<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended September 30, 2000
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission file number 0-27263
Cyberfast Systems, Inc.
-----------------------
(Exact name of small business issuer as specified in its charter)
Florida 13-5398600
------- ----------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
777 Yamato Road, Suite 105, Boca Raton FL 33431
-----------------------------------------------
(Address of principal executive offices)
(561) 995-6255
--------------
(Issuer's telephone number)
N/A
---------------------
(Former name, former address, and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [_]
APPLICABLE ONLY TO CORPORATE ISSUERS
As of November 8, 2000, there were 3,239,176 shares of Class A common stock
outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [_] No [X]
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
INDEX TO FINANCIAL STATEMENTS PAGE
----------------------------- ----
Consolidated Balance Sheets September 30, 2000 (Unaudited) 3
and December 31, 1999
Consolidated Statements of Operations three months and nine months 4
ended September 30, 2000 and 1999 (Unaudited)
Consolidated Statements of Cash Flows nine months ended September 30, 5
2000 and 1999 (Unaudited)
Notes to Consolidated Financial Statements 6-9
See notes to consolidated financial statements.
2
<PAGE>
CYBERFAST SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 2000 1999
------ ------------- ------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash $ 73,268 $ -
Advances to officers/directors and others 10,000 15,000
Prepaid expenses 15,000 -
------------- ------------
Total current assets 98,268 15,000
Property and Equipment, Net of Accumulated Depreciation
of $191,668 and $92,094 264,558 358,376
Deposits 8,521 -
------------- ------------
$ 371,347 $ 373,376
============= ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
Current Liabilities:
Accounts payable and accrued expenses:
Stockholder compensation $ 849,678 $ 528,826
Other 391,947 262,275
Majority stockholder/officer/director/loan, including interest 1,294,981 1,346,361
Put option 1,500,000 -
Income taxes payable 151,000 151,000
Bank overdraft - 22,566
------------- ------------
Total current liabilities 4,187,606 2,311,028
------------- ------------
Commitments, Contingencies, Other Matters and Subsequent Event - -
Stockholders' Deficiency:
Preferred stock, $100.par value; 5,000,000
shares authorized; 0 shares issued
Common stock
Class A, $.01 par value; 40,250,000 shares authorized;
3,239,176 and 1,710,450 shares issued and outstanding 32,392 17,105
Class B, $.01 par value; 4,750,000 shares authorized; 4,477,600
and 4,540,050 shares issued and outstanding, respectively 44,776 45,400
Additional paid-in capital 3,792,102 2,419,607
Deficit (7,685,529) (4,419,764)
------------- ------------
(3,816,259) (1,937,652)
------------- ------------
$ 371,347 $ 373,376
============= ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
CYBERFAST SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Nine Months
Ended Ended
September 30, September 30,
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Data communications services $ 49,566 $ 348,382 $ 192,815 $ 435,739
Cost of Sales 244,079 209,285 674,305 425,869
----------- ----------- ----------- -----------
Gross Margin (194,513) 139,097 (481,490) 9,870
----------- ----------- ----------- -----------
Other Operating Expenses:
General and administrative 589,076 487,528 1,293,317 1,030,424
Common stock and options issued for services 572,393 712,500 1,387,158 1,340,500
Total expenses 1,161,469 1,200,028 2,680,475 2,370,924
----------- ----------- ----------- -----------
Loss from Operations (1,355,982) (1,060,931) (3,161,965) (2,361,054)
----------- ----------- ----------- -----------
Other Income (Expense):
Interest expense, stockholder (32,800) - (103,800) (9,200)
Penalties and interest - (28,750) - (86,250)
----------- ----------- ----------- -----------
(32,800) (28,750) (103,800) (95,450)
----------- ----------- ----------- -----------
Loss before Income Taxes (1,388,782) (1,089,681) (3,265,765) (2,456,504)
Income Tax Benefit - 82,000 - 224,000
----------- ----------- ----------- -----------
Net Loss $(1,388,782) $(1,007,681) $(3,265,765) $(2,232,504)
=========== =========== =========== ===========
Net Loss Per Common Share
Basic and Diluted $ (0.19) $ (0.16) $ (0.50) $ (0.37)
=========== =========== =========== ===========
Weighted Average Number of Common
Shares Outstanding 7,244,309 6,193,000 6,581,770 6,115,487
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
CYBERFAST SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(3,265,765) $(2,232,504)
Adjustments to reconcile net loss to net cash and
cash equivalents used in operating activities:
Depreciation 99,574 38,939
Stock-based compensation 1,387,158 1,340,500
Interest on notes and loans payable 103,800 9,200
Changes in operating assets and liabilities:
(Increase) decrease in :
Prepaid expenses (15,000) -
Other (8,521) -
Increase (decrease) in:
Accounts payable 526,284 300,776
Income taxes payable - (137,750)
----------- -----------
Net cash used in operating activities (1,172,470) (680,839)
----------- -----------
Cash Flows from Investing Activities:
Purchase of property and equipment (5,756) (240,006)
Repayments from officers/directors and others 5,000 -
----------- -----------
Net cash used in investing activities (756) (240,006)
----------- -----------
Cash Flows from Financing Activities:
Bank overdraft (22,566) 1,178
Proceeds from note payable 1,499,980 -
Loans from stockholders - 909,685
Repayments to stockholders (230,920) -
----------- -----------
Net cash provided by financing activities 1,246,494 910,863
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents 73,268 (9,982)
Cash and Cash Equivalents, Beginning - 9,982
----------- -----------
Cash and Cash Equivalents, Ending $ 73,268 $ -
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ - $ -
=========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
Cyberfast Systems, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
NOTE 1. SUMMARY OF BUSINESS OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The accompanying unaudited condensed consolidated financial statements
have been prepared by the Company pursuant the rules and regulations of
the Securities and Exchange Commission ("SEC") and, in the opinion of
management, include all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of financial position,
results of operations and cash flows for the interim periods. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the SEC. The Company believes that the disclosures
contained herein are adequate to make the information presented not
misleading. The statements of operations for the three months and nine
months ended September 30, 2000 are not necessarily indicative of the
results to be expected for the full year. These unaudited financial
statements should be read in conjunction with the audited financial
statements and accompanying notes included in the Company's 1999 Annual
Report on Form 10-KSB for the year ended December 31, 1999.
The condensed consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The
independent auditors' report on the December 31, 1999 financial
statements stated that "... the Company is subject to certain
significant risks and uncertainties, which conditions raise substantial
doubt about the Company's ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty."
The consolidated financial statements do not include adjustments
relating to the recoverability and classification of recorded asset
amounts, or the amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
The Company's ability to continue as a going concern is dependent upon
its ability to generate sufficient cash flow to meet its obligations on
a timely basis and ultimately to attain profitable operations.
Organization and Capitalization
-------------------------------
The Company was originally incorporated as SmartFit Brassiera Co.,
Inc., a New York corporation, and was in the business of selling
women's undergarments. The Company changed its name to Smart Fit
Foundation, Inc. on September 8, 1995.
6
<PAGE>
Cyberfast Systems, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF BUSINESS OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Organization and Capitalization (Continued)
-------------------------------------------
In October 1998, pursuant to an Agreement and Plan of Reorganization,
Smart Fit Foundation, Inc. (a non-operating public shell), acquired
100% of the common stock of Cyberfast Network Systems Corp., in
exchange for 97.8% of Smart Fit Foundation, Inc.'s common stock. On
October 19, 1998, Smart Fit Foundation, Inc. changed its name to
Cyberfast Systems, Inc.
The Company's certificate of incorporation authorized the issuance of
50,000,000 shares of capital stock consisting of 5,000,000 shares of
preferred stock with a $100.00 par value per share, 40,250,000 shares
of Class A common stock with a $.01 par value per share and one vote
per share and 4,750,000 shares of Class B common stock with a $.01 par
value per share and ten votes per share.
In October 1999, the Company acquired 100% of the outstanding capital
stock of Global 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.
Business
--------
Cyberfast Systems, Inc. (the "Company") is an international provider of
data communications services. The Company operates long distance and
voice communication services primarily between the United States and
under-served, under-developed or developing countries. All
transmissions originate in the United States.
Use of Estimates
----------------
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and
assumptions that affect the reported amount of assets and liabilities
as of the date of the balance sheet and operations for the period.
Although these estimates are based on management's knowledge of current
events and actions it may undertake in the future, they may ultimately
differ from actual results.
7
<PAGE>
Cyberfast Systems, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF BUSINESS OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Net Loss Per Common Share
-------------------------
The Company computes earnings (loss) per share in accordance with SFAS
No. 128, "Earnings Per Share." This standard requires dual presentation
of basic and diluted earnings per share on the face of the income
statement for all entities with complex capital structures and requires
a reconciliation of the numerator and denominator of the diluted
earnings per share computation.
Net loss per common share (basic and diluted) is based on the net loss
divided by the weighted average number of common shares outstanding
during the year.
The Company's potentially issuable shares of common stock pursuant to
outstanding stock options and warrants are excluded from the Company's
diluted computation, as their effect would be anti-dilutive.
NOTE 2. COMMON STOCK
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. On August 1, 2000 the purchaser
invested gross proceeds of $1,500,000 for shares of Class A common
stock. The purchaser has the right to put these shares back to the
Company any time on or before November 30, 2000 or to complete the
transaction by investing the remaining $3,500,000.
In addition to the 45% of outstanding capital stock, if the purchaser
makes the additional investment of $3.5 million then 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).
If the purchaser exercises the put option by November 30, 2000, the
Company is required 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.
8
<PAGE>
Cyberfast Systems, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2. COMMON STOCK (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.
NOTE 3. STOCK-BASED COMPENSATION
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). As permitted by SFAS No. 123, the Company
continues to apply the recognition and measurement provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25").
Pursuant to SFAS No. 123, the Company has elected to account for its
employee stock options under APB Opinion No. 25. Compensation cost has
been recognized for any options for which the market value exceeded the
exercise price on the date of the grant or agreement in principle to
grant the option, if earlier. The Company granted 2,675,000 options to
employees of which 1,725,000 were vested as of September 30, 2000.
Compensation expense of $137,500 has been recognized in these
consolidated financial statements for three months ended September 30,
2000 relating to these vested options.
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 175,000 options to
non-employees during the three months ended September 30, 2000, all
of which are vested. Expense of $434,893 has been recorded in the
accompanying consolidated financial statements for the three months
ended September 30, 2000.
A summary of the status of options as of September 30, 2000 and changes
during the period ended on that date are presented below:
<TABLE>
<CAPTION>
Weighted
Number Average Expiration
Of Shares Price Date
--------- ----- ----
<S> <C> <C> <C>
Balance, June 30, 2000 2,921,000 $3.63 November 2004
Quarter Ended September 30, 2000: to December 2009
Granted 225,000 3.00 August 2005
Exercised -
Expired -
---------
Balance, September 30, 2000 3,146,000 $3.58 November 2004
========= to December 2009
</TABLE>
9
<PAGE>
Item 2. Management's Discussion and Analysis and Plan of Operation
Three Month Periods Ended September 30, 1999 And 2000
Table 1 - Percentage Analysis of Quarterly Results of Operations
<TABLE>
<CAPTION>
Quarter PERCENTAGE
------- ----------
Ended CHANGE
----- ------
Sept. 30, 2000 Sept. 30, 1999 Between Periods
-------------- -------------- ---------------
(Decrease)
----------
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues 100.0% 100.0% (702.9%)
----------------------------------------------------------------------------------------------
Expenses
----------------------------------------------------------------------------------------------
COGS 492.4% 60.0% 16.6%
----------------------------------------------------------------------------------------------
Gross Margin N/A 39.9% (239.8%)
----------------------------------------------------------------------------------------------
General & Administrative 1188.5% 139.9% 20.8%
----------------------------------------------------------------------------------------------
Common Stock 1154.8% 204.5% (19.7%)
----------------------------------------------------------------------------------------------
Total Op. Expenses 2343.3% 344.5% (3.2%)
----------------------------------------------------------------------------------------------
Income (Loss) from ops. N/A N/A 27.8%
----------------------------------------------------------------------------------------------
Int. Expense, stockholder 66.2% 10.5% 280.4%
----------------------------------------------------------------------------------------------
Penalties and Interest - 8.3% N/A
----------------------------------------------------------------------------------------------
Income (Loss) before tax N/A N/A 27.4%
----------------------------------------------------------------------------------------------
Income Tax Benefit - 23.5% N/A
----------------------------------------------------------------------------------------------
Net Income (Loss) N/A N/A 37.8%
----------------------------------------------------------------------------------------------
Net Income (Loss)/share ($0.21) ($0.16) 31.2%
----------------------------------------------------------------------------------------------
</TABLE>
Table 1 above represents: (a) the relationship of income and expenses
relative to net revenues, and (b) the change between the comparable prior
quarterly period and current period. This table should be read in the context of
the Company's financial statements incorporated as part of this filing,
elsewhere herein.
For the three month period ended September 30, 2000, revenues decreased
702.9% from $0.348 million for the three month period ended September 30, 1999
to $0.050 million. The absence of significant revenues persisted for the three
month period ended September 30, 2000 as a result of regulatory issues and
internal financial constraints that have delayed the start-up of POP operations
in several locations. The completion of the first tranche of equity financing
that occurred in August 2000 and the resolution of certain regulatory issues
related to foreign telecommunications licensing should have a positive impact in
succeeding quarters; however, Company management does not expect the benefit of
events until early 2001.
The Company's cost of goods sold increased 16.6% from $0.209 million during
the three month period ended September 30, 1999 to $0.244 million during the
three month period ended September 30, 2000. As a percentage of revenues, cost
of goods sold increased from 60.0% during the three month period ended September
30, 1999 to 492.4% for the period ended
10
<PAGE>
September 30, 2000. This increase was the result of up front costs incurred by
the Company that are associated with the start up of POPs, including
depreciation on equipment purchased, leased line costs, and other pre-operation
costs. Resulting negative gross margins for the three month period ended
September 30, 2000 as a percentage of revenue is meaningless, however, for the
three month period ended September 30, 1999 gross margin as a percentage or
revenue was 39.9%. Between the periods, the gross margin decreased 239.8% from
$0.139 million during the three month period ended September 30, 1999 to a
deficit of $0.194 million during the three month period ended September 30,
2000. These negative margins are the result of line costs, depreciation on
equipment purchases and installation and maintenance expenses that the Company
normally incurs prior to the start-up of POPs. Once POP operations commence at
these sites, gross margins will be positively impacted.
General and administrative expenses increased 20.8% for the three month
period ended September 30, 2000 from the comparable three month period ended
September 30, 1999 to $0.589 million from $0.488 million. For the three month
period ended September 30, 2000, general and administrative expenses were
1188.5% of revenues compared with 139.9% during the comparable three month
period ended September 30, 1999. These general and administrative expenses
represent primarily the Company's fixed costs, and the increase was the result
of staffing and support adjustments in anticipation of the start-up of revenue
generating POPs.
The Company also continued to incur expenses related to the issuance of
common stock and options to various vendors and employees as a result of
obligations of the Company under various employment and service agreements. This
expense category, however, decreased 19.7% from $0.713 million in the quarter
ended September 30, 1999 to $0.572 million in the comparable subsequent period
ended September 30, 2000. As a percentage of revenues, these expenses increased
from 204.5% in the three month period ended September 30, 1999 to 1154.8% for
the comparable period ended September 30, 2000. This enormous increase was the
direct result of lower revenues for the current period.
As a result of the above reasons, during the three month period ended
September 30, 2000, total operating expenses decreased 3.2% and loss from
operations increased 27.8% from $1.200 million and $01.060 million respectively
for the comparable prior three month period ended September 30, 1999 to $1.161
million and $1.356 million for the three month period ended September 30, 2000.
As a percentage of revenues, total operating expenses increased from 344.5% in
the three month period ended September 30, 1999 to 2343.3% in the subsequent
period ended September 30, 2000. The increase in cost of goods sold and general
and administrative expenses, partially offset by the reduction in the issuance
of common stock and options, accounted for the increase in loss from operations
between the periods.
Interest expense from stockholder loans increased from $0.00 million during
the three month period ended September 30, 1999 to $0.033 million for the three
month period ended September 30, 2000. During the three month period ended
September 30, 1999, the Company incurred penalties and interest expenses of
$0.029 million, with no comparable expense incurred during the current three
month period ended September 30, 2000. As a result, losses before income taxes
increased 27.4% from $1.090 million for the three month period ended
September 30, 1999 to $1.389 million for the comparable three month period ended
September 30, 2000.
11
<PAGE>
No income tax benefit was recorded for the three month period ended September
30, 2000, however, $0.082 million was recorded in the comparable prior period
ended September 30, 1999. As a result of the above factors, the net loss
increased 37.8% from $1.008 million to $1.389 million respectively between the
three month periods ended September 30, 1999 and 2000.
Accordingly, net loss per share of the Company's common stock increased
from $0.16 during the three month period ended September 30, 1999 to $0.21 for
the comparable subsequent period ended September 30, 2000.
Nine Month Periods Ended September 30, 1999 And 2000
Table 2 - Percentage Analysis of Nine Month Results of Operations
<TABLE>
<CAPTION>
Nine PERCENTAGE
---- ----------
Month CHANGE
----- ------
Period
------
Ended
-----
Sept. 30, 2000 Sept. 30, 1999 Between Periods
-------------- -------------- ---------------
(Decrease)
----------
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues 100.0% 100.0% (55.7)%
-----------------------------------------------------------------------------------------------
Expenses
-----------------------------------------------------------------------------------------------
COGS 315.0% 97.7% 58.3%
-----------------------------------------------------------------------------------------------
Gross Margin N/A 2.3% (4978.3)%
-----------------------------------------------------------------------------------------------
General & Administrative 670.8% 236.5% 25.5%
-----------------------------------------------------------------------------------------------
Common Stock 719.4% 307.6% 3.5%
-----------------------------------------------------------------------------------------------
Total Op. Expenses 1390.2% 544.1% 13.1%
-----------------------------------------------------------------------------------------------
Income (Loss) from ops. N/A N/A 33.9%
-----------------------------------------------------------------------------------------------
Int. Expense, stockholder 53.8% 2.1% 1028.3%
-----------------------------------------------------------------------------------------------
Penalties and Interest - 19.8% N/A
-----------------------------------------------------------------------------------------------
Income (Loss) before tax N/A N/A 32.9%
-----------------------------------------------------------------------------------------------
Income Tax Benefit - 51.4% N/A
-----------------------------------------------------------------------------------------------
Net Income (Loss) N/A N/A 46.3%
-----------------------------------------------------------------------------------------------
Net Income (Loss)/share ($0.50) ($0.37) 38.9%
-----------------------------------------------------------------------------------------------
</TABLE>
Table 2 above represents: (a) the relationship of income and expenses
relative to net revenues, and (b) the change between the comparable prior
quarterly period and current period. This table should be read in the context of
the Company's financial statements incorporated as part of this filing,
elsewhere herein.
For the nine month period ended September 30, 2000, revenues decreased
55.7% from $0.436 million for the nine month period ended September 30, 1999 to
$0.193 million for the comparable subsequent period. The revenues for the nine
month period ended September 30, 2000 occurred as a result of the limited start-
up of certain POP operations. The completion of
12
<PAGE>
the first tranche of equity financing that occurred in August 2000 and the
resolution of certain regulatory issues related to foreign telecommunications
licensing should have a positive impact in succeeding quarters; however, Company
management does not expect the benefit of events until early 2001.
The Company's cost of goods sold increased 58.3% from $0.426 million during
the nine month period ended September 30, 1999 to $0.674 million during the nine
month period ended September 30, 2000. As a percentage of revenues, cost of
goods sold increased from 97.7% during the nine month period ended September 30,
1999 to 315.0% for the comparable nine month period ended September 30, 2000.
This increase was the result of: (i) lower revenues, and (ii) up front costs
incurred by the Company that are associated with the start up of POPs, including
the depreciation of equipment purchased, leased line costs, and other pre-
operation costs. Resulting negative gross margins for the nine month period
ended September 30, 2000 as a percentage of revenues are meaningless, however,
for the nine month period ended September 30, 1999, gross margins were 2.3% of
revenues. Between the nine month periods, the gross margin decreased 4978.3%
from $0.010 million during the nine month period ended September 30, 1999 to a
deficit of $0.481 million during the nine month period ended September 30, 2000.
These negative margins are the result of line costs, depreciation on equipment
purchases and installation and maintenance expenses that the Company normally
incurs prior to the start-up of POPs. Once POP operations commence at these
sites, gross margins will be positively impacted.
General and administrative expenses increased 25.5% between the nine month
periods from $1.030 million for the period ended September 30, 1999 to $1.293
million for the period ended September 30, 2000. For the nine month period
ended September 30, 2000, general and administrative expenses were 670.8% of
revenues compared with 236.5% during the comparable prior period ended September
30, 1999. These general and administrative expenses represent primarily the
Company's fixed costs, and was the result of staffing and support adjustments in
anticipation of the start-up of revenue generating POPs.
The Company continued to incur expenses related to the issuance of common
stock and options to various vendors and employees as a result of obligations of
the Company under various employment and service agreements, although at a much
slower rate than in prior periods. This expense category increased only a
nominal 3.5% from $1.341 million in the nine month period ended September 30,
1999 to $1,387 million in the comparable subsequent period ended September 30,
2000. As a percentage of revenues, these expenses increased from 307.6% in the
nine month period ended September 30, 1999 to 719.4% for the comparable period
ended September 30, 2000. This increase was the direct result of lower revenues
in the nine month period ended September 30, 1999 compared to the period ended
September 30, 2000.
As a result of the above reasons, during the nine month period ended
September 30, 2000, total operating expenses and loss from operations increased
13.1% and 33.9% respectively from the comparable prior period ended September
30, 1999. As a percentage of revenues, total operating expenses increased from
544.1% in the nine month period ended September 30, 1999 to 1390.2% in the
subsequent period ended September 30, 2000. The decrease in revenues and
increases in cost of goods sold, general and administrative expenses, and cost
of issuance of
13
<PAGE>
common stock and options, accounted for the increase in loss from operations
between the periods.
Interest expense from stockholder loans increased from $0.009 during the
nine month period ended September 30, 1999 to $0.104 million for the period
ended September 30, 2000 During the nine month period ended September 30, 1999,
the Company incurred penalties and interest expenses of $0.086 million that were
not incurred in the subsequent nine month period ended September 30, 2000. The
conditions described above combined to produce a loss before taxes of $3.266
million for the current nine month period compared to $2.457 during the
comparable prior nine month period. During the comparable nine month period
ended September 30, 1999 the loss before taxes was offset by a tax benefit of
$0.224 million, resulting in a net loss of $2.233 million compared to a net loss
of $3.266 million for the comparable period ended September 30, 2000. This
increase in net loss represented an increase of 46.3% between each nine month
period.
Accordingly, net loss per share of the Company's common stock increased
from $0.37 during the nine month period ended September 30, 1999 to $0.50 for
the comparable subsequent period ended September 30, 2000.
Liquidity And Capital Resources
-------------------------------
Nine Month Periods Ended September 30, 1999 And 2000
Net cash used in operating activities increased 72.2% to $1.172 million for
the nine month period ended September 30, 2000 compared to $0.681 million for
the comparable prior period ended September 30, 1999. This increase occurred
primarily as a result of a 46.3% increase in net loss, a 155.7% increase in
depreciation, a 1028.3% increase in interest on notes to stockholders, and a
75.0% increase in accounts payable between the nine month period ended September
30, 1999 and the comparable period ended September 30, 2000. Net cash used in
operating activities for the nine month period ended September 30, 1999 were
partially offset as a result of an income tax benefit that did not occur in the
comparable period ended September 30, 2000.
Net cash used in investing activities decreased from $0.240 million for the
nine month period ended September 30, 1999 to $0.001 million for the subsequent
period ended September 30, 2000, a result of a decrease in the purchase of
property and equipment.
The Company's net cash provided by financing activities increased 36.8%
from $0.911 million for the nine month period ended September 30, 1999 to $1.246
million for the comparable subsequent period ended September 30, 2000. This
increase was the result of a pay-down of loans extended to the Company by its
controlling shareholders between the periods, as well as the equity infusion
from the FATA Group Sp.A. of $1.500 million. Until the expiration of the put
option in the Investment Agreement on November 30, 2000, this investment has
been classified as a current liability rather than capital.
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The above factors combined to produce an overall increase in cash and cash
equivalents from a deficit of $0.010 million for the nine month period ended
September 30, 1999 to a surplus of $0.073 million for the comparable period
ended September 30, 2000.
As of September 30, 2000, the Company had a working capital deficit of
$4.089 million compared to a deficit of $2.296 million for the year ended
December 31, 1999. The increase in the deficit was the result of continued
increases in stockholder loans, accounts payable, and stockholder compensation.
Notwithstanding the current classification of the FATA investment as a current
liability (which will be reclassified as capital if the put option expires), the
working capital deficit would have been $2.589 million.
On August 1, 2000 the Company received proceeds of approximately $1.200
million from the FATA subscription pursuant to an Investment Agreement executed
between FATA and the Company. These proceeds include an investment of $1.500
million, offset by the repayment of an earlier loan of $0.300 million plus
accrued interest at 6% per annum. The funds were used for
repayment of debt. An additional investment of $3.500 million is expected no
later than November 30, 2000; however, the second tranche is conditional on the
completion of due diligence by FATA. Should FATA decline further investment for
whatever reason, the Company would be required to redeem the initial $1.500
million investment. The redemption is personally guaranteed by certain of the
Company's shareholders. Should the second tranche of the Investment Agreement
fail to materialize and the Company be required to redeem the initial
investment, the Company would be subject to material and adverse financial
conditions that could threaten its ability to conduct normal business
operations. The Company would then be required to seek further stockholder loans
or seek other sources of equity financing, although no assurances can be made
regarding the availability of either sources for this financing.
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Plan of Operations
------------------
During the succeeding twelve month period, Company management expects to
continue reliance on shareholder loans to finance the working capital deficit,
but in addition, potential new equity subscriptions and the start-up of new POPs
currently under contract could provide sources of working capital sufficient to
restore working capital surpluses. In that regard, shareholder loans decreased
from a total of $1.346 million on December 31, 1999 to $1.295 million as of
September 30, 2000. The bridge loan of $0.300 million provided to the Company
in June 2000 by FATA Group Sp.A. was repaid from the gross $1.5 million
investment in August 2000, resulting in a net investment of approximately $1.2
million in August 2000. As stated previously, the Company entered into an
Investment Agreement in August 2000 that provides for a total equity infusion of
$5.0 million in exchange for a 45% equity interest and 51% voting interest in
the Company. The $1.5 million received in August 2000 is part of this total
investment and is subject to a put option exercisable by FATA until November 30,
2000. The Investment Agreement also grants FATA warrants to purchase an
additional 6% equity stake (bringing its equity stake to 51%, to equal its
voting interest). The warrants are exercisable at a price of $3.00 per share.
Company management is mindful of the consequences of arbitrary government
action with respect to operations in foreign jurisdictions where the Company may
not have the benefit of legal due process, as was the case in India in 1998. In
an effort to mitigate interruption of the Company's business in these foreign
jurisdictions, Company management has implemented a program whereby the Company
is shielded from any direct governmental actions through engagements with local
partners. Each local partner will have the ultimate responsibility of
governmental and regulatory relations in each destination country, thereby
protecting Company assets from predatory seizures by hostile governments. The
process of identifying, recruiting, and engaging local implementation partners
is governed by the following principles:
. Traditional telephone communications costs from the US to the destination
country are significantly higher than a minimum threshold level.
. Company management has had prior relationships with entities in the
destination country that have strong business/political contacts and/or are
involved in the telecommunications industry in that country.
. The destination country has adopted and is implementing a plan of
deregulation of its telecommunications industry.
. A Cyberfast review of current services and prices offered by other data
service providers to the destination country indicates long term growth
potential.
Company management expects that the implementation of these policies will
safeguard both Company assets and important revenue streams, as well as further
insulate the Company from the vagaries of international political intrigues
beyond the control of Company management.
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Forward Looking Statements
--------------------------
DISCUSSIONS AND INFORMATION IN THIS DOCUMENT, WHICH ARE NOT HISTORICAL
FACTS, SHOULD BE CONSIDERED FORWARD-LOOKING STATEMENTS. WITH REGARD TO FORWARD-
LOOKING STATEMENTS, INCLUDING THOSE REGARDING THE POTENTIAL INTERIM FINANCING,
THE SUFFICIENCY OF THE CASH FLOW, AND THE BUSINESS PROSPECTS OR ANY OTHER ASPECT
OF THE COMPANY, ACTUAL RESULTS AND BUSINESS PERFORMANCE MAY DIFFER MATERIALLY
FROM THAT PROJECTED OR ESTIMATED IN SUCH FORWARD-LOOKING STATEMENTS. THE
COMPANY HAS ATTEMPTED TO IDENTIFY IN THIS DOCUMENT CERTAIN OF THE FACTORS THAT
IT CURRENTLY BELIEVES MAY CAUSE ACTUAL FUTURE EXPERIENCE AND RESULTS TO DIFFER
FROM ITS CURRENT EXPECTATIONS. DIFFERENCES MAY BE CAUSED BY A VARIETY OF
FACTORS, INCLUDING EXERCISE OF THE PUT OPTION BY FATA, ADVERSE ECONOMIC
CONDITIONS, ENTRY OF NEW AND STRONGER COMPETITORS IN THE VOIP BUSINESS, DELAYS
IN THE COMPANY'S ABILITY TO PLACE ADDITIONAL POPs IN SERVICE, INADEQUATE CAPITAL
AND THE INABILITY TO OBTAIN FUNDING FROM THIRD PARTIES, UNEXPECTED COSTS AND THE
INABILITY TO OBTAIN OR KEEP QUALIFIED PERSONNEL.
PART II - OTHER INFORMATION
Item 2(c). Unregistered Sales of Securities During the Quarter.
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 ("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
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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%.
The securities issued to FATA under the MOU and the Agreement were issued
in reliance on Section 4(2) of the Securities Act of 1933.
Item 6. Exhibits and Reports on Form 8-K.
Exhibits
3.1 Articles of Incorporation, as amended.(1)
3.2 Bylaws.(1)
102 Cyberfast/FATA Investment Agreement.(1)
27.1 Financial Data Schedule. Filed herewith.
------------
(1) Incorporated by reference from the Company's Registration Statement on Form
10-SB, as amended.
Reports on Form 8-K
(1) The Company filed Form 8-K on August 1, 2000 announcing a change in
control of the Company as a result of the completion of the first
round of equity financing under an Investment Agreement with the FATA
Group Sp.A.
(2) The Company filed Form 8-K/A No. 1 on August 22, 2000 amending the
September 30, 1999 Form 8-K regarding a change in the Company's
auditor.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CYBERFAST SYSTEMS, INC.
Dated: November 14, 2000 By: /s/ Edward J. Stackpole
------------------------------------
Edward J. Stackpole, Chief Executive
Officer And Co-Chairman of the Board
Dated: November 14, 2000 By: /s/ Itir Stackpole
------------------------------------
Itir Stackpole, Principal Financial
or Chief Accounting Officer
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