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, 1997
[ ] 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, 1997
----- -----------------------------
Common stock, $0.001 par value 27,289,690
<PAGE>
STARTRONIX INTERNATIONAL INC
INDEX
PAGE NO.
--------
PART I Financial Information
Condensed consolidated balance sheets
at March 31, 1997 (unaudited) and June
30, 1996 3
Condensed consolidated statements of loss
(unaudited) - three and nine month periods ended
March 31, 1997 and 1996 4
Condensed consolidated statements of cash
flow (unaudited) - nine month periods ended
March 31, 1997 and 1996 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 10
Item 2 Changes in Securities 10
Item 3 Defaults Upon Senior Securities 10
Item 4 Submission of Matters to a Vote of Security
Holders 10
Item 5 Other Information 11
Item 6 Exhibits and Reports on Form 8-K 11
<PAGE>
PART I - FINANCIAL INFORMATION
STARTRONIX INTERNATIONAL INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C>
March 31,1997 June 30, 1996*
--------------- ----------------
(Unaudited)
ASSETS
Current Assets:
Cash $ 35,143 $ 2,355
Accounts Receivable, Net 0 1,628
Inventory 0 84,533
Deposits, Purchase of Inventory 0 293,065
Prepaid Expenses and Other 0 197,149
-------------- ---------------
Total Current Assets 35,143 578,730
-------------- --------------
Property, Plant and Equipment, Net 0 376,052
------------- --------------
Other Assets:
Prepaid production costs 0 300,000
Investments 0 900,000
Other 56,500 12,855
Subordinated Debentures Receivable 1,523,832 1,427,750
------------- --------------
Total Other Assets 1,580,332 2,640,605
-------------- ----------------
Total Assets $ 1,615,475 $ 3,595,387
============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts Payable - trade $ 1,863,650 $ 443,292
Due to Related Parties 146,547 0
Due to Officers and Directors 277,058 0
Accrued expenses, Including Interest 1,339,567 1,029,007
Related Party Notes Payable 400,000 400,000
------------- ---------------
Total Current Liabilities 4,026,822 1,872,299
Commitments and Contingencies
Stockholders' Equity (Deficit):
Preferred Stock, $.01 Par value, 10,000,000 authorized:
Series "B" Convertible Preferred Stock, $.01 Par value
90,000 shares issued and outstanding at June 30, 1996 0 900
Series "C" Convertible Preferred Stock, $.01 Par value
15,000 and 395,500 shares issued and outstanding at
June 30, 1996 and March 31, 1997 3,955 150
Common Stock, $.001 Par value; 50,000,000 shares authorized;
15,475,277 and 27,289,680 shares issued and outstanding at
June 30, 1996 and March 31, 1997 27,289 15,475
Additional Paid in Capital 23,512,713 15,553,068
Unrealized Holding Gains (losses), net 0 (1,166,250)
Accumulated Deficit (25,955,304) (12,680,255)
---------------- ------------
Total Stockholders' Equity (deficit) (2,415,302) 1,723,088
--------------- --------------
Total Liabilities and Stockholders' Equity (Deficit) $ 1,611,520 $ 3,595,387
================ ================
* 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> <C> <C>
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------- -------------------
1997 1996 1997 1996
-------------------- ------------------- ------------- ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Sales $ 502,233 $ 0 $ 1,846,772 $ 68,396
Cost of Sales 260,715 0 976,082 73,238
-------------------- ------------------- ------------- ------------
Gross Profits (Loss) 241,518 0 870,690 (4,842)
-------------------- ------------------- ------------- ------------
Operating Expenses:
Professional Services and Consulting 403,594 0 1,103,986 0
Financial Marketing Services 100,000 0 1,292,160 0
Distributor Commission and Fees 150,000 0 668,992 0
Start Up and Development Costs 215,000 0 586,404 0
Advertising 250,000 0 613,122 0
Salary Expenses 809,262 0 2,028,664 0
Write Down of Impaired Assets 4,579,761 0 4,579,761 0
Depreciation and Amortization 64,425 0 173,692 0
Other Selling, General and Administrative 197,255 1,246,706 996,360 3,482,591
--------------------- ------------------ ---------- ------------
Total Operating Expenses 6,769,297 1,246,706 12,043,141 3,482,591
-------------------- ------------------- ------------- ------------
Operating Loss (6,527,779) (1,246,706) (11,172,451) (3,487,433)
-------------------- ------------------- ------------- ------------
Other (income) Expense:
Interest Income (31,560) (73,954) (96,653) (223,148)
Interest Expense 7,500 51,736 23,195 135,205
Loss on Investments 2,066,250 0 2,066,250 0
Other Expense 0 0 109,806 0
-------------------- ------------------ ----------- ------------
Total Other (income) Expense 2,042,190 (22,218) 2,102,598 (87,943)
Net Loss $ (8,569,969) $ (1,224,488) $(13,275,049) $(3,399,490)
==================== ================== ============= ============
Net Loss Per Share $ (0.32) $ (0.11) $ (0.60) $ (0.29)
==================== ================== ============== ============
Weighted Average Shares Outstanding 27,054,712 11,503,412 21,988,074 11,532,900
==================== =================== ============= ============
</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,
-------------------
1997 1996
------------------- ------------
(Unaudited) (Unaudited)
Cash used in operating activities $ (5,367,664) $(3,116,170)
Cash used in investing activities (959,287) (2,140,130)
Cash provided by financing activities 6,359,739 5,199,249
------------------ ------------
Net increase (decrease) in cash 32,788 (57,051)
Cash, beginning of period 2,355 6,150
----------------- -----------
Cash, end of period $ 35,143 $ (50,901)
================== ============
</TABLE>
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 in March
1997, the Company ceased 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 by 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 ceased 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 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. The Company recorded a loss in third quarter 1997, made up of
the following components:
9 Months Ended
March 31, 1997
----------------
Abandoned Property and Equipment $ 1,118,001
Write-off of Starter Kit and Other Inventory 943,774
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 $ 4,579,791
===============
<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, 1996 and 1997 are made up of the
following:
9 Months Ended
March 31,
-----------------------------
1996 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, 1997 AND 1996
Sales for the three month period ended March 31, 1997 were $502,233, as
compared to zero for the three month period ended March 31, 1996, when the
Company was still in its development stage. These sales were generated from the
sale of the Company's primary product.
During the three month period ended March 31, 1997, the Company incurred
operating expenses of $6,769,297, resulting in an operating loss of $6,527,779,
compared with operating expenses and loss of $1,246,706 and $1,246,706,
respectively, for the three months ended March 31, 1996. This represents an
increase of over 476% in both instances. The operating expenses for the current
period include a write down of impaired assets in the amount of $4,579,761 which
reflects a write off of all the Company's assets, and the forfeiture of deposit
with the StarScreen supplier in the amount of $1,607,570 with the third party
who was manufacturing the StarScreen product, both of which occurred following
the Company's suspension of operations on March 31, 1997.
For the three month period ended March 31, 1997, the Company incurred other
expenses (income) equal to $2,042,190, which consisted primarily of a loss on
investments related to the write-off of the Company's investment in AmWest
Environmental Group, Inc. equal to $2,066,250. This is compared to other
expenses (income) of ($22,218) for the three months ended March 31, 1996.
As a result of the above, the Company incurred a net loss of $8,569,969 for the
three month period ended March 31, 1997 as compared to $1,224,488 for the three
month period ended March 31, 1996, an increase of almost 600%.
NINE MONTH PERIOD ENDING MARCH 31, 1997
Sales for the nine month period ended March 31, 1997 were $1,846,772, as
compared to $68,396 for the nine month period ended March 31, 1996, representing
a 27-fold increase. These sales consist of $1,304,850 (70%) from the sale of
"starter kits," and $502,233 (27%) from the sale of the StarScreen.
During the nine month period ended March 31, 1997, the Company incurred
operating expenses of $12,043,141, resulting in an operating loss of
$11,172,451, compared with operating expenses and loss of $3,482,591 and
$3,487,433, respectively, for the three months ended March 31, 1996. This
represents an increase of over 220% in both instances. As with the three months
ended March 31, 1997, the operating expenses for the nine month period ended
March 31, 1997 include a write down of impaired assets in the amount of
$4,579,761 which reflects a write off of all the Company's assets, and the
forfeiture of a deposit with the StarScreen supplier in the amount of $1,607,570
with the third party who was manufacturing the StarScreen product, both of which
occurred as a result of the Company's suspension of operations on March 31,
1997. Other operating expenses include professional fees and consulting
($1,103,986), financial marketing services ($1,292,160), salary expense
($2,028,664) and other selling, general and administrative ($996,360), all of
which were incurred as a result of the Company's increased efforts to
manufacture and market its StarScreen product.
For the nine month period ended March 31, 1997, the Company incurred other
expenses (income) equal to $2,102,598, which consisted primarily of a loss on
investments related to the write-off of the Company's investment in AmWest
Environmental Group, Inc. equal to $2,066,250. This is compared to other
expenses (income) of ($87,943) for the nine months ended June 30, 1996.
As a result of the above, the Company incurred a net loss of $13,275,049 for the
nine month period ended March 31, 1997 as compared to $3,399,490 for the nine
month period ended March 31, 1996, an increase of 290%.
LIQUIDITY AND CAPITAL RESOURCES AT MARCH 31, 1997
<PAGE>
During the nine months ended March 31, 1997, and as described more fully
above, the Company's net loss from operating activities was equal to
$11,173,451. Of this net loss from operating activities, $5,367,664 was cash
used in operating activities. The Company spent $959,287 on infrastructure
costs, related to the purchase of computer and office equipment. The Company
received $6,359,739 from financing activities, primarily from the sale of their
Series C Convertible Preferred Stock. As a result of the above, the Company's
cash position increased from $2,355 at the beginning of the period to $35,143 at
the end of the period.
Cash at March 31, 1997 was $35,143, as compared to $2,355 at June 30, 1996,
an increase of nearly fifteen times. As a result of the Company's suspension of
operations on March 31, 1997, all accounts receivable, inventory, deposits, and
prepaid expenses were zero at March 31, 1997, as compared to $1,628, $84,533,
$293,065, and $197,149, respectively, as of June 30, 1996. In addition, all
property plant and equipment which existed as of June 30, 1996, were also
written down to zero. The Company wrote off the prepaid production costs of
$300,000 related to the informercial. Additionally the Company wrote off the
$900,000 carrying value of the investment in Amwest Environmental. The Company's
primary asset at March 31, 1997, was a subordinated debenture receivable from
N.A. Degerstrom, Inc. in the amount of $1,523,832, which was later written down
to zero at June 30, 1997.
As a result of the above, total assets at March 31, 1997 were $1,615,475 as
compared to $3,595,387 at June 30, 1996, a decrease of 55%.
Current liabilities increased from $1,872,299 at June 30, 1996 to
$4,026,822 at March 31, 1997, an increase of 115%. This increase was due to an
increase in accounts payable - trade from $443,292 at June 30, 1996 to
$1,863,650 at March 31, 1997, an increase of 320% arising from the Company's
increased manufacturing and sales activities during the applicable period. In
addition, accrued expenses, including interest and contingencies, increased from
$1,029,007 at June 30, 1997 to $1,339,567 at March 31, 1997, an increase of 30%,
which includes a reserve of $400,000, established as reserves for potential
claims arising in the future from suspension of operations.
As a result of the above, stockholders' equity decreased from $1,723,088 at
June 30, 1996 to a deficit of ($2,415,302) at March 31, 1997.
<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. Limited discovery had
commenced as of the date of this report. Management intends to vigorously
defend its position, however the ultimate outcome of any litigation on this
matter cannot be determined at this time.
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. Limited discover has commenced, the
ultimate outcome of any litigation on this matter cannot be determined at this
time; however, management intends to vigorously defend its position.
ITEM 2 CHANGES IN SECURITIES
The Series "C" Preferred Stock authorized the issuance of 400,000 shares at
$10.00 per share. This was subsequently increased to 650,000 shares. The
registered holders of outstanding shares of Series "C" Preferred Stock are also
entitled to a number of privileges and rights including the right to receive
cumulative dividends at the annual rate of $0.60 per share payable in common
stock, conversion rights according to a predetermined formula, and liquidation
rights in the event of a liquidation, dissolution or winding up of the Company.
On November 7, 1996, a suspension of conversion of the Series "C"
Convertible Preferred stock was announced to preferred stockholders as a result
of irregularities in the trading of the Company's common stock which management
believes is related to the conversion terms of the Regulation S private
placement. Numerous shareholders have filed a lawsuit against the Company to
compel the conversion of certain class "C" Preferred Stock to common stock.
In January 1997, the Company sold an aggregate of 3,750,000 shares of
common stock, restricted in accordance with Rule 144 promulgated under
Regulation D, to one accredited investor, for cash consideration of $1,500,000.
The issuance was exempt under Rule 4(2) of the Securities Act of 1933.
In January 1997, the Company sold an aggregate of 64,000 shares of common
stock, restricted in accordance with Rule 144 promulgated under Regulation D, to
one accredited investor, for cash consideration of $32,000. The issuance was
exempt under Rule 4(2) of the Securities Act of 1933.
In February 1997, an aggregate of 150,000 shares of common stock which had
been previously issued to the president of StarTronix Inc as a performance
incentive were retired.
ITEM 3 DEFAULTS UNDER SENIOR SECURITIES
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.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
<PAGE>
ITEM 5 OTHER INFORMATION
At June 30, 1996, the Company had 90,000 warrants outstanding to various
entities for the purchase of 90,000 shares of the Company's common stock. For
the quarter ended March 31, 1997, no additional warrants were issued and none
were exercised.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
Form 8-K, dated January 15, 1997 and filed on January 16, 1997, reporting
on the issuance of 3,750,000 shares of the Company's common stock to an
accredited investor.
Form 8-K, dated February 11, 1997 and filed with the Commission on March
10, 1997, reporting on the resignation of Gerald Fitch, as a member of the Board
of Directors.
<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
Its: Chief Financial Officer
