SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
/x/ | Quarterly report under Section 13 or 15(d) of The Securities Exchange Act of 1934 |
For the quarterly period ended 31 October 2000
| / / | Transition report under Section 13 or 15(d) of The Securities Exchange Act of 1934 |
For the transition period from to
Commission file number: 000-28915
SHOWSTAR ONLINE.COM INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
| Washington (State or other Jurisdiction of Incorporation or Organization) | 13-4093341 (I.R.S. Employer Identification No.) |
70 Washington St., Brooklyn, NY 10011
(Address of Principal Executive Offices)
(888) 616-9333
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of The Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / /
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:
| Class | Number of Shares Outstanding | |
|---|---|---|
| Common Stock, par value $0.0 | 46,334,084 |
Transitional Small Business Disclosure Format (check one): Yes / / No /x/
SHOWSTAR ONLINE.COM INC.
QUARTERLY REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE QUARTER ENDED
October 31, 2000
PART I—FINANCIAL INFORMATION | |||
Item 1. Financial Statements | 3 | ||
| Unaudited Condensed Consolidated Balance Sheet as of October 31, 2000 | 3 | ||
| Unaudited Condensed Consolidated Statement of Operations for the six months ended October 31, 2000 and 1999 and the three months ended October 31, 2000 and 1999 | 4 | ||
| Unaudited Condensed Consolidated Statement of Cash Flows for the six months ended October 31, 2000 and 1999 and the three months ended October 31, 2000 and 1999 | 5 | ||
| Notes to Unaudited Condensed Consolidated Financial Statements | 6 | ||
Item 2. Management's Discussion and Analysis or Plan of Operation | 7 | ||
PART II—OTHER INFORMATION | |||
Item 1. Legal Proceedings | 10 | ||
Item 6. Exhibits and Reports on Form 8-K | 10 | ||
SIGNATURE PAGE | 11 | ||
EXHIBIT INDEX | 12 | ||
2
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
SHOWSTAR ONLINE.COM, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
October 31, 2000
| ASSETS | |||||||
| CURRENT ASSETS | |||||||
| Cash | $ | — | |||||
| Accounts receivable | 118,739 | ||||||
| GST receivable | 23,587 | ||||||
| Inventory | 40,759 | ||||||
| Prepaid expenses | 32,628 | ||||||
| Prepaid royalties | 37,500 | ||||||
| TOTAL CURRENT ASSETS | 253,213 | ||||||
| INVESTMENTS, AT COST | 304,230 | ||||||
| PROPERTY & EQUIPMENT, less $220,353 accumulated depreciation | 491,523 | ||||||
| WEBSITE & SOFTWARE, less $375,759 accumulated amortization | 944,844 | ||||||
| INTANGIBLE ASSETS, less $32,409 accumulated amortization | 278,466 | ||||||
| $ | 2,272,276 | ||||||
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) | |||||||
| CURRENT LIABILITIES | |||||||
| Accounts payable, trade | $ | 641,430 | |||||
| Accrued expenses | 123,402 | ||||||
| Accrued stock compensation | 470,275 | ||||||
| Loan payable | 727,300 | ||||||
| Accrued interest payable | 19,125 | ||||||
| Due to related party | 48,384 | ||||||
| Advances payable | 100,000 | ||||||
| TOTAL CURRENT LIABILITIES | 2,129,916 | ||||||
| COMMITMENTS | — | ||||||
| SHAREHOLDERS' EQUITY (DEFICIT) | |||||||
| Preferred stock, no par value, 25,000,000 shares authorized, -0- issued and outstanding | — | ||||||
| Common stock, no par value, 75,000,000 shares authorized, 46,334,084 issued and outstanding | 12,271,920 | ||||||
| Contributed capital | 74,000 | ||||||
| Outstanding common stock warrants | 354,576 | ||||||
| Outstanding common stock options | 349,535 | ||||||
| Deferred stock compensation | (102,667 | ) | |||||
| Cumulative translation adjustments | (46,851 | ) | |||||
| Deficit accumulated during development stage | (12,758,153 | ) | |||||
| TOTAL SHAREHOLDERS' EQUITY (DEFICIT) | 142,360 | ||||||
| $ | 2,272,276 | ||||||
3
SHOWSTAR ONLINE.COM, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| | | | Three Months Ended October 31, | | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Six Months Ended October 31, | July 14, 1995 (Inception) through Oct. 31, 2000 | |||||||||||||||||
| | 2000 | 1999 | 2000 | 1999 | |||||||||||||||
| REVENUE | |||||||||||||||||||
| Sales | $ | 261,377 | $ | — | $ | 143,474 | $ | — | $ | 266,727 | |||||||||
| Commissions | 5,182 | — | 1,640 | — | 31,725 | ||||||||||||||
| TOTAL REVENUE | 266,559 | — | 145,114 | — | 298,452 | ||||||||||||||
| COSTS AND EXPENSES | |||||||||||||||||||
| Cost of sales | 161,929 | — | 105,564 | — | 165,449 | ||||||||||||||
| Stock based compensation | 203,601 | 1,623,133 | 85,267 | 811,566 | 3,481,476 | ||||||||||||||
| Consulting | 317,160 | 318,342 | 196,585 | 138,819 | 1,567,898 | ||||||||||||||
| Investor relations, related party | — | — | — | — | 107,067 | ||||||||||||||
| Investor relations | 22,481 | 47,687 | 5,121 | 30,357 | 248,712 | ||||||||||||||
| Web-sit set up | 48,656 | 35,235 | 20,039 | 33,409 | 283,837 | ||||||||||||||
| Professional fees | 57,689 | 53,976 | 16,317 | 20,834 | 444,550 | ||||||||||||||
| Consulting fees paid by shareholders | — | — | — | — | 466,500 | ||||||||||||||
| Travel and entertainment | 58,837 | 119,064 | 36,315 | 47,420 | 375,821 | ||||||||||||||
| Depreciation and amortization | 342,754 | 68,384 | 178,201 | 68,384 | 687,861 | ||||||||||||||
| General and administrative | 786,705 | 657,964 | 370,820 | 544,075 | 1,935,162 | ||||||||||||||
| Advertising, marketing and selling | 279,160 | 247,638 | 126,435 | 201,889 | 1,741,387 | ||||||||||||||
| Technical development | — | 134,290 | — | 134,290 | 31,021 | ||||||||||||||
| TOTAL COSTS AND EXPENSES | (2,278,972 | ) | (3,305,713 | ) | (1,140,664 | ) | (2,031,043 | ) | (11,536,741 | ) | |||||||||
| INTEREST EXPENSE | (56,642 | ) | (4,000 | ) | (28,502 | ) | (4,000 | ) | (116,925 | ) | |||||||||
| LOSS FROM CONTINUING OPERATIONS BEFORE TAXES | (2,069,055 | ) | (3,309,713 | ) | (1,024,052 | ) | (2,035,043 | ) | (11,355,214 | ) | |||||||||
| INCOME TAXES | |||||||||||||||||||
| Current | 771,757 | 1,254,523 | 381,971 | 779,071 | 4,211,500 | ||||||||||||||
| Deferred | (771,757 | ) | (1,254,523 | ) | (381,971 | ) | (779,071 | ) | (4,211,500 | ) | |||||||||
| NET LOSS FROM CONTINUING OPERATIONS | (2,069,055 | ) | (3,309,713 | ) | (1,024,052 | ) | (2,035,043 | ) | (11,355,214 | ) | |||||||||
| DISCONTINUED OPERATIONS | |||||||||||||||||||
| Net loss from entertainment division operations, net of $-0-, $-0-, and $-0- in income taxes | — | (50,768 | ) | — | (21,595 | ) | (425,639 | ) | |||||||||||
| Loss on disposal of entertainment division, net of $-0-, $-0-, and $-0- in income taxes | — | — | — | — | (977,300 | ) | |||||||||||||
| NET LOSS | $ | (2,069,055 | ) | $ | (3,360,481 | ) | $ | (1,024,052 | ) | $ | (2,056,638 | ) | $ | (12,758,153 | ) | ||||
| NET LOSS PER COMMON SHARE: | |||||||||||||||||||
| Basic—continuing operations | $ | (0.04 | ) | $ | (0.14 | ) | $ | (0.03 | ) | $ | (0.03 | ) | $ | (0.03 | ) | ||||
| Diluted—continuing operations | $ | (0.04 | ) | $ | (0.14 | ) | $ | (0.03 | ) | $ | (0.03 | ) | $ | (0.03 | ) | ||||
| Basic—discontinued operations | * | * | $ | — | $ | — | $ | — | |||||||||||
| Diluted—discontinued operations | * | * | $ | — | $ | — | $ | — | |||||||||||
| NUMBER OF SHARES USED FOR COMPUTING NET LOSS PER SHARE: | |||||||||||||||||||
| Basic | 46,334,084 | 23,475,940 | 34,801,251 | 23,475,940 | 46,334,084 | ||||||||||||||
| Diluted | 46,334,084 | 23,475,940 | 34,801,251 | 23,475,940 | 46,334,084 | ||||||||||||||
*Less than $.01 per share
4
SHOWSTAR ONLINE.COM, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | Six Months Ended October 31, | Three Months Ended October 31, | July 14, 1995 (Inception) through October 31, 2000 | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2000 | 1999 | 2000 | 1999 | |||||||||||||||
| NET CASH (USED IN) OPERATING ACTIVITIES | (1,517,938 | ) | (1,662,151 | ) | (1,090,331 | ) | (1,231,780 | ) | (6,689,448 | ) | |||||||||
| INVESTING ACTIVITIES | |||||||||||||||||||
| Proceeds from sale of equipment | — | — | — | — | 10,000 | ||||||||||||||
| Investment in joint venture and savings plus | (37,680 | ) | — | — | — | (303,776 | ) | ||||||||||||
| Cash acquired with acquisition of Showstar/Nucom | — | — | — | — | 20,815 | ||||||||||||||
| Purchases of property and equipment and domain name | (728,727 | ) | (856,826 | ) | (167,173 | ) | (376,650 | ) | (2,374,103 | ) | |||||||||
| NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES | (766,407 | ) | (856,826 | ) | (167,173 | ) | (376,650 | ) | (2,647,064 | ) | |||||||||
| FINANCING ACTIVITIES | |||||||||||||||||||
| Proceeds from advances, related parties | (466,500 | ) | — | (466,046 | ) | — | (104,900 | ) | |||||||||||
| Proceeds from advances | 477,300 | — | (37,700 | ) | — | 829,800 | |||||||||||||
| Repayments of advances, related parties | — | — | — | — | (5,000 | ) | |||||||||||||
| Cash paid for stock offering costs | (308,665 | ) | (47,000 | ) | (298,665 | ) | — | (517,665 | ) | ||||||||||
| Proceeds from issuance of preferred stock | — | — | — | — | 3,500 | ||||||||||||||
| Proceeds from issuance of common stock | 2,588,040 | 3,561,500 | 2,059,915 | 2,417,513 | 9,125,128 | ||||||||||||||
| Proceeds from issuance of convertible debenture | — | — | — | — | 52,500 | ||||||||||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 2,290,175 | 3,514,500 | 1,257,504 | 2,417,513 | 9,383,363 | ||||||||||||||
| CUMULATIVE TRANSLATION ADJUSTMENT | (5,830 | ) | — | — | — | (46,851 | ) | ||||||||||||
| NET CHANGE IN CASH | — | 995,523 | — | 809,083 | — | ||||||||||||||
| Cash, beginning of period | — | 15,737 | — | 202,177 | — | ||||||||||||||
| CASH, END OF PERIOD | $ | — | $ | 1,011,260 | $ | — | $ | 1,011,260 | $ | — | |||||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |||||||||||||||||||
| Cash paid for interest | $ | — | $ | — | $ | — | $ | — | $ | 5,000 | |||||||||
| Cash paid for income taxes | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | |||||||||||||||||||
| 3,367,000 shares of common stock issued for acquisition of subsidiary | $ | — | $ | — | $ | — | $ | — | $ | 3,367 | |||||||||
| 999,066 shares of common stock issued for acquisition of subsidiary | $ | — | $ | — | $ | — | $ | 749,300 | $ | 749,300 | |||||||||
| 307,143 shares of common stock issued for payment of advances and accrued liabilities | $ | — | $ | 107,500 | $ | — | $ | — | $ | 107,500 | |||||||||
| 2,765,000 shares of common stock issued for compensation | $ | — | $ | 1,364,800 | $ | — | $ | — | $ | 1,364,800 | |||||||||
| 1,050,000 shares of common stock issued for payment of accrued stock compensation | $ | — | $ | 517,500 | $ | — | $ | — | $ | 517,500 | |||||||||
| 350,000 shares of common stock issued for acquisition of ALS | $ | 328,125 | $ | — | $ | — | $ | — | $ | 328,125 | |||||||||
5
SHOWSTAR ONLINE.COM, INC.
(A Development Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
October 31, 2000
NOTE A: The accompanying unaudited consolidated financial statements of Showstar Online.com Inc. as of and for the six months ended October 31, 2000 and October 31, 1999 have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary for a fair presentation of the results of the interim period have been included. Operating results for any interim period are not necessarily indicative of the results that may be expected for the entire fiscal year. These statements should be read in conjunction with the financial statements and notes thereto for the year ended April 30, 2000 included in the Company's report in Form 10KSB as filed with the Securities and Exchange Commission.
NOTE B On May 1, 2000 the Company acquired the assets and current liabilities of ALS Sportswear for the purchase price of 350,000 shares of common stock. The shares have been valued at the market price on May 1, 2000 of $0.93 per share for a value of $328,125. The excess of the purchase price over the fair market value of the items received was $305,275 and has been recorded as Goodwill on the financial statements of the Company. Management plans to amortize the goodwill on a straight line basis over sixty months.
NOTE C: During the quarter, the company issued the following shares:
| Date: | Number | Consideration | ||
|---|---|---|---|---|
| August 4, 2000 | 166,667 | $ 25,000 | ||
| August 4, 2000 | 666,666 | $100,000 | ||
| August 4,2000 | 200,000 | $ 30,000 | ||
| August 4, 2000 | 1,665,000 | Loan Repayment | ||
| August 4, 2000 | 925,000 | employ agmt terms | ||
| August 4, 2000 | 809,500 | begin consulting | ||
| October 9, 2000 | 3,333,333 | Loan Repayment | ||
| October 9, 2000 | 3,666,667 | $440,000 |
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
This report contains forward-looking statements within the meaning of Section21E of the Securities Exchange Act of 1934, as amended and Section 27A of the Securities Act of 1933, as amended. For this purpose, any statements contained herein that are not statements of historical fact may be deemed forward-looking statements. Without limiting the foregoing, the words "believes", "anticipates", "plans", "expects" and similar expressions are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. These forward-looking statements should be read in conjunction with the Company's disclosures included in their Form 10-KSB for the fiscal year ended April 30, 2000.
Showstar Online.com, Inc. (the "Company", "Showstar" and sometimes "we," "us," "our" and derivatives of such words), formerly named Showstar Entertainment Corporation, was incorporated on July 14, 1995 in the State of Colorado as Cerotex Holdings, Inc. The Company commenced business as a developer of computer-based management systems and continued operations on a limited basis until March 18, 1998.
On March 19, 1998, Barry Forward and Gino Punzo gained control of the Company through a cash purchase of Common Stock from founding stockholders. On April 23, 1998, the Company effected an agreement with all the stockholders of Showstar Entertainment Corporation (formerly Nucom Productions, Inc.), a Nevada Corporation ("Showstar/Nucom"), whereby the Company issued 3,367,000 shares of its no par Common Stock in exchange for 77% of the outstanding common stock of Showstar/Nucom.
In May 1998 the Company changed its name to Showstar Entertainment Corporation, assuming the name of its majority-owned subsidiary. Effective August 25, 1998, the remaining 23% of Showstar/Nucom was acquired through issuance of 999,066 shares of the Company's Common Stock.
On June 18, 1999, the stockholders of the Company approved a change in corporate name to Showstar Online.com, Inc., which became effective on June 25, 1999.
From April 1998 to February 1999, Showstar engaged in merchandising and event promotion in secondary markets in the Western United States and Canada. These operations were discontinued in February 1999.
Showstar Online.com, Inc. is a developer of Internet websites and e-commerce solutions. One of Showstar's e-commerce solutions is the integration of ORACLE iStore 3.0 to offer an e-commerce solution for Artstar.com customers. In addition, Showstar, together with its contractor Shoptek e-Commerce Solutions, has been developing a customized online catalog to showcase and sell works of art available through individual artists, galleries and museums.
Showstar has established a unique and scalable e-commerce infrastructure by developing and integrating several leading edge technologies, including the incorporation of ORACLE database tools, Cold Fusion, Macromedia Flash and LIVEPICTURE into Artstar.com. This also includes the customized development of Artstar.com's art search engine accessing the ORACLE database.
Showstar's development of its website property "Artstar.com" commenced in May 1999. Showstar launched e-commerce and retail activities on the website in December 1999.
7
In March 2000 Showstar introduced its first portal development product Showstar Webmail. Showstar WebMail was designed as a software solution for web portals and is available in a customized form on the company's website Artstar.com. Showstar is now marketing its webmail product to third-party websites.
Through this website, Showstar offers a variety of products and services under the domain name "Artstar.com." These are designed to attract viewer traffic to the site and to generate revenue for Showstar. The products and services offered include auctions, authentication and appraisal consulting, buyer (corporate and individual) representation, and education in art, collectibles and restoration.
Via the Internet, Showstar provides a variety of entertainment and education products and services to those interested in art and collectibles. Showstar's revenues are derived from a variety of sources, including online auctions, appraisals and authentication, commissions, advertising, content licensing, various consulting services, and merchandising. All of the aforementioned products and services currently are marketed and sold on the ArtStar.com website. Showstar does not buy and sell art work or collectibles for its own account.
In May of 2000 Showstar acquired the assets of ALS Sportswear and began operating this division with the previous owners in place. This division supplies products to a variety of corporate clients and sports teams as well as being able to service galleries and museums with product for their gift shops.
The Company continues to develop the Artstar Web-site through increasing functionality and finding saleable content. We began actively pursuing affiliate relationships with other sites and are pleased with the increasing traffic and sales resulting from visitors from those sites. In addition, we have extended e-commerce capability to offshore markets and have received and processed orders from Indonesia, England and Europe.
We are continuing development and enhancement of Showstar WebMail adding functionality that does not exist in other e-mail products. Our linux based software development team are always looking for opportunities to develop additional products for third party customers as well as the Artstar web-site.
During this quarter the company began a major facelift of the Artstar website to create a true art portal. The project was completed mid November and the channel concept was launched in November creating three distinct channels to service the public, artists and their needs, and the business community with B2B solutions. The major thrust of this concept is to enhance the site's revenue generation capability.
The company held it's annual general meeting on Sept. 15, 2000 with the ratification of all items put forward to the shareholders. The details of all the items can be obtained from the proxy statement filed with the SEC.
Management continues to look at opportunities to strengthen the company through acquisition such as the ALS purchase, partnering with other art sites and/ or brick and mortar businesses..
Sales at $266,559 for the six months ending October 31,2000 and sales of $145,114 for the quarter ending October 31, 2000 are higher than last year as the company during the first half of 1999 was developing the web site and had no other active business happening at that time. Cost of sales at $161,929 and $105,564 respectively are higher for the same reasons already mentioned for sales. The results reflect the continuing e-commerce development on the Artstar site and the ramp up of the ALS operation.
8
Selling, General and Administrative Costs
Selling, General and Administrative Costs ("SGA") of $1,065,865 and $497,255 were recorded for the respective periods ending October 31, 2000 compared to $905,602 and $745,964 for the periods ending in 1999. reflecting the company being in the start-up stages of the web development last year. SGA include salaries and benefits for corporate management, administrative and sales personnel, as well as rent expense for the Company's office premises.
Other costs are lower by $1,348,933 and $747,234 reflecting the change in the operations year over year especially in terms of stock based compensation not required to the same level this year as last year during the building of the infrastructure needed to develop the web-site and operate the company.
As a result of the foregoing, the Company experienced net losses for the periods ending October 31, 2000 of $2,069,055 and $1,024,052, as compared to net losses of $3,360,481 and $2,056,638 for the comparable period in 1999. The company is still effectively in it's development stage and will rely on outside funding during at least the current year and possibly beyond to cover operating losses.
Liquidity and Capital Resources
The principal source of funds to the Company since it's formation has been derived from the net proceeds of certain private offerings of securities which have been used to fund continued development, selling, general and administrative costs. The Company believes that additional financing for the next twelve months will continue to be required to continue development of the Artstar web-site, linux based software and the expansion of the ALS operation. The company has been successful in raising funds in the past and expects to be able to do so in the future until such time as revenues and earnings provide adequate cash flows.
Showstar is exposed to fluctuations in foreign currencies relative to the U.S. dollar because it collects revenues in U.S. dollars and incurs certain costs in foreign currencies, primarily the Canadian dollar. As Showstar expands its operations, it may begin to collect revenues from customers in currencies other than the U.S. dollar. Showstar does not currently engage in any hedging activities.
9
The Company has been named as a defendant in a lawsuit filed against Savingsplus Internet Inc. by a director of Savingsplus for failure to repay a $35,000 loan to the director's company. Showstar has retained counsel, filed a reply to the suit and are waiting for further action by the plaintiff.
Item 6. Exhibit and Reports on Form 8-K
Current Report on Form 8-K dated October 11, 2000
Item 5. Other Events
Announcement of the completion of a private placement of restricted Common Stock, no par value, at $0.12 per share pursuant to Rule 506 of regulation D under the U. S. Securities Act of 1933, as amended (the "Securities Act").
No financial statements were filed with the Form 8-K.
10
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SHOWSTAR ONLINE.COM INC. | |||
Dated: December 26, 2000 | By: | /s/ J. PUNZO J. Punzo President, and Chief Executive Officer | |
11
| Exhibit No. | Description | |
|---|---|---|
| 27.1 | Financial Data Schedule |
12
