Looks like I missed this bounce....here's what I got on em....
Form 10QSB for CERISTAR INC
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23-Aug-2004
Quarterly Report
Item 2. Management's Discussion and Analysis of Financial Condition and Results for Operations
Critical Accounting Policies
In Note 1 to the financial statements for the fiscal year ended December 31, 2003 included in our 10-KSB discuss those accounting policies that are considered to be significant in determining the results of operations and our financial position. We believe that the accounting principles utilized by us conform to generally accepted accounting principles in the United States of America.
The preparation of consolidated financial statements requires management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. By their nature, these judgments are subject to an inherent degree of uncertainty. On an on-going basis, we evaluate our estimates, including those related to bad debts, inventories, intangible assets, warranty obligations, product liability, revenue, and income taxes. We base our estimates on historical experience and other facts and circumstances that are believed to be reasonable, and the results form the basis for making judgments about the carrying value of assets and liabilities. The actual result may differ from these estimates under different assumptions or conditions.
With respect to revenue recognition, stock based compensation, and allowance for doubtful accounts we apply the following critical accounting policies in the preparation of our financial statements:
Revenue Recognition
We derive revenue primarily from the sale of communications services and sales of related communication equipment. Revenue is recognized when a valid contract or purchase order has been executed or received, services have been performed or product has been delivered, the selling price is fixed or determinable, and collectibility is reasonably assured. Sales related to long-term service contracts, which do not meet this criteria, are deferred and recognized ratably over the period of the contract and are recorded as unearned revenue.
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.
Allowance for Doubtful Accounts
We must make estimates of the collectibility of accounts receivables. In doing so, we analyze accounts receivable and historical bad debts, customer credit-worthiness, current economic trends and changes in customer payment patterns when evaluating the adequacy of the allowance for doubtful accounts.
Forward-Looking Statements
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 1 of this Form 10-QSB. 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 identified in the Item 2 and Form 10-QSB.
CeriStar, Inc. undertakes no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Form 10-QSB.
Company and Industry Overview
CeriStar, Incorporated in December of 1999 in Delaware, provides integrated broadband services, including voice, video and data services, to residential, commercial and municipal concerns through reliable, fast and intelligent IP (Internet Protocol) based 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) infrastructure. These communications services include a robust IP telephony package (VoIP), high-speed Internet connectivity, broadcast and IP entertainment services such as video-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 of 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 Planet Common Stock. Series A and B preferred shares of CeriStar were exchanged at a rate of .757 shares for every common share of Planet and the common stock of CeriStar were exchanged into .322 shares of Common Stock of Planet. Just prior to the merger, Planet authorized a 1 for 5.23 reverse stock split. The merger was accounted for as a reverse merger with CeriStar being the accounting acquirer. On October 15, 2002, Planet Resources Inc. was renamed CeriStar, Inc. Since Planet had no operations for the two years prior to the merger, only CeriStar's financial condition and results or operations will be discussed.
Until we achieve substantial revenues or 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.
Results of Operations
FOR THE COMPARATIVE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
Total revenue declined in the first half of fiscal 2004 to $111,000 from $189,000 in the first half of fiscal 2003. The overall decrease is primarily due to the Company's transition to residential services and the loss of two significant commercial customers from which revenues of $90,000 were recognized in the first half of 2003. For the six months ended June 30, 2004 revenue was primarily generated from sale of communications services with existing equipment owned by the Company.
CeriStar had a net loss in the first six months of 2004 of $1,879,279 compared with a net loss in the first six months of 2003 of $2,074,046.
Cost of revenue was $194,000 in the first half of 2004, compared to $251,000 in the first half of 2003. This decrease in cost of sales in 2004 is primarily due to decreased sales related labor costs as we move away from engineering labor and design sales to residential service sales.
Gross margins to date 2004 were a negative $83,000 compared to a negative $61,000 in 2003. Thus far, CeriStar has not generated a large enough customer base to cover its fixed bandwidth and service costs. As CeriStar began the transition to an operating company, additional labor, engineering and bandwidth costs have been necessary to meet the needs of customers in a variety of locations. As CeriStar acquires new customers in those areas where the company's existing facilities are located, it can do so with lower cost of acquisition and can spread fixed costs associated with operating the network and facility over a larger base of subscribers, thus increasing the overall profitability of the company's operations.
Selling, general and administrative expenses decreased by $984,000 to $985,000 in the first half of 2004 compared to $1,969,000 in 2003 primarily due to the decrease in fees paid to consultants incurred in 2003.
Interest expense increased to $677,000 in the first half of 2004 from $44,000 in 2003 as a significant amount of debt was add in late 2003 and 2004. A majority of the increase in 2004, $417,000, was the amortization of debt discount during 2004.
FOR THE COMPARATIVE THREE MONTHS ENDED JUNE 30, 2004 AND 2003
CeriStar had a net loss in the second quarter of 2004 of $1,020,419, the loss in the second quarter of 2003 was $950,191. Revenues were $44,000 in the second quarter of 2003 compared to $83,000 in the second quarter of 2003. The decline in revenues was primarily due to reduced commercial revenues of $34,000.
Gross margins in the second quarter of 2004 were a negative $50,000 compared to a negative $44,000 in 2003. As CeriStar's residential customer base expands in our current facility locations, excess bandwidth capacity is expected be able to service significantly larger customer base with little or no significant increase in fixed bandwidth costs.
Selling and administrative expense decreased by $363,000 as consulting and other professional fees declined by $466,000 due to decreased dependence on consultants employed to assist in developing business plans, partnering opportunities and product positioning. Travel and insurance cost increased by $75,000.
Interest expense increased by $291,000 as additional debt was incurred to fund operations and equipment purchases.
Liquidity and Capital Resources
CeriStar's revenues are not capable of supporting its current operations. CeriStar will be dependent on the capital markets for funding its current operations. At June 30, 2004 the Company has a working capital deficit of $3,210,000. To meet its continuing funding needs, CeriStar actively seeks funding through issuance of debt securities. No assurance can be made that the Company will be successful in raising sufficient capital.
CeriStar believes that as the company proves its technology through its current customer base, it will be able to effectively and profitably deliver a technically advanced communications product to a broader range of residential, commercial, educational and governmental customers within target markets. In the past, CeriStar has been focused on development and testing of its technology, whereas now the focus is on marketing and supporting this technology. Expansion into new market areas will be limited by the amount of investment capital and equipment financing that can be acquired, as well as by the geographical reach of its network operating facilities. CeriStar's current expansion plan will require additional equity and debt capital to fund current and expanded operations. A majority of this funding is likely to be raised in the equity markets. It is anticipated that debt or lease financing of equipment will become increasingly available as the Company's service offerings gain acceptance and our markets expand, thus leveraging our investment capital. In the short term, CeriStar will remain dependent on new equity capital. No assurance can be made that the Company will be successful in raising sufficient capital.
The Company's long-term liquidity and capital requirements will depend upon numerous factors, including the Company's ability to achieve a level of demand for its services that supports its business model and its cost structure, securing significant long-term funding for expansion efforts, and the Company's ability to find suitable funding sources to improve its capital structure. The Company may require additional financing or seek to raise additional funds through bank facilities, debt or equity offerings, or other sources of capital to meet liquidity and capital requirements. Additional funds may not be available when needed or on terms acceptable to the Company, which could have a material adverse effect on the Company's business, financial condition, results of operations, and cash flows. These are factors that indicate that the Company may be unable to continue operations.
Risks Related to Our Business
Certain statements contained in this Form 10-QSB, 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.
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 integrated broadband services, requirements to maintain adequate telecommunications capabilities, expansion of our marketing and sales efforts, and the status of competitive products and services in the marketplace.
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 currently 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 made by issuing equity securities, 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.
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 markets 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.
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CeriStar to Present at Residential Broadband Seminar
Wednesday May 19, 4:00 am ET
SALT LAKE CITY, UT--(MARKET WIRE)--May 19, 2004 -- CeriStar, Inc. (OTC BB:CTRI.OB - News), a premier IP (Internet Protocol) communications services provider, announced today that it will be a presenter at the Residential Broadband seminar in Phoenix, AZ. This nationally recognized event sponsored by Graybar and hosted by DeVry University, will be held Wednesday, May 19, 2004. The seminar will address the delivery of voice, video and data services via broadband, a critical issue for residential developers in today's market.
CeriStar's presentation is entitled "CeriStar: Digital Communications to the Edge" and is scheduled from 9:00 AM to 10:00 AM MST. Both regional and national home developers are expected to attend, providing an opportunity for CeriStar to outline its vision of the "future proof" home and its value proposition to developers and consumers via CeriStar's network operations support base and its Triple Play service set -- fully integrated, delivered and supported, voice, video and data.
"The Residential Broadband seminar is an ideal opportunity for our sales team to get immediate visibility among the leading real estate developers and builders within the region," stated Fred Weismiller, CeriStar's Chief Executive Officer. "The timing of this event couldn't be better as we are developing and executing aggressive sales and marketing plans in one of the most exciting growth areas in the country."
About CeriStar
CeriStar, Inc. is a premier 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. The Company leads by designing, engineering and managing advanced communications services that create significant life style and productivity enhancements and cost efficiencies over traditional systems. CeriStar offers its customers exciting feature advantages by integrating voice, Internet, video and other network services over a single line of fiber utilizing the company's IP Network architecture.
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CeriStar Signs Agreement to Deliver Integrated Broadband Services to New 3,000 Unit Master Planned Community in St. George
Tuesday May 18, 12:48 pm ET
CeriStar and Sunrise Valley LLC Sign a Memorandum of Understanding (MOU) to Deploy Fiber-to-the-Home Network and "Triple Play" Services at Sunrise Valley - St. George, Utah's Newest Master Planned Community
SALT LAKE CITY, UT--(MARKET WIRE)--May 18, 2004 -- CeriStar, Inc. (OTC BB:CTRI.OB - News), a premier IP (Internet Protocol) Communications Services Provider, reported today that the Company has signed a memorandum of understanding (MOU) with Sunrise Valley LLC (www.sunrisevalley.info) to begin the planning and engineering of fiber optic broadband network and Ethernet infrastructure that will deliver fully-integrated voice, video and high-speed data services to new residents at the Sunrise Valley master-planned community in St. George, Utah. The Company expects a definitive contractual agreement to be signed in June.
Under the agreement, CeriStar will have exclusive rights to market and deliver basic and premium broadband services, including advanced IP telephony, high-speed Internet access, broadcast and multicast IP Video, and Video-On-Demand. Based on CeriStar's estimate of average revenue per user of between $80 and $120 per month, this project represents revenue opportunity of approximately $3 million annually upon the full build-out of the development, assuming full subscriber conversion.
Also under the terms of the agreement, CeriStar and Sunrise Valley will plan, build, operate and maintain a CeriStar-engineered, fiber point-to-multipoint communications network within the Sunrise Valley community. CeriStar will install the fiber plant and implement the network architecture and Sunrise Valley will then pay CeriStar on a per phase buildout plan to support the implementation of the network.
"We wanted to create a high-tech amenity for Sunrise Valley through Fiber-to-the-Home technologies. We had no idea we would find a company so advanced and on target with the solutions we wanted right here in St. George. We believe our agreement with CeriStar will guarantee the success of our community area network," stated Dee G. Atkin, developer of Sunrise Valley.
CeriStar is leveraging existing and new operations facilities in the local and regional area, as well as relationships, to firmly establish the Company as the predominant provider of broadband services in the St. George local area. Once the definitive contractual agreement is signed with Sunrise Valley, CeriStar will have agreements in place to service approximately 6,000 residential subscribers at full build out. The Company also plans to enhance local facilities to support rapid expansion in the area by offering broadband services to other new residential developments as well as to the general residential and commercial populations.
"We are excited about our new relationship with Sunrise Valley and we continue to gain traction in St. George as the premier Triple Play services provider in the region," stated Fred Weismiller, CEO and President of CeriStar. "Mr. Atkin's decision to move forward with a CeriStar Triple Play solution, rather than traditional cable and phone networks, exemplifies the forward-thinking nature of the management team."
About CeriStar
CeriStar, Inc. is a premier 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. The Company leads by designing, engineering and managing advanced fiber networks that create significant productivity enhancements and cost efficiencies over traditional systems. CeriStar offers its customers exciting feature advantages by integrating telecom, Internet, video and other network services over a single line of fiber utilizing the company's IP Network platform.
About Sunrise Valley
Sunrise Valley is ideally situated, bordered by Coral Canyon, Sand Hollow, and the Washington County Fairgrounds. These developments offer a variety of outdoor recreational opportunities that entice horse owners and sports enthusiast to southern Utah. Golf, water sports, hiking, and equestrian trails are integral to the project and easily accessed from the development. Sunrise Valley offers an opportunity for affordable multi-family, single family residential, and related land use needed to support Washington County's growth while still preserving ridgelines and natural formations. Sunrise Valley, a truly regenerative green community, has been master planned to provide all the amenities of the scenic desert environment of Southern Utah in a unique, innovative, and environmentally friendly way. Sunrise Valley will feature the latest developments in building technology and quality of living. An advanced fiber optic network feeds the community with enough digital horsepower to enable numerous services thus far unavailable in most developed areas. True, on demand video, advanced home security and surveillance systems available to you through the internet anywhere in the world, Voice-over-IP telephony systems, high speed internet access that outruns even DSL and cable, the possibilities are limitless. Runoff and waste water treatment are part of the natural attractive created wetlands centers and vegetative filter strips. The abundant sunshine of our desert climate enables supplementary heat and electrical power sources.
For additional information about Sunrise Valley, please visit http://www.sunrisevalley.info
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