UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
Commission file number 0-22619
VALUESTAR CORPORATION
(Name of small business issuer in its charter)
Colorado 84-1202005
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1120A Ballena Blvd.
Alameda, California 94501
(510) 814-7070
(Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.00025
(Title of class)
This Annual Report on Form 10-KSB for the fiscal year ended June 30, 1997 is
being filed pursuant to Rule 15d-2 under the Securities Exchange Act of 1934 and
contains only certified financial statements as required by Rule 15d-2.
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 X No__
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $1,054,530
The aggregate market value of the issue's Common Stock held by non-affiliates as
of October 20, 1997 (assuming for this purpose that only directors and officers
of registrant are affiliates of registrant), based on the average of the closing
bid and asked prices on that date, was approximately $8,235,500.
As of October 20, 1997 there were 8,326,246 shares of ValueStar Corporation
Common Stock, par value $0.00025, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE - None
Transitional Small Business Disclosure Format (check one): Yes __ No X
<PAGE>
PART II
Item 7. Financial Statements
The Company's Form 10-SB Registration Statement, as amended, due to the filing
and effective dates, did not contain the certified financial statements for the
fiscal year ended June 30, 1997, therefore, as required by Rule 15d-2, these are
being filed under cover of the facing page of an Annual Report on Form 10-KSB.
Following is the contents and thereafter the independent auditor's report and
financial statements.
CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT..........................................F-1
CONSOLIDATED FINANCIAL STATEMENTS
Balance sheet....................................................F-3
Statements of operations.........................................F-4
Statements of stockholders' deficit..............................F-5
Statements of cash flows.........................................F-6
Notes to financial statements....................................F-7
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Valuestar Corporation
We have audited the accompanying consolidated balance sheet of Valuestar
Corporation, as of June 30, 1997, and the related consolidated statements of
operations, stockholders' deficit, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The consolidated statements of operations, stockholders' equity, and
cash flows for the year ended June 30, 1996, were audited by other auditors
whose report on those statements, dated August 23, 1996, included an explanatory
paragraph expressing substantial doubt about Valuestar Corporation's ability to
continue as a going concern.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements as of and for the year
ended June 30, 1997 present fairly, in all material respects, the financial
position of the Company as of June 30, 1997, and the results of its operations
and cash flows for the year then ended, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 2, the
Company's recurring losses from operations and its inability to generate
sufficient cash flows from operations to meet its obligations, raises
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ MOSS ADAMS LLP
Santa Rosa, California
September 15, 1997
Page F-1
<PAGE>
To the Board of Directors
and Shareholders of
ValueStar Corporation
INDEPENDENT ACCOUNTANTS' REPORT
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of ValueStar Corporation for the year ended
June 30, 1996. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations,
stockholders' equity and cash flows of ValueStar Corporation for the year ended
June 30, 1996 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has incurred losses from
operations, and has relied on the sale of its common stock, which raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 2. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
The Company has restated its consolidated financial statements for the year
ended June 30, 1996 as a result of changing its accounting method from deferring
and amortizing rating and research fees relating to customer surveys and
printing and distribution costs associated with the Company's consumer
publication to expensing these fees and costs in the year incurred. The effect
of these changes was to increase the net loss for the year ended June 30, 1996
by $13,372.
/s/ MOHLER, NIXON & WILLIAMS
MOHLER, NIXON & WILLIAMS
Accountancy Corporation
Campbell, California
August 23, 1996, except for the
restatement of the consolidated
financial statements, for which the
date is October 9, 1997
Page F-2
<PAGE>
<TABLE>
VALUESTAR CORPORATION
CONSOLIDATED BALANCE SHEET
- ----------------------------------------------------------------------------------
<CAPTION>
June 30, 1997
- ----------------------------------------------------------------------------------
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 44,225
Receivables 295,542
Inventory 27,863
Prepaid expenses 7,035
-----------
Total current assets 374,665
-----------
PROPERTY AND EQUIPMENT 49,422
-----------
DEFERRED COSTS 134,085
-----------
Total assets $ 558,172
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 373,226
Accrued liabilities and other payables 112,277
Deferred revenues 22,720
Current maturities of long-term debt 30,000
-----------
Total current liabilities 538,223
-----------
LONG-TERM DEBT, less current maturities 100,000
-----------
STOCKHOLDERS' DEFICIT
Common stock, .00025 par value; 20,000,000 shares
authorized, 8,326,246 shares issued and outstanding 2,082
Additional paid-in capital 3,759,351
Accumulated deficit (3,841,484)
-----------
Total stockholders' deficit (80,051)
-----------
Total liabilities and stockholders' deficit $ 558,172
===========
<FN>
The accompanying notes are an integral part of these financial statements.
- ----------------------------------------------------------------------------------
</FN>
Page F-3
</TABLE>
<PAGE>
VALUESTAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Years Ended June 30, 1997 1996
- --------------------------------------------------------------------------------
REVENUES $ 1,054,530 $ 410,269
----------- -----------
OPERATING EXPENSES
Cost of revenues 532,133 240,713
Selling 749,100 377,481
Marketing and promotion 739,455 225,104
General and administrative 523,854 330,421
----------- -----------
2,544,542 1,173,719
----------- -----------
LOSS FROM OPERATIONS (1,490,012) (763,450)
----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (9,000) (4,099)
Miscellaneous 1,200 (5,151)
----------- -----------
(7,800) (9,250)
----------- -----------
NET LOSS $(1,497,812) $ (772,700)
=========== ===========
NET LOSS PER SHARE $ (0.20) $ (0.14)
=========== ===========
WEIGHTED AVERAGE OF COMMON SHARES
OUTSTANDING 7,330,831 5,432,615
=========== ===========
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
Page F-4
<PAGE>
<TABLE>
VALUESTAR CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Years Ended June 30, 1997 and 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Common Stock Additional
--------------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1995 4,747,286 $ 1,186 $ 1,509,076 $(1,570,972) $ (60,710)
Sale of stock at $.35 per share 310,000 77 108,423 -- 108,500
Sale of stock at $.50 per share 1,100,000 275 549,725 -- 550,000
Conversion of debt to stock at
$.50 per share 136,200 34 68,066 -- 68,100
Sale of 666,666 shares of stock
at $.75 per share, plus 66,666
issued for net offering costs 733,332 185 499,815 -- 500,000
Net loss -- -- -- (772,700) (772,700)
----------- ----------- ----------- ----------- -----------
Balance, June 30, 1996 7,026,818 1,757 2,735,105 (2,343,672) 393,190
Sale of stock at $.75 per share 1,000,000 250 749,750 -- 750,000
Conversion of debt to stock
at $.75 per share 43,195 11 32,385 -- 32,396
Sale of stock at $.75 per share 53,333 13 39,987 -- 40,000
Stock issued to employees 2,900 1 2,174 -- 2,175
Sale of stock at $1.00 per share 200,000 50 199,950 -- 200,000
Net loss -- -- -- (1,497,812) (1,497,812)
----------- ----------- ----------- ----------- -----------
Balance, June 30, 1997 8,326,246 $ 2,082 $ 3,759,351 $(3,841,484) $ (80,051)
----------- ----------- ----------- ----------- -----------
<FN>
The accompanying notes are an integral part of these financial statements.
- ------------------------------------------------------------------------------------------------------------------------------------
</FN>
Page F-5
</TABLE>
<PAGE>
<TABLE>
VALUESTAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Years Ended June 30, 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,497,812) $ (772,700)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 9,885 4,577
Change in allowance for doubtful accounts 23,207 (207)
Changes in:
Receivables (218,829) (65,659)
Inventory (12,533) (5,861)
Prepaid expenses (3,927) (5,965)
Deferred costs (64,923) (59,964)
Accounts payable 215,698 114,127
Accrued liabilities and other payables 57,454 33,375
Deferred revenues (28,019) 35,759
----------- -----------
Net cash used by operating activities (1,519,799) (722,518)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment acquisitions (12,960) (38,650)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of stock 992,175 1,158,500
Proceeds from debt 130,000 68,100
Principal payments on long-term debt -- (23,600)
----------- -----------
Net cash provided by financing activities 1,122,175 1,203,000
----------- -----------
NET INCREASE (DECREASE) IN CASH (410,584) 441,832
CASH, beginning of year 454,809 12,977
----------- -----------
CASH, end of year $ 44,225 $ 454,809
=========== ===========
SUPPLEMENTAL CASH-FLOW INFORMATION:
Cash paid during the year for:
Interest $ 9,000 $ 4,099
Income taxes $ 800 $ 800
Non-cash investing and financing activities:
Conversion of debt to equity $ 32,396 $ 68,100
<FN>
The accompanying notes are an integral part of these financial statements.
- ------------------------------------------------------------------------------------------------------------------------------------
</FN>
Page F-6
</TABLE>
<PAGE>
VALUESTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Description of operations - The Company, a Colorado corporation, conducts its
operations through ValueStar, Inc., a wholly-owned subsidiary. ValueStar, Inc.
was incorporated in California in 1991, and is a provider of service and
professional business rating information to consumers. A certification
trademark, "ValueStar(R) Certified" is issued to businesses that have
successfully passed an independent rating of their customers' satisfaction. The
Company's activities are currently concentrated in Northern California.
Principals of consolidation - The consolidated financial statements include the
accounts of Valuestar Corporation and its wholly-owned subsidiary. All material
intercompany transactions and balances have been eliminated.
Inventory - Inventory consists of promotional materials for sale to ValueStar(R)
certified businesses, and direct advertising material, and is stated at the
lower of cost (first-in, first-out method) or market.
Property and equipment - Property and equipment are stated at cost and
depreciated using the straight line method over estimated useful lives of five
to seven years.
Income taxes - Income taxes are recognized using enacted tax rates, and are
composed of taxes on financial accounting income that is adjusted for
requirements of current tax law, and deferred taxes. Deferred taxes are the
expected future tax consequences of temporary differences between the financial
statement carrying amounts and tax bases of existing assets and liabilities.
Use of estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires the Company make estimates and
assumptions affecting the reported amounts of assets, liabilities, revenues and
expenses, and the disclosure of contingent assets and liabilities. The amounts
estimated could differ from actual results.
Revenue recognition - The Company's revenues are primarily from annual
certification and rating fees, and are recognized when all related services are
provided to the customer. Rating services are primarily related to a survey of a
business' customers and the delivery of a ratings report. Services associated
with certification include an orientation on becoming a ValueStar(R) Certified
business and the delivery of certification materials and manuals. Sales of
marketing materials and other services are recognized as materials are shipped
or services are rendered.
Concentration of credit risk - Financial instruments potentially subjecting the
Company to concentrations of credit risk consist primarily of demand deposits in
excess of FDIC limits and trade receivables. The Company's demand deposits are
placed with major financial institutions. The risk associated with trade
receivables is mitigated by the Company's ability to remove certification
information from the customer's premises.
Deferred costs - All direct costs related to marketing and advertising the
ValueStar(R) certification to businesses and consumers are expensed in the
period incurred, except for direct-response advertising costs, which are
capitalized and amortized over the expected period of future benefits. Deferred
costs are periodically evaluated to determine if adjustments for impairment are
necessary.
Net loss per common share - Net loss per common share is based on the weighted
average number of common shares outstanding during the year. Common stock
equivalents have been excluded from the weighted average shares outstanding
since the effect of these potentially dilutive securities would be antidilutive.
- --------------------------------------------------------------------------------
Page F-7
<PAGE>
VALUESTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 1 - DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Fair value of financial instruments - The Company measures its financial assets
and liabilities in accordance with generally accepted accounting principles. The
fair value of a financial instrument is the amount at which the instrument could
be exchanged in a current transaction between willing parties. For certain of
the Company's financial instruments, including cash, accounts receivable and
accounts payable, the carrying amount approximates fair value because of the
short maturities. The carrying amount of the Company's short-term and long-term
debt approximates fair value because interest rates available to the Company for
issuance of similar debt with similar terms and maturities are approximately the
same.
Recent accounting pronouncements - The Financial Accounting Standards Board has
issued Statement of Financial Accounting Standards No. 128 "Earnings Per Share"
(SFAS No. 128). SFAS 128 provides a different method of calculating earnings per
share than is currently used in accordance with Accounting Principles Board
Opinion No. 15, "Earnings Per Share." SFAS 128 provides for the calculation of
"Basic" and "Dilutive" earnings per share. Basic earnings per share includes no
dilution and is computed by dividing income available to common stockholders by
the weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of an entity, similar to fully diluted earnings per share.
The Company will adopt SFAS No. 128 in 1998, and its implementation is not
expected to have a material effect on the consolidated financial statements.
Reclassifications - Certain reclassifications have been made to the June 30,
1996, financial statements to conform to the current year's presentation.
NOTE 2 - GOING CONCERN
The Company has experienced recurring losses from operations and the use of cash
from operations. A substantial portion of the losses is attributable to
marketing and promotion costs associated with increasing consumers' awareness of
the meaning of ValueStar(R) Certified, marketing to businesses the advantages of
becoming ValueStar(R) Certified, and discounting certain fees to encourage
businesses to become ValueStar(R) Certified.
It is management's plan to seek additional financing through private placements
as well as other means. Management believes the additional capital it is seeking
will be available in the future and will enable the Company to achieve sales
growth and, ultimately, profitable operations.
The consolidated financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. Cash flows from future operations
may not be sufficient to enable the Company to meet its obligations, and market
conditions and the Company's financial position may inhibit its ability to
achieve profitable operations.
These factors, as well as the future availability or inadequacy of financing to
meet future needs, could force the Company to reduce the emphasis on the growth
in new certified businesses and place increased reliance on more profitable
renewals. Such actions could have an adverse impact on the Company's operations.
- --------------------------------------------------------------------------------
Page F-8
<PAGE>
VALUESTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 3 - RECEIVABLES
1997
--------
Trade receivables $323,542
Employee receivables 2,000
--------
325,542
Less allowance for doubtful accounts 30,000
--------
$295,542
========
NOTE 4 - PROPERTY AND EQUIPMENT
1997
-------
Computer equipment $39,190
Fixtures and equipment 15,013
Office equipment 7,796
Logo design 4,949
-------
66,948
Less accumulated depreciation 17,526
-------
$49,422
=======
NOTE 5 - ACCRUED LIABILITIES AND OTHER PAYABLES
1997
--------
Payroll and payroll taxes $ 53,146
Accrued operating expenses 34,213
Accrued vacation 10,096
Other 14,822
--------
$112,277
========
- --------------------------------------------------------------------------------
Page F-9
<PAGE>
VALUESTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 6 - DEFERRED COSTS
Deferred costs consists of direct-response advertising programs consisting of
telemarketing, printing and mailing costs. These direct costs are capitalized
and amortized over a twelve month period. At June 30, 1997, approximately
$134,100 of advertising costs were capitalized and reported as an asset.
Advertising and promotion costs charged to expense were $567,000 and $203,200
for the years ended June 30, 1997 and 1996, respectively.
NOTE 7 - LONG-TERM DEBT WITH RELATED PARTIES
1997
--------
Notes payable to entities related to certain Company directors;
with interest at 12%; a balloon payment of principal and
accrued interest is due in September, 1998; unsecured $100,000
Notes payable to entities related to a Company director; with
interest at 12%; principal and accrued interest are due on
demand; unsecured 30,000
--------
130,000
Less current maturities 30,000
--------
$100,000
========
Maturities of long-term debt for succeeding years are as follows:
Year Ending June 30,
--------------------
1998 $ 30,000
1999 100,000
--------
$130,000
========
NOTE 8 - INCOME TAXES
The significant temporary differences between the carrying amounts and tax bases
of existing assets and liabilities that give rise to deferred tax assets and
liabilities include deferring the deduction of various reserves and deferring
the deduction, for tax purposes, of various accrued but unpaid expenses.
A valuation allowance is required for those deferred tax assets that are not
likely to be realized. Realization is dependent upon future earnings during the
period that temporary differences and carryforwards are expected to be
available. Because of the uncertain nature of their ultimate utilization, based
upon the Company's past performance, a complete valuation allowance is recorded
against these deferred tax assets.
- --------------------------------------------------------------------------------
Page F-10
<PAGE>
VALUESTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 8 - INCOME TAXES (Continued)
The Tax Reform Act of 1986 and the California Conformity Act of 1987 impose
restrictions on the utilization of net operating losses in the event of an
"ownership change", as defined by Section 382 of the Internal Revenue Code.
There has not been a determination whether an ownership change has taken place,
but net operating losses available to the Company for use in future years may be
limited because a change in ownership could result from the issuance of
additional stock.
1997 1996
---------- ----------
Deferred income taxes consist of the following:
Gross deferred tax assets $1,331,000 $ 700,000
Gross deferred tax liabilities 65,000 --
---------- ----------
1,266,000 700,000
Less valuation allowance 1,266,000 700,000
---------- ----------
$ -- $ --
========== ==========
The Company's deferred tax assets consist primarily of federal and state net
operating losses that are available for carryforward and will expire according
to the following:
Net Operating Loss
-----------------------
Date of expiration Federal California
------------------ ---------- ----------
1998 $ -- $ 436,100
1999 -- 178,000
2000 -- 736,000
2001 -- 763,000
2007 98,900 --
2008 410,500 --
2009 365,700 --
2010 178,600 --
2011 736,900
2012 1,525,000 --
---------- ----------
$3,315,600 $2,113,100
========== ==========
NOTE 9 - PREFERRED STOCK
The Company has designated 5 million shares of capital stock as preferred stock,
with a par value of $0.00025 per share. There were no issued or outstanding
shares of preferred stock at June 30, 1997.
- --------------------------------------------------------------------------------
Page F-11
<PAGE>
VALUESTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 10 - STOCK OPTIONS AND WARRANTS
The Company applies APB Opinion No. 25 and related interpretations in accounting
for its various stock option plans. FASB No. 123 "Accounting for Stock-Based
Compensation" (SFAS 123) was issued by the FASB in 1995 and , if fully adopted,
changes the method for recognition of cost on plans similar to those of the
Company. Adoption of SFAS 123 is optional; however, had compensation costs for
the Company's other stock option plans been determined based upon the fair value
at the grant date for awards under these plans consistent with the methodology
prescribed under SFAS 123, the Company's net loss would have been increased by
approximately $12,500 and $29,300 for the years ended June 30, 1997 and 1996,
respectively. The fair value of each option and warrant granted during 1997 and
1996 is estimated on the date of grant using the Black-Scholes option-pricing
model with the following assumptions: (1) dividend yield of 0%, (2) expected
volatility of 0%, (3) risk free interest rate of 7%, and (4) an expected life of
the options of from 3 to 5 years. Options issued during 1997 and 1996 have an
estimated weighted average fair value of $0.22 and $0.13, respectively.
In 1992 the Board of Directors approved the 1992 Incentive Stock Option Plan
(ISO Plan) and the 1992 Non-Statutory Stock Option Plan (NSO Plan). Both plans
expire in 2002. Each plan reserves 250,000 shares of common stock for incentive
and nonstatutory stock options. Options under the ISO Plan and NSO Plan expire
over a period not to exceed ten years from the date of grant.
In 1996 the stockholders approved the 1996 Stock Option Plan. The plan expires
in 2006 and reserves 300,000 shares of common stock for nonqualified stock
option. Options under the plan expire over a period not to exceed ten years from
the date of grant.
In 1997 the stockholders approved the 1997 Stock Option Plan. The plan expires
in 2007 and reserves 200,000 shares of common stock for Incentive Stock Options.
Options under the plan expire over a period not to exceed ten years from the
date of grant.
In connection with consulting services, the Company has granted 150,000 stock
purchase warrants that are exercisable at $0.75 per share and expire in April,
2002. In addition, 10,000 warrants were issued in conjunction with the issuance
of certain debt. These warrants are exercisable at $0.75 per share, and expire
in September, 1998.
<TABLE>
The following table summarizes common stock option activity:
<CAPTION>
1997 Plan 1996 Plan 1992 NSO Plan 1992 ISO Plan
------------------- ------------------ ----------------- ------------------
Shares Price Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1995 -- $ -- -- $ -- 200,000 $0.40-0.50 200,000 $0.40-0.50
Granted -- -- 340,000 0.50 50,000 -- 50,000 --
Canceled -- -- -- -- -- -- -- --
Exercised -- -- -- -- -- -- -- --
Expired -- -- -- -- -- -- -- --
------- ------- ------- -------
Balance, June 30, 1996 -- 340,000 0.50 250,000 0.40-0.50 250,000 0.40-0.50
Granted 57,000 0.75 17,000 0.75 -- -- -- --
Canceled -- -- (210,000) 0.50 -- -- -- --
Exercised -- -- -- -- -- -- -- --
Expired -- -- -- -- -- -- -- --
------- ------- ------- -------
Balance, July 31, 1997 57,000 $ 0.75 147,000 $0.50-0.75 250,000 $0.40-0.50 250,000 $0.40-0.50
======= ======= ======= =======
</TABLE>
<PAGE>
VALUESTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company has not yet reviewed its software and hardware components to ensure
its computers and other associated systems are year 2000 compliant. Cost of
compliance, if any, can not be estimated at this time.
The Company rents office space under an operating lease expiring in July 1998.
The monthly lease payments, currently $2,759, are adjusted annually for
increases in the Consumer Price Index beginning after the second year, as
defined in the lease agreement. The Company is responsible for its pro-rata
share of common area maintenance fees, which includes utilities, maintenance and
insurance. Rent expense for the years ended June 30, 1997 and 1996 was $33,000
and 22,500, respectively.
Minimum lease payments for this operating lease are as follows:
Year Ending June 30,
--------------------
1998 $34,776
1999 1,112
-------
$35,888
=======
NOTE 12 - SUBSEQUENT EVENTS
Subsequent to June 30, 1997, the Company obtained a $250,000 revolving line of
credit, with interest at prime plus 2%. Certain notes payable to entities
related to a Company director are subordinated to the line of credit. The bank's
commitment under this agreement matures in August 1998.
In addition, the Company adopted a 401(k) profit-sharing plan subsequent to June
30, 1997 that covers substantially all employees meeting certain minimum age and
service requirements. The Company, at the direction of the Board of Directors,
may make discretionary profit-sharing contributions to the plan.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
VALUESTAR CORPORATION
By: /s/ JAMES STEIN
---------------
James Stein
President and Chief Executive Officer
Date: October 24, 1997
<TABLE>
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
<CAPTION>
Name Position Date
---- -------- ----
<S> <C> <C>
/s/ JAMES STEIN President, Chief Executive Officer October 24, 1997
----------- and Director
James Stein (principal executive officer)
/s/ BENJAMIN A. PITTMAN Secretary and Controller October 24, 1997
------------------- (principal financial officer)
Benjamin A. Pittman
/s/ JAMES A. BARNES Treasurer and Director October 24, 1997
---------------
James A. Barnes
/s/ JERRY E. POLIS Director October 24, 1997
--------------
Jerry E. Polis
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL STATEMENTS FOR FISCAL YEAR-ENDED JUNE 30, 1997 INCLUDED IN THE
ANNUAL REPORT ON FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 44,225
<SECURITIES> 0
<RECEIVABLES> 325,542
<ALLOWANCES> 30,000
<INVENTORY> 27,863
<CURRENT-ASSETS> 374,665
<PP&E> 66,948
<DEPRECIATION> 17,526
<TOTAL-ASSETS> 558,172
<CURRENT-LIABILITIES> 538,223
<BONDS> 100,000
0
0
<COMMON> 2,082
<OTHER-SE> (82,133)
<TOTAL-LIABILITY-AND-EQUITY> 558,172
<SALES> 0
<TOTAL-REVENUES> 1,054,530
<CGS> 0
<TOTAL-COSTS> 532,133
<OTHER-EXPENSES> 2,012,409
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,000
<INCOME-PRETAX> (1,497,812)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,497,812)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,497,812)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
