UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 APRIL 30, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT
OF 1934 For The Transition Period From _________ TO __________
TELEMAX GLOBAL COMMUNICATIONS, INC.
(Exact name of small business issuer as specified in its charter)
WASHINGTON 81-0440517
------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
736 Dundas Street East
Toronto, Ontario, Canada M5A 2C3
---------------------------------------- -------------------------
(Address of Principal Executive Offices) (Zip Code)
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Common stock, no par value, 11,229,534 issued and outstanding as of May 31, 2002
INDEX
PAGE
PART 1 - FINANCIAL STATEMENT 1
ITEM 1 - FINANCIAL STATEMENTS 1
Consolidated Balance Sheets as of
April 30, 2002 and as of June 30, 2001 2
Consolidated Balance Sheets (Continued)
Liabilities and Stockholder's Equity (Deficit)
April 30, 2002 and June 30, 2001 3
Consolidated Statements of Operations
for the Three Months and Ten Months Ended
April 30, 2002 and April 30, 2001 4
Consolidated Statements of Stockholders' Equity (Deficit) 5
Consolidated Statements of Cash Flows 6-7
Notes to Consolidated Financial Statement 8-9
ITEM 2. - MANAGEMENT'S DISCUSSIONS AND ANALYSIS OR PLAN OF
OPERATION 10
PART II - OTHER INFORMATION 15
ITEM 2. CHANGES IN SECURITIES 15
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES 16
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PART 1 - FINANCIAL STATEMENTS
ITEM 1 - FINANCIAL STATEMENTS
TELEMAX GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES
(Formerly Organik Technologies, Inc.)
CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2002 and June 30, 2001
TELEMAX GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES
(Formerly Organik Technologies, Inc.)
Consolidated Balance Sheets
April 30, June 30,
2002 2001
------------------ ------------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 27,008 $ 60,402
Short-term investments - 297,225
Accounts receivable 1,472,285 833,884
Inventory 293,703 16,248
Prepaid expenses - 214,614
------------------ ------------------
Total Current Assets 1,792,996 1,422,373
------------------ ------------------
FIXED ASSETS (NET) 658,562 394,856
------------------ ------------------
OTHER ASSETS
Deposits 13,451 -
Long-Term Investments 237,424 245,970
------------------ ------------------
Total Other Assets 250,875 245,970
------------------ ------------------
TOTAL ASSETS $ 2,702,433 $ 2,063,199
================== ==================
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The accompanying notes are an integral part of these consolidated financial statements.
TELEMAX GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES
(Formerly Organik Technologies, Inc.)
Consolidated Balance Sheets (Continued)
April 30, June 30,
2002 2001
------------------ ------------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 3,849,847 $ 1,054,827
Accrued expenses 6,543 30,658
Accrued interest 102,664 -
Short-term notes payable 130,698 297,225
Deferred revenue 366,378 125,821
Current portion of director notes 938,222 -
Current portion of capital lease obligations 46,949 12,268
Current portion of long-term notes payable 53,133 68,795
------------------ ------------------
Total Current Liabilities 5,494,434 1,589,594
------------------ ------------------
LONG-TERM LIABILITIES
Director loans 91,648 971,996
Long-term capital lease obligations 7,445 16,711
Long-term notes payable 140,571 110,092
------------------ ------------------
Total Long-Term Liabilities 239,664 1,098,799
------------------ ------------------
Total Liabilities 5,734,098 2,688,393
------------------ ------------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value, 50,000,000
shares authorized; 11,229,534 and
11,109,775 shares issued and
outstanding at April 30, 2002, and
June 30, 2001, respectively (7,228) 3,179,387
Subscriptions receivable - (2,476,875)
Accumulated other comprehensive income 71,972 24,848
Accumulated deficit (3,096,409) (1,352,554)
------------------ ------------------
Total Stockholders' Equity (Deficit) (3,031,665) (625,194)
------------------ ------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
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The accompanying notes are an integral part of these consolidated financial
statements.
TELEMAX GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES
(Formerly Organik Technologies, Inc.)
Consolidated Statements of Operations
(Unaudited)
For the For the
Three Months Ended Ten Months Ended
April 30, April 30,
------------------------ ------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
SALES $ 3,846,075 $ 2,627,525 $11,717,889 $ 6,978,604
COST OF SALES 4,018,248 2,437,126 11,542,252 6,472,910
----------- ----------- ----------- -----------
GROSS PROFIT (172,173) 190,399 175,637 505,694
----------- ----------- ----------- -----------
OPERATING EXPENSES
General and administrative 16,794 225,254 1,169,282 728,541
Selling and marketing 129,312 80,456 449,526 120,351
Research and development 26,350 - 53,755 28,417
Depreciation 60,950 8,063 167,184 27,397
----------- ----------- ----------- -----------
Total Operating Expenses 233,406 313,773 1,839,747 904,706
----------- ----------- ----------- -----------
OPERATING LOSS (405,579) (123,374) (1,664,110) (399,012)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Other income 974 165 44,139 1,307
Interest expense (22,922) (19,276) (123,884) (67,936)
----------- ----------- ----------- -----------
Total Other Income (Expense) (21,948) (19,111) (79,745) (66,629)
----------- ----------- ----------- -----------
NET LOSS BEFORE INCOME TAXES (427,527) (142,485) (1,743,855) (465,641)
----------- ----------- ----------- -----------
INCOME TAXES - - - -
----------- ----------- ----------- -----------
NET LOSS (427,527) (142,485) (1,743,855) (465,641)
OTHER COMPREHENSIVE INCOME 24,778 5,480 47,124 18,268
----------- ----------- ----------- -----------
NET COMPREHENSIVE LOSS $ (402,749) $ (137,005) $(1,696,731) $ (447,373)
=========== =========== =========== ===========
BASIC LOSS PER SHARE
Net loss $ (0.04) $ (0.01) $ (0.17) $ (0.05)
Other comprehensive income 0.00 0.00 0.00 0.00
----------- ----------- ----------- -----------
LOSS PER SHARE $ (0.04) $ (0.01) $ (0.17) $ (0.05)
=========== =========== =========== ===========
WEIGHTED AVERAGE
SHARES OUTSTANDING 10,834,022 11,109,775 10,476,942 9,272,508
=========== =========== =========== ===========
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The accompanying notes are an integral part of these consolidated financial
statements.
TELEMAX GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES
(Formerly Organik Technologies, Inc.)
Consolidated Statements of Stockholders' Equity (Deficit)
Common Stock Accumulated
------------------------ Subscription Other Comp. Accumulated
Shares Amount Receivable (Loss) Deficit
----------- ----------- ------------ ----------- ------------
Balance at June 30, 2000 4,247,125 $ 661 - $ 21,921 $ (865,027)
Issued 1,885,908 shares valued
at $1.40 per share in exchange
for $168,874 and a $2,476,875
subscription receivable (Unaudited) 1,885,908 2,645,748 (2,476,875) - -
Issued 4,976,742 shares to directors
upon inception of Subsidiary (Parsecom)
for cash at $0.11 per share (Unaudited) 4,976,742 532,978 - - -
Net loss for the year ended
June 30, 2001 (Unaudited) - - - - (487,527)
Foreign currency valuation
adjustment (Unaudited) - - - 2,927 -
----------- ----------- ----------- ----------- -----------
Balance at June 30, 2001 (Unaudited) 11,109,775 3,179,387 (2,476,875) 24,848 (1,352,554)
Issued 6,133 shares to directors
upon inception of Telemax Global
communications, Inc. for cash and
subscription receivables at $0.10
per share (Unaudited) 6,133 638 - - -
Cancelled 1,885,908 shares valued at
$1.40 per share in exchange for the
cancellation of the $2,476,875
subscription receivable and the
issuance of a $82,882 note payable
(Unaudited) (1,885,908) (2,645,749) 2,476,875 - -
Recapitalization (Unaudited) 999,534 (645,459) - - -
Issued 1,000,000 shares to consultants for
services rendered at $0.10(Unaudited) 1,000,000 103,953 - - -
Net loss for the ten months
ended April 30, 2002 (Unaudited) - - - - (1,743,855)
Foreign currency valuation
adjustment (Unaudited) - - - 47,124 -
----------- ----------- ----------- ----------- -----------
Balance, April 30, 2002 (Unaudited) 11,229,534 $ (7,228) - $ 71,972 $(3,096,409)
=========== =========== =========== =========== ===========
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The accompanying notes are an integral part of these consolidated financial
statements.
TELEMAX GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES AND SUBSIDIARIES
(Formerly Organik Technologies, Inc.)
Consolidated Statements of Cash Flows
(Unaudited)
For the Ten Months Ended
April 30,
-------------------------
2002 2001
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,743,855) $ (465,641)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 167,184 27,397
Common stock issued for services 103,953 -
Write-off of short-term investments 297,225 -
Changes in operating assets and liabilities:
(Increase) in accounts receivable (638,401) (605,232)
(Increase) Decrease in deposits and prepaid expenses 201,163 (160,705)
(Increase) decrease in inventory (277,455) 32,579
Increase in accounts payable 2,063,571 778,806
Increase (decrease) in accrued liabilities (24,115) -
Increase in accrued interest 102,664 -
Increase in deferred revenue 240,557 -
----------- -----------
Net Cash Provided (Used) by Operating Activities 492,491 (392,796)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets (376,940) (26,200)
(Increase) Decrease in investments 8,546 (292,856)
----------- -----------
Net Cash Provided (Used) by Investing Activities (368,394) (319,056)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of common stock 638 168,874
Proceeds from director notes 57,874 313,060
Proceeds from short-term notes - 93,612
Proceeds from long-term notes - 136,591
Payments on short-term notes (166,527) -
Payments on capital lease obligations (28,535) (1,495)
Payments on long-term notes (68,065) -
----------- -----------
Net Cash Provided (Used) by Financing Activities (204,615) 710,642
----------- -----------
NET EFFECT OF FOREIGN CURRENCY TRANSLATION 47,124 31,033
----------- -----------
NET INCREASE (DECREASE) IN CASH (33,394) 29,823
CASH AT BEGINNING OF PERIOD 60,402 31,543
----------- -----------
CASH AT END OF PERIOD $ 27,008 $ 61,366
=========== ===========
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The accompanying notes are an integral part of these consolidated financial statements.
TELEMAX GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES
(Formerly Organik Technologies, Inc.)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For the Ten Months Ended
April 30,
-------------------------
2002 2001
----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Income taxes $ - $ -
Interest $ 8,439 $ -
NON-CASH FINANCING ACTIVITIES
Stock issued for services $ 103,953 $ -
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The accompanying notes are an integral part of these consolidated financial statements.
TELEMAX GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES
(Formerly Organik Technologies, Inc.)
Notes to Financial Statements
April 30, 2002 and June 30, 2001
NOTE 1 - ORGANIZATION
On February 16, 2002, Organik Technologies, Inc. (Organik), and Telemax Global Communications, Inc.-Ontario, completed a Plan and Agreement of Reorganization whereby Organik issued 9,230,000 shares of its common stock in exchange for all of the outstanding common stock of Telemax Global Communications, Inc.-Ontario. Immediately prior to the Plan and Agreement of Reorganization, Organik had 999,534 shares of common stock issued and outstanding. The acquisition was accounted for as a recapitalization of Telemax Global Communications, Inc.-Ontario because the shareholders of Telemax Global Communications, Inc.-Ontario controlled Organik after the acquisition was completed. At the effective date of the transaction, each share of Telemax Global Communications, Inc.-Ontario was converted into 6.13 shares of Organik. Telemax Global Communications, Inc.-Ontario was treated as the acquiring entity for accounting purposes and Organik was the surviving entity for legal purposes. There was no adjustment to the carrying value of the assets or liabilities of Telemax Global Communications, Inc.-Ontario and its wholly owned subsidiaries, nor was there any adjustment to the carrying value of the net assets of Organik. All references to shares of common stock have been retroactively restated.
On February 16, 2002, Organik changed its name to Telemax Global Communications, Inc.
Telemax Global Communications, Inc.-Ontario, has two wholly-owned subsidiaries, Parsecom, Inc. and Telemax Communications, Inc. All of the entities are collectively referred to as "the Company".
NOTE 2 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim condensed consolidated financial statements include normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim condensed consolidated financial statements be read in conjunction with the Company's most recent audited financial statements and notes thereto included in the July 31, 2001 Annual Report on Form 10-KSB and Forms 8-K and 8-K/A dated February 16, 2002. Operating results for the ten months ended April 30, 2002 are not necessarily indicative of the results that may be expected for the year ending July 31, 2002.
TELEMAX GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES
(Formerly Organik Technologies, Inc.)
Notes to Financial Statements
April 30, 2002 and June 30, 2001
NOTE 3 - GOING CONCERN
The Company's condensed consolidated financial statements have been
prepared using generally accepting accounting principles applicable to a
going concern which contemplates the realization of assets and liquidation
of liabilities in the normal course of business. The Company, however, has
a deficit in working capital, a deficit in stockholders' equity and does
not have sufficient cash or other current assets nor sufficient revenues to
cover its operating costs and to allow it to continue as a going concern.
The Company plans to execute its strategic plan to deploy its own switching
facilities and has deployed voice gateways in China, Mexico, Vietnam,
Brazil, Iran, and Argentina, which management believes will increase the
Companies profitability. In addition, the Company is currently involved in
negotiations to resolve disputed accounts payable with Conquest (See Note
5). The Company further plans on expanding its services in the United
States and pursuing growth and alliances in emerging markets by arranging
additional equity financing. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
NOTE 4 - COMMON STOCK TRANSACTIONS
In February 2002, the Company also issued 1,000,000 shares of common stock as compensation to entities and individuals who were instrumental in structuring and completing the exchange transaction. The shares were valued at $0.10 per share.
NOTE 5 - MATERIAL EVENTS
Included in accounts payable in the accompanying consolidated financial statements is an accounts payable to the Company's primary service provider, Canquest Communications (Canada), Inc. ("Canquest"), totaling $3,629,000 at April 30, 2002. Management contends that this balance includes significant overbillings and errors and is disputing a material portion of the liability. Discussions have been conducted between the parties in an effort to come to an agreement regarding the ultimate amount of the payable to Canquest. There has been no resolution to this matter and the ultimate impact on the Company's consolidated financial statements and resolution of this dispute cannot be readily determined at this time.
Furthermore, on April 22, 2002, the Company entered into a Letter of Intent to acquire all outstanding shares of Canquest, in exchange for no more than 6,000,000 shares of the Company's authorized but unissued common stock. The Company terminated this Letter of Intent on July 16, 2002.
On March 22, 2002, the Company executed a proposal with Ocean View Telecom, LLC ("Ocean View"), to acquire all outstanding shares of Ocean View in exchange for 200,000 shares of the Company's authorized but unissued common stock. This transaction has not been completed.
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OR PLAN OF OPERATION
Caution about forward-looking statements
This Form 10-QSB includes "forward-looking" statements about future financial results, future business changes and other events that haven't yet occurred. For example, statements like we "expect," we "anticipate" or we "believe" are forward-looking statements. Investors should be aware that actual results may differ materially from our expressed expectations because of risks and uncertainties about the future. We do not undertake to update the information in this Form 10-QSB if any forward-looking statement later turns out to be inaccurate. Details about risks affecting various aspects of the Company's business are discussed throughout this Form 10-QSB and should be considered carefully.
Plan of Operation for the Next Twelve Months
As used in this Form 10-QSB, the term "Company" and Telemax Global Communications, Inc. refer to the Washington corporation formerly known as Organik Technologies, Inc. Telemax Global Communications, Inc., the Canadian corporation ("TGC"), refers to an operating company whose business was combined with and became that of the Company's, effective as of February 16, 2002.
As a consequence of the Company's discontinuance of its clothing business in 1996, the Company has carried on only minimal business operations primarily involving the identification and evaluation of other potential lines of business.
As a result of these efforts, on November 16, 2001, the Company and Telemax Global Communications, Inc., a Canadian corporation ("TGC") entered into a Plan and Agreement of Reorganization (the "Agreement"). In accordance with the Agreement, as amended, the Company acquired all of the issued and outstanding common stock of TGC in exchange for 9,230,000 shares of the Company's Common Stock. The transaction contemplated by the Agreement is intended to be a "tax-free" exchange pursuant to the provisions of Sections 351 and 368(c)(1)(B) of the Internal Revenue Code of 1986, as amended. This transaction closed on February 16, 2002 (see "Share Exchange Transaction" below).
The Company's plan of operations is to expand sales revenue through aggressive marketing in Canada and the United States, incur expenses to develop and promote new products and services, and to deploy VOIP gateways and direct lines into emerging markets with high call volume. The Company plans to use economies of scale and the latest telecommunications technologies to reduce the cost of operations. The Company expects to fund its growth through proceeds from future debt or equity investments. The Company believes that securing outside capital in addition to its current cash flow from operations will be sufficient to fund the Company's business plan during the next 12 months.
Share Exchange Transaction
On February 16, 2002, the Company closed its share exchange transaction in which the Company acquired all of the issued and outstanding shares of TGC in exchange for 9,230,000 shares of the Company's Common Stock. As a result of this
exchange, TGC is now a wholly-owned subsidiary of the Company and the former shareholders of TGC now own approximately 86% of the Company's Common Stock outstanding after the Closing. TGC has two wholly-owned subsidiaries, Parsecom, Inc. and Telemax Communications, Inc. Also, as a result of the exchange transaction, the Company's primary business is now that business which is carried on by TGC which includes the production and distribution of prepaid phone cards in Canada as well as providing One-Plus long distance telephone service in Canada. In addition to these core products, TGC is planning to market other products and services including prepaid wireless, prepaid Internet, point of sale ("POS") terminals and the deployment of a voice-over Internet protocol ("VOIP") platform. TGC is also involved in developing national telecommunication systems in various foreign countries.
In February 2002, the Company also issued 1,000,000 shares of post-split common stock to entities and individuals who were instrumental in structuring and completing the exchange transaction.
As a further result of the stock exchange transaction with TGC, the Company has changed its name from Organik Technologies, Inc. to Telemax Global Communications, Inc. TGC has changed its name to Telemax Global Communications, Inc. - Ontario.
Results of operations
Since the Company discontinued its clothing business in August, 1996 through February 16, 2002, the Company had not engaged in any material business activity and had not generated any revenues.
The stock exchange transaction was accounted for as a recapitalization of TGC because the shareholders of TGC controlled the Company after the acquisition was completed. Consequently, TGC is treated as the acquiring entity for accounting purposes and the Company was the surviving entity for legal purposes. Therefore, the discussion and analysis of operations reflect the business activities of TGC prior to February 16, 2002 and the business activities of TGC as a wholly owned subsidiary of the Company subsequent to February 16, 2002.
The cost of sales for the quarter ended April 30, 2002 increased substantially to $4,018,000 compared to $2,437,000 for the comparable quarter ended April 30, 2001. The substantial increase in cost of sales was due primarily to a non-recurring charge to cost of sales for the quarter due to the recognition of approximately $468,000 of disputed billing invoices payable to the Company's primary service provider and described in further detail below. Operating expenses decreased by 25% to $233,406 as compared to $313,773 for the comparable quarter ended April 30, 2001.
The Company utilizes the telephone communications system of Canquest Communications (Canada), Inc. ("Canquest") to support its long distance service. As a result of a review of the past billing practices used by Canquest and an analysis of Call Detail Reports supplied by Canquest and used to bill telephone service fees to the Company, the Company believes it has been over-billed for a significant amount of fees previously billed to the Company by Canquest. These disputed billed amounts had been held in abeyance with the expectation that they would be promptly resolved and reversed. However, due to the inability of the parties to agree on the amounts to be reversed, management has been advised that the full invoiced amount billed by Canquest but not yet paid by the Company of $3,629,000 should be shown in the accounts payable, with the corresponding amounts charged to cost of sales for the three and ten months ended April 30, 2002. The companies have held discussions regarding this over-billing but no resolution has been agreed to. Although the precise amount of any adjustment to the disputed invoices from Canquest has not been determined, any such reduction will have a positive impact on the financial results of the Company.
As a result of the revenues and expenses referred to above, the Company reported a gross profit (loss) of ($172,173) for the quarter ended April 30, 2002 compared to a gross profit of $190,399 for the quarter ended April 30, 2001. This loss was due primarily to the disparity between the increase in sales during the quarter ended April 30, 2002 being much smaller than the increase in cost of sales reported for the quarters ended April 30, 2002 as compared to April 30, 2001. The Company reported a net loss of ($427,527) for the quarter ended April 30, 2002 compared to a loss of ($142,485) for the quarter ended April 30, 2001. The net loss was the result of an $80,000 decrease in total operating costs during the third quarter of 2002 which was more than offset by the decline in the gross margin recorded for the quarter ended April 30, 2002 compared to the quarter ended April 30, 2001.
The Company recorded cost of sales of $11,542,200 for the ten month period ended April 30, 2002 compared to cost of sales of $6,472,900 reported for the comparable period ended April 30, 2001. This 78% increase in cost of sales is due primarily to the non-recurring charge to cost of sales of approximately $1,790,000 relating to disputed fees billed by its primary service provider as discussed above.
The Company reported a gross profit of $175,637 for the ten months ended April 30, 2002 compared to gross profits of $505,694 for the ten month period ended April 30, 2001. This 34% decrease in gross profits reflects the larger increase in cost of sales (due to the disputed billings charged to the Company's cost of sales as discussed above), in the current ten month period as compared to the increase in sales over the comparable ten month periods.
Operating expenses increased substantially from $904,706 reported for the ten months ended April 30, 2001 compared to $1,839,747 reported for the ten months ended April 30, 2002. This increase in expenses reflect a 62% increase in general and administrative expenses due primarily to expenses related to the stock exchange transaction; a three fold increase in selling and marketing expenses due to the Company's expanded advertising and marketing of its phone cards and long distance telephone service in Canada; a doubling of the expenses related to research and development and a significant increase in the amount of depreciation recorded for the ten months ended April 30, 2002. After deducting operating expenses, the Company reported an operating loss of ($1,664,110) for the ten months ended April 30, 2002 compared to an operating loss of ($399,000) for the ten month period ended April 30, 2001. This substantial increase in operating loss is due primarily to the over-billings charged by a service provider and an increase in operating expenses for the ten month period ended April 30, 2002. The Company believes that approximately 30% of the operating expenses reported for the ten month period ended April 30, 2002 were due to nonrecurring costs relating to the Company's shares exchange transaction and other reorganizational costs.
After adding other income and deducting interest expense, the Company reported a net loss of ($1,743,855) for the ten month period ended April 30, 2002 compared to a loss of ($465,641) for the ten month period ended April 30, 2001. The Company did not make any deductions for income taxes due to its operating loss position.
Liquidity and sources of capital
The Company has incurred significant operating losses since July 31, 2000 and, as of April 30, 2002 had an accumulated deficit of $3,096,409. At April 30, 2002, the Company had cash and cash equivalents of approximately $27,000 and a net working capital deficit of approximately $3,700,000. These circumstances have prompted the Company's accountants to include a "going concern" explanation in the financial statements for the quarter ended April 30, 2002 (See Note 3 to the Financial Statements).
Due to the billing dispute discussed above, the Company's management has suspended payments of accounts payable owed to Canquest and will only pay for current, ongoing services provided by Canquest. This payment policy is expected to remain in place until a satisfactory resolution of the past billing dispute with Canquest is achieved (See Note 5 to the Financial Statements).
To date, the Company has funded its operations, in addition to sales revenues, through a combination of short-term debt from an affiliate and extending the payment schedule for accounts payable. In addition, during the quarter ended April 30, 2002, the Company raised $43,750 as a result of loans made to the Company by various Directors. The Company is currently negotiating with an investment banking firm to secure an equity investment of approximately $5,000,000. The Company is dependent on the proceeds from future debt or equity investments to expand its operations and fully implement the Company's business plan. If the Company is unable to raise sufficient capital, the Company will be required to delay or forego some portions of its business plan, which may have a material adverse affect on the Company's anticipated results from operations and financial condition.
The Company operates in a highly competitive market characterized by rapidly changing technology and pricing structures, together with competitors and
distributors that have significantly greater financial resources than the Company. The Company intends to incur ongoing expenses to develop and promote new products and services as well as to support sales of its existing products and services. Failure to generate sufficient revenues from new and existing products, raise additional capital or reduce discretionary expenditures would have a material adverse affect on the Company ability to continue as a going concern and achieve its intended business objectives.
The Company believes that its current cash, together with cash expected to be generated from operations and capital investments, will be sufficient to fund its operations and meet its capital requirements for the immediate future. However, the Company believes it will need additional capital in order to ensure its long-term growth and viability.
Factors affecting future operating results
The Company operates in a rapidly changing and growing industry, which is characterized by vigorous competition from both established companies and start-up companies. The market for the Company's telephone products and services is extremely competitive both as to price and capabilities. The Company's success depends in part on its ability to effectively market its existing products and services and to introduce new telecommunication products and services. The Company must also bring its products and services to market at competitive price levels. Unexpected changes in technological standards, customer demand, and pricing of competitive products could adversely affect the Company's operating results if the Company is unable to respond effectively and timely to such changes.
The Company's success will depend to a large extent on its ability to control costs of telephone services provided to the Company and to increase sales by entering into new markets, particularly in the United States, and increasing efficiencies of providing telecommunication services in order to contain the cost of sales. Such expansion will require additional sales and marketing expenses and, although the Company believes it will generate increasing revenues with greater margins, there is no assurance that the Company will be successful in generating a profit from selling in these new markets.
In summary, the Company's sales and operating results in any particular quarter may fluctuate as a result of a number of factors, including competition in the markets for the Company's telecommunication products and services, delays in new products and services being introduced by the Company, successfully entering new product and service markets, the size and timing of customer orders as well as more general factors such as the current economic recession and the general level of use of telecommunication products and services by customers. The Company's future operating results will depend, to a large extent, on its ability to anticipate and successfully react to these and other factors.
In addition to the above, the Company is also susceptible to other factors that generally affect the market for stocks of telecommunication companies. These factors could affect the price of the Company's stock and could cause such stock prices to fluctuate over relatively short periods of time.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On February 8, 2002, the Company effected a 1-for-20 reverse stock split of its outstanding Common Stock. As a result of this reverse stock split, the 19,987,920 shares of the Company's then outstanding Common Stock was reduced to approximately 999,534 shares. Pursuant to the reverse stock split, all fractional shares were rounded up to the nearest full share such that no existing shareholder of the Company received less than one share of the post-split Common Stock.
ITEM 5. OTHER INFORMATION
Subsequent to the quarter ended April 30, 2002, the Company became listed in Standard & Poor's Corporation Records, Standard & Poor's Daily News, Standard & Poor's Marketscope, and Standard & Poor's Stock Guide Database.
On April 22, 2002, the Company entered into a Letter of Intent to acquire all the outstanding shares of Canquest, in exchange for approximately 6,000,000 shares of the Company's authorized but unissued common stock. Due to a dispute over the billing practices utilized by Canquest to invoice telephone usage charges to the Company, the Company has terminated the Letter of Intent with Canquest.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None
(b) Reports on Form 8-K.
(i) The Company filed a Form 8-K for February 16, 2002 reporting Item 1, Item 2, Item 5 and Item 7 events regarding the closing of the Plan and Agreement of Reorganization between the Company, Telemax Global Communications, Inc. - Ontario and the shareholders of Telemax Global Communications, Inc. - Ontario. The Company also reported a change of control, a 1-for-20 reverse stock split, and a name change.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the small business issuer has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: July 24, 2002 TELEMAX GLOBAL COMMUNICATIONS, INC.
By: /s/ Evan Karras
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Evan Karras, President
By: /s/ Jim McDowell
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Jim McDowell, Principal Financial Officer
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