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 July 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)
Colorado 13-4093341
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
70 Washington St., Brooklyn, NY 10011
(Address of Principal Executive Offices)
(718) 923-0593
(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 39,234,084
Transitional Small Business Disclosure Format (check one):
Yes No X
---- ----
TABLE OF CONTENTS
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10QSB
PART I.......................................................................... 3
Item 1.......................................................................... 3
Balance Sheet................................................................... 4
Statement of Operations..........................................................5
Cash Flow Statement............................................................. 6
ITEM 2.......................................................................... 7
PART II......................................................................... 10
Item 6.......................................................................... 10
EX-27
Exhibit 27 Table................................................................
2
SHOWSTAR ONLINE.COM INC.
QUARTERLY REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE QUARTER ENDED
July 31, 2000
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheet as of July 31, 2000
Unaudited Condensed Consolidated Statement of Operations for the three
months ended July 31, 2000 and 1999
Unaudited Condensed Consolidated Statement of Cash Flows for the three
months ended July 31, 2000 and 1999
Notes to Unaudited Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis or Plan of Operation
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE PAGE
EXHIBIT INDEX
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SHOWSTAR ONLINE.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
July 31, 2000
ASSETS
CURRENT ASSETS
Cash ........................................................... $ -
Accounts receivable ............................................ 56,751
GST receivable ................................................. 70,626
Inventory ...................................................... 45,216
Prepaid expenses ............................................... 32,595
------------
TOTAL CURRENT ASSETS 205,188
INVESTMENTS, AT COST ................................................. 303,776
PROPERTY & EQUPIPMENT, less $155,695
accumulated depreciation ....................................... 489,435
WEBSITE & SOFTWARE, less $267,760
accumulated amortization ....................................... 942,416
INTANGIBLE ASSETS, less $16,865
accumulated amortization ....................................... 294,010
------------
$ 2,234,825
============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable, trade ........................................ $ 818,740
Accrued expenses ............................................... 140,263
Accrued stock compensation ..................................... 470,275
Loan payable ................................................... 765,000
Accrued interest payable ....................................... 19,125
Due to related party ........................................... 514,430
Advances payable ............................................... 100,000
------------
TOTAL CURRENT LIABILITIES 2,827,833
------------
COMMITMENTS .......................................................... --
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, no par value, 5,000,000 shares
authorized, -0- issued and outstanding ..................... --
Common stock, no par value, 50,000,000 shares
authorized, 34,801,251 issued and outstanding .............. 10,510,670
Contributed capital ............................................ 74,000
Outstanding common stock warrants .............................. 354,576
Outstanding common stock options ............................... 429,535
Deferred stock compensation .................................... (186,667)
Cumulative translation adjustments ............................. (41,021)
Deficit accumulated during development stage ................... (11,734,101)
------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (593,008)
------------
$ 2,234,825
------------
4
SHOWSTAR ONLINE.COM, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended July 14, 1995
July 31, (Inception)
---------------------------- through
2000 1999 July 31, 2000
------------ ------------ ------------
REVENUE
Sales ........................................... $ 117,903 $ -- $ 123,253
Commissions ..................................... 3,542 -- 30,085
------------ ------------ ------------
TOTAL REVENUE 121,445 -- 153,338
COSTS AND EXPENSES
Cost of sales ................................... 56,365 -- 59,885
Stock based compensation ........................ 118,334 811,567 3,396,209
Consulting ...................................... 120,575 179,523 1,371,313
Investor relations, related party ............... -- -- 107,067
Investor relations .............................. 17,360 17,330 243,591
Web-sit set up .................................. 28,617 1,826 263,798
Professional fees ............................... 41,372 33,142 428,233
Consulting fees paid by shareholders ............ -- -- 466,500
Travel and entertainment ........................ 22,522 71,644 339,506
Depreciation and amortization ................... 164,553 -- 509,660
General and administrative ...................... 414,085 113,889 1,564,342
Advertising, marketing and selling .............. 154,525 45,749 1,614,952
Technical development ........................... -- 31,021
------------ ------------ ------------
TOTAL COSTS AND EXPENSES (1,138,308) (1,274,670) (10,396,077)
INTEREST EXPENSE ...................................... (28,140) -- (88,423)
------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS BEFORE TAXES (1,045,003) (1,274,670) (10,331,162)
INCOME TAXES
Current ......................................... 389,786 475,452 3,829,529
Deferred ........................................ (389,786) (475,452) (3,829,529)
------------ ------------ ------------
NET LOSS FROM CONTINUING OPERATIONS (1,045,003) (1,274,670) (10,331,162)
DISCONTINUED OPERATIONS
Net loss from entertainment division operations,
net of $-0-, $-0-, and $-0- in income taxes.... -- (29,173) (425,639)
Loss on disposal of entertainment division,
net of $-0-, $-0-, and $-0- in income taxes ... -- -- (977,300)
------------ ------------ ------------
NET LOSS $ (1,045,003) $ (1,303,843) $(11,734,101)
============ ============ ============
NET LOSS PER COMMON SHARE:
Basic - continuing operations ................... $ (0.03) $ (0.05)
Diluted - continuing operations ................. $ (0.03) $ (0.05)
Basic - discontinued operations ................. * $ 0.00
Diluted - discontinued operations ............... * $ 0.00
NUMBER OF SHARES USED FOR COMPUTING NET LOSS PER SHARE:
Basic ........................................... 34,801,251 23,475,940
Diluted ......................................... 34,801,251 23,475,940
*Less than $.01 per share
5
SHOWSTAR ONLINE.COM, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
July 14, 1995
For the Quarters Ended July 14, 1995
July 31, (Inception)
----------------------- through
2000 1999 July 31, 2000
---------- ---------- -------------
NET CASH (USED IN) OPERATING ACTIVITIES ........................... (433,437) (477,371) (5,604,947)
---------- ---------- -------------
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 .......... (561,554) (480,176) (2,206,930)
---------- ---------- -------------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (599,234) (480,176) (2,479,891)
---------- ---------- -------------
FINANCING ACTIVITIES
Proceeds from advances, related parties ...................... (454) -- 361,146
Proceeds from advances ....................................... 515,000 -- 867,500
Repayments of advances, related parties ...................... -- -- (5,000)
Cash paid for stock offering costs ........................... (10,000) -- (219,000)
Proceeds from issuance of preferred stock .................... -- -- 3,500
Proceeds from issuance of common stock ....................... 528,125 1,143,987 7,065,213
Proceeds from issuance of convertible debenture .............. -- -- 52,500
---------- ---------- -------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 1,032,671 1,143,987 8,125,859
---------- ---------- -------------
CUMULATIVE TRANSLATION ADJUSTMENT ................................. -- -- (41,021)
---------- ---------- -------------
NET CHANGE IN CASH -- 186,440 --
Cash, beginning of period ......................................... -- 15,737 --
---------- ---------- -------------
CASH, END OF PERIOD $ -- $ 202,177 $ --
========== ========== =============
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
========== ========== =============
852,443 shares of common stock issued for payment of advances
and accrued liabilities ..................................... $ -- $ -- $ 593,800
========== ========== =============
3,714,500 shares of common stock issued for compensation ..... $ -- $ -- $ 2,228,851
========== ========== =============
1,050,000 shares of common stock issued for payment of accrued
stock compensation .......................................... $ -- $ -- $ 517,500
========== ========== =============
350,000 shares of common stock issued for acquisition of ALS.. $ 328,125 $ -- $ 328,125
========== ========== =============
6
SHOWSTAR ONLINE.COM, INC.
(A Development Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
July 31, 2000
NOTE A: The accompanying unaudited consolidated financial statements of Showstar
Online.com Inc. as of and for the three months ended July 31, 2000 and July 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 10-KSB 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
----- ------ -----------------
May 1, 2000 350,000 Purchase ALS
May 4, 2000 588,235 $100,000
May 5, 2000 666,667 $100,000
NOTE D: Subsequent to the quarter end, 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
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
This report contains forward-looking statements within the meaning of Section
21E 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
7
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.
Overview
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.
GENERAL
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 and thus commenced principal operations. A marketing and public
relations program commenced in November 1999.
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
8
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 is always looking for opportunities to develop
additional products for third party customers as well as the Artstar web-site.
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.
Results of Operations
Three Months Ended July 31, 2000 and July 31, 1999
Sales and Cost of Sales
Sales at $121,445 and Cost of Sales at $56,365 are higher than last year as the
company during the first quarter of 1999 was just beginning development of the
web site and had no other active business happening at that time. The results
reflect the continuing e-commerce development on the Artstar site and the ramp
up of the ALS operation.
Selling, General and Administrative Costs
Selling, General and Administrative Costs ("SGA") of $568,610 compared to
$159,738 also reflect 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
Other costs are lower by $601,599 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.
9
Net Loss
As a result of the foregoing, the Company experienced a net loss for the quarter
ending July 31, 2000 of $1,045,003, as compared to a net loss of $1,274,670 for
the comparable period in 1999. The company is still effectively in its
development stage and will rely on outside funding during the current year to
cover operating losses.
Liquidity and Capital Resources
The principal source of funds to the Company since its 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.
FOREIGN CURRENCY EXPOSURE
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.
PART II
OTHER INFORMATION
Items 1 through 5 are not applicable and have been omitted.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) No reports on Form 8-K were filed with the Commission during the first
quarter of the fiscal year ending April 30, 2001.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SHOWSTAR ONLINE.COM INC.
Dated: September 14, 2000 By: /s/ J. Punzo
--------------------------------------
J. Punzo
President, and Chief Executive Officer
10
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
11