U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number 0-32051
WESTSPHERE ASSET CORPORATION, INC.
(Exact name of small business issuer
as specified in its charter)
COLORADO | 98-0233968 |
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SUITE 212, 214 - 11 AVENUE S.E.
CALGARY, ALBERTA, CANADA T2G 0X8
Telephone (403) 290-0264
(Issuer's telephone number)
NOT APPLICABLE
(Former name, former address and former
fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YesX | No__ |
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State the number of shares outstanding of each of the issuer's classes of common equity, as of the last practicable date:
20,458,701 shares of Common Stock, no par value, as of October 15th, 2001.
Transitional Small Business Disclosure Format
(check one): Yes__No _X_
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WESTSPHERE ASSET CORPORATION, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Consolidated Financial Statements: |
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Consolidated Balance Sheet |
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Consolidated Statements of Operations |
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Consolidated Statement of Cash Flows |
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Notes to Financial Statements |
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WESTSPHERE ASSET CORPORATION, INC.
Consolidated Balance Sheet
September 30, 2001
(Unaudited)
ASSETS
| 2001 | |
CURRENT ASSETS |
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Cash and cash equivalents | $ 86,464 | |
Accounts receivable net of $288 allowance for doubtful accounts at September 30, 2001 |
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Current portion of direct financing and sales-type leases | 3,712 | |
Corporate tax refund | 1,367 | |
Inventory | 101,894 | |
Prepaid expense | 20,412 | |
Total current assets | 401,692 | |
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Property and equipment, net of accumulated depreciation of $86,738 at September 30, 2001 |
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Other Assets - |
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Deferred site development costs | 22,897 | |
Investment in Kan-Can Resorts, Ltd. | 95,721 | |
Non-current loans and in-house financial receivables | 36,272 | |
Future tax benefits | 12,711 | |
Other investments | 10,843 | |
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Total assets | $ 872,064 | |
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LIABILITIES AND STOCKHOLDERS' EQUITY | ||
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CURRENT LIABILITIES |
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Accounts payable | $ 182,607 | |
Deposits payable | 60,071 | |
Total current liabilities | 242,678 | |
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Convertible debentures | 184,887 | |
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Total liabilities | 427,565 | |
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COMMITMENTS AND CONTINGENCIES - Note 4 |
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STOCKHOLDERS' EQUITY |
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Common stock - authorized 75,000,000 shares, no par value; |
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20,458,701 shares issued and outstanding at September 30, 2001 | 765,295 | |
Accumulated other comprehensive income (loss) | (21,750) | |
Accumulated deficit | (299,046) | |
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Total stockholders' equity | 444,499 | |
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Total liabilities and stockholders' equity | $ 872,064 |
WESTSPHERE ASSET CORPORATION, INC.
Consolidated Statements of Operations
For the Three Months Ended September 30, 2001, and 2000
(Unaudited)
Restated | ||||||
| 2001 |
| 2000 | |||
Revenue |
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Sales | $ 306,831 |
| $ 217,561 | |||
Financing income | - |
| 5,505 | |||
Consulting fee income | 7,762 |
| 5,438 | |||
Total revenue | 314,593 |
| 228,504 | |||
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Cost of goods sold | 100,968 |
| 64,697 | |||
Gross profit | 213,625 |
| 163,807 | |||
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Expenses | ||||||
Consulting fees | 28,895 | 67,230 | ||||
Salaries and benefits | 66,081 |
| 55,591 | |||
Depreciation and amortization | 19,261 |
| 4,416 | |||
Travel | 23,016 |
| 12,318 | |||
Other administrative costs | 70,336 |
| 63,945 | |||
Total expenses | 207,589 |
| 203,500 | |||
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Income (loss) from operations | 6,036 |
| (39,693) | |||
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Other income: |
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Gain on sale of equipment | - |
| - | |||
Interest income | 1,479 |
| - | |||
Interest expense | - |
| (4,602) | |||
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Net (loss) before income taxes | 7,515 |
| (44,295) | |||
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Future income tax benefit | - |
| - | |||
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Net income (loss) | $ 7,515 | $ | $ (44,295) | |||
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Net profit (loss) per common share | * |
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* Less than $(.01) per share. |
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Other comprehensive income: |
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Net (loss) earnings | $ 7,515 |
| $ (44,295) | |||
Foreign currency translation gain | (4,559) |
| (7,886) | |||
Total comprehensive income (loss) | $ 2,956 |
| $ (52,181) |
WESTSPHERE ASSET CORPORATION, INC.
Consolidated Statements of Operations
For the Nine Months Ended September 30, 2001, and 2000
(Unaudited)
Restated | ||||||
| 2001 |
| 2000 | |||
Revenue |
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Sales | $ 867,257 |
| $ 988,971 | |||
Financing income | 23,402 |
| 5,505 | |||
Consulting fee income | 1,072 |
| 5,438 | |||
Total revenue | 891,731 |
| 999,914 | |||
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Cost of goods sold | 315,051 |
| 497,989 | |||
Gross profit | 576,680 |
| 501,925 | |||
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Expenses | ||||||
Consulting fees | 86,328 | 95,455 | ||||
Salaries and benefits | 192,132 |
| 186,140 | |||
Depreciation and amortization | 52,600 |
| 16,724 | |||
Travel | 106,667 |
| 63,174 | |||
Other administrative costs | 195,155 |
| 148,637 | |||
Total expenses | 632,882 |
| 510,130 | |||
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Income (loss) from operations | (56,202) |
| (8,205) | |||
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Other income: |
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Gain on sale of equipment | - |
| 656 | |||
Interest income | 2,997 |
| 1,541 | |||
Interest expense | (2,860) |
| (18,881) | |||
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Net (loss) before income taxes | (56,065) |
| (24,889) | |||
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Future income tax benefit | - |
| - | |||
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Net income (loss) | $ (56,065) |
| $ (24,889) | |||
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Net profit (loss) per common share | * |
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* Less than $(.01) per share. |
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Other comprehensive income: |
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Net (loss) earnings | $ (56,065) |
| $ (24,889) | |||
Foreign currency translation gain (loss) | (9,227) |
| (7,518) | |||
Total comprehensive income (loss) | $ (65,292) |
| $ (32,407) |
WESTSPHERE ASSET CORPORATION, INC.
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2001, and 2000
(Unaudited)
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| Restated |
| 2001 |
| 2000 |
Cash flows from operating activities: |
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Net income (loss) from operations | $ (56,065) |
| $ (24,889) |
Reconciling adjustments - |
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Depreciation and amortization | 30,490 |
| 13,073 |
Gain (loss) on foreign currency translation | (9,277) |
| 7,518 |
Changes in operating assets and liabilities - |
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Accounts receivable | (70,824) |
| 11,463 |
Investment in direct financing and sale-type leases | (4,256) | (21,692) | |
Inventory | (11,311) |
| 11,907 |
Prepaid expenses and other | (4,233) |
| 5,122 |
Deposit payable | 30,263 |
| (8,897) |
Accounts payable and accrued liabilities | (18,296) |
| 29,162 |
Long-term receivables | (63,435) |
| (58,533) |
Net cash provided (used for) operations | (176,944) |
| (35,766) |
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Cash flows from investing activities: |
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Deferred site development cost | 9,186 |
| 9,729 |
Purchase of equipment | (86,415) |
| (189,073) |
Increase in long-term receivables | 14,952 |
| - |
Other | (4,638) |
| 2,322 |
Net cash (used for) investing activities | (66,915) |
| (177,022) |
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Cash flows from financing activities: |
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Issuance of stock | 202,756 |
| 62,500 |
Increase in debt | - |
| 56,463 |
Shareholder loan | (9,663) |
| 5,226 |
Convertible debentures | (27,564) |
| 79,735 |
Net cash provided by financing activities | 165,529 |
| 203,924 |
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Net change in cash and cash equivalents | (78,330) |
| (8,864) |
Cash and cash equivalents at beginning of period | 164,794 | 62,267 | |
Cash and cash equivalents at end of period | $ 86,464 |
| $ 53,403 |
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WESTSPHERE ASSET CORPORATION, INC.
Notes to Consolidated Financial Statements
September 30, 2001
(Unaudited)
Note 1 - Financial Statements
The accompanying consolidated financial statements included herein have been prepared by Westsphere Asset Corporation, Inc. (the "Company") without audit, pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-QSB. Certain information and footnote disclosure normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as allowed by such rules and regulations, and Westsphere Asset Corporation, Inc. believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these financial statements be read in conjunction with the December 31, 2000 audited financial statements and the accompanying notes thereto contained in the Annual Report on Form 10-KSB filed with the Securities and Exchange Commission April 16, 2001. While management believes the procedures followed in preparing these financial statements are rea sonable, the accuracy of the amounts are in some respects dependent upon the facts that will exist, and procedures that will be accomplished by Westsphere Asset Corporation, Inc. later in the year. The results of operations for the interim periods are not necessarily indicative of the results of operations for the full year. In management's opinion all adjustments necessary for a fair presentation of the Company's financial statements are reflected in the interim periods included.
Note 2 - Summary of Significant Accounting Policies
Organization
The Company was incorporated in Colorado on July 21, 1998 as Newslink Networks TDS, Inc. and changed its name to Westsphere Asset Corporation, Inc. on April 29, 1999. On December 12, 1998, Westsphere acquired 41% of Vencash Capital Corporation (Vencash) and then on December 17, 1999, Westphere acquired the remaining 59% of the outstanding stock of Vencash by exchanging common stock. The Company accounted for its acquisition of Vencash as a reverse acquisition since certain shareholders were shareholders of both corporations. Vencash is in the business of selling and installing cash vending machines throughout Canada. On May 18, 1999, Westsphere formed a wholly owned subsidiary, Westsphere Financial Group Ltd. (Financial), which was organized to lease cash vending machines. On May 16, 2000, VC/POS/ATM Services Inc. (Services) and 880487 Alberta Ltd. (Alberta) was incorporated as wholly owned subsidiaries of Westsphere. Services and Alberta had no business activity during this period. On September 23, 1998, Vencash Capital Corporation incorporated Vencash Financial Corporation as a subsidiary, and had no business activity as of June 30, 2001.
On June 1, 1999, Westsphere acquired its interest in Kan-Can Resorts Ltd. (Kan-Can), by exchanging 290,000 shares of its common stock for a 10% interest in Kan-Can. The Company accounts for its investment in Kan-Can on the cost basis. On August 1, 2000, Westsphere acquired a 5% interest in E-Debit International, Inc. (E-Debit) for $1,350 cash. E-Debit is a provider of prepaid debit cards. The Company accounts for its investment in E-Debit on the cost basis.
Restatement of Financial Statements
As described in Note 1, the acquisition of Vencash for accounting purposes has been treated as a reverse acquisition. The effect of the accounting for the reverse acquisition is to remove goodwill as an asset that had been recorded under the purchase method of accounting. The change was made effective as of December 31, 1999. The net income in the statements of operations for the three months and nine months ended September 30, 2000 was decreased by $3,281 and $9,842, respectively, resulting from the elimination of the amortization of goodwill.
Basis of Consolidation
The consolidated financial statements include the Company and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated.
Note 3 - Common Stock
During the three months ended September 30, 2001, the Company issued an additional 28,860 shares of its common stock from a conversion of $9,235 of convertible debentures.
Note 4 - Commitments
The Company has agreed to purchase property in Calgary, Alberta, Canada, for the purchase price of $2,380,000 of Canadian funds. (An estimated $1,570,000 US Dollars.) The Company intends to assume an existing mortgage and become indebted on the balance. The balance is to be secured by 538,000 shares of its Common Stock.
The Company has agreed to purchase real estate in Surrey, British Columbia, Canada by issuing 1,462,938 shares of its common stock plus certain warrants to buy additional stock. The purchase is subject to "due diligence" and the completion of satisfactory title considerations.
During October 2001, the Company acquired an additional 85% of E-Debit that gives the Company a 90% ownership.
Note 5 - Subsequent Events
Subsequent to September 30, 2001, the Company sold 202,000 shares of its common stock under a private placement for $101,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
At present, Westsphere Asset Corporation ("Westsphere" or the "Company") earns its income through its wholly owned subsidiaries, Vencash Capital Corporation and Westsphere Financial Group Ltd. Management is of the opinion that Vencash Capital Corporation will generate sufficient revenue from its operations to meet the operating expenses of Vencash Capital. However, such revenues will not be sufficient to fund the operating needs of Westsphere itself or the operating needs of its other subsidiary, Westsphere Financial Group Ltd. The company has sufficient cash flow to cover its operations for the next four months. Capital from equity issues or borrowings of $160,000 will be required to fund the operations of Westsphere and Westsphere Financial Group to cover the last eight months of the next twelve month period. Thereafter, the Company believes that Vencash Capital will generate sufficient funds to cover the overall operations. All dollar references in this section and in our fina ncial statements are in U.S. dollars.
Plan of Operations
As of September 30, 2001, Westsphere had limited cash resources. Westsphere needs to raise additional funds to meet its cash requirements for the next twelve months. Westsphere intends to raise such funds from the sale of equity securities, borrowings, government grants and partnering with industry in the development of its technologies. Westsphere has been raising funds on an as needed basis from related parties and existing shareholders. These funds are presently booked as convertible debentures with no interest for the first year and an option to converted into equity. Westsphere recently closed a private offering of shares of common stock under which the Company sold 202,000 shares for $101,000. The use of proceeds were distributed as follows: $24,100 was used to fund the asset growth of the Company's wholly-owned operating subsidiary, Westsphere Financial Group Ltd.; $41,200 was used to fund the asset growth of the company's other wholly-owned operating subsidiary, Vencash Capital Corporation; and $35,700 was used for working capital.
During the quarter ended September 30, 2001, Westsphere advanced funds of $9,135 to its wholly owned subsidiary, Westsphere Financial Group Ltd., to fund short-fall operating expenses During such quarter, the Company also advanced $11,855 to its related company, TRAC POS Processing Inc., to expand its business. The Company also received repayment of $1,224 from its related company KanCan Resorts Ltd.
Westsphere does not expect to conduct any research and development during the next twelve months, nor does it expect that its subsidiaries will conduct any research and development during such period of time. Westsphere and its subsidiaries do not expect to sell any equipment during the next twelve months. Vencash Capital will continue to build up its capital assets by purchasing and placing more ATMs in the market. Westsphere and its subsidiaries do not expect to have a significant change in the number of employees during the next twelve months.
Short Term
On a short term basis, Westsphere's subsidiary Vencash Capital Corporation is expected to generate sufficient revenues to meet overhead needs. In order to meet its growth plan, Westsphere will continue to be dependent on equity funds raised, joint venture arrangements and/or loan proceeds for the last six months of the next twelve month period.
Long Term
As mentioned above, Westsphere believes that it's subsidiary, Vencash Capital, generates sufficient ongoing revenue to ensure that Westsphere is a going concern. It is anticipated that operations will have substantial increases in net cash flow at the fiscal year ended December 31, 2001. Westsphere will remain reliant on the successful development and marketing of the products related to its business for possibility of future income.
Capital Resources
The primary capital resources of Westsphere is the operations of its wholly owned subsidiary, Vencash Capital. The secondary capital resource will be its stock which may be illiquid because of resale restrictions and/or as a result of its inability to sustain the growth of its market and the risk of takeover by competitors. Westsphere may thus have to locate debt financing, joint ventures or merger/acquisition candidates to meet its operations expenses and will be required to raise funds by either loans, joint ventures or equity financing in order to meet these commitments.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June 1999, Westsphere purchased a non-dilutable 10% interest in Kan-Can Resorts Ltd. Kan-Can Resorts Ltd. owns a Province of Alberta, Canada head lease for leases at Pigeon Mountain in the Province of Alberta, Canada and sublet the right of use for these leases to Alpine Resort Haven Limited Partnership, a time share resort company.
During November, 1999 the shareholders of Kan-Can Resorts Ltd. initiated legal action against Alpine Resorts Haven Ltd. for non-payment of lease fees. Kan-Can Resorts Ltd. was successful in its legal action and received a judgment in the amount of $500,000 ($740,000 CDN) and Alpine Resorts Haven Ltd. was given a notice to vacate by the courts.
During April 2000, Kan-Can Resorts Ltd. detailed a restructuring plan for Alpine Resort Haven Ltd. and presented it to the time share owners. During April, 2000 three individual time share owners brought an application before the courts to stay the court decisions of November, 1999 and to petition Alpine Resort Haven Ltd. into bankruptcy. The courts ruled favorably on this application and the stay was granted and Alpine Resort Haven Ltd. was petitioned into bankruptcy.
Kan-Can is not a party to the bankruptcy proceeding and has been granted a secured creditor position, which has been stayed by the bankruptcy proceeding. Kan-Can Resorts Ltd. has mounted a defense against the stay of proceedings.
On February 28, 2001 the time share owners offered to purchase all of assets including the head lease of Kan Can Resort Ltd. for the price of $469,097 USD ($740,000 CDN). The purchase price is to be paid $107,765 USD ($170,000 CDN) on closing, and the remaining balance of $361,332 USD ($570,000 CDN) by monthly installments of $5,695 USD ($8,983 CDN) inclusive of interest at a rate of 4.25% per annum commencing May 1, 2002, which may be prepaid at any time without bonus or penalty. Westsphere expects that this transaction will be completed by the end of November 2001.
ITEM 2.CHANGES IN SECURITIES
During the first six months of fiscal year 2001, Westsphere conducted a private placement offering of units for a maximum of $1,000,000 dollars at $0.50 US per unit. Each includes one share of Common Stock and two share purchase warrants. The first share purchase warrant is exercisable within a period of one year from the date of issuance, entitling the purchaser to purchase and additional share of Common Stock at seventy-five cents (USD $0.75) per share. The second share purchase warrant is exercisable within a period of two years from the date of issuance, entitling the purchaser to purchase an additional share of Common Stock at one dollar (USD $1.00) per share. Westsphere has raised total $189,521 from this offering. Listed below is the use of funds from the offering:
Amount (US$)
- To fund the costs of the Offering $ 14,100
- To fund Working Capital 33,336
- To fund Asset Growth of subsidiary Westsphere Financial Group Ltd.
- To facilitate the expansion of its leasing and financing program in
relationship to the financial opportunities resulting from Vencash
placement of ATM 114,750
- To fund development and expansion of the Corporation's ownership of
Joint-Venture Partner E-Debit International Inc. 10,825
- To fund the acquisition of asset backed companies that are producers
of cash flows which will allow for a solid return on the Corporation's
Investment.16,510
Total$ 189,521
On June 20, 2001 the Company issued 13,192 shares of its common stock upon the exercise of an existing warrant at the total price of $4,000US (or $0.30 per share). The warrant was originally issued pursuant to the conversion of a debenture into units comprised of shares and warrants.
On October 18, 2001, Westsphere issued 200,000 shares of its common stock to the shareholders of 347830 Alberta Ltd., an Alberta corporation, in exchange for 347830 Alberta Ltd.'s outstanding loan payable by Kan Can Resorts Ltd. and a 57% interest in Kan Can Resorts Ltd. Prior to this acquisition, Westsphere was a 10% owner of Kan Can Resorts Ltd., thus increasing its percentage ownership to 67%. The loan payable by Kan Can Resorts has a principal balance of $63,391, with no repayment terms. However, it is anticipated that at the closing of the transaction described in Item 1 of this Part II that Kan Can will repay the $100,000 loan from the $100,000 down payment.
On November 1, 2001, Westsphere conducted a private placement of 202,000 of its shares of common stock for $101,000 cash. The shares were purchased by MBR Venture Corporation, an Alberta corporation. No underwriters were used in this private placement and no commissions were paid. The private placement was conducted under Regulation S of the rules and regulations promulgated by the Securities and Exchange Commission under the Securities Act of 1933. Listed below is the use of funds from this offering:
a) To fund asset growth of subsidiary VenCash Capital Corp. $41,200
b) To fund asset growth of subsidiary Westsphere Financial $24,100
c) Working Capital of Westsphere $35,700
Total $101,000
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
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.
WESTSPHERE ASSET CORPORATION, INC.
By:/s/ Robert Robins
Name: Robert Robins
Title: Vice-President
Date: November 14, 2001
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/ Kim Law
Name: Kim Law
Title: Principal Financial Officer
Date: November 14, 2001
By:/s/ Kim Law
Name: Kim Law
Title: Principal Accounting Officer
Date: November 14, 2001
Exhibit Number | Description | Reference |
3.1(i) | Articles of Incorporation filed and all amendments thereto filed with the Secretary of the State of Colorado July 21, 1998 | * |
3(i)(a) | By-Laws of Westsphere Asset Corporation, Inc. | * |
3(i)(b) | By-Laws of Vencash Capital Corporation | * |
4 | Specimen Stock Certificate | * |
10.1 | Agreement dated December, 1998 by and between Westsphere Asset Corporation, Inc. and 3 Ocean Investment Corporation | * |
10.2 | Share Exchange Agreement dated December 7, 1998 by and between Westsphere Asset Corporation, Inc. MacDonald Venture Corporation, Mr. Joseph Bowser and Mr. Robert L. Robins | * |
10.3 | Sample Conversion Agreement by and among Westsphere Asset Corporation, Inc. and various shareholders of Vencash Capital Corporation | * |
10.4 | ABS Processing Agreement dated October 28, 19988 by and between Vencash Capital Corporation and TNS Smart Network Inc. | * |
10.5 | Agreement dated June 24, 1999 by and between Vencash Capital Corporation and TCS (Canada) Limited | * |
10.6 | Sample Convertible Debenture issued by Westsphere Asset Corporation, Inc. in connection with the offering of $105,600 convertible debentures | * |
10.7 | Sample Loan Agreement and Promissory Note between Westsphere Asset Corporation, Inc. and various investors | * |
*Previously filed as Exhibits for the Registrant's Annual Report on Form 10-KSB April 26, 2001