U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: DECEMBER 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
For the transition period from ______________ to _____________
Commission file number 0-27953
COLUMBUS NETWORKS CORPORATION
(Exact name of small business issuer as specified in its charter)
NEVADA 98-0187538
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
#305 - 478 BERNARD AVENUE, KELOWNA, BRITISH COLUMBIA, CANADA V1Y 6N7
(Address of principal executive offices)
(250) 860-6476
(Issuer's telephone number)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the last practicable date:
23,739,323 SHARES OF COMMON STOCK, $.001 PAR VALUE, AS OF
DECEMBER 31, 2001
Transitional Small Business Disclosure Format (check one); Yes [ ] No [X]
COLUMBUS NETWORKS CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(A DEVELOPMENT STAGE ENTERPRISE)
DECEMBER 31, 2001
2
COLUMBUS NETWORKS CORPORATION
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
(Expressed in United States Dollars)
================================================================================
December 31, June 30,
2001 2001
- --------------------------------------------------------------------------------
(Unaudited)
ASSETS
CURRENT
Accounts receivable $ 40,481 $ 92,412
Receivable from directors 10,723 20,131
Prepaid expenses and deposits 70,858 15,378
--------------- ---------------
Total current assets 122,062 127,921
FIXED ASSETS 179,050 112,952
WEB-SITE DEVELOPMENT 32,246 25,797
--------------- ---------------
TOTAL ASSETS $ 333,358 $ 266,670
================================================================================
- CONTINUED -
The accompanying notes are an integral part of these consolidated
financial statements.
3
COLUMBUS NETWORKS CORPORATION
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
(Expressed in United States Dollars)
================================================================================
December 31, June 30,
2001 2001
- ------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
CONTINUED...
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT
Cheques issued in excess of funds on deposit $ 22,587 $ 7,084
Accounts payable and accrued liabilities 273,286 254,794
Unearned revenue 153,817 153,969
Debt 60,350 80,165
Loans payable - 77,939
Convertible promissory notes (Note 3) 224,912 183,778
--------------- ---------------
Total current liabilities 734,952 757,729
--------------- ---------------
COMMITMENTS (Note 6)
STOCKHOLDERS' DEFICIENCY
Capital stock (Note 4)
Authorized
1,000,000 preferred shares with a par value of $0.01 per share
50,000,000 common shares with a par value of $0.001 per share
Issued
24,889,323 common shares (June 30, 2001 - 20,859,323) 24,889 20,859
Additional paid-in capital 1,396,520 641,033
Subscription for shares 25,677 250,000
Deficit accumulated during the development stage (1,853,157) (1,407,428)
Accumulated other comprehensive income 4,477 4,477
--------------- ---------------
Total stockholders' deficiency (401,594) (491,059)
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 333,358 $ 266,670
==============================================================================================================================
NATURE OF OPERATIONS (Note 1)
The accompanying notes are an integral part of these
consolidated financial statements.
4
COLUMBUS NETWORKS CORPORATION
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in United States Dollars)
(Unaudited)
================================================================================
Period From
Inception on
March 3, Three Month Three Month Six Month Six Month
1999 to Period Ended Period Ended Period Ended Period Ended
December 31, December 31, December 31, December 31, December 31,
2001 2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------
REVENUE
Fees $ 241,351 $ 55,066 $ 24,154 $ 85,816 $ 52,220
Interest and other income 2,352 - (175) - 327
------------- ------------- ------------- ------------- -------------
243,703 55,066 23,979 85,816 52,547
EXPENSES (Schedule) (2,096,860) (202,369) (352,322) (531,545) (494,553)
------------- ------------- ------------- ------------- -------------
LOSS FOR THE PERIOD $ (1,853,157) $ (147,303) $ (328,343) $ (445,729) $ (442,006)
==============================================================================================================================
BASIC AND DILUTED LOSS PER SHARE $ (0.01) $ (0.02) $ (0.02) $ (0.04)
==============================================================================================================================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 24,624,216 14,123,970 22,741,769 12,510,060
==============================================================================================================================
The accompanying notes are an integral part of these
consolidated financial statements.
5
COLUMBUS NETWORKS CORPORATION
(A Development Stage Enterprise)
CONSOLIDATED SCHEDULE OF EXPENSES
(Expressed in United States Dollars)
(Unaudited)
================================================================================
Period From
Inception on
March 3, Three Month Three Month Six Month Six Month
1999 to Period Ended Period Ended Period Ended Period Ended
December 31, December 31, December 31, December 31, December 31,
2001 2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------
Advertising and promotion 59,520 1,981 12,463 3,494 16,338
Amortization - fixed assets 59,687 16,273 6,553 25,633 11,056
Amortization
- web-site development 37,133 3,199 2,749 6,051 3,988
Automotive 65,881 8,608 14,174 9,344 21,499
Bank charges 7,693 2,779 737 4,491 1,170
Consulting 184,932 20,397 20,397 97,874 26,064
Conferences 77,625 (1,860) 20,043 4,490 26,155
Exchange gain (7,716) 2,520 - (6,003) -
Inducement fee 18,996 - - - -
Insurance 1,493 133 35 269 71
Interest 29,500 - - - -
Internet fees 57,161 7,124 9,759 12,424 15,196
Licences, fees and dues 4,318 - 298 - 369
Loss on settlement of liabilities 12,874 - - 12,874 -
Office 105,603 116 21,427 6,505 25,304
Professional fees 214,790 23,252 75,040 37,251 87,951
Rent 69,597 9,909 6,696 24,852 13,035
Repairs and maintenance 7,285 453 2,368 1,064 4,119
Telephone 39,643 4,476 3,655 9,046 6,011
Training 1,022 (38) - - -
Travel 90,403 (3,587) 20,727 4,861 24,813
Wages and benefits 956,862 106,634 135,201 277,025 211,414
Web-site development 2,558 - - - -
------------- ------------- ------------- ------------- -------------
$ 2,096,860 $ 202,369 $ 352,322 $ 531,545 $ 494,553
==============================================================================================================================
The accompanying notes are an integral part of these
consolidated financial statements.
6
COLUMBUS NETWORKS CORPORATION
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(Expressed in United States Dollars)
(Unaudited)
================================================================================
Capital Stock Deficit
--------------------------- Accumulated Accumulated Total
Number of Additional During the Comprehensive Stockholders'
Common Paid-in Subscription Development Other Equity
Shares Amount Capital for Shares Stage Income (Deficiency)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 3, 1999 - $ - $ - $ - $ - $ - $ -
Shares issued for
acquisition of assets 7,867,514 7,868 (7,866) - - - 2
Shares issued for cash 2,574,822 2,575 301,355 - - - 303,930
Shares issued for cash 114,437 114 13,394 - - - 13,508
Subscription for shares - - - 1,689 - - 1,689
Share issue costs - - (24,262) - - - (24,262)
Cumulative translation
adjustment - - - - - 2,036 2,036
Loss for the period - - - - (241,191) - (241,191)
----------- ---------- ---------- ----------- ------------ ----------- ------------
BALANCE, JUNE 30, 2000 10,556,773 10,557 282,621 1,689 (241,191) 2,036 55,712
Shares issued for
acquisition of assets 143,046 143 16,678 - - - 16,821
Shares issued upon
conversion of
share subscriptions 14,305 14 1,675 (1,689) - - -
Shares issued for cash 812,214 812 94,695 - - - 95,507
Shares issued for services 429,137 429 50,035 - - - 50,464
Shares issued for services 3,000,000 3,000 349,784 - - - 352,784
Shares issue costs - - (404,507) - - - (404,507)
Share held by Golden River
shareholders prior to
recapitalization 5,903,848 5,904 176,152 - - - 182,056
transaction
Subscriptions for shares - - - 250,000 - - 250,000
Warrants granted to share
subscribers - - 44,400 - - - 44,400
Warrants issued as
discount on
loans payable - - 29,500 - - - 29,500
Cumulative translation
adjustment - - - - - 2,441 2,441
Loss for the year - - - - (1,166,237) - (1,166,237)
----------- ---------- ---------- ----------- ------------ ----------- ------------
BALANCE, JUNE 30, 2001 20,859,323 20,859 641,033 250,000 (1,407,428) 4,477 (491,059)
Share issue costs - - (9,738) - - - (9,738)
Subscription for units - - - 491,401 - - 491,401
Shares cancelled (400,000) (400) 400 - - - -
Shares issued for
acquisition
of web-site 250,000 250 12,250 - - - 12,500
Shares issued for services
and services to be
rendered 600,000 600 40,431 - - - 41,031
Shares issued upon
conversion of share
subscriptions 3,580,000 3,580 712,144 (715,724) - - -
Loss for the period - - - - (445,729) - (445,729)
----------- ---------- ----------- ------------- ------------ ----------- ------------
BALANCE, DECEMBER 31, 2001 24,889,323 $ 24,889 $1,396,520 $ 25,677 $(1,853,157) $ 4,477 $ (401,594)
==================================================================================================================================
The accompanying notes are an integral part of these
consolidated financial statements.
7
COLUMBUS NETWORKS CORPORATION
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States Dollars)
(Unaudited)
================================================================================
Period From
Inception on
March 3, Six Month Six Month
1999 to Period Ended Period Ended
December 31, December 31, December 31,
2001 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the period $ (1,853,157) $ (445,729) $ (442,006)
Non-cash items:
Amortization 96,820 31,684 15,044
Loss on settlement of liabilities 12,874 12,874 -
Warrants issued as discount on loans payable recorded as interest 29,500 - -
Shares issued for services 6,500 6,500 -
Changes in non-cash working capital items:
Accounts receivable (40,481) 51,931 (1,209)
Prepaid expenses and deposits 16,868 (20,950) 15,842
Accounts payable and accrued liabilities 147,206 23,117 (6,122)
Unearned revenue 153,817 (152) 37,919
------------- ------------- -------------
Net cash used in operating activities (1,430,053) (340,725) (380,532)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in payable to directors - - (825)
Issuance of common shares, net of share issue costs 292,377 (9,738) 88,184
Proceeds from subscriptions for shares 758,807 427,873 -
Proceeds from debt 19,815 - -
Loans payable 26,215 (51,724) -
Issuance of convertible promissory notes 224,912 41,134 -
Cheques issued in excess of funds on deposit 22,587 15,503 -
------------- ------------- -------------
Net cash provided by financing activities 1,344,713 423,048 87,359
------------- ------------- -------------
- CONTINUED -
The accompanying notes are an integral part of these
consolidated financial statements.
8
COLUMBUS NETWORKS CORPORATION
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States Dollars)
(Unaudited)
================================================================================
Period From
Inception on
March 3, Six Month Six Month
1999 to Period Ended Period Ended
December 31, December 31, December 31,
2001 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------
CONTINUED...
CASH FLOWS FROM INVESTING ACTIVITIES
Business combination 362,632 - 362,632
Receivable from directors (10,723) 9,408 (26,977)
Purchase of fixed assets (230,988) (91,731) (35,262)
Web-site development costs capitalized (40,058) - (12,735)
------------- ------------- -------------
80,863 (82,323) 287,658
------------- ------------- -------------
EFFECT OF CHANGE IN EXCHANGE RATES ON CASH BALANCES 4,477 - 2,441
------------- ------------- -------------
INCREASE (DECREASE) IN CASH FOR THE PERIOD - - (3,074)
CASH, BEGINNING OF PERIOD - - 31,986
------------- ------------- -------------
CASH, END OF PERIOD $ - $ - $ 28,912
==============================================================================================================================
SUPPLEMENTARY INFORMATION:
Interest paid $ - $ - $ -
Income taxes paid - - -
==============================================================================================================================
SUPPLEMENTAL DISCLOSURE FOR NON-CASH FINANCING AND INVESTING ACTIVITIES (Note 5)
The accompanying notes are an integral part of these
consolidated financial statements.
9
COLUMBUS NETWORKS CORPORATION
(A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
(Unaudited)
SIX MONTH PERIOD ENDED DECEMBER 31, 2001
================================================================================
1. NATURE OF OPERATIONS
The Company was incorporated on June 17, 1997 under the laws of the
State of Nevada and its principal business activity is developing
electronic recruitment web-sites including educationcanada.com,
educationamerica.net and globalesl.net. The Company earns subscription
fees paid by the employers that use the web-sites to recruit teaching
professionals and is considered to be a development stage company in
accordance with Statement of Financial Accounting Standards No. 7.
Effective November 30, 2000, the Company acquired 100% of the
outstanding common shares of Columbus B.C. As the shareholders of
Columbus B.C. obtained control of the Company through the exchange of
their shares of Columbus B.C. for shares of the Company, the
acquisition of Columbus B.C. has been accounted for in these
consolidated financial statements as a recapitalization of Columbus
B.C. effectively representing an issuance of shares by Columbus B.C.
for the net assets of the Company. Consequently, the consolidated
statements of operations, stockholders' deficiency and cash flows
reflect the results from operations and cash flows of Columbus B.C.,
the legal subsidiary, for the period from its incorporation on March 3,
1999 to June 30, 2001 combined with those of the Company, the legal
parent, from November 30, 2000.
The accompanying consolidated financial statements have been prepared
by the Company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary
to present fairly the consolidated financial position, results of
operations, changes in stockholders' deficiency and cash flows at
December 31, 2001 and for the period then ended have been made. These
consolidated financial statements should be read in conjunction with
the audited consolidated financial statements of the Company for the
year ended June 30, 2001. The results of operations for the six month
period ended December 31, 2001 are not necessarily indicative of the
results to be expected for the year ending June 30, 2002.
2. GOING CONCERN
These consolidated financial statements have been prepared in
accordance with United States generally accepted accounting principles
applicable to a going concern which contemplates the realization of
assets and the satisfaction of liabilities and commitments in the
normal course of business. The general business strategy of the Company
is to continue pursuing debt and equity financing to support operations
until the billing of subscribers of educationcanada.com and
educationamerica.net is sufficient to meet cash flow requirements. The
continued operations of the Company is dependent upon the ability of
the Company to obtain the necessary financing and upon future
profitable operations. The Company has incurred operating losses and
requires additional funds to meet its obligations and maintain its
operations. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. These consolidated
financial statements do not include any adjustments that might result
from this uncertainty.
=============================================================================================
December 31, June 30,
2001 2001
---------------------------------------------------------------------------------------------
Deficit accumulated during the development stage $ 1,853,157 $ 1,407,428
Working capital (deficiency) (612,890) (629,808)
=============================================================================================
10
COLUMBUS NETWORKS CORPORATION
(A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
(Unaudited)
SIX MONTH PERIOD ENDED DECEMBER 31, 2001
================================================================================
3. CONVERTIBLE PROMISSORY NOTES
During the six month period ended December 31, 2001, the Company issued
a convertible promissory note for proceeds of CDN$80,000. The note is
unsecured, non-interest bearing and due on demand. The note will bear
interest at 15% per annum commencing January 1, 2002. At the option of
the holders, the note can be converted into common shares of the
Company at a price of $0.10 per share. The note does not contain a
beneficial conversion feature as it was convertible at a price greater
than the market price of the Company's common shares at the commitment
date.
The existing convertible promissory notes of $174,686 (CDN$278,240) due
on or before December 31, 2001 have not been repaid by the Company.
Accordingly, the notes will bear interest at 10% per annum commencing
January 1, 2002.
4. CAPITAL STOCK
During the six month period ended December 31, 2001, the Company
entered into the following capital stock transactions:
a) Issued 250,000 common shares at an agreed value of $12,500 for the
acquisition of a web-site and domain name.
b) Issued 250,000 common shares for services rendered relating to
equity financing of the Company. The fair value of the shares
issued was $25,000. Since these services are considered share
issue costs, the net effect of the transaction is to increase
capital stock by $250 and decrease additional paid-in capital by
$250.
c) Issued 130,000 common shares for services relating to salaries and
wages. The fair value of the shares issued was $6,500.
d) Issued 220,000 common shares for rental services to be provided
relating to the Company's lease of new premises. The fair value of
the shares issued was $34,531 which has been recorded as a prepaid
expense and is being expensed over the term of the lease.
e) Issued 3,580,000 common shares of an agreed value of $715,724 in
exchange for share subscriptions of $715,724.
f) Cancelled 400,000 common shares voluntarily returned to treasury
for $Nil consideration. The net effect of the transaction is to
decrease capital stock by $400 and increase additional paid-in
capital by $400.
SHARE SUBSCRIPTIONS
During the six month period ended December 31, 2001, the Company
entered into the following share subscription transactions:
a) Received $200,000 towards the sale of 1,000,000 units at $0.20 per
unit. Each unit consists of one common share and one share
purchase warrant. Each warrant entitles the holder to purchase one
common share at a price of $0.25 per share for a period of two
years from the date of issuance. The 1,000,000 units were
issued during the current six month period.
11
COLUMBUS NETWORKS CORPORATION
(A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
(Unaudited)
SIX MONTH PERIOD ENDED DECEMBER 31, 2001
================================================================================
4. CAPITAL STOCK (cont'd...)
SHARE SUBSCRIPTIONS (cont'd...)
b) Received $227,873 towards the sale of 1,380,000 units at $0.17 per
unit. Each unit consists of one common share and one share
purchase warrant. Each warrant entitles the holder to purchase one
common share at a price of $0.25 per share for a period of two
years from the date of issuance. The proceeds were used to prepay
leasehold improvements on the new premises of $66,050 and prepay
rent of $56,143. The remaining proceeds of $105,680 have been used
to fund operations. The 1,380,000 units were issued during the
current six month period.
c) Converted $16,513 of the loans payable into subscriptions for
100,000 units. Each unit consists of one common share and one
share purchase warrant. Each warrant entitles the holder to
purchase one common share at a price of $0.25 per share for a
period of one year from the date of issuance. The 100,000 units
were issued during the current six month period.
d) Converted $4,624 of accounts payable into subscriptions for 50,000
common shares with an approximate fair value of $8,500 resulting
in a loss on settlement of $3,876. The 50,000 common shares were
issued during the current six month period.
e) Converted $19,815 of the debt into subscriptions for 120,000 units
with an approximate fair value of $38,515 resulting in a loss on
settlement of $18,700. Each unit consists of one common share and
one share purchase warrant. Of the 120,000 total share purchase
warrants, 50,000 and 70,000 of the warrants entitle the holder to
purchase one common share at a price of $0.17 and $0.25,
respectively, per share for a period of two years from the date of
issuance. Subscriptions of $12,828 were converted into 50,000
units during the six month period ended December 31, 2001
consisting of 50,000 common shares and 50,000 warrants exercisable
at a price of $0.17 per share.
As a result of settling the above amounts, a loss on settlement of
$22,576, being the fair value of the subscriptions for units and shares
in excess of the carrying amount of the liabilities settled has been
included in the loss for the period. The loss on settlement of $22,576
has been partially offset by $9,702 of loans payable that were forgiven
by the lender resulting in a net loss on settlement of $12,874.
WARRANTS
The following share purchase warrants are outstanding as of December
31, 2001:
=======================================================================
Number Exercise
of Shares Price Expiry Date
-----------------------------------------------------------------------
100,000 $ 0.25 July 27, 2002
50,000 0.17 March 30, 2003
200,000 0.25 July 13, 2003
1,180,000 0.25 July 14, 2003
1,000,000 0.25 July 23, 2003
=======================================================================
12
COLUMBUS NETWORKS CORPORATION
(A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
(Unaudited)
SIX MONTH PERIOD ENDED DECEMBER 31, 2001
================================================================================
4. CAPITAL STOCK (cont'd...)
WARRANTS (cont'd...)
During the six month period ended December 31, 2001, 1,205,000 share
purchase warrants exercisable at $0.40 per share expired.
The fair value of the warrants granted of $18,700 was determined using
the Black Scholes method using the life of the warrants, volatility
factor of 150%, risk free rate of 4% and no assumed dividend rate.
STOCK OPTIONS
There has been no change in the status of the Company's outstanding
stock options during the six month period ended December 31, 2001.
5. SUPPLEMENTAL DISCLOSURE FOR NON-CASH FINANCING AND INVESTING ACTIVITIES
During the six month period ended December 31, 2001, the Company
entered into the following non-cash transactions:
a) Issued 250,000 (2000 - 143,046) common shares at an agreed value
of $12,500 (2000 - $16,821) to acquire a web-site and domain name.
b) Issued 3,580,000 (2000 - 14,305) common shares at an agreed value
of $715,724 (2000 - $1,689) in exchange for share subscriptions
received in advance.
c) Issued 600,000 (2000 - Nil) common shares at a fair value of
$41,031 (2000 - $Nil) for services and services to be provided.
d) Converted $4,624 (2000 - $Nil) of accounts payable into
subscriptions received of $8,500 resulting in a loss on settlement
of $3,876 (2000 - $Nil).
e) Converted $19,815 (2000 - $Nil) of debt into subscriptions
received of $38,515 resulting in a loss on settlement of $18,700
(2000 - $Nil).
f) Converted $16,513 (2000 - $Nil) of loans payable into
subscriptions received of $16,513 (2000 - $Nil).
g) Loans payable of $9,702 were forgiven by the lender and partially
offset against losses on the settlement of accounts payable and
debt.
13
COLUMBUS NETWORKS CORPORATION
(A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
(Unaudited)
SIX MONTH PERIOD ENDED DECEMBER 31, 2001
================================================================================
6. COMMITMENTS
The Company is committed to future minimum lease payments for operating
leases for premises as follows:
Year ended June 30
2002 $ 8,750
2003 35,000
2004 35,000
2005 35,000
2006 26,250
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Effective November 30, 2000, the Company completed the acquisition of 100% of
the outstanding common shares of Columbus B.C. As the Columbus B.C. shareholders
obtained effective control of the Company through the exchange of their shares
of Columbus B.C. for shares of the Company, the acquisition has been accounted
for in these consolidated financial statements as a reverse acquisition.
Consequently, the consolidated statements of operations and cash flows reflect
the results from operations and changes in financial position of Columbus B.C.,
the legal subsidiary, since inception combined with those of the Company, the
legal parent, from the date of acquisition on November 30, 2000, in accordance
with generally accepted accounting principles for reverse acquisitions. In
addition, the comparative figures are those of Columbus B.C., the legal
subsidiary.
RESULTS OF OPERATIONS
The Company's level of activity was greater during the six months ended December
31, 2001 as compared to the same period in the prior year primarily due to the
aggressive marketing campaign during Fiscal 2001.
During the past six months, the Company has continued to focus its efforts on
developing and marketing its electronic recruitment websites including
educationcanada.com, educationamerica.net and globalesl.net. Due to the success
of the marketing campaign the Company has discontinued offering the first year's
membership free in an effort to ensure quality of service as the Company grows
and to improve the negative cash position of the Company.
Fee revenue of $85,816 was earned in the six months ended December 31, 2001 and
a further $153,817 of unearned revenue will be recognized as revenue over the
next fourteen months ended February 28, 2003. Fee revenue has risen 64% to
$85,816 in the six months ended December 31, 2001 from $52,220 in the same
period ended December 31, 2001 primarily due to expanding the customer base with
aggressive marketing and due to the expiry of the free trial period for many
customers. During the three months ended December 31, 2001, revenues increased
128% from $24,154 to $55,066.
During the six months ended December 31, 2001, the Company incurred a loss of
$445,729 due primarily to aggressive marketing activities and the cost of
servicing the existing customer base. This compares to a loss of $442,006 during
the comparable period in fiscal 2001. The marketing activities resulted in
increases in wages and benefits and consulting. During the six months ended
December 31, 2000 significantly less activity occurred as the aggressive
marketing campaign was just getting underway.
The loss for the three months ended December 31, 2001 ($147,303) was
significantly less than that of the comparable period of the preceding fiscal
year ($328,343), as a result of the trend of increased revenues and decreased
expenses.
During the periods ended December 31, 2001, advertising and promotion has
decreased significantly in fiscal 2002 over fiscal 2001 ($1,981 as compared to
$12,463 for three months and $3,494 as compared to $16,338 for six months) as
the Company focused its marketing efforts on regional sales representatives
rather than direct advertising.
Automotive and travel costs have decreased by $12,155 (57%) and $19,952 (80%)
respectively for the six-month period in fiscal 2002 over fiscal 2001 as the
Company reduced the amount of automobile travel and marketing travel necessary
for its operations. Decreases for the three-month period for automotive and
travel costs were $5,566 (39%) and $24,314 (117%).
While consulting expenses for the three months ended December 31, 2001 did not
increase from the previous year, this expense for the six-month period shows a
significant increase of $71,810 (275%) in fiscal 2002 over fiscal 2001 as the
Company carried out more aggressive marketing by making use of regional sales
representatives and investor relations activities in 2001.
Amortization expense has increased by $10,170 (110%) and $16,640 (111%) for the
three and six-month periods in 2002 over 2001 as the Company acquired more fixed
assets and capitalized website development during 2001.
15
Rent has increased significantly in fiscal 2002 over fiscal 2001 as the Company
moved into new larger premises effective October 1, 2001 and its previous lease
did not expire until October 31, 2001.
Wages and benefits show an increase of $65,611 (31%) for the six-month period in
fiscal 2002 over fiscal 2001, but the Company has recently reduced its staff.
Accordingly, wages and benefits decreased by $28,567 (21%) for the three months
ended December 31, 2001 as compared to the previous fiscal year.
The Company also incurred a loss on settlement of liabilities of $22,576 during
the six months ended December 31, 2001, as a result of settling $40,952 of
liabilities by issuing common stock and common stock purchase warrants. This
loss on settlement was partially offset by a gain of settlement of $9,702 of
loans payable that was forgiven by the lender, resulting in a net loss on
settlement of $12,874.
FINANCIAL CONDITION
Since inception, the Company has financed its operations through the sale of
equity, membership fees received and short term financing.
In April 2001 the Company began its billing cycle for membership renewals for
educationcanada.com beginning in July 2001. Varying discounts were being offered
for early payment to generate cash flow to meet working capital needs. In
addition, during the six months ended December 31, 2001 the Company began its
billing cycle for membership renewals for educationamerica.net beginning October
1, 2001 as the first free trial periods expired.
At December 31, 2001 the Company had a working capital deficiency of $612,890 as
compared to a working capital deficiency of $629,808 at June 30, 2001. The
reduced deficiency is due primarily to the cash received for the subscription
for shares of $427,873 and issuance of a convertible promissory note in the
amount of $41,134 during the period offset by the net cost of operations,
repayment of loans payable of $51,724 and the acquisition of leasehold
improvements of $91,731.
PLAN OF OPERATION
Of the current liabilities at December 31, 2001, $295,873 represents trade and
other obligations and $60,350 represents debt that does not have a fixed date
for repayment. The unearned revenue of $153,817 represents membership fees
received that pertain to various periods from January 1, 2002 to February 28,
2003. In addition, the Company has convertible promissory notes of $174,686 due
on or before December 31, 2001, which have not been repaid. These notes bear
interest at 10% per annum.
At December 31, 2001 the Company had issued cheques in excess of funds on
deposit in the amount of $22,587. Management plans to obtain sufficient working
capital from operations by continuing its marketing efforts using regional sales
representatives to attract new customers and by obtaining external financing to
meet the Company's liabilities and commitments as they become payable over the
next twelve months. Management may also attempt to convert some of its
liabilities into equity, as it has done during the six months ended December 31,
2001. There can be no assurance that management plans will be successful.
Failure to obtain sufficient working capital will cause the Company to curtail
operations.
Management has implemented cost controls, while aggressively increasing its
selling efforts in an effort to achieve positive cash flow. Management believes
that it will be able to do in calendar year 2002. In addition, the Company has
acquired its leading competitor in the United States, primarily through the
issuance of stock, thereby increasing its market share in the United States.
Accordingly, if the Company can survive its current working capital deficiency,
management believes that its prospects for the future are promising.
FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-QSB and the Company's
Annual Report on Form 10-KSB for its fiscal year ended June 30, 2001, as well as
statements made by the Company in periodic press releases, oral statements made
by the Company's officials to analysts and shareholders in the course of
presentations about the Company, constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform
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Act of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties, and other factors that may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by the forward looking
statements. Such factors include, among other things, (1) general economic and
business conditions; (2) interest rate changes; (3) the relative stability of
the debt and equity markets; (4) competition; (5) demographic changes; (6)
government regulations particularly those related to Internet commerce; (7)
required accounting changes; (8) equipment failures, power outages, or other
events that may interrupt Internet communications; (9) disputes or claims
regarding the Company's proprietary rights to its software and intellectual
property; and (10) other factors over which the Company has little or no
control.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) EXHIBITS: None.
B) REPORTS ON FORM 8-K: 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.
COLUMBUS NETWORKS CORPORATION
(Registrant)
Date: February 22, 2002 By: /s/ DAN COLLINS
----------------------------------------------
Dan Collins, President
(Principal Financial and Accounting Officer)
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