TROPHY RESOURCES INC. - SB-2/A - 20000421 - DISTRIBUTION_PLAN
PLAN OF DISTRIBUTION
The shares covered by this prospectus may be distributed from time to
time by the selling securityholders in one or more transactions that may take
place on the over-the-counter market. These include ordinary broker's
transactions, privately-negotiated transactions or through sales to one or more
broker-dealers for resale of these shares as principals, at market prices
existing at the time of sale, at prices related to existing market prices,
through Rule 144 transactions or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the selling
securityholders in connection with sales of securities.
The selling securityholders may sell the securities in one or more of
the following methods:
28
o a block trade in which a broker or dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principals to facilitate the transaction;
o purchasers by a broker or dealer as principal and resale by
the broker or dealer for its account under this prospectus;
o ordinary brokerage transactions and transactions which the
broker solicits purchases, and
o face-to-face transactions between sellers and purchasers
without a broker-dealer.
In making sales, brokers or dealers used by the selling securityholders
may arrange for other brokers or dealers to participate. The selling
securityholders and others through whom such securities are sold may be
"underwriters" within the meaning of the Securities Act for the securities
offered, and any profits realized or commission received may be considered
underwriting compensation.
At the time a particular offer of the securities is made by or on
behalf of a selling securityholder, to the extent required, a prospectus is to
delivered. The prospectus will include the number of shares of common stock
being offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, the purchase price paid by any underwriter for
the shares of common stock purchased from the selling securityholder, and any
discounts, commissions or concessions allowed or reallowed or paid to dealers,
and the proposed selling price to the public.
We have told the selling securityholders that the anti-manipulative
rules under the Securities Exchange Act of 1934, including Regulation M, may
apply to their sales in the market. We have provided each of the selling
securityholders with a copy of these rules. We have also told the selling
securityholders of the need for delivery of copies of this prospectus in
connection with any sale of securities that are registered by this prospectus.
Sales of securities by us and the selling securityholders or even the
potential of these sales may have a negative effect on the market price for
shares of our common stock.
SHARES ELIGIBLE FOR FUTURE SALE
On the date of this prospectus, we have 40,759,430 shares of common
stock issued and outstanding. Of those shares, 13,307,430 shares, including the
9,015,000 shares covered by this prospectus, are freely tradeable without
restriction or further registration under the Securities Act, except for any
shares purchased by an affiliate of ours. These amounts do not include shares
that may be issued upon exercise of options or conversion of promissory notes.
29
The remaining 33,452,000 shares of common stock currently outstanding
are restricted securities, and will become eligible for public sale at various
times, provided the requirements of Rule 144 are complied with. In general, Rule
144 permits a shareholder who has owned restricted shares for at least one year,
to sell without registration, within a three month period, up to one percent of
our then outstanding common stock. We must be current in our reporting
obligations in order for a shareholder to sell shares under Rule 144. In
addition, shareholders other than our officers, directors or 5% or greater
shareholders who have owned their shares for at least two years, may sell them
without volume limitation or the need for our reports to be current.
We cannot predict the effect, if any, that market sales of common stock
or the availability of these shares for sale will have on the market price of
our shares from time to time. Nevertheless, the possibility that substantial
amounts of common stock may be sold in the public market could negatively damage
affect market prices for the common stock and could damage our ability to raise
capital through the sale of our equity securities.
LEGAL MATTERS
The validity of the securities offered by this prospectus will be
passed upon for us by Atlas Pearlman, P.A., 350 East Las Olas Boulevard, Suite
1700, Fort Lauderdale, FL 33301, Florida. Affiliates of that firm own an
aggregate of 100,000 shares of our common stock.
EXPERTS
The consolidated financial statements as of July 31, 1999 and July 31,
1998, and for each of the two years in the period ended July 31, 1999, appearing
in this prospectus and registration statement have been audited by Morgan &
Company, independent auditors, as set forth in their report thereon appearing
elsewhere in this prospectus, and are included in reliance upon this report
given on the authority of Morgan & Company as experts in auditing and
accounting.
ADDITIONAL INFORMATION
We have filed with the SEC the registration statement on Form SB-2
under the Securities Act for the common stock offered by this prospectus. This
prospectus, which is a part of the registration statement, does not contain all
of the information in the registration statement and the exhibits filed with it,
portions of which have been omitted as permitted by SEC rules and regulations.
For further information concerning us and the securities offered by this
prospectus, we refer to the registration statement and to the exhibits filed
with it. Statements contained in this prospectus as to the content of any
contract or other document referred to are not necessarily complete. In each
instance, we refer you to the copy of the contracts and/or other documents filed
as exhibits to the registration statement, and these statements are qualified in
their entirety by reference to the contract or document.
The registration statement, including all exhibits, may be inspected
without charge at the SEC's Public Reference Room at 450 Fifth Street, N.W.
Washington, D.C. 20549, and at the SEC's regional offices located at Seven World
Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of these materials
may also be obtained from the SEC's Public Reference at 450 Fifth Street, N.W.,
Room 1024, Washington D.C. 20549, upon the payment of prescribed fees. You may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1- 800-SEC-0330.
The registration statement, including all exhibits and schedules and
amendments, has been filed with the SEC through the Electronic Data Gathering,
Analysis and Retrieval system, and are publicly available through the SEC's Web
site located at http://www.sec.gov. Following the effective date of the
registration statement relating to this prospectus, we will become subject to
the reporting requirements of the Exchange Act and in accordance with these
requirements, will file quarterly and annual financial reports and other
information with the SEC.
30
PHON-NET.COM, INC.
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000
(Stated in U.S. Dollars)
PHON-NET.COM, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Stated in U.S. Dollars)
------------------------------------------------------------------------------------------------------------------------------------
JANUARY 31 JULY 31
2000 1999
------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current
Cash $ 341,066 $ 203,161
Accounts and advances receivable 6,483 13,829
Prepaid expenses 964,423 --
Deferred compensation 55,000 --
----------- -----------
1,366,972 216,990
Capital Assets 79,101 96,297
Intangibles 806,827 1,100,134
----------- -----------
$ 2,252,900 $ 1,413,421
====================================================================================================================================
LIABILITIES
Current
Accounts payable and accrued liabilities $ 100,894 $ 146,376
Due to related parties 24,441 66,031
Notes payable 36,954 35,486
----------- -----------
162,289 247,893
Convertible Notes 600,250 --
----------- -----------
762,539 247,893
----------- -----------
STOCKHOLDERS' EQUITY
Capital Stock
Authorized:
80,000,000 common shares, par value $0.001
10,000,000 preferred shares, par value $0.01
Issued and outstanding
39,327,430 common shares at January 31, 2000, and 36,027,430
common shares at July 31, 1999 1,139,890 1,136,690
Additional paid in capital 9,876,695 6,892,470
Deficit (9,514,479) (6,864,645)
Cumulative Translation Adjustment (11,745) 1,013
----------- -----------
1,490,361 1,165,528
----------- -----------
$ 2,252,900 $ 1,413,421
====================================================================================================================================
PHON-NET.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Stated in U.S. Dollars)
------------------------------------------------------------------------------------------------------------------------------------
INCEPTION
SIX MONTHS ENDED MARCH 19, 1996
JANUARY 31 TO JANUARY 31
2000 1999 2000
------------------------------------------------------------------------------------------------------------------------------------
Revenue $ 1,771 $ 28,856 $ 443,260
------------ ------------ ------------
Expenses
Advertising and promotion 49,812 11,954 439,502
Amortization of intangibles 171,140 8,140 218,550
Amortization of capital assets 32,606 40,681 190,331
Bank charges and interest 205,622 4,561 546,207
Office and sundry 16,972 15,307 187,482
Professional fees 84,805 5,668 223,226
Rent and utilities 12,908 15,759 97,501
Software support 66,000 -- --
Telephone 12,535 27,062 252,565
Transfer agent and filing fees 4,000 -- 10,500
Travel 24,464 4,607 151,376
Salaries and benefits 1,810,074 199,778 7,240,486
------------ ------------ ------------
2,490,938 333,517 9,557,726
------------ ------------ ------------
2,489,167 304,661 9,114,466
Loss Before The Following
Forgiveness of debt -- -- (230,961)
Write-down of investments -- -- 99,028
------------ ------------ ------------
Net Loss For The Period 2,489,167 304,661 $ 8,982,533
============
Deficit, Beginning Of Period 7,025,312 989,154
------------ ------------
Deficit, End Of Period $ 9,514,479 $ 1,293,815
==========================================================================================================
Loss Per Share $ (0.07) $ (0.03)
==========================================================================================================
Weighted Average Number Of Shares
Outstanding 36,294,096 9,422,000
==========================================================================================================
PHON-NET.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOW
(Stated in U.S. Dollars)
------------------------------------------------------------------------------------------------------------------------------------
INCEPTION
SIX MONTHS ENDED MARCH 19, 1996
JANUARY 31 TO JANUARY 31
2000 1999 2000
------------------------------------------------------------------------------------------------------------------------------------
Cash Flow From Operating Activities
Loss for the period $(2,489,167) $ (304,661) $(7,386,464)
----------- ----------- -----------
Adjustments To Reconcile Loss To Net Cash Used By Operating Activities
Stock issued for other than cash 1,931,359 -- 5,310,857
Amortization 203,746 48,821 451,048
Write-down of investments -- -- 99,028
Forgiveness of debt -- -- (230,961)
Change in accounts and advances receivable 7,346 (2,979) (6,483)
Change in due from related parties -- 29,932 --
Change in prepaid expenses (1,857) 5,566 (1,857)
Change in accounts payable and accrued liabilities (45,482) 56,084 91,518
Change in due to related parties (41,590) 38,347 24,441
----------- ----------- -----------
Total Adjustments 2,053,522 175,771 5,737,591
----------- ----------- -----------
Net Cash Used In Operating Activities (435,645) (128,890) (1,648,873)
----------- ----------- -----------
Cash Flow From Investing Activities
Capital assets (15,410) (1,350) (277,574)
Intangibles -- -- (81,404)
Excess of purchase price over net assets of subsidiaries acquired -- -- (253,278)
Investments -- -- (160,068)
Proceeds on sale of investments -- -- 61,040
----------- ----------- -----------
Net Cash Used In Investing Activities (15,410) (1,350) (711,284)
----------- ----------- -----------
Cash Flow From Financing Activities
Common stock issued -- 84,365 1,265,723
Stock issue costs -- -- (157,920)
Notes receivable -- -- 737,000
Convertible notes 600,250 -- 600,250
Notes payable 1,468 -- 267,915
----------- ----------- -----------
Net Cash From Financing Activities 601,718 84,365 2,712,968
----------- ----------- -----------
Effect Of Exchange Rate Changes On Cash (12,758) 2,890 (11,745)
----------- ----------- -----------
Net Increase (Decrease) In Cash 137,905 (42,985) 341,066
Cash, Beginning Of Period 203,161 43,039 --
----------- ----------- -----------
Cash, End Of Period $ 341,066 $ 54 $ 341,066
====================================================================================================================================
PHON-NET.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Stated in U.S. Dollars)
Common Stock
-----------------------------------------
Number Additional
Of Paid-In
Shares Amount Capital
-----------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1998 9,422,000 $ 1,033,358 $ --
Issuance Of Common Stock 578,000 77,365 --
--------------------------------------------
10,000,000 1,110,723 --
Consolidation Of Stock 1 For 2 Basis (5,000,000) -- --
--------------------------------------------
5,000,000 1,110,723 --
Adjustment To Number Of Shares Issued And
Outstanding As A Result Of The Reverse Take-Over
Transaction
Piedmont Technologies Inc. (5,000,000) -- --
Phon-net Corp. 7,000,000 -- --
--------------------------------------------
7,000,000 -- --
Ascribed Value Of The Shares Issued In Connection
With The Acquisition Of Piedmont Technologies Inc. 5,000,000 5,000 2,000
--------------------------------------------
12,000,000 1,115,723 2,000
Adjustment To Number Of Shares Issued And Outstanding
As A Result Of The Reverse Take-Over Transaction
Phon-net Corp. (12,000,000) -- --
Phon-net.com, Inc. 3,650,000 -- --
--------------------------------------------
3,650,000 1,115,723 2,000
Ascribed Value Of The Shares Issued In Connection
With The Acquisition Of Phon-net Corp. 11,410,000 -- --
--------------------------------------------
15,060,000 1,115,723 2,000
[RESTUBBED TABLE]
Cumulative
Translation Accumulated
Adjustment Deficit Total
-----------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1998 $ 3,962 $ (989,154) $ 48,166
Issuance Of Common Stock -- -- 77,365
-------------------------------------------
3,962 (989,154) 125,531
Consolidation Of Stock 1 For 2 Basis -- -- --
-------------------------------------------
3,962 (989,154) 125,531
Adjustment To Number Of Shares Issued And
Outstanding As A Result Of The Reverse Take-Over
Transaction
Piedmont Technologies Inc. -- -- --
Phon-net Corp. -- -- --
-------------------------------------------
-- -- 125,531
Ascribed Value Of The Shares Issued In Connection
With The Acquisition
Of Piedmont Technologies Inc. -- -- 7,000
-------------------------------------------
3,962 (989,154) 132,531
Adjustment To Number Of Shares Issued And Outstanding
As A Result Of The Reverse Take-Over Transaction
Phon-net Corp. -- -- --
Phon-net.com, Inc. -- -- --
-------------------------------------------
3,962 (989,154) 132,531
Ascribed Value Of The Shares Issued In Connection
With The Acquisition Of Phon-net Corp. -- -- --
-------------------------------------------
3,962 (989,154) 132,531
PHON-NET.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Stated in U.S. Dollars)
Common Stock
----------------------------------------
Number Additional Cumulative
Of Paid-In Translation Accumulated
Shares Amount Capital Adjustment Deficit Total
-------------------------------------------------------------------------------------------------------------------------------
Balance Carried Forward 15,060,000 1,115,723 2,000 3,962 (989,154) 132,531
Issuance Of Common Stock
For cash 460,000 460 154,540 -- -- 155,000
For services 1,715,000 1,715 480,285 -- -- 482,000
For technology 3,000,000 2,643 975,357 -- -- 978,000
For compensation expense 13,085,000 13,085 4,470,915 -- -- 4,484,000
For conversion of promissory notes 2,707,430 2,707 1,050,150 -- -- 1,052,857
For deferred compensation -- 357 131,643 -- -- 132,000
Stock Issue Costs -- -- (212,920) -- -- (212,920)
Translation Adjustment -- -- -- (2,949) -- (2,949)
Loss For The Year -- -- -- -- (6,036,158) (6,036,158)
------------------------------------------------------------------------------------
Balance, July 31, 1999 36,027,430 1,136,690 7,051,970 1,013 (7,025,312) 1,164,361
Issuance Of Common Stock
For compensation expense 3,200,000 3,200 1,660,800 -- -- 1,664,000
For interest on convertible notes -- -- 1,163,925 -- -- 1,163,925
Loss For The Period -- -- -- -- (2,489,167) (2,489,167)
Translation Adjustment -- -- -- (12,758) -- (12,758)
------------------------------------------------------------------------------------
Balance, January 31, 2000 39,227,430 $ 1,139,890 $ 9,876,695 $ (11,745) $(9,514,479) $ 1,490,361
==============================================================================================================================
PHON-NET.COM, INC.
(A Development Stage Company)
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000
(Stated In U.S. Dollars)
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements as of January 31, 2000
included herein have been prepared without audit pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with United States generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
It is suggested that these consolidated financial statements be read in
conjunction with the July 31, 1999 audited consolidated financial
statements and notes thereto.
PHON-NET.COM, INC.
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998
(Stated in U.S. Dollars)
INDEPENDENT AUDITORS' REPORT
To the Directors
Phon-net.com, Inc.
(a development stage company)
We have audited the consolidated balance sheets of Phon-net.com, Inc. (a
development stage company) as at July 31, 1999 and 1998, and the consolidated
statements of operations and deficit, cash flows, and stockholders' equity for
the years ended July 31, 1999, 1998, and 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audits in accordance with United States and Canadian generally
accepted auditing standards. Those standards require that we plan and perform an
audit to obtain reasonable assurance 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
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at July 31, 1999 and
1998 and the results of its operations and its cash flows for the years ended
July 31, 1999, 1998, and 1997 in accordance with United States generally
accepted accounting principles.
Without qualifying our opinion we draw attention to Note 1 to the consolidated
financial statements. The Company incurred a net loss of $6,036,158 during the
year ended July 31, 1999, and as at that date, has not attained profitable
operations and is dependent upon obtaining adequate financing to fulfil its
development activities. These factors raise substantial doubt that the Company
will be able to continue as a going concern.
Vancouver, Canada
November 1, 1999, except for Note 12 /s/ Morgan & Company
which is as of April 7, 2000 Chartered Accountants
Comments by Auditors on United States - Canada Difference
In Canada, reporting standards for auditors do not permit the addition of an
explanatory paragraph when the financial statements account for, disclose and
present in accordance with generally accepted accounting principles conditions
and events that cast substantial doubt on the Company's ability to continue as a
going concern. Although our audit was conducted in accordance with both United
States and Canadian generally accepted auditing standards, our report to the
shareholders dated November 1, 1999 is expressed in accordance with United
States reporting standards which require a reference to such conditions and
events in the auditors' report.
Vancouver, Canada
November 1, 1999, except for Note 12 /s/ Morgan & Company
which is as of April 7, 2000 Chartered Accountants
PHON-NET.COM, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Stated in U.S. Dollars)
------------------------------------------------------------------------------------------------------------------------------------
JULY 31
1999 1998
------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current
Cash $ 203,161 $ 43,039
Accounts and advances receivable 13,829 4,943
Due from related parties -- 29,932
Prepaid expenses -- 7,950
Deferred compensation 121,000 --
------------------------------------
216,990 85,864
Capital Assets (Note 4) 96,297 160,725
Intangibles (Note 5) 977,967 43,415
------------------------------------
$ 1,412,254 $ 290,004
===================================================================================================================================
LIABILITIES
Current
Accounts payable and accrued liabilities $ 146,376 $ 179,694
Due to related parties 66,031 26,658
Current portion of notes payable (Note 6) 35,486 --
------------------------------------
247,893 206,352
Notes Payable (Note 6) -- 35,486
------------------------------------
247,893 241,838
------------------------------------
STOCKHOLDERS' EQUITY Capital Stock (Note 7)
Authorized:
80,000,000 common shares, par value $0.001
10,000,000 preferred shares, par value $0.01
Issued and outstanding
36,027,430 common shares at July 31, 1999 and
9,422,0000 common shares at July 31, 1998 1,136,690 1,033,358
Additional paid in capital 7,051,970 --
Deficit (7,025,312) (989,154)
Cumulative Translation Adjustment 1,013 3,962
------------------------------------
1,164,361 48,166
------------------------------------
$ 1,412,254 $ 290,004
===================================================================================================================================
PHON-NET.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Stated in U.S. Dollars)
------------------------------------------------------------------------------------------------------------------------------------
INCEPTION
MARCH 19, 1996
YEAR ENDED JULY 31 TO JULY 31
1999 1998 1997 1999
------------------------------------------------------------------------------------------------------------------------------------
Revenue $ 43,867 $ 120,904 $ 249,239 $ 441,489
----------- ----------- ----------- -----------
Expenses
Advertising and promotion 506,329 28,777 10,426 389,690
Amortization of intangibles 43,448 16,281 16,281 91,270
Amortization of capital assets 80,041 54,295 21,111 165,865
Bank charges and interest 334,354 2,544 3,687 340,585
Office and sundry 55,295 84,351 28,243 170,510
Professional fees 87,015 8,532 18,272 138,421
Rent and utilities 34,439 31,292 15,066 84,593
Software support 11,000 -- -- --
Telephone 52,130 85,662 77,428 240,030
Transfer agent and filing fees 6,500 -- -- 6,500
Travel 18,608 88,319 15,997 126,912
Salaries and benefits 4,850,866 308,936 230,250 5,430,411
---------------------------------------------------------------
6,080,025 708,989 436,761 7,184,787
---------------------------------------------------------------
Loss Before The Following 6,036,158 588,085 187,522 6,743,298
Forgiveness of debt -- -- (230,961) (230,961)
Write-down of investments -- -- 99,028 99,028
---------------------------------------------------------------
Net Loss For The Year 6,036,158 588,085 55,589 $ 6,611,365
===========
Accumulated Deficit, Beginning of Year 989,154 401,069 345,480
---------------------------------------------
Accumulated Deficit, End of Year $ 7,025,312 $ 989,154 $ 401,069
=================================================================================================================
Loss Per Share $ 0.36 $ 0.06 $ 0.01
=================================================================================================================
Weighted Average Number Of Shares Outstanding 16,923,300 9,422,000 9,422,000
=================================================================================================================
PHON-NET.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOW
(Stated in U.S. Dollars)
------------------------------------------------------------------------------------------------------------------------------------
INCEPTION
MARCH 19, 1996
YEAR ENDED JULY 31 TO JULY 31
1999 1998 1997 1999
------------------------------------------------------------------------------------------------------------------------------------
Cash Flow From Operating Activities
Loss for the year $(6,036,158) $ (588,085) $ (55,589) $(6,772,032)
--------------------------------------------------------------
Adjustments To Reconcile Loss To Net Cash Used By
Operating Activities
Stock issued for other than cash 5,244,857 -- -- 5,244,857
Amortization 123,489 70,576 37,392 247,302
Write-down of investments -- -- 99,028 99,028
Forgiveness of debt -- -- (230,961) (230,961)
Change in accounts and advances receivable (8,886) (3,826) 3,456 (13,829)
Change in due from related parties 29,932 (4,427) (10,906) --
Change in prepaid expenses 7,950 (7,950) -- --
Change in accounts payable and accrued liabilities (33,318) 112,421 (373) 146,376
Change in due to related parties 39,373 15,938 (78) 66,031
--------------------------------------------------------------
Total Adjustments 5,403,397 182,732 (102,442) 5,558,808
--------------------------------------------------------------
Net Cash Used In Operating Activities (632,761) (405,353) (158,031) (1,213,228)
--------------------------------------------------------------
Cash Flow From Investing Activities
Capital assets (15,613) (174,225) (167) (262,164)
Intangibles -- -- -- (81,404)
Excess of purchase price over net assets of
subsidiaries acquired -- -- -- (253,278)
Investments -- -- -- (160,068)
Proceeds on sale of investments -- -- 61,040 61,040
--------------------------------------------------------------
Net Cash Used In Investing Activities (15,613) (174,225) 60,873 (695,874)
--------------------------------------------------------------
Cash Flow From Financing Activities
Common stock issued 232,365 618,259 78,103 1,265,723
Stock issue costs (157,920) -- -- (157,920)
Notes receivable 737,000 -- -- 737,000
Notes payable -- (3,343) (283) 266,447
--------------------------------------------------------------
Net Cash From Financing Activities 811,445 614,916 77,820 2,111,250
--------------------------------------------------------------
Effect Of Exchange Rate Changes On Cash (2,949) 987 532 1,013
--------------------------------------------------------------
Net Increase (Decrease) In Cash 160,122 36,325 (18,806) 203,161
Cash, Beginning Of Year 43,039 6,714 25,520 --
--------------------------------------------------------------
Cash, End Of Year $ 203,161 $ 43,039 $ 6,714 $ 203,161
====================================================================================================================================
PHON-NET.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOW
(Stated in U.S. Dollars)
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES
Effective October 5, 1998, the Company acquired 100% of the issued and
outstanding shares of Phon-net Corp. by issuing 11,410,000 common shares at an
ascribed value of $Nil.
The Company issued 8,085,000 common shares at an ascribed value of $3,234,000 to
a director for accomplishing certain development goals, and issued 5,000,000
common shares to the same director at an ascribed value of $1,250,000 pursuant
to an employment agreement commencing July 1, 1999.
The Company issued 3,000,000 common shares at an ascribed value of $1,110,000
for the acquisition of technology at an ascribed value of $978,000, and for
deferred compensation expense of $132,000.
The Company issued 1,715,000 common shares for advertising, promotion services,
stock issue costs and for legal services at an ascribed value of $509,000.
The Company issued 2,707,430 common shares on the conversion of promissory notes
totalling $737,000 (Note 7a).
PHON-NET.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Stated in U.S. Dollars)
Common Stock
---------------------------------------------------
Additional
Number Paid-in
of Shares Amount Capital
--------------- ------------------ ----------------
Balance, August 1, 1996 2,308,580 $ 336,996 $ --
Issuance of common stock 5,147,096 78,103 --
Translation adjustment -- -- --
Loss for the year -- -- --
---------------------------------------------------
Balance, July 31, 1997 7,455,676 415,099 --
Issuance of common stock 1,966,324 618,259 --
Translation adjustment -- -- --
Loss for the year -- -- --
---------------------------------------------------
Balance, July 31, 1998 9,422,000 1,033,358 --
Issuance of common stock 578,000 77,365 --
---------------------------------------------------
10,000,000 1,110,723 --
Consolidation of stock on 1 for 2 basis (5,000,000) -- --
---------------------------------------------------
5,000,000 1,110,723 --
Adjustment to number of shares issued and outstanding
as a result of the reverse take-over transaction
Piedmont Technologies Inc. (5,000,000) -- --
Phon-net Corp. 7,000,000 -- --
---------------------------------------------------
7,000,000 -- --
Ascribed value of the shares issued in connection with the acquisition
of Piedmont Technologies Inc. 5,000,000 5,000 2,000
---------------------------------------------------
12,000,000 1,115,723 2,000
[RESTUBBED TABLE]
Cumulative
Translation Accumulated
Adjustment Deficit Total
----------------- ------------------- --------------
Balance, August 1, 1996 $ 2,443 $ (345,480) $ (6,041)
Issuance of common stock -- -- 78,103
Translation adjustment 532 -- 532
Loss for the year -- (55,589) (55,589)
-----------------------------------------------------
Balance, July 31, 1997 2,975 (401,069) 17,005
Issuance of common stock -- -- 618,259
Translation adjustment 987 -- 987
Loss for the year -- (588,085) (588,085)
-----------------------------------------------------
Balance, July 31, 1998 3,962 (989,154) 48,166
Issuance of common stock -- -- 77,365
-----------------------------------------------------
3,962 (989,154) 125,531
Consolidation of stock on 1 for 2 basis -- -- --
-----------------------------------------------------
3,962 (989,154) 125,531
Adjustment to number of shares issued and outstanding
as a result of the reverse take-over transaction
Piedmont Technologies Inc. -- -- --
Phon-net Corp. -- -- --
-----------------------------------------------------
-- -- 125,531
Ascribed value of the shares issued in connection with the acquisition
of Piedmont Technologies Inc. -- -- 7,000
-----------------------------------------------------
3,962 (989,154) 132,531
PHON-NET.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Stated in U.S. Dollars)
Common Stock
-------------------------------------------
Additional
Number Paid-in
of Shares Amount Capital
--------------------------------------------
Balances carried forward 12,000,000 1,115,723 2,000
Adjustment to number of shares issued and outstanding as a result of
the reverse take-over transaction
Phon-net Corp. (12,000,000) -- --
Phon-net.com, Inc. 3,650,000 -- --
-------------------------------------------
3,650,000 1,115,723 2,000
Ascribed value of the shares issued in connection with the acquisition
of Phon-net Corp. 11,410,000 -- --
--------------------------------------------
15,060,000 1,115,723 2,000
Issuance of common stock
for cash 460,000 460 154,540
for services 1,715,000 1,715 480,285
for technology 2,643,244 2,643 975,357
for compensation expense 13,085,000 13,085 4,470,915
on conversion of promissory notes 2,707,430 2,707 1,050,150
for deferred compensation expense 356,756 357 131,643
Stock issue costs -- -- (212,920)
Translation adjustment -- -- --
Loss for the year -- -- --
--------------------------------------------
Balance July 31, 1999 36,027,430 $1,136,690 $7,051,970
============================================
[RESTUBBED TABLE]
Cumulative
Translation Accumulated
Adjustment Deficit Total
---------------------------------------------------
Balances carried forward 3,962 (989,154) 132,531
Adjustment to number of shares issued and outstanding as a result of
the reverse take-over transaction
Phon-net Corp. -- -- --
Phon-net.com, Inc. -- -- --
-------------------------------------------------
3,962 (989,154) 132,531
Ascribed value of the shares issued in connection with the acquisition
of Phon-net Corp. -- -- --
-------------------------------------------------
3,962 (989,154) 132,531
Issuance of common stock
for cash -- -- 155,000
for services -- -- 482,000
for technology -- -- 978,000
for compensation expense -- -- 4,484,000
on conversion of promissory notes -- -- 1,052,857
for deferred compensation expense -- -- 132,000
Stock issue costs -- -- (212,920)
Translation adjustment (2,949) -- (2,949)
Loss for the year -- (6,036,158) (6,036,158)
-------------------------------------------------
Balance July 31, 1999 $ 1,013 $(7,025,312) $ 1,164,361
=================================================
PHON-NET.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998
(Stated in U.S. Dollars)
1. NATURE OF OPERATIONS
Development Stage Activities
Phon-net. com Inc. was organized to provide consumers with quick and easy
access through any touch tone telephone, cellular/PCS phone, screenphone
and the Internet to instantly access interactive information on area
business and their current product and services, special promotions and
other source information. Phon-net.com, Inc. provides information services
in a published directory format or through telephone information input to
locate a business, product or service, by either a generic category search,
or by entering a specific ad number listed in the Company's director.
Phon-net.com, Inc. is in the development stage; therefore recovery of its
assets is dependent upon future events, the outcome of which is
indeterminable. In addition, successful completion of Phon-net.com, Inc.'s
development program and its transition, ultimately to the attainment of
profitable operations is dependent upon obtaining adequate financing to
fulfil its development activities and achieve a level of sales adequate to
support its cost structure.
Management is of the opinion that sufficient short-term funding will be
obtained and that current negotiations with potential users of its products
will be successful.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Company have been prepared in accordance
with generally accepted accounting principles in the United States. Because
a precise determination of many assets and liabilities is dependent upon
future events, the preparation of financial statements for a period
necessarily involves the use of estimates which have been made using
careful judgement.
The financial statements have, in management's opinion, been properly
prepared within reasonable limits of materiality and within the framework
of the significant accounting policies summarized below:
a) Consolidation
These financial statements include the accounts of the Company and its
wholly-owned subsidiaries, Phon-net Corp., (incorporated in Nevada,
U.S.A.), Piedmont Technologies Inc., The National For Sale Phone
Company Inc., and V NETT Enterprises Inc., all incorporated in Canada.
PHON-NET.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998
(Stated in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
b) Revenue Recognition
The Company's revenue arises from contracts entered into to facilitate
beta-testing of its various products and is recognized over the term of
the contract. The Company's revenues through July 31, 1999 were
generated from contracts relating to its interactive real estate and
professional listing service which was the initial product under
development, as well as the search engine product. No revenue has been
generated to July 31, 1999 from the Direct Connect product. Once
revenue is generated by the Direct Connect or Search Engine products,
the revenue allocated to post contract support will be recognized
rateably over the term of the support and revenue allocated to service
elements will be recognized as the services are performed.
c) Capital Assets
Capital assets are recorded at cost and amortized as follows:
Computer equipment 3 years straight line basis
Computer software 3 years straight line basis
Telephone and equipment 2 and 3 years straight line basis
Leasehold improvements Lease term
d) Intangibles
Intangibles are recorded at cost and amortized as follows:
Goodwill 5 years straight line basis
Technology costs 3 years straight line basis
Management reviews goodwill and technology costs for impairment
whenever events or changes in circumstances indicate that the carrying
amounts may not be recoverable.
e) Capitalized Costs
Costs for developing computer software will be capitalized when
technological feasibility has been established for the computer
software product. Capitalization of computer software costs will be
discontinued when the product is available for general release to
customers and such costs are amortized on a product-by-product basis
over the estimated lives of the products. At each balance sheet date,
the unamortized capitalized costs of a computer software product shall
be compared to the net realizable value of that product. The amount by
which the unamortized capitalized costs of a computer software product
exceed the net realizable value of that asset shall be written off. To
date, the Company has not capitalized any costs related to the
development of computer software.
PHON-NET.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998
(Stated in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
e) Capitalized Costs (Continued)
Purchased computer software, which includes programs used for company
management and software development are capitalized and amortized as
disclosed in the capital assets significant accounting policy note.
f) Income Taxes
The Company has adopted Statement of Financial Accounting Standards No.
109 - "Accounting for Income Taxes" (SFAS 109). This standard requires
the use of an asset and liability approach for financial accounting and
reporting on income taxes. If it is more likely than not that some
portion of all of a deferred tax asset will not be realized, a
valuation allowance is recognized.
g) Foreign Currency Translation
The Company's subsidiary's operations are located in Canada, and its
functional currency is the Canadian dollar. The financial statements of
the subsidiary have been translated using the current method whereby
the assets and liabilities are translated at the year end exchange
rate, capital accounts at the historical exchange rate, and revenues
and expenses at the average exchange rate for the period. Adjustments
arising from the translation of the Company's subsidiary's financial
statements are included as a separate component of shareholders'
equity.
h) Financial Instruments
The Company's financial instruments consist of cash, accounts and
advances receivable, accounts payable, and amounts due to and from
related parties.
Unless otherwise noted, it is management's opinion that this Company is
not exposed to significant interest or credit risks arising from these
financial instruments. The fair value of these financial instruments
approximate their carrying values, unless otherwise noted.
i) Loss Per Share
The loss per share is calculated using the weighted average number of
common shares outstanding during the year. Fully diluted loss per share
is not presented, as the impact of the exercise of options is
anti-dilutive.
PHON-NET.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998
(Stated in U.S. Dollars)
3. ACQUISITION OF SUBSIDIARIES
a) Effective October 5, 1998, Phon-net Corp. acquired 100% of the issued
and outstanding shares of Piedmont Technologies Inc., by issuing
5,000,000 common shares. Effective the same date, Phon-net.com, Inc.
acquired 100% of the issued and outstanding shares of Phon-net Corp.,
by issuing 11,410,000. Since the transactions resulted in the former
shareholders of Piedmont Technologies Inc. owning the majority of the
issued shares of Phon-net,com, Inc., the transactions, which are
referred to as a "reverse take-over", have been treated for accounting
purposes as an acquisition by Piedmont Technologies Inc. of the net
assets and liabilities of Phon-net Corp. and Phon-net.com, Inc. Under
this purchase method of accounting, the results of operations of
Phon-net Corp. and Phon-net.com, Inc. are included in these financial
statements from October 5, 1998.
Piedmont Technologies Inc. is deemed to be the purchaser for
accounting purposes. Accordingly, its net assets are included in the
balance sheet at their previously recorded values.
The statements of operations and cash flows consist of the operations
of Phon-net Corp. and Phon-net.com, Inc. from October 5, 1998. Prior
to that date, the operations are those of Piedmont Technologies Inc.
Phon-net Corp. had net assets of $7,000 at the acquisition date while
Phon-net.com, Inc. had net assets of $Nil. As a result, the shares
issued on the acquisition of Phon-net Corp. were issued at an ascribed
value of $7,000, and the shares issued on the acquisition of
Phon-net.com, Inc. were issued at an ascribed value of $Nil. The
reverse acquisition was a reorganization and recapitalization of a
private operating company with a public shell in which no goodwill or
other intangibles were recorded as part of the transaction.
b) i) By an agreement dated March 31, 1996, Piedmont Technologies
Inc. acquired 100% of the issued and outstanding shares of The
National For Sale Phone Company Inc., by issuing 1,324,180 common
shares at a value of $0.12 per share. Of the shares outstanding,
84% were held by two directors of Piedmont Technologies Inc.
The acquisition was accounted for using the purchase method with
the results of operations included in these financial statements
from the date of acquisition. The purchase price has been
allocated as follows:
Working capital (deficiency) $ (147,167)
Capital assets 72,688
Non-current liabilities assumed (6,065)
------------
(80,544)
Consideration (158,518)
------------
Excess of purchase price
over net assets acquired
(charged to deficit as the entities
are under common control $ (239,062)
============
PHON-NET.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998
(Stated in U.S. Dollars)
3. ACQUISITION OF SUBSIDIARIES (Continued)
ii) By an agreement dated March 31, 1996, the Company acquired from a
director of Piedmont Technologies, Inc. 100 % of the issued and
outstanding shares of V NETT Enterprises Inc. for cash
consideration of $1.
The acquisition was accounted for using the purchase method. The
purchase price has been allocated as follows:
Working capital (deficiency) $ (14,215)
Consideration --
-----------
Excess of purchase price
over net assets acquired
(charged to deficit as the
entities are under common control $ (14,215)
===========
iii) By an agreement dated March 18, 1996, and as amended July 30,
1997, the Company purchased certain assets from an arms-length
private company for consideration of a note payable of
$272,065.
The purchase price has been allocated as follows:
Investment - in listed company shares $ 161,245
Advance receivable from The National For Sale Phone Company Ltd. 29,416
Goodwill, representing the right to purchase the issued and
outstanding shares of The National For Sale Phone Company Ltd. 81,404
---------
$ 272,065
=========
On September 13, 1996, certain subscribers advanced $272,065 to
Piedmont Technologies Inc. for the purchase of 1,480,000 common
shares at a price of $0.18 per share. The Company did not accept
the subscriptions and did not issue shares to the subscribers. By
an agreement dated July 30, 1997, for consideration of the
issuance of promissory notes in the amount of $41,104, the
subscribers released and forgave the Company from the issue of any
shares subscribed for.
PHON-NET.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998
(Stated in U.S. Dollars)
4. CAPITAL ASSETS
1999 1998
--------------------------------------------------- ----------
Accumulated Net Book Net Book
Cost Depreciation Value Value
--------------------------------------------------- ----------
Computer equipment $ 72,356 $ 44,961 $ 27,495 $ 34,607
Telephone and equipment 33,571 20,446 13,125 21,864
Computer software 154,620 98,943 55,677 102,411
Leasehold improvements -- -- -- 1,843
---------------------------------------------- --------
$260,547 $164,350 $ 96,297 $160,725
============================================== ========
5. INTANGIBLES
1999 1998
------------------------
Goodwill, at cost $ 81,404 $ 81,404
Technology, at cost 978,000 --
------------------------
1,059,404 81,404
Less: accumulated amortization (81,437) (37,989)
------------------------
$ 977,967 $ 43,415
========================
Goodwill arose on the acquisition of certain assets (Note 3(b) (iii)).
Technology cost was determined as follows:
Consideration paid pursuant to an amended agreement dated June 30, 1999
Number Stated
of Shares Value
Common shares issued at a fair market value of $0.27 per
share 3,000,000 $ 810,000
Fair marke value of the option to purchase 2,000,000
common shares at $0.40 per share to June 30, 2001 (based
on the Black-Scholes model) - 300,000
---------- ---------
3,000,000 1,110,000
Less: portion of the consideration attributable to deferred
compensation expense 356,756 132,000
--------- --------
2,643,244 $ 978,000
========== =========
6. NOTES PAYABLE
1999 1998
-------------------------
Unsecured and due August 31, 1999, with interest at 5% p.a. $ 35,486 $ 35,486
=========================
PHON-NET.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998
(Stated in U.S. Dollars)
7. CAPITAL STOCK
a) During the year ended July 31, 1999, the Company issued
promissory notes in the amount of $737,000 convertible into
common stock at the lesser of $0.50 per share and 70% of the
market price of the shares. The notes bear interest at a rate of
10% per annum.
An amount of $315,857 has been charged to interest expense
arising from the 30% discount from fair market value of the
shares at the date of issue of the promissory notes.
The Company issued 2,707,430 common shares on conversion of the
promissory notes.
b) On May 29, 1999 the Company adopted a Stock Option Plan that
provides for the granting to employees of stock options designed
to qualify as "incentive stock options" under the Internal
Revenue Code. An option gives the participant the right to
purchase from the company a specified number of shares of common
stock for a specified price during a specified period not
exceeding 10 years. Options become exercisable two years after
date of grant. A total of 3,000,000 shares of common stock have
been reserved for issuance under the Stock Option Plan.
Options issued as follows:
---------------------------------------------------------------------------
Number of Exercise Price Weighted Average Number
Shares Per Share Exercise Price Per Exercisable
Share
---------------------------------------------------------------------------
Outstanding August 1, 1998 0 -- -- 0
Granted 2,200,000 $0.36-0.40 0.39 2,100,000
------------ -------------
Outstanding July 31, 1999 2,200,000 $0.36-0.40 0.39 2,100,000
============ =============
The options outstanding at July 31, 1999 expire May 26, 2009.
The weighted-average grant-date fair value of options granted in 1999
was $0.15. The fair value of the options is estimated using the
Black-Scholes option pricing model with the following assumptions:
dividend yield, Nil percent for all years; expected volatility of 127%;
risk free interest rate of 5.25% ; and expected life of 10 years.
PHON-NET.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998
(Stated in U.S. Dollars)
7. CAPITAL STOCK (Continued)
The Company has elected not to adopt the fair value method of
accounting for employee stock compensation plans as prescribed by
Statement of Financial Accounting Standards (SFAS) No. 123 issued by
the Financial Accounting Standards Board. Instead, as permitted by SFAS
No.123, the Company has elected to continue to apply the intrinsic
value method of accounting prescribed by Accounting Principles Board
Opinion No.25. If the fair value method of accounting under SFAS No.
123 had been followed, net income and earnings per share of the Company
would have been reduced by amortization of the grant-date fair value of
the options over the vesting period.
The pro forma net loss and earnings per share for 1999, 1998 and 1997
as if the fair value method had been used is as follows:
1999 1998 1997
Net loss $ 6,781,648 $ 588,085 $ 55,589
----------- ---------- ----------
Per share: $ 0.40 $ 0.06 $ 0.01
=========== ========== ==========
Under the Stock Option Plan the Company may grant non -qualifying stock
options at an exercisable price of not less than 75% of fair market
value at the date the option is granted. Compensation expense will be
recognized at the date of grant of any non-qualifying options at the
difference between the fair market value and the exercise price. No
non-qualifying stock options are granted as at July 31, 1999.
8. RELATED PARTY TRANSACTIONS
(i) During the year ended July 31, 1999, the Company paid $ 4,662,716
(1998 - $52,926; 1997 - $21,899) to a director for salaries. The
amount paid includes the issue of 5,000,000 common shares of the
Company, at a value of $0.25 per share issued pursuant to an
employment agreement, and 8,085,000 common shares at a value of
$0.40 per share for accomplishing certain development goals.
(ii) Amounts due to and from related parties are to a director of the
Company and to the director of a subsidiary company.
PHON-NET.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998
(Stated in U.S. Dollars)
9. COMMITMENTS
The Company entered into an employment agreement dated July 1, 1999 with a
director for a period of three years at an annual remuneration of $150,000.
In addition, and as an inducement to enter into the employment contract,
the Company has agreed to issue to the director, 5,000,000 common shares.
The employment agreement also grants the director an annual Stock
Appreciation Right ("SAR"), pursuant to which, on (i) February 15, 2000,
the director shall be entitled to receive a sum of money in an amount equal
to four hundred thousand (400,000) times the difference between the "fair
market value" of the Company's common stock at the close of trading on June
30, 1999 and February 1, 2000, (ii) on February 15, 2001, the director
shall be entitled to receive a sum of money in an amount equal to six
hundred thousand (600,000) times the difference between the "fair market
value" of the Company's common stock at the close of trading on February 1,
2000 and February 1, 2001 and (iii) on February 15, 2002, the director
shall be entitled to receive a sum of money in an amount equal to six
hundred thousand (600,000) times the difference between the "fair market
value" of the Company's common stock at the close on February 1, 2001 and
February 1, 2002 (Note 12).
No expense has been accrued at July 31, 1999 as the market price of the
stock at July 31, 1999 is less than the market price at June 30, 1999.
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 entity,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
11. OTHER
During the year the Company changed its name from Phon-net Corporation to
Phon-net.com, Inc.
PHON-NET.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998
(Stated in U.S. Dollars)
12. SUBSEQUENT EVENTS
a) The Company issued 3,200,000 common shares to the president of the
Company at an ascribed value of $1,664,000, and for which the
president relinquished all rights to the stock appreciation rights
referred to in Note 9.
b) On January 6, 1999, the Company entered into an agreement with
Quad-Linq Software, Inc. ("Quad-Linq"), under which Quad-Linq agreed
to develop, maintain, support and upgrade the Company's Direct Connect
software. As consideration, Quad-Linq was to acquire a 49% interest in
the software, and 49% of the net revenues from sales of the software.
Under a June 30, 1999 amendment to the original agreement, Quad-Linq
relinquished its ownership interest in the software, as well as its
percentage of net revenues from sales of the software in
consideration of the issuance of 3,000,000 common shares, and the
granting of options to purchase an additional 2,000,000 common shares
at $0.40 per share to June 30, 2001.
As a result of the subsequent dissolution of Quad-Linq, the Company
entered into an agreement, dated December 3, 1999, with two former
principals of Quad-Linq, who agreed to assume Quad-Linq's obligations
under the June 30, 1999 amended agreement, in consideration of the
assignment of the stock options previously granted to Quad-Linq.
c) By an investor relations agreement dated December 1, 1999, the Company
granted an option to purchase 1,000,000 common shares at a price of
$0.40 per share until July 30, 2000, and 1,000,000 common shares at a
price of $1.00 per share until December 31, 2000. The fair value
consideration for the exercise of these options is $163,397 and
$112,929, respectively. On February 17, 1999, the Company issued
1,000,000 common shares for cash consideration of $400,000 on the
exercise of the initial $0.40 option.
d) By an agreement dated February 2, 2000, the Company contracted to pay
$54,000 for software development and implementation.
e) The Company issued 200,000 common shares at an ascribed value of
$762,000 per share for the termination of an investor relations
contract.
f) Pursuant to an investor relations agreement dated December 3, 1999,
the Company has issued 125,000 common shares at an ascribed value of
$51,250, and granted an option to acquire 100,000 common shares at
$0.40 per share until February 15, 2000, and a further 100,000 common
shares at $0.50 per share until May 15, 2000. The fair value
consideration of these options is $8,365 and $10,140 respectively. On
February 17, 2000, the Company issued 100,000 common shares for cash
consideration of $40,000 on the exercise of the initial option.
g) In accordance with the terms of an employment agreement, the Company's
vice president of technology is to be issued 100,000 common shares on
each of Novermber 1, 1999, 2000 and 2001. The initial 100,000 has been
issued at an ascribed value of $9,375.
h) The Company has issued 7,000 common shares for services at an ascribed
value of $26,670.
i) In December 1999 and January 2000, the Company issued promissory notes
in the amount of $600,250. The notes bear interest at 8% per annum,
are convertible to common shares and non-transferable share purchase
warrants, commencing 120 days from the loan date for a twelve month
period at a price of $0.35 per share. The number of share purchase
warrants on conversion will be half the number of common shares. Each
warrant will entitle the holder to purchase one additional common
share at a price of $0.50 per share for a period of twelve months from
the conversion date.
An amount of $1,163,925 will be charged to interest, arising from the
discount from fair market value of the shares at the date of the issue
of the promissory notes.
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
ANY OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THE INFORMATION SET FORTH HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
TABLE OF CONTENTS
Page
Available Information........................
Prospectus Summary...........................
Risk Factors.................................
Capitalization...............................
Use of Proceeds..............................
Price Range of Common Stock
and Dividend Policy.......................
Forward-Looking Statements...................
Management's Discussion and
Analysis or Plan of Operation.............
Business.....................................
Management...................................
Executive Compensation.......................
Certain Transactions.........................
Principal Shareholders.......................
Description of Securities....................
Selling Securityholders......................
Plan of Distribution ........................
Shares Eligible for Future Sale..............
Legal Matters................................
Experts......................................
Additional Information.......................
Financial Statements.........................
9,015,000 SHARES
PHON-NET.COM, INC.
PROSPECTUS
________________, 2000
UNTIL _________, 199___ (90 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRI BUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
PART TWO
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Florida Business Corporation Act (the "Corporation Act") permits
the indemnification of directors, employees, officers and agents of Florida
corporations. The Company's Articles of Incorporation (the "Articles") and
Bylaws provide that the Company shall indemnify its directors and officers to
the fullest extent permitted by the Corporation Act.
The provisions of the Corporation Act that authorize indemnification do
not eliminate the duty of care of a director, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Florida law. In addition, each director will continue to
be subject to liability for (a) violations of criminal laws, unless the director
had reasonable cause to believe his conduct was lawful or had no reasonable
cause to believe his conduct was unlawful, (b) deriving an improper personal
benefit from a transaction, (c) voting for or assenting to an unlawful
distribution and (d) willful misconduct or conscious disregard for the best
interests of the Company in a proceeding by or in the right of a shareholder.
The statute does not affect a director's responsibilities under any other law,
such as the Federal securities laws.
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such persons
in their official capacities if such person acted in good faith and in a manner
that he reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
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 foregoing provisions, the Company has been informed that
in the opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses payable by the Company in connection with the
distribution of the securities being registered are as follows:
II-1
SEC Registration and Filing Fee................................................. $ 1,928
Legal Fees and Expenses*........................................................ 35,000
Accounting Fees and Expenses*................................................... 9,500
Financial Printing*............................................................. 3,000
Transfer Agent Fees*............................................................ 1,250
Blue Sky Fees and Expenses*..................................................... 750
Miscellaneous*.................................................................. 2,572
-------
TOTAL................................................................. $54,000
=======
* Estimated
None of the foregoing expenses are being paid by the selling securityholders.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Effective October 5, 1998, Phon-Net Corp., a Nevada corporation,
acquired all of the issued and outstanding shares of Piedmont Technologies, Inc.
and its subsidiaries, The National- For-Sale Phone Company and VNETT Enterprises
Inc., in a reorganization changing the domicile of Piedmont from British
Columbia to Nevada. In connection with the reorganization, Phon-Net Corp. issued
5,000,000 shares of its common stock to the 46 former shareholders of Piedmont
Technologies Inc. The reorganization of Piedmont and the issuance of shares of
Phon- Net Corp. in connection therewith did not involve a sale of securities and
was, therefore, exempt from the registration requirements of the Securities Act
of 1933, as amended (the "Act") since the transaction was one of form and not
substance. Moreover, this was an extraterritorial transaction, effected outside
the United States, to non-U.S. persons, and by placing a legend on the
certificates, restricting transferability of the shares absent registration
under the Act or, in the opinion of counsel, the availability of an applicable
exemption therefrom, the Company took reasonable precautions to assure that the
securities came to rest abroad. The Company, therefore, also claims exemptions
from the registration requirements of the Act under Regulation S and/or the
SEC's position announced in Interpretive Release 4708, dated July 9, 1964
("Release 4708").
Effective October 5, 1998, the Company acquired all of the outstanding
shares of Phon- Net Corp., a Nevada corporation, and issued an aggregate of
11,410,000 shares of our common stock to the 48 former shareholders of Phon-Net
Corp. Pursuant to the Share Exchange Agreement governing the acquisition, (a)
each shareholder of Phon-Net Corp. represented that he or she was acquiring the
Company's shares for his or her own account, for investment purposes only and
not with a view to the resale or distribution thereof, and (b) the Company made
available to Phon-Net Corp. and its shareholders, specified information
concerning the Company, including corporate and shareholder records and audited
financial statements. In addition, all but two of the purchasers was a former
shareholder of Phon-Net Corp. and was fully familiar with the business of
Phon-Net (with such two shareholders being attorneys who, from time to time, had
represented Phon-Net and were familiar with its operations). Therefore, each of
such
II-2
persons was "sophisticated" within the meaning of regulations promulgated under
Federal securities laws. As a result, the transaction was exempt from the
registration requirements of the Act, by reason of Section 4(2) of the Act and
the rules and regulations thereunder, including, without limitation, Rule 506.
Moreover, this was an extraterritorial transaction, effected outside the United
States, to non-U.S. persons, and by placing a legend on the certificates,
restricting transferability of the shares absent registration under the Act or,
in the opinion of counsel, the availability of an applicable exemption
therefrom, the Company took reasonable precautions to assure that the securities
came to rest abroad. The Company, therefore, also claims exemptions from the
registration requirements of the Act under Regulation S and/or the SEC's
position announced in Release 4708.
On or about November 1, 1998, the Company issued 200,000 shares of
common stock to RCS Financial Group ("RCS"), as consideration for services
provided to the Company valued at $200,000 or $.10 per share. The services
provided by RCS consisted of identifying and introducing the Company to
prospective reverse acquisition candidates and providing guidance in connection
with structuring such acquisitions. RCS provides no on-going services to the
Company. The issuance of these shares was exempt from the registration
requirements of the Act by reason of Rule 504 of Regulation D under the Act.
On or about November 1, 1998, the Company issued 350,000 shares of
common stock valued at $35,000 or $.10 per share, to New Iberian Equity Managers
Ltd. ("New Iberian"). The shares were issued to replace 350,000 registered
shares delivered by New Iberian to Schenstead, Woytkiw & Associates ("SWA"), in
payment of a debt of the Company. The debt was incurred by the Company for
services rendered to it by SWA in preparing a profile of the Company for
dissemination to brokers, market-makers, other interested members of the
investment community and those interested in the Company's products and
technology, its handling of telephone inquiries, including those in response
thereto, as well as providing introductions to market- makers and funding
sources. Neither New Iberia nor SWA provides on-going services to the Company.
The issuance of these shares was exempt from the registration requirements of
the Act by reason of Rule 504 of Regulation D under the Act.
On or about January 15, 1999, the Company issued an aggregate of
115,000 shares of common stock to Patrick Braid (as to 45,000 shares), James
Kyle (as to 45,000 shares) and Todd Violet (as to 25,000 shares), valued in the
aggregate at $25,000 or approximately $.217 per share. Messrs. Kyle and Braid
are principals of Kason, Inc., a former provider of product marketing and
business and financial consulting services to the Company. The shares were
issued, at the request of Messrs. Kyle and Braid, as an inducement for them to
cause Kason, Inc. to enter into agreements with the Company. Neither Kason, Inc.
nor Messrs. Kyle or Braid provides any continuing services to the Company. The
Shares were issued to Mr. Violet as partial consideration for a $21,000 loan to
the Company, as well as for identifying and introducing the Company to
prospective market-makers and sources of funding. He provides no continuing
services to the Company. The issuance of these shares was exempt from the
registration requirements of the Act by reason of Rule 504 of Regulation D under
the Act.
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On or about January 15, 1999, the Company issued 10,000 shares of
common stock to L. J. Hassey for a purchase price of $5,000 or $.50 per share.
The issuance of these shares was exempt from the registration requirements of
the Act by reason of Rule 504 of Regulation D under the Act.
Between February 9 and 12, 1999, the Company issued 230,000 shares of
common stock to J. Prince, Inc., for a purchase price of $100,000 or
approximately $.435 per share. The issuance of these shares was exempt from the
registration requirements of the Act by reason of Rule 504 of Regulation D under
the Act.
On or about March 5, 1999, the Company issued 220,000 shares of common
stock to Roger Betterton for a purchase price of $50,000 or approximately $.23
per share. Mr. Betterton, individually and through Quad-Linq Systems, Inc., a
corporation owned by Mr. Betterton and Christopher Georgelin, provides software
development services to the Company. Accordingly, the issuance of these shares
was exempt from the registration requirements of the Act by reason of Rule 504
under Regulation D of the Act.
On or about March 5, 1999, the Company issued 40,000 shares of common
stock to Bryce Boucher as consideration for printing services provided to the
Company valued at $20,000 or $.50 per share. The issuance of these shares was
exempt from the registration requirements of the Act by reason of Rule 504 of
Regulation D under the Act.
On or about March 24, 1999, the Company issued convertible promissory
notes in the aggregate principal amount of $737,000 to five accredited
investors, pursuant to Rule 504 of Regulation D of the Act. The notes bear
interest at the rate of 10% per annum and are convertible into shares of the
Company's common stock at the lower of $.50 per share or 70% of the average
closing price for the common stock over the five trading days immediately
preceding the conversion date. As of April 30, 1999 all of the notes had been
converted into an aggregate of 2,707,430 shares of common stock. Cash interest
payments of $4,278.91 have been made on the notes, and an additional $315,857 in
interest expense has been recorded as a result of the discount from fair market
value of the shares issued on conversion of the notes.
On or about May 1, 1999, the Company issued 8,085,000 shares of common
stock to Brian Collins, the Company's President, CEO and sole director, an
accredited investor. The shares were issued pursuant to the Company's
acquisition of Phon-Net Corp., as consideration for the satisfaction of certain
obligations contained in the acquisition agreement. In addition, the shares
issued contained a legend restricting their transferability absent registration
under the Act or an available exemption therefrom. The shares were issued in
reliance upon exemptions under Sections 4(2) and/or 4(6) of the Act and the
rules and regulations thereunder, including, without limitation, Rule 506..
Moreover, this was an extraterritorial transaction, effected outside the United
States, to a non-U.S. person, and by placing a legend on the certificates,
restricting transferability of the shares absent registration under the Act or,
in the opinion of counsel, the availability of an applicable exemption
therefrom, the Company took reasonable precautions to assure that the securities
came to rest abroad. The Company, therefore, also claims exemptions
II-4
from the registration requirements of the Act under Regulation S and/or the
SEC's position announced in Release 4708.
On or about May 19, 1999, the Company issued 400,000 shares of common
stock, having a market value of $164,000, to Market Survey's International,
Inc., as consideration for public relations services to be provided to the
Company. Market Survey's International, Inc., whose beneficial owner is Mark
Vinci, no longer provides services to the Company. It had access to information
concerning the Company, has such experience in financial and business matters to
enable it to evaluate the risks and merits of acquiring such shares, and was,
therefore, "sophisticated" within the meaning of regulations promulgated under
Federal securities laws. In addition, the shares issued contained a legend
restricting their transferability absent registration under the Act or an
available exemption therefrom. Accordingly, this transaction was exempt from the
registration requirements of the Act by reason of Section 4(2) of the Act and
the rules and regulations thereunder, including, without limitation, Rule 506..
On or about May 28, 1999, the Company issued 60,000 shares, having a
market value of $20,500, to 1st Net Technologies, Inc. (OTCBB:FNTT), which,
along with a $2,000 fee, were paid as consideration for public relations,
marketing and database services to be provided for the Company. 1st Net
Technologies, Inc. no longer provides services to the Company. It had access to
information concerning the Company, has such experience in financial and
business matters to enable it to evaluate the risks and merits of acquiring such
shares, and was, therefore, "sophisticated" within the meaning of regulations
promulgated under Federal securities laws. In addition, the shares issued
contained a legend restricting their transferability absent registration under
the Act or an available exemption therefrom. Accordingly, this transaction was
exempt from the registration requirements of the Act by reason of Section 4(2)
of the Act and the rules and regulations thereunder, including, without
limitation, Rule 506..
On or about March 5, 1999 the Company issued 250,000 shares of common
stock, having a market value of $102,500, to Kason, Inc., as consideration for
product distribution and financial and business consulting services to be
rendered to the Company. The beneficial owners of Kason, Inc. are James Kyle and
Patrick Braid. In February 2000, we issued an additional 200,000 shares, having
a market value of $762,500, to Kason, Inc. and its affiliate in consideration of
termination of the distribution agreement. Kason, Inc. and its affiliate had
access to information concerning the Company, have such knowledge and experience
in financial and business matters to enable it to evaluate the risks and merits
of acquiring such shares, and were, therefore, "sophisticated" within the
meaning of regulations promulgated under Federal securities laws. In addition,
the shares issued contained a legend restricting their transferability absent
registration under the Act or an available exemption therefrom. Accordingly, the
issuance of these shares is exempt from the registration requirements of the Act
by reason of Section 4(2) of the Act and the rules and regulations thereunder,
including, without limitation, Rule 506..
On or about May 28, 1999, the Company issued an aggregate of 200,000
shares of common stock, valued at $68,000, to Charles Jarvis and Karen Argone,
its principals, in
II-5
consideration of market development and sales and promotion of the Company's
products. BCD Online and its principals had access to information concerning the
Company, has such knowledge and experience in financial and business matters to
enable it to evaluate the risks and merits of acquiring such shares, and were,
therefore, "sophisticated" within the meaning of regulations promulgated under
Federal securities laws. In addition, the shares issued contained a legend
restricting their transferability absent registration under the Act or an
available exemption therefrom. Accordingly, the issuance of these shares is
exempt from the registration requirements of the Act by reason of Section 4(2)
of the Act and the rules and regulations thereunder, including, without
limitation, Rule 506..
On or about July 1, 1999, the Company issued 5,000,000 shares of common
stock, valued at $1,250,000, to Brian Collins, as an inducement to provide his
employment services to the Company. Mr. Collins is an executive officer and
director of the Company and is fully familiar with the business of the Company.
In addition, the shares issued contained a legend restricting their
transferability absent registration under the Act or an available exemption
therefrom. Accordingly, the issuance of these shares is exempt from the
registration requirements of the Act by reason of Sections 4(2) and 4(6) of the
Act and the rules and regulations thereunder, including, without limitation,
Rule 506.. Moreover, this was an extraterritorial transaction, effected outside
the United States, to a non-U.S. person, and by placing a legend on the
certificates, restricting transferability of the shares absent registration
under the Act or, in the opinion of counsel, the availability of an applicable
exemption therefrom, the Company took reasonable precautions to assure that the
securities came to rest abroad. The Company, therefore, also claims exemptions
from the registration requirements of the Act under Regulation S and/or the
SEC's position announced in Release 4708.
On or about July 1, 1999, the Company issued an aggregate of 3,000,000
shares of common stock and options to purchase 2,000,000 shares of common stock,
valued in the aggregate at $1,110,000, to Quad-Linq Software, Inc. and Roger
Betterton, Christopher Georgelin and Seidmehdi Seidbagherzadeh, its three
principals, in consideration of the relinquishment of ownership of and net
revenue rights to the Company's Direct Connect software. The investors had
access to information concerning the Company, have such knowledge and experience
in financial and business matters to enable them to evaluate the risks and
merits of acquiring such shares, and were, therefore, "sophisticated" within the
meaning of regulations promulgated under Federal securities laws. In addition,
the shares issued contained a legend restricting their transferability absent
registration under the Act or an available exemption therefrom. Accordingly, the
issuance of these shares is exempt from the registration requirements of the Act
by reason of Section 4(2) of the Act and the rules and regulations thereunder,
including, without limitation, Rule 506.. Moreover, this was an extraterritorial
transaction, effected outside the United States, to non-U.S. persons, and by
placing a legend on the certificates, restricting transferability of the shares
absent registration under the Act or, in the opinion of counsel, the
availability of an applicable exemption therefrom, the Company took reasonable
precautions to assure that the securities came to rest abroad. The Company,
therefore,
II-6
also claims exemptions from the registration requirements of the Act under
Regulation S and/or the SEC's position announced in Release 4708.
On or about July 1, 1999, the Company issued 100,000 shares of common
stock, valued at $27,000, to attorneys with Atlas Pearlman, P.A. ("AP"), counsel
to the Company. The investors had access to information concerning the Company
and has such knowledge and experience in financial and business matters to
enable it to evaluate the risks and merits of acquiring such shares, and were,
therefore, "sophisticated" within the meaning of regulations promulgated under
Federal securities laws. In addition, the shares issued contained a legend
restricting their transferability absent registration under the Act or an
available exemption therefrom. Accordingly, the issuance of these shares is
exempt from the registration requirements of the Act by reason of Section 4(2)
of the Act and the rules and regulations thereunder, including, without
limitation, Rule 506..
On December 1, 1999, the Company granted an option to AMYX Corporation
to purchase 1,000,000 shares of common stock at an exercise price of $.40 per
share until July 31, 2000. Subject to exercise of such option, the Company
granted AMYX Corporation a second option to purchase 1,000,000 shares at an
exercise price of $1.00 per share until December 31, 2000. The options were
valued, in the aggregate, at $276,326. The beneficial owner of AMYX Corporation
is Jim Mitchell. The options were granted as consideration for investor
relations services to be provided to European investors, including providing
introductions to members of the European investment community, disseminating
corporate promotional materials, drafting corporate promotional materials
including press releases and assisting in capital raising, if so requested by
the Company. AMYX Corporation had access to information concerning the Company,
has such knowledge and experience in financial and business matters to enable it
to evaluate the risks and merits of investing in the Company, and was,
therefore, "sophisticated" within the meaning of regulations promulgated under
Federal securities laws. On December 31, 1999, AMYX Corporation exercised the
initial option to purchase 1,000,000 shares. The shares that were issued
contained a legend restricting their transferability absent registration under
the Act or an available exemption therefrom. Accordingly, the grant of options
and issuance of shares is exempt from the registration requirements of the Act
by reason of Section 4(2) of the Act and the rules and regulations thereunder,
including, without limitation, Rule 506.. Moreover, this was an extraterritorial
transaction, effected outside the United States, to non-U.S. persons, and by
placing a legend on the certificates, restricting transferability of the shares
absent registration under the Act or, in the opinion of counsel, the
availability of an applicable exemption therefrom, the Company took reasonable
precautions to assure that the securities came to rest abroad. The Company,
therefore, also claims exemptions from the registration requirements of the Act
under Regulation S and/or the SEC's position announced in Release 4708.
In December 1999, the Company issued 125,000 shares of common stock,
and granted an option to purchase 200,000 shares of common stock to Alliance
Corporate Services, Inc. Options to purchase 100,000 shares carry an exercise
price of $.40 per share and may be
II-7
exercised until February 15, 2000. Options to purchase the remaining 100,000
shares carry an exercise price of $.50 per share and may be exercised until May
15, 2000. The shares and options were valued, in the aggregate, at $69,755. The
shares were issued and options were granted as consideration for investor
relations and marketing consulting services to be provided to Canadian
investors, including providing introductions to members of the Canadian
investment community, disseminating corporate promotional materials, drafting
corporate promotional materials including press releases and assisting in
capital raising, if so requested by the Company. Alliance Corporate Services,
Inc. had access to information concerning the Company, has such knowledge and
experience in financial and business matters to enable it to evaluate the risks
and merits of investing in the Company, and was, therefore, "sophisticated"
within the meaning of regulations promulgated under Federal securities laws. On
December 3, 1999, Alliance Corporate Services, Inc. exercised the option to
purchase 100,000 shares, on behalf of its principals Peter Laipnieks and Randy
Hayward. The shares that were issued contained a legend restricting their
transferability absent registration under the Act or an available exemption
therefrom. Accordingly, the grant of options and issuance of shares is exempt
from the registration requirements of the Act by reason of Section 4(2) of the
Act and the rules and regulations thereunder, including, without limitation,
Rule 506.. Moreover, this was an extraterritorial transaction, effected outside
the United States, to non-U.S. persons, and by placing a legend on the
certificates, restricting transferability of the shares absent registration
under the Act or, in the opinion of counsel, the availability of an applicable
exemption therefrom, the Company took reasonable precautions to assure that the
securities came to rest abroad. The Company, therefore, also claims exemptions
from the registration requirements of the Act under Regulation S and/or the
SEC's position announced in Release 4708.
On December 31, 1999, the Company issued 3,200,000 shares of its common
stock, valued at $1,664,000, to Brian Collins, and Mr. Collins surrendered all
stock appreciation rights previously granted to him under his employment
agreement. Mr. Collins is an executive officer of the Company and the shares
that were issued contained a legend restricting their transferability absent
registration under the Act or an available exemption therefrom. Accordingly, the
issuance of these shares is exempt from the registration provisions of the Act
by reason of Sections 4(2) and 4(6) of the Act and the rules and regulations
thereunder. Moreover, this was an extraterritorial transaction, effected outside
the United States, to a non-U.S. person, and by placing a legend on the
certificates, restricting transferability of the shares absent registration
under the Act or, in the opinion of counsel, the availability of an applicable
exemption therefrom, the Company took reasonable precautions to assure that the
securities came to rest abroad. The Company, therefore, also claims exemptions
from the registration requirements of the Act under Regulation S and/or the
SEC's position announced in Release 4708.
In December 1999 and January 2000, we issued an aggregate of $600,250
principal amount of our 8% convertible promissory notes, for an aggregate
purchase price of $600,250. The securities were sold to 27 non-U.S. persons.
This was an extraterritorial transaction, effected outside the United States, to
non-U.S. persons, and was (a) not subject to the registration provisions of
Federal securities laws and (b) was exempt from the registration requirements
II-8
thereof pursuant to the provisions of Regulation S. The purchasers had access to
financial and other information about us and was afforded the opportunity to ask
questions of us concerning our operations and the terms of the offering. The
notes that were issued contained a legend restricting their transferability
absent registration under the Act or an available exemption therefrom. Each
purchaser represented that he was acquiring the shares for investment purposes
and the documentation evidencing the transaction contained the disclosure
required by Regulation S.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit No. Description of Document
----------- -----------------------
2 Agreement of Share Exchange between XGA Golf International, Inc. and Phon-Net Corp.(1)
3.1(a) Articles of Incorporation of XGA Golf International, Inc.(1)
3.1(b) Articles of Amendment changing name to Agrosol, Inc.(1)
3.1(c) Articles of Amendment changing name to Phon-Net Corporation (1)
3.1(d) Articles of Amendment changing name to Phon-Net.com, Inc.(1)
3.1(e) Articles of Amendment increasing authorized capital (1)
3.2 Bylaws (1)
5 Opinion and Consent of Atlas Pearlman, P.A.(1)
10.1 Stock Option Plan (1)
10.2 Employment Agreement with Brian Collins (1)
10.3 Office Lease for 750 Pender Street (1)
10.4 Agreement, as amended, with Quad-Linq Software, Inc.(1)
10.5 Employment Agreement with Solan Young (1)
10.6 License Agreement with Transcontinental Group (1)
10.7 Agreement with Wazzu Corporation(1)
10.8 Agreements with Brian Collins re: SARs(1)
10.9 License Agreement with Brocker Technology Group (NZ) Ltd.(Australia)(1)
10.10 License Agreement with Brocker Technology Group (NZ) Ltd.(New Zealand)(1)
10.11 License Distribution Agreement with Volt Information Sciences, Inc.(1)
10.12 Form of 8% Convertible Promissory Note, including Form of Common Stock Purchase Warrant (1)
10.13 Amendment to License Agreement with Transcontinental Group (1)
10.14 Agreements with Alliance Corporate Services (2)
10.15 Agreements with AMYX Corporation(2)
23(i) Consent of Atlas Pearlman, P.A. (see Exhibit 5)(1)
23(ii) Consent of Morgan & Company (2)
21 Subsidiaries of Registrant (1)
27(i) Financial Data Schedule (2)
27(ii) Financial Data Schedule (2)
------------------
(1) Previously filed.
(2) Filed herewith.
II-9
ITEM 28. UNDERTAKINGS
The undersigned Registrant undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) 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
statement;
(iii) 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;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to section 13 or section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference 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.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission (the "Commission") such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or preceding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Vancouver, British Columbia on April 21, 2000.
PHON-NET.COM, INC.
By: /s/ Brian Collins
----------------------
Brian Collins
Chairman, Chief Executive
Officer, Principal Financial
and Accounting Officer
Pursuant to the requirements of the Securities Act of 1933, this Form
SB-2 registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Brian Collins Chairman of the Board, Chief April 21, 2000
------------------------------------ Executive Officer, President and
Brian Collins Sole Director (Principal Financial
Officer and Principal Accounting
Officer)
/s/ Sloan Young Vice President of Technology April 21, 2000
------------------------------------ and Operations
Sloan Young
II-11
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
10.14 Agreements with Alliance Corporate Services
10.15 Agreements with AMYX Corporation
23(ii) Consent of Morgan & Company
27(i) Financial Data Schedule
27(ii) Financial Data Schedule
Exhibit 10.14
November 15, 1999
Brian Collins
President & CEO
Phon-Net.Com Inc.
600 - 750 West Pender St.
Vancouver, B.C.
V6C 2T7
RE: Option Agreement Between Phon-Net.Com Inc and Alliance Corporate
Services Inc.
Dear Mr. Collins:
Further to our most recent discussions culminating in this agreement, we confirm
that your company is granting options to Alliance as follows:
a) 100,000 Options valued at $0.40 US exercisable on or before
February 15, 2000,
b) 100,000 Options valued at $0.50 US exercisable on or before May 15, 2000.
In consideration of your company granting the above options to Alliance,
Alliance agrees to provide the following services:
a) provide investor relations services to new and existing investors in
accordance with industry standards'
b) provide investor relations services to potential new investors to assist
them to make investment decisions in consultation with their investment
advisors.
Confirm the terms of this agreement by signing on behalf of your company.
/s/ Brian Collins Nov. 16/99 /s/ Pete Laipnieks
------------------------------- --------------------------------
Phon-Net.Com Inc. Alliance Corporate Services Inc.
1
THIS CONTRACT dated the 3rd day of DEC , 1999
BETWEEN:
PHON-NET.COM INC. having
a place of business at 600 - 750 West Pender Street
Vancouver, British Columbia, V6C 2T7
(hereinafter the "Company")
OF THE FIRST PART
AND:
ALLIANCE CORPORATE SERVICES INC.
having a place of business at 12A, 1950 Government Street
Victoria, British Columbia
(hereinafter "Alliance")
OF THE SECOND PART
WHEREAS:
A. The Company agrees to transfer to Alliance 500,000 Common Shares of the
Company;
AND WHEREAS:
B. Alliance agrees to provide consulting services for a period of one
calendar year effective November 29, 1999;
AND WHEREAS:
C. The Company agrees to:
(a) issue 125,000 Common Shares quarterly to Alliance commencing
November 29, 1999 until November 28, 2000; and
(b) pay Alliance's expenses for Investor Relations ad Marketing
on the following basis:
(i) $15,000.00 (USD) by December 15, 1999;
(ii) $15,000.00 (USD) by January 31, 2000;
(iii) $20,000.00 (USD) by July 29, 2000,
2
and the Company also concurs that these are genuine estimates of the expenses
that are likely to be incurred by Alliance for Investor Relations and Marketing
services.
NOW, THEREFORE in consideration of the mutual covenants and agreements contained
herein, it is agreed by and between the parties hereto as follows:
1. THAT Alliance will provide the Company with investor services which
include:
(a) installing and monitoring a 1-800 phone service for customer
enquiries;
(b) mailing the Company's corporate promotional materials;
(c) providing consulting assistance in the drafting of corporate
promotional materials, including but not limited to, news
releases; and
(d) using its best efforts to coordinate fundraising on behalf of
the Company between December 1, 1999 and December 31, 2000.
ALLIANCE HEREBY agrees that it is responsible for all expenses incurred with
respect to (a) through (c) above.
THIS CONTRACT may be terminated by either party with ninety (90) days written
notice. All shares due and payable will be paid on a pro rata basis at the end
of the ninety (90) day period.
IN THE EVENT of a dispute, this Contract is to be interpreted in accordance with
and governed by with the laws of British Columbia.
SIGNED UNDER CORPORATE SEAL )
PHON-NET.COM INC. )
by its authorized signatory(ies): )
)
)
/s/ Brian Collins )
------------------------------------
Name: )
)
SIGNED UNDER CORPORATE SEAL )
ALLIANCE CORPORATE SERVICES, INC. )
by its authorized signatory(ies): )
)
)
/s/ Pete Laipnieks )
--------------------------------------------
Name: )
3
Exhibit 10.15
THIS CONTRACT dated the 1st day of December , 1999
------- -----------------------
BETWEEN:
PHON-NET.COM INC. having
a place of business at 600 - 750 West Pender Street
Vancouver, British Columbia, V6C 2T7
(hereinafter the "Company")
OF THE FIRST PART
AND:
AMYX CORPORATION
c/o DINNING HUNTER & CO.
having a place of business at 201 - 895 Fort Street
Victoria, British Columbia V8W 1H7
(hereinafter "AMYX")
OF THE SECOND PART
WHEREAS:
A. The Company agrees to transfer to AMYX, 2 million stock options of the
Company on the terms and conditions set out below ;
AND WHEREAS:
B. AMYX agrees to provide investor relations services to European
investors for a period of one calendar year effective January 1, 2000
on the terms and conditions listed below ;
NOW THEREFORE in consideration of the mutual covenants and agreements contained
herein, it is agreed by and between the parties hereto as follows:
1. THAT AMYX will provide the Company with investor services to European
investors which include:
(a) making introductions to money managers, stock brokers and
other related business people who would be interested in the
Company for investment purposes.
(b) mailing the Company's corporate promotional materials and
profiling the Company on e-mail services managed by the
Company;
1
(c) providing consulting assistance in the drafting of corporate
promotional materials, including but not limited to, news
releases; and
(d) AMYX agrees to use its best efforts to raise up to
$1,000,000.00 (USD) if required by the Company.
AMYX HEREBY agrees that it is responsible for all expenses incurred with respect
to (a) through (c) above.
2. That the Company agrees to issue 2 million options to AMYX in exchange
for the above services as follows:
(a) the first 1 million options will be issued to AMYX at a value
of $0.40 (USD) per option and must be exercised on or before
July 30 th. 2000; AND
(b) if the first million options are exercised as set out above
then the Company will issue a further 1 million options at a
value of $1.00(USD) per option to be exercised on or before
December 31, 2000.
THIS CONTRACT may be terminated by either party with thirty (30) days written
notice. All options will be cancelled unless exercised.
IN THE EVENT of a dispute, this Contract is to be interpreted in accordance with
and governed by with the laws of British Columbia.
SIGNED UNDER CORPORATE SEAL )
PHON-NET.COM INC. )
by its authorized signatory(ies): )
)
)
/s/ Brian Collins )
------------------------------------
Name: )
)
SIGNED UNDER CORPORATE SEAL )
AMYX CORPORATION )
by its authorized signatory(ies): )
)
)
/s/ William Ray Lambert )
------------------------------------
Name: William Ray Lambert )
2
THIS CONTRACT dated the 31st day of December , 1999
BETWEEN:
PHON-NET.COM INC. having
a place of business at 600 - 750 West Pender Street
Vancouver, British Columbia, V6C 2T7
(hereinafter the "Company")
OF THE FIRST PART
AND:
AMYX CORPORATION
c/o DINNING HUNTER & CO.
having a place of business at 201 - 895 Fort Street
Victoria, British Columbia V8W 1H7
(hereinafter "AMYX")
OF THE SECOND PART
WHEREAS:
A. Pursuant to Option Agreement dated December 1, 1999 AMYX hereby
exercises ONE MILLION (1,000,000) options at $0.40 (USD) to be included
in the re-filing of the SB-2 in the near future, pursuant to the
following terms and conditions:
1. payment of TWO-HUNDRED THOUSAND DOLLARS ($200,000.00) (USD) on
January 31, 2000 to PHON-NET;
2. payment of TWO-HUNDRED THOUSAND DOLLARS ($200,000.00) (USD) on
February 15, 2000 to PHON-NET.
1
In the event of a dispute this Agreement will be governed by and interpreted in
accordance with the laws of British Columbia.
SIGNED UNDER CORPORATE SEAL )
PHON-NET.COM INC. )
by its authorized signatory(ies): )
)
)
/s/ Brian Collins )
------------------------------------
Name: President )
)
SIGNED UNDER CORPORATE SEAL )
AMYX CORPORATION )
by its authorized signatory(ies): )
)
)
/s/ William Ray Lambert )
------------------------------------
Name: )
2
Exhibit 23(ii)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in Amendment No. 3 to the Registration Statement
of Phon-Net.com, Inc. (formerly known as Phon-Net Corporation) on Form SB-2 of
our audit report dated November 1, 1999, except for Note 12 which is as of April
7, 2000, on the consolidated balance sheets as of July 31, 1999 and 1998, and
the consolidated statements of operations and deficit, cash flows and
stockholders' equity for the periods ended July 31, 1999, 1998 and 1997.
In addition, we also consent to the reference to us under the heading
"Experts" in such Registration Statement.
/s/ Morgan & Company
--------------------
MORGAN & COMPANY
Chartered Accountants
Vancouver, British Columbia
April 21, 2000
ARTICLE 5
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS OF PHON-NET.COM, INC. FOR THE YEAR ENDED JULY 31, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
PERIOD TYPE
12 MOS
FISCAL YEAR END
JUL 31 1999
PERIOD START
AUG 01 1998
PERIOD END
JUL 31 1999
CASH
203,161
SECURITIES
0
RECEIVABLES
13,829
ALLOWANCES
0
INVENTORY
0
CURRENT ASSETS
216,990
PP&E
96,297
DEPRECIATION
0
TOTAL ASSETS
1,412,254
CURRENT LIABILITIES
247,893
BONDS
0
PREFERRED MANDATORY
0
PREFERRED
0
COMMON
8,188,660
OTHER SE
7,024,299
TOTAL LIABILITY AND EQUITY
1,412,254
SALES
43,867
TOTAL REVENUES
43,867
CGS
0
TOTAL COSTS
0
OTHER EXPENSES
(6,080,025)
LOSS PROVISION
0
INTEREST EXPENSE
0
INCOME PRETAX
(6,036,158)
INCOME TAX
0
INCOME CONTINUING
(6,036,158)
DISCONTINUED
0
EXTRAORDINARY
0
CHANGES
0
NET INCOME
(6,036,158)
EPS BASIC
(0.36)
EPS DILUTED
(0.36)
ARTICLE 5
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS OF PHON-NET.COM, INC. FOR THE SIX MONTHS ENDED JANUARY 31,
2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
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