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 MARCH 31, 1998
[ ] 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 MARCH 31, 1998
----- -----------------------------
Common stock, $0.001 par value 47,216,393
------------------------------ ----------
<PAGE>
STARTRONIX INTERNATIONAL INC
INDEX
PAGE NO.
PART I Financial Information
Condensed consolidated balance sheets at
March 31, 1998 (unaudited) and June 30, 1997 3
Condensed consolidated statements of loss
(unaudited) - three and nine month periods ended
March 31, 1998 and 1997 4
Condensed consolidated statements of cash flow
(unaudited) - nine month periods ended March 31,
1998 and 1997 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>
March 31,1998 June 30, 1997*
--------------- ----------------
(Unaudited)
ASSETS
Current Assets
Cash $ 0 $ 10,975
--------------- ----------------
Total Current Assets 0 10,975
Deposit 56,500 56,500
--------------- ----------------
Total Assets $ 56,500 $ 67,475
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts Payable - trade $ 2,089,338 $ 2,032,234
--------------- ----------------
Due to Related Parties 719,719 659,719
--------------- ----------------
Due to Officers and Directors 277,058 277,058
--------------- ----------------
Accrued Expenses, Including Interest 1,789,005 1,162,015
--------------- ----------------
Notes Payable 400,000 400,000
--------------- ----------------
Total Current Liabilities 5,275,120 4,531,026
--------------- ----------------
Commitments and Contingencies
Stockholders' Equity (Deficit):
Preferred Stock, $.01 Par value, 10,000,000 authorized:
Series "C" Convertible Preferred Stock, $.01 Par value
395,500 and 65,000 shares issued and outstanding at
June 30, 1997 and March 31, 1998 650 3,955
--------------- ----------------
Common Stock, $.001 Par value, 50,000,000 shares authorized;
38,517,298 and 47,216,393 shares issued and
outstanding at June 30, 1997 and March 31, 1998 47,216 38,517
Additional Paid In Capital 23,504,319 23,512,713
Accumulated Deficit (28,770,805) (28,018,736)
--------------- ----------------
Total Stockholders' Equity (Deficit) (5,218,620) (4,463,551)
--------------- ----------------
Total Liabilities and Shareholder's Equity (Deficit) $ 56,500 $ 67,475
============== ===============
</TABLE>
* Condensed from audited financial statements
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> <C> <C>
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------- -----------------
1998 1997 1998 1997
-------------------- ------------------- ------------ -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
-------------------- ------------------- ------------ -------------
Sales $ 0 $ 502,233 $ 0 $ 1,846,772
Cost of Sales 0 260,715 0 976,082
-------------------- ------------------- ------------ -------------
Gross Profit 0 241,518 0 870,690
Operating Expenses:
Professional Services and Consulting 8,057 403,594 117,104 1,103,986
Financial Marketing Services 0 100,000 0 1,292,160
Distributor Commission and Fees 0 150,000 0 668,992
Start Up and Development Costs 0 215,000 0 586,404
Advertising 0 250,000 0 613,122
Salary Expenses 0 809,262 4,914 2,028,664
Write Down of Impaired Assets 0 4,579,761 0 4,579,761
Depreciation and Amortization 0 64,425 0 173,692
Other Selling, General and Administrative 0 197,255 607,551 996,360
------------------- ------------------- ----------- ------------
Total Operating Expenses 8,057 6,769,297 729,569 12,043,141
-------------------- ------------------- ------------ -------------
Operating Loss (8,057) (6,527,779) (729,569) (11,172,451)
------------------ ------------------- ------------ -------------
Other (income) Expense:
Interest Income 0 (31,560) 0 (96,653)
Interest Expense 7,500 7,500 22,500 23,195
Loss on Investments 0 2,066,250 0 2,066,250
Other Expense 0 0 0 109,806
Total Other (income) Expense 7,500 2,042,190 22,500 2,102,598
-------------------- ------------------- ------------ -------------
Net Loss $ (15,557) $ (8,569,969) $ (752,069) $(13,275,049)
==================== =================== ============ ===============
Net Loss Per Share $ (0.00) $ (0.32) $ (0.02) $ (0.60)
==================== =================== ============ =============
Weighted Average Shares Outstanding 47,216,393 27,054,712 44,637,501 21,988,074
==================== =================== ============= =============
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE>
STARTRONIX INTERNATIONAL INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
<S> <C> <C>
Nine Months Ended
March 31,
-------------------
1998 1997
------------------- ------------
(Unaudited) (Unaudited)
Cash used in operating activities $ (7,975) $(5,367,664)
------------------- ------------
Cash used in investing activities 0 (959,287)
Cash provided by financing activities (3,000) 6,359,739
------------------- ------------
Net increase (decrease) in cash (10,975) 32,788
Cash, beginning of period 10,975 2,355
------------------ ------------
Cash, end of period $ 0 $ 35,143
=================== =============
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE>
STARTRONIX INTERNATIONAL INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 sells 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 in 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. The Company recorded a loss in fiscal 1997, made up of
the following components:
June 30, 1997
---------------
Abandoned Property and Equipment $ 1,118,001
Subordinated Debenture Receivable Settlement 788,560
Write-off of Starter Kit and Other Inventory 962,044
Lost Deposit on StarScreen Inventory 1,607,570
Write-off of Prepaid Production Costs 300,000
Write-off of Other Current Assets 610,416
------------
Loss on the Write Downs and Write-offs $ 5,386,591
=============
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.
<PAGE>
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.
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.
3. SALES
-----
The Company's sales are derived primarily from two categories: "Starter
Kits" and products. The primary product is the StarScreen; other products
include nutritional and body products. "Starter Kits" are the marketing
material and informational package provided to individuals who have agreed to
become distributors. The StarScreen is a telephone and Internet access portal.
Gross sales for the 9 months ended March 31, 1997 and 1998 are made up of the
following:
9 Months Ended
March 31,
----------------------------
1998 1997
---- ----
Starter Kit Sales $ 0 $ 1,304,850
StarScreen Sales 0 502,233
Other 0 39,689
---------- ------------
Total Sales $ 0 $ 1,846,772
========== ============
<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 MARCH 31, 1998 AND 1997
Sales for the three month period ended March 31, 1998 were zero, as
compared to $502,233 for the three month period ended March 31, 1997, due to the
suspension of operations by management of the Company effective March 31, 1997.
During the three month period ended March 31, 1998, the Company incurred
operating expenses of $8,057, resulting in an operating loss of $8,057, compared
with operating expenses and loss of $6,769,297 and $6,527,779, respectively, for
the three months ended March 31, 1997. This represents a decrease of over 99%
in both instances. The operating expenses for the current period include
professional services and consulting expenses of $8,057.
As a result of the above, the Company incurred a net loss of $15,557 for the
three month period ended March 31, 1998 as compared to $8,569,969 for the three
month period ended March 31, 1997, a decrease of over 99%.
NINE MONTH PERIOD ENDING MARCH 31, 1998
Sales for the nine month period ended March 31, 1998 were zero, as compared
to $1,846,772 for the nine month period ended March 31, 1997, due to the
suspension of operations by management of the Company effective March 31, 1997.
During the nine month period ended March 31, 1998, the Company incurred
operating expenses of $729,569, resulting in an operating loss of $729,569,
compared with operating expenses and loss of $12,043,141 and $11,172,451,
respectively, for the nine months ended March 31, 1997. This represents a
decrease of over 93% in both instances. The operating expenses for the current
period include other selling, general and administrative expenses of $607,551,
which consists primarily of general overhead expenses during the Company's
suspension of operations and search for additional capital.
As a result of the above, the Company incurred a net loss of $752,069 for the
nine month period ended March 31, 1998 as compared to $13,275,049 for the nine
month period ended March 31, 1997, a decrease of over 94%.
LIQUIDITY AND CAPITAL RESOURCES AT MARCH 31, 1998
During the nine months ended March 31, 1998, and as described more fully
above, the Company's net loss from operating activities was equal to $752,069.
Of this net loss from operating activities, $7,975 was cash used in operating
activities. As a result of the above, the Company's cash position was zero at
the end of the period, decreased from $10,975 at the beginning of the period.
Cash at March 31, 1998 was zero, as compared to $10,975 at June 30, 1997.
As a result of the Company's suspension of operations on March 31, 1997, there
were no other assets except for a deposit in the amount of $56,500.
As a result of the above, total assets at March 31, 1998 were $56,500 as
compared to $67,475 at June 30, 1997, a decrease of 16%.
Current liabilities increased from $4,531,026 at June 30, 1997 to
$5,275,120 at March 31, 1998, an increase of 16%. This increase was due to an
increase in the accrued expenses, including general and administrative expenses
of $607,551.
As a result of the above, the deficit in total stockholders' equity
increased from $4,463,551 at June 30, 1997 to $5,218,620 at March 31, 1998.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
In November 1996, the Company suspended the conversion of its Series "C"
Convertible Preferred Stock as a result of the concerted market irregularities
in the trading of the Company's common stock, which management believes is
related to the conversion terms contained in the private placement offering of
the Series "C" Preferred Stock. The suspension of the conversion provisions of
the private placement offering is more fully described in the Company's Form 8-K
filed with the SEC on October 25, 1996.
Subsequent to the Company suspending the conversion of the Series "C"
Preferred Stock, a shareholder group filed a lawsuit against the Company in the
United States District Court in New York. The action seeks to compel the
Company to resume conversion of the Class "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 August 1997, the Company
reached a settlement with the plaintiffs in this matter and agreed to honor the
shareholders conversions of their Series "C" Convertible Preferred Stock.
In December 1996, a second action was filed by a shareholder group in the
Superior Court of the State of California in Los Angeles County related to the
suspension of the conversion feature of the Series "C" Preferred Stock. The
action seeks 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 plaintiffs in this matter and agreed to honor
the shareholders conversions of their Series "C" Convertible Preferred Stock.
ITEM 2 CHANGES IN SECURITIES
None.
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
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
