SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
[ ] 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 0-26713
CALIFORNIA SERVICE STATIONS
(Exact Name of small business issuer as specified in its charter)
Delaware 33-0619524
(State or other Jurisdiction of I.R.S. Employer Identi-
Incorporation or Organization fication No.)
24351 Pasto Road, #B, Dana Point, California 92629
(Address of Principal Executive Offices) (Zip Code)
(949) 489-2400
(Issuer's Telephone Number, including Area Code)
Indicate by check mark whether the Registrant (i) 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 (of for such shorter period that the
Registrant was required to file such reports) and (ii) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
Common Stock, $.001 par value 1,250,000
- ---------------------------------- --------------------
Title of Class Number of Shares outstanding
at September 30, 2004
Transitional Small Business Format Yes No X
CALIFORNIA SERVICE STATIONS, INC. AND SUBSIDIARY
(Formerly Mendocino Partners, Inc.)
[A Development Stage Company]
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
September 30, June 30,
2004 2004
----------- -----------
CURRENT ASSETS:
Cash $ 383,017 $ 405,365
Prepaid expenses 960 -
----------- -----------
Total Current Assets 383,977 405,365
----------- -----------
OTHER ASSETS:
Acquisition deposit, held in escrow 25,000 25,000
Deferred acquisition costs 4,000 -
----------- -----------
Total Other Assets 29,000 25,000
----------- -----------
$ 412,977 $ 430,365
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 1,239 $ 1,769
Accounts payable - related party 3,905 3,905
Note payable - related party 25,000 25,000
----------- -----------
Total Current Liabilities 30,144 30,674
CONVERTIBLE DEBENTURE - RELATED PARTY 400,000 400,000
----------- -----------
Total Liabilities 430,144 430,674
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.001 par value,
1,000,000 shares authorized,
no shares issued and outstanding - -
Common stock, $.001 par value,
20,000,000 shares authorized,
1,250,000 shares issued and
outstanding 1,250 1,250
Capital in excess of par value 25,230 16,660
Deficit accumulated during the
development stage (41,459) (15,823)
----------- -----------
(14,979) 2,087
Less deferred compensation (2,188) (2,396)
----------- -----------
Total Stockholders' Equity (Deficit) (17,167) (309)
----------- -----------
$ 412,977 $ 430,365
------------- -------------
Note: The balance sheet at June 30, 2004 was taken from the audited
financial statements at that date and condensed. The accompanying
notes are an integral part of this condensed consolidated financial
statement.
CALIFORNIA SERVICE STATIONS, INC. AND SUBSIDIARY
(Formerly Mendocino Partners, Inc.)
[A Development Stage Company]
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three From Inception
Months Ended on April 20,
September 30, 1994 Through
_________________________ September 30,
2004 2003 2004
------------ ------------ ------------
REVENUE $ - $ - $ -
EXPENSES:
General and administrative 17,823 534 29,487
------------ ------------ ------------
LOSS FROM OPERATIONS (17,823) (534) (29,487)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 757 - 993
Interest expense (8,570) - (12,965)
------------ ------------ ------------
Total Other Income (Expense) (7,813) - (11,972)
------------ ------------ ------------
LOSS BEFORE INCOME TAXES (25,636) (534) (41,459)
CURRENT TAX EXPENSE - - -
DEFERRED TAX EXPENSE - - -
------------ ------------ ------------
NET LOSS $ (25,636) $ (534) $ (41,459)
------------ ------------ ------------
LOSS PER COMMON SHARE $ (.02) $ (.00) $ (.04)
------------ ------------ ------------
The accompanying notes are an integral part of this condensed
consolidated financial statement.
CALIFORNIA SERVICE STATIONS, INC. AND SUBSIDIARY
(Formerly Mendocino Partners, Inc.)
[A Development Stage Company]
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three From Inception
Months Ended on April 20,
September 30, 1994 Through
_________________________ September 30,
2004 2003 2004
------------ ------------ ------------
Cash Flows from Operating Activities:
Net loss $ (25,636) $ (534) $ (41,459)
Adjustments to reconcile net loss to net cash used by
operating activities:
Amortization - - 1,015
Non-cash interest expense 8,570 - 12,965
Non-cash services for common stock 207 - 312
Changes in assets and liabilities:
Increase (decrease) in accounts payable (529) 534 1,239
Increase in accounts payable - related party - 3,905
(Increase) in prepaid expenses (960) - (960)
------------ ------------ ------------
Net Cash Provided by Operating Activities (18,348) - (22,983)
------------ ------------ ------------
Cash Flows from Investing Activities:
Payments of organization costs - - (1,015)
Payment of acquisition deposit, held in escrow - - (25,000)
Deferred acquisition costs (4,000) - (4,000)
------------ ------------ ------------
Net Cash (Used) by Investing Activities (4,000) - (30,015)
------------ ------------ ------------
Cash Flows from Financing Activities:
Proceeds from convertible debenture - related party - - 400,000
Proceeds from note payable - related party - - 25,000
Capital contributions - - 10,000
Proceeds from sale of common stock - - 1,015
------------ ------------ ------------
Net Cash Provided by Financing Activities - - 436,015
------------ ------------ ------------
Net Increase (Decrease) in Cash (22,348) - 383,017
Cash at Beginning of Period 405,365 - -
------------ ------------ ------------
Cash at End of Period $ 383,017 $ - $ 383,017
------------ ------------ ------------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ - $ - $ -
Income taxes $ - $ - $ -
Supplemental Schedule of Non-cash Investing and Financing Activities:
For the three months ended September 30, 2004:
In May 2004, the Company issued 250,000 shares for employee services valued
at $2,500 to be rendered over three years. For the three months ended
September 30, 2004 the Company recognized $207 of the expense.
A shareholder of the Company forgave accrued interest totaling $8,570. Due
to the related party nature of the debt forgiveness, the Company recorded
the forgiveness as a capital contribution.
For the three months ended September 30, 2003: None
The accompanying notes are an integral part of these condensed consolidated
financial statements.
CALIFORNIA SERVICE STATIONS, INC. AND SUBSIDIARY
(Formerly Mendocino Partners, Inc.)
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - California Service Stations, Inc. and Subsidiary
("Parent") was organized under the laws of the
State of Delaware on April 20, 1994 as Mendocino Parthers, Inc.
In August 2004 Parent changed its name to
California Service Stations, Inc. and Subsidiary for the purpose of seeking
out business opportunities, including
acquisitions.
Sunset Service Stations ("Subsidiary") was organized under the laws of the
State of California on June 21, 2004 as a wholly-owned subsidiary of
Parent.
California Service Stations, Inc. and Subsidiary ("the Company") plans to
acquire and operate gas service stations that are currently in operation.
The Company has not generated any revenue from its planned principle
operations. The Company is considered a development stage company as
defined in Statement of Financial Accounting Standards No. 7. The Company
has, at the present time, not paid any dividends and any dividends that may
be paid in the future will depend upon the financial requirements of the
Company and other relevant factors.
Condensed Financial Statements - The accompanying financial statements have
been prepared by the Company without audit. In the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary
to present fairly the financial position, results of operations and cash
flows at September 30, 2004 and 2003 and for the periods then ended have
been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles in the United States of America have been condensed or omitted.
It is suggested that these condensed financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's June 30, 2004 audited financial statements. The results of
operations for the periods ended September 30, 2004 and 2003 are not
necessarily indicative of the operating results for the full year.
Cash and Cash Equivalents - The Company considers all highly liquid debt
investments purchased with a maturity of three months or less to be cash
equivalents.
Acquisition Costs - Costs related to proposed acquisitions are deferred and
will be included in the acquisition price upon completion of the related
acquisition. In the event an acquisition is unsuccessful, the costs related
to the acquisition are written off to expense.
Consolidation - The financial statements include the accounts of Parent and
Parent's wholly-owned subsidiary. All significant intercompany transactions
have been eliminated in consolidation.
Fiscal Year - The Company's fiscal year-end is June 30, 2004.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" [See Note 5].
Loss Per Share - The computation of loss per share is based on the weighted
average number of shares outstanding during the period presented in
accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" [See Note 8].
CALIFORNIA SERVICE STATIONS, INC. AND SUBSIDIARY
(Formerly Mendocino Partners, Inc.)
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosures
of contingent assets and liabilities at the date of the financial
statements, and the reported amount of revenues and expenses during the
reported period. Actual results could differ from those estimated.
Recently Enacted Accounting Standards - Statement of Financial Accounting
Standards ("SFAS") No. 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities", and SFAS No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity", were recently issued. SFAS No. 149 and 150 have no current
applicability to the Company or their effect on the financial statements
would not have been significant.
NOTE 2 - NOTE PAYABLE
In May 2004, the Company issued a $25,000 note payable to an entity related
to a shareholder of the Company. The note is due on demand and accrues
interest at 8% per annum. The entity related to a shareholder of the
Company is forgiving the accrued interest on the note. Through September
30, 2004 the entity has forgiven $691 of accrued interest. Due to the
related party nature of the debt forgiveness, the Company recorded the
forgiveness as a capital contribution.
NOTE 3 - CONVERTIBLE DEBENTURE
In May 2004, the Company issued a $400,000 convertible debenture to an
entity related to a shareholder of the Company. The debenture is due on
December 31, 2005 and accrues interest at 8% per annum and is convertible
to common stock at $.01 per share. The entity related to a shareholder of
the Company is forgiving the accrued interest on the note. Through
September 30, 2004 the entity has forgiven $12,274 of accrued interest. Due
to the related party nature of the debt forgiveness, the Company recorded
the forgiveness as a capital contribution.
The Company has the following convertible debentures payable at:
September 30,
2004
-----------
$400,000 8% unsecured convertible debenture
maturing in December 2005, convertible into
common stock at $.01 per share. $ 400,000
-----------
Less current portion -
-----------
$ 400,000
-----------
CALIFORNIA SERVICE STATIONS, INC. AND SUBSIDIARY
(Formerly Mendocino Partners, Inc.)
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - CONVERTIBLE DEBENTURE [Continued]
The convertible debentures mature as follows for the twelve-month periods
ended:
September 30, Principal Due
----------- -----------
2005 $ -
2006 400,000
-----------
$ 400,000
-----------
NOTE 4 - CAPITAL STOCK
Preferred Stock - The Company has authorized 1,000,000 shares of
preferred stock, $.001 par value, with such
rights, preferences and designations and to be issued in such series
as determined by the Board of Directors. No
shares are issued and outstanding at September 30, 2004.
Common Stock - The Company has authorized 20,000,000 shares of common stock
with a par value of $.001. In May 2004, the Company issued 250,000 shares
of common stock for employee services valued at $2,500 (or $.01 per share).
The shares vest one-third each anniversary for three years. Through
September 30, 2004, the Company recognized $312 of the expense.
In April 1994, in connection with their organization, the Company issued
1,000,000 shares of their previously authorized but unissued common stock.
The shares were issued for cash of $1,015 (or approximately $.001 per
share).
1994 Stock Option Plan - On April 20, 1994, the Company adopted the 1994
Stock Option Plan. The plan provides for the granting of awards of up to
2,000,000 shares of common stock to officers, directors, employees,
advisors, and employees of other companies that do business with the
Company as non-qualified and qualified stock options. The Stock Option
Committee of the Board of Directors determines the option price, which
cannot be less than the fair market value at the date of the grant or 110%
of the fair market value if the recipient of the grant holds 10% or more of
the Company's common stock. The price per share of shares subject to a
Non-Qualified option cannot be less than 85% of the fair market value.
Options granted under the plan will typically expire ten years from the
date of the grant (five years if the recipient of the grant holds 10% or
more of the Company's common stock on the date of the grant) or three
months after termination of employment. As of September 30, 2004, no
options have been granted.
NOTE 5 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". SFAS
No. 109 requires the Company to provide a net deferred tax asset/liability
equal to the expected future tax benefit/expense of temporary reporting
differences between book and tax accounting methods and any available
operating loss or tax credit carryforwards. The Company has available at
September 30, 2004 unused operating loss carryforwards of approximately
$41,500 which may be applied against future taxable income and which expire
in various years through 2025.
CALIFORNIA SERVICE STATIONS, INC. AND SUBSIDIARY
(Formerly Mendocino Partners, Inc.)
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INCOME TAXES [Continued]
The amount of and ultimate realization of the benefits from the operating
loss carryforwards for income tax purposes is dependent, in part, upon the
tax laws in effect, the future earnings of the Company, and other future
events, the effects of which cannot be determined. Because of the
uncertainty surrounding the realization of the loss carryforwards, the
Company has established a valuation allowance equal to the tax effect of
the loss carryforwards and, therefore, no deferred tax asset has been
recognized for the loss carryforwards. The net deferred tax assets are
approximately $14,100 and $5,400 as of September 30, 2004 and June 30,
2004, respectively, with an offsetting valuation allowance of the same
amount resulting in a change in the valuation allowance of approximately
$8,700 during the three months ended September 30, 2004.
NOTE 6 - RELATED PARTY TRANSACTIONS
Accounts Payable - Related Party - During the three months ended September
30, 2004 and 2003, an officer/shareholder of the Company directly paid
expenses totaling $0 and $0 on behalf of the Company. At September 30,
2004, the Company owed the shareholder $3,905. No interest is being accrued
on the payable.
In May 2004, the Company borrowed $25,000 from an entity related to a
shareholder of the Company [See Note 2].
Notes Payable - In May 2004, the Company issued a $400,000 convertible debenture
payable to an entity related to a shareholder of the Company [See Note 3].
Management Compensation - For the three months ended September 30, 2004
and 2003, the Company paid $9,000 and $0
to the president of the Subsidiary.
Office Space - The Company has not had a need to rent office space. An
officer/shareholder of the Company is allowing the Company to use his
offices as a mailing address, as needed, at no expense to the Company.
NOTE 7 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles in the United States of America,
which contemplate continuation of the Company as a going concern. However,
the Company has incurred losses since its inception and has not yet been
successful in establishing profitable operations. These factors raise
substantial doubt about the ability of the Company to continue as a going
concern. In this regard, management is proposing to raise any necessary
additional funds not provided by operations through loans or through
additional sales of its common stock or through a possible business
combination with another company. There is no assurance that the Company
will be successful in raising this additional capital or in achieving
profitable operations. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
CALIFORNIA SERVICE STATIONS, INC. AND SUBSIDIARY
(Formerly Mendocino Partners, Inc.)
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - LOSS PER SHARE
The following data shows the amounts used in computing loss per share:
For the Three From Inception
Months Ended on April 20,
September 30, 1994 Through
_________________________ September 30,
2004 2003 2004
------------ ------------ ------------
Loss from continuing operations
available to common shareholders
(numerator) $ (25,636) $ (534) $ (41,459)
------------ ------------ ------------
Weighted average number of
common shares outstanding used
in loss per share for the period
(denominator) 1,250,000 1,000,000 1,008,451
------------ ------------ ------------
Dilutive loss per share was not presented, as the Company had no common
stock equivalent shares for all periods presented that would affect the
computation of diluted loss per share.
NOTE 9 - SUBSEQUENT EVENT
Proposed Acquisition - The Company is proposing to acquire a gas station in
southern California. The proposed agreement calls for the Company to pay
$299,000 to acquire all of the assets associated with the gas station. In
June 2004, the Company deposited $25,000 with an escrow agent in
anticipation of the proposed acquisition.
Final acquisition agreement has not yet been signed and final consummation
of the acquisition is not guaranteed.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
We have never received revenues from operations. California Service
Stations seeks to acquire at least one and if possible up to 50 service stations
in southern California. We have $383,017 cash on hand as of September 30, 2004,
which is sufficient to acquire one service station under escrow at an estimated
price of $330,000 and for $53,000 for working capital related to that station.
The station is located in West Covina, California. A total of $425,000 was
loaned to California Service Stations by an investment entity controlled by an
officer and director under an 8% convertible debenture due December 31, 2005.
Our cumulative losses through September 30, 2004 were $41,459. We have not
had any operations as of the date of this report. Service stations generally are
sold at a price equal to a multiple of earnings (2-4 times annual cash flow)
plus the value of underlying land, if any. We expect to concentrate on stations
where the land is not owned, because the acquisition cost is much less. In
Southern California the real estate underlying most stations is appraised at
over $1 million.
We do not intend to acquire any station which is not profitable. Prior to
closing, we will review financial records of the business as well as leases and
other contracts. We will acquire inventory as of the closing date, including any
fuel in tanks. If the location has a liquor (beer and wine) license in
connection with a mini market, we will also be required to obtain approval for
the transfer of that license. Usually, the sale of a service station is
structured as an asset sale, so we will not assume any liabilities. If we
eventually acquire a large number of stations, it may be possible to benefit
from economies of scale or better purchasing terms for our supplies (gasoline
and diesel, groceries and automobile parts), but we do not expect there to be
any significant savings for some time. We do not expect at this time to place
the stations under one common brand or tradename.
We plan to fund future acquisitions from the proceeds of shareholder
loans, or from equity placements or debt financings. We do not have any
agreements or understandings with respect to sources of capital. We have not
identified any potential sources. Investors cannot expect that we will be able
to raise any funds whatsoever. Even if we are able to find one or more sources
of capital, it's likely that we will not be able to raise the entire amount
required initially, in which case our development time will be extended until
such full amount can be obtained. Even if we are successful in obtaining the
required funding, we probably will need to raise additional funds at the end of
12 months.
Information included in this report includes forward looking
statements, which can be identified by the use of forward-looking terminology
such as may, will, expect, anticipate, believe, estimate, or continue, or the
negative thereof or other variations thereon or comparable terminology. The
statements in "Risk Factors" and other statements and disclaimers in this
prospectus constitute cautionary statements identifying important factors,
including risks and uncertainties, relating to the forward-looking statements
that could cause actual results to differ materially from those reflected in the
forward-looking statements.
Since we have not yet generated revenues, we are a development stage
company as that term is defined in paragraphs 8 and 9 of SFAS No. 7. Our
activities to date have been limited to seeking capital; seeking one or more
acquisitions, and development of a business plan. Our auditors have included an
explanatory paragraph in their report on our financial statements, relating to
the uncertainty of our business as a going concern, due to our lack of operating
history or current revenues, its nature as a start up business, management's
limited experience and limited funds. We do not believe that conventional
financing, such as bank loans, is available to us due to these factors. We have
no bank line of credit available to us. Management believes that it will be able
to raise the required funds for operations from one or more future offerings, in
order to affect our business plan.
Forward looking information
Our future operating results are subject to many factors, including:
O the impact of rapid and persistent fluctuations in the price of
gasoline and diesel;
O general economic conditions and conditions which affect the
market for fuel;
O our success in identifying an acquisition;
O our ability to integrate acquisitions;
O other risks which we identify in future filings with the SEC.
In some cases, you can identify forward-looking statements by terminology
such as "may," "should," "could," "predict," "potential," "continue," "expect,"
"anticipate," "future," "intend," "plan," "believe," "estimate" and similar
expressions (or the negative of such expressions). Any or all of our forward
looking statements in this annual report and in any other public statements we
make may turn out to be wrong. They can be affected by inaccurate assumptions we
might make or by known or unknown risks and uncertainties. Consequently, no
forward looking statement can be guaranteed. In addition, we undertake no
responsibility to update any forward-looking statement to reflect events or
circumstances which occur after the date of this report.
Item 3. Controls and Procedures.
..
a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as of September 30, 2004. Based on this
evaluation, our principal executive officer and our principal financial officer
concluded that, as of the end of the period covered by this report, our
disclosure controls and procedures were effective and adequately designed to
ensure that the information required to be disclosed by us in the reports we
file or submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in applicable rules
and forms.
(b) Changes in internal controls over financial reporting.
During the quarter ended September 30, 2004, there has been no change
in our internal control over financial reporting that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS - None
Item 2. CHANGES IN SECURITIES - None
---------------------
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
Exhibits--None
Reports on Form 8-K--None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CALIFORNIA SERVICE STATIONS, INC.
Date: November 30, 2004 By:/s/ Jehu Hand
-------------
Jehu Hand,
Chief Financial
Officer (chief financial officer
and accounting officer and duly
authorized officer)