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 October 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.) c/o Corporate House, 320-1100 Melville St., Vancouver, B.C. (Address of Principal Executive Offices) 604 - 638 - 1636 (Issuer's Telephone Number, Including Area Code) 1764 West 7th Ave., Vancouver, B.C. (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 PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements SHOWSTAR ONLINE.COM, INC. ------------------------- (A Development Stage Company) CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) October 31, 2001 ASSETS CURRENT ASSETS Cash $ - Accounts receivable 15,609 Prepaid expenses 11,454 ------------ TOTAL CURRENT ASSETS 27,063 PROPERTY & EQUIPMENT, less $334,594 accumulated depreciation 295,544 WEBSITE & SOFTWARE, less $700,333 accumulated amortization 811,904 INTANGIBLE ASSETS, less $2,533 accumulated amortization 3,067 ------------ $ 1,137,578 ============ LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Accounts payable, trade $ 598,098 Accrued expenses 225,783 Accrued stock compensation 207,775 Loan payable 968,000 Accrued interest payable 38,025 Due to related party 75,684 ------------ TOTAL CURRENT LIABILITIES 2,113,365 ------------ 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 101,277 Outstanding common stock warrants - Outstanding common stock options 191,000 Deferred stock compensation (81,663) Cumulative translation adjustments (42,161) Deficit accumulated during development stage (14,501,211) ------------ TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (975,787) ------------ $ 1,137,578 ============ See accompanying notes to consolidated financial statements SHOWSTAR ONLINE.COM, INC. ------------------------- (A Development Stage Company) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) July 14, 1995 Six Months Ended Three Months Ended (Inception) October 31, October 31, through 2001 2000 2001 2000 Oct. 31, 2001 ------------------------------------------------------------------------- REVENUE Sales $ 109,634 $ 261,377 $ - $ 143,474 $ 644,919 Commissions 12,500 5,182 - 1,640 92,315 -------------------------------------------------------------------- TOTAL REVENUE 122,134 266,559 - 145,114 737,234 COSTS AND EXPENSES Cost of sales 64,530 161,929 - 105,564 476,610 Stock based compensation - 203,601 - 85,267 3,755,814 Consulting 35,527 317,160 27,580 196,585 1,657,808 Investor relations, related party - - - - 107,067 Investor relations - 22,481 - 5,121 273,857 Web-sit set up - 48,656 - 20,039 276,001 Professional fees 13,663 57,689 13,440 16,317 475,207 Consulting fees paid by shareholders - - - - 466,500 Travel and entertainment 2,083 58,837 130 36,315 373,804 Depreciation and amortization 175,445 342,754 - 178,201 1,186,666 General and administrative 25,860 786,705 129 370,820 2,317,511 Advertising, marketing and selling 22,892 279,160 1,500 126,435 1,760,826 Technical development - - - - 31,021 Loss on disposal of assets - - - - 3,429 Loss on write down of goodwill. - - - - 244,390 -------------------------------------------------------------------- TOTAL COSTS AND EXPENSES (340,000) (2,278,972) (42,779) (1,140,664) (13,406,511) LOSS ON WRITE-OFF OF INVESTMENTS - - - - (303,716) INTEREST EXPENSE (19,098) (56,642) (17,150) (28,502) (125,279) -------------------------------------------------------------------- LOSS FROM CONTINUING OPERATIONS BEFORE TAXES (236,964) (2,069,055) (59,929) (1,024,052) (13,098,272) INCOME TAXES Current - 771,757 - 381,971 4,773,273 Deferred - (771,757) - (381,971) (4,773,273) -------------------------------------------------------------------- NET LOSS FROM CONTINUING OPERATIONS (236,964) (2,069,055) (59,929) (1,024,052) (13,098,272) 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 $ (236,964) $ (2,069,055) $ (59,929) $ (1,024,052) $(14,501,211) ==================================================================== NET LOSS PER COMMON SHARE: Basic - continuing operations $ (0.00) $ (0.04) $ (0.03) $ (0.03) $ (0.03) Diluted - continuing operations $ (0.00) $ (0.04) $ (0.03) $ (0.03) $ (0.03) Basic - discontinued operations * * $ - $ - $ - Diluted - discontinued operations * * $ - $ - $ - NUMBER OF SHARES USED FOR COMPUTING NET LOSS PER SHARE: Basic 50,847,030 46,334,084 50,847,030 34,801,251 50,847,030 Diluted 50,847,030 46,334,084 50,847,030 34,801,251 50,847,030 *Less than $.01 per share See accompanying notes to consolidated financial statements SHOWSTAR ONLINE.COM, INC. ------------------------- (A Development Stage Company) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) July 14, 1995 Six Months Ended Three Months Ended (Inception) October 31, October 31, through 2001 2000 2001 2000 Oct. 31, 2001 ------------------------------------------------------ ---------- NET CASH (USED IN) OPERATING ACTIVITIES (13,540) (1,517,938) (27,753) (1,090,331) (6,518,155) ------------------------------------------------------ ---------- INVESTING ACTIVITIES Proceeds from sale of equipment 25,000 - 25,000 - 35,000 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 - (728,727) - (167,173) (2,263,441) ------------------------------------------------------ ---------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES 13,540 (766,407) 25,000 (167,173) (2,516,758) ------------------------------------------------------ ---------- FINANCING ACTIVITIES Proceeds from advances, related parties +B50 - (466,500) - (466,046) 361,600 Proceeds from advances +B50 - 477,300 - (37,700) 1,370,500 Repayments of advances, related parties - - - - 61,006 Cash paid for stock offering costs - (308,665) - (298,665) (219,000) Proceeds from issuance of preferred stock - - - - 3,500 Proceeds from issuance of common stock - 2,588,040 - 2,059,915 7,447,088 Proceeds from issuance of convertible debenture - - - - 52,500 ------------------------------------------------------ ---------- NET CASH PROVIDED BY FINANCING ACTIVITIES - 2,290,175 - 1,257,504 9,077,194 ------------------------------------------------------ ---------- CUMULATIVE TRANSLATION ADJUSTMENT - - - - (42,281) ------------------------------------------------------ ---------- NET CHANGE IN CASH - 5,830 (2,753) - - Cash, beginning of period - - 2,753 - - ------------------------------------------------------ ---------- CASH, END OF PERIOD $ - $ 5,830 $ - $ - $ - ====================================================== ========== 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 ====================================================== ========== 307,143 shares of common stock issued for payment of advances and accrued liabilities. $ - $ - $ - $ - $ - ====================================================== ========== 2,765,000 shares of common stock issued for compensation $ - $ - $ - $ - $ - ====================================================== ========== 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 $ - $ - $ - ====================================================== ========== See accompanying notes to consolidated financial statements SHOWSTAR ONLINE.COM, INC. ------------------------- (A Development Stage Company) NOTES TO UNAUDITED FINANCIAL STATEMENTS October 31, 2001 NOTE A: The accompanying unaudited consolidated financial statements of Showstar Online.com Inc. as of and for the six months ended October 31, 2001 and October 31, 2000 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 A. On June 30, 2001 the Company dissolved the ALS Sportswear division. The sales represent May and June only for the FY 2002 NOTE B. The Company had not recorded any depreciation in this quarter as there has been no operating benefit has accrued during the period. 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. 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" companys. 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. This agreement has not been completed as yet due to funding problems experienced by Redmond Capital to date. Redmond Capital has had to downsize with the need to vacate their office on West 7th Ave., so the Company has arranged for a temporary location for its head office. as indicated by the change on the cover sheet. During the second quarter of fiscal 2002, due to continued funding problems experienced by Redmond Capital, the Company decided to start looking at other potential opportunities for mergers or acquisitions. Management has advised Redmond Capital that as considerable has time has past due to Redmond's funding situation, the Company has put them on notice that we are in discussions with other parties to seek other opportunities. Management has begun discussions with another party and hopes to be able to make an announcement of its discussions in the next quarter. 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 will be considerably different as we proceed through fiscal 2002. 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. The Webmail product, which is still owned by the Company, is presently being operated and funded by a third party with no revenue or costs being accrued to the Company. The ongoing future of this product will be decided upon completion of a merger or acquisition. As we have done during 2001, management will continue to do its best to seek opportunities that will provide the maximum return on our shareholders' investment. Due to funding problems, the Company has had to delay the annual general meeting, but management hopes to be able to arrange the meeting in the coming quarter. 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. The company has a net working capital deficit that will be addressed by one of the following: - sale of assets to pay down negotiated debt settlement - payment of debt as part of a merger/acquisition - issue of stock in a merger/acquisition - some combination of the above. 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: December 10, 2001 By: /s/ J. Punzo -------------------------------------- J. Punzo President, and Chief Executive Officer EXHIBIT INDEX Exhibit No. Description ------------- ----------- N/A