SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 2000
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 2-85601-D
SYMPHONY TELECOM INTERNATIONAL, INC.
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(Name of small business issuer 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
Securities registered under Section 12(b) of the Exchange Act: None
Title of each class: None
Securities registered under Section 12(g) of the Act:Common Stock
Title of each class: Common Stock
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 |_|
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |_|
The issuer's revenues for its most recent fiscal year: $467,239.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $11,281,157 as at October 12, 2000, based on the
average high and low bid price of $1.6563. The number of shares of Common Stock
outstanding as at October 6, 2000, was 16,267,409.
Transitional Small Business Disclosure Format (check one): Yes| | No |X|
DOCUMENTS INCORPORATED BY REFERENCE: See Item 13, Exhibits and Reports herein
for items incorporated by reference into this Annual Report of Form 10-KSB.
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PART I
ITEM 1. Description of Business
General
We are an international telecommunications holding company incorporated under
the laws of the State of Utah with headquarters based in Toronto, Canada. Our
Company, Symphony Telecom International, Inc., is a business-to-business telecom
solutions provider dedicated to delivering all the benefits of the
Next-Generation Global Network to our valued customers. We have positioned our
Company to become North America's first international Next-Generation Telco,
leveraging emerging technologies into a coherent, sophisticated, and
user-friendly array of services that are increasingly global, benefiting from
the high speed Internet that continues to evolve in quality and expand in size.
Principal Strategy
Our principal strategy is to build our business by acquiring, restructuring (as
necessary) and operating telecommunications technology companies as subsidiaries
owned and promoted by our Company. The strategy is locate, negotiate with,
acquire, and restructure (for example, where possible, cut costs, terminate and
hire staff, relocate offices and equipment) businesses which have developed
revenue generating operations, along with key managerial personnel willing to
remain on employment or consulting terms for a minimum of six months following
each acquisition.
Background/Corporate Structure
Our parent company, which is called the "Company" herein, is publicly trading
and called Symphony Telecom International, Inc., a Utah corporation.
Our Company owns 100% of Symphony Telecom International, Inc., of Delaware,
which owns 100% of Symphony Telecom, Inc., and 100% of Canadian Inter-Latin
Communications, Inc.
Our Company also owns 100% of Linkdata Communications London Ontario, Inc.
Symphony Telecom, Inc., owns 100% of Communication Solutions Group, Ltd.
Canadian Inter-Latin Communications, Inc., owns approximately 60% of Canadian
Inter-Continental Communications del Ecuador, S.A.
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Our Company was originally incorporated on January 15, 1982 under the laws of
the State of Utah. Earlier this year, our Company acquired all the issued and
outstanding shares of (similarly called) Symphony Telecom International, Inc., a
company incorporated under the laws of the State of Delaware. The Delaware
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. On February 28,
1999 Symphony Telecom Inc. acquired all of the common shares of Communication
Solutions Group Ltd., a company incorporated in Ontario, Canada, which provides
voice communication systems for small businesses in southern Ontario, Canada.
Canadian Inter-Latin Communications, Inc. has organized a subsidiary, Canadian
Inter-Continental Communications del Ecuador, S.A. under the laws of the
Republic of Ecuador, of which it continues to own approximately 60% of the
issued stock.
Principal Operating Divisions
Our principal operating divisions, that are the core from which our pursuits are
expanding, are Symphony Telecom, Inc., an Ontario corporation and Communication
Solutions Group, Ltd. While these companies do not have the revenue and profit
magnitude of acquisitions under focus by Management, they have been the starting
point and structural support to analyze synergistic opportunities, and utilize
both our managerial accomplishments and failures to enhance our pursuits under
new acquisitions. (In other words, we are learning from both our successes and
mistakes, with a philosophy to not repeat the mistakes.) In March of 1999, the
Company acquired 100% of the equity capital of Canadian Inter-Latin
Communications Inc. We added to our companies Linkdata Communications London
Ontario, Inc., at year-end, which we believe also complements our
telecommunication pursuits.
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Symphony Telecom, Inc.
Symphony Telecom, Inc., an Ontario corporation owned by our Company, as a wholly
owned subsidiary, is offering flat rate, toll free and equal access long
distance services as well as internet access via XDSL and ISDN. XDSL is
symmetrical or asymmetrical digital subscriber line which provide high speed
data transmission over standard copper telephone lines.. With the advent of
XDSL, now arriving in the marketplace, the technology is here to make practical
the delivery of telephone access services via Internet. ISDN is Integrated
Services Digital Network, a transmission format providing multiple voice and
data lines on a single copper telephone line. Symphony Telecom's mission is to
be able to make the optimum use of the new global high speed Internet now being
built by major international carriers. We will do this by strategic installation
of telecom application servers. The company's business plan includes an
aggressive rollout of its proprietary Sym-Tel(TM) IP Centrex servers and
International IP Telephony Gateways to permit us, in conjunction with our
service partners, to deliver the broadest range of IP voice and data services.
Communication Solutions Group Ltd.
Communication Solutions Group Ltd., is an interconnect company offering sales,
installation and maintenance of business telecommunications systems, voice
processing systems, CTI and IVR systems and a variety of LAN and WAN solutions.
CTI systems are Computer Telephony Intefration network components which enhance
access for businesses to their databases and information systems.. IVR systems
are Integrated Voice Response systems, which can automate many business
functions and deliver services over the telephone network. LAN is an acronym for
Local Area Network, a system that links together electronic office equipment,
such as computers and word processors, and forms a network within an office or a
building.
Linkdata Communications London Ontario Inc.
On June 29, 2000, our 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 and e-mail and virtual hosting services in
southern Ontario, Canada.
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Canadian Inter-Latin Communications Inc.
The Company's next focus is toward the development of the market for its
services in Latin America, initially in the Republic of Ecuador. The Company's
60% owned indirect subsidiary, Canadian Inter-Continental Communications del
Ecuador SA., (owned through Canadian Inter-Latin Communications Inc.) is
establishing a wireless broadband Internet operation in the 2.400-2.4835 GHz
band, providing both domestic and international voice telephone service, data
transmission, paging, video conferencing, internet access services. The initial
network node is to be established in Quito and will provide an extensive array
of business services.
Current Operations Platform
We see our current operations as a platform to expand our business into emerging
areas. Our Company is already in the business of selling, installing and
servicing business phone systems, and we have committed our direction to take a
leading role in the deployment of IP services. With this deployment the Company
is leading the way in identifying high value differentiated services offering
real value to the business customer.
IP means Internet Protocol. It basically means providing a service through the
Internet utilizing technologies created and under development, which may be of
the Company, available in an acquisition, or licensed from others. Our mission
is to be able to make the optimum use of the new global high speed Internet now
being built by major international carriers. We will do this by strategic
installation of telecom application servers.
The Company's business plan includes an aggressive rollout of next generation
components to permit us, in conjunction with our service partners, to deliver
the broadest range of IP voice and data services. We are positioning ourselves
to pursue a lead position in these new services by becoming one of the first
companies to become a CLEC (Competitive Local Exchange Carrier) deploying
primarily packet based network. The advantages of packet based networks are
numerous, including cost, whereby a single copper line that the local Bells'
charge $10 to $40 a month can theoretically be utilized by our Company to
provide up 600 voice channels (lines) or 300 voice channels and a 3 Mb (2 T1)
internet connection. Of course, these numbers can be modified to increase or
decrease either the voice or the data channels depending on user requirements.
In addition to the significant financial savings to the business and residential
consumer, packet based networks should compete very effectively with traditional
PBX and business Key Telephone Systems. All functions and features telephone,
such as, call forward, transfer, hold/park, three way conference, will be will
be performed on our switch and delivered seamlessly to the end user.
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Our current position in the interconnect market selling PBX and Key Systems
provides us with a street-level view of this opportunity. To serve areas outside
the Company's current network, we hope to deploy wireless broadband rooftop
connections expanding into areas that are not currently able to receive high
speed Internet access, and in some cases not even ISDN. Our wireless network
will reduce cost by bypassing the local phone company and thus eliminate the
Phone Company, leased-lines, and local loop charges. Our high speed wireless
Internet services will allow users to download 30 MB files in 3 minutes instead
of 17 hours. The Company, although projecting future profitability, anticipates
an investment requirement of an aggregate of $15 million (USD) to build our
global service base and continue the development of the new wave of IP services.
Internet Services
We provide mission critical access solutions for Internet/Intranets, VPN and
electronic commerce. Our Company offers its clients a single source solution
partner. We are deploying a high speed ADSL / SDSL Internet access. We commenced
offering ATM, SDSL, ADSL, ISDN and dial up access to its customers in the
Greater Toronto Area starting November 1st, 1999. Asymmetric Digital Subscriber
Line (ADSL) is a revolutionary transmission technology that delivers a
high-speed, downstream channel to subscribers and a lower-speed, upstream
channel to the network. ADSL transmits data asymmetrically to match the
asymmetric nature of interactive multimedia that typically falls into the
client-server model. ADSL was specifically designed to support this two-way data
transfer environment.
Voice Over IP
Although it is generally recognized that data traffic has surpassed voice
traffic on the public switched network, it is still the case that 80% of Telcom
revenues are derived from voice traffic. Voice telephony will be one of the
first of the new IP services to be introduced. Other new services which leverage
IP include virtual private networks, Centrex services, telecommuting solutions,
remote call centers and conferencing with multimedia collaboration tools.
Consumers will have increased choice regarding the types of services they
receive, who they buy from, and the quality of these services. Corporations will
potentially have a single network infrastructure resulting in greater
efficiencies and integration of their information systems and workflow. This
integration will benefit their employees, customers, shareholders and the
public. Users will now be able to dial in to become part of the corporate voice
and data information system. Once logged in, the network recognizes the user
profile, and all services, whether voice or data, are routed over the IP address
established by the user regardless of the users office or branch location. A
corporation can establish network policies which streamline and automate the
dissemination of service and information. Symphony Telecom, Inc., is deploying
IP Telephony servers now to ensure that we, and our customers, enjoy the
benefits of this technological revolution. As a provider to offer local voice
services over IP using DSL technology, Symphony Telecom is positioned to enjoy a
competitive edge as this exciting opportunity unfolds. Symphony's IP Telephony
solutions offer an extremely cost-effective way to provide alternate local
telephone service as well as long distance voice and fax services domestically,
regionally, or internationally. Voice services are only the first of a suite of
value-added services which Symphony will offer using IP networks. The real value
in using IP is that it lends itself well to all traffic types, and is therefore
independent of the underlying network infrastructure.
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DSL
Our DSL service connects customer's networks to the Internet up to five times
faster than a T-1 for less than one-quarter of the price.
LAN
In conjunction with DSL Internet services, we also provide wireless LAN to LAN
Wide Area Networking and Internet access.
Employees
We currently employ approximately 25 employees, including ten full time
administrative people in our Toronto headquarter offices and five full-time
people in the operations of Communication Solutions Group. In addition we have
ten sales people with two administrators and a Marketing Director. We contract,
on a regular basis, for the services of telephone installation people to fulfill
our installation and servicing commitments. Our staffing requirements through
calendar year 2000 include 40 additional members of the staff for sales,
administration, and marketing. In addition, we currently employ four freelance
media and marketing people under the supervision of our Marketing Director.
Completed acquisitions will bring in a substantial number of additional
personnel depending upon the size and timing of such events.
Marketing Concerns, Including Target Market
The rapid pace of technological development and the continued deregulation of
the global marketplace are the twin forces speeding dramatic changes in the
telecommunications landscape. The new technologies driving the revolution in the
industry are ATM (Asynchronous Transfer Mode) DSL (Digital Subscriber Line) and
the tremendous growth in "net" infrastructure (intranets, extranets, and the
Internet). ATM is revolutionizing the class 5 office and trunking networks,
promising a doubling in customer revenues for the market, while at the same time
yielding a reduction in operating cost and capital outlay by a factor of as much
as 20. The new technologies will result in one common transmission network and
switching fabric for voice, fax, video and multimedia traffic. We have developed
a resource base with experience in the provision of a full range of
telecommunication products and services for primarily the small to medium
business market. Our focus is on unique telecommunications solutions, to
consumers, small and medium sized businesses, and to other telecommunications
services suppliers. With a street-level view of the needs of, and opportunities
available to, our target markets, a day-to-day sales and service interaction and
twenty-four hour a day, seven day a week service capability, we have positioned
ourselves with the tools to be able to translate the new technologies into value
for ourselves and our customers.
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Competition-General Marketplace
The rapid pace of technological development and the continued deregulation of
the global marketplace are the twin forces speeding dramatic changes in the
telecommunications landscape. The new technologies driving the revolution in the
industry are ATM, (Asynchronous Transfer Mode) DSL (Digital Subscriber Line) and
the tremendous growth in "net" infrastructure (intranets, extranets, and the
Internet). The new technologies will result in one common transmission network
and switching fabric for voice, fax, video and multimedia traffic. This
revolution has leveled the playing field for new market entrants and smaller
niche players who can rapidly deploy all manner of traditional and new
telecommunications services. Unlike traditional telecommunications technology
which was based on proprietary technology, the new services are based on
standard computing platforms that traditionally see their power more than
doubled and costs halved every 24 months.
Business Strategy
The current strategy is to build our assets, generate substantial revenues, seek
significant profits, try to control costs, all while pursuing viable business
opportunities. We restrict our search to specific businesses in the
telecommunications industry but not necessarily any particular geographical
location (while we do, of course, wish to expand in North America, both Canada
and U.S. and possibly into Mexico, we are open to other regions under
consideration). Management of our Company consults with the Company's key staff
and consultants with respect to identifying, researching, analyzing and
acquiring a business opportunity for the Company.
Specific Acquisition Strategy
The selection of any business is complex and entails a high degree of risk.
Acquisitions may be at various stages of development, capital needs, growth
potential, and financial condition, all of which makes the task of making
decisions difficult. We have, however, created a plan that sets standards to be
met for an acquisition to be undertaken.
Though not set in stone, when considering a target, we require substantial
revenues, profitability or a clear path to profitability, the existence of
unique or "niche" characteristics that may hedge against competition by larger
competitors, the experience and affability of continued key person participation
post acquisition, and satisfactory due diligence (basically review and
verification of what we are told by the acquisition) on customer, legal and
accounting related matters.
Many risks cannot be adequately identified prior to selection of the specific
opportunity, and no guarantee exists that acquisitions will prove successful or
beneficial for our Company.
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Recent Events
Some, not all, of recent activities are discussed immediately below. Starting
around our June 30, 2000 year-end, we have been making strides in pursuing
acquisitions. These acquisitions are, unless otherwise noted, subject to
satisfaction of negotiations, closings and most importantly, that we have or
obtain the necessary financing to complete the purchases, and have working
capital for the new operations, as needed. Following is a summary, subject to
changing circumstances, further review and negotiations and other matters, of
our acquisition activities:
North American Gateway
We have entered into an agreement to acquire North American Gateway, Inc.
(called "Gateway" in this document), an international telecommunications service
provider based in Toronto, operating worldwide as a global "Carrier's Carrier"
delivering long distance service to other telecommunications companies. This
company has primary switching facilities in Toronto, New York City, and London,
United Kingdom. Revenues for the last fiscal year were $72,000,000 (CDN--which
means Canadian currency in this document), $51,000,000 (USD--which means United
States currency in this document) on primarily voice services. These figures are
subject to audit, and so may change once audits are completed. Working with
Nortel Networks (NYSE: NT), this company has been investing extensively in their
own network infrastructure. Remote facilities are being installed, or planned,
in approximately thirty countries to deliver voice and data services. As each
remote facility is turned on, this company should gain additional revenue and
potential profitability. Gateway has projected revenues of $210,000,000 (USD)
for their next fiscal year, ending December 2000. It has relationships with
telecommunications companies around the world, which should enable our Company,
by affiliation with Gateway as a subsidiary of our Company, to enter into new
markets internationally, deploying our global data and voice services. Our
negotiations and agreements with Gateway, including closing, are pending.
Mondetta Telecommunications, Inc.
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 $4,389,311
being satisfied by issue of 1,120,488 common shares of our Company with each
common share having attached a warrant to purchase one common share at the price
of $3, expiring September 30, 2001.The Mondetta Division will be operated under
a wholly owned subsidiary of Symphony TelecomInc., to be called Mondetta
Communications Corp.
Telemax Communications, Inc.
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 customers
in Canada. The purchase price of $5,380,000 was satisfied by cash payment of
$168,125 on closing, and the issuance of 1,000,000 common shares of Symphony
Telecom Inc., which are convertible, by September 30, 2005, into common shares
of Symphony Telecom International Inc. for a value representing $2,017,500. 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 $168,125 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.
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Directory Management America Dot Com
On August 31, 2000, our Company purchased 51% of all the shares of 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.
Linkdata Communications London Ontario Inc.
On June 29, 2000, our 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 and e-mail and virtual hosting services in
southern Ontario, Canada. The purchase price of $495,160 is to be satisfied by a
total payment of cash $270,160 (of which $141,834 was paid at closing with the
balance payable over the next 12 months), and issuing 150,000 common shares of
Symphony Telecom Inc. for a stated amount of $225,000 ($1.50 per share).
Research and Development
We did not have any research and development for the year ended June 30, 2000
but anticipate our research and development pursuits will grow
Patents and Trademarks
While no patents or copyrights have been issued, the Company intends to review
and pursue these as advised by counsel. We are pursuing the registration of
trademarks for North America, South America and certain European countries.
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.
ITEM 2. Description of Property
Our Company currently occupies corporate headquarters of 3,200 square feet at
our corporate address above. This is a three year lease, with monthly rental of
$2,792 (USD), and expires. Our acquisitions occupy their own space. The Company
is moving its offices to 41 George Street South, Brampton, Ontario in October
2000. The Company will occupy approximately 20,000 square feet under a five year
lease subject to extensions. The base monthly rental will be approximately
$6,666.00.
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ITEM 3. Legal Proceedings
Management knows of no litigation by or against the Company.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. Market for Common Equity and Related Stockholder Matters
The Company's common stock is traded on the National Association of Securities
Dealers (NASD) Bulletin Board market (trading-symbol: SYMY) as reported on the
NASD Bulletin Board Market. The following sets forth, as reported by the NASD,
for the periods (calendar quarters) indicated, high and low bid prices of the
Company's Common Stock:
QUARTER HIGH/ LOW-------FISCAL 1999
H L
First Quarter (July-Sept.,1998) $0 $0
Second Quarter (Oct.-Dec.,1998) $0 $0
Third Quarter (Jan.-March,1999) $0 $0
Fourth Quarter (Apr.-June,1999) $0 $0
QUARTER HIGH/ LOW-------FISCAL 2000
H L
First Quarter (July-Sept.,1999) $0 $0
Second Quarter (Oct.-Dec.,1999) $0 $0
Third Quarter (Jan.-March,2000) $.625 $.39
Fourth Quarter (Apr.-June,2000) $5.46 $1.96
The quotations are approximates and reflect inter-dealer price, without retail
mark-ups, markdowns or commissions and may not represent actual transactions.
There were 1149 shareholders of record of Common Stock at October 6, 2000. To
date, we have not paid any dividends on our Common Stock and do not expect to
pay any dividends in the foreseeable future. Instead, we intend to retain all
earnings to finance the growth and development of our businesses.
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ITEM 6. Management's Discussion and Analysis or Plan of Operation
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.
Plan of Operation
The Company's current plan of operation, for the next twelve-month period, is to
build revenues, focus upon the pursuit of acquisitions, and manage and operate
its subsidiaries and assets. The Company believes it can satisfy cash
requirements through mid-2001 by relying on its private placement offerings of
shares, and upon anticipated cash flow from business acquisitions. Management
believes 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 no loan arrangement with any
commercial lending institution, and anticipates to receive traditional
commercial debt financing in the foreseeable future. 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.
ITEM 7. Financial Statements
Financial Statements of the Company in response to this Item are attached.
PART III
ITEM 9. Directors Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act
The information below sets forth the name, age and certain information as to the
Directors and executive officers of the Company, including term of office.
NAME: AGE: POSITION:
Gilles A Trahan 29 Chairman,CEO,
Treasurer
Daniel G. Cullen 55 COO,President,
Secretary and
Director
Robert Douglas 39 Vice President
Network
Services
Stephen G. Halicki 48 V.P. Business
Development
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Gilles A. Trahan
Chairman of the Board, Treasurer and Chief Executive Officer
Mr. Trahan's experience has primarily evolved around investment banking
practices. From 1989-1992, Mr. Trahan was primarily involved in real estate as a
developer of commercial properties. During 1992-95 Mr. Trahan served as
President and C.E.O. of Lexton Fuller Corp, an investment Banking firm in
Toronto, Canada. His responsibilities included the structuring of corporate
financing, mergers, and acquisitions and overseeing all activities influencing
cash flow and profitability. In late 1995, Mr. Trahan left Lexton Fuller Corp.
dedicating the next 8 months to investing and researching emerging markets in
the Telecommunications industry. In May 1996 he was instrumental in the creation
of the Symphony Telecom, Inc.
Daniel G. Cullen
Director, President and Chief Operating Officer
Mr. Cullen, after obtaining his engineering degree from the University of
Waterloo in 1970, was employed by Bell Canada, Computer Communications Group as
a design engineer where he was involved in the design of special services toll
circuits and the automation of the data test desks. In 1974 Mr. Cullen left Bell
Canada to join Northern Telecom as a Product Manager in the Telephone Terminals
Division in London, Ontario where, working closely with Bell Northern Research
he was responsible for the introduction of a portfolio of electronic terminals.
He then held the position of Ontario Region Sales Manager for Nortel's
Subscriber Equipment Group, which manufactures business communications equipment
and telephone terminals, after which Mr. Cullen returned to the Terminals
division as Business Development Manager. Mr. Cullen's career progressed with
Nortel's Transmission Group, which manufactured Microwave radio systems, fiber
cable as well as Digital Channel Bank Multiplexors, T-1 and VF equipment. In
1990 Mr. Cullen left Northern Telecom to pursue personal interests. Shortly
thereafter, from 1992, he returned to the telecommunications industry as founder
and president of Comtel Canada Inc., a venture providing business
telecommunications systems, software and engineering services to Saudi Arabia.
He concurrently founded a telecommunications software company, which provided PC
based switches to the emerging long distance resellers in Ontario. Early in
1994, with the advent of equal access Canada imminent, he became President of
InteleLink, subsequently Choice Telecom, an alternative long distance company
whose customer base grew under his direction.
Bob Douglas
Vice President of Network Services
Mr. Douglas has been in the data network design and implementation, marketing,
and network services for 20 years. Mr. Douglas started his career with Honeywell
Information Systems as a field engineer. His data and network experience came
while working at Gandalf Data in sales and engineering. Mr. Douglas founded
Linkdata Communications London Ontario Inc., a subsidiary of the Company that is
in the South Western Ontario area servicing corporate accounts with data and
Internet solutions. Mr. Douglas was instrumental in negotiating, developing and
executing agreements with AT&T Canada and U.S. and other Canadian Telco's,
Internet organizations and equipment manufacturers. In his capacity as Vice
President of Network Services, Mr. Douglas will be fundamental in the
development of data network opportunities, and providing Internet solutions to
national and international accounts.
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Stephen G. Halicki
President, CICI (Ecuador)
Mr. Halicki has over 22 years in software design and development, data network
design and implementation, network equipment sales, marketing, and network
services experience. He received a Bachelors of Science in information sciences
from the University of Guelph,Ontario, Canada, 1976. Mr. Halicki moved into the
software development field at Babcocks and Wilcox, a leading engineering firm in
the nuclear steam generation market, then to Xerox Canada, followed by the Saudi
Arabian National Guard. Mr. Halicki gained his communications equipment
experience while working for Northern Telecom Canada for more than six years.
Data networks design experience was gained at United Canada, Canadian Satellite
Communications Inc., and Rogers Network Services. Carrier Services experience
was acquired while working as the Director of Carrier Services for Metro Net
Communications Inc. in Toronto. Working as an independent consultant, Mr.
Halicki has worked on IT/ network projects for Symphony Telecom Inc., Mondetta
Telecommunications Inc., and Blood Hills Telecommunications Inc., before taking
the lead in developing the Companies venture in South America as President of
Canadian Inter-Latin Communications, Inc.
ITEM 10. Executive Compensation
Employee Salaries
The Directors of the Company do not currently receive any compensation for
services as Directors. Employment agreements are in place for Mr. Douglas and
Mr. Halicki. There are no stock options, or warrants, or bonus or profit sharing
plans, with respect to the officers of the Company. No salary, stock, stock
related rights, or other compensation is accrued as due to any officer or
Director.
The following table and notes present for the year ended June 30, 2000, the
compensation paid by the Company to the Company's chief executive officer and to
the Company's most-highly compensated executive officers other than the
Company's chief executive officer who were serving at June 30, 2000.
Summary Compensation Table
Long-Term Compensation
Awards Payouts
--------------------------- ---------------
Restricted Securities
Name and Stock Underlying All Other
Principal Position Year Salary($) Award(s)($) Options/SARs(#) Compensation($)
(a) (b) (c) (f) (g) (i)
------------------ ---- --------- ----------- -------------- ---------------
Gilles A. Trahan 2000 $ 8,275 $0 $0 $0
Chairman of the
Board, C.E.O.
Daniel Cullen, 2000 $20,689 $0 $0 $0
Director,
President
Robert Douglas 2000 $0 $0 $0 $0
Vice President
Network Services
14
<PAGE>
ITEM 11. Security Ownership of Certain Beneficial Owners and Management
(A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
The following table sets forth known beneficial ownership of common stock of the
Company at October 6, 2000 by each person (except Management) owning 5% or more
of the Common Stock of the Company (also see table below).
NAME AND ADDRESS(1) AMOUNT AND NATURE PERCENT OF OWNERSHIP(2)
---------------- ----------------- ----------------------
Fidelity Merchant 1,310,000 8%
Bank and Trust
#51 Frederick St.
Box CB 12337
Nassau, Bahamas
(1) Information is supplied based upon identity as a shareholder of record
without any verification of beneficial ownership, which may or may not apply as
to the identified party.
(2) Rounded to nearest whole number.
(B) SECURITY OWNERSHIP OF MANAGEMENT.
NAME/ADDRESS (1)(2) AMOUNT AND NATURE PERCENT OF OWNERSHIP(3)
------------------ ----------------- ----------------------
Gilles Trahan c/o 4,000,000 25%
639 5th Avenue S.W.
Suite 820
Calgary, AB T2P0M9
Daniel Cullen c/o 4,000,000 25%
639 5th Avenue S.W.
Suite 820
Calgary, AB T2P0M9
Stephen G. Halicki 81,350 .5%
14 Nelson Street
Cambridge, ON M3H 1K1
Robert Douglas 65,000 .39%
59 Westbrook Cres
Komoka, ON N0L1R0
All officers and
Directors as a Group 8,146,350 50%
15
<PAGE>
(1) Information is supplied based upon identity as a shareholder of record
without any verification of beneficial ownership, which may or may not apply as
to the identified party.
(2) While Mr. Halicki is not an officer of the Company, we have included him
because of his key role in an affiliated business discussed herein.
(3) Rounded to nearest whole number.
ITEM 12. Certain Relationships and Related Transactions
Various corporations are owned by our Company. Management of our corporations
may hold positions in the various companies, including our parent Company. This
may result in situations where a conflict of interest exists in deciding a
business issue. Two of the Company's current officers hold all of the seats on
the Company's Board of Directors. Certain members of Management may, from time
to time, also be creditors owed money or other compensation from the completion
of acquisitions of the Company. For example, Mr. Douglas is owed money from the
acquisition of Linkdata Communications London Ontario Inc. Although Management
intends to act fairly and in full compliance with their fiduciary obligations,
there can be no assurance that the Company will not, as a result of the conflict
of interests described herein, possibly enter into arrangements under terms one
could argue are less favorable than what could have been obtained had the
Company been dealing with unrelated persons. Loans in the amount of $136,000 are
accrued and payable as of June 30, 2000, to Director Cullen of the Company, on a
non-interest basis, due on demand. At June 30, 2000 Mr. Trahan was indebted to
the Company for a loan of $8,477 due, without interest, upon demand.
ITEM 13. Exhibits and Reports on Form 8-K
a. Exhibits Index - Form 10-KSB
Item # and Name, Per Item 601 of Regulation S-B/ Location
3(i) Articles of Incorporation, including amendments/Incorporated by reference
to the Company Form S-18 Registration Statement, and any amended reports, on
file with the Commission.
3(ii) Bylaws, including amendments/Incorporated by reference to the Company Form
S-18 Registration Statement, and any amended reports, on file with the
Commission.
(11) Statement of Computation of Per Share Earning (can be determined from the
included financial statements)
b. Reports on Form 8-K.
No Reports were filed for the last quarter of the fiscal year covered by this
report
16
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SYMPHONY TELECOM INTERNATIONAL, INC.
By: /s/ Gilles A. Trahan
-----------------------------------------
Gilles A. Trahan, Chief Executive Officer
(principal executive officer),
Treasurer(principal financial officer)
Date: 10/13/2000
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Gilles A. Trahan
----------------------------
Gilles A. Trahan, Director
Date: 10/13/2000
By: /s/ Daniel G. Cullen
----------------------------
Daniel G. Cullen, Director
Date: 10/13/2000
17
<PAGE>
SYMPHONY TELECOM INTERNATIONAL, INC.
FINANCIAL STATEMENTS
JUNE 30, 2000, MARCH 31, 1999
AND THE TRANSITION PERIOD
APRIL 1, 1999 TO JUNE 30, 1999
<PAGE>
SYMPHONY TELECOM INTERNATIONAL, INC.
AND SUBSIDIARIES
JUNE 30, 2000
CONTENTS
Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets 2
Consolidated Statements of Operations and
Other Comprehensive Income (Loss) 3-4
Consolidated Statements of Changes in
Stockholders' Equity (Deficit) 5
Consolidated Statements of Cash Flows 6-7
Notes to Financial Statements 8-12
<PAGE>
GERSTLE, ROSEN & SIMONET, LLC
CERTIFIED PUBLIC ACCOUNTANTS
102 N.E. 2nd Street, #199
Boca Raton, Florida 33432
Telephone (561) 417-0103
Facsimile (810) 816-5826
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Symphony Telecom International, Inc.
We have audited the accompanying consolidated balance sheets of Symphony Telecom
International, Inc. and Subsidiaries as of June 30, 2000 and March 31, 1999, and
the related consolidated statements of operations, cash flows, and changes in
stockholders' equity (deficit) for the year ended June 30, 2000, the ten month
period ended March 31, 1999 and the transition period April 1, 1999 to June 30,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about 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.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Symphony Telecom International,
Inc. and Subsidiaries as of June 30, 2000 and March 31, 1999, and the results of
its operations and its cash flows for the year ended June 30, 2000, the ten
month period ended March 31, 1999 and the transition period April 1, 1999 to
June 30, 1999, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2, the
Company's recurring operating losses and negative cash flows from operating
activities raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans concerning these matters are also discussed in
Note 2. The consolidated financial statements do not include adjustments that
might result from the outcome of this uncertainty.
/s/ Gerstle, Rosen & Simonet LLC
Certified Public Accountants
Boca Raton, Florida
September 28, 2000
MEMBER OF THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS SEC PRACTICE
SECTION
<PAGE>
<TABLE>
<CAPTION>
SYMPHONY TELECOM INTERNATIONAL, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, March 31,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 275,823 $ --
Accounts receivable, net of allowance for doubtful
accounts of $56,954 and $27,514 261,247 81,075
Finished goods inventory 78,933 41,022
Prepaid expenses 15,101 10,086
----------- -----------
TOTAL CURRENT ASSETS 631,104 132,183
----------- -----------
PROPERTY AND EQUIPMENT
Computer equipment, office furniture and automobiles 229,161 18,276
Computer software 101,310 99,423
Telephone equipment 69,052 67,765
----------- -----------
399,523 185,464
Less: accumulated depreciation (195,854) (72,404)
----------- -----------
TOTAL PROPERTY AND EQUIPMENT 203,669 113,060
----------- -----------
OTHER ASSETS
Goodwill, net 738,710 332,216
----------- -----------
TOTAL OTHER ASSETS 738,710 332,216
----------- -----------
TOTAL ASSETS $ 1,573,483 $ 577,459
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 278,708 $ 119,503
Bank overdraft -- 33,359
Accrued liabilities 91,690 55,720
Notes payable 167,789 126,924
Income taxes payable 203 1,074
----------- -----------
TOTAL CURRENT LIABILITIES 538,390 336,580
----------- -----------
OTHER LIABILITIES
Notes payable to related parties 79,479 91,252
----------- -----------
TOTAL OTHER LIABILITIES 79,479 91,252
----------- -----------
TOTAL CURRENT AND OTHER LIABILITIES 617,869 427,832
MINORITY INTEREST (5,471) (4,026)
----------- -----------
STOCKHOLDERS' EQUITY
Common stock: $0.001 par value, 50,000,000 shares authorized
and $0.0001 par value, 20,000,000 shares authorized;
15,918,809 and 7,356,875 shares issued and outstanding 15,919 736
Additional paid-in capital 1,953,190 307,001
Contributed capital 31,474 31,474
Accumulated deficit (1,042,134) (190,843)
Accumulated other comprehensive income
Cumulative translation adjustments 2,636 5,285
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 961,085 153,653
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,573,483 $ 577,459
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
2.
<PAGE>
<TABLE>
<CAPTION>
SYMPHONY TELECOM INTERNATIONAL, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations and
Other Comprehensive Income (Loss)
For the Year Ended June 30, 2000 and the
Ten-Month Period Ended March 31, 1999
Year Ten Months
Ended Ended
June 30, March 31,
2000 1999
------------ ------------
<S> <C> <C>
REVENUE
Sales of equipment $ 311,176 $ 30,202
Telephone services 144,755 66,447
Maintenance contracts 11,308 1,348
------------ ------------
TOTAL SALES 467,239 97,997
------------ ------------
COST OF GOODS SOLD
Cost of products and systems sold 263,988 30,577
Cost of telephone services 99,448 14,942
------------ ------------
TOTAL COST OF GOODS SOLD 363,436 45,519
------------ ------------
GROSS PROFIT 103,803 52,478
------------ ------------
SELLING & GENERAL EXPENSES
Selling expense 33,230 1,449
General and administrative expense 647,688 81,005
Amortization and depreciation 117,349 51,031
------------ ------------
TOTAL SELLING & GENERAL EXPENSES 798,267 133,485
------------ ------------
(LOSS) FROM OPERATIONS (694,464) (81,007)
------------ ------------
OTHER (EXPENSES)
Bad debt expense (13,728) (12)
Interest expense (58,551) (5,199)
------------ ------------
TOTAL OTHER (EXPENSES) (72,279) (5,211)
------------ ------------
NET (LOSS) BEFORE PROVISION FOR INCOME TAXES AND
MINORITY INTEREST IN EARNINGS OF CONSOLIDATED
SUBSIDIARY (766,743) (86,218)
RECOVERY OF INCOME TAXES 1,103 --
MINORITY INTEREST IN EARNINGS OF
CONSOLIDATED SUBSIDIARY 1,225 4,280
------------ ------------
NET (LOSS) (764,415) (81,938)
------------ ------------
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustments 7,304 1,209
------------ ------------
TOTAL OTHER COMPREHENSIVE INCOME 7,304 1,209
------------ ------------
TOTAL COMPREHENSIVE (LOSS) $ (757,111) $ (80,729)
============ ============
Weighted average number of common shares outstanding:
Primary 15,918,809 7,356,875
============ ============
Fully diluted 15,953,809 7,391,875
============ ============
Basic net (loss) per share:
Primary $ (0.05) $ (0.01)
============ ============
Fully diluted $ (0.05) $ (0.01)
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
3.
<PAGE>
SYMPHONY TELECOM INTERNATIONAL, INC.
AND SUBSIDIARIES
Consolidated Statement of Operations and
Other Comprehensive Income (Loss)
For the Transition Period April1, 1999 to June 30, 1999
Three Months
Ended
June 30,
1999
-----------
REVENUE
Sales of equipment $ 95,399
Telephone services 27,783
Maintenance contracts 2,136
-----------
TOTAL SALES 125,318
-----------
COST OF GOODS SOLD
Cost of products and systems sold 63,575
Cost of telephone services 12,881
-----------
TOTAL COST OF GOODS SOLD 76,456
-----------
GROSS PROFIT 48,862
-----------
SELLING & GENERAL EXPENSES
Selling expense 7,542
General and administrative expense 79,823
Amortization and depreciation 24,452
-----------
TOTAL SELLING & GENERAL EXPENSES 111,817
-----------
(LOSS) FROM OPERATIONS (62,955)
-----------
OTHER (EXPENSES)
Bad debt expense (820)
Interest expense (23,311)
-----------
TOTAL OTHER (EXPENSES) (24,131)
-----------
NET (LOSS) BEFORE MINORITY INTEREST IN EARNINGS
OF CONSOLIDATED SUBSIDIARY (87,086)
MINORITY INTEREST IN EARNINGS OF
CONSOLIDATED SUBSIDIARY 210
-----------
NET (LOSS) (86,876)
-----------
OTHER COMPREHENSIVE (LOSS)
Foreign currency translation adjustments (9,953)
-----------
TOTAL OTHER COMPREHENSIVE (LOSS) (9,953)
-----------
TOTAL COMPREHENSIVE (LOSS) $ (96,829)
===========
Weighted average number of common shares outstanding:
Primary 7,356,875
===========
Fully diluted 7,391,875
===========
Basic net (loss) per share:
Primary $ (0.05)
===========
Fully diluted $ (0.01)
===========
The accompanying notes are an integral part of these financial statements
4.
<PAGE>
<TABLE>
<CAPTION>
SYMPHONY TELECOM INTERNATIONAL, INC.
AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
For the Year Ended June 30, 2000, the Ten-month Period Ended March 31, 1999
and the Transition Period April 1, 1999 to June 30, 1999
Common Stock Additional
------------ Preferred Paid-in Contributed Accumulated
Shares Amount Stock Capital Capital Deficit
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1998 6,500,000 $ 19,931 $ 13,625 $ -- $ 31,474 $ (108,905)
Preferred stock converted to no par
value common stock 13,625 13,625 (13,625) -- -- --
No par value common stock issued 843,250 274,181 -- -- -- --
No par value common stock exchanged (7,356,875) (307,737) -- -- -- --
Par value common stock exchanged 7,356,875 736 -- 307,001 -- --
Net (loss)/other comprehensive income -- -- -- -- (81,938) 1,209
----------- ----------- ----------- ----------- ----------- -----------
Balance March 31, 1999 7,356,875 736 -- 307,001 31,474 (190,843)
Net (loss)/other comprehensive (loss) -- -- -- -- -- (86,876)
----------- ----------- ----------- ----------- ----------- -----------
Balance June 30, 1999 7,356,875 736 -- 307,001 31,474 (277,719)
Par value common stock issued 567,500 57 235,819 235,876
Par value common stock exchanged (7,924,375) (793) -- (542,820) -- --
Par value common stock exchanged 7,924,375 7,924 -- 535,689 -- --
Acquisition of assets of former
Mammoth Resources, Inc. 3,255,684 3,256 -- (3,256) -- --
Par value common stock issued
concurrent w/ acquisition of
assets of Mammoth Resources 3,200,000 3,200 -- (3,200) -- --
Par value common stock issued 720,000 720 -- 401,279 -- --
Par value common stock issued 660,000 660 -- 779,340 -- --
Par value common stock issued 8,750 9 -- 18,488 -- --
Acquisition of assets of
Linkdata, Inc. 150,000 150 -- 224,850 -- --
Net (loss)/other comprehensive income -- -- -- -- -- (764,415)
----------- ----------- ----------- ----------- ----------- -----------
Balance June 30, 2000 15,918,809 $ 15,919 $ -- $ 1,953,190 $ 31,474 $(1,042,134)
=========== =========== =========== =========== =========== ===========
</TABLE>
Accumulated Total
Other Stockholders'
Comprehensive Equity
Income(Loss) (Deficit)
----------- -----------
Balance at May 31, 1998 $ 4,076 $ (39,799)
Preferred stock converted to no par
value common stock -- --
No par value common stock issued -- 274,181
No par value common stock exchanged -- (307,737)
Par value common stock exchanged -- 307,737
Net (loss)/other comprehensive income (80,729)
----------- -----------
Balance March 31, 1999 5,285 153,653
Net (loss)/other comprehensive (loss) (9,953) (96,829)
----------- -----------
Balance June 30, 1999 (4,668) 56,824
Par value common stock issued
Par value common stock exchanged -- (543,613)
Par value common stock exchanged -- 543,613
Acquisition of assets of former
Mammoth Resources, Inc. -- --
Par value common stock issued
concurrent w/ acquisition of
assets of Mammoth Resources -- --
Par value common stock issued -- 426,999
Par value common stock issued -- 780,000
Par value common stock issued -- 18,497
Acquisition of assets of
Linkdata, Inc. -- 225,000
Net (loss)/other comprehensive income 7,304 (757,111)
----------- -----------
Balance June 30, 2000 $ 2,636 $ 961,085
=========== ===========
The accompanying notes are an integral part of these financial statements
5.
<PAGE>
<TABLE>
<CAPTION>
SYMPHONY TELECOM INTERNATIONAL, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Year Ended June 30, 2000
And the Ten-Month Period Ended March 31, 1999
Year Ten Months
Ended Ended
June 30, March 31,
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $ (764,415) $ (81,938)
Adjustments to reconcile net (loss) to net cash provided (used)
by operating activities:
Depreciation and amortization expense 117,349 51,031
Common stock issued for services 30,000 --
Changes in assets and liabilities:
Increase in accounts receivable (192,411) (67,092)
(Increase) decrease in prepaid expenses (4,844) 7,205
Increase in inventories (25,775) (41,022)
Increase in accounts payable and bank overdraft 94,623 121,358
Increase in accrued liabilities 40,754 44,146
Increase in loans payable -- 108,424
(Decrease) increase in income taxes payable (905) 1,074
----------- -----------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (705,624) 143,186
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (208,265) (51,786)
Additions to other intangible assets (484,083) (336,371)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (692,348) (388,157)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of notes payable to related parties (15,973) (7,244)
Proceeds from common stock 1,661,371 274,181
Minority interest (1,088) (4,026)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,644,310 262,911
----------- -----------
EFFECT OF FOREIGN CURRENCY TRANSACTIONS ON CASH 59,485 (17,940)
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 275,823 --
CASH AND CASH EQUIVALENTS, beginning of period -- --
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 275,823 $ --
=========== ===========
SUPPLEMENTAL DISCLOSURES
Interest paid $ 58,551 $ 5,199
Income taxes paid $ -- $ --
Schedule of non-cash investing and financing activities:
Acquisition of Linkdata Communications London Ontario Inc. $ 225,000 $ --
</TABLE>
The accompanying notes are an integral part of these financial statements
6.
<PAGE>
SYMPHONY TELECOM INTERNATIONAL, INC.
AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the Transition Period April 1, 1999 to June 30, 1999
Three Months
Ended
June 30,
1999
--------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $(86,876)
Adjustments to reconcile net (loss) to net cash used
by operating activities:
Depreciation and amortization expense 24,452
Changes in assets and liabilities:
Decrease in accounts receivable 12,239
Increase in prepaid expenses (170)
Increase in inventories (12,136)
Increase in accounts payable and bank overdraft 78,174
Decrease in accrued liabilities (4,781)
Decrease increase in income taxes payable 34
--------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,936
--------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (5,796)
Additions to other intangible assets (10,810)
--------
NET CASH USED BY INVESTING ACTIVITIES (16,606)
--------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable to related parties 4,291
Minority interest (358)
--------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,933
--------
EFFECT OF FOREIGN CURRENCY TRANSACTIONS ON CASH 1,737
--------
INCREASE IN CASH AND CASH EQUIVALENTS --
CASH AND CASH EQUIVALENTS, beginning of period --
--------
CASH AND CASH EQUIVALENTS, end of period $ --
========
SUPPLEMENTAL DISCLOSURES
Interest paid $ 23,311
Income taxes paid $ --
The accompanying notes are an integral part of these financial statements
7.
<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. 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. The Company changed its name to Symphony
Telecom International, Inc. by a resolution of the Board of Directors on March
23, 2000
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 shares each and 1,200,000
common 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.
The 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 7,356,875 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.
On February 28, 1999 Symphony Telecom Inc. acquired all of the common shares of
Communication Solutions Group Ltd., a company incorporated in Ontario, Canada,
which provides voice communication systems for small businesses in southern
Ontario, Canada. The acquisition has been accounted for on the basis of the
purchase method. The financial statements as presented reflect the results of
the combined entities, with results of operations of Communication Solutions
Group Ltd. being combined from the date of purchase.
The purchase price of $291,817 was satisfied by payment of cash $92,851, issuing
95,000 common shares of Symphony Telecom Inc. for a stated amount of $99,483
($1.05 per share) and transferring 200,000 common shares of Canadian Inter-Latin
Communications Inc. for a total amount of $99,483 ($.50 per share).
Subsequently, in March 1999 the 200,000 common shares of Canadian Inter-Latin
Communications Inc. were exchanged for 45,000 common shares of Symphony Telecom
International Inc. (Delaware).
The purchase price of $291,817 was allocated as follows:
Fair market value of net assets $ 676
Goodwill $ 291,141
Goodwill is being amortized on the straight-line basis with an estimated life of
5 years.
8.
<PAGE>
SYMPHONY TELECOM INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Included in the combined financial statements are the following amounts
attributed to Symphony Telecom Inc. and its subsidiary, Communication Solutions
Group Ltd.:
For the For the ten
year ended months ended
June 30, March 31,
2000 1999
---- ----
Revenues $467,239 $97,997
Net Loss $581,997 $63,610
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 and e-mail and virtual hosting services in
southern Ontario, Canada. The acquisition has been accounted for on the basis of
the purchase method. The financial statements as presented reflect the results
of the combined entities; however, there were no post acquisition results of
operations of Linkdata Communications London Ontario Inc. to be combined from
the date of purchase, June 29, 2000.
The purchase price of $495,160 is to be satisfied by a total payment of cash
$270,160, (of which $141,834 was paid at closing with the balance payable over
the next 12 months), and issuing 150,000 common shares of Symphony Telecom Inc.
for a stated amount of $225,000 ($1.50 per share). The purchase price of
$495,160 was allocated as follows:
Fair market value of net assets $ 7,501
Goodwill $ 487,659
Goodwill is being amortized on the straight-line basis with an estimated life of
5 years.
The comparative figures as of March 31, 1999 present the prior year-end of the
acquired company. The year-end has been changed to June 30, which the Company
will retain for all future periods. Results of operations and cash flows for the
transition period April 1, 1999 to June 30, 1999 are presented.
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 June 30, 2000 and March 31, 1999.
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 2000, the
Company has no net operating loss carryforwards available to offset financial
statement or tax return taxable income in future periods.
9.
<PAGE>
SYMPHONY TELECOM INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
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 no warrants and 35,000 common share options
outstanding at June 30, 2000, and no warrants or options were outstanding at
March 31, 1999.
FAIR VALUE OF FINANCIAL INSTRUMENTS The Company estimates that the fair value of
all financial instruments at June 30, 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, computer software
and telephone equipment are stated at cost. Expenditures for normal maintenance
and repairs are charged to expense as incurred. Depreciation is computed using
the reducing balance method over the estimated useful lives of the related
assets. Depreciation expense was $46,324 for the year ended June 30, 2000,
$23,406 for the ten-month period ended March 31, 1999, and $8,240 for the
transition period April 1 to June 30, 1999.
Estimated Rate and
Asset Class Lives Method
----------- --------- --------
Computer Equipment 9 years 30% per annum on reducing balance
Office Furniture 11 years 20% per annum on reducing balance
Automobiles 5 years 30% per annum on reducing balance
Computer Software 5 years 20% per annum on straight-line
Telephone Equipment 9 years 25% per annum on reducing balance
The details of property and equipment are as follows:
Net Net
Accumulated June 30 March 31
Cost Depreciation 2000 1999
----------- ------------ ---------- ----------
Computer Equipment $ 175,902 $ 72,956 $ 102,946 $ 5,685
Office Furniture 53,259 14,319 38,940 5,122
Automobiles 9,716 1,457 8,259 -
Computer Software 101,310 81,048 20,262 44,740
Telephone Equipment 69,052 27,531 41,521 57,513
----------- ------------ ---------- ----------
$ 399,523 $ 195,854 $ 203,669 $ 113,060
=========== ============ ========== ==========
10.
<PAGE>
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., a Canadian corporation, and
Symphony Telecom International, Inc., a Delaware corporation, and its
subsidiaries Symphony Telecom Inc. and a subsidiary of Symphony Telecom Inc.,
Communication Solutions Group Ltd., 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,
which was 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 a 25% interest in
the subsidiary, Canadian Inter-Continental Communications of Ecuador SA, a
company incorporated under the laws of Ecuador on November 23, 1998. The
minority interest in net loss of subsidiary 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.
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.
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities,"
("SOP 98-5") issued by the American Institute of Certified Public Accountants is
effective for financial statements beginning after December 15, 1998. SOP 98-5
requires that the costs of start-up activities, including organization costs, be
expensed as incurred. Start-up activities are defined broadly as those one-time
activities related to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business with a new
class of customers (excluding ongoing customer acquisition costs, such as policy
acquisition costs and loan origination costs) or beneficiary, initiating a new
process in an existing facility, or commencing some new operation.
11.
<PAGE>
SYMPHONY TELECOM INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
4. SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
The Company is Canadian based, and as such carries out its operations in Canada.
The subsidiary company in Ecuador has remained inactive since inception.
However, the Company includes as one of its target markets the U.S. small
business consumer market.
5. NOTES PAYABLE AND PROMISSORY NOTE
Private individuals have advanced amounts, which are due upon demand, bearing
interest ranging from nil% to 25% simple interest per annum. A promissory note
in the amount of $18,500 that was secured by certain assets of Symphony Telecom
Inc. was repaid subsequent to year-end. Other notes payable are all unsecured,
except the balance of the Linkdata Communications London Ontario Inc. purchase
which is secured by bank letters of credit.
6. LONG-TERM DEBT
Long-term debt, presented as notes payable to related parties, is summarized as
follows :
Principal Discount
---------- ----------
Non-interest-bearing notes payable to directors $ 110,953 $ 31,474
========== ==========
Notes payable to directors in the amount of $79,479 are considered long-term,
and are non-interest-bearing, with no specific terms for repayment. The discount
is based on an imputed interest rate of 10%, and has been recorded as
contributed capital.
7. COMMITMENTS
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 $89,498
2002 $60,481
2003 $22,053
2004 $ 8,407
The Company's rent and lease expenses were $56,909 for the year ended June 30,
2000, $30,221 for the ten-month period ended March 31, 1999, and $6,535 for the
transition period April 1 to June 30, 1999.
8. 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 $71,026 for the year ended June 30, 2000, $57,599 for
the ten-month period ended March 31, 1999, and $16,212 for the transition period
from April 1 to June 30, 1999.
12.
<PAGE>
SYMPHONY TELECOM INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
The details of goodwill and other intangible assets are as follows:
Net Net
Accumulated June 30 March 31
Cost Amortization 2000 1999
------------ ------------ ------------ ------------
Goodwill $ 840,872 $ 102,162 $ 738,710 $ 317,667
============ ============ ============ ============
9. 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 income.
10. SUBSEQUENT EVENTS
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 $4,389,311 being
satisfied by issue of 1,120,488 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 is to be accounted for using the
purchase method of accounting and the results of operations will be consolidated
from the effective date of acquisition.
The purchase price of $5,380,000 was satisfied by cash payment of $168,125 on
closing, and the issuance of 1,000,000 common shares of Symphony Telecom Inc.,
which are convertible, by September 30, 2005, into common shares of Symphony
Telecom International Inc. for a value representing $2,017,500. 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
$168,125 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 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,
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.
13.
