SECURITIES EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period
from........to...........
COMMISSION FILE NUMBER 001-16381
CERISTAR, INC.
(Exact name of the registrant as specified in its charter)
DELAWARE 87-0642448
(State or other jurisdiction (IRS employer identification number)
of incorporation or organization)
50 WEST BROADWAY, SUITE 1100
SALT LAKE CITY, UTAH 84119
(Address of principal executive officers)
801-297-8500
(Registrant's telephone number, including area code)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934
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__
State the number of shares outstanding of each of the issuer's classes of common
equity as of March 31, 2003.
Common Stock, $.001 par value 5,906,140
----------------------------- ---------
(Title of each class) (Number of shares)
CERISTAR, INC.
TABLE OF CONTENTS
Special Note Regarding Forward Looking Statements
PART I - FINANCIAL STATEMENT
Item 1. Financial Statements
Condensed Consolidated Unaudited Balance Sheets at March 31, 2003
Condensed Consolidated Unaudited Statements of Operations for the three
months ended March 31, 2003 and 2002
Condensed Consolidated Unaudited Statements of Cash Flows for the three
months ended March 31, 2003 and 2002
Notes to Condensed Consolidated Unaudited Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Controls and Procedures
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit. Other Information - Certificates - Certification Pursuant to 18
U.S.C. Section 1350
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Investors are cautioned that certain statements in the Form 10-QSB are forward
looking statements that involve risks and uncertainties. Words, such as
"expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates"
and "views" are intended to identify forward-looking statements. Such statements
are based on current expectations and projections about our business and
assumptions made by the management and are no guarantee of future performance.
Therefore, actual events and results may differ materially from those expressed
or forecasted in the forward looking statements due to risk factors identified
in the Management's Discussion and Analysis of Financial Condition and Results
of Operations.
2
CERISTAR, INC.
CONDENSED CONSOLIDATED UNAUDITED BALANCE SHEET
March 31, 2003
Assets
------
Current assets:
Accounts receivable, net of allowance for
doubtful accounts of $16,117 $ 77,035
Prepaid expenses 3,954
Deposits 8,338
--------------
Total current assets 89,327
Property and equipment, net 327,816
--------------
$ 417,143
--------------
--------------------------------------------------------------------------------
Liabilities and Stockholders' Deficit
-------------------------------------
Current liabilities:
Cash over-draft $ 2,668
Accounts payable 407,921
Accrued payroll liabilities 154,591
Unearned revenue 106,800
Deferred purchase obligation 77,996
Related party note payable 8,000
--------------
Total current liabilities 757,976
Commitments -
Stockholders' deficit:
Preferred stock, $.001 par value; 1,000,000 shares
authorized, no shares issued and outstanding -
Common stock, $.001 par value, voting, 25,000,000
shares authorized, 5,906,140 issued and outstanding 5,906
Additional paid-in capital 8,662,545
Deferred compensation (389,011)
Subscriptions receivable (316,814)
Accumulated deficit (8,303,459)
--------------
Total stockholders' deficit: (340,833)
--------------
$ 417,143
--------------
See accompanying notes to financial statements
3
CERISTAR, INC.
CONDENSED CONSOLIDATED UNAUDITED STATEMENT OF OPERATIONS
For The Periods Ended March 31,
2003 2002
----------------------------
Sales $ 106,222 $ 157,863
Cost of sales (124,168) (83,190)
Selling, general, and administrative expense (1,103,693) (323,109)
----------------------------
Loss from operations (1,121,639) (248,436)
Other income 358 97
Interest expense (2,574) (1,963)
----------------------------
Loss before benefit for income taxes (1,123,855) (250,302)
Benefit for income taxes - -
----------------------------
Net loss $ (1,123,855) $ (250,302)
----------------------------
Loss per common share basic and diluted $ (0.19) $ (0.06)
----------------------------
Weighted average shares - basic and diluted 5,861,000 4,180,000
----------------------------
See accompanying notes to financial statements
4
CERISTAR, INC.
CONDENSED CONSOLIDATED UNAUDITED STATEMENT OF CASHFLOWS
For The Three Months Ended March 31,
2003 2002
----------------------------
Cash flows from operating activities:
Net loss $ (1,123,855) $ (250,302)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 4,304 1,509
Stock issued for services 34,988 -
Amortization of deferred compensation 76,667 84,975
Stock subscription satisfied with services 670,158 -
Amortization of discount on long-term debt 220 -
Decrease (increase) in:
Accounts receivable (24,090) (20,963)
Increase (decrease) in:
Accounts payable 22,306 118,171
Accrued liabilities 65,243 54,279
Deferred revenue 3,500 13,372
---------------------------
Net cash (used in) provided
by operating activities (270,559) 1,041
---------------------------
Cash flows used in investing activities-
purchase of property and equipment (5,265) (1,011)
---------------------------
Cash flows from financing activities:
Cash over-draft 2,668 -
Proceeds from issuance of common stock 239,874 -
Proceeds from related party note 8,000 -
Payments on convertible long-term debt (2,928) -
---------------------------
Net cash provided by financing
activities 247,614 -
---------------------------
Net (decrease) increase in cash
and cash equivalents (28,210) 30
Cash and cash equivalents at beginning of period 28,210 2,518
---------------------------
Cash and cash equivalents at end of period $ - $ 2,548
---------------------------
See accompanying notes to financial statements
5
CERISTAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2003
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation--The accompanying condensed financial statements are
unaudited. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. Ceristar, Inc.
(the "Company") believes that the following disclosures are adequate to make the
information presented not misleading.
These condensed financial statements reflect all adjustments (consisting only of
normal recurring adjustments) that, in the opinion of management, are necessary
to present fairly the financial position and results of operations for the
periods presented. These financial statements should be read in conjunction with
the CeriStar's financial statements and notes thereto for the year ended
December 31, 2002.
Operating results for the three months ended March 31, 2003, are not necessarily
indicative of the operating results to be expected for the year ending December
31, 2003.
Net Loss Per Common Share--Basic and diluted net loss per common share are
calculated by dividing net loss attributable to common stockholders by the
weighted average number of shares of common stock outstanding during the period.
At March 31, 2003, there were outstanding warrants to purchase 382,667 shares of
common stock that were not included in the computation of diluted net loss per
common share as their effect would have been anti-dilutive, thereby decreasing
the net loss per common share.
Revenue Recognition-Revenue is recognized when a valid contract or purchase
order has been executed or received, services have been performed or product has
been delivered, the selling price is fixed or determinable, and collectibility
is reasonably assured. Sales of equipment related to long-term service
contracts, which do not meet this criteria, are deferred over the period of the
contract and are recorded as unearned revenue.
NOTE 2--GOING CONCERN
The Company has a working capital deficit, a stockholders' deficit, and
recurring net losses. These factors create substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustment that might be necessary if the Company is unable to continue as a
going concern.
The ability of the Company to continue as a going concern is dependent on the
Company generating cash from the sale of its common stock or obtaining debt
financing and attaining future profitable operations. Management's plans include
selling its equity securities and obtaining debt financing to fund its capital
requirements and ongoing operations, however, there can be no assurance the
Company will be successful in these efforts.
NOTE 3-- COMMON STOCK TRANSACTIONS
The Company sold 116,442 common shares for cash of $239,874 and paid $34,464,
or 16,730 common shares for services.
6
NOTE 4-- CASH FLOW INFORMATION
Actual amounts paid for interest for the three months ended March 31, 2003 and
2002, were $2,574 and $1,963, respectively. No income taxes were paid for the
respective periods.
During the three months ended March 31, 2003, the Company received a commission,
which reduced its deferred purchase obligation and was recorded as an increase
of $9,000 to deferred revenue.
During the three months ended March 31, 2003, the Company reacquired 96,600
shares of its common stock for a reduction in deferred compensation of $149,333
and subscriptions receivable of $9,317.
During the three months ended March 31, 2003, the Company disposed of equipment
in exchange for accrued an liability of $12,540.
During the three months ended March 31, 2002, the Company acquired $103,196 of
equipment in exchange for a deferred purchase obligation.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
for Operations
CeriStar is in the telecommunications industry, providing a new generation of
services using fiber optic cable. Its principal product is the delivery of
voice, video and data services over a fiber network. These services include
local and long distance telephone, video conferencing, cable television with
video on demand, computer email and host of other related services.
On September 10, 2002, CeriStar merged with a wholly owned subsidiary of Planet
Resources Inc., a non-operating company, together referred to as Planet, in
which all the issued and outstanding stock of CeriStar, including shares of
Common Stock, shares of Series A Convertible Preferred Stock and shares Series B
Convertible Preferred Stock were exchanged for shares of Planet Common Stock.
The shares of Series A and B Convertible Preferred Stock of CeriStar were each
exchanged for .757 shares of Planet Common Stock and the Common Stock of
CeriStar were each canceled and converted into .332 shares of Common Stock of
Planet. Prior to the merger Planet authorized a 1 for 5.23 reverse stock split.
The merger was accounted for as a reverse merger with CeriStar being the
accounting acquirer. On October 15, 2002, Planet Resources Inc. was renamed
CeriStar, Inc.
Results of Operations
Three Months Ended March 31, 2003, Compared to Three Months Ended March 31,
2002.
CeriStar had a net loss for the first three months of 2003 of $1,124,000
compared to a loss of 250,000 for the first three months of 2002. The first
quarter revenues of 2003 were $106,000 as compared $158,000 in the first quarter
of 2002. For the three months ended March 31, 2002, CeriStar realized $116,000
more revenue in initial equipment installation sales, which accompanied
short-term service contracts. During the three months ended March 31, 2003,
CeriStar increased its ongoing service revenue by $47,000 over the prior year
period due to an increase in its customer base. Labor revenues, including
revenues related to engineering and design for a specific IP application,
increased by $18,000 in the first quarter of 2003.
Gross margins decreased from 47% for the three months ended March 31, 2002 to a
negative 17% for the comparable period of 2003. Because CeriStar is developing
its customer base, first quarter 2002 margins reflected mark-ups on initial
equipment sales on short-term contracts. The first quarter of 2003 reflected
margins from service revenues in which the cost exceeds revenues because of the
purchase of excess bandwidth for the support of the growing customer base. New
connections are expected to increase revenues without a substantial increase in
bandwidth costs.
Selling and administrative expenses increased by $781,000 from $323,000 in the
first quarter of 2002 to $1,104,000 in the first quarter of 2003. The most
significant part of this increase was $705,000 in stock payments expensed to
consultants assisting CeriStar in product positioning, customer identification
and strategic development as CeriStar converts to an operating company,
marketing our IP (Internet Protocol) application products and services. Other
expenses included $45,000 increase in payroll to $273,000 as additional
employees were hired to service the Company's growing customer base, a $12,000
increase in related travel expenses to $17,000 and a $14,000 increase in
promotion and advertising expenses to attract additional customers.
7
Liquidity and Capital Resources
CeriStar's revenues are not capable of supporting its current operations. Thus,
in the near term CeriStar will be dependent on the capital markets for funding.
This is best reflected in the working capital deficit as current liabilities
exceed current assets by $669,000. To meet these continuing funding needs
CeriStar is actively seeking the acquisition of new debt and equity capital.
CeriStar has proven its technology and can now efficiently deliver a technically
advanced product to a wide range of residential, commercial, educational and
governmental customers. In the past CeriStar has been focused on development and
testing of its technology, now the focus is on marketing this technology.
Expansion in CeriStar's current geographical area can be done fairly
inexpensively, as prior capital expenditures can service a significantly larger
customer base. Expansion into new market areas will be limited by the amount of
investment capital and equipment financing that can be acquired. CeriStar's
current plans will require additional equity and debt capital to fund
operations. A majority of this funding will be raised in the equity markets.. It
is anticipated that debt financing of equipment will become increasingly
available as the Company's products gain acceptance and our markets expand thus
leveraging its investment capital. In the short term, CeriStar will remain
dependent on new equity capital. No assurance can be made that the Company will
be successful in raising sufficient capital.
Item 3. Controls and Procedures
The Company's President and Chief Executive Officer and its Vice President of
Engineering and Finance, and Financial Officer (the "Certifying Officers"), are
responsible for establishing and maintaining disclosure controls and procedures
for the Company. The Certifying Officers have concluded (based on their
evaluation of these controls and procedures as of a date within 90 days of the
filing of this report) that the design and operation of the Company's disclosure
controls and procedures (as defined in Rule 13a-14c under the Securities
Exchange Act of 1934) are effective. No significant changes were made in the
Company's internal controls or in other factors that could significantly affect
those controls subsequent to the date of the evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not a party to any legal proceedings outside the ordinary course
of its business or to any other legal proceedings, which, if adversely
determined, would have a material adverse effect on the Company or its business.
Item 2. Changes in Securities
(a) Securities were materially modified as follows as a result of a forward
triangular merger of CeriStar, Inc. and Planet Resources, Inc.
On September 10, 2002, CeriStar merged with a wholly owned subsidiary of Planet
Resources Inc., a non-operating company, together referred to as Planet, in
which all the issued and outstanding stock of CeriStar, including shares of
Common Stock, shares of Series A Convertible Preferred Stock and shares Series B
Convertible Preferred Stock were exchanged for shares of Planet Common Stock.
The shares of Series A and B Convertible Preferred Stock of CeriStar were each
exchanged for .757 shares of Planet Common Stock and the Common Stock of
CeriStar were each canceled and converted into .332 shares of Common Stock of
Planet. Prior to the merger Planet authorized a 1 for 5.23 reverse stock split.
The merger was accounted for as a reverse merger with CeriStar being the
accounting acquirer. On October 15, 2002, Planet Resources Inc. was renamed
CeriStar, Inc.
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
(b) Exhibits
The following Exhibits are filed herewith pursuant to Rule 601 of Regulation S-B
or are incorporated herein by reference to previous filings.
No. Document
3.1 Certificate of Incorporation (1)
3.2 Amended Certificate of Incorporation (1)
3.3 Bylaws (1)
4.1 Specimen Common Stock Certificate (1)
10.1 2002 Directors, Officers and Consultants Stock Option, Stock Warrant
and Stock Award Plan (2)
99.1 Certification Pursuant to Section 906 of Sarbanes-Oxley Act 2002
99.2 Certification Pursuant to Section 906 of Sarbanes-Oxley Act 2002
(1) Incorporation by reference from Form 8-K, as filed on March 1, 2001 (2)
Incorporation by reference from Registration Statement on Form S-8, as
filed on September 10, 2002.
(3) Incorporation by reference from Form 8-K, as filed on September 17,
2002.
9
(b) Reports on Form 8-K
None
On November 25, the Company filed a Form 8-K/A regarding the merger
between CeriStar, Inc. and Planet Resources, Inc.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: May 20, 2003 /s/David L. Bailey
------------- -----------------------
David L. Bailey
Chairman of the Board,
President and Chief
Executive Officer
Dated: May 20, 2003 /s/G. Earl Demorest
------------- -----------------------
G. Earl Demorest
Vice President of Engineering
and Finance and Chief
Financial Officer
CERTIFICATIONS
I, David L. Bailey, certify that:
1. I have reviewed this quarterly Report on Form 10-QSB of CeriStar, Inc.;
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 quarterly
report;
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
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
10
(c) Presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly 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 20, 2003 By /s/David L. Bailey
------------ -----------------------
David L. Bailey
President and
Chief Executive Officer
CERTIFICATIONS
I, G. Earl Demorest, certify that:
1. I have reviewed this quarterly Report on Form 10-QSB CeriStar, Inc.;
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 quarterly
report;
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
registrant as of, and for, the periods presented in this quarterly report;
11
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) Presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly 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 20, 2003 By /s/G. Earl Demorest
------------ ----------------------
G. Earl Demorest
Vice President of
Engineering and Finance
and Chief Financial
Officer
12
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES - OXLEY ACT OF 2002
In connection with the quarterly report of Ceristar, (the "Company") on Form
10-Q for the quarter ended September 30, 2002, David L.Bailey, hereby certifies,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes - Oxley Act of 2002, that to the best of his knowledge:
1. The quarterly report fully complies with the requirements of Section 13(a) of
the Securities Exchange Act of 1934; and
2. The information contained in the quarterly report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
May 20, 2003 /s/David L. Bailey
------------ --------------------
(Date) David L. Bailey
President and Chief Executive
Officer
EXHIBIT 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES - OXLEY ACT OF 2002
In connection with the quarterly report of Ceristar, (the "Company") on Form
10-Q for the quarter ended September 30, 2002, G. Earl Demorest, hereby
certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes - Oxley Act of 2002, that to the best of his knowledge:
1. The quarterly report fully complies with the requirements of Section 13(a) of
the Securities Exchange Act of 1934; and
2. The information contained in the quarterly report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
May 20, 2003 /s/G. Earl Demorest
------------ --------------------
(Date) G. Earl Demorest
Vice President of Engineering
and Finance and Chief
Financial Officer