UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF
THE SECURITIES ACT OF 1934
For the fiscal year ended December 31, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-16381
CeriStar, Inc.
(Name of small business issuer in its charter)
Delaware 87-0642448
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
50 West Broadway, Suite 1100, Salt Lake City, Utah 84101
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (801) 350-2017
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
(Title of Class)
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 [
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year were $430,630.
The aggregate market value of the voting stock held by non-affiliates
of the Issuer as of March 31, 2004 was approximately $1,591,400 based on the
closing price on that date on the OTC Bulletin Board.
On March 31, 2004, there were 8,004,450 shares of the issuer's common
stock outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
CERISTAR, INC.
Annual Report on Form 10-KSB
For the Fiscal Year Ended December 31, 2003
TABLE OF CONTENTS
Page
----
PART I
Item 1. Description of Business....................................... 1
Item 2. Description of Properties..................................... 9
Item 3. Legal Proceedings............................................. 9
Item 4. Submission of Matters to a Vote of Security Holders........... 9
PART II
Item 5. Market for Common Equity and Related Stockholder Matters...... 10
Item 6. Management's Discussion and Analysis or Plan of Operation..... 11
Item 7. Financial Statements and Supplementary Data................... 19
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure...................................... 19
Item 8A. Controls and Procedures....................................... 19
PART III
Item 9. Directors and Executive Officers of the Company............... 19
Item 10. Executive Compensation........................................ 22
Item 11. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters............................... 26
Item 12. Certain Relationships and Related Transactions................ 27
Item 13. Exhibits, Financial Statement Schedules and Current Reports
on Form 8-K................................................... 28
Item 14. Principal Accountant Fees and Services........................ 29
Signatures................................................................... 30
This report contains trademarks and trade names that are the property
of CeriStar, Inc. and its subsidiaries, and of other companies, as indicated.
PART I
This Annual Report on Form 10-KSB contains forward-looking statements
within the meaning of the federal securities laws. These statements include
those concerning the following: our intentions, beliefs and expectations
regarding our future success and results; our operating results; our
expectations regarding our revenues and customers; and our distributors and
territorial expansion efforts. These statements are subject to risks and
uncertainties that could cause actual results and events to differ materially.
For a detailed discussion of these risks and uncertainties, see the "Business"
section of this Form 10-KSB.
CeriStar, Inc. undertakes no obligation to update forward-looking
statements to reflect events or circumstances occurring after the date of this
Form 10-KSB.
ITEM 1. DESCRIPTION OF BUSINESS
Background
----------
CeriStar, Inc. ("CeriStar" or the "Company") was incorporated in
December 1999 in the State of Delaware. We are an Internet Protocol ("IP")
Communication Services Provider, leading the convergence of voice, video and
data by providing "Triple Play" communications services to residential,
commercial and municipal concerns through reliable, fast and intelligent IP
networks. Our current principal operations are related to providing residential
subscribers with integrated voice, video and data communications services over
Fiber-to-the-Premise ("FTTP"). These communications services include a robust IP
telephony package (commonly referred to as "VoIP"), high-speed Internet
connectivity, broadcast and IP entertainment services such as HDTV,
video-on-demand, games-on-demand and security services. We also manage our
quality of service ("QoS") and provide customer service and billing functions as
well as integration, engineering and management support for our customer base
and network.
On September 10, 2002, we entered into a forward triangular merger with
Planet Resources, Inc., a Delaware corporation ("Planet"), in which all of our
issued and outstanding common and preferred stock was exchanged for Planet's
common stock with each of our Series A and B preferred stock being exchanged for
..757 shares of Planet's common stock and our existing common stock was exchanged
for .322 shares of Planet's common stock (the "Merger"). Prior to the Merger,
Planet had no operations for two years. On October 15, 2002, Planet Resources
Inc. was renamed as CeriStar, Inc.
Market Opportunity
------------------
The convergence of voice, video and data in today's marketplace is
being facilitated by the maturation of certain IP technologies, primarily Voice
over IP ("VoIP"). VoIP allows voice communication to be "digitized" into data
packets and transported over data networks, thereby allowing voice, as well as
video and data, to be delivered efficiently over the same network.
Traditionally, these services have been provided via multiple delivery systems
and until recent years via separate service providers, e.g., traditional
telephone vendors provided call termination over copper wires; television over
broadcast antenna, encoded cable or satellite receivers; and data services over
the Internet by Internet Service Provider's ("ISP's").
1
We believe that as IP technologies evolve many of the current
differences between cable TV signals, phone transmissions and Internet data will
converge until all broadband communications become IP-based, although there is
no assurance that such results will occur. Further, to provide a truly converged
network platform, bandwidth capacity and the capability to integrate, manage and
deliver large amounts of data and signals to the end user with superior quality
of service (QoS) is a key component. We believe that fiber optic cable will
serve as the key component to achieve this goal.
According to the Fiber to the Home ("FTTH") Council, as of September
2003, there were 94 Optical Fiber Communities across 26 states in the United
States with communities being passed by fiber. Industry estimates forecast
overall residential fiber access (Fiber-to-the-Home or FTTx) to be made
available to over more than 1 million North American homes in 2004 and is
expected to increase to 26 million by 2008.
The smaller housing development market is of particular importance to
us and other smaller businesses in this field, since such developments are less
likely to be a target for early FTTx deployment and converged services from the
larger industry players. As of March 2004, we are currently offering the Triple
Play of integrated phone, video and Internet services over fiber networks to
customers who are located in the State of Utah. Using our existing reference
base of customers, we believe that we are positioned to emerge as a premier
market player as mainstream adoption of converged IP network services occurs in
the residential market, although no assurance can be made that such results will
be the case.
A transition to a pure IP environment has important implications for
all organizations, including, items such as:
o Reduced network infrastructure costs;
2
o Lower IT capital costs;
o Reduction in cost to provide traditional moves/adds/changes to
subscriber services;
o Reduction in complexity of network management;
o Reduced long distance telephony charges;
o Overall increase in productivity; and
o Reduces management and administrative costs.
While other competitors offer various components of IP Engineering
(i.e., broadband, building controls and office applications) or even "bundled"
communication services, we are among only a handful of providers that offer a
complete converged services solution, or "all-in-one package" which creates a
more efficient and technologically advanced home or business environment. This
integrated service profile results in significant competitive advantage for the
residential or commercial building developers and contains additional feature
and cost advantages for subscribers.
Our Corporate Vision and Mission
Our mission is to be a leading provider of converged voice, video and
data communications. We are working towards this goal by leveraging a thorough
understanding of the suppliers, networks and technologies which, we believe,
enable Triple Play networks and services for the future. Our current leadership
is geared towards a result with tight integration of the operational dynamics
and protocols of these new and emerging enabling technologies. Our future,
through our current leadership believes that the following factors will help us
reach our corporate goal:
o Exploit our understanding of current customer and market
communications requirements;
o Leverage our extensive knowledge of the networks and technologies
that are enabling Triple Play networks and services for the
future;
o Strengthen our relationships with suppliers and partners who are
delivering the needed core components for Triple Play networks;
o Draw upon and utilize the deep resources and experiences of our
executive team and integrate those elements into a meaningful,
customer driven services platform; and
o Deliver services in a timely and cost efficient manner, creating
high quality and a value-rich environment for our current and
prospective customers and partners.
3
Business Strategy
-----------------
Our primary goals are to grow revenues, achieve profitability and
maximize shareholder value. We believe that to achieve our goal of becoming a
leading provider of Triple Play services, providing communications, applications
and entertainment to our subscribers, we need to continually refine our core
services and expand and offer additional services as technology and costs
related to such additional services permit. We have identified certain key
elements to increase our market presence and growth strategy, which include:
o Focus marketing efforts where they can be most effective. We
currently market our services primarily to "Greenfield"
residential housing developers where we are able to leverage our
skills and size by reaching a larger number of subscribers through
a single contact point;
o Speed the widespread adoption of IP converged communications by
demonstrating its feasibility and benefits to developers,
municipalities and end-user subscribers;
o Continually refine and develop our brand;
o Build shareholder value through innovation, operational efficiency
and financial performance;
o Expand and refine our content offering;
o Expand our network model and services offering beyond our
historical markets in the State of Utah by partnering and/or
opening new offices in new regions in order to both increase
revenues and improve profitability; and
o Make strategic acquisitions wherever possible.
IP Network Service Offerings
----------------------------
Our service offerings are integrated and delivered through systems that
have been designed to create an open, converged platform within the community or
enterprise LAN and to provide equivalent bandwidth for other licensed IP
services. These systems guarantee the convergence and delivery of voice,
computer data, and video services over the same "pipe" and also act as a gateway
to all other service providers. We are able to deliver or manage the delivery of
these services through relationships with leading carriers and "best of breed"
service, application and content providers.
The following is a list of IP Enhanced products and services with the
designated (A) available today, (F) in the future. We believe the items that are
designated with an F should be available ranging from six months to two years.
4
Digital Packet TV A Outbound Calling to other VoIP Devices A
Expanded Channel Line-Up A Inbound DID Based Calling A
Pay-Per-View Television A Call Return A
Video-on-Demand Services A Call Forwarding A
Pay-per-View On-Demand A Call Waiting A
High Definition TV A Caller ID A
Digital Music Channels A Conference Calling A
World Wide Web at TV F Speed Dial A
Email at TV Control F Last Number Redial A
Appliance at TV Control F Voice Mail A
Gaming on Demand A Hosted IP Centrex Services A
Interactive Gaming A Hosted IP Call Center F
Wireless Access A Unified Messaging A
WiFi Hot Spot Installation F Speech Enhanced Voice Services F
WiFi access for Homes/Small Businesses F Find Me/Follow Me Services A
WiFi access for Laptops and PDA Access F Video Conferencing A
Hosted IP Telephone F Video Chat F
Outbound Calling to PSTN Devices A Full Featured Video Conferencing F
Secure Instant Messaging F Collaborative Work Space F
Energy Management A
Telephone Services
------------------
Using the latest in fiber optic and IP technologies, we provide
traditional voice telephony over IP (VoIP) and services such as Call Return,
Call Forwarding, Call Waiting, Caller ID, Conference Calling, Speed Dial and
Last Number Redial along with other unique features such as video conferencing.
We offer full local and long distance service, utilizing managed Internet
Protocol (IP) technology to deliver superior voice service with crystal clear
connections.
High Speed Internet Access/Data
-------------------------------
We currently provide Internet connectivity ranging from 128 kbps to 10
mbps on both the upstream and downstream and can provide up to 1gbps bandwidth
within the LAN. Internet service includes POP3 e-mail, integrated calendaring,
news and sports feeds.
Digital Packet Television (DPTV)
--------------------------------
Our customers will enjoy the advantages of increased programming
choices and advanced interactive services that greatly enhance their choices,
convenience and control. We provide crystal clear digital video quality and home
theatre quality audio as part of our television service to our customers. We
currently offer more than 230 channels of local off-air, basic, premium movie,
audio music channels, video-on-demand, near-video-on-demand, music-on-demand and
pay-per-view events delivered as "Digital Packet Television (DPTV)". Our network
also supports a migration to the new High Definition Television (HDTV)
standards. Advanced interactive services allows customers to enjoy the comfort,
control and convenience to answer their phone, check e-mail, fax documents, shop
at their favorite stores and surf the Internet.
5
Other Options and Services
--------------------------
o Wireless Internet connectivity for PDA's and/or laptops;
o Home security w/ remote monitoring;
o Remote temperature, lighting and access control.
o Physical Features
o Energy management
o Security;
o URL filtering; and
o Firewall and anti-virus applications.
Distribution Channels
---------------------
Our distribution channels and potential customers can be categorized in
the following categories:
o Business partners, such as real estate developers and building
owners;
o Direct sales - "Greenfield" residential developments, existing
residential neighborhoods and building owners;
o Service providers, such as MSO's content providers and equipment
suppliers; and
o Strategic alliances, which include industry leaders, channel
partners/re-sellers and universities and municipalities,
Competition
-----------
We face competition from larger, better capitalized companies. We
compete directly with cable and satellite television providers, such as Comcast,
EchoStar and DirecTV; traditional local and long distance POTS telephone
providers, such as Qwest; newly-emerging VoIP telephony providers, such as
Vonage; and small and large ISP's, such as EarthLink and Mindspring. Many of
these established companies have resources greater than ours and are direct
competitors. We believe that we compete favorably with these and other entities
in the smaller markets and especially in Greenfield developments on the basis of
technology, customer service, and quality assurance. Our prices are expected to
be generally lower and/or will include more features offering a better value
package. In addition, our market emphasis permits us to make these advanced
services available in underserved markets.
6
Regulatory Matters
------------------
We are currently licensed as a Common Local Exchange Carrier ("CLEC")
licensed with the Utah Public Utility Commission ("PUC") under certificate
number 2389, but we do not offer traditional CLEC services.
As a CLEC, may be subject to certain Public Utility Commission and
Federal Communications Commission rules and regulations for telephony services.
However, we believe that since we provide our service using 100% IP Protocol,
our VoIP services are not covered under current PUC and Federal Communications
Commission ("FCC") regulation. Any proposed or enacted changes should only
affect our voice services, but it is possible that new legislation in the future
could also affect our data and video services.
We do not hold any domestic license with the FCC.
Presently, the FCC does not regulate companies that provide IP
telephony services as common carriers or telecommunications service providers.
Despite current laws, the FCC's potential jurisdiction over the Internet is
broad because the Internet relies on wire and radio communications facilities
and services over which the FCC has long-standing authority.
We have previously requested CLEC status in other states and
territories of the United States, but do not presently intend to vigorously
continue to pursue such additional CLEC licenses. A CLEC designation permits the
resale of local telecommunications services.
Many states also impose various reporting requirements or require prior
approval for transfers of control of certified carriers, corporate
reorganizations, acquisitions of telecommunications operations, assignments of
carrier assets, including subscriber bases, carrier stock offerings and
incurrence by carriers of significant debt obligations. Certificates of
authority can generally be conditioned, modified, canceled, terminated or
revoked by state regulatory authorities for failure to comply with state law and
the rules, regulations and policies of the state regulatory authorities. Fines
and other penalties, including the return of all monies received for intrastate
traffic from residents of a state, may be imposed for such violations. In
certain states, prior regulatory approval may be required for acquisitions of
telecommunications operations.
Currently, we do not believe we are subject to any state regulation
with respect to our Internet related services. However, there can be no
assurances that VoIP will not be subject to such regulations in the future.
Additionally, we are not aware of any pending legislation that would have a
material adverse affect on our operations.
7
Most states have consumer protection laws that further define the
framework within which our marketing activities must be conducted. We intend to
comply fully with all laws and regulations; however, the constraints of federal
and state restrictions could impact the success of direct marketing efforts and
otherwise increase our costs of doing business.
Future Regulation
-----------------
Due to the increasing popularity and use of the Internet, it is
possible that additional laws and regulations may be adopted with respect to the
Internet, covering issues such as content, privacy, access to adult content by
minors, pricing, bulk e-mail, encryption standards, consumer protection,
electronic commerce, taxation, copyright infringement, and other intellectual
property issues.
We cannot predict the impact, if any, that future regulatory changes or
developments may have on our business, financial condition, or results of
operation. Changes in the regulatory environment relating to the Internet access
industry, including regulatory changes that directly or indirectly affect
telecommunication costs or increase the likelihood or scope of competition from
regional telephone companies or others, could increase our operating costs,
limit our ability to offer services and reduce the demand for our services.
As the law in this area develops, we could become liable for
information carried on, stored on, or disseminated through our gateways, it may
be necessary for us to take steps to reduce our exposure to this type of
liability through alterations in our equipment, expanded insurance coverage or
other methods. This may require us to spend significant amounts of money for new
equipment or premiums and may also require us to discontinue offering certain of
our products or services.
In a report to Congress in 1998, the FCC stated its intention to
consider whether to regulate voice and fax telephony services provided over the
Internet as "telecommunications" even though Internet access itself would not be
regulated. The FCC is also considering whether such Internet-based telephone
service should be subject to universal service support obligations or pay
carrier access charges on the same basis as traditional telecommunications
companies.
A governmental body could impose further sales and other taxes on the
provision of our services, which could increase the costs of doing business. A
number of state and local government officials have asserted the right or
indicated a willingness to impose taxes on Internet-related services and
commerce, including sales, use and access taxes. To date, no such laws have
become effective. We cannot accurately predict whether the imposition of any
such taxes would materially increase our costs of doing business or limit the
services which we provide. It may be possible to pass on some of these costs to
the consumer and continue to remain competitive.
8
Employees
---------
As of March 31, 2004, we had 12 employees and two independent
contractors. All of our employees are full-time. Of the 12 employees employed by
us, five are in service operations, two are in sales and marketing and five are
in general administration. One independent contractor provides sales and
marketing services to the Company on a month-to-month basis and one provides
technical engineering service. None of our employees are represented by a labor
union or subject to a collective bargaining agreement. We have never experienced
a work stoppage and consider our employee relations to be good.
ITEM 2. DESCRIPTION OF PROPERTIES
Our corporate headquarters are located in Salt Lake City, Utah. We
currently lease on a month-to-month leases approximately 2,750 square feet of
office space for a month rent with all additional charges equal to $1.29 per
square foot per month or approximately $3,500 per month . We believe that our
facilities are adequate to meet our requirements through the end of fiscal year
2004.
ITEM 3. LEGAL PROCEEDINGS
On March 4, 2004, a lawsuit captioned Wired, L.C. v. CeriStar, Inc. was
filed in the Third Judicial District Court, Salt Lake County, State of Utah.,
Case No. 040904512 (the "Wired Litigation"). Wired alleges a breach of contract
under an agreement that we entered into with Wired. We believe that the case is
without merit and in our response filed on March 24, 2004, we denied any breach
and asserted various affirmative defenses along with a counterclaims against
Wired for declaratory judgment. We will continue to vigorously defend our
position; however, we could be forced to incur material expenses if the
litigation continues and if result is against us, our business could be harmed.
Other than the Wired Litigation, we do not have any legal liabilities,
past or present that could cause material harm to our shareholders and us in the
future of which our management is aware.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal year ended December 31, 2003, no matters were
submitted to a vote of security holders through the solicitation of proxies or
otherwise.
9
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market Information
Our shares of common stock currently trade on the OTC Bulletin Board
under the trading symbol "CRTI.OB". Upon our merger with Planet, our stock was
traded under the trading symbol "PLNT.OB." until it was changed to our current
trading symbol on September 15, 2002. The following table sets forth the range
of high and low closing quotations for the first quarter of fiscal year 2004 and
each fiscal quarter for the last two fiscal years ending December 31, 2003 and
2002 as reported by the OTC Bulletin Board. The quotes represent inter-dealer
prices without adjustment or mark-ups, mark-downs or commissions and may not
necessarily represent actual transactions. The trading volume of our securities
fluctuates and may be limited during certain periods. As a result of these
volume fluctuations, the liquidity of an investment in our securities may be
adversely affected.
Year 2004 2003 2003 2003 2003 2002 2002 2002 2002
Quarter First Fourth Third Second First Fourth Third Second First
High $0.46 $0.58 $1.95 $0.95 $1.55 $2.25 $3.10 N/A N/A
Low $0.15 $0.26 $0.47 $0.48 $0.55 $1.05 $1.30 N/A N/A
On March 31, 2004, the final quoted closing price as reported by the
OTC Bulletin Board was $0.25 for each share of our common stock.
Holders of Record
As of March 31, 2004, there were 8,004,450 shares of Common Stock
outstanding, held by approximately 1,600 record holders.
Dividends
We have never paid a cash dividend on our common stock nor do we
anticipate paying cash dividends on our common stock in the near future. It is
our present policy not to pay cash dividends on the common stock but to retain
earnings, if any, to fund growth and expansion. Under Delaware law, a company is
prohibited from paying dividends if the company, as a result of paying such
dividends, would not be able to pay its debts as they become due, or if the
company's total liabilities and preferences to preferred shareholders exceed
total assets. Any payment of cash dividends on the our common stock in the
future will be dependent on the Company's financial condition, results of
operations, current and anticipated cash requirements, plans for expansion, as
well as other factors the Board of Directors deems relevant. At the time of the
merger with Planet, both CeriStar's common and preferred shares were converted
to Planet's common stock. With the change of Planet's name to CeriStar this
common stock is referred to as CeriStar's New Common Stock.
CeriStar is also registered on the Berlin Stock Exchange.
There were no recent sales of unregistered securities.
10
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and the related notes included in Item 7 of this Form 10-KSB. This
discussion contains forward-looking statements. These statements are based on
our current expectations, assumptions, estimates and projections about our
business and our industry, and involve known and unknown risks, uncertainties
and other factors that may cause our or our industry's results, levels of
activity, performance or achievement to be materially different from any future
results, levels of activity, performance or achievements expressed or implied in
or contemplated by the forward-looking statements. Our actual results and the
timing of selected events could differ materially from those anticipated in
these forward-looking statements as a result of selected factors, including
those set forth below under "Risk Factors Affecting Operations and Future
Results."
Company and Industry Overview
CeriStar, incorporated in December of 1999 in Delaware, provides
converged voice, video and data services - the "Triple Play" - to residential,
commercial and municipal concerns through reliable, fast and intelligent IP
networks. The Company's current principal offering is to provide residential
subscribers with integrated voice, video and data communications services over
Fiber-to-the-Premise (FTTP). These communications services include a robust IP
telephony package (VoIP), high-speed Internet connectivity, broadcast and IP
entertainment services such as HDTV, video-on-demand, games-on-demand, as well
as security services. CeriStar also manages the quality of service (QoS) and
provides customer service and billing, as well as integration, engineering and
management support for its customer base and for its network.
On September 10, 2002, CeriStar merged with a wholly owned subsidiary
of Planet Resources Inc., a non-operating publicly held company, together
referred to as Planet, in which all the issued and outstanding stock of
CeriStar, including Convertible Preferred Series A shares and the Convertible
Preferred Series B shares, were exchanged for shares of common stock of Planet.
Series A and B preferred shares of CeriStar were exchanged at a rate of
approximately .757 for every common share of Planet and common shares of
CeriStar were exchanged into approximately .322 common shares of Planet. Just
prior to the merger, Planet authorized a 1 to 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 was renamed CeriStar, Inc. Since Planet had
no operations for the two years prior to the merger, only CeriStar's financial
condition and results of operations will be discussed.
Until we achieve profitability over several quarters, we must be
considered as a start-up entity. Until that time, we remain dependent on
financing resources for cash flows to meet certain operating expenses and offer
no assurance of our financial success or economic survival.
11
In 2003, the Company moved from development stage into that of an
operating company and have acquired significant assets required to conduct our
business. While we believe that our service capability enables us to compete
effectively in the Triple Play services market, there can be no assurances that
any benefit will result from these activities.
We received limited revenues and incurred expenses in excess of
revenues during our development in 2003.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of financial statements requires management to
make estimates and judgments that affect the reported amounts of assets and
liabilities, revenue and expenses and disclosures at the date of the financial
statements. On an ongoing basis, we evaluate our estimates, including those
related to accounts receivable, inventories, other intangibles and income taxes.
We use authoritative pronouncements, historical experience and other assumptions
as the basis for making estimates. Actual results could differ from those
estimates.
We identified our most critical accounting policies to be related to
revenue recognition, asset valuation and accounting for stock options. A
complete list of our accounting policies is contained in Note 1 to the notes of
the consolidated financial statements.
1. 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. Payments received prior to performance are recorded as
deferred revenue. The company enters into long-term service contracts in which
it receives payments for initial equipment installation. These revenues are
typically deferred over the life of the service term. Equipment installations
relating to residential monthly contracts are recognized when installed.
2. Allowance for Doubtful Accounts
Financial instruments which potentially subject the Company to
concentration of credit risk consist primarily of trade receivables. In the
normal course of business, the Company provides on-going credit evaluations of
its customers and maintains allowances for possible losses which, when realized,
have been within the range of management's expectations. Management assesses its
estimates of uncollectible accounts based on age of receivables and direct
negotiations with its customers if disputes arise.
12
3. Impairment of Long-lived Assets
We review our long-lived assets for impairment when events or changes
in circumstances indicate that the book value of an asset may not be
recoverable. We evaluate, at each balance sheet date, whether events and
circumstances have occurred which indicate possible impairment. We use an
estimate of future undiscounted net cash flows of the related asset or group of
assets over the estimated remaining life of in measuring whether the assets are
recoverable.
4. Accounting for Stock-based Compensation
We account for stock-based compensation issued to employees and
directors under Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees," and related interpretations. Under APB No. 25,
compensation related to stock options, if any, is recorded if an option's
exercise price on the measurement date is below the fair value of the Company's
common stock and amortized to expense over the vesting period. Compensation
expense for stock awards or purchases, if any, is recognized if the award or
purchase price on the measurement date is below the fair value of the common
stock and is recognized on the date of award or purchase. Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock Based
Compensation," requires pro forma information regarding net loss and net loss
per common share as if the Company had accounted for its stock options granted
under the fair value method.
We account for stock-based compensation issued to persons other than
employees using the fair value method in accordance with SFAS No. 123 and
related interpretations. Under SFAS No. 123, stock-based compensation is
determined as either the fair value of the consideration received or the fair
value of the equity instruments issued, whichever is more reliably measurable.
The measurement date for these issuances is the earlier of either the date at
which a commitment for performance by the recipient to earn the equity
instruments is reached or the date at which the recipient's performance is
complete.
5. Recent Accounting Pronouncements
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN No. 45). FIN No. 45 requires certain
guarantees to be recorded at fair value, which is different from current
practice to record a liability only when a loss is probable and reasonably
estimable, as those terms are defined in FASB Statement No. 5, "Accounting for
Contingencies." FIN No. 45 also requires us to make significant new disclosures
about guarantees. The disclosure requirements of FIN No. 45 are effective for
the first quarter of fiscal year 2003. FIN No. 45's initial recognition and
initial measurement provisions are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. Our previous accounting
for guarantees issued prior to the date of the initial application of FIN No. 45
will not be revised or restated to reflect the provisions of FIN No 45. The
adoption of FIN No. 45 did not have a material impact on our consolidated
financial position, results of operations or cash flows.
13
In December 2002, the FASB issued SFAS No. 148 "Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123," which is effective for all fiscal years ending after
December 15, 2002. SFAS No. 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation under SFAS No. 123 from the intrinsic value based method
of accounting prescribed by APB Opinion No. 25. SFAS 148 also changes the
disclosure requirements of SFAS 123, requiring a more prominent disclosure of
the pro-forma effect of the fair value based method of accounting for
stock-based compensation. The adoption of SFAS No. 148 did not have a material
impact on our financial position or operations.
In December 2003, the FASB issued Interpretation No. 46 ("FIN 46R")
(revised December 2003), Consolidation of Variable Interest Entities, an
Interpretation of Accounting Research Bulletin No. 51 ("ARB 51"), which
addresses how a business enterprise should evaluate whether it has a controlling
interest in an entity through means other than voting rights and accordingly
should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46 (FIN
46), which was issued in January 2003. Before concluding that it is appropriate
to apply ARB 51 voting interest consolidation model to an entity, an enterprise
must first determine that the entity is not a variable interest entity ("VIE").
As of the effective date of FIN 46R, an enterprise must evaluate its involvement
with all entities or legal structures created before February 1, 2003 to
determine whether consolidation requirements of FIN 46R apply to those entities.
There is no grandfathering of existing entities. Public companies must apply
either FIN 46 or FIN 46R immediately to entities created after January 31, 2003
and no later than the end of the first reporting period that ends after March
15, 2004. The adoption of FIN 46 had no effect on the Company's consolidated
financial position, results of operations or cash flows.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
Statement is effective for contracts entered into or modified after June 30,
2003, with certain exceptions, and for hedging relationships designated after
June 30, 2003, with certain exceptions. Management is currently evaluating the
effect that the adoption of SFAS No. 149 may have, but believes it will not have
a material effect on its results of operations and financial position.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
new statement changes the accounting for certain financial instruments that,
under previous guidance, issuers could account for as equity or classifications
between liabilities and equity in a section that has been known as "mezzanine
capital." It requires that those instruments be classified as liabilities in
balance sheets. Most of the guidance in SFAS 150 is effective for all financial
instruments entered into or modified after May 31, 2003. Adoption of SFAS No.
150 did not have a material effect on our financial statements.
14
Results of Operations
Year ended December 31, 2003 compared to the Year ended December 31, 2002
-------------------------------------------------------------------------
Revenues as reported decreased 17% for the year ended December 31, 2003
compared to the year ended December 31, 2002. Revenues for the fiscal year ended
2003 were $431,000 compared to $521,000 in 2002, a decrease of $90,000. This
decrease was primarily due to the continuing migration away from equipment
related revenues and towards recurring service revenues. Realized equipment
sales also decreased from the prior year period due to the deferral of certain
revenues. Equipment sales decreased from $214,000 in fiscal 2002 to $26,000 in
fiscal 2003.
In fiscal 2003, revenues from providing services increased 38% to
$370,000, compared with $269,000 in fiscal 2002 due primarily to the increase in
service contracts and subscriber base.
Cost of sales increased by $46,000 from $465,000 in 2002 to $511,000 in
2003. This increase is the result of adding a significant amount of bandwidth to
our expanding residential customer service network. Bandwidth costs were
$112,000 higher in 2003 than 2002. These bandwidth circuits can manage a
substantially larger customer base in the future and so new customers can be
added to our residential service network at relatively little additional
bandwidth cost. Gross margin on sales in 2003 was a negative $81,000 compared to
a positive gross margin in 2002 of $56,000. This change was primarily due to two
factors, first the higher bandwidth costs relating to the addition of new
residential customers, and second the decline in high margin equipment sales. In
2002 equipment sales, primarily to commercial customers, totaled $214,000 while
in 2003 had only $26,000 in equipment sales.
Administrative expenses in 2003 totaled $3,868,000, compared to
$2,768,000 in 2002, an increase of $1,100,000 or a 39.7 percent increase. A
majority of the 2003 administrative expenses related to stock based compensation
to consultants and amortization of deferred compensation to employees and stock
subscriptions for contracts entered into in 2002. Expenses related to stock
compensation totaled $2,529,000, or 65.4 percent of administrative expenses paid
in 2003. Administrative expenses related to stock compensation in 2002 totaled
$1,687,000 which was 60.9 percent of total administrative expenses in 2002.
During 2003, $2,202,000 in stock compensation was paid to consultants advising
CeriStar on product positioning, customer identification and business plan
consulting issues compared to $1,305,000 in 2002 including merger costs with
Planet Resources. The remaining increase in general and administrative expenses
relates primarily to increases in labor costs, travel, and bad debt expense.
15
Labor expenses increases from $912,000 in 2002 to $984,000 in 2003 for
engineering and support to accommodate residential expansion being only
partially offset by reduced marketing payroll expense as CeriStar narrowed its
marketing focus to primarily the residential market. Travel expenses also
increased to $84,000 in 2003 compared to $25,000 in 2002. Travel expense
increase is primarily related housing and travel expenses incurred by the new
management team, whose primary residence is outside the State of Utah. Bad debt
expenses also increase to $126,000 in 2003 from $16,000 in 2002, reflecting
collection concerns related to commercial customers. Office, insurance and
advertising expense also increased, again a reflection of the residential market
expansion.
Liquidity and Capital Resources
As of December 31, 2003, current assets were $245,000 while current
liabilities were $1,911,000 equaling a $1,666,000 working capital deficit. In
order for CeriStar to continue operating, additional capital is essential as
operating revenues are not capable of supporting current operations. During
2003, CeriStar received approximately $462,000 from the sale of its common
stock, and borrowed $1,177,000 to fund operations and equipment purchases. A
majority of the borrowed funds are short-term and either have warrants attached
or are convertible into common stock.
Our principal sources of liquidity and operating capital are the net
proceeds from debt and the issuance of common stock for cash, which provided net
cash proceeds of approximately $1,607,000 and $859,000 respectively, in 2003 and
2002. This cash was used to fund operations and the purchase of $287,000 of
equipment in 2003 and $86,000 of equipment in 2002. Of the short-term debt
incurred in 2003, $864,000 was received from a finance company. Operating
activities used $1,184,000 in 2003 and $748,000 in 2002.
To meet our funding needs in 2004, CeriStar is actively seeking debt
and equity funding in both the public and private capital markets. There can be
no assurances that adequate funding can be obtained.
Risks Related to Our Business
Certain statements contained in this Form 10-KSB, and other written and
oral statements made from time to time by us, do not relate strictly to
historical facts. These statements are considered "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Words such as "anticipate," "believe,"
"could," "estimate," "expect," "forecast," "intend," "may," "plan," "possible,"
"project," and "should," or similar words or expressions, are intended to
identify forward looking statements. This forward looking information involves
important risks and uncertainties that could materially alter results in the
future from those expressed in any forward looking statements made by, or on
behalf of, us. We caution you that such forward-looking statements are only
predictions and actual events or results may differ materially. In evaluating
such statements, you should specifically consider the various factors that could
cause actual events or results to differ materially, including those factors
described below. It is not possible to foresee or identify all factors affecting
our forward-looking statements and you should not consider any list of such
factors to be exhaustive. We are under no duty to update any forward-looking
statements.
16
We have substantial losses and negative cash flow.
Since our inception in 1999, we have had substantial and recurring
losses and negative cash flow. We are at risk of continued losses until our
revenues increase. There is no assurance that we can increase our revenue
sources and it is unlikely that we can lower our expenses in our present mode of
operations. We may never earn profits. If we continue to lose money over a
period of time, we may be forced to discontinue our operations.
We required substantial capital to grow our business and sustain
current operations.
Since our inception, we have required substantial capital to fund our
business operations. Our future capital requirements will depend upon many
factors, including the adoption of converged, Triple Play services, requirements
to maintain adequate telecommunications capabilities, expansion of our marketing
and sales efforts and the status of competitive products and services.
Our business operates at a loss and we require additional capital to
fund current operations.
Historically, our revenues have been less than our expenses and we have
financed our operations primarily through sales of equity and debt securities.
We expect to enter into additional financial transactions, which could result in
significant dilution or substantial indebtedness.
Our access to capital is uncertain.
We have no commitments, agreements or understandings regarding
additional financing and we may be unable to obtain additional financing on
satisfactory terms or at all. We expect to pursue additional financing through
the private placement of debt or equity. If additional funds are raised or
acquisitions are made by issuing equity securities, further dilution to the
existing stockholders will result. We may also incur or assume substantial
indebtedness. These arrangements may require us to relinquish rights to certain
of our existing or potential products or other assets. Accordingly, the
inability to obtain such financing could have a material adverse affect on our
business, financial condition and results of operations. Our future revenue and
operating results depend on a number of factors.
17
We are in a rapidly changing industry which affects our ability to
forecast growth and revenues.
Our short operating history and the rapidly changing nature of the
market in which we compete make it difficult to accurately forecast our revenues
and operating results. Our quarterly operating results are unpredictable and we
expect them to fluctuate in the future due to a number of factors. These factors
may include, among others things:
o The amount and timing of operating costs and capital expenditures
relating to the growth of our business;
o The costs to develop and introduce new products and services in
response to changing market conditions and customer preferences:
o The announcement or introduction of new or enhanced products or
services by our competitors; and
o The entrance of a large, better capitalized competitor into our
markets.
In view of such fluctuations, we believe that quarterly comparisons of
our financial results are not necessarily meaningful and should not be relied
upon as a measure of future performance.
We may not be able to attract customers for our services.
There is no assurance that we will be able to obtain adequate
distribution of our services to a large number of subscribers. We believe that
our ability to achieve revenues in the future will depend in significant part
upon our ability to build upon existing relationships with, and provide support
to, large, residential developers. As a result, any cancellation, reduction or
delay may materially adversely affect our business, financial condition and
results of operations.
If we make any acquisitions, we will incur a variety of costs and may
never realize the anticipated benefits.
We may attempt to acquire businesses, technologies or products that we
believe are a strategic fit with our business. If we undertake any transaction
of this sort, the process of integrating a business, technology or product may
result in operating difficulties and expenditures which may absorb significant
management attention that would otherwise be available for ongoing development
of our business. Moreover, we may never realize the anticipated benefits of any
acquisition. Future acquisitions could result in potentially dilutive issuances
of equity securities, the incurrence of debt, contingent liabilities and/or
amortization expenses related to goodwill and other intangibles and the
incurrence of large immediate write-offs.
Our ability to attract and retain key management, employees and
consultants is uncertain.
We are dependent on our management staff. The loss of services of any
of these personnel could impede the achievement of our corporate goals and
development objectives. There can be no assurance that we will be able to
attract and retain personnel on acceptable terms given the competition among
telecommunications companies for experienced personnel. In addition, we do not
maintain "key-man" life insurance policies on any member of our management staff
and do not expect to obtain such policies in the near future.
18
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CERISTAR
Financial Statements
December 31, 2003 and 2002
19
CERISTAR, INC.
Index to Financial Statements
--------------------------------------------------------------------------------
Page
----
Independent auditors' report F-1
Consolidated balance sheet F-2
Consolidated statement of operations F-3
Consolidated statement of stockholders' deficit F-4
Consolidated statement of cash flows F-5
Notes to consolidated financial statements F-6
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of CeriStar Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Ceristar, Inc. as
of December 31, 2003 and 2002, and the related statements of operations,
stockholders' deficit and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated 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 financial position of CeriStar, Inc. as of
December 31, 2003 and 2002, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3, the Company
has a deficit in working capital, negative cash flows from operations, and
recurring net losses. These issues raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 3. The accompanying financial statements do not include
any adjustment that might result from the outcome of this uncertainty.
/s/Tanner + Co.
Salt Lake City, Utah
February 13, 2004
F-1
CERISTAR, INC.
Consolidated Balance Sheet
December 31,
--------------------------------------------------------------------------------
Assets 2003 2002
------ ------------------------------
Current assets:
Cash $ 164,183 $ 28,210
Accounts receivable, net of allowance for
doubtful accounts of $142,242 and $16,117,
respectively 68,570 52,945
Prepaid expenses 4,354 3,954
Deposits 8,379 8,338
------------------------------
Total current assets 245,486 93,447
Property and equipment, net 548,919 339,395
------------------------------
$ 794,405 $ 432,842
------------------------------
--------------------------------------------------------------------------------
Liabilities and Stockholders' Deficit
-------------------------------------
Current liabilities:
Accounts payable $ 436,924 $ 385,615
Accrued liabilities 303,871 101,888
Deferred revenue 236,509 181,296
Notes payable including related parties 933,515 2,708
------------------------------
Total current liabilities 1,910,819 671,507
Commitments and contingencies
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, 7,859,310 and
5,852,197 shares issued and outstanding,
respectively 7,859 5,852
Additional paid-in capital 10,477,098 8,546,387
Deferred compensation (96,843) (615,011)
Subscriptions receivable (28,430) (996,289)
Accumulated deficit (11,476,098) (7,179,604)
------------------------------
Total stockholders' deficit: (1,116,414) (238,665)
------------------------------
Total liabilities and stockholders'deficit $ 794,405 $ 432,842
------------------------------
--------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-2
CERISTAR, INC.
Consolidated Statement of Operations
Years Ended December 31,
--------------------------------------------------------------------------------
2003 2002
------------------------------
Service revenue $ 404,173 $ 306,512
Equipment sales 26,457 214,440
------------------------------
Total revenues 430,630 520,952
Cost of sales (511,362) (465,202)
Selling, general, and administrative expense (3,867,535) (2,767,581)
------------------------------
Loss from operations (3,948,267) (2,711,831)
Other income (expense) 734 1,753
Interest expense (348,961) (23,197)
------------------------------
Loss before benefit for income taxes (4,296,494) (2,733,275)
Income taxes benefit - -
------------------------------
Net loss $ (4,296,494) $(2,733,275)
------------------------------
Loss per common share - basic and diluted $ (0.62) $ (0.58)
------------------------------
Weighted average shares - basic and diluted 6,940,000 4,724,000
------------------------------
--------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-3
CERISTAR, INC.
Consolidated Statement of Stockholders' Deficit
Years Ended December 31, 2002, and 2001
---------------------------------------------------------------------------------------------------------------------------------
Preferred Stock Common Stock Additional Deferred Subscrip- Accumu-
------------------------------------- Paid-in Compen- tions lated
Shares Amount Shares Amount Capital sation Receivable Deficit
--------------------------------------------------------------------------------------------
Balance, January 1, 2002 - - 4,180,078 4,180 5,284,625 (821,033) (80,630) (4,446,329)
Issuance of common stock for:
Cash - - 328,654 329 482,584 -
Services - - 1,072,968 1,073 2,207,017 - (911,932) -
Subscription receivables and
compensation - - 175,322 175 352,328 (320,000) (6,211) -
Debt - - 147,768 148 308,708 - - -
Non-vested common stock reacquired
through employee terminations (52,593) (53) (163,875) 161,444 2,484 -
Amortization of deferred
compensation - - - - - 364,578 - -
Preferential conversion feature and
issue of warrants with long-term
debt - - - - 75,000 - - -
Net loss - - - - - - - (2,733,275)
--------------------------------------------------------------------------------------------
Balance, December 31, 2002 - - 5,852,197 5,852 8,546,387 (615,011) (996,289) (7,179,604)
Issuance of common stock for:
Cash - - 224,097 224 462,166 - - -
Services - - 1,949,383 1,949 1,264,362 - (769,144) -
Employee stock subscriptions
satisfied through services - - - - - - 69,894
Non-vested common stock canceled
through employee terminations - - (166,367) (166) (222,817) 211,500 11,483 -
Amortization of deferred
compensation and -
subscriptions receivable - - - - - 306,668 1,655,626
Preferential conversion feature and
issue of warrants with long-term
debt - - - - 427,000 - - -
Net loss - - - - - - - (4,296,494)
--------------------------------------------------------------------------------------------
Balance, December 31, 2003 - $ - 7,859,310 $ 7,859 $ 10,477,098 $ (96,843) $ (28,430) $ (11,476,098)
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-4
CERISTAR, INC.
Consolidated Statement of Cash Flows
Years Ended December 31,
--------------------------------------------------------------------------------
2003 2002
-----------------------------
Cash flows from operating activities:
Net loss $ (4,296,494) $ (2,733,275)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 77,414 63,682
Stock issued for services 497,167 1,322,450
Amortization of deferred compensation 306,668 364,578
Stock subscription satisfied with services 1,725,520 -
Amortization of discount on long-term debt 213,003 10,000
Bad debt expense 126,125 16,117
Decrease (increase) in:
Accounts receivable (90,181) (66,856)
Prepaid expense (400) -
Deposits (41) (8,338)
Increase (decrease) in:
Accounts payable 51,309 186,990
Accrued liabilities 201,983 40,489
Deferred revenue 3,644 56,396
-----------------------------
Net cash used in operating activities (1,184,283) (747,767)
-----------------------------
Cash flows used in investing activities-
purchase of property and equipment (286,938) (86,018)
-----------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 462,390 482,913
Proceeds from related party note 103,000 140,300
Payments on related party notes payable (9,798) -
Proceeds from note payable 209,916 228,394
Payments on note payable (10,090) (59,838)
Proceeds from convertible short-term debt 864,000 -
Proceeds from convertible long-term debt - 75,000
Payments on convertible long-term debt (12,224) (7,292)
-----------------------------
Net cash provided by financing activities 1,607,194 859,477
-----------------------------
Net increase in cash
and cash equivalents 135,973 25,692
Cash and cash equivalents at beginning of period 28,210 2,518
-----------------------------
Cash and cash equivalents at end of period $ 164,183 $ 28,210
-----------------------------
--------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-5
CERISTAR, INC.
Notes to Consolidated Financial Statements
December 31, 2003, and 2002
--------------------------------------------------------------------------------
1. Organization CeriStar, Inc. (formerly Planet Resources, Inc.) (the
and Company) operates in the communications industry as a
Description developer and service provider of IP technology applied
of Business to data convergence. The Company is located in Salt Lake
City, Utah, and was formed in December 1999.
On September 10, 2002 the Company entered into an
Agreement and Plan of Merger with Planet Resources, Inc
and its wholly owned subsidiary (together referred to as
Planet) in which all the issued and outstanding stock of
the Company, including Convertible Preferred Series A
shares (Series A) and Convertible Preferred Series B
shares (Series B), were exchanged for the issued and
outstanding stock of Planet. Series A and B shares were
exchanged at a rate of approximately .757 for every
common share of Planet and common shares of the Company
were converted into approximately .322 shares of Planet
common share. Just prior to the merger Planet authorized
a 1 to 5.23 reverse stock split. The merger was
accounted for as a reverse merger with the Company being
the accounting acquirer.
2. Summary of Concentration of Credit Risk
Significant Financial instruments which potentially subject the
Accounting Company to concentration of credit risk consist
Policies primarily of trade receivables. In the normal course of
business, the Company provides on-going credit
evaluations of its customers and maintains allowances
for possible losses.
The Company maintains its cash in bank deposit accounts
which, at times, may exceed federally insured limits.
The Company has not experienced any losses in such
accounts and does not believe it is exposed to any
significant credit risk on cash and cash equivalents.
Cash and Cash Equivalents
Cash includes all cash and investments with original
maturities to the Company of three months or less.
--------------------------------------------------------------------------------
F-6
CERISTAR, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
2. Summary of Property and Equipment
Significant Property and equipment are recorded at cost less
Accounting accumulated depreciation. Depreciation and amortization
Policies on capital leases and property and equipment are
Continued determined using the straight-line method over the
estimated useful lives of the assets or terms of the
leases. Depreciation and amortization periods are as
follows:
Computer equipment and software 3 - 5 years
Furniture and fixtures 5 years
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment
when events or changes in circumstances indicate that
the book value of an asset may not be recoverable. The
Company evaluates, at each balance sheet date, whether
events and circumstances have occurred which indicate
possible impairment. The Company uses an estimate of
future undiscounted net cash flows of the related asset
or group of assets over the estimated remaining life in
measuring whether the assets are recoverable. If it is
determined that an impairment loss has occurred based on
expected cash flows, such loss is recognized in the
statement of operations.
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. Payments received prior to
performance are recorded as deferred revenue.
Income Taxes
Deferred taxes are computed using the asset and
liability method. Under the asset and liability method,
deferred tax assets and liabilities are recognized for
future tax consequences attributable to differences
between the financial statement carrying amounts of
existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences
are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that
includes the enactment date. Deferred tax assets are not
recognized unless it is more likely than not that the
asset will be realized in future years.
--------------------------------------------------------------------------------
F-7
CERISTAR, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
2. Summary of Earnings Per Common and Common Equivalent Share
Significant The computation of basic earnings per common share is
Accounting computed using the weighted average number of common
Policies shares outstanding during the year.
Continued
The computation of diluted earnings per common share is
based on the weighted average number of shares
outstanding during the year plus common stock
equivalents which would arise from the exercise of
warrants outstanding using the treasury stock method and
the average market price per share during the year.
Warrants and convertible debt to issue 1,290,793 and
83,724 common stock equivalents are not included in the
diluted earnings per share calculation for 2003 and
2002, respectively, since their effect is anti-dilutive.
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 periods.
Actual results could differ from those estimates.
Stock-Based Compensation
The Company has adopted the disclosure only provisions
of Statement of Financial Accounting Standards (SFAS)
No. 123, "Accounting for Stock-Based Compensation."
Accordingly, In accordance with APB Opinion No. 25, no
compensation is recognized for options granted to
employees unless those options are re-priced and are
subject to variable accounting. No compensation expense
is recognized when stock options or warrants are granted
to employees. During the year ended December 31, 2003,
the Company issued 3,900,000 options to Officers of the
Company to purchase the Company's common stock at an
exercise price of $.38 to $.46 per share. These options
expire in 2013 and vest in November of 2004.
--------------------------------------------------------------------------------
F-8
CERISTAR, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
2. Summary of Stock-Based Compensation - Continued
Significant Had compensation cost for these options been determined
Accounting based upon the fair value at the grant date consistent
Policies with the methodology prescribed under SFAS No. 123, the
Continued Company's net earnings would have changed as set forth
in the table below:
Years Ended December 31,
-----------------------------
2003 2002
-----------------------------
Net income (loss) - as reported $ (4,296,494) $ (2,733,275)
Add: Stock-based employee compensation
expense included in reported net loss, net of
related tax effects - -
Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects (340,000) -
-----------------------------
Net income (loss) - pro forma $ (4,636,494) $ (2,733,275)
-----------------------------
Income (loss) per share - as reported $ (.62) $ (.58)
-----------------------------
Income (loss) per share - pro forma $ (.67) $ (.58)
-----------------------------
These options were valued at the date of grant with the
total calculated pro forma expense equal to
approximately $1,585,000. The pro forma expense is being
amortized over the vesting period of the option. No
options or warrants were issued to employees for the
year ended December 31, 2002.
The fair value of each warrant grant is estimated on the
date of grant using the Black-Scholes option pricing
model with the following assumptions at December 31:
2003 2002
----------------------------------
Expected dividend yield $ - $ -
Expected stock price volatility 100% 50.41%
Risk-free interest rate 4.0% 4.25%
Expected life of options 10 years 5 years
The weighted average fair value of each option granted
to employees during 2003 was $.41.
--------------------------------------------------------------------------------
F-9
CERISTAR, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
2. Summary of Reclassifications
Significant Certain amounts in the 2002 financial statements have
Accounting been reclassified to conform with classifications
Policies adopted in the current year.
Continued
3. Going The Company has a working capital deficit, a
Concern 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 requirement
and ongoing operations, however, there can be no
assurance the Company will be successful in these
efforts.
4. Property Property and equipment consists at December 31:
and
Equipment 2003 2002
----------------------------------
Computer equipment and software $ 694,137 $ 410,598
Furniture and fixtures 13,986 10,587
----------------------------------
708,123 421,185
Less accumulated depreciation
and amortization (159,204) (81,790)
----------------------------------
$ 548,919 $ 339,395
----------------------------------
--------------------------------------------------------------------------------
F-10
CERISTAR, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
5. Accrued Accrued liabilities consisted of the following at
Liabilities December 31:
2003 2002
----------------------------------
Accrued payroll $ 230,129 $ 90,445
Other 73,743 11,443
----------------------------------
$ 303,872 $ 101,888
----------------------------------
6. Deferred The Company has entered into long-term service contracts
Revenue which are accompanied by payments received from
customers for initial equipment installation to service
residential developments. Amounts received for the
initial equipment installation are deferred until they
are earned based on the terms of the contract. The
balance of the deferred revenue at December 31, 2003 and
2002 was $236,509 and $181,296, respectively.
7. Notes Payable Notes payable consisted of the following at December 31:
2003 2002
-----------------------------
Discounted convertible notes payable due to a
financing company. These notes have a face
interest rate of 18% and an effective interest
rate of 58% due to amortization of an original
discount of $338,000 of which $288,000 was due to
a beneficial con-version feature attached to the
notes and $50,000 of the discount in the
redemption value of the notes. The total
unamortized discount at December 31, 2003 was
$178,004. The notes are unsecured. Of the notes,
$197,000 are due on demand with the remainder due
through April 2004. The notes are convertible
upon maturity at a rate of 75% of the average
closing bid price of the Company's common stock
for the five trading days ending on the trading
day immediately preceding the conversion date. $ 685,996 $ -
--------------------------------------------------------------------------------
F-11
CERISTAR, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
7. Notes Payable
Continued
Note payable with an effective interest rate of
57% including an original discount of $78,015
from issuance of detachable warrants with the
note. As of December 31, 2003 the unamortized
portion of the discount was $45,509. The note is
due to a financing company and matures on August
2004. The note is secured by equipment. 136,491 -
Convertible notes due to a shareholder and former
officer of the Company. These notes bear
interest at 12%, are unsecured, and due on
demand. Subsequent to December 31, 2003 these
notes were in default. The notes are convertible
into approximately 186,000 shares at
approximately $.50 per share. 93,202 -
Note payable to an individual with interest at
10% secured by receivables and due on demand. 17,826 -
Note payable to a financial institution. The note
is payable in monthly installments of $1,744,
including interest at 14%, secured by equipment,
and matures on May 30, 2007. At December 31,
2003 and 2002 the outstanding balance of the debt
was 55,484 and 67,708 less a discount of $55,484
and $65,000, respectively. - -
----------------------------
$ 933,515 $ -
----------------------------
--------------------------------------------------------------------------------
F-12
CERISTAR, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
7. Notes Payable Future maturities of notes payable are as follows:
Continued
Year Ending December 31: Amount
------------------------ ------------------
2004 $ 947,556
2005 16,138
2006 18,548
2007 6,757
------------------
988,999
Less discount (55,484)
------------------
$ 933,515
------------------
8. Income The benefit for income taxes is different than amounts
Taxes which would be provided by applying the statutory
federal income tax rate to loss before benefit for
income taxes for the following reasons:
Years Ended
December 31,
----------------------------------
2003 2002
----------------------------------
Income tax benefit at
statutory rate $ 1,592,000 $ 1,020,000
Stock valuation for services (538,000) (472,000)
Change in valuation allowance (1,053,000) (546,000)
Other (1,000) (2,000)
----------------------------------
$ - $ -
----------------------------------
Deferred tax assets (liabilities) are comprised of the
following as of December 31:
2003 2002
----------------------------------
Net operating loss carry-forwards $ $ 1,370,000
Amortization of license technology 287,000 298,000
Depreciation (114,000) (48,000)
Deferred revenue 88,000 26,000
Allowance for doubtful accounts 43,000 6,000
Valuation allowance (2,705,000) (1,652,000)
----------------------------------
$ - $ -
----------------------------------
--------------------------------------------------------------------------------
F-13
CERISTAR, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
8. Income At December 31, 2003, the Company has net operating loss
Taxes carry-forwards available to offset future taxable income
Continued of approximately $6,437,000 which will begin to expire
in 2019. The utilization of the net operating loss
carry-forwards is dependent upon the tax laws in effect
at the time the net operating loss carry-forwards can be
utilized. A valuation allowance has been recorded
against the deferred tax asset due to the uncertainty
surrounding its realization caused by the Company's
recurring losses.
9. Common The Company has issued 360,760 and 240,742 warrants in
Stock conjunction with the issuance of its securities and
Warrants convertible debt during the years ended December 31,
2003 and 2002, respectively. Warrants that were issued
generally do not have a life that exceeds five years.
Information regarding warrants o purchase common shares
is summarized below:
Number of
Options Exercise
and Price Per
Warrants Share
----------------------------------
Outstanding at January 1, 2002 83,724 $ 1.67
Granted 240,742 1.67 - 4.50
Expired - -
----------------------------------
Outstanding at December 31, 2002 324,466 1.67 - 4.50
Granted 4,260,760 .38 - 4.50
Expired - -
----------------------------------
Outstanding at December 31, 2003 4,585,226 $ .38 - 4.50
----------------------------------
--------------------------------------------------------------------------------
F-14
CERISTAR, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
9. Common The following table summarizes information about
Stock outstanding warrants and options for common stock at
Warrants December 31,
Continued
Outstanding Exercisable
-----------------------------------------------------------------
Weighted
Average
Remaining Weighted
Range of Number Contractual Average Average
Exercise Out- Life Exercise Number Exercise
Prices standing (Years) Price Exercisable Price
-------------------------------------------------------------------------------
$ .38 - .58 3,900,000 9.79 $ .45 - $ -
1.00 - 2.55 395,489 2.41 1.39 395,489 1.39
3.30 - 4.50 289,737 2.04 3.71 289,737 3.71
-------------------------------------------------------------------------------
$ .38 - 4.50 4,585,226 8.66 $ .73 685,226 $ 2.37
-------------------------------------------------------------------------------
10. Stock Subscriptions receivable consist of the obligation of
Subscriptions employees to purchase common shares. In addition the
Receivable Company may enter into contracts with consultants in
which the Company issues stock at the commencement of
the contract period. The value of the services or common
stock given, which ever is more determinable is recorded
as a stock subscription and amortized as expense over
the period of the service contract. At December 31, 2003
and 2002 there were approximately $28,000 and $996,000
of subscriptions receivable related to these contracts
11. Deferred Deferred compensation is comprised of common stock
Compensationns issuances to employees which have not yet vested. As of
December 31, 2003 and 2002 the company had common stock
for employee services valued at $96,843 and $615,011,
respectively. The measurement date of compensation is
the date the shares were granted.
12. Supplemental During the year ended December 31, 2003, the Company had
Cash Flow significant non-cash financing and investing activities
Information as follows:
o Issued 1,282,000 common shares valued at
$769,144 to consultants for short-term
contract services.
--------------------------------------------------------------------------------
F-15
CERISTAR, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
12. Supplemental o Cancelled 166,367 unvested shares of common
Cash Flow stock valued at $222,983 recorded as deferred
Information compensation of $211,500 and subscriptions
Continued receivable of $11,483, due to employee
terminations.
o Issued warrants in connection with debt which
resulted in a debt discount of $139,000.
o Debt issued with beneficial conversion
features valued at $288,000 which resulted in
debt discounts.
o Recorded accounts receivable for unearned
revenue of $51,569.
During the year ended December 31, 2002, the Company:
o Financed the purchase of equipment with a
cash advance from a customer which it
classified as unearned revenue of $103,196.
o Issued 1,248,290 of the Company's common
shares for services of $1,325,660, deferred
compensation of $320,000 and subscriptions
receivable of $914,933.
o Exchanged 147,768 shares of the Company's
common stock for $308,708 of notes payable.
o Issued 45,420 warrants with a beneficial
conversion feature attached to long-term
debt, which resulted in a discount against
the long-term debt of $75,000.
o Reacquired, through employee terminations,
52,593 shares of the Company's common stock
for a reduction in deferred compensation of
$161,444 and subscriptions receivable of
$800.
o Acquired equipment in exchange for accounts
payable of $164,541.
--------------------------------------------------------------------------------
F-16
CERISTAR, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
12. Supplemental Cash paid for interest and income taxes are as follows:
Cash Flow
Information
Continued Years Ended
December 31,
----------------------------------
2003 2002
----------------------------------
Interest $ 122,214 $ 23,197
----------------------------------
Income taxes $ - $ -
----------------------------------
13. Related Party Related party transactions are as follows:
Transactions
Otherwise o During the year ended December 31, 2002, an
not disclosed officer of the Company and relatives of the
Officer exchanged $127,200 of notes payable
for 59,585 shares of the Company's common
stock.
14. Major Sales to customers which exceeded 10% of total sales are
Customers as follows for the years ended December 31:
2003 2002
----------------------------------
Customer A $ 155,000 $ 152,000
Customer B $ - $ 91,000
Customer C $ - $ 60,000
15. Commitments Litigation
and The Company may become or is subject to investigations,
Contingencies claims or lawsuits ensuing out of the conduct of its
business. The Company is currently not aware of any such
items which it believes could have a material effect on
its financial position.
16. Fair Value of The Company's financial instruments consist of cash,
Financial receivables and payables. The carrying amount of cash,
Instruments receivables, convertible long-term debt and payables
approximates fair value because of the short-term nature
of these items.
--------------------------------------------------------------------------------
F-17
CERISTAR, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
17. Recent In June 2002, the FASB issued SFAS No. 146, "Accounting
Accounting for Costs Associated with Exit or Disposal Activities."
Pronounce- This standard, which is effective for exit or disposal
ments activities initiated after December 31, 2002, provides
new guidance on the recognition, measurement and
reporting of costs associated with these activities. The
standard requires companies to recognize cost associated
with exit or disposal activities when they are incurred
rather than at the date the company commits to an exit
or disposal plan. The adoption of SFAS No. 146 by the
Company did have a material impact on the Company's
financial position or future operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting
For Certain Instruments with Characteristics of Both
Liabilities and Equity". This new statement changes the
accounting for certain financial instruments that, under
previous guidance, issuers could account for as equity
or classifications between liabilities and equity in a
section that has been known as "Mezzanine Capital". It
requires that those certain instruments be classified as
liabilities in balance sheets. Most of the guidance in
SFAS 150 is effective for all financial instruments
entered into or modified after May 31, 2003. The
adoption of SFAS No. 150 did not have a material impact
on the Company's consolidated financial statements.
In December 2003, the FASB issued Interpretation No. 46
("FIN 46R") (revised December 2003), Consolidation of
Variable Interest Entities, an Interpretation of
Accounting Research Bulletin No. 51 ("ARB 51"), which
addresses how a business enterprise should evaluate
whether it has a controlling interest in an entity
though means other than voting rights and accordingly
should consolidate the entity. FIN 46R replaces FASB
Interpretation No. 46 (FIN 46), which was issued in
January 2003. Before concluding that it is appropriate
to apply ARB 51 voting interest consolidation model to
an entity, an enterprise must first determine that the
entity is not a variable interest entity (VIE). As of
the effective date of FIN 46R, an enterprise must
evaluate its involvement with all entities or legal
structures created before February 1, 2003, to determine
whether consolidation requirements of FIN 46R apply to
those entities. There is no grandfathering of existing
entities. Public companies must apply either FIN 46 or
FIN 46R immediately to entities created after January
31, 2003 and no later than the end of the first
reporting period that ends after March 15, 2004. The
adoption of FIN 46 had no effect on the Company's
consolidated financial position, results of operations
or cash flows.
--------------------------------------------------------------------------------
F-18
CERISTAR, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
17. Recent In November 2002, the FASB issued Interpretation No. 45,
Accounting Guarantor's Accounting and Disclosure Requirements for
Pronounce- Guarantees, Including Indirect Guarantees of
ments Indebtedness of Others (FIN No. 45). FIN No. 45 requires
Continued certain guarantees to be recorded at fair value, which
is different from current practice to record a liability
only when a loss is probable and reasonably estimable,
as those terms are defined in FASB Statement No. 5,
Accounting for Contingencies. FIN No. 45 also requires
the Company to make significant new disclosures about
guarantees. The disclosure requirements of FIN No. 45
are effective for the Company in the first quarter of
fiscal year 2003. FIN No. 45's initial recognition and
initial measurement provisions are applicable on a
prospective basis to guarantees issued or modified after
December 31, 2002. The Company's previous accounting for
guarantees issued prior to the date of the initial
application of FIN No. 45 will not be revised or
restated to reflect the provisions of FIN No 45. The
Company does not expect the adoption of FIN No. 45 to
have a material impact on its consolidated financial
position, results of operations or cash flows.
The Emerging Issues Task Force issued EITF No. 00-21,
"Revenue Arrangements with Multiple Deliverables"
addressing the allocation of revenue among products and
services in bundled sales arrangements. EITF 00-21 is
effective for arrangements entered into in fiscal
periods after June 15, 2003. The Company does not expect
the adoption of EITF No. 00-21 to have a material impact
on the Company's future results of operations or
financial position
In December 2003, the Securities and Exchange Commission
(SEC) issued Staff Accounting Bulletin (SAB) No. 104,
Revenue Recognition. SAB 104 revises or rescinds
portions of the interpretive guidance included in Topic
13 of the codification of staff accounting bulletins in
order to make this interpretive guidance consistent with
current authoritative accounting and auditing guidance
and SEC rules and regulations. The adoption of SAB 104
did not have a material effect on the Company's results
of operations or financial condition.
--------------------------------------------------------------------------------
F-19
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 8A CONTROLS AND PROCEDURES
In designing and evaluating our disclosure controls an procedures,
management has recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives and, consequently, management has been required to
apply its judgment in evaluating the cost-benefit relationship of possible
controls and procedures.
Within 90 days prior to the filling date of this report, we carried out
an evaluation, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer (since their employment in
September 2003), of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on the foregoing, our Chief Executive
and Chief Financial Officer each has concluded that our disclosure controls and
procedures are effective in ensuring that information is accumulated and
communicated to both the Chief Executive and Chief Financial Officer, as
appropriate.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth our control persons and executive
officers.
Current Directors and Executive Officers
Name Age Position
---- --- --------
Frederick A. Weismiller 62 Chairman of the Board, Chief
Executive Officer and President
Michael B. Miller 60 Chief Operating Officer
Robert E. Lester 36 Chief Financial Officer
Mark S. Hewitt 52 Director
19
Former Directors and Executive Officers
David L. Bailey 64 Chairman of the Board, President and
Chief Executive Officer
Dane P. Goodfellow 58 Vice President of Marketing and
Director
G. Earl Demorest(1) 49 Vice President of Engineering and
Finance
Paul D. Losee 55 Vice President of Corporate
Development
Lark M. Allen 59 Director
(1) Mr. Demorest is the son-in-law of Mr. Bailey.
Fred A. Weismiller joined CeriStar as President and Chief Executive
Officer and Director in October 2003. In January 2004, Mr. Weismiller became our
Chairman of the Board of Directors. From September 2000 until September 2003,
Mr. Weismiller was employed by MFJCo., a telecommunications consultancy company
as their Chief Executive Officer. From September 2000 through June 2001, Mr.
Weismiller was the Chief Operating Officer for Mediacentric, Inc. From January
1995 until July 2000, Mr. Weismiller was employed by Pacific Gateway Exchange as
Executive Vice President - International Marketing. From 1990 until 1995, he was
employed by Telecom New Zealand, most recently as its Managing Director. From
1969 through 1989 Mr. Weismiller was employed by AT&T, most recently as a
Regional Managing Director. Prior to joining AT&T, Mr. Weismiller was with the
United States Navy as a Naval Aviation Officer from September 1963 until January
1969. Mr. Weismiller obtained a BSS degree in Economics from Fairfield
University in 1963 and a MBA in Professional Management from Pace University in
1974.
Michael B. Miller became our Chief Operating Officer in October 2003.
Mr. Miller has over thirty years of telecommunications experience, including
senior positions with U.S. West (now Qwest International), involved in
Engineering, Construction Management and Installation and Maintenance of Central
Office switching and transmission equipment. Before joining CeriStar, from May
2001 until September 2003, Mr. Miller was employed by MFJCo, a
telecommunications consultancy as its COO. From September 2000 through June
2001, Mr. Miller was the Senior Vice President - Operations for Mediacentric.
Between May 1998 and August 2000, Mr. Miller was an operational consultant to
Nextink Communications (now XO Communications). From February 1962 until April
1998, he was employed in a variety of position for US West Communications and US
West International (now Qwest Communications), most recently as General Manager,
Fixed Network, Malaysia.
Robert Lester has served as Chief Financial Officer and Director since
September 2003. Mr. Lester is responsible for financial operations and
reporting, corporate finance and investor relations. Prior to joining CeriStar,
Mr. Lester was employed by AlphaWest Capital, a boutique advisory firm, as a
Managing Director, from January 2002 until October 2003. Before joining
CeriStar, Mr. Lester was employed as an investment banker and for Deutsche Banc
Alex. Brown from March 2000 until June 2001; Paribas from January 1999 until
March 2000; Ernst & Young, LLC from 1997 through 1998; and Merrill Lynch & Co
from 1995 through 1997. Mr. Lester earned a BS in Economics from the University
of California in Riverside in 1990 and a MBA from Pepperdine University in
Malibu, California in 1994.
20
Mark S. Hewitt has served as a member of our Board of Directors since
April 2000. Currently, Mr. Hewitt is the Chief Technology Officer of Nextbend,
Inc. a consumer electronics company based in Florida. Previously he was Chief
Technology Officer of Mediacentric Group, a communications solutions provider
from February 2000 until September 2001. From August 1999 until October 2000 he
was Senior VP at I-Link, Incorporated, a unified messaging and IP telephony
company. From May 1998 until September 1999 he was the Senior Director of New
Product Development for Frontier Communications, a NASDAQ company which was
acquired by Global Crossing. Mr. Hewitt earned a BS in Electronics Engineering
in 1974 from the University of Alaska.
David L Bailey served as our Chairman of the Board, President and Chief
Executive Officer from December 1999 until his resignation as our President and
Chief Executive Officer on October 9, 2003 and his resignation as a member of
our Board of Directors on January 21, 2004. From May 1997 to December 1999, Mr.
Bailey served as Managing Partner of DL Group, a limited liability corporation,
which marketed computer software and telecommunications products. From 1993 to
1997, he was Chairman and Chief Executive Officer of VZ Corp., a software
development company. Mr. Bailey has also been Chairman and Chief Executive
Officer of Clyde Digital Systems and Cericor, and was the lead founder and Chief
Executive Officer of Iomega, Inc.
Dane P. Goodfellow served as Vice President of Marketing and a director
of CeriStar from December 1999 until his resignation as Vice President of
Marketing in May 6, 2003 and resigned as a member of our Board of Directors in
January 2004. From 1998 to 1999, Mr. Goodfellow served as Vice President of
Sales of ViewPoint, Inc. a software development company. From 1994 to 1997, he
served as Vice President of Marketing and Sales of VZ Corp., a software
development company.
G. Earl Demorest served as Vice President of Engineering and Chief
Financial Officer from December 1999 until his resignation from that position on
September 21, 2003. Mr. Demorest served as Chief Financial Officer and Network
Administrator of DL Group, a limited liability corporation, which marketed
computer software and telecommunications products. From 1995 to 1997, he was
Controller and Network Administrator of VZ Corp, a software development company.
Mr. Demorest is also the son-in-law of Mr. Bailey. Mr. Demorest is currently
employed as an engineer and is not an officer or executive employee.
21
Paul D. Losee served as Vice President of Development from March 2001
until his resignation in May 2003. From 1999 to 2001, Mr. Losee was the Chief
Operating Officer of Xboundary.com, Inc., an internet centric software
developer. From 1998 to 1999, he was the Chief Operating Officer of IQ
Telecommunications, Inc. Mr. Losee was President and founder of M+, Inc., a
marketing consultancy firm.
Lark M. Allen served as a member of our Board of Directors from April
2000 until his resignation in March 2003.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, officers and
persons who own more than 10% of our common stock to file reports of ownership
and reports of changes in ownership with the Securities and Exchange Commission.
These persons are required by regulations of the Securities and Exchange
Commission to furnish us with copies of all Section 16(a) forms they file. We
are unable nor do we have any copies of any filings which may have been required
to complete by our former officers and directors. In addition, we have not been
able to determine if any forms required to be filed by such persons before our
current officers assumed their positions were filed or copies delivered to the
Company. Messrs. Weismiller, Miller and Lester did not timely file their Form 3.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth, for each of the last three fiscal
years, all compensation awarded to, paid to or earned by the Chief Executive
Officer of our company and the two other most highly compensated executive
officers during any of the last three fiscal years.
Annual Compensation Long-Term Compensation
--------------------------------------- --------------------------------
Stock
Options
Other Annual Granted All Other
Name and Principal Salary Bonus Compensation (In Shares) Compensation
Positions Year $ $ $ (#) ($)
--------------------------------------------------------------------------------------------------------------
Frederick A. Weismiller 2003 $20,768 $7,500 1,750,000(2)
Chairman of the Board, 2002 0 0
Chief Executive Officer 2001 0 0
and President (1)
Michael B. Miller 2003 $19,384 $6,000 1,500,000(4)
Chief Operations Officer 2002 0 0
and Director (3) 2001 0 0
Robert E. Lester 2003 $12,000 $8,500 650,000(6)
Chief Financial Officer 2002 0 0
and Director (5) 2001 0 0
David L. Bailey 2003 $63,173
President, Chief Executive 2002 $75,000
Officer and Director (7) 2001 $136,154
Dane P. Goodfellow 2003 $20,769
Vice President - Marketing 2002 $71,923
and Director (8) 2001 $79,788
G.Earl Demorest 2003 $75,000 $200 0
Vice President Engineering 2002 $81,923 0
and Finance (9) 2001 $103,615 $123,750(10)
Paul D. Losee 2003 $21,577 0
Vice President Corporate 2002 $95,539 0
Development(11) 2001 $92,961 $569,250(12)
22
(1) Mr. Weismiller is employed by us pursuant to an employment agreement,
dated October 8, 2003. See "Executive Compensation - Employment
Agreements." Pursuant to Mr. Weismiller's employment agreement, Mr.
Weismiller is entitled to a monthly base salary of $7,500 with annual
adjustments approved by our Board of Directors.
(2) Pursuant to Mr. Weismiller's employment agreement, Mr. Weismiller
received options to purchase 1,750,000 options of our Common Stock for
a price of $0.46 per share. As of March 31, 2004, none of these options
are currently vested or exercisable.
(3) Mr. Miller is employed pursuant to terms of an employment agreement,
dated as of October 9, 2003. See "Executive Compensation - Employment
Agreements."
(4) Pursuant to Mr. Miller's employment agreement, Mr. Miller received
options to purchase 1,500,000 options of our Common Stock for a price
of $0.46 per share. As of March 31, 2004, none of these options are
currently vested or exercisable.
(5) Mr. Lester is employed pursuant to terms of an employment agreement,
dated as of November 18, 2003. See "Executive Compensation - Employment
Agreements."
(6) Pursuant to Mr. Lester's employment agreement, Mr. Lester received
options to purchase 650,000 options of our Common Stock for a price of
$0.38 per share. As of March 31, 2004, none of these options are
currently vested and exercisable.
(7) Mr. Bailey resigned as President and Chief Executive Officer on
September 22, 2003 and as member and Chairman of the Board of Directors
on January 21, 2004.
(8) Mr. Goodfellow resigned as Vice President of Marketing on May 6, 2003
and as a member of Board of Director on January 20, 2004.
(9) Mr. Demorest resigned as Chief Financial Officer on September 21, 2003
and currently is employed as an engineer, but is not an officer or
deemed to be an executive employee.
(10) Represents 125,000 shares of CeriStar stock issued prior to the Planet
transaction granted at $.01 per share related to payments for services.
(11) Mr. Losee resigned in May 2003.
(12) Represents 575,000 shares of CeriStar stock issued prior to the Planet
transaction granted at $.01 per share related to payments for services.
23
Stock Option Grants And Exercises
We granted non-qualified stock options to Messrs. Weismiller, Miller
and Lester. As of December 31, 2003, options to purchase a total of 3,900,000
shares were outstanding. The following tables show, for the fiscal year ended
December 31, 2003 certain information regarding options granted to, exercised
by, and held at year-end by, the current executive officers listed on the
"Summary of Executive Compensation" table above.
The potential realizable value is calculated based on the ten-year term
of the option at the time of grant. Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the Securities and Exchange Commission
and does not represent our prediction of our stock price performance. The
potential realizable values at 5% or 10% appreciation are calculated by:
o multiplying the number of shares of common stock subject to a
given option by the exercise price per share;
o assuming that the aggregate stock value derived from that
calculation compounds at the annual 5% or 10% rate shown in the
table until the expiration of the options; and
o subtracting from that result the aggregate option exercise price.
Percentages shown under "Percent of Total Options/SARs Granted to
Employees in Fiscal Year Ended December 31, 2003 " are based on (i) options to
purchase 3,900,000 shares of our common stock.
Option/SAR Grants During the Fiscal Year Ended December 31, 2003
Individual Grants
-------------------------------------
% of Total
Options/SARs Potential Realizable
Number of Granted to Value at Assumed Annual
Securities Employees in Exercise Rates of Stock Price
Underlying Fiscal Year or Base Appreciation for Option
Options/SARs Ended December Price Expiration Term
Name Granted (#) 31, 2003 ($/Share) Date 5% ($) 10% ($)
---------------------- ----------------- ------------------- ------------ ------------- ------------ ------------
Frederick A. 1,750,000 44.87% $0.46 Oct 7, 2013 $1,312,500 $2,082,500
Weismiller (1)
Michael B. Miller (2) 1,500,000 38.46% $0.46 Oct 7, 2013 $1,125,000 $1,785,000
Robert E. Lester (3) 650,000 16.67% $0.38 Nov 18, 2013 $ 403,000 $ 643,500
(1) Pursuant to Mr. Weismiller's employment agreement, Mr. Weismiller
received options to purchase 1,750,000 options of our Common Stock for
a price of $0.46 per share. As of March 31, 2004, none of these options
are currently vested or exercisable.
(2) Pursuant to Mr. Miller's employment agreement, Mr. Miller received
options to purchase 1,500,000 options of our Common Stock for a price
of $0.46 per share. As of March 31, 2004, none of these options are
currently vested or exercisable.
24
(3) Pursuant to Mr. Lester's employment agreement, Mr. Lester received
options to purchase 650,000 options of our Common Stock for a price of
$0.38 per share. As of March 31, 2004, none of these options are
currently vested or exercisable.
Compensation of Directors
Our non-employee directors do not receive any additional compensation
for serving as a member of our board of directors or for attending any of our
board committees, but non-employee directors are reimbursed for out-of-pocket
expenses incurred in connection with attending our board and board committee
meetings.
Employment Contracts
We entered into employment agreements with Mr. Weismiller to serve as
our Chief Executive Officer, with Mr. Miller to serve as our Chief Operations
Officer and with Mr. Lester to serve as our Chief Financial Officer.
Frederick A. Weismiller
-----------------------
In October 2003, we entered into an employment agreement with Frederick
Weismiller (the "Weismiller Agreement"), whereby Mr. Weismiller became our
President and Chief Executive Officer for a term of one year. The Weismiller
Agreement includes provisions allowing this term to be extended for successive
one year terms unless terminated by either party. Under the terms of the
Weismiller Agreement, Mr. Weismiller receives a salary of $7,500 per month.
Michael B. Miller
-----------------
In October 2003, we entered into an employment agreement with Michael
B. Miller (the "Miller Agreement"), whereby Mr. Miller became our Chief
Operations Officer for a term of one year. The Miller Agreement includes
provisions allowing this term to be extended for additional one year terms
unless terminated by either party. Under the terms of the Miller Agreement, Mr.
Miller receives a salary of $7,000 per month.
Robert E. Lester
----------------
In November 2003, we entered into an employment agreement with Robert
E. Lester (the "Lester Agreement"), whereby Mr. Lester became our Chief
Financial Officer for a one year term. The Lester Agreement includes provisions
allowing this term to be extended for additional one year terms unless
terminated by either party. Under the terms of the Lester Agreement, Mr. Miller
receives a salary of $6,500 per month.
Under each of the Weismiller, Miller and Lester Agreements, in the
event of a change of control, which, as defined under these agreements, Messrs.
Weismiller, Miller and Lester are entitled to certain severance benefits,
including a lump sump payment equal to six months of their then current salary
and all their stock options granted in these agreements shall immediately vest.
25
Prior to the Weismiller, Miller and Lester Agreements, we did not have
any employment agreements with any current or former employees.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Common Stock
The following table sets forth certain information regarding the
ownership of our Common Stock as of March 31, 2004 by: (i) each director; (ii)
each of the executive officers named in the Summary of Executive Compensation
table in Item 10 of this Report; (iii) all executive officers and directors of
the company as a group; and (iv) all those known by us to be beneficial owners
of more than five percent of our Common Stock. Unless otherwise indicated, the
mailing address for each party listed below is c/o CeriStar, Inc., 50 West
Broadway, Suite 1100, Salt Lake City, Utah 84119.
Beneficial Owner Beneficial Ownership (1)
Percent of Total
Executive Officers and Directors Number of Shares Class
--------------------------------
Frederick A. Weismiller 0 -
Michael B. Miller 0 -
Robert E. Lester 0 -
Mark Hewitt 19,925 *
5% Stockholders
---------------
SovCap Equity Partners
c/o Lion Corporate Securities Ltd.
Cumberland House #27
Cumberland Street
P.O. Box N-10818
Nassau, New Providence 773,888 9.67%
Former Officers and Directors
-----------------------------
David L. Bailey(2)
1971 N. Summerwood Drive
Farmington Utah 84025 844,927 10.56%
G. Earl Demorest
1529 East Hilda Drive
Fruit Heights, Utah 84037 161,112 2.01%
Dane P. Goodfellow
8798 South Sutton Way
Salt Lake City, Utah 84121 254,865 3.18%
Paul D. Losee
2783 Hobbs Creek Drive
Layton, Utah 84040 0 -
* Less than one percent.
(1) This table is based upon information supplied by current and former
officers, directors and principal stockholders. Unless otherwise
indicated in the footnotes to this table and subject to community
property laws where applicable, we believe that each of the
stockholders named in this table has sole voting and investment power
with respect to the shares indicated as beneficially owned. Applicable
percentages are based on 8,004,450 shares of the Company's Common Stock
outstanding on March 31, 2004 adjusted as required by rules promulgated
by the Securities and Exchange Commission.
(2) Includes 39,028 shares owed by Connie Bailey, the wife of Mr. Bailey.
26
Equity Compensation Plan Information
2002 Directors, Officers and Consultants Stock Option, Stock Warrant
and Stock Award Plan and New Planet Resources, Inc. Stock Incentive Plan
We maintain the 2002 Directors, Officers and Consultants Stock Option,
Stock Warrant and Stock Award Plan and the New Planet Resources, Inc. Stock
Incentive Plan, pursuant to which we may grant equity awards to eligible
persons. The following table provides information as of March 31, 2004 about
equity awards under these plans.
Number Of Securities To Weighted Average
Be Issued Upon Exercise Exercise Price of Number of Securities
of Outstanding Options, Outstanding Options, Remaining Available for
Private Plan Category Warrants And Rights Warrants And Rights Future Issuance
---------------------------------- --------------------------- ------------------------ -------------------------
Equity Compensation Plans 0 $0.00 0
Approved by Security Holders (1)
Equity Compensation Plans Not 0 $0.00 225,731
Approved by Security Holders(2)
Total 0 $0.00 225,731
(1) As of March 31, 2004, the New Planet Resources, Inc. Stock Incentive
Plan had no shares issued or grants underlying such plan.
(2) As of March 31, 2004, the 2002 Directors, Officers and Consultants
Stock Option, Stock Warrant and Stock Award Plan had available for
issuance approximately 225,731 shares. The number of options presented
in this chart do not include the 3,900,000 options to purchase shares
of stock issued to Messrs. Weismiller, Miller and Lester. See
"Executive Compensation - Stock Option Grants and Exercises."
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Relationships
During 2003, David L Bailey, loaned $78,000 to CeriStar, his brother
loaned CeriStar $15,000 and his sister-in-law loaned CeriStar $10,000. Of the
monies loaned by Mr. Bailey, $9,798 has been used to offset amounts due CeriStar
for stock subscriptions. During 2002, Mr. Bailey, wife and nephew loan $127,200
to CeriStar, which was later exchanged for 4,736 shares of Series B convertible
preferred stock (converted to 3,585 of CeriStar common stock) 56,000 shares of
CeriStar common stock. During 2001 Mr. Bailey, his wife and his brother
purchased a total of 27,200 shares of Series B convertible preferred stock for
$68,000.
27
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND CURRENT REPORTS ON FORM 8-K
(a)(3) Exhibits
The following exhibits are filed as part of this Annual Report on Form
10-KSB.
10.01 Amendment Number 1 to Employment Agreement between
CeriStar, Inc. and Fred Weismiller dated October 1, 2003.
10.02 Amendment Number 1 to Employment Agreement between
CeriStar, Inc. and Michael Miller dated October 9, 2003.
10.03 Amendment Number 1 to Employment Agreement between
CeriStar, Inc. and Robert Lester dated November 18, 2003.
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(a)(4) Previously Filed Exhibits
Exhibit Description
------- -----------
3.1 Certificate of Incorporation(1)
3.2 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)
10.2 New Planet Resources, Inc. Stock Incentive Plan(3)
10.2 Agreement and Plan of Merger between Planet Resources, Inc.
and CeriStar, Inc. (4)
10.01 Employment Agreement between CeriStar, Inc. and Fred
Weismiller dated October 1, 2003. (5)
10.02 Employment Agreement between CeriStar, Inc. and Michael
Miller dated October 9, 2003. (5)
10.03 Employment Agreement between CeriStar, Inc. and Robert
Lester dated November 18, 2003. (5)
(1) Incorporated by reference from Form 8-A, as filed on March 1, 2001.
(2) Incorporated by reference from Registration Statement on Form S-8, as
filed on September 10, 2002.
28
(3) Incorporated by reference from Registration Statement on Form SB-2, as
filed on April 19, 1999.
(4) Incorporated by reference from Form 8-K, as filed on September 17,
2002.
(5) Incorporated by referenced from Form 10-QSB, as filed on November 19,
2003.
(a) Current Reports on Form 8-K
We filed the following Current Reports on Form 8-K during 2003
(i) On March 5, 2004 to file a press release.
(ii) On January 21, 2004 to announce the resignation of Mr.
Goodfellow as a member of our Board of Directors.
(iii) On January 13, 2004 to announce the resignation of Mr.
Bailey as our Chairman of the Board and President
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
We retained Tanner & Co. to audit the consolidated financial statements
for the fiscal years ended December 31, 2003 and to provide various accounting
services during the fiscal year ended December 31, 2003. The aggregate fees
billed for professional accounting services by Tanner & Co. for the fiscal years
ended December 31, 2003 are as follows: follows:
2003 2002
---- ----
Audit Related fees $41,843 $34,700
Audit fees - -
Tax fees - -
Total $41,843 $34,700
Audit Fees. This category includes the audit of our annual financial
statements, review of financial statements included in our Form 8-K Current
Reports and services that are normally provided by the independent auditors in
connection with statutory and regulatory filings or engagements for those fiscal
years.
Audit Related Fees. This category consists of assurance and related
services that were reasonably related to the performance of the audit of our
financial statements and are not reported above under "Audit Fees." The services
for the fees disclosed under this category were for benefit plan audits.
Tax Fees. This category consists of professional services rendered for
tax compliance and tax advice. The services for the fees disclosed under this
category were for tax return preparation and technical tax advice.
All Other Fees. All other fees would include fees billed for
professional services that were not the result of an audit or review.
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CERISTAR, INC.
Dated: April 13, 2004 /s/ Frederick A. Weismiller
---------------------------
Frederick A. Weismiller
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
/s/ Frederick A. Weismiller
-----------------------------=----
Frederick A. Weismiller
Dated: April 13, 2004 Chairman of the Board, Chief
Executive Officer and President
/s/ Michael B. Miller
----------------------------=-----
Michael B. Miller
Dated: April 13, 2004 Chief Operations Officer
/s/ Robert E. Lester
----------------------------=-----
Robert E. Lester
Dated: April 13, 2004 Chief Financial Officer (Principal
Financial Officer)
Dated: April 13, 2004 /s/ Mark S. Hewitt
----------------------------------
Mark S. Hewitt
Director
30