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 2001
[ ] 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 13-4093341
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1764 West 7th Ave., Vancouver, B.C.
(Address of Principal Executive Offices)
604-638-1636
(Issuer's Telephone Number, Including Area Code)
5407 108th Ave NW, Kirkland, Washington 98033
(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 50,847,030
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
July 31, 2001
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheet as of July 31, 2001
Unaudited Condensed Consolidated Statement of Operations for the three
months ended July 31, 2001 and 2000 and for the period July 14, 1995
(inception) to July 31, 2001
Unaudited Condensed Consolidated Statement of Cash Flows for the three
months ended July 31, 2001 and 2000 and for the period July 14, 1995
(inception) to July 31, 2001
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
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SHOWSTAR ONLINE.COM, INC.
-------------------------
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
July 31, 2001
ASSETS
CURRENT ASSETS
Cash $ 2,753
Accounts receivable 15,610
Prepaid expenses 11,454
-------------
TOTAL CURRENT ASSETS 29,817
PROPERTY & EQUIPMENT, less $341,908
accumulated depreciation 320,544
WEBSITE & SOFTWARE, less $700,333
accumulated amortization 811,904
INTANGIBLE ASSETS, less $2,533
accumulated amortization 3,067
-------------
$ 1,165,332
=============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable, trade $ 596,058
Accrued expenses 212,848
Accrued stock compensation 207,775
Loan payable 968,000
Accrued interest payable 20,875
Due to related party 75,684
-------------
TOTAL CURRENT LIABILITIES 2,081,240
-------------
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, 50,847,030 issued and outstanding 13,356,971
Contributed capital 101,227
Outstanding common stock options 191,000
Deferred stock compensation (81,663)
Cumulative translation adjustments (42,161)
Deficit accumulated during development stage (14,441,282)
-------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (915,908)
-------------
$ 1,165,332
============
SHOWSTAR ONLINE.COM, INC.
-------------------------
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
July 14, 1995
For the Three Months Ended (Inception)
July 31, through
-------------------------------
2001 2000 July 31, 2001
-------------- -------------- --------------
REVENUE
Sales $ 109,634 $ 117,903 $ 644,919
Commissions 12,500 3,542 92,315
-------------- -------------- --------------
TOTAL REVENUE 122,134 121,445 737,234
COSTS AND EXPENSES
Cost of sales 64,530 56,365 476,610
Stock based compensation - 118,334 3,755,814
Consulting 7,947 120,575 1,630,228
Investor relations, related party - - 107,067
Investor relations - 17,360 273,857
Web-sit set up - 28,617 276,001
Professional fees 223 41,372 461,767
Consulting fees paid by shareholders - - 466,500
Travel and entertainment 1,953 22,522 373,674
Depreciation and amortization 175,445 164,553 1,186,666
General and administrative 25,731 414,085 2,317,382
Advertising, marketing and selling 21,392 154,525 1,759,326
Technical development - - 31,021
Loss on disposal of assets. - - 3,429
Loss on write down of goodwill. - - 244,390
-------------- -------------- --------------
TOTAL COSTS AND EXPENSES (297,221) (1,138,308) (13,363,732)
LOSS ON WRITE-OFF OF INVESTMENTS - - (303,716)
INTEREST EXPENSE (1,948) (28,140) (108,129)
-------------- -------------- --------------
LOSS FROM CONTINUING OPERATIONS BEFORE TAXES (177,035) (1,045,003) (13,038,343)
INCOME TAXES - - -
-------------- -------------- --------------
NET LOSS FROM CONTINUING OPERATIONS (177,035) (1,045,003) (13,038,343)
DISCONTINUED OPERATIONS
Net loss from entertainment division operations,
net of $-0-, $-0-, and $-0- in income taxes - - (425,639)
Loss on disposal of entertainment division,
net of $-0-, $-0-, and $-0- in income taxes - - (977,300)
-------------- -------------- --------------
NET LOSS $ (177,035) $ (1,045,003) $ (14,441,282)
============== ============== ==============
NET LOSS PER COMMON SHARE:
Basic - continuing operations * $ (0.03)
Diluted - continuing operations * $ (0.03)
* Less than $0.01 per share
NUMBER OF SHARES USED FOR COMPUTING NET LOSS PER SHARE:
Basic 50,847,030 34,801,251
Diluted 50,847,030 34,801,251
*Less than $.01 per share
SHOWSTAR ONLINE.COM, INC.
-------------------------
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
July 14, 1995
For the Three Months Ended (Inception)
July 31, through
-------------------------------
2001 2000 July 31, 2001
-------------- -------------- --------------
NET CASH (USED IN) OPERATING ACTIVITIES $ 14,009 $ (433,437) $ (6,490,402)
-------------- -------------- --------------
INVESTING ACTIVITIES
Proceeds from sale of equipment - - 10,000
Proceeds from insurance for loss of equipment - - 6,044
Investment in joint venture and savings plus - (37,680) (303,716)
Cash acquired with acquisition of Showstar/Nucom - - 20,815
Cash to ALS Sportswear. (11,460) - (11,460)
Purchases of property and equipment and domain name - (561,554) (2,263,441)
-------------- -------------- --------------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (11,460) (599,234) (2,541,758)
-------------- -------------- --------------
FINANCING ACTIVITIES
Proceeds from advances, related parties +B50 - (454) 361,600
Proceeds from advances +B50 - 515,000 1,370,500
Repayments of advances, related parties - - 61,006
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 7,447,088
Proceeds from issuance of convertible debenture - - 52,500
-------------- -------------- --------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES - 1,032,671 9,077,194
-------------- -------------- --------------
CUMULATIVE TRANSLATION ADJUSTMENT - - (42,281)
-------------- -------------- --------------
NET CHANGE IN CASH 2,753 - 2,753
Cash, beginning of period 204 - -
-------------- -------------- --------------
CASH, END OF PERIOD $ 2,753 $ - $ 2,753
============== ============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ - $ - $ 49,090
============== ============== ==============
Cash paid for income taxes $ - $ - $ -
============== ============== ==============
NON-CASH INVESTING AND FINANCING ACTIVITIES:
3,367,000 shares of common stock issued for acquisition
of subsidiary (Note D) $ - $ - $ 3,367
============== ============== ==============
999,066 shares of common stock issued for acquisition
of subsidiary (Note D) $ - $ - $ 749,300
============== ============== ==============
6,281,279 and 852,443 shares of common stock issued
for payment of advances and accrued liabilities $ - $ - $ 1,619,890
============== ============== ==============
4,530,000 and 3,714,500 shares of common stock
issued for compensation $ - $ - $ 2,535,651
============== ============== ==============
600,000 and 1,050,000 shares of common stock issued
for payment of accrued stock compensation $ - $ - $ 727,500
============== ============== ==============
Amounts due to related parties, forgiven by affiliate
and officer reclassified as contributed capital $ - $ - $ 50,500
============== ============== ==============
350,000 shares of common stock issued for net assets
of ALS Sportswear $ - $ 328,125 $ 328,125
============== ============== ==============
SHOWSTAR ONLINE.COM, INC.
(A Development Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
July 31, 2001
NOTE A: The accompanying unaudited consolidated financial statements of
Showstar Online.com Inc. as of and for the three months ended July 31, 2001 and
July 31, 2000 and for the period July 14, 1995 (inception) to July 31, 2001 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, 2001 included in the Company's report in Form 10KSB as filed
with the Securities and Exchange Commission.
NOTE B: On June 30, 2001 the Company dissolved the ALS Sportswear division. The
sales represent May and June only for the FY 2002.
NOTE C: During the quarter, the company did not issue any shares.
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.
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.
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.
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.
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.
GENERAL
Showstar established a unique and scalable e-commerce infrastructure by
developing and integrating several leading edge technologies, including the
incorporation of ORACLE database tools into Artstar.comThis also included 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. Through the website, Showstar offered a variety of products and
services under the domain name "Artstar.com." designed to attract viewer traffic
to the site and to generate revenue for Showstar. The products and services
offered included auctions, authentication and appraisal consulting, buyer
(corporate and individual) representation, and education in art, collectibles
and restoration.
Via the Internet, Showstar provided a variety of entertainment and
education products and services to those interested in art and collectibles.
Showstar's revenues were to be derived from a variety of sources, including
online auctions, appraisals and authentication, commissions, advertising,
content licensing, various consulting services, and merchandising. Showstar did
not buy and sell art work or collectibles for its own account.
In March 2000 Showstar introduced its first portal development product
Showstar Webmail. Showstar WebMail was designed as a software solution for web
portals and issued in a customized form on the company's website Artstar.com.
Showstar then began marketing its webmail product to third-party websites.
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 held its 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. The
Company also 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.
Management felt the concept would increase and speed up the site's revenue
generation capability as raising funds in the equity markets was becoming
increasingly more difficult.
During the third quarter of fiscal 2001 the Company began to experience a severe
lack of support and interest from the equity markets due to "dot com" companies.
Management had to make a number of decisions and take action to reduce operating
costs. These actions included discontinuing the operation of the New York head
office and moving the functions back to Kirkland, Washington and Vancouver, B.C.
In addition, Showstar ended merger discussions with Deerbrook Publishing Group,
Inc. The Company then proceeded to assess the operation of the Artstar website
and the decision was made to stop any new development on the Artstar website
resulting in the layoff of the majority of technical staff and site operation
staff. With the reduced staff and looking for other reductions in operating
costs, the company moved the administration and technical development office
from Richmond, B.C. to more modest facilities in Vancouver, B.C.
As lack of funding had made it impossible to continue to maintain the standards
that Artstar had established for the website, the company laid off all the
management and staff of Artstar and now maintains the site on the servers but it
is not active for public use at this time. We have put up a small site for use
in trying to sell Artstar. This lack of funding has also affected our ability
to be able to continue to participate in the China joint venture. The company
continues to look for a purchaser for the Artstar site and has received a few
inquiries.
In February 2001, the Company issued a press release announcing that it had
signed a binding letter of agreement with Redmond Capital Corp to acquire 100 %
of two of Redmond's divisions, namely Redcell Batteries Inc. and Sirius
Animation Inc.
Plan of Operations
A comparison of quarter to quarter would not provide any insight into the
company's operation as the future look and operations with the exception of the
Webmail product will be considerably different as we proceed through fiscal
2002.
The difficulties of raising capital in today's market environment continues to
delay our advancement on the merger agreement signed during the third quarter of
fiscal 2001. The indication appears to be that the completion of the merger
could occur sometime in the late Second or early Third quarter of this year.
On June 30, at the request of the ALS division management, the company decided
to dissolve the ALS Division as once again lack of funding limited the expansion
of the division due to the necessary upfront cash requirements resulting in
continued operating losses. The assets and liabilities of the Division were
assumed by the previous management subject to the completion of a formal sale
agreement.
The Artstar website remains in tact but is not available to the public at this
time as funding prohibits the maintaining of a staff to operate it. We have
placed a sample website on the internet for use in demonstrating the potential
of the Artstar project to interested buyers or those wanting to form a
partnership. We have a consultant looking after the site as well as trying to
find buyers or partners.
We completed a Webmail license agreement and received payment on July 30. The
Webmail product remains a strong project and is being maintained for purposes of
the merged company as its potential has been recognized and the intention is to
aggressively market the product once funding and the merger are in place.
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 has managed to eliminate most of its
operating costs with the help of our potential merge partner. The company has
not been able to raise funds through its normal means and must find a partner to
merge with in order to continue operations.
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
Item 6. Exhibit and Reports on Form 8-K
(a) See Exhibit Index
(b) No reports on Form 8-K were filed with the Commission during the first
quarter of fiscal 2002.
SIGNATURES
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: September 20, 2001 By: /s/ J. Punzo
------------------------------------------
J. Punzo
President, and Chief Executive Officer