UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
----------
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Act of 1934
StrategiNet, Inc.
----------------------------------------------
(Name of Small Business Issuer in its charter)
Delaware 65-0831381
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
14466 Laurel Trail, Wellington, Florida 33414
----------------------------------------------
(Address of principal executive offices)
(561) 793-1235
-------------------------------
(Registrant's telephone number)
Securities registered or to be registered pursuant to Section 12(b) of
the Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities registered or to be registered pursuant to Section 12(g) of the
Act:
COMMON STOCK, $0.001 PAR VALUE PER SHARE
----------------------------------------
(Title of Class)
On October 31, 2000 the Registrant had outstanding 11,205,084 shares of
Common Stock, par value $0.001 per share.
<PAGE>
STRATEGINET, INC.
-----------------
FORM 10-SB
----------
PART I PAGE
------ ----
ITEM 1 DESCRIPTION OF BUSINESS 3
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION 5
ITEM 3 DESCRIPTION OF PROPERTIES 9
ITEM 4 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL 10
OWNERS AND MANAGEMENT
ITEM 5 DIRECTORS, OFFICERS, PROMOTERS & CONTROL PERSONS 12
ITEM 6 EXECUTIVE COMPENSATION 14
ITEM 7 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 15
ITEM 8 DESCRIPTION OF SECURITIES 15
PART II
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ITEM 1 MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S 16
COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
ITEM 2 LEGAL PROCEEDINGS 18
ITEM 3 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 18
ITEM 4 RECENT SALES OF UNREGISTERED SECURITIES 18
ITEM 5 INDEMNIFICATION OF DIRECTORS AND OFFICERS 19
PART F/S
--------
FINANCIAL STATEMENTS 19
PART III
--------
ITEM I INDEX TO EXHIBITS 20
ITEM 2 DESCRIPTION OF EXHIBITS 20
SIGNATURES 21
<PAGE> 2
PART I
------
ITEM 1. DESCRIPTION OF BUSINESS
-----------------------
StrategiNet, Inc.
-----------------
We were incorporated in the State of Delaware in 1998. In
January 1999, we acquired CS&T Consulting, Inc., ("CS&T") and
CS&T's predecessor and they became a wholly owned subsidiary of
ours. CS&T, through its predecessor, was founded in July 1996 in
order to provide telecommunications consulting services to the
retail industry.
We presently provide telecommunications-related consulting
services to retailers and other businesses. Subject to obtaining
substantial capital, we intend to provide a complete line of
telecommunication services, including shared frame relay, Very
Small Aperture Terminal ("VSAT") and information technology
consulting services, to clients in a variety of industries, in
most cases resulting in substantial expense reductions.
We have become aware that the most widely used means of
providing data communications service to most retailers is via
slow, relatively antiquated dial-up telephone lines, costly
dedicated leased lines, or, in select cases, VSAT satellite
services. We have developed a concept named "StrategiPort[R]." to
provide advanced telecommunications services primarily to mall and
strip center-based retailers. We believe that StrategiPort[R] will
reduce our customers' telecommunication expenses, while, at the
same time, enhancing their communications capabilities.
Accordingly, we believe that our customers will enjoy economic
benefits while gaining significant improvements in performance and
functionality.
StrategiPort[R] is designed to acquire high-speed, reliable
networking services, at a fraction of the cost of implementing
such services independently, and without the significant capital
outlay involved in establishing private network services.
StrategiPort[R] service will be based upon the concept of sharing
frame relay services between multiple subscribers in a given
location. The approach will allow us to offer Internet or
intranet-like services, in a secure, private network environment.
We have already entered into a four year contract with AT&T to
streamline point of service, inventory and credit card
authorization services at sites around the country.
We recently signed an exclusive agreement with RETEX, a
retail technology buying consortium. This agreement appoints us
as the exclusive provider of shared frame relay and ATM services
that RETEX recommends to its members.
RETEX is an independent, not for profit, member controlled
organization with more than 2100 retail members, including such
national chains as The Gap, Barnes & Noble, Brookstone, Liz
Claiborne, Ann Taylor, Charming Shops and GNC.
<PAGE> 3
Additionally, we have entered into a strategic agreement with
Wickes Application Service Provider (WASP) Geeps.com Inc. whereby
we provide the GeePS Store T platform as a value added service to
our clients. GeePS is a leader in the development of wireless
solutions for the retail industry. GeePS enables retailers to
deliver highly personalized messages to customers in a store's
vicinity (e.g. in-store promotions), to accept in-store payments
from customers, and to provide customers with directions to the
closest store location.
Employees
---------
We presently have ten (10) full time employees, inclusive of
our executive officers; none of whom are covered by collective
bargaining agreements. We believe that our relationship with our
employees is good.
Competition
-----------
We are aware of one major entity that competes against us.
This competitor has a similar operating history, significantly
greater financial and marketing resources than we have. This
competitor is able to undertake more extensive marketing campaigns
for their brands and services, adopt more aggressive advertising
pricing policies and make more attractive offers to potential
employees, distribution partners, commerce companies, advertisers
and third-party content providers. There can be no assurance that
we will be able to compete successfully against this or future
competitors or that competition will not have a material adverse
effect on our business, results of operations and financial
condition.
<PAGE> 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
-----------------------------------------------------------
The following is a discussion of the financial condition and results
of operation of the company as of the date of this registration
statement. The following discussion contains forward-looking
statements that involve risks and uncertainties, and actual events
could differ materially from those anticipated events as a result of a
number of factors, including various risks and uncertainties involved
in financing and implementing our business plan. This discussion and
analysis should be read in conjunction with our audited and interim
financial statements including the notes thereto, which are included
elsewhere in this form 10-SB.
Overview
--------
We presently provide limited telecommunications-related consulting
services to retailers and other businesses. Subject to obtaining
substantial capital, we intend to provide a complete line of
telecommunication services, including shared frame relay, Very Small
Aperture Terminal ("VSAT"), and information technology consulting
services, to clients in a variety of industries. We have temporarily
curtailed our consulting operations in order to focus on network
development to support our complete line of telecommunication
services. Similar to other companies in the rapidly evolving
technology industry, our prospects must be considered in light of the
risks frequently encountered. To address these risks, we must, among
other things, successfully continue to develop and execute our
business and marketing plan, continue to expand and otherwise improve
our product offerings, and further develop our operating
infrastructure. We can provide no assurances that we will be
successful in addressing the risks we face, and the failure to do so
could prevent us from meeting our business goals.
We incurred net operating losses in each period since our
inception; and, we expect to incur additional losses for the
foreseeable future, primarily as a result of our deploying the
network, building the corporate infrastructure necessary for continued
product development and enhancement, for increased sales and marketing
efforts and for research activities. As of September 30, 2000, we had
an accumulated deficit of approximately $2,456,000.
We believe that our success depends, in large part, on our
ability to create market awareness and acceptance for our products,
raise additional operating capital to grow operations, build
technology infrastructures and continue product research and
development.
The market for our products and solutions is in the early stages
of development and is characterized by rapid technological change,
evolving industry standards, changes in end-user requirements, intense
competition by more established industry participants and frequent new
product introductions and enhancements. As is typical in the case of
new and rapidly emerging technologies, demand and market acceptance
are subject to a high level of uncertainty. Broad acceptance of our
products by customers and end-users is critical to our success and
ability to generate revenues.
<PAGE> 5
For the nine month operating period ended September 30, 2000, we
have generated limited consulting revenues as we have devoted our
efforts primarily to developing our products, implementing our
business strategy and raising working capital through equity
financing. Our revenues will be primarily dependent upon our ability
to market our telecommunication products. Our priorities for the next
12 months of operations are:
1. Continue to market and advertise our products to attract
customers;
2. Gain acceptance from the retailer and mall developer
communities.
3. Introduce new products and associated technologies;
4. Attract and recruit the staff necessary to build out and manage
the network;
5. Develop further strategic relationships.
RESULTS OF OPERATIONS
---------------------
Nine Months Ended September 30, 2000 Compared with Nine Months Ended
September 30, 1999
--------------------------------------------------------------------
Net sales for the nine months ended September 30, 2000 were $181,200
as compared to net sales for the nine months ended September 30, 1999
of $686,615. The decrease in net sales for the nine months ended
September 30, 2000 as compared to the nine months ended September 30,
1999 was due to the fact that we scaled down our consulting
engagements in order to concentrate on developing our products, and
implementing our business strategy.
Cost of revenues, which consists primarily of salary and wages of our
consultants, was $131,178 for the nine months ended September 30, 2000
as compared to $441,579 for the nine months ended September 30, 1999.
The decrease was primarily attributable to the fact that we scaled
down our consulting engagements. Accordingly, we allocated less
salary and wage expense to cost of revenues in the current period as
compared to the prior period.
Network development costs, which consist principally of salary and
wages was $155,250 for the nine months ended September 30, 2000 as
compared to $ -0- for the nine months ended September 30, 1999. We
will continue to incur network development costs as we develop our
network.
Selling, general and administrative expenses, which include salary and
wages, rent, consulting fees, professional fees, contract labor,
travel and entertainment, insurance and other expenses, were
$1,393,874 for the nine months ended September 30, 2000 as compared to
$656,889 for the nine months ended September 30, 1999. The increase
primarily attributable to the following:
Salary and wages were $351,675 for the nine months ended September 30,
2000 as compared to $140,000 for the nine months ended September 30,
1999. The increase was primarily attributable to the hiring a
director of marketing and the addition of personnel due to the
expansion of our corporate infrastructure.
<PAGE> 6
Legal and accounting fees were $49,846 for the nine months ended
September 30, 2000 as compared to $22,600 for the nine months ended
September 30, 1999. The increase is attributable to the fact that we
incurred additional legal and accounting fees in connection with the
filing of our registration statement on Form 10-SB.
Consulting fees were $629,125 for the nine months ended September 30,
2000 as compared to $ -0- for the nine months ended September 30,
1999. The increase is primarily attributable to the issuance of
common stock to various consultants for financial advisory services.
Rent expense was $50,446 for the nine months ended September 30, 2000
as compared to $20,773 for the nine months ended September 30, 1999.
The increase is primarily attributable to the leasing of a corporate
apartment that is used extensively by our personnel who need to travel
to our New York office. We believe that this apartment provides us
with significant savings as compared to lodging at area hotels.
Interest expense was $110,338 for the nine months ended September 30,
2000 as compared to $1,855 for the nine months ended September 30,
1999. The increase was directly attributable to the recording of
$100,000 of interest expense in connection with the beneficial
conversion feature of our convertible debentures.
There was no provision for federal or state income taxes for the
period from our inception due to our operating losses. As of September
30, 2000, we had net operating loss carry forward for income tax
purposes of approximately $300,000. A valuation allowance has been
established and, accordingly, no benefit has been recognized for our
net operating losses and other deferred tax assets.
As a result of the foregoing factors, we incurred losses of
approximately $1,609,000 or ($.15) per share for the nine months ended
September 30, 2000 as compared to a loss of approximately $414,000 or
($.04) per share for the nine months ended September 30, 1999.
FISCAL YEAR ENDED DECEMBER 31, 1999 COMPARED TO FISCAL YEAR ENDED
DECEMBER 31, 1998
-----------------------------------------------------------------
We had limited operations during fiscal 1998. Therefore, the financial
results for fiscal year ending December 31, 1998 reflect no revenue
and operating expense amounting to $11,704. Revenue for the year
ended December 31, 1999 was $848,304 and was attributable to
consulting engagements.
<PAGE> 7
Liquidity and Capital Resources
-------------------------------
At September 30, 2000, we had stockholders' equity of $26,203. Since
our inception, we have incurred losses of approximately $2,456,000.
Our operations have been funded by the sale of common stock, with net
proceeds of approximately $882,000 and loans from third parties and
officers. These funds were used for working capital and capital
expenditures.
We have no other material commitments for capital expenditures,
although our business model depends on substantial capital
expenditures all of which will be leased. We have a significant
working capital deficiency and have incurred operating losses since
inception. We require substantial additional financing to bring our
accounts current, fund projected operating losses, and complete the
development of our network service. Ultimately, we will need to meet
our projected revenue goals, and successfully attain profitable
operations. These factors raise substantial doubt about our ability to
continue as a going concern. We are dependent on the successful
completion of a pending financing, which is a best efforts deal. A
key element of our strategy is to continue to expand our sales force
and to evaluate opportunities to expand through acquisition of
companies engaged in similar and related complementary businesses.
Any acquisition may require additional capital, although there can be
no assurances that any acquisition will be completed. Also, we
believe that additional funding will be necessary to expand our market
share.
Net cash used in operations for the nine months ended September 30,
2000 was $457,137 as compared to $87,458 for the nine months ended
September 30, 1999. The difference is primarily attributable to the
loss from operations in 2000, mitigated by non-cash charges for common
stock issued for services of $479,125, a reserve for proposed contract
settlement of $150,000, and a non-cash interest charge of $100,000
Net cash used in investing activities for the nine months ended
September 30, 2000 was $26,175 as compared to net cash used in
investing activities of $62,186 for the nine months ended September
30, 1999. This difference was attributable to the fact that during
fiscal 2000, we incurred cash outlays amounting to $23,025 to purchase
property and equipment as compared to $42,941 for the nine months
ended September 30, 1999. During the nine months ended September 30,
2000, we purchased property and equipment amounting to $50,844 under
capital leases as part of our corporate expansion. No cash outlay was
necessary for the purchase of this equipment. Additionally, during
the nine months ended September 30, 2000, we incurred cash outlays
amounting to $3,150 in connection with a security deposit on our
operating leases as compared to $21,765 for the nine months ended
September 30, 1999.
Net cash provided by financing activities for the nine months ended
September 30, 2000 was $954,372 as compared to net cash provided by
financing activities of $158,000 for the nine months ended September
30, 1999. The difference was attributable from sale of common stock
during fiscal 2000 with net proceeds amounting to $882,329.
Recent Accounting Pronouncements
--------------------------------
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments embedded
in other contracts (collectively referred to as "derivatives"), and
for hedging activities. The statement requires companies to recognize
all derivatives as either assets or liabilities, with the instruments
measured at fair value. The accounting for changes in fair value,
gains or losses, depends on the intended use of the derivative and its
resulting designation. In June 1999, the FASB issued SFAS No. 137,
which defers the effective date of SFAS No. 133 to fiscal years
beginning after June 15, 2000. The company expects no immediate impact
from SFAS No. 133, as it currently has no derivatives.
<PAGE> 8
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"), which is effective no later than the quarter
ending March 31, 2000. SAB 101 summarizes certain of the staff's views
in applying generally accepted accounting principles to revenue
recognition in financial statements. The Company will adopt SAB 101 in
the first quarter of 2000 and is presently evaluating the impact of
the adoption of this new standard; however, it is not expected to have
a material impact on the Company's financial position and results of
operations.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving
Stock Compensation, an Interpretation of APB Opinion No. 25". With the
exception of certain provisions that required earlier application,
this interpretation is effective for all applicable transactions
beginning July 1, 2000. We do not expect that the adoption of this
interpretation will have a material impact on our financial
statements.
ITEM 3. DESCRIPTION OF PROPERTIES
-------------------------
Our principal executive and administrative offices are located
in space which is owned by Shahid Quraeshi, our President and
Chief Executive Officer and is located in Wellington, Florida,
near Palm Beach. We are not presently incurring any rent
expenses associated with this space, but are paying the direct
expenses (e.g. telephone) associated with this space. We
anticipate relocating from this space to a leased space, which
would also be in Wellington, Florida by January 1, 2001.
Additionally, our network operational control center is located
in leased premises in Holbrook, New York, on Long Island. The
administrative offices occupy 3,500 square feet at 4250
Veterans Memorial Highway, Suite 160, Holbrook, New York which
we rent for $3,518 per month. We anticipate that this space is
sufficient to meet our needs for the foreseeable future. We
also presently rent a 1,100 square foot apartment in Holbrook,
<PAGE> 9
New York, located near the Holbrook center for a monthly rent
of $1,575. We maintain this apartment for the use of our
employees and executives who are based elsewhere but who
periodically need to work from the Holbrook center.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
----------------------------------------
The following tables set forth certain information regarding
the beneficial ownership of the Company's common stock as of
October 31, 2000 by (i) each person (or group of affiliated
persons who, to our knowledge, is the beneficial owner of five
percent or more of our outstanding common stock, (ii) each of
our directors and each named executive officer and (iii) all of
our directors and executive officers as a group. Except as
otherwise noted, we believe that the persons listed in this
table have sole voting and investment power respecting all
shares of Common Stock owned by them.
Table 1. Security Ownership of Certain Beneficial Owners
---------------------------------------------------------
<TABLE>
<CAPTION>
(1) (2) (3) (4)
NAME AND ADDRESS AMOUNT AND NATURE PERCENT OF
TITLE OF CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNER CLASS
-------------- ------------------- ------------------- ----------
<S> <C> <C> <C>
Common Stock Shahid Quraeshi 4,914,813 43.86%
14466 Laurel Trail
Wellington, Florida 33414
Common Stock Edward E. Minyard, 1,562,500 13.94%
86 Elderwood Drive
St. James, New York 11780
Common Stock Juan G. Godoy 1,062,500 9.48%
13 Welwyn Road
Apartment 3C
Great Neck, New York 11021
Common Stock Toomani Quraeshi (1) 1,000,000 8.92%
1643 Flagler Parkway
West Palm Beach, Florida 3341
</TABLE>
(1) Toomani Quraeshi is Shahid Quraeshi's wife. They have been
separated for more than 3 years. Shahid Quraeshi does not
beneficially own any of these shares.
<PAGE> 10
Table 2. Security Ownership of Management
------------------------------------------
<TABLE>
<CAPTION>
(1) (2) (3) (4)
NAME AND ADDRESS AMOUNT AND NATURE PERCENT OF
TITLE OF CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNER CLASS
-------------- ------------------- ------------------- ----------
<S> <C> <C> <C>
Common Stock Shahid Quraeshi 4,914,813 43.86%
14466 Laurel Trail
Wellington, Florida 33414
Common Stock Edward E. Minyard, 1,562,500 13.94%
86 Elderwood Drive
St. James, New York 11780
Common Stock Samina Shepard 125,000 1.12%
333 Aragon Road
Coral Gables, Florida 33134
Common Stock All Directors and Executive
Officers as a group 6,602,313 58.92%
</TABLE>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The following table sets forth certain information as of the
date of this Form 10-SB with respect to our directors and
executive officers. A summary of the background and experience of
each of these individuals is set forth after the table. Each
director holds such position until the next annual meeting of our
shareholders and until his respective successor has been elected
and qualifies. Any of our directors may be removed with or without
cause at any time by the vote of the holders of not less than a
majority of our then outstanding Common Stock. Other than as
otherwise provided in an employment agreement, our Board of
Directors elects our officers annually. Our Board of Directors may
remove any of our officers with or without cause at any time,
although, in such event, we may incur certain liabilities under an
applicable employment agreement.
<TABLE>
<CAPTION>
Name and Address Age Positions with the Company
---------------- --- --------------------------
<S> <C> <C>
Shahid Quraeshi 52 President, Chief Executive
14466 Laurel Trail Officer and Director
Wellington, Florida 33414
Samina Shepard 56 Director
333 Aragon Avenue
Coral Gables, FL 33134
Edward E. Minyard 48 Executive Vice President, Chief
86 Elderwood Drive Operating Officer and Director
St. James, New York 11780
Steve Kirkvilet 51 Vice President Engineering
15363 Parker Street
Omaha, Nebraska 68154
Edward Learned 45 Director of Marketing
7105 Perry Place North
Brooklyn Center, MN 55429
</TABLE>
Shahid Quraeshi has held his positions with us since inception.
Prior thereto and from 1994, Mr. Quraeshi was the Chief Executive
officer of Crown Capital Advisors, Inc., a consulting firm. Mr.
Quraeshi is a senior financial executive with diversified
experience in the Big Six and retail environments. From 1987 to
1994 Mr. Quraeshi was the Corporate Vice President, Controller and
a member of the Operating Committee of Melville Corporation, a
$10.5 billion specialty retailer that operated more than 8,000
stores that spanned the drug stores, apparel, footwear, toys and
household furnishing segments of the industry. Mr. Quraeshi was a
member of Melville's M.I.S. Steering Committee and led the
<PAGE> 12
development and implementation of Melnet, the company's satellite
communications system that facilitated communications between
Melville's headquarters and their nationwide store operations.
Mr. Quraeshi is a Fellow of the Institute of Chartered Accountants
in England and Wales (F.C.A.).
Edward E. Minyard has held his present positions with us since
February 1999. Mr. Minyard has been the Chief Executive Officer
of CS&T since its founding in July 1996. Prior thereto and from
1995 Mr. Minyard was Vice President of Telecommunications of Arrow
Electronics, Inc. From 1991 to 1995, Mr. Minyard was Director,
Telecommunications Strategy of Melville Corporation. Mr. Minyard
has been involved in the field of telecommunications for more than
twenty years. He has developed expertise in many aspects of that
industry and has designed and operated networks serving a variety
of industries.
Samina Shepard has been one of our directors since November 1998.
Since 1998 she has served as the Henry R. Luce Professor in Family
and Community at the University of Miami. From 1994 through her
appointment, she served as the Director of Design at the National
Endowment for the Arts. Ms. Shepard is an award-winning artist,
designer and author. Samina Shepard is Shahid Quraeshi's sister.
Steve Kirkvilet started with CS&T Consulting in September 1996 as
a consultant and he now serves as our Vice President of
Engineering. Mr. Kirkvilet is a Novell Certified Netware
Engineer, and has been in the field of Information Technology for
over twenty-five years. From January 1994 through September 1996
he served as LAN/WAN administrator for Commercial Federal Bank.
His experience has included network design, network management and
network operation for CitiCorp, First Data Resources, Inc. and
Radisson Hotels International.
Edward Learned has served as our Director of Marketing since April
2000. He has over twenty years experience in all facets of retail
information systems from both an internal and vendor perspective,
including network technology and customer interaction. From 1995
until joining us he served in various positions at Harmonic
Systems including being the Group Product Manager - Network
Products.
<PAGE> 13
ITEM 6. EXECUTIVE COMPENSATION
----------------------
The following table sets forth the compensation received by
officers.
Summary Compensation Table
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Long Term Compensation
----------------------------------------------------------------------------------------------------------------------
Annual Compensation Awards Payout
----------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Restricted
Other Stock Securities
Name and Principal Salary Bonus Annual Awards Underlying LTIP All Other
Position Year ($) ($) Compensation ($) Options Payout Compensation
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shahid Quraeshi, Pres./CEO 1999 -0- -0- -0- -0- -0- -0- -0-
1998 -0- -0- -0- -0- -0- -0- -0-
Edward E. Minyard, EVP, COO 1999 183,000 -0- -0- -0- -0- -0- -0-
1998 190,000 -0- -0- -0- -0- -0- -0-
Juan G. Godoy, VP of 1999 156,000 -0- -0- -0- -0- -0- -0-
Operations 1998 165,234 -0- -0- -0- -0- -0- -0-
Steve Kerkvilet, VP of 1999 100,000 -0- -0- -0- -0- -0- -0-
Engineering 1998 96,387 -0- -0- -0- -0- -0- -0-
</TABLE>
Shahid Quraeshi has not received any compensation from us,
although the Board of Directors has set his compensation at
$240,000 annually on a going forward basis starting February,
2000. Since that time we have been accruing $20,000 per month as
an unpaid expense for his salary. For the nine months ended
September 30, 2000, Mr. Quaraeshi has received $60,000 cash
compensation towards his salary.
Mr. Minyard has entered into an Employment Agreement with us
pursuant to which he will serve as the Executive Vice President
and Chief Operating Officer of the Company and President of CS&T
until December 31, 2002. Mr. Minyard will receive an annual
salary of $200,000, a term life insurance policy in the amount of
$3 million and such other benefits as are made available to
executives of the Company.
<PAGE> 14
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
In November 1998, seven individuals purchased 7,164,812
shares (as adjusted for subsequent stock splits) of our Common
Stock for $90,000 using Union Trust Mortgage Corporation as a
conduit for the transaction. In connection with the purchase, we
transferred the purchase price and certain assets to our former
wholly owned subsidiary, which was not acquired in the
transaction.
In February 1999, we sold an aggregate of 62,500 shares of
Common Stock at $0.08 per share to Mr. Minyard, our Executive Vice
President and Chief Operating Officer and 62,500 shares of Common
Stock to Mr. Godoy, our former Vice President of Operations.
Effective January 1999, we acquired all of the outstanding
equity securities of CS&T for 2,500,000 shares (as adjusted for
subsequent stock splits) of our Common Stock. Of this amount,
1,500,000 shares were delivered to Mr. Minyard and 1,000,000 to
Mr. Godoy.
ITEM 8. DESCRIPTION OF SECURITIES
-------------------------
General
-------
Set forth below is a description of the material terms and
provisions of our capital stock, which should be read in conjunction
with our Certificate of Incorporation, as amended, (the "Certificate
of Incorporation"), and our By-Laws (the "By-Laws"), both of which
will be provided to prospective investors upon request at no charge.
In June 2000 we effected a split of our Common Stock by which each
outstanding share was split into two and one-half shares of Common
Stock. All share numbers reported in this Form 10SB have been
adjusted for this split.
Common Stock
------------
Our Certificate of Incorporation authorizes the issuance of
100,000,000 shares of Common Stock, $0.001 par value per share. At
October 31, 2000, there were 11,205,084 shares of Common Stock
outstanding. The holders of Common Stock are entitled to one vote
at all meetings of stockholders for each share held by them with
respect to all matters upon which they have a right to vote. Shares
of Common Stock have no preemptive rights and have no other rights
to subscribe for additional shares, nor do the shares of Common
Stock have any conversion rights or rights of redemption. All
shares of Common Stock will participate equally in dividends, when,
as and if declared by the Board of Directors, out of funds legally
available therefor, and in net assets upon liquidation, subject to
the rights of holders of preferred stock, if any. All shares of
Common Stock currently outstanding are duly authorized, validly
issued, fully paid and nonassessable.
<PAGE> 15
Preferred Stock
---------------
Our Certificate of Incorporation authorizes the issuance of
10,000,000 shares of Preferred Stock, $0.001 par value per share,
none of which are issued and outstanding. The Board of Directors
and without further action by our stockholders, has the authority to
issue shares of Preferred Stock from time to time in one or more
series and to fix the number of shares and the relative rights,
conversion rights, voting rights, and terms of redemption,
liquidation preferences and any other preferences, special rights
and qualifications of any such series. An issuance of Preferred
Stock could, under certain circumstances, have the effect of
delaying or preventing a change in control of the Company and may
adversely affect the rights of holders of our Common Stock.
TRANSFER AGENT
--------------
Transfer Agent. Our transfer agent is Florida Atlantic Stock
Transfer, Inc. They are located at 5701 North Pine Island Road,
Tamarac, Florida 33321
PART II
-------
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON AND
OTHER STOCKHOLDER MATTERS
------------------------------------------------------------
Our Common Stock began trading in the over-the-counter market
during September 1998 and we obtained the trading symbol "SGNE"
on November 20, 1998. Quotations were obtained from the NASD
Bulletin Board and reflect inter-dealer prices without retail
mark-up, mark-down or commission and may not necessarily
represent actual transactions. We do not believe that a
meaningful market has existed in our Common Stock through the
date hereof.
On December 11, 1997 the Board of Governors of the National
Association of Securities Dealers, Inc. ("NASD") approved a
series of changes for the OTC Bulletin Board, which affect us.
The principal changes include: (i) a rule that only those
companies that report their current financial information to
the SEC, banking or insurance regulators will be included for
quotation on the OTC Bulletin Board, (ii) that brokers must
review current financial statements on a company they are
recommending before they recommend a transaction in an OTC
security, and (iii) that prior to the initial purchase of an
OTC security, every investor must receive a standard disclosure
statement prepared by the NASD emphasizing the differences
between the OTC securities and other market-listed securities,
such as those traded on the NASDAQ Stock Market, Inc. On April
6, 2000, the Company's common stock was automatically removed
from the OTC Bulletin Board for failure to file this Form 10-SB
<PAGE> 16
and become a fully reporting company. Accordingly, since that
date our common stock has traded on the "pink sheets." This
Registration Statement is being filed on Form 10-SB with the
SEC to register our common stock under Section 12(g) of the
Securities Exchange Act of 1934, as amended, to comply with the
above-stated rule change. In the event this proposed
Registration Statement is not declared effective, our
securities would not be eligible for continued quotation on the
OTC Bulletin Board, which would materially and adversely affect
the liquidity in our Common Stock.
PRICE RANGE OF COMMON STOCK
---------------------------
In November of 1998, the Company obtained the symbol, "SGNE"
and application was made for trading on the NASD OTC Bulletin
Board system. The first active trading in the shares of the
Company began in September of 1998. The following table sets
forth for the periods indicating the high and low closing
prices of the Company's common stock from that date, as
reported on the OTC Bulletin Board. The following quotations
are over-the-market quotations and, accordingly, reflect inter-
dealer prices, without retail mark-up, mark-down or commission
and may not represent actual transactions.
<TABLE>
<CAPTION>
COMMON STOCK
------------
QUARTER 2000 TRADE 1999 TRADE 1998 TRADE
HIGH HIGH HIGH
LOW LOW LOW
<S> <C> <C> <C>
1st Quarter $2.75 $2.20 N/A
$.404 $1.20
2nd Quarter $7.20 $1.65 N/A
$4.40 $1.65
3rd Quarter $5.00 $1.70 N/A
$3.00 $1.70
4th Quarter $.60 $2.10
$.50 $1.50
</TABLE>
All quotations above reflect our five for two (5:2) stock split which
was completed in the second quarter of 2000.
NO DIVIDENDS ANTICIPATED TO BE PAID
-----------------------------------
We have never paid any cash dividends on our Common Stock and
do not anticipate paying cash dividends in the foreseeable
future. The future payment of dividends is directly dependent
upon our future earnings, our financial requirements and other
factors to be determined by our Company's Board of Directors, in
its sole discretion. For the foreseeable future, it is
<PAGE> 17
anticipated that any earnings that may be generated from our
operations will be used to finance our growth, and that cash
dividends will not be paid to Common Stockholders.
ITEM 2. LEGAL PROCEEDINGS
-----------------
We are not, and none of our subsidiaries is a party to any pending
or threatened legal proceedings to which any of our or their
property is the subject. Also, to our knowledge, there are no
proceedings contemplated by any governmental authorities against us
or any or our subsidiaries.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
-----------------------------------------------------------
Schneider & Associates, LLP is our independent auditor at the
present time. We have no disagreements with the reports issued by
their auditors.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
---------------------------------------
In April 1998, we issued 187,500 shares to our founders for $.001 per
share.
From June 1998 to October 1998, we raised $26,000 from the sale of
65,000 shares at $.40 per share and $82,688 from the sale of 82,688
shares at $1.00 per share in two private placements.
In November 1998, we issued 7,164,812 shares to an investor group for
$90,000 or $.01 per share. Members of the investor group also
succeeded to the board of directors and senior management positions.
In January 1999, we issued 2,500,000 shares, valued at $.08 per share,
to acquire CS&T.
In February 1999, Company officers purchased 125,000 shares for
$10,000 or $.08 per share.
During May 2000, we declared a 5-for-2 stock split on our common
shares. All share amount described above reflect the post split
number of shares issued.
From May 2000 to September 2000, we sold 659,334 shares of common
stock at $1.50 per share for net proceeds of $882,000 pursuant to Rule
504 of Regulation D.
In July 2000, the Company sold 150,000 shares of common stock to
another consultant for $.01 per share. The difference between the
fair value per share and the purchase price resulted in a charge to
consulting expense of $223,500. The consultant is also entitled to
receive a success fee of 100,000 shares of common stock for
introducing to the Company investors who participated in the private
placement. The shares have not yet been issued.
<PAGE> 18
In August 2000, the Company issued 100,000 shares to a former vendor
for $.01 per share in satisfaction of a $150,000 accrued liability for
services previously rendered.
During fiscal 2000, the Company issued 170,750 shares of common stock
valued at an aggregate of $256,125 to a consultant for services
rendered. The Company also recorded a $150,000 increase in additional
paid-in capital to reflect a proposed settlement offer to the
consultant (see Note 8).
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
We will, to the fullest extent permitted by Section 145 of the
DGCL, indemnify our executive officers and directors. Section 145
empowers a Delaware corporation to indemnify any person who is, or
is threatened to be made, a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative) other than an action by or in the
right of such corporation) by reason of the fact that such person is
or was an officer or director of such corporation, or is or was
serving at the request of such corporation as a director, officer,
employee or agent of any other corporation or enterprise. The
indemnity may include expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action,
suit or proceeding, provided that he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct
was unlawful. A Delaware corporation may indemnify officers and
directors in an action by or in the right of the corporation under
the same conditions, except that no indemnification is permitted
without judicial approval if the officer or director is adjudged to
be liable for negligence or misconduct in the performance of his
duty to the corporation. Where an officer or director is successful
on the merits or otherwise in the defense of any action referred to
above, the corporation must indemnify him against the expenses that
he actually and reasonably incurred in connection therewith. The
indemnification provided is not deemed to be exclusive of any other
rights to which an officer or director may be entitled under a
corporation's by-laws, by agreement, vote, or otherwise.
Insofar as indemnification arising under the Act may be permitted
to our directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that in the
opinion of the SEC such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
PART F/S
--------
Our financial statements for the fiscal year ended December 31,
1999 and the nine month period ended September 30, 2000 have been
examined to the extent indicated in the reports by the firm of
Schneider & Associates, LLP, independent certified public
accountants, and have been prepared in accordance with generally
accepted accounting principles and pursuant to Regulation SB as
<PAGE> 19
promulgated by the SEC and are included herein.
PART III
--------
ITEMS 1 AND 2. INDEX TO AND DESCRIPTION OF EXHIBITS
EXHIBIT No. EXHIBIT NAME
----------- ------------
2(i) Certificate of Incorporation of Diversified
American Holdings, Inc.
2(i)(1) Certificate of Amendment of Certificate of
Incorporation of StrategiNet, Inc.
2(ii) Bylaws of StrategiNet, Inc.
6(i) Employment Agreement entered January 15, 1998 between
StrategiNet and Mr. Edward Minyard.
Index to Financial Statements
DESCRIPTION PAGE
----------- ----
Independent Auditors' Report F-1
Financial Statements:
Consolidated Balance sheets F-2
Consolidated Statement of operations F-3
Consolidated Statements of stockholders'
equity (deficit) F-4
Consolidated Statements of cash flows F-5
Notes to Consolidated Financial Statements F-7
<PAGE> 20
SIGNATURES
----------
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
StrategiNet, Inc.
By:___/s/Shahid Quraeshi_________
Shahid Quraeshi, President and
CEO
Date: December 20, 2000
<PAGE> 21
REPORT OF INDEPENDENT AUDITORS
------------------------------
To Stockholders and the Board of Directors
Strateginet, Inc.
We have audited the accompanying consolidated balance sheet of
Strateginet, Inc. and its subsidiary as of December 31, 1999, and the
related consolidated statements of operations, stockholders' deficit, and
cash flows for the period from April 27, 1998 (date of incorporation) to
December 31, 1998 and the year ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits 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 audits provide 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 Strateginet, Inc. and its subsidiary as of December
31, 1999, and the consolidated results of its operations and its cash
flows for the period from April 27, 1998 (date of incorporation) to
December 31, 1998 and the year ended December 31, 1999, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2
to the financial statements, the Company's recurring losses from
operations and working capital deficiency raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
Schneider & Associates LLP
Jericho, New York
June 16, 2000
<PAGE> F-1
STRATEGINET, INC. AND ITS SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------ -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 4,923 $ 475,983
Accounts receivable 112,890 --
Other current assets 437 6,152
------------ -------------
Total current assets 118,250 482,135
Furniture and equipment - net 57,684 109,067
Other assets 21,765 24,915
------------ -------------
Total assets $ 197,699 $ 616,117
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES
Current liabilities
Accrued compensation $ 16,100 $ 249,227
Accounts payable and other accrued expenses 178,533 97,491
Loans payable - related parties 223,727 7,690
- other -- 96,350
9% convertible subordinated debentures
- related parties -- 100,000
Current portion of capital lease obligations -- 11,023
------------ -------------
Total current liabilities 418,360 561,781
Capital lease obligations, less current portion -- 28,133
------------ -------------
Total liabilities 418,360 589,914
------------ -------------
Commitments and contingencies - see notes
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.001 par value;
10,000,000 shares authorized, none
issued -- --
Common stock, $.001 par value;
100,000,000 shares authorized;
10,125,000 and 11,205,084 shares
issued and outstanding, respectively 10,125 11,205
Additional paid-in capital 615,836 2,474,060
Accumulated deficit (846,622) (2,456,062)
Stock subscriptions receivable -- (3,000)
------------ -------------
Total stockholders' equity (deficit) (220,661) 26,203
------------ -------------
Total liabilities and stockholders'
equity (deficit) $ 197,699 $ 616,117
============ =============
</TABLE>
See notes to consolidated financial statements.
<PAGE> F-2
STRATEGINET, INC. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS INDICATED
<TABLE>
<CAPTION>
April 27, 1998 Nine months
(date of incorporation) to Year ended ended September 30,
December 31, 1998 December 31, 1999 1999 2000
----------------- ----------------- ---------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Consulting revenues $ -- $ 848,304 $ 686,615 $ 181,200
---------- ----------- ----------- -----------
Costs and expenses
Cost of revenues -- 612,493 441,579 131,178
Network development costs -- -- -- 155,250
Selling, general and
administrative expenses 11,704 725,483 656,889 1,393,874
Goodwill amortization
and impairment charge -- 150,000 -- --
Interest -- 7,512 1,855 110,338
---------- ----------- ----------- -----------
Total expenses 11,704 1,495,488 1,100,323 1,790,640
---------- ----------- ----------- -----------
Net loss $ (11,704) $ (647,184) $ (413,708) $(1,609,440)
========== =========== =========== ===========
Net loss per share -
basic and diluted $(0.01) $(0.07) $(0.04) $(0.15)
====== ====== ====== ======
Weighted average
shares outstanding 1,834,379 9,864,726 9,777,015 10,552,191
========= ========= ========= ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE> F-3
STRATEGINET, INC. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM APRIL 27, 1998 (DATE OF INCORPORATION)
TO SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Additional Stock
Common Stock Paid-In Accumulated Subscriptions
Shares Amount Capital Deficit Receivable Total
------- ------------ ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of founders' shares 187,500 $ 188 $ 562 $ -- $ -- $ 750
Private placements of common stock 147,688 148 108,540 -- -- 108,688
Distribution to stockholders -- -- -- (187,734) -- (187,734)
Sale of common stock 7,164,812 7,164 82,836 -- -- 90,000
Net loss for the period -- -- -- (11,704) -- (11,704)
Balances at December 31, 1998 7,500,000 7,500 191,938 (199,438) -- --
Shares issued to acquire CS&T, Inc. 2,500,000 2,500 198,023 -- -- 200,523
Sale of common stock 125,000 125 9,875 -- -- 10,000
Shares transferred for services -- -- 16,000 -- -- 16,000
Services contributed by CEO/stockholder -- -- 200,000 -- -- 200,000
Net loss for the year -- -- -- (647,184) -- (647,184)
Balances at December 31, 1999 10,125,000 10,125 615,836 (846,622) -- (220,661)
Contribution of related party loans to
capital (unaudited) -- -- 95,850 -- -- 95,850
Shares issued for services (unaudited) 320,750 321 480,804 -- (2,000) 479,125
Beneficial conversion feature of
convertible debentures (unaudited) -- -- 100,000 -- -- 100,000
Private placement of common stock, net
of offering costs of $106,670
(unaudited) 659,334 659 881,670 -- -- 882,329
Shares issued for debt (unaudited) 100,000 100 149,900 -- (1,000) 149,000
Reserve for proposed contract
settlement (unaudited) -- -- 150,000 -- -- 150,000
Net loss for the period (unaudited) -- -- -- (1,609,440) -- (1,609,440)
Balances at September 30, 2000
(unaudited) 11,205,084 11,205 $2,474,060 $(2,456,062) $(3,000) $ 26,203
</TABLE>
See notes to consolidated financial statements.
<PAGE> F-4
STRATEGINET, INC. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS INDICATED
<TABLE>
<CAPTION>
April 27, 1998 Nine months
(date of incorporation) to Year ended ended September 30,
December 31, 1998 December 31, 1999 1999 2000
----------------- ----------------- ---------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating
activities
Net loss $ (11,704) $ (647,184) $ (413,708) $(1,609,440)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization -- 10,506 7,600 14,918
Goodwill amortization and
impairment charge -- 150,000 -- --
Common stock issued for
services -- -- -- 479,125
Reserve for proposed contract
settlement -- -- -- 150,000
Noncash interest charges related
to beneficial conversion feature -- -- -- 100,000
Stock-based compensation -- 16,000 16,000 --
Contribution of services by
CEO/stockholder -- 200,000 140,000 --
Increase (decrease) in cash
attributable to changes in assets
and liabilities:
Accounts receivable -- 105,739 79,103 112,890
Other current assets -- 1,063 (13,500) (5,715)
Accrued compensation -- 16,100 16,100 233,127
Accounts payable and other
accrued expenses -- (18,842) 80,947 67,958
----------- ------------ ----------- -----------
Net cash used in operating activities (11,704) (166,618) (87,458) (457,137)
----------- ------------ ----------- -----------
Cash flows from investing activities
Cash received in acquisition -- 2,520 2,520 --
Purchase of furniture and
equipment -- (42,941) (42,941) (23,025)
Increase in other assets (97,736) (21,765) (21,765) (3,150)
----------- ------------ ----------- -----------
Net cash used in investing activities (97,736) (62,186) (62,186) (26,175)
----------- ------------ ----------- -----------
(continued)
</TABLE>
See notes to consolidated financial statements.
<PAGE> F-5
STRATEGINET, INC. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS INDICATED
<TABLE>
<CAPTION>
April 27, 1998 Nine months
(date of incorporation) to Year ended ended September 30,
December 31, 1998 December 31, 1999 1999 2000
----------------- ----------------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from financing activities
Net proceeds from sale of
common stock 199,440 10,000 10,000 882,329
Principal repayments of capital
lease obligations -- -- -- (4,120)
Proceeds from loans payable -
related parties -- 230,727 148,000 50,000
Principal repayments of loans
payable- related parties -- (7,000) -- (170,187)
Proceeds from issuance of 9%
convertible subordinated
debentures - related parties -- -- -- 100,000
Proceeds from loan payable -
other -- -- -- 96,350
Distribution to stockholders (90,000) -- -- --
----------- ------------ ----------- -----------
Net cash provided by financing
Activities 109,440 233,727 158,000 954,372
----------- ------------ ----------- -----------
Net increase in cash and cash
equivalents -- 4,923 8,356 471,060
Cash at beginning of period -- -- -- 4,923
----------- ------------ ----------- -----------
Cash and cash equivalents
at end of period $ -- $ 4,923 $ 8,356 $ 475,983
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE> F-6
STRATEGINET, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the nine months ended September 30, 1999
and 2000 is unaudited)
NOTE 1 - BUSINESS OF THE COMPANY
Strateginet, Inc. (the "Company"), formerly Diversified
American Holdings, Inc., was incorporated in April 1998 under
the laws of the state of Delaware to develop and operate a
restaurant franchise business. In November 1998, concurrent
with a change of control, the Company transferred the
restaurant assets to former management through a stockholder
distribution and changed its name to its present form. In
January 1999, the Company acquired CS&T Consulting, Inc.
("CS&T") in a stock-for-stock exchange. CS&T is a New York
corporation that provides telecommunications consulting
services to clients in a variety of industries. CS&T acquired
the consulting business just prior to the acquisition pursuant
to a merger with Communication Solutions & Technologies, LLC,
a limited liability company owned by CS&T stockholders.
The Company has also entered into an arrangement with AT&T to
re-market under the brand name StrategiPort an end-to-end
private datacommunications network that is intended to provide
competitively priced shared frame relay and other
communications services. The network will initially be
marketed to the retail mall trade on a subscription basis.
The Company's principal offices are located in Palm Beach,
Florida and its network operations center is located in
Holbrook, New York.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The accompanying financial statements have been presented in
conformity with generally accepted accounting principles,
which contemplate continuation of the Company as a going
concern. However, the Company has a significant working
capital deficiency and has incurred operating losses since
inception. The Company requires substantial additional
financing to bring its accounts current, fund projected
operating losses, and complete the development of its network
service. Ultimately, the Company will need to meet its
projected revenue goals, and successfully attain profitable
operations. These factors raise substantial doubt about the
Company's ability to continue as a going concern.
Management's plans with respect to these matters include
obtaining additional capital through the private placement of
common stock, and completing the commercial development of its
network service in order to commence revenue generation in the
first quarter of 2001. Management cannot provide any assurance
that its plans will be successful in alleviating the Company's
liquidity position and bringing the Company to the point of
sustained profitability. The accompanying financial statements
do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result
from the outcome of this uncertainty.
<PAGE> F-7
STRATEGINET, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the nine months ended September 30, 1999
and 2000 is unaudited)
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary. All intercompany
accounts and transactions have been eliminated.
Use of Estimates
----------------
Financial statement preparation requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingencies 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.
Statement of Cash Flows
-----------------------
For purposes of the Statement of Cash Flows, the Company
considers all highly liquid debt investments purchased with an
original maturity of three months or less to be cash
equivalents.
Furniture and Equipment
-----------------------
Furniture and equipment are recorded at cost. Depreciation is
provided using the straight-line basis over the estimated
useful lives of three to five years for equipment, and seven
years for furniture.
Long-lived Assets
-----------------
Long-lived assets are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount
may not be recoverable. Recoverability of assets is measured
by comparing the carrying value of the assets with expected
future net cash flows. If the sum of the expected net cash
flows is less than the carrying value, the Company would
determine whether an impairment loss should be recognized. An
impairment loss would be measured by comparing the amount by
which the carrying value exceeds the fair value of the assets.
Fair value would be determined based on estimated expected
future discounted cash flows.
Goodwill
--------
Goodwill represents the excess of the CS&T purchase price over
the fair value of net assets acquired. During 1999, the
Company amortized $17,500 of goodwill using the straight-line
method over an estimated life of five years. In the fourth
quarter of 1999, management determined that the goodwill asset
was impaired because of the projected impact on cash flow of
the allocation of consulting resources to the development and
marketing of private network services. Accordingly, the 1999
statement of operations reflects an impairment charge of
$132,500.
<PAGE> F-8
STRATEGINET, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the nine months ended September 30, 1999
and 2000 is unaudited)
Revenue Recognition
-------------------
All of the Company's revenues are derived from its consulting
business. Revenues are recognized at the time the services
are provided to the customer. Based on historical experience
the Company has not established an allowance for customer bad
debts.
Network Development Costs
-------------------------
Network development costs are expensed as incurred and consist
primarily of technical salaries and fringe benefits.
Income Taxes
------------
The Company recognizes deferred tax assets and liabilities
based on the difference between the financial statement
carrying amount and the tax basis of the assets and
liabilities, using the effective tax rates in the years in
which the differences are expected to reverse. A valuation
allowance is provided when it is more likely than not that
some or all of the deferred tax assets will not be realized.
Net Loss Per Share
------------------
Basic and diluted loss per share are computed using the
weighted average number of shares outstanding. The
calculation for the nine months ended September 30, 2000 does
not give effect to shares issuable upon conversion of the
convertible debentures because such deemed conversion would be
anti-dilutive.
Financial Instruments
---------------------
The carrying amounts of cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses, and loans
payable approximate their fair values due to the short period
to maturity of these instruments, or in the case of capital
lease obligations, because they carry prevailing market rates.
Major Customers
---------------
The Company had sales to major customers as follows:
Year ended Nine months
December 31, ended September 30,
1999 1999 2000
------------ -------- --------
Customer A $467,948 $352,385 $136,850
Customer B 122,963 -- 24,950
<PAGE> F-9
STRATEGINET, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the nine months ended September 30, 1999
and 2000 is unaudited)
Concentration of Credit Risk
----------------------------
At December 31, 1999, 88% of accounts receivable were
concentrated in one customer. Credit is extended to customers
based on an evaluation of each customer's financial condition,
generally without requiring collateral or other security. The
Company maintains its cash in bank deposit and money market
accounts which may exceed federally insured limits from time
to time.
New Accounting Pronouncement
----------------------------
Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities
("SFAS 133") establishes accounting and reporting standards
for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred
to as derivatives) and for hedging activities. SFAS No. 137
deferred the effective date of SFAS 133 to be effective for
all fiscal quarters of all fiscal years beginning after June
15, 2000. The Company does not expect adoption of SFAS 133 to
have a material effect, if any, on its financial position,
results of operations, or cash flows.
Unaudited Financial Information
-------------------------------
The financial information as of September 30, 2000 and for the
nine months ended September 30, 1999 and 2000 is unaudited.
In the opinion of management, such information contains all
adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results of such
periods. Operating results for the nine months ended September
30, 2000 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2000.
NOTE 3 - ACQUISITION
Effective January 1, 1999, the Company issued 2,500,000 shares
of its common stock in exchange for all of the shares of CS&T.
The consideration was valued at $.08 per share, the fair value
of CS&T=s net assets on the acquisition date. The transaction
has been accounted for as a purchase; accordingly, the
operations of CS&T are included in the Company=s financial
statements from the date of acquisition.
The following summarized, unaudited pro forma information for
the year ended December 31, 1998 assumes that the transaction
occurred on January 1, 1998:
Revenues $1,053,000
Net income 65,000
Income per share - basic and diluted .02
<PAGE> F-10
STRATEGINET, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the nine months ended September 30, 1999
and 2000 is unaudited)
The pro forma operating results reflect estimated pro forma
adjustments for income tax expense on pro forma taxable
income, and an increase in the number of shares deemed to be
outstanding.
NOTE 4 - FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following:
December 31, September 30,
1999 2000
------------ -------------
Furniture and fixtures $ 17,534 $ 46,377
Computer equipment and software 53,370 90,828
-------- --------
70,904 137,205
Less: accumulated depreciation (13,220) (28,138)
-------- --------
$ 57,684 $109,067
======== ========
Furniture and equipment includes assets purchased under
capital leases during the nine months ended September 30, 2000
totaling $50,844.
Depreciation expense for the years ended December 31, 1998 and
1999, and the nine months ended September 30, 1999 and 2000
was $-0-, $10,506, $7,600, and $14,918, respectively.
Depreciation expense for the September 2000 period includes
amortization expense relating to capital lease equipment
totaling $2,770.
NOTE 5 - LOANS PAYABLE - RELATED PARTIES
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------ -------------
<S> <C> <C>
Non-interest bearing demand loan
from the Company's CEO/stockholder $ 75,727 $ 2,690
Non-interest bearing demand loan
from the Company's COO/stockholder 18,000 --
Non-interest bearing demand loan
from the Company's former vice-president 5,000 5,000
</TABLE>
<PAGE> F-11
STRATEGINET, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the nine months ended September 30, 1999
and 2000 is unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Loan from the Company's COO/stockholder
bearing interest at 6% per annum; the loan
and accrued interest were contributed
to capital in March 2000 45,000 --
Loan from the Company's former vice-
president bearing interest at 6% per
annum; the loan and accrued interest
were contributed to capital in March 2000 45,000 --
Loan bearing interest at 13.72% per
annum from a relative of one of the
Company's officers; repaid in full in
March 2000 35,000 --
-------- -------
$223,727 $ 7,690
======== =======
</TABLE>
In August 2000, the Company obtained a $50,000 non-interest
bearing working capital loan from one its financial consulting
firms for a thirty-day period. The loan was repaid at
maturity.
NOTE 6 - LOAN PAYABLE - OTHER
During the nine months ended September 2000, the Company
obtained an unsecured loan in the amount of $96,350 from a
private investment company. The loan is non-interest bearing
and due on demand. Subsequent to September 30, 2000, the
Company extinguished the debt by the issuance of its common
stock (see Note 13).
NOTE 7 - 9% CONVERTIBLE SUBORDINATED DEBENTURES-RELATED PARTIES
In May 2000, the Company issued a $50,000 convertible
subordinated debenture to each of two Company consultants.
The debentures mature in one year and bear interest at 9% per
annum, payable quarterly. The Company has not paid any
interest on the debentures to date, and neither holder has
made a demand for payment to date. The debenture principal
and accrued interest are convertible at the option of the
holder into shares of common stock at the lower of $.20 per
share, or 65% of the average of the three lowest daily closing
bid prices for the Company's common stock during the twenty-
two trading days immediately preceding the holder=s
notification of intent to convert. The Company has recorded a
$100,000 noncash interest charge with an offset to additional
paid-in capital to reflect the favorable conversion terms of
the debentures. This beneficial conversion feature is
calculated as the difference between the conversion price of
the security and the fair market value of the common stock on
the commitment date of the debentures.
<PAGE> F-12
STRATEGINET, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the nine months ended September 30, 1999
and 2000 is unaudited)
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Operating lease
---------------
The Company leases office space under a five-year non-
cancelable operating lease that commenced in August 1999.
Future minimum lease payments as of December 31, 1999 are as
follows:
Year ending
December 31,
2000 $ 41,268
2001 42,919
2002 44,636
2003 46,421
2004 27,701
---------
$ 202,945
=========
Prior to occupying its current premises the Company rented
office space at another New York location on a month-to-month
basis. In order to reduce lodging costs, the Company is
renting an apartment near its network operations center under
a one-year lease at $1,575 per month. The Company also rented
office space at a Florida location for part of 1999 and 2000.
Rent expense for the years ended December 31, 1998 and 1999
and for the nine months ended September 30, 1999 and 2000 was
$-0-,$40,920, $20,773 and $50,446, respectively.
Capital leases
--------------
During the nine months ended September 30, 2000, the Company
entered into agreements for the use of furniture and equipment
under capital leases with original terms of 36 to 60 months.
Monthly payments range from $338 to $462 per month.
Employment Agreement
--------------------
In 1999, the Company entered into a three-year employment
agreement with its COO/stockholder. The officer is entitled
to receive $200,000 per year plus customary fringe benefits.
At September 30, 2000, the Company owed the officer $99,877 in
accrued compensation.
CEO Compensation
----------------
The Company's CEO/stockholder is being compensated at the
annual rate of $240,000 under an informal arrangement. At
September 30, 2000, the Company owed the officer $102,000 in
accrued compensation.
<PAGE> F-13
STRATEGINET, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the nine months ended September 30, 1999
and 2000 is unaudited)
Contract Dispute
----------------
In May 2000, the Company engaged a consultant to render
various business and financial services, including assistance
in raising capital. The contract between the parties provided
for the payment to the consultant of certain signing fees in
common stock and warrants, as well as performance-based
management fees. The Company believes that the consultant
misrepresented its ability to provide the services enumerated
in the contract, and has withheld payment of some of the
consideration. The Company has retained counsel to review its
legal remedies in this matter. In order to avoid protracted
litigation, however, the Company has offered the consultant
100,000 shares of its common stock to settle the dispute. The
consultant has not yet responded to the settlement offer.
As of September 30, 2000, the Company had paid to the
consultant a total of 170,750 shares of its common stock
valued at $255,625. The Company has also recorded as a
probable cost $150,000 in additional charges to reflect the
estimated value of the 100,000 settlement shares. The offset
to the settlement costs has been credited to additional paid-
in capital. The financial statements do not reflect the value
of other consideration that was issuable under terms of the
contract. Any liability incurred in excess of the amounts
recorded could have a material adverse impact on the Company's
financial condition, operating results and cash flows.
NOTE 9 - SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest was $1,855 and $1,855 for the nine
months ended September 30, 1999 and for the year ended
December 31, 1999, respectively.
The distribution to stockholders in fiscal 1998 included a
noncash component totaling $97,736.
The following net assets of CS&T, Inc. were acquired in fiscal
1999 by the issuance of 2,500,000 shares of common stock
valued at $200,523:
Value of shares issued $ 200,523
---------
Accounts receivable 218,629
Other current assets 1,500
Property and equipment - net 25,249
Goodwill 150,000
Accounts payable and accrued expenses (197,375)
---------
Net assets acquired 198,003
---------
Cash received in acquisition $ 2,520
=========
<PAGE> F-14
STRATEGINET, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the nine months ended September 30, 1999
and 2000 is unaudited)
During the nine months ended September 30, 1999 and the year
ended December 31, 1999, the Company recorded the value of in-
kind services contributed by its CEO/stockholder at $140,000
and $200,000, respectively.
During the year ended December 31, 1999, the Company recorded
a $16,000 charge to reflect the value of 200,000 shares of
common stock transferred from Company officers to employees
for services rendered.
During the nine months ended September 30, 2000, the Company
issued 320,750 shares of common stock to consultants for
services valued at $479,125. The Company also recorded a
$150,000 noncash charge relating to the proposed issuance of
common stock to settle a consulting contract dispute.
During the nine months ended September 30, 2000, the Company
issued 100,000 shares of common stock for $.01 in settlement
of a $150,000 accrued liability.
Equipment costing approximately $50,844 was acquired under
capital lease arrangements during the nine-month period ended
September 30, 2000.
Related party loan principal and accrued interest totaling
$95,850 was contributed to capital during the nine months
ended September 30, 2000.
NOTE 10 - CAPITAL TRANSACTIONS
Recapitalization
----------------
The Company's Articles of Incorporation were amended May 31,
2000 to authorize the issuance of 110,000,000 shares,
consisting of 100,000,000 shares of Common Stock $.001 par
value, and 10,000,000 shares of Preferred Stock par value
$.001. The voting rights, preferences and other rights of the
Preferred Stock will be determined by the Board of Directors.
Common Stock
------------
In April 1998, the Company issued 187,500 shares of common
stock to Company founders for approximately par value.
From June 1998 to October 1998, the Company raised $26,000
from the sale of 65,000 shares at $.40 per share, and $82,688
from the sale of 82,688 shares at $1.00 per share in two
private placements.
In November 1998, the Company issued 7,164,812 shares,
representing a 95% interest in the Company at the time, to an
investor group for $90,000, or $.012 per share. Members of
the investor group also succeeded to the board of directors
and senior management positions.
<PAGE> F-15
STRATEGINET, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the nine months ended September 30, 1999
and 2000 is unaudited)
In January 1999, the Company issued 2,500,000 shares, valued
at $.08 per share, to acquire CS&T.
In February 1999, Company officers purchased 125,000 shares
for $10,000, or $.08 per share.
In August 2000, the Company issued 100,000 shares to a former
vendor for $.01 per share in satisfaction of a $150,000
accrued liability for services previously rendered.
During the nine months ended September 30, 2000, the Company
completed a private placement of 659,334 shares of common
stock at $1.50 per share.
Distribution to stockholders
----------------------------
In November 1998, the Company distributed $90,000 in cash and
other assets valued at $97,736, consisting primarily of
restaurant franchise fees, to stockholders of record predating
the purchase of shares by the private investment group. The
Company also relinquished to prior management its right, title
and interest in an inactive wholly-owned subsidiary, Southern
Dragon, Inc., which was formed to continue operation of the
restaurant business after the distribution.
Capital contributions
---------------------
In March 1999, Company officers transferred 200,000 shares
owned by them to various employees for services rendered to
the Company. The shares were valued at $16,000, or $.08 per
share, which approximated fair value. The Company accounted
for these transactions as a contribution to capital offset by
a compensation charge.
During fiscal 1999, the CEO/stockholder performed services on
behalf of the Company for which he will not be paid. These
services have been valued at $200,000, based on the time
devoted to the Company's affairs and compensation earned by
other Company executives. The Company has accounted for this
contribution of services as compensation expense with an
offsetting increase in additional paid-in capital.
In March 2000, two of the Company's officers contributed loans
and accrued interest totaling $95,850 to permanent capital.
Stock split
-----------
Effective June 20, 2000, the Company declared a 2.5 for 1
forward stock split of common stock. All references to the
number of shares, per share amounts, and conversion amounts of
the Company's common stock have been restated to reflect this
stock split for all periods presented.
<PAGE> F-16
STRATEGINET, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the nine months ended September 30, 1999
and 2000 is unaudited)
Shares issued for services
--------------------------
During fiscal 2000, the Company issued 170,750 shares of
common stock valued at an aggregate of $256,125 to a
consultant for services rendered. The Company also recorded a
$150,000 increase in additional paid-in capital to reflect a
proposed settlement offer to the consultant (see Note 8).
In July 2000, the Company sold 150,000 shares of common stock
to another consultant for $.01 per share. The difference
between the fair value per share and the purchase price
resulted in a charge to consulting expense of $223,000. The
consultant is also entitled to receive a success fee of
100,000 shares of common stock for introducing to the Company
investors who participated in the private placement. The
shares have not yet been issued.
NOTE 11 - INCOME TAXES
Total income tax expense differs from the expected tax expense
at statutory rates as a result of the following:
Years ended
December 31,
1998 1999
---------- ----------
Income taxes at the federal statutory rate $ (2,000) $ (99,000)
State income taxes, net of effect on federal
taxes (1,000) (18,000)
Valuation allowance for federal and state
deferred taxes 3,000 117,000
--------- ---------
Income tax expense $ -- $ --
========= =========
Based on its review of available evidence, management has
established valuation allowances to offset the benefits of
deferred tax assets (consisting of net operating loss
carryforwards) because their realization is uncertain. The
valuation allowance was $120,000 at December 31, 1999.
Net operating loss carryforwards of approximately $300,000 at
December 31, 1999 expire at various dates through 2019.
NOTE 12 - DEFINED CONTRIBUTION PLANS
CS&T maintains two qualified profit sharing plans. Annual
contributions under these plans are at the election of
management, and are computed as a percentage of participants'
compensation. All employees may participate upon meeting minimum
<PAGE> F-17
STRATEGINET, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the nine months ended September 30, 1999
and 2000 is unaudited)
service requirements. There were no contributions for the
year ended December 31, 1999 or the nine months ended
September 30, 2000.
NOTE 13 - SUBSEQUENT EVENTS
Extinguishment of Debt
----------------------
In December 2000, the Company agreed to issue 200,000 shares
of common stock in exchange for the conversion of a loan
payable in the amount of $96,350. The Company expects to
report an extraordinary loss from the debt extinguishment.
Financing
---------
In December 2000, the Company commenced a private placement
of up to 1,000,000 shares of common stock at $2.00 per
share. As of December 14, 2000, the Company had raised
$150,000 from the sale of 75,000 shares. The Company has
agreed to pay a finder's fee of up to 750,000 shares of
common stock and 250,000 five-year warrants at $2.00 per
share, based on the amount of capital raised.
<PAGE> F-18
REPORT OF INDEPENDENT AUDITORS
------------------------------
To the Members
Communication Solutions and Technologies, LLC
We have audited the statements of income and members' equity and
cash flows for the year ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 include 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 financial statements referred to above present
fairly, in all material respects, the results of its operations and its
cash flows for the year ended December 31, 1998 in conformity with
generally accepted accounting principles.
Schneider & Associates LLP
Jericho, New York
March 13, 2000
<PAGE> F-19
COMMUNICATION SOLUTIONS AND TECHNOLOGIES, LLC
STATEMENT OF INCOME AND MEMBERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
Revenues $ 1,053,527
-----------
Operating expenses
Cost of revenues 613,916
Selling, general and administrative expenses 340,581
-----------
Total expenses 954,497
-----------
Historical net income 99,030
Members' deficit - January 1, 1998 (48,507)
-----------
Members' equity - December 31, 1998 $ 50,523
===========
Historical net income $ 99,030
Pro forma income taxes 27,000
-----------
Pro forma net income $ 72,030
===========
See notes to financial statements.
<PAGE> F-20
COMMUNICATION SOLUTIONS AND TECHNOLOGIES, LLC
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
Cash flows from operating activities
Net income $ 99,030
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,714
Changes in:
Accounts receivable (131,270)
Other assets (1,500)
Accounts payable and accrued expenses 44,986
----------
Net cash provided by operating activities 13,960
----------
Cash flows from investing activities
- purchase of fixed assets (27,963)
----------
Net decrease in cash (14,003)
Cash at January 1, 1998 16,523
----------
Cash at December 31, 1998 $ 2,520
==========
See notes to financial statements.
<PAGE> F-21
COMMUNICATION SOLUTIONS AND TECHNOLOGIES, LLC
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BUSINESS OF THE COMPANY
Communication Solutions & Technologies, LLC ("LLC") is a New
York limited liability company formed in 1996 that provides
telecommunications consulting services to clients in a
variety of industries.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
----------------
Financial statement preparation requires management to make
estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingencies 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.
Revenue recognition
-------------------
Consulting revenues are recognized at the time the services
are provided to the customer.
Income taxes
------------
The LLC is not a taxpaying entity for federal or state
income tax purposes. All income taxes, if any, are the
obligations of its members. Accordingly, no income tax
expense has been recorded on historical taxable income in
the accompanying financial statements.
Major customers
---------------
During the year ended December 31, 1998, three customers
represented 23%, 20%, and 15% of total revenues,
respectively.
NOTE 3 - PRO FORMA INCOME TAXES
Pro forma net income for fiscal 1998 includes the following
pro forma adjustments for federal and state income taxes
which would have been provided had the LLC been a taxpaying
entity:
Federal $ 43,000
State 15,000
Pro forma income taxes $ 58,000
<PAGE> F-22
COMMUNICATION SOLUTIONS AND TECHNOLOGIES, LLC
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - DEFINED CONTRIBUTION PLANS
The LLC maintains two qualified profit sharing plans.
Annual contributions under these plans are at the election
of management, and are computed as a percentage of
participants' compensation. All employees may participate
upon meeting minimum service requirements. Plan
contributions were $46,000 for fiscal 1998.
NOTE 5 - SUBSEQUENT EVENT
Effective January 1, 1999, the LLC was acquired by CS&T
Consulting, Inc. ("CS&T"), an inactive New York corporation
owned by the LLC's members, pursuant to a merger agreement.
Also on that date, CS&T was acquired by Strateginet, Inc.,
an unaffiliated Delaware corporation, in an exchange of
shares.
<PAGE> F-23
