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 November 30, 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.
-----------------------------
(Name of Small Business Issuer in its Charter)
Florida 65-0154103
- ------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No)
#120 - 3011 Viking Way
Richmond, BC V6V 1W1 Canada
----------------------------------------
(Address of Principal Executive Offices)
(604) 278-5996
-------------------------
Issuer's Telephone Number
#185 - 10751 Shellbridge Way
Richmond, BC V6X 2W8 Canada
-------------------------------------------------------------
(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:
January 18, 2002
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
--- ---
Information Highway.com, Inc.
INDEX
Part I Financial Information
Item 1. Financial Statements
Balance Sheet as of November 30, 2001 and May 31, 2001
Statement of Operations for the three months and six months ended
November 30, 2001
Statement of Cash Flows for six months ended November 30, 2001
Notes to Financial Statements
Item 2. Management's Discussion and Analysis or Plan of Operation
PART II - Other Information
Information Highway.com, Inc.
Consolidated Balance Sheets
November 30, May 31,
2001 2001
$ $
(unaudited) (audited)
Assets
Current Assets
Accounts receivable 2,570 20,424
Inventory (Note 2(f)) 24,921 24,921
Prepaid expenses 11,198 13,680
- -------------------------------------------------------------------------------------------
Total Current Assets 38,689 59,025
Property, Plant and Equipment (Note 4) 231,949 288,981
- -------------------------------------------------------------------------------------------
Total Assets 270,638 348,006
===========================================================================================
Liabilities and Stockholders' Deficit
Current Liabilities
Checks issued in excess of funds on deposit 10,083 2,117
Accounts payable 404,493 362,077
Accrued liabilities 471,511 413,212
Deferred revenue 21,919 52,986
Bank loan - 55,613
Advances from related parties (Note 7) 358,907 236,387
Convertible Debentures (Note 5) 1,320,402 1,297,964
Current portion of obligations under capital leases (Note 6) 51,452 31,611
- -------------------------------------------------------------------------------------------
Total Current Liabilities 2,638,767 2,451,967
Obligations Under Capital Leases (Note 6) 1,126 22,192
- -------------------------------------------------------------------------------------------
Total Liabilities 2,639,893 2,474,159
- -------------------------------------------------------------------------------------------
Contingencies (Notes 1 and 9)
Stockholders' Deficit
Common Stock (Note 8), 50,000,000 shares authorized, par 937 914
value $.0001 per share, 9,382,352 and 9,148,500 issued and
outstanding respectively
Additional Paid in Capital - Common Stock 5,102,335 5,086,269
Additional Paid in Capital - Warrants to purchase stock 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 8,066 (5,805)
- -------------------------------------------------------------------------------------------
5,808,958 5,778,998
Accumulated Deficit (8,178,213) (7,905,151)
- -------------------------------------------------------------------------------------------
Total Stockholders' Deficit (2,369,255) (2,126,153)
- -------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Deficit 270,638 348,006
===========================================================================================
The accompanying notes are an integral part of these financial statements
Information Highway.com, Inc.
Consolidated Statements of Operations and Deficit
Three Months Ended Six Months Ended
November 30, November 30,
2001 2000 2001 2000
(unaudited) (unaudited)
$ $ $ $
Revenues - 4,175 - 16,088
Cost of Revenues - 102,568 - 167,706
- ---------------------------------------------------------------------------------------------------------
Gross Profit (Loss) - (98,393) - (151,618)
- ---------------------------------------------------------------------------------------------------------
Operating Expenses
Marketing and sales - 6,494 - 58,091
General and Administrative 98,992 451,917 196, 054 923,136
Product development - 44,812 - 132,853
- ---------------------------------------------------------------------------------------------------------
Total Operating Expenses 98,992 503,223 196,054 1,114,080
- ---------------------------------------------------------------------------------------------------------
Loss from Continuing Operations (98,992) (601,616) (196,054) (1,265,698)
- ---------------------------------------------------------------------------------------------------------
Discontinued Operations (Note 3)
Loss from Operations from YesIC - - (494,409)
Communications, Inc. (305,796)
Loss from Operations from Pavlik Travel Services - - (11,550)
Ltd. (11,550)
Loss from Operations from Blue Crow Internet Co. (77,008) (80,439)
Ltd. (32,806) (31,016)
- ---------------------------------------------------------------------------------------------------------
Loss from discontinued operations (32,806) (348,362) (77,008) (586,398)
- ---------------------------------------------------------------------------------------------------------
Net loss for the period (131,798) (949,978) (273,062) (1,852,096)
Deficit - Beginning of Period (8,046,415) (6,693,437) (7,905,151) (5,791,319)
- ---------------------------------------------------------------------------------------------------------
Deficit - End of Period (8,178,213) (7,643,415) (8,178,213) (7,643,415)
- ---------------------------------------------------------------------------------------------------------
Basic loss from continuing operations 0.01 0.08 0.02 0.15
Basic loss from discontinued operations - 0.04 0.01 0.07
- ---------------------------------------------------------------------------------------------------------
Basic loss per share 0.01 0.12 0.03 0.22
=========================================================================================================
Weighted average shares used to compute 9,382,000 8,211,000 9,285,000 8,178,000
basic loss per share
=========================================================================================================
Diluted loss per share has not been presented as the result is anti-dilutive.
The accompanying notes are an integral part of these financial statements
Information Highway.com, Inc.
Consolidated Statements of Cash Flows
Six
months ended
November 30,
2001 2000
$ $
(unaudited) (unaudited)
Cash Flows to Operating Activities
Net loss (273,062) (1,852,096)
Adjustments to reconcile net loss to cash
Depreciation and amortization of property, plant and equipment and 50,311 82,118
goodwill
Amortization of convertible debenture valuation allowance 37,439 48,263
Services paid for by issuing common shares and warrants - 41,388
Shares issued for convertible debenture interest 1,089 1,963
(Gain) Loss on sale of computer equipment 2,532 (1,952)
Change in non-cash working capital items
Decrease in accounts receivable 17,854 11,826
Decrease in prepaid expenses 2,482 128,832
(Increase) in inventory - (5,492)
Increase in accounts payable and accrued liabilities 100,715 317,816
Increase (decrease) in deferred revenues (31,067) 15,058
- --------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (91,707) (1,212,276)
- --------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Share subscriptions in subsidiary - 119,629
Common stock issued - 6,250
Increase in related party advances 122,520 254,663
Increase (repayment) of bank loan (55,613) 67,636
Capital lease obligations repaid (1,225) (19,780)
- --------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 65,682 428,398
- --------------------------------------------------------------------------------------------
Cash Flows to Investing Activities
Purchase of subsidiary - (56,148)
Proceeds from sale of computer equipment 5,494 6,250
Acquisition of property, plant and equipment (1,306) (32,090)
Restricted cash - (26,042)
- --------------------------------------------------------------------------------------------
Net Cash from (to) Investing Activities 4,188 (108,030)
- --------------------------------------------------------------------------------------------
Translation Adjustments 13,871 623
- --------------------------------------------------------------------------------------------
Decrease in Cash During the Period (7,966) (891,285)
Cash and equivalents - Beginning of Period (2,117) 857,949
- --------------------------------------------------------------------------------------------
Cash and equivalents - End of Period (10,083) (33,336)
============================================================================================
Non-Cash Financing Activities
Value of Common Shares issued for services - 41,388
Value of Common Shares issued for convertible debentures and 16,089 61,963
accrued interest converted
- --------------------------------------------------------------------------------------------
============================================================================================
Supplemental disclosures:
Interest paid in cash 630 202,495
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.
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.
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. See
Note 3(a) for the acquisition and disposition (both during fiscal 2001) of
a company in the travel industry and Note 3(b) for the sale of its Ontario,
Canada operating subsidiary sold in fiscal 2001. See Note 3(c) for the sale
of the Company's dial up and web hosting business owned by its British
Columbia, Canada operating subsidiary.
The Company has not achieved profitable operations since inception and has
suffered mounting losses of $8,178,213, has a working capital deficit of
$2,600,078, and has sold or disposed of all significant continuing
operations as at November 30, 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
and/or acquire a profitable business. 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. These funds are not enough to re-capitalize the Company.
Significant additional funds will be required.
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 one consolidated, wholly-owned, Canadian subsidiary. The
business of the Company's only operating subsidiary was sold during
the current quarter (Note 3c). Two other operating Canadian
subsidiaries were sold during the previous year (Note 3a and 3b).
These subsidiaries are included in the current and 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.
(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
Revenues from continuing operations are not presented in the current
financial period as the Company has disposed of all operating
subsidiaries and is in a development phase pending the launch of new
services.
2. Significant Accounting Policies (continued)
(j) Cost of Revenues
All costs related to revenues are recorded as revenue is recognized.
Cost of revenues are not presented in the current financial period as
the Company is in a development phase pending the launch of new
services.
(k) 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.
(l) 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.
(m) 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)
(n) 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. 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 and the balance of $39,078
was paid in cash.
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 of $19,863 to
operations at February 28, 2001.
(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
shareholder's loans but subsequent to the sale, YESIC declared
bankruptcy and as a result the shareholders loans receivable totalling
$712,963 from YESIC were written off to operations at May 31, 2001.
(c) Disposition of dial-up and webhosting business of Blue Crow Internet,
Inc.
On September 19, 2001, the Company's wholly-owned subsidiary, Blue
Crow Internet Company, Inc., entered into an agreement to sell its
dial-up and webhosting customer base to PCNet International Inc. The
sale was completed on October 1, 2001 and included the bluecrow.com
domain name and several pieces of computer equipment. The Company has
received CDN$10,000 and could receive a monthly amount based on the
sold assets net monthly cash flow as outlined in the agreement over an
18 month period to a maximum CDN$120,000.
4. Property, Plant and Equipment
November 30, May 31,
2001 2001
Accumulated Net Book Net Book
Cost Amortization Value Value
$ $ $ $
(unaudited) (audited)
Computer equipment 399,431 238,602 160,829 197,232
Office furniture and equipment 39,546 22,358 17,188 19,408
Production equipment 25,000 16,150 8,850 10,412
Leasehold improvements 13,910 5,323 8,587 9,283
Assets under capital lease 98,480 61,985 36,495 52,646
----------------------------------------------------------------------------------------
576,367 344,418 231,949 288,981
========================================================================================
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.
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 quarter ended August 31, 2001, 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
Fiscal Year Payments
$
2002 31,561
2003 23,671
-----------
55,232
Less amount representing interest 2,654
-----------
52,378
Less current portion 51,452
-----------
1,126
===========
7. Related Party Balances/Transactions
November 30, 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. 370,300 223,892
(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. (11,393) 12,495
Net amount owing to related parties 358,907 236,387
(b) Transactions
See Note 3(a) for the sale of a travel agency to a related party for
fair value.
8. Common Stock
Additional
No. of Par Value 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 (audited) 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 (audited) 9,148,500 914 5,086,269
Shares issued pursuant to conversion of
debentures 233,852 23 16,066
---------------------------------------------------------------------------------------
Balance as at November 30, 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) Common shares and warrants issued for cost
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 (expired). 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.
8. Common Stock (continued)
(b) Common Shares and warrants issued for services
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 were charged to operations during fiscal 2001.
The Company 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
over the life of the option.
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 November 30, 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 30
========= ======== ==========
Effective January 17, 2001 the exercise price of all outstanding stock
options was 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
November 30, 2001 and 2000 would have been as follows:
November 30, November 30,
2001 2000
$ $
(unaudited) (unaudited)
Net loss
As reported (273,062) (1,852,096)
Pro forma (273,937) (1,866,674)
Basic net loss per share
As reported (.03) (.22)
Pro forma (.03) (.23)
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 will 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 six months
ended November 30, 2001 was $nil (2000 - $305,000) 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 $196,054 (2001 - $618,097) relating
to such activities. The net loss relating to Internet activities in Canada
amounted to $77,008 (2001 - $917,843), the net loss relating to US portal
costs was $nil (2001 - $304,605) and the net loss relating to the travel
agency in Canada was $nil (2000 - $11,550).
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
Through our portal sites we provide information which we believe is 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 sites may be accessed through the
Internet at www.theexecutive.com and our new investment portal site
www.stock-tracker.net. 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.
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 3011 Viking
Way, Suite 120, Richmond, British Columbia V6V 1W1, 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.
On September 19, 2001, the Company's wholly-owned subsidiary, Blue Crow Internet
Company, Inc., entered into an agreement to sell its dial-up and webhosting
customer base to PCNet International Inc. for maximum consideration of
Cdn$120,000. The sale was completed on October 1, 2001 and included the
bluecrow.com domain name and several pieces of computer equipment.
Our Portal Sites
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 sites
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 two basic portal
sites may be accessed through the Internet at www.theexecutive.com and
www.stock-tracker.net. 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 www.theexecutive.com portal site has assembled a functional portal site to
enable users to access the information they require immediately. 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
The www.stock-tracker.net portal site has assembled a functional portal site
which will be a valuable research tool for investors and brokers. The main
features of the site will consist of:
- stock profile of feature companies;
- stock charts;
- quotation service;
- view up to date news releases;
- order press packages from feature companies;
- create a portfolio and track performance of stock.
We have committed significant resources to the development of the portal sites.
Our portal sites 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 sites make 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 sites' 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 which we
have since discontinued.
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 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 November 30, 2001.
At November 30, 2001, our accumulated deficit was $8,178,213 and our working
capital deficit was $2,600,078. We expect to incur substantial operating losses,
net losses and negative operating cash flow for the near term.
PROGRESS REPORT FROM SEPTEMBER 1, 2001 TO JANUARY 18, 2002
On September 19, 2001, the Company's wholly-owned subsidiary, Blue Crow Internet
Company, Inc., entered into an agreement to sell its dial-up and webhosting
customer base to PCNet International Inc. for maximum consideration of
Cdn$120,000. The sale was completed on October 1, 2001 and included the
bluecrow.com domain name and several pieces of computer equipment.
REVENUES
Revenues are not presented in the current financial period as we are in a
development phase pending the launch of new services.
COST OF REVENUES
All costs related to revenues are recorded as revenue as recognized. Cost of
revenues are not presented in the current financial period as we are in a
development phase pending the launch of new services.
OTHER OPERATING EXPENSES
Operating expenses include compensation, depreciation, rent and telephone costs
incurred and are included in general and administrative expenses in the current
year. 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 SIX MONTHS ENDED NOVEMBER 30, 2001 AS COMPARED TO
THE SIX MONTHS ENDED NOVEMBER 30, 2000
The following results of operations do not include the discontinued operations
of YesIC Communications Inc. nor of Pavlik Travel Services Ltd. as these
subsidiaries were sold during fiscal 2000. In addition, as a result of the sale
of Bluecrow Internet Co. Ltd.'s dial-up and webhosting customer base, the
results do not include the operations of Bluecrow Internet Co. Ltd. The
discontinued loss for Bluecrow for the six months ended November 30, 2001 was
($77,000). The discontinued loss for the six months ended November 30, 2000 from
YesIC was ($494,000), for Pavlik Travel was ($12,000) and for Bluecrow was
($80,000).
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for corporate overhead activities and portal
business-related activities combined have decreased by $727,000 to $196,000 from
$923,000 in 2000.
During fiscal 2000 the Company had begun expansion of its ISP business into the
United States. The cost for the six months ended November 30, 2001 was $nil
compared to $305,000 in 2000 which was charged to operations as a general and
administrative expense.
General and administrative expenses relating to corporate overhead activities,
and not Internet business-related activities, have decreased by $422,000 to
$196,000 from $618,000 in 2000. Expenses relating to being an active operating
public company including investor relations and financial consulting have been
curtailed.
Investor relations and consulting decreased by $158,000 to $2,000 as compared to
$160,000 in 2000. Expenses relating to being an active operating public company
including investor relations and consulting have been curtailed.
Interest charges decreased by $130,000 to $77,000 from $207,000 in 2000. The
costs in 2000 included penalty interest charges. 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 had been paying
these penalties until October 11, 2000 being the date the Registration Statement
was declared effective
Professional fees decreased by $61,000 to $28,000 from $89,000 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.
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 $32,000 to $50,000 as compared to $82,000 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 SIX MONTHS ENDED NOVEMBER 30, 2001 AS COMPARED TO THE SIX
MONTHS ENDED NOVEMBER 30, 2000
Through our portal site compilation of Internet-based services and information,
we provide localized and portal content designed to cater to business
professionals.
During fiscal 2000 the Company had begun expansion of its ISP business into the
United States. The cost for the six months ended November 30, 2001 for this US
expansion was $nil compared to $305,000 in 2000 which was charged to operations
as a general and administrative expense. No revenues were generated in the US
market in either year.
Up until April 24, 2000, we operated in Vancouver, British Columbia and Toronto,
Ontario. Thereafter, until October 1, 2001, we operated solely in Vancouver,
British Columbia. Since October 1, 2001 we have limited our activities to the
operation of a public company. Discontinuing unprofitable Canadian operations
has improved our net loss situation by $509,000 from ($586,000) in 2000 to
($77,000) in 2001.
Our 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. General and administrative expenses relating to corporate
overhead activities, and not Internet business-related activities, have
decreased by $422,000 to $196,000 from $618,000 in 2000. Expenses relating to
being an active operating public company including investor relations and
consulting have been curtailed.
LIQUIDITY AND FINANCIAL RESOURCES AT NOVEMBER 30, 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.
During 2001 we financed our operations by receiving financial support from
companies affiliated with our president in the amount of $123,000. These
amounts are unsecured, non-interest bearing and due on demand. In addition, we
received $4,000 net positive cash from sales of computer equipment and $14,000
was the positive foreign currency translation adjustment.
During 2001 we invested these funds as follows:
1. $92,000 of these funds were spent on operating activities as discussed
above under Results of Operations.
2. $57,000 of these funds went toward a bank loan and capital lease
obligations.
Overall, our cash position has decreased by $8,000 from negative $2,000 to
negative $10,000.
We had a working capital deficit, as at November 30, 2001, of ($2,600,078), 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 has been 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 $8,178,213 to November 30, 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 8-K
- -------- -------------------------------------
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: January 18, 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)