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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 24, 1997
FIBERNET TELECOM GROUP, INC.
(Exact Name of Registrant as specified in its charter)
NEVADA 33-7841 13-3859938
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
120 ERIE CANAL DRIVE, SUITE 100, ROCHESTER, NEW YORK 14626
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(716) 225-0440
DESERT NATIVE DESIGNS, INC.
1391 LUCKSPRING DRIVE, SALT LAKE CITY, UTAH 84106
(Former name or former address, if changed since last report)
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Item 5. Other Events.
Desert Native Designs, Inc. filed an amendment to its articles of
incorporation with the Secretary of State of the State of Nevada to
change its corporate name to FiberNet Telecom Group, Inc.
Item 7. Financial Statements.
(a) Financial Statements of businesses acquired.
(1) June 30, 1997 audited financial statements of FiberNet Telecom Inc.
and affiliated entities are attached hereto as Schedule 1.
(c) Exhibit.
23.1 Consent of Mendelsohn Kary Bell & Natoli, P.C.
2
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIBERNET TELECOM GROUP, INC.
By: /s/ Lawrence S. Polan
Lawrence S. Polan, Secretary
Date: February 2 , 1998
3
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SCHEDULE 1
--------------
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
FiberNet Telecom Inc. and Affiliated Entities
(A Development Stage Company)
We have audited the accompanying combined balance sheet of FiberNet Telecom Inc.
and Affiliated Entities (A Development Stage Company) as of June 30, 1997, and
the related combined statements of operations and accumulated deficit,
stockholders' equity and cash flows for the year then ended and for the period
from August 10, 1994 (inception), to June 30, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of FiberNet Telecom Inc. and
Affiliated Entities as of June 30, 1997, and the results of its operations and
its cash flows for the year then ended and from August 10, 1994 (inception), to
June 30, 1997 in conformity with generally accepted accounting principles.
New York, New York
November 29, 1997
4
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FIBERNET TELECOM INC. AND AFFILIATED ENTITIES
(A DEVELOPMENT STAGE COMPANY)
COMBINED BALANCE SHEET
JUNE 30, 1997
A S S E T S
<TABLE>
<S> <C> <C>
Current Assets:
Cash $ 1,652
Prepaid expenses 1,067
---------
Total current assets 2,719
Deferred commitment fee 99,000
Security deposits 800
---------
$ 102,519
---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued expenses $ 338,480
Equity:
Capital contributed 147,100
Deficit accumulated during the
development stage (383,061) (235,961)
--------- ---------
$ 102,519
---------
</TABLE>
See accompanying Notes.
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FIBERNET TELECOM INC. AND AFFILIATED ENTITIES
(A DEVELOPMENT STAGE COMPANY)
COMBINED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
ACCUMULATED DURING THE DEVELOPMENT STAGE
<TABLE>
<CAPTION>
For The Inception
Year Ended To
June 30, 1997 June 30, 1997
------------- -------------
Expenses
<S> <C> <C>
Salaries $ 27,500 $ 27,500
Employee welfare 6,589 6,589
Consultants 178,250 178,970
Travel and auto 14,045 19,686
Business development expenses 5,000 5,000
Rent 4,512 4,512
Telephone 4,549 4,868
Office expense 8,382 8,562
Legal and accounting 119,857 120,872
Taxes 2,009 2,998
Miscellaneous 2,981 3,504
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Net loss (373,674) (383,061)
--------- ---------
Accumulated deficit beginning (9,387) --
--------- ---------
Accumulated deficit ending $(383,061) $(383,061)
--------- ---------
</TABLE>
FIBERNET TELECOM INC. AND AFFILIATED ENTITIES
(A DEVELOPMENT STAGE COMPANY)
See accompanying Notes.
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STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For The Inception
Year Ended To
June 30, 1997 June 30, 1997
Cash Flows from Operating Activities:
<S> <C> <C>
Net loss $(373,674) $(383,061)
Adjustments to reconcile net loss to
net cash used by operating activities:
Amortization of deferred expenses 56,200 56,200
Changes in operating assets and liabilities:
Prepaid expenses (1,067) (1,067)
Deferred expenses (56,200)
Accounts payable and accrued expenses 239,072 239,480
--------- ---------
Net cash used by operating activities (79,469) (144,648)
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Cash Flows from Investing Activities:
Other assets (800) (800)
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Net cash used by investing activities (800) (800)
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Cash Flows from Financing Activities:
Capital Contribution 81,000 147,100
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Net cash provided by financing activities 81,000 147,100
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Net increase in cash 731 1,652
Cash, beginning 921 --
--------- ---------
Cash, ending $ 1,652 $ 1,652
--------- ---------
</TABLE>
FIBERNET TELECOM INC. AND AFFILIATED ENTITIES
(A DEVELOPMENT STAGE COMPANY)
See accompanying Notes.
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STATEMENT OF STOCKHOLDERS' EQUITY
INCEPTION TO JUNE 30, 1997
<TABLE>
<CAPTION>
Limited C Corporation
Liability Common Total
Companies Stock Capital
<S> <C> <C> <C>
FiberNet Telecom Inc.:
Authorized 1,000 shares .01 par value
issued and outstanding 240 sharese
June 30, 1995 $60,000 $ 60,000
June 30, 1996 1,000 1,000
June 30, 1997 7,100 7,100
Local Fiber, LLC:
Class A:
June 30, 1997 $43,050 43,050
Class B:
June 30, 1997 10,000 10,000
FiberNet Equal Access, LLC:
June 30, 1997 25,950 25,950
------- ------- --------
Balance, June 30, 1997 $79,000 $68,100 $147,100
------- ------- --------
</TABLE>
See accompanying Notes.
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FIBERNET TELECOM INC. AND AFFILIATED ENTITIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Principal Business Activity and Significant Accounting
Policies
Principal Business Activity:
The group of entities (The Company), combined in the
accompanying financial statements, develops and plans to
operate telecommunication networks providing switched local
telecommunications and switched data communication services to
be marketed principally to the business community located in
New York City and parts of New Jersey.
Principles of Combination:
The accompanying combined financial statements include the
accounts of the following related entities:
FiberNet Telecom Inc.
Local Fiber, LLC (Formed March 20, 1996, NY,
NY) FiberNet Equal Access, LLC (Formed
December 12, 1996, NY, NY)
The ownership of Local Fiber, LLC is divided into (a) three
Class A Members owning 90% and entitled to two votes each, and
(b) one Class B Member owning 10% and entitled to one vote.
The Class A Members were required to make the $10,000 capital
contribution for the Class B Member who was required, under
the Operating Agreement, to grant a license to Local Fiber
with respect to fiber optic cable (See Note 2.) The 10%
ownership of Class B Member cannot be diluted until Local
Fiber shall have completed a public offering. Under the terms
of the Local Fiber operating agreement, no Class A or Class B
Member has any personal liability for the obligations of Local
Fiber and it has a fixed period of existence of twenty years.
All material intercompany accounts and transactions have been
eliminated in combination. Certain affiliates provide
management services to the Company. (See Note 5.)
FiberNet Equal Access, LLC has one class of members. Under the
terms of the FiberNet Equal Access, LLC Operating Agreement,
no member has any personal liability for the obligations of
FiberNet Equal Access, LLC, and it has a fixed period of
existence of twenty years.
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FIBERNET TELECOM INC. AND AFFILIATED ENTITIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Principal Business Activity and Significant Accounting Policies
(continued)
Going Concern:
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. However, the Company
has been in the development stage since its inception, and has incurred
losses, thereby using substantial amounts of its working capital in its
operations. Further, at June 30, 1997, current liabilities exceed
current assets by $335,761 and total liabilities exceed total assets by
$235,961.
In view of these matters, realization of a major portion of the assets
in the accompanying balance sheet is dependent upon continued
operations of the company, which in turn is dependent upon the
company's ability to attain profitable operations and meet its
financing requirements. Management believes that actions presently
being taken to revise the company's operating and financial
requirements and obtain additional capital provide the basis for the
company to continue as a going concern. See note 7, Subsequent Events -
Reorganization and Merger.
Commitment Fees:
Amortization of deferred commitment fees will be over the term of the
related borrowings.
Income Taxes:
For income tax purposes, FiberNet Telecom Inc. files as a C
Corporation, and Local Fiber, LLC and FiberNet Equal Access, LLC file
as partnerships.
Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements, and revenues and expenses during the
reporting period. In these financial statements, assets, liabilities
involve extensive reliance on management's estimates. Actual results
could differ from those estimates.
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FIBERNET TELECOM INC. AND AFFILIATED ENTITIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
2. Intangibles
Network License:
Local Fiber, LLC, has been licensed for an exclusive use of up to eight
fiber optic strands on the existing fiber optic cable network in New
York City and New Jersey granted by one of its members. The initial
term of the license is July 1, 1996 - December 20, 2008. The Company
has an option to extend the term of the license for fifteen years at no
cost. The Company is responsible for incremental expenses above which
the licensor would have incurred notwithstanding this agreement.
Ownership of network construction undertaken by the Company will
substantially vest to the licensor. The grant of the right to use the
fiber optic cable and the continuation of such right is subject to
Local Fiber having arranged for $2,000,000 in financing by December 31,
1997. The License terminates in the event Local Fiber is dissolved,
involved in an act of bankruptcy, the appointment of a receiver (or
similar custodian) or becomes insolvent.
3. Income taxes
FiberNet Telecom Inc., a C Corporation, has net operating loss
carryforwards available to offset future taxable income of
approximately $235,000. Because of the uncertainty as to the
realization of the loss carryforwards, a valuation allowance equal to
the estimated tax benefit of the loss carryforwards has been
established.
4. Warrants
FiberNet Equal Access, LLC, has issued a warrant for the purchase of up
to 10% of its membership interest. The warrant's exercise price is $25
per unit, subject to certain terms and conditions, and with an exercise
period of three years from August 7, 1997.
Warrants - to be Issued:
Local Fiber Access, LLC, and FiberNet Equal Access, LLC, have each
granted warrants for the acquisition of a 5% interest, subject to
closings on each respective Credit Facility. (See notes 6 and 7.) These
warrants will expire on December 31, 2004 or three years after final
repayment of the Credit Facility, whichever is later. The warrants
contain full anti-dilution provisions, and equalization provisions. The
Company has the right to reacquire the warrants through December 31,
2000 pursuant to certain agreed upon values.
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FIBERNET TELECOM INC. AND AFFILIATED ENTITIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
5. Related Party Transactions
The Company is obligated for payment of monthly management fees for
services rendered by two of its unconsolidated affiliates. Management,
marketing and administrative services are provided. During the year,
$120,000 has been accrued for unpaid services.
6. Commitments and Contingencies
Credit Facilities:
On June 16, 1997, Local Fiber, LLC, obtained a Credit Facility
commitment for project financing in connection with the purchase and
installation of a digital fiberoptic network for multi-media services
in New York City. The availability of this Credit Facility is subject
to certain conditions precedent among which is the condition that the
Company's shareholders commit to fund $2,500,000 of capital. The Credit
Facility provides up to $9,300,000 for project costs and up to $600,000
for capitalized interest. Interest will be calculated based on the rate
for 90-day commercial paper plus 525 basis points. Borrowings will be
repaid over 60 months. The lender will have a first priority security
interest on the Company's assets, revenues, present and future real
property, personal property and intangibles. A commitment fee of 1%, or
$99,000 will be due on acceptance of the Credit Facility commitment in
addition to standby fees and reasonable expenses incurred by the
lender. In consideration of closing on the Credit Facility, the lender
will be issued warrants for the purchase of a 5% interest in Local
Fiber, LLC.
Building Access License:
FiberNet Equal Access, LLC, has obtained licenses to construct and
exclusively operate and maintain telecommunication distribution systems
within certain commercial real estate. The term of the licenses is for
ten years. License fees are payable based on a percentage of gross
revenues received from customers using the systems, ranging from
10-14%.
Leases:
The Company leases its office facilities on a month to month basis
requiring $800 per month rent.
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FIBERNET TELECOM INC. AND AFFILIATED ENTITIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
7. Subsequent Events
Reorganization and Merger:
On November 24, 1997, the Company entered into an agreement with Desert
Native Designs, Inc. and subsidiary, and stockholders, whereby the
parties participated in a tax-free reorganization under Section
368(A)(2)E of the Internal Revenue Code of 1986. Further, pursuant to a
plan of merger, the Company's 1,000 shares of outstanding common stock
was exchanged for 11,500,000 shares - common stock and 80,000 shares -
preferred stock of Desert Native Designs, Inc.
Credit Facility:
On August 1, 1997, FiberNet Equal Access, LLC, obtained a Credit
Facility commitment for project financing in connection with the
purchase and installation of a digital in-building fiber distribution
platform. The Credit Facility provides up to $3,000,000 for project
costs and up to $125,000 for capitalized interest. Interest will be
calculated based on the rate for 90-day Libor rate plus 520 basis
points. Borrowings will be repaid over 60 months. The lender will have
a first priority security interest on the Company's assets, revenues,
present and future real property, personal property and intangibles. A
commitment fee of 1% will be due on acceptance of the Credit Facility
commitment in addition to standby fees and reasonable expenses incurred
by the lender. In consideration of closing on the Credit Facility, the
lender will be issued warrants to acquire a 5% interest in FiberNet
Equal Access, LLC. The availability of this Credit Facility is subject
to certain conditions precedent among which is the condition that the
Company's shareholders will have provided $1,000,000 of capital for
working capital purposes.
Office Lease:
On August 22, 1997, the Company entered into a lease for office
facilities with a seven month term, requiring monthly rent of $2,086
and additional charges for real estate taxes and common building
expenses.
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[LETTERHEAD MENDELSOHN KARY BELL & NATOLI LLP]
AUDITOR'S CONSENT
As independent public accountants, we hereby consent to the use of our report
dated November 29, 1997 and to all references to our firm in this Form 8-K/A.
Mendelsohn Kary Bell & Natoli, LLP
New York, New York,
February 2, 1998
