<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended June 30, 2000
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission file number 0-27263
Cyberfast Systems, Inc.
-----------------------
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C> <C>
Florida 13-5398600
------------------- ------------
(State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
</TABLE>
777 Yamato Road, Suite 105, Boca Raton FL 33431
-----------------------------------------------
(Address of principal executive offices)
(561) 995-6255
--------------
(Issuer's telephone number)
N/A
----------
(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 [X] No [_]
APPLICABLE ONLY TO CORPORATE ISSUERS
As of September 20, 2000, there were 3,239,176 shares of Class A common stock
outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [_] No [X]
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
INDEX TO FINANCIAL STATEMENTS PAGE
----------------------------- ----
Consolidated Balance Sheets June 30, 2000 (Unaudited) 3
and December 31, 1999
Consolidated Statements of Operations three months and six months 4
ended June 30, 2000 and 1999 (Unaudited)
Consolidated Statements of Cash Flows six months ended June 30, 2000 5
and 1999 (Unaudited)
Notes to Consolidated Financial Statements 6
2
<PAGE>
Cyberfast Systems, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 2000 1999
------ ---- ----
(Unaudited)
<S> <C> <C>
Current Assets:
Cash $ 4,592 $ -
Advances to officers/directors and others 10,000 15,000
----------- -----------
Total current assets 14,592 15,000
Property and Equipment, Net of Accumulated Depreciation
of $157,657 and $92,094 298,569 358,376
Deposits 8,521 -
----------- -----------
$ 321,682 $ 373,376
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
Current Liabilities:
Accounts payable and accrued expenses:
Stockholder compensation $ 803,846 $ 528,826
Other 507,748 262,275
Majority stockholder/officer/director/loan, including interest 1,553,381 1,346,361
Note payable, including interest 305,580 -
Income taxes payable 151,000 151,000
Bank overdraft - 22,566
----------- -----------
Total current liabilities 3,321,555 2,311,028
----------- -----------
Commitments, Contingencies, Other Matters and Subsequent Event - -
Stockholders' Deficiency:
Preferred stock, $100. par value; 5,000,000
shares authorized; 0 shares issued
Common stock
Class A, $.01 par value; 40,250,000 shares authorized;
1,710,450 shares issued and outstanding 17,105 17,105
Class B, $.01 par value; 4,750,000 shares authorized;
4,540,050 shares issued and outstanding 45,400 45,400
Additional paid-in capital 3,234,367 2,419,607
Deficit (6,296,745) (4,419,764)
----------- -----------
(2,999,873) (1,937,652)
----------- -----------
$ 321,682 $ 373,376
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
Cyberfast Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Data communications services $ 8,214 $ 87,356 $ 143,250 $ 87,356
Cost of Sales 152,045 91,796 430,226 216,585
----------- ---------- ------------ ------------
Gross Margin (143,831) (4,440) (286,976) (129,229)
----------- ---------- ------------ ------------
Other Operating Expenses:
General and administrative 374,165 282,862 704,244 542,898
Common stock and options issued for services 407,500 533,000 814,760 628,000
----------- ---------- ------------ ------------
Total expenses 781,665 815,862 1,519,004 1,170,898
----------- ---------- ------------ ------------
Loss from Operations (925,496) (820,302) (1,805,980) (1,300,127)
----------- ---------- ------------ ------------
Other Income (Expense):
Interest expense, stockholder (35,000) (9,200) (71,000) (9,200)
Penalties and interest - (57,500) - (57,500)
----------- ---------- ------------ ------------
(35,000) (66,700) (71,000) (66,700)
----------- ---------- ------------ ------------
Loss before Income Taxes (960,496) (887,002) (1,876,980) (1,366,827)
Income Tax Benefit - 82,000 - 224,000
----------- ---------- ------------ ------------
Net Loss $ (960,496) $ (805,002) $ (1,876,980) $ (1,142,827)
=========== ========== ============ ============
Net Loss Per Common Share -
Basic and Diluted $ (0.15) $ (0.13) $ (0.30) (0.19)
=========== ========== ============ ============
Weighted Average Number of Common
Shares Outstanding 6,250,500 6,081,050 6,250,500 6,081,050
=========== ========== ============ ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
Cyberfast Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(1,876,980) $(1,142,827)
Adjustments to reconcile net loss to net cash and
cash equivalents used in operating activities:
Depreciation 65,562 13,227
Stock-based compensation 814,760 628,000
Interest in notes and loans payable 71,000 9,200
Changes in operating assets and liabilities:
(Increase) decrease in :
Other (8,521) -
Increase (decrease) in:
Accounts payable 599,032 249,089
Income taxes payable - (166,500)
----------- -----------
Net cash used in operating activities 335,147) (409,811)
----------- -----------
Cash Flows from Investing Activities:
Purchase of property and equipment (5,756) (26,001)
(Advances to) repayments from officers/directors and others 5,000 -
----------- -----------
Net cash used in investing activities (756) (26,001)
----------- -----------
Cash Flows from Financing Activities:
Bank overdraft (22,566) -
Proceeds from note payable 299,980 -
Loans from stockholders 63,081 433,001
----------- -----------
Net cash provided by financing activities 340,495 433,001
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents 4,592 (2,811)
Cash and Cash Equivalents, Beginning - 9,982
----------- -----------
Cash and Cash Equivalents, Ending $ 4,592 $ 7,171
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ - $ -
=========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
Cyberfast Systems, Inc. and Subsidiaries
NOTE 1. SUMMARY OF BUSINESS OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements have been
prepared by the Company pursuant the rules and regulations of the
Securities and Exchange Commission ("SEC") and, in the opinion of
management, include all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of financial position,
results of operations and cash flows for the interim periods. 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 rules and
regulations of the SEC. The Company believes that the disclosures
contained herein are adequate to make the information presented not
misleading. The statements of operations for the six months ended June
30, 2000 are not necessarily indicative of the results to be expected
for the full year. These unaudited financial statements should be read
in conjunction with the audited financial statements and accompanying
notes included in the Company's 1999 Annual Report on Form 10-KSB for
the year ended December 31, 1999.
The consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The
independent auditors' report on the December 31, 1999 financial
statements stated that "... the Company is subject to certain
significant risks and uncertainties, which conditions raise
substantial doubt about the Company's ability to continue as a going
concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty."
The consolidated financial statements do not include adjustments
relating to the recoverability and classification of recorded asset
amounts, or the amounts and classification of liabilities that might
be necessary should the Company be unable to continue as a going
concern. The Company's ability to continue as a going concern is
dependent upon its ability to generate sufficient cash flow to meet
its obligations on a timely basis and ultimately to attain profitable
operations.
Organization and Capitalization
-------------------------------
The Company was originally incorporated as SmartFit Brassiera Co.,
Inc., a New York corporation, and was in the business of selling
women's undergarments. The Company changed its name to Smart Fit
Foundation, Inc. on September 8, 1995.
6
<PAGE>
NOTE 1. SUMMARY OF BUSINESS OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Organization and Capitalization (Continued)
-------------------------------------------
In October 1998, pursuant to an Agreement and Plan of Reorganization,
Smart Fit Foundation, Inc. (a non-operating public shell), acquired
100% of the common stock of Cyberfast Network Systems Corp., in
exchange for 97.8% of Smart Fit Foundation, Inc.'s common stock. On
October 19, 1998, Smart Fit Foundation, Inc. changed its name to
Cyberfast Systems, Inc.
The Company's certificate of incorporation authorized the issuance of
50,000,000 shares of capital stock consisting of 5,000,000 shares of
preferred stock with a $100.00 par value per share, 40,250,000 shares
of Class A common stock with a $.01 par value per share and one vote
per share and 4,750,000 shares of Class B common stock with a $.01 par
value per share and ten votes per share.
In October 1999, the Company acquired 100% of the outstanding capital
stock of Global Telcom and Internet Ventures, Inc. (Global), an
unrelated entity, in exchange for 180,000 shares of Company Class A
common stock. The acquisition was accounted for as a pooling of
interest, and, as a result, the consolidated financial statements give
retroactive effect to the transaction. Global had minimal assets,
liabilities or operations as of the date of the acquisition and for
the periods included in these consolidated financial statements.
Business
--------
Cyberfast Systems, Inc. (the "Company") is an international provider
of data communications services. The Company operates long distance
and voice communication services primarily between the United States
and under-served, under-developed or developing countries. All
transmissions originate in the United States.
Use of Estimates
----------------
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and
assumptions that affect the reported amount of assets and liabilities
as of the date of the balance sheet and operations for the period.
Although these estimates are based on management's knowledge of
current events and actions it may undertake in the future, they may
ultimately differ from actual results.
7
<PAGE>
NOTE 1. SUMMARY OF BUSINESS OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Net Loss Per Common Share
-------------------------
The Company computes earnings (loss) per share in accordance with SFAS
No. 128, "Earnings Per Share." This standard requires dual
presentation of basic and diluted earnings per share on the face of
the income statement for all entities with complex capital structures
and requires a reconciliation of the numerator and denominator of the
diluted earnings per share computation.
Net loss per common share (basic and diluted) is based on the net loss
divided by the weighted average number of common shares outstanding
during the year.
The Company's potentially issuable shares of common stock pursuant to
outstanding stock options and warrants are excluded from the Company's
diluted computation as their effect would be anti-dilutive.
NOTE 3. TRANSACTIONS WITH FATA
Note payable
------------
On May 5, 2000, the Company entered into a Memorandum of Understanding
("MOU") with the FATA Group Sp.A. ("FATA"). The MOU provided for a
bridge loan of $300,000, repayable from the first capital funding with
interest at 6%, but in no case later than August 1, 2000. This bridge
loan was received by the Company in May, 2000 and repaid in August
2000 with the proceeds from FATA's subscription for common stock as
part of the Investment Agreement signed by the parties.
NOTE 4. STOCK-BASED COMPENSATION
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). As permitted by SFAS No. 123, the Company
continues to apply the recognition and measurement provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" ("APB 25").
Pursuant to SFAS No. 123, the Company has elected to account for its
employee stock options under APB Opinion No. 25. Compensation cost has
been recognized for any options for which the market value exceeded the
exercise price on the date of the grant or agreement in principle to
grant the option, if earlier. The Company granted 2,625,000 options to
employees of which 1,525,000 were vested as of June 30, 2000.
Compensation expense of $ 137,500 has been recognized in these
consolidated financial statements for three months ended June 30, 2000
relating to these vested options.
8
<PAGE>
NOTE 4. STOCK-BASED COMPENSATION (Continued)
The Company accounts for stock-based compensation grants to non-
employees pursuant to the guidance of SFAS No. 123 using the fair-value-
based method. The Company granted 100,000 options to non-employees
during the quarter ended June 30, 2000, all of which are vested. Expense
of $270,000 has been recorded in the accompanying consolidated financial
statements for the three months ended June 30, 2000.
A summary of the status of options as of June 30, 2000 and changes
during the period ended on that date are presented below:
<TABLE>
<CAPTION>
Weighted
Number Average Expiration
Of Shares Price Date
--------- ----- ----
<S> <C> <C> <C>
Balance, March 31, 2000 2,521,000 $3.63 November 2004
Quarter Ended June 30, 2000: to December 2009
Granted 400,000 3.50 June 2005
Exercised -
Expired -
---------
Balance, June 30, 2000 2,921,000 $3.63 November 2004
=========
to December 2009
</TABLE>
9
<PAGE>
Item 2. Management's Discussion and Analysis and Plan of Operation
Three Month Periods Ended June 30, 1999 And 2000
Table 1 - Percentage Analysis of Quarterly Results of Operations
<TABLE>
<CAPTION>
QUARTER ENDED PERCENTAGE CHANGE
----------------- -----------------------------
June 30, 2000 June 30, 1999 Between Periods (Decrease)
----------------- ----------------- -----------------------------
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues 100.0% 100.0% (90.6%)
------------------------------------------------------------------------------------------------
Expenses
------------------------------------------------------------------------------------------------
COGS 1851.0% 105.1% 65.6%
------------------------------------------------------------------------------------------------
Gross Margin N/A N/A 3139.4%
------------------------------------------------------------------------------------------------
General & Administrative 4555.2% 323.8% 32.3%
------------------------------------------------------------------------------------------------
Common Stock 4961.0% 610.1% (23.5%)
------------------------------------------------------------------------------------------------
Total Op. Expenses 9516.3% 934.0% (4.2%)
------------------------------------------------------------------------------------------------
Income (Loss) from ops. N/A N/A 12.8%
------------------------------------------------------------------------------------------------
Int. Expense, stockholder 426.1% 10.5% 280.4%
------------------------------------------------------------------------------------------------
Income (Loss) before tax N/A N/A 19.2%
------------------------------------------------------------------------------------------------
Net Income (Loss) N/A N/A 15.8%
------------------------------------------------------------------------------------------------
Net Income (Loss)/share ($0.15) ($0.13) 7.1%
================================================================================================
</TABLE>
Table 1 above represents: (a) the relationship of income and expenses
relative to net revenues, and (b) the change between the comparable prior
quarterly period and current period. This table should be read in the context of
the Company's financial statements incorporated as part of this filing,
elsewhere herein.
For the three month period ended June 30, 2000, revenues decreased 90.6%
from $0.087 million for the three month period ended June 30, 1999 to $0.008
million. The absence of revenues for the three month period ended June 30, 2000
persisted as a result of regulatory issues and internal financial constraints
that have delayed the start-up of POP operations in several locations. The
completion of the first tranche of equity financing that occurred in August 2000
and the resolution of certain regulatory issues related to foreign
telecommunications licensing should have a positive impact in succeeding
quarters; however, Company management does not expect the benefit of events
until early 2001.
The Company's cost of goods sold increased 65.6% from $0.092 million during
the three month period ended June 30, 1999 to $0.152 million during the three
month period ended June 30, 2000. As a percentage of revenues, cost of goods
sold increased from 105.1% during the three month period ended June 30, 1999 to
1851.0% for the period ended June 30, 2000. This increase was the result of up
front costs incurred by the Company that are associated with the start up of
POPs, including depreciation on equipment purchased, leased line costs, and
other
10
<PAGE>
pre-operation costs. Resulting negative gross margins as a percentage of
revenues are meaningless, however, between the periods, the gross margin deficit
increased 3139.4% from $0.004 million during the three month period ended June
30, 1999 to $0.144 million during the three month period ended June 30, 2000.
These negative margins are the result of depreciation on equipment purchases and
installation and maintenance expenses that the Company normally incurs prior to
the start-up of POPs. Once POP operations commence at these sites, gross margins
will be positively impacted.
General and administrative expenses increased 32.3% for the three month
period ended June 30, 2000 from the comparable three month period ended June 30,
1999 to $0.374 million from $0.283 million. For the three month period ended
June 30, 2000, general and administrative expenses were 4555.2% of revenues
compared with 323.8% during the comparable three month period ended June 30,
1999. These general and administrative expenses represent primarily the
Company's fixed costs, and the increase was the result of staffing and support
adjustments in anticipation of the start-up of revenue generating POPs.
The Company also continued to incur expenses related to the issuance of
common stock and options to various vendors and employees as a result of
obligations of the Company under various employment and service agreements. This
expense category, however, decreased 23.5% from $0.533 million in the quarter
ended June 30, 1999 to $0.408 million in the comparable subsequent period ended
June 30 2000. As a percentage of revenues, these expenses increased from 610.1%
in the three month period ended June 30, 1999 to 4961.0% for the comparable
period ended June 30, 2000. This enormous increase was the direct result of
lower revenues for the current period. Notwithstanding options becoming
exercisable in subsequent periods, and the completion of equity financing as
scheduled, the Company expects its usage of this method to compensate vendors
will diminish in future periods.
As a result of the above reasons, during the three month period ended June
30, 2000, total operating expenses decreased 4.2% and loss from operations
increased 12.8% from $0.816 million and $0.820 million respectively for the
comparable prior three month period ended June 30, 1999 to $0.782 million and
$0.925 million for the three month period ended June 30, 2000. As a percentage
of revenues, total operating expenses increased from 934.0% in the three month
period ended June 30, 1999 to 9516.3% in the subsequent period ended June 30,
2000. The increase in cost of goods sold and general and administrative
expenses, though partially offset by the reduction in the issuance of common
stock and options, accounted for the increase in loss from operations between
the periods.
Interest expense from stockholder loans increased from $0.009 during the
three month period ended June 30, 1999 to $0.035 million for the three month
period ended June 30, 2000, producing a net loss of $0.960 million for the
current three month period compared to a net loss of $0.805 for the comparable
prior period. No income tax benefit was recorded for the three month period
ended June 30, 2000. This increase in net loss represented an increase of 19.2%
between each three month period and occurred as a result of the reasons above
listed.
11
<PAGE>
Accordingly, net loss per share of the Company's common stock increased
from $0.13 during the three month period ended June 30, 1999 to $0.15 for the
comparable subsequent period ended June 30, 2000.
Six Month Periods Ended June 30, 1999 And 2000
Table 2 - Percentage Analysis of Six Month Results of Operations
<TABLE>
<CAPTION>
SIX MONTH PERIOD PERCENTAGE CHANGE
Ended -----------------------------
-----------------
June 30, 2000 June 30, 1999 Between Periods (Decrease)
----------------- ----------------- -----------------------------
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues 100.0% 100.0% 64.0%
------------------------------------------------------------------------------------------------
Expenses
------------------------------------------------------------------------------------------------
COGS 300.3% 247.9% 98.6%
------------------------------------------------------------------------------------------------
Gross Margin N/A N/A 122.1%
------------------------------------------------------------------------------------------------
General & Administrative 491.6% 621.5% (29.7)%
------------------------------------------------------------------------------------------------
Common Stock 568.8% 718.9% (29.7)%
------------------------------------------------------------------------------------------------
Total Op. Expenses 1060.4% 1340.4% (29.7)%
------------------------------------------------------------------------------------------------
Income (Loss) from ops. N/A N/A 38.9%
------------------------------------------------------------------------------------------------
Int. Expense, stockholder 49.6% 10.5% 671.7%
------------------------------------------------------------------------------------------------
Income (Loss) before tax N/A N/A 15.8%
------------------------------------------------------------------------------------------------
Income Tax (Expense) Ben. - 124.8% N/A
------------------------------------------------------------------------------------------------
Net Income (Loss) N/A N/A 56.4%
------------------------------------------------------------------------------------------------
Net Income (Loss)/share ($0.30) ($0.19) 50.0%
================================================================================================
</TABLE>
Table 2 above represents: (a) the relationship of income and expenses
relative to net revenues, and (b) the change between the comparable prior
quarterly period and current period. This table should be read in the context of
the Company's financial statements incorporated as part of this filing,
elsewhere herein.
For the six month period ended June 30, 2000, revenues increased 64.0% from
$0.087 million for the six month period ended June 30, 1999 to $0.143 million
for the comparable subsequent period. The revenues for the six month period
ended June 30, 2000 occurred as a result of the limited start-up of certain POP
operations. The completion of the first tranche of equity financing that
occurred in August 2000 and the resolution of certain regulatory issues related
to foreign telecommunications licensing should have a positive impact in
succeeding quarters; however, Company management does not expect the benefit of
events until early 2001.
The Company's cost of goods sold increased 98.6% from $0.217 million during
the six month period ended June 30, 1999 to $0.430 million during the six month
period ended June 30,
12
<PAGE>
2000. As a percentage of revenues, cost of goods sold increased from 247.9%
during the six month period ended June 30, 1999 to 300.3% for the comparable six
month period ended June 30, 2000. This increase was the result of up front costs
incurred by the Company that are associated with the start up of POPs, including
the depreciation of equipment purchased, leased line costs, and other pre-
operation costs. Resulting negative gross margins as a percentage of revenues
are meaningless, however, between the periods, the gross margin deficit
increased 122.1% from $0.129 million during the six month period ended June 30,
1999 to $0.287 million during the six month period ended June 30, 2000. These
negative margins are the result of depreciation on equipment purchases and
installation and maintenance expenses that the Company normally incurs prior to
the start-up of POPs. Once POP operations commence at these sites, gross margins
will be positively impacted.
General and administrative expenses increased 29.7% between the six month
periods from $0.543 million for the six months ended June 30, 1999 to $0.704
million for the six months ended June 30, 2000. For the six month period ended
June 30, 2000, general and administrative expenses were 491.6% of revenues
compared with 621.5% during the comparable prior period ended June 30, 1999.
These general and administrative expenses represent primarily the Company's
fixed costs, and was the result of staffing and support adjustments in
anticipation of the start-up of revenue generating POPs.
The Company also continued to incur expenses related to the issuance of
common stock and options to various vendors and employees as a result of
obligations of the Company under various employment and service agreements. This
expense category increased 29.7% from $0.628 million in the six month period
ended June 30, 1999 to $0.815 million in the comparable subsequent period ended
June 30 2000. As a percentage of revenues, these expenses decreased from 718.9%
in the six month period ended June 30, 1999 to 568.8% for the comparable period
ended June 30, 2000. This decrease was the direct result of lower revenues in
the period ended June 30, 1999 compared to the period ended June 30, 2000.
Notwithstanding options becoming exercisable in subsequent periods, and the
completion of equity financing as scheduled, the Company expects its usage of
this method to compensate vendors will diminish in future periods.
As a result of the above reasons, during the six month period ended June
30, 2000, total operating expenses and loss from operations increased 29.7% and
38.9% respectively from the comparable prior period ended June 30, 1999. As a
percentage of revenues, total operating expenses decreased from 1340.4% in the
six month period ended June 30, 1999 to 1060.4% in the subsequent period ended
June 30, 2000. The increase in cost of goods sold, general and administrative
expenses, and cost of issuance of common stock and options, accounted for the
increase in loss from operations between the periods.
Interest expense from stockholder loans increased from $0.009 during the
six month period ended June 30, 1999 to $0.071 million for the period ended June
30, 2000, producing a net loss of $1.877 million for the current six month
period. During the comparable six month period ended June 30, 1999 the loss of
$1.367 million was offset by a tax benefit of $0.224 million, resulting in a net
loss of $1.143 million. No income tax benefit was recorded for the six month
period ended June 30, 2000. This increase in net loss represented an increase of
56.4% between each six month period and occurred as a result of the reasons
above listed.
13
<PAGE>
Accordingly, net loss per share of the Company's common stock increased
from $0.19 during the six month period ended June 30, 1999 to $0.30 for the
comparable subsequent period ended June 30, 2000.
Liquidity And Capital Resources
-------------------------------
Six Month Periods Ended June 30, 1999 And 2000
Net cash used in operating activities decreased 71.8% to $0.335 million for
the six month period ended June 30, 2000 compared to $0.410 million for the
comparable prior period ended June 30, 1999. This decrease occurred as a result
of a 56.4% increase in net loss, a 395.7% increase in depreciation, a 29.7%
increase in stock-based compensation, a 671.7% increase in interest on notes to
shareholders, and a 140.5% increase in accounts payable between the six month
period ended June 30, 1999 and the comparable period ended June 30, 2000. These
increases were offset as a result of an income tax benefit for the six month
period ended June 30, 1999 that did not occur in the comparable period ended
June 30, 2000.
Net cash used in investing activities changed from $0.026 million for the
period ended June 30, 1999 to $0.001 million for the subsequent period ended
June 30, 2000, as a result of the purchase of property and equipment.
The Company's net cash provided by financing activities decreased 21.4%
from $0.433 million for the six month period ended June 30, 1999 to $0.340
million for the comparable subsequent period ended June 30, 2000. This decrease
was the result of a net decrease in loans extended to the Company by its
shareholders between the periods.
The above factors combined to produce an overall increase in cash and cash
equivalents from a deficit of $0.003 million for the six month period ended June
30, 1999 to a surplus of $0.005 million for the comparable period ended June 30,
2000.
As of June 30, 2000, the Company had a working capital deficit of $3.307
million compared to a deficit of $2.296 million for the year ended December 31,
1999. The increase in the deficit was the result of continued increases in
stockholder loans, accounts payable, and stockholder compensation. All
increases were the result of normal operations of the Company's business.
On August 2, 2000 the Company received proceeds of approximately $1.200
million from the FATA subscription pursuant to an Investment Agreement executed
between FATA and the Company. These proceeds include an investment of $1.500
million, offset by the repayment of an earlier loan of $0.300 million plus
accrued interest at 6% per annum. An additional investment of $3.500 million is
expected no later than November 30, 2000; however, the second tranche is
conditional on the completion of due diligence by FATA. Should FATA decline
further investment for whatever reason, the Company would be required to redeem
the initial $1.500 million investment. The redemption is personally guaranteed
by certain of the Company's shareholders. Should the second tranche of the
Investment Agreement fail to
14
<PAGE>
materialize and the Company be required to redeem the initial investment, the
Company would be subject to material and adverse financial conditions that could
threaten its ability to conduct normal business operations. The Company would
then be required to seek further stockholder loans or seek other sources of
equity financing, although no assurances can be made regarding the availability
of either sources for this financing.
Plan of Operations
------------------
During the succeeding twelve month period, Company management expects to
continue reliance on shareholder loans to finance it's working capital deficit,
but in addition, new equity subscriptions and the start-up of new POPs currently
under contract will provide sources of working capital sufficient to restore
working capital surpluses. In that regard, shareholder loans increased from a
total of $1.346 million on December 31, 1999 to $1.553 million as of June 30,
2000. A bridge loan of $0.300 million was provided to the Company. As stated
previously, the Company entered into an Investment Agreement on July 26, 2000
that provides for an equity infusion of $5.0 million in exchange for a 45%
equity interest and 51% voting interest in the Company. The Investment
Agreement also grants FATA warrants to purchase an additional 6% equity stake
(bringing its equity stake to 51%, to equal its voting interest). The warrants
are exercisable at a price of $3.00 per share.
Company management is mindful of the consequences of arbitrary government
action with respect to operations in foreign jurisdictions where the Company may
not have the benefit of legal due process, as was the case in India in 1998. In
an effort to mitigate interruption of the Company's business in these foreign
jurisdictions, Company management has implemented a program whereby the Company
is shielded from any direct governmental actions through engagements with local
partners. Each local partner will have the ultimate responsibility of
governmental and regulatory relations in each destination country, thereby
protecting Company assets from predatory seizures by hostile governments. The
process of identifying, recruiting, and engaging local implementation partners
is governed by the following principles:
. Traditional telephone communications costs from the US to the destination
country are significantly higher than a minimum threshold level.
. Company management has had prior relationships with entities in the
destination country that have strong business/political contacts and/or are
involved in the telecommunications industry in that country.
. The destination country has adopted and is implementing a plan of
deregulation of its telecommunications industry.
. A Cyberfast review of current services and prices offered by other data
service providers to the destination country indicates long term growth
potential.
Company management expects that the implementation of these policies will
safeguard both Company assets and important revenue streams, as well as further
insulate the Company
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from the vagaries of international political intrigues beyond the control of
Company management.
Forward Looking Statements
--------------------------
DISCUSSIONS AND INFORMATION IN THIS DOCUMENT, WHICH ARE NOT HISTORICAL
FACTS, SHOULD BE CONSIDERED FORWARD-LOOKING STATEMENTS. WITH REGARD TO FORWARD-
LOOKING STATEMENTS, INCLUDING THOSE REGARDING THE POTENTIAL INTERIM FINANCING,
THE SUFFICIENCY OF THE CASH FLOW, AND THE BUSINESS PROSPECTS OR ANY OTHER ASPECT
OF THE COMPANY, ACTUAL RESULTS AND BUSINESS PERFORMANCE MAY DIFFER MATERIALLY
FROM THAT PROJECTED OR ESTIMATED IN SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY
HAS ATTEMPTED TO IDENTIFY IN THIS DOCUMENT CERTAIN OF THE FACTORS THAT IT
CURRENTLY BELIEVES MAY CAUSE ACTUAL FUTURE EXPERIENCE AND RESULTS TO DIFFER FROM
ITS CURRENT EXPECTATIONS. DIFFERENCES MAY BE CAUSED BY A VARIETY OF FACTORS,
INCLUDING ADVERSE ECONOMIC CONDITIONS, ENTRY OF NEW AND STRONGER COMPETITORS IN
THE VOIP BUSINESS, DELAYS IN THE COMPANY'S ABILITY TO PLACE ADDITIONAL POPs IN
SERVICE, INADEQUATE CAPITAL AND THE INABILITY TO OBTAIN FUNDING FROM THIRD
PARTIES, UNEXPECTED COSTS AND THE INABILITY TO OBTAIN OR KEEP QUALIFIED
PERSONNEL.
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K.
Exhibits
3.1 Articles of Incorporation, as amended./(1)/
3.2 Bylaws./(1)/
27.1 Financial Data Schedule. Filed herewith.
______________
(1) Incorporated by reference from the Company's Registration Statement on Form
10-SB.
Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this report
is filed.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CYBERFAST SYSTEMS, INC.
Dated: October 10, 2000 By: /s/ Edward J. Stackpole
-------------------------------------
Edward J. Stackpole, Chief Executive
Officer And Co-Chairman of the Board
Dated: October 10, 2000 By: /s/ Itir Stackpole
-------------------------------------
Itir Stackpole, Principal Financial
or Chief Accounting Officer
17
