<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
May 25, 2000
___________________________________
Universe2U Inc.
____________________________________________________________________
(Exact name of registrant as specified in its chapter)
Nevada
_________________________
(State or other jurisdiction of incorporation)
333-86331
_________________________
(Commission File Number)
88-0433489
___________________
(IRS Employer Identification No.)
30 West Beaver Creek Rd. - Suite 109
Richmond Hill, Ontario, Canada
_____________________________
(Address of principal executive offices)
L4B 3K1
______________________________
(Zip Code)
(905) 881-3284
_________________
(Registrant's telephone number, including area code)
PAXTON MINING CORPORATION
______________________________
(Former name)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
On May 25, 2000, Universe2u Inc. (formerly known as Paxton Mining Corporation
and referred to herein as, the "Predecessor") filed a Form 8-K with the
Securities and Exchange Commission disclosing the acquisition on May 17, 2000 of
all of the shares of Universe2U Inc., an Ontario corporation (the "Ontario
Company") by the Predecessor. In connection with the acquisition of the Ontario
Company, the Predecessor changed its name to Universe2U Inc.
For accounting purposes, the acquisition of the Ontario Company by the
Predecessor has been treated as a recapitalization of the Predecessor, with the
Ontario Company as the acquirer (a reverse acquisition).
The Company hereby amends such Form 8-K, pursuant to an undertaking made by the
Company under paragraph (4) of Item 7(a) of Form 8-K, with respect to the
disclosure set forth herein of the financial statements reflecting the
acquisition. The Company herein incorporates by reference the disclosures
made on the Form 8-K filed with the Commission on May 25, 2000 and amends such
filing with the addition of the exhibits contained herein. The financial
information does not purport to be indicative of future results.
Financial Statements Page No.
---------------------------------------------------- -------------------
Universe2U Inc.
Combined Financial Statements (Audited)
December 31, 1999 and 1998 F-1
Universe2U Inc.
Interim Combined Financial Statements (Unaudited)
March 31, 2000 F-23
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
UNIVERSE2U INC.
Date: July 24, 2000 By: /s/ Kim Allen
-------------- ----------------------
Kim Allen,
President and Chief
Executive Officer
3
<PAGE>
Universe2U Inc.
Combined Financial Statements
December 31, 1999 and 1998
(expressed in U.S. dollars)
F-1
<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
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 Canada.
Accounting principles generally accepted in Canada vary in certain significant
respects from accounting principles generally accepted in the United States.
Application of accounting principles generally accepted in the United States
would have affected results of operations for the years ended December 31, 1999
and 1998, and shareholders' equity as at December 31, 1999 and 1998, to the
extent summarized in Note 15 to the accompanying combined financial statements.
Signed: "Moore Stephens Cooper Molyneux LLP"
Chartered Accountants
Toronto, Ontario
July 11, 2000
F-2
<PAGE>
Universe2U Inc.
Combined Balance Sheets
December 31, 1999
(expressed in U.S. dollars)
1999 1998
---- ----
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 506,687 80,999
Current portion of capital lease obligation (note 8) 13,883 5,675
Current portion of long-term debt (note 7) 54,924 15,066
- ------ ------
644,926 151,203
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 -
- -------
1,761,159 538,027
--------- -------
Deficiency in assets
Share capital (note 9)
Authorized:
Unlimited number of Common shares
Issued and outstanding:
5,000,000 Common shares 14 14
Deficit (459,415) (25,640)
-------- -------
(459,401) (25,626)
-------- -------
$1,301,758 $512,401
========== ========
The accompanying notes are an integral part of these financial statements.
F-3
<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 $ (25,640) $ -
Net loss for the years (406,456) (35,868)
-------- -------
(432,096) (35,868)
Effect of exchange differences (27,319) 10,228
------- ------
Deficit, end of years $ (459,415) $(25,640)
========== ========
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
Universe2U Inc.
Combined Statements of Operations
for the years ended December 31, 1999 and 1998
(expressed in U.S. dollars)
1999 1998
---- ----
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 (note 5) 138,827 70,562
Interest and bank charges (note 5) 129,250 9,628
Professional fees 113,677 21,402
Auto and travel 71,000 10,268
Rent and utilities 64,419 1,517
Telephone 33,753 10,347
Advertising and promotion 31,584 4,015
Insurance 21,395 4,325
Office and general 21,232 5,526
Employee benefits 13,529 2,168
Repairs and maintenance 2,764 8,403
Loss on foreign exchange 749 -
Amortization 41,559 9,587
------ -----
1,052,086 197,630
--------- -------
Loss before provision for income taxes (517,451) (45,924)
Provision for income taxes (note 10) (110,995) (10,056)
-------- -------
Net loss for the years $ (406,456) $ (35,868)
========== ==========
Net loss per share - basic and fully diluted $(0.0813) $(0.0359)
======== ========
Weighted average shares outstanding 5,000,000 5,000,000
========= =========
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
Universe2U Inc.
Combined Statements of Cash Flows
for the years ended December 31, 1999 and 1998
(expressed in U.S. dollars)
1999 1998
---- ----
Cash flow from operating activities (note 13)
Net loss for the years $(406,456) $ (35,868)
Items not affecting cash
Amortization 104,020 44,531
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
========= =========
The accompanying notes are an integral part of these financial statements.
F-6
<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
These financial statements have been presented 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 reorganization, the
subsidiaries were controlled by a group that subsequently controls the
Company. These financial statements have been presented on the basis that
the present share structure existed from the date of incorporation of each
subsidiary. Future financial statements will be prepared on a consolidated
basis.
Basis of combination
These financial statements have been prepared on a combined basis and include
the following 100% owned subsidiaries' assets and liabilities as well as the
revenues and expenses arising from their respective incorporation dates:
<TABLE>
<CAPTION>
<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
Cash and cash equivalents
</TABLE>
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 and amortized over their estimated useful
lives as follows:
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
F-7
<PAGE>
Universe2U Inc.
Notes to Combined Financial Statements
December 31, 1999
(expressed in U.S. dollars)
2. Significant Accounting Policies - continued
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 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 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.
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.
Reclassifications
Certain amounts from prior years have been reclassified to conform to the
current year's presentation.
F-8
<PAGE>
Universe2U Inc.
Notes to Combined Financial Statements
December 31, 1999
(expressed in U.S. dollars)
2. Significant Accounting Policies - continued
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.
3. Capital Assets
1999 1998
Accumulated Net Book Net Book
Cost Amortization Value Value
---- ------------ ----- -----
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
======== ======== ======== ========
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 - $ nil) 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).
F-9
<PAGE>
Universe2U Inc.
Notes to Combined Financial Statements
December 31, 1999
(expressed in U.S. dollars)
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 $-
7. Long-Term Debt
1999 1998
---- ----
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
========
F-10
<PAGE>
Universe2U Inc.
Notes to Combined Financial Statements
December 31, 1999
(expressed in U.S. dollars)
8. Obligation Under Capital Lease
1999 1998
---- ----
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
======= =======
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. No
compensation expense is recognized when stock options of the Company are
issued. As at December 31, 1999, details of options outstanding were as
follows:
Outstanding Exercisable
----------- -----------
weighted average weighted average
number exercise price number exercise price
------ -------------- ------ --------------
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 -
F-11
<PAGE>
Universe2U Inc.
Notes to Combined Financial Statements
December 31, 1999
(expressed in U.S. dollars)
<TABLE>
<S> <C> <C>
10. Income Taxes
1999 1998
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>
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
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
-----
$767,840
========
F-12
<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-13
<PAGE>
Universe2U Inc.
Notes to Combined Financial Statements
December 31, 1999
(expressed in U.S. dollars)
14. Information on Operating Segments - continued
Operating segments
Information by operating segment as at and for the year ended December 31,
1999:
FC&MS FN&SED S&M Total
----- ------ --- -----
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 $ (471,333) (40,339) (5,779) $ (517,451)
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
Information by operating segment as at and for the year ended December
31, 1998:
FC&MS FN&SED S&M Total
----- ------ --- -----
Revenue $ 343,715 - 128,854 $ 472,569
Interest expense $ 6,887 - 2,741 $ 9,628
Amortization of capital
assets $ 42,003 - 2,528 $ 44,531
Earnings (loss) before
income taxes $ (42,737) - (3,187) $ (45,924)
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
Geographic information
Information by geographic region as at and for the year ended December
31, 1999:
Canada United States Total
------ ------------- -----
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 $ (517,241) (210) $ (517,451)
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
F-14
<PAGE>
Universe2U Inc.
Notes to Combined Financial Statements
December 31, 1999
(expressed in U.S. dollars)
14. Information on Operating Segments - continued
Information by geographic region as at and for the year ended December 31,
1998:
Canada United States Total
------ ------------- -----
Revenue $472,569 - $472,569
Interest expense $ 9,628 - $ 9,628
Amortization of capital assets $ 44,531 - $ 44,531
Earnings (loss) before income taxes $(45,924) - $(45,924)
Total assets $512,401 - $512,401
Capital assets $293,760 - $293,760
Capital asset additions $338,209 - $338,209
15. Reconciliation of Results Reported in Accordance with Generally Accepted
Accounting Principles (GAAP) in Canada with United States ("U.S.") GAAP
Significant adjustments
The areas of significant difference between accounting principles generally
accepted in Canada ("Canadian GAAP") and those generally accepted in the
United States ("U.S. GAAP") and their impact on the combined financial
statements of the Company are described below.
Significant differences between Canadian GAAP and U.S. GAAP would have the
following effect on reported net loss and shareholders' equity of the
Company:
1999 1998
---- ----
Net loss for the year in accordance with Canadian GAAP $(406,456) $(35,868)
Increase in net loss for:
Stock option compensation (a) 20,267 -
Imputed interest on advances (b) - 3,672
Net loss for the year in accordance with U.S. GAAP $(426,723) $(39,540)
Net loss per share in accordance with U.S. GAAP $(0.0853) $(0.0079)
Deficit under Canadian GAAP $(459,415) $(25,640)
Cumulative adjustments 23,939 3,672
Deficit under U.S. GAAP $(483,354) $(29,312)
F-15
<PAGE>
Universe2U Inc.
Notes to Combined Financial Statements
December 31, 1999
(expressed in U.S. dollars)
15. Reconciliation of Results Reported in Accordance with Generally Accepted
Accounting Principles (GAAP) in Canada with United States ("U.S.") GAAP -
continued
(a) The Company does not recognize compensation expense for stock
options granted under Canadian GAAP. The Company accounts for
stock option grants in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
25") as permitted by SFAS No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"), and, accordingly, recognizes
compensation expense for stock option grants to the extent that
the estimated fair value of the stock exceeds the exercise price
of the option at the measurement date. The compensation expense is
charged against operations ratably over the vesting period of the
options or service period, whichever is shorter, and was $20,267
for the year (1998 - $ nil). Under the method prescribed by SFAS
123, the weighted average fair value of the stock options granted
during the period is $486,398 (to be amortized over the employee
service period).
(b) The Company does not recognize imputed interest on advances from
related parties that are non-interest bearing or where interest
has been waived under Canadian GAAP. Under U.S. GAAP imputed
interest is calculated and recorded as additional paid in capital.
There was no requirement to impute interest for the current year.
The imputed interest was $3,672 for the prior year.
U.S. GAAP requires the presentation of a statement of comprehensive income to
report the non-shareholder related transactions which have impacted
shareholders' equity during the year:
1999 1998
---- ----
Net loss in accordance with U.S. GAAP $(426,723) $(39,540)
Other comprehensive (expense) income item before tax
Foreign currency translation adjustment (27,319) 10,228
Comprehensive loss before tax (454,042) (29,312)
Tax effect on other comprehensive income item at 23.0% (6,283) 2,352
Comprehensive loss in accordance with U.S. GAAP $(447,759) $(31,664)
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.
F-16
<PAGE>
Universe2U Inc.
Notes to Combined Financial Statements
December 31, 1999
(expressed in U.S. dollars)
15. Reconciliation of Results Reported in Accordance with Generally Accepted
Accounting Principles (GAAP) in Canada with United States ("U.S.") GAAP -
continued
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.
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.
c) On May 31, 2000, Universe2U Inc. ("the Company") 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 of Universe2U Inc.
("Paxton") approved a resolution to convert $498,857 of advances
from a shareholder into 100,000 common shares of Paxton.
e) On June 9, 2000, the Board of Directors of Universe2U Inc.
("Paxton") authorized and approved a private placement of
1,000,000 common shares at $5.00 and 1,000,000
F-17
<PAGE>
Universe2U Inc.
Notes to Combined Financial Statements
December 31, 1999
(expressed in U.S. dollars)
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-18
<PAGE>
Universe2U Inc.
Unaudited Interim Combined Financial Statements
March 31, 2000
(expressed in U.S. dollars)
F-19
<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 combined balance sheet of Universe2U Inc. ("the
Company") as at March 31, 2000 and the interim combined statement of operations
and deficit 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 Canada.
Accounting principles generally accepted in Canada vary in certain significant
respects from accounting principles generally accepted in the United States.
Application of accounting principles generally accepted in the United States
would have affected results of operations for the periods ended March 31, 2000
and 1999, and shareholders' equity as at March 31, 2000 and 1999, to the extent
summarized in Note 15 to the accompanying interim combined financial statements.
Signed: "Moore Stephens Cooper Molyneux LLP"
Chartered Accountants
Toronto, Ontario
July 17, 2000
F-20
<PAGE>
Universe2U Inc.
Unaudited Interim Combined Balance Sheet
March 31, 2000
(expressed in U.S. dollars)
2000 1999
---- ----
Assets
Current assets
Cash $ 295,902 $ 2,262
Accounts receivable 791,970 85,552
Prepaid expenses and deposits 99,487 8,081
Inventory - 25,671
------ ------
1,187,359 121,566
Future income taxes 135,848 27,712
Capital assets (note 3) 496,849 281,550
- ------- -------
$1,820,056 $430,828
========== ========
Liabilities
Current liabilities
Bank indebtedness (note 4) $ - $ 34,543
Accounts payable and accrued liabilities 871,785 47,605
Income taxes payable 29,400 215
Current portion of capital lease obligation (note 8) 14,265 5,767
Current portion of long-term debt (note 7) 54,756 15,245
- ------ ------
970,206 103,375
Due to related parties (note 5) 348,626 256,187
Obligation under capital lease (note 8) 10,356 12,614
Long-term debt (note 7) 253,842 147,677
Debenture (note 6) 689,941 -
------- -------
2,272,971 519,853
--------- -------
Deficiency in assets
Share capital (note 9)
Authorized:
Unlimited number of Common shares
Issued and outstanding:
5,000,000 Common shares 14 14
Deficit (452,929) (89,039)
-------- -------
(452,915) (89,025)
-------- -------
$1,820,056 $430,828
========== ========
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
Universe2U Inc.
Unaudited Interim Combined Statement of Deficit
for the three month period ended March 31, 2000
(expressed in U.S. dollars)
2000 1999
---- ----
Deficit, beginning of period $ (459,415) $(25,640)
Net income (loss) for the period 353 (53,688)
--- -------
(459,062) (79,328)
Effect of exchange differences 6,133 (9,711)
----- ------
Deficit, end of period $ (452,929) $(89,039)
========== ========
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
Universe2U Inc.
Unaudited Interim Combined Statement of Operations
for the three month period ended March 31, 2000
(expressed in U.S. dollars)
2000 1999
---- ----
Revenue $1,510,519 $ 193,812
---------- ----------
Cost of sales
Materials 443,589 6,080
Subcontract 384,813 107,338
Equipment lease and rental 34,449 19,684
Amortization 12,607 14,574
Wages and benefits 7,869 -
----- -----
883,327 147,676
------- -------
Gross profit 627,192 46,136
------- ------
Expenses
Salaries and wages 180,264 15,014
Consulting fees 108,585 3,507
Professional fees 63,084 21,809
Auto and travel 48,973 10,487
Management fees 44,652 33,463
Office and general 38,328 4,406
Rent and utilities 35,602 1,985
Telephone 21,170 4,722
Advertising and promotion 13,369 4,388
Interest and bank charges 13,222 4,998
Insurance 12,309 5,234
Employee benefits 10,882 1,008
Repairs and maintenance 1,626 1,630
Loss on foreign exchange 175 -
Amortization 17,038 4,754
------ -----
609,279 117,405
------- -------
Income (loss) before provision for income taxes 17,913 (71,269)
Provision for income taxes (note 10) 17,560 (17,581)
-- ------ -------
Net income (loss) for the period $ 353 $ (53,688)
========== ==========
Net income (loss) per share - basic and fully diluted $0.0001 $(0.0107)
======= ========
Weighted average shares outstanding 5,000,000 5,000,000
========= =========
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
Universe2U Inc.
Unaudited Interim Combined Statement of Cash Flows
for the three month period ended March 31, 2000
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
2000 1999
---- ----
Cash flow from operating activities (note 13)
<S> <C> <C>
Net income (loss) for the period $ 353 $(53,688)
Items not affecting cash
Amortization 29,645 19,328
Future income taxes (11,757) (17,796)
18,241 (52,156)
Other sources (uses) of cash from operations
(Increase) decrease in accounts receivable (241,113) 115,146
Decrease (increase) in inventory 39,493 (25,671)
Decrease (increase) in prepaid expenses and deposits 29,690 (130)
Increase (decrease) in accounts payable and accrued liabilities 365,099 (33,395)
Increase in income taxes payable 29,400 215
240,810 4,009
Cash flow from investing activities
Purchase of capital assets (78,814) (11,543)
Cash flow from financing activities
Net repayments on long-term debt (15,012) (125)
Proceeds from debenture 343,512 -
Decrease in bank indebtedness (69,432) (14,920)
(Decrease) increase in due to related parties (138,315) 29,756
120,753 14,711
Effect of exchange rate changes on cash (2,133) (5,180)
Increase in cash 280,616 1,997
Cash, beginning of period 15,286 265
Cash, end of period $ 295,902 $ 2,262
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
Universe2U Inc.
Notes to Unaudited Interim Combined Financial Statements
March 31, 2000
(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
These unaudited financial statements have been prepared on a combined basis
and not on a consolidated basis due to the reorganization of the corporate
structure which was effective April 1, 1999. Prior to the exchange, the
subsidiaries were controlled by a group that subsequently controls the
Company. These financial statements have been presented on the basis that
the present share structure existed from the date of incorporation of each
subsidiary. Future financial statements will be prepared on a consolidated
basis.
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 of
Universe2U Inc., all adjustments necessary to a fair presentation of the
financial statements for this interim period have been made. 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.
Basis of combination
These financial statements have been prepared on a combined basis and include
the following 100% owned subsidiaries' assets and liabilities as well as the
revenues and expenses arising from their respective incorporation dates:
<TABLE>
<CAPTION>
<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
Cash and cash equivalents
</TABLE>
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.
F-25
<PAGE>
Universe2U Inc.
Notes to Unaudited Interim Combined Financial Statements
March 31, 2000
(expressed in U.S. dollars)
2. Significant Accounting Policies - continued
Capital assets
Capital assets are recorded at cost and amortized over their estimated useful
lives as follows:
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
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 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 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 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 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.
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 effect 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-26
<PAGE>
Universe2U Inc.
Notes to Unaudited Interim Combined Financial Statements
March 31, 2000
(expressed in U.S. dollars)
2. Significant Accounting Policies - continued
Reclassifications
Certain amounts from prior periods have been reclassified to conform to the
current period'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.
3. Capital Assets
2000 1999
Accumulated Net Book Net Book
Cost Amortization Value Value
---- ------------ ----- -----
Computer software $ 16,134 $ 5,902 $ 10,232 $ 939
Computer equipment 100,762 21,120 79,642 21,648
Vehicles and machinery 438,261 135,044 303,217 180,056
Furniture and fixtures 40,446 6,668 33,778 18,606
Leasehold improvements 83,172 13,192 69,980 60,301
------ ------ ------ ------
$678,775 $181,926 $496,849 $281,550
======== ======== ======== ========
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 March 31, 2000 was approximately 7.00% (1999 -
6.75%).
F-27
<PAGE>
Universe2U Inc.
Notes to Unaudited Interim Combined Financial Statements
March 31, 2000
(expressed in U.S. dollars)
5. Due to Related Parties
2000 1999
---- ----
Advances to commonly controlled companies $(107,986) $(26,473)
Advances from shareholders 456,612 282,660
------- -------
$ 348,626 $256,187
========= ========
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 period, the Company paid
interest of $ nil (1999 - $9,925) to shareholders on advances made to the
Company and management fees of $ nil (1999 - $3,176) to shareholders for
services provided to the Company. Interest was waived by the shareholders in
the current period. The shareholders do not intend to demand repayment
within the next 12 months (see note 16).
6. Debenture
2000 1999
---- ----
Debenture bearing interest at 10% per annum,
repayable by December 2000 unless converted at the
option of the holder into 833,000 common shares of
the Company (see note 16); $689,941 $ -
======== =======
7. Long-Term Debt
2000 1999
---- ----
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 a shareholder of the Company; $152,201 $162,922
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; 15,533 -
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 a shareholder of the Company; 140,863 -
------- -------
308,597 162,922
Less: Current portion 54,756 15,245
------ ------
$253,841 $147,677
======== ========
F-28
<PAGE>
Universe2U Inc.
Notes to Unaudited Interim Combined Financial Statements
March 31, 2000
(expressed in U.S. dollars)
7. Long-Term Debt - continued
The month end prime rate as at March 31, 2000 was approximately 7.0% (1999 -
6.75%).
Principal payments on long-term debt are as follows:
2000 $ 46,068
2001 54,954
2002 55,238
2003 55,549
2004 32,199
Subsequent 64,589
------
$308,597
========
8. Obligation Under Capital Lease
2000 1999
Office furniture and computer equipment lease
contract, bearing interest at 11.33% per annum,
requiring blended monthly payments of $1,357 to
November 2001, secured by the office furniture and
computer equipment $ 24,621 $18,381
- -
Less: Current portion 14,265 5,767
------ -----
$ 10,356 $12,614
======== =======
Principal payments on capital lease obligations are as follows:
2000 $ 14,265
2001 10,356
------
$ 24,621
========
F-29
<PAGE>
Universe2U Inc.
Notes to Unaudited Interim Combined Financial Statements
March 31, 2000
(expressed in U.S. dollars)
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. No
compensation expense is recognized when stock options of the Company are
issued. As at March 31, 2000, details of options outstanding were as follows:
Outstanding Exercisable
----------- -----------
weighted average weighted average
number exercise price number exercise price
------ -------------- ------ --------------
March 31, 1999 - $ - - $ -
Granted 647,000 0.01 - -
March 31, 2000 647,000 $ 0.01 - $ -
As at March 31, 2000, stock options expire as follows:
number exercise number
outstanding price exercisable
2004 600,000 $0.01 -
2005 47,000 $0.01
647,000
10. Income Taxes
2000 1999
The Company's income tax provision consists of the following:
Current tax provision (recovery) $14,423 $(13,436)
Future income tax expense (benefit) arising
from the origination of temporary differences 688 (4,443)
Future income tax benefit arising from
the reduction in tax rates 2,449 298
----- ---
$17,560 $(17,581)
======= ========
F-30
<PAGE>
Universe2U Inc.
Notes to Unaudited Interim Combined Financial Statements
March 31, 2000
(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 25 customers at March 31, 2000 and 15 customers
at March 31, 1999.
The Company's three largest customers represented 27.01%, 16.21%, and 4.07%
of the Company's total revenue for the period ended March 31, 2000 and
36.29%, 31.68%, and 13.28% of the Company's revenue for the period ended
March 31, 1999.
12. Commitments and Contingencies
At March 31, 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 $224,158
2001 226,041
2002 202,844
2003 152,185
2004 113,248
-------
$918,476
========
13. Supplemental Cash Flow Information
During the period, the Company had cash flows arising from interest and
income taxes paid as follows:
2000 1999
Interest paid (note 5) $ 12,773 $2,305
Income taxes paid $- $-
F-31
<PAGE>
Universe2U Inc.
Notes to Unaudited Interim Combined Financial Statements
March 31, 2000
(expressed in U.S. dollars)
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 three month period ended March 31, 2000 and the three month period ended
March 31, 1999.
Operating segments
Information by operating segment as at and for the three month period ended
March 31, 2000:
FC&MS FN&SED S&M Total
Revenue $1,004,504 244,453 261,562 $1,510,519
Interest expense $ 2,792 3,251 7,179 $ 13,222
Amortization of capital
assets $ 20,208 7,278 2,159 $ 29,645
Earnings (loss) before
income taxes $ (128,446) 134,759 11,600 $ 17,913
Total assets $1,374,492 192,829 252,735 $1,820,056
Capital assets $ 325,495 136,806 34,548 $ 496,849
Capital asset additions $ 74,598 - 4,216 $ 78,814
F-32
<PAGE>
Universe2U Inc.
Notes to Unaudited Interim Combined Financial Statements
March 31, 2000
(expressed in U.S. dollars)
14. Information on Operating Segments - continued
Information by operating segment as at and for the three month period ended
March 31, 1999:
<TABLE>
<CAPTION>
FC&MS FN&SED S&M Total
<S> <C> <C> <C> <C>
Revenue $122,685 - 71,127 $ 193,812
Interest expense $ 3,814 - 1,184 $ 4,998
Amortization of capital
assets $ 17,995 - 1,333 $ 19,328
Earnings (loss) before
income taxes $(68,567) (4,807) 2,105 $ (71,269)
Total assets $375,223 - 55,605 $ 430,828
Capital assets $255,250 - 26,300 $ 281,550
Capital asset additions $ 1,393 - 10,150 $ 11,543
Geographic information
Information by geographic region as at and for the three month period
ended March 31, 2000:
Canada United States Total
Revenue $1,510,519 - $1,510,519
Interest expense $ 13,113 109 $ 13,222
Amortization of capital assets $ 29,356 289 $ 29,645
Earnings (loss) before income taxes $ 50,400 (32,487) $ 17,913
Total assets $1,801,949 18,107 $1,820,056
Capital assets $ 489,278 7,571 $ 496,849
Capital asset additions $ 73,807 5,007 $ 78,814
Information by geographic region as at and for the three month period
ended March 31, 1999:
Canada United States Total
Revenue $ 193,812 - $ 193,812
Interest expense $ 4,998 - $ 4,998
Amortization of capital assets $ 19,328 - $ 19,328
Earnings (loss) before income taxes $ (71,268) - $ (71,268)
Total assets $ 430,828 - $ 430,828
Capital assets $ 281,550 - $ 281,550
Capital asset additions $ 11,543 - $ 11,543
</TABLE>
F-33
<PAGE>
Universe2U Inc.
Notes to Unaudited Interim Combined Financial Statements
March 31, 2000
(expressed in U.S. dollars)
15. Reconciliation of Results Reported in Accordance with Generally Accepted
Accounting Principles (GAAP) in Canada with United States ("US") GAAP
Significant adjustments
The areas of significant difference between accounting principles generally
accepted in Canada ("Canadian GAAP") and those generally accepted in the
United States ("U.S. GAAP") and their impact on the consolidated financial
statements of the Company are described below.
Significant differences between Canadian GAAP and U.S. GAAP would have the
following effect on reported net loss and shareholders' equity of the
Company:
2000 1999
Net income (loss) for the period in accordance with
Canadian GAAP $ 353 $(53,688)
Increase in net loss for:
Stock option compensation (a) 4,670 -
Imputed interest on advances (b) 6,102 -
Net loss for the period in accordance with U.S. GAAP $ (10,419) $(53,688)
Net loss per share in accordance with U.S. GAAP $(0.0021) $(0.0107)
Shareholders' equity under Canadian GAAP $(452,929) $(89,039)
Cumulative adjustments 34,711 -
Shareholders' equity under U.S. GAAP $(487,640) $(89,039)
(a) The Company does not recognize compensation expense for stock options
granted under Canadian GAAP. The Company accounts for stock option
grants in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") as permitted by
SFAS No. 123, "Accounting for Stock Based Compensation" ("SFAS 123"),
and, accordingly, recognizes compensation expense for stock option grants
to the extent that the estimated fair value of the stock exceeds the
exercise price of the option at the measurement date. The compensation
expense is charged against operations ratably over the vesting period of
the options or service period, whichever is shorter, and was $4,670 for
the period (1998 - $ nil). Under the method prescribed by SFAS 123, the
weighted average fair value of the stock options granted during the
period is $56,024 (to be amortized over the employee service period).
(b) The Company does not recognize imputed interest on advances from related
parties that are non-interest bearing or where interest has been waived
under Canadian GAAP. Under U.S. GAAP imputed interest is calculated and
recorded as additional paid in capital. The imputed interest was $6,102
for the period. There was no requirement to impute interest in the prior
period as interest was paid to the related parties.
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<PAGE>
Universe2U Inc.
Notes to Unaudited Interim Combined Financial Statements
March 31, 2000
(expressed in U.S. dollars)
15. Reconciliation of Results Reported in Accordance with Generally Accepted
Accounting Principles (GAAP) in Canada with United States ("US") GAAP -
continued
U.S. GAAP requires the presentation of a statement of comprehensive income to
report the non-shareholder related transactions which have impacted
shareholders' equity during the period:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
Net loss in accordance with U.S. GAAP $(10,419) $(53,688)
Other comprehensive income (expense) item before tax
Foreign currency translation adjustment 6,133 (9,711)
Comprehensive loss before tax (4,286) (63,399)
Tax effect on other comprehensive income item at 23.0% 1,411 (2,234)
Comprehensive income (loss) in accordance with U.S. GAAP $ (5,697) $(61,165)
</TABLE>
Recent accounting pronouncements
In June 1999, the Financial Accounting Standards Boards (FASB) issued
Interpretation No. 43, "Real Estate Sales, an interpretation of FASB
Statement No. 66." The interpretation is effective for sales of real estate
with property improvements or integral equipment entered into after June 30,
1999. Under this interpretation, title must transfer to a lessee in order
for a lease transaction to be accounted for as a sales-type lease. The
classification of dark fiber cables in the ground as integral equipment as
defined in FIN 43 is currently being considered by accounting standard
setters in the U.S. These changes would not have any effect on the economics
of the contract but may have a significant effect on the Company's revenue
recognition. It is not possible to determine the consequences of such
changes until further accounting guidance has been developed.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation." Among other issued, this
Interpretation clarifies (a) the definition of employee for purposes of
applying Opinion 25, (b) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (c) the accounting consequence of
various modifications to the terms of a previously fixed stock option or
award, and (d) the accounting for an exchange of stock compensation awards in
a business combination. The Company has adopted this pronouncement.
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<PAGE>
Universe2U Inc.
Notes to Unaudited Interim Combined Financial Statements
March 31, 2000
(expressed in U.S. dollars)
16. Subsequent Events
Subsequent to the period end the following transactions occurred:
a) On May 17, 2000, 100% of the issued and outstanding shares of
Universe2U ("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.
b) On May 26, 2000, debenture holders converted $459,500 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 $230,440 of amounts
advanced into 167,000 common shares in accordance with the
conversion terms assigned to the debentures.
c) On May 31, 2000, the Universe2U ("the Company") acquired 100% of
the issued and outstanding shares of Bernie Tan Investments Inc.
(o/a Cable Tec Communications) for total cash proceeds of
$1,034,910, 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 of Universe2U Inc.
("Paxton") approved a resolution to convert $496,757 of advances
from a shareholder into 100,000 common shares of Paxton.
e) On June 9, 2000, the Board of Directors of Universe2U Inc.
("Paxton") 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.
# # #
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