U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 TO FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 000-29913
STARFEST, INC.
----------------------------------------------
(Name of small business issuer in its charter)
California 95-4442384
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4602 East Palo Brea Lane, Cave Creek, AZ 85331
----------------------------------------------
(Address of principal executive offices)
480-551-8280
---------------------------
(Issuer's Telephone Number)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class: None.
Name of each exchange on which registered: None.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 par value
------------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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[ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
<PAGE>
State issuer's revenues for its most recent fiscal year: None.
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days: $37,638,000 computed by
reference to the $1.70 average of the bid and asked price of the Company's
Common Stock on April 12, 2000.
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 23,000,000 shares of Common
Stock, $0.001 par value.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II,
etc.) into which the document is incorporated: (1) any annual report to security
holders; (3) any proxy or information statement; and (3) any prospectus filed
pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act").
The list documents should be clearly described for identification purposes
(e.g., annual report to security holders for fiscal year ended December 24,
1990). None.
Transitional Small Business Disclosure Format (check one): Yes[ ] No[X]
<PAGE>
TABLE OF CONTENTS
Page
Item 1. Description of Business ................................... 1
Business Development ...................................... 1
Business of Starfest ...................................... 2
Plan of Operation .................................. 3
Number of Employees ....................................... 3
Item 2. Description of Property ................................... 4
Facilities ................................................ 4
Item 3. Legal Proceedings ......................................... 4
Item 4. Submission of Matters to a Vote of Security
Holders ............................................ 4
Item 5. Market for Common Equity and Related Stockholder
Matters ............................................ 4
Dividends ................................................. 4
Holders ................................................... 4
Penny Stock Regulations ................................... 5
The Penny Stock Suitability Rule ................... 5
The Penny Stock Disclosure Rule .................... 6
Effects of the Rule ................................ 7
Recent Sales of Unregistered Securities ................... 7
Item 6. Plan of Operations ........................................ 8
Overview .................................................. 8
Concierge's Plan of Operation ...................... 9
Description of the PCATM ........................... 9
The Market ......................................... 10
Distribution Methods ............................... 11
Production Costs ................................... 11
Government Approval of Principal Products .......... 12
Government Regulations ............................. 13
Properties ......................................... 13
Dependence on Major Customers ...................... 13
Seasonality ........................................ 13
Research and Development ........................... 13
Environmental Controls ............................. 13
Year 2000 Computer Problems ........................ 13
Number of Employees ................................ 13
Venue of Sales ..................................... 13
Patents, Trademarks, Copyrights and
Intellectual Property ....................... 13
Legal Proceedings .................................. 14
Liquidity .......................................... 14
Concierge's Management's Plan of Operation ................ 14
Liquidity .......................................... 14
Product Research and Development ................... 14
Other Expected Developments ........................ 14
Market for Common Equity and Related
Stockholder Matters ......................... 15
Market Information ................................. 15
Holders ............................................ 15
Dividends .......................................... 15
Changes In and Disagreements With Accountants on
Accounting and Financial Disclosures ............... 15
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Item 7. Financial Statements ...................................... 15
Item 8. Changes in and Disagreements With Accountants On
Accounting and Financial Disclosure ................ 24
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with
Section 16(a) of the Exchange Act .................. 24
Section 16(a) Beneficial Ownership
Reporting Compliance ........................ 25
Item 10. Executive Compensation .................................... 25
Long-Term Compensation .................................... 26
Item 11. Security Ownership of Certain Beneficial Owners
and Management ..................................... 26
Item 12. Certain Relationships and Related Transactions ............ 27
Item 13. Exhibits and Reports on Form 8-K .......................... 28
(a) Exhibits ........................................... 28
(b) Reports on Form 8-K ................................ 28
Signatures ............................................................... 29
ii
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ITEM 1. DESCRIPTION OF BUSINESS
Business Development
Starfest, Inc. was incorporated in California on August 18, 1993 as
"Fanfest, Inc." On August 29, 1995 its name was changed to Starfest, Inc.
Pursuant to a Stock Purchase Agreement (the "Purchase Agreement") dated
March 6, 2000 between MAS Capital, Inc., an Indiana corporation, the controlling
shareholder of MAS Acquisition XX Corp. ("MAS XX"), an Indiana corporation, and
Starfest, approximately 96.83 percent (8,250,000 shares) of the outstanding
shares of common stock of MAS Acquisition XX Corp. were exchanged for $100,000
and 150,000 shares of common stock of Starfest in a transaction in which
Starfest became the parent corporation of MAS XX.
At the time of this transaction, the market price of Starfest's common
stock was $1.50 bid at closing on March 7, 2000 on the OTC Bulletin Board.
Accordingly, the consideration Starfest paid for the 96.83 percent interest was
valued at $325,000. Concierge loaned to Starfest the $100,000 cash portion of
the consideration evidenced by a no-interest, demand note. Michael Huemmer, the
president of Starfest, loaned to Starfest the 150,000 shares of common stock of
Starfest that was the stock portion of the consideration.
Upon execution of the Purchase Agreement and the subsequent delivery of
$100,000 cash and 150,000 shares of common stock of Starfest on March 7, 2000,
to MAS Capital Inc., pursuant to Rule 12g-3(a) of the General Rules and
Regulations of the Securities and Exchange Commission, Starfest became the
successor issuer to MAS Acquisition XX Corp. for reporting purposes under the
Securities and Exchange Act of 1934 and elected to report under the Act
effective March 7, 2000.
MAS XX had no business, no assets, and no liabilities at the time of the
transaction. Starfest entered into the transaction solely for the purpose of
becoming the successor issuer to MAS Acquisition XX Corp. for reporting purposes
under the 1934 Exchange Act. Prior to this transaction, Starfest was preparing
to register its common stock with the Commission in order to avoid being
delisted by the OTC Bulletin Board. By engaging in the Rule 12g-3(a)
transaction, Starfest avoided the possibility that its planned registration
statement with the Commission would not be fully reviewed by the Commission's
staff before an April 2000 deadline, which would result in Starfest's common
stock being delisted on the OTC Bulletin Board.
1
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A change in control of Starfest could occur in the future, should the
shareholders of Starfest and Concierge, Inc., a Nevada corporation, approve an
agreement of merger entered into between Starfest and Concierge on January 26,
2000. The proposed merger will be submitted to the shareholders of each of
Starfest and Concierge pursuant to a Form S-4 Prospectus-Proxy Statement to be
filed with the Commission as soon as the necessary audited financial statements
of Concierge are prepared. It is expected that these financial statements will
be available within 30 days.
Pursuant to the agreement of merger between Starfest and
Concierge,
* Starfest will be the surviving corporation,
* The shareholders of Concierge will receive pro rata for their
shares of common stock of Concierge, 99,957,713 shares of common
stock of Starfest in the merger, and all shares of capital stock
of Concierge will be cancelled,
* The officers and directors of Concierge will become the officers
and directors of Starfest, and
* The name of Starfest will be changed to "Concierge Technologies,
Inc."
Business of Starfest
Starfest's initial business was the production and promotion of theme
events involving numerous artists and performers and designed to attract mass
audiences of fans drawn by the theme. In 1994 and 1995 it produced "Fanfest,"
which was held at the Fairplex at the Los Angeles County Fairgrounds, and which
won the Airplay International Award as the "Country Music Event of the Year." In
1995 the event won the Country Music Associations of America's award as the
"Best Country Event of the Year." The two events lost money, however. By the end
of 1995, Starfest had a retained deficit of $1,228,703.
In 1996 the event was renamed "Starfest" and was again held in Los
Angeles.
In 1997 the event was planned but was cancelled before being held. At
the end of 1997, Starfest had no business and a retained deficit of $2,135,885.
The company was essentially dormant in 1998, losing only $2,366 for the year,
with its activities being limited to dealing with creditors and to attempting to
raise capital for the resumption of business.
In 1999, with no business, Starfest turned the management of the company
over to three individuals involved in the adult entertainment business - Billy
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Harbour, John Whitley and Pamela Miller of southwestern Virginia. Under this new
direction the company bought three websites on the Internet - www.starfest.com,
www.adultstar.com and www.adultstars.com. Starfest also purchased and paid
$12,000 for twelve additional websites on the Internet, but the written transfer
of the websites was never obtained, and the right to obtain the transfer of
those websites has been sold and transferred to unrelated third parties.
Stockholders owning a majority of the outstanding stock of Starfest regained
control of the management of the company by obtaining the resignations of
directors associated with the Virginia management and having the remaining
directors elect Michael Huemmer as president and Janet Alexander as secretary of
the company. On December 31, 1999, pursuant to the written consent of persons
holding a majority of the outstanding shares of common stock of the company,
Starfest sold all the remaining assets of the company associated with the adult
entertainment business for $10,000. The assets consisted of the three adult
entertainment websites and the right to obtain the additional twelve websites.
Starfest applied this and its other cash assets to the payment of outstanding
liabilities. Starfest suffered a loss of $518,606 for the year of 1999.
On January 18, 2000, Starfest and Concierge executed a letter of intent
to submit to their stockholders a proposal to merge. The agreement of merger was
executed on January 26, 2000. Starfest will be the surviving corporation of the
merger, but the business and management of the merged companies will be that of
Concierge. Pending approval of the merger, Starfest has no business.
Starfest has no employees. Starfest's present management consists of two
persons, Michael Huemmer, president, and Janet Alexander, secretary.
Plan of Operation
-----------------
Starfest's sole plan of operation at present is to progress toward a
closing of the proposed merger with Concierge. Should the merger be consummated,
the company's plan of operation for the next twelve months shall then be the
plan of operation that Concierge's management has for its company.
Until the merger should be consummated or abandoned, Starfest has no
paid employees. Its officers and directors are contributing their time without
compensation.
Should the merger with Concierge not be consummated, Starfest's
management will seek another merger partner. Starfest has sufficient cash to
meet any anticipated cash requirements that will arise before the merger with
Concierge is consummated. Should the merger with Concierge not be consummated,
3
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Starfest will likely find it necessary to raise additional funds in connection
with any other merger it might negotiate with another merger partner. It would
propose to require the other party to the merger to provide such funds.
Number of Employees
On December 31, 1999, Starfest employed one person full time and no
persons part time.
ITEM 2. DESCRIPTION OF PROPERTY
Starfest owns no plants, real property or personal property.
Facilities
Starfest's office facilities are in the home of its president, Michael
Huemmer, in Scottsdale, Arizona, and are provided rent free.
ITEM 3. LEGAL PROCEEDINGS
Neither Starfest nor any of its property is the subject of any pending
legal proceedings or any proceeding of which Starfest is aware that a
governmental authority is contemplating.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal year 1999.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Starfest's Common Stock presently trades on the OTC Bulletin
Board. The high and low bid and asked prices, as reported by the OTC Bulletin
Board, are as follows for 1998 and 1999 and the first three quarters of 2000.
The quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
<TABLE>
<CAPTION>
High Low
---- ---
1998:
<S> <C> <C> <C>
1st Qtr. 0.02 0.005
2nd Qtr. 0.01 0.005
3rd Qtr. 0.03 0.005
4th Qtr. 0.021 0.01
</TABLE>
4
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<TABLE>
1999:
<S> <C> <C> <C>
1st Qtr. 0.1000 0.0050
2nd Qtr. 0.5938 0.0200
3rd Qtr. 0.2000 0.0600
4th Qtr. 0.1050 0.0450
2000:
1st Qtr. 2.3125 0.075
2nd Qtr. 2.9688 0.3700
3rd Qtr. 0.7813 0.35
</TABLE>
Holders
There are approximately 96 holders of record of Starfest's common stock.
Rule 144 and Rule 145 Restrictions on Trading.
---------------------------------------------
Should the merger with Concierge be approved and effected, all shares of
common stock of the post-merger company issued in the merger to the stockholders
of Concierge shall have been issued pursuant to registration with the
Commission. Nevertheless, there will be certain restrictions on the transfer for
value of the shares received in the merger by the affiliates of Concierge, who
may be deemed to be underwriters.
Securities and Exchange Commission rules define as "affiliates" a
corporation's executive officers, directors and other persons who, by any
manner, exercise control over the corporation's direction and policies. The
affiliates of Concierge at the time of the vote on the merger, in order to sell
their shares received in the merger, must either register them for resale or
comply with the resale provisions set forth in paragraph (d) of the Commission's
Rule 145, unless some other exemption-from-registration provision is available.
The resale provisions of paragraph (d) of Rule 145 refer to certain provisions
of the Commission's Rule 144 and require, for sales of the shares by such
affiliates, that:
* the company must have been subject to the reporting
requirements of Section 13 or Section 15(d) of the
Securities Exchange Act for at least 90 days (which is the
case, here),
* the company must have filed all reports with the
Commission required by such rule during the twelve months
preceding such sale (or such shorter period that the
company was required to file such reports),
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* transfers for value by such affiliates can occur only
either (1) through broker transactions not involving the
solicitation of buyers or (2) directly to market-makers,
and
* each such affiliate can transfer for value, during a
90-day period, no more shares than the greater of one
percent of all issued and outstanding shares of common
stock of the company (119,957,713 shares immediately after
the merger) or the average weekly volume of trading in
such common stock reported through the automated quotation
system of Nasdaq or the Bulletin Board during the four
calendar weeks prior to placing the sell order with a
broker-dealer.
The above resale provisions of Rule 145 shall continue for such
affiliates for one year after the merger. Then, only the company's reporting
requirement shall continue. When any such affiliate has ceased to be an
affiliate of the post-merger company for at least three months, and provided at
least two years have elapsed since the date of the merger, then even the
requirement that the company file reports with the Commission will no longer be
required for such a former affiliate to sell any of the shares acquired in the
merger.
The following table allocates the post-merger company's common stock
between restricted and non-restricted stock for Concierge's and Starfest's
affiliates at the time of the merger:
No. of Shares
Restricted
Percent of by Rules
Post-Merger Company No. of Shares Total Issued 144 and 145
------------------- ------------- ------------ -------------
Authorized shares 190,000,000 - -
Issued and outstanding shares 119,957,713 100.0 65,297,240
----------- ----- -----------
Issued and outstanding shares to be Rule 145:
controlled by Concierge's affiliates 64,437,240 53.7 64,437,240
Issued and outstanding shares to be Rule 144:
controlled by Starfest's affiliates 860,000 0.7 860,000
Pre-merger restricted shares of
Starfest issued during 2000 to Rule 144:
persons other than its affiliates 1,402,001 1.2 1,402,001
Shares in the "public float,"
subject to no restrictions on trading 53,258,472 44.4 -
----------- ----- -----------
119,957,713 100.0 65,297,240
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The 860,000 shares controlled by Starfest's affiliates were issued in
2000 and will continue to be "restricted" shares until they have been held for
two years. The same is true of the 542,001 other shares of Starfest issued in
2000. After such shares have been held for one year, they may be sold pursuant
to the provisions of Rule 144, the principal ones of which are set forth above
on page 27 as "bullet points" in the second paragraph of this heading.
No equity of Starfest is subject to outstanding options or warrants to
purchase, or securities convertible into, equity of the company.
Dividends. Starfest has had no earnings and has declared no dividends on
our capital stock. Concierge has never earned a profit and may not do so in the
future. Under California law, a company - such as our post-merger company - can
pay dividends only
* from retained earnings, or
* if after the dividend is made,
* its tangible assets would equal at least 11/4 times its liabilities,
and
* its current assets would at least equal its current liabilities,
or
* if the average of its earnings before income taxes and before
interest expenses for the last two years was less than the
average of its interest expenses for the last two years, then
its current assets must be equal to at least 11/4 times its
current liabilities.
The post-merger directors' strategy on dividends is to declare and pay
dividends only from retained earnings and when the directors deem it prudent and
in the best interests of the company to declare and pay dividends.
Penny Stock Regulations
Starfest's common stock trades on the OTC Bulletin Board at a price less
than $5 a share and is subject to the rules governing "penny stocks."
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A "penny stock" is any stock that:
* sells for less than $5 a share.
* is not listed on an exchange or authorized for quotation on The
Nasdaq Stock Market, and
* is not a stock of a "substantial issuer." Starfest is not now a
"substantial issuer" and cannot become one until it has net
tangible assets of at least $2 million, which it does not now
have and will not have solely as a result of the proposed merger
with Concierge.
There are statutes and regulations of the Securities and Exchange
Commission (the "Commission") that impose a strict regimen on brokers that
recommend penny stocks.
The Penny Stock Suitability Rule
--------------------------------
Before a broker-dealer can recommend and sell a penny stock to a new
customer who is not an institutional accredited investor, the broker-dealer must
obtain from the customer information concerning the person's financial
situation, investment experience and investment objectives. Then, the
broker-dealer must "reasonably determine" (1) that transactions in penny stocks
are suitable for the person and (2) that the person, or his advisor, is capable
of evaluating the risks in penny stocks.
After making this determination, the broker-dealer must furnish the
customer with a written statement setting forth the basis for this suitability
determination. The customer must sign and date a copy of the written statement
and return it to the broker-dealer.
Finally the broker-dealer must also obtain from the customer a written
agreement to purchase the penny stock, identifying the stock and the number of
shares to be purchased.
The above exercise delays a proposed transaction. It causes many
broker-dealer firms to adopt a policy of not allowing their representatives to
recommend penny stocks to their customers.
The Penny stock Suitability Rule, described above, and the Penny Stock
Disclosure Rule, described below, do not apply to the following:
* transactions not recommended by the broker-dealer,
* sales to institutional accredited investors,
* transactions in which the customer is a director, officer,
general partner, or direct or indirect beneficial owner of more
than 5 percent of any class of equity security of the issuer of
the penny stock that is the subject of the transaction, and
* transactions in penny stocks by broker-dealers whose income from
penny stock activities does not exceed five percent of their
total income during certain defined periods.
The Penny Stock Disclosure Rule
-------------------------------
Another Commission rule - the Penny stock Disclosure Rule - requires a
broker-dealer, who recommends the sale of a penny stock to a customer in a
transaction not exempt from the suitability rule described above, to furnish the
customer with a "risk disclosure document." This document is set forth in a
federal regulation and contains the following information:
* A statement that penny stocks can be very risky, that investors
often cannot sell a penny stock back to the dealer that sold them
the stock,
* A warning that salespersons of penny stocks are not impartial
advisers but are paid to sell the stock,
* The statement that federal law requires the salesperson to tell
the potential investor in a penny stock -
* the "offer" and the "bid" on the stock, and
* the compensation the salesperson and his firm will receive
for the trade,
* An explanation that the offer price and the bid price are the
wholesale prices at which dealers are willing to sell and buy the
stock from other dealers, and that in its trade with a customer
the dealer may add a retail charge to these wholesale prices,
* A warning that a large spread between the bid and the offer price
can make the resale of the stock very costly,
* Telephone numbers a person can call if he or she is a victim of
fraud,
* Admonitions -
* to use caution when investing in penny stocks,
* to understand the risky nature of penny stocks,
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* to know the brokerage firm and the salespeople with whom
one is dealing, and
* to be cautious if ones salesperson leaves the firm.
Finally, the customer must be furnished with a monthly statement including
prescribed information relating to market and price information concerning the
penny stocks held in the customer's account.
Effects of the Rule
-------------------
The above penny stock regulatory scheme is a response by the Congress
and the Commission to known abuses in the telemarketing of low-priced securities
by "boiler shop" operators. The scheme imposes market impediments on the sale
and trading of penny stocks. It has a limiting effect on a stockholder's ability
to resell a penny stock.
Starfest's merger shares likely will trade below $5 a share on the OTC
Bulletin Board and be, for some time at least, shares of a "penny stock" subject
to the trading market impediments described above.
Recent Sales of Unregistered Securities
Starfest sold shares of its common stock within the past three years
without registering the shares under the Securities Act of 1933:
<TABLE>
<CAPTION>
Number of Nature of
Shares Amount of Consideration
Person Date Issued Consideration Paid for Shares
------ ---- --------- ------------- ---------------
<S> <C> <C> <C> <C>
Herb Gronauer(1) 02-17-99 100,000 $ 5,000 Services as president
during 1998
J. Douglas Bowey(1) 02-17-99 208,339 10,417 Financial consultant
Thomas J. Kenan(1) 02-17-99 198,338 9,917 Legal services
17 persons(1) 04-06-99 13,000,000 285,000 Cash - $210,000
Cancel notes payable
by Starfest - $75,000
Marjorie J. Cole(2) 05-17-99 33,000 660 (3)
Thomas J. Kenan(2) 08-27-99 100,000 6,000 Legal services
7 persons(2) 11-19-99 1,365,000 40,950 (4)
4 persons(2) 12-30-99 700,000 46,620 (5)
</TABLE>
-------------------------
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(1) Shares were issued to these persons pursuant to the exemption from
registration provided by the Commission's Regulation D, Rule 504.
(2) Shares were issued to these persons pursuant to the exemption from
registration provided by the Commission's Regulation D, Rule 506.
(3) Financial consulting services provided by her spouse, George W. Cole.
(4) Services rendered to promote the company's product.
(5) Advertising and promotional services.
All shares issued in reliance upon the Regulation D, Rule 506 exemption
from registration were issued to persons that had existing relationships with
the company's officers and directors and were sophisticated in investment
matters. No public solicitation or public advertising was used in connection
with these sales of securities.
ITEM 6. PLAN OF OPERATIONS
As described above under "Item 1. Description of Business," on January
26, 2000, Starfest and Concierge, Inc. entered into an agreement of merger that
will be submitted to the shareholders of each corporation for their approval or
rejection. The submittal will be pursuant to a Form S-4 Prospectus-Proxy
Statement to be filed with the Commission during April 2000. Should the proposed
merger be approved by the shareholders of both corporations, the business of
Concierge will be the business of Starfest.
Should the proposed merger be effected, Starfest's management has been
advised by the management of Concierge that Concierge's present and proposed
business is as follows:
Overview
Concierge was incorporated on September 20, 1996, in the State of
Nevada. Its principal office is at 6033 West Century Boulevard, Suite 1278, Los
Angeles, California 90045. Its telephone number is 310-216-6334.
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Concierge's Plan of Operation
-----------------------------
Concierge has developed a "unified messaging" product - the Personal
Communications Attendant ("PCATM"). Concierge commenced marketing the PCATM in
September 2000. It had expected to bring the PCATM to market in early April,
announced this expectation in an interview on a television program and set up a
toll-free line with contract personnel available to take telephone orders.
Approximately 50 orders were received. Unfortunately, Concierge's initial
marketing effort was precipitous. The company Concierge had hired to write the
programming code to implement Concierge's design, technical specifications and
program logic did not timely meet its contractual commitments. The product was
not ready. The initial marketing effort was terminated.
On May 12, 2000 the responsibility for writing the programming code was
reassigned to Dave Cook Consulting of Mercer Island, Washington. That company's
work was overseen by Concierge. Detailed technical development of the initial
PCATM product, packaging design, documentation, field testing and attendant
tasks were completed, and the PCATM is now available for direct purchase online
at www.pcahome.com.
Limited shipments began in September 2000. Advertising and marketing
campaigns were held in abeyance until technical problems in automatic credit
card verification and funds transfer could be addressed. These problems are
believed to have been resolved. Extensive system testing and certification are
currently underway. Testing is expected to be completed by late October, at
which time full direct marketing efforts are planned to commence together with
shipments to fill any orders. Concierge is also involved in negotiations with
several reseller, merchandising and manufacture representative organizations,
which negotiations it hopes will culminate in agreements leading to sales of the
PCATM.
Description of the PCATM. Concierge's PCATM provides a means by which
any user of Internet e-mail can have e-mail messages spoken to him or her over
any touch-tone telephone or wireless phone in the world.
The PCATM responds to the user's voice commands to read, verbalize and
manage e-mail traffic stored on a personal computer. The PCATM is "trained" to
respond only to the voice commands and personal voice password of the individual
user, thus guaranteeing that each user's personal messages cannot be accessed by
anyone else. Responding to spoken instructions, the PCATM can verbalize e-mail
(with future fax and voice-mail capabilities) over the phone and save or delete
those messages as directed by the user.
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The PCATM software executes on a personal computer operating under
Windows 95 or Windows 98 and using Microsoft Outlook or Outlook Express as an
e-mail client. It requires 350 megabytes of available hard disk space. The
Internet connection may be effected by any standard means, including dial-up or
dedicated telephone line, cable or DSL, but voice interaction between the user
and the PCATM software requires a dial-up phone line and a voice-capable modem.
Generally, although not invariably, many available 56 KB modems are
voice-capable. The initial product being offered for sale is a stand-alone,
single-user version and is not designed to function in a LAN or WAN environment.
There are no set-up costs associated with the product other than assuring that
the minimum hardware and software requirements are present.
The initial product can verbalize only a user's e-mail. It is, however,
implemented with "hooks" for the addition of fax and voice-mail modules. "Hooks"
means that the programs have been written to facilitate the future inclusion of
additional features such as fax and voice-mail capabilities. The date of
availability of these features will depend upon decisions still to be made by
Concierge management regarding the assignment of priorities to product
introduction. Among future products planned are the "Pro" version, which will
enable the user to access by telephone the user's fax and voice-mail messages; a
multi-user, server-based version for corporate/enterprise users; and various
"nationalized", that is, non-English, versions. An assessment of individual
market segments and other considerations will enter into the decision of
Concierge's management as to how its available resources might best be utilized.
Expansion of the initial product's capabilities to add fax and voice-mail
retrieval capabilities will not be a major effort; however, it may or may not be
the best application of Concierge's capabilities from a strategic marketing
standpoint.
The e-mail version will retail at $39.95. With a $19.95 upgrade, the
planned pro version will monitor and collect fax, voice mail and e-mail
messages. A user's personal computer will then become a universal communications
center. All the user's incoming communications, be they fax, voice- or e-mail,
will reside on the user's own computer and will be readily accessible from any
telephone.
There will be no monthly service fee. No device other than an ordinary
telephone is needed to access the PCATM. The PCATM also includes an auto pager
that notifies the user by phone or pager when new e-mail is received.
The underlying technology is the subject of patents, and Concierge is
required to pay royalties of $0.85 a delivered PCATM unit to Lexicus, a
subsidiary of Motorola, for its Clamor Automatic Speech Recognition software and
13
<PAGE>
$1.00 a delivered unit to fonix for its text-to-speech software. Concierge has
paid advance royalties to Lexicus for 50,000 units and advance royalties to
fonix for 180,000 units.
Concierge intends to "nationalize" the product to accomodate several
foreign languages, possibly including Japanese, Korean, German, Latin American
Spanish, French and Brazilian Portuguese. fonix has advised Concierge that its
test-to-speech software will be available in up to seven foreign languages
commencing in the first quarter of 2001. "Nationalizing" the PCATM will also
require the translation of PCA-generated voice prompts, packaging for the
product and preparation of the user documentation. The voice recognition
component of the PCA is "language independent" and requires no revision - once
trained by the user, it accepts any sound as signifying any corresponding
instruction provided the sound is uttered consistently and in context.
Concierge anticipates that it will complete the first nationalization of
the PCATM within 45 days after it receiveds from fonix the nationalized test-to-
speech development materials.
The Market. In a study published May 12, 2000 and entitled
"Communications Software and Services," Donaldson Lufkin & Jenrette reported on
the past, present and future estimated users of the Internet and of wireless
communications devices. Referring to several sources for its information, DLJ
reported the following estimates of users:
<TABLE>
<CAPTION>
In Millions
-----------
Wireline Wireless Source of
No. of Users Internet Communication Estimate
------------ -------- ------------- ---------
U.S.A.:
<S> <C> <C> <C>
End of 1998 30 I.D.C.
End of 2002 67 I.D.C.
Global:
End of 1999 196 I.D.C.
End of 2003 503 I.D.C.
U.S.A.:
End of 1999 87 DLJ and WTDR
End of 2002 160 DLJ and WTDR
End of 2005 200 DLJ and WTDR
Global:
End of 1999 425 DLJ and WTDR
End of 2002 1,000 DLJ and WTDR
</TABLE>
14
<PAGE>
DLJ estimated that by 2005, over 70 percent of all wireless users in the
U.S. will access the Internet - better than 50 percent of the nation's
population, or 150 million users. It stated, "The ability to send messages,
retrieve e-mail . . . is all within the grasp of a mobile device and at the
touch of our fingertips or at the tone of our voice."
Concierge believes that it has positioned itself, with its PCATM, to
provide a valuable service to a growing market segment.
Distribution Methods. Concierge's marketing methods will include direct,
high-volume, e-mail advertising promulgated on the Internet. Lists of e-mail
addresses are readily available for purchase. Such lists typically contain from
millions to tens of millions of valid e-mail addresses. The lists may cost from
a few hundred dollars to one or two thousand dollars, depending upon the
specificity of the target audience.
In the case of Concierge's PCATM product, any e-mail user who
communicates in English and has a need to retrieve e-mail messages while away
from his or her personal computer may legitimately be considered a prospect. The
lists to be utilized by Concierge will be unfiltered lists, generally restricted
geographically to English-speaking North America. Concierge has elected not to
use its in-house server capacity to perform the actual bulk mailings but will
employ an outside service for this function. Both list sources and mailing
services advertise extensively on the Internet and can also be easily identified
through any comprehensive search engine such as www.dogpile.com.
In addition to direct e-mail Internet marketing, Concierge's marketing
plan includes the cultivation of Internet Service Providers (ISPs) as a sales
channel for the PCATM. Under discussion are strategic alliances to provide PCAs
with personal computer systems and sales through direct marketing organizations.
Concierge has participated and will continue to participate, in radio and
television business-oriented shows designed to expose companies and their
products to a mass audience. Approximately 50 percent of Concierge's present
resources will be allocated to advertising, marketing and product promotion.
Production Costs. The PCATM will be manufactured and produced for
Concierge by XeTel Corp. A service order fulfillment contract has been executed
with eAssist.com of San Diego, California, an unaffiliated third party
corporation. Dave Cook Consulting of Mercer Island, Washington will provide
product development services to implement products designed by Concierge.
Manufacturing Services Agreement. XeTel Corporation of Austin,
Texas will manufacture the PCATM software for Concierge at its San Ramon,
15
<PAGE>
California plant and ship it F.O.B. San Ramon at Concierge's direction.
Concierge furnishes to XeTel the design of the PCATM and a
twelve-month forecast of sales. They then negotiate the unit price to be charged
Concierge during such period based on the forecast. Concierge also furnishes to
XeTel an approved list of vendors for all component parts of the PCATM.
The first four months of the twelve-month forecast must be firm
purchase orders. Each month the twelve-month forecast is updated, as are the
four months of purchase orders.
Should the actual orders fall short of those forecast for a
twelve-month period for which a price was negotiated, Concierge is subject to
XeTel's supplier billbacks. As of October 15, 2000, Concierge had prepaid
$49,890 to XeTel for PCAsTM to be manufactured for Concierge. Concierge also had
in its inventory at that date 2,000 PCAsTM manufactured for it by XeTel and paid
for.
XeTel warrants the products for 90 days after it ships them.
Should a product be defective because of Concierge's design, Concierge still
must pay XeTel the full purchase price for the product. Should a product be
defective because of XeTel's workmanship or material furnished by XeTel, XeTel
will replace the goods at its expense if the goods are returned to it within 30
days after XeTel's 90-day warranty period.
Either party can terminate the agreement for its convenience on
180 days' notice or for cause on 30 days' notice.
Service Order Fulfillment Agreement. eAssist.com will provide
multimedia, customer-relationship-management services via the Internet to
Concierge. eAssist.com will provide -
* outsourced e-mail management services and software,
* chat management services and software, and
* voice-based call handling.
All services are to be provided 24 hours a day, 7 days a week. eAssist.com
agrees to provide -
* 90% of its automatic e-mail responses within 10 minutes,
* 90% of its personalized e-mail responses within 8 hours,
16
<PAGE>
* 80% of its chat requests within 120 seconds, and
* 80% of calls answered within 120 seconds.
e-Assist.com will charge Concierge a one-time installation and
set-up services fee and then a flat-rate monthly management fee to be negotiated
after eAssist.com's and Concierge's technical staffs have completed the setup,
implementation and integration of customized software applications for -
* one-to-one chat interaction,
* processes for integrating web pages directly with
eAssist.com's chat server,
* automated and personalized e-mail,
* VoIP (voice-over Internet Packets), and
* multimedia, customer-relationship, management services via
the Internet to Concierge.
The term of the agreement is two years - March 29, 2002. Either
party can terminate the agreement on 60 days' notice.
Product Development Agreement. Dave Cook Consulting of Mercer
Island, Washington provides product development consulting services to
Concierge. Payment for the services is based upon hourly charges.
After a previous consultant hired to perform program coding
implementation of Concierge's design of the PCATM failed to perform as required
by March 22, 2000, Concierge hired Dave Cook Consulting to perform the work.
Dave Cook Consulting restructured the fundamental systems architecture of the
PCATM, rewrote the basic programming code of major modules of the software
package, and revised the user interface.
Mr. Cook, together with Lisa Monte of Creative Web Works,
recommended major changes that were made in Concierge's web site
(www.pcahome.com) and helped equip the site to handle on-line entry order,
credit card verification and order fulfillment.
The intellectual property rights associated with the work product
of Dave Cook Consulting will be owned by Concierge.
17
<PAGE>
The term of the March 17, 2000 agreement is one year. Concierge
can terminate the agreement without cause on 30 days' notice. Dave Cook
Consulting can terminate the agreement on 30 days' notice if Concierge
materially breaches any obligation of the agreement.
Governmental Approval of Principal Products. No governmental approval is
required in the U.S. for Concierge's products.
Government Regulations. There are no governmental regulations in the
U.S. that apply to Concierge's products.
Properties. Concierge leases approximately 1,100 square feet of office
space at Suite 1278, 6033 West Century Boulevard, Los Angeles, California 90045.
The lease is a one-year lease that expires June 1, 2001. The space is deemed
adequate for the present time. Ample space is available for any needed expansion
in the vicinity of its present space and elsewhere in the Los Angeles area.
Dependence on Major Customers and Suppliers. Concierge does not
anticipate that it will be dependent on any major customers or suppliers.
Seasonality. There should be no seasonal aspect to Concierge's business
other than possible increased sales anticipated in the fourth calendar quarter
associated with the year-end holidays.
Research and Development. Concierge expended approximately $188,663 on
research and development in 1998 and $50,431 in 1999. It anticipates that it
will expend approximately $150,000 on research and development in 2000 and
approximately $200,000 in 2001.
Environmental Controls. Concierge is subject to no environmental
controls or restrictions that require the outlay of capital or the obtaining of
a permit in order to engage in business operations.
Year 2000 Computer Problem. Concierge has determined that it does not
face material costs, problems or uncertainties about the year 2000 computer
problem. This problem stems from the fact that many existing computer programs
use only two digits to identify a year in the date field and do not consider the
impact of the year 2000. Concierge presently uses off-the-shelf and easily
replaceable software programs and has determined that all software is year 2000
compliant.
18
<PAGE>
Number of Employees. On October 1, 2000 Concierge employed two persons
full time and two persons part time.
Venue of Sales. Concierge anticipates that some of its initial sales
will be attributable to exports to English-speaking countries.
Patents, Trademarks, Copyrights and Intellectual Property. Concierge has
trademarked its Personal Communications Attendant. It has no patents on the
product.
Legal Proceedings. Neither Concierge nor any of its property is a party
to, or the subject of, any material pending legal proceedings other than
ordinary, routine litigation incidental to its business.
Concierge Management's Plan of Operation
Concierge's management proposes to devote the company's cash assets and
the time and efforts of its officers and staff for the next twelve months to the
promotion, sale and continued improvement of its Personal Communications
Attendant.
Liquidity. As of September 30, 2000, Concierge had cash assets of
$107,559 plus prepaid expenses of $245,800 in prepaid royalties and product
manufacturing. In this regard, Concierge had raised $467,500 through the sale
of shares of its common stock during the period from July 31, through September
6, 2000. The circumstances of the sale of these shares were such that there may
not have been an exemption from registration available for the sales. See "Risk
Factors - 9. Concierge has contingent liability of $467,500 for possible
violations of registration requirements of the Securities Act." Concierge does
not concede that no exemption from registration was available, but the
contingency exists that the purchasers of these shares could seek - and might
prevail in seeking - rescissions of their purchases of stock and a return of
their purchase amounts plus interest and attorney fees. Should a demand for
rescission be made by the purchasers of the stock sold for $467,500, Concierge
would simultaneously oppose such a demand for rescission, seek to raise
additional capital to cover the contingency that rescissions might have to be
made, but continue to use its cash assets to pursue its business objectives, as
outlined above.
Product Research and Development. Concierge's initial PCATM (audio
e-mail version) is designed to execute on a personal computer operating under
19
<PAGE>
Windows 95/98 and using Microsoft Outlook or Outlook Express as an e-mail
client. Future versions are expected to operate in the same or successor
environments, although the server-based, multi-user, versions will most likely
function under Microsoft NT or its derivative, Windows 2000. The initial PCATM,
however, is available for purchase and became available on October 3, 2000.
A June 3, 2000 and other projected product release dates were predicated
upon the fulfillment of firm commitments made to Concierge by outside
contractors. Some of those contractors failed to meet their commitments, and
Concierge was forced to delay product introduction. Due to the complexity of the
PCATM product line, numerous specialized technical skills are essential to
successful implementation. However, very few of these niche skills warrant
full-time employment of qualified specialists. It has thus always been the
intention of Concierge's management to outsource narrowly-focused, technical
functions to the greatest extent possible.
Support for Eudora and other e-mail clients is expected to be available
in the next version, whose release date is yet to be determined. Since Eudora
comprises less than ten percent of the Windows-based e-mail users, it is not
considered to be a significant impediment to the market appeal of the product.
Other Expected Developments. Concierge does not expect to purchase any
plant or significant equipment. It outsources the implementation of product
designs for its products that it develops, through the collaboration of its
president, Allen Kahn, and outside providers.
Concierge does expect to increase the number of its employees during the
next twelve months by adding approximately three employees, which would include
administrative and executive personnel.
Market for Common Equity and Related Stockholder Matters.
---------------------------------------------------------
Market Information. There is no established public trading market for
Concierge's common stock. None of its authorized shares of common stock are
subject to outstanding options or warrants to purchase, or securities
convertible into, common stock.
Concierge's outstanding 1,376,380 shares of common stock will be
converted to 96,957,713 shares of common stock of Starfest on the basis of
70.444 shares to Starfest common stock to be exchanged for each share of
Concierge common stock. All 96,957,713 shares will be eligible for sale, but the
64,437,240 shares to be distributed to Concierge's officers and directors will
be subject to the resale provisions of paragraph (d) of Rule 145.
20
<PAGE>
Holders. There are 97 holders of record of Concierge's common stock.
Dividends. Concierge has declared no cash dividends on its common stock
since its inception. There are no restrictions that limit Concierge's ability to
pay dividends on its common stock or that are likely to do so in the future.
Changes In and Disagreements With Accountants on Accounting and Financial
--------------------------------------------------------------------------------
Disclosures.
------------
During the last two fiscal years and the period since June 30, 1999,
there have been no changes in Concierge's principal independent accountant.
ITEM 7. FINANCIAL STATEMENTS
Starfest, Inc.
Independent Auditors' Report ..................................... 11
Balance Sheet as of December 31, 1999 ............................ 12
Statement of Operations for the years
ended December 31, 1999 and
December 31, 1998 ......................................... 13
Statement of Changes in Stockholders' Equity
(Deficit) for the period from
December 31, 1997 to December 31, 1999 .................... 14
Statements of Cash Flows for the years ended
December 31, 1999 and December 31, 1998 ................... 15
Notes to Financial Statements .................................... 16
21
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Directors
Starfest, Inc.
I have audited the accompanying balance sheet of Starfest, Inc. as of December
31, 1999, and the related statements of operations, stockholders' equity
(deficit) and cash flows for the year ended December 31, 1999 and the year ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Starfest, Inc. as of December 31,
1999, and the results of its operations and its cash flows for the year ended
December 31, 1999 and the year ended December 31, 1998, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring significant losses from
operations that raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Jaak Olesk
--------------------------
Jaak Olesk
Beverly Hills, California
February 9, 2000 (except with respect to Note 4, as to which the date is March
7, 2000)
22
<PAGE>
STARFEST, INC.
BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
ASSETS
<S> <C>
Cash $ 481
===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable $ 17,687
-----------
Total current liabilities $ 17,687
-----------
Stockholders' equity (deficit)
Common stock: no par value,
65,000,000 shares authorized;
21,697,999 shares issued and
outstanding 2,639,651
Retained earnings (deficit) (2,656,857)
-----------
Total stockholders' equity (deficit) (17,206)
-----------
$ 481
===========
</TABLE>
See accompanying notes to financial statements.
23
<PAGE>
STARFEST, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Revenues $ - $ -
------------ ------------
General and Administrative
Expenses 518,606 2,366
------------ ------------
Operating (Loss) (518,606) (2,366)
Provision for income taxes - -
------------ ------------
NET (LOSS) $ (518,606) $ (2,366)
============ ============
Net (Loss)
per common share $ (.04) $ (.01)
============ ============
Weighted Average Shares
Outstanding 15,893,441 8,301,323
============ ============
</TABLE>
See accompanying notes to financial statements.
24
<PAGE>
STARFEST, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY/(DEFICIT)
<TABLE>
<CAPTION>
Common Stock Retained
Number of Amount Earnings
Shares Total (Deficit) Total
--------- ---------- ------------- ------------
Balance,
<S> <C> <C> <C> <C>
December 31, 1997 6,236,323 $1,598,072 $(2,135,885) $ (537,813)
Net (loss) for
year ended
December 31, 1998 - - (2,366) (2,366)
---------- ---------- ----------- ----------
Balance,
December 31, 1998 6,236,323 1,598,072 (2,138,251) (540,179)
========== ========== =========== ==========
Shares issued
for services 2,313,338 87,200 - 87,200
Shares issued
for assets 2,950,000 118,000 - 118,000
Shares issued
for debt
extinguishment 6,165,005 646,379 - 646,379
Shares issued
for cash 4,033,333 190,000 - 190,000
Net (loss) for
year ended
December 31, 1999 - - (518,606) (518,606)
---------- ---------- ----------- ---------
Balance,
December 31, 1999 21,697,999 $2,639,651 $(2,656,857) $ (17,206)
========== ========== =========== =========
</TABLE>
See accompanying notes to financial statements.
25
<PAGE>
STARFEST, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
---------- ----------
Net Cash From
Operating Activities:
<S> <C> <C>
Net (loss) $(518,606) $ (2,366)
Adjustments to reconcile
net loss to net cash
used by operating activities:
Shares issued for services 87,200 -
Shares issued for assets 118,000 -
Shares issued for
debt extinguishment 646,379 -
Changes in assets
and liabilities:
Accounts payable (413,692) 2,366
Other liabilities (108,800) -
Net cash (used)
by operating activities (189,519) -
Investing Activities:
Net cash provided (used) by
Investing Activities - -
--------- ---------
Cash flows from Financing
Activities
Common stock issued for cash 190,000 -
--------- ---------
Net cash provided by
Financing Activities: 190,000 -
Increase in Cash 481 -
Cash at beginning of period - -
--------- ---------
Cash at end of period $ 481 $ -
Supplemental cash flow information:
Cash paid during the period for:
Interest $ - $ -
Income taxes $ - $ -
Non cash financing transactions:
Shares for services $ 87,200 $ -
Shares for debt extinguishment $ 646,379 $ -
Shares for assets $ 118,000 $ -
</TABLE>
See accompanying notes to financial statements.
26
<PAGE>
STARFEST, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - Summary of Significant Accounting Policies
Nature of Operations
Starfest, Inc. (the "Company"), a California corporation, was incorporated on
August 18, 1993 as Fanfest, Inc.. In August, 1995 the Company changed its name
to Starfest, Inc.. During the year ended December 31, 1998, the Company was
inactive, just having minimal administrative expenses. During the year ended
December 31, 1999 the Company attempted to pursue operations in the online adult
entertainment field. However, the Company was not successful in this pursuit.
Cash equivalents
Cash equivalents consist of funds invested in money market accounts and
in investments with a maturity of three months or less when purchased. There
were no cash equivalents at December 31, 1999.
Loss per share
The computation of loss per share of common stock is based on the
weighted average number of shares outstanding during the periods presented.
Fully diluted calculations are not presented since the Company only had losses
for all periods presented (thus antidilutive).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in financial statements and
accompanying notes. Actual results could differ from those estimates.
Issuance of Shares for Services
Valuation of shares for services is based on the estimated fair market
value of the services performed.
Income taxes
The Company records its income tax provision in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes". (See Note 3).
27
<PAGE>
STARFEST, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - Summary of Significant Accounting Policies(continued)
Fair Value of Financial Instruments
Pursuant to SFAS No. 107, Disclosures about Fair Value of Financial
Instruments, the Company is required to estimate the fair value of all financial
instruments included on its balance sheet at December 31, 1999. The Company
considers the carrying value of such amounts in the consolidated financial
statements to approximate their expected realization and interest rates, which
approximate current market rates. During the periods presented and at December
31, 1999 the Company had no financial instruments.
Comprehensive Income (Loss)
In fiscal 1999, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. This statement establishes standards for the reporting of
comprehensive income and its components in a financial statement that is
displayed with the same prominence as other financial statements. The adoption
of SFAS No. 130 required no additional disclosure for the Company and did not
have any effect on the Company's financial position, as there was no difference
between comprehensive loss and the net loss as reported.
Segment Disclosures
In Fiscal 1999, the Company adopted SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information. This Statement establishes
standards for the way companies report information regarding operating segments
in annual financial statements. The adoption of SFAS No. 131 required no
additional disclosure for the Company as the Company operated in one principal
business segment.
Reclassifications
Certain items in prior period financial statements have been
reclassified to conform with 1999 classifications.
NOTE 2 - Basis of presentation and considerations related to continued existence
(going concern)
The Company's financial statements have been presented on the basis that
it is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company
incurred a net loss of $518,606 for the year ended December 31, 1999. The
Company incurred a net loss of $2,366 for the year ended December 31, 1998.
28
<PAGE>
STARFEST, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 2 - Basis of presentation and considerations related to continued existence
(going concern) (continued)
These factors, among others, raise substantial doubt as to the Company's
ability to continue as a going concern.
The Company's management intends to raise additional operating funds
through equity and/or debt offerings. However, there can be no assurance
management will be successful in this endeavor.
NOTE 3 - Income Taxes
The Company records its income tax provision in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" which requires the use of the liability method of accounting for deferred
income taxes.
Since the Company did not have taxable income during the periods
presented, no provision for income taxes has been provided. At December 31,
1999, the Company did not have any significant tax net operating loss
carryforwards (tax benefits resulting from losses for tax purposes have been
fully reserved due to the uncertainty of a going concern). At December 31, 1999,
the Company did not have any significant deferred tax liabilities or deferred
tax assets.
NOTE 4 - Subsequent Events
On January 18, 2000 the Company issued 1,302,001 of its common shares
for January, 2000 services, to three shareholders.
On January 26, 2000 the Company entered into an agreement of merger with
Concierge, Inc., a Nevada corporation, pursuant to which, should the merger be
approved by the shareholders of both companies, the presently outstanding
1,376,380 shares of common stock of Concierge, Inc. will be converted into
shares of common stock of the Company on the basis of 70.444 shares of Starfest,
Inc. to be issued for each share of Concierge, Inc. Concierge, Inc. does not
have significant assets or revenues.
The proposed merger of Starfest, Inc. and Concierge, Inc. will result in
a reverse acquisition, i.e. the acquisition of Starfest, Inc. by Concierge, Inc.
as Concierge, Inc. will have the controlling voting rights of the combined
entity.
Pursuant to a Stock Purchase Agreement (the "Purchase Agreement") dated
March 6, 2000 between (1) MAS Capital, Inc., an Indiana corporation, the
controlling shareholder of MAS Acquisiton XX Corp. ("MAS XX"), an Indiana
corporation and (2) Starfest, Inc. approximately 96.83 percent (8,250,000
shares) of the outstanding shares of common stock of Mas Acquisition XX Corp.
were exchanged for $100,000 and 150,000 shares of common stock of Starfest, Inc.
in a transaction in which Starfest, Inc. became the parent corporation of MAS
XX. Mas Capital, Inc. and MAS Acquisition XX Corp. do not have significant
assets or revenues.
Upon execution of the Purchase Agreement and the subsequent delivery of
$100,000 cash and 150,000 shares of common stock of Starfest, Inc. on March 7,
2000, to MAS Capital, Inc. pursuant to Rule 12g-3(a) of the General Rules and
Regulations of the Securities and Exchange Commission, Starfest, Inc. became the
successor issuer to MAS Acquisition XX Corp. for reporting purposes under the
Securities and Exchange Act of 1934 and elected to report under the ACT
effective March 7, 2000.
The merger transaction with MAS Acquisition XX Corp. is considered to be
a capital transaction (i.e. the issuance of stock of MAS Acquisiton XX Corp.
accompanied by a recapitalization).
29
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On March 8, 2000 Starfest's principal independent accountant, Jaak
(Jack) Olesk, Beverly Hills, California, resigned. His reports on the Company's
financial statements from inception onward contained no adverse opinions or
disclaimers of opinions and were not modified as to uncertainty, audit scope or
accounting principles. There were no disagreements with Jaak (Jack) Olesk,
whether or not resolved, on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which, if not
resolved to Jaak (Jack) Olesk's satisfaction, would have caused him to make
reference to the subject matter of the disagreements in connection with his
reports.
The registrant has not yet engaged a new independent accountant or
principal accountant to audit its financial statements.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Set forth below are the names, and terms of office of each of the
directors, executive officers and significant employees of the company and a
description of the business experience of each.
<TABLE>
<CAPTION>
Office Held Term
Person Offices Since of Office
------ ------- ----------- ---------
<S> <C> <C> <C>
Michael Huemmer, 60 President and 1999 2000
Director
Janet Alexander, 66 Secretary and 1999 2000
Director
</TABLE>
Michael Huemmer. Mr. Huemmer has been employed by Starfest since April
1999. Prior to this employment he was the president of Ameripro Sports Marketing
Company of Palm Desert, California from 1995 until his employment with Starfest.
Janet Alexander. Ms. Alexander has served as Starfest's secretary since
July 1999. Prior to this employment she was self-employed as a hypnotherapist in
Wildomer, California from 1995 until June 1998 when she moved to Palm Springs,
California. She was not employed from June 1998 until she became the secretary
of Starfest in July 1999.
There are no family relationships between the directors and officers.
There are no significant employees of Starfest who are not described above.
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<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the registrant during its most recent fiscal year and Forms 5 and
amendments thereto furnished to the registrant with respect to its most recent
fiscal year, and a review of any written representations received by the
registrant from the following persons, no person, who was at any time a
director, officer or beneficial owner of more than ten percent of any class of
equity securities of the registrant registered pursuant to Section 12, failed to
file on a timely basis, as disclosed in the above Forms, the reports required by
Section 16(a) of the Exchange Act during the most recent fiscal year or prior
fiscal years.
ITEM 10. EXECUTIVE COMPENSATION
The following information concerns the compensation of Starfest's chief
executive officer for the last three completed fiscal years. No other executive
officers or individuals received total annual salary and bonus that exceeded
$100,000 during the last three completed fiscal years.
<TABLE>
<CAPTION>
Shares of
Name of Chief Executive Officer Year Cash Salary Common Stock Awarded
------------------------------- ---- ----------- --------------------
<S> <C> <C> <C>
Michael Huemmer 1999 $18,000 300,000(1)
1998 0 0
1997 0 0
Thomas J. Kenan 1999 0 0
1998 0 0
1997 0 0
Herb Gronauer 1999 0 0
1998 0 200,000(2)
1997 0 0
</TABLE>
------------------------
(1) The value of the 300,000 shares of stock awarded to Mr. Huemmer was
$13,500 when the award was made, based upon the $0.045 bid price of the
stock on the OTC Bulletin Board the day the shares were awarded.
(2) The value of the 200,000 shares of stock awarded to Mr. Gronauer was
$10,000 when the award was made, based upon the $0.05 bid price of the
stock on the OTC Bulletin Board the day the shares were awarded.
31
<PAGE>
In November 1999 Ms. Janet Alexander, secretary of Starfest, was granted
100,000 shares of common stock of Starfest as compensation for her services as
secretary and a director. In March 2000, Pamela Miller was awarded 150,000
shares of common stock of Starfest as compensation for her services as secretary
and a director of Starfest during part of 1999.
Other than as stated above, no cash or stock compensation, deferred
compensation or long-term incentive plan awards were issued or granted to
Starfest's management during or with respect to the period ended December 31,
1999. Further, no member of Starfest's management has been granted any option or
stock appreciation rights; accordingly, no tables relating to such items have
been included within this Item.
There are no employment contracts, compensatory plans or arrangements,
including payments to be received from Starfest, with respect to any director or
executive officer of Starfest which would in any way result in payments to any
such person because of his or her resignation, retirement or other termination
of employment with Starfest or its subsidiaries, any change in control of
Starfest, or a change in the person's responsibilities following a change in
control of Starfest.
Long-Term Compensation
Starfest has no long-term compensation plans or employment agreements
with any of its officers or directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the common stock of Starfest as of March 7, 2000 by each individual
who is known to Starfest, as of the date of this filing, to be the beneficial
owner of more than five percent of Starfest's common stock, its only voting
security.
<TABLE>
<CAPTION>
Name and Address Amount and
Of Beneficial Nature of Percent of
Owner Beneficial Ownership(1) Class
---------------- ----------------------- ----------
<S> <C> <C>
Thomas J. Kenan 1,360,000 shares(2) 5.9%
212 N.W. 18th St.
Oklahoma City, OK 73103
Gary Bryant 1,310,000 shares(3) 5.7%
46471 Manitou
Indian Wells, CA 92210
</TABLE>
-------------------------
32
<PAGE>
(1) Unless otherwise indicated, Starfest believes that all persons named in
the above table have the sole voting and investment power with respect
to all shares of common stock beneficially owned by them.
(2) 760,000 of these shares are held of record by the Marilyn C. Kenan
Trust, of which trust Marilyn C. Kenan, the spouse of Thomas J. Kenan,
is the trustee and beneficiary. Mr. Kenan disclaims any beneficial
ownership of any of the shares held in the trust.
(3) 570,000 of these shares are held of record by Suzanne Bryant, Mr.
Bryant's spouse, and 370,000 are held of record by Newport Capital
Corporation, a corporation under the control of Mr. Bryant. Mr. Bryant
disavows any beneficial ownership of any of the shares held by Mrs.
Bryant.
The table below sets forth the ownership, as of the date of this filing,
by all directors and nominees, and each of the named executed officers of
Starfest, and directors and executive officers of Starfest as a group, of the
common stock of Starfest, its only voting security.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent of
of Owner Beneficial Ownership Class
----------------- -------------------- ----------
<S> <C> <C>
Michael Huemmer 760,000 shares 3.3%
#1136
9494 East Redfield Road
Scottsdale, AZ 85260
Janet Alexander 100,000 shares 0.4%
Suite C
120 East Andreas Road
Palm Springs, CA 92262
Officers and Directors
as a Group (2 persons) 860,000 shares 3.7%
</TABLE>
There are no agreements between or among any of the shareholders that
would restrict the issuance of shares in a manner that would cause any change in
control of Starfest. There are no voting trusts, pooling arrangements or similar
agreements in the place between or among any of the shareholders, nor do the
shareholders anticipate the implementation of such an agreement in the near
future.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no transactions during the past two years, or proposed
transactions, to which Starfest was or is to be a party, in which any director,
33
<PAGE>
executive officer, nominee for election as a director, any security holder named
in Item 10 above and any immediate family member of any of the foregoing persons
had or is to have a direct or indirect material interest.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this Form 10-KSB:
Exhibit No. Description
----------- -----------
2 - Stock Purchase Agreement of March 6, 2000 between
Starfest, Inc. and MAS Capital, Inc.*
3.1 - Certificate of Amendment of Articles of Incorporation
of Starfest, Inc. and its earlier articles of
incorporation.*
3.2 - Bylaws of Starfest, Inc.*
10.1 - Agreement of Merger between Starfest, Inc. and
Concierge, Inc.*
23 - Consent of Jaak (Jack) Olesk, certified public
accountant (superseded by Exhibit 23.1 filed herein).
23.1 - Consent of Jaak (Jack) Olesk, certified public
accountant (superseded by Exhibit 23.2 filed herein).
23.2 - Consent of Jaak (Jack) Olesk, certified public
accountant.
27 - Financial Data Schedule**
*Previously filed with Form 8-K12G3 on March 10, 2000; Commission File
No. 000-29913, incorporated herein.
**Previously filed with Form 10-KSB on April 14, 2000; Commission File
No. 000-29913, incorporated herein.
(b) Reports on Form 8-K
No Forms 8-K were filed by Starfest during the last quarter of the
period covered by this report.
34
<PAGE>
SIGNATURES
In accordance with Section 15(d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
STARFEST, INC.
Date:November 29, 2000 By/s/ Michael Huemmer
------------------------------------------
Michael Huemmer, President
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Date:November 29, 2000 /s/Michael Huemmer
--------------------------------------------
Michael Huemmer, President, Chief Financial
Officer, and Director
Date:November 29, 2000 /s/Janet Alexander
--------------------------------------------
Janet Alexander, Secretary and Director
39
