Registration No. -
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INFORMATION HIGHWAY.COM, INC.
(Exact name of registrant as specified in its charter)
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Florida 7389 65-015410
(State or other jurisdiction
of incorporation or (Primary Standard Industrial (I.R.S. Employee
organization) Classification Code Number) Identification No.)
185 - 10751 Shellbridge Way
Richmond, British Columbia V6X 2W8, CANADA
(604) 278-5996
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Agent for Service: With a Copy to:
John G. Robertson, President James L. Vandeberg
INFORMATION HIGHWAY.COM, INC. 1601 Fifth Avenue, Suite 2100
185 - 10751 Shellbridge Way Seattle, Washington 98101-1681
Richmond, British Columbia V6X 2W8, CANADA (206) 447-7000
(604) 278-5996
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
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Title of each class of Maximum Maximum Amount of
securities to be Amount to be offering price aggregate registration
registered registered per unit offering price fee
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Common.................. 4,089,750(2) 2.875 per share(2) 11,758,031 3,104.12
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(1) Estimated solely for the purpose of calculating the amount of the
registration fee. Pursuant to Rule 457(c) under the Securities Act of
1933 (the "Securities Act"), the price per share is estimated based on
the average of the high and low prices reported for shares of the
Information Highway.com's Common Stock as of May 8, 2000.
(2) Includes the registration for resale of shares of Common Stock issuable
upon exercise of warrants and options, and conversion of debentures.
Assumes the conversion of all debentures and exercise of all options and
warrants at the maximum number of shares issuable. For a description of
the number of shares and basis of ownership, please see "Selling
Shareholders". For a description of the various securities referred to
herein and the transactions in which they were issued, see "Description
of Securities." All sales offered pursuant to this Registration Statement
relate only to resales by Selling Shareholders.
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The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to such section 8(a), may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+We will amend and complete the information in this prospectus. Although we +
+are permitted by us federal securities law to offer these securities using +
+this prospectus, we may not sell them or accept your offer to buy them until +
+the documentation filed with the sec relating to these securities has been +
+declared effective by the SEC. This prospectus is not an offer to sell these +
+securities or our solicitation of your offer to buy these securities in any +
+jurisdiction where that would not be permitted or legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION--APRIL , 2000
PROSPECTUS
, 2000
INFORMATION HIGHWAY.COM INC.
185 - 10751 Shellbridge Way
Richmond, British Columbia V6X 2W8, CANADA
(604) 278-5996
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4,089,750 Shares
of Common Stock
to be sold by selling shareholders
This prospectus is part of a registration statement that permits selling
shareholders of Information Highway.com to sell their shares on a continuous or
delayed basis in the future. Information Highway.com will not receive any of
the proceeds from the sale of these shares, but may receive proceeds from the
exercise of options and warrants to acquire shares that are registered as part
of this offering. Selling shareholders may sell their shares to the public
immediately upon the effectiveness of the registration statement, or they may
elect to sell some or all of their shares at a later date. As a result, it is
impracticable to state either the number of shares that will be available to
the public or their price.
This is not an underwritten offering. Information Highway.com's stock is
traded in the over-the-counter market (OTC) and quoted through the OTC Bulletin
Board under the symbol "IHWY." On May 8, 2000, the reported closing price of
Information Highway.com's stock was $3.00 per share.
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This investment involves a high degree of risk.
See "Risk Factors" beginning on page 4.
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NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF
THIS PROSPECTUS. NOR HAVE THEY MADE, NOR WILL THEY MAKE, ANY DETERMINATION
AS TO WHETHER ANYONE SHOULD BUY THESE SECURITIES. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
You should rely only on the information contained in this document.
Information Highway.com has not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities.
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TABLE OF CONTENTS
Page
----
Prospectus Summary.................................................... 2
Risk Factors.......................................................... 4
Use of Proceeds....................................................... 15
Determination of Offering Price....................................... 15
Dilution.............................................................. 15
Selling Shareholders.................................................. 16
Plan of Distribution.................................................. 17
Legal Proceedings..................................................... 17
Directors and Executive Officers...................................... 18
Security Ownership of Certain Beneficial Owners and Management........ 20
Description of Capital Stock.......................................... 21
Interests of Named Experts and Counsel................................ 21
Disclosure of Commission Position on Indemnification for Securities
Act Liabilities...................................................... 21
Organization within Last Five Years................................... 22
Description of Business............................................... 22
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 31
Description of Property............................................... 46
Certain Relationships and Related Transactions........................ 46
Market Price of and Dividends on Capital Stock and Other Shareholder
Matters.............................................................. 47
Executive Compensation................................................ 49
Financial Statements.................................................. F-1
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................. II-1
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all of the information you
should consider before buying shares in the offering. You should read the
entire prospectus carefully.
Investment Risks
An investment in this offering involves risk. The market for Internet
products, services and advertising is new, rapidly evolving and intensely
competitive. Our service has achieved only limited market acceptance to date.
Our Toronto business unit is our oldest operation, and it began operations only
four years ago. We have a limited operating history and a history of operating
losses. On a pro forma basis our net losses for the years ended May 31, 1999,
May 31, 1998 and May 31, 1997 were $949,000, $557,000 and $303,000,
respectively. Through the nine months ended February 29, 2000, our net loss was
$2,470,000. At February 29, 2000, our accumulated deficit was $4,127,000 and
our working capital was $163,000. We expect to incur substantial operating
losses, net losses and negative operating cash flow for the near term.
Information Highway.com, Inc.
Information Highway.com, Inc. conducts its operations through the following
three wholly-owned Canadian subsidiaries:
. 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.
Information Highway, Inc., a Washington corporation, initially acquired
these subsidiaries. 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) 278-7494 and our facsimile number is (604) 278-3409.
Our Business
We serve as an Internet Service Provider (referred to as an ISP in the
industry) for companies and individuals that need access to the Internet in
exchange for a recurring fee. We intend to provide ISP services to a steadily
growing number of cities in North America as a "Virtual ISP". Our Virtual ISP
business model allows us to avoid purchasing and installing "backbone"
communications equipment and infrastructure in each city where we plan to offer
ISP services. Instead, we use AT&T's DMS-500 telephone switches to permit our
customers to connect to the Internet from cities across Canada using AT&T's
ISP-PRI service and high-speed, fiber-optic ATM links. We have an agreement
with a company recently acquired by AT&T which permits us to use their Canadian
network. We have also entered into agreements that permit us to market access
to the Internet in the Northeast United States and 20 cities (some in the
Northeast) across the United States, and in Canada. Our Northeast United States
Internet access agreements permit us to provide Digital Subscriber Line ("DSL")
access, which enables users to remain connected to the Internet 24 hours a day,
eliminating annoying busy signals, as well as the time and cost of waiting to
connect, without disrupting the subscriber's normal telephone service. Toronto,
Ontario is the first market in which we provided ISP services, beginning about
four years ago.
2
Through our portal site compilation of Internet-based services and
information, "www.theexecutive.com," 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. We believe we provide friendly, easy to navigate interfaces,
which are designed specifically for targeted user groups. We plan to market the
portal site throughout North America and internationally. We will let other
ISPs display our portal site in certain market areas. We also offer our
commercial clients the ability to market their products and services to our
portal site users through our newly developed Virtual Mall.
We believe the portal site will be popular because most business
professionals do not want to spend their own time searching the Internet for
the information that they need. Our portal site has assembled a functional
business site so that users can immediately find what they need. 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;
. participate in online forums;
. carry out electronic transactions via e-commerce; or
. find a suitable restaurant in their area.
We do not charge a fee for access to the basic portal site. We plan to
charge a design fee and a recurring fee for our portal site services that we
customize for companies or associations. We expect to receive advertising
revenues from the portal site.
The Offering
Up to 4,089,750 shares of common stock may be offered by the selling
shareholders. This amount includes 2,225,000 shares to be issued upon
conversion of the $1,500,000 principal amount of 5% Convertible Debentures. See
"Selling Shareholders" and "Plan of Distribution." As of the date of this
Prospectus, only 489,750 of the shares registered for public sale are
outstanding. The remaining shares have not yet been issued, but may be obtained
by selling shareholders through the exercise of options and warrants and the
conversion of debentures, and resold by them pursuant to this Prospectus. See
"Description of Securities." 3,600,000 shares of common stock underlying
outstanding options and warrants and convertible debentures exercisable or
convertible at varying prices. Information Highway.com may receive the cash
proceeds from the exercise of outstanding warrants and will benefit through
reduction of indebtedness by conversion of outstanding debentures. The selling
shareholders may sell all or any portion of the shares in this offering in one
or more transactions by a variety of methods, including through the OTC
Bulletin Board or in negotiated transactions. The selling shareholders will
determine the selling price of the shares. The selling shareholders will also
pay any broker or dealer commission, fee or other compensation or underwriter
discount. Information Highway.com will not receive any proceeds from the sale
of the common stock by the selling shareholders. See "Selling Shareholders" and
"Plan of Distribution."
3
RISK FACTORS
You should not place undue reliance on forward-looking statements in this
prospectus. This prospectus contains forward-looking statements that involve
risks and uncertainties. We use words such as "anticipates", "believes",
"plans", "expects", "future", "intends" and similar expressions to identify
these forward-looking statements. This prospectus also contains forward-looking
statements attributed to certain third parties relating to their estimates
regarding the growth of the Internet, Internet advertising and online commerce
markets and spending. Prospective investors should not place undue reliance on
these forward-looking statements, which apply only as of the date of this
prospectus. Our actual results could differ materially from those anticipated
in these forward-looking statements for many reasons, including the risks faced
by us described in "Risk Factors" and elsewhere in this prospectus.
Information Highway.com's success is dependent on a number of factors which
should be considered by prospective investors. Our principal assets, YesIC,
World Tel and Blue Crow, were acquired very recently. We have a relatively
young company and do not yet have any net earnings or net profits, and there is
no assurance that we will operate profitably in the future. As such, there is
no assurance that Information Highway.com stock will provide a return on
investment in the future.
We Have a Limited Operating History
Because we have concentrated our operations in Canada and have not yet
rolled out our business in the United States, it is difficult to evaluate our
business and our prospects. Our revenue and income potential is unproven and
our business model is still emerging. Our Toronto business unit is our oldest
ISP operation, and it began operations only four years ago. Our portal site is
just being completed. An investor in our common stock must consider the risks
and difficulties frequently encountered by early stage companies in new and
rapidly evolving markets. These risks include:
. our complete dependence on the growth of the acceptance of the Internet
as an electronic commerce medium;
. our need to develop and upgrade our infrastructure, including internal
controls, transaction processing systems, data storage and retrieval
systems and Web site;
. our need to manage changing operations, including implementation of new
financial and accounting systems; and
. our dependence upon and need to hire key personnel including software
developers.
We cannot assure you that our ISP business will retain its existing
customers or attract new ones, or that our portal site service will retain its
existing, or attract new, advertisers, consumers and network affiliates,
achieve significant additional revenues or improve operating margins in future
periods. Our Virtual Mall may not be accepted in the marketplace at all. There
can be no assurance that our services will achieve commercial success and, if
they do not, the price of our common stock will decline.
We Have a History of Losses and Expect Future Losses
We have not achieved profitability. We expect to incur net losses for the
foreseeable future and may never become profitable. On a pro forma basis our
net losses for the years ended May 31, 1999, May 31, 1998 and May 31, 1997 were
$949,000, $557,000 and $303,000, respectively. Through the nine months ended
February 29, 2000, our net losses were $2,470,000. At February 29, 2000, our
accumulated deficit was $4,127,000 and our working capital was $163,000. We
expect to incur substantial operating losses, net losses and negative operating
cash flow for the near term.
Our limited operating history makes it difficult to forecast our future
operating results. We cannot be certain that the recent growth in our revenues
will continue. We expect to continue to increase our marketing
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and sales, product development and general and administrative expenses. As a
result we will need to generate significant additional revenue and/or raise
additional funds to achieve profitability. If we do achieve profitability, we
cannot be certain that we will sustain or increase it.
Our Quarterly Financial Results Are Subject to Significant Fluctuations Because
of Many Factors, and Any of These Could Adversely Affect Our Stock Price
We believe that quarter-to-quarter comparisons of our operating results are
not a good indication of our future performance. It is likely that in some
future quarter our operating results may be below the expectations of public
market analysts and investors and, as a result of these or other factors, the
price of our common stock may fall. Our operating results have varied widely in
the past, and we expect that they will continue to vary significantly from
quarter-to-quarter due to a number of factors, including:
. demand for our online services by ISP customers, advertisers and
electronic shopping consumers;
. prices paid by ISP customers for Internet connections, which may
fluctuate due to price competition;
. prices paid by advertisers using the portal site service;
. our costs of attracting electronic shopping consumers to the portal
site, including costs of receiving exposure on third-party Web sites and
advertising costs;
. costs related to agreements with suppliers of content to our service and
professional services;
. loss of agreements with suppliers of content to our service and
professional services;
. our ability to significantly increase our distribution channels;
. the amount and timing of operating costs and capital expenditures
relating to expansion of our operations;
. costs and delays in introducing new services and improvements to
existing services;
. changes in the growth rate of Internet usage and acceptance by consumers
of electronic commerce;
. technical difficulties, system failures or Internet downtime;
. government regulations related to the Internet;
. our ability to upgrade and develop our information technology systems
and infrastructure;
. costs related to acquisitions of technologies or businesses; and
. general economic conditions, as well as those specific to the Internet
and related industries.
As a result of our limited operating history, it is difficult to accurately
forecast our revenue, and we have limited meaningful historical financial data
upon which to base planned operating expenses. We plan to significantly
increase our operating expenses to expand our marketing and sales operations,
broaden our customer support capabilities and fund greater levels of product
development. We base our current and future expense levels on our operating
plans and estimates of future revenue, and our expenses are relatively fixed.
Revenue and operating results are difficult to forecast because they generally
depend upon
. the number of ISP customers we have at any given time;
. the volume of visits to our portal site;
. the amounts paid by advertisers for advertising on our portal site; and
. the extent to which our corporate clients desire customized portal
sites.
We have only partial control over these factors. As a result, we may be
unable to adjust our spending in a timely manner to compensate for any
unexpected revenue shortfall. We also may be unable to increase our spending
and expand our operations in a timely manner to adequately meet user demand to
the extent it exceeds our expectations.
5
Our Success Depends Upon Achieving a Large and Active Base of ISP Customers,
Advertisers and Electronic Shopping Consumers
Our ability to increase the volume of transactions on our services is
dependent upon achieving market acceptance from more ISP customers, advertisers
and electronic shopping consumers. In particular, we need to convince business
professionals of the superiority of our pre-selected compilation of services on
the portal site. Our service has achieved only limited market acceptance to
date. Internet sites are in their infancy in terms of establishing reputations
for content. Internet advertising in general is at an early stage of
development. Most potential advertisers have only limited experience
advertising on the Internet and have not devoted a significant portion of their
advertising expenditures to Internet advertising. Companies may not decide to
have us assist them to customize our portal site for their company's unique
needs. Our electronic commerce service may not achieve significant acceptance
by electronic shopping consumers. Failure to achieve and maintain a large and
active base of ISP customers, advertisers and electronic shopping consumers
would seriously harm our business.
Our Future Success Is Dependent Upon Further Developing and Enhancing Our
Business Relationships
We believe that our future success in penetrating our target markets depends
in part on our ability to further develop and maintain relationships with
owners of telecommunications networks and with content providers. Our
relationships with owners of telecommunications networks will permit us to
implement our "Virtual ISP" business model. If we cannot serve as an ISP for an
expanding base of customers, we will not be able to introduce new ISP customers
to the portal site. Similarly, if we introduce our ISP customers to the portal
site, but they do not like its content, we will lose advertisers and electronic
shopping consumers. We believe our relationships with owners of
telecommunications networks and with content providers are important in order
to facilitate broad market acceptance of our services and enhance our sales. If
we are unable to extend or obtain new agreements or arrangements for Virtual
ISP traffic in the United States on commercially acceptable terms or ensure the
highest quality content on our portal site, our business will be damaged.
We Are Dependent Upon Other Companies That Supply Services and Content to Us
If a telecommunications company that supplies us with Internet connections
suffers a service interruption, some or all of our ISP services, and perhaps
also our portal site, will also be interrupted. If a content provider suffers a
service interruption, or decides not to provide its content to us, we will lose
the ability to provide information to our portal site consumers that they may
have grown accustomed to receiving. There can be no assurance that we will be
successful in renewing contracts for these services and content on commercially
acceptable terms or that our costs with respect to these contracts will not
increase following any renewal. If we are unable to develop future key
relationships or maintain and enhance our existing relationships, our business
will be damaged.
Our Industry Is Highly Competitive, and We Cannot Assure You That We Will Be
Able to Compete Effectively
The market for Internet products, services and advertising is new, rapidly
evolving and intensely competitive. Information Highway.com currently or
potentially competes with many other ISPs, providers of Web directories, search
and information services as well as traditional media for consumer attention
and advertising expenditures. We expect competition to intensify in the future.
Barriers to entry may not be significant, and current and new competitors may
be able to launch new Websites at a relatively low cost. Accordingly, we
believe that our success will depend heavily upon achieving significant market
acceptance before our competitors and potential competitors introduce competing
services.
We compete with online services and other Websites, as well as traditional
offline media such as television, radio and print, for a share of advertisers'
total advertising budgets. We believe that the number of companies selling Web-
based advertising and the available inventory of advertising space has recently
increased substantially. Accordingly, we may face increased pricing pressure
for the sale of advertisements and direct marketing opportunities, which could
adversely affect our business and operating results.
6
Many of these competitors, as well as potential entrants into our market,
have longer operating histories, larger customer or user bases, greater brand
recognition and significantly greater financial, marketing and other resources
than we do. Many of these current and potential competitors can devote
substantially greater resources to promotion and Website and systems
development than we can. In addition, as the use of the Internet and other
online services increases, larger, well-established and well-financed entities
may continue to acquire, invest in or form joint ventures with providers of Web
directories, search and information services or advertising solutions, and
existing providers of Web directories, search and information services or
advertising solutions may continue to consolidate. In addition, providers of
Internet browsers and other Internet products and services who are affiliated
with providers of Web directories and information services in competition with
our portal site may more tightly integrate these affiliated offerings into
their browsers or other products or services. Any of these trends would
increase the competition we face and could adversely affect our business and
operating results.
We Are Dependent Upon Maintaining and Expanding Our Computer and Communications
Systems
Our failure to achieve or maintain high capacity data transmission without
system downtime and achieve improvements to our transaction processing systems
and network infrastructure would adversely affect our business and results of
operations. Our success, in particular our ability to provide high quality
customer service, largely depends on the efficient and uninterrupted operation
of our computer and communications systems in order to accommodate our ISP
customers, the electronic shopping consumers and advertisers using our service.
Our success also depends upon our ability to rapidly expand our transaction-
processing systems and network infrastructure without any systems interruptions
in order to accommodate any significant increases in use of our services. We
believe that our current transaction-processing systems and network
infrastructure are insufficient to support our future growth. Although we are
enhancing and expanding our transaction-processing systems and network
infrastructure, we have experienced periodic systems interruptions and
infrastructure failures, which we believe will continue to occur. In the past,
limitations of our technology infrastructure have prevented us from maximizing
our business opportunities. In addition, many of our software systems are
custom-developed and we rely on our employees and certain third-party
contractors to develop and maintain these systems. If certain of these
employees or contractors become unavailable to us, we may experience difficulty
in improving and maintaining these systems. Furthermore, we expect that we will
continue to be required to manage multiple relationships with various software
and equipment vendors whose technologies may not be compatible, as well as
relationships with other third parties to maintain and enhance our technology
infrastructure.
Continued Adoption of the Internet as a Method of Conducting Business is
Necessary for Our Future Growth
The failure of the Internet to continue to develop as a commercial and
business medium would adversely affect our business. The widespread acceptance
and adoption of the Internet by traditional businesses for conducting business
and exchanging information is likely only if the Internet provides these
businesses with greater efficiencies and improvements.
Failure to Expand Internet Infrastructure Could Limit Our Future Growth
The recent growth in Internet traffic has caused frequent periods of
decreased performance, and if Internet usage continues to grow rapidly, the
Internet's infrastructure may not be able to support these demands and its
performance and reliability may decline. If outages or delays on the Internet
occur frequently or increase in frequency, overall Web usage, including usage
of our ISP services and our portal site in particular, could grow more slowly
or decline. Our ability to increase the speed and scope of our services to
users is ultimately limited by and dependent upon the speed and reliability of
both the Internet and our customers', advertisers' and consumers' internal
networks. Consequently, the emergence and growth of the market for our services
depends upon improvements being made to the entire Internet as well as to our
individual customers', advertisers' and consumers' networking infrastructures
to alleviate overloading and congestion.
7
Increased Security Risks of Online Commerce May Deter Future Use of Our
Services
Concerns over the security of transactions conducted on the Internet and the
privacy of consumers may also inhibit the growth of the Internet and other
online services generally, and online commerce in particular. Our failure to
prevent security breaches could significantly harm our business and results of
operations. We cannot be certain that advances in computer capabilities, new
discoveries in the field of cryptography, or other developments will not result
in a compromise or breach of the algorithms we use to protect our transaction
data. Anyone who is able to circumvent our security measures could
misappropriate proprietary information, cause interruptions in our operations
or damage our brand and reputation. We do not believe that our data
repositories, financial systems and other technology resources are secure from
security breaches or sabotage and we occasionally experience attempts at
"hacking" or security breaches. We may be required to incur significant costs
to protect against security breaches or to alleviate problems caused by
breaches. Any well-publicized compromise of security could deter people from
using the Internet to conduct transactions that involve transmitting
confidential information or downloading sensitive materials, which would
adversely affect demand for ISP services, the business of our advertisers and,
accordingly, our business.
We Face the Risks of System Failures
We currently do not have a disaster recovery plan in effect and do not have
fully redundant systems for our services at an alternate site. A disaster such
as fire, flood, earthquake, power loss, telecommunications failure, break-in,
sabotage or a similar event could severely damage our business and results of
operations because our services could be interrupted for an indeterminate
length of time. Our operations depend upon our ability to maintain and protect
our computer systems, most of which are located in our principal headquarters
in Vancouver, British Columbia. British Columbia is located on or near known
earthquake fault zones, including an offshore subduction zone that some experts
predict will cause an exceptionally strong earthquake. The occurrence of a
natural disaster or unanticipated problems at our principal headquarters could
cause interruptions or delays in our business, loss of data or render us unable
to provide our services. In addition, failure by the third-party network access
providers to provide the data communications capacity required by us to serve
our ISP customers, as a result of human error, natural disaster or other
operational disruptions, could cause interruptions in our service. The
occurrence of any or all of these events could adversely affect our reputation,
brand and business which could cause the price of our common stock to decline.
We Have Experienced Significant Growth in Our Business in Recent Periods, and
Any Failure to Manage This Growth Could Damage Our Business
Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We have increased, and plan to continue to increase, the
scope of our operations. These expansion efforts could be expensive and put a
strain on management, and, if we do not manage growth properly, it could
adversely affect our business. Our staff has grown and will continue to grow
substantially. At April 1, 2000, we had a total of 34 employees. We will need
to expand our infrastructure, which will include hiring certain key employees,
including without limitation, key employees in marketing and technology
development. Hiring such employees has historically been difficult, and we
cannot assure you that we will be able to successfully attract and retain a
sufficient number of qualified personnel.
Our Executive Officers and Certain Key Personnel are Critical to Our Business,
and These Officers and Key Personnel May Not Remain With Us in the Future
Our future success depends upon the continued service of our executive
officers and other key technology, marketing, sales and support personnel. Our
key employees include John Robertson, our Chief Executive Officer, and Ismael
Cristian Rodriguez, our Chief Technical Officer. None of our officers or key
employees is bound by an employment agreement for any specific term. Nor have
we obtained key man life insurance policy on for anyone. The loss of the
services of one or more of our key employees or executive officers, whether to
compete directly or indirectly with us, or otherwise, could have a significant
adverse effect on our business and
8
could cause the price of our stock to decline. In particular, the services of
key members of our research and development team would be difficult to replace.
We cannot assure you that we will be able to successfully retain our key
personnel or, in the event we were to lose the services of any key personnel,
to replace such personnel.
We Face Risks of Claims from Third Parties for Intellectual Property
Infringement and Other Matters That Could Adversely Affect Our Business
Our services operate in part by making Internet services and content
available to our users. This creates the potential for claims to be made
against us, either directly or through contractual indemnification provisions
with third parties. These claims might, for example, be made for defamation,
negligence, copyright, trademark or patent infringement, personal injury,
invasion of privacy or other legal theories. Any claims could result in costly
litigation and be time consuming to defend, divert management's attention and
resources, cause delays in releasing new or upgrading existing services or
require us to enter into royalty or licensing agreements. Royalty or licensing
agreements, if required, may not be available on acceptable terms, if at all.
Litigation regarding intellectual property rights is common in the Internet
and software industries. We expect that Internet technologies and software
products and services may be increasingly subject to third-party infringement
claims as the number of competitors in our industry segment grows and the
functionality of products in different industry segments overlaps.
There can be no assurance that our services do not infringe the intellectual
property rights of third parties. A successful claim of infringement against us
and our failure or inability to license the infringed or similar technology
could adversely affect our business.
We May Not be Able to Protect the Intellectual Property Rights Upon Which Our
Business Relies
Our success and ability to compete with the portal site are substantially
dependent upon our internally developed technology and data resources, which we
protect through a combination of copyright, trade secret and trademark law. We
have no patents issued to date on our technology.
We are aware that certain other companies are using or may have plans to use
the terms "Information", "Highway", "Executive", "Site" and variations of these
terms as part of a company name, domain name, trademark or service mark. We
cannot assure you that other companies will not claim superior rights to these
names or that we will not be subject to infringement claims. A successful
infringement claim by the owner of a mark including a variation on these words
could require us to change our name, which would be expensive and disruptive to
our business. Further, despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use our
services, technology and other intellectual property, and we cannot be certain
that the steps we have taken will prevent any misappropriation or confusion
among consumers and advertisers.
The Conversion Of Our Convertible Debentures Will Have A Dilutive Impact On Our
Shareholders
In March 2000, we sold $1.5 million of our 5% convertible debentures to an
investor. The issuance of shares of our common stock upon the conversion of
these debentures will have a dilutive impact on our shareholders. In addition,
the number of shares issued on conversion of the debentures will increase if
the market price of our common stock decreases. As a result, our revenue per
share could be materially decreased in future periods, and the market price of
our common stock could drop.
We May Need Additional Capital Which Could Dilute the Ownership Interest of
Investors
We require substantial working capital to fund our business. If we raise
additional funds through the issuance of equity, equity-related or convertible
debt securities, these securities may have rights, preferences or privileges
senior to those of the rights of our common stock and our stockholders may
experience additional
9
dilution. We cannot be certain that additional financing will be available to
us on favorable terms when required, or at all. Since our inception, we have
experienced negative cash flow from operations and expect to experience
significant negative cash flow from operations in the future.
Potential Acquisitions Could be Difficult to Integrate, Disrupt Our Business,
Dilute Stockholder Value and Adversely Affect Our Operating Results
We may make investments in or acquire complementary products, technologies
and businesses. These acquisitions and investments could disrupt our ongoing
business, distract our management and employees and increase our expenses.
Acquisition of another company could cause difficulties in assimilating that
company's personnel and operations. In addition, the key personnel of the
acquired company may decide not to work for us. Acquisitions of additional
services or technologies also involve risks of incompatibility and the need for
integration into our existing services and marketing, sales and support
efforts. If we finance the acquisitions by issuing equity securities, our
existing stockholders could be diluted. Any amortization of goodwill or other
assets, or other charges resulting from the costs of these acquisitions could
adversely affect our operating results.
Potential Year 2000 Problems with Our Internal Operating Systems or Our
Services Could Adversely Affect Our Business
We cannot assure you that we will not experience unanticipated negative
consequences from year 2000 problems, including material costs caused by
undetected errors or defects in the technology used in our internal systems.
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these code fields will need to accept four digit entries to distinguish
the year 2000 and 21st century dates from other 20th century dates. As a
result, computer systems and/or software products used by many companies may
need to be upgraded to solve this problem. We cannot anticipate the cost of
addressing any year 2000 issues which may arise, and we currently have no
contingency plans in place should a problem arise. We cannot assure you that we
will be able to modify our services and systems in a timely, cost effective and
successful manner should a year 2000 problem arise, and the failure to do so
could have a material adverse effect on our business and operating results.
Our Market May Undergo Rapid Technological Change and Our Future Success Will
Depend on Our Ability to Meet the Changing Needs of Our Industry
For our business to survive and grow, we must continue to enhance and
improve the functionality and features of our online services. The Internet and
the online advertising industry are rapidly changing. If new industry standards
and practices emerge, our existing services, technology and systems may become
obsolete. Our future success will depend on our ability to do the following:
. license and internally develop leading technologies useful in our
business;
. enhance our existing services;
. develop new services and technologies that address the increasingly
sophisticated and varied needs of prospective consumers; and
. respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
Developing our services and other proprietary technology entails significant
technical and business risks, as well as substantial costs. We may use new
technologies ineffectively, or we may fail to adapt our services, transaction-
processing systems and network infrastructure to user requirements or emerging
industry standards. If we face material delays in introducing new services,
products and enhancements, our users may forgo the use of our services and use
those of our competitors.
10
Government Regulation and Legal Uncertainties May Damage Our Business
The laws and regulations applicable to the Internet and our services are
evolving and unclear and could damage our business. There are currently few
laws or regulations directly applicable to access to, or commerce on, the
Internet. Due to the increasing popularity and use of the Internet, it is
possible that laws and regulations may be adopted, covering issues such as user
privacy, defamation, pricing, taxation, content regulation, quality of products
and services, and intellectual property ownership and infringement. Such
legislation could expose Information Highway.com to substantial liability as
well as dampen the growth in use of the Internet, decrease the acceptance of
the Internet as a communications and commercial medium, or require Information
Highway.com to incur significant expenses in complying with any new
regulations. The European Union has recently adopted privacy and copyright
directives that may impose additional burdens and costs on international
operations. In addition, several telecommunications carriers, including
America's Carriers' Telecommunications Association, are seeking to have
telecommunications over the Internet regulated by the Federal Communications
Commission, or FCC, in the same manner as other telecommunications services.
Because the growing popularity and use of the Internet has burdened the
existing telecommunications infrastructure and many areas with high Internet
usage have begun to experience interruptions in phone services, local telephone
carriers, such as Pacific Bell, have petitioned the FCC to regulate the
Internet and to impose access fees. Increased regulation or the imposition of
access fees could substantially increase the costs of communicating on the
Internet, potentially decreasing the demand for our services. A number of
proposals have been made at the federal, state and local level that would
impose additional taxes on the sale of goods and services through the Internet.
Such proposals, if adopted, could substantially impair the growth of electronic
commerce and could adversely affect us. Also, Congress recently passed (and the
President has signed into law) the Digital Millenium Copyright Act, which is
intended to reduce the liability of online service providers for listing or
linking to third-party Web sites that include materials that infringe
copyrights. Congress also recently passed (and the President has signed into
law) the Children's Online Protection Act and the Children's Online Privacy
Act, which will restrict the distribution of certain materials deemed harmful
to children and impose additional restrictions on the ability of online
services to collect user information from minors. Further, Congress recently
passed (and the President has signed into law) the Protection of Children from
Sexual Predators Act, which mandates that electronic communication service
providers report facts or circumstances from which a violation of child
pornography laws is apparent. Information Highway.com is currently reviewing
this legislation, and cannot currently predict the effect, if any, that this
legislation will have on our business. There can be no assurance that this
legislation will not impose significant additional costs on our business or
subject Information Highway.com to additional liabilities. Moreover, the
applicability to the Internet of existing laws governing issues such as
property ownership, copyright, defamation, obscenity and personal privacy is
uncertain. Information Highway.com may be subject to claims that our services
violate such laws. Any new legislation or regulation in the United States or
abroad or the application of existing laws and regulations to the Internet
could damage our business and cause the price of our common stock to decline.
Due to the global nature of the Internet, it is possible that the
governments of other states and foreign countries might attempt to regulate its
transmissions or prosecute Information Highway.com for violations of their
laws. Information Highway.com might unintentionally violate such laws. Such
laws may be modified, or new laws may be enacted, in the future. Any such
development could damage our business.
We May Incur Liabilities For the Activities of Users of Our Service
The law relating to the liability of providers of online services for
activities of their users is currently unsettled and could damage our business.
We do not carry insurance that will indemnify us for all liability for
activities of our users. We are aware that certain of our advertisers' Websites
offer or contain information about alcohol, tobacco, firearms, adult material
and other products, services and information that may be subject to regulation
by local, state or federal authorities. In addition, our advertisers' Websites
may contain text, images or information that could infringe third-party
copyrights, trademarks or other intellectual property rights. We cannot assure
you that Information- Highway.com will successfully avoid civil or criminal
liability for unlawful activities carried out by users of our service. The
imposition upon Information- Highway.com of potential
11
liability for unlawful activities of users of our service could require us to
implement measures to reduce our exposure to such liability, which may require
us, among other things, to spend substantial resources or to discontinue
certain service offerings. Any costs incurred as a result of such liability or
asserted liability could damage our business.
We Cannot Assure You That Our Stock Price Will Not Decline During or As a
Result of this Offering
The trading market price of our common stock may decline below its current
price. Our common stock is currently very thinly traded on the OTC bulletin
board. An active public market for our common stock may not develop or be
sustained during or after this offering. The additional shares made available
for sale in the market as a result of this offering may depress the price of
our common stock.
Future Sales of Our Common Stock May Depress Our Stock Price
If our stockholders sell substantial amounts of common stock in the public
market, including shares issued upon the exercise of outstanding options and
warrants, and the conversion of debentures, the market price of our common
stock could fall.
As of March 29, 2000, a total of 7,828,017 shares were outstanding, held by
189 shareholders of which 3,182,500 were unregistered shares held by
affiliates. Rule 144 under the Securities Act of 1933 limits the amount of
these unregistered shares that an affiliate may sell in the marketplace to
approximately one percent of outstanding shares of Information Highway.com
every three months. Most of these affiliate shares are owned of record or
beneficially by Mr. Robertson or his daughter.
12
The outstanding shares and currently exercisable options of Information
Highway.com, including the shares covered by this offering, may be summarized
as follows:
Number of
Shares Description
--------- -----------
2,487,767 Currently issued and permitted to be sold in secondary market
without restriction
1,081,900 Options that could be exercised and then the shares resold
immediately in secondary market without restriction
125,817 Shares that may be sold beginning on various dates from December 8,
2000 to March 2nd, 2001 in secondary market without restriction.
674,450 Shares that may be sold beginning on various dates from March 29,
2000 to February 18, 2001 in secondary market without restriction
129,750 Shares that may be sold beginning on various dates from May 27, 2000
to July 15, 2000 in secondary market without restriction
880,500 Shares that may be sold beginning February 23, 2001 in secondary
market without restriction*
129,750 Shares that may be sold beginning on various dates from March 3,
2001 to February 18, 2002 in secondary market without restriction*
674,450 Shares that may be sold beginning on various dates from May 27, 2001
to July 15, 2001 in secondary market without restriction
125,817 Shares that may be sold beginning on various dates from December 8,
2001 to March 2nd, 2002 in secondary market without restriction.
3,486,500 Shares held by affiliates that may be sold under either Rule 701 or
Rule 144 beginning March 29, 2000 and options held by affiliates
that may be exercised either pursuant to Rule 701 or Form S-8 (7
persons; each limited to 1% of outstanding shares every 3 months)
- --------
* Shareholders may sell earlier than date indicated subject to the limitation
that an affiliate may sell in the marketplace to approximately one percent of
outstanding shares of Information-Highway.com every three months
In addition, Information Highway.com has 610,317 warrants outstanding that
the holders may exercise up until dates ranging from October 6, 2000 to March
3, 2002, entitling holders to purchase 610,317 shares of common stock at prices
ranging from $4.00 to $6.22875 per share.
Information Highway.com also has 1,631,900 options available for grant which
may be exercised up until dates ranging from January 26, 2003 to December 1,
2004, entitling holders to purchase 1,631,900 shares of common stock at prices
ranging from $0.50 to $6.00 per share.
We Will Be Controlled by Our Current Officers and Directors After This Offering
Mr. Robertson, his daughter, certain companies and trusts that they
beneficially own, and other directors and officers of Information Highway.com
will, in the aggregate, beneficially own approximately [ ]% of our
outstanding common stock, assuming the issuance of all shares available under
the stock option plan and the warrants. These stockholders, if acting together,
would be able to significantly influence all matters requiring approval by our
stockholders, including the election of directors and the approval of mergers
or other business combination transactions.
13
We May Have to Compete with Other Companies That Have Greater Resources
Our services compete against those of other established companies, some of
which have greater financial, marketing and other resources. These competitors
may be able to institute and sustain price wars, or imitate the features of our
services, resulting in a reduction of our market share and profitability. In
addition, there are no significant barriers to new competitors entering the
market place.
We Will Have to Raise Additional Capital, Which May Not Be Available
In our short history, we have had to raise, by way of debt and equity
financing, considerable funds to meet our capital needs. We will require
additional funds to implement our business plan. There is no guarantee that we
will be able to continue to raise the funds needed for our business on
acceptable terms, or at all. Failure to raise the necessary funds in a timely
fashion could delay or prevent us from implementing our business plan and
damage our business.
We May Issue Additional Shares, Which Could Dilute Your Ownership Interest
The substantial portion of the 50,000,000 authorized shares of our common
stock are unissued. The Board of Directors has the power to issue such shares
without shareholder approval. None of the 10,000,000 authorized shares of Class
A Preferred Stock have been issued. The Class A Preferred Stock may be issued
in series from time to time with such designation, rights, preferences and
limitations as the Board of Directors may determine by resolution and without
shareholder approval. There are outstanding warrants and options whose holders
may acquire additional shares of common stock. We fully intend to issue
additional shares of common stock or shares of Preferred Stock if necessary in
order to acquire products, properties, capital, businesses or for any other
corporate purposes. Any additional issuances by Information Highway.com from
its authorized but unissued shares would have the effect of further diluting
the percentage interest of existing shareholders.
No Preemptive Rights and No Cumulative Voting
There are no preemptive rights in connection with the common stock.
Cumulative voting in the election of directors is not permitted. Accordingly,
the holders of a majority of the shares of common stock, present in person or
by proxy, will be able to elect all of our Board of Directors.
No Foreseeable Dividends
We have not paid dividends on our common stock and do not anticipate paying
dividends on our common stock in the foreseeable future.
Our Stock Price Is Volatile, and May Fluctuate Widely Despite Our Operating
Performance
The market for our common stock is highly volatile and will likely continue
to behave in this manner in the future. Additionally, market prices for
securities of many smaller companies have experienced wide fluctuations not
necessarily related to the operating performance of the companies themselves.
Our Common Stock May Be Considered a Low-Priced Security, Which May Reduce Its
Price Because It Is More Difficult to Find a Person Permitted to Purchase It
Our securities are subject to Rule 15g-9 under the Securities Exchange Act
of 1934, which imposes additional sales practice requirements on broker-dealers
who sell such securities to persons other than established customers and
"accredited investors" (generally, individuals with net worths in excess of
$1,000,000 or annual incomes exceeding $200,000, or $300,000 together with
their spouses). For transactions covered by this rule, a broker-dealer must
make a special suitability determination for the purchaser and have received
the purchaser's written consent to the transaction prior to sale. Consequently,
the rule may inhibit the ability of broker-dealers to sell our securities and
may inhibit the ability of shareholders to sell their shares in the secondary
market.
14
USE OF PROCEEDS
This prospectus is part of a registration statement that permits certain
selling shareholders to sell their shares on a continuous or delayed basis in
the future. Because this prospectus is solely for the purpose of selling
shareholders, Information Highway.com will not receive any proceeds from the
sale of stock being offered. Information Highway.com will, however, receive
proceeds from the exercise of options and warrants to acquire shares that are
registered as part of this offering.
DETERMINATION OF OFFERING PRICE
This prospectus is solely for the purpose of allowing certain of our
shareholders to sell their stock. The selling shareholders may sell their
shares when the registration statement becomes effective, or they may elect to
sell some or all of their shares at a later date while the registration
statement is effective. The selling shareholders will determine the price for
and timing of any sales of their stock.
DILUTION
This prospectus is for sales of stock by certain of our shareholders on a
continuous or delayed basis in the future. Sales of common stock by
shareholders will not result in any substantial change to the net tangible book
value per share before and after the distribution of shares by the selling
shareholders. There will be no change in net tangible book value per share
attributable to cash payments made by purchasers of the shares being offered.
Prospective investors should be aware, however, that the price of shares
covered by this prospectus may not bear any rational relationship to net
tangible book value per share of Information Highway.com.
15
SELLING SHAREHOLDERS
The following table gives the names of the shareholders for whose accounts
shares may be offered using this prospectus, the number of shares of common
stock of Information Highway.com beneficially owned by each named shareholder
before this offering, the percentage of the total shares of the company's
common stock as of March 29, 2000, represented by the shares owned, the number
of shares that may be offered for the stockholder's account in this offering,
and the number of shares to be owned by the shareholder following completion of
the offering. Beneficial ownership of shares includes any shares over which a
person exercises sole or shared voting or investment power, or of which a
person has the right to acquire ownership at any time within 60 days, for
example, through the exercise of a warrant, or an option that has vested as to
all or a portion of the underlying shares or through conversion of debentures.
Shares of common stock subject to warrants and options currently exercisable or
exercisable within 60 days are deemed outstanding for purposes of computing the
percentage ownership of the person holding the options, but are not deemed
outstanding for computing the percentage ownership of any other person. The
information regarding the selling shareholders' beneficial ownership after this
offering assumes that all shares of common stock offered by the selling
shareholders through this prospectus are actually sold.
Shares Shares
Beneficially Total shares beneficially
owned before beneficially Shares owned after
Name, Address and offering owned being offering
Position with --------------- --------------- offered --------------
Company, if any Direct Number Number Percent for sale Number Percent
----------------- ------ ------- ------- ------- --------- ------ -------
Gordon Friesen.......... 0 75,000 75,000 0.95 75,000 0 0.00
David Sass, Vice
President.............. 0 300,000 300,000 3.69 300,000 0 0.00
Russ Gallagher.......... 0 100,000 100,000 1.26 100,000 0 0.00
IP Equity Inc. ......... 225,000 125,000 350,000 4.40 350,000 0 0.00
Chris Agarwal........... 30,000 0 30,000 0.38 30,000 0 0.00
David Williamson
Associates Limited..... 5,000 0 5,000 0.06 5,000 0 0.00
Mark Nadelson........... 5,000 0 5,000 0.06 5,000 0 0.00
World of Internet.com
AG..................... 20,000 0 20,000 0.26 20,000 0 0.00
K & D Equities, Inc. ... 0 400,000 400,000 4.86 400,000 0 0.00
Garry Savage............ 0 100,000 100,000 1.26 100,000 0 0.00
Mallory M. Parmerlee
Trust Share............ 11,000 10,000 21,000 0.27 5,000 16,000 0.20
Shawn Lampman........... 12,500 25,000 37,500 0.48 12,500 25,000 0.32
Joe Ebner............... 25,000 50,000 75,000 0.95 25,000 50,000 0.64
Dave A. Hanson.......... 27,000 10,000 37,000 0.47 5,000 32,000 0.41
F.S.D.R.H. Trust........ 12,500 25,000 37,500 0.48 12,500 25,000 0.32
Gene Cartwright Living
Trust.................. 25,000 50,000 75,000 0.95 25,000 50,000 0.64
T. Kozub................ 5,000 10,000 15,000 0.19 5,000 10,000 0.13
The Sunrise Trust....... 45,000 30,000 75,000 0.95 15,000 60,000 0.77
Edward Keeney........... 3,000 6,000 9,000 0.11 3,000 6,000 0.08
T.H. Scheer............. 13,150 26,300 39,450 0.50 13,150 26,300 0.34
David Fan............... 6,600 13,200 19,800 0.25 6,600 13,200 0.17
Ladislav Korcek......... 2,000 4,000 6,000 0.08 2,000 4,000 0.05
Park Avenue Consulting
Group.................. 75,000 0 75,000 0.96 75,000 0 0.00
Senasqua Investors,
LLC(1)................. 0 411,000 411,000 4.99 2,500,000 0 0.00
- --------
(1) Based upon the terms of the Senasqua Investors, LLC Warrant to Purchase
Common Stock of Information Highway.com and Information Highway.com Inc.
5% Convertible Debenture which are exhibits to the registration statement
that includes this prospectus. The beneficial ownership of Senasqua
Investors, LLC is calculated based upon the price of the common stock as
of March 29, 2000, and on the limitation contained in the debenture that
Senasqua may only convert the debenture to the point where its aggregate
beneficial ownership is equal to or less than 4.999% of Information
Highway.com Inc.'s common stock. The shares being offered for sale are
calculated based upon Information Highway.com Inc.'s conservative estimate
of the maximum number of shares of its stock that it may be required to
register under the warrant and debenture. For a full discussion of the
terms of the warrant and debentures please see "Plan of Distribution."
16
PLAN OF DISTRIBUTION
This is not an underwritten offering. This prospectus is part of a
registration statement that permits selling shareholders to sell their shares
on a continuous or delayed basis in the future. Selling shareholders may sell
their shares to the public when the registration statement becomes effective,
or they may elect to sell some or all of their shares at a later date.
Information Highway.com has not committed to keep the registration statement
effective for any set period of time.
The shares of common stock offered hereby include the resale of 2,225,000
shares of common stock issuable upon conversion of the $1,500,000 principal
balance of 5% Convertible Debentures. These debentures are convertible into
shares of common stock at the conversion price for each share of common stock
equal to the lesser of (i) $6.22875 or (ii) .80 times the average of the five
lowest daily closing bid prices during the 20 days immediately preceding date
of notice of conversion of the debentures. The number of shares registered
pursuant to the conversion of debentures is calculated based upon Information
Highway.com's conservative estimate of the maximum number of shares of its
stock that it may be required to register under the debenture. The holder of
the debentures may not convert an amount of debentures that would result in
beneficial ownership of more than 4.999% of outstanding common stock of
Information Highway.com. The holder of the warrants and debentures, Senasqua
Investors LLC, may be deemed a statutory underwriter as a result of sales of
securities on this Form SB-2.
489,750 of the shares which may be offered by the selling shareholders are
outstanding on the date of this Prospectus, and the remaining 3,600,000 shares
may be issued by after the date of this Prospectus upon exercise of outstanding
options or warrants or the conversion of outstanding debentures held by selling
shareholders. All of the shares may be resold in the public market by the
selling shareholders. Information Highway.com will receive the exercise price
paid upon exercise of warrants and options for issuance of those shares;
however, any difference between that price and the price at which the shares
are sold in the market by the selling shareholders will accrue to the benefit
of the selling shareholders. Sales of any of these previously restricted shares
into the public market could impact the market adversely so long as this
offering continues. See "Risk Factors."
While the registration statement is effective, selling shareholders may sell
their shares directly to the public, without the aid of a broker or dealer, or
they may sell their shares through a broker or dealer on the OTC bulletin
board. Any commission, fee or other compensation of a broker or dealer would
depend on the brokers or dealers involved in the transaction. The selling
shareholders and any participating broker-dealers may be deemed to be
"underwriters" within the definition of Section 2(11) of the Securities Act of
1933, and any compensation received by these persons on resale may be deemed
"underwriting compensation."
LEGAL PROCEEDINGS
A Writ of Summons and Statement of Claim was filed against the Company in
the Supreme Court of British Columbia on April 20, 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 due pursuant to an
agreement and a stock option between the Company and the employee. The total
damages claimed amount to $597,000, including alleged unpaid remuneration and a
stock option benefit. The Plaintiffs are also claiming 5% of business revenue
from the operating subsidiary in Vancouver, Canada. The Company believes that
the Plaintiff's allegations are without legal or factual basis and therefore it
has not accrued any potential losses resulting from this claim except for legal
fees paid in establishing the defense. The Company intends to vigorously defend
this action. To the knowledge of the Company's Executive Officers and
Directors, the Company is not a party to any other legal proceeding or
litigation and none of its property is the subject of a pending legal
proceeding. Further, the Officers and Directors know of no other threatened or
contemplated legal proceedings or litigation.
17
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each Executive
Officer and Director of the Company:
Name Age Position
---- --- --------
John G. Robertson.. 59 President, Chief Executive Officer, Director
Jennifer Lorette... 27 Executive Vice President, Secretary/Treasurer,
Principal Accounting Officer and Chief financial
Officer, Director
Donna M. Moroney... 40 Vice-President, Legal and Administration, and Director
James Vandeberg.... 56 Chief Operating Officer, Attorney with Ogden Murphy
Wallace, PLLC, Information Highway.com's legal
counsel, and a Director
Mr. Robertson and Ms. Lorette have served as directors of our business since
the June 1997 Annual Meeting. Mr. Vandeberg was elected a director in January
1999. Ms. Moroney was elected a director of the Company in December, 1999. Each
director will serve until the next annual meeting of shareholders and their
respective successors are elected and qualified. All officers currently devote
part-time to the operation of the Company.
Executive Officers, Directors and Other Significant Employees of the
Company:
John G. Robertson--President, Principal Executive Officer and a member of the
Board of Directors
Mr. Robertson is a founder, President, Principal Executive Officer and a
member of the Board of Directors. Since October 1984, Mr. Robertson has been
President and a Director of Reg Technologies, Inc., a British Columbia
corporation trading on the Canadian Venture Exchange that, in cooperation with
certain controlled affiliates, is engaged in developing a rotary engine and
other devices utilizing Rand Cam Technology. Since February 1979, Mr. Robertson
has been President and a Director of LinuxWizardry Systems, Inc. (formerly
"Flame Petro-Minerals Corp."), a British Columbia corporation trading on the
OTC Bulletin Board and engaged in the development and marketing of a Linux
based, low cost router through its wholly-owned subsidiary, LinuxWizardry,
Inc., which was acquired in January 2000. Mr. Robertson is President, a
director and CEO of IAS Communications, Inc., an Oregon corporation traded over
the counter in the United States that has developed a television antenna which
is 14" in diameter and only 2 inches high that can replace existing outside log
periodic antennas and has the capability of receiving local television stations
up to a 60-mile radius.
Jennifer Lorette--Executive Vice President, Secretary/Treasurer, Principal
Financial Officer and Principal Accounting Officer, and a Member of the Board
of Directors
Ms. Lorette is a founder, Secretary/Treasurer, Principal Financial Officer
and Principal Accounting Officer. Since April 1994, Ms. Lorette has been Vice
President of Administration of Reg Technologies Inc. Since June 1994, Ms.
Lorette has been a Vice President of REGI U.S. and Chief Financial Officer and
Vice President of Linux Wizardry Systems Inc. From February 1994 to April 1994,
Ms. Lorette was an executive assistant at Reg Technologies, Inc. Ms. Lorette is
also Secretary/Treasurer of IAS Communications, Inc.
Donna M. Moroney--Vice-President, Legal and Administration, and a member of the
Board of Directors
Ms. Moroney has been a consultant to public companies since 1992. She has
been an officer of Information Highway.com since January 1998. She has been a
director of Linux Wizardry Systems Inc., an OTCBB company, since 1998. She is
an officer of Teryl Resources Corp., a Canadian Venture Exchange Company, a
director and officer of Teryl, Inc. Ms. Moroney has also been an instructor of
corporate/securities law for legal assistants.
18
James L. Vandeberg--Chief Operating Officer and a member of the Board of
Director
Mr. Vandeberg is an attorney with the Seattle, Washington law firm of Ogden
Murphy Wallace, PLLC. He has served as counsel to Information Highway.com since
1996. Mr. Vandeberg graduated cum laude from the University of Washington with
a Bachelor of Arts degree in accounting in 1966, and from New York University
School of Law in 1969, where he was a Root-Tilden Scholar. He became a member
of the Washington Bar Association in 1969 and of the California Bar Association
in 1973. Mr. Vandeberg's practice focuses on the corporate finance area, and he
specializes in securities and acquisitions. He is a member and former director
of the American Society of Corporate Secretaries. Mr. Vandeberg was previously
general counsel and secretary of two NYSE companies and is a director of IAS
Communications, Inc.
Ismael Cristian Rodriguez--Manager of Information Systems and Senior Network
System Administrator
Mr. Rodriguez is 28 years old. He is the Manager of Information Systems and
Senior Network System Administrator, a position he has held since joining us in
1996. Prior to that, Mr. Rodriguez was a private consultant assisting clients
with Internet services, networking and computer hardware. Mr. Rodriguez
attended Vancouver Film School and received a Certificate for 3D Animation.
Jack Wasserman--Vice-President Toronto Operating Unit
Mr. Wasserman is 50 years old. He is Vice-President of the Toronto operating
unit and has held that position since joining us in 1995. Prior to that, Mr.
Wasserman was an accountant with World Tel (Toronto) Internet, Inc. Mr.
Wasserman received his accounting designation with Arthur Andersen and Company,
in 1976 in the Province of Ontario.
Carol Coleman--Controller
Ms. Coleman is a Chartered Accountant with over 10 years of experience in
the accounting industry. Her accounting background is in a variety of areas
including manufacturing and high-tech. Ms. Coleman's duties as Controller of
the Company include management of the accounting, management reporting,
banking, insurance and payroll.
19
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 29, 2000 and assuming exchange
of all shares of Information Highway, Inc. for our shares as of February 23,
1999, the outstanding Common Stock owned of record or beneficially by each
Executive Officer and Director and by each person who owned of record, or was
known by us to own beneficially, more than 5% of Common Stock, and the
shareholdings of all Executive Officers and Directors as a group.
Percentage
Shares of Shares
Name Owned Owned
---- --------- ----------
John G. Robertson(1)(2).................................. 2,577,000 31.7%
President and member of the Board of Directors
Jennifer Lorette(1)(3)................................... 234,500 3.0%
Executive Vice President, Secretary/Treasurer,
Chief Financial Officer and a member of the Board of
Directors
James L. Vandeberg(1)(3)................................. 123,400 1.6%
Chief Operating Officer and a member of the Board of
Directors
Donna Moroney(4)......................................... 74,000 .9%
Director, Vice-President, Legal and Administration,
and a member of the Board of Directors
Robertson Family Trust(5)................................ 2,448,000 31.3%
Access Information Services Inc.(6)...................... 398,000 5.1%
Jack Wasserman(7)........................................ 430,000 5.4%
All Executive Officers & Directors as a Group (Five
Individuals)(8)......................................... 6,284,900 74.4%
- --------
Except as noted below, all shares are held of record and each record
shareholder has sole voting and investment power.
(1) These individuals are the Executive Officers and Directors of the Company
and may be deemed to be "parents or founders" of the Company as that term
is defined in the Rules and Regulations promulgated under the 1933 Act.
(2) Includes 2,050,000 shares owned or controlled by the Robertson Family
Trust, 70,000 shares owned of record by SMR Investments, Ltd, a
corporation owned by Susanne Robertson, wife of Mr. Robertson, 10,000
shares owned of record by Mrs. Robertson, and 300,000 options that are
currently exercisable. Mr. Robertson is one of three trustees of the
Robertson Family Trust, which acts by the majority vote of the three
trustees. Mr. Robertson disclaims beneficial ownership of the shares owned
or controlled by the Robertson Family Trust. Mr. Robertson's address is
the same as the Company's.
(3) Includes 100,000 options that are currently exercisable. Ms. Lorette's
address is the same as the Company's. Mr. Vandeberg's address is Ogden
Murphy Wallace, 2100 Westlake Center Tower, 1601 Fifth Avenue, Seattle,
Washington.
(4) Includes 50,000 options that are currently exercisable. Ms. Moroney's
address is the same as the Company's.
(5) Includes 398,000 shares owned of record by Access Information Services, a
corporation owned by the trust. The address of the Robertson Family Trust
is 185--10751 Shellbridge Way, Richmond, British Columbia V6X 2W8, Canada.
The trust acts by majority vote of its three trustees: (i) Mr. Robertson;
(ii) Susanne Robertson, Mr. Robertson's wife, 4040 Amundsen Place,
Richmond, BC V7C 4L8; and (iii) Eric Hanson, 4620 Britannia St., Richmond,
B.C. The sole beneficiary is Kelly Robertson, daughter of Mr. and Mrs.
Robertson, #401 12633 No. 2 Road, Richmond, B.C. V7E 6N5.
20
(6) Access Information Services is a corporation owned by the Robertson Family
Trust. Its address is 185 - 10751 Shellbridge Way, Richmond, British
Columbia V6X 2W8, Canada.
(7) Includes 75,000 options that are currently exercisable. Mr. Wasserman's
address is the same as the Company's.
(8) Includes 625,000 options that are currently exercisable. Also see Note (2)
above regarding share ownership attributed to Mr. Robertson.
Changes in Control
There are no arrangements known us the operation of which may result in a
change of control.
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock is a summary and is subject
to and qualified in its entirety by our articles of incorporation and bylaws,
which are included as exhibits to the registration statement of which this
prospectus forms a part, and by the applicable provisions of Florida law.
The authorized capital stock consists of 50,000,000 shares of Common Stock,
$0.0001 par value per share and 10,000,000 shares of Class A Preferred Stock,
$0.0001 par value per share. The holders of shares of common stock are entitled
to dividends, out of funds legally available therefor, when and as declared by
the Board of Directors. The Board of Directors has never declared a dividend
and does not anticipate declaring a dividend in the future. Each outstanding
share of common stock entitles the holder thereof to one vote per share on all
matters. The holders of shares of common stock have no preemptive or
subscription rights. The holders of shares of common stock do not have
cumulative voting rights in connection with the election of the board of
directors, which means that the holders of more than 50% of such outstanding
shares, voting for the election of directors, can elect all of the directors to
be elected, if they so choose, and, in such event, the holders of the remaining
shares will not be able to elect any of our directors. The Class A Preferred
Stock may be issued in series from time to time with such designations, rights,
preferences and limitations as the Board of Directors may determine by
resolution. The Board of Directors could use an issuance of Class A Preferred
Stock with dilutive or voting preferences to delay, defer or prevent a change
in control. In addition, the concentration of control over our common stock in
the Directors and Executive Officers could prevent any change in control not
acceptable to the existing Directors and Executive Officers.
INTERESTS OF NAMED EXPERTS AND COUNSEL
Neither Elliott Tulk Pryce Anderson nor Ogden Murphy Wallace, PLLC was
employed on a contingent basis in connection with the registration or offering
of Information Highway.com's common stock. James L. Vandeberg, of Ogden Murphy
Wallace, PLLC is the Chief Operating Officer and a Director of Information
Highway.com. Mr. Vandeberg directly owns 23,400 shares of the Registrant's
common stock and has options to acquire 100,000 shares of the Registrant's
common stock at a price of $4.00 per share that must be exercised by November
5, 2004. See "Executive Compensation."
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our bylaws provide that we will indemnify our officers and directors for
costs and expenses incurred in connection with the defense of actions, suits,
or proceedings against them on account of their being or having been directors
or officers of the Company, absent a finding of negligence or misconduct in the
performance of duty.
21
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the forgoing provisions, we have been informed that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in that Act and is, therefore,
unenforceable.
ORGANIZATION WITHIN LAST FIVE YEARS
Mr. Robertson and Ms. Lorette could be considered promoters of Information
Highway.com. Their interests in the Company, including the details of their
stock options, are disclosed below. See "Security Ownership of Certain
Beneficial Owners and Management" and "Executive Compensation".
DESCRIPTION OF BUSINESS
Information Highway.com, Inc. serves as an Internet Service Provider
(referred to as an "ISP" in the industry) for companies and individuals that
need access to the Internet in exchange for a recurring fee. We have also
developed and begun providing a compilation of Internet-based services and
information catering to business professionals known collectively as
www.theexecutive.com. We conduct our operations through the following three
wholly-owned Canadian subsidiaries:
. 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.
Information Highway, Inc., a Washington corporation, initially acquired
these subsidiaries. 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.
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
22
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, Florida Venture 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 April 10, 2000, 2,359,650 of the remaining 2,404,650
Information Highway, Inc. shares had been exchanged for the same number of
Information Highway.com Inc.'s shares. In total, to January 10, 2000,
approximately 99% of Information Highway, Inc. shares had been exchanged.
Information Highway.com has allotted 45,000 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
canceled 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.
Overview of Information Highway.com's Business
We serve as an Internet Service Provider (referred to as an "ISP" in the
industry) for companies and individuals that need access to the Internet in
exchange for a recurring fee. We intend to provide ISP services to a steadily
growing number of cities in North America as a "Virtual ISP". A Virtual ISP
provides Internet access to its customers using the underlying
telecommunications infrastructure of another company, such as a telephone
company. The Virtual ISP business model should enable us to avoid purchasing
and installing "backbone" communications equipment and infrastructure in each
city where we plan to offer ISP services.
Our goal is to expand our ISP business throughout North America by
negotiating access to Virtual ISP "backbone" facilities and then repackaging
that access for sale to our customers and resellers (licensees). We have
entered into agreements that permit us to market access to the Internet user in
the Northeast United States and 20 cities (some in the Northeast) across the
United States, and in Canada. Toronto, Ontario is the first market in which we
provided ISP services, beginning about four years ago.
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.
Industry Background--The Internet
The Internet is a global collection of thousands of interconnected computer
networks that links computers around the world and enables commercial
organizations, educational institutions, governmental agencies and individuals
to communicate electronically, access and share information and conduct
commerce. Unlike other public and private telecommunications networks that are
managed by businesses, governmental agencies or other entities, the Internet is
a cooperative interconnection of many such public and private networks. The
networks that comprise the Internet are connected in a variety of ways,
including the public-switched telephone network and dedicated high-speed leased
lines. Open communications on the Internet are enabled by TCP/IP, the common
Internet communications protocol, which enables communication across the
Internet regardless of the hardware and software used.
Recent technological advances, combined with cultural changes and evolving
business practices, have led to integration of the Internet into the activities
of individuals and the operations and strategies of commercial
23
organizations. Use of the Internet by individuals and relatively small
businesses and other organizations has been accelerated by dramatic increases
in cost-effective processing power and data storage capabilities in personal
computers, as well as widespread availability of multimedia, fax/modem, and
networking capabilities to the home computing market. According to CyberAtlas,
the Computer Industry Almanac conducted a study that found that North America
will remain the leading region for Internet users until at least 2005,
projecting that it will grow from about 83 million Internet users at the end of
1998 to nearly 230 million by the end of 2005. By the end of the year 2000, the
Computer Industry Almanac projects that Internet users in North America will
number almost 149 million. The Computer Industry Almanac defines Internet users
as adults with weekly usage in businesses and homes.
Much of the recent growth in Internet use by businesses and individuals has
been driven by the emergence of a network of servers and information available
on the worldwide web. The worldwide web, which is based on a client/server
model and a set of standards for information access and navigation, can be
accessed using software that allows non-technical users to exploit the
capabilities of the Internet. The worldwide web enables users to find, retrieve
and link information on the Internet easily and consistently. The development
of worldwide web technology and associated easy-to-use software has made the
Internet easier to navigate and more accessible to a larger number of users and
for a broader range of applications.
Until recently, individuals could access the Internet only through an
organization with a direct Internet connection, or through traditional online
services employing closed, proprietary networks that allow Internet access only
to limited Internet resources. With the growth and increasing commercialization
of the Internet, a number of Internet Service Providers, or ISPs, including
Information Highway.com, have emerged to provide direct access to individuals.
Traditional online services also have begun to increase the scope and capacity
of their access to the Internet. Access providers vary widely in geographic
coverage, subscriber focus and levels of Internet access. For example, access
providers may concentrate on certain types of subscribers (such as businesses
or individuals) that differ substantially in the type of service and support
required. Providers may also differ according to whether they provide direct or
non-direct access to the Internet. Direct access through Internet protocol such
as PPP (Point-to-Point Protocol) enable users to establish direct connections
to other computers on the Internet, including worldwide web sites or computers
operated by other users, and thereby have access to the full range of Internet
resources. Like most regional and national ISPs, we offer direct Internet
access.
Principal Services
We currently derive the overwhelming majority of our revenues (approximately
98%) from our ISP business. However, in the near future we expect that, with
the advertising and e-commerce marketing plans currently undertaken, an
increase in our revenues will be generated from our licensed portal partners,
licensed resellers, and high speed Digital Subscriber Line (DSL) customers in
the North American market. Over the past 18 months, we have devoted significant
resources to developing our portal site, which provides localized and portal
content catering to business professionals. We believe that the portal site
will ultimately produce significant revenues, as well as complement our ISP
services by functioning as an Internet access gateway.
Key strategic developments to date have included equipment, software and
robust network infrastructure acquisitions, acquisitions of licenses for web
content, research and development and marketing plan development. We possess
what management considers to be the latest in high-end computer management
systems. Hardware systems have been installed, tested, and are operating with
comprehensive redundancy and contingency plans (although we cannot guarantee
that we would maintain service in the face of every kind of natural disaster or
man-made disruption). We have the capacity to increase hardware storage
capabilities due to the modular nature of our equipment and without system
downtime.
ISP Services
We serve as an ISP for companies and individuals that need access to the
Internet in exchange for a recurring fee. We began as a local ISP in Toronto
and Vancouver, purchasing and installing the "backbone"
24
communications equipment and infrastructure necessary to be a stand-alone ISP.
Our costs of providing ISP services have historically included equipment
installation and ongoing service and maintenance charges. We intend to provide
ISP services to a steadily growing number of cities in North America as a
Virtual ISP by providing Internet access to our customers using the underlying
telecommunications infrastructure of other companies, such as telephone
companies. The Virtual ISP business model can enable us to avoid purchasing
hardware and installing "backbone" communications equipment and infrastructure
in each city where we plan to offer ISP services. As we introduce our Virtual
ISP presence in additional cities, each city will represent an increased lease
charge under our agreements with Internet access providers due to the need to
add bandwidth to accommodate the customer base in the new market. As we expand
our presence in a particular market, we will require additional increases in
bandwidth depending on data transmission volumes.
Our goal is to expand our ISP business throughout North America by
negotiating access to the telecommunications "backbone" facilities of Internet
access providers and then repackaging that access for sale to our customers and
resellers (licensees). We have entered into agreements that permit us to market
access to the Internet in the Northeast United States and 20 cities (some in
the Northeast) across the United States, and in Canada. In September 1999, we
entered into an agreement with Bell Atlantic that lets us provide Internet
access in the Northeast United States on high-speed Digital Subscriber Lines
("DSLs"). The agreement has a three-year term and is subject to renewal
annually thereafter. Under the agreement, we pay fees to Bell Atlantic monthly
based on a per-user basis. In March 1999, we entered into an agreement with
Level 3 Communications that lets us provide Internet access in 20 cities across
the United States using their fiber-optic backbone (a phone line). The
agreement does not have a specific term and is on a month-to- month basis.
Under the agreement, we pay fees to Level 3 Communications based on a per-port
fee (each port provides capacity for a certain volume of data transmission). In
November 1998, we entered into an agreement with Metro Net Communications,
recently acquired by AT&T, which permits us to use their Canadian network of
high-speed, fiber-optic ATM links. The agreement has a five- year term and no
stated renewal clause. Under the agreement, we pay fees to Metro Net
Communications based on a per-port fee. We plan to pursue agreements with
additional Internet access providers based on the markets we seek to serve and
the acceptability of the terms offered by Internet access providers serving
those markets. We must develop and maintain our relationships with
telecommunications companies in order to implement our "Virtual ISP" business
model and facilitate broad market acceptance in North America of our services
and enhance our sales.
We select certain target markets in which we will offer our services and
commit corresponding resources for marketing and infrastructure. We base our
target market assessment on four years of research and development through our
involvement in the Internet industry. Because we do not have a universal
presence on the Internet as an ISP, our ability to achieve market penetration
in the target markets we select to serve has a significant effect on our
ability to maintain and increase our revenues. As of January 31, 2000, we had
approximately 15,000 dial-up customers through our own ISP service and through
our resellers in North America.
Maintaining market penetration successes by minimizing customer turnover
also has a significant effect on our ability to maintain and increase our
revenues. We have had an overall rate of customer turnover during the past four
years of approximately 6,000 ISP customers. A large portion of this turnover
has occurred due to some technical difficulties rolling out new AT&T (formerly
MetroNet) leased lines. A higher percentage of customers than usual have
terminated service due principally to slow transmission speeds and inadvertent
disconnection of transmissions. We are working with AT&T to correct these
problems. We expect customer turnover to increase in the future as competition
intensifies. We expect that service quality (i.e., data transmission speed and
periods of down time) and price will be the major factors that influence ISP
users to switch their ISP. We believe that the availability of customized
portal sites (and other such similar Internet link compilations targeted to
specific user groups) with our value-added services will increasingly become
another factor that ISP customers will consider in their assessment of service
quality. See "Principal Services--Our Portal Site".
We currently have a significant market presence (more than 13,000 dial-up
ISP customers) in Toronto. In addition, we have begun to provide ISP services
in Vancouver and Calgary as a Virtual ISP. We can now offer
25
through Level 3's fibre optic backbone broadband ISP services in Seattle,
Washington, D.C., Dallas, Houston, Philadelphia, San Francisco, Miami, New
York, Baltimore and Los Angeles. We will add additional cities to our service
area as we assess the market opportunities and the terms available from
Internet access providers.
Recent Developments
In December 1999, we completed a license agreement with ISP Power
Corporation, whereby we licensed ISP's PRISM software that provides integrated
billing and customer care software solutions, which will consolidate all of our
billings and customer related management needs into one powerful, flexible and
automated package that reduces costs and increases profits. The PRISM software
integrates into the Microsoft Commercial Internet System. This software package
provides up-to-date information about customers and enables us to co-brand our
billing system to our Virtual ISP's, while allowing them to retain their own
identity, even when it relates directly to the billing of their customers. With
the installation of this new software and the implementation of Microsoft's
MCIS system, we can now scale up to 10,000,000 users by increasing its
hardware.
On August 24, 1999, we entered into a multi-user DSL agreement with Bell
Atlantic Data Solutions to sell multi-user ADSL (Asymmetric Digital Subscriber
line) service, Internet access and ancillary services. This enables us to offer
to our business customers ADSL Internet service for up to 30 users over one
phone line within the Bell Atlantic footprint in the United States, which
consists of thirteen states from Virginia to Maine. We will offer three types
of Infospeed DSL with downstream speeds of up to 7.1 Mbps and upstream speeds
of up to 680 Kbps.
In February 2000, we launched our Voice Over Internet Protocol (VoIP) analog
program, beginning with production on its rollout program in Canada utilizing
AT&T's fibre optic backbone. With our gateway (www.ihwyphone.com) basic and
enhanced voice services over the Internet, including voice enhanced web
commerce and interactive multimedia communications are now offered.
On February 17, 2000, we entered into a partnership agreement with
LinuxWizardry Systems, Inc. to distribute and market its Linux based, low cost
router to our customers. The Linux operating system allows for an easy
configuration of Internet routers and network appliances through a drag and
drop graphical user interface. The LinuxWizardry router will not require an
expensive network specialist to configure the LinuxWizardry router and will
therefore allow small businesses to take control of their networks.
We selected Ramp Networks, Inc. to provide ADSL solutions to our small
businesses and residential markets in the Bell Atlantic footprint in the
Eastern United States, as well as selected cities served by Level 3
Communications nationwide. High-speed ADSL service with the WebRamp 600I,
Ramp's enhanced platform for software and services, is available through our
network of ISPs. Ramp is also a licensed reseller of our Internet service and
related services through Ramp's value-added resellers.
In March 2000, we launched our Spanish portal site
(http://latino.theexecutive.com), which Portal site offers free access for
Spanish speaking users, allowing them access to all of our standard service on
its portals. We are also in the process of co-branding further content and
shopping resources with www.itiendas.com, www.espanol.com and CD NOW in
Spanish.
Effective March 2000, we commenced trading on the newly created "High Risk
Market" on the Hamburg Stock Exchange, which is a market that features
predominantly US companies listed on the OTC Bulletin Board or the NASDAQ
exchange.
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,
26
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 are now licensing customized portal sites to other ISPs, companies and
individuals throughout North America. We also offer our clients the ability to
market their products and services to portal site users through our Virtual
Mall. We believe the portal site will be popular because most business
professionals do not want to spend a lot time surfing the Internet for the
information that they need. 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
. Find a suitable restaurant in their area.
. Use our web based Internet based Voice Over Internet Protocol service
We do not charge a fee for access to our portal site. We charge a design fee
and a recurring maintenance fee for our portal site partners that we customize
for companies or associations. We also charge a monthly maintenance fee when we
license portals to other ISPs to display our customized portal site. We receive
additional revenues from advertising and e-commerce generated from each
customized portal site. Our portal site has two main purposes. One important
purpose of the portal site is to provide our value added services. Thus far the
industry has focused on providing high speed access to the Internet and has
largely neglected the content development market. The greatest difficulty in
content development is encouraging people to pay for the information they need.
Some companies have attempted to charge for information. However, information
can always be found free on the Internet. While people will not pay for raw
information, we believe that when information and services are properly
bundled, Internet users will find value in convenience, organization,
relevance, and meaningful communication. Internet content is now aimed at broad
target markets doing little to customize information to users needs. Our portal
site aims to provide content customized to the needs of our dial-up users,
partners, specific interest groups, companies, and associations.
Although anyone with Internet access will be able to visit the basic portal
site or the customized regional sites maintained by us, only our (or one of its
ISP licensee's) ISP customers will be able to access certain value-added
services available on the portal site. For example, we currently offer our ISP
customers e-mail with no additional charge, and plan to offer 100 minutes of
voice-over Internet Protocol ("IP") phone service with no additional charge.
Anybody accessing a portal site who is not an ISP customer of ours (or one of
our ISP licensees) cannot access these value-added services without any
additional charge. We believe that by providing these value-added services,
along with the other useful services and content conveniently located at the
portal site, we will have a competitive advantage in attracting and retaining
ISP customers.
Our portal site's second main purpose is to be a profit center. We believe
that the portal site will ultimately become a profit center in its own right.
We believe we can generate non-ISP revenues by providing information organized
and packaged for consumers and businesses. While people will not pay for raw
information, we
27
believe that when information and services are properly bundled, two distinct
revenue streams are available. One revenue stream will be available from
licensees that wish to customize our portal site for their own targeted user
group. Such licensees would include other ISPs, companies and associations. We
believe that they will pay for the convenience, organization, relevance, and
meaningful communication provided by the pre-packaged portal site information
and services, and the tools required to organize and maintain them. A second
distinct revenue stream will be available by virtue of Internet users (whether
they are our ISP customers and licensees, or those of other unrelated ISPs)
visiting the portal site and accessing its information and services. This
revenue stream would include advertising and e-commerce commission revenues.
Our portal site is a new concept and, while we have high hopes for its ultimate
success, has yet to provide material revenues.
We have committed significant resources to the development of the portal
site, and we intend to continue to commit significant resources to its
development, maintenance and marketing and advertising. Through research,
design, programming, co- branding, and licensing, we compile a collection of
the most compelling and functional Internet services. These services are then
synthesized into a single web interface. Finally, this web interface is
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.
Our portal site, with its value-added services, is available to Internet
users, and a print and Internet advertising campaign is currently underway to
attract additional Internet users (prospective new ISP customers) to the portal
site. We also have succeeded in attracting some business advertising, and we
intend to seek additional advertising customers. We have also introduced our
Virtual Mall. The Virtual Mall provides links to web pages where Internet users
can view merchandise and make purchases using their credit cards. We either
receive a commission from the vendor when an Internet user makes a purchase
after entering a web page through the Virtual Mall or we receive rent from the
vendor for providing a link to the vendor's web page from the Virtual Mall.
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.
We believe that we will continue to enter into license agreements with other
ISPs, companies and associations in the future. We are currently pursuing an
aggressive advertising and marketing campaign underway throughout the United
States and Canada.
Although the portal site (www.theexecutive.com) does not yet provide a
material portion of our revenues, we believe that in the near future the
revenues generated by the licensing of portal sites will increase both in terms
of absolute dollars and as a percentage of total revenues. We constantly assess
the content of the portal site, adding, deleting or substituting information or
services when warranted. Currently the major components of the portal site
include:
. Demon Systems's stock quote and research system;
. Internet Travel Network's travel reservation system;
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. WeatherLabs, Inc.'s weather information;
. Ichat Rooms's chat room system;
. Information Highway.com's Virtual Shopping Mall
. Screaming Media, a comprehensive news service
. Web-based E-mail
. VoIP web based Internet long distance phone calls
Some of this content is actually resident on our web pages, and some of it
is accessed by links to other websites. Compensation arrangements with content
providers are generally based on the number of Internet users that access a
particular item of content (known in the industry as "hits"). With respect to
advertising revenues derived from banner advertisements placed on various web
pages, we generally share revenue with the content provider for the web page.
In addition, we entered into a two year licensing and multicasting agreement
with broadcast.com. We will sell broadcast.com's services to associations,
local ISPs, portal site users, local dial-up, and national virtual ISP
customers. Services will include audio and video hosting, and live event
broadcasting (multicasting) including multimedia presentations, trade shows and
conferences. We will receive a percentage of revenues generated by these
services for a period of two years and will have the option to renew this
contract annually.
These components represent only a small sample of planned future content. We
anticipate entering into similar agreements in the future to fully develop and
expand the content in the portal site. New content suppliers are constantly
being identified for existing and potential portal sites. Additional content
will also be developed by associations and companies themselves.
Competitive Conditions
The market for Internet products, services and advertising is new, rapidly
evolving and intensely competitive. We currently or potentially compete with
many other ISPs, providers of Web directories, search and information services,
as well as traditional media, for consumer attention and advertising
expenditures. We expect competition to intensify in the future. Barriers to
entry may not be significant, and current and new competitors may be able to
provide ISP services and to launch new websites at a relatively low cost.
Accordingly, we believe that our success will depend heavily upon achieving
significant market acceptance before our competitors and potential competitors
introduce competing services. We compete with other ISPs for ISP customers.
Although some affirmative effort is required to change ISPs, there are no
significant barriers to ISP customers changing their ISP in response to service
quality or price considerations.
We compete with online services and other websites, as well as traditional
offline media such as television, radio and print, for a share of advertisers'
total advertising budgets. The number of companies offering e-commerce outlets
and selling web-based advertising, and the available inventory of related space
on web pages, has recently increased substantially. Accordingly, we may face
pricing pressure on our e-commerce commissions and for the sale of
advertisements.
Many of our competitors, as well as potential entrants into our markets,
have longer operating histories, larger customer or user bases, greater brand
recognition and significantly greater financial, marketing and other resources
than we do. Many of these current and potential competitors can devote
substantially greater resources to promotion and website and systems
development than we can. In addition, as the use of the Internet and other
online services increases, larger, well-established and well-financed entities
may continue to acquire, invest in or form joint ventures with ISPs, providers
of web directories, search and information services or advertising solutions,
and existing ISPs, providers of web directories, search and information
services or advertising solutions may continue to consolidate. In addition,
providers of Internet browsers and other Internet products and services who are
affiliated with ISPs or providers of web directories and information services
in competition with our portal site may more tightly integrate these affiliated
offerings into their browsers or other products or services. Any of these
trends would increase the competition we face.
29
Governmental Regulation
The laws and regulations applicable to the Internet and to our services are
evolving and unclear and could damage our business. There are currently few
laws or regulations directly applicable to access to, or commerce on, the
Internet. Due to the increasing popularity and use of the Internet, it is
possible that laws and regulations may be adopted, covering issues such as user
privacy, defamation, pricing, taxation, content regulation, quality of products
and services, and intellectual property ownership and infringement. Such
legislation could expose us to substantial liability as well as dampen the
growth in use of the Internet, decrease the acceptance of the Internet as a
communications and commercial medium, or require us to incur significant
expenses in complying with any new regulations. The European Union has recently
adopted privacy and copyright directives that may impose additional burdens and
costs on international operations. In addition, several telecommunications
carriers, including America's Carriers' Telecommunications Association, are
seeking to have telecommunications over the Internet regulated by the Federal
Communications Commission, or FCC, in the same manner as other
telecommunications services. Because the growing popularity and use of the
Internet has burdened the existing telecommunications infrastructure and many
areas with high Internet usage have begun to experience interruptions in phone
services, local telephone carriers, such as Pacific Bell, have petitioned the
FCC to regulate the Internet and to impose access fees. Increased regulation or
the imposition of access fees could substantially increase the costs of
communicating on the Internet, potentially decreasing the demand for our
services. A number of proposals have been made at the federal, state and local
level that would impose additional taxes on the sale of goods and services
through the Internet. Such proposals, if adopted, could substantially impair
the growth of electronic commerce and could adversely affect us. Also, Congress
recently passed (and the President has signed into law) the Digital Millennium
Copyright Act, which is intended to reduce the liability of online service
providers for listing or linking to third-party Web sites that include
materials that infringe copyrights. Congress also recently passed (and the
President has signed into law) the Children's Online Protection Act and the
Children's Online Privacy Act, which will restrict the distribution of certain
materials deemed harmful to children and impose additional restrictions on the
ability of online services to collect user information from minors. Further,
the United States recently enacted the Protection of Children from Sexual
Predators Act, which mandates that electronic communication service providers
report facts or circumstances from which a violation of child pornography laws
is apparent. We cannot currently predict the effect, if any, that this
legislation will have on our business. There can be no assurance that this
legislation will not impose significant additional costs on our business or
subject us to additional liabilities. Moreover, the applicability to the
Internet of existing laws governing issues such as property ownership,
copyright, defamation, obscenity and personal privacy is uncertain. We may be
subject to claims that our services violate such laws. Any new legislation or
regulation in the United States or abroad or the application of existing laws
and regulations to the Internet could damage our business.
Due to the global nature of the Internet, it is possible that the
governments of other states and foreign countries might attempt to regulate our
transmissions or prosecute us for violations of their laws. We might
unintentionally violate such laws. Such laws may be modified, or new laws may
be enacted, in the future. Any such development could damage our business.
Other Information
Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We have increased, and plan to continue to increase, the
scope of our operations. Our staff has grown and will continue to grow
substantially. At April 1, 2000, we had a total of 34 employees. We are
continuing to expand our infrastructure, including hiring new employees when
required, including key employees in marketing and technology development. We
will need to expand our infrastructure, which will include hiring certain key
employees, including without limitation, key employees in marketing and
technology development. Hiring such employees has historically been difficult.
We do not believe that environmental laws have or will have a significant
effect on our business. In their report on our financial statements, our
auditors have expressed doubt about our ability to continue in business
30
as a going concern. We will need additional funds to continue in business and
to implement our business plan as proposed, which we may not be able to obtain.
Equity or debt financing may not be available to us on terms acceptable to us,
or at all. We have undertaken steps to address Year 2000 Issues. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Issues".
Available Information and Reports to Securities Holders
Information Highway.com has filed with the Securities and Exchange
Commission a registration statement on Form SB-2 with respect to the common
stock offered by this prospectus. This prospectus, which constitutes a part of
the registration statement, does not contain all of the information set forth
in the registration statement or the exhibits and schedules which are part of
the registration statement. For further information with respect to Information
Highway.com and its common stock, see the registration statement and the
exhibits and schedules thereto. Any document Information Highway.com files may
be read and copied at the Commission's Public Reference Room located at 450
Fifth Street N.W., Washington D.C. 20549, and the public reference rooms in New
York, New York, and Chicago, Illinois. Please call the Commission at 1-800-SEC-
0330 for further information about the public reference rooms. Information
Highway.com's filings with the Commission are also available to the public from
the Commission's website at http://www.sec.gov.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus 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 prospectus.
Overview
We serve as an Internet Service Provider (referred to as an "ISP" in the
industry) for companies and individuals that need access to the Internet in
exchange for a recurring fee. We intend to provide ISP services to a steadily
growing number of cities in North America as a "Virtual ISP". A Virtual ISP
provides Internet access to its customers using the underlying
telecommunications infrastructure of another company, such as a telephone
company. The Virtual ISP business model should enable us to avoid purchasing
and installing "backbone" communications equipment and infrastructure in each
city where we plan to offer ISP services.
Our goal is to expand our ISP business throughout North America by
negotiating access to Virtual ISP "backbone" facilities and then repackaging
that access for sale to our customers and resellers (licensees). We have
entered into agreements that permit us to market access to the Internet in the
Northeast United States and 20 cities (some in the Northeast) across the United
States, and in Canada. Our Northeast United States Internet access agreements
permit us to provide Digital Subscriber Line ("DSL") access, which enables
users to remain connected to the Internet 24 hours a day, eliminating annoying
busy signals, as well as the time and cost of waiting to connect, without
disrupting the subscriber's normal telephone service. Toronto, Ontario is the
first market in which we provided ISP services, beginning about four years ago.
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
31
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 plan to market the portal site throughout North America, starting with
our Virtual ISP locations. We may also let other ISPs display customized portal
sites in certain markets. We also offer our commercial clients the ability to
market their products and services to portal site users through our newly
developed Virtual Mall.
Our portal site has assembled a functional business site to enable business
professionals to immediately find what they need rather than spending time
searching the Internet for the information they need. Portal site users are
able to:
. monitor and research the stock market;
. plan and book their next business trip;
. check the local news and weather;
. participate in online forums;
. carry out electronic transactions via e-commerce; and
. find a suitable restaurant in their area.
We do not charge a fee for access to the basic portal site. We charge a
design fee and a recurring maintenance fee for portal sites that we customize
for companies or associations. We also charge a monthly maintenance fee when we
license portals to other ISPs to display a customized portal site. We receive
additional revenues from advertising and e-commerce transactions generated from
each customized portal site.
We Conduct Our Operations Through One Wholly-owned US Subsidiary and Three
Wholly-owned Canadian Subsidiaries
Information Highway, Inc., a Washington corporation, actually acquired these
subsidiaries. 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. and is now the ultimate
parent company whose shares are traded on the OTC bulletin board (symbol:
IHWY).
Effect of Reorganization During Fiscal 1999
The reverse take-over was conducted pursuant to an Agreement and Plan of
Reorganization entered into on February 17, 1999 and completed 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. It is Information Highway.com's intention
to complete the exchange of shares of its common stock for the remaining and
outstanding common shares of Information Highway, Inc. on a one for one basis.
As of January 31, 2000, 2,314,650 of the remaining 2,404,650 Information
Highway, Inc. shares had been exchanged for the same number of Information
Highway.com shares. In total, to January 31, 2000, approximately 98% of
Information Highway, Inc. shares had been exchanged. We have allotted 90,000
shares in anticipation of the remaining shares being exchanged. As part of the
Agreement and Plan of Reorganization we 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.
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For accounting purposes the acquirer was the legal subsidiary, Information
Highway, Inc., as approximately 95% of the issued and outstanding common shares
of Florida Venture Fund, Inc. at the time of the reverse takeover were owned by
the shareholders of Information Highway, Inc. and the Board of Directors of
Information Highway, Inc. now comprises Information Highway.com's Board of
Directors. As Information Highway, Inc. is the legal subsidiary of Information
Highway.com, Inc., the nature of the business combination is a reverse takeover
whereby the control of the assets and the business of Florida Venture Fund,
Inc. (as it was then named) was acquired by Information Highway, Inc. and the
consolidated financial statements are issued under the name of Information
Highway.com, Inc., but is a continuation of Information Highway, Inc. and not
Florida Venture Fund, Inc. The legal capital structure remains that of Florida
Venture Fund, Inc. but the stated shareholders' equity of Information Highway,
Inc. has replaced the stated shareholders' equity of Florida Venture Fund, Inc.
Similarly, Florida Venture Fund, Inc.'s statements of operations and cash flows
represent a continuation of Information Highway, Inc.'s consolidated financial
statements.
Factors Affecting Ongoing Operations
Prior to acquiring Information Highway, Inc. in February, 1999, we had not
conducted any business since inception in 1988. The following discussion
relates to Information Highway, Inc.'s continuing operations and not that of
the Information Highway.com prior to the reverse takeover.
Although planned principal activities have started producing significant
revenues, in our effort to rapidly expand infrastructure and network services
and develop the portal site, we have suffered net losses each quarter to
February 29, 2000. At February 29, 2000, our accumulated deficit was $4,126,954
and our working capital was $162,934. We expect to incur substantial operating
losses, net losses and negative operating cash flow for the near term.
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.
We completed a license agreement with ISP Power Corporation in early
December. ISP Power Corporation's PRISM Software provides integrated billing
and customer care software solutions. The PRISM software will consolidate all
of our billing and customer related management needs into one powerful,
flexible and automated package that will help reduce costs and increase profits
for ourselves.
The PRISM software integrates into the Microsoft Commercial Internet System
(MCIS), which enables us to provide up-to-the-minute billing information to
customers. In addition, we will be able to co-brand our billing system for
Virtual ISP's, thereby allowing us to retain our own identity, even when it
relates directly to the billing of our customers.
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.
The following factors affect our revenue:
. Service Offering--We derive most of our operating revenue from the ISP
service we provide to our customers;
. Penetration of Target Markets--We select certain target markets in which
we will offer our services and commit corresponding resources for
marketing and infrastructure. We base our target market assessment on
two years of research and development through our involvement in the
Internet industry. Our ability to achieve market penetration in the
target markets we select to serve has a significant effect on our
ability to maintain and increase our revenues;
33
. Turnover--Maintaining market penetration successes by minimizing
customer turnover also has a significant effect on our ability to
maintain and increase our revenues. To date, customer turnover has been
minimal. We expect customer turnover to increase in the future as
competition intensifies. We expect that service quality (i.e., data
transmission speed and periods of down time) and price will be the major
factors that influence ISP customers to switch their ISP;
. Portal site--Portal site revenues, which to date are mostly from
advertising, are not yet material to our total revenues. We expect that
advertising and e-commerce commission revenues related to our customized
portal site, as well as fee-based revenues from customized portal site
licensees, will grow in the future, both in dollar amount and as a
percentage of our total 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. As we introduce our
Virtual ISP presence in additional cities, each city will represent an
increased lease charge under our agreement with Internet access providers due
to the need to add bandwidth to accommodate the customer base in the new
market. We have entered into agreements that permit us to market access to the
Internet in the Northeast United States and 20 cities (some in the Northeast)
across the United States, and in Canada. Our Northeast United States Internet
access agreements permit us to provide Digital Subscriber Line ("DSL") access,
which enables users to remain connected to the Internet 24 hours a day,
eliminating annoying busy signals, as well as the time and cost of waiting to
connect, without disrupting the subscriber's normal telephone service. As we
expand our presence in a particular market, we will require additional
increases in bandwidth depending on data transmission volumes.
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. Head count in functional areas,
such as customer service, engineering and operations, along with expansion of
our portal site and the locations in which we provide ISP services and
increases in the number of our customers, will drive increases in expenses.
Results of Operations for the Three Months Ended February 29, 2000 as Compared
to the Three Months Ended February 28, 1999
Revenues
Revenues increased by $80,000 (31%) to $335,000 from $255,000 in the
comparative quarter. This increase was due to an increased subscriber base in
Vancouver and Toronto. Based on assumptions about demand for our ISP services
and the portal site, we anticipate that the dollar amount of future revenues
will continue to increase over current levels. During the first six months
ended November 30, 1999, we have switched on 50 ports (minimum per agreement
with Level 3 Communications) in each of 7 cities which enables us to service up
to 500 customers in each city. The cost of these portals for the three months
ended February 29, 2000 was $48,364. There was no revenue generated during the
quarter from these ports.
We are beginning to receive small amounts of revenue from banner
advertisements, developing web-sites for customers, reselling portal site
information and service modules pursuant to license agreements and reselling
product over the Internet. We have also sold product over the Internet pursuant
to a Resellers Agreement. Sales from this source were $10,000 and costs were
$8,000.
34
Cost of Revenues
Cost of revenues increased by $308,000 (174%) to $485,000 from $177,000 in
the comparative quarter. One-time "catchup" Internet and telephone charges,
totalling $220,000, were paid or accrued during the quarter. These are not
expected to occur in future. The largest components of cost of revenues are
telephone costs and Internet and license fees. The increases in these costs are
reflective of the increase in our subscriber base. Sales increased by 31% while
cost of revenues increased by 50% not including the one-time "catchup" charges.
We realized some economy of scale because some of the fixed cost of revenue
relating to equipment and rent.
We completed a license agreement with Virtual Plus Technologies, LLC to sell
dial-up, ADSL Internet access service, web design and hosting and e-commerce
solutions to the Washington, DC area in addition to a non-exclusive license in
the Baltimore, Maryland area. We also licensed our customized portal site
www.theexecutive.com site to Virtual Plus Technologies for use in Washington,
DC and Baltimore, Maryland. The agreement represents the first step of our
North American roll out, in which we will license our services to other virtual
Internet partners on an exclusive or non-exclusive basis utilizing Level 3
Communications' advanced fibre optic network. We plan to aggressively market
our services to several other major US cities including Seattle, Dallas,
Boston, Chicago, Atlanta, Cincinnati, Detroit, Los Angeles, Miami, New York,
Orlando, Philadelphia, San Diego, San Jose, Tampa and New Jersey.
Gross Profit
After deducting the effect of the one-time catchup charges discussed under
"Cost of Revenues" gross profit decreased by $8,000 (10%) to $70,000 from
$78,000 in the comparative quarter. As a percentage of sales gross profit
decreased to 21% from 30% in the comparative quarter. Increased competition in
the Internet Service Provider industry increases pressure of fee reduction for
new subscribers and renewing subscribers. We intend to decrease the cost of
telephone and Internet switching fees with new agreements with backbone or
bandwidth providers.
Marketing and Sales Expenses
Marketing and sales expenses have increased by $79,000 (168%) to $126,000
from $47,000 in the comparative quarter. The major component of this increase
was a result of a marketing plan to increase advertisements in industry
specific publications throughout Canada. We had very little marketing and sales
effort in the comparative quarter.
General and Administrative Expenses
General and administrative expenses for corporate overhead and Internet
business related activities combined have increased by $666,000 to $810,000
from $144,000 in the comparative quarter.
General and administrative expenses relating to corporate overhead
activities, and not Internet business-related activities, have increased by
$634,000 to $703,000 from $69,000 in the comparative quarter. As a result of
the reverse takeover during February, 1999, we are now incurring expenses
relating to being an active operating public company and is incurring
additional expenses relating to investor relations and financial consulting.
Investor relations and financial consulting increased by $400,000 to
$431,000 as compared to $31,000 in the comparative quarter. Part of this
increase was $79,000 paid in shares (in the previous quarter) to IP Equity,
Inc. for Internet-based marketing and financial consulting services. Pursuant
to this Agreement we were also committed to file a Registration Statement
registering these securities by November 6, 1999. IP Equity, Inc. and we have
agreed to pay interest of $23,000 until such time as the commitment is met.
During the current quarter a total of $87,000 was paid and/or accrued and
charged to operations. A company was paid $60,000 and was issued warrants in
the previous quarter valued at $147,800 for a marketing and advertising program
including
35
banner ads, newsgroup coverage and press release distribution. A total of
$153,000 of these costs were charged to operations this quarter. A company was
issued 20,000 shares valued at $73,000 for European investor relations of which
$50,000 was charged to operation during this quarter.
Professional fees increased by $60,000 to $74,000 from $14,000 in the
comparative quarter. These additional costs relate to a number of security
issuances and regulatory matters.
Another one-time charge was a $100,000 bonus declared payable to our
President for all prior services rendered.
General and administrative expenses relating to Internet business related
activities increased by $32,000 to $107,000 from $75,000 in the comparative
quarter. The major components of these expenses were: amortization of goodwill
of $43,000, salaries and consulting fees of $39,000 (up by $19,000) and
telephone costs of $11,000.
Product Development Expenses
Product development costs consist of expenses incurred by ourselves in the
development and creation of our portal 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.
Product development expenses increased by $31,000 (94%) to $64,000 from
$33,000 in the comparative quarter. The major component of the increase in
product development expenses was salaries and consulting fees of $50,000 as we
continue to expand our services and improve our products.
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 increased by $15,000 to $25,000 as compared to
$10,000 in the comparative quarter.
Purchased goodwill was amortized at $15,000 per month over its estimated
useful life of three years. The estimated useful life of three years was chosen
to reflect the short-term life of the related business because of increased
competition, the lack of a universal presence and technological advancements
and obsolescence in the industry. Amortization expense has been allocated to
general and administrative expense for the Internet business. Goodwill was
fully amortized by the end of the quarter.
We anticipate entering into operating leases for any network equipment and
software in the future to minimize capital expenditures.
Net Loss for the Three Months Ended February 29, 2000 as Compared to the Three
Months Ended February 28, 1999
Our net losses have come mainly from investor relations activities and
overhead costs associated with organization, restructuring and financing
operations in Toronto and Vancouver, Canada and costs of developing new and
improved services and expanding our marketing plan into other North American
markets. We have switched on 50 ports (minimum per agreement with Level 3
Communications) in each of 7 cities which enables us to service up to 500
customers in each city. The cost of these portals for the three months ended
February 29, 2000 was $48,364. There was no revenue generated during the period
from these portals. Other operating activities conducted in the United States
were expenses incurred for investor relations and professional fees. Our head
office is in Richmond, BC, Canada, which does not conduct any business related
to the Internet. Our sole purpose is to provide administration, investor
relations services and services relating to being a public company.
36
Results of Operations for the Nine Months Ended February 29, 2000 as Compared
to the Nine Months Ended February 28, 1999
Revenues
Revenues increased by $249,000 (33%) to $1,003,000 from $752,000 in the
comparative period. This increase was due to an increased subscriber base in
Vancouver and Toronto. Based on assumptions about demand for our ISP services
and our portal site, we anticipate that the dollar amount of future revenues
will increase over current levels. We have switched on 50 ports (minimum per
agreement with Level 3 Communications) in each of 7 cities which enable us to
service up to 500 customers in each city. The cost of these portals for the
nine months ended February 29, 2000 was $129,141. There was no revenue
generated during the period from these ports.
We are beginning to receive small amounts of revenue from banner
advertisements, developing web-sites for customers, reselling portal site
information and service modules pursuant to license agreements and reselling
product over the Internet. We have also sold product over the Internet pursuant
to a Resellers Agreement. Sales from this source were $10,000 and costs were
$8,000.
Cost of Revenues
Cost of revenues increased by $405,000 (77%) to $927,000 from $522,000 in
the comparative period. One-time "catchup" Internet and telephone charges,
totalling $220,000, were paid or accrued during the period. These are not
expected to occur in future. The largest components of cost of revenues are
telephone costs and Internet and license fees. The increases in these costs are
reflective of the increase in our subscriber base. Sales increased by 33% while
cost of revenues increased by 35% not including the one-time "catchup" charges.
We realized some economy of scale because some of the fixed cost of revenue
relates to equipment and rent.
We completed a license agreement with Virtual Plus Technologies, LLC to sell
dial-up, ADSL Internet access service, web design and hosting and e-commerce
solutions to the Washington, DC area in addition to a non-exclusive license in
the Baltimore, Maryland area. We also licensed our customized portal site
www.theexecutive.com site to Virtual Plus Technologies for use in Washington,
DC and Baltimore, Maryland. The agreement represents the first step of our
North American rollout, in which we will license our services to other virtual
Internet partners on an exclusive or non-exclusive basis utilizing Level 3
Communications' advanced fiber optic network. We plan to aggressively market
our services to several other major US cities including Seattle, Dallas,
Boston, Chicago, Atlanta, Cincinnati, Detroit, Los Angeles, Miami, New York,
Orlando, Philadelphia, San Diego, San Jose, Tampa and New Jersey.
Gross Profit
After deducting the effect of the one-time catchup charges discussed under
"Cost of Revenues" gross profit increased by $65,000 (28%) to $295,000 from
$230,000 in the comparative period. As a percentage of sales gross profit
stayed the same at 30%. Increased competition in the Internet Service Provider
industry increases pressure of fee reduction for new subscribers and renewing
subscribers. We intend to decrease the cost of telephone and Internet switching
fees with new agreements with backbone or bandwidth providers.
Marketing and Sales Expenses
Marketing and sales expenses have increased by $175,000 (122%) to $318,000
from $143,000 in the comparative period. The major component of this increase
was a result of a marketing plan to increase advertisements in industry
specific publications throughout Canada. We had very little marketing and sales
effort in the comparative period.
General and Administrative Expenses
General and administrative expenses for corporate overhead activities and
Internet business-related activities combined have increased by $1,481,000 to
$1,914,000 from $433,000 in the comparative period.
37
General and administrative expenses relating to corporate overhead
activities, and not Internet business-related activities, have increased by
$1,416,000 to $1,616,000 from $210,000 in the comparative period. As a result
of the reverse takeover during February, 1999, we are now incurring expenses
relating to being an active operating public company and is incurring
additional expenses relating to investor relations and financial consulting.
Investor relations and financial consulting increased by $1,066,000 to
$1,153,000 as compared to $87,000 in the comparative period. Part of this
increase was $679,000 paid in shares to IP Equity, Inc. for Internet-based
marketing and financial consulting services. Pursuant to this Agreement we were
also committed to file a Registration Statement registering these securities by
November 6, 1999. IP Equity, Inc. and we have agreed to pay interest of $23,000
until such time as the commitment is met. During the current quarter a total of
$87,000 was paid and/or accrued and charged to operations. A company was paid
$60,000 and was issued warrants in the previous quarter valued at $147,800 for
a marketing and advertising program including banner ads, newsgroup coverage
and press release distribution. A company was issued 20,000 shares valued at
$73,000 for European investor relations.
Professional fees increased by $91,000 to $138,000 from $47,000 in the
comparative period. These additional costs relate to a number of security
issuances and regulatory matters.
Another one-time charge was a $100,000 bonus declared payable to our
President for all prior services rendered.
General and administrative expenses relating to Internet business related
activities increased by $75,000 to $298,000 from $223,000 in the comparative
period. The major components of these expenses were: amortization of goodwill
of $135,000, salaries and consulting fees of $101,000 (up by $41,000) and
telephone costs of $22,000.
Product Development Expenses
Product development costs consist of expenses incurred by us in the
development and creation of our portal 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.
Product development expenses increased by $86,000 (87%) to $184,000 from
$99,000 in the comparative period. The major component of the increase in
product development expenses was salaries and consulting fees of $100,000 as we
continue to expand our services and improve our products.
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 increased by $35,000 to $72,000 as compared to
$37,000 in the comparative period.
Purchased goodwill was amortized at $15,000 per month over its estimated
useful life of three years. The estimated useful life of three years was chosen
to reflect the short-term life of the related business because of increased
competition, the lack of a universal presence and technological advancements
and obsolescence in the industry. Amortization expense has been allocated to
general and administrative expense for the Internet business. Goodwill was
fully amortized by the end of the period.
We anticipate entering into operating and capital leases for any network
equipment and software in the future to minimize capital expenditures.
38
Net Loss for the Nine Months Ended February 29, 2000 as Compared to the Nine
Months Ended February 28, 1999
Our business 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 we operated in one geographic segment, being Canada,
located in Vancouver, BC and Toronto, Ontario. Subsequent to May 31, 1999 we
began expansion of our ISP business into 22 cities in the United States by
setting up Virtual ISP's. We have switched on 50 ports (minimum per agreement
with Level 3 Communications) in each of 7 cities which enable us to service up
to 500 customers in each city. The cost of these portals for the nine months
ended February 29, 2000 was $129,000. There was no revenue generated during the
period from these portals.
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 $1,616,000 relating to such activities. The net loss relating to
Internet activities in Canada amounted to $854,000.
Our net losses have come mainly from investor relations activities and
overhead costs associated with organization, restructuring and financing start-
up operations in Toronto and Vancouver, Canada and costs of developing new and
improved services and expanding our marketing plan into other North American
markets. Other operating activities conducted in the United States thus far
were expenses incurred including investor relations and professional fees.
Results of Operations for the Year Ended May 31, 1999 as Compared to the Year
Ended May 31, 1998
Revenues
Revenues have increased by $150,000 to $1,009,000 as compared to $859,000 in
the previous period, which is an increase of 17.5%. This increase is due to an
increased subscriber base in Vancouver and Toronto. Based on assumptions about
demand for our ISP services and our portal site, we anticipate that the dollar
amount of future revenues will increase over current levels.
We are beginning to receive small amounts of revenue from banner
advertisements, developing web-sites for customers and reselling product
pursuant to license agreements.
Cost of Revenues
Cost of revenues have increased by $126,000 to $776,000 as compared to
$650,000 in the previous year, which is an increase of 19%. This increase is
approximately the same as the increase in revenues. The largest components of
cost of revenues is telephone costs of $266,000 as compared to $238,000 in the
previous year; Internet and license fees of $224,000 as compared to $197,000 in
the previous year; and salaries and consulting fees of $192,000 as compared to
$155,000 in the previous year. The increases in these costs are reflective of
the increase in our subscriber base.
Gross Profit
Gross profit was 23.1% in fiscal 1999 as compared to 24.4% in fiscal 1998.
With increased competition in the Internet Service Provider industry there has
been increased pressure to reduce fees for new subscribers and renewing
subscribers. This reduction of fees results in lower gross profit as there is
not a reciprocal decrease in cost to service our customers. We plan to decrease
the cost of telephone and Internet switching fees with new agreements with
backbone or bandwidth providers.
Marketing and Sales Expenses
Marketing and sales expenses have increased by $53,000 to $224,000 as
compared to $171,000 in the previous year, which is an increase of 31%. The
major component of this increase was a result of a marketing
39
plan to increase advertisements in industry specific publications which
increased by $43,000 to $103,000 as compared to $60,000 in the previous year.
The other major component of marketing and sales is salaries which increased by
$8,000 to $64,000 as compared to $56,000 in the previous year. Other costs
relate to rent, telephone and amortization of capital assets.
General and Administrative Expenses
General and administrative expenses for corporate overhead activities and
Internet business related activities have increased by $350,000 to $800,000 as
compared to $450,000 in the previous year, which is an increase of 78%.
General and administrative expenses relating to corporate overhead
activities, and not Internet business related activities, have increased by
$319,000 to $478,000 as compared to $159,000 in the previous year, which is an
increase of 200%. As a result of the reverse takeover, we incurred one-time
expenses relating to professional fees and investor relations advertising and
consulting. Professional fees such as legal and accounting increased by
$115,000 to $158,000 as compared to $43,000 in the previous year. This increase
relates to costs incurred, or to be incurred, to complete and file various
documents with the NASD and the United States Securities and Exchange
Commission on Form 10-SB, 10-QSB, S-8 and 10-KSB in addition to legal fees to
effect the reverse takeover; the majority of these expenses were incurred in
the final quarter ended May 31, 1999. Investor relations advertising and
consulting increased by $157,000 to $164,000 as compared to $7,000 in the
previous year. The major components of this increase was; $114,000 paid in
shares and cash to two non-related companies for Internet-based marketing and
investor communications services including e-mails to their respective data
bases of customers. The remaining $50,000 was paid to various consultants and
companies for news releases and in-house investor relations services. Office,
rent and telephone increased by $58,000 to $62,000 as a result of various
office and telephone costs incurred during and after becoming a public company.
Salaries and management fees decreased by $43,000 to $45,000 as a result of
reapplying certain salaried employees to Internet related business activities
from corporate related activities. Travel increased by $12,000 to $18,000 as a
result of trips to New York, Toronto and Las Vegas by our senior management.
Transfer agent and various filing fees increased by $11,000 to $11,000 as a
result of becoming a public company. Amortization of head office equipment
increased by $5,000 to $10,000. The vast majority of all of the above expenses
were incurred in the final quarter of fiscal 1999.
General and administrative expenses relating to Internet business related
activities increased by $31,000 to $323,000 as compared to $292,000 in the
previous year, an increase of 11%. The major component of general and
administrative expenses was; amortization of goodwill of $160,000; salaries and
consulting fees of $97,000; office, rent and telephone of $46,000; legal and
accounting of $11,000 and bank charges of $9,000.
Product Development Expenses
Product development costs consist of expenses incurred by us in the
development and creation of our portal 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.
Product development expenses increased by $11,000 to $156,000 as compared to
$145,000 in the previous year, an increase of 8%. The major component of
product development expenses was; salaries and consulting fees of $117,000,
rent and telephone of $25,000, and amortization of capital assets used directly
in product development activities of $13,000. Related expenses incurred in the
previous year were comparatively similar as incurred in fiscal 1999.
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. During fiscal 1999 and
40
1998 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 increased by
$32,000 to $90,000 as compared to $58,000 in the previous year.
Purchased goodwill has been amortized at $13,000 per month over its
estimated useful life of three years. The estimated useful life of three years
was chosen to reflect the short-term life of the related business because of
increased competition, the lack of a universal presence and technological
advancements and obsolescence in the industry. Amortization expense has been
allocated to general and administrative expense for the Internet business.
Goodwill will be fully amortized during fiscal 2000.
We anticipate entering into operating leases for any network equipment and
software in the future to minimize capital expenditures.
Income Taxes
We generated US and Canadian net operating losses ("NOL") carried forward of
$835,000 during the current year as compared to $424,000 for the comparative
year. Total NOL's from inception to May 31, 1999 totals $1,385,000. We expect
some consolidated losses for the foreseeable future which will generate
additional NOL's. However, our ability to use NOL's is dependant on generating
profits in the future and may also be subject to annual limitations. In
addition, income taxes may be payable during this time due to operating income
in certain tax jurisdictions. In the future, if we achieve operating profits
and the NOL's have been exhausted or have expired, we may experience
significant tax expense. We recognized no provision for taxes because we
operated at a loss from inception through to May 31, 1999. The deferred tax
asset value has been reduced to nil because we can not be assured that it is
more likely than not that we will utilize the NOL's carried forward in future
years. If it was more likely than not to realize these losses we would have
recorded a deferred tax asset of $525,000.
Net Loss for the Year Ended May 31, 1999 as Compared to the Year Ended May 31,
1998
Our net losses have come mainly from overhead costs associated with
organization, restructuring and financing start-up operations in Toronto and
Vancouver, Canada and costs of developing new and improved services and
expanding our marketing plan into other North American markets. The only
operating activities conducted in the United States thus far were expenses
incurred in the going public process including investor relations and
professional fees. Our head office is in Richmond, BC, Canada which does not
conduct any business 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
$477,000 as compared to $159,000 in fiscal 1998, relating to such activities.
The net loss relating to Internet activities amounted to $471,000 as compared
to $398,000 in fiscal 1998.
Results of Operations for the Year Ended May 31, 1998 as Compared to the Pro
Forma Year Ended May 31, 1997
The discussion for these two periods is based on the actual results for the
period from October 15, 1996 to May 31, 1997 of Information Highway, Inc.
combined with the actual results of the three operating Canadian subsidiaries
from acquisition date to May 31, 1997 combined with the pro forma results of
the three Canadian operating subsidiaries for the period from June 1, 1996 to
the date of acquisition. By comparing on this basis a more meaningful
management discussion will result. The comparative pro forma information is
contained in Note 11 to the audited consolidated financial statements contained
in this report and included elsewhere.
Revenues
Revenues have increased by $438,000 to $859,000 as compared to $421,000 in
the comparative period, which is an increase of 104%. This increase is due to
an increased subscriber base in Vancouver and Toronto.
Our revenues in 1998 and 1997 was solely from the provision of Internet
services.
41
Cost of Revenues
Cost of revenues have increased by $315,000 to $650,000 as compared to
$335,000 in the comparative period, which is an increase of 94%. This increase
is slightly less than the percentage increase in revenues. The largest
components of cost of revenues is; telephone costs of $238,000 as compared to
$80,000 in the comparative period, Internet and license fees of $197,000 as
compared to $11,000 in the comparative period, and salaries and consulting fees
of $120,000 as compared to $199,000 in the comparative period. The increase in
telephone costs was a result of telephone leasing costs in Vancouver and the
decrease in salaries and benefits was due to a reallocation to other
departments and overall streamlining of the services provided. The increase in
Internet and license fees was due to the portal site being completed and fully
operational.
Gross Profit
Gross profit was 24.4% during fiscal 1998 as compared to 20.6% during the
comparative period. The increase in gross profit was a result of less manpower
needed to service our customers.
Marketing and Sales Expenses
Marketing and sales expenses have increased by $92,000 to $171,000 as
compared to $79,000 in the comparative period, which is an increase of 116% and
is directly related to the increase in sales. The major component of this
increase was a result of a marketing plan to increase advertisements in
industry specific publications which increased by $27,000 to $60,000 as
compared to $33,000 in the comparative period. The other major component of
marketing and sales is salaries which doubled to $56,000. Other costs relate to
rent, telephone and amortization of capital assets.
General and Administrative Expenses
General and administrative expenses for corporate overhead activities and
Internet business related activities increased by $176,000 to $451,000 as
compared to $275,000 in the comparative period, which is an increase of 64%.
General and administrative expenses relating to corporate overhead
activities, and not Internet business related activities, have increased by
$120,000 to $159,000 as compared to $39,000 in the comparative period, which is
an increase of 307%. This was a result of the head office being formed in
October, 1996 in Richmond, BC, Canada or six months of the comparative period.
The largest components of this increase was; management salaries and fees
increased by $66,000 to $88,000 as compared to $22,000 in the comparative
period and legal and accounting increased by $40,000 to $43,000 as compared to
$3,000 in the comparative period. These increases were due to the acquisition
of the subsidiaries, raising of capital and organization of the business.
General and administrative expenses relating to Internet business related
activities increased by $56,000 to $292,000 as compared to $236,000 in the
comparative period, an increase of 24%. The major component of general and
administrative expenses was; amortization of goodwill of $160,000 as compared
to $139,000 in the comparative period, salaries and consulting fees of $35,000
as compared to $7,000 in the comparative period, office, rent and telephone of
$72,000 and legal and accounting of $14,000.
Product Development Expenses
Product development costs consist of expenses incurred by us in the
development and creation of our portal 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.
Product development expenses increased by $109,000 to $145,000 as compared
to $36,000 in the previous year, an increase of 303%. The major component of
product development expenses was; salaries and consulting
42
fees of $114,000, rent and telephone of $22,000, and amortization of capital
assets used directly in product development activities of $9,000. We devoted
resources to the development of our portal site in Toronto.
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. During fiscal 1998 and 1997
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 increased by
$28,000 to $58,000 as compared to $30,000 in the comparative period.
Purchased goodwill has been amortized at $13,000 per month over its
estimated useful life of three years. The estimated useful life of three years
was chosen to reflect the short-term life of the related business because of
increased competition, the lack of a universal presence and technological
advancements and obsolescence in the industry. Amortization expense has been
allocated to general and administrative expense for the Internet business.
We anticipate entering into operating leases for any network equipment and
software in the future to minimize capital expenditures.
Income Taxes
We generated US and Canadian net operating losses ("NOL") carried forward of
$424,000 during the current year as compared to $127,000 for the comparative
year. We expect some consolidated losses for the foreseeable future which will
generate additional NOL's. However, our ability to use NOL's is dependant on
generating profits in the future and may also be subject to annual limitations.
In addition, income taxes may be payable during this time due to operating
income in certain tax jurisdictions. In the future, if we achieve operating
profits and the NOL's have been exhausted or have expired, we may experience
significant tax expense. We recognized no provision for taxes because we
operated at a loss from inception through to May 31, 1998. The deferred tax
asset value has been reduced to nil because we can not be assured that it is
more likely than not that we will utilize the NOL's carried forward in future
years. If it was more likely than not to realize these losses we would have
recorded a deferred tax asset of $197,000.
Net Loss for the Year Ended May 31, 1998 as Compared to the Pro Forma Year
Ended May 31, 1997
Our net losses have come mainly from overhead costs associated with
organization, restructuring and financing start-up operations in Toronto and
Vancouver, Canada and costs of developing new and improved services and
expanding our marketing plan into other Canadian markets. Our head office is in
Richmond, BC, Canada which does not conduct any business related to the
Internet. Our sole purpose is to provide investor relations services and
services relating to being a public company. Included in general and
administrative expenses and net loss is $159,000 as compared to $39,000 in the
comparative period, relating to such activities. The net loss relating to
Internet activities amounted to $398,000 as compared to $264,000 in the
comparative period.
Liquidity and Financial Resources at May 31, 1999
We have historically satisfied our capital needs by cash generated from
operations, by borrowing from affiliates and by issuing equity securities. Our
operating activities used $521,000 and $198,000 for the years ended May 31,
1999 and 1998, respectively. During the year ended May 31, 1998, we used
$224,000, generated by issuing equity securities, and $110,000, generated from
borrowings from affiliates, to fund our operating cash shortfall of $198,000
and to make capital expenditures of $109,000. During the year ended May 31,
1999, we used $863,000, generated by issuing equity securities, to fund our
operating cash shortfall of $521,000, to repay borrowings from affiliates of
$197,000 and to make capital expenditures of $139,000. The operation,
development and expansion of our business will likely require additional
capital infusions for the foreseeable future.
43
We have a working capital deficit, as at May 31, 1999, of $314,000, and will
require 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 from
cash generated by operating activities and partially through sales of equity
securities. Subsequent to May 31, 1999 we raised a total of $770,000 pursuant
to an Offering Memorandum, stock option exercises and warrant exercises as
follows:
. an Offering Memorandum was completed on August 11, 1999 whereby 129,750
units were issued at $4.00 per unit for total proceeds of $519,000, each
unit containing one common share and one Series "A" Warrant to acquire
one additional share at $4.00 per share expiring April 30, 2000 and one
Series "B" Warrant to acquire one additional share at $6.00 per share
expiring April 30, 2001. If all warrants were exercised we would receive
a further $1,297,500;
. we issued 156,200 shares pursuant to warrants exercised at $1.00 per
share for total proceeds of $171,200. There are currently 370,650
additional warrants outstanding exercisable at $1.00 per share for
potential proceeds of $370,650. These warrants expire between October
1999 and December 1999;
. we issued 135,000 shares pursuant to options exercised at between $0.50
and $0.75 per share for total proceeds of $80,000. We currently have
285,000 shares reserved for the exercise of stock options at $0.50 per
share, 217,666 shares reserved for the exercise of stock options at
$0.75 per share, 700,000 shares reserved for the exercise of stock
options at $4.00 per share and 125,000 shares reserved for stock options
at $5.00 per share. If all of these options were exercised we would
receive $3,730,750.
Liquidity and Financial Resources at February 29, 2000
We have historically satisfied our capital needs by borrowing from
affiliates in the short-term and by issuing equity securities.
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. During
the nine months ended February 29, 2000, we used $2,034,000, generated by
issuing equity securities, to fund our operating cash shortfall of $1,300,000
to repay borrowings from affiliates of $113,000, to make capital expenditures
of $156,000 and to increase our cash position by $461,000 to $498,000. The
operation, development and expansion of our business will likely require
additional capital infusions for the foreseeable future.
We have working capital, as at February 29, 2000, of $163,000, 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; it engaging in any
acquisitions; or it accelerating deployment of our network services or
otherwise altering the schedule or targets of our roll out plan. We are not
presently considering any specific business acquisition.
We will need additional funds to continue in business and to implement our
business plan as proposed. In addition to working capital as at February 29,
2000 of $163,000 we have raised a further $100,000 pursuant to a private
placement of 25,000 units at $4.00 per unit. On March 7, 2000 we received gross
proceeds of $1,500,000 (net proceeds of $1,332,727 after a commission of
$150,000 and legal fees of $17,273 were paid)
44
pursuant to the issuance of our $1,500,000 principal amount of 5% Convertible
Debentures. We also issued to the Debenture holder a warrant to acquire 225,000
of our shares exercisable at $6.22875 expiring March 3, 2002.
The principal capital expenditures incurred to date related to putting
networks in place in Toronto and Vancouver. The majority of the networking
equipment has been acquired in previous periods, and new equipment will be
leased under operating leases. Our strategy now is to create Virtual ISP
presences in new markets (i.e., North American cities) pursuant to our
agreements with Internet access providers, so that it will not have to commit
to capital expenditures to build out a network in each new market. We may need
to commit working capital, however, to fund increased lease payments to
Internet access providers until revenues from new subscribers begin to cover
the increase in monthly lease costs attributable to the new market. We have
switched on 50 ports (minimum per agreement with Level 3 Communications) in
each of 7 cities which enable us to service up to 500 customers in each city.
The cost of these portals for the nine months ended February 29, 2000 was
$129,000. There was no revenue generated during the period from these portals.
We expect our capital expenditures to continue at a modest rate in future
periods as necessary, arising primarily from the purchase of some
infrastructure equipment necessary for the development and expansion of our
defined markets. We made capital expenditures of $156,000 in the current
period, principally to acquire hardware related to the development and
maintenance of the portal site. Included in this is $96,000 of computer
equipment acquired by way of a capital lease.
We have arranged a 30 day contract with eQuest Technologies, Inc. a
Microsoft Certified Solution Provider to implement Microsoft's Commercial
Internet System (MCIS). eQuest Technologies, Inc. and ISP Power Corporation
will also install and integrate PRISM's billing and accounting package for us.
In addition eQuest can provide us the installation of network infrastructure,
security, custom and application development.
The first phase has commenced on our network operations center in Vancouver
BC, which entails the installation/integration of IBM's servers and MCIS 2.5
components. The second phase will consist of the integration and customization
of the PRISM billing system.
Year 2000 Issues
We cannot provide assurance that we will not experience unanticipated
negative consequences from year 2000 problems, including material costs caused
by undetected errors or defects in the technology used in our internal systems
as we operates in the Year 2000.
We Did Not Experience Any Problems With Our Systems or Service Providers During
the Year 2000 Rollover Period
Our online services and their associated and supporting tools, Web sites and
infrastructure were designed and developed to be year 2000 compliant. Our
internal systems, including those used to deliver our services, utilize third-
party hardware and software. Based on vendors' representations received thus
far and our experience with the Year 2000 rollover, we believe that the third-
party hardware and software it uses is year 2000 compliant.
To date, we have spent an estimated $100,000, in part to address year 2000
issues. These expenditures consisted mainly of purchases of new year 2000-
compliant computer equipment, and some of these purchases would have been made
in the ordinary course of replacing aging equipment. We presently estimate that
the total remaining cost of addressing year 2000 issues will not be material.
These estimates were derived utilizing a number of assumptions, including the
assumption that we have already identified any significant year 2000 issues.
However, these assumptions may not be accurate, and actual results could differ
materially from those anticipated. In view of our year 2000 review and
remediation efforts to date, the recent development of our services, the recent
installation of our information technology equipment and systems, we do not
consider contingency planning to be necessary at this time.
45
We believe that any lingering Year 2000 problems will occur in the
processing of financial transactions. We believe that our billing systems will
accurately invoice our subscribers and licensees. We will remain vigilant in
our review of invoices from our vendors to detect potential Year 2000 errors in
their charges to us.
If we discover that certain of our services need modification, or certain of
our third-party hardware and software is not year 2000 compliant, we will try
to make modifications to our services and systems on a timely basis. We do not
believe that the cost of these modifications will materially affect our
operating results. However, we cannot provide assurance that we will be able to
modify these products, services and systems in a timely, cost-effective and
successful manner, and the failure to do so could have a material adverse
effect on our business and operating results.
DESCRIPTION OF PROPERTY
Our headquarters and executive offices are located at #185-10751 Shellbridge
Way, Richmond, British Columbia V6X 2W8 and our telephone number is (604) 278-
7494. Our leases, on a month-to-month basis, approximately 200 square feet of
space at the aforementioned office from SMR Investments Ltd., a private British
Columbia company owned by Susanne Robertson, the wife of John G. Robertson. The
monthly rent fee is approximately $350.00 ($CN500.00). We also lease facilities
in Vancouver and Toronto. The Vancouver site supports both ISP services and the
portal site. The lease term is 28 months with monthly payments of approximately
$5,000.00 ($CN7,500.00). The Toronto offices support ISP services. The lease
term is 54 months with monthly payments of approximately $2,000.00
($CN2,950.00). We believe that our present facilities will be suitable for the
operation of our business for the foreseeable future. The facilities are
adequately insured against perils commonly covered by business insurance
policies. These locations could be replaced without significant disruption.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At May 31, 1999 and 1998, we owed the amounts set forth below to the
following affiliated companies:
May 31,
----------------
Affiliate 1999 1998 Nature of Affiliation
--------- ------- -------- -------------------------------
Access Information Systems.... $50,554 $ 37,500 (1)
JGR Petroleum Inc............. $ 6,000 $ 27,155 Controlled by John G. Robertson
Reg Technologies, Inc......... $12,895 $ 2,285 (2)
SMR Investment Ltd............ $33,527 $199,414 (3)
- --------
(1) See Security Ownership of Certain Beneficial Owners and Management, the
table thereunder and the notes thereto.
(2) Reg Technologies Inc. is a British Columbia Corporation listed on the
Canadian Venture Exchange. Since October 1984, Mr. Robertson has been
President and a Director of Reg Technologies Inc. SMR Investment Ltd., a
British Columbia corporation, holds a controlling interest in Reg
Technologies Inc. From 1977 through 1999, Mr. Robertson was President and a
member of the Board of Directors of SMR Investment Ltd. Susanne M.
Robertson, Mr. Robertson's wife, owns SMR Investment Ltd.
(3) From 1977 through 1999, Mr. Robertson was President and a member of the
Board of Directors of SMR Investment Ltd. Susanne M. Robertson, Mr.
Robertson's wife, owns SMR Investment Ltd.
The indebtedness is unsecured and non-interest bearing.
From April, 1998 through February, 2000, Vandeberg Johnson & Gandara, a law
firm in which James L. Vandeberg, Information Highway.com's Chief Operating
Officer and a Director, was a partner, was paid $185,956.84 for legal services.
From March 1, 2000 through May 5, 2000, Ogden Murphy Wallace, PLLC,
Mr. Vandeberg's current firm, was paid $10,000 for legal services.
46
Mr. Robertson and Ms. Lorette could be considered promoters of Information
Highway.com. Their interests, including the details of their stock options, are
disclosed above. See "Security Ownership of Certain Beneficial Owners and
Management" and "Executive Compensation".
No other compensation is paid to any of our Executive Officers or Directors.
We may in the future create retirement, pension, profit sharing, insurance and
medical reimbursement plans covering our Officers and Directors. At the present
time, no such plans exist. No advances have been made or are contemplated to
any of our Officers or Directors.
MARKET PRICE OF AND DIVIDENDS ON CAPITAL
STOCK AND OTHER SHAREHOLDER MATTERS
There is a limited public market for the Common Stock of Information
Highway.com which has traded on the OTC Bulletin Board under the symbol "IHWY"
since February 24, 1999. The high and low bid prices for the stock each
quarter, through February 29, 2000, as reported by Nasdaq Trading & Market
Services, are as follows:
Bid Price
---------------
High Low
------- -------
Quarter ended February 28, 1999............................ $ 7.375 $0.00
Quarter ended May 31, 1999................................. $12.50 $3.375
Quarter ended August 31, 1999.............................. $13.00 $3.1875
Quarter ended November 30, 1999............................ $ 8.75 $2.50
Quarter ended February 29, 2000............................ $ 6.25 $3.94
47
These quotations reflect inter-dealer prices, without retail mark-up, mark-
down or commission and may not represent actual transactions. As of March 29,
2000, there were 7,838,017 shares of Common Stock outstanding, held by 189
shareholders of record and by various broker/dealers on behalf of an
indeterminate number of street name shareholders. As of March 29, 2000,
shares of common stock were subject to issuance pursuant to
outstanding options at prices ranging from $0.50 to $5.00 per share and
shares of common stock were subject to issuance pursuant to outstanding
warrants at prices ranging from $1.00 to $6.00 per share.
Number of
Shares Description
--------- -----------
2,487,767 Currently issued and permitted to be sold in secondary market
without restriction
1,081,900 Options that could be exercised and then the shares resold
immediately in secondary market without restriction
125,817 Shares that may be sold beginning on various dates from December 8,
2000 to March 2nd, 2001 in secondary market without restriction.
674,450 Shares that may be sold beginning on various dates from March 29,
2000 to February 18, 2001 in secondary market without restriction
129,750 Shares that may be sold beginning on various dates from May 27, 2000
to July 15, 2000 in secondary market without restriction
880,500 Shares that may be sold beginning February 23, 2001 in secondary
market without restriction*
129,750 Shares that may be sold beginning on various dates from March 3,
2001 to February 18, 2002 in secondary market without restriction*
674,450 Shares that may be sold beginning on various dates from May 27, 2001
to July 15, 2001 in secondary market without restriction
125,817 Shares that may be sold beginning on various dates from December 8,
2001 to March 2nd, 2002 in secondary market without restriction.
3,486,500 Shares held by affiliates that may be sold under either Rule 701 or
Rule 144 beginning March 29, 2000 and options held by affiliates
that may be exercised either pursuant to Rule 701 or Form S-8 (7
persons; each limited to 1% of outstanding shares every 3 months)
- --------
* Shareholders may sell earlier than date indicated subject to the limitation
that an affiliate may sell in the marketplace to approximately one percent
of outstanding shares of Information-Highway.com every three months
In addition, Information Highway.com has 610,317 warrants outstanding that
the holders may exercise up until dates ranging from October 6, 2000 to March
3, 2002, entitling holders to purchase 610,317 shares of common stock at prices
ranging from $4.00 to $6.22875 per share.
Information Highway.com also has 1,631,900 options available for grant which
may be exercised up until dates ranging from January 26, 2003 to December 1,
2004, entitling holders to purchase 1,631,900 shares of common stock at prices
ranging from $0.50 to $6.00 per share.
To date, we have not paid any dividends on our Common Stock and do not
expect to declare or pay any dividends on such Common Stock in the foreseeable
future. Payment of any dividends will be dependent upon future earnings, if
any, our financial condition, and other factors as deemed relevant by our Board
of Directors.
48
EXECUTIVE COMPENSATION
The following table sets forth compensation awarded to, earned by or paid to
Mr. Robertson for the designated fiscal years. No executive officer had an
annual salary and bonus in excess of $100,000 during the past three fiscal
years. The information contained in the table relates to our predecessor (now
our subsidiary) prior to the February 1999 reorganization. Pursuant to
paragraph (a)(5) of Item 402 of Regulation S-B, the table omits columns that
are not applicable to Mr. Robertson's compensation.
SUMMARY COMPENSATION TABLE
(a) (b) (e) (g)
Securities
Other Annual Underlying
Compensation Options/SARs
Name and Principal Position Year ($) (#)
--------------------------- ---- ------------ ------------
John G. Robertson................................ 1999 575,500(1) 300,000
President and Chief Executive Officer 1998 48,000(2) 150,000
1997 30,000(3)
- --------
(1) On February 23, 1999 Mr. Robertson exercised 150,000 stock options with an
exercise price of $0.50 per share. Based on the closing market price of our
stock of $3.75 on February 24, 1999, its first day of trading, according to
rules of the Securities and Exchange Commission the exercise resulted in
compensation to Mr. Robertson of $487,500. We paid Access Information
Services, Inc. a management fee of $2,500 per month and an additional
$1,500 per month for rent and secretarial services each month. Access
Information Services, Inc. is a corporation owned by a trust of which Mr.
Robertson is one of three voting trustees and of which Kelly Robertson, Mr.
Robertson's daughter, is the beneficiary. We have disclosed the entire
amount of these payments, $48,000, as other compensation paid to Mr.
Robertson, due to his shared control over the trust, even though he will
not receive this amount in cash.
(2) We paid Access Information Services, Inc. a management fee of $2,500 per
month and an additional $1,500 per month for rent and secretarial services
each month. Access Information Services, Inc. is a corporation owned by a
trust of which Mr. Robertson is one of three voting trustees and of which
Kelly Robertson, Mr. Robertson's daughter, is the beneficiary. We have
disclosed the entire amount of these payments, $48,000, as other
compensation paid to Mr. Robertson, due to his shared control over the
trust, even though he will not receive this amount in cash.
(3) We paid Access Information Services, Inc. a management fee of $2,500 per
month and an additional $1,500 per month for rent and secretarial services
each month from inception (October 15, 1996). Access Information Services,
Inc. is a corporation owned by a trust of which Mr. Robertson is one of
three voting trustees and of which Kelly Robertson, Mr. Robertson's
daughter, is the beneficiary. We have disclosed the entire amount of these
payments, $30,000, as other compensation paid to Mr. Robertson, due to his
shared control over the trust, even though he will not receive this amount
in cash.
The following table sets forth certain information concerning grants of
stock options pursuant to stock option plans to the named Executive Officer
during the year ended May 31, 1999.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
(a) (b) (c) (d) (d) (e)
% of Total
Options/SARs Market Price of
Number of Securities Granted to Underlying
Underlying Employees in Security on Expiration
Name Options/SARs Granted Fiscal Year Exercise Price Grant Date Date
---- -------------------- ------------ -------------- --------------- ------------
John G. Robertson....... 300,000 50.4% $4.00 $4.50 May 21, 2004
49
The following table sets forth certain information concerning exercises of
stock options pursuant to stock option plans by the named Executive Officer
during the year ended May 31, 1999 and stock options held at year end.
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
(a) (b) (c) (d) (e)
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at FY-End Options/SARs at FY-
(#) End ($)
---------------------- --------------------
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable
---- --------------- -------------- ---------------------- --------------------
John G. Robertson....... 150,000 487,500 300,000/-0- -0-(1)/-0-
- --------
(1) Mr. Robertson's 300,000 options were not in-the-money based on the May 28,
1999 closing price of $3.75 for our common stock.
We do not have any Long Term Incentive Plans. Directors receive no
compensation for their service as such, although they do receive reimbursement
for reasonable expenses incurred in attending meetings of the Board of
Directors. In addition to the options granted to Mr. Robertson, Ms. Lorette and
Mr. Vandeberg each were granted options to purchase 50,000 shares of our common
stock, due in part to their service as directors. Ms. Lorette's options,
granted during fiscal year 1998, are fully vested, have an exercise price of
$0.50 per share and must be exercised by January 26, 2003. Mr. Vandeberg's
options, granted during fiscal year 1999, are fully vested, have an exercise
price of $0.75 per share and must be exercised by January 18, 2004. We have no
obligation or policy to grant stock options to directors.
We may in the future create retirement, pension, profit sharing, insurance
and medical reimbursement plans covering our Officers and Directors. At the
present time, no such plans exist. No advances have been made or are
contemplated to any of our Officers or Directors.
We do not have any employment contracts, termination of employment and
change of control arrangements.
50
FINANCIAL STATEMENTS INDEX
Page No.
--------
Nine Months Ended February 29, 2000 and February 28, 1999
1. (unaudited)
Consolidated Balance Sheets.................................... F-2
Consolidated Statements of Operations.......................... F-3
Consolidated Statements of Cash Flows.......................... F-4
Notes to the Consolidated Financial Statements................. F-5
2. Fiscal Years Ended May 31, 1999 and 1998 (audited)
Consolidated Balance Sheets.................................... F-11
Consolidated Statements of Operations.......................... F-12
Consolidated Statements of Stockholders' Equity................ F-13
Consolidated Statements of Cash Flows.......................... F-15
Notes to the Consolidated Financial Statements................. F-16
F-1
INFORMATION HIGHWAY.COM, INC.
CONSOLIDATED BALANCE SHEETS
February 29, May 31,
2000 1999
------------ -----------
(unaudited) (audited)
ASSETS
Current Assets
Cash............................................... $ 498,175 $ 37,622
Accounts receivable................................ 5,031 --
Inventory (Note 5)................................. 31,241 9,695
Prepaid expenses and deposits...................... 106,747 70,487
Due from related parties (Note 5).................. 47,752 --
----------- -----------
688,946 117,804
Property, Plant and Equipment (Note 3)............... 471,439 270,092
Goodwill............................................. -- 134,848
----------- -----------
Total Assets..................................... 1,160,385 522,744
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable................................... 307,404 267,279
Accrued liabilities................................ 136,117 65,151
Deferred revenues.................................. 48,997 34,049
Advances from related parties (Note 5)............. -- 65,186
Current portion of capital lease obligations (Note
4)................................................ 33,494 --
----------- -----------
526,012 431,665
Long-term Liabilities
Long-term portion of capital lease obligations
(Note 4).......................................... 62,528 --
----------- -----------
588,540 431,665
Stockholders' Equity
Common Stock (Note 6), 50,000,000 shares authorized,
par value $.0001 per share, 7,876,767 and 6,469,951
issued and outstanding respectively................. 788 647
Additional paid in capital......................... 3,845,001 1,698,351
Warrants issued for cash (Note 6).................. 57,000 --
Value of Warrants issued for services (Note 6)..... 418,620 --
Common stock allotted for cash pursuant to private
placements (Note 6)
(95,817 shares at $4.00 per share and 35,000
shares at $0.75 per share respectively)........... 383,268 50,000
----------- -----------
4,704,677 1,748,998
Preferred Stock, 10,000,000 shares authorized, par
value $.0001 per share, none issued................. -- --
Translation adjustments.............................. (5,878) (1,145)
Accumulated Deficit.................................. (4,126,954) (1,656,774)
----------- -----------
Total Stockholders' Equity....................... 571,845 91,079
----------- -----------
Total Liabilities and Stockholders' Equity....... 1,160,385 522,744
=========== ===========
(See accompanying notes)
F-2
INFORMATION HIGHWAY.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Nine months ended
February 29, February 29,
---------------------- ----------------------
2000 1999 2000 1999
----------- --------- ----------- ---------
Revenues....................... $ 334,751 $ 254,853 $ 1,001,549 $ 752,470
Cost of Revenues............... 485,007 176,927 926,565 522,389
Gross Profit (Loss)............ (150,256) 77,926 74,984 230,081
Operating Expenses
Marketing and sales.......... 126,077 47,412 318,008 142,814
General and administrative... 809,783 143,621 1,914,339 432,613
Product development.......... 64,260 32,787 183,677 98,761
Portal costs for US expansion
(Note 8).................... 48,364 129,141
----------- --------- ----------- ---------
Total Operating Expenses... 1,048,484 223,820 2,545,165 674,188
----------- --------- ----------- ---------
Net loss....................... (1,198,740) (145,894) (2,470,180) (444,107)
Historical basic and dilutive
net loss per share............ (0.16) (0.03) (0.34) (0.04)
Weighted average shares used to
compute basic and historical
net loss per share............ 7,667,000 5,500,000 7,247,000 5,000,000
=========== ========= =========== =========
Diluted loss per share has not been presented separately as the result is
anti dilutive.
(See accompanying notes)
F-3
INFORMATION HIGHWAY.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
--------------------------
February 29, February 28,
2000 1999
------------ ------------
CASH FLOWS TO OPERATING ACTIVITIES:
Net loss......................................... $(2,470,180) $(444,107)
Adjustments to reconcile net loss to cash
Depreciation and amortization.................. 72,407 41,717
Amortization of goodwill....................... 134,848 119,811
Shares and warrants issued for services
rendered...................................... 899,314 --
Change in non-cash working capital items
Decrease in accounts receivable................ (5,031) (12,202)
Increase in prepaid expenses................... (36,260) (3,580)
Increase in inventory.......................... (21,546) --
Increase in accounts payable and accruals...... 111,091 4,046
Increase in unearned revenue................... 14,948 --
----------- ---------
Net Cash Used in Operating Activities........ (1,300,409) (294,315)
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Increase in common stock......................... 2,034,365 601,697
Decrease in advances from related parties........ (112,938) (261,784)
----------- ---------
Net Cash from Financing Activities........... 1,921,427 339,913
CASH FLOWS TO INVESTING ACTIVITIES:
Increase in property, plant and equipment........ (155,732) (3,831)
----------- ---------
Net Cash to Investing Activities............. (155,732) (3,831)
Translation Adjustments............................ (4,733) 5,759
Increase in Cash During the Period................. 460,553 47,526
Cash--Beginning of Period.......................... 37,622 35,699
----------- ---------
Cash--End of Period................................ $ 498,175 $ 83,225
=========== =========
NON-CASH FINANCING ACTIVITIES--SEE NOTE 6 FOR
SHARES AND WARRANTS ISSUED FOR SERVICES RENDERED
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest............................. 2,632 5,786
Cash paid for income taxes......................... -- --
(See accompanying notes)
F-4
INFORMATION HIGHWAY.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of Operations
Florida Venture Fund, Inc. (the "Company" or "FVFI") 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
incorporation to February 17, 1999 the Company did not engage in any business
activity other than initial organization, initial financing and some business
investigation activities.
Pursuant to a letter agreement dated February 17, 1999, the Company
completed an Agreement and Plan of Reorganization with Information Highway,
Inc., herein "IHI", whereby a business combination was completed and all of the
outstanding common stock of Information Highway, Inc. was, or will be,
exchanged for common shares of the Company representing a change of control of
the Company by way of reverse takeover. As part of the Plan of Reorganization
the Company's name was changed to Information Highway.com, Inc.
IHI was incorporated in the State of Washington on October 15, 1996. Prior
to the reverse takeover IHI acquired 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.
2. Basis of Presentation
Consolidated Financial Statements
These consolidated financial statements include the accounts of the Company
and its wholly owned US subsidiary, Information Highway, Inc. which owns three
consolidated, wholly-owned, Canadian subsidiaries. As IHI was the acquirer in a
reverse takeover business combination culminating on February 17, 1999, its
fiscal year-end of May 31 is the Company's new fiscal year-end and the business
of IHI will be the continuing business reported for all comparative purposes,
including the statements of operations and cash flows. Prior to the reverse
takeover the Company's fiscal year end was December 31.
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.
Reclassification
Certain amounts in the financial statements have been reclassified to be
consistent and comparable from year-to-year.
Adjustments
These interim financial statements include all adjustments which in the
opinion of management are necessary in order to make the financial statements
not misleading.
3. Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization.
F-5
INFORMATION HIGHWAY.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
3. Property, Plan and Equipment (continued)
Accumulated
Depreciation and 2000 Net
Cost Amortization Book Value
-------- ---------------- -----------
(unaudited)
Computer equipment--capital lease........ $ 96,022 $ 5,335 $ 90,687
Computer equipment....................... 359,269 183,891 175,378
Computer software........................ 180,079 30,726 149,353
Office furniture and equipment........... 52,347 19,586 32,761
Production equipment..................... 25,000 10,125 14,875
Leasehold improvements................... 11,567 3,182 8,385
-------- -------- --------
724,284 252,845 471,439
4. Capital Lease Obligation
The Company has acquired computer equipment by way of a capital lease with
monthly payments of $2,667 over a three year period ending February 28, 2003.
5. Related Party Transactions
(a) Amounts owing from/to related parties and affiliates are related to common
expenses paid by the Company on behalf of affiliates and are due on demand,
unsecured and non-interest bearing. These amounts were recorded at their
exchange amounts.
(b) Pursuant to a Management Agreement dated December 1, 1998, with a company
related to the President of the Company, the Company is committed to pay
management fees of $2,500 per month and rent and secretarial fees of $1,500
per month for a term of three years expiring December 1, 2001.
(c) A partnership, of which a director of the Company is a partner, was paid
$73,790 for legal services rendered during the nine months ended February
29, 2000.
(d) A bonus of $100,000 was declared payable to the President of the Company.
(e) Finished goods inventory of $31,241 was acquired from a public company with
common Presidents pursuant to a Marketing Agreement dated January 20, 1999.
The Company has the exclusive worldwide rights to market the product over
the Internet. The agreement is for five years subject to minimum annual
sales criteria.
6. Common Stock Issuances and Related Commitments
Private Placements
Prior to becoming public the Company approved and completed two private
placements of units and issued 814,150 units at $0.75 per unit to raise
$610,612. These units were issued in December, 1998 and contained one share and
one warrant to acquire one additional share at $1.00 if exercised by December
30, 1999, some of which were extended to February 18, 2000. Of the 814,150
warrants issued, 805,350 warrants were exercised by February 18, 2000 for
proceeds of $805,350. Warrants with respect to 8,800 shares expired. No amount
was allocated to warrants as there was no market for the stock prior to
becoming a public company.
The Company offered units pursuant to an Offering Memorandum. Each unit
consisted of one common share, one Series "A" Warrant to acquire one additional
share at $4.00 per share expiring April 30, 2000, and
F-6
INFORMATION HIGHWAY.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
6. Common Stock Issuances and Related Commitments (continued)
one Series "B" Warrant to acquire one additional share at $6.00 per share
expiring April 30, 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. All warrants are currently outstanding.
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.
Shares issued for services
In July, 1999 the Company issued 125,000 shares to IP Equity, Inc. pursuant
to a Marketing and Financial Consulting Agreement dated June 23, 1999. These
shares were valued at $4.69 per share or $440,000 in total. In October, 1999
the Company issued an additional 50,000 shares to IP Equity, Inc. These shares
were valued at $4.778 per share or $238,900 in total. These amounts, totalling
$678,900, were charged to operations during the nine months ended February 29,
2000. Pursuant to this Agreement the Company was committed to file a
Registration Statement registering these securities by November 6, 1999. IP
Equity, Inc. and the Company have agreed to pay interest of $23,226 until such
time as the commitment is met. During the most recent quarter a total of
$87,478 was paid and/or accrued and charged to operations.
In July, 1999 the Company issued 2,500 shares valued at $8.80 per share or
$22,000 in total in connection with the successful completion of the Company's
Internet portal telephony project. This amount was capitalized.
In November, 1999 the Company issued 20,000 shares to World of Internet.com,
a European investor relations company. These shares were valued at $3.631 per
share or $72,614 in total which has all been charged to operations.
Warrants issued for services
On November 15, 1999 the Company paid $20,000 and issued 400,000 warrants to
acquire up to 400,000 shares exercisable at $3.50 per share expiring November
15, 2000 for a three month marketing and advertising program including banner
ads, news group coverage and press release distribution. The Company must also
pay $20,000 in December, 1999 and $20,000 in January, 2000. The value of the
warrants on the date of issue was $147,800. Total compensation expense of
$207,800 was recognized during the nine months ended February 29, 2000.
On December 1, 1999, Garry Savage and the Company entered into an Agreement
related to private placement financing and investor relations. The Agreement
calls for a 10% finders fee to be paid pursuant to a private placement of units
at $4.00 per unit. A total of $36,327 has been paid to February 29, 2000. In
addition, 100,000 warrants were issued to acquire 100,000 shares exercisable at
$4.00 per share expiring December 1, 2002. The value of these warrants was
$270,820 which was charged to additional paid in capital.
Stock Option Plan
On June 30, 1997, amended on May 21, 1999 and then amended and restated
February 8, 2000, the Company has reserved 2,500,000 common shares pursuant to
a stock option plan expiring May 31, 2007. During the year the Company granted
certain employees and directors stock options to acquire up to 710,000 shares
at $4.00 per share, up to 325,000 shares at $5.00 per share, and up to 35,000
shares at $6.00 per share all expiring between May and December, 2004.
F-7
INFORMATION HIGHWAY.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
6. Common Stock Issuances and Related Commitments (continued)
Stock option activity during the nine months ended February 29, 2000
May 31, 1999 Price Granted Exercised(E) February 29, 2000
# $ # Cancelled(C) # Expiry Date
------------ ------ ------- ------------ ----------------- -----------
370,000 0.50 -- 231,750(E) 138,250 January 26, 2003
267,666 0.75 -- 177,666(E) 90,000 August, 2003 to February, 2004
600,000 4.00 710,000 100,000(E) 1,210,000 May to November, 2004
5.00 325,000 150,000(C) 174,900 June to November, 2004
100(C)
6.00 35,000 -- 35,000 December, 2004
--------- --------- ---------- ---------
1,237,666 1,070,000 659,516 1,648,150
========= ========= ========== =========
Options are granted for services to be 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.
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.
The fair value of the employee's purchase rights under SFAS 123, was
estimated using the Black-Scholes model with the following assumptions used for
grants on January 26, 1998: risk free interest rate was 5.47%, expected
volatility of 20%, an expected option life of six months and no expected
dividends; and for grants between August 14, 1998 and February 23, 1999, as a
group: risk free interest rate was 5.27%, expected volatility of 20%, an
expected option life of six months and no expected dividends; and for grants
between May 19, 1999 and December 1, 1999, as a group: risk free interest rate
was 5.27%, expected volatility of 20%, an expected option life of six months
and no expected dividends.
If compensation expense had been determined pursuant to SFAS 123, the
Company's net loss and net loss per share for the three months and nine months
ended February 29, 2000 and February 28, 1999 would have been as follows:
Three months ended Nine months ended
February 29, February 29,
---------------------- ----------------------
2000 1999 2000 1999
----------- --------- ----------- ---------
Net loss
As reported................ $(1,198,740) $(145,894) $(2,470,180) $(444,107)
Pro forma.................. (1,381,476) (150,636) (3,163,854) (459,897)
Basic net loss per share
As reported................ (0.16) (0.03) (0.34) (0.04)
Pro forma.................. (0.18) (0.03) (0.44) (0.04)
7. Contingent Liability--Lawsuit
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
F-8
INFORMATION HIGHWAY.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
7. Contingent Liability--Lawsuit (continued)
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.
8. Segmented Information
The Company has 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. Subsequent to May 31,
1999 the Company began expansion of its ISP business into 22 cities in the
United States by setting up Virtual ISP's. The Company has switched on 50 ports
(minimum per agreement with Level 3 Communications) in each of 7 cities which
enables the Company to service up to 500 customers in each city. The cost of
these portals for the nine months ended February 29, 2000 was $129,141. There
was no revenue generated during the period.
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 $1,616,432 relating to such activities. The net loss
relating to Internet activities in Canada amounted to $853,748.
F-9
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Information Highway.com, Inc. (formerly Florida Venture Fund, Inc.)
We have audited the accompanying consolidated balance sheets of Information
Highway.com, Inc. (formerly Florida Venture Fund, Inc.) as of May 31, 1999 and
1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years ended May 31, 1999 and 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Information
Highway.com, Inc. (formerly Florida Venture Fund, Inc.) as of May 31, 1999 and
1998, and the results of its operations, and changes in its stockholders'
equity and cash flows for the years ended May 31, 1999 and 1998 in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in Note 1
to the financial statements, the Company has not achieved profitable operations
since inception and has accumulated losses of $1,656,774 and a working capital
deficit of $313,861. These factors raise doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also discussed in Notes 1 and 11. These financial statements do not include any
adjustments which might result from the outcome of this uncertainty.
/s/ "Elliott, Tulk, Pryce, Anderson"
Chartered Accountants
Vancouver, Canada
September 15, 1999
F-10
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
CONSOLIDATED BALANCE SHEETS
May 31,
----------------------
1999 1998
----------- ---------
ASSETS
Current Assets
Cash................................................. $ 37,622 $ 35,699
Accounts receivable.................................. -- 4,442
Inventory (Note 6)................................... 9,695 --
Prepaid expenses..................................... 70,487 3,001
----------- ---------
Total Current Assets................................... 117,804 43,142
Property and Equipment (Note 5)........................ 270,092 209,353
Other Assets (Note 4).................................. 134,848 294,598
----------- ---------
Total Assets....................................... $ 522,744 $ 547,093
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable..................................... $ 267,279 $ 196,608
Accrued liabilities.................................. 65,151 10,000
Deferred revenues.................................... 34,049 20,000
Advances from related parties (Note 6)............... 65,186 261,784
----------- ---------
Total Current Liabilities.......................... 431,665 488,392
=========== =========
Commitments and Contingencies (Notes 1 and 8)
Stockholders' Equity
Common Stock (Note 7), 50,000,000 shares authorized,
par value $.0001 per share, 6,469,951 and 4,766,000
issued and outstanding respectively................. 647 477
Additional Paid in Capital on Common Stock........... 1,698,351 700,484
Common Stock allotted and issued subsequently (35,000
and 82,650 shares respectively)..................... 50,000 61,987
----------- ---------
1,748,998 762,948
Preferred Stock, 10,000,000 shares authorized, par
value $.0001 per share, none issued................. -- --
Translation adjustments.............................. (1,145) 3,654
----------- ---------
1,747,853 766,602
Accumulated Deficit.................................. (1,656,774) (707,901)
----------- ---------
Total Stockholders' Equity......................... 91,079 58,701
----------- ---------
Total Liabilities and Stockholders' Equity......... $ 522,744 $ 547,093
=========== =========
(See accompanying notes)
F-11
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended May 31,
--------------------
1999 1998
---------- ---------
Revenues................................................. $1,008,657 $ 859,184
Cost of Revenues......................................... 775,816 649,584
---------- ---------
Gross Profit............................................. 232,841 209,600
Operating Expenses
Marketing and sales.................................... 224,492 171,047
General and administrative............................. 801,702 450,595
Product development.................................... 155,520 145,165
---------- ---------
Total Operating Expenses................................. 1,181,714 766,807
---------- ---------
Net loss................................................. 948,873 557,207
========== =========
Historical basic and dilutive net loss per share......... .18 .14
Weighted average shares used to compute basic and
historical net loss per share........................... 5,382,000 3,896,000
Diluted loss per share has not been presented separately as the result is
anti dilutive.
(See accompanying notes)
F-12
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Information Highway, Inc.--
stockholders' equity section
from October 15, 1996
(Inception) to February 17, No. of Par Additional
1999 Shares Value Paid-in
(prior to reverse takeover) Issued $0.0001 Capital Total Deficit
---------------------------- --------- ------- ---------- ---------- ---------
Balance as at October 15, 1996
(Date of Inception of
Information Highway, Inc.).... -- $-- $ -- $ -- $ --
Issued for cash:
$0.10 per share pursuant to a
subscription received in
October, 1996............... 15,000 2 1,498 1,500 --
$0.50 per share pursuant to a
subscription received in
April, 1997................. 1,000 1 499 500 --
Issued for settlement of debt:
$0.365 per share agreed
price--February, 1997....... 24,000 2 8,758 8,760 --
$0.50 per share--April,
1997........................ 45,000 4 22,496 22,500 --
Issuance of stock in
acquisitions of subsidiaries
(Note 4):
At a fair value of $0.10 per
share to acquire a 100%
interest in:
Blue Crow Internet Co.
Ltd....................... 125,000 13 12,487 12,500 --
World-Tel Internet
(Toronto) Ltd............. 342,000 34 34,166 34,200 --
YesIC Communications Inc... 3,115,000 311 311,189 311,500 --
Net loss for the period........ -- -- -- -- (150,694)
--------- ---- ---------- ---------- ---------
Balance as at May 31, 1997..... 3,667,000 367 391,094 391,461 (150,694)
Issued for cash:
$0.10 per share pursuant to a
private placement........... 600,000 60 59,940 60,000 --
$0.50 per share pursuant to a
private placement........... 499,000 50 249,450 249,500 --
Net loss for the year.......... -- -- -- -- (557,207)
--------- ---- ---------- ---------- ---------
Balance as at May 31, 1998..... 4,766,000 477 700,484 700,961 (707,901)
Issued for cash pursuant to two
private placements at $0.75
per share..................... 797,150 80 597,782 597,862 --
Issued for services at a fair
market value at $0.75 per
share......................... 76,500 7 57,368 57,375 --
--------- ---- ---------- ---------- ---------
Balance as at February 17,
1999, prior to reverse
takeover...................... 5,639,650 $564 $1,355,634 $1,356,198 $(707,901)
========= ==== ========== ========== =========
(See accompanying notes)
F-13
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
Common Stock
-------------------------------------------------------
Information Highway.com,
Inc.--capital stock No. of Par Additional
section from May 31, 1996 Shares Value Paid-in
to May 31, 1999 Issued $.0001 Capital Total Deficit
- ------------------------- ---------- ------ ---------- ---------- -----------
Balance May 31, 1996,
1997, 1998 and prior to
reverse takeover on
February 17, 1999....... 1,979,500 $ 198 $ 28,530 $ 28,728 $ (28,728)
Reverse takeover
adjustments (Note 3):
Cancellation of shares
for no consideration.. (1,659,833) (166) 166 -- --
Elimination of
deficit............... -- -- (28,728) (28,728) 28,728
---------- ----- ---------- ---------- -----------
Deficit of Information
Highway, Inc. as at
May 31, 1998............ (707,901)
---------- ----- ---------- ---------- -----------
Issuance or allotment of
shares to effect reverse
takeover (see table
above).................. 5,639,650 564 1,355,634 1,356,198 --
Cost of reverse takeover
transaction............. -- -- (100,000) (100,000) --
Shares issued for cash
pursuant to a private
placement at $0.75 per
share................... 15,000 1 11,249 11,250 --
Shares issued pursuant to
stock options exercised
at $0.75 per share...... 27,334 3 20,497 20,500 --
Shares issued pursuant to
stock options exercised
at $0.50 per share...... 210,000 21 104,979 105,000 --
Shares issued for
services at a fair
market value of $0.75
per share............... 5,000 -- 3,750 3,750 --
Shares issued for
services at a fair
market value of $5.00
per share............... 10,000 1 49,999 50,000 --
Shares issued for
property at a fair
market value of $4.00
per share............... 3,000 1 11,999 12,000 --
Shares issued pursuant to
warrants exercised at
$1.00 per share......... 240,300 24 240,276 240,300 --
---------- ----- ---------- ---------- -----------
Net loss for the year.... (948,873)
---------- ----- ---------- ---------- -----------
Balance as at May 31,
1999.................... 6,469,951 $ 647 $1,698,351 $1,698,998 $(1,656,774)
========== ===== ========== ========== ===========
(See accompanying notes)
F-14
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended May 31,
--------------------
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................... $(948,873) $(557,207)
Adjustments to reconcile net loss to cash Depreciation
and amortization...................................... 89,776 57,611
Amortization of goodwill............................... 159,748 159,745
Financial services paid for by issuing shares.......... 111,125 --
Change in non-cash working capital items (Increase)
decrease in accounts receivable....................... 4,442 (2,814)
(Increase) decrease in prepaid expenses................ (67,486) 2,275
(Increase) in inventory................................ (9,695) --
Increase in accounts payable and accrued liabilities... 125,822 147,133
Increase (decrease) in deferred revenues............... 14,049 (4,495)
--------- ---------
Net Cash Used in Operating Activities................ (521,092) (197,752)
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock (net of finders fee paid)................. 862,925 223,488
Increase (decrease) in related party advances.......... (196,598) 110,345
--------- ---------
Net Cash Provided by Financing Activities............ 666,327 333,833
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment........ (138,515) (108,983)
--------- ---------
Net Cash to Investing Activities..................... (138,515) (108,983)
--------- ---------
Translation Adjustments.................................. (4,797) 3,654
Increase in Cash During the Period....................... 1,923 30,752
Cash--Beginning of Period................................ 35,699 4,947
--------- ---------
Cash--End of Period...................................... $ 37,622 $ 35,699
========= =========
NON-CASH FINANCING ACTIVITIES:
The Company issued 91,500 shares for financial
services.............................................. 111,125 --
The Company issued 3,000 shares for property........... 12,000 --
--------- ---------
$ 123,125 $ --
========= =========
SUPPLEMENTAL DISCLOSURES:
Interest paid.......................................... -- --
Income taxes paid...................................... -- --
(See accompanying notes)
F-15
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations, Reorganization and Continuance of Business
Florida Venture Fund, Inc. (the "Company" or "FVFI") was incorporated
December 5, 1988 in the state of Florida. The Company has the authority to
issue 50,000,000 common shares of $.0001 par value. The Company may transact
any and all lawful business for which corporations may be incorporated under
the Florida General Corporation Act.
During 1997, the Company's common stock was submitted for quotation on the
OTC Bulletin Board System and was assigned the trading symbol FVFL.
From incorporation to February 17, 1999 the Company did not engage in any
business activity other than initial organization, initial financing and some
business investigation activities.
Pursuant to a letter agreement dated February 17, 1999, the Company
completed an Agreement and Plan of Reorganization with Information Highway,
Inc., herein "IHI", whereby a business combination was completed and all of the
outstanding common stock of Information Highway, Inc. was, or will be,
exchanged for common shares of the Company representing a change of control of
the Company by way of reverse takeover, see Note 3. As part of the Plan of
Reorganization the Company's name was changed to Information Highway.com, Inc.
IHI was incorporated in the State of Washington on October 15, 1996. See
Note 4 regarding IHI's acquisition of 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.
IHI emerged from being a development stage company during its fiscal year
ended May 31, 1998. In a development stage company, management devoted most of
its activities to establishing the business. Planned principal activities have
started producing significant revenues, however, the Company has experienced
start-up losses from October 15, 1996 (Inception) to May 31, 1999 totalling
$1,656,774 and has a working capital deficit as at May 31, 1999 of $313,861.
There is risk that the Company's ability to continue as a going concern could
be in jeopardy based on these factors. The ability of the Company to continue
as a going concern is dependent upon its successful efforts to raise additional
equity financing, and further develop the market for its products and services.
As discussed in Note 11 the Company has raised in excess of $750,000 to improve
its working capital situation and has plans to raise up $6,000,000 pursuant to
a private placement of 1,000,000 units at $6.00 per unit.
2. Significant Accounting Policies
Consolidated Financial Statements
These consolidated financial statements include the accounts of the Company
and its wholly owned US subsidiary, Information Highway, Inc. which owns three
consolidated, wholly-owned, Canadian subsidiaries, see Note 4. As IHI was the
acquirer in a reverse takeover business combination culminating on February 17,
1999, its fiscal year-end of May 31 will be the Company's new fiscal year-end
and the business of IHI will be the business reported for all comparative
purposes, including the statements of operations and cash flows. See Note 3 for
a discussion on this business combination and reverse takeover accounting.
Prior to the reverse takeover transaction the Company's fiscal year end was
December 31.
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.
F-16
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Significant Accounting Policies (continued)
Reclassification
Certain amounts in the financial statements have been reclassified to be
consistent and comparable from year-to-year.
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.
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.
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.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed
utilizing the declining balance method over an estimated useful life of the
related asset category. Computer equipment and software and production
equipment is depreciated at 30% per annum and furniture and office equipment at
20%. Leasehold improvements are amortized over ten years utilizing the
straight-line method.
Long-Lived Assets
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards (SFAS) No. 121
"Accounting for the Impairment of Long-Lived Assets".
Goodwill is a long-lived asset representing the excess of purchase
consideration over fair market value of net identifiable assets acquired, and
is amortized on a straight-line basis over its estimated useful life. Goodwill
is evaluated in each reporting period to determine if there were events or
circumstances which would indicate a possible inability to recover the carrying
amount. Such evaluation is based on various analyses including undiscounted
future cash flows which necessarily involves significant management judgment.
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. 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.
F-17
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Significant Accounting Policies (continued)
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 treated as deferred
revenues.
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. Cost associated with above 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.
Product Development Costs
Product development costs consist of expenses incurred by the Company in the
development and creation of its portal site 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.
Accounting for Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," requires that stock
awards granted subsequent to January 1, 1995, be recognized as compensation
expense based on their fair value at the date of grant. Alternatively, a
company may account for granted stock awards 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 expense under APB No. 25 and make the required pro forma
disclosures for compensation expense (see Note 7).
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 shareholders' 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. The gain or loss realized
on these transactions amounted to a gain of $119 for fiscal 1999 and a loss of
$2,992 for fiscal 1998.
Income Taxes
The Company has adopted the provisions of Financial Accounting Standards
Board Statement No. 109 (SFAS 109), Accounting for Income Taxes. SFAS 109
requires that deferred taxes reflect the tax consequences
F-18
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Significant Accounting Policies (continued)
on future years of differences between the tax bases of assets and liabilities
and their financial reporting amounts. At the date of adoption of SFAS 109,
there was no material effect on the Company's financial statements.
Pursuant to SFAS 109 the Company is required to compute tax asset benefits
for net operating loss carry forwards. Potential benefit of net operating
losses has not been recognized in the financial statements because the Company
cannot be assured that it is more likely than not that it will utilize the net
operating loss carry forwards in future years.
The Company's Canadian subsidiaries have Canadian tax losses of $482,000 to
offset future years Canadian taxable income. These losses expire as follows:
2003.................... $ 3,000
2004.................... 66,000
2005.................... 138,000
2006.................... 275,000
The Company and the Company's US subsidiary have US tax losses of $903,000
to offset future years US taxable income. These losses expire as follows:
2012.................... $ 61,000
2013.................... 286,000
2014.................... 556,000
The components of the net deferred tax asset, the statutory tax rate, the
effective tax rate and the elected amount of the valuation allowance are
scheduled below:
1999 1998
--------- ---------
Net Combined Operating Losses...................... $ 835,000 $ 424,000
Statutory Combined Canadian and US Tax Rate........ 39% 37%
Effective Tax Rate................................. -- --
Deferred Tax Asset................................. 328,000 157,000
Valuation Allowance................................ (328,000) (157,000)
--------- ---------
Net Deferred Tax Asset............................. -- --
========= =========
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.
New Accounting Pronouncements
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 (SFAS 130), Reporting Comprehensive Income. This
statement requires that all items that are required to be
F-19
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Significant Accounting Policies (continued)
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. Comprehensive income is the same as net income for
all periods presented.
Effective January 1, 1998, the Company adopted Statement of Accounting
Standards No. 131 (SFAS 131), Disclosures about Segments of an Enterprise and
Related Information. This statement requires the Company to report income/loss,
revenue, expense and assets by business segment including information regarding
the revenues derived from specific products and services and about the
countries in which the Company is operating. The Statement also requires that
the Company report descriptive information about the way that operating
segments were determined, the products and services provided by the operating
segments, differences between the measurements used in reporting segment
information and those used in the Company's general-purpose financial
statements and changes in the measurement of segment amounts from period to
period. As noted above this statement establishes standards for reporting and
display and has no material effect on the Company's financial condition or
results of operations.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132 (SFAS 132), Employers' Disclosures about Pensions and other
Post Retirement Benefits. This statement standardizes the disclosure
requirements for pension and other post retirement benefits. The Company
typically does not offer the types of benefit programs that fall under the
guidelines of this statement.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging
Activities. This statement establishes accounting and reporting standards for
derivative instruments and requires recognition of all derivatives as assets or
liabilities in the statement of financial position and measurement of those
instruments at fair value. The statement is effective for fiscal years
beginning after June 15, 1999. The Company does not have any derivative
instruments and has not entered into any hedging activities.
3. Business Combination
Pursuant to an Agreement and Plan of Reorganization entered into on February
17, 1999 and completed on February 23, 1999 between the Company, Information
Highway, Inc. ("IHI") and certain shareholders of IHI, the Company acquired
3,235,000 common shares of IHI out of a total of 5,639,650 issued and
outstanding common shares in exchange for 3,235,000 common shares of the
Company. It is the Company's intention to complete the exchange of shares of
its common stock for the remaining and outstanding common shares of IHI on a
one for one basis. As of September 15, 1999, 2,235,150 of the 2,404,650 IHI
shares had been exchanged for the same number of Company shares. In total, to
September 15, 1999 97% of IHI shares had been exchanged. The Company has
allotted 169,500 shares in anticipation of the remaining shares of IHI being
exchanged. As part of the Agreement and Plan of Reorganization the Company
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 IHI to issue common shares pursuant to warrants and stock options issued by
IHI. IHI paid $100,000 to the controlling shareholder of the Company to effect
the Agreement and Plan of Reorganization including the cancellation of
1,659,833 shares.
For accounting purposes the acquirer is IHI, as 95% of the issued and
outstanding common shares of the Company are owned by the shareholders of IHI
and the entire Board of Directors of the Company is now comprised of the entire
Board of Directors of IHI. As IHI is the legal subsidiary of the Company the
nature of the business combination is a reverse takeover whereby the control of
the Company is acquired by IHI and the consolidated financial statements are
issued under the name of the Company but is a continuation of IHI and
F-20
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Business Combination (continued)
not the Company. The legal capital structure remains that of the Company but
the shareholders' equity of IHI has replaced the shareholders' equity of the
Company. Similarly, the Company's income statements and statements of cash
flows represent a continuation of IHI's consolidated financial statements.
The accounting treatment of the reverse takeover is based on the following
consideration that was paid to shareholders of the Company:
Cash paid to the controlling shareholder of FVFI................. $100,000
Net liabilities of FVFI assumed at book value.................... --
Value attributed to the 319,667 shares of FVFI not cancelled..... --
--------
$100,000
========
The $100,000 payment to the controlling shareholder of FVFI has been
treated, for accounting purposes, as a reduction of additional paid in capital
and not as goodwill as the nature of the transaction was for IHI to obtain a
listing on the OTC Bulletin Board by way of reverse takeover. The cost is
associated with publicly listing shares and not with any business associated
with FVFI.
4. Business Combinations of Information Highway, Inc. Prior to the Reverse
Takeover
Information Highway, Inc. acquired three operating Canadian subsidiaries
during the period December, 1996 to February 28, 1997, in the business of
providing access to the Internet and providing services, including on-line
publishing, to individual and corporate subscribers. The acquisitions were
accounted for using the purchase method of accounting for business
combinations. IHI issued 3,582,000 of its common shares at a fair market value
of $0.10 per share and $27,380 as cash consideration for all three
acquisitions. In total, IHI assumed net liabilities of $113,663. The excess of
the purchase price over the fair market value of net liabilities assumed,
totalling $499,243, was allocated to goodwill. Details of liabilities assumed
and assets acquired are as follows:
(i) Consideration
Capital stock of IHI issued (3,582,000 at $.10).................... $ 358,200
Cash paid.......................................................... 27,380
---------
385,580
(ii) Net liabilities assumed
Liabilities assumed
Accounts payable................................................. 43,080
Unearned revenue................................................. 20,000
Loans from directors............................................. 37,853
Loans from affiliated companies.................................. 127,491
---------
228,424
Assets acquired
Cash received in combination..................................... (7,055)
Accounts receivable.............................................. (1,711)
Capital assets................................................... (105,995)
---------
(114,761)
Net liabilities assumed............................................ 113,663
---------
(iii) Excess of cost over book value................................. $ 499,243
=========
F-21
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Business Combinations of Information Highway, Inc. Prior to the Reverse
Takeover (continued)
The excess of cost over book value, totalling $499,243, was allocated to
goodwill as there were no other fair market value adjustments to non-monetary
assets or other identifiable intangible assets. Goodwill has been capitalized
and is being amortized over its estimated useful life of three years.
Accumulated 1999 Net 1998 Net
Cost Amortization Book Value Book Value
-------- ------------ ---------- ----------
Goodwill....................... $499,243 $364,395 $134,848 $294,598
5. Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization.
Accumulated
Depreciation
and 1999 Net 1998 Net
Cost Amortization Book Value Book Value
-------- ------------ ---------- ----------
Computer equipment and software.... $365,550 $157,630 $207,920 $172,827
Office furniture and equipment..... 45,883 14,214 31,669 26,115
Production equipment (Note 6(f))... 25,000 3,750 21,250 --
Leasehold improvements............. 11,567 2,314 9,253 10,411
-------- -------- -------- --------
$448,000 $177,908 $270,092 $209,353
Depreciation and amortization per class of asset:
1999 1998
------- -------
Computer equipment and software................................ $75,508 $51,833
Office furniture and equipment................................. 6,345 4,622
Production equipment........................................... 3,750 --
Leasehold improvements......................................... 1,158 1,156
------- -------
$86,761 $57,611
6. Related Party Transactions
(a) Amounts owing to the President and director of the Company and
affiliated companies under the President's control are from short-term cash
loans, are due on demand, unsecured and non-interest bearing. The Company
intends on repaying a portion or all of these debts in the next fiscal year.
These cash loans were recorded at their exchange amounts.
(b) The President and director of the Company was also President and a
director of World-Tel and Chief Executive Officer and a director of YesIC prior
to their acquisition, see Note 4. These two business combinations were recorded
at the fair value of shares issued at the time of acquisition which
approximated fair value of shares being issued at the time to arms length
parties for cash consideration.
(c) Pursuant to a Management Agreement dated December 1, 1998 between IHI
and a company related to the President of IHI, the Company is committed to pay
management fees of $2,500 per month and rent and secretarial fees of $1,500 per
month for a term of three years expiring December 1, 2001.
(d) A partnership, of which a director of the Company is a partner, was paid
$91,182 cash (1998--$19,562) for legal services rendered during the year.
(e) Certain officers and/or directors or Company's related to officers
and/or directors of the Company have participated in various private placements
from inception to date.
F-22
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Related Party Transactions (continued)
(f) Finished goods inventory was acquired from a public company with common
Presidents pursuant to a Marketing Agreement dated January 20, 1999. The
Company has the exclusive worldwide rights to market the product over the
Internet. The Company paid $25,000 for production equipment and $7,000 for
certain components. The agreement is for five years subject to minimum annual
sales criteria.
7. Common Stock Issuances and Related Commitments
Pursuant to the Agreement and Plan of Reorganization the Company assumed all
common stock obligations of IHI as they relate to stock based compensation
plans and warrants issued to acquire common shares.
Private Placements
IHI approved and completed two private placements of units and issued
812,150 units at $0.75 per unit to raise $609,112. These units were issued
between October and December, 1998. Each unit contained one share and one
warrant to acquire one additional share at $1.00 if exercised between October
and December, 1999. Of the 812,150 warrants issued 270,300 warrants were
exercised as at May 31, 1999 for proceeds of $270,300 and 171,200 warrants were
exercised subsequently for proceeds of $171,200.
The proceeds of the above private placements were allocated 100% to the
common shares issued; no amount was allocated to warrants as the warrant price
was set higher than fair market value and there is a one year hold period on
these shares and no market for the warrants.
Stock Option Plan
On June 30, 1997, and amended on May 21, 1999, IHI reserved 2,500,000 common
shares pursuant to a stock option plan. On January 26, 1998 the Company granted
stock options to certain directors and employees to acquire 725,000 shares at
$0.50 per share expiring January 26, 2003. Stock options granted to certain
employees to acquire 145,000 common shares at $0.50 per share were cancelled.
Stock options were granted to certain directors, officers and employees to
acquire 295,000 common shares at $0.75 per share expiring five years after
grant date being between August 14, 2003 and February 23, 2004.
F-23
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Common Stock Issuances and Related Commitments (continued)
May 31, 1998
Exercised (E)
May 31, 1997 # Price $ Granted # Cancelled (C) May 31, 1998 # Expiry Date
-------------- ------- --------- ------------- ----------------- -----------
Nil 0.50 725,000 (145,000)(C) 580,000 37646
========= ======= ======== =========
May 31, 1999
Exercised (E)
May 31, 1998 # Price $ Granted # Cancelled (C) May 31, 1999 # Expiry Date
-------------- ------- --------- ------------- ----------------- -----------
580,000 0.50 -- (210,000)(E) 370,000 37646
August, 2003 to
-- 0.75 295,000 (27,334)(E) 267,666 February, 2004
-- 4.00 600,000 -- 600,000 May, 2004
--------- ---- ------- -------- ---------
580,000 895,000 (237,334) 1,237,666
========= ======= ======== =========
Subsequent to May 31, 1999
Exercised (E)
May 31, 1999 # Price $ Granted # Cancelled (C) August 31, 1999 # Expiry Date
-------------- ------- --------- ------------- ----------------- -----------
370,000 0.50 -- 85,000(E) 285,000 37646
August, 2003 to
267,666 0.75 -- 50,000(E) 217,666 February, 2004
600,000 4.00 100,000 -- 700,000 May to June, 2004
5.00 275,000 150,000(C) 125,000 38160
--------- ------- -------- ---------
1,237,666 375,000 285,000 1,327,666
========= ======= ======== =========
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.
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.
The fair value of the employee's purchase rights under SFAS 123, was
estimated using the Black-Scholes model with the following assumptions used for
grants on January 26, 1998: risk free interest rate was 5.47%, expected
volatility of 20%, an expected option life of six months and no expected
dividends; and for grants between August 14, 1998 and February 23, 1999, as a
group: risk free interest rate was 5.27%, expected volatility of 20%, an
expected option life of six months and no expected dividends; and for grants
between May 19, 1999 and June 23, 1999, as a group: risk free interest rate was
5.27%, expected volatility of 20%, an expected option life of six months and no
expected dividends.
F-24
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Common Stock Issuances and Related Commitments (continued)
If compensation expense had been determined pursuant to SFAS 123, the
Company's net loss and net loss per share for the years ended May 31, 1999 and
1998 would have been as follows:
1999 1998
--------- ---------
Net loss
As reported........................................ $(948,873) $(557,207)
Pro forma.......................................... (988,993) (570,779)
Basic net loss per share
As reported........................................ (.18) (.14)
Pro forma.......................................... (.18) (.15)
8. Commitments and Contingent Liability
(a) Commitments
The Company is committed to making the following lease or contract payments
for the next five fiscal years:
For the years ended May 31,
---------------------------------------
2000 2001 2002 2003 2004
------- ------- ------- ------- -------
Management consulting................... $30,000 $17,500 $ -- $ -- $ --
Equipment leases........................ 21,417 -- -- -- --
Licence fees............................ 8,333 -- -- -- --
Premises leases......................... 35,446 36,473 32,417 26,044 21,409
------- ------- ------- ------- -------
$95,196 $53,973 $32,417 $26,044 $21,409
======= ======= ======= ======= =======
(b) Contingent Liability--Lawsuit
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.
9. Segmented Information
The Company has 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.
F-25
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Segmented Information (continued)
Up until May 31, 1999 the Company operated in one geographic segment, being
Canada, located in Vancouver, BC and Toronto, Ontario. Subsequent to May 31,
1999 the Company has begun expansion of its ISP business into 22 cities in the
United States by setting up Virtual ISP's.
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 $477,672 (1998--$159,031) relating to such activities.
The net loss relating to Internet activities in Canada amounted to $471,201
(1998--$398,176).
10. Uncertainty Due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information
using year 2000 dates is processed. In addition, similar problems may arise in
some systems which use certain dates in 1999 to represent something other than
a date. The effects of the Year 2000 Issue may be experienced before, on, or
after January 1, 2000, and, if not addressed, the impact on operations and
financial reporting may range from minor errors to significant systems failure
which could affect an entity's ability to conduct normal business operations.
It is not possible to be certain that all aspects of the Year 2000 Issue
affecting the Company, including those related to the efforts of customers,
suppliers, or other third parties, will be fully resolved.
11. Subsequent Events
The Company has issued a further 171,200 shares pursuant to warrants
exercised at $1.00 per share for total proceeds of $171,200.
A total of 135,000 shares have been issued pursuant to stock options
exercised at between $0.50 per share and $0.75 per share for proceeds of
$80,000.
On June 23, 1999 stock options were granted to certain employees to acquire
100,000 shares at $4.00 per share and 275,000 shares at $5.00 per share, of
which 150,000 were cancelled.
Subsequent to May 31, 1999 the Company has raised $519,000, pursuant to an
Offering Memorandum, and issued 129,750 units at $4.00 per unit which closed
August 11, 1999. Each unit contained one common share and one Series "A"
Warrant to acquire one additional share at $4.00 per share expiring April 30,
2000 and one Series "B" Warrant to acquire one additional share at $6.00 per
share expiring April 30, 2001.
F-26
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Information Highway.com has not authorized any dealer, salesperson or other
person to give you written information other than this prospectus or to make
representations as to matters not stated in this prospectus. You must not rely
on unauthorized information. This prospectus is not an offer to sell these
securities or a solicitation of your offer to buy the securities in any
jurisdiction where that would not be permitted or legal. Neither the delivery
of this prospectus nor any sales made hereunder after the date of this
prospectus shall create an implication that the information contained herein
or the affairs of Information Highway.com have not changed since the date
hereof.
Until , 2000 (90 days after the date of this prospectus),
all dealers that effect transactions in these shares of common stock may be
required to deliver a prospectus. This is in addition to the dealer's
obligation to deliver a prospectus when acting as an underwriter and with
respect to their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,089,750 Shares
of Common Stock to be
sold by current shareholders
Information Highway.com Inc.
1177 West Hastings, Suite 2110
Vancouver, British Columbia V6E 2K3, CANADA
(604) 687-2199
-------------
PROSPECTUS
-------------
, 2000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Our Articles of Incorporation provide that we must indemnify our directors
and officers to the fullest extent permitted under the Florida Business
Corporation Act, against all liabilities incurred by reason of the fact that
the person is or was a director or officer of ours or a fiduciary of an
employee benefit plan, or is or was serving at our request as a director or
officer, or fiduciary of an employee benefit plan, of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
The effect of these provisions is potentially to indemnify our Company's
directors and officers from all costs and expenses of liability incurred by
them in connection with any action, suit or proceeding in which they are
involved by reason of their affiliation with us.
Item 25. Other Expenses of Issuance and Distribution
The securities are being registered for the account of selling shareholders,
but all of the following expenses will be borne by us. The amounts set forth
are estimates except for the SEC registration fee:
SEC registration fee............................................. $ 3,100
Printing and engraving expenses.................................. 25,000
Attorneys' fees and expenses..................................... 50,000
Accountants' fees and expenses................................... 5,000
Transfer agent's and registrar's fees and expenses............... 5,000
Miscellaneous.................................................... 15,000
--------
Total.......................................................... $103,100
========
Item 26. Recent Sales of Unregistered Securities
Set forth below is information regarding the issuance and sales of our
securities without registration during the past three years. No such sales
involved the use of an underwriter and no commissions were paid in connection
with the sale of any securities.
(1) In connection with our reorganization in February 1999, we assumed
contractual obligations of one of our subsidiaries under outstanding
warrants to issue shares of common stock for $1.00 per share. During the
quarter ended November 30, 1999, we issued 34,150 shares pursuant to
warrants exercised at $1.00 per share or total proceeds of $34,150. The
sale of the shares was exempt from registration under Regulation S and
under Rule 506 and under Section 4(2) of the Securities Act of 1933. We
provided disclosure to each of the warrant holders in connection with our
reorganization with Information Highway, Inc. and pursuant to our filings
with the Commission. Each of the warrant holders owned shares of
Information Highway, Inc. that they have now exchanged for our shares.
During the quarter ended November 30, 1999, we issued shares to 6
purchasers of which 2 were accredited investors. On September 30, 1999, we
had temporarily halted the exercise of our warrants until we could further
verify the accredited investor status of some of its warrant holders and
shareholders who had previously exercised similar warrants. Upon further
investigation, we determined that through November 30, 1999, in connection
with the exercise of all $1.00 warrants assumed in connection with our
reorganization in February 1999, we issued shares to 48 purchasers, of
which 17 were accredited investors and 8 were
II-1
foreign citizens whose purchases were covered by Regulation S. All of the
shares issued pursuant to the warrant exercises bear a legend indicating
that they are restricted securities. $65,000 of these sales were exempt
under Regulation S under the Securities Act of 1933, as amended, due to the
foreign nationality of the relevant purchasers.
(2) On February 23, 1999 we issued a total of 499,000 shares of common
stock to certain shareholders of PrivCo in exchange for 499,000 shares of
Information Highway, Inc. The issuance of the common stock was exempt from
registration under Rule 504 of Regulation D under Section 3(b) of the
Securities Act of 1933, as amended. Our shares were valued at $0.75 per
share, the price per Unit that Information Highway, Inc. had obtained in
its most recent offering of securities, in which Information Highway, Inc.
offered Units consisting of one share of unrestricted common stock and one
warrant for $0.75 per Unit. If the exemption under Rule 504 of Regulation D
is not available, we believe that this offering was also exempt under
Regulation S and Section 4(2) under the Securities Act of 1933, as amended,
due to the foreign nationality of the relevant shareholders of Information
Highway, Inc., their prior contacts with Information Highway, Inc. and its
management, and the limited number of investors (four).
(3) On February 23, 1999, we issued a total of 2,736,000 shares of
common stock to certain shareholders in exchange for 2,736,000 shares of
Information Highway, Inc. common stock. The issuance of the shares was
exempt from registration under Rule 506 of Regulation D, Regulation S and
Section 4(2) of the Securities Act of 1933, as amended, due to the foreign
nationality of the relevant shareholders of Information Highway, Inc.,
their prior contacts with Information Highway, Inc. and its management, and
the limited number of investors (six).
(4) On February 23, 1999 we began an offer to certain shareholders of
Information Highway, Inc. to exchange 834,000 shares of their unrestricted
Information Highway, Inc. common stock for 834,000 shares of our common
stock exempt from registration under Rule 504 of Regulation D under Section
3(b) of the Securities Act of 1933, as amended. Upon discovery that three
investors who had made deposits in the Information Highway, Inc. offering
set forth in item (a) below had not been issued their Information Highway,
Inc. shares, this offering was expanded to 854,000 shares to include the
20,000 shares purchased by those investors. Of the 20,000 shares
identified, 15,000 were issued in the fiscal year ended May 31, 1999, and
5,000 were issued after May 31, 1999. Our shares were valued at $0.75 per
share, the price per Unit that Information Highway, Inc. had obtained in
its most recent offering of securities, in which Information Highway, Inc.
offered Units consisting of one share of unrestricted common stock and one
warrant for $0.75 per Unit. As of August 31, 1999, all but 37,000 shares
had been exchanged. The offerees consisted of the Information Highway, Inc.
shareholders who purchased units in Information Highway, Inc. as described
in item (a), below, and two affiliates who had acquired Information
Highway, Inc. shares in the Yes IC acquisition (February 1997). If the
exemption under Rule 504 of Regulation D is not available, we believe that
221,000 shares (which includes the shares of the two affiliates) from this
offering will also be exempt under Regulation S due to the foreign
nationality of the shareholders.
(5) On February 23, 1999, we began an offer to certain shareholders of
Information Highway, Inc. to exchange 1,570,650 shares of their restricted
Information Highway, Inc. common stock for 1,570,650 shares of our common
stock exempt from registration under Rule 506 of Regulation D, Regulation S
and Section 4(2) of the Securities Act of 1933, as amended. We furnished to
purchasers in a timely manner an Exchange Offering Memorandum and financial
information, limited the manner of the offering, promptly filed notices of
sales, and limited the number of domestic non-accredited investors to 2. If
the exemptions under Rule 506 and Section 4(2) are not available, we
believe that 1,151,000 shares from this offering will also be exempt under
Regulation S due to the foreign nationality of the shareholders.
(6) In February 1999, we issued 5,000 shares to David Williamson
Associates Ltd. for marketing and investor relations services in the United
Kingdom. The offer and sale of the shares were exempt from registration
under Section 4(2) of the Securities Act of 1933. If the foregoing
exemption is not available, this sale was exempt under Regulation S under
the Securities Act of 1933 due to the purchaser's foreign nationality.
II-2
(7) In connection with the reorganization of the Company in February
1999, the Company assumed contractual obligations of one of its
subsidiaries under outstanding warrants to issue shares of common stock for
$1.00 per share. During the quarter ended May 31, 1999, the Company issued
270,300 shares pursuant to warrants exercised at $1.00 per share for total
proceeds of $270,300. The sale of the shares was exempt from registration
under Regulation S and under Rule 506 under and Section 4(2) of the
Securities Act of 1933. The Company provided disclosure to each of the
warrant holders in connection with our reorganization with Information
Highway, Inc. Each of the warrant holders owned shares of Information
Highway, Inc. that they have now exchanged for our shares. Through May 31,
1999, we issued shares to 30 purchasers, of which 7 were accredited
investors and 6 were foreign citizens whose purchases were covered by
Regulation S. Through September 30, 1999, when we determined not to issue
any further shares to non- accredited investors pursuant to the warrants
until such time as the shares could be registered, we issued shares to 45
purchasers, of which 7 were accredited investors and 7 were foreign
citizens whose purchases were covered by Regulation S. All of the shares
issued pursuant to the warrant exercises bear a legend indicating that they
are restricted securities. $53,000 of these sales were exempt under
Regulation S under the Securities Act of 1933, as amended, due to the
foreign nationality of the relevant purchasers.
(8) In March 1999, we issued 10,000 shares to its affiliate Access
Information Services in exchange for services rendered. The offer and sale
of the shares were exempt from registration under Section 4(2) of the
Securities Act of 1933. If the foregoing exemption is not available, this
sale was exempt under Regulation S under the Securities Act of 1933 due the
foreign nationality of the ultimate beneficial owners of Access Information
Services.
(9) In March 1999, we issued 3,000 shares to IED Internet Engines &
Design Ltd. in connection with the acquisition of an Internet portal
telephony businesses. The offer and sale of the shares were exempt from
registration under Section 4(2) of the Securities Act of 1933. If the
foregoing exemption is not available, this sale was exempt under Regulation
S under the Securities Act of 1933 due the foreign nationality of the
purchaser. On July 27, 1999, we issued the balance of 2,500 shares owing to
IED Internet Engines & Design Ltd.
(10) Beginning March 31, 1999, we conducted an offering of units
pursuant to an Offering Memorandum. Each unit consisted of one common
share, one Series "A" Warrant to acquire one additional share at $4.00 per
share expiring April 30, 2000, and one Series "B" Warrant to acquire one
additional share at $6.00 per share expiring April 30, 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.
Through May 31, 1999, 5000 units were issued at $4.00 per unit for total
proceeds of $20,000. The offer and sale of the units were exempt from
registration under Rule 506 under and Section 4(2) of the Securities Act of
1933. We furnished to purchasers in a timely manner an Offering Memorandum
and financial information, limited the manner of the offering, promptly
filed notices of sales, and limited the number of non- accredited investors
to 5 investors. If the foregoing exemptions are not available, we the
Company believes that $72,600 of these sales were also exempt under
Regulation S under the Securities Act of 1933, as amended, due to the
foreign nationality of the relevant purchasers.
(11) During the quarter ended May 31, 1999, we issued 237,334 shares
pursuant to options exercised at between $0.50 and $0.75 per share for
total proceeds of $125,500. The sale of the shares was exempt from
registration under Rule 701 under Section 3(b) of the Securities Act of
1933. The sales were made on exercise of grants under our written stock
option plan, a copy of which we have has provided to our participants. The
150,000 shares issued to John Robertson were also exempt from registration
under Rule 506 under and Section 4(2) of the Securities Act of 1933. Mr.
Robertson is an accredited investor by virtue of his positions as a
director and executive officer. If the foregoing exemptions are not
available, we believe that all $125,500 of these sales were also exempt
under Regulation S under the Securities Act of 1933, as amended, due to the
foreign nationality of the relevant purchasers.
(12) In October 1999, we issued 50,000 shares to IP Equity, Inc. for
marketing and financial consulting services. On June 23, 1999, we issued
175,000 shares to IP Equity for investor relations and
II-3
marketing activities carried out on behalf of Information Highway.com. The
offers and sales of the shares were exempt from registration under Rule 506
under and Section 4(2) of the Securities Act of 1933.
(13) Pursuant to an Offering Memorandum dated October 6th, 1999, we
issued 125,817 units at a price of $4.00 per unit. Each unit consisted of
one common share and one warrant to purchase one additional share at $5.00
up to and including October 6th, 2000. The offering was completed on March
2, 2000 for total proceeds of $503,268. The offer and sale of the units
were exempt from registration under Rule 506 under and Section 4(2) of the
Securities Act of 1933. The Company furnished to purchasers in a timely
manner an Offering Memorandum and financial information, limited the manner
of the offering, promptly filed notices of sales, and limited the number of
non-accredited investors to 1 investor.
(14) In November 1999, we issued 20,000 shares to World of Internet.com
for marketing and financial consulting services. The offer and sale of the
shares were exempt from registration under Rule 506 under and Section 4(2)
of the Securities Act of 1933, Regulation S under the Securities Act of
1933, and beyond the jurisdiction of Section 5 of the Securities Act of
1933.
(15) In November 1999, we granted a warrant to purchase up to 400,000
shares of our common stock at a price of $3.50 per share to K&D Equities,
Inc. for marketing services. The offer and sale of the warrants were exempt
from registration under Rule 506 under and Section 4(2) of the Securities
Act of 1933.
(16) During the quarter ended November 30, 1999, we issued 295,166
shares pursuant to options exercised at between $0.50 and $4.00 per share
for total proceeds of $382,000. The sale of the shares was exempt from
registration under Rule 701 under Section 3(b) of the Securities Act of
1933. The sales were made on exercise of grants under our written stock
option plan, a copy of which we have provided to participants. In the event
Rule 701 is not available, we believe that 60,000 shares were also exempt
from registration under Rule 506 under and Section 4(2) of the Securities
Act of 1933. If the foregoing exemptions are not available, we further
believe that $344,500 of these sales were also exempt under Regulation S
under the Securities Act of 1933, as amended, due to the foreign
nationality of the relevant purchasers.
(17) On December 1, 1999, we entered into an agreement with Garry Savage
issuing 100,000 warrants to acquire 100,000 shares exercisable at $4.00 per
share expiring December 1, 2002. Copies of the agreement and warrants are
exhibits hereto. The offer and sale of the warrants were exempt from
registration under Rule 506 and Section 4(2) of the Securities Act of 1933.
(18) On March 3, 2000 we entered into a Securities Purchase Agreement
with Senasqua Investors LLC pursuant to which we issued debentures in the
principal amount of $1,500,000 maturing March 3, 2002, and warrants to
acquire 225,000 shares exercisable at $6.22875 per share expiring March 3,
2002. The aggregate purchase price for the debentures and warrants was
$1,500,000. The offer and sale of the warrants and debentures were exempt
from registration under Rule 506 and Section 4(2) of the Securities Act of
1933.
Set forth below is information regarding the issuance and sales of
securities of Information Highway, Inc. without registration during the
past three years. No such sales involved the use of an underwriter and no
commissions were paid in connection with the sale of any securities.
(19) Information Highway, Inc. conducted an offering to its founders,
some of whom purchased through controlled affiliates, beginning in December
1996. On completion of the offering in March 1997, a total of 600,000
shares were issued at $0.10 per share for total proceeds of $60,000. The
offer and sale of the shares were exempt from registration under Rule 504
and Rule 506 of Regulation D under Sections 3(b) and 4(2), respectively, of
the Securities Act of 1933, and under Section 4(2) of the Securities Act of
1933. If the foregoing exemptions are not available, these sales were
exempt under Regulation S under the Securities Act of 1933 due to the
foreign nationality of the purchasers or their ultimate beneficial owners.
(20) In December 1996, Information Highway, Inc. commenced an offering
of common stock pursuant to an Offering Memorandum. On completion of the
offering in March 1997, a total of 500,000 shares were issued at $0.50 per
share for total proceeds of $250,000. The offer and sale of the units were
exempt from registration under Rule 504 and Rule 506 of Regulation D under
Sections 3(b) and 4(2),
II-4
respectively, of the Securities Act of 1933. Information Highway, Inc.
furnished to purchasers in a timely manner an Offering Memorandum and
financial information, limited the manner of the offering, promptly filed
notices of sales, and limited the number of non-accredited investors to 14
investors. If the foregoing exemptions are not available, $89,750 of these
sales were exempt under Regulation S under the Securities Act of 1933 due
to the foreign nationality of the purchasers.
(21) Information Highway, Inc. conducted three acquisitions that were
exempt from registration under Regulation S under the Securities Act of
1933 due to the foreign nationality of the persons who accepted shares of
Information Highway, Inc. in exchange for their holdings in the acquired
companies: (i) In February 1997, of YesIC, Communications, Inc., in
exchange for the issue of 3,105,000 shares to 17 foreign persons; (ii) In
February 1997, of World Tel, Internet (Toronto) Ltd., in exchange for the
issue of 387,000 shares to 5 foreign persons; and (iii) In December 1996,
of Blue Crow Internet Company, Ltd., in exchange for the issue of 149,000
shares to 4 foreign persons. If the exemption under Regulation S under the
Securities Act of 1933 due to the foreign nationality of the persons who
accepted shares of Information Highway, Inc. in exchange for their holdings
in the acquired companies is not available, we believe that each of the
offerings is exempt under Rule 506 under Section 4(2) of the Securities Act
of 1933 and that offerings (ii) and (iii) are exempt under Rule 504 under
Section 3(b) of the Securities Act of 1933.
(22) In April 1997, Mr. Robertson purchased 1,000 shares at $0.50 per
share, which he then gifted to a family friend as a bar mitzvah present. In
October 1996 Mr. Robertson purchased 15,000 shares at $0.10 per share as a
founder of Information Highway, Inc. The offer and sale of the shares were
exempt from registration under Rule 506 of Regulation D under Section 4(2)
of the Securities Act of 1933 and under Section 4(2) of the Securities Act
of 1933. If the foregoing exemptions are not available, these sales were
exempt under Regulation S under the Securities Act of 1933 due
Mr. Robertson's foreign nationality.
(23) In April 1998, Information Highway, Inc. concluded an offering of
units pursuant to an Offering Memorandum. Each unit consisted of one common
share and one warrant to acquire an additional share at $1.00 per share by
December 30, 1999. On completion of the offering, a total of 139,650 units
were issued at $0.75 per unit for total proceeds of $100,987.50. The offer
and sale of the units were exempt from registration under Rule 504 and Rule
506 of Regulation D under Sections 3(b) and 4(2), respectively, of the
Securities Act of 1933. Information Highway, Inc. furnished to purchasers
in a timely manner an Offering Memorandum and financial information,
limited the manner of the offering, promptly filed notices of sales, and
limited the number of non-accredited investors to 1 investor.
(24) In January 1999, Information Highway, Inc. concluded an offering of
units pursuant to an Offering Memorandum. Each unit consisted of one common
share and one warrant to acquire an additional share at $1.00 per share by
December 30, 1999. Due to a mix-up in connection with changing its bank, we
inadvertently overlooked deposits of $15,000 received during the offering
for an additional 20,000 units. Including these units that should have been
issued at the closing of the offering, a total of 754,000 units were issued
at $0.75 per unit for total proceeds of $565,500. The offer and sale of the
units were exempt from registration under Rule 504 of Regulation D under
Section 3(b) of the Securities Act of 1933. If the exemption under Rule 504
of Regulation D is not available, $90,750 of these sales were exempt under
Regulation S under the Securities Act of 1933 due to the foreign
nationality of the purchasers.
Item 27. Exhibits
Exhibit
Number Name
------- ----
2.1* Agreement and Plan of Reorganization between the Company and
Information Highway, Inc.
3.1* Articles of Incorporation, restated as amended on February 23, 1999
and November 1, 1989
3.2* Bylaws
II-5
4.1* Specimen Share Certificate for Common Stock
4.2* Form of Warrants ($1.00)
4.3* Stock Option Plan
4.4* Form of Stock Option Agreement
4.5** Form of Warrants ($4.00 and $6.00)
4.6*** Form of Warrants ($3.50)
4.7****** Savage Warrants
4.8 Form of Debenture (Senasqua Investors LLC)
4.9 Warrant (Senasqua Investors LLC)
4.10 Registration Rights Agreement (Senasqua Investors LLC)
4.11 Securities Purchase Agreement (Senasqua Investors LLC)
5.1 Opinion re: Legality
10.1**** VPOP Service Agreement between MetroNet Communications and YesIC
Communications
10.2**** Level 3 Communications Terms and Conditions for Delivery of Service
10.3**** ADSL Service Agreement dated August 24, 1999, by and between Bell
Atlantic Network Integration, Inc. and Information Highway.com,
Inc.
10.4***** IP Equity Marketing and Financial Consulting Agreement
10.5****** Savage Agreement
23.1 Consent of Independent Auditors.
23.2 Consent of Counsel (see Exhibit 5.1).
27.1****** Financial Data Schedule.
- --------
* Incorporated by reference from our registration statement on form 10-SB
filed with the Securities and Exchange Commission on April 14, 1999.
** Incorporated by reference from Amendment No. 1 to our registration
statement on Form 10-SB filed with the Securities and Exchange
Commission on October 12, 1999.
*** Incorporated by reference from our quarterly report on Form 10-QSB for
the quarterly period ended November 30, 1999, filed with the Securities
and Exchange Commission on January 14, 2000.
**** Incorporated by reference from our annual report on Form 10-KSB for the
fiscal year ended May 31, 1999, filed with the Securities and Exchange
Commission on October 6, 1999.
***** Incorporated by reference from our quarterly report on Form 10-QSB for
the quarterly period ended August 31, 1999, filed with the Securities
and Exchange Commission on October 15, 1999.
****** Incorporated by reference from our quarterly report on Form 10-QSB for
the quarterly period ended February 29, 2000, filed with the Securities
and Exchange Commission on April 14, 2000.
Item 28. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(a) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration
II-6
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Vancouver, Province of
British Columbia, CANADA, on May 11, 2000.
Information Highway.com Inc.
/s/ John G. Robertson
By: _________________________________
John G. Robertson
Its President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ John G. Robertson President, Principal May 11, 2000
______________________________________ Executive Officer
John G. Robertson
/s/ Jennifer Lorette Executive Vice President, May 11, 2000
______________________________________ Secretary/Treasurer,
Jennifer Lorette Principal Accounting
Officer and Chief
Financial Officer
/s/ John G. Robertson Director May 11, 2000
______________________________________
John G. Robertson
/s/ Jennifer Lorette Director May 11, 2000
______________________________________
Jennifer Lorette
/s/ Donna Moroney Director May 11, 2000
______________________________________
Donna Moroney
/s/ James L. Vandeberg Director May 9, 2000
______________________________________
James L. Vandeberg
II-8
INDEX TO EXHIBITS
Exhibit
Number Name
------- ----
2.1* Agreement and Plan of Reorganization between the Company and
Information Highway, Inc.
3.1* Articles of Incorporation, restated as amended on February 23, 1999
and November 1, 1989
3.2* Bylaws
4.1* Specimen Share Certificate for Common Stock
4.2* Form of Warrants ($1.00)
4.3* Stock Option Plan
4.4* Form of Stock Option Agreement
4.5** Form of Warrants ($4.00 and $6.00)
4.6*** Form of Warrants ($3.50)
4.7****** Savage Warrants
4.8 Form of Debenture (Senasqua Investors LLC)
4.9 Warrant (Senasqua Investors LLC)
4.10 Registration Rights Agreement (Senasqua Investors LLC)
4.11 Securities Purchase Agreement (Senasqua Investors LLC)
5.1 Opinion re: Legality
10.1**** VPOP Service Agreement between MetroNet Communications and YesIC
Communications
10.2**** Level 3 Communications Terms and Conditions for Delivery of Service
10.3**** ADSL Service Agreement dated August 24, 1999, by and between Bell
Atlantic Network Integration, Inc. and Information Highway.com,
Inc.
10.4***** IP Equity Marketing and Financial Consulting Agreement
10.5****** Savage Agreement
23.1 Consent of Independent Auditors
23.2 Consent of Counsel (see Exhibit 5.1)
27.1****** Financial Data Schedule
- --------
* Incorporated by reference from our registration statement on form 10-SB
filed with the Securities and Exchange Commission on April 14, 1999.
** Incorporated by reference from Amendment No. 1 to our registration
statement on Form 10-SB filed with the Securities and Exchange
Commission on October 12, 1999.
*** Incorporated by reference from our quarterly report on Form 10-QSB for
the quarterly period ended November 30, 1999, filed with the Securities
and Exchange Commission on January 14, 2000.
**** Incorporated by reference from our annual report on Form 10-KSB for the
fiscal year ended May 31, 1999, filed with the Securities and Exchange
Commission on October 6, 1999.
***** Incorporated by reference from our quarterly report on Form 10-QSB for
the quarterly period ended August 31, 1999, filed with the Securities
and Exchange Commission on October 15, 1999.
****** Incorporated by reference from our quarterly report on Form 10-QSB for
the quarterly period ended February 29, 2000, filed with the Securities
and Exchange Commission on April 14, 2000.