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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MAY 31, 2001.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO
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COMMISSION FILE NUMBER 0-31217
E-STAR HOLDINGS, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
NEVADA 06-1574303
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
165 EAB PLAZA
WEST TOWER, 6TH FLOOR
UNIONDALE, NEW YORK 11566
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(516) 522-2725
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
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The number of shares outstanding of the issuer's common stock is 5,125,000 (as
of July 9, 2001)
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E-STAR HOLDINGS, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-QSB
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
QUARTER ENDED MAY 31, 2001
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ITEMS IN FORM 10-QSB
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PAGE
Facing page
PART I
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Item 1. Financial Statements. 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II
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Item 1. Legal Proceedings None
Item 2. Changes in Securities and 9
Use of Proceeds
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to
a Vote of Security Holders None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
E-STAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
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May 31, February 28,
2001 2001
(Unaudited) (Audited)
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Current assets:
Cash and Cash equivalents $ 3,088 $ 2,794
Accounts Receivable 19,315 10,391
Inventory 167,245 142,209
Deposits --
Prepaid expenses 25,826 265,826
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Total current assets 215,474 421,220
Property and equipment, net 8,684,725 8,693,891
Software development costs 158,451 166,951
Security deposits 76,030 81,130
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Total assets $ 9,134,680 $ 9,363,192
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
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Current liabilites:
Loans payable $ 505,290 $ 297,290
Accounts payable 391,116 641,203
Accrued liabilities 271,971 394,410
Deferred revenue 201,654 92,498
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Total current liabilities 1,370,031 1,425,401
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Long term liabilities
Mortgages payable 2,753,597 2,766,251
Loans payable stockholders 5,908,336 5,917,836
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Total long term liabilities 8,661,933 8,684,087
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Total liabilities 10,031,964 10,109,488
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Stockholders' equity (deficit)
Common stock, par value $0.001; 100,000,000 shares
authorized ; 5,025,350 and 5,014,750 shares
outstanding in May 31, 2001 and February 28, 2001
respectively 5,026 5,015
Additional paid-in capital 1,946,969 1,878,430
Accumulated deficit (2,849,279) (2,629,741)
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Total stockholders' equity (deficit) (897,284) (746,296)
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Total liabilities and stockholders' equity (deficit) $ 9,134,680 $ 9,363,192
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The accompanying notes are an integral part of these
consolidated financial statements.
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E-STAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
THREE THREE
MONTHS MONTHS
ENDED ENDED
MAY 31, 2001 MAY 31, 2000
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Revenue $ 2,016,624 $ 120,252
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total income 2,016,624 120,252
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Cost of sales 1,369,906
Salaries, benefits and consulting fees 296,543 167,860
Rent 92,810 55,246
Professional fees 18,875 48,011
Depreciation and amortization 93,175 15,417
Research and development 18,750 68,634
Other costs and expenses 180,367 236,995
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Total expenses 2,070,426 592,163
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Loss before interest expense (53,802) (471,911)
Interest expense 165,736 13,020
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Net loss $ (219,538) $ (484,931)
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Basic and diluted net loss per common share (0.04) (0.10)
Weighted average shares used in basic
net loss per share calculation 5,018,283 4,867,333
The accompanying notes are an integral part of these
consolidated financial statements.
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E-STAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLDIATED STATEMENT OF CASH FLOWS
THREE THREE
MONTHS MONTHS
ENDED ENDED
May 31, 2001 May 31, 2000
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OPERATING ACTIVITIES
Net loss (219,538) $ (484,931)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 93,175 15,417
Stock based compensation -- 21,000
Changes in operating assets and liabilities
Accounts receivable (8,924) (36,304)
Prepaid expense 240,000 (29,807)
Other assests (44,365)
Security deposits 5,100
Inventory (25,036)
Accounts payable (143,497) 54,962
Accrued expenses (122,439) 67,177
Deferred revenue 109,156 --
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Cash used in operating activities (72,003) (436,851)
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INVESTING ACTIVITIES
Purchase of leaseholds, improvements and equipment (175,509) (50,027)
Software development -- (10,000)
Acquisition of leaseholds (1,543,387)
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Cash used in investing activities (175,509) (1,603,414)
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FINANCING ACTIVITIES
Expenses related to financing activities (1,640) (43,555)
Proceeds from issuance of common stock, net 3,600
Proceeds from loans 208,000 500,349
Proceeds from loans - stockholders 50,500 754,824
Repayment of Mortgages (12,654) --
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Cash provided by financing activities 247,806 1,211,618
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Net increase (decrease) in cash and cash equivalents 294 (828,647)
Cash and cash equivalents at beginning of period 2,794 1,041,095
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Cash and cash equivalents at end of period $ 3,088 $ 212,448
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Supplemental Information:
Interest payments $ 63,675 --
Income Tax payments -- --
The accompanying notes are an integral part of these
consolidated financial statements.
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E-STAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2001
UNAUDITED
1. Basis of Presentation
The unaudited financial statements included in the Form 10Q-SB have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10Q-SB and Item 310(b)
of Regulation SB. The financial information furnished herein reflects all
adjustments, which in the opinion of management are necessary for a fair
presentation of the Company's financial position, the results of operations and
cash flows for the periods presented.
Certain information and footnote disclosures normally contained in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted, pursuant to such rules and regulations.
These interim statements should be read in conjunction with the audited February
28, 2001 consolidated financial statements and related notes thereto included in
the Company's February 28, 2001 certified financial statements. The results of
operations for the three months are not necessarily indicative of the operating
results for the year. The Company presumes that users of the interim financial
information herein have read or have access to the audited financial statements
for the preceding period and that the adequacy of additional disclosure needed
for a fair presentation may be determined in that context.
As of March 1, 2001, the Company is no longer considered to be a development
stage enterprise.
-4-
2. Subsequent Events
a. Leasing of Site
The Company owns a car wash facility in Port Jefferson, Long
Island, NY. The Company has leased the Port Jefferson facility to
a third party who is not affiliated with the Company or with any
of the directors or executive officers. The lease is for 22 years,
at an initial triple net rental of $38,400 per annum, increasing
by 5% each year. In such lease transaction the Company is to
receive an aggregate of an additional $150,000 in monthly payment
over the next two years. The lessee is using the "All Star" name
for the facility. The Port Jefferson facility began operations in
June 2001.
b. SB-2 Registration
As of June 8, 2001, the Company sold an aggregate of 250,000
shares and received net proceeds of $1,388,360.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General Business
Results of Operations
Three Months Ended May 31, 2001
Sales for the three months ended May 31, 2001 were $1,933,633 from gasoline,
carwash and convenience store sales and $82,991 in revenue was recognized in
revenue from sales of memberships and plans. Total sales from memberships and
plans were $157,952 for the period. Our membership and plan sales since
inception amounted to $ 505,973. Sales from memberships are recognized over a
twelve month period. We were able to achieve this revenue despite difficult
weather conditions that resulted in a loss of 30% of the operating days in the
first quarter. We also had only five of our seven sites operational in the first
quarter. Our final two sites (one of which is leased) became operational in the
second quarter of 2001.
Cost of Sales was $1,369,906. These costs are primarily attributed to the cost
of fuel. The margin for fuel is small compared to the margin on car wash sales.
Research and development expense was $18,875 for the three months ended May 31,
2001. These expenses were primarily related to the development of our Point of
Sale (POS) software program and the security tracking software program. The POS
software is operational at all of our six car wash locations. We are in the
third phase of development. We plan to market the POS software in the coming
year. The POS software will be marketed to other car washes and can be adapted
for use in other industries. We believe that we will need to raise additional
capital through equity or alternative financing to market this product properly.
We expect to continue to make substantial investments in the research and
development of new products in management information systems through the use of
the internet, for use by our subsidiaries and for resale.
Salaries, benefits and consulting fees were $296,543 for the three months ended
May 31, 2001. These expenses were primarily attributed to salaries for
management and for running operations.
Other costs and expenses were $180,367. They include travel, advertising,
printing and reproduction, insurance, bank charges and merchant fees.
Depreciation expense was $93,175. The expenses are primarily attributed to the
amortization of leaseholds and leasehold improvements.
-6-
Interest expense was $165,736 and is attributed to mortgages and shareholders
loans pursuant to subscription agreements.
Net loss was $219,538 for the three months ended May 31, 2001. The loss is
attributed to carrying two of our locations for the period when renovation and
construction took place. These locations were not operational until June 2001.
LIQUIDITY AND CAPITAL RESOURCES AS OF MAY 31, 2001
We believe that revenue from six fully operational locations and the leasing of
Port Jefferson will generate sufficient cash flow for the next year. We also
believe that we will not incur many of the start up costs that we incurred in
the previous year. However, we will not be able to expand carwash sites or
market new products without the availability of new credit lines. We still have
access to the subscription agreements if necessary. We feel that the terms of
these agreements are not beneficial for use in the future purchase of sites or
for working capital needs. Our ability to continue as a going concern is
dependent upon being able to find additional financing. We can give no
assurances that we will be able to find such financing with acceptable terms.
Net cash used in operating activities was $72,003 for the three months ended May
31, 2001. Net cash used in operating activates was primarily attributable to a
net loss of $219,538 partially offset by a decrease in prepaid expenses of
$240,000 and a decrease in accounts payable of $143,497 and accrued expense of
$122,439
Net cash used in investing activities for the three months ended May 31, 2001
was $175,509 and can be attributed to the renovation of two locations. We
anticipate no major renovation or acquisitions in the near future.
Net cash provided by financing activities for the three months ended May 31,
2001 was $247,806, primarily from demand loans.
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PART II
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
We previously reported that as of June 8, 2001, we sold all of the
250,000 shares we registered and received gross proceeds of $1,500,000, that we
paid $111,640 in aggregate expenses in connection with the offering and paid
$4,950 to Basic Investors as commission for its sale of 8,250 shares. We also
reported that in the quarters ended November 30, 2000 and February 28, 2001, we
used approximately $300,000 and $430,000, respectively, of the net proceeds we
received from the offering for our working capital and general corporate
purposes. In the quarter ended May 31, 2001, we received $3,600 of net proceeds
from that offering which we used for our working capital and general corporate
purposes. During that same quarter our founders converted $60,000 of loans they
gave us to purchase 10,000 shares in that offering. On June 8, 2001, our
founders converted $597,900 of loans they gave us to purchase 99,650 shares in
that offering. The proceeds from those loans from our founders (later converted
by our founders to purchases of shares in that offering) were received by us in
the third and fourth quarters of last year (ending November 30, 2000, and
February 28, 2001, respectively) and we used such $657,900 in those two quarters
for our working capital and general corporate purposes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT NO. DESCRIPTION
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3.1 Articles of Incorporation (1)
3.2 By-Laws (1)
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(1) Filed as an Exhibit to the Company's Registration Statement on Form
SB-2 (File No. 333-34790) and incorporated herein by reference.
(b) REPORTS ON FORM 8-K
We did not file any report on Form 8-K in the quarter ended May 31,
2001.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereto duly authorized.
Registrant:
E-STAR HOLDINGS, INC.
Date: July 13, 2001 By: /S/ ZION MICHTAVY
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Zion Michtavy
Secretary
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