SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
X Quarterly Report pursuant to Section 13 or 15(d) of the Securities
----- Exchange Act of 1934
For the quarterly period ended May 31, 2000.
_____ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______________________ to ____________________
Commission File No. 000-27225
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CYBERSTAR COMPUTER CORPORATION
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(Exact name of small business issuer as specified in its charter)
Minnesota 41-1427445
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(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
6825 Shady Oak Road, Eden Prairie, Minnesota 55344
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(Address of principal executive offices) (ZIP Code)
Issuer's telephone number, including area code: (952) 943-1598
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No Change
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the issuer was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
The number of shares of the issuer's Common Stock outstanding at May 31,
2000 was 4,333,095 shares.
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CYBERSTAR COMPUTER CORPORATION
TABLE OF CONTENTS
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Page No.
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Part I. Financial Information
Item 1. Financial Statements
Balance Sheets as of February 29, 2000 and May 31, 2000 (unaudited) 3
Statements of Operations for the Three Months Ended May 31, 1999 and 2000 (unaudited) 4
Statements of Cash Flows for the Three Months Ended May 31, 1999 and 2000 (unaudited) 5
Notes to the Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis 8
Part II. Other Information
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
Signature 11
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2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CYBERSTAR COMPUTER CORPORATION
BALANCE SHEETS
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MAY 31, 2000 FEBRUARY 29, 2000
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(Unaudited)
ASSETS
Current assets:
Cash $ 327,864 $ 496,486
Accounts receivable, less allowance
for doubtful accounts - $80,500
at February 29, 2000 and
$60,226 at May 31, 2000 1,603,324 574,506
Inventories 290,608 295,511
Prepaid expenses 262,601 30,216
------------------- -----------------
Total current assets 2,484,397 1,396,719
Property and equipment:
Office equipment and furniture 337,438 260,949
Leasehold improvements 37,270 37,270
Production equipment 47,010 46,915
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421,718 345,134
Accumulated depreciation (241,777) (222,656)
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179,941 122,478
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Total assets $ 2,664,338 $ 1,519,197
=================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank, line of credit $ 300,000 $ -
Notes payable other 976,550 -
Accounts payable 283,138 239,329
Accrued payroll and payroll taxes 39,168 39,874
Accrued liabilities 13,313 38,176
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Total current liabilities 1,612,169 317,379
Shareholders' equity:
Common stock, $.01 par value
Authorized shares - 20,000,000
Issued and outstanding shares - 4,333,095
at February 29, 2000 and May 31, 2000 43,331 43,331
Additional paid-in capital 3,069,049 3,069,049
Deferred compensation (203,191) (237,370)
Accumulated deficit (1,857,020) (1,673,192)
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Total shareholders' equity 1,052,169 1,201,818
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Total liabilities and shareholders' equity $ 2,664,338 $ 1,519,197
=================== =================
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SEE ACCOMPANYING NOTES
3
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CYBERSTAR COMPUTER CORPORATION
STATEMENTS OF OPERATIONS (UNAUDITED)
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THREE MONTHS ENDED
MAY 31
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2000 1999
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Sales $ 3,257,421 $ 1,151,470
Cost of sales 3,074,055 955,564
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Gross profit 183,366 195,906
Operating Expenses:
General and administrative 354,804 245,490
Sales and marketing 7,811 19,356
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Total 362,615 264,846
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Loss from operations (179,249) (68,940)
Other income (expense):
Interest income 2,857 1,285
Interest expense (5,712) (2,192)
Other income (expense) (1,724) (626)
----------------------------- ------------------------------
(4,579) (1,533)
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Net loss $ (183,828) $ (70,473)
============================= ==============================
Net loss per common share--basic and diluted $ (0.04) $ (0.02)
============================= =============================
Weighed average common shares outstanding--basic and 4,333,095 3,928,095
diluted ============================= =============================
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SEE ACCOMPANYING NOTES
4
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CYBERSTAR COMPUTER CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
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THREE MONTHS ENDED
MAY 31
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2000 1999
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CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss $ (183,828) $ (70,473)
Adjustments to reconcile net cash provided
by (used in) operating activities:
Depreciation 19,121 19,121
Amortization of deferred compensation 34,179 --
Changes in operating assets and liabilities:
Accounts receivable (1,028,818) 209,201
Inventories 4,903 96,181
Prepaid expenses (232,385) (207)
Accounts payable 43,809 (78,438)
Accrued expenses (25,569) (84,289)
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Net cash provided by (used in) operating activities (1,368,588) 91,096
CASH FLOWS USED IN INVESTING ACTIVITIES
Proceeds from sale of property and equipment -- 8,428
Purchases of property and equipment
(76,584) --
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Net cash provided by (used in) investing activities (76,584) 8,428
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from (payments on) line of credit 300,000 (150,000)
Net proceeds from notes payable 976,550 --
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Net cash provided by (used in) financing activities 1,276,550 (150,000)
Decrease in cash (168,622) (50,476)
Cash at beginning of period 496,486 73,191
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Cash at end of period $ 327,864 $ 22,715
============================ =========================
Supplemental information:
Cash paid during the period for interest $ 5,712 $ 2,192
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SEE ACCOMPANYING NOTES
5
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CYBERSTAR COMPUTER CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Note 1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of CyberStar Computer
Corporation (the "Company") as of May 31, 2000 and for the three months ended
May 31, 2000 and 1999 have been prepared by the Company, without audit, pursuant
to rules and regulations of the Securities and Exchange Commission ("SEC").
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. In the
opinion of management, the financial statements included in this Form 10-QSB
include all adjustments, consisting only of normal and recurring adjustments,
considered necessary for a fair presentation of the financial position and the
results of operations and cash flows for the periods presented. Operating
results for the three months ended May 31, 2000 are not necessarily indicative
of the results that may be expected for the year ending February 28, 2001. These
condensed financial statements and footnote disclosures should be read in
conjunction with the financial statements and footnotes thereto for the year
ended February 29, 2000, included in the Company's Form 10-KSB filed with the
SEC on May 30, 2000. The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that effect amounts reported in the financial
statements and accompanying notes to the financial statements. Actual results
could differ from those estimates.
Note 2. NOTE PAYABLE TO BANK, LINE OF CREDIT
The Company has a revolving line of credit of $300,000 with a bank. This line of
credit is secured by all of the Company's assets and the personal guaranty of
the majority shareholder. Borrowings under the line accrue interest at a rate of
1.0% over the prime rate (9.5% at May 31, 2000) and amounted to $300,000 at May
31, 2000.
During fiscal 2000, the Company had a revolving line of credit of $150,000 with
a bank. Borrowings under the line accrued interest at a rate of 1.5% over prime.
The line of credit expired April 25, 1999 and was not renewed.
Note 3. NOTES PAYABLE OTHER
During April and May 2000, CyberStar borrowed $900,000 from a private investor.
The notes are due April and May 2001 and bear interest on the unpaid balance at
a fluctuating annual rate equal to 4.0% above the rate of interest established
by Wells Fargo Bank NA, f/k/a Norwest Bank Minnesota N.A., as its base rate.
In May 1999 the Company entered into an agreement whereby it could sell
receivables or borrow money in amounts up to 80% of the eligible accounts
receivable balance. The Company paid a 1% commission on all receivables sold and
was charged interest at a rate of 8% or prime plus 1.5%, whichever is greater,
for borrowings against receivables. This agreement was for one year and expired
in May 2000. Borrowings against receivables still outstanding at May 31, 2000
amounted to $76,550.
6
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Note 4. SEGMENT AND GEOGRAPHIC DATA
The Company has one reportable segment, computer systems and products. This
segment, which is comprised of the CyberStar, VAR and International Trade Center
("ITC") divisions, distributes branded and proprietary computer systems and
peripheral equipment. CyberStar distributes its product throughout the United
States. The VAR division sells its products through resellers. The ITC division
was started in April 2000 and distributes domestically and internationally
tier-one computer hardware, software and peripherals to large computer
resellers.
The following table presents sales information by division:
THREE MONTHS ENDED
NET SALES MAY 31
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------------------------------------------
2000 1999
---- ----
CyberStar(R)division $ 479,602 $ 759,970
VAR division 264,694 391,500
ITC division 2,513,125 --
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$ 3,257,421 $ 1,151,470
================== ==================
Note 5. NET LOSS PER COMMON SHARE
Basic net income/loss per share is computed based on the weighted average number
of common shares outstanding during each period. Diluted net loss per share
includes the incremental shares assumed issued on the exercise of stock options.
Basic and diluted net loss per share are equal because the effect of the
outstanding stock options and warrants is antidilutive.
Note 6. SUBSEQUENT EVENTS
On April 1, 2000 CyberStar entered into a Stock Exchange Agreement (the
"Agreement") with the shareholders of International Trade Center, Inc. ("ITC"),
a global distributor of computer and computer related accessories, to acquire
all of the issued and outstanding stock of ITC. All of the conditions required
to close the transaction were completed June 21, 2000 and on that date CyberStar
acquired all of the issued and outstanding stock of ITC.
Under the terms of the Agreement, at closing, CyberStar issued shares of
CyberStar common stock in exchange for the stock of ITC. The shareholders of ITC
received an aggregate 9,576 shares of CyberStar common stock. The four former
shareholders of ITC, now employees of CyberStar, were also each granted options
to purchase 25,000 shares of CyberStar common stock at $1.75 per share. The
options become exercisable five years after their issuance and may become
exercisable three years after their issuance, if certain performance criteria
are met. Compensation expense of $550,000 will be amortized over the vesting
period as a result of granting these options.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, statement of
operations data as a percentage of net sales:
THREE MONTHS ENDED
MAY 31
---------------------------------------------
2000 1999
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Sales 100.0% 100.0%
Cost of sales 94.4 83.0
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Gross profit 5.6 17.0
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Operating expenses
General and administrative 10.9 21.3
Sales and marketing 0.2 1.7
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11.1 23.0
Loss from operations (5.5) (6.0)
Other (expense) (0.1) (0.1)
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Net loss (5.6)% (6.1)%
COMPARISON OF THE THREE MONTHS ENDED MAY 31, 1999 AND 2000
NET SALES. Net sales increased $2,105,951, or 182.9%, to $3,257,421 in the three
months ended May 31, 2000 compared to $1,151,470 for the three months ended May
31, 1999. CyberStar (R) division sales decreased $280,368 to $479,602 in the
first quarter of fiscal 2001 from $759,970 in the first quarter of fiscal 2000.
VAR division sales decreased $126,806 to $264,694 in the first quarter of fiscal
2001 from $391,500 in the first quarter of fiscal 2000. The ITC division had
sales of $2,513,125 in the first quarter of fiscal 2001, the first quarter of
its operations.
GROSS PROFIT. Gross profit for the first quarter of fiscal 2001 was $183,366, or
5.6% of net sales, compared to $195,906, or 17.0% of net sales, in the prior
year. This decrease in gross profit is due primarily to lower gross profit
margins on sales in the ITC division. Gross profit margins were lower because of
a high number of large orders received.
OPERATING EXPENSES. General and administrative expenses were $354,804, or 10.9%
of net sales, in the first quarter of fiscal 2001 compared to $245,490, or 21.3%
of net sales, in the first quarter of fiscal 2000. The increase of $109,314 is
due primarily to an increase in staff resulting in an increase in salary and
other employee related expenses of $41,438, amortization of deferred
compensation expense of $34,179, an increase in professional fees of $23,444,
and an increase in bad debts of $18,075, offset by a decrease in occupancy
expense of $15,125. Sales and marketing expenses decreased by $11,545 due
primarily to a reduction in sales staff resulting in lower commissions paid on
sales. Commissions of $38,692 were paid to an outside sales and marketing
organization on gross sales of $2,551,817 in the ITC division. The commissions
were netted against gross sales and reduced gross sales by $38,692.
8
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The loss from operations increased by $110,309 to $(179,249) in fiscal 2001 from
$(68,940) in fiscal 2000, reflecting the decrease in gross profit of $12,540 and
the increase in operating expenses of $97,769.
Interest expense increased by 198%, or $3,046, to $4,579 in fiscal 2001 from
$1,533 in fiscal 2000 primarily as a result of increased average borrowings in
fiscal 2001.
As a result of the foregoing factors, net loss increased by $113,355 to
$(183,828) in fiscal 2001 from $(70,473) in fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position at May 31, 2000 was $327,864, a decrease of $168,622
from $496,486 at February 29, 2000. During the three months ended May 31, 2000,
net cash used in operating activities was $1,368,588 due primarily to an
increase in accounts receivable of $1,028,818 as a result of increased sales and
an increase in prepaid expenses of $232,385. During the three months ended May
31, 1999, net cash provided by operating activities was $91,096 primarily due to
the reduction of operating expenses resulting from the decrease in staff as a
result of delays in development of the e-commerce site and decreased sales.
Net cash used in investing activities in the three months ended May 31, 2000 was
$76,584 due to the purchases of equipment, computers and software development
compared to net cash provided by investing activities in the three months ended
May 31, 1999 of $8,428 due to the sale of equipment.
Net cash provided by financing activities of $1,276,550 in the three months
ended May 31, 2000 consisted of $300,000 borrowed under a revolving line of
credit, $900,000 borrowed from a private investor and borrowings on receivables
of $76,500. Net cash of $150,000 used for financing activities for the three
months ended May 31, 1999 consisted of payments on outstanding borrowings under
a revolving line of credit.
The Company has a revolving line of credit of $300,000 with a bank. This line of
credit is secured by all of the Company's assets and the personal guaranty of
the majority shareholder. Borrowings under the line accrue interest at a rate of
1.0% over prime rate (9.5% at May 31, 2000) and amounted to $300,000 at May 31,
2000.
During April and May 2000, CyberStar borrowed $900,000 from a private investor.
The notes are due April and May 2001 and bear interest on the unpaid balance at
a fluctuating annual rate equal to 4.0% above the rate of interest established
by Wells Fargo Bank N.A., f/k/a Norwest Bank Minnesota NA, as its base rate.
In May 1999 the Company entered into an agreement whereby it can sell
receivables or borrow money in amounts up to 80% of the eligible accounts
receivable balance. The Company pays a 1% commission on all receivables sold or
is charged interest at a rate of 8% or prime plus 1.5%, whichever is greater,
for borrowings against receivables. This agreement was for one year and expired
in May 2000. Borrowings against receivables still outstanding at May 31, 2000
amounted to $76,550, which was paid in June 2000.
9
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Forward-Looking Statements
--------------------------
Forward-looking statements herein are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. There are
certain important factors that could cause results to differ materially from
those anticipated by some of the statements made herein. Investors are cautioned
that all forward-looking statements involve risks and uncertainty. Among the
factors that could cause actual results to differ materially are the following:
market acceptance of new products, changes in competitive environment, general
conditions in the industries served by the Company's products, continued
availability of financing and related costs, and overall economic conditions
including inflation.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We have asserted a claim against Euler Solutions, Inc. a Minnesota corporation
("Euler"). Euler was developing software for the Company, which was to have been
completed by May 28, 2000. Euler has not provided us with the services for which
we contracted. We commenced litigation in Hennepin County District Court, in
Minneapolis, Minnesota on June 20, 2000 to recover the amount we have paid,
$32,151, plus our costs, and incidental and consequential damages.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
*2.1 - Stock Exchange Agreement among the Shareholders of ITC and
CyberStar Computer Corporation as of April 1, 2000.
27 - Financial Data Schedule
* Filed as an exhibit to the Company's Report on Form 8-K (SEC No.
000-27225), filed July 6, 2000, and incorporated herein by reference.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended May 31,
2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CYBERSTAR COMPUTER CORPORATION
Dated: July 14, 2000 By /s/ Jonathan J. Bumba
--------------------------------
Jonathan J. Bumba
Its Chief Executive Officer
