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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 NOVEMBER 30, 2001.
[ ] 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 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
The number of shares outstanding of the issuer's common stock is 5,125,000
(as of January 18, 2002)
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1
E-STAR HOLDINGS, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
QUARTER ENDED NOVEMBER 30, 2001
ITEMS IN FORM 10-QSB
PAGE
Facing page
PART I
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II
Item 1. Legal Proceedings 9
Item 2. Changes in Securities and None
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
2
E-STAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
November 30, February 28,
2001 2001
(Unaudited) (Audited)
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Current assets:
Cash and Cash equivalents $ 3,688 $ 2,794
Accounts Receivable -- 10,391
Inventory 157,520 142,209
Other receivables 209,712 --
Prepaid expenses 55,826 265,826
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Total current assets 426,746 421,220
Property and equipment, net 8,616,520 8,693,891
Software development costs 124,453 166,951
Security deposits 64,599 81,130
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Total assets $ 9,232,318 $ 9,363,192
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilites:
Loans payable $ 1,022,066 $ 98,790
Accounts payable 734,879 839,703
Accrued liabilities 432,547 394,410
Deferred revenue 124,024 92,498
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Total current liabilities 2,313,516 1,425,401
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Long term liabilities
Mortgages payable 2,539,789 2,766,251
Loans payable stockholders 5,259,250 5,917,836
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Total long term liabilities 7,799,039 8,684,087
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Total liabilities 10,112,555 10,109,488
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Stockholders' equity (deficit)
Common stock, par value $0.001; 100,000,000 shares
authorized ; 5,125,000 and 5,014,750 shares issued and
outstanding in November 30, 2001 and February 28, 2001 respectively 5,125 5,015
Additional paid-in capital 2,538,180 1,878,430
Accumulated deficit (3,423,542) (2,629,741)
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Total stockholders' equity (deficit) (880,237) (746,296)
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Total liabilities and stockholders' equity (deficit) $ 9,232,318 $ 9,363,192
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The accompanying notes are an integral part of these
consolidated financial statements.
1
E-STAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
NINE MONTHS ENDED THREE MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
2001 2000 2001 2000
----------- ----------- ----------- -----------
Revenue
Sales $ 6,400,071 $ 5,395,595 $ 2,043,932 $ 2,457,210
Membership plans 374,916 76,844 158,994 64,809
Sale of Port Jefferson operation 250,000 -- --
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total revenue 7,024,987 5,472,439 2,202,926 2,522,019
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Costs and Expenses
Cost of sales 4,834,581 4,562,785 1,579,884 2,148,923
Salaries, benefits and consulting fees 868,546 1,325,549 270,535 454,617
Rent and utilities 477,720 256,322 168,381 168,642
Professional fees 101,142 70,206 22,450 33,734
Depreciation and amortization 350,076 122,685 138,524 37,669
Research and development 37,577 192,252 18,827 81,868
Other costs and expenses 596,994 637,030 163,567 66,598
Abandonment of lease 65,955 -- -- --
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Total costs and expenses 7,332,591 7,166,829 2,362,168 2,992,051
----------- ----------- ----------- -----------
Loss before interest expense (307,604) (1,694,390) (159,242) (470,032)
Interest expense 486,197 241,495 149,971 123,843
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----------- ----------- ----------- -----------
Net loss $ (793,801) $(1,935,885) $ (309,213) $ (593,875)
=========== =========== =========== ===========
Basic and diluted net loss per common share (.16) (0.40) (0.06) (0.12)
Weighted average shares used in basic
net loss per share calculation 5,055,033 4,877,661 5,125,000 4,877,661
The accompanying notes are an integral part of these
consolidated financial statements.
2
E-STAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
NINE NINE
MONTHS MONTHS
ENDED ENDED
NOVEMBER 30, NOVEMBER 30,
2001 2000
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OPERATING ACTIVITIES
Net loss (793,801) $(1,935,885)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 350,076 122,685
Stock based compensation -- 81,000
Changes in operating assets and liabilities
Accounts receivable 10,391 (89,260)
Prepaid expense 210,000 (76,332)
Other receivables (209,712) (107,264)
Security deposits 16,531 --
Inventory (15,311) --
Accounts payable (104,824) 595,450
Accrued expenses 38,137 111,551
Deferred revenue 31,526 182,653
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Cash used in operating activities (466,987) (1,115,402)
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INVESTING ACTIVITIES
Purchase of leaseholds, improvements and equipment (230,876) (7,924,748)
Software development -- (166,951)
Deposits on leaseholds -- 150,000
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Cash used in investing activities (230,876) (7,941,699)
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FINANCING ACTIVITIES
Expenses related to financing activities (1,640)
Proceeds from issuance of common stock, net 3,600 454,598
Proceeds from loans 923,259
Proceeds from loans - stockholders -- 7,640,198
Repayment of Mortgages (226,462) --
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Cash provided by financing activities 698,757 8,094,796
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Net increase (decrease) in cash and cash equivalents 894 (962,305)
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 $ 3,688 $ 78,790
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Supplemental Information:
Interest payments $ 173,305 --
Income Tax payments -- --
The accompanying notes are an integral part of these
consolidated financial statements.
3
E-STAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NINE MONTHS ENDED
NOVEMBER 30, 2001
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 nine 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.
Beginning March 1, 2001, the Company has not been considered a development stage
enterprise.
4
2 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 $200,000, plus interest, in
monthly loan payments over the next two years, for a total sales
price of $250,000. The lessee is using the "All Star" name for the
facility. The Port Jefferson facility began operations in June
2001.
3. SB-2 Registration
The SB-2 Registration has been closed. Pursuant to the
registration statement the Company sold an aggregate of 250,000
shares and received net proceeds of $1,388,110.
5
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL BUSINESS
We have a limited operating history with our car wash and car care service
businesses. Since January, 2000 our main business has been the acquisition,
renovation and operation of the car wash and car care facilities. We have also
developed Worlds Best Membership (WBM). On March 1, 2001, we became fully
operational at five locations and the sixth opened in June. At this time we are
repositioning our company from a company involved in the day to day operations,
to a company that acquired real property and leases the sites, and the All-Star
name. We will continue to develop and market the WBM programs.
RESULTS OF OPERATIONS
Nine Months November 30, 2001
Sales for the nine months ended November 30, 2001 were $6,400,071 from gasoline,
carwash and convenience store sales, $374,916 was from the sale of membership
plans and $250,000 for leasing of the Port Jefferson site. All of our locations
are in the New York area. Sales for the nine months ended November 30, 2001 were
affected by the terrorist attacks against the United States on September 11,
2001. For this period we also had only five of our six sites operational in the
first quarter. The sixth sight became operational in the August 2001 quarter.
Cost of Sales was $4,834,581 primarily attributable to the cost of fuel. The
margin for fuel is small compared to the margin on car wash sales.
Research and development expense was $37,577 for the nine months ended November
30, 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.
To date funds have not been available to start marketing the (POS) software. 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 as additional financing
becomes available.
6
Salaries, benefits and consulting fees were $868,546 for the nine months ended
November 30, 2001. These expenses were primarily attributed to salaries for
management and for running operations.
Other costs and expenses was $596,994. They include auto, advertising, printing
and reproduction, insurance, bank charges and merchant fees.
Depreciation expense was $350,076, primarily attributable to the amortization of
leaseholds and leasehold improvements.
Interest expense was $486,197 and is attributed to mortgages and shareholders
loans pursuant to subscription agreements. Interest expense of $316,863 is from
shareholders loans, and $169,334 is from other loans and mortgages.
Net loss was $793,801 for the nine months ended November 30, 2001. The loss is
attributed to carrying two of our locations for the first three months of the
period when renovation and construction took place. These locations became
operational in June 2001. We did not meet our sales projections due to the
extended period warm, dry weather experienced in the northeast. During periods
of warm dry weather customers wash their own cars. Our revenue were affected by
the terrorist attacks against the United States on September 11, 2001.
THREE MONTHS NOVEMBER 30, 2001
Sales for the three months ended November 30, 2001 were $2,043,932 from
gasoline, carwash, convenience store sales, $158,994 was from the sale of
membership plans. Our sales were affected by the warm, dry weather in the fall
as well as the September 11, 2001 terrorist attacks on the New York area.
Cost of Sales was $1,579,884 for the three months ended November 30, 2001. These
costs are primarily attributed to the cost of fuel. The margin for fuel is small
compared to the margin on car wash sales.
Salaries, benefits and consulting fees were $270,535 for the three months ended
November 30, 2001. These expenses were primarily attributed to salaries for
management and for running operations.
Other costs and expenses was $163,567 for the three months ended November 30,
2001 they include auto, advertising, printing and reproduction, insurance, bank
charges and merchant fees.
Depreciation expense was $138,524, primarily attributable to the amortization of
leaseholds and leasehold improvements.
7
Net loss was $309,213 for the year three months ended November 30, 2001. The
loss is attributed to our not meeting our sales projection due to the terrorist
attacks on the United States on September 11, 2001. The weather was also a
contributing factor with the extended period of dry, hot weather into the fall.
In addition the high interest costs associated with the loans to shareholder and
additional interest expense incurred for short term working capital contributed
to this loss.
LIQUIDITY AND CAPITAL RESOURCES AS OF NOVEMBER 30, 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. We believe that we will still have losses due to the
borrowing and the high interest costs associated with this borrowing. 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 $466,987 for the nine months ended
November 30, 2001. Net cash used in operating activates was primarily
attributable to a net loss of $793,801 partially offset by a decrease in prepaid
expenses an increase in Other receivable of $209,712 and an increase in accrued
expense of $31,526.
Net cash used in investing activities for the nine months ended November 30,
2001 was $230,876 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 nine months ended November 30,
2001 was $698,757 primarily from demand loans off set by repayment of mortgages.
8
PART II
ITEM 1. LEGAL PROCEEDINGS
Sterling Business Solutions, Inc. instituted an action against five of
our wholly owned subsidiaries in the Supreme Court of the State of New York,
Queens County. Sterling claims an aggregate of approximately $39,600 owed to it
by our subsidiaries for salaries paid by Sterling for persons working for our
subsidiaries. Our subsidiaries have denied Sterling's claims.
The Alan T. Brown Foundation to Cure Paralysis instituted an action
against us in the Supreme Court of the State of New York, New York County. The
Brown Foundation claims $20,000 as the balance of a pledge we made to the Brown
Foundation. We have denied liability because we made the pledge in consideration
for the Brown Foundation promoting our "All Star Car Wash" name at a
fund-raising sports tournament and because the Brown Foundation failed to
properly promote our name at that event.
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 November
30, 2001.
9
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: January 22, 2002 By: /S/ ZION MICHTAVY
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Zion Michtavy
Secretary
10