November 3, 2006
Derek Swanson, Esq.
Securities and Exchange Commission
100 F Street, NE
Washington D.C. 20549
Re: BestNet Communications Corp.
Commission File No. 0-15482
Information Statement on Form 14C
Dear Mr. Swanson:
On behalf of BestNet Communications Corp. (the "Company"), we respond
as follows to the verbal comments made by you on November 1, 2006 to the
undersigned, in connection with the above-captioned matter.
1. Plans for Private Placement. In response to your request for more
detailed information about Company's financing plans, to the extent they are
available, the Company now proposes to insert the following additional language
at the end of the second paragraph under the heading, "Background for
Amendment":
"The Company is in the process of effecting a private placement of securities.
The securities proposed to be offered would be short-term debt, convertible into
common stock at an as yet undetermined price, subject to the approval of the
Amendment for the issuance of additional shares of Common Stock and other
conditions yet to be determined. The proceeds from the private placement would
be used to fund operations of the Company, including those of its newly acquired
subsidiary, Oncologix Corporation. The Amendment is necessary to fulfill the
Company's obligation to investors in that placement and to provide shares for
issuance in possible future transactions involving equity financing,
acquisitions, employee compensation, and the like."
2. Compliance with Proxy Solicitation Rules. We state the following
facts as relevant under the Supreme Court doctrine that the securities laws are
to be interpreted in accordance with economic reality.
Economic Reality
As disclosed in its 1934 Act Reports, the Company has never achieved
positive cash flow from its telephone business which until recently was its only
business. Rather, it is now and has always been dependent on financing from the
sale of common stock or securities convertible into common stock.
After a number of steps failed to improve that situation, the
Company's Board of Directors determined to change the Company's direction. The
Company then acquired the assets of a medical device company in a transaction
that was the subject of a Current Report on Form 8-K heretofore filed with the
Commission. The Board of Directors also determined that it was in the best
interests of the Company and its shareholders to issue a substantial amount of
common stock to the former owners of the acquired company; an amount nearly
equal to the number of shares theretofore outstanding. It was recognized that
the feasibility of further financing would be dependent on shareholder action to
increase the number of authorized shares.
In view of the Company's continuous cash-short position, however, it
was deemed undesirable to incur the expense of a shareholder meeting. Since the
"insiders" held approximately 45% of the outstanding voting stock, and because
it was believed that the additional shares required to constitute a majority
were held by a small number of shareholders, it was determined to act by the
written consent of the holders of a majority of the outstanding shares as
authorized by the laws of Nevada, where the Company is domiciled. Indeed, a
preliminary review indicated that more than enough shares were held in
approximately 15 accounts.
A closer examination now reveals that the approximately 5.1% of
additional shares needed for the necessary majority are held by what may be
considered as two distinct categories of shareholders, both closely related to
one of the Company's Directors, who is also one of its significant investors,
Mr. Anthony Silverman.
The first category actually consists of one person holding
approximately 3.4% of the common stock, an experienced lawyer and long time
friend of Mr. Silverman who has participated with him in many investment
ventures. The second category consists of family members, holding approximately
1.9% of the common stock; (i) the former spouse of Mr. Silverman, also a lawyer
and familiar with this type investment through her relationship with Mr.
Silverman and her son (see below), and (ii) his two daughters and two
grandchildren, whose holdings were the indirect result of gifts from Mr.
Silverman. Furthermore, the power to vote their shares, except for the holdings
of one of his adult daughters, is held by a Mr. Silverman's son, who is an
experienced securities broker.
To the extent that the "consents" might seem to be proxies under the
meaning of Section 14A of the Securities Exchange Act of 1934, as amended, we
note that no "solicitation" was necessary with respect to either category. It
was widely known after the issuance of the shares to the former owners of the
acquired company, that the number of the Company's authorized shares would be
insufficient for the future financings and/or acquisitions. Merely discussing
the situation to several of the long term shareholders elicited from them the
obvious suggestion that the number of authorized shares be increased and that
they would be eager to assist the Company in any manner they could. It took no
persuasion for them to understand that the very existence of the Company depends
on the taking of this action. Under these circumstances, the preparation of the
consent amounted to no more than a ministerial act. The furnishing of the
consents to these shareholders was done at the unsolicited request of such
shareholders and under section (i) of the definition of "solicitation" in Rule
14a-1, not within the meaning of "solicit" or "solicitation". There is nothing
subtle in the consent and nothing that favors or disfavors or affects any
particular shareholder or shareholders in any way different from its affect on
all of the shareholders.
Remedial Action
The pending matter has brought to light the fact that Mr. Silverman
has certain relationships with other shareholders that, while not previously
appreciated by the Company or Mr. Silverman, should arguably be disclosed. We
undertake, on behalf of the Company, to disclose those familial relationships in
a footnote in the Shares held by Principal Shareholders and Management table in
the Company's future filings, including the Information Statement and upcoming
Annual Report, with the understanding, however, that the family members do not
constitute a "Group".
Furthermore, the Company will discard as null and void any consent
obtained from any of the other 9 shareholders not included in one of the two
categories mentioned above.
Conclusion
We submit that in view of the particular facts stated above, preparing
a proxy statement for delivery to the consenting shareholders would, as a matter
of economic reality, be a superfluous act and a needless expenditure of time,
effort and money.
Please do not hesitate to contact me or Stephen T. Meadow if you have
any further questions.
Very truly yours,
FIRETAG, STOSS & DOWDELL, P.C.
/s/ JOHN L. STOSS
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JOHN L. STOSS