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, 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 SEPTEMBER 30, 1997
Common stock, $0.001 par value 48,461,479
<PAGE>
STARTRONIX INTERNATIONAL INC
INDEX
PAGE NO.
PART I Financial Information
Condensed consolidated balance
sheets at September 30, 1997 (unaudited)
and June 30, 1997 3
Condensed consolidated statements of loss
(unaudited) - three month periods ended
September 30, 1997 and 1996 4
Condensed consolidated statements of
cash flow (unaudited) - three month periods
ended September 30, 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 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 10
Item 6 Exhibits and Reports on Form 8-K 10
<PAGE>
PART I - FINANCIAL INFORMATION
STARTRONIX INTERNATIONAL INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C>
September 30,
1997 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 $ 2,077,511 $ 2,032,234
Due to Related Parties 689,719 659,719
Due to Officers and Directors 277,058 277,058
Accrued Expenses, Including Interest 1,674,291 1,162,015
Related Party Notes Payable 400,000 400,000
--------------- ----------------
Total Current Liabilities 5,118,579 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 September 30, 1997 650 3,955
Common Stock, $.001 Par value, 50,000,000 shares authorized;
38,517,298 and 48,461,479 shares issued and outstanding at
June 30, 1997 and September 30, 1997 48,461 38,517
Additional Paid In Capital 23,506,074 23,512,713
Accumulated Deficit (28,617,264) (28,018,736)
-------------- ---------------
Total Stockholders' Equity (deficit) (5,062,079) (4,463,551)
--------------- ----------------
Total Liabilities and Shareholders' Equity (Deficit) $ 56,500 $ 67,475
=============== ================
* 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,
--------------------
1997 1996
-------------------- ------------
(Unaudited) (Unaudited)
Sales $ 0 $ 703,341
Cost of Sales 0 583,301
-------------------- ------------
Gross Profit 0 120,040
Operating Expenses:
Professional Services and Consulting 75,227 237,660
Financial Marketing Services 0 1,137,050
Distributor Commission and Fees 0 168,419
Start Up and Development Costs 0 354,878
Advertising 0 132,700
Salary Expenses 4,914 451,979
Depreciation and Amortization 0 26,937
Other Selling, General and Administrative 510,837 597,287
------------------- ------------
Total Operating Expenses 591,028 3,106,910
-------------------- ------------
Operating Loss (591,028) (2,986,870)
-------------------- ------------
Other (income) Expense:
Interest Income 0 (32,261)
Interest Expense 7,500 7,500
Other Expense 0 48,708
------------------- ------------
Total Other (income) Expense 7,500 (23,947)
Net Loss $ (598,528) $(3,010,817)
==================== ============
Net Loss Per Share $ (0.02) $ (0.18)
==================== ============
Weighted Average Shares Outstanding 39,305,711 16,543,231
=================== ===========
</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>
Three Months Ended
September 30,
--------------------
1997 1996
-------------------- ------------
(Unaudited) (Unaudited)
Cash used in operating activities $ (10,975) $(2,958,387)
Cash used in investing activities 0 (484,233)
Cash provided by financing activities 0 3,637,542
-------------------- ------------
Net increase (decrease) in cash (10,975) 194,922
Cash, beginning of period 10,975 2,355
-------------------- ------------
Cash, end of period $ 0 $ 197,277
=================== =============
</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 sell products.
Because of the Company's inability to secure adequate resources in 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.
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, 1997 AND 1996
Sales for the three month period ended September 30, 1997 were zero, as
compared to $703,341 for the three month period ended September 30, 1996, due to
the suspension of operations by management of the Company effective March 31,
1997.
During the three month period ended September 30, 1997, the Company
incurred operating expenses of $591,028, resulting in an operating loss of
$591,028, compared with operating expenses and loss of $3,106,910 and
$2,986,870, respectively, for the three months ended September 30, 1996. This
represents a decrease of over 80% in both instances. The operating expenses for
the current period include other selling, general and administrative expenses of
$510,837, 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 $598,528 for the
three month period ended September 30, 1997 as compared to $3,010,817 for the
three month period ended September 30, 1996, a decrease of 83%.
LIQUIDITY AND CAPITAL RESOURCES AT SEPTEMBER 30, 1997
During the three months ended September 30, 1997, and as described more
fully above, the Company's net loss from operating activities was equal to
$591,028. Of this net loss from operating activities, $10,975 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 September 30, 1997 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 September 30, 1997 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
$5,118,579 at September 30, 1997, an increase of 13%. This increase was due to
an increase in the accrued expenses of $512,276.
As a result of the above, the deficit in total stockholders' equity
increased from $4,463,551 at June 30, 1997 to $5,062,079 at September 30, 1997.
Also during the three months ended September 30, 1997, the number of shares
of Series "C" Convertible Preferred Stock outstanding decreased from 395,500 at
June 30, 1997 to 65,000 at September 30, 1997. This was due to the conversion
of 335,500 shares of Series C Preferred Stock into an aggregate of 9,944,181
shares of common stock.
<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
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 August and September of 1997, the Company issued an aggregate of
9,944,181 shares of common stock to certain holders of the Series "C"
Convertible Preferred Stock pursuant to conversion notices delivered by the
shareholders. As a result of these conversions, an aggregate of 335,500 shares
of Series "C" Convertible Preferred stock were converted.
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
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
Its: Chief Financial Officer
