ZSTAR ENTERPRISES INC
Filing Type: 10QSB
Description: Quarterly Report
Filing Date: July 17, 2000
Period End: May 31, 2000
Primary Exchange: Over the Counter
Includes OTC and
OTCBB
Ticker: ZSTR
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT For the transition period from ______________to
_______________
Commission file number 001-14815
ZSTAR ENTERPRISES, INC.
----------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 98-0196675
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4323 West 12th Avenue, Vancouver, B.C., Canada, V6R 2P9
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(Address of principal executive offices)
(604) 224-5851
----------------
(Issuer's telephone number)
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(Former name, former address, and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed
by Section13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file
suchreports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports
required to be filed by Section 12, 13, or 15(d) of the Exchange
Act after the distribution of securities under a plan confirmed
by a court. Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of each of the issuer's
classes of common equity, $0.001 par value as of July 14, 2000
was 10,550,000 shares.
Transitional Small Business Disclosure Format (Check one):
Yes No X
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Page 1 of 23
ZSTAR ENTERPRISES, INC.
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION 3
Item 1. Interim Financial Statements
(Unaudited)as at May 31, 2000 3
Consolidated Balance Sheet 3
Consolidated Statements of
Operations 4
Consolidated Statements of Cash
Flows 5
Notes to Consolidated Financial
Statements 6-10
Item 2. Management's Discussion and Analysis
or Plan of Operation 11
PART II. OTHER INFORMATION 21
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote
of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
EXHIBIT 27 23
Page 2 of 23
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ZSTAR ENTERPRISES, INC.
(a Nevada Corporation)
ZSTAR ENTERPRISES, INC.
Consolidated Balance Sheets
(in U.S. Dollars)
May 31, 2000 February 29, 2000
(Unaudited)
ASSETS
Current Cash Assets $ 130,607 $ 165,597
Accounts receivable 30,169 10,518
Prepaid expenses 4,631 4,644
Total Current Assets 165,407 180,759
Fixed assets-net (Note 3) 1,600 1,695
Goodwill (net of accumulated
authorization of $9,135) 64,857 66,886
TOTAL ASSETS $ 231,864 $ 249,340
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities
Accounts payable and
accrued expenses $ 88,240 $ 57,513
Deposits 12,870 11,734
Notes payable shareholder (Note 4) 250,000 250,000
Total Current Liabilities 351,110 319,247
Commitments and contingencies - -
Shareholders' Equity (Note 6)
Common stock, 30,000,000 shares
authorized $.001 par value; issued
and outstanding 10,550,000 at
May 31, 20000 and February 29, 2000 10,550 10,550
Capital in excess of par value 242,950 242,950
Deficit (373,470) (324,242)
Accumulated comprehensive income 724 835
Total Shareholder's Equity (119,246) (69,907)
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $ 231,864 $ 249,340
See Notes to Financial Statements
Page 3 of 23
ZSTAR ENTERPRISES, INC.
Consolidated Statements Of Operations
(in U.S. Dollars)
(Unaudited)
3 months ended
May 31, 2000 May 31, 1999
Sales revenues $ 125,858 $ 176,237
Costs of sales 96,909 156,234
Gross profit 28,949 20,003
General and administrative
expenses (Note 5) 78,177 29,302
Loss before (benefit) provision
for taxes (49,228) (9,299)
(Benefit) provision for
income taxes (Note 7) - -
Net (loss) (49,228) (9,299)
Other comprehensive Income
(Note 8) 111 -
Comprehensive Income $(49,117) $(9,299)
Basic and diluted (loss) per
share $ (0.00) $ (0.00)
Comprehensive income per
share $ (0.00) $ (0.00)
Basic and diluted average shares
outstanding 10,550,000 10,550,000
See Notes to Financial Statements
Page 4 of 23
ZSTAR ENTERPRISES, INC.
Consolidated Statements Of Cash Flows
(in U.S. Dollars)
(Unaudited)
3 months ended
May 31, 2000 May 31, 1999
Operating Activities
Net (loss) $ (49,228) $ (9,299)
Adjustments to reconcile net (loss)
to net cash used by operating activities:
Depreciation and amortization 2,175 1,943
Management contribution of services with
no cash consideration - 10,000
Changes in operating assets and liabilities:
(Increase) in accounts receivable (19,651) (8,867)
Decrease in prepaid expenses 13 -
Increase in deposits 1,136 -
Increase in accounts payable 30,727 42,611
Net cash (used) by operating activities (34,828) 36,388
Investing Activity
Purchase of fixed asset (51) -
Net cash provided (used) by increasing activity (51) -
Financing Activities
Payment of Promissory note - (50,000)
Cumulative foreign currency transaction
adjustment (111) -
Net cash provided by financing activities (111) (50,000)
Decrease in cash (34,990) (13,612)
Cash at beginning of period 165,597 88,165
Cash at end of period $ 130,607 $ 74,553
Supplemental Disclosures of Cash Flow information:
Cash paid during year for:
Interest $ 9,500 $
Income taxes $ - $ -
See Notes to Financial Statements
Page 5 of 23
ZSTAR ENTERPRISES, INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2000
Note 1- ORGANIZATION & OPERATIONS
Zstar Enterprises, Inc. (the
"Company") was organized under the
laws of the State of Nevada on June
17, 1998. The Company provides
internet-based hotel discounting
services.
On February 28, 1999 the Company
acquired all of the issued and
outstanding shares of stock of Apex
Canadian Holidays Ltd., a British
Columbia, Canada corporation ("Apex").
Apex operates as a wholesaler and
seller of hotel accommodations and
land tour operator.
The accompanying unaudited financial
statements have been prepared by Zstar
Enterprises, Inc. in accordance with
the rules and regulations of the
Securities and Exchange Commission for
interim financial statements.
Accordingly, 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 of the Company,
the unaudited financial statements
reflect all adjustments consisting
only of normal recurring adjustments,
necessary for a fair presentation of
the Company's financial position at
May 31, 2000, its operating results
for the three months ended May 31,
2000 and 1999 and cash flows for the
three months ended May 31, 2000 and
1999.
The banlance sheet at February 29,
2000 has been derived from the
Company's audited consolidated
financial statements as of that date.
These financial statements and the
notes should be read in conjunction
with the Company's audited
consolidated financial statements and
notes thereto contained in the
Company's Form 10-KSB.
The results of operations for the
three months ended May 31, 2000 are
not necessarily indicative of the
results that may be expected for
future quarters or the year ended
February 29, 2000.
Note 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Accounting
The consolidated financial statements include
the accounts of the Company and its wholly-
owned subsidiary, Apex Canadian Holidays Ltd.
All significant intercompany accounts and
transactions have been eliminated.
b. Use of Estimates
The preparation of financial statements in
conformity with general accepted accounting
principles requires that management make
estimates and assumptions which affect the
reported amounts of assets and liabilities as
at the date of the financial statements and
revenues and expenses for the period
reported. Actual results may differ from
these estimates.
c. Financial Instruments
The fair values of the financial instruments
approximate their carrying value.
d. Fixed Assets
Fixed assets are recorded at cost and
depreciated over their estimated useful lives
at the following annual rates and methods:
Page 6 of 23
Computer 30% declining balance
Furniture and equipment 20% declining balance
e. Goodwill
Goodwill is recorded at cost and amortized on
a straight-line basis over 10 years.
ZSTAR ENTERPRISES, INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2000
f. Foreign Exchange Translation
The Company translates the accounts of its
self-sustaining foreign subsidiaries using
the current rate method. Under this method,
assets and liabilities are translated at the
rate of exchange in effect at the balance
sheet date. Revenue and expense items are
translated at the rate of exchange in effect
on the dates on which items are recognized in
income during the period. Translation
adjustments arising from the changes in
exchange rates will be recorded as a foreign
currency translation adjustment in
shareholders' equity. These adjustments are
not reflected in income until realized
through a reduction in the Company's net
investment in such operations.
g. Revenue Recognition
A subsidiary of the Company operates as a
wholesaler and reseller of hotel
accommodations and land tour operator. The
subsidiary is responsible for collection of
the amounts due from customers and for
payment to the supplier. Revenue is
recognized at the time that the transaction
is confirmed.
h. Concentration of Credit Risk
Financial instruments which potentially
subject the Company to concentration of
credit risk consist of cash deposits.
Cash balances are held principally at one
financial institution and may, at times,
exceed insurable amounts. The Company
believes it mitigates its risk by investing
in or through major financial institutions.
Recoverability is dependent upon the
performance of the institution.
i. Income Taxes
the Company applies the policies of Statement
of Financial Accounting Standards No. 109.
Accounting for Income taxes, which requires
use of the asset and liability method of
accounting for income taxes. Under this
method, deferred taxes are recognized for the
tax consequences of temporary differences by
applying enacted statutory rates applicable
to future years to differences between the
financial statement carrying amounts and the
tax basis of existing assets and liabilities.
The Company reports earnings (loss)per share
in accordance with SFAS NO. 128, "Earnings
Per Share", which requires the reporting of
both basic and diluted earnings per share.
Net income (loss) per share-basic is computed
by dividing income available to common
shareholders by the weighted average number
of common shares outstanding for the period.
Because the Company has no common stock
equivalents, no difference exists between
basic and diluted earnings per share.
j. Comprehensive Income
Comprehensive Income is the total of (1) net
income plus (2) all other changes in net
assets arising from non-owner sources. The
Company has presented a statement of
operations that includes other comprehensive
income.
Page 7 of 23
Note 3- FIXED ASSETS
May 31, 2000 February 29, 2000
Computer $ 3,177 $ 3,177
Furniture and Equipment 856 805
4,033 3,982
Less accumulated depreciation (2,433) (2,287)
$ 1,600 $ 1,695
ZSTAR ENTERPRISES, INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2000
Note 4- SHORT TERM BORROWINGS
Short term borrowings consisted
of the following: May 31, 2000 February 29, 2000
Note payable shareholder $ 250,000 $ 250,000
On August 17, 1999 and February 23,
2000 the Company borrowed $100,000 and
$150,000, respectively, from a
shareholder of the Company.
The notes bear interest at eight
percent (8%) per annum and are payable
on demand. The promissory notes are
secured by a general security interest
in all assets of the Company.
Note 5- RELATED PARTY TRANSACTIONS AND MANAGEMENT SERVICES
Joist Management Ltd. is related by
management contract to provide
administrative and general office
services to the Company. None of the
shareholders, officer or directors of
the Joist Management Ltd. are
shareholders of Zstar Enterprises,
Inc. The Company paid management fees
of $30,000 to Joist Management, Ltd.
for the period (1999-nil) on a
month-to-month basis.
The Company does not have a
compensation plan for its officers and
directors. An estimate of the fair
value of management services of
$10,000 has been provided in these
financial statements to reflect the
value of management contributions to
the Company during the withdrawal of
Joist Management Ltd. for the period
from March 1 to June 30, 1999.
Note 6- SHAREHOLDERS EQUITY
In June 1998, the Company issued
1,500,000 shares of its Common Shares
to its initial shareholders for a cash
consideration of $1,500.00 ($0.001 per
share).
In July 1998, the Company issued an
additional 9,000,000 shares of its
Common Stock for a cash consideration
of $90,000 ($0.01 per share).
In October 1998, the Company issued
50,000 Common Shares for a cash
consideration of $150,000 ($3.00 per
share) and incurred $8,000 of offering
expenses.
Note 7- INCOME TAXES
The provision (benefit) for income
taxes consisted of the following:
Period ended:
May 31, 2000 May 31, 1999
Current:
Federal tax expense $ (17,000) $ (3,000)
State tax expense (2,000) $ (1,000)
Page 8 of 23
Deferred:
Federal tax expense $ 17,000 $ 3,000
State tax expense 2,000 $ 1,000
$ - $ -
Page 9 of 23
ZSTAR ENTERPRISES, INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2000
A reconciliation of differences
between the statutory U.S. federal
income tax rate and the Company's
effective tax rate follows:
Period ended:
May 31, 2000 May 31, 1999
Statutory federal income tax 34% 34%
State income tax-net of
federal benefit 5% 5%
Valuation allowance -39% -39%
0% 0%
The components of deferred tax assets
and liabilities were as follows (in
thousands:
Period ended:
May 31, 2000 May 31, 1999
Deferred tax assets:
Net operating loss
carry forwards $ 149,000 $ 77,000
Total deferred tax assets $ 149,000 $ 77,000
Valuation allowance $ (149,000) $ (77,000)
Net deferred tax assets $ - $ -
SFAS No. 109 requires a valuation
allowance to be recorded when it is
more likely than not that some or all
of the deferred tax assets will not be
realized.
The Company recognized losses for the
periods ended May 31, 2000 and May 31,
1999. The amount of net operating
loss carryforwards are approximately
$373,000 and $200,000. The net
operating loss carryforwards, if not
utilized, will expire in the years
2006 through 2008.
Note 8- COMPREHENSIVE INCOME
Accumulated other comprehensive income consists of the
following:
May 31, 2000 May 31, 1999
Foreign currency
translation adjustment $ (111) $ -
A summary of the component of other
comprehensive income for the year
ended May 31, 2000 is as follows:
Before-Tax Income After-Tax
Amount Tax Amount
Net foreign currency
translation adjustment $ 724 $ - $ 724
Other comprehensive income $ 724 $ - $ 724
Note 9. RECONCILATION TO ACCOUNTING PRINCIPLES
GENERALLY ACCEPTED IN THE UNITED STATES
There are no significant differences
between Canadian and U.S. accounting
principles requiring adjustment to the
financial statements of the Company.
Any changes to the Company's financial
statements as a result of an
accounting pronouncement issued but
not yet adopted by the Company are
immaterial.
ZSTAR ENTERPRISES, INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2000
Note 10- MERGER PROPOSAL
On June 1, 2000, the Company announced
that, subject to shareholder approval,
it has entered into a merger agreement
with OnVantage, Inc., a privately held
Delaware corporation. Under the terms
of the merger agreement, OnVantage
will become a wholly owned subsidiary
of the Company.
At the closing of the proposed merger
agreement and a proposed $7,500,000
private placement, the Company will
have a total of 31,990,000 common
shares outstanding assuming the
exercise of 625,000 warrants included
with the unit offering.
As a condition precedent to the
transaction, the Company intends to
sell its wholly owned subsidiary, Apex
Canadian Holidays Ltd.
Page 10 of 23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
The following information should be read in conjunction with
the interim financial statements and the notes thereto included
in Part I, Item 1 of this Quarterly Report and the financial
statements and notes thereto contained in the Company's
Form 10SB12B/A Amended No. 4 Registration Statement and
1999 Annual Report 10KSB filed June 6, 2000.
FORWARD LOOKING STATEMENTS
All statements, other than statements of historical facts,
included in this report that address activities, events or
developments that the Company expects, believes, intends
or anticipates will or may occur in the future, are
forward-looking statements. Forward-looking statements
are inherently subject to risks and uncertainties, many
of which cannot be predicted with accuracy and some of
which might not even be anticipated. Future events and
actual results, financial and otherwise, could differ
materially from those set forth in or contemplated by
the forward-looking statements herein. These
risks and uncertainties include, but are not limited to, the
Company's reliance on current revenues; the uncertainties
associated with the introduction of new products/services;
management of growth, including the ability to attract and
retain qualified employees; the ability to integrate
acquisitions made by the Company and the costs associated
with such acquisitions; dependence on its chief executive
officer; substantial competition from larger companies with
greater financial and other resources than the Company; the
success of its marketing strategy; its dependence on
suppliers for some of its products; currency fluctuations
and other risks associated with foreign sales and foreign
operations; quarterly fluctuations in revenues, income and
overhead expense; and potential product liability risk
associated with its existing and future products. Readers
are cautioned not to put undue reliance on forward-looking
statements. The Company disclaims any intent or obligation
to update publicly these forward-looking statements, whether
as a result of new information, future events or otherwise.
OVERVIEW
Zstar Enterprises, Inc. ("Company") has incurred significant
net losses since the Company's inception. As of May 31,
2000, the Company had an accumulated deficit of $373,470.
The Company was organized under the laws of the State on
Nevada on June 17, 1998. The Company is a Nevada
corporation formed by a small founding group with the
intention of (i) providing internet - based hotel
discounting services, and (ii) serving as a holding company
for one or more future business. The Company recently
identified a business it intends to merge with (see Recent
Developments, below). As part of this intended merger, the
Company no longer expects to provide internet - based hotel
discounting services.
RECENT DEVELOPMENTS
The Board has adopted a Merger Agreement ("Merger") with
OnVantage, Inc., a Delaware corporation ("OnVantage"), in
which a wholly owned subsidiary of Zstar, a Delaware
corporation ("Zstar") Subsidiary"), will merge into
OnVantage, and OnVantage will be the surviving corporation
of the merger ("Surviving Corporation"). The Board has
determined that the Merger Agreement is in the best interest
of Zstar.
Page 11 of 23
OnVantage was incorporated with the State of Delaware on
February 25, 1999. OnVantage is an Internet software and
marketing company that, through OnVantage's Microportal
interface, allows selected customers, known as "Affinity
Partners", to offer free or customer subsidized ISP service.
Affinity Partners offer such ISP service and other value
oriented opportunities through the Affinity Partner's own
personalized, branded Microportal (licensed from and powered
by OnVantage), allowing them to maximize the value of their
existing customer base.
When the merger is completed on July 17, 2000, holders of
OnVantage Common Stock will receive 20,190,000 Shares of
Common Stock of Zstar ("Zstar Shares") in exchange for the
Total Capital Stock of OnVantage. Current Zstar
shareholders will continue to hold their existing Zstar
Shares after the Merger. PLEASE NOTE THAT THE MERGER WILL
RESULT IN A CHANGE OF CONTROL OF ZSTAR. AFTER THE EXECUTION
OF THE MERGER, CURRENT ONVANTAGE SHAREHOLDERS WILL OWN
63.11% OF ZSTAR.
The Proposed Stock Option Plan
The Board is seeking authorization to adopt a stock option
plan ("2000 Omnibus Equity Incentive Plan"). The maximum
aggregate number of shares of common stock subject to the
2000 Omnibus Equity Incentive Plan is 5,000,000. the shares
may be authorized but unissued, or required common stock.
Within the first 12 months from the Closing of the Merger,
total additional issuances under option grants shall not
exceed 3,325,000 shares. Notwithstanding such limitation,
any issuances of options under the Stock Plan would result
in further dilution of current Zstar shareholders.
The Proposal to Authorize an Undesignated Class of Preferred
Stock
The Board is seeking consent for the authorization of an
undesignated class of preferred stock ("Preferred Stock").
Currently, the issuance of Preferred Stock is not authorized
under Zstar's Article of Incorporation. The terms and
description of the class of preferred stock are undefined at
the date of this Definitive Information Statement. The
Board of Directors has requested that the shareholders grant
the Board of Directors the authority to fix the dividend
rate and establish the provisions, if any relating to voting
rights, redemption rate, sinking fund, liquidation
preferences and conversion rights for any series of
Preferred Stock issued in the future. Such preference may
place holders of Preferred Stock in a superior position to
holders of Zstar Common Stock.
The Proposal for Name Change
The Board believes the name of Zstar Enterprises, Inc.
should be changed to OnVantage, Inc. In order to avoid any
confusion with the Surviving Corporation of the Merger,
which is also known as OnVantage, Inc., it is expected that
the name of the Surviving Corporation will be changed to
OnVantage Technologies, Inc.
Proposal for Redomestication of Zstar
Currently, Zstar is incorporated and domiciled in the State
of Nevada. The Board has determined that it may be in the
strategic best interest of Zstar for Zstar to reincorporate
as a Delaware corporation. The board believes that the
redomestication to Delaware may enhance Zstar's ability to
attract new investors in the future. Therefore, the Board
has requested the authority to redomesticate Zstar to
Delaware. Please note that while redomestication is
probable, it is not certain to occur. Once authorization is
given to the Board, the Board will make a determination on
redomestication in the near future, based on the best
interest of Zstar and its shareholders.
On February 28, 1999, the Company acquired all of the issued
and outstanding shares of stock of Apex Canadian Holidays
Ltd. Apex is a Canadian private company, incorporated on
October 24, 1996, with principal offices in British
Columbia, Canada. The management and staff of Apex have
over 25 years of combined hospitality industry experience.
Apex specializes in the sale of hotel rooms (retail and
wholesale) and land tour packages primarily in the Asian and
North American markets.
Proposed Sale of Apex
As a condition precedent to the Merger, the Board seek
authorization to sell Apex Canadian Holidays Ltd., a wholly
owned subsidiary of Zstar and incorporated under the laws
of the Province of British Columbia ("Apex"), in the event
the Board, in its discretion deems such a sale necessary or
preferable. In conjunction with the sale, Apex will sever
all corporate ties with Zstar and exist as an independent
entity.
Page 12 of 23
The Company also intends to hire additional employees as
needed to implement the Company's product development
efforts. In addition, the Company propose to further expand
the Company's sales force and marketing team to develop new
and existing strategic relationships and strengthen the
Company's brand name as the Company enters new markets.
Lastly, the Company anticipate incurring additional costs
related to being a public company, including director's and
officer's liability insurance, investor relation programs
and professional service fees. As a result of these
expenditures and other related factors, the Company expects
to continue to incur losses for the for the foreseeable
future.
To meet its immediate working capital requirements, the
Company has secured a short-term loan in the amount of
$250,000 from an existing shareholder of the Company.
This is evidenced by an unsecured promissory note
bearing interest at 8% per annum dated August 17, 1999,
which is payable by the Company on demand by the Lender.
For further detail - See Form 10SB12B/A Registration
Statement Amendment No. 4, Filing Date September 28, 1999 -
PART III (Exhibit 99)
OVERVIEW
Zstar Enterprises, Inc. (the "Company") has incurred significant
net losses since the Company's inception. As of May 30, 2000,
the Company had an accumulated deficit of $373,470.
The Company was organized under the laws of the State on
Nevada on June 17, 1998. The Company was formed by a small
founding group with the intention of (i) providing internet
-based hotel discounting services, and (ii) serving as a
holding company for one or more future businesses not yet
identified.
The Company has, on February 28, 1999, acquired all of the
issued and outstanding shares of stock of Apex Canadian
Holidays Ltd.
The Company's quarterly revenues and net income are subject
to fluctuation based on customer order patterns. Because of
these fluctuations, comparisons of operating results from
quarter to quarter for the current year or for comparable
quarters of the prior year may be difficult. Except as set
forth below, these fluctuations are not expected to be
significant when considered on an annual basis.
REVENUES - The Company currently operates as a wholesaler
and reseller of hotel accommodations and land tour operator.
Apex is responsible for collection of the amounts due from
customers and for payment to the supplier (i.e. third
parties). Revenue is recognized at the time that the
transaction is confirmed. The Company believes that future
revenues will result largely from the operations of its
OnVantage Technologies, Inc. subsidiary.
COST OF REVENUE - The Company expects future cost of
revenues will consist of payments to third parties
including, resellers of advertising space, representatives
selling OnVantage internet services, and profit
participation payable to strategic alliance partners
and others.
SALES AND MARKETING EXPENSES - The cost of sales was $96,909.
The Company expects that future costs will consist primarily
of costs associated with the Company's various strategic
alliances, external advertising, promotion, trade show,
advertising sales and personnel expenses associated with
marketing of the Company's website microportal. As a result of
its plan to expand its operations through internal growth, the
Company expects these costs to increase in absolute dollars,
while decreasing as a percentage of revenue. However, the
Company's projections may change if the merger with OnVantage
is not completed.
GENERAL AND ADMINISTRATIVE EXPENSES - General and
administrative expenses currently consist of management,
consulting fees (mainly website development), accounting,
legal and expenditures for applicable overhead costs such
as office rent, wages and benefits, etc. The Company expects
general and administrative expenses to continue to increase
in absolute dollars as the Company expands its staff and
incurs additional costs related to the growth of its business.
However, the Company's projections may change if the merger
with OnVantage is not completed.
RESULTS OF OPERATIONS
Three Months Ended May 31, 2000 Compared To Three Months
Ended May 31, 1999
The Company's net revenues for three months ended May 31,
2000 and 1999 were $125,858 and $176,237 respectively,
a decrease of approximately 29% from the same period in 1999.
The decrease was primarily due to the increasing competition
in the markets in which the Company competes. Revenues for
2000 were mainly from the sale of non-internet hotel bookings.
The Company believes that future revenues will result largely
from the operations of its OnVantage Technologies, Inc.
subsidiary.
The Company's cost of revenues, mainly to third parties, for
the quarter ended May 31, 2000 and 1999 were $96,910 (77% of
revenue) and $156,234 (88.6% of revenue) respectively, a
decrease of approximately 38% from the same period in 1999. This
dollar decrease in expenses was due to the decrease in sales.
Page 13 of 23
The Company expects that future costs will consist primarily
of the operations of its OnVantage Technology, Inc. subsidiary.
General and administrative expenses consist primarily of
amortization, compensation and benefits for personnel, rent,
management and professional fees, and office related expenses.
The Company's general and administrative expenses for the quarter
ended May 31, 2000 and 1999 were $78,177 (62.1% of revenue)
and $29,302 (16.6% of revenue) respectively, an increase of
approximately $48,875 or 266.8% from the same period in
1999. This dollar increase in expenses was incurred in part
as a result of hiring Joist Management Ltd. under a management
contract to provide administrative and general office services
to the Company. None of the shareholders, officer or directors
of Joist Management Ltd, are shareholders of Zstar Enterprises,
Inc. The Company paid management fees of $30,000 to Joist
Management Ltd. for the 2000 fiscal year (1999 - nil) on a
month to month basis.
The Company does not have a compensation plan for its
officers and directors. An estimate of the fair value of
management services of $10,000 has been provided in these
financial statements to reflect the value of management
contributions to the Company during the withdrawal of Joist
Management Ltd. for the period from March 1 to June 30,
1999.
The Company's net loss for the quarter ended May 31, 2000
and 1999 were ($49,229) (39.1% of revenue) and ($9,299)
(5.2% of revenue) respectively, an increase of approximately
($39,930) or 529% from the same period in 1999.
The increase was due to greater general and administrative
expenses.
LIQUIDITY AND CAPITAL RESOURCES
Since the Company's inception, the Company have financed the
Company's operations and capital expenditures primarily through
the sale of stock and net cash provided from operations.
Page 14 of 23
The Company's free cash flow, defined as net income/loss
plus non-cash items, decreased in deficiency by ($49,974)
to ($47,054) for the three months ended May 31, 2000.
Working capital deficiency as of May 31, 2000 and May 31,
1999 was ($34,990) and ($19,467) respectively, and cash
balances were $130,607 and $68,698 at the same dates.
For the three months ended May 31, 2000, net cash used in
operating activities was ($34,829) compared to cash used in
operating activities of ($89,367) for the same period in 1999.
Net cash used in operating activities for 2000 consisted mostly
of loss from operations, increases in accounts receivable,
offset by increases in accounts payable, and non cash charges
such as depreciation and amortization.
Net cash used in financing activities was $(111) for the
three months ended May 30, 2000 and $50,000 for the same period
in 1999. Financing activities for 2000 resulted from foreign
currency translation adjustments. Financing activities for 1999
resulted from payment of the promissory note to Apex Travel
for the Apex Acquisition.
Net cash used in investing activities was $(51) for the
three months ended May 31, 2000 and $0 for the same period
in 1999. The Company's investing activities consisted of
capital expenditures.
The Company expect expenses to continue to increase for the
foreseeable future as it continue to evaluate possible strategic
acquisitions, products and technologies, expand the Company's
sales and marketing programs, and conduct aggressive brand
promotions.
It is anticipated that on July 17, 2000, the Company will
complete a private placement offering for the sale of 625,000
Units at $6.00 per Unit (the "Offering"). Each Unit will be
comprised of one Share of Common Stock of Zstar and one purchase
warrant ("Purchase Warrant"). Each Purchase Warrant entitles
the holder to acquire one Share of Common Stock in Zstar for
$6.00 per a period of two years from the closing of the Merger
Agreement. All common shares underlying the Unit are to
have demand registration rights and be qualified for resale
to the public through an SB-2 registration statement (at the
expense of the Company) within 150 days of closing of the
Merger Agreement with OnVantage, Inc. on July 17, 2000.
If the Purchase Warrants are exercised, each Purchase
Warrant will be exchanged for one Share of Common Stock in
Zstar at $6.00 per Share. If all Units are sold and all
Purchase Warrants are exercised, the maximum amount of the
Offering will be $7,500,000. The current number of Zstar
Shares is 10,500,000. After the Offering and the exercise
of all Purchase Warrants, the total number of Zstar Shares
then outstanding will be 11,800,000, excluding any shares
distributed as part of the Merger.
The Company believes that this Offering will satisfy the
liquidity concerns of the Company for at least the next six
months; however, the Company can give no assurances that the
Purchase Warrants will be converted or that the Merger
Agreement will close on July 17, 2000.
RISKS AND UNCERTAINTIES
Any investment in the Company's common stock involves a high
degree of risk. You should consider carefully the following
information about these risks, together with other information
contained in this quarterly report, the Company's annual report
10KSB and the Company's recently filed Definitive Information
Statement on Schedule 14C (filed June 27, 2000), before you
decide to buy the Company's common stock. If any of the following
risks actually occur, the Company's business would likely suffer.
In such case, the trading price of the Company's common
stock could decline, and you may lose all or part of the
money you paid to buy the Company's common stock.
NO ASSURANCE OF SUCCESSFUL INTEGRATION OF CERTAIN
OPERATIONS. Zstar and OnVantage have entered into the Plan
of Merger and Reorganization with the expectation that the
Merger will result in certain benefits for the two
companies. Achieving the anticipated benefits of the Merger
will depend in part upon whether the integration of the two
companies' businesses is achieved in an efficient and
effective manner, and there can be no assurance that this
will occur. There can be no assurance that integration will
be accomplished on a timely basis, or at all. The
integration of certain operations following the Merger will
require the dedication of management resources which may
distract attention from the day-to-day business of the two
companies. Failure to effectively accomplish the
integration of the two companies' operations could have an
adverse effect on Zstar's business, financial condition and
results of operations.
DEVELOPMENT STAGE COMPANY. OnVantage is, and even after the
Merger may remain, a development stage company and has recently
begun to implement its business plan. The likelihood of success
of the OnVantage must be considered in light of the expenses,
complications and delays frequently encountered in connection
with the establishment and expansion of new business and the
competitive environment in which OnVantage will operate.
OnVantage's long-term viability, profitability and growth will
depend upon successful commercialization of existing products,
and the development and commercialization of new products
relative to its business plan. As a development-stage company,
OnVantage has no relevant operating history upon which an
evaluation of its performance can be made. Such performance
must be considered in light of the risks, expenses and
difficulties frequently encountered in establishing new
products and markets in the evolving, highly competitive
Internet industry.
THE COMPANY MAY NOT ACHIEVE FUTURE PROFITABILITY DUE TO
CONTINUED OPERATING LOSSES AND NEGATIVE CASH FLOWS. The
Company have incurred substantial general and administrative,
and development costs to create, introduce and enhance
the Company's Web site. The Company expects operating losses
and negative cash flows to continue for the foreseeable
future as it continue to incur significant expenses. As a
result, the Company will need to generate significant
revenues to achieve profitability. Even if the Company
does become profitable, it cannot assure you that it can
sustain or increase profitability on a quarterly or annual
basis. If revenues grow more slowly than the Company
anticipate, or if operating expenses exceed its expectations
or cannot be adjusted in response to slower revenue growth,
the Company's business will be materially adversely affected.
Please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's financial
statements for detailed information related to the
Company's uncertain profitability.
The Company may need to raise additional funds in order to
fund more aggressive brand name promotions or more rapid
expansion, to develop new or enhanced services and products,
to respond to competitive pressures or to acquire complementary
businesses, technologies or services. Additional
financing may not be available on terms favorable to the
Company, if at all. If adequate funds are not available
or not available on acceptable terms, the Company may be
unable to fund its expansion, successfully promote its brand
name, take advantage of unanticipated acquisition
opportunities, develop or enhance services and products
or respond to competitive pressures. Any such
inability could have a material adverse effect on the
Company's business. Further, even if the Company can
achieve such financing, it may have a significant dilutive
effect to existing shareholders.
THE COMPANY CANNOT ASSURE YOU THAT ITS INTERNET PRODUCTS
WILL ACHIEVE MARKET ACCEPTANCE. The Company have not sold
any Internet based products or services. During the quarter,
approximately 100% of revenues were not Internet related.
The Company intends to continue to increase its reliance on
its Internet services and products. The Company's future
profitability
Page 15 of 23
will increasingly rely upon the use of OnVantage's
microportal product and services and transaction supported
products on the Internet. The Company's ability to obtain
market acceptance for its Internet products will depend on
the following
factors:
-- the Company's ability to attract users of the
affinity branded Microportal technology;
-- the Company's ability to increase awareness of the
OnVantage brand;
-- the Company's ability to strengthen user loyalty;
-- the Company's ability to offer compelling and
interesting content;
-- the Company's ability to maintain current strategic
relationships, and develop new strategic
relationships;
-- the Company's ability to attract a large number of
advertisers from a variety of industries that wish
to be associated with OnVantage content;
-- the Company's ability to respond effectively to
competitive pressures;
-- the Company's ability to develop and upgrade
technology;
-- the Company's ability to attract, retain and
motivate qualified personnel.
-- the Company's ability to anticipate and adapt to
the changing Internet market.
If the Company's Internet-based products and/or services are
not received favorably, it may negatively affect their use
of its other products or cause new customers to choose a
competitive service over the Company's.
IF THE COMPANY DO NOT SUCCESSFULLY DEVELOP NEW AND ENHANCED
SERVICES AND PRODUCTS, ITS REVENUES COULD DECREASE. The
Company will not be financially successful if it is unable
to meet the increasingly sophisticated needs of its
customers through timely developments and new and enhanced
versions of its services and products. The Company's
planned development and enhancement efforts have inherent
risks. The Company may experience financial or technical
difficulties that could prevent it from introducing new
or enhanced services or transaction support products.
Furthermore, these new or enhanced services and products
may contain problems that are discovered after the
products are introduced. The Company may need to
significantly modify the design of these products
to correct problems. The Company's business could
be materially adversely affected if the Company experience
difficulties in introducing new or enhanced services and
products or if these services or products are not received
favorably by its customers. Finally, development and
enhancement of its services and products will require
significant additional expenses and could strain the
Company's management, financial and operational resources.
The lack of market acceptance of the Company's services or
products or its inability to generate satisfactory revenues
from such development or enhancements to offset their costs
could have a material adverse effect on the business.
IF THE COMPANY CANNOT MAINTAIN THE INTEGRITY AND RELIABILITY
OF ITS PROPRIETARY DATABASE, THE COMPANY MAY NOT BE SUCCESSFUL.
The Company cannot assure you that the information in its
database will be comprehensive, accurate or timely,
particularly as the Company grow. The Company's success
is highly dependent on its customers' confidence in the
comprehensiveness, accuracy and timeliness of its proprietary
database of transactions and the software used to access
its database. The Company expects the task of establishing
and maintaining such comprehensiveness, accuracy and
timeliness during the growth of its business to require
substantial effort and expense.
SEASONAL AND CYCLICAL PATTERNS MAY AFFECT THE BUSINESS. The
Company believes that advertising sales in traditional
media, such as television and radio, generally are lower in
the first and third calendar quarters of each year. If the
Internet market makes the transition from an emerging to a
more developed market, seasonal and cyclical patterns may
develop in the future. As a result, if the industry follows
the same seasonal patterns as those in traditional media,
the Company may experience lower advertising revenues in the
first and third calendar quarter of each year. Seasonal and
cyclical patterns in Internet advertising may also affect
revenues.
THE MARKER FOR INTERNET ADVERTISING IS STILL DEVELOPING.
The Company expects to derive a significant portion of
revenues from sponsorships and advertising as demand and
market acceptance for Internet advertising solutions
continues to develop. There are currently no widely accepted
standards for the measurement of the effectiveness of
Internet advertising, and the industry may need to develop
standard measurements to support and promote Internet
advertising as a significant advertising medium. If these
standards do not develop, existing advertisers may not
continue their levels of Internet advertising. Furthermore,
advertisers that have traditionally relied upon other
advertising media may be reluctant to advertise on the
Internet. Future business would be adversely affected if the
market for Internet advertising fails to develop or develops
more slowly than expected. Different pricing models are used
to sell advertising on the Internet and it is difficult to
predict which, if any, of the models will emerge as the
industry standard. This makes it difficult to project future
advertising rates and revenues. Advertising revenues could
be adversely affected if the Company is unable to adapt to
new forms of Internet advertising. Moreover, software
programs that limit or prevent advertising from being
delivered to an Internet user's computer are available.
Widespread adoption of this software could adversely affect
the commercial viability of Internet advertising.
IF THE COMPANY IS NOT ABLE TO SUCCESSFULLY DEVELOP ITS
INTERNET WEBSITE BRAND NAME, IT COULD MATERIALLY ADVERSELY
AFFECT ITS BUSINESS. The Company believe that establishing
and maintaining its brand name is critical to attracting
and expanding its target Internet audience. The importance
of developing the Company's brand name will increase due
to the growing number of Internet services. In order to
build its brand name, the Company must succeed in its
marketing efforts, provide high-quality services and
products and increase the number of visitors to its Web
site. If its marketing efforts are not successful or if
the Company cannot increase awareness of its brand name, the
Company will not be able to attract and retain Internet
users and its business would be materially adversely affected.
INTENSE COMPETITION MAY RENDER THE COMPANY'S SERVICES AND
PRODUCTS UNCOMPETITIVE OR OBSOLETE. The market for the Company's
Internet-related products and services and transaction
support products is competitive. The Company cannot assure
you that its competitors will not develop services or
products that are equal or superior to the Company's or that
achieve greater market acceptance. The Company anticipate
that the number of direct and indirect competitors will
increase in the future and could result in price reductions,
reduced margins, greater operating losses or loss of market
share, any of which would materially adversely affect its
business.
IF THE COMPANY DO NOT EFFECTIVELY MANAGE ITS GROWTH, IT
COULD HAVE A MATERIAL ADVERSE EFFECT ON ITS BUSINESS. Should
the Company experience growth, it will place a significant
Page 17 of 23
strain on the Company's management systems and resources.
The Company will need to improve its operational and financial
systems and managerial controls and procedures. The Company
will also need to continue to expand, train and manage its
workforce. The Company expect that its workforce will continue to
increase for the foreseeable future. The Company will have
to maintain close coordination among its technical, accounting,
finance, marketing, sales and research departments. If the
Company fail to effectively manage its growth and address
the above concerns, it could have a material adverse effect on
its business. If the Company do not successfully integrate
acquired businesses with its business, it could also have a
material adverse effect on its business. The Company may not
be able to integrate its recent or any future acquisitions
successfully with its existing operations without substantial
costs, delays or other problems. As the Company integrate
acquired businesses or product lines, the Company could have
difficulty in assimilating personnel and operations. In addition,
the key personnel of acquired companies may decide not to work
for the Company. The Company could also have difficulty in
assimilating the acquired products, services or technologies
into its operations. These difficulties could disrupt its
ongoing business, distract its management and employees,
increase its expenses and materially adversely affect its
results of operations due to accounting requirements such
as amortization of goodwill or other purchased intangibles.
IF THE COMPANY ACQUIRE OTHER COMPANIES BY ISSUING EQUITY
SECURITIES, YOU MAY EXPERIENCE DILUTION OF YOUR EQUITY
INTEREST. The Company may acquire other companies by issuing
equity securities. As a result, you may experience
dilution of your ownership interest and the newly issued
securities may have rights superior to those of the common stock.
INCREASED USAGE COULD STRAIN THE COMPANY'S SYSTEMS AND CAUSE
SYSTEMS MALFUNCTIONS WHICH COULD MATERIALLY ADVERSELY AFFECT ITS
BUSINESS. The performance of the Company's Web site, the OnVantage
microportal and its supporting infrastructure is critical to
its reputation, its ability to attract customers and market
acceptance of its Web site. The Company's ability to provide
uninterrupted, secure online services depends on its ability
to protect its facilities and equipment against damage from
fire, earthquakes, power loss, water damage, telecommunications
failures, vandalism, computer viruses, hacker attacks and other
malicious acts, and similar unexpected material adverse events.
Customers may become dissatisfied if a system failure interrupts
the Company's ability to provide services. Because the Company's
insurance policies have low coverage limits, its insurance may
not adequately compensate the Company for any losses that
may occur due to system failures or interruptions.
ANY PROBLEMS WITH THE INTEGRITY OF THE INTERNET'S INFRASTRUCTURE
OR WITH THIRD PARTY SERVICE PROVIDERS COULD HAVE A MATERIALLY
ADVERSE EFFECT ON ITS BUSINESS. The Company's customers will also
depend on Internet service providers, online service providers
and other Web site operators. Each of them has experienced
significant outages in the past, and could experience outages,
delays and other difficulties due to system failures unrelated to
the Company's systems. Moreover, the Internet infrastructure may
not be able to support continued growth in its use. Any of
these problems could materially adversely affect the
Company's business.
IF THE COMPANY DO NOT ADEQUATELY PROTECT ITS PROPRIETARY
RIGHTS, IT COULD HARM ITS BUSINESS OR COMPETITIVE POSITION. It
may be difficult to protect the Company's proprietary rights.
The Company regards its database and the software used, as well
as its various trademarks and copyrights, as proprietary.
Despite precautions, it may be possible for unauthorized
parties to copy the Company's services or otherwise obtain
and use information that the Company regards as proprietary.
Existing trade secrets and copyright laws provide only
limited protection. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to
the same extent as do the laws of the U.S. The steps the
Company take may not be adequate to deter misappropriation
of proprietary information. The Company also may not be able
to detect unauthorized use and take appropriate steps to
enforce its intellectual property rights.
VARIOUS PARTIES MAY ACCUSE THE COMPANY OF INFRINGING ON
THEIR INTELLECTUAL PROPERTY RIGHTS, AND ANY RELATED LITIGATION
COULD HARM ITS BUSINESS REGARDLESS OF ITS MERIT. Third parties
may assert claims against the Company alleging infringement,
misappropriations or other violations of proprietary rights,
whether or not such claims have merit. Such claims can be
time consuming and expensive to defend and could require the
Company to cease the use and sale of allegedly infringing
Page 18 of 23
services and products, incur significant litigation costs
and expenses, develop or acquire non-infringing technology or
obtain licenses to the alleged infringing technology. The Company
may not be able to develop or acquire alternative technologies or
obtain such licenses on commercially acceptable terms.
THE COMPANY COULD BE HELD LIABLE FOR PROVIDING INACCURATE OR
INCOMPLETE INFORMATION, WHICH COULD HARM ITS BUSINESS. If the
Company's services or products yield inaccurate or incomplete
information which has a material adverse impact on a customer,
the customer might bring a claim for damages against the Company,
even if the Company is not responsible for such failure.
The limitations of liability set forth in customer contracts
may not be enforceable and may not otherwise protect the Company
from liability for damages. The successful assertion of one or more
large claims against the Company that exceed available insurance
coverage's or changes in the Company's insurance policies, such
as premium increases or the imposition of large deductibles or
co-insurance requirements could materially adversely affect the
Company's business.
IF INTERNET USAGE DOES NOT CONTINUE TO GROW, IT COULD HAVE A
MATERIAL ADVERSE EFFECT ON ITS BUSINESS. The Internet is relatively
new and rapidly evolving. The Company's business would be materially
adversely affected if Internet usage does not continue to grow.
THE COMPANY MAY NOT BE ABLE TO ADAPT TO THE RAPID TECHNOLOGICAL
CHANGES TO THE INTERNET AND INTERNET PRODUCTS. To be successful,
the Company must adapt to the rapid technological changes to the
Internet and Internet products by continually enhancing its
products and services and introducing and integrating new
products and services to capitalize on the technological
advances in the Internet. This process is costly and the Company
cannot assure you that it will be able to successfully integrate
its services and products with the Internet's technological
advances. The Company could incur substantial costs
if the Company need to modify its services or infrastructure
in order to adapt to these changes. If the Company incurred
significant costs without adequate results or the Company
was unable to adapt to rapid technological changes, it could
have a material adverse effect on its business.
ADOPTION OF NEW LAWS AND GOVERNMENT REGULATIONS RELATING TO
THE INTERNET COULD HARM ITS BUSINESS. The Company's business
could be materially adversely affected by the adoption or
modification of laws or regulations relating to the Internet.
Laws and regulations directly applicable to Internet
communications and commerce are becoming more prevalent.
Such legislation could dampen the growth in use of the
Internet generally and decrease the acceptance of the
Internet as a communications and commercial medium. The
governments of states or foreign countries might attempt to
regulate the Company's transmissions or levy sales or other
taxes relating to its activities. The laws governing the
Internet, however, remain largely unsettled, even in areas
where there has been some legislative action. It may
take years to determine whether and how existing laws such
as those governing intellectual property, privacy, libel
and taxation apply to the Internet and Internet commerce.
In addition, the growth and development of the market for
Internet commerce may prompt calls for more stringent
consumer protection laws, that may impose additional
burdens on companies conducting business over the Internet.
INTERNET SECURITY CONCERNS COULD HINDER INTERNET COMMERCE
AND MATERIALLY ADVERSELY AFFECT THE COMPANY'S BUSINESS.
The Company may be required to expend significant capital
and other resources to protect against security breaches
on its Web site or to alleviate problems caused by such
breaches. If any compromise of the Company's security
were to occur, it could damage its reputation and expose
the Company to a risk of loss, litigation and possible
liability. A significant barrier to online commerce and
communications is the need for secure transmission of
confidential information over public networks. Concerns
over the security of transactions conducted on the
Internet and other online services, as well as user's
desires for privacy, may also inhibit the growth of the
Internet and other online services, especially as a means
of conducting commercial transactions. The Company's
services may involve the storage and transmission of
proprietary information, such as credit card numbers
and other confidential information. The Company
cannot assure you that its security measures will prevent
security breaches or that its failure to prevent such
security breaches will not have a material adverse
effect on its business. Credit card companies and others are
in the process of developing anti-theft and anti-fraud
protections, and the Company are continually monitoring this
Page 19 of 23
problem. However, at the present time, the real or perceived
risk of theft and fraud could have a material adverse effect
on the Company. The Company cannot assure you that advances
in computer capabilities, new discoveries in the field of
cryptography or other events or developments will not result
in a compromise or breach of the algorithms used to protect
customer transaction data. A party who is able to circumvent
the Company's security measures could misappropriate
confidential information or cause interruptions in its
operations.
THE COMPANY MAY BE SUBJECT TO LEGAL LIABILITY FOR DISPLAYING
OR DISTRIBUTING INFORMATION ON THE INTERNET. Because content
on its Web site is distributed to others, the Company may be
subject to claims for defamation, negligence or copyright or
trademark infringement or claims based on other theories. These
types of claims have been brought, sometimes successfully,
against Internet services in the past. The Company could also
be subject to claims based upon the content that is accessible
from its Web site through links to other web sites or information
on its Web site supplied by third parties. The Company's
insurance may not adequately protect against these types of
claims. Even to the extent such claims do not result in liability,
the Company could incur significant costs in investigating and
defending against such claims. The Company's potential liability
for information carried on or disseminated through its Web site
could require the Company to implement measures to
reduce its exposure to such liability, which may require the
expenditure of substantial resources and limit the attractiveness
of the Company's service to users.
THE NUMBER OF SHARES ELIGIBLE FOR PUBLIC SALE COULD CAUSE
THE COMPANY'S STOCK PRICE TO DECLINE. The market price of the
Company's common stock could decline as a result of sales of a
large number of shares of its common stock in the market or the
perception that such sales could occur. Such sales also
might make it more difficult to sell equity securities in
the future at a price that the Company deem appropriate.
THE LIQUIDITY OF THE COMPANY'S STOCK IS UNCERTAIN, AND IT
COULD BE DIFFICULT TO SELL YOUR SHARES. The Company cannot
predict if an active trading market in its common stock will
develop or how liquid that market might become.
THE MARKET PRICE OF THE COMPANY'S STOCK MAY BE MATERIALLY
ADVERSELY AFFECTED BY MARKET VOLATILITY. The market prices
of the securities of Internet-related companies have been
especially volatile and have experienced extreme volume
fluctuations. Volatility in the market price of the
Company's stock could lead to claims against the Company.
If the Company were the object of such litigation, it could
result in substantial costs and a diversion of the
Company's management's attention and resources. The trading
price of the Company's common stock could be subject to
wide fluctuations in response to a number of factors, including:
- the Company's quarterly results of operations;
- changes in earnings estimates by analysts and
whether the Company's earnings meet or exceed such
estimates;
- announcements of technological innovations by the
Company's competitors;
- additions or departures of key personnel; - other
matters discussed elsewhere in this quarterly report
and the Company's other filings with the SEC; and
- other events or factors, which may be beyond the
Company's control.
THE COMPANY'S CONTROLLING STOCKHOLDERS MAY MAKE DECISIONS
WHICH YOU DO NOT CONSIDER TO BE IN YOUR BEST INTEREST. These
stockholders will be able to exercise control over all matters
requiring approval by the Company's stockholders, including
the election of directors and approval of significant
corporate transactions. This concentration of ownership may
also have the effect of delaying or preventing a change in
control of the Company.
Note: In addition to the above risks, businesses are often
subject to risks not foreseen or fully appreciated by management.
In reviewing this Filing, potential investors should keep in
mind other possible risks that could be important.
Page 20 of 23
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Presently, the Company is not involved in any litigation
relating to claims arising out of the Company's operations
in the usual course of business.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
(a) None
(b) None
(c) None
(d) None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
On June 20, the Company submitted a 14C Definitive
Information Statement containing several proposals for
shareholder approval by written consent in lieu of an annual
meeting of shareholders. The shareholders approved, by a
majority vote, with 51.34% approving, all of the proposals
submitted to them for their written cosent. Among the
proposals submitted to shareholders for their written
consent were the following:
a. The approval of a reverse triangular merger ("Merger")
with OnVantage, Inc. a Delaware Corporation ("OnVantage"),
in which OnVantage would become a wholly owned subsidiary of
the Company. As part of the consideration for the Merger,
holders of OnVantage Common Stock received 20,190,000 Shares
of Common Stock of Zstar ("Zstar Shares") in exchange for
the Total Capital Stock of OnVantage. The Merger resulted
in a change of control of Zstar.
b. The sale of Apex Canadian Holidays, Ltd., a wholly
owned subsidiary of Zstar ("Apex") to Ms. Haliun Hongorzul
for the cancellation of promissory note in the amount of
$250,000 issued by the Company and held by Ms. Hongorzul
("Promissory Note"). For the Cancellation of the Promissory
Note, Ms. Haliun Hongorzul received the total capital stock
of Apex, 20,000 restricted shares of Zstar common stock, and
approximately $15,000 in cash.
c. Approval of the 2000 Omnibus Equity Incentive Plan
("Stock Option Plan"). The maximum aggregate number of
shares of common stock subject to the 2000 Omnibus Equity
Incentive Plan is 5,000,000. Under the Stock Option Plan
total additional issuances under option grants shall not
exceed 3,325,000 shares within the first 12 months from the
Closing of the Merger. Shareholders were informed that any
issuances of options under the Stock Plan would result in
further dilution of current Zstar shareholders.
d. The creation of an undesignated class of 5,000,000
preferred stock.
e. An increase in the number of authorized shares of
common stock from 30,000,000 to 100,000,000.
f. The redomestication of Zstar from the State of Nevada
to the State of Delaware.
g. The change of Zstar's name to OnVantage, Incorporated.
h. The annual election of the Board of Directors. The
shareholders approved, by a majority vote, the election of
Paul Wiebe, Ken Raasch and Tony Thomopoulos to the Board of
Directors.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
Exhibit 27 - Financial Data Schedule
REPORTS ON FORM 8-K
No Reports on Form 8-K were filed during the quarter for
which this report is filed.
Page 21 of 23
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by
the undersigned, thereto duly authorized.
ZSTAR ENTERPRISES, INC.
July 14, 2000 /s/ Eric Neil White
--------------------------- ------------------------
Date Signature
Eric Neil White
CEO and President
Page 22 of 23
EXHIBIT 27
