presented as the result is anti-dilutive.
Information Highway.com, Inc.
Interim Consolidated Statements of Cash Flows
Three months ended
August 31,
2001 2000
$ $
(unaudited) (unaudited)
Cash Flows to Operating Activities
Net loss (141,264) (902,118)
Adjustments to reconcile net loss to cash
Depreciation and amortization of property, plant and equipment 25,526 33,886
Amortization of convertible debenture valuation allowance 17,841 -
Services paid for by issuing common shares and warrants - 9,712
Imputed interest on valuation of warrants - 21,937
Shares issued for convertible debenture interest 1,089 -
Gain on sale of computer equipment - (1,952)
Change in non-cash working capital items
(Increase) decrease in accounts receivable (71,062) 25,649
Decrease in prepaid expenses 482 120,557
(Increase) in inventory (1) (3,838)
Increase (decrease) in accounts payable and accrued liabilities 44,697 (44,649)
Increase (decrease) in deferred revenues (9,403) 1,789
----------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (132,095) (739,027)
----------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Common stock issued - 6,250
Increase in related party advances 183,946 12,853
Repayment of bank loan (55,613) -
Capital leases obligations repaid 123 (7,260)
----------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 128,456 11,843
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Cash Flows to Investing Activities
Proceeds from sale of computer equipment - 6,250
Acquisition of property, plant and equipment (1,306) (12,657)
Restricted cash - (30,000)
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Net Cash from (to) Investing Activities (1,306) (36,407)
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Translation Adjustments 5,199 7,644
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Increase (Decrease) in Cash During the Year 254 (755,947)
Cash and equivalents - Beginning of Year (2,117) 857,949
----------------------------------------------------------------------------------------------
Cash and equivalents - End of Year (1,863) 102,002
==============================================================================================
Non-Cash Financing Activities
Value of Common Shares issued for services - 9,712
Value of Common Shares issued for convertible debentures and
accrued interest converted 16,089 -
----------------------------------------------------------------------------------------------
16,089 9,712
==============================================================================================
Supplemental disclosures:
Interest paid in cash 236 107,904
Income taxes paid in cash - -
The accompanying notes are an integral part of these financial statements
1. Nature of Operations and Continuance of Business
The Company was incorporated December 5, 1988 in the state of Florida.
During 1997, the Company's common stock was submitted for quotation on the
OTC Bulletin Board System. From inception to February 17, 1999 the Company
did not engage in any business activity other than initial organization,
financing and some business investigation activities.
Pursuant to an Agreement and Plan of Reorganization entered into with
Information Highway, Inc. on February 17, 1999, a business combination was
completed by way of reverse takeover. All of the common stock of
Information Highway, Inc. was exchanged for common shares of the Company
representing a change of control of the Company. As part of the Plan of
Reorganization the Company's name was changed to Information Highway.com,
Inc.
Information Highway, Inc. was incorporated in the State of Washington on
October 15, 1996. It owned three Canadian operating subsidiaries in the
business of providing access to the Internet and providing services,
including on-line publishing, to individual and corporate subscribers of
which one was sold during the year (see Note 3(b)). See Note 3(a) for the
acquisition and disposition (both during fiscal 2001) of a company in the
travel industry.
On October 11, 2000, the Company's Registration Statement filed with the
Securities Exchange Commission was declared effective which means the
Company is a reporting company under the 1933 Act.
On July 18, 2001, the Company signed a term sheet to acquire a 100%
interest in a privately held company for $35,000,000 of the Company's
preferred stock (new class to be authorized), which will be convertible
into common shares based on the private company's contribution to pre-tax
earnings relative to consolidated retained earnings adjusted on December
31, 2003. In any event the conversion into common shares will provide for
no less than 25% of the total common shares of the Company and no greater
than 90% of the total common shares of the Company. This acquisition is
subject to completion of satisfactory due diligence by both parties,
negotiation of a definitive agreement and the Company raising not less than
$2,000,000 to be utilized for funding needs of the private company.
The Company has not achieved profitable operations since inception and has
suffered mounting losses of $8,045,415 and has a working capital deficit of
$2,501,319 as at August 31, 2001. These factors raise substantial doubt
about the Company's ability to continue as a going concern. The ability of
the Company to continue as a going concern is dependent upon its successful
efforts to raise additional equity financing over the next twelve months,
further develop the market for its products and services and/or explore new
profitable business opportunities. Management plans to raise additional
equity financing from new investors through a private placement. The
offering will be a best efforts, no minimum, offering consisting of
1,081,701 units at $0.15 per unit to raise proceeds of $162,255 -$46,500
raised to date. The remaining balance of the proceeds are secured by
promissory notes which are presently being converted into common shares.
Each unit will consist of one share and one warrant to purchase one
additional share at $0.20 per share for a period of one year from date of
issuance.
2. Significant Accounting Policies
(a) Consolidated Financial Statements
These consolidated financial statements include the accounts of the
Company and its wholly owned US subsidiary, Information Highway, Inc.
which owns two consolidated, wholly-owned, Canadian subsidiaries. A
third operating Canadian subsidiary was sold during the year (Note
3(b)). This subsidiary was included in the comparative figures under
discontinued operations.
2. Significant Accounting Policies (continued)
(b) Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities in the financial statements and accompanying notes. Actual
results could differ from those estimates.
(c) Comparative figures
Certain amounts in the financial statements have been reclassified to
be consistent and comparable from year-to-year and to present
discontinued operations.
(d) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, in banks and all
highly liquid investments with a maturity of three months or less when
purchased.
(e) Concentration of Credit Risk
The Company does not have any concentrations of credit risk as the
majority of its customers prepay for services. For those instances
when credit is extended it is based on an evaluation of the customer's
financial condition, and generally collateral is not required. The
Company does not have any customers that account for in excess of 10%
of income.
The Company places its temporary cash investments with high credit
quality financial institutions and limits the amount of credit
exposure to any one financial institution.
(f) Inventory
Inventory is comprised of finished goods purchased to resell over the
Internet. Finished goods are carried at the lower of landed cost or
net realizable value. During the prior year, the Company wrote down
inventory of $95,103 to an estimated net realizable value of $nil.
This amount was charged to operations as cost of revenues. The Company
is exploring the possibility of obtaining a manufacturer rebate on the
modems, as they were not in accordance with DSL specifications.
(g) Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is
computed utilizing the declining balance method over an estimated
useful life of the related asset. Computer equipment and software and
production equipment is depreciated at 30% per annum and furniture and
office equipment at 20% per annum. Leasehold improvements are
amortized over ten years utilizing the straight-line method. Assets
acquired pursuant to capital leases are amortized over the life of the
lease utilizing the straight-line method.
(h) Financial Instruments
The fair value of the Company's current assets and current liabilities
were estimated to approximate their carrying values due to the
immediate or short-term maturity of these financial instruments. See
Note 5 for long-term financial instruments. The Company operates in
Canada and virtually all of its assets and liabilities are giving rise
to significant exposure to market risks from changes in foreign
currency rates. The financial risk is the risk to the Company's
operations that arise from fluctuations in foreign exchange rates and
the degree of volatility of these rates. Currently, the Company does
not use derivative instruments to reduce its exposure to foreign
currency risk.
(i) Revenue Recognition and Deferred Revenues
Revenue consists of the provision of Internet dial-up services, banner
advertisements, Web-Site development and hosting and E-Commerce
revenue sharing with various Internet partners. Revenue is recognized
at the time services are provided. All related costs are recognized in
the period in which they occur. Customers deposits for Internet
dial-up services to be provided in the future are classified under
current liabilities.
2. Significant Accounting Policies (continued)
(j) Cost of Revenue
Cost of revenue consists primarily of the cost of serving the
Company's Internet dial-up service customers and the cost of
developing Web-Sites for customers. Costs associated with revenue
generating activities consists of salaries for technical support and
customer service, depreciation of Internet dial-up and Web-Site
hosting equipment, license fees, equipment leasing costs, telephone
line costs and rent to house equipment and staff directly involved in
serving customers.
(k) Product Development Costs
Product development costs consist of expenses incurred by the Company
in the development and creation of its Executive Site(TM) Web-Site.
Product development costs include compensation and related expenses
for programmers, depreciation of computer hardware and software, rent,
telephone and costs incurred in developing features and functionality
of the service. Product development costs are expensed as incurred.
(l) Accounting for Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," requires that
stock awards granted be recognized as compensation expense based on
fair values at the date of grant. Alternatively, a company may account
for stock awards granted under Accounting Principles Board Opinion
(APB) No. 25, "Accounting for Stock Issued to Employees," and disclose
pro forma income amounts which would have resulted from recognizing
such awards at their fair value. The Company has elected to account
for stock-based compensation for employees under APB No. 25 and make
the required pro forma disclosures for compensation expense. Stock
based compensation for non-employees are accounted for using SFAS No.
123.
(m) Foreign Exchange
All of the Company's Canadian operating subsidiaries are operationally
and financially independent of the parent and are considered
self-sustaining. As such, the current rate method is used whereby
assets and liabilities are translated into United States dollars at
exchange rates in effect at the balance sheet dates. Shareholders'
equity accounts are translated using historical exchange rates. Income
and expense items are translated at average exchange rates for the
periods. Accumulated net translation adjustments are included as a
separate component of stockholders' equity.
Current monetary assets and liabilities of the Company which are
denominated in foreign currencies are translated at the exchange rate
in effect at the balance sheet dates. Revenues and expenses are
translated at rates of exchange prevailing on the transaction dates.
Exchange gains or losses on the realization of current monetary assets
and the settlement of current monetary liabilities are recognized
currently to operations.
(n) Interim Financial Statements
These interim unaudited financial statements have been prepared on the
same basis as the annual financial statements and in the opinion of
management, reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the Company's
financial position, results of operations and cash flows for the
periods shown. The results of operations for such periods are not
necessarily indicative of the results expected for a full year or for
any future period.
2. Significant Accounting Policies (continued)
(o) Basic and Diluted Net Income (Loss) per Share
The Company computes net income (loss) per share in accordance with
SFAS No. 128, "Earnings per Share" (SFAS 128). SFAS 128 requires
presentation of both basic an diluted earnings per share (EPS) on the
face of the income statement. Basic EPS is computed by dividing net
income (loss) available to common shareholders (numerator) by the
weighted average number of common shares outstanding (denominator)
during the period. Diluted EPS gives effect to all dilutive potential
common shares outstanding during the period including stock options,
using the treasury stock method, and convertible preferred stock,
using the if-converted method. In computing Diluted EPS, the average
stock price for the period is used in determining the number of shares
assumed to be purchased from the exercise of stock options or
warrants. Diluted EPS excludes all dilutive potential common shares if
their effect is anti dilutive.
3. Business Acquisition and Discontinued Operations
(a) Acquisition and Disposition of Pavlik Travel Services Ltd.
(i) On September 27, 2000 the Company completed an agreement to
purchase a travel agency located in British Columbia, Canada.
Total consideration paid was Cnd$125,000. In order to complete
the acquisition the Company was required, by the Registrar of
Travel Services, to lodge two letters of credit totalling
Cnd$40,000. As at August 31, 2000 the restricted term deposits
were lodged and letters of credit obtained. The purchase was
accounted for as an acquisition, and the excess purchase price
over the fair market value of net assets acquired, being
Cnd$84,390, was allocated to goodwill and was being amortized
over two years.
(ii) On February 28, 2001 the Company entered into an agreement to
sell the travel agency to a private company under the President's
control at a fair value of Cdn$125,000. The private company paid
a bank loan in the amount of $85,922 on June 26, 2001 and will
pay the balance of $39,078 in cash. This agreement is subject to
various regulatory approvals.
The Company realized revenue of $23,276 for the period September
27, 2000 through February 28, 2001. Pursuant to the agreement the
Company wrote off its shareholder loans receivable from Pavlik
Travel Services Ltd. of $19,863.
(b) Disposition of YESIC Communications, Inc.
On April 23, 2001, pursuant to a share purchase agreement, the Company
sold its 100% interest in YESIC Communications, Inc. ("YESIC") a
subsidiary of the Company operating in the business of providing
access to the Internet in the Province of Ontario.
Total consideration received was Cdn$10. In addition the Company was
to receive contingent additional amounts as a repayment of
shareholders loans as follows:
If, after April 23, 2001, YESIC was to make a public offering of its'
shares or if the shareholders of YESIC sell the outstanding shares of
YESIC to a public or private company, or if YESIC is vended into a
public company, the Company will receive 25% of the after tax profits
in the case of any sale or 25% of the net proceeds in the case of a
public offering as a repayment of the Company's shareholder's loan up
to a maximum amount of $1,000,000 after repayment of any of the
existing YESIC's shareholder's loans and invested capital.
3. Business Acquisition and Discontinued Operations (continued)
(b) Disposition of YESIC Communications, Inc. (continued)
On the later of (i) thirty days after the last day of the fiscal year
in which YESIC achieves a Retained Earnings position of $100,000 as
reflected on its' Financial Statements for the fiscal year end or (ii)
thirty days after the second fiscal year after the closing, and upon
thirty days after each fiscal year thereafter and until such time as
the Company has received the sum of $1,000,000, YESIC was to pay to
the Company the sum of 25% of YESIC's profit after tax as reflected on
YESIC's Financial Statements as a repayment of the Company's
shareholder's loan after adding back any salaries paid to the
directors and after deduction of any shareholders loans made by YESIC.
YESIC realized revenue of $592,619 from June 1, 2000 to April 23, 2001
and $1,028,579 for fiscal year 2000.
Subsequent to the sale, YESIC declared bankruptcy and as a result the
shareholders loans receivable totalling $712,963 from YESIC have been
written off.
4. Property, Plant and Equipment
August 31, May 31,
2001 2000
Accumulated Net Book Net Book
Cost Amortization Value Value
$ $ $ $
(unaudited) (audited)
Computer equipment 411,598 227,991 183,607 197,232
Office furniture and equipment 39,546 21,529 18,017 19,408
Production equipment 25,000 15,369 9,631 10,412
Leasehold improvements 13,910 4,975 8,935 9,283
Assets under capital lease 98,480 53,909 44,571 52,646
---------------------------------------------------------------------------------
588,534 323,773 264,761 288,981
=================================================================================
5. Convertible Debentures
The Company issued, to one investor, three $500,000, two year convertible
debentures bearing interest at 5%. Warrants to purchase 225,000 common
shares exercisable at $6.2287 and expiring March 3, 2002 were also issued.
The maturity date is March 3, 2002. The Company received $1,332,728 after
paying to the Agent a 10%, or $150,000, financing fee and legal costs of
$17,272. The debenture holders can convert their debentures into common
shares based on the face value plus accrued interest divided by the lesser
of the fixed price of $6.22875 and the average closing price for the 20
days prior to conversion. No amount has been allocated to the conversion
feature in accordance with APB 14. Debt issue costs of $167,272 have been
charged to operations and the value of the detachable share purchase
warrants, totaling $175,500, was deducted from the proceeds of the
convertible debenture as a valuation allowance and is being amortized to
operations over two years. The Company has the right to redeem with cash.
The Company was incurring penalties pursuant to a Registration Rights
Agreement with the debenture holder in the amount of $30,000 per month
until a registration statement for selling shareholders was declared
effective by the SEC. The Company has been paying these penalties until
October 11, 2000 being the date the Registration Statement was declared
effective. The Company's ability to raise funds through private placements
of common stock was curtailed until the offering by selling shareholders
was closed.
During the year ended May 31, 2001 convertible debentures of $145,000 plus
accrued interest of $5,811 were converted into 664,646 common shares.
During the current period, convertible debentures of $15,000 plus accrued
interest of $1,089 were converted into 233,852 shares.
6. Obligations Under Capital Leases
The Company acquired computer equipment by way of capital leases.
Total
Lease
Payments
Fiscal Year $
2002 31,561
2003 23,671
----------
55,232
Less amount representing interest 1,306
----------
53,926
Less current portion 44,355
----------
9,571
==========
7. Related Party Balances/Transactions
August 31, May 31,
2001 2001
$ $
(unaudited) (audited)
(a) Balances
(i) Amounts owing to the President of the Company and private
companies under the President's control are from short-term cash
loans, are due on demand, unsecured and non-interest bearing. 441,184 223,892
(ii) Amounts owing to (from) public companies that share office premises
and have President's in common are from expenses paid by these
companies on behalf of the Company, are due on demand, unsecured,
and non-interest bearing. (20,851) 12,495
Net amount owing to related parties 420,333 236,387
(b) Transactions
See Note 3(a) for the sale of a travel agency to a related party for fair
value.
8. Common Stock
No. of Par Value Additional Paid-in
Shares $.0001 Capital
Issued $ $
Balance as at May 31, 1999 6,469,951 647 1,698,351
Shares issued for cash pursuant to an offering
memorandum (Note 9(a)(i)) 129,750 13 461,987
Shares issued for cash pursuant to a private
placement (Note 9(a)(ii)) 125,817 13 503,255
Less: Finders fee paid on private placement - - (43,500)
Value of warrants issued to a consultant in
connection with the private placement - - (270,820)
Shares issued pursuant to stock options exercised 523,266 52 658,323
Shares issued pursuant to warrants exercised 565,050 56 564,994
Shares issued for services (Note 9(b)) 327,500 33 1,240,330
--------------------------------------------------------------------------------------------------
Balance as at May 31, 2000 8,141,334 814 4,812,920
Shares issued for cash pursuant to stock options
exercised 12,500 1 6,249
Shares issued pursuant to conversion of debentures 664,666 66 150,745
Shares issued for services (Note 9(b)) 330,000 33 116,355
--------------------------------------------------------------------------------------------------
Balance as at May 31, 2001 9,148,500 914 5,086,269
Shares issued pursuant to conversion of
debentures 233,852 23 16,066
--------------------------------------------------------------------------------------------------
Balance as at August 31, 2001 (unaudited) 9,382,352 937 5,102,335
==================================================================================================
Pursuant to the Agreement and Plan of Reorganization the Company assumed all
common stock obligations of Information Highway, Inc. as they relate to stock
based compensation plans and warrants issued to acquire common shares.
(a) Private placements of common shares and warrants
(i) The Company previously offered units pursuant to an Offering Memorandum.
Each unit consisted of one common share, one Series "A" Warrant to acquire one
additional common share at $4.00 per share expiring April 30, 2000 (expired),
and one Series "B" Warrant to acquire one additional common share at $6.00 per
share expiring October 31, 2001. The offering was completed on August 11, 1999.
On completion of the offering, a total of 129,750 units were issued at $4.00 per
unit for total proceeds of $519,000. The proceeds of this private placement were
allocated on the following basis: $462,000 to common shares, $47,000 to Series A
Warrants and $10,000 to Series B Warrants. The Series B Warrants are currently
outstanding.
(ii) The Company previously offered, pursuant to a private placement,
1,000,000 units at $4.00 per unit. Each unit consisted of one common share, and
one series C warrant to purchase one additional common share at $5.00 per share
expiring October 6, 2000 (expired). The private placement was completed on March
2, 2000. On completion, a total of 125,817 common shares were issued at $4.00
per share for total proceeds of $503,268. The Company entered into an Agreement
relating to this private placement financing and investor relations services.
The Agreement called for a 10% finders fee. A total of $43,500 was paid. In
addition, 100,000 warrants were issued to acquire 100,000 common shares
exercisable at $4.00 per share expiring December 1, 2002. The value of these
warrants, totalling $270,820, was charged against share capital during fiscal
2000. These warrants are currently outstanding.
8. Common Stock (continued)
(b) Shares and warrants issued for services
During fiscal 2000, the Company issued 175,000 common shares, valued at
$678,900, pursuant to a Marketing and Financial Consulting Agreement, all of
which has been charged to operations. Pursuant to this Agreement the Company was
committed to file a Registration Statement registering these securities by
November 6, 1999. It was agreed that interest of $23,226 per month be paid until
such time as the commitment is met. During fiscal 2000 a total of $147,478 of
such interest was paid and charged to operations. The Company negotiated
settlement of the entire obligation with a final payment of $60,000 in May,
2000.
The Company issued 2,500 common shares valued at $22,000 in connection with the
Company's Internet portal telephony project. This amount was charged to
operations in fiscal 2000.
The Company issued 20,000 common shares valued at $72,614 to a European investor
relations company. This amount has been charged to operations in fiscal 2000.
The Company issued 130,000 common shares valued at $466,849 for financial
consulting services. This amount has been charged to operations in fiscal 2000.
The Company paid $60,000 and issued 400,000 warrants to acquire up to 400,000
common shares exercisable at $3.50 per share expiring November 15, 2000
(expired) for a three month marketing and advertising program including banner
ads, news group coverage and press release distribution. The value of the
warrants was $147,800. Total compensation expense of $207,800 was charged to
operations in fiscal 2000.
The Company entered into an Agreement relating to the private placement
financing described in Note 9(a)(ii). The Agreement called for a 10% finders of
$43,500. In addition, 100,000 warrants were issued to acquire 100,000 common
shares exercisable at $4.00 per share expiring December 1, 2002. The value of
these warrants, totalling $270,820, was charged against share capital during
fiscal 2000.
During fiscal 2001 the Company issued 5,000 common shares valued at $9,712, for
financial consulting services and 25,000 common shares, valued at $31,676, for
investor relation consulting services. These amounts have been charged to
operations.
The Company also issued 300,000 common shares valued at $75,000 to secure access
to wireless technology which amount was charged to operations in fiscal 2001.
(c) Stock Option Plan
Pursuant to a stock option plan amended and restated February 8, 2000 and
expiring May 31, 2007, the Company has reserved 3,000,000 common shares for
future issuance.
The options are granted for services provided to the Company. Statement of
Financial Accounting Standards No. 123 ("SFAS 123") requires that an enterprise
recognize, or at its option, disclose the impact of the fair value of stock
options and other forms of stock based compensation in the determination of
income. The Company has elected under SFAS 123 to continue to measure
compensation cost on the intrinsic value basis set out in APB Opinion No. 25 for
employee stock options. As options are granted at exercise prices based on the
market price of the Company's shares at the date of grant, no compensation cost
is recognized. However, under SFAS 123, the impact on net income and income per
share of the fair value of stock options must be measured and disclosed on a
fair value based method on a pro forma basis.
Stock options for non-employees are valued and charged to operations.
The fair value of the employee's purchase rights, pursuant to stock options,
under SFAS 123 was estimated using the Black-Scholes model.
8. Common Stock (continued)
(c) Stock Option Plan (continued)
The weighted average number of shares under option and option price for the
period ended August 31, 2001 is as follows:
Weighted
Average
Shares Weighted Remaining
Under Average Life of
Option Option Options
# Price $ (Months)
Beginning of period 1,564,400 .25
Granted -
Exercised -
Cancelled -
Lapsed -
End of period 1,564,400 .25 33
Effective January 17, 2001 the exercise price of stock options with respect to
all common shares were reduced to $.25.
If compensation expense had been determined pursuant to SFAS 123, the Company's
net loss and net loss per share for the period ended August 31, 2001 and the
year ended May 31, 2001 would have been as follows:
Information Highway.com, Inc.
Notes to the Interim Consolidated Financial Statements
August 31, May 31,
2001 2001
$ $
(unaudited) (audited)
Net loss
As reported (141,264) (2,113,832)
Pro forma (142,139) (2,136,004)
Basic net loss per share
As reported (.02) (.24)
Pro forma (.02) (.25)
9. Contingent Liability
A Writ of Summons and Statement of Claim was filed against the Company in the
Supreme Court of British Columbia in April 1999 by a former employee and spouse
of the employee (the "Plaintiffs"). The employee was retained by the Company as
a consultant on or about December 1996 and was subsequently terminated for cause
by the Company in December 1997. The Plaintiffs are seeking monetary damages
related to the alleged remuneration pursuant to the agreement and a stock option
between the Company and the employee. The total damages claimed amounts to
$597,000 including alleged unpaid remuneration and a stock option benefit. The
plaintiff's are also claiming 5% of business revenue from the operating
subsidiary in Vancouver, Canada. This subsidiary operated at a net loss from
operations during the period from acquisition in December 1996 to date.
Management believes that the Plaintiff's alleged claim is without legal or
factual basis and therefore have not accrued any potential losses resulting from
this claim except for legal fees paid in establishing the defence. The Company
intends to vigorously defend this action.
10. Segmented Information
The Company adopted SFAS No. 131 Disclosure About Segments of an Enterprise and
related information.
The business of the Company is carried on in one industry segment being the
provision of access to the Internet and providing services, including on-line
publishing, to individual and corporate subscribers.
Up until May 31, 1999 the Company operated in one geographic segment, being
Canada, located in Vancouver, BC and Toronto, Ontario. During fiscal 2000 the
Company began expansion of its ISP business into the United States by setting up
Virtual ISP's. The Company switched on 50 ports (minimum per agreement) in each
of 7 cities which enabled the Company to service up to 500 customers in each
city. The cost of these portals for the three months ended August 31, 2001 was
$nil (2000 - $143,000) and was charged to operations as a general and
administrative expense. There was no revenue generated during either year.
The Company's head office is in Richmond, BC, Canada. The head office does not
conduct any business specifically related to the Internet. Its sole purpose is
to provide administration, investor relations services and services relating to
being a public company. Included in general and administrative expenses and net
loss is $61,058 (2000 - $328,395) relating to such activities. The net loss
relating to Internet activities in Canada amounted to $80,206 (2000 - $431,118)
and the net loss relating to US portal costs was $nil (2000 - $142,605).
11. Subsequent Events
On September 19, 2001, the Company's wholly-owned Subsidiary, Blue Crow Internet
Company, Ltd.,entered into an agreement to sell its dial-up and webhosting
customer base to PCNet International Inc. for Cdn$120,000. The sale is to also
include the bluecrow.com domain name and computer equipment.
Item 2. Management's Discussion and Analysis of Financial Condition and
-------- -------------------------------------------------------------------
Results of Operations
-----------------------
Forward Looking Statements
----------------------------
This report contains forward-looking statements. The words "anticipate",
"believe", "expect", "plan", "intend", "estimate", "project", "could", "may",
"foresee", and similar expressions are intended to identify forward-looking
statements. The following discussion and analysis should be read in conjunction
with the our Financial Statements and the Notes thereto and other financial
information included elsewhere in this report which contains, in addition to
historical information, forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from the results
discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include those discussed below, as well as those
discussed elsewhere in this report.
OVERVIEW
We serve as an Internet Service Provider, or ISP, for companies and individuals
that need access to the Internet in exchange for a recurring fee. We believe
that Internet users will begin to base their selection of an ISP in part on the
value-added services that their ISP provides. Through our portal site
compilation of Internet-based services and information, we provide localized and
portal content catering to business professionals. Through research, design,
programming, co-branding, and licensing, we have compiled Internet services and
content in our portal site that we believe are useful to companies, associations
and professionals. Portal site web pages are designed specifically for targeted
user groups, and we believe they provide friendly, easy to navigate interfaces.
Our basic portal site may be accessed through the Internet at
www.theexecutive.com. Other portal sites are customized to the needs of specific
Internet subscriber groups (whether by geographic location or entity
affiliation) and have different Internet addresses.
We conduct our operations through our wholly-owned Canadian subsidiary Blue Crow
Internet Company, Ltd., acquired in December 1996. We also have two wholly-owned
subsidiaries which are: Information Highway, Inc. which owns two wholly-owned
subsidiaries: World Tel Internet (Toronto) Ltd., acquired in February 1997; and
Blue Crow Internet Company, Ltd.
Information Highway, Inc., a Washington corporation, initially acquired Blue
Crow, WorldTel and YesIC Communications, Ltd., of which YesIC was sold pursuant
to a share purchase agreement dated April 24, 2001. Then, in February 1999,
Information Highway, Inc. engaged in a reverse takeover of Florida Venture Fund,
Inc., a Florida corporation. As a result of the reverse takeover, the
shareholders of Information Highway, Inc. came to own approximately 95% of the
outstanding shares of Florida Venture Fund, Inc. In connection with the reverse
takeover, Florida Venture Fund, Inc. changed its name to Information
Highway.com, Inc. Information Highway.com, Inc. is now the ultimate parent
company whose shares are traded on the OTC bulletin board (symbol: IHWY).
Information Highway.com, Inc.'s executive offices are located at 10751
Shellbridge Way, Suite 185, Richmond, British Columbia V6X 2W8, Canada, our
telephone number is (604) 278-5996 and our facsimile number is (604) 278-3409.
On September 27, 2000 we completed an agreement to purchase Pavlik Travel
Services Ltd., a retail travel agency, located in a suburb of Vancouver, British
Columbia, Canada.
On February 28, 2001, we subsequently sold Pavlik to SMR Investments Ltd. for
CDN$125,000 whereby SMR paid CDN$85,921.77 to pay a bank loan, with the balance
of CDN$39,078.23 paid to us.
On April 24, 2001 we completed a share purchase agreement through which we
disposed of all the assets, liabilities and shares of our wholly-owned
subsidiary, YesIC Communications, Ltd., a Toronto-based ISP, to a private
Ontario corporation.
BUSINESS DEVELOPMENT
---------------------
Information Highway.com was incorporated in Florida in December 1988 as Florida
Venture Fund, Inc. Florida Venture Fund had not conducted any business prior to
February, 1999, when it engaged in a reverse takeover with Information Highway,
Inc., a Washington corporation. Information Highway, Inc. was formed in October,
1996. It began to build the basis for the current business of the Company by
undertaking the following acquisitions:
- YesIC Communications, Inc., acquired in February, 1997;
- World Tel Internet (Toronto) Ltd., acquired in February, 1997; and
- Blue Crow Internet Company, Ltd., acquired in December, 1996.
In a reverse takeover, the shareholders of an acquired company generally end up
owning all or most of the resulting combined company. The reverse takeover of
Florida Venture Fund, Inc. by Information Highway, Inc. was conducted pursuant
to an Agreement and Plan of Reorganization entered into on February 17, 1999 and
closed on February 23, 1999 between Florida Venture Fund, Inc., Information
Highway, Inc. and certain shareholders of Information Highway, Inc. Florida
Venture Fund, Inc. acquired 3,235,000 common shares of Information Highway, Inc.
(out of a total of 5,639,650 issued and outstanding common shares) in exchange
for 3,235,000 common shares of Florida Venture Fund, Inc. In connection with the
reverse takeover, FloridaVenture Fund, Inc. changed its name to Information
Highway.com, Inc. It is our intention to complete the exchange of shares of
Information Highway.com common stock for the remaining and outstanding common
shares of Information Highway, Inc. on a one for one basis. As of May 11, 2000
(date of exchange offering closing), 2,359,650 of the remaining 2,404,650
Information Highway, Inc. shares had been exchanged for the same number of
Information Highway.com shares. Information Highway.com has allotted 33,000
shares in anticipation of the remaining shares of Information Highway, Inc.
being exchanged in the future. As part of the Agreement and Plan of
Reorganization, Information Highway.com caused 1,659,833 of its 1,979,500 common
shares that were issued and outstanding, prior to the closing, to be cancelled
and assumed the obligations of Information Highway, Inc. to issue common shares
pursuant to warrants and stock options issued by Information Highway, Inc.
Information Highway, Inc. paid $100,000 to the controlling shareholder of
Information Highway.com to effect the Agreement and Plan of Reorganization
including the cancellation of 1,659,833 shares. In total, to January 10, 2000,
approximately 99% of Information Highway, Inc. shares had been exchanged.
Information Highway.com has allotted 33,000 shares in anticipation of the
remaining shares being exchanged. As part of the Agreement and Plan of
Reorganization, Information Highway.com caused 1,659,833 of its 1,979,500 common
shares that were issued and outstanding prior to the closing to be cancelled and
assumed the obligations of Information Highway, Inc. to issue common shares
pursuant to warrants and stock options issued by Information Highway, Inc.
Information Highway, Inc. paid $100,000 to the controlling shareholder of
Florida Venture Fund, Inc. as a finder's fee and to effect the Agreement and
Plan of Reorganization.
On April 24, 2001 by way of share purchase agreement, we disposed of YesIC
Communications, Ltd., our Toronto-based ISP which was an ISP only, in order to
focus on our Vancouver-based center which has been developed to provide state of
the art services to emerging markets.
Our Portal Site
We believe that Internet users will begin to select their ISP based in part on
the value-added services that their ISP provides. Through our portal site
compilation of Internet-based services and information, we provide localized and
portal content designed to cater to business professionals. Through research,
design, programming, co-branding, and licensing, we have compiled Internet
services and content in our portal site that we believe are useful to companies,
associations and professionals. Portal site web pages are designed specifically
for targeted user groups, and we believe they provide friendly, easy to navigate
interfaces. Our basic portal site may be accessed through the Internet at
www.theexecutive.com. Other portal sites are customized to the needs of specific
Internet subscriber groups (whether by geographic location or entity
affiliation) and have different Internet addresses.
The portal site has assembled a functional portal site to enable users to access
the information they require immediately. Portal site users will be able to:
- Monitor and research the stock market;
- Plan and book their next business trip;
- Check the local news and weather;
- Find a suitable restaurant in their area;
- Participate in online forums;
- Use of our virtual shopping mall;
- Carry out electronic transactions via e-commerce; and
- Use our Web-based Internet based Voice Over Internet Protocol service
We have committed significant resources to the development of the portal site.
Our portal site can be customized to function as a dedicated service for dial-up
communities, interest groups, associations, and companies, who in turn sell
dial-up access to the service to their users, members, associates, or employees.
In other words, the portal site makes available Internet comprehensive services
such as stock quote systems, travel reservation systems, shopping networks, and
chat technologies, and then adds information and directories unique to any given
group or organization. In some cases, its networks may even form the backbone of
a corporate Intranet. Because of the modular nature of the portal site's
information and service components, we can offer businesses and associations the
components that they want as the basis of their customized intranets or
executive sites. An initial development and licensing fee, together with monthly
maintenance fees, will be charged for the development of a customized portal
site. The modular nature of the portal site's information and service components
will also facilitate establishing local customized portal sites in those markets
where we, or one of our licensees, seek to establish or maintain an ISP
presence.
We also license portal sites to third parties that want to display their own web
pages. Since March 1999, we have licensed our portal site to five partners in
the United States. Pursuant to the licenses, we developed private-labeled
versions of the portal site for the licensees for their customers throughout
Canada and the United States. The licensees paid an initial set up fee and pay a
monthly maintenance fee. Each licensee also shares with us the advertising and
e-commerce revenues generated from the portals. In April 1999, we also licensed
a Spanish version of our portal site to an ISP in Mexico City, Mexico.
Currently the major components of the portal site include:
- Ichat Room's chat room system
- Information Highway.com's Virtual Shopping Mall
- Information Highway.com's Travel and Destination Guides
- Yahoo Online Television Broadcast
- Web-based E-mail
- Online Education
- VoIP Web-based Internet Long Distance Phone Calls
Wireless Internet
We plan on developing high-speed wireless Internet service with our partnership
with AirStream Communications, Inc. whereby we will supply the Internet service
such as email, web hosting, e-commerce and Voice Over IP and AirStream will
supply the wireless point of presence (POPs) to locations where high-speed
service such as DSL and cable is not available.
FACTORS AFFECTING ONGOING OPERATIONS
In our effort to rapidly expand infrastructure and network services and develop
the portal site, we have suffered net losses each quarter to August 31, 2001. At
August 31, 2001, our accumulated deficit was $8,046,415 and our working capital
deficit was $2,501,319. We expect to incur substantial operating losses, net
losses and negative operating cash flow for the near term.
PROGRESS REPORT FROM JUNE 1, 2001 TO OCTOBER 15, 2001
On July 26, 2001 we announced we had signed a term sheet to acquire 100%
interest in a privately-held company for $35,000,000 of Information Highway.com,
Inc.'s preferred stock, convertible into common shares of Information
Highway.com, Inc. on December 31, 2003. Closing of the transaction is subject to
completion of satisfactory due diligence by both parties, negotiation of
definitive agreements between the companies and Information Highway.com, Inc.
raising not less than $2,000,000 for the needs of the private company.
The private company is a service provider that provides broadband Internet
service, telephone, television, property management and other state of the art
technologies to multi-dwelling unit (MDU) residents, owners and managers. The
private company retained IBM (NYSE: IBM) to construct a $1.5 million carrier
class Network Operations Center (NOC); contracted with Convergys, one of the
largest billing and customer care call center companies in the world, to provide
resident billing, customer care and related functions; and Broadwing to
initially fund the installation of 5,000 units and provide wide area network
connectivity. The private company has rights to contracts totaling 57,000
residential apartment units and has a prospect list of over 1,000,000 units. We
will be able to offer to the multi-dwelling unit owners, residents and managers
their own community portal site including message board, local news and weather,
access to our Voice over IP services, our financial site (www.stocktracker.com)
services, travel services (www.pavliktravel.com), our portal site
(www.theexecutive.com), multiple email accounts, and web hosting including
customer's personal sites. We can supply computer and all hardware required for
the residential units Internet broadband service through our alliance with SOVO
Computers (www.sovo.net).
We will release further details regarding the private company upon completion of
the financing and negotiation of the definitive agreement.
On July 30, 2001 we announced a strategic alliance with MHL Communications Inc.,
(http://www.phonebridge.com), the Internet appliance telephony company. The
partnership will allow customers via the revolutionary ``PhoneBridge'' telephony
appliance to leverage their existing cordless telephones in completing calls
utilizing iHiway's VoIP network in Vancouver, B.C. available through our VoIP
portals, (http://www.ihiwayphone.com and http://www.phoneearth.com).
We recognize Internet telephony as a major, cost-effective innovation in
communications for both consumer and business users, and see MHL Comm., Inc. as
a premier provider of telephony appliance solutions. Our VoIP calling service is
a perfect match with MHL since MHL already ship units around the world. The
PhoneBridge works with VoIP services, whether they are phone-to-phone,
PC-to-phone, Video or enhanced web-to-phone applications.
By combining ``PhoneBridge'' with iHiway's VoIP Products, we are able to offer
robust communications services to our customers while increasing user loyalty
and retention through services that increase productivity and cut costs.
Customers no longer must be tethered to their computers to take part in the VoIP
Internet telephony revolution.
Due to economic conditions, we have been forced to lay-off a majority of our
workforce. We have also sold the ISP customers of our wholly-owned subsidiary,
BlueCrow Internet Company, Ltd.
REVENUES
Revenue consists of mainly the provision of Internet dial-up services. We
receive limited revenue from banner advertisements, web-site development and
hosting, e-commerce commission revenue and the resale of products over the
Internet.
Revenue is recognized at the time services are provided. All related costs are
recognized in the period in which they occur. Customer deposits for Internet
dial-up services to be provided in the future are treated as deferred revenues.
COST OF REVENUES
Cost of revenues consists primarily of the cost of serving our Internet dial-up
service customers and the cost of developing web-sites for customers. These
costs include salaries for technical support and customer service, depreciation
of Internet dial-up and web-site hosting equipment, license fees, equipment
leasing costs, telephone line costs and rent to house equipment and staff
directly involved in serving customers.
Our network and service costs have historically included equipment installation
and ongoing service and maintenance charges. In April, 2001, we sold YesIC
Communications Ltd. in order to focus on our Vancouver-based center which has
been developed to provide state of the art services to emerging markets.
OTHER OPERATING EXPENSES
Our other operating expenses include portal site development and maintenance,
information systems, billing and collections, general management and overhead,
and administrative functions. We have recently scaled down our operations in
order to reduce overhead through reduction in staffing and amalgamation of
offices.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED AUGUST 31, 2001 AS COMPARED TO
THE THREE MONTHS ENDED AUGUST 31, 2000
The following results of operations do not include the discontinue operations of
YesIC Communications Inc. as this subsidiary was sold during fiscal 2000. The
discontinued loss for the three months ended August 31, 2000 from YesIC was
($189,000).
REVENUES
Revenues decreased by $16,000 (38%) to $26,000 from $42,000 in 2000. This
decrease was due to the reduction in ISP customers and revenues.
COST OF REVENUES
Cost of revenues decreased by $33,000 (31%) to $72,000 from $105,000 in 2000.
The largest components of cost of revenues are telephone costs and Internet and
license fees which are reduced due to the sale of our subsidiary in Toronto.
GROSS PROFIT
Gross profit increased by $18,000 (28%) to ($46,000) from ($64,000) in 2000.
Increased competition in the Internet Service Provider industry increases
pressure of fee reduction for new subscribers and renewing subscribers.
MARKETING AND SALES EXPENSES
Marketing and sales expenses have decreased by $62,000 (82%) to $14,000 from
$76,000 in 2000. We had very little marketing and sales effort in the first
three months of fiscal 2002.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for corporate overhead activities and
Internet business-related activities combined have decreased by $407,000 to
$78,000 from $485,000 in 2000.
General and administrative expenses relating to corporate overhead activities,
and not Internet business-related activities, have decreased by $267,000 to
$61,000 from $328,000 in 2000. Expenses relating to being an active operating
public company including investor relations and financial consulting have been
curtailed.
Investor relations and financial consulting decreased by $82000 to $2,000 as
compared to $84,000 in 2000. Expenses relating to being an active operating
public company including investor relations and financial consulting have been
curtailed.
Professional fees decreased by $45,000 to $9,000 from $54,000 in 2000. The costs
in 2000 related to a number of security issuances and regulatory matters and
legal costs incurred in deferring a claim against the Company.
General and administrative expenses relating to Internet business related
activities increased by $1,000 to $15,000 from $14,000 in 2000.
PRODUCT DEVELOPMENT EXPENSES
Product development costs consist of expenses incurred by us in the development
and creation of our portal site and our VoIP project. Product development costs
include compensation and related expenses for programmers, depreciation of
computer hardware and software, rent, telephone and costs incurred in developing
features and functionality of the service. Product development costs are
expensed as incurred.
Product development expenses decreased by $85,000 (96%) to $4,000 from $89,000
in 2000. The major cause of the decrease in product development expenses was due
to staff lay-offs.
DEPRECIATION AND AMORTIZATION EXPENSES
Depreciation and amortization expense has been allocated to cost of revenues,
marketing and sales, general and administrative, and product development based
on the use of each capital asset. Approximately 60% of capital assets was used
in cost of revenues, 15% in marketing and sales, 10% in general and
administrative and 15% in product development. Depreciation and amortization of
capital assets decreased by $8,000 to $26,000 as compared to $34,000 in 2000.
We anticipate entering into operating and capital leases for any network
equipment and software in the future to minimize capital expenditures.
NET LOSS FOR THE THREE MONTHS ENDED AUGUST 31, 2001 AS COMPARED TO THE THREE
MONTHS ENDED AUGUST 31, 2000
Our business is carried on in one industry segment being the provision of access
to the Internet and providing services, including web-hosting and VoIP to
individual and corporate subscribers.
Up until April 24, 2000, we operated in Vancouver, British Columbia and Toronto,
Ontario and also incurred some expenses in testing the US market. No revenues
were generated in the US market in either year. We now operate solely in
Vancouver, British Columbia.
Our head office is in Richmond, BC, Canada. The head office does not conduct any
business specifically related to the Internet. Our sole purpose is to provide
administration, investor relations services and services relating to being a
public company. Included in general and administrative expenses and net loss is
$61,000 relating to such activities. The net loss relating to Internet
activities in Canada amounted to $80,000 and the net loss relating to U.S.
portals was nil.
Our net losses have come mainly from investor relations activities and
professional fees in the United States and overhead costs associated with
organization, restructuring and financing operations in Toronto and Vancouver,
Canada. In 2000 our losses also stemmed from operating subsidiaries in Canada
that had not achieved profitability. These losses have been reduced in 2001 due
to the sale of our subsidiary in Toronto.
LIQUIDITY AND FINANCIAL RESOURCES AT AUGUST 31, 2001
We have historically satisfied our capital needs by borrowing from affiliates in
the short-term and by issuing equity securities and entering into capital
leases.
We have also used these sources to provide a portion of our operating cash
requirements to make up for a cash shortfall from operating activities. At the
beginning of the period we had a cash deficiency of ($2,000). During the period,
we used $184,000, generated by advances from affiliates to fund our operating
cash shortfall of $132,000 to repay a bank loan of $56,000, to make capital
expenditures of $1,000. This resulted in our cash deficiency position remaining
at ($2,000). The operation, development and expansion of our business will
likely require additional capital infusions for the foreseeable future.
We had a working capital deficit, as at August 31, 2001, of ($2,501,000), and
will require additional funds to finance our ongoing operating activities for
the foreseeable future and will need some funds for capital expenditures. We
plan to manage our payables balances and satisfy our operating and capital needs
partially by generating cash (although at a shortfall) through our operating
activities and partially through issuing equity securities.
We will require additional financing in order to carry out our business plan as
proposed. Our capital requirements may vary based upon: the timing and success
of our roll out and as a result of regulatory, technological and competitive
developments; demand for our services or our anticipated cash flow from
operations is less or more than expected; our development plans or projections
changing or proving to be inaccurate; our engaging in any acquisitions; or
accelerating deployment of our network services or otherwise altering the
schedule or targets of our roll out plan.
Management plans to raise additional equity financing from new investors through
a private placement. The offering will be a best efforts, no minimum, offering
consisting of 1,081,701 units at $0.15 per unit to raise proceeds of $162,255 of
which $46,500 raised to date. The remaining balance of the proceeds are secured
by promissory notes which are presently being converted into common shares. Each
unit will consist of one share and one warrant to purchase one additional share
at $0.20 per share for a period of one year from date of issuance.
We have not achieved profitable operations since our inception and have suffered
mounting losses of $8,046,415 to August 31, 2001.
PART II Other Information
Item 1. Legal Proceedings
-------- ------------------
None
Item 2. Changes in Securities
-------- -----------------------
Refer to Notes to Financial statements attached hereto.
Item 3. Defaults upon Senior Securities
-------- ----------------------------------
None
Item 4. Submissions of Matters to a Vote of Security Holders
-------- ------------------------------------------------------------
None
Item 5. Other Information
-------- ------------------
None
Item 6. Exhibits and Reports on Form 8BK
-------- -------------------------------------
None
Signature
---------
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, hereunto duly
authorized.
Dated: October 15, 2001
INFORMATION HIGHWAY.COM, INC.
By: /s/ John G. Robertson
John G. Robertson, President
(Principal Executive Officer)
By: /s/ James Vandeberg
James Vandeberg, Chief Financial Officer
(Principal Financial Officer)