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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 March 31, 2000
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
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Commission file number 0-27263
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Cyberfast Systems, Inc.
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(Exact name of small business issuer as specified in its charter)
Florida 13-5398600
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(State or other jurisdiction of (I.R.S. Employer incorporation or
organization) Identification No.)
777 Yamato Road, Suite 105, Boca Raton FL 33431
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(Address of principal executive offices)
(561) 995-6255
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(Issuer's telephone number)
N/A
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(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
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]
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
INDEX TO FINANCIAL STATEMENTS PAGE
----------------------------- ----
Condensed Balance Sheets March 31, 2000 (Unaudited) 3-4
Condensed Statements of Operations Three months ended 5
March 31, 2000 (Unaudited)
Condensed Statements of Cash Flows Three months ended 6
March 31, 2000 (Unaudited)
Notes to Condensed Financial Statements 7-9
2
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CYBERFAST SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 2000 1999
------ ---- ----
(Unaudited)
<S> <C> <C>
Current Assets:
Cash $ 3,666 $ --
Advances to officers/directors and others 10,000 15,000
----------- ------------
Total current assets 13,666 15,000
Property and Equipment, Net of Accumulated Depreciation
of $123,645 and $92,094 326,825 358,376
Deposits 8,521
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$ 349,012 $ 373,376
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LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable and accrued expenses:
Stockholder compensation $ 666,346 $ 528,826
Other 410,956 183,735
Majority stockholder/officer/director/loan, including interest 1,567,587 1,424,901
Income taxes payable 151,000 151,000
Bank overdraft -- 22,566
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Total current liabilities 2,795,889 2,311,028
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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, $.01 par value; 4,750,000 shares authorized;
4,540,050 shares issued and outstanding 45,400 45,400
Additional paid-in capital 2,826,867 2,419,607
Deficit (5,336,249) (4,419,764)
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(2,446,877) (1,937,652)
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$ 349,012 $ 373,376
=========== ============
</TABLE>
See notes to consolidated financial statements
3
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CYBERFAST SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Revenues:
Data communications services $ 135,035 $ --
Cost of Sales 278,182 124,789
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Gross Margin (143,147) (124,789)
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Other Operating Expenses:
General and administrative 330,078 260,035
Common stock and options issued for services 407,260 95,000
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Total expenses 737,338 355,035
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Income (Loss) from Operations (880,485) (479,824)
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Other Income (Expense):
Interest expense, stockholder (36,000) --
Interest income -- --
Penalties and interest -- --
Proceeds from contract settlement -- --
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(36,000) --
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Income (Loss) before Income Taxes (916,485) (479,824)
Income Tax (Expense) Benefit -- 142,000
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Net Income (Loss) $ (916,485) $ (337,824)
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Net Income (Loss) Per Common Share -
Basic and Diluted $ (0.15) $ (0.06)
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Weighted Average Number of Common
Shares Outstanding 6,250,500 6,021,194
=========== ===========
</TABLE>
See notes to consolidated financial statements
4
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CYBERFAST SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Net loss $ (916,485) $ (337,824)
Adjustments to reconcile net loss to net cash and
cash equivalents used in operating activities:
Depreciation 31,551 6,613
Stock-based compensation 407,260 95,000
Interest on stockholder loans 36,000 4,300
Changes in operating assets and liabilities:
Increase in deposits (8,521) -
Increase (decrease) in:
Accounts payable and accrued expenses 364,741 180,989
Income taxes payable - (142,000)
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Net cash used in operating activities (85,454) (192,922)
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Purchase of property and equipment - (26,001)
(Advances to) repayments from officers/directors and others 5,000 -
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Net cash provided by (used in) investing activities 5,000 (26,001)
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Bank overdraft (22,566) -
Loans from stockholders 106,686 236,793
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Net cash provided by (used in) financing activities 84,120 236,793
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3,666 17,870
- 9,982
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$ 3,666 $ 27,852
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Cash paid for interest $ - $ -
========== ===========
</TABLE>
See notes to consolidated financial statements
5
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Item 2. Management's Discussion and Analysis and Plan of Operation
Three Month Periods Ended March 31, 1999 And 2000
Table 1 - Percentage Analysis of Quarterly Results of Operations
<TABLE>
<CAPTION>
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Quarter Percentage Change
------- -----------------
Ended
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March 31, March 31, Between Periods
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2000 1999 (Decrease)
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<S> <C> <C> <C>
Revenues 100.0% 100.0% N/A
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Expenses
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COGS 206.0% N/A 123.2%
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Gross Margin N/A N/A 14.6%
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General & Administrative 244.4% N/A 26.9%
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Stock Based Compensation 301.6% N/A 328.7%
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Total Op. Expenses (546.0%) N/A 107.7%
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Income (Loss) from ops. (652.0%) N/A 83.5%
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Other Income - - -
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Int. Expense, stockholder 26.7% N/A N/A
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Interest Income - N/A N/A
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Penalties and Interest - - -
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Income (Loss) before tax (678.7%) N/A 91.0%
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Income Tax (Expense) Ben. - N/A N/A
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Net Income (Loss) (678.7%) N/A 171.3%
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Net Income (Loss)/share ($0.15) ($0.06) 150.0%
=========================================================================================================
</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 March 31, 2000, revenues increased
from $0.00 million for the comparable prior three month period ended March 31,
1999 to $0.135 million. The absence of sales for the three month period ended
March 31, 1999 was the direct result of the government intervention in India (as
described in the Company's report on Form 10-KSB). Insignificant revenues were
generated for the quarter ended March 31, 2000 as a result of the activation of
a circuit administered under new policy guidelines established by the Company in
response to the government intervention in India during September, 1998.
The Company's cost of goods sold increased 123.2% from $0.125 million
during the three month period ended March 31, 1999 to $0.278 million during
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the three month period ended March 31, 2000. Since there was no revenue for the
three month period ended March 31, 1999, comparisons between the comparable
periods as a percentage of revenues are meaningless. The increase in cost of
goods sold was due to increased costs associated with the start-up of POPs.
Resulting negative gross margins as a percentage of revenues are meaningless,
however, between the periods, the gross margin deficit increased 14.6% from
$0.125 million during the three month period ended March 31, 1999 to $0.143
million during the three month period ended March 31, 2000. These negative
margins are the result of increased depreciation due to equipment purchases and
installation and maintenance expenses that the Company normally incurs prior to
the start-up of POPs.
General and administrative expenses increased 26.9% from the three
month period ended March 31, 2000 from the comparable prior period ended March
31, 1999 to $0.330 million from $0.260 million. These increases were associated
with activities by the Company in anticipation of the establishment of revenue
generating POPs. Since there were no revenues for the three month period ended
March 31, 1999, percentage of revenues analysis are meaningless. For the three
month period ended March 31, 2000, general and administrative expenses were
244.4% of revenues for the period. These general and administrative expenses
largely represent the Company's fixed costs, and while there was an increase of
26.9% between the three month periods, this increase was the result staffing and
support adjustments in anticipation of the start-up of revenue generating POPs.
The Company also continued to increase expenses related to the
issuance of common stock and options to various employees, directors and vendors
as a result of obligations of the Company under various employment and service
agreements. This expense category increased 328.7% from $0.095 million in the
quarter ended March 31, 1999 to $0.407 million in the comparable subsequent
period ended March 31, 2000. However, with the completion of the first tranche
of equity financing from FATA as of August 2, 2000, and the expectation the
second tranche will be completed 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
March 31, 2000, total operating expenses and loss from operations increased
107.7% and 83.5% respectively from $0.355 million and $0.331 million for the
comparable prior three month period ended March 31, 1999 to $0.737 million and
$0.880 million for the three month period ended March 31, 2000.
Interest expense from stockholder loans increased from $0.00 during the
three month period ended March 31, 1999 to $0.036 million for the period ended
March 31, 2000, producing a net loss of $0.916 million for the current three
month period compared to a net loss of $0.480 for the comparable prior period.
An income tax benefit of $0.142 million was recorded for the three month period
ended March 31, 1999, producing a net loss for the period of $0.338 million
compared to a net loss of $0.916 million for the three month period ended March
31, 2000, with no income tax provision made. This increase in net loss
represented an increase of 171.3% between each three month period.
Accordingly, net loss per share of the Company's common stock increased
from $0.08 during the three month period ended March 31, 1999 to $0.15 for the
comparable subsequent period ended March 31, 2000.
7
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Liquidity And Capital Resources
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Three Month Periods Ended March 31, 1999 And 2000
Net cash used in operating activities decreased 16.8% to $0.164 million
for the three month period ended March 31, 2000 compared to $0.197 for the
comparable prior period ended March 31, 1999. This decrease was largely the
result of substantial increases in stock based compensation and accounts
payable. (Please see Results of Operations above for a discussion of these
items. )
Net cash from investing activities changed from a deficit of $0.026
million for the period ended March 31, 1999 to a surplus of $0.005 million for
the subsequent period ended March 31, 2000, the deficit being caused by the
purchase of property and equipment and the surplus the result of repayments for
cash advances.
The Company's net cash provided by financing activities decreased 32.5%
from $0.241 million for the three month period ended March 31, 1999 to $0.163
million for the comparable subsequent period ended March 31, 2000. This decrease
was primarily the result of a decrease in loans from stockholders between the
periods.
The above factors combined to produce a decline in cash and cash
equivalents from $0.028 million for the three month period ended March 31, 1999
to $0.003 million for the subsequent comparable period ended March 31, 2000.
As of March 31, 2000, the Company had a working capital deficit of
$2.782 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 in
light of very limited revenues.
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 replacing the MOU (discussed in the Company's
registration statement on Form 10-SB). 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. Said redemption is personally guaranteed
by certain of the Company's shareholders. Should the second tranche of the
Investment Agreement fail to 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.
8
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Plan of Operations
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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 have
increased from a total of $1.346 million on December 31, 1999 ($1.425 including
all accrued interest) to 1.488 million (1.568 million including all accrued
interest) on March 31, 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 stake 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, further adding to
the Company's working capital position. These warrants must be exercised within
one year of the final closing.
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 from the vagaries of international political
intrigues beyond the control of Company management.
9
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Forward Looking Statements
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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.
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(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.
10
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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: September 20, 2000 By: /s/ Edward J. Stackpole
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Edward J. Stackpole, Chief Executive
Officer And Co-Chairman of the Board
Dated: September 20, 2000 By: /s/ Itir Stackpole
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Itir Stackpole, Principal Financial
or Chief Accounting Officer
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