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, 2000
[ ] 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, 2000
Common stock, $0.001 par value 25,990,731
<PAGE>
STARTRONIX INTERNATIONAL INC
INDEX
PAGE NO.
PART I Financial Information
Condensed consolidated balance sheets at
March 31, 2000 (unaudited) and June 30, 1999 3
Condensed consolidated statements of loss
(unaudited) - three and nine month periods ended
March 31, 2000 and 1999 4
Condensed consolidated statements of cash flow
(unaudited) - nine month periods ended March 31,
2000 and 1999 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 11
Item 4 Submission of Matters to a Vote of
Security Holders 11
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 31,2000 June 30, 1999*
--------------- ----------------
(Unaudited)
ASSETS
Current Assets:
Cash $ 100,498 $ 0
Inventory 123,837 0
Prepaid Expenses 37,941 0
------------- ----------------
Total Current Assets 262,276 0
Property, Plant and Equipment, Net 244,424 0
Other Assets:
Deposits 24,073 56,500
Goodwill, Net 298,366 0
------------- ---------------
Total Other Assets 322,439 56,500
------------- ---------------
Total Assets $ 829,139 $ 56,500
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts Payable - trade $ 407,622 $ 2,091,161
Due to Related Parties 0 29,108
Accrued Expenses, Including Interest 1,697,124 2,689,429
Related Parties Notes Payable 0 400,000
-------------- ----------------
Total Current Liabilities 2,104,746 5,209,698
Commitments and Contingencies
Stockholders' Equity (Deficit):
Preferred Stock, $.01 Par value, 10,000,000 authorized:
Series "C" Convertible Preferred Stock, $.01 Par value
65,000 and 50,000 shares issued and outstanding at
June 30, 1999 and March 31, 2000 500 650
Common Stock, $.001 Par value, 50,000,000 shares authorized;
19,949,580 and 25,628,617 shares issued and outstanding
at June 30, 1999 and March 31, 2000 25,628 19,949
Additional Paid In Capital 27,754,472 24,303,969
Accumulated Deficit (29,056,207) (29,477,766)
-------------- ---------------
Total Stockholders' Equity (Deficit) (1,275,607) (5,153,198)
--------------- ----------------
Total Liabilities and Shareholder's Equity (Deficit $ 829,139 $ 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> <C> <C>
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------- -------------------
2000 1999 2000 1999
-------------------- ------------------- ------------ ------------
(Unaudited) (Unaudited (Unaudited) (Unaudited)
Sales $ 0 $ 0 $ 0 $ 0
-------------------- ------------------- ------------ ------------
Operating Expenses:
Professional Services and Consulting 192,731 0 295,291 0
Development Costs 369,397 0 824,972 0
Salary Expenses 33,500 0 33,500 0
Depreciation 28,235 0 28,494 0
Other Selling, General and Administrative 108,718 81,772 223,380 101,481
-------------------- ------------------- ----------- ------------
Total Operating Expenses 732,581 81,772 1,405,637 101,481
-------------------- ------------------- ------------ ------------
Operating Loss (732,581) (81,772) (1,405,637) (101,481)
------------------- ------------------ ------------ -----------
Other (income) Expense:
Interest Expense 0 7,500 13,750 22,500
Gain on Sale of Subsidiary 0 0 (2,151,067) 0
Gain on Settlement Due to Officers and Directors 0 (277,058) 0 (277,058)
------------------ -------------------- ----------- ------------
Total Other (income) Expense 0 (269,558) (2,137,317) (254,558)
Income (Loss) Before Extraordinary Items: (732,581) 187,786 731,680 153,077
Extraordinary (Gain) Loss on Settlement of Debt (19,000) 0 310,121 0
-------------------- ------------------- ------------ ------------
Net Income (Loss) $ (713,581) $ 187,786 $ 421,559 $ 153,077
==================== ================= =========== ===========
Basic and Diluted Earnings Per Share:
Net Income (Loss) Before Extraordinary Items $ (0.03) $ 0.00 $ 0.03 $ 0.00
Extraordinary (Gain) Loss on Settlement of Debt 0 0 (0.01) 0
-------------------- ------------------- ------------ ------------
Net Income (Loss) $ (0.03) $ (0.00) $ 0.02 $ (0.00)
==================== =================== =========== =============
Weighted Average Shares Outstanding 25,157,269 46,485,050 23,292,027 46,976,171
=================== =================== ========== =============
</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,
-------------------
2000 1999
------------------- -------------
(Unaudited) (Unaudited)
Cash Used in Operating Activities $ (559,502) $ 8,228
Cash Used in Investing Activities (50,000) 0
Cash (Used) Provided by Financing Activities 710,000 (8,228)
----------------- --------
Net Increase (Decrease) in Cash 100,498 0
Cash, Beginning of Period 0 0
------------------- --------
Cash, End of Period $ 100,498 $ 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
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. (See note 2.) 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.
3. ACCRUED EXPENSES
-----------------
The Company has a $1,120,000 reserve for potential losses related to a
Series "C" Preferred Stock shareholder. In May 2000 a settlement was reached
with the final shareholder to convert the Series "C" Preferred Stock into
2,000,000 shares of common stock, valued at $1,120,000.
4. EXTRAORDINARY ITEMS
--------------------
The extraordinary loss of $310,121, net of income taxes, results from the
Company's arrangement to settle amounts payable to Phoenix Environmental Group,
Pacific Horizons and amounts due for legal fees. The Company has made no
provision for income taxes because of financial statement and tax losses since
its inception. A valuation allowance has been used to offset the recognition of
any deferred tax assets due to the uncertainty of future realization.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
9 months ended
March 31, 2000
DEBT SETTLEMENT GAIN (LOSS)
------------------------------------
Legal Fees $ 319,521 $ 196,500 $ 123,021
Related Party Notes Payable, Including Interest 531,250 983,500 (452,250)
Phoenix Environmental Group - Trade Payable 108 0 108
Pacific Horizons - Related Party 29,000 10,000 19,000
--------------------------------------
$ 879,879 $ 1,190,000 $(310,121)
=====================================
</TABLE>
<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, 2000 AND 1999
Sales for the three month period ended March 31, 2000 were zero, as
compared to zero for the three month period ended March 31, 1999, as the Company
is in the early stages of resuming its operations.
During the three month period ended March 31, 2000, the Company incurred
operating expenses equal to $732,581 as compared to $81,772 for the three month
period ended March 31, 1999, a nine-fold increase. The operating expenses for
the current period include professional services and consulting equal to
$192,731, development costs equal to $369,397, salary expenses equal to $33,500,
depreciation equal to $28,235, and other selling general and administrative
expenses equal to $108,718. Professional services and consulting consists of
legal and accounting fees. Development costs include over $300,000 to a related
party for the design and development of the Company's primary product, the
StarScreen, and consulting fees.
As a result of the above, the Company incurred a net loss before extraordinary
items of $732,581 for the three month period ended March 31, 2000 as compared to
net income before extraordinary items of $187,786 for the three months ended
March 31, 1999.
After accounting for an extraordinary gain on settlement of debt equal to
$19,000, the net loss for the three month period ended March 31, 2000 is
$713,581, as compared to net income of $187,786 for the three months ended March
31, 1999.
NINE MONTH PERIOD ENDING MARCH 31, 2000 AND 1999
Sales for the nine month periods ended March 31, 2000 and 1999 were zero
due to the suspension of operations by management of the Company effective March
31, 1997, as the Company is in the early stages of resuming its operations.
During the nine month period ended March 31, 2000, the Company incurred
operating expenses equal to $1,405,637 as compared to $101,481 for the nine
month period ended March 31, 1999, a thirteen-fold increase. The operating
expenses for the current period include professional services and consulting
equal to $295,291, development costs equal to $824,972, salary expenses equal to
$33,500, depreciation equal to $28,494, and other selling general and
administrative expenses equal to $223,380 including a $100,000 reserve for a
note accepted for the sale of StarTronix, Inc. Professional services and
consulting consists of legal and accounting fees. Development costs include
over $600,000 to a related party for the design and development of the Company's
primary product, the StarScreen, and consulting fees.
During the six month period ended December 31, 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 before extraordinary
items of $731,680 for the nine month period ended March 31, 2000 as compared to
net income before extraordinary items of $153,077 for the nine months ended
March 31, 1999.
After accounting for an extraordinary loss on settlement of debt equal to
$310,121,which results from the Company's arrangement to settle amounts to
related parties and amounts due for legal fees, the net income for the nine
month period ended March 31, 2000 is $421,559, as compared to net income of
$153,077 for the nine months ended March 31, 1999.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES AT MARCH 31, 2000
Cash at March 31, 2000 was $100,498 as compared to zero at June 30, 1999.
Other assets include inventory of $123,837, represented by equipment acquired in
the acquisition of the assets of Lancer International, Inc. Total current
assets at March 31, 2000 equal $262,276.
Property, plant and equipment of $244,424, along with goodwill equal to
$298,366, were also recorded as a result of the acquisition of the assets of
Lancer. Total assets at March 31, 2000 were $829,139.
Current liabilities decreased from $5,209,698 at June 30, 1999 to
$2,104,746 at March 31, 2000, a decrease of 59%. 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 $1,275,607 at March 31, 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 January 2000, the Company issued an aggregate of 40,000 shares of common
stock, restricted in accordance with Rule 144 promulgated under the Securities
Act of 1933, to two accredited investors in exchange for consulting services
valued at a total of $36,000. The issuance was exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933.
<PAGE>
In February 2000, the Company issued an aggregate of 519,231 shares of
common stock, restricted in accordance with Rule 144 promulgated under the
Securities Act of 1933, to two accredited investors who purchased the shares for
$515,000. The issuance was exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933.
In February 2000, in connection with the acquisition of the assets of
Lancer International, Inc., the Company issued an aggregate of 724,228 shares of
common stock, restricted in accordance with Rule 144 promulgated under the
Securities Act of 1933, to one accredited investor. 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
10.15 Asset Purchase Agreement between the Company and Lancer
International, Inc. dated February 15, 2000.
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
