U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended February 28, 1999
-----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to _____________________
Commission File No. 0-25773
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INFORMATION-HIGHWAY.COM, INC
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(Exact name of small business issuer as specified in its charter)
Florida 65-0154103
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
185-10751 Shellbridge Way, Richmond, BC Canada V6X 2W8
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(604) 278-5996
------------------------------
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
YES _________ NO X
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State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: As of August 23, 1999 - 6,868,901
shares of common stock, $.0001 par value were outstanding. A further 179,500
common shares, not yet issued, are allotted pursuant to a share exchange
agreement. Total shares outstanding and allotted as of August 23, 1999 are
7,048,401.
INDEX
PART I -- Financial Information Page Page
Item 1. Consolidated Financial statements (unaudited)......................................... 2
- ------- ---------------------------------
Consolidated Balance Sheets as of February 28, 1999 and May 31, 1998........................... 3
Consolidated Statements of Changes in Stockholders' Equity from May 31, 1998 to
February 28, 1999............................................................................ 4
Consolidated Statements of Operations for the three months and nine months ended
February 28, 1999 and 1998................................................................... 5
Consolidated Statements of Cash Flows for the nine months ended
February 28, 1999 and 1998................................................................... 6
Notes to the Consolidated Financial Statements................................................. 7
Item 2. Management's Discussion and Analysis of Results of Operations and Financial
- ------- -----------------------------------------------------------------------------
Condition...................................................................................... 15
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PART II -- Other Information................................................................... 21
Signatures..................................................................................... 23
-1-
PART I Financial Information
Item 1. Consolidated Financial statements (Unaudited)
- ------- ---------------------------------------------
-2-
Information-Highway.com, Inc.
(formerly Florida Venture Fund, Inc.)
Consolidated Balance Sheets
February 28, May 31,
1999 1998
(unaudited) (audited)
$ $
Assets
Current Assets
Cash 83,225 35,699
Accounts receivable 16,644 4,442
Prepaid expenses 6,581 3,001
- -------------------------------------------------------------------------------
106,450 43,142
Fixed Assets (Note 5) 171,468 209,353
Goodwill (Note 4) 154,785 274,598
- -------------------------------------------------------------------------------
432,703 527,093
===============================================================================
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable 210,654 206,608
Advances from Affiliated Companies - 239,542
Advances from Directors - 22,242
- -------------------------------------------------------------------------------
210,654 468,392
Stockholders' Equity
Common Stock (Note 6), 50,000,000 shares authorized,
par value $.0001 per share, 6,178,151 and 4,766,000
issued and outstanding respectively 618 700,960
Additional Paid in Capital 1,364,027 61,988
- -------------------------------------------------------------------------------
1,364,645 762,948
- -------------------------------------------------------------------------------
Preferred Stock, 10,000,000 shares authorized, par value
$.0001 per share, none issued - -
Translation adjustments 9,412 3,65
- -------------------------------------------------------------------------------
1,374,057 766,602
Deficit (1,152,008) (707,901)
- -------------------------------------------------------------------------------
Total stockholders' equity 222,049 58,701
- -------------------------------------------------------------------------------
432,703 527,093
===============================================================================
(See Note 1 for Nature of Operations, Reorganization and Continuance of
Business)
(See accompanying notes to the financial statements) -3-
Information-Highway.com, Inc.
(formerly Florida Venture Fund, Inc.)
Consolidated Statement of Changes in Stockholders' Equity
From May 31, 1998 to February 28, 1999
(unaudited)
Common Stock
---------------------------------------------------
Additional
No. of Par Value Paid-in
Shares $.0001 Capital Total Deficit
Issued or Allotted $ $ $ $
Balance of FVFI on May 31, 1998 and prior
to reverse takeover - February 17, 1999 1,979,500 198 7,852 8,050 (28,728)
Reverse takeover adjustments (Note 3)
Cancellation of shares for no
consideration (1,659,833) (166) 166 - -
Elimination of deficit - - - - 28,728
Deficit of Information Highway,
Inc. as at May 31, 1998 (707,901)
Shares issue or allotted to effect
the reverse takeover 5,639,650 564 1,355,633 1,356,197 -
Cost of reverse takeover
transaction - - (128,728) (128,728) -
Shares issued pursuant to stock options
exercised at $0.75 per share
(Issued March 24, 1999) 27,334 3 20,498 20,501 -
Shares issued pursuant to stock options
exercised at $0.50 per share
(Issued March 24, 1999) 150,000 15 74,985 75,000 -
Shares issued for services at a fair market
value of $0.75 per share 31,500 3 23,622 23,622 -
Shares issued pursuant to warrants
exercised at $1.00 per share 10,000 1 9,999 10,000 -
Net loss for the period (444,107)
- --------------------------------------------------------------------------------------------------------------------------
Balance at February 28, 1999 6,178,151 619 1,364,026 1,364,645 (1,152,008)
==========================================================================================================================
Of the 6,178,151 shares issued or allotted a total of 179,500 common shares are
allotted pursuant to a share exchange agreement. Holders of 179,500 common
shares in Information Highway, Inc. have not tendered their shares in exchange
for shares of the Company, see Note 3.
(See accompanying notes to the financial statements) -4-
Information-Highway.com, Inc.
(formerly Florida Venture Fund, Inc.)
Consolidated Statements of Operations
(unaudited)
Three months ended Nine months ended
February 28, February 28,
--------------------
1999 1998 1999 1998
$ $ $ $
Revenues 254,853 208,083 752,470 609,782
- --------------------------------------------------------------------------------------------------
Expenses
Advertising and instruction guides 17,326 10,767 60,444 32,500
Amortization of goodwill 39,937 39,937 119,811 119,811
Bad debts 673 569 2,262 2,660
Bank and credit card charges 5,415 4,347 17,088 3,474
Depreciation and amortization 11,798 14,676 41,717 44,835
Equipment rental 8,128 4,066 30,678 8,055
Foreign exchange (2,653) 2,252 (7,268) 2,023
Internet and license fees 54,008 53,392 186,979 102,179
Investor relations 8,068 5,860 71,273 6,268
Management and consulting fees 74,297 55,187 165,336 138,984
Office 13,078 18,475 24,553 26,565
Professional fees 14,809 10,123 54,491 19,719
Rent 7,844 11,839 36,828 20,982
Salaries and benefits 53,948 28,627 143,807 108,400
Telephone 87,241 92,251 230,767 266,885
Transfer agent and regulatory fees - 3,292 1,152 1,314
Travel and promotion 6,830 388 16,659 10,165
- --------------------------------------------------------------------------------------------------
400,747 356,048 1,196,577 914,819
- --------------------------------------------------------------------------------------------------
Net loss (145,894) (147,965) (444,107) (305,037)
==================================================================================================
Basic loss per share (0.03) (0.03) (0.09) (0.07)
==================================================================================================
Weighted average shares outstanding 5 ,500,000 4,600,000 5,000,000 4,500,000
==================================================================================================
Diluted loss per share has not been presented as the result is anti dilutive.
(See accompanying notes to the financial statements) -5-
Information-Highway.com, Inc.
(formerly Florida Venture Fund, Inc.)
Consolidated Statements of Cash Flows
(unaudited)
Nine months ended
February 28,
--------------------
1999 1998
$ $
Cash Flows to Operating Activities
Net loss (444,107) (305,037)
Adjustments to reconcile net loss to cash
Depreciation and amortization 41,717 44,835
Amortization of goodwill 119,811 119,811
Change in non-cash working capital items
(Increase) decrease in accounts receivable (12,202) 2,671
(Increase) decrease in prepaid expenses (3,580) 1,284
Increase (decrease) in accounts payable 4,046 (23,945)
Increase in unearned revenue - 1,190
- ---------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (294,315) (159,191)
- ---------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Common stock issued (net of reverse takeover costs) 601,697 184,550
Increase (decrease) in advances from
affiliated companies (239,542) 58,735
(Decrease) in advances from directors (22,242) (7,554)
- ---------------------------------------------------------------------------------------------
Net Cash from Financing Activities 339,913 235,731
- ---------------------------------------------------------------------------------------------
Cash Flows to Investing Activities
Increase in capital assets acquired (3,831) (78,449)
- ---------------------------------------------------------------------------------------------
Net Cash to Investing Activities (3,831) (78,449)
- ---------------------------------------------------------------------------------------------
Translation adjustments 5,759 (5,214)
- ---------------------------------------------------------------------------------------------
Increase (decrease) in cash during the period 47,526 (7,123)
Cash - beginning of period 35,699 4,947
- ---------------------------------------------------------------------------------------------
Cash (deficiency) - end of period 83,225 (2,176)
=============================================================================================
=============================================================================================
Supplemental cash flow information:
Cash paid for interest 5,786 2,944
Cash paid for income taxes - -
=============================================================================================
(See accompanying notes to the financial statements) -6-
Information-Highway.com, Inc.
(formerly Florida Venture Fund, Inc.)
Notes to the Consolidated Financial Statements
(unaudited)
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 FLVN.
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 and completed
February 23, 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 which represents a change of control of the Company by way of
reverse takeover, See Note 3. As part of this 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.
The Company 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 in fiscal 1997, fiscal 1998 and
the nine months ended February 28, 1999 totalling $1,152,008 and has a
working capital deficiency as at February 28, 1999 of $104,204.
Subsequent to February 28, 1999 the Company has raised $1,045,500 pursuant
to an Offering Memorandum completed, stock options exercised and warrants
exercised 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 the Company would receive a further $1,297,500;
the Company issued 416,500 shares pursuant to warrants exercised at
$1.00 per share for total proceeds of $416,500. There are currently
447,150 warrants outstanding exerciseable at $1.00 per share or
$447,150 in total;
the Company issued 195,000 shares pursuant to options exercised at
between $0.50 and $0.75 per share for total proceeds of $110,000. The
Company currently has 285,000 shares reserved for the exercise of
stock options at $0.50 per share, 190,000 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 options
were to be exercised the Company would receive a further $3,710,000;
the Company is currently selling a private placement of 1,000,000
units at $6.00 per unit to raise total proceeds of $6,000,000. Each
unit will contain one common share and one warrant to acquire one
additional share at $8.00 per share expiring July 7, 2000.
-7-
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 has
three consolidated wholly-owned Canadian subsidiaries, see Note 4. As IHI
was the acquirer in the Reverse Takeover Business Combination, 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,
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. These interim financial
statements include all adjustments which in the opinion of management are
necessary in order to make the financial statements not misleading.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, in banks and all highly
liquid investments with a maturity of 90 days or less when purchased.
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 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.
Fixed assets
Fixed assets are recorded at cost. Depreciation is computed utilizing the
declining balance method over an estimated useful life of the related asset
category. Computer equipment is depreciated at 30% per annum and furniture
and office equipment at 20%. Leasehold improvements are amortized to
operations over ten years utilizing the straight-line method.
Goodwill
Goodwill represents the excess of purchase consideration over fair market
value of net identifiable assets acquired, and is amortized on a straight-
line basis over three years. 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 cash flow and profitability
projections which necessarily involves significant management judgement.
Revenue recognition
Revenue is recognized at the time services are provided. All related costs
are recognized in the period in which they occur.
Use of estimates
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 these estimates.
Accounting for Stock Based Compensation
The Company uses the intrinsic value based method of accounting for stock
based compensation as prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB Opinion No. 25") in
accounting for its stock based method, compensation cost is the excess, if
any, of the quoted market price of the stock at grant date over the amount
an employee or director must pay to acquire the stock. See Note 6.
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
-8-
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.
Foreign exchange
All of the Company's Canadian operating subsidiaries are operationally
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 are recognized currently in earnings.
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 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.
3. Business Combination
Pursuant to an Agreement and Plan of Reorganization entered into on
February 17, 1999 and closed on February 23, 1999 between the Company, 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 August 23, 1999, 2,225,150 of the 2,404,650 IHI shares had
been exchanged for the same number of Company shares and to the August 23,
1999 96% in total has been exchanged. The Company has allotted 179,500
shares in anticipation of the remaining shares 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 as a finders fee and
to effect the Agreement and Plan of Reorganization.
For accounting purposes the acquirer is IHI as 94.6% of the issued and
outstanding common shares of the Company will be or are now 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 assets and the business 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 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.
Consideration paid to shareholders of FVFI:
-9-
$
Cash paid to controlling shareholder of FVFI (finders fee) 100,000
Net liabilities of FVFI assumed at book value 20,678
Value attributed to the 319,667 shares of FVFI not cancelled 8,050
-------
128,728
-------
The excess of cost over book values of FVFI, being $128,728 has been
treated for accounting purposes as a reduction of additional paid in
capital and not to goodwill as the nature of the transaction was for IHI to
obtain a listing on NASD's Over The Counter 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 IHI Prior to Reverse Takeover
During IHI's fiscal year ended May 31, 1997, IHI acquired three operating
Canadian subsidiaries 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 $93,663. The excess of the purchase price over
the fair market value of net liabilities assumed, totalling $479,243, 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
Loans from directors 37,853
Loans from affiliated companies 127,491
--------
208,424
Assets acquired
Cash received in combination (7,055)
Accounts receivable (1,711)
Capital assets (105,995)
--------
(114,761)
Net liabilities assumed 93,663
--------
(iii) Excess of cost over book value 479,243
========
The excess of cost over book value, totalling $479,243, 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.
February 28, May 31,
1999 1998
Accumulated Net Book Net Book
Cost Amortization Value Value
(unaudited) (audited)
$ $ $ $
Goodwill 479,243 324,458 154,785 274,598
-10-
5. Fixed Assets
Fixed assets are stated at cost less accumulated amortization.
February 28, May 31,
1999 1998
Accumulated Net Book Net Book
Cost Amortization Value Value
(unaudited) (audited)
$ $ $ $
Computer equipment and software 253,090 113,972 139,118 172,827
Office furniture and equipment 34,468 11,660 22,808 26,115
Leasehold improvements 11,567 2,025 9,542 10,411
------- --------- --------- ---------
299,125 127,657 171,468 209,353
======= ========= ========= =========
6. Common Stock Issuances and Related Commitments
Pursuant to the Agreement and Plan of Reorganization the Company assumed
all common stock obligations as they relate to stock based compensation
plans and warrants issued to acquire common shares.
Private placements
IHI approved and completed Rule 504 and Rule 506 private placement
financings and issued 873,650 units at $0.75 per unit to raise $655,237.
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.
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.
See Subsequent Events, Note 9, for common stock issued and/or reserved
pursuant to an Offering Memorandum completed on August 11, 1999, warrants
exercised and stock options exercised.
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 135,000 common shares at $0.50 per
share were cancelled subsequently in 1998. 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. See Note 9 for stock options granted
subsequently.
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% being a non-public entity at the time, an expected option
life of six months and no expected dividends and for grants between August
14, 1998 and February 23, 1998 as a group: risk free interest rate was
-11-
5.27%, expected volatility of 20% being a non-public entity at the time, an
expected option life of six months and no expected dividends.
-12-
6. Common Stock Issuances and Related Commitments (cont)
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 28, 1999 and 1998 would have been as follows:
Three months ended Nine months ended
February 28, February 28,
------------ ------------
1999 1998 1999 1998
$ $ $ $
Net loss
As reported (145,894) (147,965) (444,107) (305,037)
Pro forma (150,810) (149,465) (467,243) (311,787)
Basic net loss per share
As reported (.03) (.03) (.09) (.07)
Pro forma (.03) (.03) (.09) (.07)
7. Segmented Information
The business of the Company is carried on in one industry segment: the
providing of access to the Internet and providing services, including on-line
publishing, to individual and corporate subscribers.
The Company operates in two geographic segments as follows:
Three months ended February 28,
1999 1998
---- ----
United United
Canada States Total Canada States Total
$ $ $ $ $ $
Sales - unaffiliated 253,152 1,702 254,853 207,767 316 208,083
==================================================================================================
Inter-area sales - - - - - -
==================================================================================================
Operating income (loss) 32,140 (178,034) (145,894) (25,498) (122,466) (147,965)
==================================================================================================
Nine months ended February 28,
1999 1998
---- ----
United United
Canada States Total Canada States Total
$ $ $ $ $ $
Sales - unaffiliated 743,964 8,506 752,470 609,466 316 609,782
==================================================================================================
Inter-area sales - - - - - -
==================================================================================================
Operating income (loss) 38,745 (482,852) (444,107) (54,584) (250,453) (305,037)
==================================================================================================
Identifiable assets 169,142 108,776 277,918 152,554 39,450 192,004
Goodwill - 154,785 154,785 - 314,532 314,532
==================================================================================================
Total assets 169,142 263,561 432,703 152,554 353,982 506,536
==================================================================================================
-13-
8. 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.
9. Subsequent Events
Subsequent to February 28, 1999 the Company has raised $1,045,500 pursuant to
an Offering Memorandum completed, stock options exercised and warrants
exercised 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 the Company would receive a
further $1,297,500;
the Company issued 416,500 shares pursuant to warrants exercised at $1.00
per share for total proceeds of $416,500. There are currently 447,150
warrants outstanding exerciseable at $1.00 per share or $447,150 in total;
the Company issued 195,000 shares pursuant to options exercised at between
$0.50 and $0.75 per share for total proceeds of $110,000. The Company
currently has 285,000 shares reserved for the exercise of stock options at
$0.50 per share, 190,000 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 options were to be exercised the Company would
receive a further $3,710,000;
the Company is currently selling a private placement of 1,000,000 units at
$6.00 per unit to raise total proceeds of $6,000,000. Each unit will
contain one common share and one warrant to acquire one additional share at
$8.00 per share expiring July 7, 2000.
Between May 19, 1999 and July 28, 1999 stock options were granted to certain
directors, officers and employees to acquire 700,000 shares at $4.00 per
share and 275,000 shares at $5.00 per share, of which 150,000 were cancelled.
-14-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
The following discussion and analysis should be read in conjunction with the
Company's Financial Statements and Notes thereto and other financial information
included in the Company's previously filed Form 10-SB which was filed on April
14, 1999 which contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's 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 the previously
filed Form 10-SB.
Overview
The Company 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. It intends to provide ISP services to a steadily
growing number of cities in North America as a "Virtual ISP". The Company
expects its Virtual ISP business model to allow it to avoid purchasing and
installing "backbone" communications equipment and infrastructure in each city
where it plans to offer ISP services. Instead, the Company plans to use AT&T's
DMS-500 telephone switches to permit its customers to connect to the Internet
from cities across Canada using AT&T's ISP-PRI service and high-speed, fiber-
optic ATM links. The Company has an agreement with a company recently acquired
by AT&T permitting it to use their Canadian network. The Company's goal is to
expand its ISP business throughout North America by negotiating access to
Virtual ISP facilities in the United States. Toronto, Ontario is the first
market in which the Company provided ISP services, beginning about four years
ago.
Through its "Executive Site(TM)" compilation of Internet-based services and
information, the Company plans to provide localized and portal content catering
to business professionals. Through research, design, programming, co-branding,
and licensing, the Company has compiled Internet services and content in its
Executive Site that it believes are useful to companies, associations and
professionals. Executive Site web pages are designed specifically for targeted
user groups, and the Company believes they provide friendly, easy to navigate
interfaces. The Company plans to market the Executive Site throughout North
America and internationally, starting with its ISP customers. It may also let
other ISPs display its Executive Site in certain markets. The Company also
plans to offer its commercial clients the ability to market their products and
services to Executive Site users through its newly developed Virtual Mall.
The Company believes the Executive Site will be popular because most business
professionals don't want to spend their own time searching the Internet for the
information that they need. The Executive Site has assembled a functional
business site so that users can immediately find what they need. Executive 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.
The Company does not plan to charge a fee for access to the basic Executive
Site. It plans to charge a design fee and a recurring user fee for Executive
Sites that it customizes for companies or associations. It also plans to charge
a monthly fee when it allows other ISPs to display the Executive Site. The
Company expects to receive advertising and e-commerce commission revenues from
the Executive Site.
The Company 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, 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.
Information-Highway.com, Inc. is now the ultimate parent company whose shares
are traded on the OTC bulletin board (symbol: IHWY).
-15-
Effect of Reorganization
The reverse takeover was conducted pursuant to an Agreement and Plan of
Reorganization entered into on February 17, 1999 and closed on February 23, 1999
between the Company, 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 August 23, 1999, 2,225,150 of the 2,404,650 IHI shares had been
exchanged for the same number of Company, representing 96% of the total to be
exchanged. The Company has allotted 179,500 shares in anticipation of the
remaining shares 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
as a finders fee and to effect the Agreement and Plan of Reorganization.
For accounting purposes the acquirer is IHI as 94.6% of the issued and
outstanding common shares of the Company will be or are now 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 assets and the business 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 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:
$US
Cash paid to the controlling shareholder of the Company 100,000
Net liabilities of the Company assumed at book value 20,678
Value attributed to 319,667 shares not cancelled 8,050
-------
128,728
-------
The excess of cost over book values of FVFI, being $128,728, has been treated
for accounting purposes as a reduction of additional paid in capital and not
goodwill as the nature of the transaction was for IHI to obtain a listing on
NASD's Over The Counter Bulletin Board by way of reverse takeover. The cost is
associated with publicly listing shares and not with any business associated
with FVFI. Prior to acquiring IHI, the Company had not conducted any business
since inception in 1988. The following discussion will relate to the Company as
if the reverse takeover had taken place as of the earliest date of the
consolidated financial statements presented.
Factors Affecting Ongoing Operations
Planned principal activities have started producing significant revenues,
however, in its effort to rapidly expand infrastructure and network services and
develop the Executive Site, the Company has suffered net losses for the years
ended May 31, 1998 and May 31, 1997 of $557,000 and $303,000, respectively.
Through the nine months ended February 28, 1999, its net losses were $444,000.
At February 28, 1999, its accumulated deficit was $1.2 million. The Company
expects to incur substantial operating losses, net losses and negative cash flow
for the foreseeable future.
Revenue
The following factors affect the Company's revenue:
Service Offering - The Company derives a majority of its operating revenue
from the ISP service it provides to its dial up customers.
Penetration of Target Markets - The Company selects certain target markets
in which it will offer its services and commit corresponding resources for
marketing and infrastructure. The Company bases its target market
assessment on two years of research and development through its
involvement in the Internet industry. Because the Company does not have a
universal presence on the Internet as an ISP, its ability to achieve market
penetration in the target markets it selects to serve has a significant
effect on the Company's ability to maintain and increase its revenues.
Turnover - Maintaining market penetration successes by minimizing customer
turnover also has a significant effect on the Company's ability to maintain
and increase its revenues. To date, customer turnover has been minimal.
The Company expects customer turnover to increase in the future as
competition intensifies. The Company expects 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 ISPs.
Executive Site - Executive Site revenues, which to date are mostly from
advertising, are not yet material to the Company's total revenues. The
Company expects that revenues related to the Executive Site will grow in
the future, both in dollar amount and as a percentage of the company's
total revenues.
-16-
Network and Service Costs
The Company's network and service costs have historically included equipment
installation and ongoing service and maintenance charges. As the Company
introduces its Virtual ISP presence in additional cities, each city will
represent an increased lease charge under the Company's agreements with
Internet access providers due to the need to add band-width to accommodate the
customer base in the new market. As the Company expands its presence in a
particular market, it will require additional increases in band-width
depending on data transmission volumes.
Other Expenses
The Company's other expenses include Executive Site development and
maintenance, customer service and technical support, 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 the Executive Site and the
locations in which the Company provides ISP services and increases in the
number of its customers, will drive increases in expenses.
Results of Operations for the Three Months Ended February 28, 1999 as Compared
to the Three Months Ended February 28, 1998
Revenues
Revenues have increased 22.5% to $255,000 as compared to $208,000 in the
previous period. This increase is due to increased subscriber base in
Vancouver and Toronto. Based on assumptions about demand for its ISP services
and the Executive Site, the Company anticipates that the dollar amount of
future quarterly revenues will increase over the $255,000 of revenue in the
quarter ended February 28, 1999.
Costs and Expenses
Costs and expenses have increased 16% to $349,000 as compared to $301,000 in
the previous period. This increase is primarily attributable to increased
salaries and consulting fees of $128,000 as compared to $83,000 in the
comparative period. This increase is due to increased infrastructure to carry
out the Company's marketing plan and for additional personnel needed to
support ISP services and to continue to improve and develop ISP services in
new markets. Increased salaries and consulting fees also were due to
development and maintenance of the Executive Site. Some consulting fees will
not recur in the future as they were one-time costs for development of the
service.
Depreciation and Amortization
Purchased goodwill is amortized at $13,000 per month over its estimated useful
life of three years to reflect the short term life of the related business
because of technological advancements and obsolescence in the industry.
Goodwill will be fully amortized by February 28, 2000. Depreciation and
amortization on capital assets was $12,000 for the current period as compared
to $15,000 in the previous period.
Income Taxes
The Company generated US and Canadian net operating loss ("NOL") carry
forwards of $1 million from inception to February 28, 1999. The Company
expects some consolidated losses for the foreseeable future which will
generate additional NOL carry forwards. However, the Company's ability to use
NOLs depends 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 the
Company achieves operating profits and the NOL's have been exhausted or have
expired, the Company may experience significant tax expense. The Company
recognized no provision for taxes because it operated at a loss from inception
through to February 28, 1999.
Net Loss for the Three Months Ended February 28, 1999 as Compared to the Three
Month Period Ended February 28, 1998
The Company's net losses have come mainly from overhead costs associated with
organization, restructuring and financing start up operations in Toronto and
Vancouver and costs of developing new and improved services and expanding its
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, professional fees and
overhead expenses.
-17-
Developmental costs, organization costs, restructuring costs and financing
costs increased by more than $50,000 during the current period as compared to
the comparative period.
Results of Operations for the Nine Months Ended February 28, 1999 as Compared to
the Nine Months Ended February 28, 1998
Revenues
Revenues have increased 23.5% to $752,000 as compared to $608,000 in the
previous period. This increase is due to increased subscriber base in
Vancouver and Toronto. Based on assumptions about demand for its ISP services
and the Executive Site, the Company anticipates that the dollar amount of
future revenues will increase over current levels.
Costs and Expenses
Costs and expenses have increased 38% to $1,035,000 as compared to $750,000 in
the previous period. This increase is partially attributable to increased
Internet and license fees of $187,000 as compared to $102,000 in the
comparative period, and represents the increased infrastructure required to
carry out the Company's marketing plan. There was also an increase in
salaries, consulting and management fees to $309,000 from $247,000 in the
comparative period which increase is attributable to additional personnel
needed to support ISP services and to continue to improve and develop ISP
services in new markets. Increased salaries and consulting fees also were due
to development and maintenance of the Executive Site. Some consulting fees
will not recur in the future as they were one-time costs for development of
the service. Advertising and instruction guides increased 100% to $60,000 as a
result of the introduction to new subscribers during the current period and
advertising for subscribers in the Vancouver market. As the Company became a
public entity it spent $71,000 on investor relations activities where
virtually none has been spent in the past.
Depreciation and Amortization
Purchased goodwill is amortized at $13,000 per month over its estimated useful
life of three years to reflect the short term life of the related business
because of technological advancements and obsolescence in the industry.
Goodwill will be fully amortized by February 28, 2000. Depreciation and
amortization on capital assets was $42,000 for the current period as compared
to $45,000 in the previous period. Depreciation and amortization is expected
to trend downwards as initial capital expenditures on the Toronto and
Vancouver operations get depreciated and goodwill becomes fully amortized. The
Company anticipates entering into operating leases for any network equipment
and software in the future to minimize capital expenditures.
Income Taxes
The Company generated US and Canadian net operating loss ("NOL") carry
forwards of $1 million from inception to February 28, 1999. The Company
expects some consolidated losses for the foreseeable future which will
generate additional NOL carry forwards. However, the Company's ability to use
NOLs depends 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 the
Company achieves operating profits and the NOL's have been exhausted or have
expired, the Company may experience significant tax expense. The Company
recognized no provision for taxes because it operated at a loss from inception
through to February 28, 1999.
Net loss for the nine months ended February 28, 1999 as compared to the nine
month period ended February 28, 1998
The Company's 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 its 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,
professional fees and overhead expenses. Developmental costs, organization
costs,
-18-
restructuring costs and financing costs increased by more than $200,000 during
the current period as compared to the comparative period.
Liquidity and Financial Resources
The Company has historically satisfied its capital needs by cash generated from
operations, by borrowing from affiliates and by issuing equity securities. The
Company's operating activities used $294,000 and $159,000 for the nine months
ended February 28, 1999 and 1998, respectively. During the nine months ended
February 28, 1998, the Company satisfied its operating cash requirements, along
with $78,000 of capital expenditures, by issuing equity securities and borrowing
from affiliates. During the nine months ended February 28, 1999, the Company
used $602,000 generated by issuing equity securities to fund its operating cash
shortfall and to repay borrowings from affiliates. The operation, development
and expansion of the Company's business will likely require additional capital
infusions for the foreseeable future.
The Company has a working capital deficiency as at February 28, 1999 of
$104,000, will require funds to finance its ongoing operating activities for the
foreseeable future and will need some funds for capital expenditures. The
Company plans to manage its payables balances and satisfy its operating and
capital needs partially from cash generated by operating activities and
partially through sales of equity securities. Subsequent to February 28, 1999
the Company has raised a total of $1,045,000 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 the Company would receive a
further $1,297,500;
the Company issued 416,500 shares pursuant to warrants exercised at $1.00
per share for total proceeds of $416,500. There are currently 385,650
additional warrants outstanding exerciseable at $1.00 per share ($385,650
in total) that expire between October 1999 and December 1999;
the Company issued 195,000 shares pursuant to options exercises at between
$0.50 and $0.75 per share for total proceeds of $110,000. The Company
currently has 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;
The Company will require financing in addition to the $1,045,000 it has raised
since February 28, 1999, in order to carry out its business plan as proposed.
The Company's capital requirements may vary based upon: the timing and success
of its roll out and as a result of regulatory, technological and competitive
developments;demand for the Company's services or its anticipated cash flow from
operations is less or more than expected; the Company's development plans or
projections changing or proving to be inaccurate; it engaging in any
acquisitions; or it accelerating deployment of its network services or otherwise
alter the schedule or targets of its roll out plan. The Company is not presently
considering any specific business acquisition.
Equity or debt financing may not be available to the Company on terms acceptable
to the Company, or at all. The Company will need additional funds, which it may
not be able to obtain.
The principal capital expenditures incurred to date related to putting networks
in place in Toronto and Vancouver. Capital expenditures were $4,000 for the nine
months ended February 28, 1999 as compared to $78,000 for the nine months ended
February 28, 1998 because the majority of the networking equipment has been
acquired in previous periods, and new equipment is being leased under operating
leases. The Company's strategy now is to create Virtual ISP presences in new
markets (i.e., North American cities) pursuant to its agreement with MetroNet
Communications/AT&T, so that it will not have to commit to capital expenditures
to build out a network in each new market. The Company may need to commit
working capital, however, to fund increased lease payments to MetroNet
Communications/AT&T until revenues from new subscribers begin to cover the
increase in monthly lease costs attributable to the new market. The Company
expects its 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 its defined markets.
-19-
Year 2000 Issues
- ----------------
The Company cannot provide assurance that it will not experience unanticipated
negative consequences from year 2000 problems, including material costs caused
by undetected errors or defects in the technology used in its 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.
The Company's online services and their associated and supporting tools, Web
sites and infrastructure were designed and developed to be year 2000 compliant.
Its internal systems, including those used to deliver its services, utilize
third-party hardware and software. The Company has begun the process of
contacting the vendors of these infrastructure products in order to gauge their
year 2000 compliance. Based on vendors' representations received thus far, the
Company believes that the third-party hardware and software it uses is year 2000
compliant, although it has not heard from all of these vendors.
To date, the Company has 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. The Company presently
estimates 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 the Company has 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 the Company's
year 2000 review and remediation efforts to date, the recent development of our
services, the recent installation of our information technology equipment and
systems, the Company does not consider contingency planning to be necessary at
this time. The Company believes that the most likely worst case scenario is that
the Internet fails and it will be unable to offer its services.
If the Company discovers that certain of its services need modification, or
certain of its third-party hardware and software is not year 2000 compliant, it
will try to make modifications to its services and systems on a timely basis.
The Company does not believe that the cost of these modifications will
materially affect its operating results. However, the Company cannot provide
assurance that it 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 its business and operating results.
Year 2000 compliance issues also could cause a significant number of companies,
including the Company's current advertisers, to reevaluate their current system
needs and, as a result, consider switching to other systems and means of
advertising. This could result in a material adverse effect on the Company's
business, operating results and financial condition. Also, during the next few
months there is likely to be an increased advertiser focus on addressing year
2000 compliance issues, creating the risk that advertisers may reallocate
expenditures to fix year 2000 problems of existing systems. Although the Company
has not experienced these effects to date, if advertisers defer Internet
advertising and commerce and related services because of such a reallocation, it
would adversely affect the Company's business and operating results.
-20-
PART II Other Information
Item 2. Changes in Securities
- ------- ---------------------
(c) Recent Sales of Unregistered Securities
---------------------------------------
Set forth below is information regarding the issuance and sales of securities of
the Company without registration during the quarter ended February 28, 1999. No
such sales involved the use of an underwriter and no commissions were paid in
connection with the sale of any securities.
(i) On February 23, 1999 the Company issued a total of 499,000
shares of common stock to certain shareholders of IHI in exchange for 499,000
shares of IHI. The issuance of the common stock was exempt from registration
under Rule 504 of Regulation D and Section 3(b) of the Securities Act of 1933.
The Company's shares were valued at $0.75 per share, the price per Unit that IHI
had obtained in its most recent offering of securities, in which IHI 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, the Company believes that this offering was also exempt under
Regulation S and Sections 3(b) and 4(2) under the Securities Act of 1933, due to
the foreign nationality of the relevant shareholders of IHI, their prior
contacts with IHI and its management, and the limited number of investors
(four).
(ii) On February 23, 1999, the Company issued a total of
2,736,000 shares of common stock to certain shareholders in exchange for
2,736,000 shares of IHI common stock. The issuance of the shares was exempt from
registration under Rule 506 of Regulation D, Regulation S and Section 3(b) and
4(2) of the Securities Act of 1933, as amended, due to the foreign nationality
of the relevant shareholders of IHI, their prior contacts with IHI and its
management, and the limited number of investors (six).
(iii) On February 23, 1999 the Company began an offer to certain
shareholders of IHI to exchange 834,000 shares of their unrestricted IHI common
stock for 834,000 shares of the Company's common stock exempt from registration
under Rule 504 of Regulation D and Section 3(b) of the Securities Act of 1933,
as amended. The Company's shares were valued at $0.75 per share, the price per
Unit that IHI had obtained in its most recent offering of securities, in which
IHI 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, the Company believes that this offering will also be exempt under
Rule 506 of Regulation D, Regulation S and Sections 3(b) and 4(2) of the
Securities Act of 1933, as amended. The Company intends to ensure the exemption
from registration by furnishing to purchasers in a timely manner an Exchange
Offering Memorandum and financial information, by limiting the manner of the
offering, by promptly filing notices of sales, and by limiting the number of
domestic non-accredited investors to fewer than 35 investors who, either alone
or with a qualified representative, are capable of evaluating the merits and
risks of an investment in the Company.
(iv) On February 23, 1999, the Company began an offer to certain
shareholders of IHI to exchange 1,570,650 shares of their restricted IHI common
stock for 1,570,650 shares of the Company's common stock exempt from
registration under Rule 506 of Regulation D, Regulation S and Section 3(b) and
4(2) of the Securities Act of 1933, as amended. The Company intends to ensure
the exemption from registration by furnishing to purchasers in a timely manner
an Exchange Offering Memorandum and financial information, by limiting the
manner of the offering, by promptly filing notices of sales, and by limiting the
number of domestic non-accredited investors to fewer than 35 investors who,
either alone or with a qualified representative, are capable of evaluating the
merits and risks of an investment in the Company.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
On February 18, 1999, shareholders of the Company owning 1,950,000 of the
1,979,500 Company shares then outstanding took the following actions by written
consent:
(a) The shareholders approved and authorized the Agreement and Plan
of Reorganization (the "Reorganization Agreement") (filed as an exhibit to the
Company's Form 10-SB filed with the Securities and Exchange Commission on April
14, 1999) dated February 17, 1999, by, between and among the Company, IHI and
certain shareholders of IHI, and the transactions contemplated thereby;
-21-
(b) The shareholders approved an amendment to the Company's Articles
of Incorporation changing its name to Information-Highway.com, Inc.;
(c) The shareholders elected John G. Robertson, Jennifer Lorette and
James L. Vandeberg directors of the Company, effective upon the closing of the
Reorganization Agreement.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits.
Exhibit No. Description Page No.
- ----------------- ------------------------------------- ---------------
2.1* Agreement and Plan of Reorganization
between the Company and Information
Highway, Inc.
4.1* Specimen Share Certificate for Common
Stock
4.2* Form of Warrants
4.3* Stock Option Plan
4.4* Form of Stock Option Agreement
27.1 Financial Data Schedule
* Incorporated by reference from the Company's registration statement on
Form 10-SB filed with the Securities and Exchange Commission on April 14, 1999.
-22-
Signatures
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: September 9, 1999 INFORMATION-HIGHWAY.COM, INC
By: /s/ John G. Robertson
-----------------------------------------------
John G. Robertson, President (Principal
Executive Officer)
-23-
EXHIBIT INDEX
Exhibit No. Description Page No.
- -------------------- ------------------------------------ -----------------
2.1* Agreement and Plan of Reorganization
between the Company and
Information Highway, Inc.
4.1* Specimen Share Certificate for
Common Stock
4.2* Form of Warrants
4.3* Stock Option Plan
4.4* Form of Stock Option Agreement
27.1 Financial Data Schedule
* Incorporated by reference from the Company's registration statement on
Form 10-SB filed with the Securities and Exchange Commission on April 14, 1999.