UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE PERIOD ENDED September 30, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD From ______________ to_____________.
Commission File Number 33-14982-LA
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FIGHTON SUCCESSION CORPORATION
(Exact name of registrant as specified in its charter)
[To Be Known As Key Card Communications, Inc.]
California 33-0897453
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5969 Cattleridge Boulevard, Suite 200
Sarasota, Florida 34232
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(Address of principal executive officers)
(941) 552-2140
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(Registrant's telephone number, including area code)
19900 MacArthur Boulevard, Suite 660, Irvine, California 92612
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports) X Yes, No, and (2) has been subject to such
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filing requirements for the past 90 days X Yes, No.
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. Yes No Not Applicable
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APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Common Stock, No Par Value - 19,930,260 outstanding shares as of September 30,
2001; 50,000,000 Authorized.
INDEX
FIGHTON SUCCESSION CORPORATION - INCLUDING
KEY CARD COMMUNICATIONS, INC., AND 5 STAR COMMUNICATIONS, INC.
ITS' WHOLLY OWNED SUBSIDIARIES
For Quarter Ending September 30, 2001
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheet - September 30, 2001
and unconsolidated for December 31, 2000.
Condensed consolidated statements of operations - Three
months ended September 30, 2001, and for the period August
31, 2001 (Date of Consolidation) through September 30, 2001.
Condensed consolidated statements of cash flows - Three
months ended September 30, 2001, and for the period August
31, 2001 (Date of Consolidation) through September 30, 2001.
Notes to condensed consolidated financial statements -
September 30, 2001
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risks
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS:
FIGHTON SUCCESSION CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2001
FIGHTON SUCCESSION CORPORATION
AND SUBSIDIARIES
CONTENTS
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PAGE 1 INDEPENDENT ACCOUNTANT'S REPORT
PAGE 2 CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 2001
(UNAUDITED)
PAGE 3 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
THREE AND NINE MONTHS ENDEDSEPTEMBER 30, 2001
(UNAUDITED)
PAGE 4 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE NINE
MONTHS ENDEDSEPTEMBER 30, 2001 (UNAUDITED)
PAGES 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF
SEPTEMBER 30, 2001 (UNAUDITED)
INDEPENDENT ACCOUNTANTS' REPORT
-------------------------------
To the Board of Directors of:
Fighton Succession Corporation and Subsidiaries
We have reviewed the accompanying consolidated balance sheet, statements of
operations and cash flows of Fighton Succession Corporation and Subsidiaries as
of September 30, 2001 and for the three months then ended. These consolidated
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to
the financial statements, the Company's working capital deficiency of
$1,612,405, stockholders' deficiency of $1,103,495, and net loss from operations
of $5,614,804 raise substantial doubt about its ability to continue as a going
concern. Management's Plan in regards to these matters is also described in
Note 3. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
WEINBERG & COMPANY, P.A.
Boca Raton, FL
November 16, 2001
FIGHTON SUCCESSION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2001
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(UNAUDITED)
See accompanying notes to consolidated financial statements.
4
ASSETS
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CURRENT ASSETS
Cash $ 64,548
Accounts receivable - net 156,378
Inventory 15,000
Employee advances 148,450
Due from stockholder 198,097
Prepaid rent 12,232
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Total Current Assets 594,705
PROPERTY & EQUIPMENT - NET 467,388
OTHER ASSETS
License agreement 72,500
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TOTAL ASSETS $ 1,134,593
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LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
CURRENT LIABILITIES
Notes, loans and capital leases payable - current portion $ 894,000
Accounts payable and accrued expenses 1,155,485
Due to related parties 157,625
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Total Current Liabilities 2,207,110
LONG-TERM LIABILITIES
Notes and capital leases payable - less current maturities 30,978
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Total Liabilities 2,238,088
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STOCKHOLDERS' DEFICIENCY
Common stock, no par value, 50,000,000 shares authorized, 17,780,260 shares 6,624,343
issued and outstanding
Accumulated deficit (7,727,838)
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Total Stockholders' Deficiency (1,103,495)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 1,134,593
=========================================================================== ============
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FIGHTON SUCCESSION CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF OPERATIONS
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(UNAUDITED)
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
2001 2001
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REVENUES - NET $ 1,028,493 $ 4,458,532
COST OF REVENUES 782,005 3,519,565
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GROSS PROFIT 246,488 938,967
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OPERATING EXPENSES
Salaries and commission 350,529 1,307,199
Professional and consulting fees 483,052 4,020,849
Corporate acquisition costs 350,000 350,000
Other general and administrative 195,062 661,537
Rent 58,489 130,786
Depreciation 29,100 83,400
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Total Operating Expenses 1,466,232 6,553,771
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LOSS FROM OPERATIONS (1,219,744) (5,614,804)
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OTHER INCOME (EXPENSE)
Gain on settlement of debt - 78,615
Interest income 5,386 5,386
Interest expense - other 570,000 (851,412)
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Total Other Income (Expense) (575,386) (767,411)
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NET LOSS $ (1,795,130) $ (6,382,215)
=============== ===============
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.11) $ (0.49)
=============== ===============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - BASIC AND DILUTED 16,100,477 12,999,910
=============== ===============
FIGHTON SUCCESSION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
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(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(6,382,215)
Adjustments to reconcile net loss to net cash provided by in operating activities:
Common stock issued for services 4,441,243
Common stock issued for interest 820,000
Gain on extinguishments of debt (78,615)
Depreciation 83,400
Changes in operating assets and liabilities:
(Increase) Decrease in:
Accounts receivable 23,700
Inventory 1,692
Employee advances (119,550)
Prepaid rent 78,499
Increase in:
Accounts payable and accrued expenses 182,881
Due to related party 98,625
Loans payable 963,022
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Net Cash Provided By Operating Activities 112,682
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (86,252)
Purchase of License agreement (12,500)
Amounts due from stockholder - net (197,194)
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Net Cash Used In Investing Activities (295,946)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of loan to stockholder (886,100)
Proceeds from issuance of common stock to investors 996,414
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Net Cash Provided By Financing Activities 110,314
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NET DECREASE IN CASH (72,950)
CASH - BEGINNING OF YEAR 137,498
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CASH - END OF YEAR $ 64,548
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
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Cash paid during the year for interest $ 31,412
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FIGHTON SUCCESSION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2000
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(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
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The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles and the rules and regulations of the Securities and
Exchange Commission for interim financial information. Accordingly,
they do not include all the information and footnotes necessary for a
comprehensive presentation of financial position and results of
operations.
It is management's opinion, however, that all adjustments (consisting
of normal recurring adjustments) have been made which are necessary
for a fair financial statement presentation. The results for the
interim period are not necessarily indicative of the results to be
expected for the year.
For further information, refer to the financial statements and
footnotes included in the Company's Form 10-KSB.
NOTE 2 ORGANIZATION
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Fighton Succession Corporation (the "Company") was incorporated on
February 17,2000 in the State of California. The company provides
prepaid long distance calling card services, which incorporate toll
free access numbers and personal identification numbers printed in an
array of branded phone cards. Purchasers of these prepaid phone cards
are able to place international and domestic long distance calls from
any touch-tone phone in the continental United States.
On August 31, 2001 the Company effected a business combination with
Key Card Communications, Inc. ("Key Card") whereby the Company
acquired all of the shares of Key Card in exchange for the issuance of
16,716,414 shares of common stock. The reorganization was treated as a
recapitalization of Key Card for accounting purposes. Accordingly, the
financial statements include the following:
1) The balance sheet consists of the net assets of Fighton
Succession Corporation and its subsidiary Key Card
Communications, Inc. at historical cost.
2) The statement of operations includes the operations of Key Card
Communications, Inc. for all of the periods presented and the
operations of Fighton Succession Corporation from the date of the
recapitalization.
NOTE 3 GOING CONCERN
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As reflected in the accompanying financial statements, the Company's
current period loss of $5,614,804, working capital deficiency of
$1,612,405, and stockholders' deficiency of $1,103,495 raise
substantial doubt about its ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent
on the Company's ability to raise additional capital and implement its
business plan. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
The Company has continued its prepaid calling card sales efforts to
increase revenue growth. The Company intends to raise additional
equity capital through the sale of common stock. Management believes
that actions presently taken to obtain additional funding provide the
opportunity for the Company to continue as a going concern.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-looking statements in this Report, including without limitation,
statements relating to the company's plans, strategies, objectives,
expectations, projections, intentions, anticipations and adequacy of resources,
are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Investors are cautioned that such
forward-looking statements while made in good faith involve risks and
uncertainties; including, without limitation to, the following: (i) the
company's plans, strategies, objectives, expectations and intentions are subject
to change at any time at the discretion of the company; (ii) the company's plans
and results of operations will be affected by the company's ability to manage
its growth and inventory (iii) other risks and uncertainties which may be
indicated from time to time in the company's filings with the Securities and
Exchange Commission. Neither Securities and Exchange Commission nor any other
regulatory body takes any position as to the accuracy of forward looking
statements.
Historical Background
SINCE ITS INCORPORATION ON FEBRUARY 17, 2000, FIGHTON SUCCESSION CORPORATION
("FIGHTON") HAS BEEN AN INACTIVE CORPORATION, WHICH HAS NOT ENGAGED IN ANY
ACTIVE BUSINESS PURPOSE, NOR HAD ANY MATERIAL ASSETS OR LIABILITIES. FIGHTON WAS
FORMED FOR THE SOLE PURPOSE OF FINDING A SUITABLE MERGER OR ACQUISITION
CANDIDATE OR CANDIDATES AND BELIEVES THAT IT HAS NOW COMPLETED ITS INITIAL
ORGANIZATIONAL PURPOSE THROUGH THE ACQUISITION OF KEY CARD COMMUNICATIONS, INC.
("KEY CARD") AS ITS PRINCIPAL OPERATING SUBSIDIARY. IN LIKE MANNER, KEY CARD
CONDUCTS SOME OF ITS OPERATIONS, AS DESCRIBED BELOW, THROUGH ITS WHOLLY OWNED
SUBSIDIARY 5 STAR COMMUNICATIONS, INC. ("5 STAR"). THE CULMINATION OF THIS
ACQUISITION HAS BEEN DEEMED TO BE AUGUST 31, 2001 AT WHICH TIME THE COMPANIES
WERE DEEMED TO BE OWNED AND OPERATED AS A CONSOLIDATED ENTITY WITH FIGHTON BEING
THE PARENT CORPORATION AND KEY CARD AND 5 STAR BEING THE WHOLLY OWNED OPERATING
SUBSIDIARIES. FINANCIAL STATEMENTS FOR THE PERIODS OF SEPTEMBER 30, 2001 ARE,
THEREFOR, REPORTED ON A CONDENSED, CONSOLIDATED BASIS TO REFLECT THIS
ACQUISITION; THOUGH IT NEEDS TO BE UNDERSTOOD THAT THERE HAS BEEN NO ASSETS
ACQUIRED BY THE PARENT CORPORATION OR ACTIVE BUSINESS PURPOSES OTHER THAN THAT
REFLECTED IN THE FINANCIAL STATEMENTS FOR KEY CARD AND 5 STAR. CONSEQUENTLY,
THE FOREGOING FINANCIAL STATEMENTS ALMOST ENTIRELY REFLECTS ASSETS, LIABILITIES,
REVENUES AND POTENTIAL INCOME OR LOSSES ATTRIBUTABLE TO KEY CARD AND 5 STAR, AND
NOT TO THE PARENT ENTITY, FIGHTON.
Fighton filed a Form 10 Registration Statement to become a public reporting
company with the Securities and Exchange Commission (SEC) on March 23, 2000. On
March 29, 2000 Fighton received a notice from the SEC that no review of this
filing would be made and that Fighton would be deemed to be a public reporting
company pursuant to the Securities and Exchange Act of 1934 subsequent to that
date. At all times, Fighton did not have, or propose to assert, any active
business purpose but was formed for the purposes of acquiring by merger, or
other form of acquisition, a suitable operating entity which would then either
continue as an operating division of Fighton or effect a subsequent merger into
a resulting public company.
FIGHTON HOLDS A SMALL MINORITY INTEREST (10,000 SHARES) IN AN INACTIVE PUBLIC
COMPANY KNOWN AS LATIN AMERICAN SUBCARRIER SERVICE GROUP, INC. ("LATIN
AMERICAN") FOR WHICH IT EXCHANGED 10,000 OF ITS SHARES AND WHICH FIGHTON SHARES
WERE SUBSEQUENTLY DISTRIBUTED TO THE LATIN AMERICAN SHAREHOLDERS. THE COMPANY
DOES NOT REGARD THIS TRANSACTION AS SIGNIFICANT OR RELEVANT TO ITS CURRENT
OPERATIONS.
On March 6, 2001 Fighton entered into a preliminary Reorganization Agreement
commonly known as reverse acquisition in which it was agreed that majority
shareholders of Fighton would exchange their shares for all of the issued and
outstanding shares of Key whereby Key and 5 Star would become the wholly owned
and sole operating subsidiaries of Fighton and the prior Key shareholders would
own 94% of the issued and outstanding shares of Fighton to be exchanged on a
one-to-one share ratio. Thereafter, the Fighton entity would change its name to
be known as Key Card Communications, Inc. and change the name of its fully owned
subsidiary to Key Card Operating Company, Inc., or similar name which would
continue its business both directly and through its 5 Star subsidiary as a
producer and distributor of business and consumer telephone calling cards and
related services.
In order to complete the reorganization on a one-to-one sharehold basis it also
became necessary to issue out approximately 11,716,414 Fighton restricted shares
in addition to the approximate 5,000,000 shares transferred.
It was deemed that this reverse acquisition was completed as of August 31, 2001,
and shortly prior to such date, the Key Card Communications shareholders were
issued 16,716,414 of the Fighton shares for an equal number of Key shares
constituting all of the issued and outstanding shares of Key. The 16, 716,414
shares of Fighton held by the Key shareholders constitutes 94% of the 17,780,260
issued and outstanding shares. It is the intent of Key Company to complete the
distribution of such shares as an unregistered spin-off to its shareholders on a
one-for-one share basis without further consideration. All of the previously
issued Key shares are deemed now to be fully held by Fighton, as well as its
wholly owned subsidiary, 5 Star.
At the time of this reverse acquisition Key was being advised by Mackenzie Shea,
a California based business consulting firm. Mackenzie Shea was responsible for
finding Key Card the Fighton Succession public company in which BAC was the
principal shareholder and in introducing BAC to the Key principals. Mackenzie
Shea additionally arranged all other terms of the reverse acquisition.
Mackenzie Shea has advised Key Card that it had a beneficial interest from the
proceeds of Key Card's purchase of Fighton Succession. Mackenzie Shea was also
instrumental in arranging the initial financing for Key through Newpont
Fiduciaries, as described under the Liquidity Section below.
Mackenzie Shea introduced Key Card to Newpont and negotiated and structured the
Newpont Option Agreement from which Key obtained its acquisition funding.
Mackenzie Shea as well as certain of Key's officers and directors continue to be
material shareholders of Key/Fighton.
To complete all terms of the reverse acquisition, Fighton intends to call a
shareholders meeting prior to the close of 2001 to vote upon and affirm the
following specific terms and actions of the reverse acquisition and
reorganization:
1. THE FORMAL CHANGE OF THE NAME OF FIGHTON SUCCESSION CORPORATION TO KEY CARD
COMMUNICATIONS, INC.
2. RATIFICATION OF THE CHANGE OF NAME OF THE OPERATING SUBSIDIARY KEY CARD
COMMUNICATIONS, INC. TO KEY CARD OPERATING COMPANY, INC.
3. TO VOTE UPON AND RATIFY THE PRIOR APPOINTMENT OF DIRECTORS. THE ONLY KNOWN
NOMINEES TO BE PRESENTED AT THIS TIME AT SUCH SHAREHOLDER MEETING ARE THE
INTERIM APPOINTED DIRECTORS, EARLIER ELECTED BY MAJORITY SHAREHOLDER
CONSENT, AS FOLLOW:
Mr. B. Stephen May, Director and Chairman of the Board
Mr. Michael Rejbeni, Director
Mrs. Marsha Bates, Director
It should be noted that the board also has appointed Mr. B. Stephen May to
act as the CEO and Treasurer of the company. Mr. Michael Rejbeni is the
President and Chief Operating Officer, Mr. Clifford Wildes the Vice
President and Marsha Bates is the Secretary.
4. THE SHAREHOLDERS WILL FURTHER BE ASKED TO RATIFY THE REORGANIZATION AND ALL
ACTIONS TAKEN ON AN INTERIM BASIS BY THE BOARD MEMBERS AND OFFICERS BOTH
PRIOR TO AND SUBSEQUENT TO THEIR APPOINTMENT BY A MAJORITY SHAREHOLDER
CONSENT RESOLUTION.
5. FINALLY, THE SHAREHOLDERS WILL BE ASKED TO PROVIDE STANDBY AUTHORITY AND
APPROVAL FOR THE BOARD OF DIRECTORS FOR A POTENTIAL MULTI-PARTY MERGER
WHEREBY THE PARENT AND THE TWO SUBSIDIARIES MAY BE MERGED WITH A THIRD
CORPORATION CREATED IN NEVADA FOR THE PURPOSES OF CREATING A SINGLE NEVADA
PUBLIC CORPORATE ENTITY. THE BOARD OF DIRECTORS HAS NOT YET DETERMINED
WHETHER IT WILL OFFICIALLY MOVE FORWARD FOR A PROPOSAL FOR MERGER AS
OUTLINED BY THIS PARAGRAPH AND SUCH AUTHORITY WILL ONLY BE STAND-BY
AUTHORITY TO PROCEED WITH SUCH MERGER AND TO APPROVE SUCH MERGER WITHOUT
FURTHER SHAREHOLDER VOTE.
It is anticipated, at the proposed shareholder meeting, that the shareholders
will be provided with standard and customary Dissenting Shareholder Rights as
required or as may be allowed under California law.
As a result of this reorganization, Fighton is technically reporting its
foregoing financial statements on a consolidated basis; that is, with the
financial statement of the parent and subsidiaries combined into a single
financial statement. However, it should be realized and understood, as a
practical matter, that Fighton had no active business purpose, no revenues and
essentially no assets or liabilities; such that all financial statements
reported in this 10-QSB should be deemed and understood to be essentially the
financial statements for Key Card and 5 Star. As also noted above, Key Card
Communications, Inc. will become known as Key Card Operating, Inc. on a long
term or interim basis depending on whether the Board of Directors determines to
go forward with a formal merger of the entities.
Key Card Communications, Inc. was incorporated in the State of Florida on May 8,
2000 as a privately held corporation. Its initial capital stock of 1,000
shares, having a par value of $1.00 each, was increased to 20 Million shares
having a par value at a $.001 as of June 27, 2000. On January 28, 2000 the
Articles of the corporation were again amended to authorize the issuance of 10
Million shares of preferred voting stock, having a par value of $.001. As of
the date of the closing of the reorganization with Fighton on August 31, 2001
all of the 16,716,414 issued and outstanding restricted common and preferred
shares of Key were deemed exchanged for an equal number of Fighton restricted
common shares, 1,450,000. There were 1,415,000 preferred Key shares
outstanding, the balance of 15,301,414 was common stock.
As noted previously, Key is in the process of completing a spin-out of the
acquired Fighton shares to its shareholders on a one-to-one shareholder basis
without further consideration. Key presently has approximately 44 shareholders
of record. Fighton has approximately 439 shareholders of record. Of these
Fighton shareholders, the non-Key Card shareholders hold a total of
approximately 1,063,846 shares.
Results of Operations
Key Card and 5 Star engage in the business of providing prepaid long distance
services. Key Card completes these operations independently and through its
100% wholly owned subsidiary 5 Star Communications, Inc. which is also reported
as part of these consolidated financial statements. Accordingly, the
consolidated financial statements also contain accounting for 5 Star's
participation within Key Card. As both companies provide identical services and
products, no attempt has been made to segregate their financial accounting.
Key Card and 5 Star's core product is a prepaid calling card which incorporates
toll free access numbers and pin, and personal identification numbers printed on
an array of branded phone cards. Purchasers of these prepaid phone cards are
able to place international and domestic long distance calls from any touch tone
phone in the continental United States at what are believed to be favorable
rates. The branded cards, in conjunction with Key Card business model and sale
program, have allowed Key Card to develop a market presence and repeat customers
and revenues.
Key Card focuses primarily in sale of cards to retailers and prepaid phone card
distributors. These resales are believed attracted to Key Card's phone cards
due to their branded packaging, profitability, and ease of use.
At present, Key Card/5 Star has realized total gross revenues of approximately
$5,149,656 for the calendar year ending December 31, 2000 and approximately
$4,458,532 in revenues year-to-date through the September 30, 2001 accounting
period. Key Card/5 Star has not obtained an operating profit for these period
and had a net loss for fiscal year 2000 of $1,345,373 and anticipates a
year-to-date net loss through September 30, 2001 of $6,382,215. Key Card/5 Star
has an accumulated deficit of $7,727,838. Key Card/5 Stare anticipates, but
cannot warrant, that it will obtain its first quarterly profits for the forth
quarter of the calendar year 2001 ending December 31, 2001. Key Card/5 Star is
not able to break down the relative profit or revenues as segregated between its
own operations and that of its totally owned subsidiary, 5 Star, and essentially
treats the flow of revenues and any profit or loss as an integrated financial
effort.
As noted previously, Fighton has not and will not contribute any revenues or
profits to the reorganized company.
Key Card/5 Star has in the past 12 months experienced several problems with
various networks it has contracted to use. These problems have on occasion
resulted in the network being terminated and some of the phone cards Key Card
has out in the market place being turned off and rendered useless. Key Card has
filed lawsuits against some of those network carriers, noted in the Legal
Proceedings, because of the lost profits and customers it has incurred due to
the interruption of its business. Key Card/5Star believes that it has suffered
significant lost revenue and profits over the course of the year. Although the
company has taken steps to insure that its current network relationships are
stable it can not warrant that it will not have interruptions of service in the
future.
Key Card/5 Star has in the past suffered lost revenue due to employee conversion
of sales for personal benefit as noted in the Legal Proceedings. Although the
company has taken additional steps to protect its trade secrets and customer
list as well as other confidential information that company can not represent
that these types of problems will not occur in the future. Key Card has all
employees' sign a non-compete and confidentiality agreement, which the company
hopes, will deter this type of activity from occurring in the future.
Key/5 Star anticipates that the majority of its revenue growth during the
calendar year 2002 should occur in the second and third quarters primarily
through anticipated expanded sales and the point of activation program. The
majority of growth is anticipated in the sectors.
As of October 10, 2001, Key Card has entered a customer service contract with
Morgan Beaumont, Inc., a related party privately held entity, which sells
memberships and benefit packages related to computer sales and financing. Under
the terms of the customer service and support agreement, Morgan will pay to Key
Card $4.00/per collected sales for each of the Key Card phone cards distributed
by Morgan under its benefit packages.
Morgan has represented to Key, though Key cannot warrant such results, that it
has commitments for approximately 10,000 sales through November to December
2001, which would generate revenues of up to $40,000 based upon all sales being
collected.
It is further disclosed that Mr. Steve May, the CEO of Fighton, owns
approximately a 35% of Morgan, Mr. Cliff Wildes, the company's Vice President,
owns approximately 45% of the issued and outstanding shares of Morgan and Mr.
Rejbeni, Fighton's president owns 5% of the Morgan shares. No independent board
passed upon the terms of this contract, which cannot be considered as an arms
length transaction or independently valued. Each shareholder of Fighton/Key is
advised that this relationship constitutes a certain potential conflict of
interest.
Key/5 Star anticipates that the domestic sector of its business will increase at
a faster rate than the revenues from its international card segment. The
relative breakdown year to date of current revenues through September 30, 2001
are estimated to be 25% of revenues from domestic card sales and 75% from
international card sales.
Liquidity
Key/5 Star, like many other domestic industries, has noted a significant slowing
in its revenue growth subsequent to the terrorist attack and national disaster
of September 11, 2001. It is not known exactly how such events will impact on
its future earnings, but it is certain that these events will have decreased the
potential revenues and profits which may be realized by the company in calendar
year 2002.
In addition to the fact that the company is a start-up entity and has not had
any income to date, there are other various factors which could adversely affect
the liquidity of the company and its ability to continue as a going concern.
Management of Key/5 Star has elected to treat the disclosure of these items in
an outline fashioned as follows:
1. Key is currently involved in two cases or claims in which it is presently a
defendant and two cases as a plaintiff. These cases or claims are more
particularly described under the litigation section of this report. The
company does not believe any of the present litigation efforts would
constitute a basis for the company to discontinue its present business
operations, even if an adverse ruling were entered, and believes that it
has a meritorious defense to each of these actions or claims in which it is
a defendant. However, it should be understood that defending or prosecuting
legal actions would involve the expenditure of significant capital of the
company.
2. Key has entered into loans and advances from various related parties.
Some of these loans and advances are currently in default and the company
is working on the extension of time in which to pay the obligations. The
company does not have the current resources to pay off these related party
transactions at the present time.
3. The company entered into an option agreement with Newpont Fiduciaries to
purchase One Million shares of its stock at $1.00/share. This option has
been fully exercised and the proceeds were used to acquire the interest by
Key Card in Fighton Corporation and to repay related acquisition expenses.
Of this amount none remains as working capital reserves. As noted generally
above, Newpont Fiduciaries was referred to Key by Mackenzie Shea which has
acted as an advisor to Key, is a principal shareholder, as well as having
one of its major shareholder as a director to Key's Board of Directors.
4. Key has certain employee arrangements with its principal employees
including Mr. Steve May, Mr. Michael Rejbeni and Mr. Clifford Wildes.
Messrs. May, Rejbeni and Wildes have agreed to accrue approximately 88% of
their current salaries to be paid at a future date in the aggregate amount
of approximately $550,000. This deferral of salary should be deemed to
constitute a current debt decreasing the liquidity of the corporation. The
aggregate salaries of all principal offices is approximately $740,000 for
the period of time they have worked, which in the case of Mr. Rejbeni and
Mr. Wildes is less than a full year, including the deferred portions of
approximately $550,000 per year.
5. In approximately March of 2001, the company determined that its prior CFO
and accounting officer had apparently engaged in unauthorized loan
transactions employing Key funds for his personal use in the sum of
approximately $50,000. Key believes it has reconciled this charge by
accepting back the 400,000 Key shares previously held by this
officer/director and accepting his resignation. However, it now appears
that there may exist additional unauthorized funds that have been uncovered
in the company's audit process and the company is in the process of
determining these amounts and recovering from this ex-officer/director as
appropriate.
6. Key has borrowed $50,000 from Soma Fund IX, LLC, a private fund co
managed by Mackenzie Shea. The loan is in default and a revised repayment
schedule has not been finalized.
7. Mr. Steve May, Fighton/Key's CEO, has a significant stock position in an
unrelated private company known as Bright Star Communications, Inc., which
has loaned Key Card $99,000 in 2001.
8. Siesta Telecom, Inc., a private telephone company in which Mr. Steve May
is also a significant shareholder, has historically engaged in financial
transactions with Key and has loaned Key $69,825 as of September 30th 2001.
The companies are in the process of negotiations to retire this debt into
cash and stock and/or stock in Key, at Key's discretion.
Other Funding Efforts
Shareholders of the company should be further advised that the company is
presently engaged in retaining LSC Associates, a private business consulting
firm, and which is associated with First Dunbar a broker/dealer having its
principal place of business in Boston, Massachusetts to assist the company in a
private placement offering to attempt to raise up to Three Million Dollars.
This private placement is presently underway and in the due diligence stage.
The company has not raised any investment funds to date. No assurance or
warranty can be made that the private placement can be successfully placed,
though the completion of this offering would substantially increase the
liquidity of the company and allow the company to use proceeds to pay off
existing debts and loans, as well as engage in additional business
opportunities. No assurance is made or implied that the private placement will
be successful. In all events, the company has paid LSC $15,000 to date and will
be required to pay in the aggregate approximately $180,000 or 6% of the gross
offering proceeds in commissions via a "Lehman Formula" The formula is
structured as 7% for the first million, 6% of the second million and 5% of the
third million as a cost of the private placement offering. The range of the
offering is $2,000,000 minimum and $5,000,000 maximum. Any shareholder of the
company wishing to review a copy of the private placement offering memorandum
may obtain one by requesting the same from the principal officers of the
company.
Key/5 Star believes it has sufficient revenues to maintain its current
operations, but will not be able to grow and expand any of its operations in any
significant manner until it obtains a level of net profits as anticipated for
calendar year 2002 or completes the private placement offering. The company
does not have any projection of anticipated revenue growth or net profit growth
for such future period, but does believe it will obtain initial profitability
during the first quarter of 2002 at an undetermined level.
Key/5 Star does not have any certain alternative means of financing other than
revenue growth and the private placement described above, but does anticipate
engaging in a public financing effort in a probable SB-2 registration in 2002.
Fighton/Key has not determined how much will be sought by such offering or
whether any funds can be raised. It would also intend to register certain of
the shares acquired by the Key shareholder and sold in the private placement.
To date the company has not had any active trading market for its shares, but
anticipates trying to list its shares on the Electronic Bulletin Board for
active trading purposes, as soon as possible, through the NASD; though no
expectation or projection of such trading price or whether such listing can be
effectively completed can be made or given at this time.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK- Not
Applicable
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Fighton, is not aware of any legal proceedings in which it is engaged, nor is
management of the company aware of any claims which may result in likely legal
proceedings. Key/5 Star discloses the following litigation matters or claims:
a. Estudillo, Inc. v. 5 Star Communications, Inc., case no.
---------------------------------------------------
01-2-00708-1 in Washington. This case was settled in October, 2001 for the
amount of $10,000 in new product arising out of a termination of phone card
usage due to a network shut-off. The company has denied liability but has
settled this as a disputed claim. This litigation was not deemed material
by management.
b. Inzap v. 5 Star and Sterling Time, claim pending filing, in
---------------------------------------
California. This is a contract dispute concerning proper entitlement to
payment in the amount of approximately $50,000. Key Card believes that the
suit is without merit and will vigorously defend such action, if and when
filed. In no event does Key Card believe that such action will have a
material effect on the business future of the company.
c. 5 Star Communications and Key Card v. Paul Ohran and Cristel
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Telecom, Inc., case no. 2001-CA-3A81-NC in Florida. This is a case in which
-------------
5 Star and Key Card are plaintiffs against Paul Ohran alleging that Mr.
Ohran opened up a competing business in violation of employee contract and
fiduciary relationship to Key Card, as well as undertook subsequent actions
taken by no affiliated company injurious to services provided by Key Card
and 5 Star. Key Card and 5 Star collectively believe that there damages may
be in the range of $750,000 and have initiated this suit for the recovery
of those amounts. The court has granted Key Card a temporary injunction
against Mr. Ohran.
d. 5 Star Communications v. Dancris Telecom, LLC, case no.
---------------------------------------------------
CV2001-007950 in Arizona. In this case 5 Star is bringing an action against
Dancris Telecom, Inc., a provider of network services to 5 Star and Key
Card. The company claims that Dancris improperly shut off Key Card key
numbers causing Key network to go down and other resulting damages. The
action is for approximately $400,000.
e. GoComm Telecom LTD v. 5 Star Communications Services, Inc. and Key
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Card Communications, Inc., case no. 2002-054004 in Harris County, Texas. In
-------------------------
this case GoComm is bringing an action against Key Card for non-alleged
payment of network time. The claim is for approximately $87,000. Key Card
anticipates the settlement of the case within the next 30 days or
anticipates filing a counterclaim against GoComm.
f. GSG LLC DBA Golden State Graphics v. 5 Star Communications Services
--------------------------------------------------------------------
Inc., Stephen May, Michael Rejbeni and Ken Holmquist., case number INO1659
------------------------------------------------------
in San Diego California. In this case GSG is alleging non payment of
services of approximately $9,159.00. The company disputes the alleged sum
of money owed.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The companies securities have changed to the extent that the majority of the
issued and outstanding shares of the company (94%) have been issued to a group
of approximately 44 prior shareholders of the wholly owned and operating
subsidiary of the company, Key Card Communications, Inc. in exchange for all of
the issued and outstanding shares of Key Card Communications, Inc. being
acquired by Fighton. These transactions and further description of the shares
exchanged are described under Part I Item 2 as part of Management's Discussion
and Analysis of Financial Condition and Results of Operations.
ITEM 3. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Also outlined as part of the prior Management's Discussion and Analysis of
Financial Condition and Results of Operations is a discussion of the recent
reverse acquisition and intended shareholders meeting and vote on various
matters related to such reverse acquisition and consolidation. No date for this
shareholder meeting has been fixed, but it is intended that it will be held
before yearend, 2001.
ITEM 4. OTHER INFORMATION
Employment Contracts
The company believes it material to disclose that there exists an employment
contract between Key and 5 Star with Mr. Steve May, Mr. Michael Rejbeni and Mr.
Clifford Wildes. As mentioned previously, Mr. May, Mr. Rejbeni and Mr. Wildes
have agreed to defer approximately $550,000 of their employment contract to
accommodate the company in preserving its limited cash flow. These deferred
salaries are deemed to be accruing. The aggregate amount of these employment
contracts, prior to deferral, is approximately $875,000 per year.
Potential Disputes
The company has a potential dispute with an ex employee that in the companies
opinion breached the terms of his employment. In accordance with the employee's
agreement for employment with the company the employee would have been entitled
to shares of stock in the company in an amount of approximately 1% of the total
outstanding shares. Although at the present time no claim has been made by the
employee to the company for this stock there exists the possibility that the ex
employee could make a claim on the company for that stock at a future date. In
the event that a claim were to incur the company position would be no stock is
due to the ex employee due to the employees breach.
Additionally the company has received from time to time calls from various
individuals that have alleged that they have purchased stock in Key Card
Communications from Millennium Financial which appears to be an off shore
company. Key Card records do not show many of these individuals as being
shareholders of record and have refereed these individuals back to Millennium.
Key Card does not have a relationship with Millennium Financial but has been
advised by Newpont Fiduciaries that Millennium Financial is a client of theirs.
As previously noted in this document, Newpont Fiduciaries was introduced to Key
Card by Mackenzie Shea and subsequent to that introduction Newpont exercised an
Option Agreement for stock in Key Card.
Voting Agreements
Management believes that it is material to disclose that there are certain
written voting agreements in place. At the present time Mr. Steve May, the CEO
of the company, has a written agreement to vote the stock of the following
principal shareholders of Fighton:
a. Mackenzie Shea, 900,000 shares, until December 31, 2001.
b. Peter Slater, 400,000 shares, until September 30, 2002.
c. Michael Rejbeni-the President, 400,000 shares, until September
30, 2001.
These shares total 1,700,000 shares of the presently as of 11/15/01 issued
and outstanding 19,930,260 shares, or approximately 9%.
Principal Shareholders
Of the presently issued and outstanding 19,930,260 shares of Fighton it should
be noted that the following shareholders hold in excess of 5% or more of the
issued and outstanding stock:
Shareholders Holding 5% or More of the Issued Stock
Name of Shareholder Position Number of Percentage of
Shares Outstanding
(Rounded)
------------------- ------------------ ----------- -------------
B. Stephen May CEO 10,000,000 50%
Clifford Wildes Vice President 1,100,000 5%
Mackenzie Shea(1) Finder/Consultant 900,000 9%
(1) The Mackenzie Shea interest has been determined by aggregating the Key
shareholders that will receive Fighton shares that are also principals, as well
as Officers and or Directors in Mackenzie Shea. 900,000 shares Mackenzie Shea,
600,000 shares in Chicago Trust Company of California custodian IRA FBO Robert W
Kendrick the President of Mackenzie Shea and 600,000 shares in Chicago Trust
Company of California custodian IRA FBO Todd A Ellsworth a Director of Mackenzie
Shea.
Potential Conflicts
Mr. B. Steven May has significant sharehold interest in a couple of potentially
competitive companies in the telephone or telecommunications industry, such as
Siesta Telecom (the parent company is Siesta Acquisition Corporation), Bright
Star Communications and Morgan Beaumont. Mr. May is also a creditor of Key,
which owes to him approximately $150,000.
Mr. B. Stephen May is a paid consultant to Siesta Telecom and has in the past
personally loaned money to Siesta. Siesta Telecom owes Mr. May money for his
services.
Mackenzie Shea is a shareholder in Siesta Telecom either as a company or as
individual shareholders of Mackenzie own shares in Siesta. Siesta Telecom owes
Mackenzie Shea money for their past services as consultants to the firm.
Michael Rejbeni has in the past year been a paid consultant to Siesta Telecom.
Siesta Telecom owes Mr. Rejbeni money for his past services.
Clifford Wildes is a paid consultant in Siesta Telecom (the parent company is
Siesta Acquisition Corporation) as well as being a shareholder in the company.
Siesta Telecom currently owes Mr. Wildes money for his services.
Mr. Wildes was also a past shareholder/partner in Mackenzie Shea in the year
2000 and resigned on or before December 31, 2000.
Mr. Wildes is a shareholder, officer and or director of a number of companies
unrelated with no affiliation to Key Card with the exception being as previously
disclosed Morgan Beaumont in which he is a director and shareholder.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
a. THE COMPANY FILED AN 8-K REPORT AS OF AUGUST 31, 2001 AND IS CONCURRENTLY
FILING A SUPPLEMENTAL 8-K WITH THE SEC, NEITHER OF WHICH IS FURTHER
ATTACHED HERETO AS AN EXHIBIT. THIS 8-K REPORTS PRIMARILY TREATED THE
REORGANIZATION MATTERS DISCUSSED IN MORE DETAIL ABOVE AND THE SUPPLEMENTAL
8-K CONTAINS THE CONSOLIDATED FINANCIAL STATEMENT.
b. THE CLOSING STATEMENT FOR THE SHARE EXCHANGE AND REORGANIZATION IS FILED AS
AN EXHIBIT TO THIS REPORT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
REGISTRANT: FIGHTON SUCCESSION CORPORATION
[To Be Known As Key Card Communications, Inc.]
Dated: By:
-------------------- ---------------------------------------------
Mr. B Stephen May
Chief Executive Officer
Dated: By:
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Marsha Bates
Secretary