UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2002
Or
[ ] 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: 000-32745
Consumer Direct of America
(Exact name of registrant as specified in its charter)
Nevada 88-0471353
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
500 N. Rainbow, Suite 300, Las 89107
Vegas, NV (Zip Code)
(Address of principal executive
offices)
(503) 297-2833
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) 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 (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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
23,506,650
PAGE-1-
BLUE STAR COFFEE, INC.
(A Development Stage Company)
Table of Contents
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet 5
Consolidated Statement of Operations 7
Consolidated Statement of Changes in Stockholders' Equity 8
Consolidated Statement of Cash Flows 10
Notes to Consolidated Financial Statements 12
Item 2. Management's Discussion and Plan of Operation 21
PART II - OTHER INFORMATION
Item 6. Exhibits 23
SIGNATURES 24
PAGE-2-
CONSUMER DIRECT OF AMERICA
(formerly known as Blue Star Coffee, Inc.)
REVIEW REPORT AND CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2002
PAGE-3-
CONSUMER DIRECT OF AMERICA
(formerly known as Blue Star Coffee, Inc.)
INDEX
Consolidated Balance Sheet as of March 31, 2002
Consolidated Statement of Operations for the three
months ended March 31, 2002
Consolidated Statement of Changes in Stockholders'
Equity for the three months ended
March 31, 2000
Consolidated Statement of Cash Flows for the three
months ended March 31, 2002
Notes to Consolidated Financial Statements
PAGE-4-
PART I - FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
CONSUMER DIRECT OF AMERICA
(formerly known as Blue Star Coffee, Inc.)
CONSOLIDATED BALANCE SHEET
MARCH 31, 2002
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $53,681
Accounts receivable 17,929
Amounts due under licensing 143,333
agreements
Due from affiliates (Note 8) 25,125
Due from stockholders 148,072
Employee advances 8,735
Prepaid expenses 2,662
--------
Total current assets 399,537
PROPERTY AND EQUIPMENT, net (Note 4) 1,863,820
DEPOSITS 30,336
--------
Total assets $2,293,693
==========
See the accompanying notes to these consolidated financial
statements
PAGE-5-
CONSUMER DIRECT OF AMERICA
(formerly known as Blue Star Coffee, Inc.)
CONSOLIDATED BALANCE SHEET
MARCH 31, 2002
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, net of deferred interest $328,527
(Note 11)
Current portion of capital lease 4,664
obligation (Note 6)
Accounts payable 139,662
Accrued interest payable 77,025
Other accrued expenses 92,013
Deferred revenues 83,000
Total current liabilities 724,891
----------
CAPITAL LEASE OBLIGATION, less current 1,805
portion (Note 6) ----------
COMMITMENTS AND CONTINGENCIES
(Notes 6, 7 and 11)
STOCKHOLDERS' EQUITY
Preferred stock; $.001 par value
15,000,000 shares authorized
no issued and outstanding ---
Common stock; $.001 par value
60,000,000 shares authorized
23,506,650 shares issued and 23,507
outstanding
Additional paid in capital 2,896,281
Accumulated deficit (1,352,791)
------------
Total stockholders' equity 1,566,997
------------
Total liabilities and stockholders' $2,293,693
equity ============
See the accompanying notes to these consolidated financial
statements
PAGE-6-
CONSUMER DIRECT OF AMERICA
(formerly known as Blue Star Coffee, Inc.)
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
Three
Months
Ended
March 31,
2002
-------------
REVENUES
Marketing revenues and commissions $250,335
Licensing agreements 460,330
-------------
710,635
-------------
OPERATING EXPENSES -
Commissions, compensation and benefits expense 633,083
Selling, general and administrative expense 144,250
-------------
Loss from operations (66,698)
-------------
NON-OPERATING EXPENSES
Interest expense 152,904
Depreciation and amortization 129,902
-------------
LOSS BEFORE PROVISION FOR INCOME TAXES (349,504)
PROVISION FOR INCOME TAXES ---
-------------
NET LOSS $(349,504)
=============
Basic and diluted loss per common share $(0.02)
=============
See the accompanying notes to these consolidated financial
statements
PAGE-7-
CONSUMER DIRECT OF AMERICA
(formerly known as Blue Star Coffee, Inc.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2002
(unaudited)
Preferred Amount Common Amount Additional Accumulated Total
Stock Stock Paid-in Deficit
Capital
- ------------------------------------------------------------------------------
BALANCE, $ $ $
December 3,227,036 3,227 15,328,420 15,328 2,060,196 (1,003,287) 1,075,464
31,2001
CONVERS (3,227,036) (3,227) 3,227,036 3,227 --- --- ---
ION OF
PREFERRED
STOCK
TO COMMON
STOCK
ISSUANCE --- --- 1,323,085 1,323 350 --- 1,673
E OF
COMMON
STOCK
FOR
SERVICES
CONVERS --- --- 1,079,444 1,080 514,196 --- 515,276
ION OF
PARTICIPATING
INCOME
CERTIFICATES
TO
COMMON STOCK
VALUE --- --- --- --- 269,460 --- 269,460
OF
WARRANTS
ISSUED
WITH
PAYABLE
NOTES
REORGAN --- --- 2,328,665 2,329 6,099 --- 8,428
IZATION
WITH
BLUE
STAR
COFFEE,INC.,
February 20,
2002
ISSUANCE --- --- 220,000 220 45,980 --- 46,200
OF
COMMON
STOCK
FOR
LICENSE
CANCELLATION
AGREEMENT,
March28,
2002
NET --- --- --- --- (349,504) (349,504)
LOSS
-------------------------------------------------------------------
$ $ $ $ $
BALANCE, --- --- 23,506,650 23,507 2,896,281 (1,352,791) 1,566,997
March 31,
2002
See the accompanying notes to these consolidated financial
statements
PAGE-8-
CONSUMER DIRECT OF AMERICA
(formerly known as Blue Star Coffee, Inc.)
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
Three Months
Ended
March 31, 2002
-----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(349,504)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 129,902
Services provided in exchange for issuance of 1,673
common stock
Issuance of common stock for cancellation of 46,200
license agreement
Deferred interest 59,748
Changes in operating assets and liabilities
Decrease in accounts receivable 13,813
Increase in prepaid expenses (1,424)
Increase in deposits (235)
Increase in licensing notes receivable (135,000)
Increase in accounts payable 41,503
Increase in accrued interest payble 18,191
Increase in other accrued expenses 53,261
Decrease in deferred revenues (110,000)
-----------------
Net cash used in operating activities (231,872)
-----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (1,703)
Net increase in due from affiliates (10,125)
Due from stockholders (34,887)
Employee advances (1,935)
-----------------
Net cash used by investing activities (48,650)
-----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable 334,968
Decrease in capitalized lease obligations (1,009)
-----------------
Net cash provided by financing activities 333,959
-----------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 53,437
CASH AND CASH EQUIVALENTS, beginning of period 244
-----------------
CASH AND CASH EQUIVALENTS, end of period $53,681
=================
See the accompanying notes to these consolidated financial
statements
PAGE-9-
CONSUMER DIRECT OF AMERICA
(formerly known as Blue Star Coffee, Inc.)
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(unaudited)
Three
Months
Ended
March 31, 2002
---------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $390
Cash paid during the period for income taxes $---
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
During the period ended March 31, 2002, the Company issued
stock in exchange for services
provided valued at $1,673.
During the period ended March 31, 2002, the Company converted
$498,000 in "Participating Investment
Certificates" and $17,276 of related interest into common
stock.
During the three months ended March 31, 2002, the Company
issued warrants to purchase common stock
related to the issuance of notes payable giving rise to
$269,460 in additional paid-in capital.
On February 20, 2002, the Company reorganized with Blue Star
Coffee, Inc. giving rise to $2,329 in
common stock and $6,099 in additional paid-in capital.
On March 28, 2002, the Company cancelled a license agreement
by issuing 220,000 shares
of common stock. The cancellation cost was valued at
$46,200.
During the three months ended March 31, 2002, the Company
converted 3,227,036 shares of preferred stock
into 3,227,036 shares of common stock
See the accompanying notes to these consolidated financial
statements
PAGE-10-
CONSUMER DIRECT OF AMERICA
(formerly known as Blue Star Coffee, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
NOTE 1 - COMPANY OPERATIONS
Consumer Direct of America (the "Company") was incorporated in the
state of Nevada on May 6, 2001 to operate a series of national
marketing centers. The marketing centers utilize state-of-the-art
phone and computer systems to provide the Company with the ability
to operate numerous marketing campaigns for their customers.
Additionally, the Company captures and tracks customer data,
producing real-time reports for effective analysis, modifications
and redirecting towards other products and services in which their
clients may be interested. Currently, the Company maintains call
centers in three different locations: Las Vegas, Nevada, Santa Ana,
California, and Denver, Colorado.
The Company has experienced net losses since its inception and had
an accumulated deficit of approximately $1,353,000 at March 31,
2002. Such losses are attributable to cash losses resulting from
costs incurred in the development of the Company's services and
infrastructure.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies are summarized as follows:
Basis of Presentation - The consolidated financial statements
include the accounts of the Company and its wholly-owned
subsidiaries, Consumer Direct, Inc. and Consumer Capital Holding,
Inc. All significant inter-company accounts and transactions have
been eliminated.
Use of Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Fair Value of Financial Instruments - The Company's financial
instruments, including cash and cash equivalents, accounts
receivable, amounts due under licensing agreements and accounts
payable, are carried at cost which approximates their fair value
because of the short-term maturity of these financial instruments.
The notes payable are carried at cost which approximates fair value
based on current rates at which the Company could borrow funds with
similar remaining maturities.
PAGE-11-
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents - For purposes of the balance sheet
and statement of cash flows, the Company considers all highly
liquid financial instruments purchased with a maturity of three (3)
months or less to be cash equivalents.
Property and Equipment - Property and equipment are stated at
cost. Depreciation and amortization is computed using the straight-
line method over the estimated useful lives of the assets or, when
applicable, the life of the lease, which range from three to seven
years. Repairs and maintenance to property and equipment are
expensed as incurred. When property and equipment is retired or
disposed of, the related costs and accumulated depreciation and
amortization are eliminated from the accounts and any gain or loss
on such disposition is reflected in income.
Impairment of Long-Lived Assets - The Company reviews long-
lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not
be recoverable. As asset is considered to be impaired when the sum
of the undiscounted future net cash flows expected to result from
the use of the asset and its eventual disposition exceeds its
carrying amount. The amount of impairment loss, if any, is
measured as the difference between net book value of the asset and
its estimated fair value.
Revenue Recognition - Marketing and commission revenues
primarily represent revenues derived from the Company's call
centers operations. The Company receives either a percentage of
the transactions or a fixed fee. Revenues are recorded net.
Licensing revenues are recognized over the life of the license
agreement.
Advertising - Advertising costs are charged to operations when
incurred.
Income Taxes - The Company accounts for income taxes in
accordance with the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes", which requires
the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included
in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the
difference between the financial statement and the tax basis of
assets and liabilities using enacted rates in effect for the
periods in which the differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected
to be realized.
Net Loss Per Share - The Company computes basic and diluted
loss per share in accordance with SFAS No. 128, "Earnings per
Share". SFAS No. 128 requires the Company to report both basic
loss per share, which is based on the weighted average number of
common shares outstanding, and diluted loss per share, which is
based on the weighted average number of common shares outstanding
and all dilutive potential common shares outstanding. Since the
Company incurred a loss for the period presented, the inclusion of
common stock equivalents in the calculation of weighted average
common shares is anti-dilutive, and therefore there is no
difference between basic and diluted loss per share.
PAGE-12-
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Equity Based Compensation - The Company accounts for stock-
based employee compensation arrangements in accordance with
provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees", and complies with the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation". Under APB Opinion No. 2, compensation expense is
based on the difference, if any, on the date of the grant, between
the fair market value of the Company's stock and the exercise price
of the option.
The Company accounts for equity instruments issued to non-
employees in accordance with the provisions of SFAS No. 123 and
Emerging Issues Task Force ("EITF") Issue No. 96-18, "Accounting
for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction With Selling, Goods or Services". All
transactions in which goods or services are the consideration
received for the issuance of equity instruments are accounted for
based on the fair value of the consideration received or the fair
value of the equity instrument issued whichever is more reliably
measurable. The measurement date of the fair value of the equity
instrument issued is the earlier of the date on which the counter
party's performance is complete or the date on which it is probable
that performance will occur.
Risks and Uncertainties - The Company operates in a highly
competitive industry that is subject to intense competition and
potential government regulations. The Company's operations are
subject to significant risk and uncertainties including financial,
operational, regulatory and other risks associated with an emerging
business including the potential risk of business failure.
Recently Issued Accounting Pronouncements - In June 2001, the
Financial Accounting Standards Board (FASB) issued SFAS 141,
Business Combinations, and SFAS 142 Goodwill and Other Intangible
Assets. SFAS 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30,
2001, as well as all purchase method business combinations
completed after June 30, 2001. SFAS 141 also details criteria that
intangible assets acquired in a business combination must meet in
order to be recognized and reported as assets apart from goodwill.
SFAS 142 requires that goodwill and intangibles with indefinite
useful lives no longer be amortized, but instead tested for
impairment at least annually. SFAS 142 is required to be applied
starting with fiscal years beginning after December 15, 2001, with
early application permitted in certain circumstances. Since the
Company has no purchased goodwill or other intangibles, the
adoption of these statements has no current effect on the Company's
financial condition or results of operations.
NOTE 3 - BUSINESS COMBINATIONS
Effective February 20, 2001, in connection with a stock
purchase agreement, Blue Star Coffee, Inc., a Nevada Corporation
("BSCF") issued an aggregate of 17,593,863 newly issued and
3,364,122 previously issued and outstanding shares of its common
stock at $.001 par value per share in exchange for all of the
outstanding shares of the Company, in which the Company became a
wholly-owned subsidiary of BSCF based on a conversion ratio of
approximately 1.61 shares of BSCF's common stock for each share of
the Company's common stock. This reverse merger qualified for a
tax-free reorganization and has been accounted for as a
recapitalization of the Company and the acquisition of BSCF and its
book value.
PAGE-13-
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at March 31,
2002:
Furniture, fixtures, and equipment $195,923
Computer equipment 1,339,874
Leasehold improvements 1,668
Software 612,083
-------
2,149,548
Less: accumulated deprecation and amortization (285,728)
---------
$1,863,820
==========
Total depreciation and amortization expense for the three
month period ended March 31, 2002 was $129,902.
NOTE 5 - INCOME TAXES
The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109 ("SFAS 109"). This
statement mandates the liability method of accounting for deferred
income taxes and permits the recognition of deferred tax assets
subject to an ongoing assessment of realizability.
The components of the Company's income tax provision consist
of:
Three
Months
Ended
March 31, 2002
--------------
Federal taxes (deferred) net operating loss benefit $146,792
Change in valuation account (146,792)
---------
$---
----
Deferred income taxes are provided for timing differences in
the recognition of certain income and expense items for tax and
financial statement purposes. The tax effect of the temporary
differences giving rise to the Company's deferred tax assets as of
March 31, 2002 are as follows:
Deferred income tax assets
Net operating loss benefit $567,792
Valuation allowance (567,792)
--------
$---
-----
PAGE-14-
NOTE 5 - INCOME TAXES (CONTINUED)
A valuation allowance is provided when it is more likely than
not that some portion or all of the deferred tax assets will not be
realized. As a result of the uncertainties surrounding the
realization of the net operating loss carryforwards, management has
determined that the realization of the deferred tax assets is
questionable. Accordingly, the Company has recorded a valuation
allowance equal to the net deferred tax asset amount as of March
31, 2002.
The Company has federal and state net operating loss
carryforwards of approximately $1,000,000 which if not utilized
will expire at various times through 2021. For income tax
purposes, only a portion of the net operating loss can be utilized
in any given year if the Company that has generated the loss has
more than fifty percent (50%) change in ownership in a three (3)
year period. Accordingly, there may be limitations on the use of
the Company's net operating loss caryforwards.
NOTE 6 - CAPITAL LEASE OBLIGATION
The Company leases certain equipment accounted for as a
capital lease. The related asset and obligation have been recorded
using the implicit rate computed by the lessor.
Included in property and equipment at March 31, 2002 is
capitalized leased property of $7,478.
At March 31, 2002, the capital lease obligation consisted of
the following:
Lease contract, due in monthly installments of $439,
including interest at 22.91% per annum, secured by $6,469
equipment, due July 2003.
Less: current portion (4,664)
-------
$1,805
The future minimum lease payments under capital lease
obligations are as follows:
Period Ending March 31, Amount
- ----------------------- ----------
2002 $5,676
2003 1,892
-----
7,568
Less: amount representing interest (1,099)
-------
$6,469
=======
Total interest paid on the capital lease for the period ended
March 31, 2002 was $390.
PAGE-15-
NOTE 7 - OPERATING LEASES
The Company leases certain property under various operating
arrangements that expire over the next four (4) years.
The Company has three business premises leased from various
agents. The leases all have three (3) year terms. Lease expense
associated with the buildings totaled $39,934 for the three-months
ended March 31, 2002.
Future minimum lease payments for non-cancelable leases that
have initial or remaining non-cancelable terms in excess of one (1)
year are as follows:
Operating
Period Ending March 31, Leases
- ------------------------ -----------
2002 $112,768
2003 145,301
2004 76,416
2005 3,444
-----
Total minimum payments $337,929
========
NOTE 8 - RELATED PARTY TRANSACTIONS
Due From Affiliates - At March 31, 2002, the Company has an
amount due for $25,125 from St. Andrews Golf International. St.
Andrews Golf International was founded and is owned by a member of
the Company's management team who is also a stockholder. The
receivable is payable on demand and does not bear interest.
Licensing Agreements - All of the $460,300 revenue from
licensing agreements was derived from stockholders.
NOTE 9 - STOCKHOLDERS' EQUITY
Preferred stock
The Company's articles of incorporation authorize up to
15,000,000 shares of $.001 par value preferred stock. Shares of
preferred stock may be issued in one or more classes or series at
such time and in such quantities the board of directors may
determine. All shares of any one series shall be equal in rank and
identical in all respects. Preferred stockholders have liquidation
preference up to the amount of the original equity investment.
Each share of preferred stock is convertible into one share of
common stock.
On February 20, 2002, the Company converted 3,227,036 shares
of preferred stock into 3,227,036 shares of common stock.
Therefore, as of March 31, 2002, no preferred shares were
outstanding.
PAGE-16-
NOTE 9 - STOCKHOLDERS' EQUITY (CONTINUED)
Common stock
The Company's articles of incorporation authorized up to
60,000,000 share of $0.001 par value common stock. Common
stockholders do not have preemptive rights to purchase additional
shares of common stock. The common stock carries no conversion
rights and is not subject to redemption or to any sinking fund
provisions. All shares of common stock are entitled to share
equally in dividends from sources legally available thereof when
and if declared by the board of directors and, upon liquidation or
dissolution of the Company, whether voluntary or involuntary, to
share equally in the assets of the Company available for
distribution to the common stockholders.
The Company entered into a Common Stock Purchase Agreement
(the "Purchase Agreement") with Blue Star Coffee, Inc., a Nevada
corporation ("BSCF") on February 20, 2002. CCH and/or its
designee(s) exchanged an aggregate of 12,989,000 issued and
outstanding shares of common stock for an aggregate of 17,593,863
newly issued and 3,364,122 previously issued and outstanding BSCF
shares of common stock. Accordingly, an aggregate of 23,506,650
shares were then be issued and outstanding.
During the three month period ended March 31, 2002, the
Company issued 1,323,085 common shares for services rendered by
certain members of management. The services were valued at $1,673.
During the three month period ended March 31, 2002 the Company
issued 220,000 shares of common stock for the cancellation of a
license agreement valued at $46,200.
During the three month period ended March 31, 2002, the
Company converted $498,000 of the "Participating Investment
Certificates" (PIC) and $17,276 of related interest into 1,079,444
shares of common stock.
NOTE 10 - LOSS PER SHARE
Three
Months
Ended
March 31, 2002
Numerator for basic and dilutive loss per common --------------
share:
Net loss $(349,504)
==========
Weighted average common shares outstanding 19,297,053
==========
Net loss per common share available to common $(0.02)
stockholders ==========
PAGE-17-
NOTE 11 - BRIDGE NOTES AND WARRANTS
Bridge Notes
During the three month period ended March 31, 2002, the
Company began issuing Bridge Financing Notes ("The Notes") to
obtain up to $1,000,000 in financing. The loans are being issued
to assist the Company with its initial public offering. Company
assets are being used as collateral to secure the notes. The note
terms call for each $100,000 promissory note to be repaid with
$110,000 in cash, and warrants worth $100,000. The number of
warrants will be determined by the principal amount of the notes
issued divided by the stock price on the first day of trading
subsequent to the closing of the public offering. As of March 31,
2002 the Company had $540,000 outstanding in bridge notes and had
incurred interest charges of $77,025 (related to the notes and the
warrants) for the period then ended. Deferred interest of $269,460
which was the value assigned to the warrants related to the notes
has been assigned to the notes and is being amortized over the
estimated terms of the notes. During the period ended March 31,
2002 $59,748 of deferred interest was amortized and included in
interest expense. The remaining deferred interest of $209,712 has
been netted against the outstanding principal balances of the notes
payable at March 31, 2002.
Subsequently to March 31, 2002, the Company has obtained
approximately $189,000 in additional financing through the issuance
of bridge notes.
Warrants
During the three month period ended March 31, 2002, the
Company issued 2,837,556 warrants in connection with the short term
bridge notes executed from January 4, 2002 through March 31, 2002.
The warrants were issued for the purchase of common stock at $.001
per share. These warrants are exercisable at the option of the
warrant holder and expire five years from the date of issuance. An
amount of $269,460 based on the Black-Scholes pricing model was
included in additional paid-in capital at March 31, 2002 as the
estimated value of the warrants.
The following represents a summary of the warrants outstanding
as of March 31, 2002:
Weighted
Average
Shares Exercise
Price
-------- ---------
Outstanding, January 1, 2002 --- $---
Granted 2,837,556 .001
Expired/forfeited --- ---
--------- ---------
Outstanding, March 31, 2002 2,837,556 $.001
========= =========
Weighted average fair value of warrants $.001
granted =========
PAGE-18-
NOTE 11 - BRIDGE NOTES AND WARRANTS (CONTINUED)
Warrants (continued)
All of the warrants outstanding at March 31, 2002 had an
exercise price and a weighted average price of $.001 and a weighted
average remaining contractual life of 4.93 years.
The value of the warrants issued was estimated by dividing the
principal amount of the bridge note issued by the Company's share
price on the date of the note. The number of warrants issued in
relation to the bridge notes will be determined by the actual stock
price on the first day of trading subsequent to the closing of the
SB-2 offering.
PAGE-19-
Item 2. Management's Discussion and Plan of Operation
Forward-Looking Statements
This Quarterly Report contains forward-looking statements
about our business, financial condition and prospects that reflect
management's assumptions and beliefs based on information currently
available. We can give no assurance that the expectations
indicated by such forward-looking statements will be realized. If
any of our management's assumptions should prove incorrect, or if
any of the risks and uncertainties underlying such expectations
should materialize, our actual results may differ materially from
those indicated by the forward-looking statements.
The key factors that are not within our control and that may
have a direct bearing on operating results include, but are not
limited to, acceptance of our services, our ability to expand our
customer base, managements' ability to raise capital in the future,
the retention of key employees and changes in the regulation of our
industry.
There may be other risks and circumstances that management may
be unable to predict. When used in this Quarterly Report, words
such as, "believes," "expects," "intends," "plans,"
"anticipates," "estimates" and similar expressions are intended to
identify forward-looking statements, as defined in Section 21E of
the Securities Exchange Act of 1934, although there may be certain
forward-looking statements not accompanied by such expressions.
The safe harbors of forward-looking statements provided by
Section 21E of the Exchange Act are unavailable to issuers of penny
stock. As we issued securities at a price below $5.00 per share,
our shares are considered penny stock and such safe harbors set
forth under the Reform Act are unavailable to us.
General
Consumer Direct of America provides direct marketing, home
financing and value membership services to consumers via a
proprietary direct mail/broadcast and outbound call telesales
solicitation campaigns. Targeted markets are selected from the
nation's top 50 demographic regions. Customer prospect lists are
purchased from specialty providers and are merged together to
create a specific solicitation campaign with specific information
about the prospect's financial profile and how we can benefit the
customer. Broadcast calls are launched and prospects begin calling
our inbound "800" numbers at our call centers. Calls are routed to
a telesales loan officer located at the call centers. Loan
applications are taken by the local loan officer and are
electronically routed to one of our processing centers. We are an
innovator of state of the art technical and financial resources in
our mortgage services.
Effective February 20, 2001, in connection with a stock
purchase agreement, Blue Star Coffee, Inc., a Nevada Corporation
issued an aggregate of 17,593,863 newly issued and 3,364,122
previously issued and outstanding shares of its common stock at
$.001 par value per share in exchange for all of the outstanding
shares of Consumer Direct of America, in which Consumer Direct
became a wholly-owned subsidiary of Blue Star Coffee based on a
conversion ratio of approximately 1.61 shares of Blue Star's common
stock for each share of Consumer Direct common stock. This reverse
merger qualified for a tax-free reorganization and has been
accounted for as a recapitalization of Consumer Direct and the
acquisition of Blue Star Coffee and its book value.
Results of Operations
We generated $710,635 in gross revenues for the first quarter
ended March 31, 2002, which consisted of marketing revenues and
commissions and licensing agreements. Approximately 35% of our
revenues was generated by marketing revenues and commission, as we
broadened our base of customers in the competitive local exchange
carrier market. Licensing agreements was responsible for about 65%
of revenues realized during the first quarter, as we expand our
call center locations. Our management expects to grow both areas
of its business through the rest of fiscal year 2002.
Operating expenses for the period was $777,333, resulting in a
loss from operations of $66,698. We experienced a net loss of
$349,504, or $0.02 per share, for first quarter ended March 31,
2002. Our management expects these expenses to increase as we grow
our operations and expand the number of our call centers. However,
we are attempting to control expenditures while increasing revenues
to attain profitability. We cannot assure you that we will be
successful in our goal of generating positive income.
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Liquidity
During the first quarter ended March 31, 2002, we had revenues
of $710,635 and we incurred an operating loss of $66,698. In
addition, as of March 31, 2002, we had only $53,681 of cash and
cash equivalents available. Our management believes that this is
only sufficient to meet our needs for the next six months. In
order to execute our growth strategy and potentially become
profitable, we need to secure additional debt or equity funding.
During the three month period ended March 31, 2002, we began
issuing Bridge Financing Notes to obtain up to $1,000,000 in
financing. Our assets are being used as collateral to secure the
notes. The note terms call for each $100,000 promissory note to be
repaid with $110,000 in cash, and warrants worth $100,000. The
number of warrants will be determined by the principal amount of
the notes issued divided by the stock price on the first day of
trading subsequent to the closing of the public offering. As of
March 31, 2002 we had $540,000 outstanding in bridge notes and had
incurred interest charges of $77,025 (related to the notes and the
warrants) for the period then ended. Deferred interest of $269,460
which was the value assigned to the warrants related to the notes
has been assigned to the notes and is being amortized over the
estimated terms of the notes. During the period ended March 31,
2002 $59,748 of deferred interest was amortized and included in
interest expense. The remaining deferred interest of $209,712 has
been netted against the outstanding principal balances of the notes
payable at March 31, 2002.
During the three month period ended March 31, 2002, we issued
2,837,556 warrants in connection with the short term bridge notes
executed from January 4, 2002 through March 31, 2002. The warrants
were issued for the purchase of common stock at $.001 per share.
These warrants are exercisable at the option of the warrant holder
and expire five years from the date of issuance. All of the
warrants outstanding at March 31, 2002 had an exercise price and a
weighted average price of $.001 and a weighted average remaining
contractual life of 4.93 years.
The value of the warrants issued was estimated by dividing the
principal amount of the bridge note issued by the Company's share
price on the date of the note. The number of warrants issued in
relation to the bridge notes will be determined by the actual stock
price on the first day of trading subsequent to the closing of the
SB-2 offering.
PAGE-21-
PART II - OTHER INFORMATION
Item 6. Exhibits
Exhibit Name and/or Identification of Exhibit
Number
3 Articles of Incorporation & By-Laws
(a) Articles of Incorporation. Incorporated by
reference to the exhibits to the Company's General
Form For Registration Of Securities Of Small
Business Issuers on Form 10-SB, previously filed
with the Commission.
(b) By-Laws of the Company. Incorporated by
reference to the exhibits to the Company's General
Form For Registration Of Securities Of Small
Business Issuers on Form 10-SB, previously filed
with the Commission.
PAGE-22-
SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Consumer Direct of America
(Registrant)
By: /s/ Michael A. Barron
Michael A. Barron
President
In accordance with the requirements of the Securities Act of
1933, this Registration Statement was signed by the following
persons in the capacities and on the dates stated:
Signature Title Date
/s/ Michael A. President May 20, 2002
Barron
Michael A. Barron
/s/ Richard H. Chief Financial May 20, 2002
Moskowitz Officer
Richard H. Moskowitz
/s/ Lee Shorey Secretary May 20, 2002
Lee Shorey
PAGE-23-