SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
COMMISSION FILE NUMBER: 0-26029
ASIAN STAR DEVELOPMENT, INC.
----------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 88-0866395
----------------------- ------------------------------------
(STATE OF ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
ROOM 930, BLOCK B, EAST WING
NEW WORLD OFFICE BUILDING
TSIMSHATSUI, KOWLOON, HONG KONG
----------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(852) 2721-0936
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
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 AND (2) HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X
THERE ARE 15,711,015 SHARES OF COMMON STOCK OUTSTANDING AS OF JUNE 30, 2000.
<PAGE>
TABLE OF CONTENTS
-------------------
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
ITEM 2 MANAGEMENT'S DISCUSSION OF OPERATIONS AND FINANCIAL
CONDITION
PART II OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORMS 8-K
ITEM 7 SIGNATURES
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE UNAUDITED FINANCIAL STATEMENTS FOR THE QUARTER ENDED JUNE 30, 2000, PREPARED
BY MANAGEMENT, AND EXPRESSED IN U.S. DOLLARS, ARE AS FOLLOWS:
ASIAN STAR DEVELOPMENT, INC.
UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 2000
<PAGE>
ASIAN STAR DEVELOPMENT, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE NUMBER
-----------
PART 1 FINANCIAL INFORMATION
ITEM 1 CONSOLIDATED CONDENSED FINANCIAL STATEMENTS F-1 to F-9
CONSOLIDATED CONDENSED BALANCE SHEETS AS OF
DECEMBER 31, 1999 AND JUNE 30, 2000 F-1
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999
AND 2000 F-2
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000 F-3
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS F-4 to F-9
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
<PAGE>
<TABLE>
<CAPTION>
ASIAN STAR DEVELOPMENT, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Expressed in US Dollars)
DECEMBER 31, JUNE 30,
1999 2000
------------- -------------
(AUDITED) (UNAUDITED)
ASSETS NOTES
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents 5,628 26,508
Prepayments 133,059 284,418
Inventories 3,905 6,649
Other assets 43,690 737,796
------------- -------------
Total current assets 186,282 1,055,371
Goodwill 2 - 84,809
Investment 3 - 9,953,501
Land usage rights 4 469,814 469,814
Land improvement 4,274,312 4,297,445
Construction in progress 1,656,970 1,358,145
Property and equipment, net 1,363,294 2,624,237
------------- -------------
Total assets 7,950,672 19,843,322
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Due to a shareholder 714,204 1,611,450
Accounts payable 542,821 1,360,840
Other payables 159,150 411,597
Accrued expenses 180,890 186,650
------------- -------------
Total current liabilities 1,597,065 3,570,537
COMMITMENTS AND CONTINGENCIES 5
SHAREHOLDERS' EQUITY Common stock, $0.001 par value:
25,000,000 shares authorized, 15,711,015 shares
issued and outstanding as of June 30, 2000 and
12,955,530 shares issued and outstanding as of
December 31, 1999
Common stock 12,956 15,711
Additional paid-in capital 6 8,510,311 18,465,718
Accumulated deficit (2,169,660) (2,208,644)
------------- -------------
Total shareholders' equity 6,353,607 16,272,785
------------- -------------
Total liabilities and shareholders' equity 7,950,672 19,843,322
============= =============
</TABLE>
F-1
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<TABLE>
<CAPTION>
ASIAN STAR DEVELOPMENT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Expressed in US Dollars)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 2000 1999 2000
------------- ------------ ------------- -------------
NOTE (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue, net - 254,811 19,283 625,258
Cost of sales - (296,554) (17,638) (675,688)
------------- ------------ ------------- -------------
Gross profit / (loss) - (41,743) 1,645 (50,430)
Selling, general and
administrative expenses (130,402) (195,667) (259,477) (407,916)
Other income/(loss), net 8 21,010 (43,701) 51,912 419,362
------------- ------------ ------------- -------------
Loss before income tax (109,392) (281,111) (205,920) (38,984)
Income tax provision - - - -
------------- ------------ ------------- -------------
Net loss (109,392) (281,111) (205,920) (38,984)
Net loss attributed to common
shareholders (109,392) (281,111) (205,920) (38,984)
============= ============ ============= =============
Net loss per common share -
basic and diluted (0.008) (0.018) (0.016) (0.003)
============= ============ ============= =============
Weighted average number of common
shares outstanding 12,955,530 15,308,769 12,955,530 14,267,453
============= ============ ============= =============
</TABLE>
F-2
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<TABLE>
<CAPTION>
ASIAN STAR DEVELOPMENT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Expressed in US Dollars)
SIX MONTHS ENDED
JUNE 30,
1999 2000
---------------- ----------------
NOTE (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (205,920) (38,984)
Adjustments to reconcile net loss to
net cash provided by/(used in) operating activities
Depreciation and amortisation 25,154 116,069
Changes in operating assets and liabilities:
Prepayments 167,598 (151,359)
Inventories 8,576 (2,744)
Other assets (47,296) (694,106)
Accounts payable 7,871 818,019
Other payables 140,505 252,447
Accrued expenses (93,180) 5,760
Gain on disposal of subsidiaries 8 - (417,138)
---------------- ----------------
NET CASH PROVIDED BY/(USED IN)/ OPERATING ACTIVITIES 3,308 (112,036)
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for investment - (665,501)
Payments for overheads (186,502) (20,208)
Purchases of construction materials and fixed assets (151,903) (1,332,141)
Proceeds from disposal of subsidiaries - 1,028,520
---------------- ----------------
NET CASH USED IN INVESTING ACTIVITIES (338,405) (989,330)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from common stock subscription 91,980 225,000
Advance from a shareholder 181,798 897,246
---------------- ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 273,778 1,122,246
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (61,319) 20,880
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 71,690 5,628
---------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 10,371 26,508
================ ================
SUPPLEMENTAL DISCLOSURE OF SIGNIFICANT NON CASH TRANSACTION
Issuance of 2,313,625 common stocks for acquiring equity
interest in an investment (Note 3) - 9,288,000
================ ================
</TABLE>
F-3
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ASIAN STAR DEVELOPMENT, INC.
Notes to Consolidated Condensed Financial Statements
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements as of December 31, 1999 and
June 30, 2000 and for the three and six months ended June 30, 1999 and 2000, of
Asian Star Development, Inc and its subsidiaries have been prepared in
accordance with generally accepted accounting principles and with instructions
to Form 10-Q and Regulation S-X. The balance sheet as of December 31, 1999 was
derived from audited financial statements included in the Company's Form 10-K
for the year ended December 31, 1999 (the "Form 10-K"). The financial statements
at June 30, 2000 and for the three and six months ended June 30, 1999 and 2000
have not been audited by independent accountants. Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to requirements of the Securities and Exchange Commission.
However, the Company believes that the disclosures included in the accompanying
interim financial statements and footnotes are adequate to make the information
presented not misleading. These interim financial statements should be read in
conjunction with the financial statements and the notes thereto included in the
Company's Form 10-K.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates that affect the
reported amounts of assets, liabilities, revenues and expenses and the
disclosure of contingent assets and liabilities. Actual results could differ
from these estimates.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position as of
June 30, 2000, results of operations and cash flows for the three and six months
ended June 30, 1999 and 2000, have been made. However, these results are not
necessarily indicative of the operating results for any other interim period or
for the full year.
NOTE 2 - GOODWILL
Goodwill represents the excess of cost of acquisitions of 100% equity interest
of two Hong Kong Companies over the fair value of the net assets of the acquired
companies at the date of acquisition
F-4
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ASIAN STAR DEVELOPMENT, INC.
Notes to Consolidated Condensed Financial Statements
in January 2000. The newly acquired companies are operating a cafeteria of which
an officer of the Registrant had an equity interest. The carrying amount of
goodwill is amortized over a period of 10 years. Details of the acquisition are
as follows:
USD
Sales consideration * 445,162
Less: Fair value of net assets acquired (358,179)
-----------------
Goodwill 86,983
Less: amortization during the period (2,174)
-----------------
$ 84,809
=================
* The Registrant issued 261,860 Restricted shares of the Company valued at
US$1.7 per share for the sales consideration
NOTE 3 - INVESTMENT IN HARMONIC HALL INVESTMENT
On March 28, 2000, the Company entered into agreements with Harmonic Hall
Investment Holdings Ltd, ("HHI"), whereby the Company acquired approximately 52%
of the outstanding common stock of HHI for 2,313,625 shares of the Company's
Restricted Common Stock at par value US$.001 and cash of US$665,501. The
consummation date of the transaction was in April 2000.
As of June 30, 2000, the Company paid cash of US$665,501 and issued 2,313,625
shares of the Registrant's Common Stock at a fair value of US$9,288,000 which
have been accounted for as an investment in the accounts at cost. The fair value
of Restricted Common Stock was determined based on the average trading share
prices quoted on the stock exchange. The exchange of the shares of the Common
Stock between HHI and the Company was completed on 15 April 2000.
In addition to the above, the Company has advanced a sum of approximately
US$323,000 to HHI for its working capital. The advance has no specific terms of
repayment.
Following the purchase, management of the Company has not been able to exercise
significant influence over the operation of HHI or able to obtain financial
statements of HHI as of 30 June 2000. In August 2000, the Company retained legal
counsel in Hong Kong and is preparing to file a writ in Court against HHI for
breach of the agreements. Accordingly, the financial statements of HHI have not
been consolidated into the group accounts.
F-5
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ASIAN STAR DEVELOPMENT, INC.
Notes to Consolidated Condensed Financial Statements
NOTE 4 - LAND USAGE RIGHTS
Land usage right is stated at cost and amortized over the unexpired land usage
term ranging from 50 to 70 years.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Based on the joint venture contracts and agreements, the Company entered into
two projects in China as of June 30, 2000. Details of the current status of the
projects are as follows:
<TABLE>
<CAPTION>
Total Investment
Per Project Costs Years Remaining to
Per Agreement Incurred Complete the Project Per
Project or Contract to Date Agreement or Contract
---------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
Maple City 38,000,000 2,016,621 No time limit
Shilong Town Hall 23,571,000 2,649,625 Subsequent to June 30, 2000,
the Company disposed of its
------------ ------------ interest as detailed in Note 8
$ 61,571,000 $ 4,666,246
============ ============
</TABLE>
FINANCING RESOURCE DEPENDENCY
The operating activities of the above two projects were substantially financed
by one of the Company's directors through either capital infusion or loans, in
addition to the fund raising exercised in 1997.
F-6
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ASIAN STAR DEVELOPMENT, INC.
Notes to Consolidated Condensed Financial Statements
NOTE 5 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Considering the condition that only limited funding is presently available,
management believes that the completion of these two projects on a timely basis
will depend significantly on additional funding available to the Company through
debt and/or equity financing in the near future.
NOTE 6 - COMMON STOCK , ADDITIONAL PAID-IN CAPITAL
During the three months ended June 30, 2000, the Company issued 130,000
additional shares of Common Stock to non-employees at a share price of US$1.25
per share pursuant to stock option plan exercised. In addition, 2,313,625 shares
of Common Stock were issued to acquire the equity interest of HHI as detailed in
Note 3. Details of shares of Common Stock movements are as follows:
<TABLE>
<CAPTION>
Additional
Common Stock Paid in
No. of shares Amount Capital
US$ US$
<S> <C> <C> <C> <C>
As at December 31, 1999 12,955,530 12,956 8,510,311
Common Stock issued for option exercised 50,000 50 62,450
Purchase of a cafeteria 261,860 262 444,900
-------------- -------------- ---------------
As at March 31, 2000 13,267,390 13,268 9,017,661
Common Stock issued for option exercised 130,000 130 162,370
Acquisition of HHI 2,313,625 2,313 9,285,687
-------------- -------------- ---------------
As at June 30, 2000 15,711,015 15,711 18,465,718
============== ============== ===============
</TABLE>
NOTE 7 - OVERHEADS
Overheads represent all accumulated indirect costs that are related to projects
such as project supervisors' salaries, certain travel and administrative
expenses, and legal fees, etc. The accumulated overheads are allocated to
respective projects based on the actual time spent on each project.
F-7
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ASIAN STAR DEVELOPMENT, INC.
Notes to Consolidated Condensed Financial Statements
NOTE 8 - OTHER INCOME
Other income comprises mainly a gain on disposal of the Company's 80% equity
interest in the Dongguan Dragon Villa Limited and Dongguan Dragon Entertainment
Center Limited to the Shilong Town House and Properties Corporation. Details of
the disposal are as follows:
USD
Sales consideration 1,028,520
Less: Value of net assets disposed (611,382)
-----------------
Gain on disposal 417,138
=================
NOTE 9 - OTHER PROJECTS
A) SUPERPORT PROJECT
On January 25, 2000, the Company entered into an agreement to acquire an
existing to LPG cylinder manufacturing plant and an associated LPG bottling
plant in the State of Kelantan, Malaysia. The Project also includes an exclusive
right to install a deep-water port for tankers. The total project cost is
estimated to be $2.3 billion. The agreement is currently under review of the
Foreign Investment Consulate of Malaysian Government for approval.
B) "6-12" CONVENIENCE STORE CHAIN
According to a letter of intent entered into in September 1998, the Company
planned to acquire 100% of total issued and outstanding shares of two PRC
corporations through a 75% owned newly-established Hong Kong subsidiary. This
plan has been subsequently changed as only one PRC corporation will be acquired.
No cost has been incurred on this project as of June 30, 2000.
NOTE 10 - SUBSEQUENT EVENTS
One of the Company's subsidiary, Honpar (Shilong) Properties Limited, is
involved in a legal proceeding with a PRC construction company over the Shilong
Town Hall project. In July 2000,
F-8
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ASIAN STAR DEVELOPMENT, INC.
Notes to Consolidated Condensed Financial Statements
management of the Company has reached an agreement with the PRC construction
company to withdraw the legal proceeding. On July 3, 2000, the Company disposed
of its 100% equity interest in the Honpar (Shilong) Properties Limited at a
consideration of RMB12.5 million (approximately US$1.5 million). The total
construction costs incurred by the subsidiary amounted to approximately US$2.6
million which results in an estimated loss on disposal of US$1.1 million.
F-9
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ASIAN STAR DEVELOPMENT, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATION
LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT; NEED FOR ADDITIONAL CAPITAL
There is limited historical financial information about the Registrant upon
which to base an evaluation of the Registrant's performance or to make a
decision regarding an investment in shares of Registrant's Common Stock.
Registrant has an accumulated deficit of $2,208,644 as of June 30, 2000.
Registrant's cash and cash equivalents increased from $10,371 at June 30, 1999
to $26,508 at June 30, 2000.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
Revenue from the operation of Ocean Wealth Restaurant and Shilong Water World
increased from zero for the three months ended June 30, 1999 to $254,811 for the
three months ended June 30, 2000. Selling, general and administrative expenses
comprised mainly salary, depreciation expenses and commission increased from
$130,402 for the three months ended June 30, 1999 to $195,667 for the 3 months
ended June 30, 2000.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Revenue from the operation of the Ocean Wealth Restaurant and Shilong Water
World for the six months ended June 30, 2000 and 1999 amounted to $613,158 and
$12,100 respectively. Included in the selling, general and administrative
expenses are mainly salary, commission and depreciation expenses. Other income
includes the gain on disposal of its 80% equity interest in Dongguan Dragon
Villa Limited and Dongguan Dragon Entertainment Centre Limited of $417,138.
LIQUIDITY AND CAPITAL RESOURCES
For the quarter ended June 30, 2000, Registrant had generated positive cash
flows of $20,880 for six months mainly due to issuance of its securities in
connection with the options exercised and advances from a shareholder. Due to
the infant stage of its operations, substantial ongoing investment in properties
and development efforts, and expenditures incurred to build the appropriate
infrastructure to support expected future growth, the Registrant has been
substantially dependent on shareholder loan financing to fund its cash
requirements.
Proceeds from Common stock issued during the three months ended June 30, 2000
amounted to $162,500.
Payments for overheads, representing accumulated indirect costs which are
related to projects, decreased from $186,502 for the six months ended June 30,
1999 to $20,208 for the six months ended June 30, 2000. Payments for
construction materials and fixed assets in relation to Water Park increased from
$151,903 for the six months ended June 30, 1999 to $1,332,141 for the six months
ended June 30, 2000.
As of June 30, 2000, Registrant's total assets and total liabilities were
$19,843,322 and $3,570,537.
<PAGE>
ASIAN STAR DEVELOPMENT, INC.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Its investment portfolio comprised the following as of June 30, 2000:
PROJECT / SUBSIDIARY BUSINESS NATURE
------------------------------------- --------------------
Maple City Property Development
Shilong Town Hall (sold in July 2000) Property Development
Ocean Wealth Restaurant Cafeteria Business
Shilong Water World Water Park
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS
A) All required exhibits, including the Company's Articles of Incorporation, and
Bylaws, are attached to the Company's Form 10-KSB, for the year ended December
31, 1999, filed on March 20, 2000.
All previously filed exhibits are incorporated herein by reference.
B) Reports on Form 8-K: No reports were on filed on form 8k during the quarter
ended June 30, 2000.
ITEM 7. SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated this 11th day of June, 2000.
Asian Star Development, Inc.
BY:/s/STEPHEN CHOW
------------------------
STEPHEN CHOW, PRESIDENT
