<PAGE>
As filed with the Securities and Exchange Commission on September 15, 2000
Registration Statement No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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UNIVERSE2U INC.
(Exact Name of Registrant as Specified in its Charter)
Nevada 1731 88-0433489
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(State or other Industrial Class Code (I.R.S. Employer
jurisdiction Identification No.)
of incorporation)
30 West Beaver Creek Rd. - Suite 109
Richmond Hill, Ontario, Canada L4B 3K1
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (905) 881-3284
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Kim Allen
Chief Executive Officer
Universe2U Inc.
30 West Beaver Creek Rd. - Suite 109
Richmond Hill, Ontario, Canada L4B 3K1
(905) 881-3284
--------------------------------------------------------------------------------
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Travis L. Gering
Wuersch & Gering LLP
11 Hanover Square - 21st Floor
New York NY 10005
Telephone: (212) 509-5050
Fax: (212) 509-9559
--------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
--------------
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the SEC, acting pursuant to Section 8(a), may
determine.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=====================================================================================================
Proposed
maximum Proposed
Amount of offering maximum Amount of
Title of each class of securities to be price per aggregate registration
securities to be registered registered share offering price fee
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock (1) 420,000 shares $5.75 $2,415,000 $ 639.00
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Common stock underlying warrants (2) 420,000 shares $5.00 (3) $2,100,000 $ 554.00
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Common stock underlying
exchangeable shares (4) 833,000 shares $5.75 $4,789,750 $1,265.00
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TOTAL 1,673,000 shares (5) $9,304,750 $2,459.00
=====================================================================================================
</TABLE>
(1) The amount of the registration fee with respect to such securities has
been calculated in accordance with Rule 457(c).
(2) The number of shares of the registrant's common stock to be registered in
connection with the exercise of outstanding warrants has been determined
based upon outstanding warrants to purchase up to 420,000 shares of the
registrant's common stock.
(3) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(g).
(4) The number of shares of the registrant's common stock to be registered in
connection with the exchange of outstanding exchangeable securities has
been determined based upon outstanding securities issued by an Ontario,
Canada subsidiary of the registrant which are exchangeable for 833,000
shares of the registrant's common stock.
(5) Under Rule 416 under the Securities Act this registration statement also
registers such number of additional securities that may be offered as a
result of stock splits, stock dividends and antidilution provisions in
accordance with the terms and conditions of the warrants, of which the
underlying shares of common stock are registered hereby.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 15, 2000
PRELIMINARY PROSPECTUS
[LOGO OF UNIVERSE2U]
1,673,000 Shares of Common Stock
--------------
This Registration Statement covers the registration for resale by selling
security holders up to an aggregate of 1,673,000 shares of restricted common
stock of Universe2U Inc., a Nevada corporation. Such shares are being registered
on behalf of purchasers of restricted securities in private placements of the
registrant. Such shares to be registered for resale consist of (a) 420,000
shares of common stock, (b) 833,000 shares of common stock to be issued to the
holders of outstanding exchangeable securities upon exercise of such exchange
that were issued by an Ontario, Canada subsidiary of the company, and (c) up to
420,000 shares of common stock following issuance to the holders of outstanding
warrants upon the exercise of such warrants.
The prices at which the selling security holders may sell the securities will be
determined by the prevailing market price for the shares or through negotiated
transactions. We will not receive any of the proceeds from the resale of the
shares of commons stock underlying the securities, however, we are paying for
the costs of registering the shares of common stock covered by this prospectus.
The selling security holders will receive all of the amounts received upon any
sale by them of the securities, less any brokerage commissions or other expenses
incurred by them. We will not receive any proceeds from the resale of shares of
common stock offered in this prospectus. We will not receive any proceeds from
the issuance of shares of common stock to the holders of outstanding
exchangeable securities that were issued by an Ontario, Canada subsidiary of the
company upon exercise of such exchange rights. We will receive $5.00 per share
upon the issuance of shares of common stock to holders of 420,000 warrants
following exercise of such warrants, but we will not receive any proceeds from
the resale of the underlying shares of common stock that are offered in this
prospectus.
The information in this preliminary prospectus is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission becomes effective. This preliminary
prospectus is not an offer to sell these securities nor a solicitation of an
offer to buy these securities in any jurisdiction where the offer or sale is not
permitted.
See "Risk Factors" beginning on page 8 about risks you should consider before
buying shares of our common stock.
Neither the Securities and Exchange Commission nor any state securities
commission nor any other regulatory body has approved or disapproved of these
securities or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
The common stock of Universe2U Inc. trades under the symbol "UTOU" on the Over-
The-Counter Bulletin Board (OTC/BB).
<PAGE>
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TABLE OF CONTENTS
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Page
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Prospectus Summary....................................................... 2
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 33
Dividend Policy.......................................................... 33
Capitalization........................................................... 34
Dilution................................................................. 35
Market for Common Equity and Related Stockholder Matters................. 35
Selling Security Holders................................................. 36
Plan of Distribution..................................................... 38
Selected Financial Data.................................................. 41
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 42
Business................................................................. 52
Management............................................................... 73
Principal Stockholders................................................... 81
Certain Relationships and Related Transactions........................... 83
Description of Capital Stock............................................. 86
Shares Eligible for Future Sale.......................................... 89
Legal Matters............................................................ 90
Experts.................................................................. 90
Additional Information................................................... 91
Definitions of Terms .................................................... 92
Where You Can Find Additional Information................................ 99
Index to Financial Statements............................................ F-1
PART II
Other Expenses of Issuance and Distribution.............................. II-1
Indemnification of Directors and Officers................................ II-1
Recent Sales of Unregistered Securities.................................. II-2
Exhibits and Financial Statement Schedules............................... II-3
Undertakings............................................................. II-3
Signatures............................................................... II-5
<PAGE>
PROSPECTUS SUMMARY
The following summary provides an overview of selected information and does not
contain all the information you should consider. Therefore, you should also read
the more detailed information set out in this prospectus and the financial
statements.
OUR COMPANY
Universe2U Inc.
----------------
We are a Nevada corporation. We were incorporated as Paxton Mining Corporation
on June 19, 1999. Our company is the product of an acquisition, completed on
May 17, 2000, in which Paxton Mining Corporation, our predecessor company,
acquired all of the outstanding shares of Universe2U Inc. Upon completion of
the acquisition, we changed our corporate name to Universe2U Inc.
Prior to the acquisition, under the name Paxton Mining Corporation, we were a
very early stage development stage company originally organized to acquire,
explore and develop mining properties. Due to disappointing results, we decided
to pursue another line of business. We acquired Universe2U Inc., then 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. 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;
. marketing services; and
. network servicing.
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
and businesses; and "Smart Network Links" in partnership with right-of-way
owners.
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We believe that our two-prong business strategy exploits growth opportunities in
Tier 2 and Tier 3 communities, where roughly two-thirds of the North American
population is located, as well as 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.
We believe that our independence, network architecture and turnkey solutions
provide attractive and competitive attributes for our business. We expect to
enable our customers to establish and maintain a strong competitive position in
providing services to their own respective end users.
Our business strategy focuses on the concept that each of our wholly-owned
subsidiaries is responsible for establishing and growing its own unique
profitable organizations. We achieve this through the development of
relationships in their core strength area, introduction of best practices and
the provision of contractual services. The individual companies may act as
service providers to other telecommunications companies.
As a solutions integrator, our subsidiaries are integrated business units to
provide turnkey solutions. 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 will
all be designed on this basis. Where initially the primary revenue stream may be
from the individual companies, we expect the longer term profitability 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 & Design Inc. (network and system design);
. Coastal Network Services Inc. (fiber optic network installation);
. Multilink Network Services Inc. (network sales);
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. CableTec Communications Inc. (underground construction); and
. Universe2U Right-of-Ways Agency Inc. (right-of-way broker).
The address of our principal executive offices is 30 West Beaver Creek Road,
Suite 109, Richmond Hill, Ontario, Canada L4B 3K1 and our telephone number is
905-881-3284, our fax number is 905-881-1152. Our website address is
www.universe2u.com. Two of our subsidiaries also maintain websites: Canadian
Cable Consultants' website is www.canadiancable.com and Fiber Optics Corporation
of Canada's website is www.fiberopticscorp.com. The information contained in
our website and the websites of our subsidiaries is not a part of this
prospectus.
THE OFFERING
This prospectus relates to the offering for resale by selling security holders
of the following shares of common stock:
. 420,000 shares of our common stock, on behalf of purchasers who purchased
these shares in our private placement;
. 833,000 shares of our common stock, on behalf of private placement purchasers
who hold securities in our Ontario, Canada subsidiary that are exchangeable
for shares of common stock in our company; and
. 420,000 shares of our common stock to be issued to holders of outstanding
warrants upon exercise of those warrants.
All information in this prospectus regarding shares of common stock and per
share amounts has been adjusted to reflect our 19-for-1 stock dividend which
occurred on May 25, 2000.
See "THE OFFERING" and "DESCRIPTION OF CAPITAL STOCK."
----------------
We have not authorized anyone to give any information or make any representation
about us that differs from, or adds to, the information in this prospectus or in
our documents that are publicly filed with the Securities and Exchange
Commission. The information contained in this prospectus speaks only as of our
date unless the information specifically indicates that another date applies.
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SUMMARY OF FINANCIAL INFORMATION
You should read the following summary of financial information together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes, all of which
appear elsewhere in this Registration Statement.
In connection with the acquisition of Universe2U Inc. (Ontario) and the name
change from Paxton Mining Corporation to Universe2U Inc., we changed our fiscal
year end to December 31 of each year.
The acquisition of Universe2U Inc. (Ontario) by Universe2U Inc. (Nevada)
(formerly Paxton Mining Corporation) on May 17, 2000, is considered a reverse
acquisition for accounting purposes with Universe2U Inc. (Ontario) considered to
be the acquiror and Universe2U Inc. (Nevada) the acquiree. As a result of this
accounting treatment, ongoing results are presented as a recapitalization of
Universe2U Inc. (Ontario) and historical results presented are those of
Universe2U Inc. (Ontario).
The acquisition of CableTec Communications Inc. ("CableTec") (formerly Bernie
Tan Investments Inc.) on May 31, 2000 has been accounted for under the purchase
method of accounting. As a result of this accounting treatment, revenues and
expenses of CableTec have been included only from the acquisition date.
Financial information does not purport to be indicative of results which may be
obtained in the future.
[Summary of Financial Information Appears on the Following Page]
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<TABLE>
<CAPTION>
Six Months Ended Year Ended
--------------------------- -----------------------------------
June 30, June 30, Dec. 31, Dec. 31,
2000 1999 1999 1998
(1)
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenue $ 2,601,359 $ 229,435 $ 1,614,496 $ 472,569
Income (loss) from
continuing operations ($754,299) ($194,502) ($426,723) ($39,540)
Net income (loss)
for the period ($754,299) ($194,502) ($426,723) ($39,540)
Net income (loss)
per common share ($0.02) ($0.01) ($0.01) -
Weighted average
number of common
shares 35,402,204 35,204,000 35,204,000 35,204,000
Cash dividends per
common share - - - -
BALANCE SHEET DATA:
Total assets $ 3,192,746 $ 545,127 $1,301,758 $ 512,401
Working capital ($353,792) ($424,921) $ 130,808 $ 101,577
Long-term obligations $ 60,795 $ 309,021 $1,116,233 $ 386,824
(Deficit)
shareholders' equity ($1,220,562) ($234,042) ($466,263) ($39,540)
</TABLE>
(1) The company commenced operations in August 1998.
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RISK FACTORS
RISK FACTORS RELATING TO OUR BUSINESS
You should carefully consider the information below in addition to all other
information provided to you in this prospectus, the accompanying Prospectus and
the documents incorporated by reference in deciding whether to invest in the
securities offered herein, including information in the section entitled
"forward looking statements."
WE HAVE A LIMITED HISTORY OF OPERATIONS
You will have limited historical financial information upon which to base your
evaluation of our performance. Our company is a holding company that has a
limited operating history. We currently have a limited number of customers and
are still in the process of building many of our networks. Accordingly, you must
consider our prospects in light of the risks, expenses and difficulties
frequently encountered by companies in their early stage of development. We
expect to incur losses.
Our business has grown rapidly and our business model is still evolving, which
makes it difficult to evaluate our prospects. We have grown our business rapidly
and have experienced losses in our efforts to penetrate our market. We will
continue to make substantial capital expenditures in deploying our Smart
networks before we know whether our business plan can be successfully executed.
As a result, there is a risk that our business will fail. Additionally, our
limited operating history makes it difficult to evaluate the execution of our
business model thus far. Furthermore, because the market for services of turnkey
infrastructure providers is not well established, it is difficult for you to
compare our company with our competitors.
We are an early-stage company in an unproven industry and if we do not grow
rapidly or obtain additional capital we will not succeed.
WE MAY INCUR LOSSES
In connection with the construction of our networks, there can be no assurance
that we will generate net income or that we can sustain positive cash flow in
the future.
We cannot assure you that we will succeed in establishing an adequate revenue
base or that our services will generate profitability. In connection with the
construction of our networks, we expect to concentrate on the development and
construction of our networks until our Smart networks has established a
sufficient revenue-generating customer base. We also expect to incur losses
during the initial startup phases of any services that we may provide. We may
continue to experience net operating losses for the foreseeable future.
Continued losses may prevent us from pursuing our strategies for growth and
could cause us to be unable to meet our obligations, capital expenditure
requirements or working capital needs.
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WE MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR BUSINESS STRATEGY BECAUSE WE
DEPEND ON FACTORS BEYOND OUR CONTROL, WHICH COULD ADVERSELY AFFECT OUR RESULTS
OF OPERATIONS
Our future largely depends on our ability to implement our business strategy and
proposed expansion. We intend to take an equity position in the networks we
build. Our strategy relies on growth through acquisition. Our results of
operations will be adversely affected if our equity positions do not provide a
reasonable rate of return. Our results of operations will be adversely affected
if we cannot fully implement our business strategy or do not complete the
acquisitions we need. Our results of operations will be adversely affected if
we cannot persuade the right-of-way owners (the communities, the utilities and
the building owners) of the merits of building telecommunication networks on
their right-of-way. Successful implementation depends on numerous factors
beyond our control, including:
. economic and political factors;
. other companies and any new emerging companies that will try to replicate our
model;
. the willingness of the communities to establish public-private partnerships
and compete directly with other private sector companies;
. addressing competitive market conditions quickly and cost effectively;
. negotiating reasonable rates of return for use of right-of-way;
. obtaining regulatory approvals and permits (each community requires permits
before starting construction, usually a lengthy process);
. telecommunications regulations placed on content provider;
. franchise rights granted by some communities, which have a typical expiration
date of 5 to 10 years;
. obtaining right-of-way on reasonable terms;
. attracting and retaining high-quality operating personnel and management;
. continuing to implement and improve our operational systems;
. shortages of materials, equipment or skilled labor;
. unforeseen design, engineering, environmental or geological problems;
. work stoppages, weather interference and floods; and
. unanticipated cost increases.
OUR INABILITY TO IMPLEMENT OUR NETWORKS STRATEGY AND MANAGE OUR GROWTH COULD
IMPAIR OUR OPERATING RESULTS.
Our success will depend upon our ability to secure a market for our Smart
networks. We must also obtain and maintain contractual and other relationships
with telecommunications service providers, Internet service providers,
application service providers, storage service providers, municipalities,
utilities and large organizations with enterprise network needs. If we are
unable to enter into contracts, comply with the terms of contracts or maintain
relationships with these constituencies, our operations would be materially and
adversely affected. Some of our current contracts to supply fiber capacity will
allow the buyer or lessee to terminate the contracts and provide for liquidated
damages if we do not supply the stated
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fiber capacity by a specified time. Terminating any of these contracts would
adversely affect our operations and financial results.
We intend to expand our range of services by providing various network services
to carriers and other service providers. We may enter into joint ventures where
we or our partners supply the venture with ducts, dark fiber by facilitating the
involvement of third party suppliers, vendors and contractors. We cannot assure
you that a market will develop for any new services, that implementing these
services will be technically or economically feasible, that we can successfully
develop or market them or that we can operate and maintain our new services
profitably.
In order to reach our operating and financial goals, we must substantially
increase the revenue generated from our Smart networks. If we do not develop
long-term commitments with new large-volume customers, we will be unable to
increase the use of our Smart networks, which would adversely affect our
profitability.
A CHANGE IN ACCOUNTING STANDARDS MAY REQUIRE US TO CHANGE OUR TIMING OF
RECOGNIZING REVENUES
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. "Dark fiber" is fiber optic cable
without any of the electronic or optronic equipment necessary to use the fiber
for transmission. 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. Please refer to "Management's Discussion and Analysis of Financial
Condition and Results of Operations--General."
WE MAY BE UNABLE TO RAISE THE ADDITIONAL FINANCING NECESSARY TO COMPLETE THE
CONSTRUCTION OF OUR NETWORKS, WHICH WOULD ADVERSELY AFFECT OUR LONG-TERM
BUSINESS STRATEGY
We expect to be able to raise money through private placements to finance our
operations until the company can become profitable and to reduce our need to
rely on debt financing, however, there can be no assurance in this regard. We
have no assurance that future equity or debt financing will be available to us
on acceptable terms. If such financing is not available on satisfactory terms,
we may be unable to continue, develop or expand our operations. Equity financing
could result in additional dilution to existing stockholders.
We plan to use the net proceeds from our recent private placements to accelerate
the build out of networks, including the funding needed to establish Multilink,
our Smart Network Link sales company. This includes
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perfecting the right-of-way on our Detroit-Chicago route. We may need to obtain
additional and alternative sources of financing to complete the construction of
our networks, as the cost of the build-out for this network could exceed
$50,000,000, which may not be available on comparable terms, if at all.
Right-of-way owners generally expect the network builder to fund the
construction of the network. Locating an alternative financing source could slow
our growth and have a material adverse affect on us.
We may need significant amounts of additional capital to complete the build-out
of our planned fiber optic communications networks, to expand network
infrastructure and to meet our long-term business strategies, including
acquisitions, expanding our operations to additional communities and
constructing our networks. Our inability to raise additional funds will have an
adverse effect on our operations. If we decide to raise additional funds by
incurring debt, we may become subject to restrictive financial covenants and
financial ratios.
Our ability to arrange financing and the cost of financing depends upon many
factors, including:
. general economic and capital markets conditions;
. conditions in the telecommunications and Internet markets;
. regulatory developments;
. credit availability from banks or other lenders;
. investor confidence in the telecommunications and Internet industries and in
us;
. the success of our fiber optic communications network and Internet services;
and
. provisions of tax and securities laws that are conducive to raising capital.
WE MAY NOT BE ABLE TO EFFICIENTLY MANAGE OUR GROWTH, WHICH COULD HARM OUR
BUSINESS
Future expansion and acquisitions will place significant additional strains on
our personnel, financial and other resources. The failure to efficiently manage
our growth could adversely affect the quality of our services, our business and
our financial condition. Our ability to manage our growth will be particularly
dependent on our ability to develop and retain an effective sales force and
qualified technical and managerial personnel. The competition for qualified
sales, technical and managerial personnel in the communications industry is
intense, and we may not be able to hire and retain sufficient qualified
personnel. In addition, we may not be able to maintain the quality of our
operations, to control our costs, to maintain compliance with all applicable
regulations, and to expand our internal management, technical, information and
accounting systems in order to support our desired growth.
OUR BUSINESS DEPENDS ON A LIMITED NUMBER OF KEY PERSONNEL THE LOSS OF WHOM COULD
ADVERSELY AFFECT OUR BUSINESS.
Our business is managed by a small number of key management and operating
personnel. We believe that the success of our business strategy and our
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ability to operate profitably depend on the continued employment of our senior
management team led by Kim Allen, Chief Executive Officer and Angelo Boujos,
Chairman of the Board of Directors. Our business and financial results could be
materially affected if Mr. Allen, Mr. Boujos or other members of our senior
management team became unable or unwilling to continue in their present
positions. Our acquisition strategy includes retaining the key management and
operating personnel, the loss of which may adversely affect performance of the
operating company and thus adversely affect the results of Universe2U.
OUR BUSINESS IS LABOR INTENSIVE, AND IF WE CANNOT ATTRACT AND RETAIN QUALIFIED
EMPLOYEES WE MAY NOT BE ABLE TO IMPLEMENT OUR GROWTH STRATEGY.
Labor shortages or increased labor costs could have a material adverse effect on
our ability to implement our growth strategy and our operations. Our business is
labor intensive, and many of our operations experience a high rate of employee
turnover. The low unemployment rate in the United States has made it more
difficult for us to find qualified personnel at low cost in some areas where we
operate. As we offer new services and pursue new customer markets we will also
need to increase our executive and support personnel. We cannot assure you that
we will be able to continue to hire and retain a sufficient skilled labor force
necessary to operate efficiently and to support our growth strategy or that our
labor expenses will not increase as a result of a shortage in the supply of
skilled personnel.
WE MAY NOT BE ABLE TO SUCCESSFULLY IDENTIFY, MANAGE AND ASSIMILATE FUTURE
ACQUISITIONS, INVESTMENTS AND STRATEGIC ALLIANCES, WHICH WOULD ADVERSELY AFFECT
OUR RESULTS OF OPERATIONS
We have in the past, and may in the future, acquire, make investments in, or
enter into strategic alliances, including joint ventures in which we hold less
than a majority interest, with companies which have customer bases, switching
capabilities, existing networks or other assets in our current markets or in
areas into which we intend to expand our networks. Any acquisitions,
investments, strategic alliances or related efforts will be accompanied by risks
such as:
. the difficulty of identifying appropriate acquisition candidates;
. the difficulty of assimilating the operations of the respective entities;
. the potential disruption of our ongoing business;
. the loss of key management and operating personnel;
. the potential inability to successfully manage joint ventures especially
those in which we hold less than a majority interest;
. the inability of management to capitalize on the opportunities presented by
acquisitions, investments, strategic alliances or related efforts;
. the failure to successfully incorporate licensed or acquired technology and
rights into our services,
. the inability to maintain uniform standards, controls, procedures and
policies, and
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. the impairment of relationships with employees and customers as a result of
changes in management.
We cannot assure you that we would be successful in overcoming these risks or
any other problems encountered with such acquisitions, investments, strategic
alliances or related efforts.
We believe that our acquisition approach of requiring management from the
companies we are acquiring to sign multi-year employment contracts, and the
clustering of companies with similar focus to capture the "best practices" of
these companies, will result in benefits to the combined companies, including
the expansion of our product and service offerings and the combination of our
fiber optic network and connectivity solutions. If we are not able to
effectively integrate our technology, operations and personnel in a timely and
efficient manner, then the benefits of our acquisitions will not be realized
and, as a result, our operating results may be adversely affected.
In addition, the attention and effort devoted to the integration of the
companies will significantly divert management's attention from other important
issues, and could significantly harm the combined companies' business and
operating results.
We intend to consider acquisitions of, or investments in, complementary
businesses, technologies, services or products. Acquisitions and investments
involve numerous risks, if the integration is not successful:
. the diversion of management attention;
. difficulties in assimilating the acquired business;
. potential loss of key employees, particularly those of the acquired business;
. difficulties in transitioning key customer relationships;
. risks associated with entering markets in which we have no or limited prior
experience; and
. unanticipated costs.
Any difficulties we encounter in integrating the businesses we acquire could
reduce the earnings we generate from that business, which may have a material
adverse effect on our revenue and net income. As an example, the integration
process may require us to change the acquired businesses' operating methods and
strategies. The integration of an acquired business may also divert the
attention of the management of the acquired business from its day-to-day
responsibilities. We may also become responsible for liabilities of an acquired
business that we may not have discovered prior to an acquisition.
WE MAY HAVE DIFFICULTY IDENTIFYING AND FINANCING ACQUISITIONS, WHICH COULD
DISRUPT OUR GROWTH STRATEGY.
Our growth strategy is very dependent on additional acquisitions. Increased
competition for acquisition candidates has raised prices for these targets and
lengthened the time period required to recoup our investment. Our acquisition
strategy presents the risks inherent in assessing the value,
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strengths and weaknesses of growth opportunities and evaluating the costs and
uncertain returns of expanding our operations. We cannot assure you that:
. we will be able to continue to identify and acquire appropriate businesses on
favorable terms, or at all,
. we will be able to obtain financing for acquisitions on favorable terms if at
all or
. the companies that we acquire will perform as we expect.
Our future acquisitions could also result in:
. issuing additional shares of our capital stock, which could dilute our
existing shareholders,
. increasing our debt to finance the acquisitions, which could require us to
agree to restrictive covenants and which might limit our operational and
financial flexibility,
. using our cash, which would reduce the funds we have available for other
corporate purposes or
. increased amortization or depreciation expense related to such acquisitions,
which would decrease our operating income.
Any of these factors could materially harm our business or our operating
results.
IF ONE OR MORE OF OUR SUBSIDIARIES FAILS TO PERFORM, IT MAY DAMAGE THE
REPUTATION OF UNIVERSE2U
Universe2U has adopted a strategy of continuing to operate the companies we
acquire as distinct competitive entities. These companies will build their own
market share and participate in integrated network builds where several of our
Universe2U group of companies are involved. If one of these entities fails to
perform adequately on an integrated project the reputation and creditability of
Universe2U and the other subsidiaries may be damaged.
WE CANNOT ASSURE YOU THAT WE WILL SUCCESSFULLY COMPLETE THE CONSTRUCTION OF OUR
NETWORKS
The construction of future networks facilities entail significant risks,
including management's ability to effectively control and manage these projects,
shortages of materials or skilled labor, unforeseen engineering, environmental
or geological problems, work stoppages, weather interference, floods and
unanticipated cost increases. The failure to obtain necessary licenses, permits
and authorizations could prevent or delay the completion of construction of all
or part of our Smart networks or increase completion costs. In addition, the
establishment and maintenance of interconnections with other network providers
at various public and private points is necessary to provide cost efficient
services. We cannot assure you that the budgeted costs of our current and future
projects will not be exceeded or that these projects will commence operations
within the contemplated schedules, if at all.
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WE CANNOT ASSURE YOU THAT A MARKET FOR OUR CURRENT OR FUTURE SERVICES WILL
DEVELOP
The practice of leasing dark fiber, which is fiber optic cable without any of
the electronic or optronic equipment necessary to use the fiber for
transmission, is not widespread and we cannot assure you that the market will
develop or that we will be able to enter into contracts, comply with the terms
of these contracts or maintain relationships with communications carriers and
corporate, utility and government customers. We also cannot assure you that
these contracts or relationships will be on economically favorable terms or that
communications carriers and corporate, utility and government customers will not
choose to compete against, rather than cooperate with us. If we are unable to
enter into contracts, comply with the terms of the contracts or maintain
relationships with these constituencies, our operations would be materially and
adversely affected. We cannot predict whether providing services to governments
will evolve into a significant market because governments usually already
control existing right-of-ways and often build their own communications
infrastructure.
We will need to strengthen our marketing efforts and increase our staff to
handle future marketing and sales requirements. If we fail to obtain
significant, widespread commercial and public acceptance of our Smart networks
and access to sufficient buildings, our visibility in the telecommunications
market could be jeopardized. We cannot assure you that we will be able to secure
customers for the commercial use of our proposed networks or access to such
buildings in each market. In addition, the market for co-location and Internet
services is new and evolving. We cannot assure you that services will achieve
widespread acceptance in this new market. Further, success depends in large part
on growth in the use of the Internet. The growth of the Internet is highly
uncertain and depends on a variety of factors.
We may expand the range of services that we offer. These services may include
assisting customers with the integration of their leased dark fiber with
appropriate electronic and optronic equipment by facilitating the involvement of
third party suppliers, vendors and contractors. We cannot assure you that a
market will develop for our new services, that implementing these services will
be technically or economically feasible, that we can successfully develop or
market them or that we can operate and maintain our new services profitably.
NETWORK DISRUPTIONS AND LACK OF INSURANCE COULD ADVERSELY AFFECT OUR OPERATING
RESULTS.
Our success will require that our Smart networks provide competitive
reliability, capacity and security. Some of the risks to our network and
infrastructure include:
. physical damage;
. power loss;
. capacity limitations;
. hardware and software defects;
. breaches of security; and
. disruptions beyond our control.
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These disruptions may cause interruptions in service or reduced capacity for
customers, any of which could have an adverse effect on our ability to retain
customers. The failure of any equipment or facility on our network could result
in the interruption of customer service until we make necessary repairs or
install replacement equipment. Any of these events could have an adverse impact
on our revenues and our ability to secure customers in the future. We do not
possess adequate insurance to cover losses we could incur as a result of the
factors enumerated above.
WE CANNOT ASSURE YOU OF THE COMMODITY PRICE FOR DUCT, DARK FIBER OR BANDWIDTH
LEASES
We expect that the posting offers by sellers and bids by buyers for the use of
telecommunications networks will become common place. Bandwidth Market, Ltd.,
started in July of 1998, was one of the first Internet telecom brokers, posting
offers by sellers and bids by buyers. Its website lists more circuits than any
other Internet site or public source. It uses a complex search engine to sort
offers and bids by city of origin or destination or speed of circuit.
Our customers, the telephone companies, Internet Service Providers ("ISPs"), and
businesses lease phone and data lines from each other as well as leasing our
networks. Previously, these services were provided at regulated prices or fixed
prices were negotiated. The quantity of bandwidth in some areas is exploding.
The price is dropping dramatically. The reason for the quantity explosion and
the price implosion is in the growth in the bandwidth requirements and
improvements in technology. We expect these trends to continue.
We expect that bandwidth trading will become like trading of any other commodity
and will be done over the Internet. We expect our Smart networks and
selling/leasing approach to be convenient and efficient for buyers and sellers.
We anticipate that prices for our products and services and capacity will
continue to decline over the next several years, due primarily to the following:
. price competition as various network providers complete construction of
networks that will compete with our network;
. installation by us and our competitors of fiber capacity in excess of actual
demand for some regional networks;
. recent technological advances that enable substantial increases in the
transmission capacity of both new and existing fiber optic networks; and
. purchasing alliances may increase our customers' purchasing power.
Any of the foregoing factors could cause material adverse effects on our results
of operations. We expect to have some contracts to supply leased fiber
capacity, which allow the lessee to terminate the contracts and/or provide for
liquidated damages if we do not supply the stated fiber capacity by a specified
time. Terminating any of these contracts could adversely affect our operating
results.
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COMPETITORS OFFER SERVICES SIMILAR TO OURS IN OUR CURRENT OR PLANNED MARKETS
WHICH WOULD AFFECT OUR RESULTS OF OPERATIONS
The telecommunications industry is extremely competitive, particularly with
respect to price and service, which may adversely affect our results of
operations. A significant increase in industry capacity or reduction in overall
demand would adversely affect our ability to maintain or increase prices. In the
telecommunications industry, we compete against incumbent local exchange
carriers, which have historically provided local telephone services and
currently dominate their local telecommunications markets, and competing
carriers in the local services market. In addition to these carriers, several
other potential competitors, such as facilities-based communications service
providers, cable television companies, electric utilities, microwave carriers,
satellite carriers, wireless telephone system operators and large end-users with
private networks, are capable of offering, and in some cases offer, services
similar to those offered by us. Furthermore, several of these service providers,
such as wireless service providers, could build wireless networks more rapidly
and at lower cost than fiber optic networks. Additionally, the business in which
we compete is highly competitive due to a lack of barriers to entry and high
price sensitivity. Many of our competitors have greater financial, research and
development, and other resources than we do.
Some of our principal competitors already own fiber optic cables as part of
their telecommunications networks. Accordingly, any of these carriers, some of
which already have franchise and other agreements with local and state
governments and have substantially greater resources and more experience than
us, could directly compete with us in the market for leasing fiber capacity, if
they are willing to offer this capacity to their customers. In addition, some
communications carriers and local cable companies have extensive networks in
place that could be upgraded to fiber optic cable, as well as numerous personnel
and substantial resources to construct their networks. If communications
carriers and local cable companies decide to equip their networks with fiber
optic cable, they could become significant competitors. Franchise and other
agreements with the municipalities and other local and state governments
typically are not exclusive. Potential competitors with greater resources and
more experience than us could enter into franchise and other agreements with
local and state governments and compete directly with us. Other companies may
choose to compete with us in our current or planned markets, by leasing fiber
capacity, including dark fiber, to our targeted customers. This additional
competition could materially and adversely affect our operations.
Our success will depend upon our ability to quickly obtain agreements and
install our networks. This is crucial in order to establish a first-mover
advantage. We may not be able to accomplish this. Each building in which we do
not build a network is particularly vulnerable to competitors. In addition,
future expansions and adaptations of our Smart networks infrastructures may be
necessary to respond to growth in the number of customers served, increased
capacity demands and changes to our services; otherwise other companies could be
encouraged to compete in buildings where we have installed networks.
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In addition, future expansion will require us to outsource a significant portion
of the installation of our networks. Any delays in obtaining, or interruption
in, the services of these third party installers could delay our plans to
install in-building networks, impair our ability to acquire or retain customers
and harm our business generally.
We face competition from many communications providers with significantly
greater financial resources, well-established brand names, larger customer bases
and diverse strategic plans and technologies. Intense competition has led to
declining prices and margins for many communications services. We expect this
trend to continue as competition intensifies in the future. We expect
significant competition from traditional and new communications companies,
including local, long distance, cable modem, Internet, digital subscriber line,
fixed and mobile wireless and satellite data service providers, some of which
are described in more detail below. If these potential competitors successfully
focus on our market, we may face intense competition, which could harm our
business. In addition, we may also face severe price competition for building
access rights, which could result in higher sales and marketing expenses and
lower profit margins.
Some competitors, such as Allied Riser Communications, Broadband Office and
OnSite Access, are attempting to gain access to office buildings in our target
markets. To the extent these competitors are successful, we may face
difficulties in building our networks and marketing our services within some of
our target buildings. Because our agreements to use utility shaft space within
buildings are generally not exclusive, owners of such buildings could also give
similar rights to our competitors. Certain competitors already have rights to
install networks in some of the buildings in which we have rights to install our
networks. It is not clear whether it will be profitable for two or more
different companies to operate networks within the same building. Therefore, it
is critical that we build our networks in our target buildings quickly, before
our competitors do so. If a competitor installs a network in a building in which
we operate, there will likely be substantial price competition.
We expect increased competition and the resulting increase in investment in
infrastructure and content by telecommunications and other service providers to
result in further concerns about the quality and reliability of infrastructure
providers. We expect that our customers will increasingly seek comprehensive
end-to-end solutions to their infrastructure needs by turning to fewer qualified
infrastructure service providers who have the size, financial capability and
technical expertise to deliver a quality and reliable network on time. These
customers are seeking service providers that can design, build out and maintain
large and complex networks quickly, with a high level of quality and who can
rapidly mobilize their capital equipment, financial assets and personnel to
respond effectively to the increasing scale and time constraints of customer
demands.
The construction and installation industry in which we operate is highly
competitive and we compete with other companies in most of the markets in which
we operate, ranging from small independent firms servicing local markets to
larger firms servicing regional markets, as well as large national and
international firms and equipment vendors on turnkey projects who subcontract
work to contractors other than us. Despite the current trend
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toward outsourcing, we may also face competition from existing or prospective
customers who employ in-house personnel to perform some of the same types of
services as we provide. There are relatively few significant barriers to entry
into the markets in which we operate and, as a result, any organization that has
adequate financial resources and access to technical expertise may become one of
our competitors. Although we believe we are a unique provider of external
network services for telecommunications service providers and energy companies
in the United States and Canada, we cannot be considered dominant in the
industry on a national basis. In addition one or more of our competitors may
become predominant in the near future.
Because of the highly competitive bidding environment for infrastructure
services, the price of the contractor's bid historically has often been the
principal factor in determining whether the contractor is awarded the work.
Smaller competitors are sometimes able to win bids based on price alone due to
their lower overhead costs. We believe that as demand for our services
increases, customers will increasingly consider other factors in choosing a
service provider, including technical expertise and experience, financial and
operational resources, nationwide presence, industry reputation, and
dependability, which should benefit contractors like ourselves.
We expect to be granted the right to install and operate a telecommunications
network within communities, buildings and on other right-of-ways. The
construction of these networks enables us and the right-of-way owners to lease
access to these networks to other communications carriers or large corporate or
government customers seeking high bandwidth capacity, without these customers
having to incur costly expenditures associated with building networks of their
own. We expect to enter into equity agreements with the right-of-way owners to
own some or all of the network and provide a return to the right-of-way owner
for the use of their right-of-way. Alternatively, some network owners may choose
to use their infrastructure to provide switched voice and data services,
competing directly with incumbent local exchange carriers ("ILECs") and
interexchange carriers ("IXCs"). Currently, we do not expect to provide such
services or plan to provide such services.
In the communities where we plan to deploy fiber optic communications networks,
we face significant competition from the ILECs, which currently dominate their
local communications markets. We also face competition from competitive local
exchange carrier ("CLEC") and other potential competitors in these markets and
will face competition in the communities in which we plan to build our networks.
Many of our competitors have financial, management and other resources
substantially greater than ours, as well as other competitive advantages over
us, including established reputations in the communications market.
Various communications carriers already own fiber optic cables as part of their
communications networks. Accordingly, each of these carriers could, and some do,
compete directly with us in the market for leasing fiber capacity. In addition,
although CLECs generally provide a wider array of services to their customers
than we presently provide to our customers, CLECs nevertheless represent an
alternative means by which our potential customer could obtain direct access to
an IXC POP or other site of the customer's choosing. Thus, CLECs could compete
with us.
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Some communications carriers and local cable companies have extensive networks
in place that could be upgraded to fiber optic cable, as well as numerous
personnel and substantial resources to undertake the requisite construction to
so equip their networks. To the extent that communications carriers and local
cable companies decide to equip their networks with fiber optic cable, they are
potential direct competitors provided that these competitors are willing to
offer this capacity to all of their customers.
We expect that as competition in the local exchange market develops, a
fundamental division between the needs of corporate, governmental and
institutional end users and residential end users will drive the creation of
differentiated communications services and service providers. We expect that the
CLECs, IXCs, ISPs, wireless carriers and corporate and government customers on
which we focus will have distinct requirements, including maximum reliability,
consistent high quality transmissions, capacity for high-speed data
transmissions, diverse routing and responsive customer service. We expect that
we will be able to satisfy the needs of such customers.
We expect that the principal competitive factors in this market are uncongested
connectivity, quality of facilities, level of customer service, price, the
financial stability and credibility of the provider, brand name and the
availability of network management tools. We might not have the resources or
expertise to compete successfully in the future. Our current and potential
competitors in this market include: Exodus Communications, Inc., Frontier
Corporation, Global Crossing Ltd., NEXTLINK Communications, Inc., Hiway
Technologies, Inc., Verio Inc., 360networks Inc., British Telecommunications
plc, Deutsche Telekom AG, France Telecom S.A., Qwest Communications
International Inc., Allied Riser, Cypress Communication, Williams Communications
Group, Inc., Mastec, Metromedia Fiber Network, Inc., Western Integrated
Networks, WideOpenWest, Grande Communications, RCN Inc., Rhythms Net
Connections, Globix Corporation, Concentric Network Corporation, SBC
Communications Inc., PSINet, Inc., Agruss Communications, Dycomm Industries,
Quanta Services, Cygnal Inc., global, regional and local telecommunications and
cable companies, such as Call-Net, AT&T, Sprint, MCI WorldCom and Regional Bell
Operating Companies, and Rogers Cable and companies capable of offering services
similar to those provided by us, including communications service providers,
cable television companies, electric utilities, microwave carriers, satellite
carriers and wireless telephone operators.
Some of our competitors have already made substantial long term investments in
the construction of fiber optic networks and the acquisition of bandwidth. Some
of these competitors have substantially greater resources and more experience
than we do and could directly compete with us in marketing fiber assets or
network services.
Other companies may choose to compete with us in our current or planned markets,
by selling or leasing fiber assets or bandwidth to our targeted customers. A
significant increase in industry capacity or reduction in overall demand would
adversely affect our ability to maintain or increase prices. Additional
competition could materially and adversely affect our operations.
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For our base business of designing and building networks, we expect to have many
of the above competitors as customers.
WE FACE COMPETITION FROM LOCAL TELEPHONE COMPANIES.
Incumbent local telephone companies, including GTE and the Bell operating
companies such as Bell Canada, Bell Atlantic and BellSouth, have several
competitive advantages over us, including established brand names and
reputations and significant capital to rapidly deploy or leverage existing
communications equipment and broadband networks. They often market their
services to tenants of buildings within our target markets and selectively
construct in-building facilities. Additionally, the regional Bell operating
companies are now permitted to provide long distance services in territories
where they are not the dominant provider of local services. These companies may
also provide long distance services in the territories where they are the
dominant provider of local services if they satisfy a regulatory checklist
established by the Federal Communications Commission. In December 1999, the FCC
ruled that Bell Atlantic has met these requirements in New York and may provide
long distance services in New York. If other regional Bell operating companies
are permitted to provide long distance services in territories where we operate
or expect to operate, we could face greater price competition.
WE FACE COMPETITION FROM LONG DISTANCE COMPANIES.
We will face strong competition from long distance companies. Many of the
leading long distance carriers, including AT&T, MCI WorldCom and Sprint, could
begin to build their own voice and data networks. The newer national long
distance carriers, such as Level 3, Qwest and Williams Communications, are
building and managing high speed fiber-based national voice and data networks,
partnering with Internet service providers, and may extend their networks by
installing in-building facilities and equipment.
WE FACE COMPETITION FROM FIXED WIRELESS SERVICE PROVIDERS.
We may lose potential customers to fixed wireless service providers. Fixed
wireless service providers are communications companies who can provide high-
speed communications services to customers using microwave or other facilities
or satellite earth stations on building rooftops. Some of these providers have
targeted small and medium-sized business customers and have a business strategy
that is similar to ours. These providers include Advanced Radio Telecom,
NEXTLINK and Winstar.
WE FACE COMPETITION FROM INTERNET SERVICE PROVIDERS, DIGITAL SUBSCRIBER LINE
COMPANIES AND CABLE-BASED SERVICE PROVIDERS.
The services provided by Internet service providers, digital subscriber line
companies and cable-based service providers can be used by our potential
customers instead of our services. Internet service providers, such as
Concentric Networks, EarthLink and PSINet, provide Internet access to
residential and business customers, generally using the existing communications
infrastructure. Digital subscriber line companies and/or their Internet service
provider customers, such as Covad, NorthPoint and Rhythms
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NetConnections, typically provide broadband Internet access using digital
subscriber line technology, which enables data traffic to be transmitted over
standard copper telephone lines at much higher speeds than these lines would
normally allow. Cable-based service providers, such as Excite@Home and its @Work
subsidiary, RCN Telecom Services and Road Runner, also provide broadband
Internet access. These various providers may also offer traditional or Internet-
based voice services to compete with us.
COMPETITORS MIGHT USE NEW OR ALTERNATIVE TECHNOLOGIES TO OFFER BETTER OR LESS
EXPENSIVE SERVICES THAN WE CAN OFFER.
In addition to the fiber-optic technology that our Smart networks employ, there
are other technologies that provide greater bandwidth than traditional copper
wire transmission technology and may be used instead of our voice and data
services. Furthermore, these technologies may be improved and other new
technologies may develop that provide greater bandwidth than the fiber-optic
based technology we utilize. Existing alternative technologies include:
. Digital subscriber line technology was developed to produce higher data
transfer rates over the existing copper-based telephone network. The data
transfer rates for digital subscriber lines are reported to range between
144,000 bits of data per second and six million bits of data per second.
. Cable modems can allow users to send and receive data using cable television
distribution systems. According to industry sources, cable modem users
typically experience download speeds of 1.5 million bits of data per second.
. Wireless technologies, such as satellite and microwave communications
systems, can provide high-speed data communications. Satellite systems, such
as DirecPC, can offer high download speeds that are advertised at 400,000
bits of data per second or higher.
. Integrated services digital networks have been offered by the incumbent local
telephone companies over the existing copper-based telephone network for some
time. These services offer data transfer speeds of 128,000 bits of data per
second.
. Internet Telephony has been deployed by several competitors, whereby voice
calls may be made over the Internet. The sound quality of these services has
improved since their introduction.
The development of new technologies or the significant penetration of
alternative technologies into our target market may reduce the demand for our
services and harm our business.
WE MAY EXPERIENCE ADDITIONAL RISKS AS A RESULT OF CO-LOCATION AND INTERNET
CONNECTIVITY SERVICES
The legal landscape that governs co-location and Internet connectivity services
has yet to be interpreted or enforced. Regulatory issues for industry include
property ownership, copyrights and other intellectual
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property issues, taxation, libel, obscenity and personal privacy. Business may
be adversely affected by the adoption and interpretation of any future or
currently existing laws and regulations. There is no patented technology and we
rely on a combination of copyright, trademark, service mark and trade secret
laws and contractual restrictions to establish and protect certain proprietary
rights in the technology. Business may be adversely affected by a claim that it
is infringing the proprietary rights of others.
Despite the design and implementation of a variety of network security measures,
unauthorized access, computer viruses, accidental or intentional action and
other disruptions could occur. In addition, we may incur significant costs to
prevent breaches in security or to alleviate problems caused by those breaches.
The law relating to the liability of online services companies and Internet
access providers of information carried on or disseminated through their
networks is currently unsettled. It is possible that claims could be made
against online services companies, co-location companies and Internet access
providers. We may need to implement measures to reduce our exposure to this
potential liability that may require the expenditure of substantial resources.
The increased attention focused upon liability issues as a result of lawsuits,
new laws and legislative proposal could impede the growth of Internet use.
In addition, some customers have sent unsolicited commercial E-mails from
servers co-located at its facilities to massive numbers of people. This practice
known as "spamming" can lead to complaints against service providers that enable
such activities. In addition, legislation has recently been passed that
prohibits "spamming."
NEW TECHNOLOGIES COULD REDUCE THE DEMAND FOR FIBER OPTIC SYSTEMS.
The telecommunications industry generally is subject to rapid and significant
changes in technology that may adversely affect the continued use of fiber optic
cable. We cannot assure you that the introduction of new products or the
emergence of new technologies will not enable competitors to install competing
systems at a lower per-circuit cost on routes currently targeted by us.
Moreover, these potential competitors may be able to expand capacity on existing
competitive systems, which could render our Smart networks and network services
uncompetitive from a cost perspective. We cannot predict the likelihood of these
changes and we cannot assure you that any technological changes will not
materially and adversely affect our business and operating results.
WE CURRENTLY DEPEND ON A LIMITED NUMBER OF CUSTOMERS
We are particularly dependent on a limited number of customers for our contract
work. In addition, our Smart networks business has a long sales cycle. We are,
therefore, more susceptible to the impact of poor economic conditions than some
of our competitors.
LEGISLATION AND GOVERNMENT REGULATION COULD ADVERSELY AFFECT US
Regulations governing communications services change from time to time in ways
that are difficult to predict and our services could become subject to federal,
state and/or local regulation. Such changes may harm our business by
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increasing competition, decreasing revenue, increasing costs or impairing our
ability to offer services. As we continue to expand our operations
geographically, we may become subject to the regulation of additional
jurisdictions. If we fail to comply with all applicable regulations or
experience delays in obtaining required approvals, our business could be harmed.
For example, we may be required to make regular filings in some of the states in
which we intend to operate and could be fined if we do not timely make these
filings. Additionally, compliance with these regulatory requirements may be
costly.
If our interpretation of regulations applicable to our operations is incorrect,
we may incur additional expenses or become subject to more stringent regulation.
Some of the jurisdictions where we provide services have little, if any, written
regulations regarding our operations. In addition, the written regulations and
guidelines that do exist in a jurisdiction may not specifically address our
operations. If our interpretations of these regulations and guidelines are
incorrect, we may incur additional expenses to comply with additional
regulations applicable to our operations.
Existing and future government laws and regulations may influence how we operate
our business, our business strategy and ultimately, our viability. U.S. Federal
and state telecommunications laws and the laws of foreign countries in which we
operate directly shape the telecommunications market. Consequently, regulatory
requirements and/or changes could adversely affect our operations and also
influence the market for Internet, web hosting and related services. However, we
cannot predict the future regulatory framework of our business.
U.S. Federal and State and Canadian telecommunications law imposes legal
requirements on common carriers who engage in interstate or foreign
communication by wire or radio, and on telecommunications carriers. Should these
regulations be applied to us, they may have a material adverse impact on our
business and results of operation. If providing dark fiber facilities or related
services provided by us were deemed to be a telecommunications service, then
regulations, both Federal and state, applicable to telecommunications carriers
might apply to us. This could subject the revenues we received from facility
leases in interstate commerce to assessment by the Federal Communications
Commission Universal Service Fund and the offering of those facilities or
services would be subject to common carrier regulation. In addition, local
exchange carriers or long distance carriers, subject to regulation by Federal
Communications Commission. Our business may be affected by regulations
applicable to these telecommunications carriers. For example, the Federal
Communications Commission has recently taken steps, and may take further steps,
to reduce the access charges, the fees paid by long distance carriers to local
exchange carriers for originating and terminating long distance calls on the
incumbent local exchange carriers' local networks, and to give the local
exchange carriers greater flexibility in setting these charges. While we cannot
predict the precise effect reduction in access charge will have on our
operations, the reduction will likely make it more attractive for long distance
carriers to use local exchange carriers' facilities, rather than our fiber optic
telecommunications network. A recent decision by the Federal
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Communications Commission to require unbundling of incumbent local exchange
carriers' dark fiber could decrease the demand for our dark fiber by allowing
our potential customers to obtain dark fiber from incumbent local exchange
carriers at cost-based rates, and thereby have an adverse effect on the results
of our operations.
Our offering of transmission services, which is different from dark fiber
capacity, may be subject to regulation in each state to the extent that these
services are offered for intrastate use, and this regulation may have an adverse
effect on the results of our operations. We cannot assure you that these
regulations, if any, as well as future regulatory, judicial, or legislative
action will not have a material adverse effect on us. In particular, state
regulators have the authority to determine both the rates we will pay to
incumbent local exchange carriers for certain interconnection arrangements such
as physical collocation, and the prices that incumbent local exchange carriers
will be able to charge our potential customers for services and facilities that
compete with our services. We will also incur costs in order to comply with
regulatory requirements such as the filing of tariffs, submission of periodic
financial and operational reports to regulators, and payment of regulatory fees
and assessments, including contributions to state universal service funds. In
some jurisdictions, our pricing flexibility for intrastate services may be
limited because of regulation, although our direct competitors will be subject
to similar restrictions.
There have been proposals to require that commercial office buildings give
access to competitive providers of communications services, and some states,
such as California and Texas, already have similar laws. Regulatory or legal
requirements that mandate access rights to our target buildings or our Smart
networks would facilitate our competitors' entry into buildings where we have
access rights. Our competitors' access to buildings in which we operate could
diminish the value of our access rights to that property and adversely affect
our competitive position. Increased access would be particularly detrimental in
buildings in which we currently have exclusive or semi-exclusive access rights.
Recently, the FCC initiated a regulatory proceeding relating to utility shaft
access in multiple tenant buildings, and a bill was introduced in Congress
regarding the same topic. Some of the issues being considered in these
developments include requiring building owners to provide utility shaft access
to communications carriers, and requiring some communications providers to
provide access to their wiring to other communications providers. We do not know
whether or in what form these proposals will be adopted.
Various regulatory requirements and limitations also will influence our business
as we attempt to enter international markets. Regulation of the international
telecommunications industry is changing rapidly. We are unable to predict how
the Federal Communications Commission and foreign regulatory bodies will resolve
the various pending international policy issues and the effect of such
resolutions on us. We will be required, under Sections 214 and 203 of the
Communications Act of 1934, respectively, to obtain authorization and file an
international service tariff containing rates, terms and conditions before
initiating service. International carriers are also subject to certain annual
fees and filing requirements such as the requirement to file contracts with
other carriers, including foreign carrier agreements, and
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<PAGE>
reports describing international circuit, traffic and revenue data service. We
will have to operate as international common carriers; they will also be
required to comply with the rules of the Federal Communications Commission. The
international services are also subject to regulation in other jurisdictions in
which we may operate. National regulations of relevant European and other
foreign countries, as well as policies and regulations on the European Union and
other foreign governmental level, impose separate licensing, service and other
conditions on foreign joint ventures and our international service operations,
and these requirements may have a material adverse impact on us.
The law relating to the liability of Internet access providers and on-line
services companies for information carried on or disseminated through their
networks is unsettled. As the law in this area develops, the potential
imposition of liability upon us for information carried on and disseminated
through our network could require us to implement measures to reduce our
exposure to such liability, which may require the expenditure of substantial
resources or the discontinuation of certain products or service offerings. Any
costs that are incurred as a result of such measures or the imposition of
liability could harm our business.
WE MAY NOT BE ABLE TO OBTAIN AND MAINTAIN THE RIGHT-OF-WAY AND OTHER PERMITS
NECESSARY TO IMPLEMENT OUR BUSINESS STRATEGY
We must obtain additional right-of-ways and other permits from railroads,
utilities, state highway authorities, local governments and transit authorities
to install underground conduit for the expansion of our networks. We cannot
assure you that we will be successful in obtaining and maintaining these right-
of-way agreements or obtaining these agreements on acceptable terms. Some of
these agreements may be short-term or revocable at will, and we cannot assure
you that we will continue to have access to existing right-of-ways after they
have expired or terminated.
If any of these agreements were terminated or could not be renewed and we were
forced to remove our fiber optic cable from under the streets or abandon our
networks, the termination could have a material adverse effect on our
operations. In addition, landowners have asserted that railroad companies and
others to whom they granted easements to their properties are not entitled as a
result of these easements to grant right-of-ways to telecommunications
providers. If these disputes are resolved in the landowners' favor, we could be
obligated to make substantial lease payments to these landowners for the lease
of these rights of way. Some agreements may be terminated at any time without
cause with three months notice. In case of termination, we may be required to
remove our fiber optic cable from the conduits or poles. This termination would
have a material adverse effect on our operations.
Local governments exercise legal authority that may have an adverse effect on
our business because of our need to obtain right-of-ways for our fiber network.
While local governments may not prohibit persons from providing
telecommunications services nor treat telecommunication service providers in a
discriminatory manner, they can affect the timing and costs associated with our
use of the public right-of-ways.
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Termination or non-renewal of our franchise of certain other right-of-ways or
franchises that we use for our Smart networks would have a material adverse
effect on our business, results of operations and financial condition. We will
also need to obtain additional franchises, licenses and permits for our planned
intracity networks, intercity networks and international networks. We cannot
assure you that we will be able to maintain on acceptable terms our existing
franchises, licenses or permits or to obtain and maintain the other franchises,
licenses or permits needed to implement our strategy.
In addition, some landholders in the United States, who granted right-of-ways to
some railroad companies in the past have filed class action lawsuits against
communications carriers that received right-of-ways from railroad companies in
order to develop their fiber optic networks. The right-of-ways challenged in
these class action lawsuits are similar to some of the right-of-ways that we use
to develop our network. Loss of substantial rights and permits or loss of the
ability to use these right-of-ways or the failure to enter into or maintain
required arrangements for the network could have a material adverse effect on
our business, financial condition and results of operations, if, as a result,
the completion of our Smart networks is delayed or becomes more costly.
RAPID TECHNOLOGICAL CHANGES COULD AFFECT THE CONTINUED USE OF FIBER OPTIC CABLE
AND OUR RESULTS OF OPERATIONS
The telecommunications industry is subject to rapid and significant changes in
technology that could materially affect the continued use of our services,
including our fiber optic cable. We cannot predict the effect of technological
changes on our business. We also cannot assure you that technological changes in
the communications industry and Internet-related industry will not have a
material adverse effect on our operations.
WE MAY EXPERIENCE RISKS AS A RESULT OF EXPANDING OUR NETWORKS INTO OTHER FOREIGN
COUNTRIES, WHICH MAY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS
We expect to expand our services to provide fiber optic networks throughout
North America. The following are risks we may experience as a result of doing
business in other foreign countries in which we may expand our networks:
. difficulties in staffing and managing our operations;
. longer payment cycles;
. problems in collecting accounts receivable;
. fluctuations in currency exchange rates;
. delays from customs brokers or government agencies encountered as a result of
exporting fiber from the United States and/or Canada to other countries in
which we may operate; and
. potentially adverse consequences resulting from operating in multiple
countries, each with their own laws and regulations, including tax laws and
industry related regulations.
We cannot assure you that we will be successful in overcoming these risks or any
other problems arising because of expansion in other foreign countries.
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OUR BUSINESS DEPENDS ON THE GROWTH OF BANDWIDTH
Our success will depend in large part on growth in the use of the Internet to
increase the requirement for bandwidth. Growth of the Internet depends on many
factors, including security, reliability, cost, ease of access, quality of
service and bandwidth. The recent growth of the Internet has placed strain on
the Internet, necessitating upgrades to its infrastructure. Any perceived or
actual weakening in the performance of the Internet could undermine the
services, which are dependent on third parties. Our ability to attract new
customers similarly depends on a variety of factors, including the ability to
provide continuous service. In addition, customers might terminate or decide not
to renew commitments to use its services. We must continue to expand and adapt
its network infrastructure as the number of its users grows, as its users place
increasing demands on it, and as requirements change.
THE TELECOMMUNICATIONS AND ENERGY INDUSTRIES ARE SUBJECT TO RAPID TECHNOLOGICAL
AND REGULATORY CHANGES THAT COULD REDUCE THE DEMAND FOR THE SERVICES WE PROVIDE.
We derive and anticipate that we will continue to derive a substantial portion
of our revenue from customers in the telecommunications industry. New or
developing technologies could displace the wireline systems used for the
transmission of voice, video and data, and improvements in existing technology
may allow telecommunications providers to significantly improve their networks
without physically upgrading them. Additionally, a high level of consolidation
that may result in the loss of one or more customers has characterized the
telecommunications industry. The energy industry is also entering into a phase
of deregulation and consolidation similar to the telecommunications industry,
which could lead to the same uncertainties as in the telecommunications
industry.
THE VOLUME OF WORK WE RECEIVE FROM OUR CUSTOMERS IS DEPENDENT ON THEIR FINANCIAL
RESOURCES AND ABILITY TO OBTAIN CAPITAL.
The volume of work awarded under contracts with certain of our
telecommunications and energy customers is subject to periodic appropriations or
rate increase approvals during each contract's term. If a customer of ours fails
to receive sufficient appropriations or rate increase approvals, that customer
could reduce the volume of work that it awards to us or delay its payments to
us. These outcomes could reduce the demand for the services that we provide.
In addition, a number of other factors, including financing conditions for the
industry, could adversely affect our customers and their ability or willingness
to fund capital expenditures in the future. These factors could also reduce the
demand for the services that we provide.
THE TELECOMMUNICATIONS AND ENERGY INFRASTRUCTURE SERVICES INDUSTRIES ARE HIGHLY
COMPETITIVE AND POTENTIAL COMPETITORS FACE FEW BARRIERS TO ENTRY. OUR INABILITY
TO COMPETE SUCCESSFULLY COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
The industries in which we operate are highly competitive and we compete with
other companies in most of the markets in which we operate. We may also face
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competition from existing or prospective customers who employ in-house personnel
to perform some of the same types of services as we provide. There are
relatively few significant barriers to entry into the markets in which we
operate, and as a result, any organization that has adequate financial resources
and access to technical expertise may become one of our competitors.
MANY OF OUR CONTRACTS MAY BE CANCELED ON SHORT NOTICE, AND WE MAY BE
UNSUCCESSFUL IN REPLACING OUR CONTRACTS AS THEY ARE COMPLETED OR EXPIRE.
We could experience a material adverse effect on our revenue, net income and
liquidity if:
. our customers cancel a significant number of contracts,
. we fail to win a significant number of our existing contracts upon re-bid or
. we complete the required work under a significant number of our non-recurring
projects and cannot replace them with similar projects.
Many of our customers may cancel our long-term contracts with them on short
notice, typically 60 to 90 days, even if we are not in default under the
contract. As a result, these contracts do not give us the assurances that long-
term contracts typically provide. Many of our contracts, including our master
service contracts, are opened to public bid at the expiration of their terms and
price is often an important factor in the award of these agreements. We cannot
assure you that we will be the successful bidder on our existing contracts that
come up for bid. We also provide a significant portion of our services on a non-
recurring, project by project basis.
OUR EXTERNAL NETWORK SERVICES BUSINESS IS SEASONAL, EXPOSING US TO REDUCED
REVENUE IN THE FIRST AND FOURTH QUARTERS OF EACH YEAR.
We experience reduced revenue in the first and fourth quarters of each year
relative to other quarters. These variations are partly due to the fact that the
budgetary years of many of our external network services customers end in
December. As a result of the end of their budgetary years, our
telecommunications customers, and particularly our incumbent local exchange
customers, typically reduce their expenditures and work order requests towards
the end of the year. The onset of winter also affects our ability to render
external network services in certain regions of the United States and Canada.
WE EXPERIENCE VARIATIONS IN REVENUE AND NET INCOME AS WE COMMENCE OR COMPLETE
WORK.
Our contracts typically require significant start-up costs in one quarterly
period, but we typically do not realize the benefit of the contractual revenue
until subsequent periods. The completion of major contracts may affect our
quarterly results for similar reasons. In addition, the amount and type of work
that we perform at any given time and the general mix of customers for which we
perform work can vary significantly from quarter to quarter, affecting our
quarterly results.
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IF WE ARE UNABLE TO EXPAND OUR INFRASTRUCTURE, WE WILL NOT BE SUCCESSFUL IN
MANAGING OUR RAPID GROWTH.
To manage our growth effectively, we will need to continuously enhance our
information systems and our operational and financial systems and controls. Our
anticipated growth could significantly strain our operational infrastructure and
financial resources. Our growth plan may be adversely affected if we are unable
to expand and continuously improve our operational infrastructure.
IMPAIRMENT OF OUR INTELLECTUAL PROPERTY RIGHTS COULD HARM OUR BUSINESS
We regard certain aspects of our products, services and technology as
proprietary and attempt to protect them with patents, copyrights, trademarks,
trade secret laws, restrictions on disclosure and other methods. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use our products, services or technology without authorization, or to
develop similar technology independently.
We are unaware of other companies in our and other industries that use the word
"Universe2U" in their corporate names. We are in the process of securing a
trademark for the name "Universe2U." Even if we are able to secure this
trademark, other companies could challenge our use of the word "Universe2U." If
such a challenge is successful, we could be required to change our name and lose
the goodwill associated with the Universe2U name in our markets.
OUR BUSINESS COULD SUFFER FROM A REDUCTION OR INTERRUPTION FROM OUR EQUIPMENT
SUPPLIERS
We purchase our equipment from various vendors. Any reduction in or interruption
of deliveries from our major equipment suppliers, such as Lucent, Nortel
Networks or Cisco Systems, could delay our plans to install networks, impair our
ability to acquire or retain customers and harm our business generally. In
addition, the price of the equipment we purchase may substantially increase over
time, increasing the costs we pay in the future. It could take a significant
period of time to establish relationships with alternative suppliers for each of
our technologies and substitute their technologies into our networks.
WE MUST MAKE CAPITAL EXPENDITURES BEFORE GENERATING REVENUES, WHICH MAY PROVE
INSUFFICIENT TO JUSTIFY THOSE EXPENDITURES
We typically install a network before we have any customers. Since we generally
do not solicit customers until our network is in place we may not be able to
recoup all of our expenditures within any build. Prior to generating revenues,
we must incur initial capital expenditures.
OUR NETWORKS MAY BE VULNERABLE TO UNAUTHORIZED ACCESS WHICH COULD INTERFERE WITH
THE PROVISION OF OUR SERVICES
Our networks may be vulnerable to unauthorized access, computer viruses and
other disruptive problems. Remediating the effects of computer viruses and
alleviating other security problems may require interruptions, incurrence of
costs and delays or cessation of service to our customers. Unauthorized
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access could jeopardize the security of confidential information stored in our
computer systems or those of our customers, for which we could possibly be held
liable.
PRINCIPALS EFFECTIVELY CONTROL OUR COMPANY AND HAVE THE POWER TO CAUSE OR
PREVENT A CHANGE OF CONTROL
The following persons as a group hold control of approximately 14 million shares
of company common stock amounting to approximately 40% of all outstanding shares
of company common stock: Angelo Boujos, Josie Boujos, Andrew Eyres and William
McGill (the "Principals"). The Principals are able to exercise significant
control over the election of the board of directors. In addition, the
Principals hold a sufficient portion of our stock to largely determine the
outcome of most corporate matters submitted to the stockholders for approval.
This control may include, without limitation, power to determine the outcome of
decisions regarding mergers, consolidations and the sale of all or substantially
all of our assets. In addition, the Principals would have substantial influence
over any change in control of our company.
PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND BYLAWS MAY DISCOURAGE
TAKEOVER ATTEMPTS
Provisions in our certificate of incorporation and bylaws may have the effect of
preventing or delaying a change of control or changes in our management. These
provisions include:
. the right of the board of directors to elect a director to fill a vacancy
created by the expansion of the board of directors;
. the ability of the board of directors to alter most provisions of our bylaws
without prior stockholder approval;
. the vesting of exclusive authority in the board of directors and specified
officers (except as otherwise required by law) to call special meetings of
stockholders; and
. advance notice requirements for stockholder proposals and nominations for
election to the board of directors.
These provisions may have the effect of preventing or delaying a change of
control or impeding a merger, consolidation, takeover or other business
combination, which in turn could preclude our stockholders from recognizing a
premium over the prevailing market price of the common stock.
IMMEDIATE AND SUBSTANTIAL DILUTION
The price per share of the shares offered under this prospectus may be
substantially higher than the net tangible book value per share immediately
after the offering. Accordingly, if you purchase common stock in this offering,
you may incur immediate and substantial dilution. See "Dilution." We also have a
large number of outstanding stock options and warrants to purchase our common
stock with exercise prices that may be below the price of
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the common stock. To the extent these options and warrants are exercised, there
will be further dilution.
FUTURE SALES AND ISSUANCES OF OUR COMMON STOCK COULD ADVERSELY AFFECT OUR STOCK
PRICE
Substantial sales of our common stock in the public market following this
offering, or the perception by the market that such sales could occur, could
lower our stock price or make it difficult for us to raise additional equity
capital in the future. Incorporating the effect of the issuance of 200,000
shares of the company's restricted common stock subsequent to June 30, 2000 and
after giving effect to the exercise of outstanding warrants and exchange of
exchangeable shares, the company will have 36,977,000 shares of common stock
issued and outstanding. Of such issued and outstanding shares, the aggregate of
1,673,000 shares registered for resale under this prospectus and 10,204,000
previously registered and issued shares will result in an aggregate of
11,877,000 shares of outstanding generally freely tradable common stock. The
remaining 25,100,000 shares of common stock are restricted, however,
approximately 15,600,000 of such shares will become eligible for resale without
registration under Rule 144 commencing May 17, 2001 by stockholders who are not
affiliates of the company. As of August 30, 2000, non-qualified options to
purchase an aggregate of 1,353,000 shares of common stock were issued and
outstanding, which vest and become exercisable commencing June 9, 2001 through
April 2002. After this offering, we intend to register 1,500,000 shares of
common stock for issuance under our 2000 Equity Incentive Plan (the "Equity
Incentive Plan"). As of August 30, 2000, no options to purchase shares of
common stock were issued and outstanding under the Equity Incentive Plan. We
cannot predict if future sales or issuances of our common stock, or the
availability of our common stock for sale, will harm the market price for our
common stock or our ability to raise capital by offering equity securities.
Some members of our board of directors may serve as directors of other
communications, which might compete with us. To the extent that any of these
companies presently offer, or at some future point begin to offer, integrated
communications services similar to the services that we provide, there may be
conflicts of interest between the fiduciary duties owed by these individuals to
us and the duties owed to these other companies. We have not adopted specific
policy guidelines to address these potential conflicts of interest, and if these
conflicts of interest arise they may be resolved on terms that are not in the
best interests of all of our stockholders.
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus under the sections entitled
"Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. They include statements
about our expectations, beliefs, plans, objectives, assumptions or future events
or performance. These statements are often, but not always, made through the use
of words or phrases such as "will likely result," "expect," "will continue,"
"anticipate," "estimate," "intends," "plan," "projection," "would," and
"outlook." These forward-looking statements are
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based on our expectations and are subject to a number of risks and
uncertainties. Certain of these risks and uncertainties are beyond our control.
In this prospectus, we have described our current network and our anticipated
program of network expansion. However, there is no assurance that we will be
able to implement our proposed business strategy. Our actual results may differ
materially from those suggested by these forward-looking statements for various
reasons, including those discussed under the sections entitled "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." Some of the key factors that have a direct bearing
on our results of operations are:
. general economic and business conditions;
. competition in the telecommunications industry; industry capacity;
. success of acquisitions and operating initiatives, including our ability to
successfully integrate our acquisitions;
. management of growth;
. dependence on senior management;
. brand awareness;
. general risks of the telecommunications industries;
. development risks;
. risks relating to the availability of financing;
. the existence or absence of adverse publicity;
. changes in business strategy or development plans;
. availability, terms and deployment of capital;
. business abilities and judgment of personnel;
. availability of qualified personnel;
. labor and employee benefit costs;
. changes in, or failure to comply with, government regulations;
. construction schedules;
. costs and other effects of legal and administrative proceedings;
. changes in marketing and technology; and
. changes in political, social and economic conditions, especially with respect
to our foreign operations, and other factors referenced in this prospectus.
These factors and the risk factors referred to above could cause actual results
or outcomes to differ materially from those expressed in any forward-looking
statements made by us. You should not place undue reliance on any such forward-
looking statements. Further, any forward-looking statement speaks only as of the
date on which it is made and we undertake no obligation to update any forward-
looking statement or statements to reflect events or circumstances after the
date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time, and it is not
possible for us to predict which will arise. In addition, we cannot assess the
impact of each factor on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
For a discussion of important risks of an investment in our securities,
including factors that could cause actual results to differ materially from
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results referred to in the forward-looking statements, see "Risk Factors." You
should carefully consider the information set forth under the caption "Risk
Factors." In light of these risks, uncertainties and assumptions, the forward-
looking events discussed in or incorporated by reference in this prospectus
might not occur.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the 1,673,000 shares of common
stock offered for sale by the selling stockholders under this prospectus.
Assuming exercise of the warrants, of which 420,000 underlying shares are hereby
registered, we would receive $2,200,000 in proceeds, minus expenses. After the
exercise of the warrants, we will not receive any proceeds from the resale of
the underlying shares by such warrant holders.
We plan to use the proceeds from the exercise of the warrants for general
corporate purposes, including equipment, hiring of additional personnel,
software and licenses, marketing and advertising, acquisitions and general
working capital.
This offering involves a high degree of risk. You should carefully consider the
following risk factors before you decide to buy our common stock. You should
also consider the other information in this prospectus.
DIVIDEND POLICY
To date, we have never declared or paid any cash dividends on shares of our
common stock. We currently intend to retain our earnings for future growth and
development of our business and, therefore, do not anticipate paying cash
dividends in the foreseeable future.
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CAPITALIZATION
You should read this table in conjunction with sections entitled "Selected
Financial Data", "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Use of Proceeds" and our financial statements
and the related notes included elsewhere in this prospectus.
The following cash and capitalization table sets forth our actual cash
capitalization as of June 30, 2000:
<TABLE>
<CAPTION>
June 30, 2000
As
Actual Adjusted*
------------
<S> <C> <C>
Cash and equivalents $ 158,511 $ --
------------- -----------
Capital lease obligations 45,821 -
Long term debt 303,594 -
-------------
349,415 -
-------------
Shareholders' (deficit) equity:
Common stock, $0.00001 par value,
100,000,000 shares authorized;
36,357,000 shares issued and outstanding 363 -
Additional paid in capital 2,598,049 -
Accumulated other comprehensive (loss) (38,900)
Accumulated deficit (1,220,562)
-------------
1,338,950
-------------
Total capitalization $ 1,846,876 $ --
============= =======
</TABLE>
The cash and capitalization table excludes:
- 1,353,000 shares of common stock issuable upon exercise of outstanding stock
options at a weighted average price of $0.01 per share as of August 30, 2000;
- 1,500,000 shares of common stock reserved for issuance in connection with
future grants under our Equity Incentive Plan.
* the "As Adjusted" figures will be updated when our September 30, 2000 figures
become available.
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DILUTION
Dilution per share represents the difference between the amount per share paid
by investors in this offering and the pro forma net tangible book value per
share after this offering. All of the shares hereunder are offered by
stockholders and warrant holders who have already purchased their common stock
from us or will purchase common stock upon exercise of their warrants. After
giving effect to the exercise of the warrants and issuance of the underlying
shares, the pro forma as adjusted net tangible book value at June 30, 2000
would have been $3,438,950, or $0.09 per share. This represents an increase in
net tangible book value of $0.05 per share to all of our stockholders. We also
have 1,500,000 shares reserved for issuance under our Equity Incentive Plan that
may be purchased below the price of the shares offered under this prospectus.
To the extent any of these options are exercised, there will be dilution. In
addition, we may be obliged to seek to raise funds through the sale of equity in
public offerings or private placements, after which stockholders may incur
dilution of their equity interests in the future.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of Universe2U Inc. trades under the symbol "UTOU" on the Over-
The-Counter Bulletin Board (OTC/BB). The common stock commenced trading on the
OTC/BB on April 7, 2000. The high and low trading prices of the common stock as
of the quarter ended June 30, 2000 were $9.00 and $.0078, respectively, giving
effect to the company's 19-for-1 stock dividend to holders of record on May 25,
2000. The high and low trading prices through August 30, 2000 were $7.625 and
$5.00, respectively. The quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.
There are approximately 60 holders of record of our common stock as of August
30, 2000, including several institutions that the company believes hold their
respective stock on behalf of client accounts in such institutions. The company
has not declared any dividends to date and does not intend to do so during the
foreseeable future.
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SELLING SECURITY HOLDERS
The following table sets forth certain information with respect to each selling
security holder for whom the company is registering the securities for resale to
the public. The company will not receive any of the proceeds from the sale of
such securities. To the company's knowledge, none of the registered security
holder's listed in the table below are broker-dealers or affiliates of broker-
dealers except as indicated in the footnotes to the table. The information
below is current as of August 30, 2000.
<TABLE>
<CAPTION>
Amount of Percentage Shares
Securities Shares offered of shares beneficially
Owned Prior to pursuant to beneficially owned after
Selling Security Holder (1) Offering (2) this prospectus owned after offering (2)(3) offering (2)(3)
<S> <C> <C> <C> <C>
Bank Julius Baer
& Co. Ltd. (4) 76,000 76,000 * *
Lloyds TSB Bank plc (5) 24,000 24,000 * *
Pierre Luigi Odorico 50,000 50,000 * *
Anthony Sansone 50,000 50,000 * *
Archie Proper 10,000 10,000 * *
Nadia Mastromatttei 5,000 5,000 * *
Andrew Balasbas 25,000 25,000 * *
Vincent Crupi 25,000 25,000 * *
Margaret Dasilva
in Trust (6) 87,500 87,500 * *
Maria Figliomeni
in Trust (7) 100,000 100,000 * *
Carlo DeMaria 31,000 31,000 * *
Redquest Holdings Inc. (8) 212,500 212,500 * *
Laura Investments Inc. (9) 75,000 75,000 * *
Teddington Park
Investments (10) 100,000 100,000 * *
Brian Corbett 62,000 62,000 * *
John Vasquez 20,000 20,000 * *
Adam Arviv 50,000 50,000 * *
Voyager Securities Ltd.(11) 570,000 570,000 * *
Nazareth Fund (12) 100,000 100,000 * *
----------
TOTAL SHARES OFFERED 1,673,000
</TABLE>
* Less than 1%.
(1) Except as set forth in the footnotes below, no selling security holders held
any position, office or had any other material relationship with the registrant
or its officers, directors or affiliates during the past three years.
(2) Percentage of the company's common stock shares beneficially owned is based
upon 36,557,000 shares of common stock outstanding as of August 30, 2000, giving
effect to the exchange of all outstanding exchangeable securities. With respect
to the stock ownership of each selling stockholder, such percentage ownership
gives effect to shares beneficially owned upon exercise of outstanding warrants
and the exchange for shares of common stock of the exchangeable securities
issued by the company's Ontario subsidiary. All outstanding warrants are
exercisable for one share of common stock and all exchangeable securities are
exchangeable at any time on a one-for-one basis for shares of company common
stock. The amounts and percentages of common stock beneficially owned are
reported on the basis of regulations of the
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Securities and Exchange Commission governing the determination of beneficial
ownership of securities. Under the rules of the Commission, a person is deemed
to be a "beneficial owner" of a security if that person has or shares "voting
power," which includes the power to vote or to direct the voting of such
security, or "investment power," which includes the power to dispose of or to
direct the disposition of such security. A person is also deemed to be a
beneficial owner of any securities of which that person has a right to acquire
beneficial ownership within 60 days. Under these rules, more than one person may
be deemed a beneficial owner of the same securities and a person may be deemed
to be a beneficial owner of securities as to which such person has no economic
interest.
(3) Assumes all of the securities offered hereby shall be sold.
(4) Sole voting and power of disposition over the shares of common stock held of
record by Bank Julius Baer is exercised by such bank's investment management
department.
(5) Sole voting and power of disposition over the shares of common stock held of
record by Lloyds TSB Bank plc is exercised by Mr. John H. Iglehart in a
fiduciary capacity as to which Mr. Iglehart disclaims beneficial ownership
thereof.
(6) Sole voting and power of disposition over the shares of common stock held of
record by Margaret Da Silva in Trust is exercised by Ms. Margaret Da Silva.
(7) Sole voting and power of disposition over the shares of common stock held of
record by Maria Figliomeni in Trust is exercised by Ms. Maria Figliomeni.
(8) Sole voting and power of disposition over the shares of common stock held of
record by Red Quest Holdings Ltd. Is exercised by Ms. Linda DeMaria.
(9) Sole voting and power of disposition over the shares of common stock held of
record by Laura Investments Inc. is exercised by Ms. Laura Sacco.
(10) Sole voting and power of disposition over the shares of common stock held
of record by Teddington Park Investments Inc. is exercised by Mr. Domenic
Sgambelluri.
(11) Includes 270,000 shares of common stock underlying warrants exercisable
until June 9, 2005 for $5.00 per share. Sole voting and power of disposition
over the shares of common stock held of record by Voyager Securities Ltd., a
Bermuda corporation, is exercised by Paul Lemmon.
(12) Includes 100,000 shares of common stock underlying a warrant exercisable
until June 9, 2005 for $5.00 per share. Sole voting and power of disposition
over such underlying shares of common stock is controlled by Owen S.M. Bethel.
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PLAN OF DISTRIBUTION
The selling stockholders may from time to time sell all or a portion of their
shares of common stock in the over-the-counter market, or on any other national
securities exchange on which the common stock is or becomes listed or traded, in
negotiated transactions or otherwise, at prices then prevailing or related to
the then current market price or at negotiated prices. The shares of common
stock will not be sold in an underwritten public offering. The shares of common
stock may be sold directly or through brokers or dealers. The methods by which
the shares of common stock may be sold include: (a) a block trade (which may
involve crosses) in which the broker or dealer so engaged will attempt to sell
the securities as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (b) purchases by a broker or dealer as
principal and resale by such broker or dealer for its account pursuant to this
Prospectus; (c) ordinary brokerage transactions and transactions in which the
broker solicits purchasers; and (d) privately selling stockholders may arrange
for other brokers or dealers to participate. Brokers or dealers may receive
commissions or discounts from selling stockholders (or, if any such broker-
dealer acts as agent for the purchaser of such shares, from such purchaser) in
amounts to be negotiated which are not expected to exceed those customary in the
types of transactions involved. Broker-dealers may agree with the selling
stockholders to sell a specified number of such shares at a stipulated price per
share, and, to the extent any such shares remain unsold, purchase as principal
any unsold shares at the price required to fulfill the broker-dealer commitment
to such selling stockholder. Broker-dealers who acquire shares as principal may
thereafter resell such shares from time to time in transactions (which may
involve crosses and block transactions and sales to and through other broker-
dealers (including transactions of the nature described above) in the over-the-
counter market or otherwise at prices and on terms then prevailing at the time
of sale, at prices then related to the then-current market price or in
negotiated transactions and, in connection with such re-sales, may pay to or
receive from the purchasers of such shares commissions as described above.
In connection with the distribution of the shares of common stock, the selling
stockholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the shares in the course of hedging the positions they assume with the selling
stockholders. The selling stockholders may also sell the shares short and
redeliver the shares to close out the short positions. The selling stockholders
may also loan or pledge the shares to a broker-dealer and the broker-dealer may
sell the shares so loaned or upon a default the broker-dealer may effect sales
of the pledged shares. In addition to the foregoing, the selling stockholders
may enter into, from time to time, other types of hedging transactions.
The selling stockholders and any broker-dealers participating in the
distributions of the shares of common stock may be deemed to be "underwriters"
within the meaning of Section 2(11) of the 1933 Act and any profit on the sale
of shares by the selling stockholders and any commissions or discounts given to
any such broker-dealer may be deemed to be underwriting commissions or discounts
under the 1933 Act. The shares may also be sold by non-affiliates pursuant to
Rule 144 under the 1933 Act beginning one year
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<PAGE>
after the shares were issued, and by affiliates two years after the shares were
issued by affiliates, subject to volume limitations.
We have filed the registration statement, on which this prospectus forms a part,
with respect to the sale of the shares of common stock registered hereunder.
There can be no assurance that the selling stockholders will sell any or all of
the shares they desire to sell.
Under the Securities Exchange Act of 1934 ("Exchange Act") and the regulations
thereunder, any person engaged in a distribution of the shares offered by this
Prospectus may not simultaneously engage in market making activities with
respect to the common stock of the company during the applicable "cooling off"
periods prior to the commencement of such distribution. In addition, and
without limiting the foregoing, the selling stockholders will be subject to
applicable provisions of the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder, which provisions limit the
timing of purchases and sales of common stock by the Selling stockholders. We
will pay all of the expenses incident to the offering and sale of the shares of
common stock, other than commissions, discounts and fees of brokers, dealers, or
agents.
We have advised the selling stockholders that, during such time as they may be
engaged in a distribution of any of the shares we are registering by this
Registration Statement, they are required to comply with Regulation M
promulgated under the Securities Exchange Act of 1934. In general, Regulation M
precludes any selling stockholder, any affiliated purchasers and any broker-
dealer or other person who participates in such distribution from bidding for or
purchasing, or attempting to induce any person to bid for or purchase, any
security which is the subject of the distribution until the entire distribution
is complete. Regulation M defines a "distribution" as an offering of securities
that is distinguished from ordinary trading activities by the magnitude of the
offering and the presence of special selling efforts and selling methods.
Regulation M also defines a "distribution participant" as an underwriter,
prospective underwriter, broker, dealer, or other person who has agreed to
participate or who is participating in a distribution.
Regulation M prohibits any bids or purchases made in order to stabilize the
price of a security in connection with the distribution of that security, except
as specifically permitted by Rule 104 of Regulation M. These stabilizing
transactions may cause the price of the common stock to be higher than it would
otherwise be in the absence of those transactions. We have advised the Selling
stockholders that stabilizing transactions permitted by Regulation M allow bids
to purchase our common stock so long as the stabilizing bids do not exceed a
specified maximum, and that Regulation M specifically prohibits stabilizing that
is the result of fraudulent, manipulative, or deceptive practices. Selling
stockholders and distribution participants will be required to consult with
their own legal counsel to ensure compliance with Regulation M.
It should be noted that notwithstanding any of the foregoing discussion in this
section on plan of distribution, at the present time the common shares of the
company are not listed on any exchange nor does any public market exist for the
shares other than on the over-the-counter bulletin board quotation system. It
remains uncertain at the present time whether trading of
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<PAGE>
the company's common stock can be sustained at sufficient levels to provide for
a reasonable ongoing market for the company's common stock.
INTERESTS OF NAMED EXPERTS AND COUNSEL
Counsel for the company, Wuersch & Gering LLP, is the beneficial owner of
options exercisable for 50,000 shares of company common stock at $.01 per share.
Such options become exercisable on June 9, 2001. The engagement of the law firm
of Wuersch & Gering LLP was not made on a contingent basis in connection with
the registration or offering of securities hereunder, nor is such law firm to
receive an interest in the company in connection with the offering hereunder.
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SELECTED FINANCIAL DATA
You should read the following selected financial data together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes, all of which
appear elsewhere in this Registration Statement.
In connection with the acquisition of Universe2U Inc. (Ontario) and the name
change from Paxton Mining Corporation to Universe2U Inc., we changed our fiscal
year end to December 31 of each year.
The acquisition of Universe2U Inc. (Ontario) by Universe2U Inc. (Nevada)
(formerly Paxton Mining Corporation) on May 17, 2000, is considered a reverse
acquisition for accounting purposes with Universe2U Inc. (Ontario) considered to
be the acquiror and Universe2U Inc. (Nevada) the acquiree. As a result of this
accounting treatment, ongoing results are presented as a recapitalization of
Universe2U Inc. (Ontario) and historical results presented are those of
Universe2U Inc. (Ontario).
The acquisition of CableTec Communications Inc. ("CableTec") (formerly Bernie
Tan Investments Inc.) on May 31, 2000 has been accounted for under the purchase
method of accounting. As a result of this accounting treatment, revenues and
expenses of CableTec have been included only from the acquisition date.
Financial information does not purport to be indicative of results which may be
obtained in the future.
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, June 30, Dec. 31, Dec 31,
2000 1999 1999 1998
------------- ----------- --------------- ---------
(1)
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenue $ 2,601,359 $ 229,435 $ 1,614,496 $ 472,569
Loss from continuing
operations ($754,299) ($194,502) ($426,723) ($39,540)
Net loss for the period ($754,299) ($194,502) ($426,723) ($39,540)
Net loss per common
Share ($0.02) ($0.01) ($0.01) -
Weighted average number
of common shares 35,402,204 35,204,000 35,204,000 35,204,000
Cash dividends per
common share - - - -
BALANCE SHEET DATA:
Total assets $ 3,192,746 $ 545,127 $ 1,301,758 $ 512,401
Working capital ($353,792) ($424,921) $ 130,808 $ 101,577
Long-term obligations $ 60,795 $ 309,021 $ 1,116,233 $ 386,824
Deficit ($1,220,562) ($234,042) (466,263) ($39,540)
</TABLE>
(1) The company commenced operations in August 1998.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following information together with our consolidated
financial statements and the related notes included in this prospectus beginning
on page F-1. Certain statements in this section are "forward-looking
statements." You should read the information under "Forward-looking Statements"
for special information about our presentation of forward-looking information.
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.
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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
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 longer term
profitability is 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.
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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 Right-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.
We have experienced operating losses and expect to continue to generate losses
during the foreseeable future while we continue to construct in-building
networks and expand our customer base and internal information systems. As a
result of our limited operating history, prospective investors have limited
operating and financial data upon which to evaluate our performance.
FACTORS AFFECTING FUTURE OPERATIONS
REVENUE. We generate revenues from engineering and design work, building
networks, selling voice, data and other telecommunications services. The
majority of our revenues are generated on non-recurring charges for one-time
services. The remainder is derived from charges on a monthly recurring basis.
Our customer contracts typically range between one and seven years in length.
The two largest contracts we currently have are with Gateway Networks and with
Fiber Optics Corporation of Canada (for networks within Ontario) and
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with FiberCo (with Coastal Network for the construction of networks within
Michigan). We expect future contracts each to have between a 12 to 18 month
duration. The value of our contracts could increase five to seven-fold,
depending on the fiber count a customer selects, if we become the supplier of
the fiber optic cable, however there can be no assurance in this regard.
Fiber Optics Corporation of Canada has an ongoing relationship with Windsor
Utility Commission and Grimsby Hydro. We continue to build their network
through a series of purchase orders. We are supplying the fiber optic cable and
the major components needed to build their network. We expect these to be a
long-term relationship.
Most other revenue is obtained through purchase orders ranging in value from a
few thousand dollars to over a quarter of a million dollars.
We believe that our ability to generate revenues in the future will be affected
primarily by the following factors, some of which we cannot control:
. Our ability to grow our engineering, design, construction and direct sales
business to drive the organic growth;
. Our ability to obtain customers before our competitors do;
. Our ability to deal effectively with anticipated changes in regulations to
deliver telecommunications services;
. Our ability to achieve adequate margins on materials;
. The level of competition we face from other telecommunications service
providers, including price competition, which has resulted in a trend of
declining prices and margins for communications services over time;
. The demand for our network services;
. The ability of the "new" entrants into the telecommunications industry to pay
for our services on a timely basis; and
. possible regulatory changes, including regulations requiring building owners
to give access to competitive providers of communications services.
COST OF SERVICES. Our cost of services consists primarily of infrastructure
materials and labor costs associated with installing equipment. We expect these
costs to increase in aggregate dollar amount as we continue to grow our business
but to decline as a percentage of revenues with respect to materials costs due
to economies of scale, expected improvements in technology and price competition
from an increased number of vendors, however, there can be no assurance in this
regard.
SALES AND MARKETING EXPENSES. Sales and marketing expenses include applicable
employee salaries and commission payments and marketing, advertising and
promotional expenses. We expect to incur significant sales and marketing
expenses as we continue to grow our business and build our brand.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses include
costs associated with the recruiting and compensation of corporate
administration, customer care and technical services personnel as well as costs
of travel, entertainment, back office systems, legal, accounting and other
professional services. We expect these costs to increase significantly
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as we expand our operations, but decline as a percentage of revenues due to
economies of scale, however there can be no assurance in this regard.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses include
depreciation of network related equipment, information systems, furniture,
fixtures, leasehold improvements and the amortization of goodwill and acquired
tenant contracts.
ACQUISITION STRATEGY. We intend to pursue acquisitions or other strategic
relationships to expand our customer base, our ability to offer turnkey
solutions and geographic presence. We expect these activities to significantly
affect our results of operations and require us to raise additional capital. We
expect to acquire well-run subsidiaries and expect to retain their key
management teams in place.
RESULTS OF OPERATIONS
Year ended December 31, 1999 and six months ended June 30, 2000 compared to the
fiscal period ended December 31, 1998 and six months ended June 30, 1999.
The financial information has been presented on a combined basis due to the
reorganization of the corporate structure which was effective April 1, 1999.
Prior to the reorganization, the subsidiaries were controlled by a group that
subsequently controls the company. The financial information has been presented
on the basis that the present share structure existed from the date of
incorporation of each subsidiary.
It should be noted that the fiscal period ended Dec. 31 1998 was not a full
year as many of the relevant corporations were first incorporated during
calendar 1998.
REVENUES
Total sales increased $1,141,927, or 241.6 % to $1,614,496 for the fiscal year
ended December 31, 1999 from $472,569 for the year ended December 31, 1998. The
increase was fueled by the change in business strategy to build turnkey
solutions for customers; this includes the start of two community projects in
Windsor and Grimsby, Ontario in the third quarter of 1999 that added
approximately $600,000 in sales for the year ended December 31, 1999 from $0 for
the fiscal period ended December 31, 1998. Total sales increased $2,371,924, or
1,034% to $2,601,359 for the six months ending June 30, 2000 compared to sales
of $229,435 for the period ended June 30, 1999. The acquisition of CableTec
Communications Inc., effective May 31, 2000, increased sales for the six months
ended June 30, 2000 by $45,048.
For the year ended December 31, 1999, Photonics Engineering & Design Inc.
engineered approximately 696,000 feet of fiber networks. During the six month
period ended June 30, 2000, the company has engineered approximately 836,500
feet of fiber networks.
During the year ended December 31, 1999, Canadian Cable Consultants Inc.
contacted approximately 128,500 individuals, approximately 87,500 through
telemarketing and approximately 41,000 through door to door field sales:
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These contacts generated sales of approximately 12,264 and 9,228, respectively.
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 increased $758,998, or 236.5% to $1,079,861 for the
fiscal year ended December 31, 1999 from $320,863 for the year ended December
31, 1998. The increase was principally the result of higher sales experienced
throughout all the divisions. For the period ended June 30, 2000, 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 period ended June 30, 2000 by $42,261.
GROSS PROFIT
Gross profit increased $382,929, or 252.4 % to $534,635 for the fiscal year
ended December 31, 1999 from $151,706 for the period ended December 31, 1998.
For the six months ended June 30, 2000, gross profit was $1,091,432. This
compares to 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").
These costs for Universe2U Inc. as a whole increased $871,051, or 432.7% to
$1,072,353 for the fiscal year ended December 31, 1999 from $201,302 for the
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fiscal year ended December 31, 1998. For the six months ended June 30, 2000,
the corporation reported General and Administrative Overhead expenses of
$1,995,969 an increase of $1,734,960 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. These debentures were converted into equity during the second
quarter of the 2000 fiscal year. For the first six months of the current year,
the company granted 934,000 stock options to a number of employees and
consultants. The aggregate stock option compensation expense related to such
issuance was approximately $463,000.
NET LOSS
The company incurred net losses for the periods ended December 31, 1999 and
December 31, 1998 of $426,723 and $39,540 respectively. The company reported a
net loss after taxes for the six months ended June 30, 2000 of $754,299,
compared to a net loss of $194,502 for the comparable period in 1999.
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
approximately $104,000 for the year ended December 31, 1999 and approximately
$45,000 for the year ended December 31, 1998. The increase of approximately
$59,000, or 131.1% was the result of a substantial addition in fixed assets
primarily in the Fiber Construction and Maintenance services. Depreciation and
amortization costs totaled approximately $77,000 for the six months ended June
30 2000 and approximately $51,000 for the six months ended June 30 1999. The
acquisition of CableTec Communications Inc. increased amortization expense by
$14,243 for the period ended June 30, 2000.
Interest and other charges: Interest expense totaled approximately $129,000 for
the year ended December 31, 1999, an increase of approximately $116,000, or
892.3%, from approximately $13,000 for the year ended December 31, 1998. This
was a direct result of increased financing necessary for capital expenditures
and to fund the operating losses. Costs for the six month period ended June 30,
2000, include imputed related party interest of $10,679 and total $68,345, an
increase of $31,433, over the $36,912 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
$37,000 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.
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LIQUIDITY AND CAPITAL RESOURCES
Our current growth plan is twofold:
1. To design, build, and market for telecommunication companies; and
2. To design, build, and market:
. Smart Buildings;
. Smart Communities; and
. Smart Network Links (e.g. long-haul fiber networks).
All of these 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.
For all of our divisions, materials, supplies and equipment are all readily
available; therefore, we anticipate being able to schedule capital expenditures
simultaneously with anticipated growth in each of the subsidiaries. Most of the
capital expenditures will be in the fiber construction and maintenance services
where equipment requirements will mirror revenue growth and where equipment
purchases are large ticket items. Based on our current growth plan, we expect
to require a substantial amount of capital to expand the development of
operations and networks throughout the new geographic areas of target markets in
North America. The capital is needed to fund the construction of advanced fiber
optic networks and upgrade our underground construction equipment.
By comparison, in the fiber design and engineering division and the sales and
marketing division, revenue growth is expected to be supported primarily by an
increased labor force and only on a minor basis with increased capital
expenditures.
We intend to reduce the requirement for cash flow to fund operating equipment as
much as possible by leasing a substantial portion of our operating equipment.
We expect the significant cash flow requirements will be for strategic
acquisitions in each of our division's industry. Our current growth plan
includes strategic acquisitions to expand the development of operations and
networks into new geographic areas of target markets in North America.
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. Capital requirements for the 2001 fiscal year are
expected to be approximately $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
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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 year ended December 31, 1999, the company's net cash used in operating
activities was $498,623. This amount includes adjustments for: non-cash items
comprised of an add-back for depreciation and amortization of $104,020, and a
deduction for future income taxes totaling $110,995; and, a net negative working
capital change of $85,192. Net cash used in investing activities was $279,093,
comprised of additions to property, plant and equipment. Net cash provided by
financing activities of $787,471 included the following: Net proceeds from the
issuance of long term debt totaling $160,564; net proceeds from debentures
issued of $346,428; net increase in bank indebtedness of $19,969; and, net
advances from related parties of $260,510.
For the period ended December 31, 1998, the company's net cash used in operating
activities was $129,043. This amount includes adjustments for: non-cash items
including an add-back for depreciation and amortization of $44,531, and a
deduction for future income taxes totaling $10,056; and, a net negative working
capital change of $127,650. Net cash used in investing activities of $338,209
consisted of additions to property, plant and equipment. Net cash provided by
financing activities of $457,042 included the following: Proceeds from the
issuance of long term debt totaling $181,134; net increase in bank indebtedness
of $49,463; and, net advances from related parties of $226,431.
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, non-cash stock
option compensation of $462,761 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
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issuances of $1,281,758, less bank indebtedness repayments of $57,092, and less
$58,045 of net advances to related parties. For the six month period ended June
30, 1999 net 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.
The company has engaged Goepel McDermid Inc. to provide assistance to the
company with regard to a financing program. There can be no assurance that
Goepel McDermid will succeed in its efforts 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.
RECENT ACCOUNTING PRONOUNCEMENTS
We do not believe that any recent accounting pronouncements will have a material
impact on our financial statements.
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BUSINESS
OVERVIEW
Our company is the product of an acquisition, completed on May 17, 2000, in
which Paxton Mining Corporation, our predecessor company, acquired all of the
outstanding shares of Universe2U Inc. Upon completion of the acquisition, we
changed our corporate name to Universe2U Inc.
Prior to the acquisition, under the name Paxton Mining Corporation, we were a
very early stage development stage company originally organized to acquire,
explore and develop mining properties. Due to disappointing results, we decided
to pursue another line of business. We acquired Universe2U Inc., then 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. We provide open access networks that are available to all service
providers and we are not a carrier nor do we provide regulated
telecommunications services. We currently have seven operating subsidiaries.
We have built our company around operating subsidiaries which provide a
complementary array of services for building and supporting high-speed networks.
We commenced operations by acquiring Fiber Optics Corporation in 1998, a company
that had been in the fiber optics business for ten years. We restructured the
operation and renamed it Fiber Optics Corporation of Canada (FOCC). To help our
customers implement and maintain profitable networks we formed Canadian Cable
Consultants, a company that provides marketing services to a rapidly expanding
number of companies in the telecommunications and cable television industries.
We subsequently formed Photonics Engineering and Design--to focus on the highly
specialized tasks of planning, designing, and engineering fiber optic networks,
setting up central switching offices, and securing right-of-way access for fiber
routes. Recently we acquired another company to expand our underground network
construction capabilities. Together, we make up Universe2U, a unique
combination of engineering and design, construction, fiber optics expertise, and
marketing expertise that allows us to (a) profit from the needs of today's
network builders and operators, while, (b) positioning ourselves to be providers
of infrastructure and network services that businesses, communities, and the
industry will demand during the foreseeable future.
THE INDUSTRY
TELECOMMUNICATIONS SECTOR DEVELOPMENT.
Universe2U operates mainly in the telecommunications sector, which is a sub-
sector of the data network industry and communications industries.
Telecommunications is the transmission of digital information over fiber optic,
copper cable, and wireless. Similarly, the cable TV industry, Internet,
cellular and private point-to-point and wide area networks all
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require fiber optics to transport digital information. Fiber optic cable
provides the ultimate bandwidth pipe for long distance and last mile, providing
transmission of voice, data and cable TV and any other type of data that
requires transport. Over the years, these networks have been built and
maintained by the large telephone companies (Telcos) operating throughout Canada
and the U.S. These networks of copper cables serve residential and business
customers needs.
Several new telecommunication companies have been created during the past decade
and are deploying networks in cities. Others are deploying fiber cable between
cities throughout North America. Long distance, voice, and facsimile
capabilities have supported the traditional telephone company model of service
delivery, data, and dial-up services revenues, usually centered on densely
populated areas. We believe that this model has reached maturity. The
lucrative, high revenue stream, previously enjoyed by the traditional telephone
companies, has disappeared due to intense competition. In fact, the average
cost of a long-distance telephone call three years ago was about twenty-five
cents a minute. The current cost is now dramatically reduced, with some
providers charging rates as low as four cents a minute. Deregulation of
telephone companies, and cable television companies, as well as mergers, and
acquisitions by international service providers has further re-defined the
marketplace.
Traditionally telephone and cable TV companies vertically integrated their
infrastructure and equipment with their service offering. This installed high
barriers to entry for the new competitors. The Telecommunications Act of 1996
(the "1996 Act") eliminates many of the pre-existing barriers to competition in
the telephone and video programming communications businesses. The 1996 Act also
preempts many of the state barriers to local telephone service competition that
previously existed in state and local laws and regulations and sets basic
standards for relationships between telecommunications providers. The 1996 Act
removes barriers to entry in the local exchange telephone market by preempting
state and local laws that restrict competition and by requiring local exchange
carriers to provide nondiscriminatory access and interconnection to potential
competitors, such as cable operators, wireless telecommunications providers and
long distance companies. The 1996 Act also makes far-reaching changes in the
regulation of video programming transmission services. These include changes to
the regulations applicable to video operators, the elimination of restrictions
on telephone company entry into the video business, and the establishment of a
new open video system regulatory structure for telephone companies and others.
Under the 1996 Act and implementing rules adopted by the FCC, local telephone
companies may provide service as traditional cable television operators subject
to municipal cable television franchises, or they may choose to provide their
programming over open video systems.
With an ever increasing demand for increased bandwidth and faster transmission
rates, the old copper networks became increasingly more difficult to maintain.
New technology has been developed that has dramatically increased the bandwidth,
distance and transmission rates on copper cable pairs. Most Telcos have now
changed all their switching equipment from analogue to digital. A conditioned
copper cable pair now has the capability of carrying voice, high-speed data, and
limited video signals. By placing fiber optics cable to feed the outer reaches
of a service area,
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Telcos are now using copper cables only to feed that last mile into a customer's
premises. As the price of optical/electronic switching equipment decreases,
fiber to the home will become a more affordable solution. However, copper
networks will still be utilized in residential areas and must be maintained and
replaced as they age. Industry sources report that North American Telcos are
downsizing their workforce and out-sourcing cable placement, splicing, and
maintenance to contract companies. As more and more fiber optic cable is
deployed, the need for the old copper-based networks will diminish. Industry
sources believe that diminishment of old copper-based networks will take at
least 20 years, if not more, to occur.
The emergence of the Internet and the widespread adoption of Internet Protocol
("IP") as a data transmission standard in the 1990s, combined with deregulation
of the telecommunications industry and advances in telecommunications technology
have significantly increased the attractiveness of providing data communication
applications and services over public networks. E-commerce for private sector
essentially has at least two facets: Business to Consumer (B2C) and Business-to-
Business (B2B).
B2C are consumer oriented retail service and product transactions while B2B
consists of transactions between businesses (wholesale market).
B2B is an extremely diversified field and can take many forms. A practical
example: the purchasing department of a company can post its requirements
online, with an extended forecast on their possible future purchases. This
would enable all the suppliers who visit their web site to bid on the firm's
purchasing requirements thereby providing for a more competitive environment.
B2B e-commerce has already surpassed the business-to-consumer market by a wide
margin. Annual B2B e-commerce is projected to soar from $43 billion in 1998 to
$1 trillion by 2003 according to industry sources. According to Forrester
Research, B2B was virtually a $0 business in 1990. The consumer market, on the
other hand, is expected to increase from $7.8 billion to $108 billion in the
same period. A 'middleman' in the B2B market, known as "infomediaries" is
predicted to become the fastest growing and most profitable business model in
the Internet area over the next 3 to 5 years, according to San Francisco
investment firm Volpe Brown Whelan. Infomediaries employ a variety of mechanisms
to generate transaction fees for their clients, including: auctions, matching
buyers and sellers through request for proposals and quotation services, as well
as direct sales of merchandise.
At the same time, growth in client/server computing, multimedia personal
computers and online computing services and the proliferation of networking
technologies have resulted in a large and growing group of people who are
accustomed to using networked computers for a variety of purposes, including e-
mail, electronic file transfers, online computing and electronic financial
transactions. These trends have led businesses increasingly to explore
opportunities to provide IP-based applications and services within their
organization, and to customers and business partners outside the enterprise.
Bloomberg's industry analysts expect the market size for network build-outs in
the United States to grow to approximately $60 billion in the year 2000.
We expect that the principal competitive factors in this market are uncongested
connectivity, quality of facilities, level of customer service,
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price, financial stability and credibility of provider, brand name and
availability of network management tools. Our current and potential competitors
in this market include: Exodus Communications, Inc., Frontier Corporation,
Global Crossing Ltd., NEXTLINK Communications, Inc., Hiway Technologies, Inc.,
Verio Inc., 360networks Inc., British Telecommunications plc, Deutsche Telekom
AG, France Telecom S.A., Qwest Communications International Inc., Allied Riser,
Cypress Communication, Williams Communications Group, Inc., Global Crossing
Ltd., KPNQwest, Colt Telecom Group plc, Level 3 Communications, Inc., Mastec,
Metromedia Fiber Network, Inc., Western Integrated Networks, WideOpenWest,
Grande Communications, RCN Inc., Rhythms Net Connections, Globix Corporation,
Concentric Network Corporation, SBC Communications Inc., PSINet, Inc., Agruss
Communications, Dycomm Industries, Quanta Services, Cygnal Inc., global,
regional and local telecommunications and cable companies, such as Call-Net,
AT&T, Sprint, MCI WorldCom and Regional Bell Operating Companies, and Rogers
Cable and companies capable of offering services similar to those provided by
us, including communications service providers, cable television companies,
electric utilities, microwave carriers, satellite carriers and wireless
telephone operators.
TELECOMMUNICATIONS OPPORTUNITIES FOR RIGHT-OF-WAYS OWNERS.
Industry sources acknowledge that the most difficult and most expensive element
of a telecommunications system is connecting the last mile. Organizations that
have access to the right-of-ways (ROW owners) are generally quite experienced at
last mile construction and service. The common characteristic of a ROW owner is
the access to infrastructure (poles, ducts, pipes, water mains, waste water
mains, buildings, rail lines, highways) that can be utilized to install fiber
optic cable. Thus, a natural opportunity exists for ROW owners to enter the
telecommunications business has emerged. The ROW owner can move up the value
chain from providing infrastructure services (e.g., pole rental, duct rental,
dark fiber rental) to broadband transmission services, to distribution, to
switched services to retail services that may be synergistic with their core
business. The networks are based on fiber infrastructure with hybrid features,
such as coaxial cable and wireless services. The market for ROW owners can be
segmented into: carriers long distance, internet service providers (ISPs),
wireless, and competitive local exchange carriers (CLECs); public sector;
commercial; and information intensive industries.
Many ROW owners do not have the expertise or resources to develop these
opportunities. We work in partnership with the ROW to develop the opportunities
that we expect would become profitable businesses. ROW owners include
organizations such as: communities, government, utilities, pipeline companies,
building owners, property managers, educational institutions, and First Nations
Communities.
COMMUNITY NETWORKS.
We believe that many high bandwidth projects have been led by `technical
specialists', not `users'. The roll-out of high bandwidth has been slow because
telecommunications providers are waiting for `killer applications' or more
demand for their services - they are often hesitant to invest in higher
bandwidth to the home fearing that people will not use the capacity, or will
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not support additional cost for higher bandwidth, making it difficult to build a
business case, especially in smaller communities. We believe that communities
need to lead new telecommunications initiatives by encouraging
telecommunications use, with telecommunications providers becoming partners
rather than leaders in projects.
We believe that communities concerned with developing themselves economically,
and diversifying their economy, need to educate themselves on the opportunities
made available through the Internet, how it applies to them, and develop
strategies to use the Internet as tool to increase the number and variety of
jobs in their communities.
We believe that the Internet is an excellent economic development tool,
especially for more remote communities. We believe that high bandwidth can
provide opportunities in the following areas:
. Upgrade the skill level of the population in remote communities through
e-learning and potentially change the economic fabric of the community
including decreasing the youth out-migration;
. Provide services not currently available in remote communities such as
telemedicine, and remote monitoring;
. Develop and link tele-workers to larger companies seeking human resources;
. Improve e-commerce activities and generate new services within the community
such as consideration for transportation and information technology;
. Increase entrepreneurship by educating citizens on internet-based service
provision and identifying new business examples that can be developed through
the Internet or as a result of expanding local activities on the Internet.
Municipalities throughout Canada and the United States are expanding into all
areas of "Smart Communities" through telecommunication services to facilitate
internal efficiency and to enhance enterprises located in the community.
Community networks are often made up of a partnership of school boards,
hospitals, government, and public ROW owners that share in cost of building
their network throughout a service area that usually exceeds six hundred square
miles. Some utility ROW owners with reasonable population densities have seen
the opportunity to enter the telecommunications market. They have the rights of
way to deploy facilities-based (owned) fiber optic cable and equipment to
deliver dark fiber and bandwidth for high-speed network access. The utility ROW
owners have targeted the telecom market as a source of additional revenue in the
increasingly competitive energy industry. Although some ROW owners have
substantial fiber optic networks in place, they have other important market
advantages: access to a large customer base, available cash, and right-of-ways
into virtually every home and business in the country.
We believe that communities need to get in the game. We provide the information
that will encourage communities to get involved. Increased involvement may, in
turn, encourage more bandwidth-hungry applications and the upgrading of local
infrastructures. We assist the local facilitators,
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who could be local economic development corporations, municipal governments,
municipal utility, or a local Chamber of Commerce.
PRIVATE NETWORKS.
Historically, the data communications services offered by public carriers had
limited security features, were expensive and did not adequately ensure accurate
and reliable transmission. As a result, many corporations established and
maintained their own private wide-area networks ("WANs") to provide network-
based services, such as transaction processing, to their customers and to
coordinate operations between employees, suppliers and business partners. Such
private WANs were frequently customized to specific applications, business
practices and user communities. As a result, these private WANs had the
capability of providing organizations and users with tailored performance and
features, security, reliability and private-label branding. The demand for WANs
has grown as a result of today's competitive business environment. Factors
stimulating the higher demand include the need to provide broader and more
responsive customer service, to operate faster and more effectively between
operating units, suppliers and other business partners, and the need to take
advantage of new business opportunities for network-based offerings in a timely
fashion. In addition, as businesses become more global in nature, the ability
to access business information across the enterprise has become a competitive
necessity.
We expect that that model is evolving to one where customers demand access to
all available content and thus a shared infrastructure will be needed to permit
the flow of information. We believe that as ROW owner prepare for competition
in their core business, many are turning to telecommunications as a method of
retaining customers and enhancing revenue opportunities. Many ROW owners are
taking progressive steps analyzing the installation and operation of broadband
high-speed fiber optic based telecommunications system. We believe that the new
system will form the foundation for a telecommunications infrastructure
providing the capability of broadband access to Internet, data, video, voice and
energy management applications and serving the needs of businesses and the
public sector. Our surveys of business customers on telecommunications services
indicate that most users desire lower costs, increased access speed, unfettered
choice of content, video conferencing capability and simplicity. Industry
sources indicate that the next wave of network build-out will be in
municipalities.
LAST MILE DELIVERY.
The dramatic growth of telecommunications infrastructure and expanding bandwidth
resources for major high population density areas has left some communities
behind. The high speed, "last mile" connection from the network backbone to
individual end-user sites necessary to access the global information highway is
severely lacking in many communities outside of urban centers, especially in
rural areas. The industry trend on focusing solely on delivery of greater
telecommunications and network resources to high density metropolitan areas is
comparable to building a multi-lane public highway without local on-ramps
outside of urban centers. Due to the high cost of wiring the "last mile" most
long distance service providers and network companies have largely directed
their broadband investments toward serving densely populated, or so-called
"tier-one" communities. We believe there is
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a substantial growth opportunity for installation of the infrastructure
necessary to provide local access "on-ramps" to the global information highway
and install "last mile" telecommunications and network resource solutions
outside of high density urban hubs.
INDUSTRY OPPORTUNITIES.
Despite the significant and ongoing investments being made by
telecommunications, cable television, and other companies to build network
infrastructure, many industry sources believe that there is already a
significant global bandwidth shortage that will continue to be unsatisfied
during the foreseeable future. The U.S. Commerce Department, for example,
reports that data traffic is doubling every 100 days, and Internet use is rising
10-fold every year. Other analysts have predicted that overall demand for
bandwidth could rise to as much as 200-times current levels by 2005. Users can
still log-on to the Internet or private corporate networks using a standard
dialup modem. But considering that current modems operate at 56 Kbps (56,000
bits per second), while optical network speeds are now measured in Giga-bits per
second--as in 1 billion bits per second, we believe there will be substantial
demand for enhanced infrastructure to accommodate broader access to these higher
bandwidth networks.
Retailers are recognizing that they can attract more sales if more people are
using the Internet. Three of the biggest retailers have announced deals with
major Internet Service Providers (ISPs) to provide Internet access services at
either very low or no cost. Kmart is linking with Yahoo to provide free Net
access through a new ISP called BlueLight.com and America Online has signed with
both Circuit City and Wal-Mart to provide certain Internet access. Jupiter
Communications predicts that the number of US households accessing the Web
without ISP fees will rise from 1.5 million today, to as many as 8.8 million by
2003. And while most analysts say major ISPs aren't threatened by the new
trend, some smaller ISPs are moving away from the subscription-based business
model in favor of one based on advertising revenues, commerce, and financial
services.
Industry sources forecast that the number of PCs worldwide will exceed 100
million units in 2000. The poor bit rates and large delay times in the Internet
and the World Wide Web (WWW) are the sources of many complaints. Most users are
currently connecting with a modem at 28 or 56 kps. Those who have cable modems
are connecting at higher speeds of up to 1 megabit. The following table
demonstrates the types of applications and their minimum and suitable bit rates
for upstream (receiving information) and downstream (sending information) data
transmission. The quality and content of an application running either at the
minimum data rate or at a suitable data rate will be remarkably different. As
an example, an electronic newspaper operating at 2000 kps (2 Mbit/s) integrates
real-time streaming video and audio, and real-time block-transfer of other media
such as pictures, text, and graphics. This is an attractive alternative for
newspaper and for TV news since it composes with various media and adds
interactivity. The same application at 28 kbps suffers from considerable delay
time and does not allow the transmission of real-time streaming audio and video.
The user might be disappointed by this kind of service. Downloading a film using
a 56 kbps modem could take 8 hours, while over a broadband connection, only half
an hour.
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Another element in e-commerce development will be the need to bring municipal
services on-line and provide citizens the opportunity to find out what is going
on in the community at any time, register children for activities, or pay a
ticket, a tax bill, etc. Several North American communities are exploring this
concept. Connect Ontario, a new provincial program whose mandate is to develop
50 Smart Communities within the next 5 years in Ontario, Canada, is allocating
funding for community `portals' which would place all community resources
through one facade on the Internet. All e-commerce services would therefore fit
under one portal or one Internet web page and the Connect Ontario program could
cover some of the developmental costs. The City of Toronto recently announced
its intention to "be open for business" 24 hours a day, 7 days per week, by
providing services online.
Projections by industry sources of market share for 2004 for all residential
broadband subscribers are expected to be as follows:
. IXCs are projected to be market leaders, with 30% largely based on AT&T's
cable operations;
. Independent Cable operators stand to capture 29%;
. ILECs are expected to gain 2/3 of the DSL subscribers, however their overall
market share is 22%;
. ISPs are expected to capture 14%, mainly from AOL's cable operation; and
. CLECs are expected to capture 5% of the market.
The residential market for broadband access services is expected, by industry
sources, to increase to over $7 billion in 2004, from its level in 2000 of $1.4
billion. The market share of the delivery by delivery means will swing as
follows (2000 share to 2004 share):
. Cable modems are expected to decrease from 72.8% to 57.6%;
. DSLs are expected to increase from 23.4% to 32.8%; and
. Wireless is expected to increase from 3.8% to 9.6%.
We expect fiber to the home to begin to capture some of the total market by
2004.
Projections of market share for 2004 for all commercial broadband subscribers
are expected, by industry sources, to be as follows:
. CLECs are projected to be market leaders, expected to capture 38% of total
revenues;
. ILECs are expected to capture 28%, with their strength in DSL category;
. IXCs are expected to capture 23%, as important resellers of DSL services;
. ISPs are expected to capture 8%, mainly through reselling DSL; and
. Independent Cable operators are expected to capture 3%.
The commercial market for broadband access services is expected to increase to
over $3.5 billion in 2004, from its level in 2000 of $0.6 billion. The
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market share of the delivery by delivery means will swing as follows (2000 share
to 2004 share):
. Cable modems are expected to decrease from 5.8% to 5.5%;
. DSLs are expected to decrease from 64.2% to 56.2%; and
. Wireless is expected to increase 30% to 38.3%.
We expect fiber to business to begin to capture some of the total market by
2004.
We believe that the telecommunications industry is in a state of dramatic growth
due to deregulation, the demand for bandwidth, increased use of the Internet and
the advancements in fiber optic cable deployment and central switching equipment
efficiency. We believe that we have a parallel opportunity for growth as a
provider of telecommunications infrastructure, network services, engineering,
design, and telecommunications marketing and sales services.
OUR OPERATIONS
Our telecommunications operations focus on the following areas:
. infrastructure installation and maintenance;
. marketing services;
. engineering and design; and
. network servicing.
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 profitable
organizations. This is primarily achieved through the development of
relationships in its core strength area and the provision of contractual
services. The individual companies may act as service providers to other
telecommunications companies.
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In addition, our subsidiaries act as integrated business units to provide
turnkey solutions. In this case instead of contractual project clients, we
expect to target strategic alliances, partnerships and joint ventures where
equity ownership is an integral components of the deal structure. Our Smart
Community networks, Smart Building networks and Smart Network Link models will
all be designed on this basis. Where initially the primary revenue stream will
be form the individual companies, the long term revenue stream and profitability
will 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 & 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 Right-of-Ways Agency Inc. (right-of-way broker).
We organize delivery of services by our subsidiaries under four operational
areas: Telecom Infrastructure operations, Direct Sales operations, Engineering
and Design operations and Network Services and Alliance operations.
TELECOM INFRASTRUCTURE - This area is responsible for all building and
maintaining of telecom infrastructure. Operations include installation of long-
haul networks, regional networks, community networks, and in-building networks
using state-of-the-art fiber, wireless and copper based materials. We have
three subsidiaries involved in this operational area: Fiber Optics Corporation
of Canada (FOCC), Coastal Network Services Inc. ("Coastal"). FOCC has been
providing fiber optic network planning, engineering, and construction services
to major communications and private network companies since 1987. Coastal is a
parallel operation to FOCC and operates out of Troy, Michigan.
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SALES AND MARKETING - This area sells telecom infrastructure products to
telecommunication companies, telecommunications services on behalf of
telecommunications companies and services on behalf of the community for
community networks. The services include: telemarketing and direct sales
services, cold sales, audits, customer satisfaction surveys, and promotion of
additional bandwidth products and services within the cable and
telecommunications industries. Our subsidiary operating in this area, Canadian
Cable Consultants Inc. ("Canadian Cable") was formed in 1998. We currently have
contracts with major cable TV operators, telephone, and right-of-way ("ROW")
owner companies. Canadian Cable also provides a captive marketing and sales
organization for our "Smart Community" networks. We are seeking acquisitions to
expand operations in this area in Canada and the United States. We also intend
to expand activities in this area to include sales and marketing services for e-
commerce, high volume call answer, bandwidth services, bundled
telecommunications services, and the leasing of duct and fiber.
Our subsidiary operating Universe2U Right-of-Ways Agency Inc. is a 49% owner of
a Michigan limited liability company, T-E Realty and Right-of-Ways Agency, LLC
("ROW Agency"). ROW Agency intends to act as marketing agent on behalf of U.S.
Corporations interested in leasing their respective right-of-ways and easements
to others for purposes of providing long-haul, point-to-point telecommunication
services. Universe2U Right-of-Ways Agency Inc., by its participation as a Member
of the ROW Agency, intends to assist in marketing right-of-ways.
Multilink Network Services, Inc. ("Multilink"), operating out of Lansing,
Michigan, is focused on obtaining right-of-ways and developing long-haul
networks and regional networks. The company works closely with the owner of the
right-of-way and may enter into strategic alliances with them. Multilink
expects to obtain access to up to 50,000 miles of right-of-way in the U.S. from
utilities, on which they will develop open access networks.
ENGINEERING AND DESIGN - This area is responsible of all engineering and design
activities. The prime focus of this function is driving ongoing improvement
throughout the organization. These activities include: permits, designs,
mapping, GIS, structural design, engineered drawings, network design, equipment
specifications and research and development. Photonics Engineering and Design
Inc. is a company we recently formed in 1999 to specialize in designing and
engineering fiber optic networks, as well as to manage the complex installation
and connection tasks for central office and hub infrastructure construction, and
right-of-way management. The company uses advanced technology such as laser
measurement, CAD, GIS, and GPS to ensure fast, accurate designs. We also expect
to shortly create a research and development group to examine new products and
services to enhance our service offerings.
NETWORK SERVICES AND ALLIANCES - This area is responsible of all third party
supplier relations, including fiber, ducts, underground construction,
directional boring, duct structure construction, civil construction activities
and the preparation of building for the installation of switching equipment.
Activities include: trenching, duct structures, directional boring, electrical
installations, make ready, and similar actions. Our subsidiary operating in
this area, CableTec Communications Inc., has been in
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business since 1982, and was acquired by Universe2U May 31, 2000. CableTec
provides underground construction services to electric ROW owners,
telecommunications companies, and cable television companies. Our scalable
services provide for all phases of Smart Community network installations and
interconnect communities using the "state-of-the-art" telecommunications
technology.
We are actively involved in design, construction, and post-installation sales
support following network completion. We expect to take an equity and/or a
partnership position in various projects and new network installations where
available to us. We believe that the scope of our services address a broad
range of interrelated needs in the telecommunications network infrastructure
market. As part of our business strategy, we also intend to organize
consortiums for large-scale projects, such as long haul fiber builds and
initiating major community-level projects with multiple partners.
SMART COMMUNITY NETWORKS
"Smart Community" networks refer to partnerships with local governments,
institutions, businesses, and ROW owners to service the roughly two-thirds of
the North American population that lives outside of major urban centers where
most investment in high-speed network infrastructure has been focused to date.
Smart Communities are communities that are driven by people's needs, not the
underlying technology.
We believe that communities can develop themselves economically and diversify
their economy need to educate themselves on the opportunities made available
through the Internet, how it applies to them, and develop strategies to use the
Internet as tool to increase the number and variety of jobs in their
communities.
We believe that high bandwidth can provide opportunities in the following areas:
. Upgrade the skill level of the population in remote communities through
e-learning and potentially change the economic fabric of the community
including decreasing the youth out-migration;
. Provide services not currently available in remote communities such as
telemedicine, and remote monitoring;
. Develop and link tele-workers to larger companies seeking human resources;
. Improve e-commerce activities and generate new services within the community
such as consideration for transportation and information technology;
. Increase entrepreneurship by educating citizens on internet-based service
provision and identifying new business examples that can be developed through
the Internet or as a result of expanding local activities on the Internet.
Industry sources report that the best prospects for residential broadband
services are found among households making more than $25,000 a year and headed
by persons less than 55 years old. Nearly half of all U.S. households fit these
demographic parameters.
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There are a great number of potential uses or applications for the Internet, all
requiring faster speeds than currently available to the home. The following is a
list of applications which may be promoted and developed in a community:
. Telework: working from home for an employer located in another region,
running a home-based-business selling goods and services to a region or the
world, working from a subsidiary office for an employer located in another
region.
. Call centers: a wired community could attract more call centers, and a
virtual call center project with employees working from home would have a
competitive advantage over other locations offering standard service.
. Tele-medicine or tele-health: receiving health information or a consultation
through a videoconference system, sending patient data to a specialist over
the Internet for an opinion or assessment.
. Tele-education or e-learning: attending a college, university, or training
program from home or a community classroom connected to any number of
educational institutions. Attending a conference or a one-on-one training
session from home or the office, while the trainer or conference is located
in another region.
. Virtual libraries: the ability to browse through any library in the world,
download books or articles, reserve and order books, talk to a librarian on-
line from home, download a video available at the library, etc.
. E-commerce: doing business on the Internet by developing a site where
consumer can shop, pay bills, obtain information, register for a class,
book a hotel room, etc.
. Entertainment: receive videos, music, games, or other forms of entertainment
from the Internet to your home computer.
. IP Telephony: make telephone calls, with or without video (still or moving
picture of the person you are calling), from a computer, through the internet
(avoiding long distance charges).
. Software access, data storage: allowing users to download a number of
software from the Internet, sometimes free of charge. Allowing users to use a
central memory located in another part of the world to store large files on a
rental basis.
These applications may use one or more of the following technologies:
. Digital video: largest potential user of bandwidth. A video is created with a
computer instead of a film camera then sent over the Internet to the home
user. The video is compressed using standards ranging from H.263 to MPEG-2
and can use from 56 kbit/s to 20 Mbit/s.
. Digital audio and speech coding: music or voice is coded into the computer
and sent over the Internet. New audio standards such as Dolby or Sound
Blaster Live enable more lifelike 3-D sound, which requires high transmission
capacity.
. MPEG-4: standard for coding audio-visual objects and will enable a whole
spectrum of new or improved application including audio-/visual broadcasting,
interactive mobile multimedia communications, videophone, videoconference,
multimedia videotext, games, interactive computer imagery,
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sign language captioning, text-to-speech. MPEG-4 needs up to 15 Mbits/s for
broadcast applications.
. VoIP: voice over IP is a generic term that provides a telephone service over
the Internet. It has not taken off because delays exceeding 250 milliseconds
are unacceptable for quality of a telephone service and new technology must
be provided to the consumer to transform an analogue signal into a digital
signal. Many people are using this service today on the Internet to save long
distance costs regardless of the quality of the call.
We believe that Smart Communities can make the most of the opportunities that
new technologies can afford. We believe that Smart Communities can enhance
community dialogue and create awareness of common community challenges and goals
among its constituents. The challenge is to build a fiber optic infrastructure
that can bring universal access to high bandwidth information and services to
each Smart Community home, school, government, community institution and
business.
OUR STRATEGY
FIBER OPTIC INFRASTRUCTURE AND NETWORKS STRATEGY.
We provide our customers with a high-quality, affordable single-source solution
designed to address the following communications requirements:
. A comprehensive telecommunications infrastructure solution from a single
source. We effectively function as our customers' project manager and provide
the convenience of "one stop shopping." We cluster our cooperating companies
into four areas: communications infrastructure, engineering and design,
direct sales and support services.
. A close working relationship with the right-of-way owners where we build the
networks. Include the property owned in the Network. All telecom
infrastructure requires permission from the property owners. The property
owners include: building owners, ROW owners, municipalities, state and
federal governments, telecommunication carriers, corporations, and private
individuals.
. A reliable, robust network with performance levels and pricing that has
traditionally been available only to large corporations. Our solution
encourages the sharing of limited right-of-ways to reduce the cost of
building the infrastructure.
. Rapid installation and service expansion with minimal capital outlay by
customers. We deliver our comprehensive services where we will take an equity
position in the network. Additionally, we provide the ability for customers
to lease our infrastructure; our customers avoid significant capital outlays
and substantially mitigate the risks of encountering communications capacity
constraints.
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. On-site or near-site customer service and support. Each of our customers is
assigned a dedicated, experienced team available on a 24x7 respond to network
issues.
Our objective is to become the preferred facilities-based provider of broadband
communications infrastructure and Internet connectivity solutions to
communications carriers, corporations and government agencies, in our target
markets. We intend to focus our strategy on our strategy of outsourced network
design, engineering, construction, and marketing. We also intend to organize
consortiums for large-scale projects, such as long haul fiber builds, and
initiate major community-level projects with multiple partners.
SMART COMMUNITY STRATEGY.
To provide maximum benefit to participating communities, as well as to ensure
efficient progress in the specific projects, we have developed a three-phased
approach for "Smart Community" network construction.
Phase One: Delivery of "immediate bandwidth relief" through the deployment of a
combination of existing high-capacity wireless microwave backbone technology and
spread-spectrum wireless and copper-based access technology known as DSL, or
Digital Subscriber Loop. We initially rely on our partners' physical points of
presence and the rental of existing telephone company copper infrastructure.
Phase Two: the second phase of the strategy is to build fiber-optic backbone
infrastructure along the path serviced by the wireless microwave deployed in
phase one. As the fiber-optic backbone reaches and surpasses the wireless
systems, the wireless equipment is either re-deployed to other communities, or
traded-in to the equipment manufacturer for credit towards fiber-optic
equipment. We use public sector real estate to locate our switching and
termination equipment, such as school buildings, libraries, and municipal
government buildings, usually at nominal cost.
Phase Three: We assist the local ROW owner and government by setting up an
operational management company called " The Smart Community Network Management
Company", in order to oversee the sale of services to the private sector. We
intend to invest in this company and retain an equity position. In this manner,
the "community owned" operation which was deployed according to a "cost
recovery" model, gives way to a "public-private" company operating according to
a "for profit" model with any profits on the public sector equity portion to
return to the respective community and be available for investment in other
programs.
In our "Smart Community" model, the public sector is our partner. We bring to
them a method of achieving high capacity telecommunications access built on a
cost recovery basis. We also position ourselves as an organization that is
funded by the public sector, for the public sector. Although the community is
the provider of purchase orders and our revenue streams through their control of
the local ROW owner, we intend to develop a high-level, strategic relationship
with end-users, such as school boards, hospitals, and municipal government
groups. In addition, we recruit and train local
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personnel for building of the infrastructure, ongoing maintenance of the system
and the selling of services. We expect to mutually benefit from a strong local
presence.
Federal, state, and local governments have recognized the broadband access
problem afflicting tier-two and tier-three communities and are increasingly
making funds available for infrastructure development projects. The government
of the Province of Ontario has already earmarked $100 million for
telecommunications networks, and industry sources expect other regions
throughout Canada and the U.S. to follow suit.
In addition, deregulation has led electric ROW owners to aggressively explore
new business opportunities, both as a response to increased competition in their
core businesses, as well as to overcome limits to low growth expansion in the
delivery of electricity. Electric ROW owners are extremely well positioned to
enter the telecommunications business and have material incentives to
participate in "Smart Community" network projects such as valuable right-of-ways
needed for network construction and several other distinct advantages,
including, existing conduit infrastructure, such as poles and ducts; the ability
to finance significant long-term investments; structural access to buildings
such as spare ducts that are already in place, equipment space in buildings such
as transformer vaults, electrical network monitoring centers already in place,
expertise in "last mile" construction and service, crews trained in working
outdoors, 24/7 repair teams; and, sophisticated customer billing systems and
processes. We believe that ROW owners are highly motivated to become partners
with their communities: helping the community helps to support an existing
customer base and customers may be less likely to switch suppliers if they are
receiving multiple services from the same provider. Our Chief Executive
Officer, Kim Allen, is the former CEO of Scarborough (Ontario) Public Utility
Commission, a $400 million water and electric utility. While serving in that
position, he directed their successful diversification into the
telecommunications business. We have already initiated construction of two
"Smart Community" networks in Ontario, Canada.
We believe that Smart Community networks will not only serve a critical role for
the community by bringing much needed broadband access, we expect them to also
provide us with long-term income potential through our equity stake in the
management company, however there can be no assurance in this regard.
SMART BUILDING NETWORK STRATEGY.
By 2004, industry sources expect a substantial portion of large metropolitan
buildings will be served directly by fiber. Technical improvements are making
fiber economical for a wider range of end users. In 2004, it is anticipated that
68,000 building with direct fiber connections are expected to accommodate
1,349,000 establishments.
To provide maximum benefit to participating building owners, as well as to
ensure efficient progress in the specific projects, we have developed a three-
phased approach for "Smart Building" network construction.
Phase One: Delivery of "immediate bandwidth relief" where we quickly deploy a
combination of existing copper-based access technology known as DSL, or
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Digital Subscriber Loop. We initially rely on our partners' physical points of
presence and the existing telephone copper infrastructure.
Phase Two: the second phase of the strategy is to build fiber-optic backbone
infrastructure to the floor or other appropriate gathering point and use
convention copper based network technology to the suite or office.
Phase Three: We assist the building owner in setting up an operational
management company, in order to oversee the sale of services to the private
sector. We intend to invest and retain an equity position.
In our "Smart Building" model, the property owner/manager is our partner. We
bring to them a method of achieving high capacity telecommunications access
built on a cost recovery basis.
Building owners are extremely well positioned to enter the telecommunications
business and have material incentives to participate in "Smart Building" network
projects such as valuable right-of-ways needed for network construction and
several other distinct advantages, including, existing conduit infrastructure,
the ability to finance significant long-term investments; structural access to
buildings such as spare ducts that are already in place, equipment space in
buildings, electrical network monitoring centers already in place, expertise in
construction and service, 24/7 repair teams; and, billing systems. We believe
that Building owners are highly motivated to become partners with their tenants:
helping their tenants helps to support an existing customer base and customers
may be less likely to switch if they are receiving multiple services from the
building owner.
We believe that Smart Building networks will not only serve a critical role for
the community by bringing much needed broadband access, we expect them to also
provide us with long-term income potential through our equity stake in the
management company, however there can be no assurance in this regard.
SMART NETWORK LINK STRATEGY.
Our smart network links will initially offer three products, lease of duct
space, lease of an entire fiber cable within a duct, and the lease of state-of-
the-art fiber strands. We expect to work closely with the right-of-way owners.
They are extremely well positioned to enter the telecommunications business and
have material incentives to participate in "Smart Network Link" projects such as
valuable right-of-ways needed for network construction and several other
distinct advantages, including, existing conduit infrastructure, and the ability
to finance significant long-term investments. We believe that right-of-way
owners are highly motivated to become our partners.
To exploit the growing demand for bandwidth and enhanced network services, our
strategy is to:
. provide high-bandwidth connectivity between, and co-location facilities;
. pursue additional strategic alliances in network services and technology;
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. extend the reach of our Smart networks through development, swaps and
acquisitions of fiber and capacity;
. increase, in collaboration with our customers, the number of products and
services that we offer, and develop managed bandwidth products and services;
. capitalize on the experience and relationships management and our partners;
and
. develop and operate a technologically advanced, high-capacity, low-cost
network.
We intend to expand our Smart networks to provide connectivity on a North
American basis. Our network's design greatly reduce complexity and cost while
allowing us to offer increased reliability and a wide range of products and
services.
Our current and targeted customers include new and incumbent telecommunications
service providers, Internet service providers, application service providers,
storage service providers and large organizations with enterprise network needs.
We believe that these customers have a limited choice of independent service
providers capable of offering high-capacity, reliable, secure and cost-effective
services between centers in North America. As a result, we believe that our
targeted customers will buy services from us rather than purchase them from
another source or build these service capabilities themselves. To meet our
customers' requirements, we offer a wide range of services on a scalable basis,
including network infrastructure--dark fiber and conduit for sale, grant of
indefeasible right of use or lease and construction services supporting
the development of our network.
The fiber optic cable systems that are under development are expected to form a
state-of-the-art interconnected regionally high capacity fiber optic network.
Although many of these fiber optic cable systems are expected to be wholly-
owned, some are being developed through joint ventures with one or more
partners. We expect to be responsible for management and operation. In addition,
we expect to construct parts of the network.
ADDITIONAL STRATEGIC ALLIANCES IN NETWORK SERVICES AND TECHNOLOGY.
We intend to pursue additional strategic alliances with communications providers
that have high-bandwidth needs and who offer us long-term, high capacity
commitments for traffic on our network. Such strategic alliances could also
allow us to combine our capabilities with those of our strategic alliance
partners and thereby offer our customers additional products and services. Our
relationship with Gateway Networks and Fiber Co., emerging broadband services
providers are examples of this strategy.
COMPETITION
We face competition from many telecommunications providers with significantly
greater financial resources, well-established brand names, larger customer bases
and diverse strategic plans and technologies. Intense competition has led to
declining prices and margins for many communications services. We expect this
trend to continue as competition intensifies in the future. The
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following discussion identifies some of the competitive conditions within our
area of business operations. For a detailed discussion of how one or more of the
following factors could adversely affect our business, see our discussion above
under the caption, "Risk Factors - Competition."
Within our four areas of business operations, the telecommunications business is
extremely competitive, particularly with respect to price and service.
Competitors include incumbent local telephone and exchange carriers, long-
distance telephone carriers, facilities-based communications service providers,
cable television companies, electric utilities, microwave carriers, satellite
carriers, wireless telephone system operators, Internet service providers,
digital subscriber line companies and other large end-users with private
networks. Most of our competitors are capable of offering, and in some cases do
offer, services substantially similar to those offered by us and may be able to
offer them a lower cost. We expect that the principal competitive factors in
this market are uncongested connectivity, quality of facilities, level of
customer service, price, the financial stability and credibility of the
provider, brand name and the availability of network management tools.
Some of our principal competitors include Exodus Communications, Inc., Frontier
Corporation, Global Crossing Ltd., NEXTLINK Communications, Inc., Hiway
Technologies, Inc., Verio Inc., 360networks Inc., British Telecommunications
plc, Deutsche Telekom AG, France Telecom S.A., Qwest Communications
International Inc., Allied Riser, Cypress Communication, Williams Communications
Group, Inc., Global Crossing Ltd., KPNQwest, Colt Telecom Group plc, Level 3
Communications, Inc., Mastec, Metromedia Fiber Network, Inc., Western Integrated
Networks, WideOpenWest, Grande Communications, RCN Inc., Rhythms Net
Connections, Globix Corporation, Concentric Network Corporation, SBC
Communications Inc., PSINet, Inc., Agruss Communications, Dycomm Industries,
Quanta Services, Cygnal Inc., global, regional and local telecommunications and
cable companies, such as Call-Net, AT&T, Sprint, MCI WorldCom and Regional Bell
Operating Companies, and Rogers Cable and companies capable of offering services
similar to those provided by us, including communications service providers,
cable television companies, electric utilities, microwave carriers, satellite
carriers and wireless telephone operators.
Some competitors already own fiber optic cables as part of their
telecommunications networks. Accordingly, any of these carriers could directly
compete with us in the market for leasing fiber capacity. In addition, some
communications carriers and local cable companies have extensive networks in
place that could be upgraded to fiber optic cable, as well as sufficient
resources to begin construction to equip their networks which would result in
substantially increased competition for us.
Agreements with the municipalities and other local and state governments
typically are not exclusive. Competitors could enter into agreements with local
and state governments and compete directly with us in each of areas of
operations.
We may also face competition from existing or prospective customers who employ
in-house personnel to perform some of the same types of the services we provide.
There are relatively few significant barriers to entry into the
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markets in which we operate and, as a result, any organization that has adequate
financial resources and access to technical expertise may become one of our
competitors.
There are new and alternative telecommunications technologies being developed.
Competitors might use new or alternative technologies to offer better or less
expensive services than we can provide. The development and deployment by
competitors of new technologies or the significant penetration of alternative
technologies or delivery of lower cost services into our target market may
increase competition for our business.
REGULATION
The Federal Communications Commission ("FCC") has the authority to regulate
utility company rates for cable rental of pole and conduit space. States can
establish preemptive regulations in this area, and the states in which the
Systems operate have done so. The 1996 Telecom Act modified the pole attachment
provisions of the Communications Act by requiring that utilities provide cable
systems and telecommunications carriers with nondiscriminatory access to any
pole, conduit or right-of-way controlled by the utility. The FCC has adopted
regulations to govern the charges for pole attachments used by companies
providing telecommunications services. These regulations are likely to increase
significantly the rates charged to cable companies providing voice and data, in
addition to video services. These new pole attachment regulations do not become
effective, however, until 2001, and subsequent increases in attachment rates
resulting from the FCC's new regulations will be phased in equal annual
increments over a subsequent period of five years, until 2006. There can be no
assurance that FCC existing or as yet to be proposed access requirements and
infrastructure rate control will not have a material adverse affect on our
business.
The Telecommunications Act of 1996 ("1996 Telecom Act") largely removed barriers
to entry in the local telephone market that was monopolized by the Bell
Operating Companies and other incumbent local exchange carriers by preempting
state and local laws that restrict competition and by requiring incumbent local
exchange telephone companies to provide nondiscriminatory access and
interconnection to potential competitors, such as cable operators and long
distance companies. The 1996 Telecom Act also facilitates the entry of utility
companies into the telecommunications market. The 1996 Telecom Act also largely
eliminated the prohibition against telco-cable cross-ownership, however, it
still prohibits a telephone company or a cable system operator in the same
market from acquiring each other, except in limited circumstances, such as in
areas of smaller population. This change in regulatory environment will likely
result in intensified industry consolidation and may further result in increased
market competitiveness of such merged companies. Any such mergers could increase
the strength of current or potential competitors against whom we compete now or
must compete against in the future.
Regulatory responsibility for essentially local aspects of the our business such
as system design and construction, safety, and consumer services remains largely
with either state or local officials and, in some jurisdictions, with both. We
believe that current regulations affecting our business will not have a material
affect on our operations, however there can be no assurance
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in this regard. Regulation of the communications industry is evolving rapidly.
The regulations that apply to us are subject to ongoing administrative
proceedings, litigation and legislation. The outcome of these various
proceedings, as well as any other regulatory initiatives, cannot be predicted.
Application of existing or future regulatory changes may have a material adverse
affect on our business and operations. The full extent to which other companies
in the industry will compete with us with respect to regulatory regime
requirements may not be known for several years. There can be no assurance that
existing or as yet unproposed regulations, will not become determinant
competitive factors in the future and render our Smart networks less profitable
or even obsolete. See, "Risk Factors- Legislation And Government Regulation
Could Adversely Affect Us."
INTELLECTUAL PROPERTY
We regard certain aspects of our products, services and technology as
proprietary and attempt to protect them with copyrights, trademarks, trade
secret laws, restrictions on disclosure and other methods. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use our products, services or technology without authorization, or to
develop similar technology independently. We do not currently have any
technologies that are patented under application for patent.
EMPLOYEES
As of September 15, 2000, we had 143 employees. We are not party to any
collective bargaining agreements covering any of our employees, have never
experienced any material labor disruption and are unaware of any current efforts
or plans to organize our employees. We consider our relationships with our
employees to be good.
FACILITIES
Our headquarters are located in facilities consisting of approximately 20,000
square feet in Richmond Hill, Ontario which we occupy under a lease which
expires in July 2003. We believe that our current facilities will be sufficient
during the foreseeable future, however, as we expand into new markets we intend
to add office space. We share space at our corporate headquarters with our
subsidiaries Fiber Optics Corporation of Canada and Photonics Engineering &
Design Inc. Our other subsidiaries maintain facilities as follows: Coastal
Network Services Inc. rents approximately 5,350 square feet of space in Troy,
Michigan under a lease ending November 30, 2003; Canadian Cable Consultants
Inc. rents approximately 1,200 square feet of space in Ottawa, Ontario under a
lease ending February 28, 2001 as well as approximately 2,300 square feet in
Barrie, Ontario, under a lease ending August 31, 2005; and CableTec
Communications Inc. rents approximately 5,600 square feet of space in Toronto,
Ontario under a lease ending November 30, 2000.
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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.
MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
Our directors, executive officers and key employees position and ages as of
August 30, 2000 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Angelo Boujos 38 Chairman
Kim Allen 44 Director and Chief Executive Officer
Paul Pathak 31 Director and Secretary
Connie Colangelo 43 Director
Barry W. Herman 58 Director
Anthony Palumbo 44 Director
Michael Serotte 41 Director
R. John Slattery 41 Executive Vice President, Finance and
Chief Financial Officer
Andrew Eyres 41 Vice President - Network Development
Jeff Rosenthal 40 President - FOCC and Photonics
Engineering & Design
William McGill 42 President - Canadian Cable Consultants
Bernard Tanunagara 41 President - CableTec Communications
Thomas A. Adams 46 President - Multilink Network Services
</TABLE>
Angelo Boujos, Chairman. Mr. Boujos is the founder and Chairman of the company.
Mr. Boujos entered the telecommunications industry by establishing Canadian
Cable Consultants in April 1998. Mr. Boujos worked for 7 years with Toronto
Dominion Bank and 2 years with American Express. Between 1987 and 1995,
Mr. Boujos served as President of Winter Valley Springs Inc. He also served as
senior advisor to the President/CEO for Algonqua Springs Inc. and Culligan Inc.
from 1995 until 1998.
Kim Allen, Director and CEO. Mr. Allen is the Chief Executive Officer of the
company. He joined the company in December 1999. Prior to joining the company,
Mr. Allen served as the founding President of DTE/Probyn Energy Solutions from
its inception in June 1998, a joint venture between DTE Energy Solutions
(Detroit Edison) and Probyn & Company. Mr. Allen also served as CEO in
Scarborough Public Utilities Commission, a $400 million water and electric
utility, from 1992 to 1998, and as its Director of Engineering & Operation from
1990 to 1992. Prior to those positions, in a 12-year career with Ontario Hydro,
Mr. Allen held a number of management positions that included retail,
engineering, operations and information systems functions. Mr. Allen obtained a
Master of Business Administration from the University of Toronto (1987) and a
Bachelor of Applied Science in Electrical Engineering from the University of
Ottawa (1978).
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Paul Pathak, Director and Secretary. Mr. Pathak has been a lawyer practicing
corporate and securities law in Toronto, Ontario since 1994. He is currently a
partner at the firm of Chitiz Pundit Pathak & Sokoloff. Mr. Pathak has also
been a director of several public companies and is currently a director of
Fareport Capital Inc., a Toronto based publicly traded company. Mr. Pathak
provides legal services to the company with respect to compliance with the laws
of Canada and its provinces.
Connie Colangelo, Director. Ms. Colangelo is the Senior Human Resources
Consultant - Wealth Management with Royal Bank Financial Group and is part of
the Senior Management Team of Global Securities Services since 1998. She has
more than 20 years experience in financial services, combining extensive
banking, trust, business, sales, client service, operations, human resources and
general management experience. She held various management positions with Royal
Trust (1986-1998). She holds an Honours Bachelor of Science Degree from the
University of Toronto and accreditation from the Canadian Securities Course at
the Canadian Securities Institute, and she is qualified as a Personal Financial
Planner by the Institute of Canadian Bankers.
Barry Herman, Director. Mr. Herman is president of First Union Asset Management
Limited. He served as President of Citco Fund Services (Bahamas) Limited from
September 1996 to January 1998. Prior to that, he was founder and former
President and Managing Director of MeesPierson Fund Services (Bahamas) Limited
(formerly Fund Service International Limited) a position which he held from
April 1988 to July 1996. Mr. Herman has been involved in the investment funds
industry continuously since 1964 and in the offshore investment funds industry
since 1968. First Union Asset Management Limited provides financial consulting
services for the company, see "Certain Relationships and Related Transactions."
Anthony Palumbo, Director Mr. Palumbo has more than 20 years of consulting and
financial experience, working with such companies as Clarkson Gordon (1978-
1983), Lehndorff Group (1983-1987), Royal LePage (1987-1995), and his own
company, Chartered Accountancy (1995-1999). In 1999, Mr. Palumbo became the
Vice President, Chief Financial Officer and Director for PsiGate. In 1978
Mr. Palumbo obtained his Bachelor of Commerce from the University of Toronto and
in 1981 obtained his chartered accountant designation while at a predecessor of
Ernst & Young. Mr. Palumbo later formed his own chartered accountancy practice
and provided strategic planning services as well as financial, tax and capital
services.
Michael I. Serotte, Director. Mr. Serotte is the founder and Senior Partner of
American Immigration Law Offices, an international law firm concentrating on
U.S. and Canadian Immigration and Nationality law. Mr. Serotte is a 1985
graduate of the University at Buffalo School of Law and a 1981 graduate of the
University of Miami with a Bachelor of Business Administration in Accounting
with a concentration in Finance.
R. John Slattery, Executive Vice President, Finance and Chief Financial Officer.
In his most recent position (1998-2000), Mr. Slattery was the Vice President,
Finance of Jenisys Engineered Products a $500 million North American supplier of
metal building products. In such capacity, he played key roles in the strategic
planning and corporate development programs of the corporation. Prior to that,
Mr. Slattery held a number of senior positions
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at Jannock Limited (1989-1998) a $1 billion multi-divisional public company
comprised of businesses producing products for the building products industry.
Mr. Slattery is a Chartered Accountant (1984) having articled with Coopers &
Lybrand (1982-1989), in Toronto, Ontario where he specialized in corporate tax
planning. He also holds a Bachelor of Commerce degree from the University of
Toronto (1982).
Andrew Eyres, Vice President - Network Development Universe2U Inc. Mr. Eyres
was the President of Fiber Optics Corporation of Canada from October 1998 until
April 1999. Mr. Eyres led the growth of the company to become involved in
regional networks. Before that, Mr. Eyres was the President of Sentry
Communications from 1996 until 1998. Mr. Eyres has 18 years general
construction, facility management, and Outside Plant construction experience.
Mr. Eyres has planned, engineered, and managed network communications for AT&T
Canada, Bell Canada, MetroNet, Ontario Hydro, Ontario Realty Corporation and the
Legislative Assembly of Ontario. From 1987 to 1996 Mr. Eyres was a Facilitates
Manager for the Legislative Assembly of Ontario. Mr. Eyres is a professional
member with BICSI Building Industry Consulting Services Institute and as well as
IFMA International Facilities Management Association.
Jeff Rosenthal, President - FOCC and Photonics Engineering & Design.
Mr. Rosenthal became the President of Fiber Optics of Canada in May 2000. He is
also the acting President of Photonics while the company searches for a new
President. He was the Managing Principal for Utility Solutions Corporation
(April 1998 through May 2000), a Canadian firm that specializes in delivering
business solutions to energy providers. Prior to Utility Solutions,
Mr. Rosenthal has held senior management positions during his 16-year career at
Toronto Hydro (1982-1998). Mr. Rosenthal has a BASc (Electrical Engineering)
from the University of Toronto (1982) and a MBA from York University (1990).
William McGill, President - Canadian Cable Consultants. Mr. McGill has been
the President of Canadian Cable since its inception in April 1998 and has over
16 years experience in the cable industry implementing sales and marketing,
coordinating installations and fiber technology projects. Between 1995 and 1998,
Mr. McGill was Vice President Marketing for the Collection Network Inc. He had a
seven year career with Trillium Cable that ended in July 1995.
Bernard Tanunagara, President - CableTec Communications. Mr. Tan has been the
owner and President of the privately held company CableTec Communications since
1983, a company doing underground cable repair and installation for cable
television, telephone and electric utilities. Previously Mr. Tan worked with
Pickering Cable and Thomas Accounting Services. Mr. Tan is a certified
Architectural Draftsman from Centennial College, Scarborough, Ontario.
Thomas A. Adams, President - Multilink Network Services. Mr. Adams was
appointed as President of Multilink Network Services in July 2000. From 1984
until July 2000, Mr. Adams was the President of T-Enterprises Inc. Mr. Adams
held numerous management positions during a 24-year career that includes
positions at Consumer Power(1990-1992)and North Indiana Public Service Company
(1976-1990)and at a Michigan engineering firm, Novak Engineering
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(1993-1998), specializing in systems engineering for energy providers. Mr. Adams
has a BSE in Electrical Engineering (1976) from Purdue University.
COMMITTEES OF THE BOARD OF DIRECTORS
Our bylaws provide that our board of directors may designate one or more board
committees. We currently have an audit committee and a compensation committee.
AUDIT COMMITTEE. The audit committee is responsible for recommending to the
board of directors the engagement of our outside auditors and reviewing our
accounting controls and the results and scope of audits and other services
provided by our auditors. The members of the audit committee are Messrs.
Serotte, Palumbo, and Herman.
COMPENSATION COMMITTEE. The compensation committee is responsible for reviewing
and approving the amount and type of consideration to be paid to senior
management. The members of the compensation committee are Messrs. Pathak and
Allen and Ms. Colangelo.
Other Committees. The board of directors may establish, from time to time, other
committees to facilitate the management of our business.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Allen, CEO of the company, serves on the company's compensation committee.
Mr. Pathak, a member of the company's Board of Directors is also a member of the
company's compensation committee. Mr. Pathak is a partner in the law firm of
Chitiz Pandit Pathak and Sokoloff, an Ontario law firm that provides counsel to
the company with respect to Canadian legal matters. In respect of provision of
legal services to the company, Mr. Pathak may receive aggregate annual fees in
excess of U.S$60,000.
DIRECTOR COMPENSATION AND DIRECTOR OPTION GRANTS
Directors who are employees receive no cash compensation for their services as
directors. Non-employee directors do not currently receive cash compensation,
although we may institute a plan to compensate non-employee directors in the
future. Non-employee directors are eligible to participate in our Equity
Incentive Plan at the discretion of the full board of directors. On May 16,
2000, non-employee Directors of the company each received options exercisable
for 20,000 shares of the company common stock at a purchase price of $5.00 per
share.
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EXECUTIVE COMPENSATION
The following table sets forth in summary form the compensation that was paid to
our Chief Executive Officer and the other most highly compensated executive
officers whose aggregate compensation exceeded $100,000 in the year ended
December 31, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-term Compensation
-------------------- -------------------------
Name and Securities
Principal Position Year Salary Bonus Underlying Options
------------------------ ---- ------ ----- -------------------------
<S> <C> <C> <C> <C>
Kim Allen, Chief
Executive Officer (1) 1999 $7,000 - 400,000(3)
Angelo Boujos, 1999 - - -
Chairman (2) 1998 - - -
Hugh Grenfal(4) 1999 - - 2,500,000
</TABLE>
(1) Reflects compensation only with respect to the portion of December 1999
that Mr. Allen was employed by the company. Mr. Allen's annual compensation
is $95,000 per annum.
(2) Mr. Boujos served as acting Chief Executive Officer of the company until
the appointment of Mr. Allen in December 1999. In such capacity,
Mr. Boujos did not receive any salary or other compensation. As of June 3,
2000, Mr. Boujos receives a salary of $120,000 per annum in his capacity as
Chairman of the Board of Directors.
(3) Includes options granted on November 26, 1999 exercisable for an aggregate
of 400,000 shares of common stock at a purchase price of $.01 per share,
that vest as follows: 50,000 as of the date of grant; 40,000 on each of the
6th, 12th, and 18th month anniversaries of the date of grant, and 230,000
on the 24th month anniversary of the date of grant. Notwithstanding the
foregoing, Mr. Allen has executed an option agreement that provides that he
may not sell any of his shares purchased pursuant to any exercise of the
foregoing option until June 1, 2001 except in the event of a change of
control in which case all of such options shall vest and become immediately
exercisable. Excludes options granted on May 5, 2000 exercisable for
500,000 shares of common stock at $.01 per share which vest and become
exercisable June 9, 2001.
(4) Mr. Grenfal served as the acting Chief Executive Officer of Paxton Mining
Corporation from inception on June 9, 1999 until Mr. Grenfal sold all of
such 2,500,000 shares of common stock of the company in a third party
private transaction on May 11, 2000. To the knowledge of current
management, Mr. Grenfal did not receive any salary or other compensation
from Paxton Mining Corporation during such period. See, "Certain
Relationships and Related Transactions."
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OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information related to stock options granted to
our named executive officers during the year ended December 31, 1999.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation for
Individual Grants Option Terms (2)
---------------------------------------------------------------------------------------------------------- -----------------------
Percent of Total
Number of Securities Options Granted to
Underlying Employees Exercise
Options/SARs in Fiscal Price Assumed Public Expiration
Name Granted (#) Year (%) Per Share Offering Price Date 5% 10%
---- ----------- -------- -------- -------------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Kim Allen (1) 400,000 67% $0.01 $0.67 11/26/04 $338,043 $427,616
</TABLE>
(1) The aggregate number of options granted by the company in the year ended
December 31, 1999 was 600,000. Mr. Allen's options were granted on November 26,
1999 and are exercisable for 400,000 shares of common stock at a purchase price
of $.01 per share, that vest as follows: 50,000 as of the date of grant; 50,000
on each of the 6th, 12th, and 18th month anniversaries of the date of grant, and
200,000 on the 24th month anniversary of the date of grant. Notwithstanding the
foregoing, Mr. Allen has executed an option agreement that provides that he may
not sell any of his shares purchased pursuant to any exercise of the foregoing
option until November 26, 2001 except in the event of a change of control in
which case all of such options shall vest and become immediately exercisable.
The assumed public offering price is based upon the closing price of the
company's common stock on August 30, 2000.
(2) Potential realizable value is based on the assumption that our common stock
appreciates at the annual rate shown, compounded annually, from the date of
grant until expiration of the five-year term of the Option. These numbers are
calculated based on SEC requirements and do not reflect our projection or
estimate of future stock price growth. Potential realizable values are computed
by multiplying the number of shares of common stock subject to a given option by
the fair market value of the common stock on the date of grant, determined in
the good faith estimate of the company's board of directors to be $.67 per share
as of December 31, 1999, assuming that the aggregate stock value derived from
that calculation compounds at the annual 5% or 10% rate shown in the table for
the entire ten-year term of the option and subtracting from that result the
aggregate option exercise price. Actual realizable value, if any, will be
dependent on the future price of the common stock on the actual date of
exercise, which may be earlier than the stated expiration date.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table sets forth the number of shares covered by both exercisable
and unexercisable options as of December 31, 1999 and the year-end value of
exercisable and unexercisable options as of December 31, 1999 for the named
executive officers. The company did not grant any SARs during
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the fiscal year ended December 31, 1999 and has no intention to do so during the
foreseeable future. For purposes of calculating the value of the following
options the company has applied a value of $.67 per share which the Board of
Directors of the company deemed to be the fair market value of the company's
common stock at December 31, 1999.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities Underlying Unexercised In-the-Money
Name Options at December 31, 1999 Options at December 31, 1999
---- ------------------------------------ ------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Kim Allen, CEO 50,000 350,000 $33,500 $234,500
</TABLE>
STOCK PLANS
Equity Incentive Plan
The purpose of our Equity Incentive Plan is to provide an incentive to
employees, directors and consultants of our company and our subsidiaries, and
to offer additional inducement in obtaining the services of such persons.
The company's Board of Directors adopted the Equity Incentive Plan on June 9,
2000, subject to shareholder approval and ratification within twelve months of
adoption date.
The Equity Incentive Plan provides for the grant of both incentive stock options
and non-qualified stock options. The Equity Incentive Plan limits the number of
shares of common stock subject to options granted under the Equity Incentive
Plan to any one employee during any one calendar year to 100,000.
With respect to the Equity Incentive Plan, 1,500,000 shares were reserved for
issuance. As of August 30, 2000, no options were granted and outstanding under
the Equity Incentive Plan, and no options had been exercised and no options or
shares underlying any options under the Equity Incentive Plan have vested.
The Equity Incentive Plan is administered by a Board committee thereof subject
to the provisions of such plan. The plan administrator has the authority to
determine which eligible persons shall receive grants, the time of grant, the
type of grant and the number of shares underlying the options, the term of the
options, the vesting schedule and other option terms.
The exercise price for options granted under the Equity Incentive Plan is to be
determined by the plan administrator. However, the exercise price of all
incentive stock options must be at least equal to the fair market value of the
underlying shares on the date of grant. With respect to any optionee who owns
capital stock possessing more than 10% of the voting power of all classes of
stock, the exercise price of any incentive stock option must be not less than
110% of the fair market value of the underlying shares on the date of grant.
Each plan provides for cashless exercise.
The plan administrator establishes the term of each option granted pursuant to
the Equity Incentive Plan. The maximum term, however, for incentive stock
options is five years. Options are subject to earlier termination as provided in
the Equity Incentive Plan.
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Options are exercisable at such times and in such installments as the plan
administrator provides in the terms of the individual option agreement. Subject
to the terms of the Equity Incentive Plan, an optionee shall not have the rights
of a shareholder until the date of issuance of a stock certificate to the
optionee for the shares underlying the exercised option.
Except as provided in the individual option agreement, any optionee whose
relationship with us has terminated for any reason other than death or
disability may exercise his or her options (if otherwise exercisable) not later
than thirty (30) days after the termination date.
The Equity Incentive Plan also provides that in the event of the death or
disability of an optionee, such optionee (or the optionee's representative) is
entitled, under the appropriate circumstances, to exercise their options (if
otherwise exercisable) for up to one year from the date of death or termination
due to disability.
In the event of a stock dividend, recapitalization, certain mergers, split-up,
combination or exchange of shares or similar corporate event which results in a
change in the number or kind of our shares of common stock, the aggregate number
and kind of shares subject to options under the Equity Incentive Plan and the
related exercise price shall be adjusted accordingly. In the event of "corporate
transactions" or a "change in control" (as defined in the Equity Incentive
Plan), or upon our dissolution, an optionee's vesting rights under the plans
are accelerated.
The Equity Incentive Plan may be terminated or amended by the Board of Directors
generally without shareholder approval. However, shareholder approval is
required for certain types of amendments as provided in the Equity Incentive
Plan. No termination or amendment of the Equity Incentive Plan may be made that
adversely affects the rights of an existing option holder, without such person's
consent. Options granted under the Equity Incentive Plan may not be transferred
other than by will or pursuant to the laws of descent and distribution.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership of our
common stock as of August 30, 2000. The percentage of beneficial ownership is
based on 36,557,000 shares of our common stock issued and outstanding as of such
date, giving effect to the exchange of all outstanding securities issued by our
Ontario, Canada subsidiary which are exchangeable for shares of our common
stock. The table sets forth such information with respect to:
. each stockholder who is known by us to beneficially own 5% or more of the
common stock;
. each of our directors;
. each of the executive officers named in the "Summary Compensation
Table"; and
. all of our executive officers and directors as a group.
Unless otherwise indicated, each of the stockholders has sole voting and power
of disposition with respect to the shares of common stock beneficially owned by
such stockholder.
The number of shares beneficially owned by each stockholder is determined under
rules issued by the Securities and Exchange Commission. The information is not
necessarily indicative of beneficial ownership for any other purpose. Under
these rules, beneficial ownership includes any shares as to which the individual
or entity has sole or shared voting power or investment power and any shares as
to which the individual or entity has the right to acquire beneficial ownership
within 60 days after August 30, 2000, through the exercise of any stock option
or other right.
<TABLE>
<CAPTION>
Shares Percent
Beneficially Beneficially
Name of Beneficial Owner Owned Owned
------------------------ ------------ -----
<S> <C> <C>
Angelo Boujos (1) 8,862,400 34.7%
Josie Boujos (2) 8,862,400 34.7%
Josie Boujos in Trust (3) 312,400 *
Kim Allen (4) 100,000 *
Paul Pathak (5) 0 *
Connie Colangelo (6) 0 *
Barry W. Herman (7) 0 *
Anthony Palumbo (8) 0 *
Michael Serotte (9) 0 *
R. John Slattery (10) 0 *
Andrew Eyres (11) 75,000 *
William McGill (12) 75,000 *
All Directors and Officers as a Group (13) 9,102,400 38.8%
</TABLE>
* Represents less than 1% of the outstanding shares of common stock.
(1) Mr. Boujos is Chairman of the company. Includes 4,600,000 shares of common
stock held of record by Mr. Boujos and 2,500,000 shares of common stock
issuable upon exchange of securities exchangeable for shares of common
stock of the company which were issued by an Ontario subsidiary of the
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company (the "Chairman's Shares"). Includes 3,950,000 shares of common
stock held by the spouse of Mr. Boujos and 750,000 shares of common stock
issuable upon exchange of securities exchangeable for shares of common
stock of the company which were issued by an Ontario subsidiary of the
company (collectively the "Spouse Shares"). Includes 312,400 shares held
of common stock record by held in a trust over which Mr. Boujos has voting
control, and 500,000 shares of common stock issuable upon exchange of
securities exchangeable for shares of common stock of the company which
were issued by an Ontario subsidiary of the company (collectively, the
"Trust Shares"). Mr. Boujos disclaims beneficial ownership of the Spouse
Shares and the Trust Shares.
(2) Ms. Boujos is the spouse of Mr. Boujos. Includes the Spouse Shares.
Includes the Chairman's Shares. Includes the Trust Shares, as to which
Ms. Boujos is the beneficiary. Ms. Boujos disclaims beneficial ownership of
the Chairman's Shares.
(3) Includes the Trust Shares, over which Mr. Boujos exercises voting control
and power of disposition, but as to which Mr. Boujos disclaims beneficial
ownership. Ms. Boujos is the beneficiary of such trust.
(4) Mr. Allen is CEO and a director of the company. Includes vested options
for 100,000 shares of common stock at $.01 per share, but as to which
options Mr. Allen has executed an agreement with the company that he shall
not sell any of his shares purchased pursuant to any exercise of the
foregoing option until November 26, 2001, except in the event of a change
of control in which case all of such options shall vest and become
immediately exercisable. Excludes options exercisable for an aggregate of
810,000 shares of common stock which do not vest or become exercisable with
60 days of August 30, 2000. Also excludes options granted on May 5, 2000
exercisable for 500,000 shares of common stock at $.01 per share which vest
and become exercisable June 9, 2001.
(5) Paul Pathak is Secretary and a Director of the company.
(6) Connie Colangelo is a Director of the company.
(7) Barry W. Herman is a Director of the company.
(8) Anthony Palumbo is a Director of the company.
(9) Michael Serotte is a Director of the company.
(10) Mr. Slattery is Executive Vice President, Finance and Chief Financial
Officer of the company.
(11) Mr. Eyres is the Executive Vice President Universe2U Inc. - Networks
Development. Includes 75,000 shares of common stock beneficially owned
upon exchange of securities exchangeable for shares of common stock of the
company which were issued by an Ontario subsidiary of the company.
(12) Mr. McGill is President - Canadian Cable Consultants. Includes 75,000
shares of common stock beneficially owned upon exchange of securities
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exchangeable for shares of common stock of the company which were issued by
an Ontario subsidiary of the company.
(13) All directors and executive officers as a group including beneficial
ownership of common stock through the exercise of options or otherwise as
of August 30, 2000 or within 60 days thereafter. Includes the Spouse
Shares and the Trust Shares as to which shares Mr. Boujos disclaims
beneficial ownership.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 11, 2000, a change of control occurred with respect to the stock
ownership of the company. The change of control occurred by a third party
purchase of stock involving the transfer of an aggregate of 5,000,000 shares of
the company's outstanding common stock to investors led by First Union Asset
Management Ltd. ("First Union"). The controlling interest acquired by First
Union was purchased in a private transaction for aggregate consideration of
$500,000 that was paid in cash to two of the former controlling stockholders of
the company, Messrs. Hugh Grenfal and Robert Jarva, 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"). 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 Ontario
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
(the "Acquisition"). After giving effect to the foregoing transactions, Angelo
Boujos, Josie Boujos, Andrew Eyres and William McGill (the "Principals") as a
group held control of an aggregate of 695,622 shares of company common stock, at
that date constituting approximately 41% of all outstanding shares of company
common stock. Prior to the change in control, Messrs. Grenfal and Jarva
controlled approximately 91% of the company's outstanding common stock and
served as the company's sole directors and officers. In connection with the
change of control, Messrs. Grenfal and Jarva appointed new directors and
thereafter resigned as directors and officers of the company. To the knowledge
of the company's current management, Messrs. Grenfal and Jarva in their
respective capacities as directors and officers of the company did not have any
disagreements with the company on any matter relating to the company's
operations, policies or practices.
On May 15, 2000, The Board of Directors of the company authorized a dividend in
the form of shares of company common stock, to be distributed to company
stockholders of record as of the close of business on May 25, 2000 (the "Stock
Dividend"). After giving effect to the Stock 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).
On May 17, 2000, the company consummated the Acquisition of the Ontario Company
and changed its name from Paxton Mining Corporation to Universe2U Inc.
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The company issued 250,000 shares (5,000,000 shares after giving effect to the
19-for-1 stock dividend on May 25, 2000) of exchangeable securities of a wholly
owned Ontario acquisition subsidiary of the company to the Principals in their
separate capacity as stockholders of the Ontario Company in exchange for all of
their respective outstanding stock of the Ontario Company (the "Acquisition
Issuance"). Messrs. Boujos, Eyres, and McGill are key employees of the Ontario
Company and Mr. and Ms. Boujos are spouses. In conjunction with the change of
control 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. For accounting
purposes, the acquisition of the Ontario Company by Universe2U Inc. (formerly
known as Paxton Mining Corporation), has been treated as a recapitalization,
with the Ontario Company as the acquirer (a reverse acquisition). See,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the company's Financial Statements and Notes herein. The
exchangeable securities issued in connection with the Acquisition are
exchangeable at any time on a one-for-one basis for shares of company common
stock.
Mr. Barry Herman, a director of the company, is President of First Union, a
Bahamian corporation. First Union represented the investors who purchased the
controlling interests in the company from Messrs. Grenfal and Jarva on May 11,
2000. Following the change in control, Mr. Herman was elected to the Board of
Directors. The company and First Union entered into a Financial Consulting
Agreement dated as of May 17, 2000 and amended as of July 25, 2000 (as amended,
the "First Union Agreement"), that provides for First Union to act as an agent
on behalf of the company with respect to a financing program undertaken pursuant
to Regulation S of the Securities Act of 1933, as amended (the "Securities
Act"). Mr. Barry Herman, a director of the company, is also President of
Dominion Fixed Income Plus Fund Ltd., a Bahamian corporation that is also an
investor in the company.
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 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. After giving effect to (i) the reduction in outstanding shares due to
the tender and cancellation of share ownership by First Union, (ii) the
Acquisition Issuance, (iii) the Stock Dividend, and (iv) the conversion of pre-
Acquisition loans by Mr. Boujos to the Ontario company, the common stock held by
the Principals as a group constituted at such date a controlling interest of the
company's outstanding common stock. See, "Principal Stockholders."
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
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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.
The company has granted nonqualified stock options outside of the Equity
Incentive Plan to certain of our 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 November 26, 1999 exercisable for 400,000 shares of common stock
at a purchase price of $.01 per share, which options vest and become
exercisable on November 26, 2001. Mr. Allen received a subsequent grant of
options on May 5, 2000, exercisable for 500,000 shares of common stock, at a
purchase price of $.01 per share, which options vest and become exercisable
on June 9, 2001.
. Michael Doll, Vice President of Business Development of the company's
subsidiary, Canadian Cable Consultants, was granted options on December 21,
1999 exercisable for 200,000 shares of common stock at a purchase price of
$.01 per share, which options vest and become exercisable on December 21,
2001.
. Jeffrey Rosenthal, President of the company's subsidiary, Fiber Optics
Corporation of Canada, was granted options on April 19, 2000, exercisable for
an aggregate of 5,000 shares of common stock at a purchase price of $.01 per
share, which options vest and become exercisable on April 19, 2002.
. Vincent Ursini, Vice President, Finance, of the company's subsidiary, Canadian
Cable Consultants, was granted options on February 28, 2000, exercisable for
10,000 shares of common stock at a purchase price of $.01 per share, which
options vest and become exercisable on February 28, 2002.
. Paul Pathak, a director of the company, was granted options on May 5, 2000 for
services rendered in his capacity as legal counsel to the company, which
options are exercisable for 50,000 shares of common stock at a purchase price
of $.01 per share, which options vest and become exercisable on June 9, 2001.
. Bernard Tanunagara, president of the company's subsidiary, CableTec
Communications Inc., was granted options on May 31, 2000 for the purchase of
200,000 common shares of the company at an exercise price of Cdn$7.50
(approximately US$5.00) per share, which options vest and become exercisable
on May 31, 2001.
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. John Slattery, Executive Vice President, Finance and Chief Financial Officer
of the company, was granted options on July 31, 2000 for the purchase of
50,000 common shares of the company at an exercise price of $5.00 per share,
which options vest and become exercisable on July 31, 2001.
In June 1999 Paxton Mining Corporation issued a total of 5,000,000 shares of
restricted common stock to Hugh Grenfal and Robert Jarva, then serving as
officers and directors of the company. This was accounted for as a compensation
expense of $273,356 and advances and reimbursement expenses of $1,644.
DESCRIPTION OF CAPITAL STOCK
The following summary describes the material terms of our capital stock.
To fully understand the actual terms of the capital stock you should refer to
our second amended and restated certificate of incorporation and our amended and
restated bylaws. The summary does not give effect to the exercise of outstanding
warrants or options to purchase common stock.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Our authorized capital stock consists of 100,000,000 shares of common stock.
There are currently 36,557,000 shares of common stock, issued and outstanding,
giving effect to the exchange of all outstanding securities exchangeable for
shares of common stock of the company which were issued by an Ontario subsidiary
of the company. Upon the exercise of outstanding warrants for 420,000 shares of
common stock and issued and outstanding options as of August 30, 2000,
exercisable for an aggregate of 1,353,000 shares of common stock, there will be
38,330,000 shares of common stock issued and outstanding on a fully diluted
basis. There are approximately 60 holders of record of our common stock as of
August 30, 2000, including several institutions that the company believes hold
their respective stock on behalf of client accounts in such institutions.
COMMON STOCK
Voting Rights. The holders of our common stock have one vote per share. Holders
of our common stock are not entitled to vote cumulatively for the election of
directors. Generally, all matters to be voted on by stockholders must be
approved by a majority, or, in the case of the election of directors, by a
plurality, of the votes cast at a meeting at which a quorum is present, voting
together as a single class.
Dividends. Holders of common stock will share ratably in any dividends declared
by our board of directors. Dividends consisting of shares of common stock may be
paid to holders of shares of common stock.
Other Rights. Upon the liquidation, dissolution or winding up of Universe2U, all
holders of common stock are entitled to share ratably in any assets available
for distribution to holders of shares of common stock. No shares of common stock
are subject to redemption or have preemptive rights to purchase additional
shares of common stock.
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Preferred Stock. Our certificate of incorporation does not provide for the
issuance of any preferred stock. We do not currently have plans to amend the
certificate to permit issuance of preferred stock.
WARRANTS
In connection with a private placement of securities, we issued warrants to
acquire up to 420,000 shares of common stock, which shares are being registered
hereunder. The warrants have an exercise price of $5.00 per share of common
stock, and are exercisable for a period of five years.
OPTIONS
As of December 31, 1999, options to purchase a total of 50,000 shares of common
stock at a weighted average exercise price of $0.01 per share were outstanding,
none of which options to purchase such shares have vested.
On June 9, 2000, our Board of Directors adopted the Equity Incentive Plan that
provides for up to 1,500,000 shares of common stock to be granted in the future.
No equity securities have been issued under the Equity Incentive Plan as of the
date of this prospectus.
Since inception, the company has granted outstanding options exercisable as of
August 30, 2000 for an aggregate of 1,353,000 shares of common stock at exercise
prices ranging from $.01 per share to $5.00 per share.
REGISTRATION RIGHTS
The company has granted registration rights to certain holders of exchangeable
securities and purchasers of company securities purchased in the company's
private placement and has agreed to register for public sale up to an aggregate
of 1,673,000 shares of common stock. The registration rights available to such
stockholders will generally terminate when all shares owned by such parties may
be sold under Rule 144 without registration. The company is obligated to cover
substantially all of the costs and expenses of such registration. See, the
company's Financial Statements and Notes herein.
INDEMNIFICATION MATTERS
In accordance with Section 78.037 of the Nevada Revised Statutes ("NRS"),
Article IX of our by-laws provides that no director or officer of Universe2U be
personally liable to Universe2U or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability for (1) acts or
omissions which involve intentional misconduct, fraud or a knowing violation of
law; or (2) the payment of distributions in violation of NRS Section 78.300,
which provides that (a) the directors of a corporation shall not make
distributions to stockholders except as provided by this chapter; and (b) in
case of any willful or grossly negligent violation of the provisions of this
section, the directors under whose administration the violation occurred,
excepting dissenters to those acts, are jointly and severally liable, at any
time within three (3) years after each violation, to the corporation, and, in
the event of its dissolution or insolvency, to its creditors at the time of the
violation, or any of them, to the lesser of the
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full amount of the distribution made or of any loss sustained by the corporation
by reason of the distribution to stockholders. In addition, our amended and
restated certificate of incorporation provides that if the Nevada Revised
Statutes are amended to authorize the further elimination or limitation of the
liability of directors and officers, then the liability of a director and/or
officer of the corporation shall be eliminated or limited to the fullest extent
permitted by the Nevada Revised Statutes, as so amended.
Article IX of our amended and restated by-laws provides for indemnification by
Universe2U of its officers and certain non-officer employees under certain
circumstances against expenses, including attorneys fees, judgments, fines and
amounts paid in settlement, reasonably incurred in connection with the defense
or settlement of any threatened, pending or completed legal proceeding in which
any such person is involved by reason of the fact that such person is or was an
officer or employee of Universe2U if such person acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of Universe2U, and, with respect to criminal actions or proceedings,
if such person had no reasonable cause to believe his or her conduct was
unlawful.
We have also entered into indemnification agreements with each of our directors
and certain of our executive officers. These agreements provide that we
indemnify each of our directors and such officers to the fullest extent
permitted under law and our by-laws, and provide for the advancement of expenses
to each director and each such officer. We have also obtained directors and
officers insurance against certain liabilities.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF NEVADA LAW AND OUR CERTIFICATE OF
INCORPORATION AND BYLAWS
Provisions of our certificate of incorporation and bylaws described below may be
deemed to have an anti-takeover effect and may discourage takeover attempts not
first approved by our board of directors, including takeovers which particular
stockholders may deem to be in their best interests. These provisions also could
have the effect of discouraging open market purchases of our common stock
because they may be considered disadvantageous by a stockholder who desires
subsequent to such purchases to participate in a business combination
transaction with us or elect a new director to our board.
Director Vacancies and Removal. Our by-laws provide that vacancies on our board
of directors may be filled for the unexpired portion of the term of the Director
whose place is vacant by the affirmative vote of a majority of the remaining
directors. Our by-laws provide that directors may be removed from office with or
without cause by a majority vote of shareholders entitled to vote at an election
of Directors. We do not elect a classified board.
Actions by Written Consent. Our by-laws provide that any action required or
permitted to be taken by our stockholders or Directors at an annual or special
meeting of stockholders or Directors may be effected without a meeting and may
be taken or effected by a written memorandum of the respective stockholders or
Directors, setting forth the action taken and signed by all the shareholders or
Directors, as the case may be. Such consent may be by proxy or attorney, but
all such proxies and powers of attorney must be in writing.
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Special Meetings of Stockholders. Our certificate of incorporation and bylaws
provide that a special meeting of stockholders may be called at any time by our
President, board of directors, or a majority thereof. Our bylaws provide that
only those matters included in the notice of the special meeting may be
considered or acted upon at that special meeting unless otherwise provided by
law.
Advance Notice of Director Nominations and Stockholder Proposals. Our bylaws
include advance notice and informational requirements and time limitations on
any director nomination or any new proposal which a stockholder wishes to make
at an annual meeting of stockholders.
Amendment of the Certificate of Incorporation. As required by Nevada law,
certain amendments to our certificate of incorporation must be approved by a
majority of the outstanding shares entitled to vote with respect to such
amendment.
Amendment of Bylaws. Our certificate of incorporation and bylaws provide that
our bylaws may be amended or repealed by our board of directors or by the
stockholders.
TRADING OF THE COMPANY'S COMMON STOCK ON THE OTC/BB SYSTEM
Our common stock is quoted for trading on the Over-The-Counter Bulletin Board
(OTC/BB) under the symbol "UTOU."
NO PREEMPTIVE RIGHTS
No holder of any class of our stock has any preemptive right to subscribe
for or purchase any kind or class of our securities.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock Transfer
and Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
To date, there has been a limited public market for our common stock. No
prediction can be made as to the effect, if any, that sales of common stock or
the availability of common stock for sale will have on the market price of our
common stock. The market price of our common stock could drop due to sale of a
large number of shares of our common stock or the perception that such sales
could occur. These factors could also make it more difficult to raise funds
through future offerings of common stock.
After giving effect to the exercise of outstanding warrants and exchange of
securities exchangeable for shares of common stock of the company which were
issued by an Ontario subsidiary of the company, the company will have 36,977,000
shares of common stock issued and outstanding. Of such issued and outstanding
shares, the aggregate of 1,673,000 shares registered for resale
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under this prospectus and 10,204,000 previously registered and issued shares
will result in an aggregate of 11,877,000 shares of freely tradable common
stock. The remaining 25,100,000 shares of common stock are "restricted
securities" within the meaning of Rule 144 under the Securities Act.
The restricted securities generally may not be sold unless they are registered
under the Securities Act or sold pursuant to an exemption from registration,
such as the exemption provided by Rule 144 under the Securities Act.
In general, under Rule 144 as currently in effect, any person or persons whose
shares are required to be aggregated, including any affiliate of ours, who has
beneficially owned shares for a period of at least one year is entitled to sell,
within any three-month period, commencing 90 days after the date of this
prospectus, a number of shares that does not exceed the greater of:
. 1% of the then outstanding shares of common stock, which is expected to be
approximately 365,000 shares upon the completion of this offering, or
. the average weekly trading volume in the common stock during the four calendar
weeks immediately preceding the date on which the notice of such sale on
Form 144 is filed with the Securities and Exchange Commission.
Sales under Rule 144 are also subject to certain provisions relating to notice
and manner of sale and the availability of current public information about us
during the 90 days immediately preceding a sale.
Under Rule 144, a person who is not an affiliate of ours during the 90 days
preceding a sale and who has beneficially owned the shares proposed to be sold
for at least two years would be entitled to sell such shares under Rule 144(k)
without regard to the volume limitation and other conditions described above.
We intend to register on a registration statement on Form S-8 a total of
1,500,000 shares of common stock reserved for future issuance pursuant to the
Equity Incentive Plan. The Form S-8 will permit the resale in the public market
of shares so registered without restriction under the Securities Act.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon
for the company by Wuersch & Gering LLP.
EXPERTS
The financial statements and schedules included in this prospectus and elsewhere
in the registration statement have been audited by Moore Stephens Cooper
Molyneux LLP, independent public accountants, as indicated in their reports with
respect thereto, and are included in reliance upon the authority of said firm as
experts in giving said reports.
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ADDITIONAL INFORMATION
Effective June 15, 2000, the company appointed Moore Stephens Cooper Molyneux
LLP ("Moore Stephens") as its independent public accountants. Moore Stephens
replaced Williams & Webster, P.S. ("Williams & Webster") as the company's
auditors. The company dismissed Williams & Webster effective June 15, 2000.
The change in independent public accountants was approved by the Board of
Directors of the company. There were no disagreements with the former
accountants during the company's fiscal year ending June 30, 1999 nor any
subsequent period preceding the date of change. The Williams & Webster's report
on the financial statements of the company for the year ended June 30, 1999, did
not contain an adverse opinion or a disclaimer of opinion, nor was it modified
as to audit scope, accounting principles, or uncertainties other than the
ability to continue as a going concern. During the term of Williams & Webster's
engagement, there were no disagreements on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which if not resolved to the satisfaction of the former accountant, would have
caused it to make reference to the subject matter of the disagreement in
connection with its report. Prior to retaining Moore Stephens, the company had
not consulted with Moore Stephens regarding the application of accounting
principles to a specified transaction or the type of audit opinion that might be
rendered on the company's financial statements nor with respect to any matter
that was the subject of a disagreement with the company's prior accountants.
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DEFINITIONS OF TERMS
Asymmetric DSL or ADSL - offer an asymmetric speed of 192 to 8,192 Kbps
(8.2 Mbps) in the downstream direction and 64 to 1,088 Kbps (1.1 Mbps) in the
upstream direction. This has been popular with the Internet since download
speeds are more important than upload speeds. Because of distance limitation of
the ADSL technology, providers were unable to provide the service to customers
more than 18,000 feet (3.4 miles) from the central office.
Asynchronous Transfer Mode (ATM) - a high speed switching technology with the
capability of transmitting different types of data, including voice and video.
ATM service generally provides dedicated bandwidth ranging from 25 Mbps to
655 Mbps.
Bandwidth - the signaling rate possible for a given connection, expressed in
bits per second. Bandwidth determines the rate at which date can travel over a
physical medium. Bandwidth designations or categories are as follows:
Narrowband - Transmission rates less than 1.544 Mbps
Wideband - Transmission rates from 1.544 Mbps to 45 Mbps
Broadband - Transmission rates greater than 45 Mbps.
Bits per second (bps) - the volume of data transmission over time.
. Kilobits per second (kbps) One thousand bits per second
. Megabits per second (Mbps) One million bits per second
. Gigabits per second (Gbps) One billion bits per second.
Broadband Capacity - in addition to the above definition, broadband capacity
also refers to that application where the Utility owned fiber is connected into
the customer premises and the transmitting and receiving equipment is also
installed and maintained by the Utility. The agency/customer leases a share of
capacity on the broadband circuit. This application is also referred to as
"lit" fiber.
Cable modems - technology requires significant upgrades to become bi-directional
and can provide speeds of 10,000 Kbps for multiple users in a neighborhood to
36 megabits per second. Cable users are also `always on' such as xDSL
connections. Although initially such services provide rapid connections, the
speed slows down as additional adjacent customers sign on. If cable companies
have not invested in technology to provide bi-directional service, their
downstream direction speed is 10,000 Kbps, but upward speed is 64 to 128 Kbps.
Central Office - a switching facility with equipment and operating arrangements
capable of terminating and interconnecting user lines and/or trunk lines.
Typically, the location of operator services equipment. This facility is also
referred to as a switch.
Coaxial Cable - a transmission cable with a central solid wire surrounded by
insulation. A braided-wire conductor sheath covers the insulation and a plastic
jacket surrounds the sheath. Normally used for video or cable television signal
transmission.
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Competitive Access Provider (CAP) - a carrier that concentrates on exchange
access, in competition with ILECs, or carriage between interexchange carrier
(IXC) points of presence. CAPs are not required to assume carrier of last
resort obligations and need not serve the same geographic area as ILECs. Most
CAPs have evolved into CLECs and provide local exchange service as well as
exchange access service.
Competitive Local Exchange Provider (CLEC) - a Local Exchange Provider (LEC)
that is not an incumbent local exchange provider (ILEC). A carrier that
provides exchange and/or exchange accesses services to users in competition with
the ILEC.
Dark Fiber - unused fiber optic cable through which no light (signal) is
transmitted. Dark fiber owned and maintained by the Utility is leased to a
customer and the customer provides and maintains the transmission and receiving
electronic equipment (the "electronics) necessary to transmit and receive voice,
data, and/or video signals.
Digital Broadcast Satellite - technology is resold by phone companies and offers
two downstream speeds of 200 Kbps or 400 Kbps and upstream speeds of 64 Kbps or
128 Kbps. The downstream bandwidth is shared between multiple users. This
technology is popular among remote users who do not have access to wireline
broadband technologies such as DSL or cable modems.
DS 1-4 (Digital Services 1-4) - the connection services offered by the telephone
companies through T- carriers, more commonly known as T-1, T-2, T-3, and T-4.
<TABLE>
<CAPTION>
Service T-Carrier Voice Channels* Rate (Mbps)
------- --------- -------------- -----------
<S> <C> <C> <C>
DS-1 T-1 24 1.544
DS-2 T-2 96 6.312
DS-3 T-3 672 44.736
DS-4 T-4 4032 274.176
</TABLE>
* A voice channel is 64 Kbps, a regular phone line.
Ethernet - the most commonly used type of Local Area Network environment, with
common operating speeds of 10 Mbps and 100 Mbps. Ethernet uses "multiple access
with collision detection" discipline.
Ethernet Switch - a switch that reads the destination addresses in an Ethernet
data packet and directs the packet to the proper destination port. This
capability increases the volume of information traffic that can be transmitted
on the network at one time. A standard switch repeats all incoming traffic
across all network ports regardless of intended destination.
Fiber Optic Cable - the cable is made up of the following components:
Sheath - the protective covering of the cable that house the buffer tubes.
Buffer Tube - a tube inside the sheath that contains multiple fiber strands,
usually 8-12.
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Fiber Strand - the glass core surrounded by glass cladding surrounded by a
plastic coating. The diameter of the complete fiber is generally less than the
diameter of a human hair.
Fiber - relies on light energy rather than electricity to communicate
information. Fiber can carry the same kinds of signals as satellites with
greater speed and less distortion at less expense. Since the data is transmitted
as light waves instead of electrical pulses, such data is immune to the
electrical interference that causes static and distortion in electronic systems.
Two types of fiber exist: single-mode and multi-mode. Single has a smaller core
and is less susceptible to dispersion of its light signal requiring fewer
amplifiers along a path but it is more difficult to terminate and therefore not
the best answer for local networks. Fiber uses optical amplifiers,
transmitters, and receivers. Dark fiber is fiber without the transmitters,
receivers, or associated electronics attached to them by CPAU, making the fiber
less expensive. The service provider is then free to attach the voice, data, or
video equipment of their choice to light the fiber and transmit information
between locations.
The following applications require the following bandwidth:
. Analogue phone: around 10 kilobits/second (kb/s)
. Digital videophones: up to 100 kb/s
. Integrated video-conferencing, full motion video: up to 1 megabit/second
(Mb/s)
. Desktop video-conferencing: up to 10 Mb/s
. Visualization: up to 100 Mb/s
Fractional T-1 - a portion of a T-1, (i.e. less than 24 channels). A full T-1
consists of 24 64 Kbps channels. Most home telephone lines are 64 Kbps.
Frame Relay - a packet based networking mechanism that allocates dedicated
resources between ends in order to provide bandwidth on demand.
G.lite DSL or Splitterless DSL - offers an asymmetric speed of 192 to 1,544 Kbps
in the downstream direction and 64 to 512 Kpbs in the upstream direction.
High Speed DSL or HDSL - offers a symmetric speed of 1,544 Kbps in both
directions just like a T1 line but less expensive than T1 lines. Beyond 3 miles
of central office (or 5 km), this technology is technically challenging. The
final step in the evolution of the public telephone network will be the
integration of voice, high-speed data transmission, and video into a single
network. This is referred to as a `broadband network' because of its ability to
deliver services that require a broad range of communication frequencies or
bands. Broadband applications include television programming, picture phones,
high-quality color graphics, and high-resolution medical images.
Local Multipoint Distribution Service or LMDS - wireless technology with varying
speeds depending on the number of cell sites and the capacity of each cell site.
The bandwidth is shared in both directions. Biggest challenge is roof rights
for installing microwave receivers.
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Hop - a routing term that refers to the number of times data travels through a
router before reaching its destination.
Integrated Service Digital Network (ISDN) - a type of network service offered by
the phone companies that allows both voice and digital services to be combined
over a single phone service line (twisted pair). ISDN services are delivered
over standard telephone line at 128Kbps.
Interexchange Carrier (IXC) - also known as a long distance carrier.
Internet Protocol (IP) - a network layer protocol that contains addressing
information and some control information to allow information packets to be
routed across the Internet (an internetwork).
Internet Service Provider (ISP)- a company that provides direct access to the
Internet (as opposed to an Online Service like America Online or CompuServe).
ISDN DSL or IDSL - offers a symmetric speed of 128 Kbps in both direction just
like an ISDN line but cheaper than ISDN.
Leased Line - a permanent circuit provided by the phone company. Communication
on this line is not established by dialing and is normally configured as a
direct point-to-point connection. A T-1 connection is an example of a leased
line.
Lit Fiber refers to the fiber as well as the equipment connected to the points
of termination. Two types of optical fibers are in use in the market today:
single and multi mode:
. Single mode optical fibers have a small diameter with respect to the
frequency of the "light" that is used in them. In single mode fibers, the
light is constrained to travel in only one transverse path from
transmitter to receiver. This process requires precision in the alignment
of the light emitting devices at points where light enters the fiber.
This precision results in higher transmitter/receiver costs than multi
mode fiber systems. Single mode fibers are capable of bandwidths up to
100 Gigahertz.
. Multi mode optical fibers have much wider core diameters than single mode
fibers. They allow light to enter at various angles and bounce off of
core boundaries as light propagates from transmitter to receiver. Multi
mode fibers are capable of maximum bandwidths between 1-2 Gigahertz
Local Exchange Carrier (LEC) - a telecommunications carrier that provides
exchange and/or exchange access services.
Multimode Fiber - a type of fiber capable of transmitting multiple optical
signals; usually selected for short haul networks (less than 2 km). Core
diameter is approximately 62 microns.
Multiplexer - a device used to combine data transmitted from many low-to-medium
speed devices or more high-speed paths for re-transmission. Multiplexing
techniques include time division, frequency division, statistical time division,
and wavelength division. A multiplexer may also be called a mux or a
concentrator.
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Network Management - the function of controlling and operating a network in an
efficient manner. Network management is divided into five management
categories: performance, fault, accounting, security, and configuration.
Network Operations Center (NOC) - the central location for the
management, operating and monitoring equipment supporting a complex high-speed
telecommunications network. All network fiber circuits pass through the NOC.
Location for multiplexers, routers and switches necessary to support, direct and
monitor network traffic management. Multiple providers may connect at a NOC.
Packet - a group of bits comprised of address, data, and control information
that is combined and transmitted as one unit. The terms frame and packet are
often used synonymously.
Point of Presence (POP) - the location where telecommunications traffic is
handed off to another carrier. A POP may be a building, a switch, or some
location outside of a building. A POP serves as a connection point to long
distance carrier fiber (e.g., Sprint, AT&T, etc.)
Private Line - a circuit, facility, or the capacity dedicated to a single
customer's use and not part of a public switched network.
Protocol - the rules that determine and govern how information is routed or
flows in a network. Protocol determines the format, timing, and error
correction for network data traffic.
Router - determines which of multiple available network paths data will follow.
In an IP based network, the router reads the IP destination address to determine
the route.
Singlemode Fiber - a type of fiber usually used for high bandwidth, longer haul
networks (greater than 2 km). Core diameter is approximately 8 microns.
Switch A network hardware device that allows for organization and routing of
data by destination and predetermined rules. A switch is an intelligent device
that can check transmitted data for errors, direct data to appropriate networks,
and translate data into various formats.
Synchronous Optical Network (SONET) - a high-speed fiber optic based network
used to interconnect high-speed networks. SONET carries information 50 times
faster those T-3 rates with a higher quality signal. SONET multiplexes low
speed lines onto high-speed trunk lines. SONET levels range from OC-1 to OC-192
as follows:
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<TABLE>
<CAPTION>
SONET Level Maximum Bandwidth
----------- -----------------
<S> <C>
OC-1 51.84 Mbps
OC-3 155.52 Mbps
OC-12 622.08 Mbps
OC-48 2488.33 Mbps
OC-192 9953.28 Mbps
</TABLE>
Synchronous Transmission - a way of transmitting data, which uses timing to
control the transmission.
Symmetric DSL or SDSL - offers a symmetric speed of 768 Kbps in both directions.
Very high-speed DSL or VDSL - offer asymmetric or symmetric speed of up to
52,000 Kbps. This is sometimes used to replace fiber line to the service
provider's fiber hub.
Topology - the physical structure and organization of a network. Common
topologies included ring and star.
Transport Layer - the fourth layer in the seven-layer OSI model. This layer
specifies the end-to-end delivery of data and detects transmission errors.
Twisted Pair - a transmission media consisting of two copper wires that are
arranged together in a precise spiral pattern. The pattern is important in
order to minimize interference from adjoining wires. Twisted pair is the
typical medium used for most telephone and data service connections.
T1 - a data transfer rate of 1.544 Mbps. Also, see DS-1 service.
Wide Area Network - a network that is made up of multiple local area networks
(LAN) that may span a large geographic distance.
ACRONYMS
<TABLE>
<CAPTION>
Acronym Terminology
------- -----------
<C> <S>
ADM Add Drop Multiplexer
ADSL Asymmetric Digital Subscriber Line
AM/FM Automated Mapping Facilities Management
AMR Automated Meter Reading
ATM Asynchronous Transfer Mode
BRI Basic Rate Interface
CATV Cable Television
CIS Customer Information System
CLASS Custom Local Area Signaling Services
CLEC Competitive Local Exchange Carrier
CO Central Office
CPE Customer Premise Equipment
CRTC Canadian Radio-television and Telecommunications Commission
DA Distribution Automation
DS Digital Signal
DSM Demand Side Management
</TABLE>
97
<PAGE>
<TABLE>
<CAPTION>
Acronym Terminology
------- -----------
<C> <S>
DTMF Dial Tone Multi-Frequency
EBO Early Buy Out
FMV Fair Market Value
FTP File Transfer Protocol
GIS Geographic Information System
GRU Gainesville Regional Utilities
HDT Host Digital Terminal
HFC Hybrid Fiber-Coaxial
ICN Integrated Community Networks
ILEC Incumbent Local Exchange Carrier
IP Internet Protocol
ISDN Integrated Service Digital Network
ISP Internet Service Provider
IXC Inter-exchange Carrier
IXC Interexchange Carrier
LAN Local Area Network
LEC Local Exchange Carrier
MUX Multiplexing
NOC Network Operations Center
NPV Net Present Value
OAM&P Operations, Administration, Maintenance and Provisioning
OC Optical Carrier
OSS Operation Service System
PBX Private Branch Exchange
PCS Personal Communications Service
PEG Public Access, Education and Government institutions
POP Point of Presence
POTS Plain Old Telephone Service
PRI Primary Rate Interface
SCADA System Control and Data Acquisition
SMTP Simple Mail Transfer Protocol
SONET Synchronous Optical Network
STS Synchronous Transport Signal
TBM Transport Bandwidth Manager
VPN Virtual Private Network
VT Virtual Tributary
WDM Wave Division Multiplexing
</TABLE>
98
<PAGE>
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed a registration statement on Form SB-2 with the SEC for the common
stock we are offering by this prospectus. This prospectus does not include all
of the information contained in the registration statement. You should refer to
the registration statement and its exhibits for additional information. Whenever
we make reference in this prospectus to any of our contracts, agreements or
other documents, you should refer to the exhibits attached to the registration
statement for copies of the actual contract, agreement or other document. When
we complete this offering, we will also be required to file annual, quarterly
and special reports, proxy statements and other information with the SEC.
We intend to furnish to our stockholders annual reports containing audited
financial statements for each fiscal year.
You can read our SEC filings, including the registration statement, over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file with the SEC at its public reference facilities at 450
Fifth Street, NW, Washington, DC 20549; 7 World Trade Center, Suite 1300, New
York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. You may also obtain copies of the documents at
prescribed rates by writing to the Public Reference Section of the SEC at 450
Fifth Street, NW, Washington, DC 20549. Please call the SEC at 1-800-SEC- 0330
for further information on the operation of the public reference facilities.
99
<PAGE>
UNIVERSE2U INC. and subsidiaries
Index to Financial Statements
Page
----
Universe2U Inc. Unaudited Interim Combined Financial Statements
As of June 30, 2000 F-2
Review Engagement Report Of Independent Public Accountants F-3
Universe2U Inc. Combined Financial Statements for
December 31, 1999 and 1998 F-18
Universe2U Inc. (formerly Paxton Mining Corporation) Unaudited
Pro Forma Consolidated Financial Statements for
March 31, 2000 and December 31, 1999 F-37
Bernie Tan Investments Inc. o/a CableTec Unaudited Financial
Statements as of March 31, 2000 F-42
Bernie Tan Investments Inc. o/a CableTec Financial Statements
As of December 31, 1999 F-52
F-1
<PAGE>
Universe2U Inc.
Unaudited Interim Combined Financial Statements
June 30, 2000
(expressed in U.S. dollars)
F-2
<PAGE>
MOORE STEPHENS COOPER MOLYNEUX LLP
CHARTERED ACCOUNTANTS
8th Floor, 701 Evans Avenue Telephone: (416) 626-6000
Toronto, Ontario Facsimile: (416) 626-8650
Canada M9C 1A3 E-mail: [email protected]
Review Engagement Report
To the Shareholders of
Universe2U Inc.
We have reviewed the interim balance sheet and statement of deficit of
Universe2U Inc. as at June 30, 2000, the interim statement of operations for the
six month period then ended and the statement of cash flows for the six month
period then ended. Our review was made in accordance with generally accepted
standards for review engagements and accordingly consisted primarily of enquiry,
analytical procedures and discussion related to information supplied to us by
the Company.
A review does not constitute an audit and consequently we do not express an
audit opinion on these financial statements.
Based on our review nothing has come to our attention that causes us to believe
that these financial statements are not, in all material respects, in accordance
with generally accepted accounting principles in the United States.
Signed: "Moore Stephens Cooper Molyneux LLP"
Chartered Accountants
Toronto, Ontario
August 21, 2000
F-3
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unaudited Interim Combined Balance Sheet
June 30, 2000
(expressed in U.S. dollars)
-----------------------------------------------------------------------------------------------------------------------------------
<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
-------------------------------------------------------------------------------------------------------- ---------------
Commitments and contingencies (note 10) -
-------------------------------------------------------------------------------------------------------- ---------------
Shareholders' equity
Share capital (note 6)
Authorized: 100,000,000 Common shares, $0.00001 par value
Issued and outstanding: 36,357,000 Common shares 363
Additional paid in capital (net of share issuance costs of $140,487) 2,598,049
Accumulated other comprehensive (loss) (38,900)
Deficit (1,220,562)
-------------------------------------------------------------------------------------------------------- ---------------
1,338,950
-------------------------------------------------------------------------------------------------------- ---------------
$ 3,192,746
======================================================================================================== ===============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-4
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unaudited Interim Combined Statement of Deficit
for the six month period ended June 30, 2000
(expressed in U.S. dollars)
-----------------------------------------------------------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
Deficit, beginning of period $ (466,263) $ (39,540)
Net loss for the period (754,299) (194,502)
--------------------------------------------------------------------------------------------------------------- ---------------
Deficit, end of period $ (1,220,562) $ (234,042)
=============================================================================================================== ===============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-5
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unaudited Interim Combined Statement of Operations
for the six month period ended June 30, 2000 and June 30, 1999
(expressed in U.S. dollars)
-----------------------------------------------------------------------------------------------------------------------------------
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 86,969
Stock option compensation 462,761 -
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
Interest expense - related parties (note 4) 10,679 19,850
Amortization 35,076 21,247
-------------------------------------------------------------------------------------------------------------- ---------------
1,995,969 261,009
-------------------------------------------------------------------------------------------------------------- ---------------
Income before provision for income taxes (904,537) (252,409)
Income tax (benefit) (150,238) (57,907)
-------------------------------------------------------------------------------------------------------------- ---------------
Net loss for the period $ (754,299) $ (194,502)
============================================================================================================== ===============
Net loss per share - basic and fully diluted $ (0.02) $ (0.01)
============================================================================================================== ===============
Weighted average shares outstanding 35,402,204 35,204,000
============================================================================================================== ===============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-6
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unaudited Interim Combined Statement of Cash Flows
for the six month period ended June 30, 2000
(expressed in U.S. dollars)
-----------------------------------------------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
Cash flow from operating activities
Net loss for the period $ (754,299) $ (194,502)
Items not affecting cash
Amortization 77,033 50,891
Stock option compensation 462,761 -
Imputed interest 10,679 -
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.
F-7
<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 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.
On May 17, 2000, Universe2U Inc. (Nevada) (formerly Paxton Mining
Corporation) issued 250,000 shares for 100% of the shares of Universe2U
Inc. (Ontario). For accounting purposes, the acquisition is being recorded
as a recapitalization of Universe2U Inc. (Ontario), with Universe2U Inc.
(Ontario) as the acquiror. The 250,000 shares issued are treated as issued
by Universe2U Inc. (Nevada) for cash and are shown as outstanding for all
periods presented in the same manner as for a stock split. Prior to the
acquisition there were 5,510,200 shares outstanding in Universe2U Inc.
(Nevada). In addition, the recapitalization reflects 4,000,000 shares
tendered for cancellation and the declaration of a stock dividend on a 19
to 1 basis, representing 33,443,800 shares, which formed part of the
acquisition transaction. The combined financial statements of the Company
reflect the results of operations of Universe2U Inc. (Nevada) and
Universe2U Inc. (Ontario) from May 17, 2000 to June 30, 2000. The combined
financial statements prior to May 17, 2000 reflect the results of
operations and financial position of Universe2U Inc. (Ontario). Pro forma
information on this transaction is not presented as, at the date of this
transaction, Universe2U Inc. (Nevada) is considered a public shell and
accordingly, the transaction will not be considered a business
combination.
On May 31, 2000, the Company acquired all of the outstanding shares of
Cabletec Communications Inc. ("Cabletec") (formerly Bernie Tan Investments
Inc.), a company involved in underground excavation and cable installation
activities, for cash consideration of $1,500,000 Cdn and stock options to
purchase 200,000 shares at a price of $7.50 Cdn. This transaction was
accounted for under the purchase method of accounting. The total cost of
the acquired net assets was $1,500,000 Cdn, which was equal to the
purchase price of the Cabletec stock. The results of operations of the
acquired entity are included in the accompanying financial statements
since the date of acquisition.
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.
F-8
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Notes to Unaudited Interim Combined Financial Statements
June 30, 2000
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
2. Basis of Combination - continued
--------------------------------------------------------------------------------
These financial statements have been prepared on a combined basis and
include the following 100% owned subsidiarys' 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. (Nevada) - incorporated on April 1, 1999
Cabletec Communications Inc. - acquired on May 31, 2000
Universe2U Right-of-Ways Agency Inc. - incorporated on June 23, 2000
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 imputed interest of $10,679 (1999 -
interest paid of $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.
F-9
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Notes to Unaudited Interim Combined Financial Statements
June 30, 2000
(expressed in U.S. dollars)
-----------------------------------------------------------------------------------------------------------------------------------
5. Long-Term Debt
-----------------------------------------------------------------------------------------------------------------------------------
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>
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.
F-10
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Notes to Unaudited Interim Combined Financial Statements
June 30, 2000
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
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. The Company accounts for stock-based compensation under the
provisions of APB No. 25 "Accounting for Stock Issued to Employees" 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). In accordance with FAS No. 123, "Accounting for
Stock-Based Compensation", the fair value of each fixed option granted is
estimated on the date of grant using the Black-Scholes option pricing
model, as follows:
<TABLE>
<CAPTION>
Option assumptions
2000 1999
--------------------------------------------------------------------------------------- -----------
<S> <C> <C>
Dividend yield - -
Expected volatility 75% -
Risk free interest rate 5.2% -
Expected option term 5.0 -
Fair value per share of options granted $4.99 -
--------------------------------------------------------------------------------------- -----------
</TABLE>
Compensation expense recorded under FAS No. 123 would have been
approximately $462,975 in 2000 (1999 - $ nil), reducing earnings per share
by a nominal amount in 2000 (1999 - $ nil).
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>
F-11
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Notes to Unaudited Interim Combined Financial Statements
June 30, 2000
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
6. Share Capital - continued
--------------------------------------------------------------------------------
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>
Continuity of stockholders' equity
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
accumulated
other comp-
common stock paid in rehensive
shares amount capital income (loss) deficit total
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Recapitalization
as a result of merger
(see Note 1) 35,204,200 $352 $43,528 - - $43,880
------------------------------------------------------------------------------------------------------------------
Net loss for the year - - - - (39,540) (39,540)
Exchange differences - - - 10,228 - 10,228
------------------------------------------------------------------------------------------------------------------
Total comprehensive
(loss) - - - 10,228 (39,540) (29,312)
Imputed interest - - 3,672 - - 3,672
------------------------------------------------------------------------------------------------------------------
December 31, 1998 35,204,000 $352 47,200 10,228 (39,540) 18,240
------------------------------------------------------------------------------------------------------------------
Net loss for the year - - - - (426,723) (426,723)
Exchange differences - - - (27,319) - (27,319)
------------------------------------------------------------------------------------------------------------------
Total comprehensive
(loss) - - - (27,319) (426,723) (454,042)
Stock option
compensation - - 20,267 - - 20,267
------------------------------------------------------------------------------------------------------------------
December 31, 1999 35,204,000 352 67,467 (17,091) (466,263) (415,535)
------------------------------------------------------------------------------------------------------------------
</TABLE>
F-12
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Notes to Unaudited Interim Combined Financial Statements
June 30, 2000
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
6. Share Capital - continued
--------------------------------------------------------------------------------
<TABLE>
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1999 35,204,000 352 67,467 (17,091) (466,263) (415,535)
------------------------------------------------------------------------------------------------------------------
Net loss for the period - - - - (754,299) (754,299)
Exchange differences - - - (21,809) - (38,900)
------------------------------------------------------------------------------------------------------------------
Total comprehensive
(loss) - - - (21,809) (754,299) (793,199)
Conversion of
debentures 833,000 8 668,665 - - 668,673
Conversion of share-
holder advances 100,000 1 428,967 - - 428,968
Private placement 220,000 2 959,510 - - 959,512
Stock option
compensation - - 462,761 - - 462,761
Imputed interest - - 10,679 - - 10,679
------------------------------------------------------------------------------------------------------------------
June 30, 2000 36,357,000 $363 $2,598,049 $(38,900) $(1,220,562) $1,338,950
------------------------------------------------------------------------------------------------------------------
</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 four 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.
The NS segment is a support service for the other operating segments.
F-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 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 $ 20,296 6,765 10,385 133 $ 37,579
Amortization of
capital assets $ 43,596 14,422 4,767 14,248 $ 77,033
Loss before
income taxes $ (277,278) 188,885 (24,889) (12,614) $ (125,896)
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
------------------------------------------------------------------------------------------------------------------
<CAPTION>
Reconciliations to combined results as at and for the six month period ended June 30, 2000:
------------------------------------------------------------------------------------------------------------------
Segmented Corporate Total
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 2,601,119 $ 240 $ 2,601,359
Loss before income taxes $ (125,896) $ (778,641) $ (904,537)
Total assets $ 2,953,259 $ 239,487 $ 3,192,746
------------------------------------------------------------------------------------------------------------------
<CAPTION>
Information by operating segment as at and for the six month period ended June 30, 1999:
------------------------------------------------------------------------------------------------------------------
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>
F-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
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Reconciliations to combined results as at and for the six month period ended June 30, 1999:
------------------------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------------------------
Geographic information
Information by geographic region as at and for the six month period ended June 30, 2000:
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Canada United States Total
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 2,556,385 44,734 $ 2,601,119
Interest expense $ 37,415 164 $ 37,579
Amortization of capital assets $ 75,913 1,120 $ 77,033
Earnings (loss) before income taxes $ (815,281) (89,256) $ (904,537)
Total assets $ 3,110,950 81,796 $ 3,192,746
Capital assets $ 1,392,223 6,740 $ 1,398,963
------------------------------------------------------------------------------------------------------------------
Information by geographic region as at and for the six month period ended June 30, 1999:
<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>
Revenues are attributed to countries based on location of customers.
F-15
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Notes to Unaudited Interim Combined Financial Statements
June 30, 2000
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
8. 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>
Six Months Ended June 30, 2000
2000 1999
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Basic EPS Computation:
Net loss for the period $ (754,299) $ (194,502)
Weighted average outstanding shares 35,402,204 35,204,000
Basic EPS $ (0.02) $ (0.01)
------------------------------------------------------------------------------------------------------------
</TABLE>
9. Acquisition
--------------------------------------------------------------------------------
On May 31, 2000, the Company acquired all of the outstanding shares of
CableTec Communications Inc. ("CableTec") (formerly Bernie Tan Investments
Inc.), a company involved in underground excavation and cable installation
activities, for cash consideration of $1,500,000 Cdn and stock options to
purchase 200,000 shares at a price of $7.50 Cdn per share. This
transaction was accounted for under the purchase method of accounting. The
total cost of the acquired net assets was $1,500,000 Cdn, which was equal
to the purchase price of the Cabletec stock. The results of operations of
the acquired entity are included in the accompanying financial statements
since the date of acquisition.
The following results report on a pro forma basis the results of operation
had the acquisition occurred on the first day of the earliest period
reported, being January 1, 1999. Pro forma results presented are not
necessarily indicative of the results that may be expected for the fiscal
year ending December 31, 2000.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, December 31,
2000 1999 1999
--------------------------------------------------------------------------------------- ---------------
<S> <C> <C> <C>
Revenue $ 2,618,134 $ 569,397 $ 2,477,510
--------------------------------------------------------------------------------------- ---------------
Net loss $ (308,108) $ (140,809) $ (509,299)
--------------------------------------------------------------------------------------- ---------------
(Loss) per share $ (0.01) $ - $ (0.01)
======================================================================================= ===============
</TABLE>
F-16
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Notes to Unaudited Interim Combined Financial Statements
June 30, 2000
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
10. Commitments and Contingencies
--------------------------------------------------------------------------------
Lease commitments
At June 30, 2000, the Company's total obligations, under various operating
leases for equipment and occupied premises, exclusive of realty taxes and
other occupancy charges, are as follows:
2000 $ 114,828
2001 221,163
2002 194,849
2003 112,276
2004 9,896
-------------------------------------------------------------------
Total $ 653,012
===================================================================
Employment contracts
The Company has employment agreements and arrangements with its executive
officers and certain management personnel. The agreements generally
continue until terminated by the executive or the Company and do not
provide for severence payments of any kind upon termination. The
agreements include a covenant against competition with the Company, which
extends for a period of time after termination for any reason. As of June
30, 2000, the minimum annual commitment under these agreements was
approximately $502,000.
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, the proceeds had not been received.
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.
F-17
<PAGE>
Universe2U Inc.
Combined Financial Statements
December 31, 1999 and 1998
(expressed in U.S. dollars)
F-18
<PAGE>
Auditors' Report
To the Shareholders of
Universe2U Inc.
We have audited the combined balance sheets of Universe2U Inc. ("the Company")
as at December 31, 1999 and 1998 and the combined statements of operations and
deficit and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform 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 combined financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1999
and 1998, and the results of its operations and cash flows for the years then
ended in accordance with generally accepted accounting principles in the United
States.
Signed: "Moore Stephens Cooper Molyneux LLP"
Chartered Accountants
Toronto, Ontario
July 11, 2000
F-19
<PAGE>
<TABLE>
<CAPTION>
Universe2U Inc.
--------------------------------------------------------------------------------------------------------
Combined Balance Sheets
December 31, 1999 and 1998
(expressed in U.S. dollars)
--------------------------------------------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------------------------- -------------
<S> <C> <C>
Assets
Current assets
Cash $ 12,340 $ 265
Accounts receivable 550,858 200,698
Prepaid expenses and deposits 129,177 7,951
Inventory 39,493 -
--------------------------------------------------------------------------------------- -------------
731,868 208,914
Future income taxes 124,596 9,727
Capital assets (note 3) 445,294 293,760
--------------------------------------------------------------------------------------- -------------
$ 1,301,758 $ 512,401
======================================================================================= =============
Liabilities
Current liabilities
Bank indebtedness (note 4) $ 69,432 $ 49,463
Accounts payable and accrued liabilities 462,821 37,133
Current portion of capital lease obligation (note 8) 13,883 5,675
Current portion of long-term debt (note 7) 54,924 15,066
--------------------------------------------------------------------------------------- -------------
601,060 107,337
Due to related parties (note 5) 486,941 226,431
Obligation under capital lease (note 8) 14,178 12,412
Long-term debt (note 7) 268,686 147,981
Debenture (note 6) 346,428 -
--------------------------------------------------------------------------------------- -------------
1,717,293 494,161
--------------------------------------------------------------------------------------- -------------
Commitments and contingencies (note 12) - -
--------------------------------------------------------------------------------------- -------------
Deficiency in assets
Share capital (note 9)
Authorized: 100,000,000 Common shares, $0.00001 par value
Issued and outstanding: 35,204,000 Common shares 352 352
Additional paid in capital 67,467 47,200
Accumulated other comprehensive (loss) income (17,091) 10,228
Deficit (466,263) (39,540)
--------------------------------------------------------------------------------------- -------------
(415,535) 18,240
--------------------------------------------------------------------------------------- -------------
$ 1,301,758 $ 512,401
======================================================================================= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Approved on behalf of the Board
--------------------------------- -----------------------------------
Director Director
F-20
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Combined Statements of Deficit
for the years ended December 31, 1999 and 1998
(expressed in U.S. dollars)
-------------------------------------------------------------------------------
1999 1998
------------------------------------------------------------- -------------
Deficit, beginning of years $ (39,540) $ -
Net loss for the years (426,723) (39,540)
------------------------------------------------------------- -------------
Deficit, end of years $ (466,263) $ (39,540)
============================================================= =============
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
<TABLE>
<CAPTION>
Universe2U Inc.
----------------------------------------------------------------------------------------
Combined Statements of Operations
for the years ended December 31, 1999 and 1998
(expressed in U.S. dollars)
----------------------------------------------------------------------------------------
1999 1998
----------------------------------------------------------------------- -------------
<S> <C> <C>
Revenue $ 1,614,496 $ 472,569
----------------------------------------------------------------------- -------------
Cost of sales
Subcontract 353,554 200,317
Wages and benefits 296,217 44,761
Materials 287,481 30,367
Equipment lease and rental 80,148 10,474
Amortization 62,461 34,944
----------------------------------------------------------------------- -------------
1,079,861 320,863
----------------------------------------------------------------------- -------------
Gross profit 534,635 151,706
----------------------------------------------------------------------- -------------
Expenses
Salaries and wages 223,296 18,103
Consulting fees 145,052 21,779
Management fees 128,058 66,053
Professional fees 113,677 21,402
Interest expense - related parties (note 5) 71,342 3,672
Auto and travel 71,000 10,268
Rent and utilities 64,419 1,517
Interest and bank charges 57,908 9,628
Telephone 33,753 10,347
Advertising and promotion 31,584 4,015
Insurance 21,395 4,325
Office and general 21,981 5,526
Stock option compensation (note 9) 20,267 -
Employee benefits 13,529 2,168
Management fees - related parties (note 5) 10,769 4,509
Repairs and maintenance 2,764 8,403
Amortization 41,559 9,587
----------------------------------------------------------------------- -------------
1,072,353 201,302
----------------------------------------------------------------------- -------------
Loss before provision for income taxes (537,718) (49,596)
Provision for income taxes (note 10) (110,995) (10,056)
----------------------------------------------------------------------- -------------
Net loss for the years $ (426,723) $ (39,540)
======================================================================= =============
Net loss per share - basic and fully diluted $ (0.01) $ -
======================================================================= =============
Weighted average shares outstanding 35,204,000 35,204,000
======================================================================= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
<TABLE>
<CAPTION>
Universe2U Inc.
------------------------------------------------------------------------------------------------
Combined Statements of Cash Flows
for the years ended December 31, 1999 and 1998
(expressed in U.S. dollars)
------------------------------------------------------------------------------------------------
1999 1998
---------------------------------------------------------------------------------- -----------
<S> <C> <C>
Cash flow from operating activities (note 13)
Net loss for the years $ (426,723) $ (39,540)
Items not affecting cash
Amortization 104,020 44,531
Stock option compensation 20,267 -
Imputed interest - 3,672
Future income taxes (110,995) (10,056)
---------------------------------------------------------------------------------- -----------
(413,431) (1,393)
Other sources (uses) of cash from operations
Increase in accounts receivable (350,160) (200,698)
Increase in inventory (39,493) -
Increase in prepaid expenses and deposits (121,225) (7,951)
Increase in accounts payable and accrued liabilities 425,686 80,999
---------------------------------------------------------------------------------- -----------
(498,623) (129,043)
---------------------------------------------------------------------------------- -----------
Cash flow from investing activities
Purchase of capital assets (279,093) (338,209)
---------------------------------------------------------------------------------- -----------
Cash flow from financing activities
Net proceeds from long-term debt 160,564 181,134
Proceeds from debenture 346,428 -
Proceeds from issue of share capital - 14
Increase in bank indebtedness 19,969 49,463
Increase in due to related parties 260,510 226,431
---------------------------------------------------------------------------------- -----------
787,471 457,042
---------------------------------------------------------------------------------- -----------
Effect of exchange rate changes on cash 2,320 10,475
---------------------------------------------------------------------------------- -----------
Increase in cash 12,075 265
Cash, beginning of years 265 -
---------------------------------------------------------------------------------- -----------
Cash, end of years $ 12,340 $ 265
================================================================================== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Notes to Combined Financial Statements
December 31, 1999
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
1. Business of the Company
--------------------------------------------------------------------------------
Universe2U Inc. ("the Company") was incorporated under the laws of Ontario
and carries on the business of providing dedicated fiber optic
infrastructure and high-bandwidth Internet connectivity for communications
carriers and corporate and government customers in North America.
2. Significant Accounting Policies
--------------------------------------------------------------------------------
Basis of presentation
Subsequent to year end, Universe2U Inc. (Nevada) (formerly Paxton Mining
Corporation) issued 250,000 shares for 100% of the shares of Universe2U
Inc. (Ontario). For accounting purposes, the acquisition is being recorded
as a recapitalization of Universe2U Inc. (Ontario), with Universe2U Inc.
(Ontario) as the acquiror. The 250,000 shares issued are treated as issued
by Universe2U Inc. (Nevada) for cash and are shown as outstanding for all
prior periods presented in the same manner as for a stock split. Prior to
the acquisition there were 5,510,200 shares outstanding in Universe2U Inc.
(Nevada). In addition, the recapitalization reflects 4,000,000 shares
tendered for cancellation and the declaration of a stock dividend on a 19
to 1 basis, representing 33,443,800 shares, which formed part of the
acquisition transaction. Pro forma information on this transaction is not
presented as, at the date of this transaction, Universe2U Inc. (Nevada) is
considered a public shell and accordingly, the transaction will not be
considered a business combination.
Basis of combination
These financial statements have been prepared on a combined basis and
include the following 100% owned subsidiarys' assets and liabilities as
well as the revenues and expenses arising from their respective
incorporation dates:
<TABLE>
<S> <C>
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
</TABLE>
Cash and cash equivalents
Cash and cash equivalents consist of cash on deposit and highly liquid
short-term interest bearing securities with maturity at the date of
purchase of three months or less. The Company did not have any cash
equivalents at December 31, 1999 and 1998.
Inventory
Raw materials are valued at the lower of cost and replacement cost.
Finished goods are valued at the lower of cost and net realizable value.
Cost is determined on the first-in, first-out basis.
F-24
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Notes to Combined Financial Statements
December 31, 1999
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
2. Significant Accounting Policies - continued
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Capital assets
Capital assets are recorded at cost and amortized over their estimated useful lives as follows:
<S> <C>
Computer software - 100 % declining balance
Computer equipment - 30 % declining balance
Vehicles and machinery - 30 % declining balance
Furniture and fixtures - 20 % declining balance
Leasehold improvements - straight-line, over life of lease
</TABLE>
Revenue recognition
Revenue for services provided is recognized in the period the services are
performed based on the costs incurred. Revenue on long-term construction
contracts is recognized on the percentage of completion basis. Provision
is made for all anticipated losses as soon as they become evident.
Future income taxes
The Company has adopted the asset/liability method of accounting for
future income taxes whereby future income tax liabilities are determined
by applying the tax rate at the end of the fiscal year to temporary
differences between the accounting and tax bases of the assets and the
liabilities of the Company. The future income tax asset results from
differences between the tax base and carrying values of capital and other
assets, differences in the accounting and tax treatment of certain costs,
and the recognition of prior year losses for tax purposes.
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 year end rate of
exchange, and revenue and expenses of such operations are translated using
the average rate of exchange for the year. The related foreign exchange
gains and losses arising on translation of the Company's Canadian
operations are included in shareholders' equity until realized.
Earnings (loss) per share
Basic earnings (loss) per share have been determined based upon the
weighted average number of common shares issued and outstanding throughout
the period as restated to reflect the recapitalization as a result of the
reverse acquisition (see Note 2 and 16b). Fully diluted information is not
presented, as it is anti-dilutive as a result of having incurred losses in
each period.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F-25
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Notes to Combined Financial Statements
December 31, 1999
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
2. Significant Accounting Policies - continued
--------------------------------------------------------------------------------
Reclassifications
Certain amounts from prior years have been reclassified to conform to the
current year's presentation.
Fair value
The carrying amount of accounts receivable, bank loans, accounts payable
and accrued liabilities approximates their fair value because of the
short-term maturities of these items. The fair value of the loans with
related companies are not determinable, as these amounts are due on demand
without interest, and, accordingly, cannot be ascertained with reference to
similar debt with non-related parties.
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 issues,
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.
<TABLE>
<CAPTION>
3. Capital Assets
------------------------------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------------- ------------
Accumulated Net Book Net Book
Cost Amortization Value Value
--------------------------------------------------------------------------- ------------
<S> <C> <C> <C> <C>
Computer software $ 8,543 $ 4,333 $ 4,210 $ 1,274
Computer equipment 69,354 16,127 53,227 22,053
Vehicles and machinery 413,242 115,422 297,820 198,015
Furniture and fixtures 23,005 5,374 17,631 9,004
Leasehold improvements 83,524 11,118 72,406 63,414
--------------------------------------------------------------------------- ------------
$ 597,668 $ 152,374 $ 445,294 $ 293,760
=========================================================================== ============
</TABLE>
F-26
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Notes to Combined Financial Statements
December 31, 1999
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
4. Bank Indebtedness
--------------------------------------------------------------------------------
Bank indebtedness is due on demand and is secured by a personal guarantee
from one of the Company's shareholders. The indebtedness bears interest at
prime plus 1% over the bank's base rate of interest, payable monthly. The
month end prime rate as at December 31, 1999 was approximately 6.5% (1998
- 6.75%).
5. Due to Related Parties
--------------------------------------------------------------------------------
1999 1998
----------------------------------------------------------------- ------------
Advances to commonly controlled companies $ (32,806) $ 6,107
Advances from shareholders 519,747 220,324
----------------------------------------------------------------- ------------
$ 486,941 $ 226,431
================================================================= ============
The amounts due to and from commonly controlled companies are non-interest
bearing, due on demand and have no fixed repayment terms. The amounts due
to and from shareholders are interest bearing, due on demand and have no
fixed repayment terms. During the year, the Company paid interest of
$71,342 (1998 - imputed interest of $3,672) to shareholders on advances
made to the Company and management fees of $10,769 (1998 - $4,509) to
shareholders for services provided to the Company. Interest was waived by
the shareholders in the prior year. The shareholders do not intend to
demand repayment within the next 12 months (see note 16).
6. Debenture
--------------------------------------------------------------------------------
1999 1998
----------------------------------------------------------------- ------------
Debenture bearing interest at 10% per annum,
repayable by December 2000 unless converted
at the option of the holder into 500,000
common shares of the Company (see note 16); $ 346,428 $ -
================================================================= ============
F-27
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Notes to Combined Financial Statements
December 31, 1999
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
7. Long-Term Debt
-----------------------------------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------------------- -----------
<S> <C> <C>
Promissory note bearing interest at prime plus 3% per annum
with monthly principal repayments of $1,455 plus interest,
maturing in January 2009, secured by a general security
agreement and a limited guarantee by a shareholder of the
Company; $ 157,210 $ 163,047
Term loan bearing interest at 8.9% per annum, with monthly
principal and interest payments of $346, maturing in October
2004, secured by the vehicle; 16,281 -
Promissory note bearing interest at prime plus 2.5% per
annum with monthly principal repayments of $2,887 plus
interest, maturing in May 2004, secured by a general
security agreement and a limited guarantee by a shareholder
of the Company; 150,119 -
--------------------------------------------------------------------------------- -----------
323,610 163,047
Less: Current portion 54,924 15,066
--------------------------------------------------------------------------------- -----------
$ 268,686 $ 147,981
================================================================================= ===========
The month end prime rate as at December 31, 1999 was approximately 6.5% (1998 - 6.75%).
Principal payments on long-term debt are as follows:
2000 $ 54,925
2001 55,186
2002 55,471
2003 55,784
2004 32,335
Subsequent 69,909
---------------------------------------------------------------------------------
$ 323,610
=================================================================================
</TABLE>
<TABLE>
<CAPTION>
8. Obligation Under Capital Lease
-----------------------------------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------------------- -----------
<S> <C> <C>
Office furniture and computer equipment lease contract,
bearing interest at 11.33% per annum, requiring blended
monthly payments of $1,363 to November 2001, secured by the
office furniture and computer equipment; $ 28,061 $ 18,087
- -
Less: Current portion 13,883 5,675
--------------------------------------------------------------------------------- -----------
$ 14,178 $ 12,412
================================================================================== ===========
</TABLE>
F-28
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Notes to Combined Financial Statements
December 31, 1999
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
8. Obligation Under Capital Lease - continued
--------------------------------------------------------------------------------
Principal payments on capital lease obligations are as follows:
2000 $ 13,883
2001 14,178
---------------------------------------------------------------
$ 28,061
===============================================================
9. 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. The Company accounts for stock-based compensation under the
provisions of APB No. 25 "Accounting for Stock Issued to Employees" 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 $20,267 for the year
(1998 - $ nil). In accordance with FAS No. 123, "Accounting for
Stock-Based Compensation", the fair value of each fixed option granted is
estimated on the date of grant using the Black-Scholes option pricing
model, as follows:
Option assumptions
1999 1998
--------------------------------------------------------------- ----------
Dividend yield - -
Expected volatility 75% -
Risk free interest rate 5.2% -
Expected option term 5.0 -
Fair value per share of options granted $4.99 -
--------------------------------------------------------------- ----------
Compensation expense recorded under FAS No. 123 would have been
approximately $20,276 in 1999 (1998 - $ nil), reducing earnings per share
by a nominal amount in 1999 (1998 - $ nil).
F-29
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Notes to Combined Financial Statements
December 31, 1999
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
9. Share Capital - continued
-----------------------------------------------------------------------------------------------------
As at December 31, 1999, details of options outstanding were as follows:
-----------------------------------------------------------------------------------------------------
Outstanding Exercisable
-----------------------------------------------------------------------------------------------------
weighted average weighted average
number exercise price number exercise price
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1998 - $ - - $ -
Granted 600,000 0.01 - -
-----------------------------------------------------------------------------------------------------
December 31, 1999 600,000 $ 0.01 - $ -
-----------------------------------------------------------------------------------------------------
As at December 31, 1999, stock options expire as follows:
-----------------------------------------------------------------------------------------------------
number exercise number
outstanding price exercisable
-----------------------------------------------------------------------------------------------------
2004 600,000 $ 0.01 -
-----------------------------------------------------------------------------------------------------
</TABLE>
F-30
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Notes to Combined Financial Statements
December 31, 1999
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
9. Share Capital - continued
-------------------------------------------------------------------------------------------------------------------
Continuity of stockholders' equity
-------------------------------------------------------------------------------------------------------------------
accumulated
other comp-
common stock paid in rehensive
shares amount capital income (loss) deficit total
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Recapitalization
as a result of merger
(see Note 2 and 16b) 35,204,200 $352 $43,528 - - $43,880
------------------------------------------------------------------------------------------------------------------
Net loss for the year - - - - (39,540) (39,540)
Exchange differences - - - 10,228 - 10,228
------------------------------------------------------------------------------------------------------------------
Total comprehensive
(loss) - - - 10,228 (39,540) (29,312)
Imputed interest - - 3,672 - - 3,672
------------------------------------------------------------------------------------------------------------------
December 31, 1998 35,204,000 $352 47,200 10,228 (39,540) 18,240
------------------------------------------------------------------------------------------------------------------
Net loss for the year - - - - (426,723) (426,723)
Exchange differences - - - (27,319) - (27,319)
------------------------------------------------------------------------------------------------------------------
Total comprehensive
(loss) - - - (27,319) (426,723) (454,042)
Stock option
compensation - - 20,267 - - 20,267
------------------------------------------------------------------------------------------------------------------
December 31, 1999 35,204,000 $352 $67,467 $(17,091) $(466,263) $(415,535)
------------------------------------------------------------------------------------------------------------------
<CAPTION>
10. Income Taxes
-----------------------------------------------------------------------------------------------------------
1999 1998
------------------------------------------------------------------------------------------ -----------
<S> <C> <C>
The Company's income tax provision consists of the following:
Current tax recovery $ (106,852) $ (2,856)
Future income tax benefit arising from the origination of
temporary differences (4,445) (7,200)
Future income tax expense arising from the reduction in tax rates 302 -
------------------------------------------------------------------------------------------ -----------
$ (110,995) $ (10,056)
========================================================================================== ===========
</TABLE>
F-31
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Notes to Combined Financial Statements
December 31, 1999
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
11. Concentration of Credit Risk
--------------------------------------------------------------------------------
Financial instruments that potentially subject the Company to a
significant concentration of credit risk consist primarily of cash and
cash equivalents and accounts receivable. The Company limits its exposure
to credit loss by placing its cash and cash equivalents with high quality
financial institutions. Concentrations of credit risk with respect to
accounts receivable are considered to be limited due to the credit quality
of the customers comprising the Company's customer base.
The Company performs ongoing credit evaluations of its customers'
financial condition to determine the need for an allowance for doubtful
accounts. The Company has not experienced significant credit losses to
date. Accounts receivable was comprised of 20 customers at December 31,
1999 and 14 customers at December 31, 1998.
The Company's three largest customers represented 25.50%, 11.03%, and
9.52% of the Company's total revenue for the year ended December 31, 1999
and 15.97%, 14.65%, and 14.02% of the Company's revenue for the year ended
December 31, 1998.
12. Commitments and Contingencies
--------------------------------------------------------------------------------
Lease commitments
At December 31, 1999, the Company's total obligations, under various
operating leases for equipment and occupied premises, exclusive of realty
taxes and other occupancy charges, are as follows:
2000 $ 229,656
2001 221,163
2002 194,849
2003 112,276
2004 9,896
-----------------------------------------------------------------------
Total $ 767,840
=======================================================================
Employment contracts
The Company has employment agreements and arrangements with its executive
officers and certain management personnel. The agreements generally
continue until terminated by the executive or the Company and do not
provide for severence payments of any kind upon termination. The
agreements include a covenant against competition with the Company, which
extends for a period of time after termination for any reason. As of
December 31, 1999, the minimum annual commitment under these agreements
was approximately $277,000.
F-32
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Notes to Combined Financial Statements
December 31, 1999
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
13. Supplemental Cash Flow Information
During the year, the Company had cash flows arising from interest and
income taxes paid as follows:
--------------------------------------------------------------------------------
1999 1998
-------------------------------------------------------------- ------------
Interest paid (note 5) $ 118,386 $ 5,460
Income taxes paid $ - $ -
============================================================== ============
14. 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"), and Sales and Marketing ("S&M") 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.
The accounting policies of the segments are the same as those described in
note 2. 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 year ended December 31, 1999 and the year ended December 31, 1998.
F-33
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Notes to Combined Financial Statements
December 31, 1999
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
14. Information on Operating Segments - continued
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Operating segments
Information by operating segment as at and for the year ended December 31, 1999:
----------------------------------------------------------------------------------------------------
FC&MS FN&SED S&M Total
---------------------------------------------------------------------------------- --------------
<S> <C> <C> <C> <C>
Revenue $ 1,010,320 115,813 488,363 $ 1,614,496
Interest expense $ 83,267 12,925 33,058 $ 129,250
Amortization of capital
assets $ 81,167 15,857 6,996 $ 104,020
Earnings (loss) before
income taxes $ (491,600) (40,339) (5,779) $ (537,718)
Total assets $ 951,099 189,319 161,340 $ 1,301,758
Capital assets $ 272,099 140,573 32,622 $ 445,294
Capital asset additions $ 80,240 156,431 42,422 $ 279,093
---------------------------------------------------------------------------------- -------------
<CAPTION>
Information by operating segment as at and for the year ended December 31, 1998:
-----------------------------------------------------------------------------------------------------
FC&MS FN&SED S&M Total
---------------------------------------------------------------------------------- -------------
<S> <C> <C> <C> <C>
Revenue $ 343,715 - 128,854 $ 472,569
Interest expense $ 10,559 - 2,741 $ 13,300
Amortization of capital
assets $ 42,003 - 2,528 $ 44,531
Earnings (loss) before
income taxes $ (46,409) - (3,187) $ (49,596)
Total assets $ 446,212 - 66,189 $ 512,401
Capital assets $ 276,572 - 17,188 $ 293,760
Capital asset additions $ 318,493 - 19,716 $ 338,209
---------------------------------------------------------------------------------- -------------
<CAPTION>
Geographic information
Information by geographic region as at and for the year ended December 31, 1999:
-----------------------------------------------------------------------------------------------------
Canada United States Total
---------------------------------------------------------------------------------- -------------
<S> <C> <C> <C>
Revenue $ 1,460,756 153,740 $ 1,614,496
Interest expense $ 128,541 709 $ 129,250
Amortization of capital assets $ 103,980 40 $ 104,020
Earnings (loss) before income taxes $ (537,508) (210) $ (537,718)
Total assets $ 1,201,472 100,286 $ 1,301,758
Capital assets $ 442,441 2,853 $ 445,294
Capital asset additions $ 276,200 2,893 $ 279,093
-----------------------------------------------------------------------------------------------------
</TABLE>
F-34
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Notes to Combined Financial Statements
December 31, 1999
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
14. Information on Operating Segments - continued
-------------------------------------------------------------------------------------------------
Information by geographic region as at and for the year ended December 31, 1998:
-------------------------------------------------------------------------------------------------
Canada United States Total
------------------------------------------------------------------------------- ------------
<S> <C> <C> <C>
Revenue $ 472,569 - $ 472,569
Interest expense $ 13,300 - $ 13,300
Amortization of capital assets $ 44,531 - $ 44,531
Earnings (loss) before income taxes $ (49,596) - $ (49,596)
Total assets $ 512,401 - $ 512,401
Capital assets $ 293,760 - $ 293,760
Capital asset additions $ 338,209 - $ 338,209
------------------------------------------------------------------------------- ------------
</TABLE>
Revenues are attributed to countries based on location of customers.
15. 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>
Year Ended December 31,
1999 1998
---------------------------------------------------------------------------------------
<S> <C> <C>
Basic EPS Computation:
Net loss for the years $ (426,723) $ (39,540)
Weighted average outstanding shares 35,204,000 35,204,000
Basic EPS $ (0.01) $ -
---------------------------------------------------------------------------------------
</TABLE>
F-35
<PAGE>
Universe2U Inc.
--------------------------------------------------------------------------------
Notes to Combined Financial Statements
December 31, 1999
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
16. Subsequent Events
--------------------------------------------------------------------------------
Subsequent to the year end the following transactions occurred:
a) An additional debenture of $346,428 was advanced to the Company which
bears interest at 10% per annum and is repayable by December 2000
unless exercised at the option of the holder into 333,333 common shares
of the Company. On May 26, 2000, debenture holders converted $461,443
of amounts advanced into 666,000 common shares in accordance with the
conversion terms assigned to the debentures. On May 27, 2000, debenture
holders converted the remaining $231,414 of amounts advanced into
167,000 common shares in accordance with the conversion terms assigned
to the debentures.
b) On May 17, 2000, 100% of the issued and outstanding shares of
Universe2U Inc. ("the Company") were acquired by Universe2U Inc.
("Paxton"), a Nevada Corporation (formerly known as Paxton Mining
Corporation) in exchange for 250,000 exchangeable shares of 1418276
Ontario Inc. ("1418276"), an Ontario Corporation being a 100% owned
subsidiary of Paxton. The transaction will result in the former
shareholders of the Company controlling approximately 41% of the total
issued and outstanding common shares of Paxton which represents a
controlling interest. Accordingly, the former shareholders of the
Company have retained control of the Company and obtained control of
Paxton. This is treated as a reverse-takeover. Although legally Paxton
has acquired the Company, for accounting purposes, the Company is
considered the acquiring company and Paxton is considered the acquired
company. (See Note 1 of June 30, 2000 financial statements)
c) On May 31, 2000, Universe2U Inc. acquired 100% of the issued and
outstanding shares of Bernie Tan Investments Inc. (o/a Cable Tec
Communications) for total cash proceeds of $1,039,285 subject to
various specified purchase adjustments, and an option to purchase
shares of Universe2U Inc., a Nevada corporation, being the sole
shareholder of the Company at the time of the acquisition.
d) On June 9, 2000, the Board of Directors approved a resolution to
convert $498,857 of advances from a shareholder into 100,000 common
shares.
e) On June 9, 2000, the Board of Directors authorized and approved a
private placement of 1,000,000 common shares at $5.00 and 1,000,000
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.
F-36
<PAGE>
Universe2U Inc.
(formerly Paxton Mining Corporation)
Unaudited Pro Forma Consolidated Financial Statements
March 31, 2000 and December 31, 1999
(expressed in U.S. dollars)
F-37
<PAGE>
Basis of Presentation
These unaudited pro forma financial statements give effect to the
acquisition by Universe2U Inc. ("Universe2U") of Bernie Tan Investments
Inc. ("Cable Tec") in a transaction to be accounted for as a purchase. The
unaudited pro forma consolidated statements of operations are based on the
individual historical statements of operations of Universe2U and Cable Tec
and combine the results of the operations for the period ended March 31,
2000 and the year ended December 31, 1999 as if the acquisition occurred
on January 1, 1999.
The unaudited pro forma consolidated statements of operations have been
prepared by management in accordance with generally accepted accounting
principles in the United States ("U.S. GAAP") and the pro forma
assumptions and adjustments described in notes 1 and 3 attached hereto.
The unaudited pro forma consolidated statements of operations for the
period ended March 31, 2000 and the year ended December 31, 1999 are based
on the unaudited historical combined financial statements of Paxton for
the period ended March 31, 2000, the unaudited historical combined
financial statements of Universe2U for the period ended March 31, 2000,
the audited historical combined financial statements of Universe2U for the
year ended December 31, 1999, the unaudited historical financial
statements of Cable Tec for the period ended March 31, 2000, and the
audited historical financial statements of Cable Tec for the year ended
December 31, 1999. All significant adjustments required in accordance with
U.S. GAAP have been reflected in these pro forma figures.
These unaudited pro forma consolidated financial statements are not
necessarily indicative of the results that actually would have resulted if
the transactions reflected herein had been completed on the dates
indicated or the results which may be obtained in the future. The
unaudited pro forma consolidated financial statements should be read in
conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations and the financial statements of
Paxton, Universe2U, and Cable Tec, including the respective notes thereto,
included elsewhere herein.
F-38
<PAGE>
<TABLE>
<CAPTION>
Universe2U Inc. (formerly Paxton Mining Corporation)
------------------------------------------------------------------------------------------------------------------
Unaudited Pro Forma Consolidated Statement of Operations
for the period ended March 31, 2000
(expressed in U.S. dollars)
------------------------------------------------------------------------------------------------------------------
Pro forma Pro forma
Universe2U Cable Tec Adjustments Consolidated
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 1,510,519 $ 244,839 $ - $ 1,755,358
------------------------------------------------------------------------------------------------- -------------
Cost of goods sold
Subcontracting 384,813 46,334 - 431,147
Wages and benefits 7,869 32,637 - 40,506
Materials 443,589 11,146 - 454,735
Equipment rental and maintenance 34,449 20,572 - 55,021
Amortization 12,607 10,863 - 23,470
------------------------------------------------------------------------------------------------- -------------
883,327 121,552 - 1,004,879
------------------------------------------------------------------------------------------------- -------------
Gross profit 627,192 123,287 - 750,479
------------------------------------------------------------------------------------------------- -------------
Expenses
Salaries and wages 180,264 - - 180,264
Professional fees 63,084 6,693 - 69,777
Consulting fees 108,585 - - 108,585
Management fees 44,652 - - 44,652
Interest and bank charges 19,324 557 - 19,881
Auto and travel 48,973 29,729 - 78,702
Rent and utilities 35,602 10,308 - 45,910
Advertising and promotion 13,369 14,082 - 27,451
Insurance 12,309 4,363 - 16,672
Telephone 21,170 - - 21,170
Office and general 38,503 1,946 - 40,449
Stock based compensation 4,670 - - 4,670
Employee benefits 10,882 - - 10,882
Repairs and maintenance 1,626 - - 1,626
Amortization of capital assets 17,038 - 30,914 3a 47,952
------------------------------------------------------------------------------------------------- -------------
620,051 67,678 30,914 718,643
------------------------------------------------------------------------------------------------- -------------
Income before provision for income taxes 7,141 55,609 (30,914) 31,836
Provision for income taxes 17,560 11,952 - 29,512
------------------------------------------------------------------------------------------------- -------------
Net income for the period $ (10,419) $ 43,657 $ (30,914) $ 2,324
================================================================================================= =============
Net income per share
Basic and fully diluted $ (0.00) $ 0.00
================================================================================================= =============
Weighted average number of shares outstanding
Basic and fully diluted 35,204,000 36,357,000
================================================================================================= =============
</TABLE>
Reference is made to the accompanying "Notes to Unaudited Pro Forma Financial
Statements".
F-39
<PAGE>
<TABLE>
<CAPTION>
Universe2U Inc. (formerly Paxton Mining Corporation)
------------------------------------------------------------------------------------------------------------------
Unaudited Pro Forma Consolidated Statement of Operations
for the year ended December 31, 1999
(expressed in U.S. dollars)
------------------------------------------------------------------------------------------------------------------
Pro forma Pro forma
Universe2U Cable Tec Adjustments Consolidated
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 1,614,496 $ 863,014 $ - $ 2,477,510
------------------------------------------------------------------------------------------------- -------------
Cost of goods sold
Subcontracting 353,554 232,442 - 585,996
Wages and benefits 296,217 205,940 - 502,157
Materials 287,481 45,145 - 332,626
Equipment rental and maintenance 80,148 78,074 - 158,222
Amortization 62,461 50,046 - 112,507
------------------------------------------------------------------------------------------------- -------------
1,079,861 611,647 - 1,691,508
------------------------------------------------------------------------------------------------- -------------
Gross profit 534,635 251,367 - 786,002
------------------------------------------------------------------------------------------------- -------------
Expenses
Salaries and wages 223,296 - - 223,296
Professional fees 113,677 17,059 - 130,736
Consulting fees 145,052 - - 145,052
Management fees 138,827 - - 138,827
Interest and bank charges 129,250 4,864 - 134,114
Auto and travel 71,000 40,617 - 111,617
Rent and utilities 64,419 36,170 - 100,589
Advertising and promotion 31,584 35,083 - 66,667
Insurance 21,395 16,705 - 38,100
Telephone 33,753 - - 33,753
Office and general 21,232 8,045 - 29,277
Stock based compensation 20,267 - - 20,267
Employee benefits 13,529 - - 13,529
Repairs and maintenance 2,764 - - 2,764
Loss on foreign exchange 749 - - 749
Bad debts - (10,191) - (10,191)
Amortization of capital assets 41,559 - 154,571 3a 196,130
------------------------------------------------------------------------------------------------- -------------
1,072,353 148,352 154,571 1,375,276
------------------------------------------------------------------------------------------------- -------------
Loss from continuing operations (537,718) 103,015 (154,571) (589,274)
Income from discontinued operations - 15,724 (15,724) 3a -
------------------------------------------------------------------------------------------------- -------------
Loss before provision for income taxes (537,718) 118,739 (170,295) (589,274)
Provision for income taxes (110,995) 31,020 - (79,975)
------------------------------------------------------------------------------------------------- -------------
Net loss for the year $ (426,723) $ 87,719$ (170,295) $ (509,299)
================================================================================================= =============
Net loss per share
Basic and fully diluted $ (0.01) $ (0.01)
================================================================================================= =============
Weighted average number of shares outstanding
Basic and fully diluted 35,204,000 36,357,000
================================================================================================= =============
</TABLE>
Reference is made to the accompanying "Notes to Unaudited Pro Forma Financial
Statements".
F-40
<PAGE>
Universe2U Inc. (formerly Paxton Mining Corporation)
--------------------------------------------------------------------------------
Notes to Unaudited Pro Forma Financial Statements
March 31, 2000
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
1. Nature and Purpose of Pro Forma Financial Information
--------------------------------------------------------------------------------
The pro forma consolidated statement of operations and deficit of the
Company for the period ended March 31, 2000 and the year ended December
31, 1999 assumes that the following transactions occurred on January 1,
1999:
(a) the Company's acquisition of Cable Tec
2. Significant Accounting Policies
--------------------------------------------------------------------------------
The significant accounting policies used in the preparation of the pro
forma consolidated balance sheet and statement of operations and deficit
include those disclosed in the financial statements of Paxton, Universe2U,
and Cable Tec.
3. Pro Forma Statement of Operations Assumptions and Adjustments for the
Period Ended March 31, 2000 and the Year Ended December 31, 1999
--------------------------------------------------------------------------------
(a) Acquisition of Cable Tec
The pro forma statements of operations have been prepared to
reflect the acquisition as if it occurred on January 1, 1999 and
the following adjustments and assumptions resulting from the
acquisition of Cable Tec:
- the elimination of the results of discontinued operations of
$15,429 for the year ended December 31, 1999
- the additional amortization of capital assets of $30,914 for the
period ended March 31, 2000 and $154,571 for the year ended
December 31, 1999
(b) Pro forma basic and fully diluted loss per share
The weighted average number of shares used to compute pro forma
basic and fully diluted loss per share is determined as follows:
--------------------------------------------------------------------------------
Weighted average number of shares used to compute historical
basic and fully diluted loss per share 5,510,200
Shares tendered for cancellation (4,000,000)
Acquisition of Universe2U 250,000
Stock dividend 33,443,800
--------------------------------------------------------------------------------
Weighted average number of shares after giving effect to the
recapitalization of Universe2U 35,204,000
Conversion of debenture 833,000
Conversion of shareholder advances 100,000
Private placement 220,000
--------------------------------------------------------------------------------
36,357,000
================================================================================
F-41
<PAGE>
Bernie Tan Investments Inc. o/a CableTec
Unaudited Financial Statements
March 31, 2000
(expressed in U.S. dollars)
F-42
<PAGE>
MOORE STEPHENS COOPER MOLYNEUX LLP
CHARTERED ACCOUNTANTS
8th Floor, 701 Evans Avenue Telephone: (416) 626-6000
Toronto, Ontario Facsimile: (416) 626-8650
Canada M9C 1A3 E-mail: [email protected]
Review Engagement Report
To the Shareholders of
Bernie Tan Investments Inc. o/a CableTec
We have reviewed the interim balance sheet of Bernie Tan Investments Inc. o/a
Cable Tec as at March 31, 2000 and the interim statements of operations and
retained earnings and cash flows for the three month period then ended. Our
review was made in accordance with generally accepted standards for review
engagements and accordingly consisted primarily of enquiry, analytical
procedures and discussion related to information supplied to us by the Company.
A review does not constitute an audit and consequently we do not express an
audit opinion on these financial statements.
Based on our review nothing has come to our attention that causes us to believe
that these financial statements are not, in all material respects, in accordance
with generally accepted accounting principles in the United States.
Signed: "Moore Stephens Cooper Molyneux LLP"
Chartered Accountants
Toronto, Ontario
April 20, 2000
F-43
<PAGE>
Bernie Tan Investments Inc. o/a CableTec
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unaudited Balance Sheet
March 31, 2000
(expressed in U.S. dollars)
------------------------------------------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 25,802 $ 187,905
Accounts receivable 182,613 111,810
Note receivable (note 2) 89,692 -
Prepaid expenses 977 2,537
Inventory - 70,724
Due from employees (note 2) 84,097 -
--------------------------------------------------------------------------------------------- ---------------
383,181 372,976
Capital assets (note 3) 168,975 147,778
Incorporation costs - 643
--------------------------------------------------------------------------------------------- ---------------
$ 552,156 $ 521,397
============================================================================================= ===============
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 53,411 $ 144,614
Income taxes payable 70,150 32,554
Due to related parties - 28,090
Current portion of vehicle loan (note 4) 5,433 5,130
--------------------------------------------------------------------------------------------- ---------------
128,994 210,388
Vehicle loan payable (note 4) 9,759 13,767
--------------------------------------------------------------------------------------------- ---------------
138,753 224,155
--------------------------------------------------------------------------------------------- ---------------
Commitments and contingencies (note 7) - -
--------------------------------------------------------------------------------------------- ---------------
Shareholders' equity
Share capital
Authorized: Unlimited number of Common shares
Issued and outstanding: 120 Common shares 1 1
Accumulated other comprehensive income (178) (13,448)
Retained earnings 413,580 310,689
--------------------------------------------------------------------------------------------- ---------------
413,403 297,242
--------------------------------------------------------------------------------------------- ---------------
$ 552,156 $ 521,397
============================================================================================= ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Approved on behalf of the Board
------------------------------------
Bernard Tanunagara
F-44
<PAGE>
Bernie Tan Investments Inc. o/a CableTec
--------------------------------------------------------------------------------
Unaudited Statement of Retained Earnings
for the three month period ended March 31, 2000
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
2000 1999
---------------------------------------------------------- ----------------
Retained earnings, beginning of period $ 369,923 $ 282,204
Net income for the period 43,657 28,485
---------------------------------------------------------- ----------------
Retained earnings, end of period $ 413,580 $ 310,689
========================================================== ================
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE>
Bernie Tan Investments Inc. o/a CableTec
--------------------------------------------------------------------------------
Unaudited Statement of Operations
for the three month period ended March 31, 2000
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
Sales $ 244,839 $ 107,368
--------------------------------------------------------------------------------------------- ---------------
Cost of goods sold
Subcontracting 46,334 28,334
Wages and benefits 32,637 31,475
Equipment rental and maintenance 20,572 6,662
Materials 11,146 12,363
Amortization 10,863 7,842
--------------------------------------------------------------------------------------------- ---------------
121,552 86,676
--------------------------------------------------------------------------------------------- ---------------
Gross profit 123,287 20,692
--------------------------------------------------------------------------------------------- ---------------
Expenses
Vehicles and travel 29,729 11,998
Advertising and promotion 14,082 9,824
Rent and realty taxes 10,308 7,548
Professional fees 6,693 -
Insurance 4,363 5,255
Office and general 1,946 1,895
Bank charges and interest 557 -
--------------------------------------------------------------------------------------------- ---------------
67,678 36,520
--------------------------------------------------------------------------------------------- ---------------
Income from continuing operations 55,609 (15,828)
Income from discontinued operations (note 6) - 40,891
--------------------------------------------------------------------------------------------- ---------------
Income before provision for income taxes 55,609 25,063
Provision for income taxes 11,952 (3,422)
--------------------------------------------------------------------------------------------- ---------------
Net income for the period $ 43,657 $ 28,485
============================================================================================= ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE>
Bernie Tan Investments Inc. o/a CableTec
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unaudited Statement of Cash Flows
for the three month period ended March 31, 2000
(expressed in U.S. dollars)
------------------------------------------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
Cash flow from operating activities
Net income for the period $ 43,657 $ 28,485
Items not affecting cash
Amortization 10,863 7,842
--------------------------------------------------------------------------------------------- ---------------
54,520 36,327
Other sources (uses) of cash from operations
(Increase) decrease in accounts receivable (71,885) 30,177
Decrease (increase) in inventory 12,339 (55,403)
Decrease in accounts payable and accrued liabilities (62,929) (33,460)
Increase in income taxes payable 11,738 6,870
--------------------------------------------------------------------------------------------- ---------------
(56,217) (15,489)
--------------------------------------------------------------------------------------------- ---------------
Cash flow from investing activities
Purchase of capital assets (16,185) -
--------------------------------------------------------------------------------------------- ---------------
Cash flow from financing activities
Repayments on long-term debt (1,412) (1,335)
(Increase) decrease in due from employee (42,490) 277
--------------------------------------------------------------------------------------------- ---------------
(43,902) (1,058)
--------------------------------------------------------------------------------------------- ---------------
Effect of exchange rate changes on cash (331) 2,221
--------------------------------------------------------------------------------------------- ---------------
Decrease in cash (116,635) (14,326)
Cash and cash equivalents, beginning of period 142,437 202,231
--------------------------------------------------------------------------------------------- ---------------
Cash and cash equivalents, end of period $ 25,802 $ 187,905
============================================================================================= ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
Bernie Tan Investments Inc. o/a CableTec
--------------------------------------------------------------------------------
Notes to Unaudited Financial Statements
March 31, 2000
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
1. Significant Accounting Policies
--------------------------------------------------------------------------------
Unaudited interim statements
The financial statements as of March 31, 2000 and for the three months
ended March 31, 2000 are unaudited, however, 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. The results for the interim period ended March 31, 2000 are
not necessarily indicative of the results to be obtained for a full fiscal
year.
Cash and cash equivalents
Cash and cash equivalents consist of cash on deposit and highly liquid
short-term interest bearing securities with maturity at the date of
purchase of three months or less.
Capital assets
Capital assets are recorded at cost. Amortization is provided over the
assets' estimated useful lives at the following rates:
Tools and equipment - 20 % declining balance
Vehicles and trucks - 30 % declining balance
Revenue recognition
Revenue for services provided is recognized in the period the services are
performed based on the costs incurred.
Foreign exchange
The Company's 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, and 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 operations are
included in shareholders' equity until realized.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair value
The carrying amount of accounts receivable, bank loans, accounts payable
accrued liabilities approximates their fair value because of the
short-term maturities of these items. The fair value of the note
receivable from a related company is not determinable, as this amount is
due on demand without interest, and, accordingly, cannot be ascertained
with reference to similar debt with non-related parties.
F-48
<PAGE>
Bernie Tan Investments Inc. o/a CableTec
--------------------------------------------------------------------------------
Notes to Unaudited Financial Statements
March 31, 2000
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
1. Significant Accounting Policies - continued
--------------------------------------------------------------------------------
Future income taxes
The Company adopted the asset/liability method of accounting for future
income taxes in fiscal 1999 whereby future income tax liabilities are
determined by applying the tax rate at the end of the fiscal year to
temporary differences between the accounting and tax bases of the assets
and the liabilities of the Company. The future income tax liability
results from differences between the tax base and carrying values of
capital and other assets, differences in the accounting and tax treatment
of certain costs.
2. Related Party Transactions
--------------------------------------------------------------------------------
During the prior year, the Company sold the net assets of its cellular
division to 1375270 Ontario Limited, a corporation controlled by the
shareholders of the Company. The purchase price was satisfied by the
assumption of liabilities related to the cellular division and a note
receivable of $89,692 which is non-interest bearing, unsecured, and
repayable by May 31, 2000. The sale resulted in a gain on disposal of
$18,476.
Amounts due to and from shareholders are non-interest bearing with no
fixed repayment terms.
<TABLE>
<CAPTION>
3. Capital Assets
------------------------------------------------------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------------------------------- ---------------
Accumulated Net Book Net Book
Cost Amortization Value Value
---------------------------------------------------------------------------------------------- ---------------
<S> <C> <C> <C> <C>
Furniture and fixtures $ - $ - $ - $ 2,861
Computers - - - 3,772
Tools and equipment 178,183 95,745 82,438 64,028
Vehicles and trucks 203,005 116,468 86,537 76,101
Leasehold improvements - - - 1,016
---------------------------------------------------------------------------------------------- ---------------
$ 381,188 $ 212,213 $ 168,975 $ 147,778
============================================================================================== ===============
</TABLE>
F-49
<PAGE>
Bernie Tan Investments Inc. o/a CableTec
--------------------------------------------------------------------------------
Notes to Unaudited Financial Statements
March 31, 2000
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
4. Vehicle Loan
------------------------------------------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
The loan is secured by the vehicle, bears interest at 1.9% per annum,
is repayable at $473 monthly principal and interest and matures
November 2002.
$ 15,192 $ 18,896
Less: Current portion 5,433 5,130
--------------------------------------------------------------------------------------------- ---------------
$ 9,759 $ 13,766
============================================================================================= ===============
Principal payments on long-term debt are as follows:
2001 $ 5,433
2002 5,537
2003 4,222
---------------------------------------------------------------------------------------------
$ 15,192
=============================================================================================
5. Interest and Income Taxes Paid
------------------------------------------------------------------------------------------------------------------
During the year, the Company had cash flows arising from interest and income taxes paid as follows:
------------------------------------------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------------------- ---------------
Interest paid $ 557 $ 1,382
Income taxes paid $ - $ 1,417
============================================================================================= ===============
</TABLE>
F-50
<PAGE>
Bernie Tan Investments Inc. o/a CableTec
--------------------------------------------------------------------------------
Notes to Unaudited Financial Statements
March 31, 2000
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
6. Discontinued Operations
------------------------------------------------------------------------------------------------------------------
On November 30, 1999 the Corporation completed an agreement with 1375270 Ontario Limited, a related
corporation, to sell the net assets of its cellular division. The sale closed on November 30, 1999.
Accordingly, the cellular operations have been treated as discontinued operations in the 1999 financial
statements.
The operating results of discontinued operations are as follows:
------------------------------------------------------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
Sales $ - $ 117,990
Cost of sales - 40,564
---------------------------------------------------------------------------------------------- ---------------
Gross profit - 77,426
---------------------------------------------------------------------------------------------- ---------------
Expenses
Operating expenses - 23,471
Interest expense - 1,382
Amortization - 402
---------------------------------------------------------------------------------------------- ---------------
- 25,255
---------------------------------------------------------------------------------------------- ---------------
Income before provision for income taxes - 52,171
Provision for income taxes - 11,280
---------------------------------------------------------------------------------------------- ---------------
Net income from discontinued operations $ - $ 40,891
============================================================================================== ===============
7. Commitments and Contingencies
------------------------------------------------------------------------------------------------------------------
At March 31, 2000, the Company's total obligation, under an operating lease for equipment is as follows:
2000 $ 36,289
2001 48,386
2002 28,225
---------------------------------------------------------------------------------------------
$ 112,900
=============================================================================================
</TABLE>
8. Subsequent Event
--------------------------------------------------------------------------------
Subsequent to the period end, 100% of the issued and outstanding shares of
the Company were acquired by Universe2U Inc., a Canadian subsidiary of
Universe2U Inc., a publicly traded Nevada Corporation.
F-51
<PAGE>
Bernie Tan Investments Inc. o/a CableTec
Financial Statements
December 31, 1999
(expressed in U.S. dollars)
F-52
<PAGE>
MOORE STEPHENS COOPER MOLYNEUX LLP
CHARTERED ACCOUNTANTS
8th Floor, 701 Evans Avenue Telephone: (416) 626-6000
Toronto, Ontario Facsimile: (416) 626-8650
Canada M9C 1A3 E-mail: [email protected]
Auditors' Report
To the Shareholders of
Bernie Tan Investments Inc. o/a CableTec
We have audited the balance sheet of Bernie Tan Investments Inc. o/a Cable Tec
as at December 31, 1999 and the statements of operations and retained earnings
and cash flows for the years ended December 31, 1999 and 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with 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 financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1999, and the
results of its operations and cash flows for the years ended December 31, 1999
and 1998 in accordance with generally accepted accounting principles in the
United States.
Signed: "Moore Stephens Cooper Molyneux LLP"
Chartered Accountants
Toronto, Ontario
February 24, 2000
F-53
<PAGE>
Bernie Tan Investments Inc. o/a CableTec
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Balance Sheet
December 31, 1999
(expressed in U.S. dollars)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Assets
Current assets
Cash $ 142,437
Accounts receivable 110,728
Note receivable (note 2) 90,071
Prepaid expenses 981
Inventory 12,339
Due from shareholder (note 2) 41,607
------------------------------------------------------------------------------------------------------------ ---------------
398,163
Capital assets (note 3) 164,377
------------------------------------------------------------------------------------------------------------ ---------------
$ 562,540
============================================================================================================ ===============
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 116,340
Income taxes payable 58,412
Current portion of vehicle loan (note 4) 5,430
------------------------------------------------------------------------------------------------------------ ---------------
180,182
Vehicle loan payable (note 4) 11,174
------------------------------------------------------------------------------------------------------------ ---------------
191,356
------------------------------------------------------------------------------------------------------------ ---------------
Commitments and contingencies (note 7) -
------------------------------------------------------------------------------------------------------------ ---------------
Shareholders' equity
Share capital
Authorized: Unlimited number of Common shares
Issued and outstanding: 120 Common shares 1
Accumulated other comprehensive income 1,260
Retained earnings 369,923
------------------------------------------------------------------------------------------------------------ ---------------
371,184
------------------------------------------------------------------------------------------------------------ ---------------
$ 562,540
============================================================================================================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Approved on behalf of the Board
----------------------------------------
Bernard Tanunagara
F-54
<PAGE>
Bernie Tan Investments Inc. o/a CableTec
--------------------------------------------------------------------------------
Statement of Retained Earnings
for the years ended December 31, 1999 and 1998
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
Retained earnings, beginning of years $ 282,204 $ 249,804
Net income for the years 87,719 32,400
-------------------------------------------------------------------------------------------------------------- ---------------
Retained earnings, end of years $ 369,923 $ 282,204
============================================================================================================== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-55
<PAGE>
Bernie Tan Investments Inc. o/a CableTec
--------------------------------------------------------------------------------
Statement of Operations
for the years ended December 31, 1999 and 1998
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
Sales $ 863,014 $ 674,437
-------------------------------------------------------------------------------------------------------------- ---------------
Cost of goods sold
Subcontracting 232,442 146,302
Wages and benefits 205,940 140,392
Equipment rental and maintenance 78,074 72,572
Materials 45,145 54,213
Amortization 50,046 39,315
-------------------------------------------------------------------------------------------------------------- ---------------
611,647 452,794
-------------------------------------------------------------------------------------------------------------- ---------------
Gross profit 251,367 221,643
-------------------------------------------------------------------------------------------------------------- ---------------
Expenses
Professional fees 17,059 2,646
Vehicles and travel 40,617 37,089
Rent and realty taxes 36,170 34,286
Advertising and promotion 35,083 24,371
Insurance 16,705 5,907
Office and general 8,045 5,956
Bank charges and interest 4,864 8,631
Bad debt expense (10,191) 22,010
-------------------------------------------------------------------------------------------------------------- ---------------
148,352 140,896
-------------------------------------------------------------------------------------------------------------- ---------------
Income from continuing operations 103,015 80,747
Income from discontinued operations (note 6) 15,724 (27,464)
-------------------------------------------------------------------------------------------------------------- ---------------
Income before provision for income taxes 118,739 53,283
Provision for income taxes 31,020 20,883
-------------------------------------------------------------------------------------------------------------- ---------------
Net income for the years $ 87,719 $ 32,400
============================================================================================================== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-56
<PAGE>
Bernie Tan Investments Inc. o/a CableTec
-------------------------------------------------------------------------------
Statement of Cash Flows
for the years ended December 31, 1999 and 1998
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
Cash flow from operating activities
Net income for the years $ 87,719 $ 32,400
Items not affecting cash
Amortization 50,046 39,315
Gain on disposal of capital assets (18,476) -
-------------------------------------------------------------------------------------------------------------- ---------------
119,289 71,715
Other sources (uses) of cash from operations
Decrease in accounts receivable 31,258 79,639
Decrease (increase) in prepaid expenses 1,515 (248)
Decrease in inventory 2,981 24,029
(Decrease) increase in accounts payable and accrued liabilities (61,737) 41,671
Increase (decrease) in income taxes payable 32,728 (57,896)
-------------------------------------------------------------------------------------------------------------- ---------------
126,034 158,910
-------------------------------------------------------------------------------------------------------------- ---------------
Cash flow from investing activities
Purchase of capital assets (60,536) (65,617)
Proceeds on disposal of capital assets 27,436 -
-------------------------------------------------------------------------------------------------------------- ---------------
(33,100) (65,617)
-------------------------------------------------------------------------------------------------------------- ---------------
Cash flow from financing activities
(Repayments) proceeds on long-term debt (3,626) 20,232
Increase in note receivable (90,071) -
Increase in due from employee (69,420) (3,274)
-------------------------------------------------------------------------------------------------------------- ---------------
(163,117) 16,958
-------------------------------------------------------------------------------------------------------------- ---------------
Effect of exchange rate differences 10,389 (5,414)
-------------------------------------------------------------------------------------------------------------- ---------------
(Decrease) increase in cash (59,794) 104,837
Cash, beginning of years 202,231 97,394
-------------------------------------------------------------------------------------------------------------- ---------------
Cash, end of years $ 142,437 $ 202,231
-------------------------------------------------------------------------------------------------------------- ---------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-57
<PAGE>
Bernie Tan Investments Inc. o/a CableTec
--------------------------------------------------------------------------------
Notes to Financial Statements
December 31, 1999
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
1. Significant Accounting Policies
--------------------------------------------------------------------------------
Cash and cash equivalents
Cash and cash equivalents consist of cash on deposit and highly liquid
short-term interest bearing securities with maturity at the date of
purchase of three months or less.
Inventory
Raw materials are valued at the lower of cost and replacement cost.
Finished goods are valued at the lower of cost and net realizable value.
Cost is determined on the first-in, first-out basis.
Capital assets
Capital assets are recorded at cost. Amortization is provided over the
assets' estimated useful lives at the following rates:
Furniture and fixtures - 20 % declining balance
Computers - 30 % declining balance
Tools and equipment - 20 % declining balance
Vehicles and trucks - 30 % declining balance
Leasehold improvements - 5 year straight line
Revenue recognition
Revenue for services provided is recognized in the period the services are
performed based on the costs incurred.
Foreign exchange
The Company's 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 year end rate of
exchange, and revenue and expenses of such operations are translated using
the average rate of exchange for the year. The related foreign exchange
gains and losses arising on translation of the Company's operations are
included in shareholders' equity until realized.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair value
The carrying amount of accounts receivable, bank loans, accounts payable
accrued liabilities approximates their fair value because of the
short-term maturities of these items. The fair value of the note
receivable from a related company is not determinable, as this amount is
due on demand without interest, and, accordingly, cannot be ascertained
with reference to similar debt with non-related parties.
F-58
<PAGE>
Bernie Tan Investments Inc. o/a CableTec
--------------------------------------------------------------------------------
Notes to Financial Statements
December 31, 1999
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
1. Significant Accounting Policies - continued
--------------------------------------------------------------------------------
Future income taxes
The Company adopted the asset/liability method of accounting for future
income taxes in fiscal 1999, whereby future income tax liabilities are
determined by applying the tax rate at the end of the fiscal year to
temporary differences between the accounting and tax bases of the assets
and the liabilities of the Company. The future income tax liability
results from differences between the tax base and carrying values of
capital and other assets, differences in the accounting and tax treatment
of certain costs.
2. Related Party Transactions
--------------------------------------------------------------------------------
During the year, the Company sold the net assets of its cellular division
to 1375270 Ontario Limited, a corporation controlled by the shareholders
of the Company. The purchase price was satisfied by a note receivable of
$90,071 which is non-interest bearing, unsecured, and repayable by May 31,
2000. The sale resulted in a gain on disposal of $18,476 (see note 6).
Amounts due to shareholders are non-interest bearing with no fixed
repayment terms.
<TABLE>
<CAPTION>
3. Capital Assets
-----------------------------------------------------------------------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------------------------------------------------- ---------------
Accumulated Net Book Net Book
Cost Amortization Value Value
--------------------------------------------------------------------------------------------------------------- ---------------
<S> <C> <C> <C> <C>
Furniture and fixtures $ - $ - $ - $ 2,964
Computers - - - 3,907
Tools and equipment 172,598 91,854 80,744 66,789
Vehicles and trucks 193,948 110,315 83,633 78,821
Leasehold improvements - - - 1,052
--------------------------------------------------------------------------------------------------------------- ---------------
$ 366,546 $ 202,169 $ 164,377 $ 153,533
=============================================================================================================== ===============
4. Vehicle Loan
-----------------------------------------------------------------------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------------------------------------------------- ---------------
The loan is secured by the vehicle, bears interest at 1.9% per annum, is
repayable at $475 monthly principal and interest and matures November
2002.
$ 16,604 $ 20,231
Less: Current portion 5,430 5,023
--------------------------------------------------------------------------------------------------------------- ---------------
$ 11,174 $ 15,208
=============================================================================================================== ===============
</TABLE>
F-59
<PAGE>
Bernie Tan Investments Inc. o/a CableTec
--------------------------------------------------------------------------------
Notes to Financial Statements
December 31, 1999
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
4. Vehicle Loan - continued
--------------------------------------------------------------------------------
Principal payments on long-term debt are as follows:
2000 $ 5,430
2001 5,534
2002 5,640
-------------------------------------------------------------------------------
$ 16,604
5. Interest and Income Taxes Paid
-------------------------------------------------------------------------------
During the year, the Company had cash flows arising from interest and
income taxes paid as follows:
-------------------------------------------------------------------------------
1999 1998
---------------------------------------------------------- ---------------
Interest paid $ 4,991 $ 9,056
Income taxes paid $ 6,843 $ 71,158
========================================================== ===============
6. Discontinued Operations
--------------------------------------------------------------------------------
On November 30, 1999, the Company completed an agreement with 1375270
Ontario Limited, a related corporation, to sell the net assets of its
cellular division. The sale closed on November 30, 1999. Accordingly, the
cellular operations have been treated as discontinued operations in the
1999 financial statements and the comparative balances for 1998 have been
restated.
The operating results of discontinued operations are as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
Sales $ 441,515 $ 508,752
Gain on sale of assets 18,476 -
-------------------------------------------------------------------------------------------------------------- ---------------
459,991 508,752
Cost of sales 368,185 461,778
-------------------------------------------------------------------------------------------------------------- ---------------
Gross profit 91,806 46,974
-------------------------------------------------------------------------------------------------------------- ---------------
Expenses
Operating expenses 65,264 75,449
Interest expense 4,759 4,986
Amortization - 3,584
-------------------------------------------------------------------------------------------------------------- ---------------
70,023 84,019
-------------------------------------------------------------------------------------------------------------- ---------------
Income before provision for income taxes 21,783 (37,045)
-------------------------------------------------------------------------------------------------------------- ---------------
Provision for income taxes 6,059 (9,581)
-------------------------------------------------------------------------------------------------------------- ---------------
Net income (loss) from discontinued operations $ 15,724 $ (27,464)
-------------------------------------------------------------------------------------------------------------- ---------------
</TABLE>
F-60
<PAGE>
Bernie Tan Investments Inc. o/a CableTec
--------------------------------------------------------------------------------
Notes to Financial Statements
December 31, 1999
(expressed in U.S. dollars)
--------------------------------------------------------------------------------
7. Commitments and Contingencies
--------------------------------------------------------------------------------
At December 31, 1999, the Company's total obligation, under an operating
lease for equipment is as follows:
2000 $ 48,591
2001 48,591
2002 28,345
--------------------------------------------------------------------------------
$ 125,527
================================================================================
8. Subsequent Events
--------------------------------------------------------------------------------
Subsequent to the year end, 100% of the issued and outstanding shares of
the Company were acquired by Universe2U Inc., a Canadian subsidiary of
Universe2U Inc., a publicly traded Nevada Corporation.
F-61
<PAGE>
Prospective investors may rely only on the information contained in this
prospectus. Universe2U Inc. has not authorized anyone to provide prospective
investors with different or additional information. This prospectus is not an
offer to sell nor is it seeking an offer to buy these securities in any
jurisdiction where such offer or sale is not permitted. The information
contained in this prospectus is correct only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or any sale of these
securities.
----------------
Until ____________________, 2000 (25 days after the date of this prospectus),
all dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
[Logo of Universe2U]
1,273,000 shares
Common Stock
--------------
PROSPECTUS
--------------
September 15, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses payable by us in
connection with the offering (excluding underwriting discounts and commissions):
Nature of Expense Amount
----------------- ----------
SEC Registration Fee............................................. $2,459
Accounting Fees and Expenses..................................... 40,000
Legal Fees and Expenses.......................................... 75,000
Director and Officer Insurance Expenses.......................... 22,000
Blue Sky Qualification Fees and Expenses......................... 7,000
Miscellaneous.................................................... 30,000
------
TOTAL.......................................................... $176,459
==========
The amounts set forth above, except for the Securities and Exchange Commission
fee, are in each case estimated.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
In accordance with Section 78.037 of the Nevada Revised Statutes ("NRS"),
Article IX of our by-laws provides that no director or officer of Universe2U be
personally liable to Universe2U or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability for (1) acts or
omissions which involve intentional misconduct, fraud or a knowing violation of
law; or (2) the payment of distributions in violation of NRS Section 78.300,
which provides that (a) the directors of a corporation shall not make
distributions to stockholders except as provided by this chapter; and (b) in
case of any willful or grossly negligent violation of the provisions of this
section, the directors under whose administration the violation occurred,
excepting dissenters to those acts, are jointly and severally liable, at any
time within three (3) years after each violation, to the corporation, and, in
the event of its dissolution or insolvency, to its creditors at the time of the
violation, or any of them, to the lesser of the full amount of the distribution
made or of any loss sustained by the corporation by reason of the distribution
to stockholders. In addition, our amended and restated certificate of
incorporation provides that if the Nevada Revised Statutes are amended to
authorize the further elimination or limitation of the liability of directors
and officers, then the liability of a director and/or officer of the corporation
shall be eliminated or limited to the fullest extent permitted by the Nevada
Revised Statutes, as so amended.
Article IX of our amended and restated by-laws provides for indemnification by
Universe2U of its officers and certain non-officer employees under certain
circumstances against expenses, including attorneys fees, judgments, fines and
amounts paid in settlement, reasonably incurred in connection with the defense
or settlement of any threatened, pending or completed legal proceeding in which
any
II-1
<PAGE>
such person is involved by reason of the fact that such person is or was an
officer or employee of Universe2U if such person acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of Universe2U, and, with respect to criminal actions or proceedings,
if such person had no reasonable cause to believe his or her conduct was
unlawful.
We have also entered into indemnification agreements with each of our directors
and certain of our executive officers. These agreements provide that we
indemnify each of our directors and such officers to the fullest extent
permitted under law and our by-laws, and provide for the advancement of expenses
to each director and each such officer. We have also obtained directors and
officers insurance against certain liabilities.
RECENT SALES OF UNREGISTERED SECURITIES
Universe2U Inc. has sold or issued the following securities that were not
registered under the Securities Act of 1933, as amended (the "Securities Act").
No underwriters were used in connection with these sales and issuances.
On May 17, 2000, the company issued an aggregate of 5,000,000 shares of common
stock to Angelo Boujos, Josie Boujos, Andrew Eyres and William McGill (the
"Principals") in connection with the acquisition of Universe2U Inc. (Ontario).
None of such shares are registered for sale hereunder. See, "Certain
Relationships and Related Transactions" and "Principal Stockholders."
On May 26 and May 27, an Ontario, Canada subsidiary of the company issued an
aggregate of 833,000 shares of exchangeable securities. Such securities are
exchangeable at any time on a one-for-one basis for shares of company common
stock without payment of further consideration. The exchangeable securities were
issued in connection with the conversion of debentures held by thirteen Non-U.S.
investors. Such issuance was made under Regulation S of the Securities Act. Such
debentures had been issued by Universe2U Inc. (Ontario) prior to its acquisition
by the company.
In June, August and September 2000, the company sold to Non-U.S. investors as
part of a private placement offering under Regulation S of the Securities Act
400,000 shares of common stock at a purchase price of $5.00 per share and
warrants exercisable for the purchase of 420,000 shares of common stock at an
exercise price of $5.00 per share.
In June 2000, the company issued 20,000 shares of common stock to one accredited
U.S. investor under Section 4(2) of the Securities Act.
On June 9, 2000 the company issued to Mr. Angelo Boujos, Chairman of the
company, 100,000 shares of common stock in exchange for the conversion of
approximately $429,000 of indebtedness of the company to Mr. Boujos. The company
relied upon Section 4(2) of the securities act with respect to the issuance of
the foregoing shares. None of such shares are registered hereunder.
II-2
<PAGE>
EXHIBITS
(a) Exhibits: Incorporated herein by reference to the List of Exhibits
following the signature pages hereto.
------------
UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (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 such indemnification is against public policy
as expressed in the 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 proceeding) 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 Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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.
For purposes of registration of securities under Rule 415 promulgated under the
Securities Act, the undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(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 in the
registration statement. 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
II-3
<PAGE>
the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the
low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) promulgated under the Securities Act if, in the
aggregate, the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(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.
(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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Amendment No. 3 to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the Town of
Richmond Hill, Ontario, on September 15, 2000.
UNIVERSE2U INC.
By: /s/ Kim Allen
------------------------------------
Kim Allen
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 3
to this Registration Statement has been signed below by the following persons in
the Town of Richmond Hill, Ontario, on September 15, 2000.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
/s/ Angelo Boujos Chairman September 15, 2000
------------------------------------
Angelo Boujos
/s/ Kim Allen Chief Executive
------------------------------------ Officer, Director September 15, 2000
Kim Allen
/s/ R. John Slattery Executive Vice President,
------------------------------------ Finance and Chief
R. John Slattery Financial Officer September 15, 2000
/s/ Paul Pathak Director September 15, 2000
------------------------------------
Paul Pathak
/s/ Connie Colangelo Director September 15, 2000
------------------------------------
Connie Colangelo
/s/ Barry W. Herman Director September 15, 2000
------------------------------------
Barry W. Herman
Director September 15, 2000
------------------------------------
Anthony Palumbo
Director September 15, 2000
------------------------------------
Michael Serotte
</TABLE>
II-5
<PAGE>
EXHIBITS LIST
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 herein by reference thereto.
3.1(b) Certificate of Amendment of Articles of Incorporation, as filed with
the Commission as Exhibit 3.1(b) to the company's Form 10-QSB filed on
August 21, 2000, is incorporated herein by reference thereto.
3.2 By-laws, as filed with the Commission as Exhibit 3.2 to the company's
Form 10-QSB filed on August 21, 2000, is incorporated herein by
reference thereto.
4.1 Specimen Stock Certificate, as filed with the Commission as Exhibit
4.1 to the company's Form 10-QSB filed on August 21, 2000, is
incorporated herein by reference thereto.
5(1) Opinion of Wuersch & Gering, LLP.
10.1 Share Purchase Agreement dated January 25, 2000, between 1348485
Ontario Inc. and Bernie Tan Investments Inc. o/a CableTec
Communications and Bernard Tanunagara and Barbara Tanunagara and
Edward Tanunagara, as filed with the Commission as Exhibit 10.1 to the
company's Form 10-QSB filed on August 21, 2000, is incorporated herein
by reference thereto.
10.2 Amending Agreement dated March 1, 2000, between Universe2U Inc.
(formerly 1348485 Ontario Inc.), Bernie Tan Investments Inc. o/a
CableTec Communications, Bernard Kris Tanunagara, Barbara J.
Tanunagara and Edward Tanunagara, as filed with the Commission as
Exhibit 10.2 to the company's Form 10-QSB filed on August 21, 2000, is
incorporated herein by reference thereto.
10.3 Second Amending Agreement dated May 31, 2000, between Universe2U Inc.
(formerly 1348485 Ontario Inc.), Bernie Tan Investments Inc. o/a
CableTec Communications, Bernard Kris Tanunagara, Barbara J.
Tanunagara and Edward Tanunagara, as filed with the Commission as
Exhibit 10.3 to the company's Form 10-QSB filed on August 21, 2000, is
incorporated herein by reference thereto.
10.4 Share Option Agreement dated May 31, 2000 between Universe2U Inc., and
Bernard Kris Tanunagara, as filed with the Commission as Exhibit 10.4
to the company's Form 10-QSB filed on August 21, 2000, is incorporated
herein by reference thereto.
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, as filed with
the Commission as Exhibit 10.5 to the company's Form 10-QSB filed on
August 21, 2000, is incorporated herein by reference thereto.
10.6 Indemnification Agreement between Universe2U Inc. and Indemnitee, as
filed with the Commission as Exhibit 10.6 to the company's Form 10-QSB
filed on August 21, 2000, is incorporated herein by reference thereto.
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<PAGE>
10.7 Executive Employment Agreement dated November 24, 1999 between 1348485
Ontario Inc. and Kim Allen,, as filed with the Commission as Exhibit
10.7 to the company's Form 10-QSB filed on August 21, 2000, is
incorporated herein by reference thereto.
10.8 Executive Employment Agreement dated December 22, 1999 between
Universe2U Inc. and Angelo Boujos, as filed with the Commission as
Exhibit 10.8 to the company's Form 10-QSB filed on August 21, 2000, is
incorporated herein by reference thereto.
10.9 Executive Employment Agreement dated December 21, 1999 between
Canadian Cable Consultants Inc. and William McGill, as filed with the
Commission as Exhibit 10.9 to the company's Form 10-QSB filed on
August 21, 2000, is incorporated herein by reference thereto.
10.10 Executive Employment Agreement dated June 1, 2000 between Universe2U
Inc. and Andrew Eyres, as filed with the Commission as Exhibit 10.10
to the company's Form 10-QSB filed on August 21, 2000, is incorporated
herein by reference thereto.
10.11 Executive Employment Agreement dated April 19, 2000, between Fiber
Optic Corporation of Canada and Jeff Rosenthal, as filed with the
Commission as Exhibit 10.11 to the company's Form 10-QSB filed on
August 21, 2000, is incorporated herein by reference thereto.
10.12 Employment Agreement dated May 31, 2000 between CableTec and Bernard
Tanunagara, as filed with the Commission as Exhibit 10.12 to the
company's Form 10-QSB filed on August 21, 2000, is incorporated herein
by reference thereto.
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, as filed with
the Commission as Exhibit 10.13 to the company's Form 10-QSB filed on
August 21, 2000, is incorporated herein by reference thereto.
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, as filed with the Commission as
Exhibit 10.14 to the company's Form 10-QSB filed on August 21, 2000,
is incorporated herein by reference thereto.
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 Eyres, as filed with the Commission as Exhibit 10.15
to the company's Form 10-QSB filed on August 21, 2000, is incorporated
herein by reference thereto.
10.16 Engagement Letter Agreement dated July 17, 2000 between Universe2U
Inc., and First Union Asset Management, as filed with the Commission
as Exhibit 10.16 to the company's Form 10-QSB filed on August 21,
2000, is incorporated herein by reference thereto.
10.17 Waiver and Release dated May 17, 2000 between Universe2U Inc., and
First Union Asset Management, as filed with the Commission as Exhibit
10.17 to the
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<PAGE>
company's Form 10-QSB filed on August 21, 2000, is incorporated herein
by reference thereto.
23(1) Consent of Moore Stephens Cooper Molyneux LLP.
23(2) Consent of Wuersch & Gering, LLP (see Exhibit 5(1)).
II-8
