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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD OF _________ TO
_________.
Commission File Number: 000-27263
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Cyberfast Systems, Inc.
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(Name of small business issuer in its charter)
Florida 13-398600
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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, Florida 33431
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(Address of principal executive offices)
Issuer's telephone number: (561) 995-6255
Securities registered under Section 12(b) of the Act: None
----
Securities registered under Section 12(g) of the Act:
Common Stock, $0.01 Par Value
-----------------------------
(Title of Class)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [_]
State Issuer's revenues for its most recent fiscal year: $435,739
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates, computed by reference to the closing bid price reported by
the OTC Bulletin Board of such common equity as of September 18, 2000:
$4,395,974.80
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As of September 18, 2000, 3,239,176 shares of Registrant's Class A Common Stock
and 4,477,600 shares of Registrant's Class B Common Stock were outstanding.
Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
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PART I
ITEM 1. DESCRIPTION OF THE BUSINESS
Cyberfast Systems, Inc. ("Cyberfast" or the "Company") is an international
provider of digital data communications services. The Company operates
primarily between the United States and selected destination countries.
Depending on the quality of available circuitry, the Company's network can offer
international telecommunications services via Voice over the Internet ("VON") or
Voice over Internet Protocol ("VoIP"). In order to insure the highest quality
of service, most of the Company's services are handled through VoIP routing. In
addition to delivering voice services, Cyberfast can offer fax, data and video
capability, together known as Internet Protocol Telephony ("IP Telephony")
services. Cyberfast is building a network of Points of Presence ("POP") around
the world. This worldwide footprint can be used for transport of voice, data,
video, Internet access and multimedia by a variety of users. Cyberfast is able
to leverage Internet protocol technology to reduce the costs of providing
telecommunications services in traditionally high priced markets.
The Company's principal office is located at 777 Yamato Road, Suite 105,
Boca Raton, FL 33431 and its telephone number is (561) 995-6255.
History
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Budget-Calls Corporation ("BCC") was founded on August 10, 1995 by Edward
J. and Itir Stackpole, the Company's current majority shareholders, as a
predecessor to the Company. BCC operations were subsequently transferred into
Cyberfast Network Systems Corporation ("CNSC"), and incorporated August 7, 1996
as a Florida corporation. Pursuant to an Agreement and Plan of Reorganization
dated November 10, 1998 (the "Reorganization"), Smartfit Foundations, Inc., a
non-operating public shell corporation, acquired 100% of the common stock of
CNSC and BCC in exchange for 97.8% of its stock, and changed its name to
Cyberfast Systems, Inc.
On May 20, 1999, the Company formed Boca Data Services, Inc. ("BDSI") under
the laws of Florida, as a wholly owned subsidiary, to partner with the Company
on certain overseas ventures where the acquisition of circuits required two
entities. BCC, CNSC, and BDSI currently are non-operating wholly owned
subsidiaries of the Company.
In November, 1999, the Company acquired a Nevada corporation, Global Telcom
and Internet Ventures, Inc. ("Global") based in Denver Colorado in exchange for
180,000 restricted shares of Class A Common Stock of Cyberfast. A fee of 20,000
restricted shares of Class A Common Stock was issued to a broker-dealer which
acted as finder in the transaction. Global is currently a non-operating wholly
owned subsidiary of Cyberfast.
On May 5, 2000, the Company entered into a Memorandum of Understanding (the
"MOU") in connection with the sale of common stock of the Company to The FATA
Group Sp.A. ("FATA"). The MOU was replaced when the Company completed the first
closing of an investment agreement (the "Agreement") with The FATA Group Sp.A.,
an Italian corporation
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("FATA"). Pursuant to the Agreement, on August 1, 2000, FATA subscribed to and
purchased from the Company a total of 1,466,276 shares of the Company's Class A
Common Stock for a total purchase price of $1,500,000 (the "First Closing"),
consisting of a $300,000 loan from FATA plus accrued interest that was converted
to equity, and cash from the internal funds of FATA. Previously, on May 5, 2000,
FATA made a $300,000 loan to the Company, which had an interest rate of 6% per
annum. Accordingly, on August 1, 2000, the Company received net proceeds of
$1,199,964 from FATA.
Prior to the First Closing of the Agreement, Edward J. Stackpole and Itir
Stackpole (the "Controlling Shareholders") beneficially owned approximately
30.2% of the Company's outstanding Class A Common Stock and approximately 77.3%
of the Company's Class B Common Stock. The Class B Common Stock is identical to
the Class A Common Stock in all respects except that each share of Class B
Common Stock has 10 votes in respect to each share of Class B Common Stock.
Because of the number of shares and voting power attributed to the Class B
Common Stock, the Controlling Shareholders controlled approximately 75.5% of the
total voting power of the company prior to the First Closing of the Agreement.
Immediately after the First Closing, FATA owned approximately 46.1% of the
outstanding shares of the Company's Class A common stock.
Upon satisfaction of all the conditions stated in the Agreement, but no
later than November 30, 2000, FATA may subscribe and agree to purchase from the
Company and the Company may issue and sell to FATA a combination of shares of
Class A Common Stock, Class B Common Stock and/or Preferred Stock for a total
purchase price of $3,500,000 (the "Second Closing"). The Second Closing would
give FATA an ownership interest in the Company of 45% and a voting interest in
the Company of 51%. Pursuant to the Agreement, if FATA does not proceed with
the Second Closing, FATA will have an option, exercisable in FATA's sole
discretion until November 30, 2000, to sell to the Company the number of Company
shares acquired by FATA at the First Closing for a fixed price of $1,500,000
plus any additional sums or consideration as of such time loaned to or
contributed to the Company, plus an interest rate of 6% per year.
Industry Overview
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In addition to traditional voice communication transported via Public
Switched Telephone Networks ("PSTN"), the past few years have seen the
development of communications technologies using the Internet. Pre-Internet
telephony operated using analog and digital signals via a two-way point-to-point
communication network connecting copper lines, fiber optics and satellite
transmissions on a global basis. The Internet is a worldwide public network
enabling transfer and sharing of data information through a common
communications protocol called Transmission Control Protocol/Internet Protocol
("IP"). Data is transported over the Internet in the form of data packets on a
global computer network.
In 1995 a computer telephone was commercially introduced that allows a user
to connect to the Internet and speak to another similarly equipped user as
though it were a traditional telephone call. Regardless of the users'
locations, the connect cost for this "phone call" was minimal (ignoring the cost
of the necessary equipment). This was the beginning of a new
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industry. Further refinements have enabled systems to be developed that
integrate the Internet routing into long distance telephone service without the
necessity of having the end user purchase any additional computer equipment. In
fact, all that is needed is their traditional telephone equipment. Referred to
as IP Telephony, it has not become an industry in itself, but rather a new
method of communications transport paralleling the world shift toward single,
open network systems for all types of communications.
IP Telephony represents a break-through for worldwide communications. It
offers significant advantages over conventional telecommunications systems,
including reduced equipment costs, improved bandwidth efficiency, direct routing
of calls, lower transmission costs, improved ease of network administration, and
delivery of multi-media services over a single network infrastructure. IP
Telephony combines the low cost global reach of the Internet and the high
quality and security of private IP based networks with the public telephone
system's ease of access.
The dominant driver of IP Telephony today is the opportunity to make
inexpensive calls to domestic long distance and international destinations.
This is done through the routing of communications (voice, data, and video) over
the public Internet or privately managed networks rather than PSTNs. This
competitive advantage is based on the two major factors: (1) higher fees that
the traditional long-distance service providers are required to charge to
maintain their elaborate systems, and (2) government regulation. For every ten
cents that a traditional long-distance carrier collects, about four cents is
paid to a regional bell operating company at the origination and termination of
the connection. For international calls, that amount may be more, depending on
the policies of the non-US carriers. In addition, calls on the PSTN are subject
to a variety of taxes and surcharges. For example, some of those surcharges are
used to support the Universal Service Fund that subsidizes telephone services
for rural and low-income users. IP networks, on the other hand, are statutorily
defined as "information services" and are not presently subject to the same
regulations as the traditional "telecommunications services" providers.
Business
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Cyberfast utilizes state-of-the-art developments in IP technology to
provide toll quality voice and data services. IP technology allows for
effective and dynamic sharing of available bandwidth between many users. This
is achieved by digitizing voice signals (essentially, converting it to data),
segmenting the data stream into data units (packets), compression of voice data,
and dynamic multiplexing of channels over a single physical medium. These
methods yield more effective and flexible telecommunications models than current
land based or wireless models, particularly in less-developed or underserved
environments where the local population cannot support the communications
infrastructure.
The Company has developed a VoIP leased-line configuration as a primary
building block for its telecommunications infrastructure, and depending upon
system quality, may also use VoN as a delivery system. In most cases, the
Company will lease dedicated lines and place equipment at a POP in order to
provide quality service at peak load levels. Cyberfast is building an
international telecommunications network that seamlessly integrates circuit-
switched and
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packet-switched networks on a wholesale level to international long distance
carriers and retail distribution of low cost IP services directly to a consumer.
On the wholesale level, Cyberfast provides wholesale minutes to
international long distance carriers in the U.S., and targets destination
countries with state monopolized telecommunications companies ("Telcos"), low
personal income rates, and high population transfers to the United States. The
Company supplies minutes to these destination countries over a proprietary
network of gateways using IP Telephony rather than traditional, analog based
PSTNs. As a result, Cyberfast is able to sell wholesale minutes at a
dramatically reduced cost to secondary suppliers and still generate suitable
margins for itself.
Cyberfast locates its servers with "partners" (independent contractors) in
selected destination countries around the world, all of whom sign an exclusive
service agreement with the Company. Typically, these partners are paid 35-50%
of the revenue derived from terminating calls on a dedicated server for their
particular destination country. Cyberfast pays the entire cost of installing
the gateways, routers, switches, and international connections at these remote
sites. Ultimately, Cyberfast intends to negotiate directly with Telcos in
various destination countries to create a termination point for the whole
country to sell originated minutes from that country to the U.S. In foreign
countries with Telcos the arbitrage between IP and PSTN is even higher for
originated minutes from that country to the U.S.
The Company has entered into a strategic alliance with Royal Dutch Telecom
("KPN") that provides Cyberfast with high bandwidth access to Western Europe.
Through the alliance, the Company also gained access to KPN's state-of-the-art
satellite communications system with coverage throughout Europe, Asia, and
Africa. This access will enable the Company to deploy its toll quality services
quickly and efficiently in any geographic location within the KPN service area
without having to depend on expensive land-based systems.
On the retail level, the Company's primary mission is the development of
retail markets for international IP telecommunications. An agreement has been
signed with the Republic of Georgia to build and operate a wireless
telecommunications system, complete with wireless payphones. The Company will
develop programs that incorporate a wireless system's international long
distance business into Cyberfast's proprietary VoIP network, as well as, provide
enhanced retail services through the KPN/Qwest Euro-network as they come online.
Cyberfast System Operations
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Cyberfast is an international provider of communications services operating
primarily between the United States and selected destination countries. The
Company leases capacity on private fiber optic and satellite-based circuits from
tier one telecommunications carriers that originate in the United States and
terminate in less developed, underserved countries where Cyberfast provides its
services. The Company then sells wholesale voice and data services to carriers
seeking to route calls to the underserved locations on a per-minute basis.
Cyberfast's customers sell VoIP and other IP Telephony services to other
carriers, network operators, and corporate end users. The Company's network
allows its customers to
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complete their calls in areas where it provides services at lower cost than the
traditional long-distance telephone providers. This is partially due to the very
long-term contracts the traditional long-distance telephone providers have
entered into with countries around the world at fixed settlement rates.
Cyberfast's facilities consist of state-of-the-art telecommunications
switching and routing equipment that enables reliable delivery of high quality
voice and data signals over IP based circuits. The Company's domestic
facilities are located in Boca Raton, Florida were it has developed proprietary
billing software. This billing system allows the Company to invoice its
customers weekly and semi-monthly, as the case may be. Payment is normally
required to be made in U.S. dollars via wire transfer within ten business days
of invoice.
Cyberfast researches and identifies selected destination countries
currently underserved by IP based network providers. Voice communications to
these underserved countries are generally completed using one of the traditional
long-distance networks, such as AT&T, MCI-WorldCom, and Sprint. These
traditional voice networks have long-term, higher-priced settlement contracts
with the primary telephone company in each of the destination countries. They
are regulated, and as a result, charge higher termination fees.
Destination countries are selected for several reasons:
. 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.
After the Company has determined eligibility of a specific destination
country, a relationship with a local partner is established through an exclusive
service agreement. Cyberfast requires its partner provide the following
services:
. Obtain all required permits and/or licenses and otherwise complying with
local law.
. Staff a regional office twenty-four hours a day, seven days a week.
. Maintain facilities in the destination country that will provide proper
security and safely house Cyberfast equipment.
. Provide necessary services to maintain all equipment and assure
uninterrupted service.
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. Negotiate with all local authorities at the agreed upon destinations to
assure and maintain the continued transmission of communications on the
circuits.
The Cyberfast corporate objective is to have between two and four customers
for each country it serves. The Company currently limits the number of
customers accessing the network to optimize system quality. It is not uncommon
for other networks to frequently oversubscribe their networks resulting in a
degradation of service.
The higher quality of service demanded by Cyberfast customers requires the
transmission of VoIP rather than traditional data traffic. The Cyberfast system
configuration provides voice-quality transmissions. Until advancements in
technology allow a comparable level of quality to be achieved over a larger
subscriber base, we will continue limiting the number of customers we serve to
lower, optimal level. In addition, by having a minimum of two customers for
each country the Company continues to realize revenue should one customer
experience a service interruption.
Current Agreements to Provide Service in Selected Countries.
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Cyberfast has entered into agreements to provide services to over forty
cities in selected destination countries. In order to assist in the operation
of Company circuits, Cyberfast has entered into an agreement with KPN. As part
of this agreement, KPN has provided a fiber optic connection from its facilities
in the United States to its facilities in the Netherlands. Additionally, KPN has
provided Cyberfast with access to an earth station located in the Netherlands
that will permit the Company to serve Eastern Europe, Asia, and Africa where the
Company has agreements in place to provide services.
Competition.
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Cyberfast's success depends on the Company's ability to provide its
customers a high-quality, lower cost method of completing international long
distance services. In recent years, the price of traditional long distance
calls has fallen. This trend could continue to a point where the Company's
customers no longer have a price advantage over the traditional long distance
services. Cyberfast's customers would then have to rely on factors other than
price to differentiate their service, which they may not be able to do. Any
resulting loss of business or reduction in margins for the Company's customers
may, in turn, lead to downward pressure on the price that can be competitively
charged for Cyberfast's services and may have a material adverse effect on its
business and financial results.
Some major long distance providers, such as AT&T, Deutsche Telecom, MCI
WorldCom, and Qwest Communications, Inc. have entered or plan to enter the
market for carrying VoIP. These companies are larger than Cyberfast and have
substantially greater resources than the Company. Furthermore, these long
distance providers may in the future plan to offer VoIP services to the
countries where Cyberfast provides services. The Company is not aware of any
traditional long distance provider's plans to offer VoIP services to the
countries where it is currently providing (or is planning to provide) services.
If these traditional long
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distance providers were to offer VoIP services to these countries, the Company
may not be able to compete successfully.
Research and Development
------------------------
The Company's research and development activities are designed to
complement existing products and services and not to innovate radically
different technologies.
The Company did not spend any amount for R&D in fiscal 1999 or 1998.
Regulatory Matters
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United States
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The use of the Internet to provide telephone service is a recent market
development. Currently, the FCC is considering surcharges or other regulations
upon providers of Internet telephony services. On April 10, 1998, the FCC
issued a report to Congress concerning the implementation of the universal
service provisions of the Telecommunications Act. In the report, the FCC
indicated that it would examine the question of whether certain forms of phone-
to-phone Internet telephony are information services or telecommunications
services. The FCC noted that it did not have, as of the date of the report, an
adequate record on which to make a definitive pronouncement. It further stated
that the record suggested that certain forms of phone-to-phone Internet
telephony appear to have the same functionality as non-Internet
telecommunications services and lack the characteristics that would render them
information services.
If the FCC determines that certain services are subject to FCC regulation
as telecommunications services, the FCC may require providers of Internet
telephony services to make universal service contributions, pay access charges
or be subject to traditional common carrier regulation. This could affect the
viability of Cyberfast's business and may have a material adverse effect on the
Company's ability to produce revenue from this business. In addition, the FCC
sets the access charges on traditional telephone traffic and if it reduces these
access charges, the cost of traditional long distance telephone calls will
probably be lowered, thereby decreasing the Company's pricing advantage in their
respective markets.
In February 1999, the FCC adopted an order concerning payment of reciprocal
compensation. This move could provide support for a possible finding by the FCC
that providers of Internet telephony must pay access charges for at least some
Internet telephony services. If the FCC were to make such a finding, the
payment of access charges could have a material adverse effect on the Company's
business.
To the Company's knowledge, there are currently no domestic (and few
foreign) laws and/or regulations that prohibit voice communications over the
Internet. State public utility commissions may retain jurisdiction to regulate
the provision of intrastate Internet telephony services. A number of countries
that currently prohibit competition in the provision of voice communications
have also prohibited Internet telephony.
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To Cyberfast's knowledge, there are no laws prohibiting Internet telephony
in the countries where it provides service. Other countries permit, but
regulate Internet telephony. If Congress, the FCC, state regulatory agencies,
or foreign governments begin to regulate or increase their regulation of
Internet telephony, such regulation may have a material and adverse effect on
Cyberfast's business.
Foreign Corrupt Practices Act
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Upon effectiveness of this Registration Statement, Cyberfast is subject to
the Foreign Corrupt Practices Act (the "Act"). The Act requires that all
companies that file reports with the SEC:
. Keep reasonably detailed books and records reflecting transactions and
dispositions of assets;
. Maintain a system of internal controls that include preparation of
financial statements in conformity with generally accepted accounting
principles and maintaining accountability for assets; and
. Cannot make any kind of payment, whether considered bribery or not, to
foreign government officials for the purpose of obtaining or retaining
business or securing any improper advantage.
The Act applies to companies directly and indirectly through
intermediaries. The Act does contain a "knowledge" requirement for payments to
or by an intermediary. However, the Act permits facilitating payments to
foreign officials for the purpose of expediting or securing routine governmental
action by a foreign official. Cyberfast's management believes that the Company
fully complies with the Act.
As a result of conducting business in foreign countries where the customs
and business practices are different from the U.S., the Company runs the risk of
business interruption for substantial periods of time, or even the termination
of the ability to conduct business. Many of the countries where Cyberfast
conducts business do not have judicial systems that provide the protection from
or expeditious resolution to certain unlawful actions that may be taken against
the Company or its local partner and, as a result, the business may be
materially and adversely affected. For example, at the end of the third quarter
of 1998 the Company experienced an interruption in its primary circuit to a
foreign country and its equipment was confiscated. The Company believes that it
was acting within the legal guidelines of the country and the confiscation was
not justified. As a result, Cyberfast is pursuing the return of its equipment
and the restoration of its circuit. As a result of the action, the Company
experienced substantial and materially adverse fluctuations in its revenues for
the period in question and subsequent periods.
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Reports to Security Holders
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The Company is subject to the reporting requirements of the Securities Act
of 1933 and the Securities Exchange Act of 1934.
The public may read and copy any materials filed by the Company with the
SEC at the SEC's Public Reference Room at 450 5th Street, N.W., Washington, D.C.
20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The Company is an
electronic filer, and the SEC maintains an Internet site that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the SEC. This site can be accessed at
(http://www.sec.gov). The Company's Internet site can be accessed at
--------------------
(http://www.cyberfast.net).
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ITEM 2. DESCRIPTION OF PROPERTY
Circuit Leases
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The Company leases fiber optic and/or satellite-based circuits at fixed
rates from telecommunications carriers. These circuits terminate in the
destination countries where service is to be provided. Cyberfast, in turn, sells
access to these circuits to carriers on a per-minute basis.
The Company currently has four circuit leases in service with Qwest. On
two of the leases the monthly cost to the Company is $7,000 per lease, and the
other two leases are at a monthly cost of $4,000 per lease. The Company has one
circuit lease in service with KPN at a monthly cost of $10,000, one circuit
lease in service with MCI at a monthly cost of $23,000 and one circuit lease in
service with AT&T at a monthly cost of $28,000.
Equipment Leases
----------------
Cyberfast leases state-of-the-art carrier-class equipment manufactured by
Cisco (and others) for use in its facilities. This equipment consists of highly
scalable gateway servers, routers and switches capable of reliably transmitting
voice, data and video signals over an IP based network. Equipment leases are
for a three year term which automatically renew on a yearly basis unless
Cyberfast provides ninety days notice of the Company's decision not to renew.
The lease provides the Company with the option of purchasing the equipment for
the fair market value of used, well maintained equipment at the time the lease
terminates. The Company is required to maintain the equipment at its own
expense. Because it has in-house maintenance capability, the Company has not
entered into any service contracts for maintenance. Cyberfast bears the risk of
loss during the term of the lease and is required to maintain an insurance
policy for the full replacement value of the equipment. The Cisco equipment is
installed at the Company's Boca Raton, Florida facilities where it is available
to transmit voice and data traffic for customers on a 24 hours a day, 7 days a
week basis.
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Office Leases
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The Company is a party to a five year lease for its corporate offices in
Boca Raton, Florida. The Company will also house and maintain its transmission
facilities at this location. The lease expires on June 14, 2004. The total
lease payment for year 1999 was approximately $25,000 and for year 2000 will be
approximately $100,000.
The Company is currently not a party to any other long-term leases for
office space either domestic or foreign.
ITEM 3. LEGAL PROCEEDINGS
In January, 2000 the Company was served with a grand jury subpoena, issued
by the U.S. Attorney for the Southern District of New York, to deliver to the
District Court copies of numerous corporate documents, contracts and
correspondence. Neither the Company nor any officer or director of the Company
was required to personally appear in connection with the subpoena and related
grand jury investigation. The Company was informed orally that the
investigation relates to an investigation of manipulation of certain securities
traded in the NASDAQ Over the Counter Bulletin Board, including trading in the
Company's Class A Common Stock that has occurred in the past two years.
Although the Company believes it is not the target of the investigation and that
the targets of the investigation are certain persons and entities not affiliated
with the Company, there can be no assurance that the investigation will not
require the Company to expend the Company's resources on legal fees in
responding to additional requests for information and documents, including any
future subpoenas which may require that the Company's officers and directors be
deposed by the U.S. Attorney. Expending funds on legal fees for responding to
requests and, if necessary, in defending any action would usurp funds that could
otherwise be applied towards the Company's business.
The Company is involved in an arbitration with a former employee, Alan
Goldstein, who is alleging termination of his employment agreement without
cause. The dispute is in arbitration. Company management believes that
termination was for cause and is vigorously defending its actions before an
arbitration tribunal. The Company's exposure to loss (if the arbitration were
to be decided against the Company) is estimated to be approximately $300,000 and
options to purchase 300,000 Class A shares at a $5.00 per share exercise price.
The arbitration will be governed by rules of the American Arbitration
Association. The proceeding is currently pending and Company management expects
an arbitration hearing within sixty days and a ruling shortly thereafter.
No other legal proceedings are known to be pending, or in effect, against
the Company at this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
Market Prices Of Securities
---------------------------
The Class A Common Stock of the Company is currently listed in the Pink
Sheets, and prior to December, 1999 was listed on the OTCBB under the symbol
"CYSI." From October through December 1998, the Class A Common Stock traded
under the symbol "SXFT." The following table sets forth the high and low bid
prices of the Company's Class A Common Stock during the periods indicated.
OTC Market
Calendar High Bid Price* Low Bid Price*
-------- --------------- --------------
2000 April 1 - June 30 $ 4.75 $ 2.00
January 1 - March 31 7.00 3.15
1999 October 1 - December 31 $ 7.00 $ 1.50
July 1 - October 31 12.00 7.375
April 1 - June 30 19.44 2.38
January 1 - March 31 5.25 2.13
1998 October 1 - December 31 $ 5.38 $ 2.25
_____________
* Bid prices were provided by "www.bloomberg.com" via the internet. Quotations
reflect inter-dealer prices, without mark-up, mark-down or commission, and may
not represent actual transactions.
The closing bid price of the Class A Common Stock on August 15, 2000 was
$1.85 per share.
Holders
-------
As of August 14, 2000, there were approximately 166 beneficial holders of
the Company's common stock.
Dividends
---------
The Company did not pay dividends on its common stock in 1998 or 1999 and
it does not anticipate paying any dividends thereon in the foreseeable future.
The Company's subsidiaries did make subchapter S distributions to their former
shareholders.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS
The following discussion of the financial condition and results of
operation for the Company should be read together with the financial statements
and related notes included in another part of this registration statement. The
financial statements for the years ended December 31, 1998 and 1999 are audited.
Results Of Operations
---------------------
Years Ended December 31, 1998 And 1999
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<CAPTION>
Table 1 - Percentage Analysis of Yearly Results of Operations
===============================================================================================
PERCENTAGE CHANGE
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1999 1998 Between Periods (Decrease)
---- ---- --------------------------
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<S> <C> <C> <C>
Revenues 100.0% 100.0% (94.2%)
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Expenses
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COGS 146.2% 29.7% (71.3%)
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Gross Margin N/A 70.3% (103.8%)
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General & Administrative 321.2% 45.8% (59.1%)
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Common Stock 507.3% 0.6% 4,475.8%
-----------------------------------------------------------------------------------------------
Total Op. Expenses 974.7% 46.5% (25.4%)
-----------------------------------------------------------------------------------------------
Income (Loss) from operations (874.7%) 23.8% (314.2%)
-----------------------------------------------------------------------------------------------
Other Income - - -
-----------------------------------------------------------------------------------------------
Interest Expense, stockholder 18.0% - -
-----------------------------------------------------------------------------------------------
Interest Income - 0.2% -
-----------------------------------------------------------------------------------------------
Penalties and Interest 26.4% - -
-----------------------------------------------------------------------------------------------
Proceeds/Contact Settlement - 11.2% -
-----------------------------------------------------------------------------------------------
Income (Loss) before tax (919.1%) 31.6% (252.3%)
-----------------------------------------------------------------------------------------------
Income Tax (Expense) Benefit 51.4% (3.1%) 186.2%
-----------------------------------------------------------------------------------------------
Net Income (Loss) (867.7%) 28.5% (259.6%)
-----------------------------------------------------------------------------------------------
Net Income (Loss)/share ($0.61) $ 0.39 (256.4%)
===============================================================================================
</TABLE>
Table 1 above represents: (a) the relationship of income and expenses
relative to net revenues; and (b) the change between the comparable prior period
and current period. This table should be read in the context of the Company's
audited financial statements incorporated as part of this filing, elsewhere
herein.
For the year ended December 31, 1999, revenues were $0.436 million compared
to $7.475 million in the comparable prior period ended December 31, 1998. This
decrease in revenue of $7.039 million represented a 94.2% decline from the
comparable prior period ended December 31, 1998. The percentage change between
the periods was solely attributed to a governmental confiscation of the
Company's revenue producing assets in India during September, 1998. During this
period, substantially all of the Company's business operations
13
<PAGE>
were conducted in India. As a result of this governmental intervention in India,
the Company has initiated policies to minimize exposure to politically motivated
and retaliatory actions by foreign governments on U.S. based businesses
operating in the lesser developed countries of the world. (Please see Item 1 -
Description of Business, "Cyberfast Business Operations" above and Note 3 to the
accompanying Financial Statements below for further discussion.) As a result of
the extraordinary nature of this governmental intervention, Company management
believes the financial information contained herein and the analysis thereof is
not indicative of either future operating results or future financial condition.
The Company's cost of goods sold decreased 71.3% from $2.221 million for
the year ended December 31, 1998 to $0.637 million for the year ended December
31, 1999. As a percentage of revenues, cost of goods sold increased from 29.7%
for the year ended December 31, 1998 to 146.2% for the year ended December 31,
1999 resulting in a decrease in gross margin of 103.8% from $5.254 million for
the year ended December 31, 1998 to a deficit of $0.201 million for the year
ended December 31, 1999. The increase in cost of goods sold as a percentage of
revenues in fiscal year 1999 as compared to the fiscal year 1998 occurred as a
result of the Company's precipitous loss of revenues due to the governmental
action in India referenced above. Costs for developing new POPs during the
fiscal year ended December 31, 1999 in other areas of the world were not offset
by resulting revenue increases.
General and administrative expenses declined 59.1% from $3.426 million
during the period ended December 31, 1998 to $1.399 million in the comparable
subsequent period ended December 31, 1999. Notwithstanding a one time
commission fee of $1.620 for the period ended December 31, 1998, general and
administrative expenses would have decreased only 22.5% between the fiscal year
periods. This decrease was the result of the Company's actions to decrease
costs in response to the loss of revenues as discussed above. The cost cutting
measures adopted by the Company include the termination of employees; reduction
of travel and related entertainment expenses; and decrease in general overhead
expenses.
The decline in general and administrative expenses was offset by a
substantial increase in expenses related to the issuance of common stock and
options to various vendors and employees of the Company. This expense increased
$2.162 million, or 4,475.8%, from $0.048 million for the fiscal year ended
December 31, 1998 to $2.210 for the comparable subsequent period ended December
31, 1999. The use of stock and options in settlement of services provided and
as an inducement to retain professional employment services from senior
executives was made possible by the Company's reverse merger into a public shell
and subsequent Reorganization in November, 1998. Until such time as the Company
is able to provide more standard compensation and benefit packages for the
retention of professionally qualified and competent employees or the Company
completes the second tranche of equity financing from FATA, the Company expects
to continue the use of stock and option grants for recruitment into the near
future. However, reliance on this method for financing working capital
requirements should diminish substantially during subsequent periods,
particularly since the Company completed the first tranche of equity financing
from FATA as of August 1, 2000.
As a consequence of the above factors, the Company experienced income from
operations of $1.780 million for the period ended December 31, 1998 compared to
a loss from
14
<PAGE>
operations of $3.811 million for the comparable subsequent period ended December
31, 1999, or a decline of 314.2%.
As a result of the Company circuits in India and Pakistan and the Company's
inability to activate any new POPs, the controlling shareholders extended a
series of loans to the Company at various times during the fiscal year ended
December 31, 1999. The loans are in the form of a demand note with interest
accruing at 9% per annum and payable quarterly. Because of continuing working
capital deficiencies, interest on these loans has remained unpaid. Approximately
$0.079 million has been accrued as interest on the Company accounts for the
fiscal year ended December 31, 1999. Further interest accruals on this loan will
occur during subsequent periods. Except for $300,000 paid in August 2000 as part
principal and interest payment, no principal payments will be made against them
until such time as FATA and the controlling shareholders agree on a payback
schedule based upon positive cash flows of the Company.
Conversely, the Company earned interest of approximately $0.013 million
during the fiscal year ended December 31, 1998 on its outstanding bank balances
and cash equivalents. Similar interest earnings for the comparable subsequent
period ended December 31, 1999 did not occur for the above stated reasons.
Company management expects that once both tranches of equity funding due from
FATA are closed, sufficient revenues can be generated from newly commissioned
POPs that no additional shareholder loans will be necessary.
The Company was delinquent in the filing of various federal and state
income tax returns and the payment of 1998 federal and state income taxes.
Accordingly, estimated penalties and interest of $0.115 million have been
recorded on the Company's audited financial statements for the fiscal year ended
December 31, 1999. (See Note 5 to the accompanying audited financial
statements.) Employee payroll taxes associated with the delinquent filings were
completely discharged immediately after the receipt of FATA's first tranche of
equity investment. With respect to the payment of income taxes for the period
ended December 31, 1998, the Company expects those taxes to be offset by net
operating losses for the period ended December 31, 1999. Notwithstanding the
offset provided by the NOLs, the Company intends to negotiate with the various
taxing authorities to reduce the penalty assessments associated with non-payment
of the taxes for the period ended December 31, 1998, although no assurances can
be given that such negotiations will produce any reduction of these penalties.
Once the results of that negotiation have been determined, the Company will
promptly discharge these penalties.
In December 1998, the Company generated $0.836 million in Other Income as a
result of the disposition of the Company's rights to a potential income stream
in Pakistan. This receipt was recorded as Other Income since the disposition of
this resource was not done in the ordinary course of business.
As a result of the above reasons, the Company experienced a loss before
taxes of $4.004 million for the year ended December 31, 1999 compared to an
income before taxes of $2.629 million in the comparable prior period ended
December 31, 1998. A tax assessment of $0.260 million for the period ended
December 31, 1998 reduced the Company's net income for the period to $2.369
million, and a tax benefit accruing as a result of net operating loss carry
15
<PAGE>
forwards decreased the net loss for the comparable subsequent period ended
December 31, 1999 to $3.781 million. Accordingly, the Company's results per
share of common stock declined from an income per share of $0.39 for the period
ended December 31, 1998 to a loss per share of $0.61 for the period ended
December 31, 1999. It should be noted, however, that the Company's income tax
liabilities for the fiscal year ended December 31, 1998 were assessed under
subchapter S provisions of the Internal Revenue Code through September 30, 1998.
Had the Company been taxed as a conventional corporation under the Internal
Revenue Code, the Company's tax liability would have been $0.989 million for
that same period, reducing the Company's net income to $1.640 million from
$2.369 million and it's per share earnings to $0.27 from $0.39. This proforma
presentation more accurately characterizes the Company's financial performance
and tax liability during the period ended December 31, 1998.
Liquidity And Capital Resources
-------------------------------
Years Ended December 31, 1998 And 1999
Net cash used in operating activities for the fiscal year ended December
31, 1999 was $0.946 million compared to $2.445 million provided by operations in
the comparable prior period ended December 31, 1998, representing a decline of
$3.391 million or 138.7%. This deficit in net cash was primarily the result of a
$3.781 million net loss for the fiscal year ended December 31, 1999 as compared
to net income of $2.369 for the comparable prior period. The net cash deficit
was partially offset by an increase in stock based compensation of $2.210
million and accounts payable of $0.640 million from the fiscal year ended
December 31, 1998 to the comparable period ended December 31, 1999.
Net cash used in investing activities was $0.362 million for the fiscal
year ended December 31, 1999 compared to net cash provided of $0.057 for the
comparable prior period in 1998. The major component in investing activities for
the period ended December 31, 1999 was the acquisition of equipment, while in
the comparable prior period ended December 31, 1998, the purchase of equipment
was largely offset by the repayment of loans to shareholders.
For the fiscal year ended December 31, 1999, net cash provided by financing
activities was $1.298 million, compared to $2.670 used in financing activities
during the comparable prior period ended December 31, 1998. The primary
components of the financing activity consisted of shareholder loans of $1.276
million during the fiscal year ended December 31, 1999 and distributions under
Subchapter S of the Internal Revenue Code of $2.741 million in the comparable
prior period ended December 31, 1998.
As of December 31, 1999, the Company had a working capital deficit of
$2.296 million and a cash overdraft of $0.023 million compared to a working
capital deficit of $0.367 million and a cash balance of $0.010 million in the
comparable prior period ended December 31, 1998. The working capital deficit was
largely due to substantial increases in shareholder loans and accounts payable
between the periods. For the fiscal year ended December 31, 1999, shareholder
loans and accounts payable totaled $1.346 million and $0.791 million
respectively compared to $0.071 million and $0.151 million respectively for the
comparable prior period ended December 31, 1998. The shareholder loans were
required as a result of continuing
16
<PAGE>
unprofitable operations of the Company, as explained in the Results of
Operations discussed above, and are evidenced by promissory notes due on demand
which bear 9% per annum interest.
Company management expects the working capital deficit will be resolved
once both tranches of the FATA equity subscription is closed. The first tranche
of equity financing was closed on August 1, 2000, and the second tranche is
expected to close on or before November 30, 2000. In the event the second
tranche of the FATA investment does not close, the Company will remain largely
dependent on the extension of shareholder loans to finance its working capital
deficits or the recruitment of additional equity capital.
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 have increased from
a total of $1.346 million principal ($1.425 million including all accrued
interest) on December 31, 1999 to $1.488 million principal ($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 for one year.
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.
17
<PAGE>
. 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.
Forward Looking Statements
--------------------------
CERTAIN STATEMENTS MADE IN THIS REPORT ARE FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
THESE FORWARD-LOOKING STATEMENTS INCLUDE, AMONG OTHERS, OUR ANTICIPATION THAT
OUR PRINCIPAL STOCKHOLDERS WILL SUPPLY WORKING CAPITAL LOANS AND THAT THE
COMPANY WILL CONCLUDE THE EQUITY FINANCING CONTEMPLATED UNDER THE MOU WITH FATA.
THESE STATEMENTS ARE BASED ON MANAGEMENT'S BELIEFS AND ASSUMPTIONS AND ON
INFORMATION CURRENTLY AVAILABLE TO MANAGEMENT. THESE STATEMENTS ARE SUBJECT TO
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE CONTEMPLATED IN SUCH FORWARD-LOOKING STATEMENTS. OUR PRINCIPAL
STOCKHOLDERS MAY DISCONTINUE MAKING LOANS AND FATA MAY ELECT NOT TO COMPLETE ITS
PROPOSED EQUITY FUNDING.
ITEM 7. FINANCIAL STATEMENTS
The Company's audited balance sheet as of December 31, 1999 and the
statements of operations and statements of cash flows for each of the two years
then ended are attached following the signature page of this Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
On October 5, 1999 the Company engaged the firm of Rachlin Cohen & Holtz
LLP to audit Company financial statements for the fiscal years ended December
31, 1998 and 1999. The Company's financial statements were previously audited by
Mr. Robert Jarkow, CPA. The Company learned that Mr. Jarkow was not independent,
could not act as Company auditor, and could not render any opinion on the
financial statements of the Company.
There were no disagreements with Mr. Jarkow on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure while he was engaged by the Company.
18
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Directors and Executive Officers
--------------------------------
Executive officers of the Company are elected by the Board of Directors and
serve for a term of one year and until their successors have been elected and
qualified or until their earlier resignation or removal by the Board of
Directors, except as otherwise provided in the employment agreements with Edward
J. Stackpole, Itir Stackpole and Bert Perez. Except as disclosed in this item,
there are no family relationships among any of the directors and executive
officers of the Company.
The following table sets forth names and ages of all executive officers and
directors of the Company as of December 31, 1999:
<TABLE>
<CAPTION>
Name Age Position Director Since
---- --- -------- --------------
<S> <C> <C> <C>
Edward J. Stackpole 56 Co-Chair of the Board of Directors, Chief 11/98
Executive Officer
Itir Stackpole 45 Co-Chair of the Board of Directors, Vice 11/98
President
N. Bruce Walko 60 President, Director 11/99
M. Dowell Stackpole 45 Director 11/98
Bert Perez 36 Chief Technical Officer, Director 12/99
William Wollrab 43 Vice President, Business Development, Director 11/99
Gerard Werner 27 Secretary, Director 11/99
</TABLE>
Edward J. Stackpole founded the operations of the Company through the BCC
and CNSC subsidiaries. Since August, 1995, Mr. Stackpole has served as president
the BCC and CNSC subsidiaries, and since the Company's Reorganization in
November, 1998, has been Chief Executive Officer and Chairman of the Company's
Board of Directors. For six years prior to that date, Mr. Stackpole was the
general partner of EJS Associates that distributed AT&T equipment in Turkey.
Edward and Itir Stackpole are husband and wife.
19
<PAGE>
Itir Stackpole co-founded the operations of the Company through the BCC and
CNSC subsidiaries. Since August 1995, Mrs. Stackpole has served as vice
president of the BCC and CNSC subsidiaries, and, since the Company's
Reorganization in November, 1998, has held the office of vice president and co-
chairman of the Board of Directors. Mrs. Stackpole was also general partner of
EJS Associates in Turkey from 1989 through August 1995.
Mr. Bruce Walko has been President and a Director of the Company since
November, 1999 as a consequence of acquisition of Global by the Company. Mr.
Walko also serves as a Director of eNhancement Technologies, Inc., a NASDAQ
small cap company located in Fremont, CA. He has a B.S. degree in Computer
Science from Purdue University and an MBA in Finance and Marketing from the
University of Southern California.
Mr. Bert Perez has been the Chief Technical Officer and a Directors since
June 1999. Mr. Perez was employed by Sprint Communications, Inc. in south
Florida from 1992 through 1999 as Data Support Manager and prior to that as an
MIS manager for ABC television. In his prior positions, Mr. Perez was
responsible for the design and implementation of network solutions and technical
support.
Mr. Bill Wollrab was a Director of the Company as a consequence of
acquisition of Global by the Company. He has been involved in business
consulting since March, 1998. From 1986 to 1993 Mr. Wollrab was a commercial
real estate broker with Marcus & Millichap, Denver, Colorado. Mr. Wollrab
received his BA in German Literature in 1979 from Lake Forest College, Lake
Forest, Illinois. Effective August 2, 2000, Mr. Wollrab resigned from the
Company's Board of Directors to make a seat available for a nominee of FATA. As
consideration for this resignation, the Company accelerated the vesting of
certain options due to Mr. Wollrab during the forthcoming fiscal year ending
December 31, 2001.
Mr. Gerard Werner is a Director and Secretary of the Company as a
consequence of acquisition of Global by the Company. Mr. Werner is a member of
the District of Columbia Bar Association and received his A.B. in May 1994 from
Georgetown University, J.D. in May 1997 from Georgetown University Law Center.
Mr. M. Dowell Stackpole became a director in December, 1998. Mr. Stackpole
has been employed as an analyst for Taylor & Company, a private investment firm
since January 1994. Mr. Stackpole is the brother of Mr. Edward J. Stackpole,
Cyberfast's Chief Executive Officer.
Board of Advisors
-----------------
In addition to the Company's Board of Directors, it has added a Board of
Advisors as the result of the Global acquisition. The members on the Board of
Advisors include:
Lee W. McKnight
Dr. McKnight is a consultant of the Company and has been with the Company
since October of 1999 as a consequence of acquisition of Global by the Company.
Dr. McKnight is Associate Professor of International Communication and Director
of the Edward R. Murrow
20
<PAGE>
Center at the Fletcher School of Law and Diplomacy, Tufts University; Research
Affiliate at the MIT Center for Technology, Policy and Industrial Development;
founder of the Internet Telephony Consortium; and President of Marengo Research,
a consultancy. Professor McKnight received his PhD from MIT in 1989, MA from
Johns Hopkins University in 1981, and BA from Tufts University in 1978.
William H. Lehr
Mr. Lehr is a consultant of the Company and has been with the Company since
October of 1999 as a consequence of acquisition of Global by the Company. From
1997 to present, Mr. Lehr has been an Assistant Professor of Finance and
Economics at the Graduate School of Business, Columbia University New York, NY.
From January of 19 97 to the present, Mr. Lehr has been an affiliate of Internet
Telephony and Interoperability Consortium, Center for Technology, Policy and
Industrial Development at Massachusetts Institute of Technology. Mr. Lehr
received his Ph.D. in Economics from Stanford University in 1992, his MBA from
The Wharton School, University of Pennsylvania in 1984.
Disclosure of Delinquent Forms 3, 4 or 5 Filers
-----------------------------------------------
During the fiscal year ended December 31, 1999, Edward J. Stackpole, Itir
Stackpole, M. Dowell Stackpole, N. Bruce Walko, William Wollrab, Gerard Werner
and Bert Perez all failed to timely file Forms 3.
ITEM 10. EXECUTIVE COMPENSATION
Compensation and other Benefits of Executive Officers
-----------------------------------------------------
The following table sets out the compensation received for the fiscal years
ended December 31, 1997, 1998, and 1999 in respect to each of the individuals
who were the Company's chief executive officer at any time during the last
fiscal year and the Company's four most highly compensated executive officers
whose total salary and bonus exceeded $100,000 (the "Named Executive Officers").
21
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
FISCAL YEAR COMPENSATION LONG TERM COMPENSATION
Awards Payouts
------ -------
Restricted
Shares
Other Securities or
Annual under Restricted LTIP All other
Name and Salary Bonus Compen- Option/SARs Share Payouts Compensation
Principal Position Year ($) ($) sation Granted Units ($) ($)
------------------ ---- --- --- ------ ------- ----- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Edward J. Stackpole/ 1999 300,000 0 28,800/(1)/ 250,000 0 0 0
Co-Chair and CEO 1998 262,882 0 2,400/(1)/ 0 0 1,370,459/(2)/
1997 N/A 0 0 N/A 0 0 N/A
Itir Stackpole/ 1999 250,000 0 0 250,000 0 0 0
Co-and Vice President 1998 262,882 0 0 0 0 0 1,370,459/(2)/
1997 N/A 0 0 N/A 0 0 N/A
Ridvan Ali Gurkan/ 1999 0 0 0 0 0 0 0
Vice President, 1998 308,000/(3)/ 0 0 0 0 0 0
International 1997 0 0 0 0 0 0 0
Operations
Alan T. Goldstein 1999 50,000 0 0 50,000 10,000 0 0
1998 N/A N/A N/A N/A N/A N/A N/A
1997 N/A N/A N/A N/A N/A N/A N/A
Bert Perez 1999 58,333 0 8,400/(1)/ 100,000 10,000 0 0
Chief Technical 1998 N/A N/A N/A N/A N/A N/A N/A
Officer 1997 N/A N/A N/A N/A N/A N/A N/A
</TABLE>
_______________
(1) Represents car allowance.
(2) In 1998 CNSI was taxed under Subchapter S of the Internal Revenue Code.
Edward and Itir Stackpole, as holders of 100% of the stock of CNSI,
received distributions under Subchapter S of the Internal Revenue Code.
One-half is imputed to each as other compensation.
(3) Represents commissions.
22
<PAGE>
Agreements with Management
--------------------------
On January 1, 1999, Mr. Edward J. Stackpole entered into a three-year
employment agreement with the Company at an annual salary of $300,000 per year
and a quarterly bonus equal to 5% of the Company's net pre-tax quarterly income.
Mr. Stackpole was also granted 600,000 non-qualified stock options exercisable
at $3.50 per share over a 10-year period that will vest in increments of 50,000
options quarterly, provided that Mr. Stackpole is still employed on the last day
of each quarter.
On January 1, 1999 Mrs. Itir Stackpole entered into a three-year employment
agreement with the Company at an annual salary of $250,000 per year and a
quarterly bonus equal to 5% of the Company's net pre-tax quarterly income. Mrs.
Stackpole was also granted 600,000 non-qualified options at $3.50 per share over
a 10-year period that vest in increments of 50,000 options quarterly, provided
that Mrs. Stackpole is still employed on the last day of each quarter.
On June 1, 1999, Mr. Alan T. Goldstein entered into a three-year employment
agreement with the Company at an annual salary of $100,000 per year. Mr.
Goldstein's employment with the Company was terminated February 4, 2000. He
received a signing bonus of 10,000 shares of the Company's Class A Common Stock,
of which 5,000 vested immediately and 5,000 vested on December 1, 1999.
Furthermore, Mr. Goldstein was granted 300,000 non-qualified options exercisable
at $5.00 per share over a 10-year period, vesting in increments of 25,000
options quarterly. Mr. Goldstein and the Company are currently involved in an
arbitration proceeding regarding the termination of his employment and the
vesting of options relating thereto. (See PART II, Item 2 - Legal Proceedings,
below for a discussion.)
Effective on June 1, 1999, Mr. Bert Perez entered into a three-year
employment agreement with the Company at an annual salary of $100,000 per year.
Mr. Perez also receives a quarterly bonus equal to 3.3% of the Company's net
pre-tax quarterly income. He received a signing bonus of 10,000 shares of the
Company's Class A Common Stock, of which 5,000 vested immediately and 5,000
shares vested on December 1, 1999. Mr. Perez was granted 300,000 non-qualified
options exercisable at $3.50 per share over a 10-year period that vest in
increments of 25,000 options quarterly, provided that Mr. Perez is still
employed on the last day of each quarter.
The Company granted Mr. M. Dowell Stackpole 58,000 shares of Class A Common
Stock on in January 1999 as compensation for joining the board of directors.
From approximately the end of the third quarter of 1998 through the end of
the second quarter of 1999, Mr. Edward J. and Itir Stackpole, our chief
executive officer and vice-president respectively, held as nominees for
Cyberfast, approximately $538,097 in personal accounts. These funds are
reflected in the audited financial statements for the year ended December 31,
1999 as cash equivalents of Cyberfast. The funds including interest were used
subsequent to December 31, 1999 as Cyberfast's working capital.
23
<PAGE>
Option/Stock Appreciation Rights ("SAR") Grants during the most recently
------------------------------------------------------------------------
completed Fiscal Year
---------------------
The following table sets out the stock options granted by the Company
during the previous fiscal year to the Named Executive Officers of the Company.
The following amounts include options that were granted prior to the previous
fiscal year but were repriced during that year.
OPTION/SAR GRANTS IN PREVIOUS YEAR
INDIVIDUAL GAINS
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Market Price on
Name Granted (#) Fiscal Year Price ($/Sh) Date of Grant Expiration Date
---- ----------- ----------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
Edward J. Stackpole 200,000 30.77% $3.50 $5.25 01/01/09
50,000 7.69% $3.50 $7.00 12/31/09
Itir Stackpole 200,000 30.77% $3.50 $5.25 01/01/09
50,000 7.69% $3.50 $7.00 12/31/09
Alan Goldstein 50,000 7.69% $3.50 $7.00 12/31/09
Bert Perez 50,000 7.69% $3.50 $9.19 05/31/09
50,000 7.69% $3.50 $7.00 12/31/09
</TABLE>
_________________
Aggregated Option/SAR Exercised in Last Financial Year and Fiscal Year-End
--------------------------------------------------------------------------
Option/SAR Values
-----------------
The following table sets out all Option/SAR exercised by the Named
Executive Officers during the most recently completed fiscal year and the
Option/SAR values for such persons as of the end of the most recently completed
fiscal year.
24
<PAGE>
Aggregated Option/SAR Exercised in Last Fiscal Year and FY-End Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities
Underlying
Unexercised Value of
Options/SARs at Unexercised
FY-End (#) Options/SARs at
FY-End ($)
Shares Acquired on Exercisable/ Exercisable/
Name Exercise (#) Value Realized ($) Unexercisable Unexercisable
---- --------------------- ----------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
Edward J. Stackpole -0- -0- 250,000 $1,750,000
Itir Stackpole -0- -0- 250,000 $1,750,000
Alan T. Goldstein -0- -0- 50,000 $ 350,000
Bert Perez -0- -0- 100,000 $ 700,000
</TABLE>
__________________
Compensation of Directors
-------------------------
No salaries are paid to directors. However, each director receives options
to acquire 50,000 shares of Class A Common Stock for each year of service as a
director.
No pension or retirement benefit plan has been instituted by the Company
and none is proposed at this time and there is no arrangement for compensation
with respect to termination of the directors in the event of change of control
of the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides certain information (consisting of Class A and
Class B Common Stock) as of September 1, 2000 concerning the beneficial
ownership of the Company's voting stock held by each director and named
executive officer; each person known by us to be the beneficial owner of at
least five percent of the Company's voting stock; and all named executive
officers and directors as a group. The information is provided on a combined
basis for Class A and Class B Common Stock to reflect share ownership and voting
25
<PAGE>
<TABLE>
<CAPTION>
Total of Percent of Voting
Name and Number of Percent of Number of Percent of Class A and Power
Address of Class A Class A Class B Class B Class B (Combined
Beneficial Owner Shares Shares Shares Shares Shares Classes)
---------------- ------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Edward J. and Itir 1,069,394/(1)/ 26.15% 3,507,400 78.33% 4,576,744/(1)/ 73.97%/(1)/
Stackpole
N. Bruce Walko 207,358/(2)/ 6.03% -0- -0- 207,358/(2)/ 0.43%/(2)/
M. Dowell Stackpole 158,000/(3)/ 4.73% -0- -0- 158,000/(3)/ 0.33%/(3)/
Gerard Werner 101,471/(4)/ 3.04% -0- -0- 101,471/(4)/ 0.21%/(4)/
Bert Perez 210,000/(5)/ 6.11% -0- -0- 210,000/(5)/ 0.44%/(5)/
William Wollrab 300,988/(6)/ 8.56% -0- -0- 300,988/(6)/ 0.62%/(6)/
All officers and 2,022,161/(7)/ 40.94% 3,507,400 78.33% 5,529,561/(7)/ 74.62%/(7)/
directors as a
group (7 persons)
Oguz Stackpole 121,100 3.73% 965,200 21.56% 1,086,300 20.35%
The FATA Group Sp.A. 1,466,276 45.3% -0- -0- 1,466,276 3.05%
</TABLE>
(1) Includes options to acquire 425,000 shares held by Edward Stackpole of which
400,000 are exercisable at $3.50 per share for ten years from date of grant
and of which 25,000 are exercisable at $3.00 per share for ten years from
date of grant. Also includes options to purchase 425,000 shares held by Itir
Stackpole, of which 400,000 are exercisable at $3.50 per share form date of
grant and of which 25,000 are exercisable at $3.00 per share for ten years
from date of grant.
(2) Includes options to acquire 100,000 shares exercisable at $3.00 per share
for ten years from date of grant and an additional 100,000 shares
exercisable at $3.50 per share for ten years from the date of grant.
(3) Includes options to acquire 100,000 shares exercisable at $3.50 per share
for ten years from date of grant. Also includes 8,000 shares held by M.
Dowell Stackpole's wife and six children.
(4) Includes options to acquire 100,000 shares exercisable at $3.50 per share
for ten years from date of grant.
(5) Includes options to acquire 200,000 shares exercisable at $3.50 per share
for ten years from date of grant.
(6) Includes options to acquire 150,000 shares exercisable at $3.50 per share
for ten years from date of grant and options to acquire 125,000 shares
exercisable at $4.20 per share for ten years from date of grant.
(7) Includes footnotes 1 through 6.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Edward and Itir Stackpole are husband and wife. M. Dowell Stackpole and
Edward Stackpole are brothers. Ridvan Ali Gurkan is the brother of Itir
Stackpole.
The following table describes the shares that the Company issued to
management and persons who were beneficial owners of more than five percent of
the Company's common stock as part of the November 1998 Reorganization:
26
<PAGE>
Shareholder Name Number and Class of Shares Issued
---------------- ---------------------------------
Edward J. and Itir Stackpole 251, 044 shares of Class A Common Stock
3,507,400 shares of Class B Common Stock
Oguz Stackpole/(1)/ 198,800 shares of Class A Common Stock
965,200 shares of Class B Common Stock
Ali Gurkan/(2)/ 49,806 shares of Class A Common Stock
67,450 shares of Class B Common Stock
Kenneth Greenberg/(3)(4)/ 70,350 shares of Class A Common Stock
209,950 shares of Class B Common Stock
_____________
(1) Son of Mr. and Mrs. Stackpole.
(2) Mr. Gurkan was a director at the time of the Reorganization. Mr. Gurkan is
the brother of Itir Stackpole.
(3) Mr. Greenberg was an officer at the time of the Reorganization. Includes
50,350 shares of Class A Common Stock issued to Greengold International
Corp., of which Mr. Greenberg was an affiliate.
(4) Issued to Greengold International Corp. a corporation of which Mr. Greenberg
is an affiliate.
As of December 31, 1999 the Company owed Edward and Itir Stackpole $0.529
million for accrued salaries. Since that date, the salaries have continued to
accrue.
The Company currently has outstanding loans to Mr. And Mrs. Stackpole
totaling approximately $1,700,000, including accrued interest. In August 2000,
the Company made a partial payment to the Stackpoles of $300,000 on the
outstanding principal and interest. The outstanding debt is evidenced by a
demand note that accrues interest at 9%, compounded quarterly.
27
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No.:
2.0 Plan of Reorganization. (1)
3.0 Articles of Incorporation. (1)
3.1 Articles of Amendment to the Articles of Incorporation of Smartfit
Foundations, Inc. (1)
3.2 Amendment to the Articles of Incorporation of Cyberfast Systems, Inc.
(1)
3.3 Bylaws. (1)
10.1 Cisco Equipment Lease. (1)
10.2 Cyberfast/FATA Investment Agreement. (1)
10.3 Employment Agreement between the Company and Edward Stackpole. (2)
10.4 Employment Agreement between the Company and Itir Stackpole. (2)
10.5 Employment Agreement between the Company and Bert Perez. (2)
16.0 Form of letter to Mr. Robert Jarkow sent pursuant to Item 304(a)(3) of
Regulation SB. (1)
21.0 Subsidiaries. Filed herewith.
27.1 Financial Data Schedule. Filed herewith.
_____________
(1) Incorporated by reference from the Company's filing on Form 10-SB.
(2) To be filed by amendment to the Company's Form 10-SB.
(b) Reports on Form 8-K:
On November 16, 1999 the Company filed a report on Form 8-K, reporting an
event on September 30, 1999 regarding a change in the Company's auditor. The
Company filed Form 8-K/A No. 1 on August 22, 2000 amending the September 30,
1999 Form 8-K.
28
<PAGE>
SIGNATURE
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this Form 10-KSB to be signed on its behalf by the
undersigned, thereunto duly authorized.
CYBERFAST SYSTEMS, INC.
Dated: September 20, 2000 By: /s/ Edward J. Stackpole
-------------------------------------
Edward J. Stackpole, Chief Executive Officer
and Co-Chairman of the Board
Dated: September 20, 2000 By: /s/ Itir Stackpole
-------------------------------------
Itir Stackpole, Chief Financial Officer
Dated: September 20, 2000 By: /s/ Itir Stackpole
-------------------------------------
Itir Stackpole, Vice President and
Co-Chairman of the Board
Dated: September 20, 2000 By: /s/ N. Bruce Walko
-------------------------------------
N. Bruce Walko, President, Director
Dated: September 20, 2000 By: /s/ M. Dowell Stackpole
-------------------------------------
M. Dowell Stackpole, Director
Dated: September 20, 2000 By: /s/ Bert Perez
-------------------------------------
Bert Perez, Chief Technical Officer, Director
Dated: September 20, 2000 By: /s/ Gerard Werner
-------------------------------------
Gerard Werner, Secretary, Director
29
<PAGE>
Cyberfast Systems, Inc. and Subsidiaries
INDEX TO FINANCIAL STATEMENTS
-----------------------------
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet F-2
Statements of Operations F-3
Statements of Stockholders' Deficiency F-4
Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 - F-18
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Cyberfast Systems, Inc. and Subsidiaries
Boca Raton, Florida
We have audited the accompanying consolidated balance sheet of Cyberfast
Systems, Inc. and Subsidiaries as of December 31, 1999, and the related
consolidated statements of operations, stockholders' deficiency and cash flows
for each of the two years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Cyberfast Systems, Inc. and Subsidiaries as of December 31, 1999, and the
results of their operations and their cash flows for each of the two years then
ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As described in Note 2 to the
consolidated financial statements, 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. Management's plans with regard
to these matters are also described in Note 2 to the consolidated financial
statements. The consolidated financial statements do not include any adjustments
that might result from the outcome of these significant risks and uncertainties.
RACHLIN COHEN & HOLTZ LLP
Fort Lauderdale, Florida
May 11, 2000, except for Note 9 as to
which the date is August 1, 2000
F-1
<PAGE>
Cyberfast Systems, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999
1999
----
ASSETS
------
Current Assets:
Cash $ -
Advances to officers/directors and others 15,000
----------
Total current assets 15,000
Property and Equipment, Net of Accumulated Depreciation
of $92,094 and $2,000 358,376
Deposits -
----------
$ 373,376
==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
Current Liabilities:
Accounts payable and accrued expenses:
Stockholder compensation $ 528,826
Other 262,275
Majority stockholder/officer/director/loan 1,346,361
Income taxes payable 151,000
Bank overdraft 22,566
----------
Total current liabilities 2,311,028
----------
Commitments, Contingencies, Other Matters and Subsequent Event -
Stockholders' Deficiency:
Preferred stock, $100. par value; 5,000,000
F-2
<PAGE>
Cyberfast Systems, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
shares authorized; 0 shares issued -
Common stock
Class A, $.01 par value; 40,250,000 shares authorized;
1,710,450 and 1,459,950 shares issued and outstanding 17,105
Class B, $.01 par value; 4,750,000 shares authorized;
4,540,050 shares issued and outstanding 45,400
Additional paid-in capital 2,419,607
Deficit (4,419,764)
-----------
(1,937,652)
-----------
$ 373,376
===========
F-3
<PAGE>
Cyberfast Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revenues:
Data communications services $ 435,739 $ 7,474,685
Cost of Sales 637,191 2,220,941
----------- -----------
Gross Margin (201,452) 5,253,744
----------- -----------
Other Operating Expenses:
General and administrative 1,399,495 3,425,795
Common stock and options issued for services 2,210,410 48,306
----------- -----------
Total expenses 3,609,905 3,474,101
----------- -----------
Income (Loss) from Operations (3,811,357) 1,779,643
----------- -----------
Other Income (Expense):
Interest expense, stockholder (78,540) -
- 13,287
Interest income
Penalties and interest (115,000) -
Proceeds from contract settlement - 836,000
----------- -----------
(193,540) 849,287
----------- -----------
Income (Loss) before Income Taxes (4,004,897) 2,628,930
Income Tax (Expense) Benefit 224,000 (260,000)
----------- -----------
Net Income (Loss) $(3,780,897) $ 2,368,930
=========== ===========
Net Income (Loss) Per Common Share -
Basic and Diluted $ (0.61) $ 0.39
=========== ===========
Weighted Average Number of Common
Shares Outstanding 6,148,984 6,000,000
=========== ===========
</TABLE>
F-4
<PAGE>
Cyberfast Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 and 1998
1998 Proforma Tax:
During 1998, through September 30, 1998 the Companies were taxed as subchapter S
Corporations.
The proforma tax is computed as if Cyberfast Systems, Inc. and Subsidiaries were
taxed for the entire calendar year 1998 as a conventional corporation under the
Internal Revenue Code.
Income from operations before income tax $2,628,930
Provisions for income tax 989,000
----------
Net income $1,639,930
==========
Net income per share $ 0.27
==========
Weighted average outstanding shares 6,000,000
==========
F-5
<PAGE>
Cyberfast Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
YEARS ENDED DECEMBER 31, 1999 and 1998
<TABLE>
<CAPTION>
Common Stock
Shares Amount Additional Retained
------ ------ Paid-In Earnings
Class A Class B Class A Class B Capital (Deficit) Total
------- ------- ------- ------- ------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 1,459,950 4,540,050 $ 14,600 $ 45,400 $ 211,702 $ (266,880) $ 4,822
Year ended December 31, 1998:
Net income - - - - - 2,368,930 2,368,930
Distributions to stockholders - - - - - (2,740,917) (2,740,917)
---------- ---------- -------- -------- ---------- ----------- -----------
Balance, December 31, 1998 1,459,950 4,540,050 14,600 45,400 211,702 (638,867) (367,165)
Year ended December 31, 1999:
Issuance of common stock for 250,500 - 2,505 1,397,995 - 1,400,500
services
Options granted for services - - - _ 809,910 - 809,910
Net loss - - - - - (3,780,897) (3,780,897)
---------- ---------- -------- -------- ---------- ----------- -----------
Balance, December 31, 1999 1,710,450 4,540,050 $ 17,105 $ 45,400 $2,419,607 $(4,419,764) $(1,937,652)
========== ========== ======== ======== ========== =========== ===========
</TABLE>
F-6
<PAGE>
Cyberfast Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (3,780,897) $ 2,368,930
Adjustments to reconcile net income (loss) to net cash and
cash equivalents provided by (used in) operating activities:
Depreciation 90,094 2,000
Stock-based compensation 2,210,410 48,306
Loss on confiscated assets - 108,892
Changes in operating assets and liabilities:
(Increase) decrease in:
Customer deposits - (309,000)
Other 3,027 20,000
Increase (decrease) in:
Accounts payable 640,190 (54,023)
Income taxes payable (109,000) 260,000
------------ -----------
Net cash provided by (used in) operating activities (946,176) 2,445,105
------------ -----------
Cash Flows from Investing Activities:
Purchase of property and equipment (347,233) (93,237)
Repayment of stockholder loan receivable - 150,000
(Advances to) repayments from officers/directors and others (15,000) -
------------ -----------
Net cash provided by (used in) investing activities (362,233) 56,763
------------ -----------
Cash Flows from Financing Activities:
Bank overdraft 22,566 -
Loans from stockholders 1,275,861 70,500
Distributions to stockholders - (2,740,917)
------------ -----------
Net cash provided by (used in) financing activities 1,298,427 (2,670,417)
------------ -----------
Net Decrease in Cash and Cash Equivalents (9,982) (168,549)
</TABLE>
F-7
<PAGE>
Cyberfast Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999 and 1998
Cash and Cash Equivalents, Beginning 9,982 178,531
------------ -----------
Cash and Cash Equivalents, Ending $ - $ 9,982
============ ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ - $ -
============ ===========
F-8
<PAGE>
Cyberfast Systems, Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
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.
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 Telecom 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.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
material intercompany accounts and transactions have been eliminated.
F-9
<PAGE>
Cyberfast Systems, Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
Revenue is recognized when earned and recorded net of estimated
chargebacks.
Property and Equipment
Property and equipment are recorded at cost and depreciation is
provided using the straight-line method over the estimated useful
lives of the assets. Gain or loss on disposition of assets, if any,
is recognized currently. Repairs and maintenance of property and
equipment are charged to expense as incurred. Major replacements and
betterments are capitalized and depreciated over the remaining useful
lives of the assets.
Income Taxes
Cyberfast Network Systems Corp. was taxed under the provisions of
Subchapter S of the Internal Revenue Code up to the Plan of
Reorganization. Under the Subchapter S provisions, the Company
generally does not pay federal corporate tax, but rather, the
stockholders' share of income or loss is included in their individual
tax returns. The Company terminated the S Corporation election
effective September 30, 1998.
The Company accounts for its income taxes using Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes," which requires recognition of deferred tax liabilities and
assets for expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on
the difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash.
At certain times during the year the Company may have had cash
balances in excess of federally insured limits. The Company maintains
its cash balances with high quality financial institutions that the
Company believes limits these risks.
F-10
<PAGE>
Cyberfast Systems, Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash Equivalents
For purposes of the statement of cash flows, the Company considers
all highly liquid investments with an original maturity of three
months or less to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Stock-Based Compensation
The Company accounts for stock-based compensation issued to employees
using the intrinsic value method prescribed in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees".
Compensation cost for stock options, if any, is measured as the
excess of the estimated market price of the Company's stock at the
date of grant or agreement in principle to grant the option, if
earlier, over the amount the recipient must pay to acquire the stock.
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," established accounting and
disclosure requirements using a fair-value-based method of accounting
for stock-based employee compensation plans. The Company has elected
to retain its current method of accounting as described above, and
has adopted the disclosure requirements of SFAS No. 123. The Company
follows SFAS No. 123 in accounting for stock options issued to non-
employees.
Advertising
Advertising costs are charged to expense as incurred. Advertising
costs incurred for the years ended December 31, 1999 and 1998 were
not material.
F-11
<PAGE>
Cyberfast Systems, Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 130, "Reporting Comprehensive Income" and No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No.
130 establishes standards for reporting and displaying comprehensive
income, its components, and accumulated balances. SFAS No. 131
establishes standards for the way that public companies report
information about operating segments in annual financial statements
and requires reporting of selected information about operating
segments in interim financial statements issued to the public. Both
SFAS No. 130 and SFAS no. 131 are effective for periods beginning
after December 15, 1997. The Company adopted these new accounting
standards in 1998, and their adoption had no effect on the Company's
financial statements and disclosures.
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 requires companies to recognize all
derivatives contracts as either assets or liabilities in the balance
sheet and to measure them at fair value. If certain conditions are
met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in
the fair value of the hedged asset or liability that are attributable
to the hedged risk or (ii) the earnings effect of the hedged
forecasted transaction. For a derivative not designated as a hedging
instrument, the gain or loss is recognized in income in the period of
change. On June 30, 1999, the FASB issued SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133." SFAS No. 133 as amended by
SFAS No. 137 is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000.
Historically, the Company has not entered into derivatives contracts
to hedge existing risks or for speculative purposes. Accordingly, the
Company does not expect adoption of the new standard on January 1,
2001 to affect its consolidated financial statements.
NOTE 2. GOING CONCERN CONSIDERATIONS
The accompanying consolidated financial statements have been
presented in accordance with generally accepted accounting
principles, which assume the continuity of the Company as a going
concern. As reflected in the consolidated financial statements, the
Company incurred a net loss of approximately $3,890,000 in 1999 and
as of December 31, 1999 the consolidated financial position reflect a
bank overdraft, minimal current assets, and a stockholders'
deficiency of approximately $1,787,000. During 1998, the Company was
operating almost exclusively in India. In September 1998, India,
alleging inappropriate use of the telephone lines and non-payment of
various taxes and tariffs, confiscated all the Company's operating
assets, including cash accounts, in India (see Note 3). As a result,
the Company had no active operations and has spent 1999, continuing
into 2000, reestablishing its business operations.
F-12
<PAGE>
Cyberfast Systems, Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2. GOING CONCERN CONSIDERATIONS (Continued)
Management's plans with regard to these matters include:
During 2000 the Company is building a network of Points of Presence
(POPs) around the world. This worldwide footprint will be used for
transport of voice, data, video, Internet access and multimedia by a
variety of users. The Company owns a switch center in Florida where it
receives and transmits all of the traffic between the U.S. and all
international gateway locations via a fiber optic link to a satellite
dish in Amsterdam, Holland. The Company plans to leverage IP technology
to reduce the costs of providing telecommunications services in
traditionally high priced markets.
The Company has gained access to a state of the art satellite
infrastructure through a lease with Royal Dutch Telecom (KPN) that has
a footprint in Europe, Asia, and Africa. This unique position enables
the Company to deploy its toll quality services quickly and efficiently
in any geographical location (in Europe, Asia and Africa) without
having to have access to expensive land-based infrastructure. To enable
the Company to build a presence in selected countries, management has
entered into a strategic alliance with KPN, which will provide the
Company with high bandwidth access to Western Europe.
To fund the Company's international development, management entered
into a Memorandum of Understanding (MOU) with FATA Group SpA, which
calls for a series of capital investments. (See note 9) The eventual
success of management's plans cannot be ascertained with any degree of
certainty.
The conditions described above regarding going concern considerations
raise substantial doubt as to the ability of the Company to continue as
a going concern. The accompanying consolidated financial statements do
not include any adjustments that might result from the outcome of these
significant risks and uncertainties.
NOTE 3. CONFISCATED ASSETS
In September 1998, India, the country in which the Company was
conducting substantially all of its business operations, issued an
injunction stopping the Company from operating and seized all Company
assets located in India. The primary assets confiscated were property
and equipment, which had a net book value of approximately $109,000 at
the time it was confiscated. In addition, the Company had three bank
accounts with minimal balances, which were also confiscated. All
confiscated assets have been expensed in the accompanying consolidated
financial statements.
F-13
<PAGE>
Cyberfast Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 4. STOCKHOLDER LOANS
At various times during 1999, the majority stockholders loaned a total
of $1,346,361 to the Company. A demand note was executed January 1,
2000, which provides for quarterly interest payments at 9%. Subsequent
to year-end, the stockholders loaned an additional approximately
$185,000 to the Company. During 1999, the Company incurred, but did not
pay, interest expense of approximately $78,000 in connection with these
loans.
NOTE 5. INCOME TAXES
The Company accounts for income taxes under the provisions of Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." SFAS No. 109 is an asset and liability approach for
computing deferred income taxes.
A reconciliation of income tax computed at the statutory federal rate
to income tax expense (benefit) is as follows:
Years Ended
December 31,
1999 1998
---- ----
Tax provision at the statutory rate of 34% $ (1,296,000) $ 894,000
State income taxes, net of federal income tax (114,000) 95,000
Benefit of net operating loss carryback (224,000) -
Stock based compensation 370,000 -
Tax relating to subchapter S status - (729,000)
Change in valuation allowance 991,000 -
Other 49,000 -
------------ ---------
$ (224,000) $ 260,000
============ =========
The net tax effects of temporary differences between the carrying
amount of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes are reflected in deferred
income taxes. Significant components of the Company's deferred tax
assets are as follows:
December 31,
Benefit of net operating loss carry forward $621,000
Stock and options issued for compensation 370,000
Less valuation allowance (991,000)
--------
Net deferred tax asset $ -
========
As of December 31, 1999, sufficient uncertainty exists regarding the
reliability of these deferred tax assets and, accordingly, a 100%
valuation allowance has been established.
F-14
<PAGE>
Cyberfast Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 5. INCOME TAXES (Continued)
The Company is delinquent in the filing of various federal and state
income tax returns. The Company is also delinquent in paying 1998
federal and state income taxes. Estimated penalties and interest
through December 31, 1999 have been recorded in these 1999 consolidated
financial statements in the amount of $151,000. The Company may also be
subject to possible review and examination of such tax returns by the
appropriate taxing authorities. Additional income taxes, including
penalties for non-compliance and interest, if any that may be assessed
will be charged to operations when determined.
In accordance with certain provisions of the Tax Reform Act of 1986, a
change in ownership of greater that 50% of a corporation within a three
year period will place an annual limitation on the corporation's
ability to utilize its existing tax benefit carryforwards. Such a
change in ownership is contemplated in the proposed sale of common
stock (see Note 9). Under such circumstances, the potential benefits
from utilization of the tax loss carryforwards as of that date may be
substantially limited or reduced on an annual basis. To the extent that
net operating loss carry forwards, when realized, relate to stock
option deductions, the resulting benefits will be credited to
stockholders' equity.
NOTE 6. COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS
Litigation
The Company is involved in certain lawsuits arising in the ordinary
course of business. In the opinion of management, any liabilities
resulting from such litigation would not be material in relation to
the Company's consolidated financial position.
Employment Agreements
The Company has entered into employment agreements with its
executive officers, effective January 1999, the terms of which
expire at various times through June 2002. Such agreements, which
have been revised from time to time, provide for minimum salary
levels, as well as for incentive bonuses, payable quarterly. The
agreements also provide for the grant of 1,800,000 stock options at
$3.50 per share, 300,000 stock options at $5.00 per share and
300,000 stock options at market value pursuant to a vesting
schedule. The stock options vest quarterly over three-year periods
and expire after ten years. The aggregate commitment for future
salaries at December 31, 1999, excluding bonuses and stock options,
is approximately $1,350,000. During 1999 two
officer/director/employees agreed to defer payment of a large
portion of their compensation. Included in accrued expenses is
approximately $529,000 of compensation due to these
officer/director/employees at December 31, 1999.
F-15
<PAGE>
Cyberfast Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 6. COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS (Continued)
Employment Agreements (Continued)
One agreement was terminated during 1999 with only 50,000 of the
300,000 options granted vested; the remainder were canceled. An
arbitration claim has been filed by the former employee against
the Company. The maximum exposure is the balance of wages due for
the remaining term of the agreement, approximately $300,000, and
the vesting of all stock options. The Company believes that the
contract was terminated for cause, that the Company has no
financial obligations to the previously employee, and is
vigorously defending this action.
Service Agreements
The Company has service agreements with several contractors that
provide service for circuits originating in the United States and
terminating in foreign countries. The agreements, which provide
for compensation based primarily on a percentage of income
generated, expire at various dates through December 2004. The
contractors provide the equipment, facilities, and related
services required for terminating data and voice calls, and
otherwise receiving and/or transmitting communications.
Satellite Service Agreement
The Company has two service agreements with a satellite provider.
The agreements, which provide for monthly payments totaling
$28,800, expire through August 2000. As of December 31, 1999,
approximately $106,000 was incurred, but unpaid, under these
agreements and is included in accounts payable. The remaining
payments due in 2000 under these agreements total approximately
$113,000.
Operating Leases
The Company leases certain of its facilities and equipment under
non-cancelable operating leases, which expire through June 2004.
In addition, the Company is responsible for all taxes, insurance,
maintenance and utilities.
Minimum future lease payments on these leases are as follows:
Year ending December 31:
2000 $293,000
2001 300,000
2002 154,000
2003 103,000
2004 52,000
--------
Total $902,000
========
Rent expense for the facility was $46,585 and $128,698 for 1999
and 1998, respectively.
F-16
<PAGE>
NOTE 6. COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS (Continued)
Foreign Operations
The Company conducts business operations in foreign countries where
the customs, laws and business practices are different from those in
the United States. The laws and regulations in these countries may
change without notice or may not be appropriately enforced, resulting
in the interruption of service or other consequences to the Company.
These consequences could have a material effect on the Company.
Significant Customers and Suppliers
The Company sells its data communications services to a limited
number of customers. One customer accounted for 100% of the revenue
during the year ended December 31, 1999. Two customers accounted for
50% of the revenues each during the year ended December 31, 1998.
The Company leases long-distance networks, which the Company is
dependent on to connect and route calls. One supplier accounted for
100% of these services during the years ended December 31, 1999 and
1998.
Placement Agent Agreement
During September 1999, the Company entered into an agreement in
connection with placement services for proposed private placements of
equity or debt securities at any time within twelve months from
September 23, 1999. If one or more sales are consummated , the
Company will pay a placement fee equal to 10% of the purchase price
and issue placement agent warrants to purchase 2% of the fully
diluted shares of common stock of the Company at the closing bid
price on the date of the closing of the sale. The Company has also
agreed to pay reasonable out-of-pocket expenses not to exceed
$25,000.
Related Party Transactions
During 1998, approximately $310,000 of commissions were paid to two
consultants who are related by birth to a majority stockholder. These
agents resigned from providing services in the second quarter of
1999. During the first half of 1999, there were no revenues and, as a
result, no commissions earned.
During 1999, the Company issued 58,000 shares of Class A common stock
and options to purchase an additional 50,000 shares at $3.50 per
share (the fair value of the underlying shares on the date of grant)
to a member of the Company's Board of Directors who is related by
birth to a majority stockholder. The common shares and options were
issued in connection with services provided during 1999 as a member
of the Board of Directors. Subsequent to December 31, 1999, this
Board member received an additional 50,000 options to purchase common
stock, again in connection with services to be rendered as a Board
member.
F-17
<PAGE>
NOTE 7. NET INCOME (LOSS) PER SHARE
The Company follows Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings Per Share" which requires the presentation of both
basic and diluted net income (loss) per share.
Basic net income (loss) per common share has been computed based upon
the weighted average number of shares of common stock outstanding
during the period. The number of shares used in the computation was
6,148,984 and 6,000,000 for 1999 and 1998, respectively. Diluted income
(loss) per common share has not been presented, since the effect of
common share equivalents is not material in 1998 and would be anti-
dilutive in 1999.
NOTE 8. STOCK-BASED COMPENSATION
Stock Issued for Services
During 1999, the Company issued 250,500 shares of Class A common
stock to certain employees and consultants in exchange for
services, including 50,000 shares issued to a related party (see
Note 6). These shares have been accounted for as
compensation/consulting expense at the estimated fair value of the
shares issued, unless the value of the services was more reliably
determined, with a corresponding credit to additional paid-in
capital. The total expense recorded in connection with the issuance
of these common shares was $1,400,500.
Stock Options
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
2,575,000 options to employees of which 900,000 was vested as of
December 31, 1999. Compensation expense of $340,750 has been
recognized in these consolidated financial statements for 1999
relating to these vested options. Had compensation cost for the
plan been determined on the fair value at the grant date consistent
with SFAS No. 123, the Company's net earnings would have been as
follows:
F-18
<PAGE>
NOTE 8. STOCK-BASED COMPENSATION (Continued)
Stock Options (Continued)
Net Loss:
As Reported $(3,889,897)
Pro Forma $(7,446,397)
Basic Net Loss Per Share:
As Reported $(0.63)
Pro Forma $(1.21)
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 148,000 options to non-
employees as of December 31, 1999, all of which are vested. Expense
of $469,160 has been recorded in the accompanying consolidated
financial statements for 1999.
The Company estimates the fair value of each stock option at the
grant date by using the Black-Sholes option-pricing model with the
following weighted-average assumptions used for grants; no dividend
yield; an expected life of ten years; 143% expected volatility, and
6.00% risk free interest rate.
The option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and
are fully transferable. In addition, valuation models require the
input of highly subjective assumptions including the expected price
volatility. Since the Company's stock options have characteristics
significantly different from those of traded options, and since
variations in the subjective input assumptions can materially
affect the fair value estimate, the actual results can vary
significantly from estimated results.
A summary of the status of options as of December 31, 1999 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, December 31, 1998 - $ -
Year Ended December 31, 1999:
Granted 2,723,000 3.63 November 2004
Exercised to December 2009
-
Expired 250,000
---------
Balance, December 31, 1999 2,473,000 3.63 November 2004
========= to December 2009
</TABLE>
F-19
<PAGE>
NOTE 8. STOCK-BASED COMPENSATION (Continued)
Stock Options (Continued)
The following table summarizes information about outstanding options
at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- -------------------------------------------
Number Weighted Number
Outstanding Average Range Exercisable Weighted
Range of at Remaining of at Average
Exercise December 31, Contractual Exercise December 31, Exercise
Prices 1999 Life Price 1999 Price
------ ---- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C>
$3.50 - $7.00 2,473,000 9 years $3.50 - $7.00 1,048,000 $3.63
============= ========= ======= ============= ========= =====
</TABLE>
Subsequent to year end, 250,000 options were granted to employee board
members and 150,000 options vested pursuant to employment agreements, and
148,000 options were granted to certain board and advisory board members.
NOTE 9. SUBSEQUENT EVENT
On May 5, 2000, the Company entered into a Memorandum of Understanding
("MOU") in connection with the sale of common stock. The MOU provides 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,
which is guaranteed by the majority stockholders, was received by the
Company in May, 2000.
The purchaser, upon successful conclusion of preliminary due diligence, has
the right to contract to purchase 45% of the total outstanding capital
stock and 51% of the voting rights of the Company for $5,000,000 payable in
two tranches. Within seven days of the execution of the contract, the
purchaser must purchase $1,500,000 of Class A common stock. The purchaser
then has 150 days to complete any and all due diligence. At that time, if
the purchaser has decided to complete the transaction, the remaining
$3,500,000 is to be funded.
In addition to the 45% of outstanding capital stock, the purchaser will
receive a warrant to purchase at least an additional 6% of the outstanding
capital stock of the Company at $3.00 per share (based on fair value at the
date of the MOU).
In the event that the purchaser decides, pursuant to final due diligence,
not to purchase the second tranche, the purchaser will have a put option in
connection with the first tranche. The put option will require the Company
to buy back the shares acquired in the first tranche for $1,500,000, plus
interest at 6% per annum for the time the shares were held. The Company
must repurchase the shares within four months from the time the purchaser
makes the request. The transaction, in its entirety, is personally
guaranteed by the current majority stockholders.
F-20
<PAGE>
Cyberfast Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
F-21
<PAGE>
NOTE 9. SUBSEQUENT EVENT (Continued)
On July 26, 2000, the Company entered into an investment agreement which
contractually obligates the purchaser and the Company to the terms of the
MOU as outlined above. On August 1, 2000, the Company received payment in
full for the first tranche in exchange for the issuance of 1,466,276 Class
A common stock. After repayment of the bridge loan, including interest, the
Company received net proceeds of $1,199,964.
F-22
<PAGE>
EXHIBIT INDEX
2.0 Plan of Reorganization. (1)
3.0 Articles of Incorporation. (1)
3.1 Articles of Amendment to the Articles of Incorporation of Smartfit
Foundations, Inc. (1)
3.2 Amendment to the Articles of Incorporation of Cyberfast Systems, Inc. (1)
3.3 Bylaws. (1)
10.1 Cisco Equipment Lease. (1)
10.2 Cyberfast/FATA Investment Agreement. (1)
10.3 Employment Agreement between the Company and Edward Stackpole. (2)
10.4 Employment Agreement between the Company and Itir Stackpole. (2)
10.5 Employment Agreement between the Company and Bert Perez. (2)
16.0 Form of letter to Mr. Robert Jarkow sent pursuant to Item 304(a)(3) of
Regulation SB. (1)
21.0 Subsidiaries. Filed herewith.
27.1 Financial Data Schedule. Filed herewith.
-------------
(1) Incorporated by reference from the Company's filing on Form 10-SB.
(2) To be filed by amendment to the Company's Form 10-SB.
