<PAGE>
-------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
-------------
(X) Quarterly Report under Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the period ended June 30, 2000
( ) Transition report under Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the transition period
from _______ to _______
Commission file number 333-86331
UNIVERSE2U INC.
----------------------------------------------
(Name of Small Business Issuer in Its Charter)
NEVADA 88-0433489
------ ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
30 West Beaver Creek Road,
Suite 109, Richmond Hill, ON, Canada L4B 3K1
------------------------------------ -------
(Address of Principal (Zip Code)
Executive Offices)
(905) 881-1152
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
-------------
PAXTON MINING CORPORATION
400 Burrard Street
Suite 1950
Vancouver, British Columbia V6C 3A6
Former Fiscal Year End June 30
------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO
---
State the number of shares outstanding of each of the issuer's common equity as
of June 30, 2000: 36,357,000 shares of Common Stock, $.01 par value.
--------------------------------------------------------------------------------
<PAGE>
INDEX
Page
Part I. UNIVERSE2U INC. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Review Engagement Report of Moore Stephens
Cooper Molyneux LLP
Unaudited Interim Combined Balance Sheet
June 30, 2000
Unaudited Interim Combined Statement of Deficit
for the six month period ended June 30, 2000
Unaudited Interim Combined Statement of Operations
for the six month period ended June 30, 2000
Unaudited Interim Combined Statement of Operations
for the three month period ended June 30, 2000
Unaudited Interim Combined Statement of Cash Flows
for the six month period ended June 30, 2000
Notes to Combined Financial Statements
Item 2. Management's Discussion and Analysis Of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
<PAGE>
Part I. Financial Information.
Universe2U Inc.
(formerly Paxton Mining Corporation)
Unaudited Interim Combined Financial Statements
June 30, 2000
(expressed in U.S. dollars)
3
<PAGE>
[LETTERHEAD OF MOORE STEPHENS COOPER MOLYNEUX LLP APPEARS HERE]
Review Engagement Report
To the Shareholders of
Universe2U Inc.
We have reviewed the interim balance sheet and statement of deficit of
Universe2U Inc. (formerly Paxton Mining Corporation) as at June 30, 2000, the
interim statements of operations for the six month and three month periods then
ended and the statement of cash flows for the six month period then ended.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles in Canada.
Accounting principles generally accepted in Canada vary in certain significant
respects from accounting principles generally accepted in the United States.
Application of accounting principles generally accepted in the United States
would have affected results of operations for the six month periods ended June
30, 2000 and 1999, and shareholders' equity as at June 30, 2000 and 1999, to the
extent summarized in Note 8 to the accompanying interim combined financial
statements.
Signed: /s/ "Moore Stephens Cooper Molyneux LLP"
Chartered Accountants
Toronto, Ontario
August 21, 2000
4
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Unaudited Interim Combined Balance Sheet
June 30, 2000
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Current assets
Cash and cash equivalents $ 158,511
Accounts receivable (net of allowance for doubtful accounts of $49,444) 1,098,896
Prepaid expenses and deposits 120,801
Due from employee 61,001
------------------------------------------------------------------------------ ----------
1,439,209
Future income taxes 354,312
Capital assets (at cost less accumulated amortization of $444,135) 1,399,225
------------------------------------------------------------------------------ ----------
$3,192,746
============================================================================== ==========
Liabilities
Current liabilities
Accounts payable and accrued liabilities $1,378,614
Income taxes payable 117,023
Current portion of capital lease obligation 15,043
Current portion of long-term debt (note 5) 282,321
------------------------------------------------------------------------------ ----------
1,793,001
Future income taxes 8,744
Obligation under capital lease 30,778
Long-term debt (note 5) 21,273
------------------------------------------------------------------------------ ----------
1,853,796
------------------------------------------------------------------------------ ----------
Shareholders' equity
Share capital (note 6)
Authorized:
100,000,000 Common shares, par value $.00001 per share
Issued and outstanding:
36,357,000 Common shares (net of share issuance costs of $140,487) 2,065,021
Additional paid in capital (7,606)
Deficit (718,465)
------------------------------------------------------------------------------ ----------
1,338,950
------------------------------------------------------------------------------ ----------
$3,192,746
============================================================================== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
5
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Unaudited Interim Combined Statement of Deficit
for the six month period ended June 30, 2000
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
Deficit, beginning of period $ 459,415
Net loss for the period 280,859
---------------------------------------------------------------- ----------
740,274
Effect of exchange differences (21,809)
---------------------------------------------------------------- ----------
Deficit, end of period $ 718,465
================================================================ ==========
The accompanying notes are an integral part of these combined financial
statements.
6
<PAGE>
Universe2U Inc.
-------------------------------------------------------------------------------
Unaudited Interim Combined Statement of Operations
for the six month period ended June 30, 2000
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
2000 1999
----------------------------------------------------------------- ----------
<S> <C> <C>
Revenue $ 2,601,359 $ 229,435
----------------------------------------------------------------- ----------
Cost of sales
Wages and subcontract 811,165 140,550
Materials 564,068 16,545
Equipment lease and maintenance 92,737 34,096
Amortization 41,957 29,644
----------------------------------------------------------------- ----------
1,509,927 220,835
----------------------------------------------------------------- ----------
Gross profit 1,091,432 8,600
----------------------------------------------------------------- ----------
Expenses
Salaries and wages 587,002 106,819
Financing fees 142,752 -
Professional fees 199,255 28,167
Auto and travel 111,121 23,672
Office and general 81,259 7,687
Advertising and promotion 80,321 9,668
Rent and utilities 75,185 10,531
Interest and other charges 57,666 17,062
Bad debts 49,484 -
Telephone 48,449 9,934
Consulting fees 28,632 15,160
Insurance 26,327 11,062
Amortization 35,076 21,247
----------------------------------------------------------------- ----------
1,522,529 261,009
----------------------------------------------------------------- ----------
Income before provision for income taxes (431,097) (252,409)
Provision for income taxes (150,238) (57,907)
----------------------------------------------------------------- ----------
Net loss for the period $ (280,859) $ (194,502)
================================================================= ==========
Net loss per share - basic and fully diluted $ (0.01) $ (0.04)
================================================================= ==========
Weighted average shares outstanding 31,617,674 5,000,000
================================================================= ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
7
<PAGE>
Universe2U Inc.
-------------------------------------------------------------------------------
Unaudited Interim Combined Statement of Operations
for the three month period ended June 30, 2000
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
2000 1999
----------------------------------------------------------------- ----------
Revenue $ 1,090,840 $ 35,623
----------------------------------------------------------------- ----------
<S> <C> <C>
Cost of sales
Wages and subcontract 418,483 33,212
Materials 120,479 10,465
Equipment lease and maintenance 58,288 14,412
Amortization 29,350 15,070
----------------------------------------------------------------- ----------
626,600 73,159
----------------------------------------------------------------- ----------
Gross profit 464,240 (37,536)
----------------------------------------------------------------- ----------
Expenses
Salaries and wages 351,205 57,334
Financing fees 72,312 -
Professional fees 126,657 6,358
Advertising and promotion 66,952 5,280
Auto and travel 62,148 13,185
Office and general 42,756 3,281
Bad debts 49,484 -
Interest and other charges 44,444 12,064
Rent and utilities 37,957 6,916
Consulting fees - 11,653
Telephone 27,279 5,212
Insurance 14,018 5,828
Amortization 18,038 16,493
----------------------------------------------------------------- ----------
913,250 143,604
----------------------------------------------------------------- ----------
Income before provision for income taxes (449,010) (181,140)
Provision for income taxes (167,798) (40,326)
----------------------------------------------------------------- ----------
Net loss for the period $ (281,212) $ (140,814)
================================================================= ==========
Net loss per share - basic and fully diluted $ (0.01) $ (0.03)
================================================================= ==========
Weighted average shares outstanding 33,015,813 5,000,000
================================================================= ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
8
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Unaudited Interim Combined Statement of Cash Flows
for the six month period ended June 30, 2000
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------------------- ----------
<S> <C> <C>
Cash flow from operating activities
Net loss for the period $ (280,859) $ (194,502)
Items not affecting cash
Amortization 77,033 50,891
Future income taxes (220,972) (49,331)
---------------------------------------------------------------------------------- ----------
(424,798) (192,942)
Other sources (uses) of cash from operations
(Increase) decrease in accounts receivable (608,662) 163,075
(Increase) in due from employee (61,001) -
Decrease (increase) in inventory 39,493 (38,961)
Decrease (increase) in prepaid expenses and deposits 8,376 (382)
Increase (decrease) in accounts payable and accrued liabilities 932,550 (24,812)
Increase in income taxes payable 117,023 -
---------------------------------------------------------------------------------- ----------
2,981 (94,022)
---------------------------------------------------------------------------------- ----------
Cash flow from investing activities
Purchase of capital assets (1,030,702) (197,437)
---------------------------------------------------------------------------------- ----------
Cash flow from financing activities
Net advances (repayments) on long-term debt (2,255) 166,712
Net proceeds from issue of share capital 1,281,758 -
Decrease in bank indebtedness (57,092) (10,044)
(Decrease) increase in due to related parties (58,045) 149,241
---------------------------------------------------------------------------------- ----------
1,164,366 305,909
---------------------------------------------------------------------------------- ----------
Effect of exchange rate changes on cash 21,866 (14,450)
---------------------------------------------------------------------------------- ----------
Increase in cash 158,511 -
Cash and cash equivalents, beginning of period - -
---------------------------------------------------------------------------------- ----------
Cash and cash equivalents, end of period $ 158,511 $ -
================================================================================== ==========
Supplemental cash flow information
Cash paid during the period for:
Income taxes $ 26,794 $ -
Interest $ 20,538 $ 17,062
================================================================================== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
9
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Notes to Unaudited Interim Combined Financial Statements
June 30, 2000
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
1. Basis of Presentation
--------------------------------------------------------------------------------
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary in order to make the financial statements not misleading have been
included. Results for the three months and six months ended June 30, 2000
are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 2000. For further information, refer to the
combined financial statements and footnotes thereto included in Universe2U
Inc.'s ("the Company") Form 8-K filed on July 24, 2000 for the year ended
December 31, 1999.
The combined financial statements presented give effect to a reverse
acquisition by Universe2U Inc. (Ontario) of Universe2U Inc. (Nevada) which
was completed on May 17, 2000 and the acquisition of Cabletec Communications
Inc. (formerly known as Bernie Tan Investments Inc.) which was completed on
May 31, 2000 and accounted for under the purchase method of accounting.
2. Basis of Combination
--------------------------------------------------------------------------------
These unaudited financial statements have been prepared on a combined basis
and not on a consolidated basis due to the reorganization of the corporate
structure which was effective April 1, 1999. Prior to the exchange, the
subsidiaries were controlled by a group that subsequently controls the
Company. These financial statements have been presented on the basis that
the present share structure existed from the date of incorporation of each
subsidiary. Future financial statements will be prepared on a consolidated
basis.
These financial statements have been prepared on a combined basis and include
the following 100% owned subsidiaries' assets and liabilities as well as the
revenues and expenses arising from their respective incorporation or
acquisition dates:
F.O.C.C. Fiber Optics Corporation of
Canada Inc. - incorporated on August 17, 1998
Canadian Cable Consultants Inc. - incorporated on September 2, 1998
Photonics Engineering and Design Inc. - incorporated on December 23, 1998
Coastal Network Services Inc. - incorporated on September 2, 1999
Multilink Network Services Inc. - incorporated on September 9, 1999
Universe2U Inc. (Ontario) - incorporated on April 1, 1999
Cabletec Communications Inc. - acquired on May 31, 2000
Universe2U Right-of-Ways Agency Inc. - incorporated on June 23, 2000
10
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Notes to Unaudited Interim Combined Financial Statements
June 30, 2000
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
3. Foreign Exchange
--------------------------------------------------------------------------------
The Company's Canadian operations are self-sustaining and therefore their
assets and liabilities are translated into U.S. dollars, the basis of
presentation of these financial statements, using the period end rate of
exchange. Revenue and expenses of such operations are translated using the
average rate of exchange for the period. The related foreign exchange gains
and losses arising on translation of the Company's Canadian operations are
included in shareholders' equity until realized.
4. Transactions with Related Parties
--------------------------------------------------------------------------------
During the period, the Company paid interest of $ nil (1999 - $19,850) to
officers and directors on advances made to the Company and management fees of
$ nil (1999 - $68,229) to officers and directors for services provided to the
Company. Interest was waived by the officers and directors in the current
period.
On June 9, 2000, the Board of Directors adopted a resolution to convert a
loan of $428,968 previously made by a shareholder of the Company into 100,000
common shares of the Company.
5. Long-Term Debt
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------- --------
<S> <C> <C>
Promissory note bearing interest at prime plus 3% per annum
with monthly principal repayments of $1,449 plus interest,
maturing in January 2009, secured by a general security
agreement and a limited guarantee by an officer and director
of the Company; $144,739 $163,704
Promissory note bearing interest at prime plus 2.5% per annum
with monthly principal repayments of $2,875 plus interest,
maturing in May 2004, secured by a general security agreement
and a limited guarantee by an officer and director of the
Company; 129,452 165,187
Term loan bearing interest at 8.9% per annum, with monthly
principal and interest payments of $345, maturing in October
2004, secured by the vehicle; 14,531 -
Term loan bearing interest at 1.9% per annum, with monthly
principal and interest payments of $473, maturing in
November 2002, secured by the vehicle; 14,872 -
-------------------------------------------------------------------------------- --------
303,594 328,891
Less: Current portion 282,321 32,878
-------------------------------------------------------------------------------- --------
$ 21,273 $296,013
================================================================================ ========
</TABLE>
11
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Notes to Unaudited Interim Combined Financial Statements
June 30, 2000
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
5. Long-Term Debt - continued
--------------------------------------------------------------------------------
The month end prime rate as at June 30, 2000 was approximately 7.5% (1999 -
6.25%).
The promissory notes payable represent government assisted Small Business
Loans that became payable once the Company became publically owned. As a
result of the reverse acquisition on May 17, 2000, the notes became due on
demand and are therefore classified as current liabilities in the current
period.
6. Share Capital
--------------------------------------------------------------------------------
Stock options
The Company has in effect a Stock Option Plan ("the Plan") that provides for
the potential grant of options to directors and employees. The terms of the
awards under the Plan are determined by a Board appointed committee. No
compensation expense is recognized when stock options of the Company are
issued. As at June 30, 2000, details of options outstanding were as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
--------------------------------------------------------------------------------------------
weighted average weighted average
number exercise price number exercise price
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
June 30, 1999 - $ - - $ -
Granted 600,000 $ 0.01 - -
--------------------------------------------------------------------------------------------
December 31, 1999 600,000 $ 0.01 - $ -
Granted - first quarter 47,000 $ 0.01 - -
Granted - second quarter 887,000 $ 1.59 - -
--------------------------------------------------------------------------------------------
June 30, 2000 1,534,000 $ 0.92 - $ -
--------------------------------------------------------------------------------------------
</TABLE>
As at June 30, 2000, stock options expire as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
number exercise number
outstanding price exercisable
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2004 600,000 $ 0.01 -
2005 280,000 $ 5.00 -
2005 654,000 $ 0.01 -
--------------------------------------------------------------------------------------------
1,534,000
--------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Notes to Unaudited Interim Combined Financial Statements
June 30, 2000
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
6. Share Capital - continued
--------------------------------------------------------------------------------
Continuity of common shares
The Company had the following share capital transactions following the
reverse acquisition on May 17, 2000 to the end of the period:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
number dollar
of shares amount
--------------------------------------------------------------------------------
<S> <C> <C>
Shares issued and outstanding prior to acquisition 5,510,200 $ 55
Shares tendered for cancellation (4,000,000) -
Acquisition of Universe2U Inc. (Ontario) 250,000 7,813
Stock dividend 33,443,800 -
Conversion of debenture 833,000 668,673
Conversion of shareholder advances 100,000 428,968
Private placement 220,000 959,512
--------------------------------------------------------------------------------
36,357,000 $2,065,021
--------------------------------------------------------------------------------
</TABLE>
7. Information on Operating Segments
--------------------------------------------------------------------------------
General description
The Company's subsidiaries are organized into operating segments based on the
nature of products and services provided and into geographical segments based
on the location of customers. The Company's operations can be classified into
three reportable operating segments: Fiber Construction and Maintenance
Services ("FC&MS"), Fiber Network and System Engineering and Design
("FN&SED"), Sales and Marketing ("S&M"), and Network Services ("NS") and also
into two reportable geographic regions: Canada and the United States.
The FC&MS segment is responsible for building and maintaining the telecom
infrastructure including long-haul network builds, regional networks,
community networks, and in-building networks. The focus is on physical
infrastructure to support telecommunications encompassing fiber, wireless and
copper based telecommunications.
The FN&SED segment is responsible for all engineering and design activities
including permits, designs, mapping, GIS, structural design, engineered
drawings, network design, equipment specifications, research and development
and the securing and perfecting of rights of ways.
The S&M segment is responsible for all direct sales which involves the sale
of telecom infrastructure products to telecommunication companies,
telecommunication services on behalf of telecommunications companies and
services on behalf of the right of way owners. The segment also acts as
broker for sales of rights of ways.
13
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Notes to Unaudited Interim Combined Financial Statements
June 30, 2000
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
7. Information on Operating Segments - continued
--------------------------------------------------------------------------------
The NS segment is a support service for the other operating segments.
The accounting policies of the segments are the same as those described in
the Company's historical financial statements. The Company evaluates
financial performance based on measures of gross revenue and profit or loss
from operations before income taxes. The following tables set forth
information by operating segment as at, and for the six month period ended
June 30, 2000 and the six month period ended June 30, 1999.
Operating segments
Information by operating segment as at and for the three month period ended
June 30, 2000:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
FC&MS FN&SE S&M NS Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $1,561,460 382,911 611,700 45,048 $2,601,119
Interest expense $ 9,617 6,765 10,385 133 $ 26,900
Amortization of
capital assets $ 43,596 14,422 4,767 14,248 $ 77,033
Loss before
income taxes $ (266,599) 188,885 (24,889) (12,614) $ (115,217)
Total assets $1,349,483 142,256 336,129 1,125,391 $2,953,259
Capital assets $ 433,651 126,779 40,679 797,854 $1,398,963
---------------------------------------------------------------------------------
</TABLE>
Reconciliations to combined results as at and for the six month period ended
June 30, 2000:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
Segmented Corporate Total
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $2,601,119 $ 240 $2,601,359
Loss before income taxes $ (115,217) $(315,880) $ (431,097)
Total assets $2,953,259 $ 239,487 $3,192,746
---------------------------------------------------------------------------------
</TABLE>
Information by operating segment as at and for the six month period ended
June 30, 1999:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
FC&MS FN&SED S&M NS Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $ 135,301 2,429 91,705 - $ 229,435
Interest expense $ 9,338 5,870 1,854 - $ 17,062
Amortization of
capital assets $ 39,709 7,845 3,337 - $ 50,891
Loss before
income taxes $ (196,054) (45,818) (10,537) - $ (252,409)
Total assets $ 275,043 220,852 49,232 - $ 545,127
Capital assets $ 252,817 150,184 37,305 - $ 440,306
---------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Notes to Unaudited Interim Combined Financial Statements
June 30, 2000
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
7. Information on Operating Segments - continued
--------------------------------------------------------------------------------
Reconciliations to combined results as at and for the six month period ended
June 30, 1999:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------- -----------
Segmented Corporate Total
-------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
Revenue $ 229,435 - $ 229,435
Loss before income taxes $ (252,409) - $ (252,409)
Total assets $ 545,127 - $ 545,127
-------------------------------------------------------------------------- -----------
</TABLE>
Geographic information
Information by geographic region as at and for the six month period ended
June 30, 2000:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Canada United States Total
--------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
Revenue $ 2,556,385 44,734 $ 2,601,119
Interest expense $ 26,736 164 $ 26,900
Amortization of capital assets $ 75,913 1,120 $ 77,033
Earnings (loss) before income taxes $ (341,841) (89,256) $ (431,097)
Total assets $ 3,110,950 81,796 $ 3,192,746
Capital assets $ 1,392,223 6,740 $ 1,398,963
--------------------------------------------------------------------------- -----------
</TABLE>
Information by geographic region as at and for the six month period ended
June 30, 1999:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Canada United States Total
--------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
Revenue $ 229,435 - $ 229,435
Interest expense $ 17,062 - $ 17,062
Amortization of capital assets $ 50,891 - $ 50,891
Earnings (loss) before income taxes $ (252,409) - $ (252,409)
Total assets $ 545,127 - $ 545,127
Capital assets $ 440,306 - $ 440,306
--------------------------------------------------------------------------- -----------
</TABLE>
15
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Notes to Unaudited Interim Combined Financial Statements
June 30, 2000
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
8. Reconciliation of Results Reported in Accordance with Generally Accepted
Accounting Principles (GAAP) in Canada with United States ("US") GAAP
--------------------------------------------------------------------------------
Significant adjustments
The areas of significant difference between accounting principles generally
accepted in Canada ("Canadian GAAP") and those generally accepted in the
United States ("U.S. GAAP") and their impact on the consolidated financial
statements of the Company are described below.
Significant differences between Canadian GAAP and U.S. GAAP would have the
following effect on reported net loss and deficit of the Company for the six
months ended June 30:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------- ----------
<S> <C> <C>
Net loss for the period in accordance with
Canadian GAAP $ (280,859) $ (194,502)
Increase in net loss for:
Stock option compensation (a) 462,761 -
Imputed interest on advances (b) 10,679 -
---------------------------------------------------------------------- ----------
Net loss for the period in accordance with U.S. GAAP $ (754,299) $ (194,502)
====================================================================== ==========
Net loss per share in accordance with U.S. GAAP $(0.02) $ (0.04)
---------------------------------------------------------------------- ----------
Deficit under Canadian GAAP $ (718,465) $ (234,725)
Cumulative adjustments (497,379) -
---------------------------------------------------------------------- ----------
Deficit under U.S. GAAP $(1,215,844) $ (234,735)
====================================================================== ==========
</TABLE>
(a) In accordance with Canadian GAAP, the Company does not recognize
compensation expense for stock options. When reconciling the Company's
reported results under U.S. GAAP, the Company accounts for stock option
grants in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") as permitted by
SFAS No. 123, "Accounting for Stock Based Compensation" ("SFAS 123"),
and, accordingly, recognizes compensation expense for stock option grants
to the extent that the estimated fair value of the stock exceeds the
exercise price of the option at the measurement date. The compensation
expense is charged against operations ratably over the vesting period of
the options or service period, whichever is shorter, and was $462,761 for
the period (1999 - $ nil). Under the method prescribed by SFAS 123, the
weighted average fair value of the stock options granted during the
period is $3,263,460 (to be amortized over the employee service period).
(b) In accordance with Canadian GAAP, the Company does not recognize imputed
interest on advances from related parties that are non-interest bearing
or where interest has been waived. Under U.S. GAAP imputed interest is
calculated and recorded as additional paid in capital. The imputed
interest was $10,679 for the period. There was no requirement to impute
interest in the prior period as interest was paid to the related parties.
16
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Notes to Unaudited Interim Combined Financial Statements
June 30, 2000
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
8. Reconciliation of Results Reported in Accordance with Generally Accepted
Accounting Principles (GAAP) in Canada with United States ("US") GAAP -
continued
--------------------------------------------------------------------------------
U.S. GAAP requires the presentation of a statement of comprehensive income to
report the non-shareholder related transactions which have impacted
shareholders' equity during the period:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------ ----------
<S> <C> <C>
Net loss in accordance with U.S. GAAP $ (754,299) $ (194,502)
Other comprehensive income (expense) item before tax
Foreign currency translation adjustment 21,809 (14,583)
------------------------------------------------------------------------ ----------
Comprehensive loss before tax (732,490) (209,085)
Tax effect on other comprehensive income item at 23.0% (9,596) 6,417
------------------------------------------------------------------------ ----------
Comprehensive loss in accordance with U.S. GAAP $ (742,086) $ (202,668)
======================================================================== ==========
</TABLE>
Recent accounting pronouncements
In June 1999, the Financial Accounting Standards Boards (FASB) issued
Interpretation No. 43, "Real Estate Sales, an interpretation of FASB
Statement No. 66." The interpretation is effective for sales of real estate
with property improvements or integral equipment entered into after June 30,
1999. Under this interpretation, title must transfer to a lessee in order
for a lease transaction to be accounted for as a sales-type lease. The
classification of dark fiber cables in the ground as integral equipment as
defined in FIN 43 is currently being considered by accounting standard
setters in the U.S. These changes would not have any effect on the economics
of the contract but may have a significant effect on the Company's revenue
recognition. It is not possible to determine the consequences of such
changes until further accounting guidance has been developed.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation." Among other issued, this
Interpretation clarifies (a) the definition of employee for purposes of
applying Opinion 25, (b) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (c) the accounting consequence of
various modifications to the terms of a previously fixed stock option or
award, and (d) the accounting for an exchange of stock compensation awards in
a business combination. The Company has adopted this pronouncement.
17
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Notes to Unaudited Interim Combined Financial Statements
June 30, 2000
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
9. Earnings per Share
--------------------------------------------------------------------------------
The Financial Accounting Standards Board issued SFAS No. 128 "Earnings Per
Shares" which requires companies to report basis and fully diluted earnings
per share ("EPS") computations effective with the Company's quarter ending
December 31, 1997. Basic EPS excludes dilution and is based on the weighted-
average common shares outstanding and diluted EPS gives effect to potential
dilution of securities that could share in the earnings of the Company.
Diluted EPS has not been presented as it is anti-dilutive as a result of
having incurred losses in each period
<TABLE>
<CAPTION>
Three Months Ended June 30, 2000 Six Months Ended June 30, 2000
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic EPS Computation:
Net loss under
Canadian GAAP $ (281,212) $ (140,814) $ (280,859) $ (194,502)
Weighted average
outstanding shares 33,015,813 5,000,000 31,617,674 5,000,000
Basic EPS under
Canadian GAAP $ (0.01) $ (0.03) $ (0.01) $ (0.04)
--------------------------------------------------------------------------------------------------------
Basic EPS Computation:
Net loss under
U.S. GAAP $ (743,880) $ (140,814) $ (754,299) $ (194,502)
Weighted average
outstanding shares 33,015,813 5,000,000 31,617,674 5,000,000
Basic EPS under
U.S. GAAP $ (0.02) $ (0.03) $ (0.02) $ (0.04)
--------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Notes to Unaudited Interim Combined Financial Statements
June 30, 2000
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
10. Acquisition
--------------------------------------------------------------------------------
On May 31, 2000, the Company completed the acquisition of CableTec
Communications Inc. (formerly Bernie Tan Investments Inc.)("CableTec"). The
statement of operations for the six month period ended June 30, 2000
includes the results of CableTec subsequent to the date of acquisition. The
following results for the six months ended June 30, 2000 and 1999 report on
a pro forma basis the results of operations had the acquisition occurred on
the first day of the earliest period reported, being January 1, 1999.
Results for the six months ending June 30, 2000 are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 2000.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
2000 1999
---------------------------------------------------------------- ----------
<S> <C> <C>
Revenue $ 2,618,134 $ 569,397
---------------------------------------------------------------- ----------
Income from continuing operations $ (466,485) $ (198,787)
---------------------------------------------------------------- ----------
Net loss $ (308,108) $ (140,809)
---------------------------------------------------------------- ----------
Earnings per share $ (0.01) $ (0.04)
================================================================ ==========
</TABLE>
11. Subsequent Events
--------------------------------------------------------------------------------
Subsequent to the period end the following transactions occurred:
a) On June 9, 2000, the Board of Directors of the Company approved a
private placement of 1,000,000 common shares at $5.00 and 1,000,000
share purchase warrants, each exercisable to purchase 1 common share
at $5.00. The private placement is fully subscribed with undertakings
to deliver the funds within 90 days of June 9, 2000. As at the end of
the period, proceeds of $1,100,000 have been received and 220,000
common shares and 220,000 share purchase warrants were issued.
b) Subsequent to the period end, 55,000 stock options were issued to
employees under the Company's Stock Option Plan ("the Plan") with an
exercise price of $5.00 exercisable one year from the date of grant
and expiring five years from the date of grant.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Our company is the product of an acquisition, completed on May 17, 2000, in
which Paxton Mining Corporation acquired all of the outstanding shares of
Universe2U Inc. Upon completion of the acquisition, we changed our corporate
name to Universe2U Inc. In connection with the acquisition, the management of
the Company changed. We also elected to change our fiscal year end from June 30
of each year to December 31 of each year.
Prior to the acquisition, under the name Paxton Mining Corporation, we were a
very early stage development company originally organized to acquire, explore
and develop mining properties. Due to disappointing results, we decided to
pursue another line of business. We subsequently acquired Universe2U Inc., an
Ontario, Canada corporation. Following the acquisition, we ceased our mining-
related activities.
Our company provides telecommunications access solutions to communities,
communications carriers, building owners and corporate and government customers
in North America. We are a facilities-based provider of advanced fiber optic
solutions and high-bandwidth Internet connectivity that enables high-speed
"managed broadband" access to the Internet, telecommunications, and other data
networks to provide an overall improvement in the quality of life. We provide
open access networks that are available to all service providers, however, we
are not a carrier, nor do we provide regulated telecommunications services. We
currently have seven operating subsidiaries.
Our telecommunications operations focus on the following areas:
. engineering and design;
. infrastructure installation and maintenance;
. network servicing; and
. marketing services.
We are currently pursuing a two-prong business strategy:
. to design and build, fiber optic networks and market telecommunication
services for major telephone and cable television companies; and
. to be a pioneer in developing "Smart Community" networks in partnership
with local governments; "Smart Building" networks in partnership with
institutions, businesses; and "Smart Network Links" in partnership with
right-of-way owners, where we may take an equity position in the network.
We believe that our two-prong business strategy exploits growth opportunity in
Tier 2 and Tier 3 communities, where roughly two-thirds of the North American
population is located, as well as in the high population density urban areas
where most investment in high-speed network infrastructure has been focused to
date. In addition, our strategy enables us to pursue the growth areas of in-
building networks and linking networks to connect communities together.
Our business strategy focuses on the concept that each of our subsidiaries is
responsible for establishing and growing its own unique organizations. This is
primarily achieved through the development of relationships in its core strength
20
<PAGE>
area and the provision of contractual services. The individual companies may act
as service providers to other telecommunications companies.
In addition, our subsidiaries act as integrated business units to provide
turnkey service offerings. In this case, instead of contractual project clients,
we expect to target strategic alliances, partnerships and joint ventures where
equity ownership is an integral component of the deal structure. Our Smart
Community networks, Smart Building networks and Smart Network Link models are
all expected to be designed on this basis. Where initially the primary revenue
stream is expected to be from the individual companies, the long term revenue
stream and expected profitability are expected to be driven by our
equity/partnership model in all three network applications.
We believe that we are well positioned for growth as demand for greater
bandwidth continues to escalate throughout North America. Just as the
expectation for universal service drove the rapid expansion of telephone and
electrical networks during the last century, we believe that businesses,
communities, institutions and individuals will demand universal high-speed
broadband telecom access to gain overall improvement in the quality of life. We
believe that there is growing demand for fiber optic capacity and related
network elements to transmit and service high-bandwidth data, voice and video.
This growing demand is being accelerated by new applications and services and by
improvements in "last mile" technology such as digital subscriber line and cable
modems. In this changing market environment, we believe that we are in a
favorable competitive position to satisfy this demand relative to other service
providers due to our, seamless technologies and consistent network architecture.
Our operations are conducted through our seven wholly-owned subsidiaries:
. F.O.C.C., Fiber Optics Corporation of Canada Inc.(fiber optic construction
and maintenance);
. Canadian Cable Consultants Inc. (sales and marketing);
. Photonics Engineering and Design Inc. (network and system design);
. Coastal Network Services Inc. (fiber optic network installation);
. Multilink Network Services Inc. (network sales);
. CableTec Communications Inc. (underground construction); and
. Universe2U Rights-of-Ways Agency Inc. (right-of-way broker).
In addition, we intend to make acquisitions to increase our geographic reach.
Some of our contracts are expected to be operating leases under which we
recognize recurring monthly revenues. Under other contracts we recognize revenue
from the sale of fiber. Effective June 30, 1999, the Financial Accounting
Standards Board issued FASB Interpretation No. 43 "Real Estate Sales" ("FIN 43")
which requires that sales of integral equipment be accounted for in accordance
with real estate accounting rules. We believe that the SEC may classify dark
fiber cables in the ground as integral equipment as defined in FIN 43. This
change in the accounting for dark fiber sales would not change any of the
economics of the contracts. It would require us, however, to recognize the
revenue from some sales contracts as operating leases over the term of the
contract as opposed to the current method of recognizing revenue during the
period over which we deliver the fiber. As a result, this change in accounting
treatment would reduce the revenue and income that we would recognize in the
earlier years of the contract and spread it out over the life of the contract
regardless of when the cash was received or the delivery of the fiber took
place.
21
<PAGE>
RESULTS OF OPERATIONS
REVENUES
Total sales for the three months ended June 30, 2000 were $1,090,840, an
increase of $1,055,217 over sales of $35,623 for the comparable quarter ended
June 30, 1999. On year-to-date basis sales of $2,601,359 represent an increase
of $2,371,924, or 1,034%, over the previous year's sales of $229,435. For the
quarter, and on a year-to-date basis, all operations reported sales increases
above 1999 levels. The increases were primarily fueled by the change in business
strategy to build turnkey fiber optic solutions for customers; this includes the
start of two community projects in Windsor and Grimsby, Ontario, which began in
the third quarter of 1999. The acquisition of CableTec Communications Inc.,
effective May 31, 2000, increased sales for the second quarter ended June 30,
2000 by $45,048.
During the six month period ended June 30, 2000, the Company installed
approximately 524,000 feet of aerial cable, approximately 14,000 feet of
underground cable, and engineered approximately 836,500 feet of fiber networks.
COST OF SALES
Direct expenses include direct costs of providing services through the different
subsidiaries and are as follows:
. Fiber Construction and Maintenance: these costs are comprised of labor,
equipment rentals, materials and sub-contracting expenses;
. Fiber Network System Design and Engineering: these costs consist
primarily of wages and, to a minor degree, materials;
. Sales and Marketing: these costs are made up of wages for tele-marketers
and sales representatives as well as sub-contracting expenses for tele-
marketing services and field sales representatives; and
. Network services: these costs are made up of the wages for technical and
construction workers, as well as sub-contracting expenses for related
services supporting the building of our networks.
Consolidated cost of sales for the second quarter was $626,600, an increase of
$553,441 over the $73,159 incurred in the comparable quarter of 1999. The
increase is primarily due to increased sales volumes. Increased labor,
subcontractor and direct material costs account for $495,285 of the $553,441
increase. On a year-to-date basis, cost of sales rose $1,289,092, to $1,509,927
from $220,835 incurred in the period ended June 30, 1999. Sales volumes were
primarily the reason for the rise in these costs. The acquisition of CableTec
Communications Inc, effective May 31, 2000, increased cost of sales expense for
the second quarter ended June 30, 2000 by $42,261.
GROSS PROFIT
For the second quarter ended June 30, 2000, gross profit was $464,240 bringing
June 30, 2000 year-to-date gross profit to $1,091,432. This compares to a loss
at the gross profit level for the second quarter ended June 30, 1999 of $37,536,
and a gross profit for the June 30, 1999 year to-date period of $8,600.
OPERATING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating, selling, general and administrative expenses primarily include
customer service costs, advertising, sales, marketing, order processing,
telecommunications network maintenance and repair ("technical expenses"),
general and administrative expenses, installation and provisioning expenses,
interest, depreciation and amortization, and other corporate overhead expenses
(subsequently, all these expenses shall be referred to as "General and
Administrative Overhead expenses").
22
<PAGE>
For the quarter ended June 30, 2000 these costs were $913,250, representing an
increase of $769,646 over the $143,604 reported for the three months ended June
30, 1999. Included in the second quarter costs are expenditures of
approximating $110,000 related to the company's acquisition of Paxton Mining
Corporation and the associated corporate reorganization. During this period the
company expensed approximately $72,000 of financing charges related to the
debentures issued in the later part of 1999 and the early part of calendar 2000.
These debentures were subsequently converted to equity in May 2000.
On a year-to-date basis the corporation reported General and Administrative
Overhead expenses of $1,522,529 an increase of $1,261,520 over the $261,009
incurred for the comparable period ended June 30, 1999. For the first six
months of the current year the company has expensed approximating $130,000
related to the company's acquisition of Paxton Mining Corporation and the
associated corporate reorganization and expensed approximately $143,000 of
financing charges related to the debentures issued in the later part of 1999 and
the early part of calendar 2000.
NET LOSS
The company reported a net loss after taxes for the six months ended June
30, 2000 of $280,859, compared to a net loss of $194,502 for the comparable
period in 1999. The loss for the three months ended June 30, 2000 was $281,212,
as compared to a loss for the three months ended June 30, 1999 of $140,814.
ADDITIONAL INFORMATION
The following information reflects expenses that have been included in the
general and administrative expense balances above and is provided as additional
information.
Depreciation and Amortization: Depreciation and amortization costs totaled
$77,033 for the six months ended June 30 2000 and $50,891 for the six months
ended June 30 1999. The increase of $26,142, or 51.3% was primarily the result
of a substantial addition in fixed assets, principally in the Fiber Construction
and Maintenance services. The acquisition of CableTec Communications Inc.
increased amortization expense by $14,243 in the second quarter of the current
fiscal period.
Interest and other charges: Costs for the six month period ended June 30, 2000
total $57,666, an increase of $40,604, over the $17,062 reported for the six
months ended June 30, 1999. During the first six months of the current year the
company experienced cash flow shortages on a number of occasions and had been
unable to meet all of its payable obligations on a timely basis. Three of the
operating subsidiaries failed to consistently remit payroll withholding and
sales taxes to the tax authorities. Included in the June 30, 2000 year-to-date
costs are approximately $37,128 of late payment penalties and interest charges.
Subsequent to June 30, 2000 the corporation completed another portion of its
private share subscription for net proceeds of $450,000 and used these funds to
satisfy the company's outstanding tax obligations.
23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Our current growth plan is twofold:
1. To design, build, and market for telecommunication companies.
2. To design, build, and market: (1) Smart Buildings; (2) Smart
Communities; and (3) Smart Network Links (e.g. long-haul fiber
networks). All three market segments provide high-growth potential.
Based on our current growth plan, we expect to require a substantial amount of
capital to expand the development of operations and networks into new geographic
areas of target markets in North America. We need capital to fund the
construction of advanced fiber optic networks, upgrade our underground
construction equipment, repay our debts and acquire strategic companies.
Not including cash flow requirements for strategic acquisitions and major
projects where we are taking an equity position, we currently estimate that our
capital requirements for the period from July 1, 2000 to December 31, 2000 are
approximately $4,500,000. This amount includes approximately $275,000 for the
repayment of equipment loans (government assisted Small Business Loans) that
became payable once the respective companies became publicly owned. Capital
requirements for the 2001 fiscal year are expected to be $5,000,000 exclusive of
cash flow requirements to fund acquisitions and major projects where we are
taking an equity position. These estimates are forward-looking statements that
may change if circumstances related to third party materials and labor costs,
revenue growth expectations, construction, change of regulatory regime
requirements and opportunities to deploy the Company's smart building, community
and links networks do not occur as expected.
Sources of funding for our current and future financing requirements may include
vendor financing, public offerings or private placements of equity and/or debt
securities, commercial credit facilities and bank loans. There can be no
assurance that sufficient additional financing will continue to be available to
us or, if available, that it can be obtained on a timely basis and on acceptable
terms. Failure to obtain financing could result in the delay or curtailment of
our development and expansion plans and expenditures. Any of these events could
have a material adverse effect on our business.
For the six month period ended June 30, 2000 the Company's net cash from
operating activities was $2,981. This amount includes adjustments for: non-cash
items comprised of an add-back for amortization of $77,033 and a deduction for
future income taxes totaling $220,972, and a net positive working capital change
of $427,779. For the comparable six month period ended June 30, 1999, net cash
used in operating activities was $94,022.
For the six month period ended June 30, 2000, net cash used in investing
activities of $1,030,702 consisted of additions to property, plant and equipment
principally attributable to the acquisition of CableTec Communications Inc, on
May 31, 2000. For the comparable six month period ended June 30, 1999, net cash
used in investing activities was $197,437 and consisted principally of additions
to property, plant and equipment.
For the six month period ended June 30, 2000 net cash provided by financing
activities of $1,164,366 included the following: net proceeds from share
issuances of $1,281,758, less bank indebtedness repayments of $57,092, and less
$58,058 of net advances to related parties. For the six month period ended June
30, 1999 net
24
<PAGE>
cash provided by financing activities was $305,909 and included net advance of
long-term debt of $166,712 and net advances from related parties of $149,241.
Effective as of May 31, 2000, the Company, through a wholly-owned subsidiary
incorporated pursuant to the laws of the Province of Ontario ("Subco"),
completed the acquisition of CableTec Communications Inc. (formerly Bernie Tan
Investments Inc.) ("CableTec"). Subco had entered into a definitive share
purchase agreement to acquire CableTec on January 25, 2000 (the "Agreement").
Pursuant to the terms of the Agreement, Subco agreed to acquire all of the
outstanding shares of CableTec in consideration for the payment of Cdn$1.5
million. The transaction was originally intended to close in February, 2000.
The terms of the Agreement were amended in March and in May, 2000 to, amongst
other things, extend the closing date to May 31, 2000. In addition, the
Agreement was amended to grant Bernard Tanunagara, currently President of the
Company's CableTec Communications subsidiary, an option to acquire up to 200,000
common shares of the Company at an exercise price of Cdn$7.50 per share (the
"Option"). Effective as of May 31, 2000, the transaction was completed and the
cash consideration of Cdn$1.5 million was paid, and the Option was granted, to
Bernard Tanunagara.
Goepel McDermid Inc. "Goepel McDermid" and the Company signed an Engagement
Agreement, with a term of ninety (90) days, on July 24, 2000 for the purpose of
assisting the Company in raising approximately $50 million (US$) by means of
a private placement financing (the "Financing") or any other method available
should the terms of such financing be acceptable to the Company. The financing
may be arranged in several tranches to be determined. In the event that the
Financing is achieved, the Company agreed to pay to the Goepel McDermid on the
date upon which the Financing is completed a commission of 5% of all funds
raised pursuant to the Financing, regardless of the precise form of the
Financing whether debt or equity. The Company agreed to grant to the Goepel
McDermid upon the completion of the Financing a right to purchase up to 10%
of the securities issued by the Company pursuant to the Financing and on the
same terms as the Financing. This option shall be exercisable at any time within
two years of the completion of the Financing. As part of this agreement, the
Goepel McDermid agreed to act as sponsor for the Company for listing on the
Toronto Stock Exchange at any time until July 24, 2001. There can be no
assurance that Goepel McDermid will succeed with the Financing on behalf of the
Company.
QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company currently has no items that relate to "trading portfolios". The
Company did not include trade accounts payable and trade accounts receivable in
the "other than trading portfolio" because their carrying amounts approximate
fair value. We may from time to time enter into interest rate protection
agreements.
25
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently involved in any pending legal proceedings that are expected
to have a material adverse effect on our business. We may from time to time
become involved in legal proceedings in the ordinary course of our business.
Item 2. Changes in Securities and Use of Proceeds
On May 11, 2000, a change in control of the Company occurred, a new Board of
Directors was elected and new management was appointed, all as described in
greater detail under Item 5 below. Prior to such change in control, the Company
issued in a registered public offering 510,000 shares of its common stock
bringing the total issued and outstanding shares of common stock to 5,510,210,
from which it derived proceeds of $51,000. To the knowledge of current
management of the Company, substantially all of such proceeds were expended on
preliminary studies to explore and develop mineral properties. The Company has
discontinued all mining operations. On May 11, 2000, the Company filed a
Certificate of Amendment of its Articles of Incorporation providing for the
change of the corporation's name from Paxton Mining Corporation to Universe2U
Inc. On May 11, 2000, the Company also amended its By-Laws with respect to
certain ministerial issues, including provisions related to provision of the
date, time and place of the annual meeting of shareholders of the Company to be
designated by the Board of Directors and for the directors to be elected by a
plurality, in lieu of a plurality of 60% of the votes as previously specified.
On May 15, 2000, the Board of Directors of the Company authorized a dividend in
the form of shares of its Common Stock, to be distributed to its stockholders of
record as of the close of business on May 25, 2000. After giving effect to the
share dividend, such stockholders of record received 19 additional shares for
each one share held at the record date (equivalent to a ratio of 20 shares of
Common Stock for each one share of Common Stock held at the close of business on
the record date). Giving effect to the distribution of the share dividend and
subsequent share issuances, the Company had 36,357,000 shares of Common Stock
issued and outstanding at June 30, 2000. The Company did not receive any
proceeds in connection with the share dividend. See also, Item 5 with regard to
information regarding the Company's securities.
On May 17, 2000, the Company issued 250,000 shares in a special purpose wholly
owned Ontario subsidiary, exchangeable for an aggregate of 5,000,000 shares of
Company common stock, to Angelo Boujos, Josie Boujos, Andrew Eyres and William
McGill in connection with the acquisition of Universe2U Inc. (Ontario) (such
amount to be issued upon exchange giving effect to adjustment to reflect the
Company's 19-for-1 stock dividend).
In connection with the Company's acquisition of CableTec Communications Inc. on
May 31, 2000, the Company granted Mr. Bernard Tanunagara, President of the
Company's CableTec Communications subsidiary, an option to acquire up to 200,000
common shares of the Company at an exercise price of Cdn$7.50 per share (the
"Option"). As of the date of this filing, Mr. Tanunagara has not exercised the
Option.
On May 26 and May 27, the Company issued shares in a special purpose wholly
owned Ontario subsidiary, exchangeable for an aggregate of 833,000 shares of
common stock in connection with the conversion of debentures held by thirteen
Non-U.S. investors. Such debentures had been issued by Universe2U Inc. (Ontario)
prior to
26
<PAGE>
its acquisition by the Company. The Company relied upon Regulation S under the
Securities Act of 1933, as amended (the "Securities Act") with respect to the
exemption from registration for issuance of the foregoing securities.
In June 2000, the Company issued an aggregate of 200,000 shares of common stock
at a purchase price of $5.00 per share to three non-U.S. institutional investors
as part of a private placement offering under Regulation S of the Securities
Act. Such issuance was made by the Company pursuant to a Financial Consulting
Agreement dated as of May 17, 2000 and amended as of July 25, 2000 between the
Company and First Union Asset Management Ltd., a Bahamian corporation ("First
Union") that provides for First Union to assist the Company to privately place
with non-U.S. Persons up to one million shares of restricted common stock at
$5.00 per share and warrants exercisable for one million shares of restricted
common stock $5.00 per share (as amended, the "First Union Agreement"), under
the exemptions from registration provided by Regulation S of the Securities Act.
In consideration for rendering such services, First Union shall be entitled to
receive 10% of the funds raised by the Company in such private placement. The
First Union Agreement shall terminate upon the earlier of the completion of the
private placement on or before September 9, 2000. The Company has accrued, but
not yet paid, commissions of 10% of such funds raised by First Union. Mr. Barry
Herman, a director of the Company, is President of First Union.
In June 2000, the Company issued 20,000 shares of common stock at a purchase
price of $5.00 per share to one accredited investor. The Company relied upon
Section 4(2) of the Securities Act for purposes of exemption of such securities
from the registration requirements of the Securities Act.
Mr. Angelo Boujos, Chairman of the Company converted indebtedness of the Company
to him to Common Stock of the Company. Prior to the acquisition of Universe2U
Inc., an Ontario corporation (the "Ontario Company"), Mr. Boujos had advanced
approximately $429,000 to the Ontario Company. Mr. Boujos entered into an
agreement dated as of June 9, 2000 to convert all of such amount to 100,000
shares of Common Stock at a purchase price of $4.29 per share. The Company
relied upon Section 4(2) of the Securities Act for purposes of exemption of such
securities from the registration requirements of the Securities Act.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
On May 11, 2000, pursuant to action by written consent, a majority of the
shareholders of the Company approved amendment of the Company's Articles of
Incorporation providing for the change of the corporation's name from Paxton
Mining Corporation to Universe2U Inc. The number of shares of the Corporation
outstanding and entitled to vote on such amendment to the Articles of
Incorporation were 5,510,400. Such amendment was consented to and approved by
the affirmative vote of 5,000,000 shares, 510,400 outstanding shares did not
vote and no shares voted against the amendment.
Item 5. Other Information.
On May 11, 2000, a change of control occurred with respect to the stock
ownership of Paxton Mining Corporation, a Nevada corporation (the "Company").
The change of control was effected in a third party purchase of stock involving
the transfer of
27
<PAGE>
an aggregate of 5,000,000 shares of the Company's outstanding Common Stock, par
value $.00001 per share (the "Common Stock") to investors led by First Union
Asset Management Ltd. ("First Union"). The controlling interest acquired by
First Union was purchased for aggregate consideration of $500,000 that was paid
in cash to two of the former stockholders of the Company, Messrs. Hugh Grenfal
and Robert Jarva (the "Selling Stockholders") in exchange for all of their
respective shares of Company Common Stock. The change of control was made in
connection with the Company's acquisition of Universe2U Inc., an Ontario
corporation (the "Ontario Company") which is discussed in greater detail under
Item 2 below (the "Acquisition"). Following the foregoing third party purchase
of Company Common Stock and as a condition of the Company's acquisition of the
Ontario Company, an aggregate of 4,000,000 shares of Common Stock was tendered
to the Company by First Union and cancelled by the Company without payment and
250,000 shares of exchangeable securities of a wholly owned special purpose
acquisition subsidiary of the Company were issued to the stockholders of the
Ontario Company in exchange for all of the outstanding stock of the Ontario
Company. After giving effect to the foregoing transactions, the following
persons as a group hold control of an aggregate of 695,622 shares of Company
Common Stock constituting approximately 41% of all outstanding shares of Company
Common Stock: Angelo Boujos, Josie Boujos, Andrew Eyres and William McGill (the
"Principals"). To the knowledge of Company management such amount of stock held
by the Principals constitutes a controlling interest in the Company. In
connection with the change of control, the Selling Stockholders appointed new
directors and thereafter resigned as directors and officers of the corporation.
The change of the Company's Board of Directors is discussed in greater detail
under Item 6 below. After giving effect to all of the foregoing transactions,
and to the knowledge of Company management as of May 24, 2000, neither First
Union nor any other investors, either individually or together with any of their
respective affiliates, hold more than 5% of the Company's outstanding securities
except with respect to the Principals as noted above. To the knowledge of the
Company there are no arrangements the operation of which may at a subsequent
date result in another change in control of the Company, including any pledge by
any person of securities of the Company.
On May 17, 2000, the Company consummated the acquisition of Universe2U Inc., an
Ontario Company (the "Ontario Company"). The Ontario Company is a provider of
advanced fiber optic solutions that enable corporations, government
organizations, and entire communities to gain high-speed access to the Internet,
telecommunications, and other data networks. The Company believes that the
Ontario Company has a strong reputation in the marketplace with respect to its
top experts in the design, engineering, construction, and maintenance of long-
haul, regional, and last-mile fiber optic networks. The Company believes that
the Ontario Company is well positioned for growth as demand for greater
bandwidth continues to escalate throughout North America. The Ontario Company is
comprised of four operating units and is pursuing business on two levels:
(1) Through ongoing contracts to design, build, and market fiber optic
networks for major telephone and cable television companies; and,
(2) As a pioneer in developing "Smart Community" networks in partnership
with local governments, institutions, businesses, and utilities, which
the Company believes constitute a high-growth opportunity to service
roughly two-thirds of the North American population that live outside
of major urban centers where most investment in high-speed network
infrastructure has been focused to date.
In connection with the Acquisition, the Company announced that it would
discontinue its mining operations and focus on the business of the Ontario
Company. In connection with the Acquisition, the Company changed its name from
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Paxton Mining Corporation to Universe2U Inc. and also changed its trading symbol
on the OTC Bulletin Board from PXTN to UTOU.
In connection with the change of control, the former directors of the Company,
Hugh Grenfal and Robert Jarva, resigned their positions as members of the
Company's Board of Directors. To the knowledge of the Company's management,
Messrs. Grenfal and Jarva did not have any disagreements with the Company on any
matter relating to the Company's operations, policies or practices. In
conjunction with the foregoing resignations and the Acquisition, Barry Herman,
Michael I. Serotte, Anthony Palumbo, Kim Allen, Paul Pathak and Connie Colangelo
were elected directors of the Company and Mr. Angelo Boujos was elected chairman
of the Board.
On June 9, 2000 the Board of Directors of the Company adopted the Universe2U
Inc. 2000 Equity Incentive Plan (the "Plan"), providing for reservation of
1,500,000 shares of Company common stock. Under the terms and conditions of the
Plan, employees, non-employee directors and consultants providing services to
the Company may be offered options exercisable for the purchase of common stock
and other equity interests in the Company. The securities to be issued under
the plan are intended to be treated as qualified incentive stock options for
purposes of Section 422 of the U.S. Internal Revenue Code. As of June 30, 2000,
no options or other securities had been issued under the Plan.
During the quarterly period ended June 30, 2000, the Company granted
nonqualified stock options to certain consultants to the Company and to certain
personnel serving as officers and directors of the Company at exercise prices
below fair market value. Among such persons are the following, whose options
vest and become exercisable as indicated below, except in the event of a change
of control of the Company in which case all of such options shall vest and
become immediately exercisable:
. Kim Allen, the Company's CEO and a director of the Company, was granted
options on May 5, 2000, exercisable for 500,000 shares of Common Stock, at
a purchase price of $.01 per share, that vest and become exercisable on
June 9, 2001.
. Jeffrey Rosenthal, President of the Company's subsidiary, Fiber Optics
Corporation of Canada, was granted options on April 19, 2000, which options
are exercisable at a purchase price of $.01 per share for an aggregate of
5,000 shares of Common Stock, and which options vest and become exercisable
on April 19, 2002.
. Paul Pathak, a director of the Company, was granted options on May __,
2000, which options are exercisable at a purchase price of $.01 per share
for an aggregate of 50,000 shares of Common Stock, and which options vest
and become exercisable on June 9, 2001.
. The law firm of Wuersch & Gering LLP, counsel to the Company, was granted
options on May 5, 2000, which options are exercisable at a purchase price
of $.01 per share for an aggregate of 50,000 shares of Common Stock, and
which options vest and become exercisable on June 9, 2001.
Effective June 15, 2000, the Company appointed the accounting firm of Moore
Stephens Cooper Molyneux LLP, Toronto, Ontario Canada, as new accountants of the
Company, to replace the former accounting firm of Williams & Webster, P.S.,
Spokane, Washington.
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ITEM 6. EXHIBITS AND REPORTS
FORM 8-K FILINGS:
-----------------
Form 8-K, filed May 25, 2000, reporting the following: changes in control of the
Company, acquisition of significant assets, a 19-for-1 stock dividend, change of
the Company name from Paxton Mining Corporation to Universe2U Inc., change of
the Company's trading symbol on the OTC Bulletin Board from PXTN to UTOU, change
of the Company's directors, an undertaking to file an amendment containing
financial statements regarding the significant acquisition within 60 days, and a
change of the Company's fiscal year.
Form 8-K, filed June 16, 2000, reporting change of the Company's certifying
accountant.
EXHIBITS.
Exhibit No. Description of document
----------- -----------------------
3.1(a) Certificate of Incorporation as filed with the Commission as
Exhibit 3.1 to Paxton Mining Corporation's Form SB-2 filed on
September 1, 1999, is incorporated by reference.
3.1(b) Certificate of Amendment of Articles of Incorporation
3.2 By-laws
4.1 Specimen Stock Certificate
10.1 Share Purchase Agreement dated January 25, 2000, between 1348485
Ontario Inc. and Bernie Tan Investments Inc. o/a Cable Tec
Communications and Bernard Tanunagara and Barbara Tanunagara and
Edward Tanunagara.
10.2 Amending Agreement dated March 1, 2000, between Universe2U Inc.
(formerly 1348485 Ontario Inc.), Bernie Tan Investments Inc. o/a
Cable Tec Communications, Bernard Kris Tanunagara, Barbara J.
Tanunagara and Edward Tanunagara.
10.3 Second Amending Agreement dated May 31, 2000, between Universe2U
Inc. (formerly 1348485 Ontario Inc.), Bernie Tan Investments Inc.
o/a Cable Tec Communications, Bernard Kris Tanunagara, Barbara J.
Tanunagara and Edward Tanunagara.
10.4 Share Option Agreement dated May 31, 2000 between Universe2U
Inc., and Bernard Kris Tanunagara.
10.5 Escrow Agreement dated May 31, 2000, between Universe2U Inc.
(formerly 1348485 Ontario Inc.), Bernard Tanunagara, Barbara
Tanunagara, Edward Tanunagara and Rigobon, Carli, Barristers &
Solicitors.
10.6 Indemnification Agreement between Universe2U Inc. and Indemnitee.
10.7 Executive Employment Agreement dated November 24, 1999 between
1348485 Ontario Inc. and Kim Allen.
10.8 Executive Employment Agreement dated December 22, 1999 between
Universe2U Inc. and Angelo Boujos.
10.9 Executive Employment Agreement dated December 21, 1999 between
Canadian Cable Consultants Inc. and William McGill.
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10.10 Executive Employment Agreement dated June 1, 2000 between
Universe2U Inc. and Andrew Eyres.
10.11 Executive Employment Agreement dated April 19, 2000, between
Fiber Optic Corporation of Canada and Jeff Rosenthal.
10.12 Employment Agreement dated May 31, 2000 between CableTec and
Bernard Tanunagara.
10.13 Share Purchase Agreement dated May 16, 2000, between Universe2U,
1418276 Ontario Inc., Universe2U Inc., Angelo Boujos, Josie
Boujos, Josie Boujos, in trust, Bill McGill and Andrew Eyres.
10.14 Share Exchange Agreement dated May 16, 2000, between Universe2U
Inc., 1418276 Ontario Inc., Angelo Boujos, Josie Boujos, Josie
Boujos, in trust, Bill McGill and Andrew Eyres.
10.15 Support Agreement dated May 16, 2000, between Universe2U Inc.,
1418276 Ontario Inc., Angelo Boujos, Josie Boujos, Josie Boujos
in trust, Bill McGill and Andrew Eyers.
10.16 Engagement Letter Agreement dated July 17, 2000 between
Universe2U Inc., and First Union Asset Management.
10.17 Waiver and Release dated May 17, 2000 between Universe2U Inc.,
and First Union Asset Management.
27 Financial Data Schedule
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UNIVERSE2U INC.
By: /s/ Kim Allen Date: August 21, 2000
Kim Allen, CEO
By: /s/ R. John Slattery Date: August 21, 2000
R. John Slattery
Executive Vice President, Finance and
Chief Financial Officer
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