U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. Four
to
FORM 10-QSB/4A
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1999
| | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from _______________ to __________________
Commission file number: 26751
CyPost Corporation
--------------------------------------------
(Exact name of small business issuer as
specified in its charter)
Delaware 98-0178674
------------------------------------ ------------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1281 West Georgia Street, Suite 900, Vancouver, BC Canada V6E 3J7
--------------------------------------------------------------------------------
(Address of principal executive offices)
(604) 904-4422
--------------------------------------------
(Issuer's telephone number)
Not applicable
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes |_| No|X|
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date: 20,246,512
Transitional Small Business Disclosure Format (check one). Yes |_|; No|X|
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and pursuant to the rules and regulations of the Securities
and Exchange Commission. While these statements reflect all normal recurring
adjustments which are, in the opinion of management, necessary for fair
presentation of the results of the interim period, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. For further information, refer to
the financial statements and footnotes thereto for the period from the Company's
inception through December 31, 1998 which are included in the Company's
registration statement on Form 10-SB previously filed with the Commission.
<PAGE>
CYPOST CORPORATION
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
(UNAUDITED)
(U.S. Dollars)
ASSETS
<TABLE>
<CAPTION>
<S> <C>
CURRENT ASSETS
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,414,094
Accounts receivable . . . . . . . . . . . . . . . . . . 121,019
Prepaid expenses. . . . . . . . . . . . . . . . . . . . 49,144
------------
2,584,257
PROPERTY AND EQUIPMENT, net . . . . . . . . . . . . . . . 148,156
GOODWILL AND OTHER INTANGIBLES. . . . . . . . . . . . . . 751,208
OTHER ASSETS. . . . . . . . . . . . . . . . . . . . . . . 97,204
SOFTWARE DEVELOPMENT, NET AMORTIZATION OF $14,140 . . . . 127,870
------------
$ 3,708,695
============
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C>
CURRENT LIABILITIES
Accounts payable and accrued liabilities. . . . . . . . $ 351,106
Loans . . . . . . . . . . . . . . . . . . . . . . . . . 2,650,000
Deferred revenue. . . . . . . . . . . . . . . . . . . . 75,283
------------
3,076,389
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
SHAREHOLDERS' EQUITY
Share capital
Authorized
5,000,000 preferred stock with a par value of $.001
30,000,000 common stock with a par value of $.001
Issued and outstanding
Nil preferred stock
16,859,355 common stock . . . . . . . . . . . . . . $ 16,859
Paid in capital . . . . . . . . . . . . . . . . . . . . 4,113,346
Deficit . . . . . . . . . . . . . . . . . . . . . . . . (3,517,399)
Cumulative translation adjustment . . . . . . . . . . . 19,500 632,306
------------ -------
$ 3,708,695
============
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
<PAGE>
CYPOST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE THREE MONTHS ENDED AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
(U.S. Dollars)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
1999 1998 1999 1998
-------------------- ------------------- ------------ -----------
<S> <C> <C> <C> <C>
REVENUE . . . . . . . . . . . . . . . $ 185,670 $ - $ 197,068 $ -
DIRECT COSTS. . . . . . . . . . . . . 49,275 - 49,275 -
-------------------- ------------------- ------------ -----------
136,395 - 147,793 -
-------------------- ------------------- ------------ -----------
EXPENSES
Selling, general and administrative 432,521 34,840 1,167,442 153,004
Amortization and depreciation . . . 24,874 - 33,211 2,852
-------------------- ------------------- ------------ -----------
457,395 34,840 1,200,653 155,856
-------------------- ------------------- ------------ -----------
Loss before Interest Expense. . . . . (321,000) (34,840) (1,052,860) (155,856)
INTEREST EXPENSE. . . . . . . . . . . 1,378,000 - 1,908,000 -
-------------------- ------------------- ------------ -----------
NET LOSS. . . . . . . . . . . . . . . (1,699,000) (34,840) (2,960,860) (155,856)
DEFICIT, beginning of period. . . . . (1,818,399) (137,894) (556,539) (16,878)
-------------------- ------------------- ------------ -----------
DEFICIT, end of period. . . . . . . . $ (3,517,399) $ (172,734) $(3,517,399) $ (172,734)
==================== =================== ============ ===========
LOSS PER SHARE, basic and diluted . . $ (0.11) $ (0.01) $ (0.20) $ (0.03)
==================== =================== ============ ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING . . . . . 16,105,177 7,262,217 14,953,226 5,954,324
==================== =================== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
CYPOST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
(U.S. Dollars)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ------------------
1999 1998 1999 1998
-------------------- ------------------- ------------ ----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net loss . . . . . . . . . . . . . . . . . $ (1,699,000) $ (34,840) $(2,960,860) $(155,856)
Add items not affecting cash
Amortization . . . . . . . . . . . . . . 24,874 - 33,211 2,852
Interest expense . . . . . . . . . . . . 1,378,000 - 1,908,000 -
Change in non-cash operating accounts. . . (68,978) 2,298 89,450 387
-------------------- ------------------- ------------ ----------
NET CASH USED IN OPERATING ACTIVITIES. . . . (365,104) (32,542) ( 930,199) (152,617)
-------------------- ------------------- ------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds (purchase) of capital assets. . . (34,169) 644 (55,194) (18,360)
Acquisition of Hermes Net Solutions, Inc.. - - (445,112) -
Acquisition of InTouch.Internet Inc. . . . - - (197,917) -
Purchase of other assets . . . . . . . . . (69,477) - (54,220) -
Software development (114,339) - (142,010) -
-------------------- ------------------- ------------ ----------
NET CASH PROVIDED FROM (USED IN)
INVESTING ACTIVITIES . . . . . . . . . . . (217,985) 644 (894,453) (18,360)
-------------------- ------------------- ------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Loan repayment . . . . . . . . . . . . . . (66,841) - - -
Loan proceeds. . . . . . . . . . . . . . . 2,750,000 - 3,650,000 -
Issuance of shares . . . . . . . . . . . . - 44,000 556,000 185,000
-------------------- ------------------- ------------ ----------
NET CASH PROVIDED FROM FINANCING
ACTIVITIES . . . . . . . . . . . . . . . . 2,683,154 44,000 4,206,000 185,000
Exchange rate changes on cash in
foreign currency . . . . . . . . . . . . (14,466) (2,162) (14,466) (2,847)
-------------------- ------------------- ------------ ----------
NET INCREASE IN CASH . . . . . . . . . . . . 2,085,604 9,940 2,366,882 11,176
CASH, beginning of period. . . . . . . . . . 328,490 5,103 47,212 3,867
-------------------- ------------------- ------------ ----------
CASH, end of period. . . . . . . . . . . . . $ 2,414,094 $ 15,043 $ 2,414,094 $ 15,043
==================== =================== ============ ==========
</TABLE>
SUPPLEMENTAL DISCLOSURE
For the nine months ended September 30, 1999, the Company settled $1,000,000 of
loans by issuing 1.500,000 shares of common stock.
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
CYPOST CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(U.S. Dollars)
<TABLE>
<CAPTION>
Additional Currency
Common Stock Paid-in Translation
------------------
Number Amount Capital Deficit Adjustment
---------- ------- ----------- ------------ ------------
INCORPORATION DATE, SEPTEMBER 5, 1997
<S> <C> <C> <C> <C> <C>
Issued for acquisition of ePost Innovations, Inc. . . . . . . . . 3,000,000 $ 3,000 $ (1,000) $ - $ -
Issued on sale of units . . . . . . . . . . . . . . . . . . . . . 600,000 600 19,400 - -
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - - (16,878) -
---------- ------- ----------- ------------ ------------
BALANCE, DECEMBER 31, 1997. . . . . . . . . . . . . . . . . . . . . 3,600,000 3,600 18,400 (16,878) -
Issued on sale of units . . . . . . . . . . . . . . . . . . . . . 2,400,000 2,400 77,600 - -
Issued for cash . . . . . . . . . . . . . . . . . . . . . . . . . 57,000 57 18,943 - -
Issued for legal services . . . . . . . . . . . . . . . . . . . . 22,500 22 7,478 - -
Issued for acquisition of Communication Exchange Management, Inc. 6,270,000 6,270 (2,090) - -
Issued for exercise of warrants . . . . . . . . . . . . . . . . . 915,000 915 243,085 - -
Offering expenses . . . . . . . . . . . . . . . . . . . . . . . . - - (20,000) - -
Share transfer for services . . . . . . . . . . . . . . . . . . . - - 281,000 - -
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - - (539,661) -
Currency translation adjustment . . . . . . . . . . . . . . . . . - - - - 33,966
---------- ------- ----------- ------------ ------------
BALANCE, DECEMBER 31, 1998. . . . . . . . . . . . . . . . . . . . . 13,264,500 13,264 624,416 (556,539) 33,966
Issued for acquisition of InTouch.Internet Inc. . . . . . . . . . 9,855 10 28,515 - -
Issued for loan conversion. . . . . . . . . . . . . . . . . . . . 1,500,000 1,500 998,500 - -
Issued for exercise of warrants . . . . . . . . . . . . . . . . . 2,085,000 2,085 553,915 - -
Beneficial conversion feature on loans. . . . . . . . . . . . . . - - 1,908,000 - -
Currency translation adjustment . . . . . . . . . . . . . . . . - - - - (14,466)
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - - (3,088,730) -
---------- ------- ----------- ------------ ------------
BALANCE, SEPTEMBER 30, 1999 . . . . . . . . . . . . . . . . . . . . 16,859,355 $16,859 $4,113,346 $(3,517,399) $ 19,500
========== ======= =========== ============ ============
Total
------------
INCORPORATION DATE, SEPTEMBER 5, 1997
Issued for acquisition of ePost Innovations, Inc. . . . . . . . . $ 2,000
Issued on sale of units . . . . . . . . . . . . . . . . . . . . . 20,000
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,878)
------------
BALANCE, DECEMBER 31, 1997. . . . . . . . . . . . . . . . . . . . . 5,122
Issued on sale of units . . . . . . . . . . . . . . . . . . . . . 80,000
Issued for cash . . . . . . . . . . . . . . . . . . . . . . . . . 19,000
Issued for legal services . . . . . . . . . . . . . . . . . . . . 7,500
Issued for acquisition of Communication Exchange Management, Inc. 4,180
Issued for exercise of warrants . . . . . . . . . . . . . . . . . 244,000
Offering expenses . . . . . . . . . . . . . . . . . . . . . . . . (20,000)
Share transfer for services . . . . . . . . . . . . . . . . . . . 281,000
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (539,661)
Currency translation adjustment . . . . . . . . . . . . . . . . . 33,966
------------
BALANCE, DECEMBER 31, 1998. . . . . . . . . . . . . . . . . . . . . 115,107
Issued for acquisition of InTouch.Internet Inc. . . . . . . . . . 28,525
Issued for loan conversion. . . . . . . . . . . . . . . . . . . . 1,000,000
Issued for exercise of warrants . . . . . . . . . . . . . . . . . 556,000
Beneficial conversion feature on loans. . . . . . . . . . . . . . 1,908,000
Currency translation adjustment . . . . . . . . . . . . . . . . (14,466)
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,088,730)
------------
BALANCE, SEPTEMBER 30, 1999 . . . . . . . . . . . . . . . . . . . . $ 632,306
============
</TABLE>
<PAGE>
CYPOST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
(U.S. Dollars)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
GOING CONCERN
These financial statements have been prepared on the basis of
accounting principles applicable to a "going concern" which assume that Cypost
Corporation (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 before
interest expense of approximately $1.5 million for the period from inception
September 5, 1997 to September 30, 1999, has a working capital deficiency at
September 30,1999, and requires additional financing for its business
operations. As of September 30, 1999, the Company has $2.3 million of funding
available which can be drawn against a promissory note agreement with a lender.
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. The Company is actively pursuing alternative financing and
has had discussions with various third parties, although no firm commitments
have been obtained. Management is also pursuing acquisitions of other
businesses with existing positive cash flows. In addition, management is
working on attaining cost and efficiency synergies by consolidating the
operations of the businesses acquired.
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 doubts about the "going concern" assumption
used in preparing these financial statements, there can be no assurance that
these actions will be successful.
INTERIM FINANCIAL STATEMENTS
These financial statements do not include certain information and disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles. These interim financial statements are prepared
pursuant to regulations of the Securities and Exchange Commission.
In the opinion of management, these financial statements include all adjustments
which are necessary for fair presentation.
CONSOLIDATION
The consolidated financial statements include the accounts of CyPost
Corporation and its subsidiaries. The principal subsidiaries, all of which are
wholly owned, include ePost Innovations Inc., Hermes Net Solutions Inc. and
InTouch.Internet Inc.
<PAGE>
CYPOST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
(U.S. Dollars)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company is U.S. dollars. Balance sheet
accounts of international self-sustaining subsidiaries, principally Canadian,
are translated 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 shareholders' equity.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.
FINANCIAL INSTRUMENTS
The Company has, where practicable, estimated the fair value of financial
instruments based on quoted market prices or valuation techniques such as
present value of estimated future cash flows. These fair value amounts may be
significantly affected by the assumptions used, including the discount rate and
estimates of cash flow. Accordingly, the estimates are not necessarily
indicative of the amounts that could be realized in a current market exchange.
Where these estimates approximate carrying value, no separate disclosure of fair
value is shown.
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
method over a period of five years. Maintenance and repairs are charged against
operations and betterments are capitalized.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share has been computed in accordance with SFAS 128.
Basic earnings (loss) per share is computed by dividing net income (loss)
attributable to common shareholders by the weighted average number of common
shares outstanding during the respective periods. Diluted earnings (loss) per
share is computed similarly, but also gives effect to the impact that
convertible securities, such as warrants, if dilutive, would have on net
earnings (loss) and average common shares outstanding if converted at the
beginning of the year. The effects of potential common shares such as warrants
would be antidilutive in each of the periods presented in these financial
statements. At September 30, 1999, there are no warrants outstanding (1998-
2,550,000).
<PAGE>
CYPOST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
(U.S. Dollars)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION AND DEFERRED REVENUE
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.
Revenues applicable to future periods are classified as deferred revenue.
DIRECT COSTS
Direct costs consist of telecommunications charges in respect of providing
internet connection services to customers. These costs are expensed as
incurred.
SELLING AND MARKETING COSTS
Selling and marketing costs are expensed as incurred and totaled $261,093
for the nine months ended September 30, 1999. These costs are reported under
selling, general and administrative expenses on the statement of operations.
SOFTWARE DEVELOPMENT COSTS
Under 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. Software development costs are
amortized on the straightline method over the estimated economic life of the
product of three years.
As at September 30, 1999, the company capitalized $142,000 of software
development costs and amortized $14,140 of these costs.
GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets consist primarily of customer lists and goodwill related
to acquisitions accounted for under the purchase method of accounting.
Amortization of these purchased intangibles is provided on the straight-line
basis over the respective useful lives of the intangible assets which is
estimated to be three years.
The Company identifies and records impairment losses on intangible assets
when events and circumstances indicate that such assets might be impaired. The
Company considers factors such as significant changes in the regulatory or
business climate and projected future cash flows. Impairment losses are
measured as the amount by which the carrying amount of the asset exceeds the
fair value of the asset.
<PAGE>
CYPOST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
(U.S. Dollars)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company computes income taxes using the asset and liability method,
under which deferred income taxes are provided for the temporary differences
between the financial reporting basis and the tax basis of the Company's assets
and liabilities. Deferred tax assets and liabilities are measured using
currently enacted tax rates that are expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. A valuation allowance is established when necessary to reduce deferred
tax assets to the amounts expected to be realized.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities",
requires the recognition of all derivatives as either assets or liabilities and
the measurement of those instruments at fair value. SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of SFAS No. 133", issued in August 1999, postpones for one year the
mandatory effective date for adoption of SFAS No. 133 to January 1, 2001.
The Company does not currently engage in derivative trading or hedging
activities; hence, SFAS No. 133 and SFAS No. 137 will not have a material impact
on its financial position or results of operations.
STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation", encourages, but
does not require, companies to record compensation cost for stock-based employee
compensation under a fair value based method. Alternatively, stock-based
employee compensation can be accounted for under APB No. 25, "Accounting for
Stock Issued to Employees", under which no compensation is recorded.
The Company has not granted any stock-based compensation for any of the
periods presented in these financial statements.
PENSIONS AND OTHER POSTRETIREMENT BENEFITS
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits, an amendment of FASB Statements No. 87, 88 and 106",
revises employers' disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans. It
standardizes the disclosure requirements for pension and other postretirement
benefits to the extent practicable, requires additional information on changes
in benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no longer
considered useful.
The Company does not offer any pension or other postretirement benefits.
<PAGE>
CYPOST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
(U.S. Dollars)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". SOP 98-1 is
effective for financial statements for years beginning after December 15, 1998.
SOP 98-1 provides guidance over accounting for computer software developed or
obtained for internal use including the requirement to capitalize specified
costs and amortization of such costs. The implementation of SOP 98-1 does not
have a material impact on the Company's financial position or results of
operations, as the Company has not incurred any such costs for computer software
developed or obtained for internal use.
2. ACQUISITIONS
On June 30, 1999, the Company acquired all the shares of Hermes Net Solutions,
Inc. for a total cash consideration of Cdn.$770,000 (U.S.$528,000).
Also on June 30, 1999, the Company purchased all the shares of InTouch.Internet
Inc. for Cdn.$428,000 (U.S.$293,000). The consideration for this purchase
included cash of Cdn.$386,000 (U.S.$265,000) and 9,855 shares of common stock
valued at Cdn.$42,000 (U.S.$28,000) as stated in the Share Purchase Agreement.
Both acquisitions have been accounted for by the purchase method of accounting.
In both acquisitions, the net assets acquired included goodwill and other
intangibles which will be amortized on a straight line basis over its estimated
useful life of three years. These financial statements include the results of
operations of the two acquired businesses for the period from July 1, 1999 to
September 30, 1999.
3. SUBSEQUENT EVENTS
ACQUISITION OF NETROVER INC. AND NETROVER OFFICE INC.
On October 4, 1999, the Company purchased all the shares of NetRover Inc. and
NetRover Office Inc. for Cdn.$4 million (U.S.$2.7 million). The consideration
for the purchase included cash of Cdn.$3 million (U.S.$2 million) and 219,000
shares of common stock valued at Cdn.$1 million (U.S.$680,000) as stated in the
Share Purchase Agreement. These purchases will be accounted for under the
purchase method of accounting.
ACQUISITION OF CONNECT NORTHWEST AND INTERNET ARENA
On October 27, 1999, the Company purchased certain assets and liabilities of the
business of Connect Northwest for $1.4 million. The purchase price was
satisfied by a cash payment of $670,000, amount payable of $70,000 and the
issuance of 147,985 shares of common stock valued at $660,000 as stated in the
Asset Purchase Agreement.
<PAGE>
CYPOST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
(U.S. Dollars)
3. SUBSEQUENT EVENTS (CONTINUED)
On November 9, 1999, the Company purchased certain assets and liabilities of the
business of Internet Arena for $600,000. The consideration for the purchase
included cash of $242,000, amount payable of $58,000 and 100,698 shares of
common stock valued at $300,000 as stated in the Asset Purchase Agreement.
These purchases will be accounted for under the purchase method of accounting.
ACQUISITION OF PLAYA CORPORATION
On February 23, 2000, the Company completed the acquisition of Playa Corporation
(a Japan company), developer of Yabumi instant messaging and e-greeting card
services. The acquisition totals $3 million, comprised of $300,000 in cash and
$2.7 million in the Company's shares of common stock.
4. LOANS
During the nine months ended September 30, 1999, the Company borrowed
$3,650,000 pursuant to two promissory note agreements. The loans are unsecured,
bear interest at 8% per annum, and the principal and accrued interest are due on
demand. The lender may elect to convert the loans into shares of common stock
of the Company as follows:
Shares
---------------------
Principal Pre-Split Post-Split
--------- --------- ----------
$1,000,000 1,000,000 1,500,000
2,650,000 1,766,667 2,650,000
At the commitment dates of the promissory notes, the conversion prices were
less than the fair values of the common stock, hence a beneficial conversion
feature is attached to these convertible notes. The amount of this beneficial
conversion feature has been recorded as interest expense and additional
paid-in-capital for $1,378,000 for the three months ended September 30, 1999 and
$1,908,000 for the nine months ended September 30, 1999.
During the nine months ended September 30, 1999, $1 million of loans were
settled by the issuance of 1,500,000 shares of common stock valued at $1
million.
At September 30, 1999, the loans balance is $2,650,000. The fair value of
the loans at September 30, 1999 is not practicable to estimate because of the
conversion features associated with the loans; accordingly, it is not possible
to estimate the present value of the future cash flows with any reasonable
degree of precision. On November 24, 1999, these loans were converted into
2,650,000 shares of common stock.
<PAGE>
CYPOST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
(U.S. Dollars)
5. SHARE CAPITAL
On September 24, 1999, the Company effected a three-for-two subdivision of its
shares of common stock. All share and per share amounts in the accompanying
financial statements have been adjusted retroactively to give effect to this
subdivision.
6. PRO FORMA DISCLOSURES ON BUSINESS COMBINATION (UNAUDITED)
As described in Note 2, the Company completed the business acquisitions of
Hermes Net Solutions Inc. and InTouch.Internet Inc. The following presents
unaudited pro forma financial information as though each of the transactions
occurred on January 1, 1999 and 1998. This pro forma financial information
includes adjustments giving effect to goodwill amortization associated with the
acquisitions and interest expense on debt incurred to financial the
acquisitions.
1. Basis of Presentation
The pro forma condensed consolidated financial information ("pro forma financial
information") of CyPost Corporation (the "Company") have been prepared by
management based on historical financial statements of CyPost Corporation,
Hermes Net Solutions, Inc. ("Hermes"), Intouch.Internet Inc. ("Intouch"),
NetRover Inc. and NetRover Office Inc. ("NetRover"), Internet Arena, and Connect
Northwest.
The pro forma financial information are not necessarily indicative of the actual
results that would have occurred if the acquisitions had been in effect on the
dates indicated and are not necessarily indicative of what the actual results
will be in the future.
The pro forma financial information give effect to the acquisitions of Hermes
and Intouch which have both been accounted for under the purchase method of
accounting and summarized as follows.
i) Intouch - On June 30, 1999, the Company acquired all the shares of Intouch
for Cdn. $428,000 (US $293,000). The consideration for the purchase included
cash of Cdn. $386,000 (US $265,000) and 9,855 shares of common stock for a
value of Cdn. $42,000 (US $28,000). The purchase included goodwill and other
intangibles of Cdn. $470,000 (US $322,000) which will be amortized on a
straight line basis over its estimated life of three years. Intouch is based in
Vancouver, Canada.
ii) Hermes - On June 30, 1999, the Company acquired all of the shares of Hermes
for cash consideration of Cdn. $777,000 (US $528,000) The purchase included
goodwill and other intangibles of Cdn. $644,000 (US $437,000) which will be
amortized on a straight line basis over its estimated life of three years.
Hermes is based in Vancouver, Canada.
The pro forma financial information also give effect to the acquisitions of
NetRover, Internet Arena, and Connect Northwest which occurred subsequent to
September 30, 1999 and all are accounted for under the purchase method of
accounting and summarized as follows.
iii) NetRover - On October 4, 1999, the Company acquired all of the shares of
NetRover for Cdn. $4 million (US $2.7 million). The consideration for the
purchase included cash of Cdn. $3 million (US $2.0 million) and 219,000 shares
of common stock for Cdn. $1 million (US $680,000). The purchase included
goodwill and other intangibles of Cdn. $4.2 million (US $2.9 million) which
will be amortized on a straight line basis over its estimated useful life of
three years. NetRover is based in Toronto, Canada.
iv) Internet Arena - On November 9, 1999, the Company purchased certain assets
and liabilities of the business of Internet Arena for $600,000. The
consideration for the purchase included cash of $242,000, amount payable of
$58,000 and 100,698 shares of common stock for a value of $300,000. The
purchase included goodwill and other intangibles of $536,000 which will be
amortized on a straight-line basis over its estimated useful life of three
years.
v) Connect Northwest - On October 27, 1999, the Company purchased certain
assets and liabilities of the business of Connect Northwest for $1.4 million.
The consideration for the purchase included cash of $670,000, amount payable of
$70,000 and 147,985 shares of common stock for a value of $660,000. The
purchase included goodwill and other intangibles of $1.3 million which will be
amortized on a straight-line basis over its estimated useful life of three
years.
2. Pro Forma Condensed Balance Sheet
The pro forma condensed balance sheet as of September 30, 1999 include the
acquisitions of Hermes and Intouch and also assume that the acquisitions of
NetRover, Internet Arena and Connect Northwest were in effect at September 30,
1999. The pro forma condensed balance sheet give effect to the following pro
forma adjustments.
(a) the elimination of intercompany balances and investments.
(b) the total cash paid ($2,912,000) and payable ($328,000) to acquire NetRover,
Internet Arena and Connect Northwest was obtained through the convertible
debt facility available to the Company.
(c) the number of shares issued to acquire NetRover, Internet Arena and Connect
Northwest totalled 467,683 for a value of $1,640,000.
(d) goodwill and other intangible assets acquired in each of the acquisitions
are described above and have been amortized on a straight-line basis over
their estimated useful lives of three years.
(e) property and equipment acquired in the acquisitions is amortized over its
estimated useful live of three years.
<PAGE>
3. Pro Forma Condensed Consolidated Statement of Operations
The pro forma condensed consolidated statement of operations assume the
acquisitions occurred on January 1, 1999 and 1998 and give effect to the
following.
(a) amortization of the goodwill and other intangible assets and property, plant
and equipment acquired in connection with the purchase transactions on a
straight-line basis over its estimated useful life of
three years.
Pro Forma Condensed Consolidated Balance Sheet for the Nine Months Ended
September 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTERNET CONNECT PRO-FORMA CONSOLIDATED
(US Dollars) CYPOST HERMES INTOUCH NETROVER ARENA NORTHWEST ADJUSTMENTS Notes
CURRENT ASSETS 2,324,855 216,593 42,809 113,546 3,685 45,253 0 2,584,257
PROPERTY AND 76,443 33,648 38,065 253,728 41,926 150,453 109,000 2(e)
EQUIPMENT,NET
INVESTMENTS 755,718 0 0 0 0 0 -755,718 2(a)
IN SUBSIDIARIES
GOODWILL AND 0 0 0 0 0 0 4,125,748 1, 3
OTHER INTANGIBLES
OTHER ASSETS 1,376,513 0 23,957 42,534 6,760 5,170 -1,303,266 2(a)
TOTAL ASSETS 4,533,529 250,241 104,831 409,808 52,371 200,876 7,064,365
CURRENT LIABILITIES (4,103,011) (123,465) (166,109) (1,308,813) (116,927) (134,441) (1,923,804) 2(a),(b)
LONG TERM LIABILITIES 0 0 0 0 (175,377) (86,605) 0
SHAREHOLDERS EQUITY (430,518) (126,776) 61,278 899,005 239,933 20,170 (251,960) 2(c),(d),(e)
3
TOTAL LIABILITIES (4,533,529) (250,241) (104,831) (409,808) (52,371) (200,876) 0 (7,064,365)
AND SHAREHOLDERS EQUITY
<S> <C>
(US Dollars) TOTAL
CURRENT ASSETS
PROPERTY AND 257,156
EQUIPMENT,NET
INVESTMENTS 0
IN SUBSIDIARIES
GOODWILL AND 4,125,748
OTHER INTANGIBLES
OTHER ASSETS 97,204
TOTAL ASSETS
CURRENT LIABILITIES -6,316,389
LONG TERM LIABILITIES
SHAREHOLDERS EQUITY -747,976
TOTAL LIABILITIES
AND SHAREHOLDERS EQUITY
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Condensed Consolidated Statement of Operations for the Nine Months Ended September
30, 1999 (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 (US Dollars) CYPOST HERMES INTOUCH NETROVER INTERNET ARENA CONNECT NORTHWEST PRO FORMA ADJUSTMENT Notes TOTAL
------ ------ ------- -------- -------------- ----------------- -------------------- ----- -----------
REVENUE 14,000 290,000 268,000 1,864,000 466,000 563,000 0 3,465,000
NET INCOME (1,241,000) 36,056 27,000 18,000 (45,000) (7,000) (1,416,460) 3 (2,628,404)
(LOSS)
</TABLE>
LOSS PER SHARE
Pro Forma Condensed Consolidated Statement of Operations for the Nine Months
Ended September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
1998 (US Dollars) CYPOST HERMES INTOUCH NETROVER INTERNET ARENA CONNECT NORTHWEST PRO FORMA ADJUSTMENT Notes TOTAL
------ ------ ------- -------- -------------- ----------------- -------------------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE 0 135,000 389,000 1,700,000 295,000 382,000 0 2,901,000
NET INCOME (LOSS) (156,000) (1,000) 2,000 (69,000) (101,000) (49,000) (1,416,460) 3 (1,790,460)
LOSS PER SHARE (0.17)
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General: End of development stage activities and commencement of business
operations
Cypost produces and markets computer privacy protection technologies and
provides Internet conductivity to business and residential customers. From the
Company's inception date until approximately mid-March of 1999, the Company was
considered a development stage enterprise. Since that time, the Company has (i)
discussedfive (5) software encryption products under its "Navaho" trademark, and
currently is marketing two (2) products, (ii) acquired two Internet service
providers during the nine-month period ending September 30, 1999, and (iii)
acquired two additional ISPs since September 30, 1999.
Because the Company is an early stage in its business operations its
revenues are subject to wide variation from quarter to quarter. In addition, the
Company is electing to pursue a strategy of growing through acquisition. The
size and timing of acquisitions, both past acquisitions and possible future
acquisitions has been and will be affected by a number of factors which are hard
to predict and many of which are beyond the Company's control. Because of these
factors, the results of operations discussed below are unlikely to be an
accurate indication of future performance and should be viewed with considerable
caution.
Results of operations for the three months and nine months ended September 30,
1999
Substantially all of the Company's revenue is earned from its' ISP
operations during the three months and nine months ended September 30,
1999. These revenues are attributable virtually entirely to the operations
of the two Internet service provider companies (Hermes Net Solutions Inc. and
Intouch.Internet Inc.) which the Company acquired on June 30, 1999. The
Company generated net sales of approximately $185,670 for the three months
ended September 30 and approximately $197,068 for the nine months ended
September 30, 1999. The Company had no revenues for the corresponding periods
of the prior year as the Company was in development state and had no revenue
operations.
Direct costs, which consist of telecommunications charges in respect of
providing Internet connection services to customers, of approximately $49,275
were incurred in the three months and nine months ended September 30, resulting
in a gross margin of $136,395 (73%) for the three months and $147,793 (75%) for
the nine months for the nine months ended September 30, 1999. Selling, general
and administrative expenses of $432,521 and $1,167,442 for the three months
ended and nine months ended September 30, 1999, respectively includes $9,590 and
$261,093 for sales and marketing, $381,083 and $406,193 for salaries and
benefits $38,500 and $137,778 for professional services, and $3,348 and $362,378
for general and administrative expenses. Legal and professional fees, which
were incurred primarily for the filing of registration statements and corporate
matters amounted to $27,556 and $137,778 for the three months ended and nine
months ended September 30, 1999, respectively and are reported as selling,
general and administrative expenses on the statement of operations. The
increase in the above noted costs during 1999 over 1998 results from the Company
emerging from the development stage in 1999 and commencing revenue generating
activities. Net loss of $321,000 for the three months ended and $1,052,860 for
the nine months ended September 30, 1999 results from a revenue base, which was
insufficient to cover selling, general and administrative expenses. Interest
expense of $1,378,000 and $1,908,000 for the three months ended and nine months
ended September 30, 1999 is in respect of the beneficial conversion features on
convertible promissory notes between the Company and Blue Heron Venture Fund,
Ltd. A beneficial conversion feature arises when at the commitment date of the
promissory note(the date of agreement to the terms of the promissory note),the
convertible promissory note is "in-the-money" (the conversion price of the
promissory note is less than the fair value of the common stock into when the
promissory note is convertible). The interest expense is calculated as the
difference between the conversion price and the fair value of the common stock,
multiplied by the number of common stock into which the promissory note is
convertible at the commitment date of the loan. The interest expense is a
non-cash item and result in an interest in paid-in-capital.
The Company hopes to achieve profitable operations with a combination of
additional ISPs through acquisition and providing value added services in its
ISPs, and adding new products to its encryption-related operations.
<PAGE>
Liquidity and capital resources
The accompanying financial statements have been prepared on a going
concern basis, which assumes 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 business. The Company incurred net loss of
$1,699,000 for the three months ended September 30, 1999 and net loss of
$2,960,860 for the nine months ended September 30, 1999. At September 30,
1999, the Company has a working capital deficiency of approximately $400,000.
These factors indicate that the Company's continuation as a going concern is
dependent upon its ability to obtain adequate financing.
Although the Company's cash position as of September 30, 1999 had
increased to $2,414,094, as compared to $47,212 as of December 31, 1998, the
increase in cash is primarily attributable to loans made to the Company
by Blue Heron Venture Fund, Ltd. During the nine months ended September 30,
1999, the Company borrowed $3,650,000 from Blue Heron Venture Fund, Ltd.
Subsequently, $1,000,000 of theses loans were converted by the lender into
1,500,000 shares of Common stock of the Company. These loans were made
under agreements with that lender under which the Company may draw up to $16
million in unsecured loans. These loans bear interest at 8% per annum and are
payable on demand. They are convertible into common stock of the Company.
If the total loans of $2,650,000 as of September 30, 1999 were converted,
the lender would be entitled to an aggregate of 1,766,667 million shares of
such common stock. The lender is free to withdraw this credit facility at
any time, and since the loans are payable on demand the Company's ability
to continue operations is dependent upon the willingness of its lender to
forebear from demanding payment. The Company believes that Blue Heron Venture
Fund, Ltd. will continue not to demand payment of the loan for the
immediately foreseeable future, but it is under no obligation to do so.
Should the Company's lender demand payment, the Company would be required to
obtain financing from other sources. The Company does not believe that bank
borrowings are available under present circumstances, and there can be no
assurance that the necessary financing could be obtained from other sources.
Even if the necessary funding were available, it might be available only on
terms which management would not find acceptable.
For the three months ended and nine months ended September 30, 1999, the
Company's net cash used in operating activities totaled $365,104 and $930,199,
respectively. The net cash used primarily results from a low revenue base which
was insufficient to cover selling, general and administrative expenses and
development expenses.
The Company's net cash used in investing activities totaled $217,985 and
$894,453 for the three months and nine months ended September 30, 1999,
respectively. The majority of the net cash used in investing activities during
the nine months ended September 30, 1999 related to the Company's acquisition of
Hermes Net Solutions Inc. and Intouch.Internet Inc. The Company's financing
activities during the nine months ended September 30, 1999 included $3,650,000
of loans provided by Blue Heron Venture Fund, Ltd. and $556,000 provided by
issuance of shares of common stock. In addition, software development
expenditures incurred in developing encryption software products totaled
$114,339 and $142,010 for the three and nine months ended September 30, 1999,
respectively.
<PAGE>
The Company's net cash increased by $2,366,882 from $47,212 at December
31, 1998 to $2,414,094 at September 30,1999.
Acquisition of Hermes Net Solutions Inc. and Intouch.Internet Inc.:
Effective June 30, 1999, the Company purchased all the issued and outstanding
shares of Hermes Net Solutions Inc. for a total cash consideration of $528,000
USD, of which $453,000 USD was paid on closing and $75,000 USD holdback was paid
to the seller in December 1999, as defined in the purchase agreement.
Also effective June 30, 1999, the Company purchased all the issued and
outstanding shares of Intouch Internet Inc. for a purchase price of $293,000
USD. The consideration for this purchase consisted of cash of $265,000 USD and
the issuance of 6,570 pre-split, or 9,855 post-split, common shares valued at
$28,000 USD. Both acquisitions, have been accounted for under the purchase
method of accounting. In both acquisitions the net assets acquired included
goodwill and customer lists which will be amortized over three years on the
straight line basis.
Acquisition of NetRover Inc. and NetRover Office Inc.: On October 4, 1999,
the Company purchased all the issued and outstanding shares of NetRover Inc.
and NetRover Office Inc. for a purchase price of $2,700,000 USD. The purchase
price was satisfied by a cash payment of $2,000,000 USD, and the issue of
219,000 post-split common shares valued at $680,000 USD. These purchases have
been accounted for under the purchase method of accounting.
Acquisition of Connect Northwest and Internet Arena: On October 24, 1999,
the Company purchased the assets of the business of Connect Northwest for a
net purchase price of $1,400,000 USD. The purchase price was satisfied by a
cash payment of $670,000 USD and the issuance of 147,985 of the Company's
common shares.
On November 9, 1999, the Company purchased the assets of the business of
Internet Arena for a purchase price of $600,000 USD. The purchase price was
satisfied by a cash payment of $242,000 USD, the issuance of 100,698 of the
Company's post-split common shares 20,140 shares were issued on closing with the
balance of 80,558 shares due in January of 2000 along and a deferred cash
payment of $58,000 USD.
These purchases have been accounted for under the purchase method of
accounting.
Results of Operations for the Year Ended December 31, 1998
During the year-ended December 31, 1998, the Company did not generate any
revenue. It's operations consisted of incurring general and administrative
expenses of $383,046 which includes $253,127 for salaries and benefits, $32,118
for professional services, and $97,801 for general and administrative expenses.
Development expenses of $150,382 which represent amounts incurred in developing
encryption software products and amortization of $6,233 were also incurred. The
net loss for 1998 totalled $539,661.
For the year-ended December 31, 1998, the Company's net cash used in
operating activities totaled $286,276 and results primarily from a low revenue
base which was insufficient to cover selling, general and administrative
expenses and development expenses.
The Company's financing activities consisted of an issue of common stock
which generated cash of $323,000. The Company's investing activities consisted
of capital asset purchases of $27,711.
<PAGE>
Results of Operations for the period from inception, September 5, 1997 to
December 31, 1997.
The Company's operations for the period from September 5, 1997 to December
31, 1997 were limited and consisted of incurring $16,878 of development
expenses.
During this period, the Company acquired ePost Innovations Inc., a
wholly-owned subsidiary of Mushroom Innovations, Inc. ("Mushroom"). The
Company and Mushroom have officers and directors in common.
The Company issued 3,000,000 shares of common stock to Mushroom in
consideration for all of the issued and outstanding shares of ePost. The shares
of common stock were valued at $.001 per share for an aggregate consideration of
$2,000. The Company acquired all the rights, title and interest to all the
assets owned by ePost, and those assets consisted of proprietary knowledge of
various computer software products under development by ePost.
The transaction has been accounted for as a related party transfer between
companies under common control.
For the period ended December 31, 1997, the Company's net cash used in
operating activites totaled $14,913 and consisted principally of development
expenses. During this period, the Company's financing activities consisted of
an issue of common stock which generate cash of $20,000. The Company's
financing activities consisted of capital asset purchases of $852.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On June 11, 1999, Canada Post Corporation filed a Statement of Claim in
the Federal Court of Canada in which it sought injunctive and unspecified
monetary relief for the allegedly "improper use by the Company of certain marks
and names which contain the component "post". On October 18, 1999, the Company
filed its Defence and Counterclaim. In a motion heard November 24, 1999, Canada
Post Corporation challenged certain parts of the Counterclaim and the Federal
Court reserved judgment. There has been no pre-trial discovery and no trial date
has been set.
On May 25, 1999, the Company filed a statement of Claim in the BC Court
seeking a declaration that the public notice of Canada Post Corporation's
adoption and use of CYBERPOSTE and CYBERPOST on November 18, 1998 and December
9, 1998 respectively, did not affect the Company's use of CYPOST and ePost as
trade-marks and trade-names prior to said dates. The Company sought summary
judgment for such a declaration and on September 14, 1999, the BC Court rejected
summary judgment on the basis that no right of the Company was being infringed
and that a trial of the issues was more appropriate. The rejection is pending
appeal. There has been no pre-trial discovery (except to the extent that some
was done as part of the summary judgment application) and no trial date has been
set.
On or about April 13, 2000, Steven Berry, the former CEO of CyPost brought
an action in the civil court of the State of New York, New York County
(Manhattan). The suit involves the release for the transfer of 600,000 shares
of restricted 144 shares that were issued to Steven Berry as a condition of
employment. CyPost and Continental Stock Transfer & Trust Company as
defendants. The damages that the Company expects to incur, are none at present.
As the shares were previously issued and are accounted for from the issued
shares.
<PAGE>
Item 2. Changes in Securities
On June 30, 1999, the Company issued 6,570 pre-split, or 9,855 post-split
shares of its common stock to the former owners of InTouch.Internet Inc. as
partial payment for the Company's acquisition of that company.
These shares were issued under the Section 4(2) exemption for transactions
by an issuer not involving a public offering under the Securities Act of 1933,
as amended (the "Securities Act").
On August 16, 1999, the Company issued 1,000,000 pre-split, or 1,500,000
post-split shares of its common stock to Blue Heron Venture Fund Ltd ("Blue
Heron"), as discussed in Item 3., pursuant to Regulation S under the Securities
Act.
On September 29, 1999, the Company agreed to issue 219,000 post-split
shares of its common stock to the former owners of NetRover, Inc. The shares
issued in the Net Rover transaction were disclosed in the 8-K Report filed
by the Company on October 2, 1999. The shares issued in the Net Rover
acquisition were issued pursuant to the Section 4(2) Securities Act statutory
exception for transactions which do not involve any public offering.
On November 4, the Company issued 3,000,000 shares of its common stock to
Blue Heron in consideration of which Blue Heron cancelled indebtedness owing
from the Company in the aggregate principal amount of $3,000,000 together with
interest accrued. These shares were issued directly to Blue Heron pursuant to
Regulation S under the Securities Act and no underwriting commissions, fees or
discounts were paid in connection therewith.
On October 26, 1999, the Company issued 147,985 shares of its common stock
to the former owners of Connect Northwest Internet Services LLC as partial
payment for the Company's acquisition of that entity. These shares were issued
under the Section 4(2) Securities Act exemption for transactions by an
issuer not involving a public offering.
On November 9, 1999, the Company issued 20,140 shares of its common
stock to the former owners of Internet Arena, Inc. as partial payment for the
Company's acquisition of that entity. These shares were issued under the Section
4(2) Securities Act exemption for transactions by an issuer not involving a
public offering.
Item 3. Defaults Upon Senior Securities
On August 13, 1999 the Company issued One Million shares of its common
stock to Blue Heron Venture Fund Ltd. in exchange for Blue Heron's cancellation
of $1,000,000 of indebtedness (together with interest accrued thereon) owed by
the Company which had been evidenced by one or more demand promissory notes
bearing interest at 8% per annum. Such issuance of stock and the cancellation of
the indebtedness was preceded by a demand for payment in full from Blue Heron
which the Company was not able to meet. The shares were issued directly to Blue
Heron pursuant to the exemption afforded by Regulation S of the Securities Act
and no underwriting commissions, fees or discounts were paid in connection
therewith.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
On September 24, 1999 the Company increased its common share authorization
from 20 Million to 30 Million upon the filing of an Amended and Restated
Certificate of Incorporation with the Delaware Secretary of State. Shareholder
authorization for this was effected through the delivery of written consents on
September 14, 1999 in accordance with the Delaware General Corporation Law. The
Company had previously filed its Form 10-SB to register its common stock with
the Commission on July 16, 1999 and the registration became effective on
September 16, 1999 upon the expiration of the 60 day statutory period for
effectiveness provided for in Section 12(g) of the Securities and Exchange Act
of 1934, as amended. Prior to September 16, 1999, the Company was not a
reporting company within the meaning of the 1934 Act, and thus was not required
to deliver a proxy or information statement under the term of that Act and
associated rules and regulations.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
The Company filed a report on Form 8-K on September 17, 1999 regarding its
3:2 forward stock split.
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CyPost Corporation
(Registrant)
Date: May 30, 2000 By: /s/ Robert Sendoh
------------------------
Chief Executive Officer
<PAGE>