UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _______________
Commission file number 000-11808
SYMPHONY TELECOM CORP
(Exact name of small business issuer as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
87-0378892
(IRS Employer Identification No.)
41 George Street South, Brampton, Ontario, Canada
(Address of principal executive offices)
(905) 457-4300
(Issuer's telephone number)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: Common Shares outstanding as of
September 30, 2001: 31,355,830
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [x]
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
SYMPHONY TELECOM CORP.
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 and 2000
(Unaudited)
SYMPHONY TELECOM CORP.
AND SUBSIDIARIES
SEPTEMBER 30, 2001 and 2000
(Unaudited)
CONTENTS
Page
FINANCIAL STATEMENTS
Consolidated Balance Sheets 1
Consolidated Statements of Operations and Other Comprehensive (Loss) 2
Consolidated Statements of Cash Flows 3
Notes to Consolidated Financial Statements 4- 10
SYMPHONY TELECOM CORP.
AND SUBSIDIARIES
Consolidated Balance Sheets
September 30 June 30
2001 2001
---- ----
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 145,932 $ 115,123
Short-term investments, securing letters of credit 132,214 302,971
Accounts receivable, net of allowance for doubtful
accounts of $173,100 and $121,059 1,873,791 1,410,436
Note receivable 200,000 200,000
Finished Goods Inventory 325,699 157,094
Income taxes recoverable 61 64
Prepaid expenses 194,414 280,339
----------- -----------
TOTAL CURRENT ASSETS 2,872,111 2,466,027
----------- -----------
PROPERTY AND EQUIPMENT
Automobiles, computer equipment and office furniture 690,326 711,791
Systems software 133,754 137,760
Telephone equipment 121,757 126,944
----------- -----------
945,837 976,495
Less: accumulated depreciation (403,372) (379,170)
----------- -----------
TOTAL PROPERTY AND EQUIPMENT 542,465 597,325
----------- -----------
OTHER ASSETS
Goodwill, net 4,375,133 4,859,012
----------- -----------
TOTAL OTHER ASSETS 4,375,133 4,859,012
----------- -----------
TOTAL ASSETS $ 7,789,709 $ 7,922,364
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank loans $ 244,429 $ 362,414
Accounts payable 2,943,169 2,322,315
Accrued liabilities 792,852 697,277
Notes payable 1,582,778 1,650,210
Deferred revenue 120,680 125,821
Current portion of leases payable 28,517 31,561
Current portion of long-term loans 58,065 68,795
----------- -----------
TOTAL CURRENT LIABILITIES 5,770,490 5,258,393
----------- -----------
OTHER LIABILITIES
Deferred income taxes 252 262
Leases payable 42,714 48,748
Long-term loans 842,432 860,092
Notes payable to related parties 53,617 44,625
----------- -----------
TOTAL OTHER LIABILITIES 939,015 953,727
----------- -----------
TOTAL CURRENT AND OTHER LIABILITIES 6,709,505 6,212,120
MINORITY INTEREST 1,344,374 514,895
STOCKHOLDERS' (DEFICIT) EQUITY
Common stock: $0.0001 par value, 100,000,000 shares authorized;
31,355,830 and 29,355,830 shares issued and outstanding 3,136 2,935
Preferred stock,: $0.0001 par value, 100,000,000 shares authorized;
none issued
Additional paid-in capital 7,490,477 7,398,450
Contributed capital 31,474 31,474
Accumulated deficit (6,599,824) (6,024,987)
Accumulated other comprehensive income (loss)
Cumulative translation adjustments (1,189,433) (212,523)
----------- -----------
TOTAL STOCKHOLDERS' (DEFICIT) EQUITY (264,170) 1,195,349
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY $ 7,789,709 $ 7,922,364
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements
1.
SYMPHONY TELECOM CORP.
AND SUBSIDIARIES
Consolidated Statements of Operations and
Other Comprehensive (Loss)
For the Three-Month Periods Ended September 30, 2001 and 2000
(Unaudited)
September 30 September 30
2001 2000
---- ----
REVENUE
Telephone services $ 155,934 $ 1,046,032
Phone cards 3,084,851
671,015
Sales of equipment and systems 150,344 195,332
Internet services 44,139 43,705
Directory Management 168,421 11,996
------------ ------------
TOTAL SALES 3,603,689 1,968,080
------------ ------------
COST OF SALES
Cost of telephone services 155,715 587,355
Cost of phone cards 2,580,952 631,039
Cost of equipment and systems sold 117,462 132,930
Cost of internet services 38,783 32,147
Cost of directory management 157,695 8,602
------------ ------------
TOTAL COST OF SALES 3,050,607 1,392,073
------------ ------------
GROSS PROFIT 553,082 576,007
------------ ------------
SELLING & GENERAL EXPENSES
Selling expense 127,519 60,432
General and administrative expense 725,322 1,209,923
Amortization and depreciation 332,866 259,794
------------ ------------
TOTAL SELLING & GENERAL EXPENSES 1,185,707 1,530,149
------------ ------------
(LOSS) FROM OPERATIONS (632,625) (954,142)
------------ ------------
OTHER (INCOME) AND EXPENSES
Other (income) (9,523) (14,933)
Other expenses:
Bad debts 65 9,353
Interest, long-term 18,308 16,767
------------ ------------
Total other expenses 18,373 26,120
------------ ------------
TOTAL OTHER (INCOME) AND EXPENSES 8,850 11,187
------------ ------------
NET (LOSS) BEFORE MINORITY INTEREST IN EARNINGS
OF CONSOLIDATED SUBSIDIARIES (641,475) (965,329)
MINORITY INTEREST IN EARNINGS OF
CONSOLIDATED SUBSIDIARIES 66,639 106,878
------------ ------------
NET (LOSS) (574,836) (858,451)
------------ ------------
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustments (976,910) 32,259
------------ ------------
TOTAL OTHER COMPREHENSIVE INCOME (LOSS) (976,910) 32,259
------------ ------------
TOTAL COMPREHENSIVE (LOSS) $ (1,551,746) $ (826,192)
============ ============
Weighted average number of common shares outstanding
Basic 29,573,221 25,589,885
============ ============
Diluted 29,573,221 25,589,885
============ ============
Net (loss) per common share
Basic $ (0.05) $ (0.03)
============ ============
Diluted $ (0.05) $ (0.03)
============ ============
The accompanying notes are an integral part of these consolidated financial
statements
2.
SYMPHONY TELECOM CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Three-Month Periods
Ended September 30, 2001 and 2000
(Unaudited)
September 30 September 30
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $ (574,836) $ (858,451)
Adjustments to reconcile net (loss) to net cash used
by operating activities:
Consulting fees for common stock 15,046 --
Depreciation and amortization expense 332,866 259,794
Changes in assets and liabilities:
(Increase) in short-term investments 170,758 --
(Increase) in accounts receivable (463,354) (1,027,533)
(Increase) in prepaid expenses 85,925 (114,964)
(Increase) in inventories (168,605) (49,120)
(Decrease) in bank loans (117,985) --
Increase in accounts payable 697,936 2,299,537
Increase (decrease) in accrued liabilities 95,575 (71,706)
Increase in notes payable (67,433) 614,920
(Decrease) in deferred revenue (5,141) --
Increase (decrease) in income taxes payable 3 (3)
(Decrease) in deferred income taxes payable (11) --
(Decrease) increase in current portion of leases payable (3,043) 36,484
(Decrease) in current portion of long-term loans payable (10,730) --
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (13,029) 1,088,958
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
(Acquisition) of property and equipment (9,245) (253,506)
(Additions) to other intangible assets -- (1,854,450)
----------- -----------
NET CASH (USED) BY INVESTING ACTIVITIES (9,245) (2,107,956)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
(Repayment) advances from leases payable (6,033) 104,537
(Current ) portion of leases payable -- (36,484)
(Repayment) of long-term loans (17,660) --
Advances from (repayment of) notes payable to related parties 8,992 (17,338)
Proceeds from common stock -- 1,256,235
Minority interest 829,479 (105,561)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 814,778 1,201,389
----------- -----------
EFFECT OF FOREIGN CURRENCY TRANSACTIONS ON CASH (761,592) 23,422
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 30,912 205,813
CASH AND CASH EQUIVALENTS, beginning of period 115,020 275,823
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 145,932 $ 481,636
=========== ===========
SUPPLEMENTAL DISCLOSURES
Interest paid $ (18,309) $ (16,767)
Income taxes paid $ -- $ --
Schedule of non-cash investing and financing activities:
Acquisition of Telemax Communications Inc. $ -- $ 1,005,236
Purchase of net assets from Mondetta Telecommunications Inc. $ -- $ 1,366,950
The accompanying notes are an integral part of these consolidated financial
statements.
3.
SYMPHONY TELECOM CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Regulation S-B of the Securities
and Exchange Commission. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with Notes to
Consolidated Financial Statements contained in the Company's Annual Report on
Form 10-KSB for the year ended June 30, 2001. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three months
ended September 30, 2001 are not necessarily indicative of the results that may
be expected for the year ended June 30, 2002.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Symphony Telecom Corp. ("Company") was incorporated on February 9, 2001 under
the laws of the State of Delaware. On May 14, 2001 the Company's shareholders
approved the merger of Symphony Telecom International, Inc. into Symphony
Telecom Corp., which was registered on June 7, 2001. Symphony Telecom
International, Inc. was incorporated January 15, 1982 as Mammoth Resources, Inc.
under the laws of the State of Utah. The Company changed its name to Symphony
Telecom International, Inc. by a resolution of the Board of Directors on March
23, 2000.
Pursuant to an Agreement and Plan of Reorganization dated March 9, 2000, the
Company acquired all the issued and outstanding shares of Symphony Telecom
International, Inc., a company incorporated under the laws of the State of
Delaware, in a non-cash transaction.
As part of its reorganization, the Company authorized a one for five reverse
stock split of existing issued common shares, resulting in the number being
reduced from 16,278,357 to 3,255,684. On the same date, and not subject to the
reverse stock split, the Company authorized issuance of 7,924,375 common shares
in restricted form being a one for one exchange of shares for all the issued and
outstanding shares of Symphony Telecom International, Inc. Further, two
directors were issued an additional 1,000,000 common each and 1,200,000 shares
were issued to consultants for services rendered with the transaction.
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 7,351,875 shares were issued to
effect the acquisition. These shares were restricted for purposes of resale.
Over a period of twelve months, the right to sell the shares accrued on a
straight-line basis.
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. As of
December 31, 2000 this option has not been exercised.
Effective July 1, 2000 Comtel Communications 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 after assumption of net liabilities of $786,956,
with the total purchase price of $3,195,420; Net purchase price of $2,408,464
being satisfied by issue of 1,050,000 common shares of Symphony Telecom Corp.
with each common share having attached a warrant to purchase one common share at
the price of $3, expiring September 30, 2001. Subsequently, October 1, 2000, all
the assets acquired from Mondetta were transferred into a newly incorporated
company in Ontario Canada, named Mondetta Communications Corp.
The net purchase price of $2,408,464 was allocated as follows:
Fair value of net assets (liabilities) $ (786,956)
Goodwill $ 3,195,420
Effective July 31, 2000 Comtel Communications Inc. purchased 61.5% of all the
issued and outstanding shares of Telemax Communications Inc., a company
incorporated in Ontario, Canada, which promotes and markets prepaid telephone
cards for national and international long distance telephone services directed
mostly to ethnic populations across Canada. The purchase was accounted for using
the purchase method of accounting and the results of operations have been
consolidated from the effective date of acquisition.
4.
SYMPHONY TELECOM CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED),
The purchase price of $4,830,361 was satisfied by cash payment of $166,277 on
closing, a promissory note in amount of $2,690,000 and the issuance of 1,000,000
common shares, each attached with a one share warrant, of Comtel Communications
Inc., which are convertible, by September 30, 2005, into common shares of
Symphony Telecom Corp. for a value representing $1,995,330. The issuance of
Symphony Telecom Corp.'s common shares will be restricted for the purposes of
resale for a period of one year. A further three payments of $166,278 each are
due and payable up to and including September 30, 2001 upon Telemax
Communications Inc.'s first year's revenues reaching cumulative targets of
$10,087,500, $20,175,000 and $30,262,500 respectively. Comtel Communications
Inc. is also to provide Telemax Communications Inc., under terms of its
promissory note, with four equal payments of $672,500 for working capital by
October 31 and December 31, 2000, and March 31 and June 30, 2001.
The purchase price of $4,830,361 was allocated as follows:
Fair market value of net assets $ 984,040
Goodwill $ 3,846,321
Comtel Communications Inc. has paid $166,277 on closing and a further payment of
$166,278 in October 2000. No other payments have been made, resulting in the
company being in default on its promissory note. The purchase price of
$4,830,361 was allocated as follows:
Fair market value of net assets $ 984,040
Goodwill $ 3,846,321
Comtel Communications Inc. has paid $166,277 on closing and a further payment of
$166,278 in October 2000. No other payments have been made, resulting in the
company being in default on its promissory note.
On August 31, 2000 Symphony Telecom Corp. purchased 51% of all the shares of
9041-6868 Quebec Inc. operating as Directory Management America Dot Com, a
company incorporated in Quebec, Canada, which provides marketing and advertising
services, specifically to yellow pages and e-commerce advertising agencies
throughout North America, which gives national support for businesses.
The purchase price of $339,790 is an all cash transaction, with $135,916 paid at
closing and the balance payable in 3 equal monthly installments. The Company has
only paid one full monthly installment, with a balance of $120,211 remaining
payable at June 30, 2001. Because of Symphony Telecom Corp.'s non-payment,
Directory Management America Dot Com had to seek a line of credit of $82,562
from its bankers, which was guaranteed by a minority shareholder. To compensate
the minority shareholder, Directory Management America Dot Com issued 1,665,306
common shares to the minority shareholder, thereby diluting Symphony Telecom
Corp.'s interest from 51.0% to 42.4%. The additional share issue agreement
allows Symphony Telecom Corp. to complete its payment for shares, and purchase
the additional shares to restore its diluted interest.
The purchase price of $339,790 was allocated as follows:
Fair market value of net assets $ 114,725
Goodwill $ 225,065
Goodwill is being amortized on the straight-line basis with an estimated life of
5 years.
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 Corp., restricted for the purposes of resale
for a period of one year, netting the Company $780,000. In December 2000, the
Company concluded its agreement with Geek Securities, Inc.
Mondetta Communications Corp. a wholly owned subsidiary of Comtel Communications
Inc. filed a Notice of Intention to Make a Proposal on July 19, 2001. This was
precipitated by a demand by AT&T Canada Corp. for immediate payment in full of a
promissory note dated January 15, 2001 in amount of $664,824.The Notice named
AT&T Canada Corp. and Comtel Communications Inc. as two principal creditors. As
AT&T Canada Corp. has the position that it was not bound by the automatic stay
pursuant to the said proceeding and in fact has indicated that it does not
consider Mondetta Communications Corp. to owe it any money. Accordingly, the
trustee in Bankruptcy was instructed to cancel the Notice, failing which
Mondetta Communications Corp. will bring an action to set aside the Notice in
its entirety.
In the opinion of management, the accompanying interim financial statements,
prepared in accordance with the instructions for Form 10-QSB, are unaudited and
contain all material adjustments, consisting only of normal recurring
adjustments necessary to present fairly the financial condition, results of
operations and cash flows of the Company for the respective interim periods
presented. The current period results of operations are not necessarily
indicative of results which ultimately will be reported for the fiscal year
ending June 30, 2002.
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, a working capital deficiency, 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, the Company is continuing its efforts to raise funding to
meets its operating requirements, and plans for immediate expansion. 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.
5.
SYMPHONY TELECOM CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, cash and
cash equivalents consist of money market funds and demand deposits in banks,
purchased with a maturity of three months or less. The Company has no such items
at September 30, 2001 and 2000.
SHORT-TERM INVESTMENTS Telemax Communications Inc., subsidiary of Comtel
Communications Inc., holds one year Guaranteed Investment Certificates in amount
of $126,702 maturing December 31, 2001, which have been pledged as security for
letters of credit in amount of $126,702 in favour of its service provider. Also,
$5,512 is held by Mondetta Communications Corp. in a Guaranteed Investment
Certificate as security for its VISA account.
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 net operating loss carry-forwards available to offset financial
statement or tax return taxable income in future periods as follows:
2001 $5,928,808 Expires in 2008
The Company uses the asset and liability method of accounting for income taxes.
At September 30, 2001 and 2000, 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 The Company presents "basic" earnings (loss) per share
and, if applicable, "diluted" earnings (loss) per share pursuant to the
provisions of Statement of Financial Accounting Standards No. 128, Earnings Per
Share (SFAS 128). Basic net earnings (loss) per share is calculated by dividing
net income or loss by the weighted average number of shares outstanding during
each period. The diluted earnings (loss) per share is calculated by dividing the
net income or loss by the weighted average number of shares outstanding during
each period plus the weighted average of the 3,478,572 warrants and 18,750,000
common share options that were outstanding at June 30, 2001 and of the 35,000
options outstanding at June 30, 2000. However, since there is a net loss for
each period, the diluted weighted average number of shares is the same as the
basic. Also, the shares were numbered as though the April 10, 2001 3 to 2
forward stock split occurred on June 30, 1999.
FAIR VALUE OF FINANCIAL INSTRUMENTS The Company estimates that the fair value of
all financial instruments at September 30, 2001 does not differ materially from
the aggregate carrying values of its financial instruments recorded in the
balance sheet. The estimated fair value of amounts of receivables, accounts
payable and accrued liabilities approximate fair value due to their short-term
nature. Considerable judgement is necessarily required in interpreting market
data to develop the estimates of fair value, and accordingly, the estimates are
not necessarily indicative of the amounts that the Company could realize in a
current market exchange.
PROPERTY AND EQUIPMENT Computer equipment, office furniture, systems software
and telephone equipment are stated at cost. Expenditures for normal maintenance
and repairs are charged to expense as incurred. Depreciation is computed using
reducing balance method based upon the estimated useful lives of the related
assets. Depreciation expense was $39,450 for the three-month period ended
September 30, 2001 and $20,964 for the three-month period ended September 30,
2000.
Estimated Rate and
Asset Class Lives Method
- ----------- --------- --------
Automobiles 13 years 30%per annum on reducing balance
Computer Equipment 13 years 30%per annum on reducing balance
Computer Software 5 years 20%per annum on straight-line
Leasehold Improvements 5 years 20%per annum on straight-line
Office Furniture 20 years 20%per annum on reducing balance
Telephone Equipment 16 years 25%per annum on reducing balance
The details of property and equipment are as follows:
Net Net
Accumulated September 30 September 30
Cost Depreciation 2001 2000
--------- ------------ --------- ---------
Automobile $ 9,113 $ (5,362) $ 3,751 $ 7,569
Computer Equipment 360,822 (154,701) 206,121 174,091
Leasehold Improvements 81,762 (11,855) 69,907 9,864
Office Furniture 133,750 (36,202) 97,548 43,264
Systems Software 133,754 (117,624) 16,130 16,020
Telephone Equipment 121,757 (53,580) 68,177 85,271
--------- --------- --------- ---------
Subtotal 840,958 (379,324) 461,634 336,079
Capital Leases, office equipment 104,879 (24,048) 80,831 102,524
--------- --------- --------- ---------
$ 945,837 $(403,372) $ 542,465 $ 438,603
========= ========= ========= =========
6.
SYMPHONY TELECOM CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
REVENUE AND COST RECOGNITION For financial statement reporting, the Company
recognizes revenues when earned and the related cost when incurred.
PRINCIPLES OF CONSOLIDATION The financial statements include the accounts of
Symphony Telecom Corp., a Delaware corporation, and its subsidiaries, Linkdata
Communications London Ontario Inc., 9041-6868 Quebec Inc. o/a Directory
Management America Dot Com, Symphony Networks Inc. and Symphony Telecom
International, Inc., a Delaware corporation, and its subsidiaries Comtel
Communications Inc. and subsidiaries of Comtel Communications Inc.,
Communication Solutions Group Ltd., Mondetta Communications Corp. and Telemax
Communications Inc., and Canadian Inter-Latin Communications Inc., and a
subsidiary of Canadian Inter-Latin Communications Inc., Canadian
Inter-Continental of Ecuador SA. All subsidiaries of Symphony Telecom Corp.
are Canadian corporations except Symphony Telecom International, Inc. (Delaware)
and Canadian Inter-Continental Communications of Ecuador SA, 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 At September 30, 2001 the amount for minority interest
represents a 38.5% interest in the subsidiary Telemax Communications Inc., a
company incorporated under the laws of the province of Ontario, Canada on May
12, 1997; a 57.60% interest in the subsidiary 9041-6868 Quebec Inc., a company
incorporated under the laws of the province of Quebec, Canada on September 26,
1996; 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; and a 12% interest in the subsidiary Comtel Communications
Inc., a company incorporated under the laws of the province of Ontario, Canada
on May 27, 1996. At September 30, 2000 the amount for minority interest
represents 38.5% interest in subsidiary, Telemax Communications Inc.; 49%
interest in 9041-6868 Quebec Inc.; 25% interest in subsidiary, Canadian
Inter-Continental Communications of Ecuador SA; and 12% interest in Comtel
Communications Inc. The minority interest in net loss of subsidiaries has been
credited to income and charged to minority interest.
RECLASSIFICATIONS Certain amounts in the accompanying financial statements have
been reclassified to better reflect the Company's operations, in the opinion of
management. These reclassifications have been reflected in all amounts shown in
the accompanying financial statements.
NEW ACCOUNTING STANDARDS Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS" No. 130) issued by the FASB is
effective for financial statements with fiscal years beginning after December
15, 1997. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. The Company adopted SFAS No. 130 as of June 30, 1997.
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.
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 part of its targets the U.S. small business
consumer market. The primary business lines are: pre-paid phone cards, which are
the operations of Telemax Communications Inc.; telephone services, primarily
long distance resale; voice and data equipment and systems, which are marketed
by Comtel Communications Inc. and Linkdata Communications London Ontario Inc.;
internet services, provided primarily by Linkdata; and Yellow Pages advertising,
operated by Directory Management America.Com.
5. NOTE RECEIVABLE
The Company's subsidiary Comtel Communications Inc. advanced a non-interest
bearing loan of $400,000 to North American Gateway Inc. in the form of a
promissory note, with personal guarantees of the principal shareholder for the
first $200,000, and a general security over the company's assets for the
remainder. The term is for one year maturing in October 2001. North American
Gateway Inc. has ceased operations; therefore, management provided $200,000 as a
charge against income as an uncollectible debt in its fiscal year ended June 30,
2001, and expects to collect on the personal guarantee.
7.
SYMPHONY TELECOM CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. BANK LOANS
Bank loans comprise the following:
Line of credit $ 152,042
Line of credit 47,513
Line of credit 31,676
Line of credit 13,198
----------
$ 244,429
==========
The Company's subsidiary company, Telemax Communications Inc., has been provided
with a line of credit facility of up to $190,053 with interest at the bank's
prime plus 1.25%, secured by a general security agreement over the company's
assets. At September 30, 2001 the company had drawn down $152,042.
The Company's subsidiary company Linkdata Communications London Ontario Inc. has
a line of credit of up to $63,351 with interest at the bank's prime plus 0.50%,
secured by a general security agreement over the company's assets, of which it
has drawn down $47,513 at September 30, 2001.
The Company's subsidiary company Comtel Communications Inc. has a line of credit
of $31,676 with interest at the bank's prime rate plus 2.0%, of which it has
drawn down in full at September 30, 2001. The credit facility is secured by a
general security agreement, and a corporate guarantee from its subsidiary
company, Mondetta Communications Corp., supported by a first ranking general
assignment of its book debts. The Company's subsidiary company 9041-6868 Quebec
Inc. has a line of credit of up to $79,187 with interest at the bank's prime
plus 2.50%, secured by a director's principal residence up to $53,848, and a
general security agreement over the company's assets, of which it has drawn down
$13,198 at September 30, 2001.
7. NOTES PAYABLE AND PROMISSORY NOTE
Notes and promissory notes comprise the following:
September 30, September 30,
2001 2000
---- ----
Officers and directors of subsidiary companies $ 945,121 $ 13,693
Private notes -- 7,270
Balance payable on acquisition of
Linkdata Communications London Ontario Inc. -- 128,326
Promissory note, private -- 18,500
Promissory note to AT& T Canada Corp. 637,657 --
---------- ----------
$1,582,778 $ 167,789
========== ==========
Notes due to officers and directors of subsidiary companies are non-interest
bearing, unsecured and due upon demand. The balance payable on the acquisition
of Linkdata Communications London Ontario Inc. is non-interest bearing, secured
by term deposits at bank, and due on June 28, 2001. A promissory note of
$957,725 was made by Mondetta Telecommunications Inc. on May 19, 2000 to AT&T
Canada Corp. This note was assumed by Comtel Communications Inc. on the assets
purchase from Mondetta Telecommunications Inc. July 1, 2000, and transferred to
Mondetta Communications Corp. on October 1, 2000. The promissory note payable to
AT&T Canada Corp. was rewritten at $637,657 on January 15, 2001 by Comtel
Communications Inc. secured by receivables of Mondetta Communications Corp., on
March 9, 2001, bearing interest at 8.5%, and payable in twelve equal monthly
instalments of $57,578 including interest. As the promissory note has become in
arrears, AT&T Canada Corp. has made a demand for payment in full, which neither
Mondetta Communications Corp. nor Comtel Communications Inc. are able to pay.
8. DEFERRED REVENUE
The Company's subsidiary company Telemax Communications Inc., which sells
prepaid phonecards, has estimated the amount of revenue it has collected that
relates to use of telephone services after September 30, 2001is $120,680.
9. LONG-TERM DEBT
Long-term debt is summarized as follows:
September 30, September 30,
2001 2000
---- ----
Convertible Notes payable to Laurus Master Fund $ 750,000 $ --
Business Development Bank of Canada 145,216 --
Small Business Loan 5,281 --
---------- ----------
Total Long-term debt 900,497 --
Less: current portion 58,065 --
---------- ----------
$ 842,432 $ --
========== ==========
Convertible Notes payable to Laurus Master Fund bear simple interest at 8%,
payable quarterly, and mature March 2003. The notes are convertible into fully
paid and non-assessable common stock of the Company at the conversion price of
80% of the average of
8.
SYMPHONY TELECOM CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
the four lowest closing bid prices for thirty trading days prior to but not
including the conversion date. The Company is in default under the terms of the
loans, as it has not filed Form SB-2, Registration Statement Under the
Securities Act of 1933, which it is required to have filed within 90 days of the
Loan Agreement. The Company's subsidiary company, Telemax Communications Inc.,
has borrowed $158,377 from the Business Development Bank of Canada at the bank's
floating rate plus 2.0% to purchase telephone equipment totaling $309,153.
Principal repayment of the loan is scheduled as one payment of $4,387 on July
31, 2001, plus 35 monthly payments of $4,400 plus interest on the outstanding
balance. The balance of the purchase price $150,775 is being contributed by
Telemax Communications Inc. from its working capital. Also, Telemax
Communications Inc. has been provided a Small Business Loan by its bankers in
the amount of $158,377, with interest at the bank's prime plus 2.5%, which is
secured by property and equipment. Telemax Communications Inc. has repaid
$153,096 and the balance payable at September 30, 2001 is $5,281. Repayment is
$2,640 monthly plus interest, and the loan matures November 30, 2001.
10. NOTES PAYABLE TO RELATED PARTIES
Long-term debt, presented as notes payable to related parties, is summarized as
follows:
Principal Discount
---------- ---------
Noninterest-bearing notes payable to directors $ 53,617 $ 12,160
========== =========
Notes payable to directors are considered long-term, and are noninterest-bearing
with no specific terms for repayment. Discount is based on imputed interest rate
of 10%, and has been recorded as contributed capital.
11. COMMITMENTS
On October 15, 2000 the Company moved its head office to Brampton, Ontario,
Canada and has entered into a five-year lease on 20,000 square foot building,
prepaying one year's rent of $82,931. The Company's total rent and lease expense
was $71,253 for the three-month period ended September 30, 2001 and $35,383 for
the three-month period ended September 30, 2000. 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:
Year Operating Capitalized
---- --------- -----------
2002 $153,515 $30,271
2003 $143,197 $27,933
2004 $132,063 $18,823
2005 $133,557 $ -
2006 $ 33,082 $ -
12. 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 $293,416 for the three-month period ended September 30,
2001 and $238,830 for the three-month period ended September 30, 2000.
The details of goodwill and other intangible assets are as follows:
Net Net
Accumulated September 30 September 30
Cost Amortization 2001 2000
-------------- ------------ ---- ----
Goodwill $ 5,876,555 $ 1,501,422 $ 4,375,133 $ 4,702,960
============== ============== =============== ==============
13. EMPLOYEE/CONSULTANTCOMMON STOCK PLAN 2001
Effective September 19, 2001 the Board of Directors approved the
Employee/Consultant Stock Plan 2001, wherein 6,000,000 shares of the common
stock of the Company may be issued directly or upon exercise of options, with
terms set by management, to employees or consultants for compensation and/or
services. The class of securities to be offered is registered under Section 12
of the Exchange Act. No shares or options under the plan were issued at
September 30, 2001.
14. FOREIGN ASSETS, REVENUES AND CONSOLIDATED FOREIGN ENTITIES
The Company is presently Canadian based, and as such carries out its operations
in Canada. Symphony Telecom International, Inc. and subsidiary companies
maintain their books using Canadian dollars. The books of these companies have
been translated into U.S. dollars using the current rate method. Gains and
losses on foreign currency transactions are included in the consolidated
statements of other comprehensive loss.
15. CONTINGENT LIABILITIES
On July 23, 2001 a former employee of Comtel Communications Inc. issued a claim
against Symphony Telecom Corp. for unpaid wages in amount of $60,817. Management
believes that the claim will be dismissed against Symphony Telecom Corp. in its
entirety. Further, a counterclaim will be issued against the employee. The claim
is scheduled for mediation on October 15, 2001. Management believes that no
further liability will be assessed against the Company.
9.
SYMPHONY TELECOM CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
16. RELATED PARTY TRANSACTIONS
Related party transactions at September 30, 2001 and 2000 comprised advances by
directors to subsidiary companies as stated in Note 7, and advances by directors
to the parent Company as stated in Note 10. There were no other material related
party transactions.
17. SUBSEQUENT EVENTS
Mondetta Communications Corp. a wholly owned subsidiary of Comtel Communications
Inc. filed a Notice of Intention to Make a Proposal on July 19, 2001. This was
precipitated by a demand by AT&T Canada Corp. for immediate payment in full of a
promissory note dated January 15, 2001 in amount of $664,824.The Notice named
AT&T Canada Corp. and Comtel Communications Inc. as two principal creditors. As
AT&T Canada Corp. has the position that it was not bound by the automatic stay
pursuant to the said proceeding and in fact has indicated that it does not
consider Mondetta Communications Corp. to owe it any money. At September 30, the
company was still being wound up.
Effective October 31, 2001, the Company's subsidiary company, Comtel
Communications Inc. reached a settlement with minority shareholders of its
subsidiary company Telemax Communications Inc, wherein they agreed to acquire
Comtel Communications Inc.'s 61.5% controlling interest in Telemax
Communications Inc. for a total sale price of $136,204, being paid by trade
credit of $53,848 and a promissory note of $82,356 bearing no interest and
maturing in two years.
10.
Item 2. Management's Discussion and Analysis or Plan of Operation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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
the business units are integrated and businesses are acquired, with revenues
substantially increasing. No guarantee exists.
The Company's books are kept in Canadian dollars and translated to US dollars
for reporting purposes. It is sometimes possible that subtracting the result for
the current quarter from figures reported previously will yield a number which
is slightly different from that reported in a previous quarter. Any such
discrepancy is due to currency translation rate differences that may apply at
the time the financial reports are prepared.
RESULTS OF OPERATIONS - FIRST QUARTER OF FISCAL YEAR ENDING JUNE 30, 2002
COMPARED TO FIRST QUARTER OF FISCAL YEAR ENDED JUNE 30, 2001.
The company's overall revenue performance in fiscal Q1 2002, at $3.6 million,
shows an increase of 83% over the three months ended September 30,2001. This
increase was the result of increased sales in the pre-paid phone card business.
Sales in the Phone Card segment at $3.1million compare favourably with figures
reported for the first quarter last year at $671 thousand, reflect the results
of the Company's Telemax Communications Inc. subsidiary. The sales in phone
cards reported in this quarter of the previous year reflected only sales in the
month of September
Year over year results within the Telephone Services category decreased by 85%
in the first three months of this year compared to the respective previous year
period. This decrease reflects the in-year attrition in our customer base due to
several factors: a dispute with our principal carrier, AT&T Canada resulted in a
denial of service by the carrier which caused us to move traffic onto more
expensive routes and disrupted service to many of our customers; increased
competition in our industry resulting in lower rates to several international
destinations; the failure of many of our competitors resulted in a number of our
business customers, afraid of loosing their basic service, migrating to the
incumbent local exchange carrier; and a general slowdown in the economy.
For the voice and data systems business units the company is reporting a
year-over-year revenue drop of 23% for the quarter from $195 thousand to $150
thousand. Management attributes this year over year decline to a general
weakening of the economy as well as a reduction in personnel as a result of cost
reduction and downsizing.
Internet services sales were essentially unchanged for the quarter at $44
thousand.
Revenue from directory management activities was up in the quarter by 1300%,
from $12 thousand to $168 thousand, as this business unit continues its start-up
growth.
The company is reporting an overall gross margin for the first quarter of fiscal
year ending June 30, 2002 of 15%. This compares to a first quarter FY2001 gross
margin of 29.3%. The decline in gross profit is substantially attributable to
the performance of the pre-paid phone card business.
The company is reporting a 16% gross margin in the pre-paid phone card business
in the first quarter compared to a 6% margin reported in the previous quarter of
the current year. However, sales in this lower-margin segment of our business
represented 85.6% of total sales in the current quarter compared to 34% in the
previous quarter.
Within the Telephone Services operating segment, the company achieved a gross
margin of 0.4% in the first quarter of fiscal year ending 2002 compared to 43.8%
in the comparable quarter last year. The gross margin in this segment of our
business has typically been in the 40%+ range. Results in the current quarter
reflect the impact of a significant decline in this business segment.
11
Margins on equipment and systems at 22% reflect the result of restructuring and
downsizing as the company strives to reduce cost. The comparable gross margin in
this business in this quarter of the previous year was 32%.
Gross Margin in the directory management category at 6.4% for the quarter
reflects additional sales costs associated with a company in a growth phase:
Directory Management America dot Com.
The company took substantial steps to reduce its Selling, General and
Administrative expenses in fiscal 1Q 2002, however the costs associated with
downsizing the organization were absorbed in the quarter resulting in only a 3%
reduction in this area being apparent. With the inclusion of amortization and
depreciation total selling and general expenses, at $1.2 million, or 33% of
sales show a substantial reduction compared to the corresponding quarter last
year when total selling and general expenses were $1.5 million or 78% of sales.
Loss from operations at $633 thousand, or 17.6% of sales for the current quarter
compares to a loss of $954 thousand, or 48.5% of sales for this quarter of the
previous year. Operating losses, were primarily a result of infrastructure
build-up, particularly in sales executives and customer engineers. Due to the
current weakness in the economy our staff build up did not translate into the
anticipated volume of business and management have taken steps to significantly
reduce these costs. The company did not achieve its targeted sales growth and is
delayed in its current business plan which was projecting break-even before the
end of the first quarter of fiscal 2002. Management are continuing to take steps
to achieve profitable operations, many of these actions, by eliminating
unprofitable operations will result in a short-term reduction in gross revenue
for the corporation.
FINANCIAL CONDITION
The Company has been substantially dependent on the proceeds of various
offerings of its securities to fund its operating expenses. Management believes
that by relying on its cash on hand as of September 30, 2001, upon anticipated
cash flow from business operations, private placement offerings of shares, and
some commercial borrowing, it will meet its current commitments and requirements
for the balance of the year. Management believes that the ability of the Company
to achieve substantial profitability in the short term is conditional primarily
upon the successful operation of its business units and their future operating
results.
The Company continues to explore opportunities with various investors, joint
venture candidates, and prospective licensees. The Company has various pursuits
for equity funding, underway for both the short and long term needs of the
Company. Management believes that current funding, as well as others in
potential private placements will assist the Company in meeting its cash needs,
but there is no guarantee.
OUTLOOK
Symphony Telecom has strived to position itself to take advantage of the
opportunities for change in the telecommunications marketplace by quickly
implementing market solutions using a new generation of equipment and
technology. Much of our strategy hinged on the work we were planning using the
expertise of Nortel Networks Professional Services to "formalize a business
strategy" that would help us move aggressively into the North American CLEC and
Applications Services Provider (ASP) markets. For now, however, the company is
not a CLEC, nor does it have any ASP services. We have curtailed our network
development plans particularly those related to previously announced purchase
agreements with Nortel Networks.
We have seen a rapid and increasingly severe downturn in the economy, which has
affected growth in demand for our products and services. While we expect the
economic downturn to continue well into the second quarter of 2002, there can be
no certainty as to the degree of the severity or duration of this downturn. We
also cannot predict the extent and timing, if any, of the impact of the economic
downturn on the North American economy. However, with the substantial growth of
the Internet and the increased volume of data network traffic, we are focusing
on the expected high growth areas of demand for packet networking for voice,
data and convergent services.
During the current economic uncertainty we have scaled down our operations and
re-organized our business units to focus on their areas of expertise. We are
also committed to meeting the market demand for network solutions that address
the needs of specific vertical markets, including but not limited to: desktop
videoconferencing; IP networking solutions for Virtual Private Networks over the
public Internet and mobile telecommunications solutions.
12
We intend to continue to compete for current and future market opportunities by
using our existing portfolio of network solutions and services, by refining and
deploying the available technology to meet the specific service demands of our
target markets; and by acquiring or aligning with companies that have new,
attractive product offerings and technologies. Our ability to develop or acquire
technologies, products and services to fulfill the changing needs of our
customers and address new market opportunities is critical to our future
success.
Our focus is on meeting the needs of the marketplace and, through the efforts
and creativity of our account executives and customer engineers, to present our
customers with the best communications solution for their needs. To do this we
are addressing several strategic elements in our infrastructure and network
capabilities. The company is actively pursuing various initiatives with
Hydro-Electric Power Utility companies including joint marketing initiatives.
The Power Utilities have large customer bases and strong customer loyalty. Many
have invested significantly in fibre based communications facilities in their
regions and the Company sees great potential in co-operative ventures in this
sector.
Forward Looking 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.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
Legal Proceedings against Comtel Communications Inc. and Communications
Solutions Group Ltd. and Mondetta Communications Corp., subsidiaries of Symphony
Telecom Corp.
On March 21, 2001 an Order was made by the Honourable Madame Justice Swinton, in
the Ontario Superior Court of Justice ( In Bankruptcy) in the matter of the
Bankruptcy of Mondetta Telecommunications Inc. declaring that the application
brought pursuant to the Bulk Sales Act, R.S.O. 1990, c.B. 14, commenced by David
Chan, as Applicant against Mondetta Telecommunications Inc. and Symphony Telecom
Inc., as respondents is stayed by operation of s.69.3 of the Bankruptcy and
Insolvency Act. R.S.C. 1985, B-3. This order was issued on August 2, 2001 .
Accordingly the previous Order of the Honourable Mr. Justice Matlow of November
29, 2000 prohibiting the transfer of assets or other consideration pursuant to
the September 23, 2000 agreement between Symphony Telecom Inc and Mondetta
Telecommunications Inc. is no longer applicable. Costs were awarded in favour of
Symphony.
Another creditor of Mondetta Telecommunications Inc. Frank Alvarez has brought
proceedings under the Bulk Sales Act, R.S.O. 1990, c.B. 14, against Comtel
Communications Inc., a wholly owned subsidiary of the Corporation, as purchaser
in respect of Comtel Communication Inc.'s acquisition of certain assets of
Mondetta Telecommunications Inc.. Management believes that the Order of March
21, 2001 by the Honourable Madame Justice Swinton in the Ontario Superior Court
of Justice (in Bankruptcy) staying the action of Chan against Comtel
Communications Inc. also applies to Mr. Alvarez by virtue of the doctrine of res
judicta.
Telemax Communications Inc. and its shareholders excluding Comtel Communications
Inc. commenced an action in June of 2001 in the Ontario Superior Court of
Justice against a subsidiary of the Corporation, Comtel Communications Inc., for
a declaration that the July 31, 2000 issuance of Telemax shares is void due to
non payment, for rescission of the Telemax share purchase agreements, for the
return of the share certificates of Telemax held by Symphony Telecom Inc. and
for misrepresentation damages for $12,670.200. This litigation has been settled
effective as of November 7, 2001. The effect of the settlement is that the
$1,900,530 worth of Symphony Telecom Inc. convertible to SYPY shares and the
$2,534,040 promissory note have been returned to Symphony Telecom and will be
retired in exchange for the Telemax shares. Further benefits were received by
Symphony as part of the settlement, including a Promissory Note from Telemax to
Symphony in the amount of $82,356 and further cash equivalent credits with
Canquest Communications Inc. of $53,848.
13
On July 3, 2001 Dan Nelson issued a claim against Symphony Telecom Corp.
claiming unpaid wages and severance pay of $60,817. The Company's subsidiary,
Symphony Telecom Inc., hired Mr. Nelson on October 3, 2000 and accordingly it is
expected that the Claim will be dismissed as against Symphony Telecom Corp. in
its entirety. Furthermore a counterclaim in the amount of $126,702 will be
issued against Mr. Nelson whom the defendants claim was dismissed for cause. The
Plaintiff's solicitor has amended the claim to include as defendant Comtel
Communications Inc. The Plaintiff has also brought a motion to add the Directors
of Comtel Communications Inc. as Defendants in this matter. It is anticipated
that this matter will go to trial.
Comtel Communications Inc. has received correspondence indicating that claims
may be issued against it as a defendant in various other minor matters arising
out of the ordinary course of Business.
A Notice of Intent to file a Proposal by the subsidiary Mondetta Communications
Corp was filed on July 18, 2001. On October 19, 2001 the Official Receiver from
the Office of the Superintendent of Bankruptcy Canada set November 9, 2001 as
the date of the first meeting of Creditors. The assignment being deemed as a
result of the failure by the Trustee in Bankruptcy to file a cash flow statement
even though all the information to enable it to do so was provided to it by
Mondetta prior to the filing date. A financial institution of Mondetta's, as a
secured creditor, filed a Claim of $ 26,607. An unsecured creditor filed a claim
for $19,005. The only other creditor to file a claim is the parent of the
bankrupt Comtel Communications Inc. for $885,013. Under these circumstances the
application to set aside the proceedings may not be necessary.
Item 2. Changes in Securities.
On September 24, 2001 the company filed a registration statement on form S-8,
which is incorporated by reference.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters put to a vote of Security Holders in the three months
ended September 30, 2001.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K
No Reports were filed on form 8-K during the three months ended September 30,
2001.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SYMPHONY TELECOM CORP
(Registrant)
Date: December 24, 2001 /s/ Gilles A. Trahan
--------------------
Gilles A. Trahan, CEO