SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________.
COMMISSION FILE NUMBER 1-9190
STARTRONIX INTERNATIONAL INC
(Exact name of registrant as specified in its charter)
DELAWARE 91-1263272
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7700 IRVINE CENTER DRIVE, SUITE 510
IRVINE, CALIFORNIA 92618
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (949) 727-7420
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1034 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes No X.
-----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT SEPTEMBER 30, 1999
Common stock, $0.001 par value 23,449,580
<PAGE>
STARTRONIX INTERNATIONAL INC
INDEX
PAGE NO.
PART I Financial Information
Condensed consolidated balance sheets at
September 30, 1999(unaudited) and June 30, 1999 3
Condensed consolidated statements of loss
(unaudited) - three month periods ended
September 30, 1999 and 1998 4
Condensed consolidated statements of cash flow
(unaudited) - three month periods ended September 30,
1999 and 1998 5
Notes to condensed consolidated financial statements 6
Management's discussion and analysis of financial
conditions and results of operations 8
PART II Other Information
Item 1 Legal Proceedings 9
Item 2 Changes in Securities 9
Item 3 Defaults Upon Senior Securities 9
Item 4 Submission of Matters to a Vote of
Security Holders 9
Item 5 Other Information 9
Item 6 Exhibits and Reports on Form 8-K 9
<PAGE>
PART I - FINANCIAL INFORMATION
STARTRONIX INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C>
September 30
, 1999 June 30, 1999*
-------------- ----------------
(Unaudited)
ASSETS
Current Assets:
Cash $ 53,857 $ 0
Stock Subscription Receivable 12,750 0
Due from Related Party 9,446 0
Prepaid Expense 460,687 0
------------- --------------
Total Current Assets 536,740 0
Deposit 56,500 56,500
------------- ---------------
Total Assets $ 593,240 $ 56,500
============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable - trade $ 727,143 $ 2,091,161
Due to related parties 29,108 29,108
Accrued Expenses, including Interest 1,831,192 2,689,429
Related Party Notes payable 400,000 400,000
------------ --------------
Total current liabilities 2,987,443 5,209,698
Stockholders' Equity:
Preferred stock, $.01 par value, 10,000,000 authorized: 500 650
Series "C" Convertible Preferred Stock, $.01 par value,
65,000 and 50,000 shares issued and outstanding at
June 30, 1999 and September 30, 1999
Common stock, $.001 par value, 50,000,000 shares 23,449 19,949
authorized; 19,949,580 and 23,449,580 shares issued and
outstanding at June 30, 1999 and September 30, 1999
Additional paid-in capital 25,301,119 24,303,969
Accumulated Deficit (27,719,271) (29,477,766)
--------------- ----------------
Total stockholders' Equity (Deficit) (2,394,203) (5,153,198)
--------------- ----------------
Total Liabilities and Shareholders' Equity (Deficit) $ 593,240 $ 56,500
============== ================
*Condensed from audited financial statements
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements
<PAGE>
STARTRONIX INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF LOSS
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended
September 30,
--------------------
1999 1998
-------------------- ------------
(Unaudited) (Unaudited)
Sales $ 0 $ 0
Operating Expenses:
Professional Services and Consulting 65,560 0
Development Costs 220,125 0
Other Selling, General and Administrative 100,887 19,398
------------------ -----------
Total operating expenses 386,572 19,398
----------------- ----------
Operating Loss (386,582) (19,398)
------------------ -----------
Other (income) Expense:
Interest Expense 7,500 7,500
Gain on Sale of Subsidiary (2,151,067) 0
----------------- ------------
Total other (income) expense (2,143,567) 7,500
-------------------- ------------
Net Income (Loss) $ 1,756,995 $ (26,898)
==================== ============
Net Income (Loss) Per Share $ 0.08 $ (0.00)
==================== ============
Weighted Average Shares Outstanding 21,090,884 47,216,393
=================== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
STARTRONIX INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended
September 30,
--------------------
1999 1998
-------------------- ------------
(Unaudited) (Unaudited)
Cash Used in Operating Activities $ (96,143) $ 0
Cash Used in Investing Activities 0 0
Cash Provided by Financing Activities 150,000 0
-------------------- ------------
Net Increase (Decrease) in Cash 53,857 0
Cash, Beginning of Period 0 0
-------------------- -------------
Cash, End of Period $ 53,857 $ 0
==================== =============
</TABLE>
Supplemental information: No amounts were paid for interest or taxes during the
periods.
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE>
STARTRONIX INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. NATURE OF OPERATIONS
----------------------
Prior to fiscal 1997, StarTronix International Inc. (the Company) was a
development stage entity. Developed exclusively for the Company, the StarScreen
is a combination telephone and Internet access portal. The Company obtained
Federal Communications Commission ("FCC") approval for the StarScreen, its
primary product, in January 1997. To minimize costs, the Company outsourced its
manufacturing. Immediately after obtaining FCC approval, the Company initiated
sales through its wholly owned subsidiary, StarTronix, Inc.
StarTronix International utilizes network marketing to sell its products.
The Company solicits individuals to be independent distributors to sell the
StarScreen and to solicit other individuals to become distributors. To become a
distributor, an individual must purchase a "Starter Kit" which contains
marketing material that describes the products available and explains the
distributor's compensation package. Distributors do not earn commission on
sales of starter kits; however, they do earn commission on sales of the
products. Additionally, they earn commission when any of their downstream
distributors sell products.
Because of the Company's inability to secure adequate resources March 1997,
the Company suspended its normal operating activity and focused its efforts on
the search for equity financing. The Company is in the process of reviving
operations and expects to be fully operational during fiscal 2000.
2. GOING CONCERN
--------------
The Company began sales of its primary product, the StarScreen in January
1997; however, because of higher than expected upfront costs, the Company found
itself with insufficient financing to continue as a going concern. In March
1997, the Company was unable to meet its commitment to purchase StarScreen
inventory and forfeited the deposits it had placed with its manufacturer, Golden
Source Electronics Ltd., which is recorded as a loss in the accompanying
financial statements. Also in March 1997, the Company negotiated settlements
with some of its vendors, laid-off its employees, wrote-off all its assets,
abandoned its lease and suspended all operations except for the search for
additional financing.
In 1999, the President successfully negotiated a consulting contract with
Western Global Telecommunications, Inc. to upgrade the StarScreen to current
technological standards, to add certain new features to attract a wider customer
base, and to secure a manufacturer to supply the product. Between August 1999
and June 2000, the Company has raised approximately $1 million in cash and
received approximately $250,000 in services for common stock; the Company has
negotiated employment contracts with the Chairman, the President, and the CFO,
in addition to employment contracts with officers of its wholly owned
subsidiary, StarTronix.com.
Additionally, the Company has developed a business plan and is currently
talking with various vendors, manufacturers, and fulfillment houses to provide
services to manufacture, supply, and fulfill orders for an upgraded StarScreen.
FCC approval for the upgrades is in process. The management of StarTronix.com
has begun to develop market awareness for the re-launch of the improved
StarScreen and expects to begin enlisting independent distributors by October
2000. The Chairman and President are meeting with various existing and
potential investors and expect sufficient commitments so that the Company may
continue as a going concern. Additionally, management has rejected certain
offers with the belief that the deals they are currently negotiating will better
fit the Company's business plan. However, the Company has minimal capital
resources presently available to meet obligations that are normally required by
similar companies, and with which to carry out its planned activities. And, the
Company does not have "firm" commitments for financing. These factors raise
doubt about the Company's ability to continue as a going concern. While
management believes actions currently being taken to obtain financing provide
the opportunity for the Company to continue as a going concern, there is no
assurance that the Company will be able successful in doing so.
<PAGE>
The accompanying consolidated financial statements have been prepared on a
going concern basis that contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company
continues to rely on its capital raising efforts to fund continuing operations.
These conditions raise substantial doubt as to the Company's ability to continue
as a going concern. The accompanying consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amount of liabilities that might be necessary if
the Company is unable to continue as a going concern.
<PAGE>
STARTRONIX INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial position and
operating results during the periods included in the accompanying condensed
consolidated financial statements.
THREE MONTH PERIOD ENDING SEPTEMBER 30, 1999 AND 1998
Sales for the three month periods ended September 30, 1999 and 1998, were
zero due to the suspension of operations by management of the Company effective
March 31, 1997.
During the three month period ended September 30, 1999, the Company
incurred operating expenses of $386,572, resulting in an operating loss of
$386,582, compared with operating expenses and loss of $19,398 and $19,398,
respectively, for the three months ended September 30, 1998. This represents a
20 fold increase in both instances. The operating expenses for the current
period include professional services and consulting equal to $65,560,
development costs equal to $220,125, and other selling general and
administrative expenses equal to $100,887. Professional services and consulting
consists of legal and accounting fees. Developments costs include over $200,000
to a related party for the design and development of the Company's primary
product, the StarScreen. The operating expenses also include a reserve equal to
$100,000 for the receipt of a note payable in conjunction with the sale of the
Company's subsidiary, StarTronix, Inc.
During the three month period ended September 30, 1999, the Company sold
its subsidiary, StarTronix, Inc., for consideration equal to a $100,000
promissory note and the assumption of the subsidiaries debt. This transaction
resulted in a gain on sale of subsidiary equal to $2,151,067. The $100,000
promissory note was fully reserved, as noted above.
As a result of the above, the Company had net income equal to $1,756,995 for the
three month period ended September 30, 1999 as compared to a net loss equal to
$26,898 for the three month period ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES AT SEPTEMBER 30, 1999
During the three months ended September 30, 1999, and as described more
fully above, the Company's cash used in operating activities was $96,143. Cash
at the beginning of the was zero, cash provided by financing activities was
equal to $150,000 as a result of the sale of common stock, and thus the cash at
the end of the period was $53,857.
The Company's total assets at September 30, 1999 was $593,240, as compared
to $56,500 at June 30, 1999. The assets consist of cash equal to $53,857, a
stock restriction receivable equal to $12,750, amounts due from a related party
equal to $9,446, and prepaid expense of $460,687. The prepaid expense relates
to consulting services due from a related party.
Current liabilities decreased from $5,209,698 at June 30, 1999 to
$2,987,443 at September 30, 1999, a decrease of 43%. The decrease is the result
of the assumption of the liabilities of StarTronix, Inc. by the purchaser
thereof, and the elimination of an accrued expense due to a related party who
was satisfied from the personal assets of a member of the Company's management.
As a result of the above, the deficit in total stockholders' equity
decreased from $5,153,198 at June 30, 1999 to $2,394,203 at September 30, 1999.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Subsequent to the Company suspending the conversion of the Series "C"
Preferred Stock, a shareholder group filed an action against the Company in the
United States District Court in New York. The shareholders sought to compel the
Company to resume conversion of the Series "C" Preferred Stock or, in the
alternative, to rescind the subscription agreement and recover the shareholders'
original investment in the amount of $1,337,500.
In December 1996, a second shareholder group filed an action against the
Company in the United States District Court in California. The shareholders
sought to compel the Company to resume conversion of the Series "C" Preferred
Stock or, in the alternative, to rescind the subscription agreement and recover
the shareholders' original investment in the amount of $2,367,500, plus interest
and punitive damages.
In August 1997, the Company reached a settlement with all but two of the
Series "C" shareholders wherein the Company honored the holders' conversions.
In August 1999 and May 2000 a settlement was reached with the final two
shareholders who converted their Series "C" Preferred Stock into 1,250,000 and
2,000,000 shares of common stock, respectively.
In addition to the above, the Company may from time to time be involved in
various claims, lawsuits, disputes with third parties, actions involving
allegations of discrimination, or breach of contract actions incidental to the
operation of its business. In 1996, the Company was unable to continue the
implementation of its business plan due to inadequate capital resources, and
ceased all operations until 1999. The Company currently has the following
material outstanding legal matters, all of which arose during the aforementioned
period:
1. Jack Dignan v. StarTronix International Inc., et al. A judgment was
entered against the Company in June 1998 in an amount, including interest
through September 1999 of over $76,000. The Company is in negotiations to
settle the matter for an unknown amount.
2. Marketing Direct v. StarTronix International Inc. A judgment was entered
against the Company in November 1997 in an amount, including interest through
August 1999 of over $95,000. The Company is in negotiations to settle the
matter for an unknown amount.
3. Canon Financial Services, Inc. v. StarTronix International Inc. A
judgment was entered against the Company in 1998 in an amount, including
interest through February 2000 of over $26,000. The Company is in negotiations
to settle the matter for an unknown amount.
4. Kimco Services, Inc. v. StarTronix International Inc., et al. A judgment
was entered against the Company in November 1997 in an amount, including
interest through February 2000 of over $54,000. The Company is in negotiations
to settle the matter for an unknown amount.
5. FNF Capital, Inc. The Company has been notified of two claims against
it, one for approximately $5,630 and the other for approximately $51,900,
arising out of unpaid business leases from 1996. The Company is in negotiations
to settle the matter for an unknown amount.
The Company is currently negotiating a settlement in each of the above
referenced matters.
ITEM 2 CHANGES IN SECURITIES
In August 1999, the Company issued an aggregate of 1,250,000 shares of
common stock to the last Series "C" Convertible Preferred Stock holder upon
conversion of his Series "C" Convertible Preferred Stock and in furtherance of a
settlement of the dispute between the shareholder and the Company.
In August 1999, the Company issued an aggregate of 150,000 shares of common
stock, restricted in accordance with Rule 144 promulgated under the Securities
Act of 1933, to one accredited investor who purchased the shares for $150,000.
The issuance was exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933.
<PAGE>
In August 1999, the Company issued an aggregate of 2,100,000 shares of
common stock, restricted in accordance with Rule 144 promulgated under the
Securities Act of 1933, to one accredited investor who received the shares
pursuant to a Consulting Agreement. The issuance was exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933.
ITEM 3 DEFAULTS UNDER SENIOR SECURITIES
None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5 OTHER INFORMATION
None.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.9 Settlement Agreement and General Mutual Release between the
Company and Shalom Liebenthal dated August 6, 1999.
10.10 Stock Purchase Agreement between the Company and Zog
Investments, Ltd. dated August 6, 1999.
10.11 Reorganization and Stock Purchase Agreement between the Company
and RunTec Inc. dated September 20, 1999.
10.12 Employment Agreement between the Company and Greg Gilbert.
10.13 Employment Agreement between the Company and Lloyd Adams.
Exhibit 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None.
<PAGE>
SIGNATURES
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 authorized.
Dated: August 2, 2000 STARTRONIX INTERNATIONAL, INC.
/s/ Greg Gilbert
______________________________
By: Greg Gilbert
Its: President
Dated: August 2, 2000 /s/ Robert Hart
______________________________
By: Robert Hart
