U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
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(Mark One)
X QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d)
---- OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2000.
---- TRANSITION REPORT PURSUANT SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from______to______.
Commission File Number 0-85601
SYMPHONY TELECOM INTERNATIONAL, INC.
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(Exact name of small business issuer as specified in its charter)
UTAH 87-0378892
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
347 Bay Street, Suite 502, Toronto, Canada M5H 2R7
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(address of principal executive offices) (zip code)
Issuer's telephone number: (416) 366-5221
---------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No__.
The number of shares of Common Stock outstanding as at November 14, 2000 was:
16,260,409.
Transitional Small Business Disclosure Format (check one): Yes No X .
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SYMPHONY TELECOM INTERNATIONAL INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited) (Audited)
September 30 June 30
2000 1999
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 481,636 $ 275,823
Accounts receivable, net of allowance for doubtful
accounts of $56,087 and $56,954 1,288,781 261,247
Finished Goods Inventory 128,053 78,933
Prepaid expenses 130,064 15,101
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TOTAL CURRENT ASSETS 2,028,534 631,104
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PROPERTY AND EQUIPMENT
Automobiles, computer equipment and office furniture 436,347 229,161
Computer software 101,056 101,310
Telephone equipment 115,627 69,052
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653,030 399,523
Less: accumulated depreciation (214,427) (195,854)
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TOTAL PROPERTY AND EQUIPMENT 438,603 203,669
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OTHER ASSETS
Goodwill, net 4,702,960 738,710
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TOTAL OTHER ASSETS 4,702,960 738,710
-------------- --------------
TOTAL ASSETS $ 7,170,097 $ 1,573,483
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank loans $ 230,407 $ -
Accounts payable 2,347,837 278,708
Accrued liabilities 19,985 91,690
Notes payable 782,709 167,789
Income taxes payable 200 203
Current portion of leases payable 36,484 -
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TOTAL CURRENT LIABILITIES 3,417,622 538,390
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OTHER LIABILITIES
Leases payable 68,053 -
Notes payable to related parties 62,142 79,479
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TOTAL OTHER LIABILITIES 130,195 79,479
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TOTAL CURRENT AND OTHER LIABILITIES 3,547,817 617,869
MINORITY INTEREST (111,032) (5,471)
STOCKHOLDERS' EQUITY
Common stock: $0.001 par value, 50,000,000 shares authorized;
17,081,230 and 15,918,809 shares issued and outstanding 17,081 15,919
Additional paid-in capital 5,520,447 1,953,190
Contributed capital 31,474 31,474
Accumulated deficit (1,870,585) (1,042,134)
Accumulated other comprehensive income (loss)
Cumulative translation adjustments 34,895 2,636
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TOTAL STOCKHOLDERS' EQUITY 3,733,312 961,085
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,170,097 $ 1,573,483
</TABLE>
The accompanying notes are an integral part of these financial statements 1.
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SYMPHONY TELECOM INTERNATIONAL INC.
AND SUBSIDIARIES
Consolidated Statements of Operations and
Other Comprehensive Income
For the Three-Month Periods Ended September 30, 2000 and 1999
(Unaudited)
September 30 September 30
2000 1999
---- ----
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REVENUE
Telephone services $ 1,046,032 $ 28,667
Phone cards 671,015 -
Sales of equipment and systems 195,332 136,642
Internet services 43,705 -
Maintenance contracts 11,996 6,657
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TOTAL SALES 1,968,080 171,966
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COST OF GOODS SOLD
Cost of telephone services 587,355 16,877
Cost of phone cards 631,039 -
Cost of equipment and systems sold 132,930 77,152
Cost of internet services 32,147 -
Cost of directory management 8,602 -
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TOTAL COST OF GOODS SOLD 1,392,073 94,029
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GROSS PROFIT 576,007 77,937
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SELLING & GENERAL EXPENSES
Selling expense 60,432 -
General and administrative expense 1,209,923 66,145
Amortization and depreciation 259,794 26,756
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TOTAL SELLING & GENERAL EXPENSES 1,530,149 92,901
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(LOSS) FROM OPERATIONS (954,142) (14,964)
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OTHER (INCOME) AND EXPENSES
Other (income) (14,933) -
Other expenses:
Bad debts 9,353 -
Interest expense 16,767 932
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Total other expenses 26,120 932
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TOTAL OTHER (INCOME) AND EXPENSES 11,187 932
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NET (LOSS) BEFORE MINORITY INTEREST IN EARNINGS
OF CONSOLIDATED SUBSIDIARIES (965,329) (15,896)
MINORITY INTEREST IN EARNINGS OF
CONSOLIDATED SUBSIDIARIES 106,878 214
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NET (LOSS) (858,451) (15,682)
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OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustments 32,259 5,652
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TOTAL OTHER COMPREHENSIVE INCOME 32,259 5,652
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TOTAL COMPREHENSIVE (LOSS) $ (826,192) $ (10,030)
Weighted average number of common shares outstanding
primary 17,063,230 7,356,875
fully diluted 19,932,381 7,391,875
Basic net (loss) per share
primary $ (0.05) $ -
fully diluted $ (0.04) $ -
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The accompanying notes are an integral part of these financial statements 2.
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SYMPHONY TELECOM INTERNATIONAL INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Three-Month Periods Ended September 30, 2000 and 1999
(Unaudited)
September 30 September 30
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $ (858,451) $ (15,682)
Adjustments to reconcile net (loss) to net cash used
by operating activities:
Depreciation and amortization expense 259,794 26,756
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (1,027,533) 10,345
(Increase) in prepaid expenses (114,964) (377)
(Increase) in inventories (49,120) (10,470)
Increase (decrease) in accounts payable and bank loans 2,299,537 (19,001)
(Decrease) in accrued liabilities (71,706) (1,740)
(Decrease) in income taxes payable (3) -
-------------- --------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 437,554 (10,169)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
(Acquisition) of property and equipment (253,506) -
(Additions) to other intangible assets (1,854,450) -
-------------- --------------
NET CASH (USED) BY INVESTING ACTIVITIES (2,107,956) -
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from leases payable 104,537 -
Proceeds from notes payable 614,920 4,425
(Repayment of) notes payable to related parties (17,338) (1,335)
Proceeds from common stock 1,256,235 -
Minority interest (105,561) (203)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 1,852,793 2,887
-------------- --------------
EFFECT OF FOREIGN CURRENCY TRANSACTIONS ON CASH 23,422 7,282
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INCREASE IN CASH AND CASH EQUIVALENTS 205,813 -
CASH AND CASH EQUIVALENTS, beginning of period 275,823 -
-------------- --------------
CASH AND CASH EQUIVALENTS, end of period $ 481,636 $ -
SUPPLEMENTAL DISCLOSURES
Interest paid $ (16,767) $ (932)
Income taxes paid $ - $ -
Schedule of non-cash investing and financing activities:
Acquisition of Telemax Communications Inc. $ 1,005,236 $ -
Purchase of net assets from Mondetta Telecommunications Inc. $ 1,366,950 $ -
</TABLE>
The accompanying notes are an integral part of these financial statements
3.
<PAGE>
SYMPHONY TELECOM INTERNATIONAL INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Symphony Telecom International, Inc. ("Company") was incorporated on January 15,
1982 as Mammoth Resources, Inc. under the laws of the State of Utah. The Company
changed its name to Symphony Telecom International, Inc. by a resolution of the
Board of Directors on March 23, 2000.
Pursuant to an Agreement and Plan of Reorganization dated March 9, 2000, the
Company acquired all the issued and outstanding shares of Symphony Telecom
International, Inc., a company incorporated under the laws of the State of
Delaware, in a non-cash transaction.
As part of its reorganization, the Company authorized a one for five reverse
stock split of existing issued common shares, resulting in the number being
reduced from 16,278,357 to 3,255,684. On the same date, and not subject to the
reverse stock split, the Company authorized issuance of 7,924,375 common shares
in restricted form being a one for one exchange of shares for all the issued and
outstanding shares of Symphony Telecom International, Inc. Further, two
directors were issued an additional 1,000,000 common each and 1,200,000 shares
were issued to consultants for services rendered with the transaction.
As a result of a subsidiary's agreement to purchase business assets and customer
listing, an option has been authorized by the board of directors of the
subsidiary company for 35,000 common shares at $3.00 per share, expiring
December 31, 2000. This agreement has been assumed by the Board of Directors of
the Company on its acquisition of Symphony Telecom International, Inc.
A change in control of the Company and the simultaneous March 9, 2000
acquisition of Symphony Telecom, Inc. (Delaware) has been accounted for on the
basis of a reverse acquisition, whereby combining financial statements gives
effect to the acquired company continuing to report as if it was the acquirer.
The financial statements as presented reflect the results of the combined
entities.
Symphony Telecom International, Inc. (the acquired company) was incorporated
under the laws of the State of Delaware on December 4, 1998, to acquire Symphony
Telecom Inc., an affiliated company engaged in providing telephone services
principally in southern Ontario, Canada. Symphony Telecom Inc. was formed May
27, 1996 under the Business Corporations Act of Ontario, Canada for the purpose
of providing a broad range of telecommunication services including voice and
data transmission, internet services, and other related services for North
American and international markets. Pursuant to an Agreement and Plan of
Reorganization dated March 29, 1999, Symphony Telecom International, Inc.
acquired all of the common shares of Symphony Telecom Inc. in a non-cash
transaction on the basis of one Symphony Telecom International, Inc. share for
each Symphony Telecom Inc. share. A total of 7,351,875 shares were issued to
effect the acquisition. These shares were restricted for purposes of resale.
Over a period of twelve months, the right to sell the shares accrued on a
straight-line basis.
Effective July 1, 2000 Symphony Telecom Inc. purchased certain assets, including
customer base, accounts receivable, name and other intangible assets less
certain trade payables of Mondetta Telecommunications Inc., a company
incorporated under the Canada Business Corporations Act, which provides
international long distance telephone services, directed mostly to retail and
residential ethnic populations across Canada, as well as small business
segments.
The transaction was non-cash, with the purchase price of $3,990,660 being
satisfied by issue of 820,821 common shares of Symphony Telecom International
Inc. with each common share having attached a warrant to purchase one common
share at the price of $3, expiring September 30, 2001.
Effective July 31, 2000 Symphony Telecom Inc. purchased 61.5% of all the issued
and outstanding shares of Telemax Communications Inc., a company incorporated in
Ontario, Canada, which promotes and markets prepaid telephone cards for national
and international long distance telephone services directed mostly to ethnic
populations across Canada. The purchase was accounted for using the purchase
method of accounting and the results of operations have been consolidated from
the effective date of acquisition.
4.
<PAGE>
SYMPHONY TELECOM INTERNATIONAL INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
The purchase price of $4,830,361 was satisfied by cash payment of $166,277 on
closing, and the issuance of 1,000,000 common shares, each attached with a one
share warrant, of Symphony Telecom Inc., which are convertible, by September 30,
2005, into common shares of Symphony Telecom International Inc. for a value
representing $1,995,330. The issuance of Symphony Telecom International Inc.'s
common shares will be restricted for the purposes of resale for a period of one
year. A further three payments of $166,278 each are due and payable up to and
including September 30, 2001 upon Telemax Communications Inc.'s first year's
revenues reaching cumulative targets of $10,087,500, $20,175,000 and $30,262,500
respectively. Symphony Telecom Inc. is also to provide Telemax Communications
Inc. with four equal payments of $672,500 for working capital by October 30 and
December 31, 2000, and March 31 and June 30, 2001.
On August 31, 2000 Symphony Telecom International Inc. purchased 51% of all the
shares of 9041-6868 Quebec Inc. operating as Directory Management America Dot
Com, a company incorporated in Quebec, Canada, which provides marketing and
advertising services, specifically to yellow pages and e-commerce advertising
agencies throughout North America, which gives national support for businesses.
The purchase price of $339,790 is an all cash transaction, with $135,916 paid at
closing and the balance payable in 3 equal monthly installments.
On August 28, 2000, the Company entered into a private placement agreement with
Geek Securities, Inc. to provide, on a best efforts basis, up to $100 million
for common shares. In June 2000, Geek Securities, Inc. privately placed 660,000
common shares of Symphony Telecom International, Inc., restricted for the
purposes of resale for a period of one year, netting the Company $780,000.
In the opinion of management, the accompanying interim financial statements,
prepared in accordance with the instructions for Form 10-QSB, are unaudited and
contain all material adjustments, consisting only of normal recurring
adjustments necessary to present fairly the financial condition, results of
operations and cash flows of the Company for the respective interim periods
presented. The current period results of operations are not necessarily
indicative of results which ultimately will be reported for the fiscal year
ending June 30, 2001.
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States 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.
2. GOING CONCERN AND MANAGEMENT PLAN
The Company has minimal capital resources presently available to meet
obligations, which normally can be expected to be incurred by similar companies,
has recurring operating losses and negative cash flows from operating
activities. These factors raise substantial doubt about the Company's ability to
continue as a going concern. The Company will have to pursue other sources of
capital, such as additional equity financing or debt financing. There is no
assurance that the Company will be able to obtain such financing; however, in
June 2000, the Company conducted a private placement of its stock and raised
$780,000. The financial statements do not include any adjustments that might
result from the outcome of this going concern uncertainty. Management's plans
over the next twelve-month period are to further develop its telecommunications
pursuits in North America, mainly through acquisitions that require substantial
funding, a significant amount of which is currently being arranged. There is no
assurance the Company will be able to obtain such financing.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with generally
accepted accounting principles in the United States. Outlined below are those
policies considered particularly significant for the Company.
CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, cash and
cash equivalents consist of money market funds and demand deposits in banks,
purchased with a maturity of three months or less. The Company has no such items
at September 30, 2000 and 1999.
ACCOUNTS RECEIVABLE In the purchase of net assets from Mondetta
Telecommunications Inc. 70% of accounts receivable were factored. At September
30, 2000 accounts receivable which have been factored totaled $597,782 and
$418,447 has been included in accounts payable.
5.
<PAGE>
SYMPHONY TELECOM INTERNATIONAL INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
INVENTORY Inventory is valued at the lower of cost or market using the first-in,
first out method.
INCOME TAXES The Company filed separate corporate federal income tax returns
through December 31, 1998. Due to changes in control occurring in 1999, the
Company has no net operating loss carryforwards available to offset financial
statement or tax return taxable income in future periods.
The Company uses the asset and liability method of accounting for income taxes.
At December 31, 1999 and 1998, respectively, the deferred tax asset and deferred
tax liability accounts, as recorded when material to the financial statements,
are entirely the result of temporary differences. Temporary differences
represent differences in the recognition of assets and liabilities for tax and
financial reporting purposes, primarily non-deductible accrued compensation
amounts payable to an officer.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
NET LOSS PER COMMON SHARE Basic per share information is computed by dividing
income available to common stockholders by weighted average number of common
shares outstanding. There were 820,821 warrants and 1,995330 common share
options outstanding at September 30, 2000, and 35,000 common share options were
outstanding at September 30, 1999.
FAIR VALUE OF FINANCIAL INSTRUMENTS The Company estimates that the fair value of
all financial instruments at March 31, 2000 does not differ materially from the
aggregate carrying values of its financial instruments recorded in the balance
sheet. The estimated fair value of amounts of receivables, accounts payable and
accrued liabilities approximate fair value due to their short-term nature.
Considerable judgement is necessarily required in interpreting market data to
develop the estimates of fair value, and accordingly, the estimates are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange.
PROPERTY AND EQUIPMENT Computer equipment, office furniture,systems software and
telephone equipment are stated at cost. Expenditures for normal maintenance and
repairs are charged to expense as incurred. Depreciation is computed using
reducing balance method based upon the estimated useful lives of the related
assets. Depreciation expense was $20,964 for the three-month period ended
September 30, 2000 and $9,157 for the three-month period ended September 30,
1999.
PRINCIPLES OF CONSOLIDATION The financial statements include the accounts of
Symphony Telecom International, Inc. a Utah corporation and its subsidiaries,
Linkdata Communications London, Ontario Inc., 9041-6868 Quebec Inc., Canadian
corporations, and Symphony Telecom International Inc., a Delaware corporation,
and its subsidiaries Symphony Telecom Inc. and subsidiaries of Symphony Telecom
Inc., Communication Solutions Group Ltd., and Telemax Communications Inc. and
Canadian Inter-Latin Communications Inc., and a subsidiary of Canadian
Inter-Latin Communications Inc., Canadian Inter-Continental of Ecuador SA All
subsidiaries of Symphony Telecom International, Inc. (Delaware) are Canadian
corporations except the latter incorporated in Ecuador (collectively, the
"Subsidiaries"). All significant inter-company transactions and balances have
been eliminated in consolidation. The consolidated group is referred to
collectively and individually as the "Company".
MINORITY INTEREST The amount for minority interest represents 25% interest in
subsidiary, Canadian Inter-Continental Communications of Ecuador SA, a company
incorporated under the laws of Ecuador on November 23, 1998; 38.5% interest in
subsidiary, Telemax Communications Inc. a company incorporated in Ontario,
Canada; 49% interest in 9041-6868 Quebec Inc.; and 21% interest in Symphony
Telecom Inc., a company incorporated in Ontario, Canada. The minority interest
in net loss of subsidiaries has been credited to income and charged to minority
interest.
RECLASSIFICATIONS Certain amounts in the accompanying financial statements have
been reclassified to better reflect the Company's operations, in the opinion of
management. These reclassifications have been reflected in all amounts shown in
the accompanying financial statements.
NEW ACCOUNTING STANDARDS Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS" No. 130) issued by the FASB is
effective for financial statements with fiscal years beginning after December
15, 1997. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. The Company adopted SFAS No. 130 as of June 30, 1997.
6.
<PAGE>
SYMPHONY TELECOM INTERNATIONAL INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS No. 131") issued by the FASB is
effective for financial statements with fiscal years beginning after December
15, 1977. SFAS No. 131 requires that public companies report certain information
about operating segments, products, services and geographical areas in which
they operate and their major customers. The Company has adopted SFAS No. 131
since incorporation and it had no effect on its financial position or results of
operations.
4. NOTES PAYABLE AND PROMISSORY NOTE
Officers and directors of subsidiary companies have advanced amounts, which are
due and payable on due upon demand, bearing interest ranging from nil% to 25%
simple interest per annum. Notes payable are all unsecured
5. LONG-TERM DEBT
Long-term debt is summarized as follows :
Principal Discount
Noninterest-bearing notes payable to directors $ 93,616 $ 31,474
Notes payable to directors are considered long-term, and are noninterest-bearing
with no specific terms for repayment. Discount is based on imputed interest rate
of 10%, and has been recorded as contributed capital.
6. COMMITMENTS
On October 15, 2000 the Company moved its head office to Brampton, Ontario,
Canada and has entered into a five year lease on 20,000 square foot building,
prepaying one year's rent of $86,464. The Company's total rent and lease expense
was $35,383 for the three-month period ended September 30, 2000 and $12,322 for
the three-month period ended September 30, 1999. The Company has leased
premises, equipment and automobiles, which have been accounted for as operating
leases. Lease payments required over the next five years are as follows:
2001 $219,498
2002 $190,481
2003 $152,053
2004 $138,407
2005 $130,000
7. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the purchase price over the fair value of
acquired businesses and, with other intangible assets, is being amortized on
straight-line basis. The life of goodwill arising on acquisitions, and the life
of other intangible assets is estimated to have lives of five years.
Amortization expense was $238,830 for the three- month period ended September
30, 2000 and $17,599 for the three-month period ended September 30, 1999.
The details of goodwill and other intangible assets are as follows:
Net Net
Accumulated September 30 June 30
Cost Amortization 2000 2000
-------------- ------------ ---- ----
Goodwill $ 5,037,508 $ 334,548 $ 4,702,960 $ 738,710
8. FOREIGN ASSETS, REVENUES AND CONSOLIDATED FOREIGN ENTITIES
The Company is presently Canadian based, and as such carries out its operations
in Canada. Symphony Telecom International, Inc. and subsidiary companies
maintain their books using Canadian dollars. The books of these companies have
been translated into U.S. dollars using the current rate method. Gains and
losses on foreign currency transactions are included in the consolidated
statements of other comprehensive loss.
7.
<PAGE>
PART I - FINANCIAL INFORMATION
FORWARD STATEMENTS
Certain statements herein constitute forward-looking statements. These
statements involve known and unknown risks, uncertainties and other factors that
may cause actual results, levels of activity, performance, or achievements to be
materially different from any future results, levels of activity, In some cases,
you can identify forward-looking statements by terminology such as "may,"
"will," "should," "could," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or "continue" or the negative of such
terms or other comparable terminology. Although expectations reflected in the
forward-looking statements are believed to be reasonable, there is no guarantee
of future results, levels of activity, performance, or achievements. Moreover,
neither we nor any other person assumes responsibility for the accuracy and
completeness of such statements. We do not undertake to update any of the
forward-looking statements herein.
Item 1. Financial Statements.
The financial statements are included herein.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The company has made several acquisitions that have had an impact on the
performance of the company and resulted in substantial material changes in
revenues, expenses and other items compared to the same quarter last year.
On June 29, 2000, the company acquired all of the common shares of Linkdata
Communications London Ontario Inc., a company incorporated in Ontario, Canada,
which is a data communications company providing enterprise networking; network
security; DSL; wireless and T1 access; e-mail and virtual hosting services in
Southern Ontario, Canada.
Effective July 1, 2000 (while we agreed that this would be, for all intent and
purposes, the effective date for the transaction to determine who was entitled
to receivables, and to consider adjustments, etc., we made the closing on or
about September 30, 2000), Symphony Telecom, Inc., a subsidiary of the Company,
purchased certain assets, including customer base, accounts receivable, name and
other intangible assets less certain trade payables, of Mondetta
Telecommunications Inc., a company incorporated under the Canada Business
Corporations Act, which provides international long distance telephone services,
directed mostly to retail and residential ethnic populations across Canada, as
well as small business segments. The Mondetta Division is now operated under
Mondetta Communications Corp. a wholly owned subsidiary of Symphony Telecom Inc.
Effective July 31, 2000 (while we agreed that this would be, for all intent and
purposes, the effective date for the transaction to determine who was entitled
to receivables, and to consider adjustments, etc., we made the closing on or
about September 30, 2000), Symphony Telecom Inc. purchased 61.5% of all the
issued and outstanding shares of Telemax Communications Inc., a company
incorporated in Ontario, Canada, which promotes and markets prepaid telephone
cards for national and international long distance telephone services directed
mostly to customers in Canada.
On August 31, 2000, our Company purchased 51% of all the shares of Directory
Management America Dot Com Inc., a company incorporated in Quebec, Canada, which
provides marketing and advertising services, specifically to yellow pages and
e-commerce advertising agencies throughout North America.
The above Agreements are subject to numerous representations, and
conditions,including payment of the balance of the purchase price.
The following discussion should be read in conjunction with the Financial
Statements and Notes thereto contained elsewhere herein. Please note that no
assurance exists as to the actual future outcome of Management's plans,
assumptions or estimates. Historically the Company has experienced losses from
operations. Management anticipates that losses will substantially decrease as
businesses are acquired, with revenues substantially increasing. No guarantee
exists.
<PAGE>
RESULTS OF OPERATIONS - FIRST QUARTER OF FISCAL 2001 COMPARED TO FIRST QUARTER
2000
Symphony's net revenues in fiscal Q1 2001 increased by 1,044% compared to Q1
2000 as a result of consolidation of the acquisitions made during the period.
Net revenues for Symphony's Interconnect and Telephone Services operations, not
including the effects of any in-year acquisitions, increased by 50.4% in Q1 2001
compared to Q1 2000 as a result of the growth of the direct sales force. Sales
results within the Telephone services category increased by 3548% reflecting the
addition of the customer base of Mondetta Telecommunications Inc. which was
effective as of the beginning of the Quarter. For Q1 2001, sales of Telephone
Services comprised a majority (53%) of Symphony's consolidated net revenues. The
majority of sales of Internet Services are attributable to the acquisition of
Linkdata Communications in June 2000. Sales in the Phone Card segment are all
the results of the acquisition, during the period, of Telemax Communications
Inc. The company acquired 61.5% of the outstanding shares of Telemax effective
July 31, 2000.
The company's gross margin at 29% in Q1 2001 compared to 45% in Q1 2000. Within
the Telephone Services operating segment, cost of sales was negatively impacted
by costs associated with the transition of the customer base from Mondetta
Telecommunications Inc. to Symphony. Gross margin in this sector is expected to
return to the 41% level achieved in 1Q2000. Margins on equipment and systems
declined from 43% to 32% reflecting fluctuating margins on voice and data
equipment. Cost of goods sold in the directory management category reflects the
results of startup operations of Directory Management America.com.
Selling, General and Administrative expenses for 1Q2001 compared to 1Q2000
indicates an substantial increase which parallels the increase in Revenue and is
primarily the result of the consolidation of the acquisitions, additional cost
incurred with the integration of the Mondetta customer base and increases in
SG&A due to a build up of sales staff in the current quarter.
Minority interest reflects the interest of Telemax in the Canadian subsidiary
Symphony Telecom Inc.
FINANCIAL CONDITION
As of September 30, 2000 the company has cash on hand which management believe
will meet the requirements through mid-2001. The company believes that by
relying on its private placement offerings of shares, and upon anticipated cash
flow from business acquisitions, it will meet it's current commitments and
requirements for the balance of the year. Management believes that the ability
of the Company to achieve substantial profitability is conditioned upon several
variables, including the successful operation of acquisitions and their future
operating results. The Company has been substantially dependent on the proceeds
of various offerings of its securities to fund its operating expenses. The
Company has not engaged in any material borrowing activity, has minimal loan
arrangement with any commercial lending institution, and anticipates receiving
traditional commercial debt financing in the foreseeable future
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The major source of cash during the first three months of 2001 was cash provided
by financing activities of $1.256 million. Major uses of cash during the period
included the results of acquisition activity and $858,451 to fund ongoing
operations.
The Company continues to explore opportunities with various investors, joint
venture candidates, and prospective licensees. The Company has various
agreements and pursuits underway for the establishment of funding for both the
short and long term needs of our Company. Currently, these are on a best efforts
basis. The Company believes that current funding, as well as others in potential
private placements and an eventual registered public offering, if successful,
will assist the Company in meeting its cash needs, but there is no guarantee.
OUTLOOK
Symphony Telecom is one of a new breed of service providers, fostered by
increasing deregulation of the telephone industry around the world, positioning
itself to take advantage of the opportunities for change by quickly implementing
market solutions using a new generation of equipment and technology. Our goal is
to present ourselves as an Integrated Communications Provider (ICP) with a full
suite of voice and data services for residential and business consumers. Our
focus is on meeting the needs of the marketplace and, through the efforts and
creativity of our account executives and customer engineers, to present our
customers with the best communications solution for their needs.
To do this Symphony Telecom is addressing several strategic elements in our
infrastructure and network capabilities. We intend to be represented by
well-trained, knowledgeable account executives and engineers. In this regard
Symphony has contracted a professional recruiting firm to find and recruit
seasoned telecom sales executives. We are complementing their industry knowledge
with extensive in-house training on convergent services. We are building a
services delivery network leveraging a packet-based infrastructure with an
application-focussed value proposition to deliver all of the advantages of the
new network technologies to our customers. To this end Symphony has purchased
services from Nortel Networks Global Professional Services organisation which
will assist us in designing the network of the future and assist in the
development of the business model for a Next Generation Competitive Local
Exchange Carrier (CLEC) and Applications Services Provider (ASP).
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We plan to grow our domestic and international long distance services market and
improve profitability through implementation of a cost-effective international
inter-exchange carrier (IXC) network. Symphony Telecom has targeted certain
acquisitions that have the capacity to propel us into a leadership position in
the carrier segment. Combining our Telemax Communications Inc. pre-paid card
operations, Mondetta Communications Corp. equal access services and Symphony
Telecom's equal access services we currently originate in the order of 100
million minutes per month of long distance traffic through our domestic sales of
pre-paid and post-paid services. We plan to implement local switches and leased
facilities to expand this traffic and, through our acquisition strategy, we
anticipate having a low cost international network that will greatly enhance our
profit margins while allowing us to continue to offer superior value to our
customers.
We have adopted the slogan "Symphony Telecom, Simply Different" to indicate
that, unlike most of the new generation of telecom companies, which are niche or
single technology oriented, we are customer oriented and global in the scope of
the services and systems we offer. We are one of the few advanced, full service
global network providers. We have recruited top executives with extensive
experience at companies such as Nortel Networks, Bell Canada and AT&T and have
engaged the assistance of a leading equipment vendor to ensure that the network
solutions and operations systems we employ today will meet the evolving needs of
tomorrows emerging lucrative markets.
Forward Statements. Certain statements herein constitute forward-looking
statements. These statements involve known and unknown risks, uncertainties and
other factors that may cause actual results, levels of activity, performance, or
achievements to be materially different from any future results, levels of
activity, performance, or achievements expressed or implied by such
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "could," "expects,"
"plans," "anticipates," "believes," "estimates," "predicts," "potential," or
"continue" or the negative of such terms or other comparable terminology.
Although expectations reflected in the forward-looking statements are believed
to be reasonable, there is no guarantee of future results, levels of activity,
performance, or achievements. Moreover, neither we nor any other person assumes
responsibility for the accuracy and completeness of such statements. The Company
does not undertake to update any of the forward-looking statements herein.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SYMPHONY TELECOM INTERNATIONAL, INC.
/s/ Gilles Trahan, C.E.O.
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(principal executive and financial officer)
Date: August 21, 2000
