U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2003
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _______________ to _______________
Commission file number 000-26751
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CyPost Corporation
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 98-0178674
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(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification Number)
502-1281 West Georgia St., Vancouver, British Columbia, Canada V6E 3J7
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(Address of Principal Executive Offices) (Zip Code)
(604) 904-4422
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(Issuer's Telephone Number, Including Area Code)
Not Applicable
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(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes[X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 30,392,025 as of April 30,
2003.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial reporting and pursuant to the
rules and regulations of the Securities and Exchange Commission ("Commission").
While these statements reflect all normal recurring adjustments which are, in
the opinion of management, necessary for fair presentation of the results of the
interim period, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. For further information, refer to
the financial statements and footnotes thereto, which are included in the Annual
Report on Form 10-KSB, as amended, of CyPost Corporation (the "Company"), for
the fiscal year ended December 31, 2002, previously filed with the Commission.
CYPOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2003
(UNAUDITED)
ASSETS
CURRENT ASSETS:
CASH $ 13,182
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE FOR
DOUBTFUL ACCOUNTS of $77,210 32,413
PREPAID EXPENSES 45,933
NOTE RECEIVABLE & ACCRUED INTEREST - RELATED PARTY 41,884
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TOTAL CURRENT ASSETS 133,412
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PROPERTY AND EQUIPMENT, NET OF ACCUMULATED
DEPRECIATION 232,580
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INTANGIBLES:
CUSTOMER LISTS 2,844,768
GOODWILL 1,399,045
LESS ACCUMULATED AMORTIZATION (3,905,254)
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INTANGIBLES, NET 338,559
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DEPOSITS 89,719
OTHER ASSETS 9,173
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$ 803,443
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
ACCOUNTS PAYABLE & ACCRUED LIABILITIES $ 1,932,796
NOTE PAYABLE - RELATED PARTY 14,615
DUE TO BANK 14,171
DEFERRED REVENUE 305,057
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TOTAL CURRENT LIABILITIES 2,266,639
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COMMITMENTS AND CONTINGENCIES (NOTE 3)
STOCKHOLDERS' DEFICIT:
SHARE CAPITAL
AUTHORIZED:
5,000,000 PREFERRED STOCK WITH A PAR VALUE OF $.001
200,000,000 COMMON STOCK WITH A PAR VAUE OF $.001
ISSUED AND OUTSTANDING
PREFERRED STOCK - NONE -
COMMON STOCK - 30,391,993 30,393
ADDITIONAL PAID-IN CAPITAL 14,778,733
DEFICIT (16,186,779)
CURRENCY TRANSLATION ADJUSTMENT (85,543)
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TOTAL STOCKHOLDERS' DEFICIT (1,463,196)
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$ 803,443
=============
See accompanying notes to the consolidated condensed financial statements.
CYPOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
2003 2002
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REVENUES $ 709,603 $ 772,750
DIRECT COSTS 269,842 466,998
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EXCESS OF REVENUES OVER DIRECT COSTS 439,761 305,752
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EXPENSES:
SELLING, GENERAL AND ADMINISTRATIVE 510,533 656,030
AMORTIZATION AND DEPRECIATION 50,298 372,286
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560,831 1,028,316
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LOSS FROM OPERATIONS (121,070) (722,564)
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OTHER INCOME (EXPENSE):
GAIN ON SALE OF PROPERTY AND EQUIPMENT AND INTANGIBLES, NET 49,787 -
IMPAIRMENT LOSS OF LONG LIVED ASSETS - (4,180)
INTEREST, NET (7,845) 525
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TOTAL OTHER INCOME (EXPENSE) 41,942 (3,655)
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NET LOSS $ (79,128) $ (726,219)
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LOSS PER SHARE - BASIC AND DILUTED $ (0.00) $ (0.03)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - 30,391,993 23,191,576
============ ============
BASIC AND DILUTED
See accompanying notes to the consolidated condensed financial statements.
CYPOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(79,128) $(726,219)
Adjustments to reconcile net loss to cash used in
operating activities:
Amortization 2,978 307,457
Depreciation 47,320 64,829
Provision for bad debt (27,049) 282
Accrued interest income (471) (525)
Consulting fees offsetting note receivable - related party - 17,750
Gain on sale of property and equipment and intangibles, net (49,787) -
Impairment loss of long-live assets - 4,180
Changes in assets and liabilities:
Accounts receivable 74,890 6,070
Prepaid expenses 11,911 6,104
Deposits 13,110 (267)
Other assets (613) 21
Accounts payable and accrued liabilities 31,186 244,526
Decrease in due to bank (17,497) -
Deferred revenue (51,137) 38,233
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NET CASH USED IN OPERATING ACTIVITIES (44,287) (37,559)
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CASH FLOWS FROM INVESTING ACTIVITIES -
Sales (Purchases) of property and equipment and intangibles 171,629 (16,595)
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NET CASH (USED IN)/PROVIDED BY INVESTING ACTIVITIES 171,629 (16,595)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Stock - 250
Repayment of note payable - related party (38,615) -
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NET CASH (USED IN)/PROVIDED BY FINANCING ACTIVITIES (38,615) 250
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EFFECT OF EXCHANGE RATE CHANGES (88,606) 695
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NET INCREASE (DECREASE) IN CASH 121 (53,209)
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CASH, BEGINNING OF YEAR 13,061 73,124
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CASH, END OF PERIOD $ 13,182 $ 19,915
========= ==========
OTHER CASH INFORMATION:
Interest paid $ 8,316 $ -
========= ==========
Taxes paid $ - $ -
========= ==========
See accompanying notes to the consolidated condensed financial statements.
CYPOST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(UNAUDITED)
1. ORGANIZATION BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
CyPost Corporation ("CyPost") was incorporated on September 5, 1997 under
the laws of the State of Delaware and its principal executive offices are
located in Vancouver, Canada. CyPost is engaged in the business of providing
Internet connection services for business and personal use. Previously the
Company was also involved in developing certain software products using
encryption components to enhance user security and convenience for communication
across digital networks, and in securing local data storage equipment, which
activities the Company no longer currently pursues.
GOING CONCERN
These financial statements have been prepared on the basis of accounting
principles applicable to a "going concern" which assume that Cypost Corporation
(the "Company") will continue in operation for at least one year and will be
able to realize its assets and discharge its liabilities in the normal course of
operations.
Several conditions and events cast doubt about the Company's ability to
continue as a going concern. The Company has incurred net losses of
approximately $16.2 million. Since its inception, the Company has a working
capital deficiency at March 31, 2003 of approximately $2.1 million, and requires
additional financing for its business operations. The Company is also involved
in certain litigation that could adversely impact its results of operations and
cash flow if it is unable to prevail in such matters.
The Company's future capital requirements will depend on numerous factors
including, but not limited to, the Company development activities, and is able
to generate profitable operations from its Internet connection services. The
Company does not believe that bank borrowings are available under present
circumstances, and there can be no assurance that any financing could be
obtained from other sources. Even if funding were available, it might be
available only on terms which would not be favorable to the Company or which
management would not find acceptable. Meanwhile, management is working on
attaining cost and efficiency synergies by consolidating the operations of
Company's subsidiaries.
These financial statements do not reflect any adjustments that would be
necessary to the carrying values of assets, the reported amounts of its
liabilities, revenues and expenses, and the balance sheet classifications used
if the Company was unable to continue as a "going concern". While management
believes that the actions already taken or planned, as described above, will
mitigate the adverse conditions and events which raise doubt about the validity
of the "going concern" assumption used in preparing these financial statements,
there can be no assurance that these actions will be successful.
If the Company were unable to continue as a going concern, then substantial
adjustments would be necessary to the carrying values of assets, the reported
amounts of its liabilities and the reported revenues and expenses.
BASIS OF PRESENTATION
The interim consolidated financial statements presented have been prepared
by the Company without audit and, in the opinion of the management, reflect all
adjustments of a normal recurring nature necessary for a fair statement of (a)
the consolidated results of operations for the three months ended March 31, 2003
and 2002, (b) the consolidated financial position at March 31, 2003 and (c) the
consolidated cash flows for the three months ended March 31, 2003 and 2002.
Interim results are not necessarily indicative of results for the entire year
ending December 31, 2003.
The consolidated financial statements and notes are condensed as permitted
by Form 10-QSB and do not contain certain information included in the annual
financial statements and notes of the Company. The consolidated financial
statements and notes included herein should be read in conjunction with the
financial statements and notes included in the Company's Annual Report on Form
10-KSB.
The preparation of financial statements in conformity with accounting
principals generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements, actual results may differ from those estimates.
CONSOLIDATION
The consolidated financial statements include the accounts of CyPost
Corporation and its subsidiaries. The subsidiaries include, NetroverUSA Online
Inc. (formerly known as ePost Innovations Inc.), NetRover Inc., NetRover Office
Inc., Hermes Net Solutions Inc., Intouch.Internet Inc. and Fibra Communications,
LLC. Connect Northwest and Internet Arena are DBA's of CyPost Corporation. All
significant inter-company transactions and balances have been eliminated in
consolidation.
FUNCTIONAL CURRENCY AND FOREIGN CURRENCY TRANSLATION
The functional currency of the Company is U.S. dollars. Balance sheet
accounts of international self-sustaining subsidiaries, principally Canadian,
are translated at the current exchange rate as of the balance sheet date. Income
statement items are translated at average exchange rates during the period. The
resulting translation adjustment is recorded as a separate component of
stockholders' equity. Dollar values in these consolidated financial statements
are expressed in U.S. Dollars, unless indicated otherwise. On March 31, 2003 one
Canadian Dollar (Cdn) was exchangeable for .67970 U.S. Dollars.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Estimates that are critical to the
accompanying financial statements include estimates related to certain
contingent liabilities discussed at Note 3. It is at least reasonably possible
that our estimates could change in the near term with respect to these matters.
2. SALE OF ASSETS
During the months of February and March 2003, the Company sold various
receivables, customer lists, equipment, trade names, and related goodwill for
gross consideration of approximately $253,000. The net book value of such
assets at March 31, 2003 approximated $203,000, resulting in a net gain of
approximately $50,000.
3. COMMITMENTS AND CONTINGENCIES
BERRY LITIGATION
On March 31, 2000, the Company commenced suit in the Supreme Court of
British Columbia, Action #S001822, Vancouver Registry against Tia Berry (the
"Tia Action"), the wife of Steven Berry ("Berry"), the former President and
Chief Executive Officer of the Company. In the Tia Action, the Company claims
Cdn$42,516 from Tia Berry on account of monies paid to her by the Company which
she was not entitled to receive. Tia Berry has denied the allegations.
On May 19, 2000 CyPost and ePost Innovations commenced suit in the Supreme
Court of British Columbia, Action #S002798, Vancouver Registry, against Berry
and his wife, Tia Berry (the "BC Action"). Berry received 600,000 contingent
shares upon condition that he would remain in the Company's employ as Chief
Executive Officer for at least two years, which he did not. Following Berry's
resignation, the Company attempted to cancel the 600,000 Contingent Shares. In
the BC Action, the Company seeks an order directing Berry to return the 600,000
Contingent Shares to the Company for cancellation on the basis that Berry did
not fulfill the employment conditions which were the condition precedent to his
becoming the beneficial owner of the Contingent Shares. The Company also claims
at least Cdn$800,000 from Berry on account of breach of fiduciary duty,
negligence, breach of statutory duties and breach of contract arising from
Berry's failure to properly carry out his employment responsibilities and
Cdn$34,013 from Berry and Tia Berry on account of conspiracy to defraud and
injure the Company by causing certain personal expenses to be paid by the
Company rather than by Berry and Tia Berry personally. The Company will
vigorously pursue its position in all respects.
On December 21, 2000, Berry and Tia Berry commenced suit in the Supreme
Court of British Columbia, Action #S006790, Vancouver Registry, against CyPost,
ePost Innovations, Kelly Shane Montalban, J. Thomas W. Johnston, Carl Whitehead
and Robert Sendoh (the "Berry Action"). Statements of Defense have been filed on
behalf of the Company and the other defendants. The Plaintiffs in the Berry
Action allege that the Tia Action, the BC Action, and the action by Kelly Shane
Montalban (Supreme Court of British Columbia, Action #S002147, Vancouver
Registry), against Berry for specific performance of an option agreement (the
"Montalban Action"), collectively, amount to an abuse of process, malicious
prosecution, unlawful interference with the Plaintiffs' economic rights, or were
commenced pursuant to a civil conspiracy to injure the Plaintiffs. In the Berry
Action, the Plaintiffs seek a declaration that Berry is entitled to the 600,000
Contingent Shares and claim unspecified damages which are estimated at
Cdn$2,000,000 based on the Statement of Claim. They also claim punitive or
aggravated damages and costs.
The Company believes that the allegations in the Berry Action are without
merit and they will be vigorously defended. Because the case is in the
discovery stage, the ultimate resolution of this matter cannot be determined.
Accordingly, no provision for any loss that may result upon its resolution has
been made in the accompanying consolidated financial statements.
ALLAN LITIGATION
On November 2, 2001, Tami Helen Allan ("Allan") commenced suit in the
Ontario Superior Court of Justice of Chatham-Kent, against NetRover Inc., CyPost
Corporation, Robert Sendoh, Kelly Shane Montalban, Angela Belcourt and J. Thomas
W. Johnston. Allan claims that she has sustained damages as a result of a
wrongful termination in the amount of Cdn$600,000.
The Company believes that the allegations in the Allan action are without
merit and they will be vigorously defended. Because the case is in the
discovery stage, the ultimate resolution of this matter cannot be determined.
Accordingly, no provision for any loss that may result upon its resolution has
been made in the accompanying consolidated financial statements.
OTHER LITIGATION
The Company is also subject to routine litigation from time to time in the
operations of its business. None of such routine litigation is material to the
Company, its assets or results of operations.
DEPENDENCE ON KEY SUPPLIERS
The Company's success depends upon the capacity, scalability, reliability
and security of its network infrastructure, including the telecommunications
capacity leased from WorldCom and other telecommunications network suppliers.
The Company depends on such companies to maintain the operational integrity of
their own telecommunications networks. Therefore, its operating results depend,
in part, upon the pricing and availability of telecommunications network
capacity from a limited number of providers in a consolidated market. A material
increase in pricing or decrease in telecommunications capacity available to the
Company could have a material adverse effect on the Company's business,
financial condition and results of operations.
In July 2002 WorldCom, Inc., the parent company of WorldCom Canada Ltd.,
filed for protection under Chapter 11, of the United States Bankruptcy Code.
Chapter 11 reorganization is not a liquidation, but rather a medium for
financially troubled United States companies to restructure their debt and
resume operations.
WorldCom Canada Ltd. was not a part of this filing, nor have they filed for
bankruptcy protection in the interim. The Company currently depends on WorldCom
Canada Ltd.'s infrastructure for a significant portion of its revenue.
The Company has not experienced any disruption of service and does not
anticipate any service disruptions in the future as a result of any
reorganization of WorldCom Canada Ltds' parent company. Notwithstanding the
aforementioned, the Company has had preliminary discussions with other providers
as a contingency.
4. SUBSEQUENT EVENTS
On April 4, 2003, CyPost entered into a new lease with Mansa Holdings in
respect to to its office premises located at 502-1281 West Georgia St.,
Vancouver, British Columbia for approximately 1,600 square feet of office space.
The term of lease is for six years and ends on May 31st, 2009. The current
monthly net rent under this lease is $2,196 CDN$. The property taxes and
operating expenses are currently estimated at $2,230 CDN$ per month. As a result
the Company has surrendered its' current office premises located at 900-1281
West Georgia St., Vancouver, British Columbia for approximately 6,500 square
feet. The settlement payment for the release of this space is approximately
$26,000 CDN$ payable over seven months commencing June 1, 2003.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FORWARD LOOKING STATEMENT
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The following discussion and analysis is provided to increase the
understanding of, and should be read in conjunction with, the Consolidated
Financial Statements of the Company and Notes thereto included elsewhere in this
Report. Historical results and percentage relationships among any amounts in
these financial statements are not necessarily indicative of trends in operating
results for any future period. The statements which are not historical facts
contained in this Report, including this Management's Discussion and Analysis of
Financial Condition and Results of Operations, and Notes to the Consolidated
Financial Statements, constitute "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Such statements are
based on currently available operating, financial and competitive information,
and are subject to various risks and uncertainties. Future events and the
Company's actual results may differ materially from the results reflected in
these forward-looking statements. Factors that might cause such a difference
include, but are not limited to, dependence on existing and future key strategic
and strategic end-user customers, limited ability to establish new strategic
relationships, ability to sustain and manage growth, variability of operating
results, the Company's expansion and development of new service lines, marketing
and other business development initiatives, the commencement of new engagements,
competition in the industry, general economic conditions, dependence on key
personnel, the ability to attract, hire and retain personnel who possess the
technical skills and experience necessary to meet the service requirements of
its clients, the potential liability with respect to actions taken by its
existing and past employees, risks associated with international sales, and
other risks described herein and in the Company's other SEC filings.
OVERVIEW
--------
The Company is engaged in the business of providing Internet service
provider ("ISP") services ("ISP Services") for business and personal use.
Previously, the Company was also involved in developing certain software
products, which activities the Company no longer pursues.
The Company's business operations are presently conducted in the United
States and Canada. The Company derives all of its revenues from its ISP
Services. At present, most of the revenue from ISP Services can be attributed to
connectivity, although the Company's network of ISP Services is moving towards
expanding its Web hosting services.
The Company continues to streamline and consolidate its ISP Services
operations to enhance efficiency and reduce operating expenses. The Company has
embarked on a program to centralize ISP Services to the greatest extent
possible, as follows:
o Customer Support. The Company has consolidated all aspects of customer
support(including end user technical issues) for its Oregon, and Canadian ISP
customers into the Chatham, Ontario facility.
o Billing and Collections. Billing and collections for all ISP customers
are presently handled from the Chatham facility. The Company is also upgrading
its billing platform to an industry specific application that will further
streamline provisioning and billing of services.
o Network Operations. The Company's main network operation center is
located in Etobicoke (suburban Toronto), Ontario. This operation center monitors
network traffic, quality of services and security issues, as well as the
performance of the equipment located at each of its physical locations, to
ensure reliable service. The operation center is monitored on a 24 hours a day,
seven days a week, 365 days a year basis, and maintains responsibility for
communications between internal departments (customer care) as well as with
external providers of services.
The Company has completed its consolidation of its Web hosting and
dedicated services to its Toronto data center. Other ISP Services such as e-mail
and user authentication (i.e., customer security) are also in the process of
being consolidated to the main data center in Toronto.
The Company is also considering implementing other consolidated services to
achieve greater efficiency and cost savings.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THE
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THREE MONTHS ENDED MARCH 31, 2002
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All of the Company's revenue was earned from its ISP operations during
the three months ended March 31, 2003. These revenues are attributable entirely
to the operations of the Company's ISP businesses (NetRover Inc. and the Connect
Northwest Internet Services and Internet Arena DBAs) which the Company acquired
beginning late in the second quarter of 1999.
The Company generated net sales of $709,603 for the three months ended
March 31, 2003 compared to $772,750 for the three months ended March 31, 2002, a
decrease of 8%. This decrease is primarily due to a decrease in marketing
related activities, and the prolonged softening of technology related sector
spending.
Direct costs, which consist primarily of telecommunications charges
with respect to providing Internet connection services to customers, of
$269,842, were incurred for the three months ended March 31, 2003, compared to
$466,998 for the three months ended March 31, 2002, a 42% decrease. This
decrease results primarily from having renegotiated or terminated certain
telecommunication agreements and a decrease in overall usage.
Selling, general and administrative expenses were $510,533 for the
three months ended March 31, 2003 compared to $656,030 for the three months
ended March 31, 2002, a 22% decrease. This decrease results primarily from a
decrease in professional fees, salaries and benefits and marketing related
activities.
Amortization and depreciation expenses were $50,298 for the three
months ended March 31, 2003, compared to $372,286 for the three months ended
March 31, 2002, a 86% decrease. This decrease is primarily due to the fact that
the balance of the Company's intangible assets were substantially amortized as
of December 31, 2002, thus the expense attributable to the amortization of these
assets decreased by approximately $305,000.
As a result of the above, the Company's loss from operations decreased
by 83% to $121,070 during the three months ended March 31, 2003, compared to
$722,564 during the three months ended March 31, 2002.
The Company incurred net interest expense of $7,845 for the three
months ended March 31, 2003, compared to net income of $525 for the three months
ended March 31, 2002. This increase in expense is primarily the result of the
interest paid on the monies borrowed during the fourth quarter 2002.
During the three months ended March 31, 2003, the Company recognized a
gain on sale of certain goodwill and intangibles of approximately $50,000 from
the sale of various receivables, customer lists, equipment, trade names, and
related goodwill for gross consideration of approximately $253,000.
As a result of the above, the Company's net loss decreased by 89% to
$79,128, or $.00 per share, for the three months ended March 31, 2003, compared
to a net loss of $726,219, or $.03 per share, for the three months ended March
31, 2002. This decrease is primarily a result of a decrease in direct costs,
selling, general and administrative expenses, amortization of the intangible
assets, and the gain on sale of certain assets.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The accompanying financial statements have been prepared on a going
concern basis, which assumes that the Company will continue in operation for at
least one year and will be able to realize its assets and discharge its
liabilities in the normal course of business. The Company incurred a net loss
for the three months ended March 31, 2003 of $79,128, compared to a net loss
for the three months ended March 31, 2002 of $726,219. As of March 31, 2003,
the Company had a working capital deficit of $2,133,227, which is primarily due
to the Company's general operating activities and professional fees. These
factors indicate that the Company's continuation as a going concern is dependent
upon its ability to obtain adequate financing.
The Company's cash position on March 31, 2003 remained relatively
stable at $13,182 compared to $13,061 on December 31, 2002.
The Company used $44,287 in operating activities for the three months
ended March 31, 2003, compared to $37,559 for the three months ended March 31,
2002, an increase of 18%. This increase is primarily due to a decrease in
deferred revenue, an increase in accounts payable, offset by a decrease in
accounts receivable.
The Company's generated cash of $171,629 from investing activities for
the three months ended March 31, 2003, compared to using $16,595 to purchase
equipment during the three months ended March 31, 2002. During the three months
ended March 31, 2003 the Company did not purchase any equipment and generated
cash from the sale of certain assets of the Company's D/B/A Connect Northwest,
consisting of customer list, trade name, computer hardware and software for
cash. In addition the buyers assumed certain liabilities in the sale
transactions.
The Company used $38,615 in financing activities during the three months
ended March 31, 2003, to repay debt that the company did not have until the
fourth quarter of 2002, compared to net cash provided of $250 through the sale
of common stock during the three months ended March 31, 2002.
Since our inception, we have experienced negative cash flow from
operations. In the past, we have funded our operating losses and capital
expenditures borrowings of debt and convertible debt from private sources. We
continue to evaluate alternative means of financing to meet our needs on terms
that are attractive to us. We must either raise additional funds to support
aspects of our business for 2003 or we will be forced to curtail certain aspects
of our business operations, particularly in terms of the growth of and further
enhancements to our ISP Services business, or recommencing research and
development of Software Products. We need a minimum of $500,000 and a maximum of
$4,500,000 to support current operations, grow and further enhance our ISP
services business, and a minimum of $250,000 and a maximum of $500,000 to
recommence the research and development of the Software Products. If financing
were made available we would first apply the proceeds to the further enhancement
of our ISP services business. We cannot be certain that additional financing
will be available to us on favorable terms when required, or at all. If we are
unable to obtain sufficient additional capital when needed, we could be forced
to alter our business strategy, delay or abandon some of our expansion plans or
sell assets. Any of these events could have a material adverse effect on our
business, financial condition and results of operations. In addition, if we
raise additional funds through the issuance of equity, equity-linked or debt
securities, those securities may have rights, preferences or privileges senior
to those of the rights of our Common Stock and our stockholders may also
experience dilution.
DEPENDENCE ON KEY SUPPLIERS
---------------------------
The Company's success depends upon the capacity, scalability, reliability
and security of its network infrastructure, including the telecommunications
capacity leased from WorldCom Canada Ltd. and other telecommunications network
suppliers. The Company depends on such companies to maintain the operational
integrity of its telecommunications networks. Therefore, its operating results
depend, in part, upon the pricing and availability of telecommunications network
capacity from a limited number of providers in a consolidated market. A material
increase in pricing or decrease in telecommunications capacity available could
have a material adverse effect on the Company's business, financial condition
and results of operations. Management cannot be certain that telecommunication
capacity will be available on favorable terms when required, or at all. If the
Company is unable to obtain sufficient capacity when needed, it could be forced
to alter its business strategy, delay or abandon some of its business aspects or
sell assets. Any of these events could have a material adverse effect on the
Company's business, financial condition and results of operations.
In July 2002 WorldCom, Inc., the parent company of WorldCom Canada Ltd.,
filed for protection under Chapter 11, of the Unites States tax code. Chapter 11
reorganization is not a liquidation, rather a medium for financially troubled
United States companies to restructure their debt and resume operations.
WorldCom Canada Ltd. was not a part of this filing, nor have they filed for
bankruptcy protection in the interim. The Company currently depends on the
WorldCom Canada Ltd.'s infrastructure for a significant portion of it's revenue.
The Company has not experienced any disruption of service and does not
anticipate any service disruptions in the future as a result of any
reorganization of Worldcom Canada Ltds' parent company. Notwithstanding the
aforementioned, the Company has had preliminary discussions with other providers
as a contingency.
CRITICAL ACCOUNTING POLICIES
----------------------------
The Company's financial statements are prepared in accordance with
accounting principles generally accepted in the United States, which require
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements, the disclosure
of contingent assets and liabilities, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Management believes the following critical accounting policies affect
the Company's more significant estimates and assumptions used in the preparation
of its financial statements. The Company's significant estimates and assumptions
are reviewed and any required adjustments are recorded on a quarterly basis.
Carrying value of the intangible asset - goodwill. As of March 31, 2003,
the net book value of goodwill was $338,559. Management reviews the un-amortized
goodwill associated with its various acquisitions, comparing the un-amortized
goodwill to the estimated current acquisition costs. Should the estimated
current acquisition costs decrease, this asset could become partially or fully
impaired.
ITEM 3 - CONTROLS AND PROCEDURES
Within 90 days prior to the date of filing of this report, we carried out
an evaluation, under the supervision and with the participation of our
management, including the Chief Executive Officer (who also effectively serves
as the Chief Financial Officer), of the design and operation of our disclosure
controls and procedures. Based on this evaluation, our Chief Executive Officer
concluded that our disclosure controls and procedures are effective for
gathering, analyzing and disclosing the information we are required to disclose
in the reports we file under the Securities Exchange Act of 1934, within the
time periods specified in the SEC's rules and forms. There have been no
significant changes in our internal controls or in other factors that could
significantly affect internal controls subsequent to the date of this
evaluation.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various litigation for which a loss by the
Company of the claim for monetary damages would have a material adverse effect
on the Company's future results of operations, financial condition and
liquidity; however, the Company does not expect to lose these actions and
believes additionally that it would be able to negotiate reasonable payment
terms should it lose these suits. Due to the inherent uncertainties of
litigation, the Company cannot predict the outcome of any litigation to which it
is a party.
Item 2. Changes in Securities
NONE
Item 3. Defaults upon Senior Securities.
NONE
Item 4. Submission of Matters to a Vote of Security Holders.
NONE
Item 5. Other Information.
NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certification Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 - Khazali
(b) Reports on Form 8-K
NONE
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
"Registrant"
CYPOST CORPORATION
DATE: May 15, 2003 By: /s/ Javan Khazali
--------------------
Javan Khazali
Chief Executive Officer
(Principal Financial Officer)
CERTIFICATIONS
I, Javan Khazali, certify that:
1. I have reviewed this quarterly report on Form 10QSB of CyPost Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the issuer as of, and for, the periods presented in this annual
report.
4. I and the issuer's other certifying officers are responsible for
establishing and maintaining disclosure controls and procedures for the
issuer and have:
(i) Designed such disclosure controls and procedures to ensure that material
information relating to the issuer, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period
in which the periodic reports are being prepared;
(ii) Evaluated the effectiveness of the issuer's disclosure controls and
procedures as of March 31 2003 ("Evaluation Date"); and
(iii) Presented in the report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
5. I and the issuer's other certifying officers have disclosed, based on our
most recent evaluation, to the issuer's auditors and the audit committee of
the board of directors (or persons fulfilling the equivalent function):
(i) All significant deficiencies in the design or operation of internal
controls which could adversely affect the issuer's ability to record,
process, summarize and report financial data and have identified for the
issuer's auditors any material weaknesses in internal controls; and
(ii) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the issuer's internal controls; and
(6) I and the issuer's other certifying officers have indicated in the report
whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/ Javan Khazali
JAVAN KHAZALI
Chief Financial Officer and CEO