SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMEND NO. 2 TO FORM 10-SB
General Form For Registration of
Securities of Small Business Issuers
Under Section 12(b) or 12(g)Of the Securities Exchange Act of 1934
CyPost Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 98-0178674
- --------------------------------- -------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
900-1281 West Georgia St., Vancouver BC V6E 3J7
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(604)904-4422
-----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
260 West Esplanade, North Vancouver , BC V7M3G7
- --------------------------------------------------------------------------------
(Former Name or Former Address, If Changed since Last Report.)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
------------------- ------------------------------
None None
------------------- ------------------------------
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
<PAGE>
PART F/S.
The Registrant hereby includes the following financial statements as
pages F - 1 to F - 15 and pages F - 16 to F - 25 hereto.
1
<PAGE>
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.
CyPost CORPORATION
(Registrant)
DATE: APRIL 3, 2000 BY: /S/ ROBERT SENDOH
------------------
(Chief Executive Officer)
2
<PAGE>
INTOUCH.INTERNET INC.
(A WHOLLY OWNED SUBSIDIARY OF COYOTENET INC.)
-:-
FINANCIAL STATEMENTS
JUNE 30, 1999
AND
JANUARY 31, 1999 AND 1998
<PAGE>
CONTENTS
Independent Auditor's Report..............................................F - 2
Consolidated Balance Sheets,
June 30, 1999 and January 31, 1999 and 1998...............................F - 3
Consolidated Statements of Operations,
For the five months ended June 30, 1999 and
For the Years Ended January 31, 1999 and 1998.............................F - 5
Consolidated Statements of Changes in Stockholder's Equity,
For the five months ended June 30, 1999 and
For the Years Ended January 31, 1999 and 1998.............................F - 6
Consolidated Statements of Cash Flows,
For the five months ended June 30, 1999 and
For the Years Ended January 31, 1999 and 1998.............................F - 7
Notes to Consolidated Financial Statements................................F - 9
Schedule I, Condensed Financial Information
of Registrant (All Required Information
Reported in Consolidated Financial Statements
and Notes to the Consolidated Financial Statements)
Schedule II, Valuation of Qualifying Accounts
(All Required Information Reported in Consolidated
Financial Statements and Notes to the
Consolidated Financial Statements)
Schedule III, Real Estate and Accumulated Depreciation
(All Required Information Reported in Consolidated
Financial Statements and Notes to the
Consolidated Financial Statements)
Schedule IV, Mortgage Loans on Real Estate
(All Required Information Reported in Consolidated
Financial Statements and Notes to the
Consolidated Financial Statements)
Schedule V, Supplemental Information Concerning
Property-Casualty Insurance Operations
(Not Applicable)
F - 1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Intouch.Internet Inc.
(a wholly owned subsidiary of CoyoteNet Inc.)
We have audited the accompanying balance sheets of Intouch.Internet
Inc. (a wholly owned subsidiary of CoyoteNet Inc.) as of June 30, 1999 and
January 31, 1999 and 1998 and the related statements of operations, changes in
stockholder's equity and cash flows for the five months ended June 30, 1999 and
two years ended January 31, 1999. 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 audits.
We conducted our audits 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 audits provide 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 Intouch.Internet
Inc. (a wholly owned subsidiary of CoyoteNet Inc.), as of June 30, 1999 January
31, 1999 and 1998, and the results of its operations and its cash flows for the
five months ended June 30, 1999 and two years ended January 31, 1999 and 1998 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Respectfully submitted,
/S/ ROBISON, HILL & CO.
Certified Public Accountants
Salt Lake City, Utah
March 29, 2000
F - 2
<PAGE>
INTOUCH.INTERNET INC.
(A WHOLLY OWNED SUBSIDIARY OF COYOTENET INC.)
BALANCE SHEETS
June 30, January 31,
--------- ----------------------
1999 1999 1998
--------- --------- ---------
ASSETS
Current Assets
Cash ................................. $ 1,759 $ 12,355 $ 6,436
Accounts Receivable .................. 592 1,004 12,770
Inventory ............................ 923 3,682 6,368
Prepaid Expenses ..................... 4,193 3,620 2,733
--------- --------- ---------
Total Current Assets ............ 7,467 20,661 28,307
Property & Equipment
Computer Equipment ................... 38,110 36,502 36,502
Computer Software .................... 12,284 6,971 6,923
Furniture and Fixtures ............... 4,509 4,361 4,249
Leasehold Improvements ............... 10,574 10,228 10,784
Computer Equipment under Capital Lease 18,374 17,772 46,759
Less Accumulated Depreciation ........ (46,804) (40,435) (38,923)
--------- --------- ---------
Net Property & Equipment ........ 37,047 35,399 66,294
Other Assets
Goodwill ............................. 23,886 -- --
Due from Parent Company .............. -- 11,188 7,318
--------- --------- ---------
Total Assets .................... $ 68,400 $ 67,248 $ 101,919
========= ========= =========
F - 3
<PAGE>
INTOUCH.INTERNET INC.
(A WHOLLY OWNED SUBSIDIARY OF COYOTENET INC.)
BALANCE SHEETS
(Continued)
June 30, January 31,
--------- ----------------------
1999 1999 1998
--------- --------- ---------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts Payable and Accrued Liabilities $ 49,679 $ 77,096 $ 55,095
Obligation Under Capital Lease ......... 1,771 5,796 9,628
--------- --------- ---------
Total Current Liabilities ............ 51,450 82,892 64,723
--------- --------- ---------
Long Term and Other Liabilities
Deferred Revenue ....................... 45,474 42,257 40,040
Obligation Under Capital Leases ........ -- -- 16,569
Long-term Loan ......................... 66,973 45,882 63,641
--------- --------- ---------
TOTAL LONG TERM AND OTHER LIABILITIES 112,447 88,139 120,250
--------- --------- ---------
Total Liabilities .................... 163,897 171,031 184,973
--------- --------- ---------
Stockholder's Equity
Common Stock ........................... 69 69 69
Retained Deficit ....................... (115,789) (110,554) (85,050)
Currency Translation Adjustment ........ 20,223 6,702 1,927
--------- --------- ---------
Total Stockholder's Equity ........... (95,497) (103,783) (83,054)
--------- --------- ---------
Total Liabilities and
Stockholder's Equity ................ $ 68,400 $ 67,248 $ 101,919
========= ========= =========
The accompanying notes are an integral part of these financial statements.
F - 4
<PAGE>
INTOUCH.INTERNET INC.
(A WHOLLY OWNED SUBSIDIARY OF COYOTENET INC.)
STATEMENTS OF OPERATIONS
For the five
months ended For the year ended
June 30, January 31,
--------- ----------------------
1999 1999 1998
--------- --------- ---------
REVENUES
Sales ................................ $ 155,448 $ 404,163 $ 321,679
Cost of Sales ........................ 42,683 186,578 171,624
--------- --------- ---------
Gross Margin .................... 112,765 217,585 150,055
EXPENSES
Research and Development ............. -- 3,541 14,255
General and Administrative ........... 114,967 220,840 185,388
--------- --------- ---------
Total Expenses .................. 114,967 224,381 199,643
Other Income (Expense)
Loss on disposal of assets ........... -- (12,034) --
Interest Expense ..................... (3,033) (6,674) (7,855)
--------- --------- ---------
Net Other Income (Loss) ......... (3,033) (18,708) (7,855)
--------- --------- ---------
Loss Before Taxes ....................... (5,235) (25,504) (57,443)
Income Tax Expense (Benefit) ............ -- -- --
--------- --------- ---------
Net Loss ................................ $ (5,235) $ (25,504) $ (57,443)
========= ========= =========
Weighted Average Shares Outstanding ..... 200 200 200
========= ========= =========
Loss Per Share .......................... $ (26.18) $ (127.52) $ (287.22)
========= ========= =========
The accompanying notes are an integral part of these financial statements.
F - 5
<PAGE>
INTOUCH.INTERNET INC.
(A WHOLLY OWNED SUBSIDIARY OF COYOTENET INC.)
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
Common Stock Retained
---------------------
Shares Amount Deficit Total
--------- --------- --------- ---------
Balance February 1, 1997 ..... 200 $ 69 $ (27,607) $ (27,538)
Net Loss ..................... -- -- (57,443) (57,443)
--------- --------- --------- ---------
Balance January 31, 1998 ..... 200 69 (85,050) (84,981)
Net Loss ..................... -- -- (25,504) (25,504)
--------- --------- --------- ---------
Balance January 31, 1999 ..... 200 69 (110,554) (110,485)
Net Loss ..................... -- -- (5,235) (5,235)
--------- --------- --------- ---------
Balance June 30, 1999 ........ 200 $ 69 $(115,789) $(115,720)
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
F - 6
<PAGE>
INTOUCH.INTERNET INC.
(A WHOLLY OWNED SUBSIDIARY OF COYOTENET INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the five
months ended For the Year Ended
June 30, January 31,
---------- ------------------------
1999 1999 1998
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net Loss ............................................ $ (5,235) $ (25,504) $ (57,443)
Adjustments used to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization .................... 4,942 20,209 22,388
Deferred revenue ................................. 3,216 2,217 40,040
Loss from disposal of assets ..................... -- 12,034 --
Changes in operating assets and liabilities:
(Increase) Decrease in accounts receivable ....... 412 11,766 (6,744)
(Increase) Decrease in inventory ................. 2,759 2,686 (5,153)
(Increase) Decrease in Prepaid expenses .......... (573) (887) (304)
Increase (Decrease) in Accounts payable .......... (27,417) 22,001 13,732
---------- ---------- ----------
Net cash provided by operating activities ........... (21,896) 44,522 6,516
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Property and Equipment ............... (10,168) (4,147) (24,647)
Expenditures for software development ............... (6,781) (22,110) (49,481)
Proceeds from government grant for
software development ............................. -- 29,684 35,704
Proceeds from sale of software ...................... 23,881 -- --
Goodwill from purchase of ISP accounts .............. (23,886) -- --
---------- ---------- ----------
Net cash used by investing activities ............... (16,954) 3,427 (38,424)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Parent company loan advance ......................... 11,188 (3,870) (43,037)
Obligation under capital lease (repayment) proceeds . (4,025) (20,401) 7,027
Long-term debt (repayment) proceeds ................. 21,091 (17,759) 63,450
---------- ---------- ----------
Net cash provided by (used in) financing activities . 28,254 (42,030) 27,440
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (10,596) 5,919 (4,468)
Cash and cash equivalents at beginning of the year .. 12,355 6,436 10,904
---------- ---------- ----------
Cash and cash equivalents at end of the year ........ $ 1,759 $ 12,355 $ 6,436
========== ========== ==========
</TABLE>
F - 7
<PAGE>
INTOUCH.INTERNET INC.
(A WHOLLY OWNED SUBSIDIARY OF COYOTENET INC.)
STATEMENT OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
For the five
months ended For the Year Ended
June 30, January 31,
---------- ------------------------
1999 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for taxes ................. $ -- $ -- $ --
Cash paid during the year for interest .............. $ 3,033 $ 6,674 $ 7,855
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
None
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 8
<PAGE>
INTOUCH.INTERNET INC.
(A WHOLLY OWNED SUBSIDIARY OF COYOTENET INC.)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and January 31, 1999 and 1998
NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN
The accompanying consolidated financial statements have been prepared
on the basis of accounting principles applicable to a "going concern", which
assume that the Company will continue in operation for at least one year and
will be able to realize its assets and discharge its liabilities in the normal
course of operations.
Several conditions and events cast doubt about the Company's ability to
continue as a "going concern". The Company has incurred net losses of
approximately $116,000 for the period from inception December 11, 1995 to June
30, 1999, has a liquidity problem, and requires additional financing in order to
finance its business activities on an ongoing basis. The Company is actively
pursuing alternative financing through it's Parent Company and has had
discussions with various third parties, although no firm commitments have been
obtained.
The Company's future capital requirements will depend on numerous
factors including, but not limited to, continued progress in developing its
software products, and market penetration and profitable operations from its
internet connection services.
These financial statements do not reflect adjustments that would be
necessary if the Company were unable to continue as a "going concern". While
management believes that the actions already taken or planned, will mitigate the
adverse conditions and events which raise doubt about the validity of the "going
concern" assumption used in preparing these financial statements, there can be
no assurance that these actions will be successful.
If the Company were unable to continue as a "going concern", then
substantial adjustments would be necessary to the carrying values of assets, the
reported amounts of its liabilities, the reported revenues and expenses, and the
balance sheet classifications used.
ORGANIZATION AND BASIS OF PRESENTATION
The Company was incorporated under the Company Act (British Columbia)
on December 11, 1995. At the close of business on June 30, 1999 CyPost
Corporation acquired 100% of the outstanding shares of the Company from
CoyoteNet Inc. The Company's executive offices are in Vancouver, B.C., Canada.
F - 9
<PAGE>
INTOUCH.INTERNET INC.
(A WHOLLY OWNED SUBSIDIARY OF COYOTENET INC.)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and January 31, 1999 and 1998
(Continued)
NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN (CONTINUED)
NATURE OF BUSINESS
The Company was formed for the purpose of engaging in internet services
and any other activity within the purposes for which corporations may be formed
under the Company Act of British Columbia. Present operations include internet
access service provider, website hosting and consulting, website development,
sale of computer stations and custom programing.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
This summary of accounting policies for Intouch.Internet Inc. is
presented to assist in understanding the Company's financial statements. The
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.
REVENUE RECOGNITION AND DEFERRED REVENUES
The Company's primary source of revenue is earned from internet
connection services. For contracts which exceed one month, revenue is recognized
on a straight-line basis over the term of the contract as services are provided.
Revenue applicable to future periods are classified as deferred revenue.
SOFTWARE DEVELOPMENT COSTS
Under the criteria set forth in SFAS No. 86, "Accounting for the Costs
of Computer Software to Be Sold, Leased, or Otherwise Marketed', capitalization
of software development costs begins upon the establishment of technological
feasibility of the product, which the Company has defined as the completion of
beta testing of a working product. The establishment of technological
feasibility and the ongoing assessment of the recoverability of these costs
require considerable judgement by management with respect to certain external
factors, including, but not limited to, anticipated future gross product
revenue, estimated economic life and changes in software and hardware
technology. No software development costs have been capitalized by the Company
to date.
F - 10
<PAGE>
INTOUCH.INTERNET INC.
(A WHOLLY OWNED SUBSIDIARY OF COYOTENET INC.)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and January 31, 1999 and 1998
(Continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
GOODWILL
Goodwill represents the excess of the purchase price over the fair
values assigned to identifiable net assets of acquired internet service provider
accounts and is being amortized on the straight-line basis over a period of
three years.
The Company identifies and records impairment losses on goodwill when
events and circumstances indicate that such goodwill might be impaired. The
Company considers factors such as significant changes in the regulatory or
business climate and projected future cash flows from the respective asset.
Impairment losses are measured as the amount by which the carrying amount of
goodwill exceeds its fair value.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company is Canadian dollars. Balance
sheet accounts are translated to U.S. dollars at the current exchange rate as of
the balance sheet date. Income statement items are translated at average
exchange rates during the period. The resulting translation adjustment is
recorded as a separate component of stockholders' equity.
RECLASSIFICATION
Certain reclassifications have been made in the 1999 and 1998 financial
statements to conform with the June 30, 1999 presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVENTORY
Inventory is valued at the lower of first-in, first-out and net
realizable value.
F - 11
<PAGE>
INTOUCH.INTERNET INC.
(A WHOLLY OWNED SUBSIDIARY OF COYOTENET INC.)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and January 31, 1999 and 1998
(Continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS
For the purpose of reporting cash flows, the Company considers all
highly liquid debt instruments purchased with maturity of three months or less
to be cash equivalents to the extent the funds are not being held for investment
purposes.
INCOME TAXES
The Company accounts for income taxes under the provisions of SFAS No.
109, "Accounting for Income Taxes." SFAS No. 109 requires recognition of
deferred income tax assets and liabilities for the expected future income tax
consequences, based on enacted tax laws, of temporary differences between the
financial reporting and tax bases of assets and liabilities.
EARNINGS (LOSS) PER SHARE
The reconciliations of the numerators and denominators of the basic
earnings per share ("EPS") computations are as follows:
June 30, December 31,
----------- -----------------------
1999 1999 1998
---------- ---------- ----------
NUMERATOR
Net Income (Loss) To Common Stockholder $ (5,235) $ (25,504) $ (57,443)
========== ========== ==========
DENOMINATOR
Weighted Average Number of Common Shares 200 200 200
========== ========== ==========
EPS
Basic & Diluted Earnings (Loss) Per Share $ (26.18) $ (127.52) $ (287.22)
========== ========== ==========
The effects of potential common shares such as warrants would be antidilutive in
each of the periods presented and are thus not considered.
F - 12
<PAGE>
INTOUCH.INTERNET INC.
(A WHOLLY OWNED SUBSIDIARY OF COYOTENET INC.)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and January 31, 1999 and 1998
(Continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
PROPERTY & EQUIPMENT
Fixed assets are stated at cost. Depreciation and amortization are
computed using the declining balance and straight-line method over the estimated
economic useful lives of the related assets as follows:
Computer equipment Declining balance method 30%
Computer software Straight-line method 100%
Office furniture and fixtures Declining balance method 20%
Leasehold improvements Straight-line method 20%
Upon sale or other disposition of property and equipment, the cost and
related accumulated depreciation or amortization are removed from the accounts
and any gain or loss is included in the determination of income or loss.
Expenditures for maintenance and repairs are charged to expense as
incurred. Major overhauls and betterments are capitalized and depreciated over
their estimated economic useful lives.
NOTE 3 - SHARE CAPITAL
Authorized:
100,000 Class A common voting non-participating shares without par value
100,000 Class B common non-voting participating shares without par value
100,000 Class C common non-voting participating shares without par value
100,000 Class D common non-voting participating shares without par value
1,000,000 Class E preferred shares with a par value of $.01 each, redeemable at
$1,000 per share
1,000,000 Class F preferred shares with a par value of $1.00 each redeemable at
a price to be determined by the directors at the time of issue
1,000,000 Class G preferred shares with a par value of $.01 each, redeemable at
a price to be determined by the directors at the time of issue
1,000,000 Class H preferred shares with a par value of $10.00 each, redeemable
at $10.00 per share
Issued and outstanding for each of the periods presented 100 Class A, 40 Class
B, 40 Class C and 20 Class D shares. Total issued 200 common shares.
F - 13
<PAGE>
INTOUCH.INTERNET INC.
(A WHOLLY OWNED SUBSIDIARY OF COYOTENET INC.)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and January 31, 1999 and 1998
(Continued)
NOTE 4 - INCOME TAXES
In accordance with SFAS 109, the Company accounts for income taxes
under the liability method. Under this method, deferred tax assets and
liabilities are determined based on differences between the financial statement
reporting and the tax bases of the assets and liabilities, and are measured at
the enacted tax rates that will be in effect when the differences are expected
to reverse. Such differences principally arise from the timing of income and
expense recognition for accounting and tax purposes.
The application of SFAS 109 does not have any material effect on the
assets, liabilities, or operations for the periods presented in these financial
statements. Deferred tax assets arising from the Company's net operating loss
carryforwards have been fully offset by a valuation allowance.
At June 30, 1999, the Company has net operating loss carryforwards for
income tax purposes of approximately $115,000 which are available to offset
future taxable income. The Company's utilization of these carryforwards may be
restricted due to changes in ownership during the year. The components of the
deferred tax asset as of June 30, 1999 and January 31, 1999 and 1998 are as
follows:
June 30, January 31,
-------- ---------------------
1999 1999 1998
-------- -------- --------
Deferred Tax Asset:
Net operating loss carryforward ....... $ 51,750 $ 49,500 $ 38,200
Valuation Allowance ..................... (51,750) (49,500) (38,200)
-------- -------- --------
Net Deferred Tax Asset .................. $ -- $ -- $ --
======== ======== ========
NOTE 5 - LONG-TERM LOAN
The loan is payable to the parent company, is unsecured and has no
fixed terms of repayment.
F - 14
<PAGE>
INTOUCH.INTERNET INC.
(A WHOLLY OWNED SUBSIDIARY OF COYOTENET INC.)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and January 31, 1999 and 1998
(Continued)
NOTE 6 - OBLIGATION UNDER CAPITAL LEASE
Computer equipment under capital lease:
June 30, January 31,
-------- --------------------
1999 1999 1998
-------- -------- --------
Capital lease payable, bearing interest
At 16.5%, due August 1999 ............... $ 1,771 $ 5,796 $ 26,197
Less current maturities .................... (1,771) (5,796) (9,628)
-------- -------- --------
Net long-term obligation ................... $ -- $ -- $ 16,569
======== ======== ========
NOTE 7 - COMMITMENT
The Company leases office and retail store premises under a lease
expiring December 2001. Future minimum lease payments will aggregate $30,798
over the next three years:
2000 $ 11,931
2001 12,485
2002 6,381
F - 15
<PAGE>
THOMAS P. MONAHAN
CERTIFIED PUBLIC ACCOUNTANT
208 LEXINGTON AVENUE
PATERSON, NEW JERSEY 07502
(973) 790-8775
FAX (973) 790-8845
To The Board of Directors and Shareholders of Hermes Net Solutions, Inc. a
British Columbia, Canadian corporation.
I have audited the accompanying balance sheet of Hermes Net Solutions,
Inc. as of February 28, 1999 and the related statements of operations, cash
flows and shareholders' equity for the years ended February 28, 1998 and 1999.
These financial statements are the responsibility of the Company's management.
My responsibility is to express an opinion on these financial statements based
on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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 and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hermes Net Solutions, Inc.
as of February 28, 1999 and the results of its operations, shareholders equity
and cash flows for the years ended February 28, 1998 and 1999 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
Hermes Net Solutions, Inc. will continue as a going concern. As more fully
described in Note 2, the Company has suffered recurring losses from operations
and requires additional capital to continue operations. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans as to these matters are described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
S/THOMAS P. MONAHAN
--------------------
Thomas P. Monahan, CPA
March 31, 2000
Paterson, New Jersey
F - 16
<PAGE>
HERMES NET SOLUTIONS, INC.
A BRITISH COLUMBIA, CANADIAN CORPORATION
BALANCE SHEET
(IN US DOLLARS)
June 30,
1999 February 28,
UNAUDITED 1999
--------- ---------
ASSETS
Current assets
Cash and cash equivalents .................... $ 82,804 $ 97,261
Accounts receivable net of allowance
for doubtful accounts of
$-0- and $6,404 respectively ............... 74,256 48,471
--------- ---------
Total current assets ......................... 157,060 145,732
Property and equipment
Furniture and fixtures ....................... 772 772
Computer equipment ........................... 42,192 65,149
Less accumulated depreciation ................ (9,306) (17,905)
--------- ---------
Total property and equipment-net ............. 33,658 48,016
--------- ---------
Total assets ................................... $ 190,718 $ 193,748
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses ........ $ 67,362 $ 82,187
Officer loans ................................ 37,631 25,785
Deferred income .............................. 70,820 69,988
--------- ---------
Total current liabilities .................... 175,813 177,960
Stockholders' equity
Common Stock authorized 20,000,000 shares,
without par value each. At June 30, 1999,
and February 28, 1999 there are 2,000,00
shares outstanding respectively ........... 679 679
Deficit ...................................... (4,529) (4,473)
Currency translation adjustment .............. 18,755 19,582
--------- ---------
Total stockholders' equity ..................... 14,905 15,788
--------- ---------
Total liabilities and stockholders' equity ..... $ 190,718 $ 193,748
========= =========
See accompanying notes to financial statements.
F - 17
<PAGE>
HERMES NET SOLUTIONS, INC.
A BRITISH COLUMBIA, CANADIAN CORPORATION
STATEMENT OF OPERATIONS
(IN US DOLLARS)
For the four
For the For the months ended
year ended year ended June 30,
February 28, February 28, 1999
1998 1999 UNAUDITED
----------- ----------- -----------
Revenue .............................. $ 143,598 $ 196,141 $ 153,930
Direct costs ......................... 54,324 80,250 56,680
----------- ----------- -----------
Gross profit ......................... 89,274 115,891 97,250
Operations:
Selling, general and administrative 94,322 101,272 93,606
Depreciation and amortization ...... 3,611 14,497 3,000
----------- ----------- -----------
Total expense ...................... 97,933 115,769 96,606
Profit (Loss) from operations ........ (3,344) 122 644
Other income
Interest income .................... 273 1,025 1,290
Interest expense ................... (1,156) (1,393) (1,990)
----------- ----------- -----------
Total other income ................. (883) $ (368) $ (700)
Net loss ............................. $ (4,227) $ (246) $ (56)
=========== =========== ===========
Weighted average shares outstanding .. 2,000,000 2,000,000 2,000,000
=========== =========== ===========
Loss per share ....................... $ (0.00) $ (0.00) $ (0.00)
=========== =========== ===========
See accompanying notes to financial statements.
F - 18
<PAGE>
HERMES NET SOLUTIONS, INC.
A BRITISH COLUMBIA, CANADIAN CORPORATION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the four
For the For the months ended
year ended year ended June 30,
February 28, February 28, 1999
1998 1999 UNAUDITED
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) ....................................... $ (4,227) $ (246) $ (56)
Adjustments to reconcile net loss to cash used in operating
activities
Depreciation and amortization ........................... 3,611 14,497 3,000
Deferred revenue ........................................ 56,342 13,646 832
Write off of fixed asset ................................ -- -- 11,358
Currency translation .................................... 19,322 260 (827)
Changes in operating assets and liabilities
Accounts receivable ..................................... (62,911) 14,440 (25,785)
Accounts payable and accrued expenses ................... 20,293 61,894 (14,825)
--------- --------- ---------
TOTAL CASH FLOWS FROM OPERATIONS .......................... 32,430 104,491 (26,303)
CASH FLOWS FROM FINANCING ACTIVITIES
Officers loans .......................................... 9,543 5,341 11,846
--------- --------- ---------
TOTAL CASH FLOWS FROM FINANCING ACTIVITIES ................ 9,543 5,341 11,846
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases fixed assets .................................. (24,180) (41,741) --
--------- --------- ---------
Incorporation cost ...................................... (203) -- --
--------- --------- ---------
TOTAL CASH FLOWS FROM INVESTING ACTIVITIES ................ (24,383) (41,741) --
NET INCREASE (DECREASE) IN CASH ........................... 17,590 68,091 (14,457)
CASH BALANCE BEGINNING OF PERIOD .......................... 11,580 29,170 97,261
--------- --------- ---------
CASH BALANCE END OF PERIOD ................................ $ 29,170 $ 97,261 $ 82,804
========= ========= =========
</TABLE>
See accompanying notes to financial statements
F - 19
<PAGE>
HERMES NET SOLUTIONS, INC.
A BRITISH COLUMBIA, CANADIAN CORPORATION
STATEMENT OF STOCKHOLDERS EQUITY
Common Common
DATE STOCK STOCK DEFICIT TOTAL
- ----- ---------- ---------- ---------- ----------
Balance February 28, 1997 .. 2,000,000 $ 679 -- $ 679
Net loss ................... -- -- (4,227) (4,227)
---------- ---------- ---------- ----------
Balance December 31, 1998 .. 2,000,000 679 (4,227) (3,548)
Net loss ................... -- -- (246) (246)
---------- ---------- ---------- ----------
Balance February 28, 1999 .. 2,000,000 $ 679 $ (4,473) $ (3,794)
Unaudited
Net loss June 30, 1999 ..... -- -- (51) (51)
Balance june 30, 1999 ...... 2,000,000 $ 679 $ (4,524) $ (3,845)
========== ========== ========== ==========
See accompanying notes to financial statements
F - 20
<PAGE>
HERMES NET SOLUTIONS, INC.
A BRITISH COLUMBIA, CANADIAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1999
(U.S. DOLLARS)
NOTE 1 - FORMATION OF COMPANY AND ISSUANCE OF COMMON STOCK
A. FORMATION AND DESCRIPTION OF THE COMPANY
Hermes Net Solutions, Inc. (the "Company"), was formed on December 23,
1996 under the Company Act (British Columbia) and is authorized to issue
20,000,000 shares of common stock, without par value.
B. DESCRIPTION OF COMPANY
The Company was formed for the purpose of engaging in Internet services
and any other activity within the purposes for which corporations may be formed
under the Company Act of British Columbia. Present operations include Internet
access service provider, web site hosting and consulting and custom programming.
NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has incurred net
losses of $4,529 from inception to June 30, 1999. These factors indicate that
the Company's continuation as a going concern is dependent upon its ability to
obtain adequate financing. The Company will be relying upon the resources of
management to provide the necessary working capital to sustain the Company's
continued operations until adequate financing can be located or the company
achieves profitability. The Company will require substantial additional funds to
finance its business activities on an ongoing basis and will have a continuing
long-term need to obtain additional financing.
The financial statements presented at February 28, 1999 consist of the
balance sheet as at February 28, 1999 and the statements of operations, cash
flows and stockholders equity for the years ending February 28, 1998 and 1999.
The unaudited financial statements presented at June 30, 1999 consist
of the balance sheet as at June 30, 1999 and the statements of operations, cash
flows and stockholders equity for the four months ended June 30, 1999.
B. CASH AND CASH EQUIVALENTS
Cash and Cash Equivalents - Temporary investments with a maturity of less
than three months when purchased are treated as cash
F - 21
<PAGE>
HERMES NET SOLUTIONS, INC.
A BRITISH COLUMBIA, CANADIAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1999
(U.S. DOLLARS)
C. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated
depreciation. Depreciation is computed over the estimated useful lives using the
straight line methods over a period of five years. Maintenance and repairs are
charged against operations and betterment's are capitalized.
D. REVENUE RECOGNITION
The Company's primary source of revenue is earned from Internet
connection services. For contracts which exceed one month, revenue is recognized
on a straight-line basis over the term of the contract as services are provided.
Revenue applicable to future periods are classified as deferred revenue.
E. SELLING AND MARKETING COSTS
Selling and Marketing costs, are expensed as incurred. For the years
ending February 28, 1998 and 1999 and for the four months ended June 30, 1999
was $5,493, $16 and $-0- respectively.
F. SOFTWARE DEVELOPMENT
Under the criteria set forth in SFAS No. 86, "Accounting for the
Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed"
capitalization of software development costs begins upon the establishment of
technological feasibility of the product, which the Company has defined as the
completion of beta testing of a working product. The establishment of
technological feasibility and the ongoing assessment of the recoverability of
these costs require considerable judgment by management with respect to certain
external factors, including, but not limited to, anticipated future gross
product revenue, estimated economic life and changes in software and hardware
technology. No software development costs have been capitalized by the Company
to date.
G. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
H. FOREIGN CURRENCY TRANSLATION
The functional currency of the Company is Canadian dollars. Balance
sheet accounts are translated to U.S. dollars at the current exchange rate of
the balance sheet date. Income statement items are translated at average
exchange rates during the period. The resulting translation adjustment is
recorded as a separate component of stockholder' equity.
F - 22
<PAGE>
HERMES NET SOLUTIONS, INC.
A BRITISH COLUMBIA, CANADIAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1999
(U.S. DOLLARS)
I. SIGNIFICANT CONCENTRATION OF CREDIT RISK
At February 28, 1999 and June 30, 1999, the Company has concentrated
its credit risk by maintaining deposits in one banks. The maximum loss that
could have resulted from this risk totaled $-0- which represents the excess of
the deposit liabilities reported by the banks over the amounts that would have
been covered by the federal insurance.
J. LOSS PER SHARE:
Basic loss per common share is computed by dividing the loss by the
weighted average number of common shares outstanding during the period. For the
years ended February 28, 1998 and 1999 and for the four months ended June 30,
1999, there were no dilutive securities outstanding.
K. UNAUDITED FINANCIAL INFORMATION
In the opinion of Management, the accompanying unaudited financial
statements contain all adjustments (consisting only of normal recurring items)
necessary to present fairly the financial position of the Company as of June 30,
1999 and the results of its operations and its cash flows for the four months
ended June 30, 1999. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the SEC's rules
and regulations of the Securities and Exchange Commission. The results of
operations for the periods presented are not necessarily indicative of the
results to be expected for the full year.
NOTE 3 - SALE OF COMPANY
On June 30, 1999, the Company entered into a Share Purchase Agreement
(the "Agreement"), with Cypost Corporation ("Cypost") pursuant to which the
Company sold all of its issued and outstanding shares of common stock for a cash
consideration of U.S. $527,520.
NOTE 4 - RELATED PARTY TRANSACTIONS
A. OFFICER SALARIES
No officer has received a salary in excess of $100,000.
B. LOANS PAYABLE-SHAREHOLDER
As of February 28, 1999 and June 30, 1999, the Company is obligated to
repay monies advanced by officers of the Company aggregating $25,785 and $37,631
respectively with interest at 6% and is payable on demand.
F - 23
<PAGE>
HERMES NET SOLUTIONS, INC.
A BRITISH COLUMBIA, CANADIAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1999
(U.S. DOLLARS)
NOTE 5 - INCOME TAXES
The Company provides for the tax effects of transactions reported in
the financial statements. The provision if any, consists of taxes currently due
plus deferred taxes related primarily to differences between the basis of assets
and liabilities for financial and income tax reporting. The deferred tax assets
and liabilities, if any represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. As of February 28, 1999 and June 30, 1999,
the Company had no material current tax liability, deferred tax assets, or
liabilities to impact on the Company's financial position because the deferred
tax asset related to the Company's net operating loss carryforward and was fully
offset by a valuation allowance.
At June 30, 1999, the Company has net operating loss carry forwards for
income tax purposes of $4,529. This carryforward is available to offset future
taxable income, if any, and expires in the year 2010. The Company's utilization
of this carryforward against future taxable income may become subject to an
annual limitation due to a cumulative change in ownership of the Company of more
than 50 percent.
The components of the net deferred tax asset as of June 30, 1999 is as
follows:
Deferred tax asset:
Net operating loss carry forward $ 1,540
Valuation allowance $(1,540)
---------
Net deferred tax asset $ -0-
======
The Company recognized no income tax benefit for the loss generated in the
period from inception to June 30, 1999.
SFAS No. 109 requires that a valuation allowance be provided if it is more
likely than not that some portion or all of a deferred tax asset will not be
realized. The Company's ability to realize benefit of its deferred tax asset
will depend on the generation of future taxable income.
Because the Company has yet to recognize significant revenue from the sale
of its products, the Company believes that a full valuation allowance should be
provided.
NOTE 6 - BUSINESS AND CREDIT CONCENTRATIONS
The amount reported in the financial statements for cash approximates
fair market value. Because the difference between cost and the lower of cost or
market is immaterial, no adjustment has been recognized and investments are
recorded at cost.
Financial instruments that potentially subject the company to credit
risk consist principally of trade receivables. Collateral is generally not
required.
F - 24
<PAGE>
HERMES NET SOLUTIONS, INC.
A BRITISH COLUMBIA, CANADIAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1999
(U.S. DOLLARS)
NOTE 7 - COMMITMENTS
The Company leases office space under a year lease expiring January 31,
2000 for an aggregate rental of Cdn $9,948 (U.S. $6,756).
Rent expense for the years ended February 28, 1998 and 1999 and for the
four months ended June 30, 1999 was U.S. $5,129, $5,029 and $2,509 respectively.
F - 25
