U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
For the transition period from to
Commission File No. 0-32429
STARTCALL.COM, INC.
(Name of Small Business Issuer in Its Charter)
Florida
(State of Other Jurisdiction of
Incorporation or Organization)
65-0955118
(I.R.S. Employer
Identification No.)
719 5th Street Miami Beach, FL 33139
(Address of Principal Executive Offices) (Zip Code)
(305) 579-9008
(Issuer's Telephone Number, Including Area Code)
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
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of May 20, 2002 the Company
had 24,281,950 shares of Common Stock outstanding, $0.000666 par value.
BASIS OF PRESENTATION
The accompanying unaudited financial statements are presented in accordance with
generally accepted accounting principles for interim financial information and
the instructions to Form 10-QSB and item 310 under subpart A of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The accompanying statements should be read in conjunction with the audited
financial statements for the year ended December 31, 2000. In the opinion of
management, all adjustments (consisting only of normal occurring accruals)
considered necessary in order to make the financial statements not misleading,
have been included. Operating results for the three months ended March 31,
2002 are not necessarily indicative of results that may be expected for the year
ending December 31, 2002. The financial statements are presented on the accrual
basis.
I-1
Part I - FINANCIAL INFORMATION
STARTCALL.COM, INC.
(A Development Stage Enterprise)
FINANCIAL STATEMENTS
March 31, 2002 and 2001
And
For the three-month periods then added and the period
October 19, 1999 (Date of Inception) through March 31, 2002
(UNAUDITED)
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Accountants 2
Balance Sheets 3
Statements of Operations and Accumulated Deficit 4
Statements of Cash Flows 5
Notes to the Financial Statements 6-19
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Signatures
STARTCALL.COM, INC.
(A Development Stage Enterprise)
FINANCIAL STATEMENTS
March 31, 2002 and 2001
And
For the three-month periods then added and the period
October 19, 1999 (Date of Inception) through March 31, 2002
(UNAUDITED)
Report of Independent Accountants 2
Balance Sheets 3
Statements of Operations and Accumulated Deficit 4
Statements of Cash Flows 5
Notes to the Financial Statements 6-19
-1-
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Startcall.com, Inc.
Miami, FL
We have reviewed the accompanying balance sheets of Startcall.com, Inc. (A
Development Stage Enterprise) (the "Company") as of March 31, 2002 and March 31,
2001, and the related statements of operations and accumulated deficit, and cash
flows for the three month periods then ended and for the period October 19, 1999
(Date of Inception) through March 31, 2002. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note A to the financial
statements, the Company is a development stage enterprise that has not commenced
its planned principal operations and is reporting accumulated losses since
Inception that total approximately $532,700. Accordingly, the Company's ability
to continue as a going concern is dependent on its ability to, among other
things, obtain additional debt and equity financing, identify customers and
secure vendors and suppliers, and establish an infrastructure for its planned
operation. Management's plans in regard to these matters are also described in
Note A. These financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
May 15, 2002
-2-
STARTCALL.COM, INC.
(A Development Stage Enterprise)
BALANCE SHEETS
(Unaudited)
As of March 31,
-------------------------------------
2002 2001
ASSETS
CURRENT ASSETS
Cash $ - $ -
Prepaid expenses - 25,000
-------- --------
TOTAL CURRENT ASSETS - 25,000
PROPERTY AND EQUIPMENT 11,067 24,331
OTHER ASSETS - 4,355
-------- --------
TOTAL ASSETS $ 11,067 $ 53,686
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
LIABILITIES
CURRENT LIABILITIES
Checks drawn in excess of cash balance $ 12,852 $ 15,993
Current portion notes payable -
related parties 147,785 1,760
Accounts payable and
accrued expenses 64,210 45,271
-------- --------
TOTAL CURRENT LIABILITIES 224,847 63,024
LONG-TERM DEBT - related parties,
net of current portion - 105,017
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY EQUITY
Common stock 1,472 1,472
Additional paid-in capital 317,428 317,428
Accumulated deficit (532,680) (433,255)
-------- --------
TOTAL STOCKHOLDERS' DEFICIENCY (213,780) (114,355)
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $ 11,067 $ 53,686
======== ========
See notes to the financial statements.
-3-
STARTCALL.COM, INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(Unaudited)
October 19,
1999
For the three months ended (Inception)
through
March 31, March 31, March 31,
2002 2001 2002
---- ---- ----
REVENUES $ 511 $ 375 11,144
OPERATING EXPENSES
Organization 5,554
General and administrative 41,347 19,128 429,520
Research and development -- 7,398 69,319
Marketing and promotional -- -- 39,431
TOTAL OPERATING EXPENSES 41,347 26,526 543,824
LOSS BEFORE INCOME TAX BENEFIT (40,836) (26,151) (532,680)
INCOME TAX BENEFIT, net -- -- --
NET LOSS (40,836) (26,151) (532,680)
ACCUMULATED DEFICIT - beginning (491,844) (35,138) --
ACCUMULATED DEFICIT - ending $(532,680) $ (61,289) $(532,680)
Loss per share of common stock - Basic and Diluted $ (0.03) $ (0.02) $ (0.36)
See notes to the financial statements.
-4-
STARTCALL.COM, INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(Unaudited)
October 19,
1999
For the three months ended (Inception)
through
March 31, March 31, March 31,
2002 2001 2002
---- ---- ----
Cash Flows From Operating Activities
Net loss $ (40,836) $ (26,152) $(532,680)
Adjustments to reconcile net loss to net
cash used by operating activities
Depreciation 3,316 3,316 31,993
Decrease (increase) in prepaid assets 25,000 5,419 --
(Decrease) increase in accounts payable
and accrued expenses -- (20,632) 60,681
--------- --------- ---------
Total adjustments 28,316 (11,897) 92,674
--------- --------- ---------
Net Cash Provided (Used) by Operating Activities (12,520) (38,049) (440,006)
--------- --------- ---------
Cash Flows From Investing Activities
Security deposits paid 4,355 -- --
Advances to shareholder -- -- (4,327)
Purchases of fixed assets -- -- (12,520)
--------- --------- ---------
Net Cash Provided (Used) by Investing Activities 4,355 -- (16,847)
--------- --------- ---------
Cash Flows From Financing Activities
Issuance of common stock -- -- 303,000
Checks drawn in excess of cash balance 12,852 15,993 12,852
Proceeds from shareholder loans -- -- 6,998
Net proceeds from notes payable -
related parties 2,238 33,344 134,003
--------- --------- ---------
Net Cash Provided (Used) by Financing Activities 15,090 49,337 456,853
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH 6,925 11,288 --
CASH AT BEGINNING OF PERIOD (6,925) (11,288) --
--------- --------- ---------
CASH AT END OF PERIOD $ -- $ -- $ --
========= ========= =========
See notes to the financial statements.
-5-
STARTCALL.COM, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
March 31, 2002 and 2001
And
For the years then ended and
for the period October 19, 1999 (Date of Inception) through March 31, 2002
(Unaudited)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Summarized below are the significant accounting policies of STARTCALL.COM, INC.
The Company: STARTCALL.COM, INC. (the "Company"), incorporated in the State of
-----------
Florida effective October 19, 1999 (Date of Inception), established its
corporate offices in Miami, Florida.
On June 7, 2000, the Company filed an amendment to the Articles of Incorporation
effecting a name change to STARTCALL.COM, INC., and changed its capital
structure as disclosed in Note G to these financial statements.
Because the Company meets the criteria of a development stage enterprise, as
discussed more fully below, these financial statements are presented in
accordance with Statements of Financial Accounting Standards ("SFAS") Number 7,
Accounting and Reporting by Development Stage Enterprises".
Nature of the Business: The Company plans on operating as an Application Service
-----------------------
Provider, or ASP, and offering real-time interaction technology as an outsource
service. Management is in the process of establishing a viable solution to
real-time access to commerce business over the Internet. The Company plans to
offer these businesses the opportunity to improve their online customer care
service capabilities by placing an internet voice box and a Text Chat button
with a URL push feature on the websites of some of these potential domestic and
international business customers. These tools should not only provide the
visitors and customers of a particular website live help at the crucial point of
purchase, but they should also facilitate other types of needed assistance.
Development Stage Enterprise: The Company is currently devoting substantially
----------------------------
all of its efforts to establishing a new business and its planned principle
operations have not commenced as of March 31, 2002. In their efforts to
establish a new business, management is commencing with design of its business
and marketing plans that include the following: preparation of a financial plan,
cash forecast and operating budget; identifying markets to raise additional
equity capital and debt financing; embarking on research and development
activities; performing employment searches, recruiting and hiring technicians
and management and industry specialists; acquiring operational and technological
assets; and, developing market and distribution strategies. General and
administrative expenses include professional fees, internet service charges, and
other related operating expenses. Marketing and promotional expenses include
costs incurred in connection with raising capital and promoting the Company.
-6-
STARTCALL.COM, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
March 31, 2002 and 2001
And
For the years then ended and
for the period October 19, 1999 (Date of Inception) through March 31, 2002
(Unaudited)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Research and Development Costs: Generally accepted accounting principles state
------------------------------
that costs that provide no discernible future benefits, or allocating costs on
the basis of association with revenues or among several accounting periods that
serve no useful purpose, should be charged to expense in the period occurred.
Since the Company is in its development stage, SFAS No. 2 "Accounting for
Research and Development Costs" requires that certain costs be charged to
current operations including, but not limited to: salaries and benefits;
contract labor; consulting and professional fees; depreciation; repairs and
maintenance on operational assets used in the production of prototypes; testing
and modifying product and service capabilities and design; and, other similar
costs.
Basis of Presentation: In accordance with SFAS No.7, the Company's policy
---------------------
regarding the preparation of these financial statements includes the presenting,
in addition to its statements of operations, changes in stockholders'
(deficiency) equity and cash flows, the cumulative amounts of revenues and
expenses, stockholder equity transactions and cash flows since Inception through
March 31, 2002.
The Company's independent accountants are including a "going concern" paragraph
in their review report accompanying these financial statements that cautions the
users of the Company's financial statements that these statements do not include
any adjustments that might result from the outcome of this uncertainty because
the Company is a development stage enterprise that has not commenced its planned
principal operations. Furthermore, the "going concern" paragraph states that the
Company's ability to continue is also dependent on its ability to, among other
things, obtain additional debt and equity financing, identify customers, secure
vendors and suppliers, and establish an infrastructure for its operations.
Even though the Company has not commenced planned principal operations or
generated revenues from prospective customers nor has it secured the funding
necessary to meet its current working capital needs, management believes that,
despite the extent of the financial requirements and funding uncertainties going
forward, it has under development a business plan that, if successfully funded
and executed as an integral part of a financial structuring, the Company can
overcome the concerns of the independent accountants within the next twelve
months.
-7-
STARTCALL.COM, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
March 31, 2002 and 2001
And
For the years then ended and
for the period October 19, 1999 (Date of Inception) through March 31, 2002
(Unaudited)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Management continues to actively seek various sources and methods of short and
long-term financing and support; however, there can be no assurances that some
or all of the necessary financing can be obtained. Management continues to
explore alternatives that include seeking strategic investors, lenders and/or
technology partners and pursuing other transactions that, if consummated, might
ultimately result in the dilution of the interest of the current stockholders.
Because of the nature and extent of the uncertainties, many of which are outside
the control of the Company, there can be no assurances that the Company will be
able to ultimately consummate planned principal operations or secure the
necessary financing.
The accompanying unaudited interim financial statements reflect all adjustments,
which in the opinion of management, are necessary for a fair presentation of the
results of operations for the periods shown. The results of operations for such
periods are not necessarily indicative of the results expected for the full
fiscal year or for any future period. These financial statements should be read
in conjunction with the financial statements and related notes included in the
Company's annual report on Form 10-KSB for the year ended, December 31, 2001.
Start-up Costs: Cost incurred in connection with commencing operations,
--------------
including general and administrative expenses, are charged to operations in the
period incurred.
Revenue Recognition: The Company recognizes revenues upon the delivery of a
-------------------
product or service. Installation, maintenance and service fees paid in advance
by customers are initially recorded as deferred revenues and subsequently
amortized over the life of their respective contract periods.
Property and Equipment: Property and equipment are stated at cost. Depreciation
----------------------
and amortization are provided in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives. When
applicable, leasehold improvements and capital leases are amortized over the
lives of respective leases, or the service lives of the improvements, whichever
is less.
The straight-line method of depreciation is used for financial reporting
purposes.
-8-
STARTCALL.COM, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
March 31, 2002 and 2001
And
For the years then ended and
for the period October 19, 1999 (Date of Inception) through March 31, 2002
(Unaudited)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
The estimated useful lives, of property and equipment, are as follows:
YEARS
Computer equipment, peripherals and software 2-3
Office equipment 3-5
Furniture and fixtures 5-7
Expenditures for renewals and improvements that significantly extend the useful
life of an asset are capitalized. The costs of software used in the business
operations are capitalized and amortized over their expected useful lives.
Expenditures for maintenance and repairs are charged to operations when
incurred. When assets are sold or retired, the cost of the asset and the related
accumulated depreciation are removed from the accounts and any gain or loss is
recognized at such time.
Earnings Per Common Share: In calculating earnings per common share, basic
-------------------------
earnings per share is computed by dividing net income (loss) by the weighted
average number of common shares outstanding, excluding the diluted effects of
stock options.
Use of Estimates: In preparing financial statements in conformity with generally
----------------
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenditures during the reported periods. Actual
results could differ materially from those estimates. Estimates may include, but
not be limited to, those pertaining to the estimated useful lives of property
and equipment and software, determining the estimated net realizable value of
receivables, and the realization of deferred tax assets.
Stock-Based Compensation: The Company will account for stock-based compensation
------------------------
using the intrinsic vale method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees". Compensation costs
for stock options, if any, are measured as the excess of the quoted market price
of the Company's stock at the date of grant over the amount the employee must
pay to acquire the stock. Restricted stock is recorded as compensation costs
over the requisite vesting periods based on the market value on the date of
grant. Compensation costs for shares issued under performance share plans are
recorded based upon the current market value of the Company's stock at the end
of each period.
-9-
STARTCALL.COM, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
March 31, 2002 and 2001
And
For the years then ended and
for the period October 19, 1999 (Date of Inception) through March 31, 2002
(Unaudited)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation", established accounting and disclosure requirements
using a fair-value-based method of accounting for stock-based employee
compensation plans. The Company is electing to use APB Opinion No. 25 as its
method of accounting and is adopting the disclosure requirements of SFAS No.
123.
The fair value of each option grant is to be estimated on the date of grant
using the Black-Scholes option pricing model and certain weighted-average
assumptions. As of March 31, 2002 no options have been granted.
Risks and Uncertainties: Management regularly evaluates risks and uncertainties
-----------------------
and, when probable that a loss or expense will be incurred, a charge to current
period operations is recorded.
Even though the Company does not have sufficient assets and liquidity, the
Company's management has elected to self-insure the Company against losses, if
any, that might be otherwise insurable if the Company maintained business
insurance including; business interruption; property, wind and flood; general
and automobile liability; errors and omissions; and, officers and directors
coverage. From inception through March 31, 2002, management is not aware of any
event, transaction or matter that requires disclosure and/or adjustment to these
financial statements with respect to uninsured losses, except as many otherwise
be disclosed in these footnotes. However, because of the current financial
condition of the Company, should any uninsured claim or loss occur, the ability
of the Company to continue might be adversely effected.
Additionally, the Company has agreed, as set forth in its By-Laws, to indemnify
to the fullest extent permitted or authorized by current or future legislation,
judicial or administrative decision, all past and present employees, agents,
directors, officers and representatives against any fine, liability, cost or
expense asserted against them or incurred by them in the above capacities.
Because of the rapid evolution of the industry in which the Company operates,
its ability to operate may be adversely effected by future changes in Federal
and state regulations.
Income Taxes: On March 29, 1999, the stockholders holding a majority of the
-------------
shares of the Company's issued and outstanding shares voted to terminate its
S-election with the Internal Revenue Service, with an effective date retroactive
to October 19, 1999.
-10-
STARTCALL.COM, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
March 31, 2002 and 2001
And
For the years then ended and
for the period October 19, 1999 (Date of Inception) through March 31, 2002
(Unaudited)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
The Company recognizes deferred tax assets and liabilities based on differences
between the financial reporting and tax bases of assets and liabilities using
the enacted tax rates and laws that are expected to be recovered. The Company
provides a valuation allowance for deferred tax assets for which it does not
consider realization of such assets to be more likely than not.
NOTE B - OFFERING MEMORANDUM
The Company filed a Form U-7 SCOR Offering Memorandum, on July 26, 2000, under
Regulation D promulgated under the Securities Act of 1933, as amended. However,
this share offering was not registered under the 1933 Act, or the securities
laws of any state. The Offering was made available for sale in Nevada and, in
order to meet the conditions for exemption from the registration requirements
under the securities laws of certain jurisdictions, accredited investors who are
residents of such jurisdiction will be required to meet certain suitability
requirements.
The Company planned on offering a maximum of 706,750 shares of the
Company's $.000666 par value common stock at an offering price of $.40 per
share. However, the actual amount of shares sold was 707,500. The issuance of
these shares has a dilutive effect on the book value per share of the Company's
common stock. The total amount of gross proceeds realized on the Offering
totaled $283,000.
This Offering was made on an "all-or-none basis" utilizing
subscription agreements containing the applicable terms, conditions and
requirements; there are no underwriters; and, the Company was required to
maintain on deposit with an escrow agent the proceeds from the Offering equaling
twenty-five (25%) percent of the total gross proceeds until all of the
securities under this Offering are sold.
NOTE C - PROPERTY AND EQUIPMENT
At March 31, property and equipment consists of the following:
2002 2001
------------------- -------------------
Computer equipment, peripherals
and software $ 34,896 $ 34,896
Office equipment 8,162 8,162
------------------- -------------------
Less: accumulated depreciation (31,991) (18,727)
------------------- -------------------
TOTAL $ 11,067 $ 24,331
=================== ===================
-11-
STARTCALL.COM, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
March 31, 2002 and 2001
And
For the years then ended and
for the period October 19, 1999 (Date of Inception) through March 31, 2002
(Unaudited)
NOTE D - NOTES PAYABLE - RELATED PARTIES
At March 31, notes payable to related parties consists of the following:
2002 2001
--------------------- ------------------
10% Unsecured loans payable to shareholder
Due on demand $ 1,760 $ 1,760
8% Unsecured notes payable to shareholders
Interest begins accruing on June 1, 2001
Principal and interest due on August 30,
2002 146,025 105,017
--------------------- ------------------
TOTAL 147,785 106,777
Less: Current portion (147,785) (1,760)
--------------------- ------------------
TOTAL $ - $ 105,017
===================== ==================
NOTE E- TRANSACTIONS WITH AFFILIATE AND STOCKHOLDER
In connection with the start-up of the Company, certain general and
administrative, marketing and promotion costs, and research and development
costs, charged to operations, were paid on behalf of the Company, as summarized
below:
Inception through
Periods ended March 31 Inception
------------------------------------------ through
2002 2001 March 31, 2002
-------------------- ------------------ -------------------
Affiliate $ - $ - $ 8,874
Stockholders - $ - $ 6,998
-------------------- ------------------ -------------------
TOTAL $ - $ - $ 15,872
==================== ================== ===================
-12-
STARTCALL.COM, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
March 31, 2002 and 2001
And
For the years then ended and
for the period October 19, 1999 (Date of Inception) through March 31, 2002
(Unaudited)
NOTE E- TRANSACTIONS WITH AFFILIATE AND STOCKHOLDER - Continued
In addition, summarized below is the non-cash investing and financing activities
with related parties:
Periods ended Inception
------------------------------------------- through
March 31, 2002 March 31, 2001 March 31, 2002
------------------- -------------------- -------------------
Affiliate:
Funds advanced for the purchase
of property and equipment. $ - $ - $ 13,745
------------------- -------------------- -------------------
Stockholders:
Stockholders issued promissory
notes in connection with their
direct payment to vendors for the
purchase of property and
equipment. $ - $ - 2,500
Stockholders issued common
stock in connection with their
direct payment to vendors for
the purchase of property and
equipment. - - 13,400
------------------- -------------------- -------------------
TOTAL STOCKHOLDERS - - 15,900
------------------- -------------------- -------------------
TOTAL AFFILIATE AND
STOCKHOLDERS $ - $ - $ 29,645
=================== ==================== ===================
The Affiliate is owned 100% by a majority stockholder of the Company.
-13-
STARTCALL.COM, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
March 31, 2002 and 2001
And
For the years then ended and
for the period October 19, 1999 (Date of Inception) through March 31, 2002
(Unaudited)
NOTE F - STOCKHOLDERS' EQUITY
The Articles of Incorporation, initially filed with the State of Florida,
authorize only one class of stock: 1000 shares of one ($1.00) dollar par value
common stock. The holders of these shares of common stock do not have cumulative
voting rights. Shares are not issued until paid for in full.
On June 7, 2000, the Board of Directors approved an amendment to the Articles of
Incorporation, authorizing the Company to issue up to 50,000,000 shares of
$.000666 par value common stock. On June 29, 2000, the 1000 previously issued
and outstanding shares of the $1.00 par value common stock were tendered by each
shareholder and cancelled. In exchange for the tendered shares, on July 1, 2001
the Company issued 1,499,950 shares of its $.000666 par value stock that
resulted in a dilution of the Company's book value per share.
As more fully disclosed in Note B to these financial statements, the Offering
Memorandum provides for the sale of an additional 707,500 shares of the
Company's $.000666 par value common stock at a price of $.40 per share.
In February, 2002, the Board of Directors approved an 11-1 forward split of the
Company's outstanding stock. The per share computation described in Note I,
reflects this split.
NOTE G - COMMITMENTS
Summarized below are certain contracts and agreements executed by the Company
from October 19, 1999 (Inception) through March 31, 2002.
License and Distribution Agreement and the End-User License Agreement: On
---------------------------------------------------------------------
October 19, 1999, the Company ("Licensee"), entered into a License and
Distribution Agreement and an End-User License Agreement, herein collectively
referred to as the "License Agreement" with an unrelated third party
("Licensor"). The Licensor grants the Licensee a perpetual, nonexclusive,
non-transferable license to use certain software solely for the Licensee's
business purpose, without further re-selling or distribution, except the
Licensee may duplicate and distribute the software to end-user customers. The
Licensee may also use the Licensor's trade names and trademarks. The media
containing the software is subject to a 90-day warranty, but the Licensor does
not warrant its software. The fee structure associated with this agreement is
disclosed in the Distribution Partner Agreement described below.
-14-
STARTCALL.COM, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
March 31, 2002 and 2001
And
For the years then ended and
for the period October 19, 1999 (Date of Inception) through March 31, 2002
(Unaudited)
NOTE G - COMMITMENTS - Continued
Distribution Partner Agreement: On June 14, 2000, the Company executed a
------------------------------
Distribution Partnership Agreement (the "Distribution Agreement") with the
unrelated third party Licensor. The Distribution Agreement provides that the
Company distribute to its customers, the Licensor's web-to-phone Internet
telephony and multimedia services.
The Company, at its expense, is responsible for providing the first level of
technical support to its customers relating to the use of the Licensor's
software and services, subject to the terms of the Licensor's standard support
agreement and, the License and Distribution Agreement and the End-User License
Agreement, disclosed in the preceding paragraph of these financial statements.
The Licensor has agreed to provide the second level of technical support to the
Company's customers, subject to the terms of its standard support agreement.
The Distribution Agreement sets forth a combination of one or more of the
following fee structures: (a) Session Pricing--Connection costs per "customer
session" subject to various volume levels; (b) Minimum Volume
Commitments--Twelve (12) non-refundable minimum monthly payments by the Company
of one thousand ($1,000.00) dollars to be applied to the first one thousand of
monthly charges with no carryover if the minimum is not met. The entire amount
of twelve thousand ($12,000) dollars is payable in advance upon execution of the
Distribution Agreement; (c) Programming Fees--The Company is subject to a fifty
($50) dollar one-time "start-up" fee per customer. The Distribution Agreements
are for a one (1) year term and are subject to automatic one-year renewals
unless terminated by either party with thirty (30) days written notice prior to
the expiration of the then-effective term. The $12,000 fee was paid in June
2001. At March 31, 2002 this fee is included in general and administrative
expense.
The Distribution Agreements may also be terminated by either party with seven
(7) days prior written notice in the event of an occurrence of certain defined
events, including a material breach of the terms and conditions therein.
Dealer/Promoter Agreements: During 2000, the Company executed various
--------------------------
non-exclusive agreements whereby these independent contractors agree to use
their best efforts to cause end-users to purchase the Company's services. During
the terms of these Agreements, the Company has agreed to pay the
Dealer/Promoters a commission in accordance with the established schedules, as
more fully described in each of the duly executed original service agreements.
These Agreements expire under various criteria
-15-
STARTCALL.COM, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
March 31, 2002 and 2001
And
For the years then ended and
for the period October 19, 1999 (Date of Inception) through March 31, 2002
(Unaudited)
NOTE G - COMMITMENTS - Continued
ranging from the earlier of Nine (9) to twelve (12) months, or the sale of two
(2000) to five (5,000) thousand accounts of ClickIChat and/or ClickICall
services. The Agreements are renewable under certain conditions and may be
cancelled by either party with thirty (30) days advance written notice.
The Agreements, among other things, set forth certain performance, compensation
and charge-back provisions as follows:
CLICKICHAT SERVICE: (a) Performance Standards- - The Dealer/Promoters
must sell Chat Licenses at a minimum standard price per month based on
sessions, plus the installations fees, and at the defined minimum sales
levels for the number of new subscribers and billing revenues; (b)
Compensation- - The Dealer/Promoters will be paid commissions ranging
between fifteen (15%) and twenty (20%) percent of the total sales they
generate and an additional thirty-three and one-third (33 1/3%) percent
of the installation fees when the sales are deemed "qualified" under
the terms of these Agreements.
CLICKICALL SERVICE: (a) Compensation --The Dealer/Promoters will be
paid commissions ranging between fifteen (15%) and twenty (20%) percent
of the total sales they generate and an additional thirty-three and
one-third (33 1/3%) percent of the installation fees when the sales are
deemed "qualified" under the terms of these Agreements. (b)
Duration--The compensation schedules are, in effect, the earlier that a
certain number of accounts are sold or the expiration of the stated
contract periods, at which time the parties agree to renegotiate the
various fee provisions. The Company may charge-back the
Dealer/Promoters for uncollectible accounts of customers, but only to
the extent of the amount of subsequent fees earned by the
Dealer/Promoters.
One agreement requires the Company to maintain a prepaid commission balance of
$25,000, included in prepaid assets, to offset against the dealer's share of
revenues. The Company is required to pay an additional deposit upon the sooner
of acquiring 1000 customers or reaching a zero balance. As of March 31, 2002,
the deposit of $25,000 was forfeited.
Employment Agreements: Effective July 1, 2000, the Company extended three-year
---------------------
employment agreements to two of its officers, who are also stockholders of the
Company. These agreements, among other things, contain certain provisions
relating to:
-16-
STARTCALL.COM, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
March 31, 2002 and 2001
And
For the years then ended and
for the period October 19, 1999 (Date of Inception) through March 31, 2002
(Unaudited)
NOTE G - COMMITMENTS - Continued
nondisclosure and development; protecting licensed materials; non-compete and
non-solicitation restrictions. The annual compensation for one officer totals
$120,000, $180,000 and $195,000 and the other totals $85,000, $140,000 and
$195,000 for each of the twelve (12) month periods ending March 31, 2003, 2004
and 2005, respectively, or upon the Company commencing operations, whichever is
sooner.
Lease Agreement: The Company conducts its operations from facilities that are
---------------
leased under a two-year lease agreement which expired on September 14, 2002. The
option to renew was not exercised. Under the lease agreement the Company was
subject to additional charges related to their proportionate share of operating
expenses as well as maintaining minimum levels of insurance coverage. There are
no future minimum lease payments. The security deposit of $4,355 was used as
payment for the last two months of the lease.
Rent expense was approximately $ 6,300 for both quarters ended March 31, 2002
and 2001, respectively and approximately $65,000 for the period of inception
through March 31, 2002.
Stock Compensation Plans: On December 29, 1999, the Board of Directors approved
------------------------
the adopting of three stock option plans that will provide for the granting of
stock options to officers and key employees. The objectives of these plans
include attracting and retaining the quality personnel, providing for additional
performance incentives, and promoting the success of the Company by providing
employees the opportunity to acquire the common stock of the Company. In
connection with these plans, the Company is authorized to grant options up to
714,285 shares. Options to be granted under these plans will be at prices, which
are either equal to or above the market value of the stock on the date of grant,
vest over two-, three-and four-year periods, and expire ten years after the
grant dates.
The Company will account for stock-based compensation using the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", under which no compensation cost for stock options
is recognized for stock option awards granted at or above fair market value. If
the compensation expense for the Company's three stock-based plans are
determined based upon fair values at the grant dates for awards under these
plans in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation", the Company's net earnings and with earnings per share will be
reduced to pro forma amounts to be disclosed in the financial statements for the
applicable periods.
-17-
STARTCALL.COM, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
March 31, 2002 and 2001
And
For the years then ended and
for the period October 19, 1999 (Date of Inception) through March 31, 2002
(Unaudited)
NOTE G - COMMITMENTS - Continued
As of March 31, 2002, the Company has not granted any stock options or rights.
NOTE H- CONTINGENCIES
Going Concern: As discussed previously in Note A to these financial statements,
-------------
uncertainties exist with respect to the Company's ability to continue as a going
concern.
Lack of Insurance: As previously discussed in these financial statements, the
-----------------
Company does not maintain any insurance coverage and the Company therefore, is
in violation of certain agreements. Upon receipt of the net proceeds, if any,
from the Offering Memorandum discussed in Note B to these financial statements,
management intends to secure the necessary insurance coverage. No estimates have
been made as to the amounts that may be required should an unexpected loss occur
and, accordingly, no accruals have been made in these financial statement for
self-insurance reserves that might be necessary.
NOTE I- EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Statement of Financial Accounting Standards No 128, "Earnings Per Share,"
requires two presentations of earnings (loss) per share - "basic" and "diluted."
Basic earnings per share is computed by dividing income available to common
stockholders (the numerator) by the weighted-average number of common shares
(the denominator) for the period. The computation of diluted earnings (loss) per
share is similar to basic earning per share, except that the denominator is
increased to include the number of additional common shares that would have been
outstanding if the potentially dilutive common shares had been issued. The
numerator in calculating both basic and diluted earnings (loss) per share for
each period is the reported net income (loss). The denominator is based on the
following weighted-average number of common shares outstanding for each of the
respective periods:
October 19, 1999
(Inception) through
March 31, 2001 March 30, 2002 March 31, 2002
--------------------------- ------------------------ -------------------------
20,335,894 24,281,950 21,916,792
========== ========== ==========
-18-
STARTCALL.COM, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
March 31, 2002 and 2001
And
For the years then ended and
for the period October 19, 1999 (Date of Inception) through March 31, 2002
(Unaudited)
NOTE I- EARNINGS (LOSS) PER SHARE OF COMMON STOCK- Continued
A difference between basic and diluted weighted-average common shares arises
from the assumption that dilutive stock options outstanding, if any, are
exercised. Stock options and warrants are not included in the diluted earnings
(loss) per share calculation when the exercise price is greater than the average
market price. The Company does not have any stock options outstanding as of
March 31, 2002.
NOTE J - INCOME TAXES
As previously discussed, the stockholders elected to terminate, retroactively to
October 19, 1999, the S-Corporation income tax filing status for the Company.
The stockholders have filed with the Internal Revenue Service, a letter of
request for retroactive termination, accompanied by the Statement of Consent to
Revocation of Election signed by the stockholders. The Company is confident that
the IRS will grant the Company's request to be a C corporation and, accordingly,
these financial statements are prepared under the SFAS No. 109, "Accounting for
Income Taxes".
The Company did not provide any current or deferred US federal or state income
tax provision or benefit for any of the periods presented because it has
experienced operating losses since inception. The Company has provided a full
valuation allowance on the deferred tax asset, consisting primarily of a net
operating loss, because of the uncertainty regarding its realizability.
At March 31, 2002 the Company had a net operating loss carryforward of
approximately $532,700. Utilization of these net operating losses, which begin
to expire in year 2019, may be subject to certain limitations under section 382
of the Internal Revenue Code of 1986, as amended, and other limitations under
state tax laws.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets at March 31 are approximately as follows:
2002 2001
---------------- ----------------
Net operating loss carryforward $ 200,477 $ 163,034
Valuation allowance for deferred tax assets. (200,477) (163,034)
---------------- ----------------
Net deferred tax assets $ - $ -
================ ================
-19-
Item 2. Management Discussion and Analysis and Plan of Operation
-----------------------------------------------------------------
The following discussion and analysis should be read in conjunction with the
financial statements of the Company and the accompanying notes appearing
subsequently under the caption "Financial Statements." The following discussion
and analysis contains forward-looking statements, which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results, expectations and plans discussed in these forward-looking statements.
During the past fourteen months, the Company has spent considerable time and
capital resources defining and developing its strategic plan for delivering and
operating its real-time interactive e-commerce technology.
The Company continues managing the marketing launch of its services from its
office in Miami where it currently manages the administration and coordination
for all its other activities. Such responsibilities include the administration
of its Interactive Online Services and related products to business' websites as
well as technical support, daily bookkeeping and scheduling of employee
responsibilities. The Company's primary service ClickiChat/Support is
automatically available to its potential customers via Online. Upon receiving an
online order it takes approximately 60 to 120 seconds to process such order and
send back to the new register user an account number, login name and password
with all instructions in order to set-up their new Interactive Online Solution
ClickiChat/Support account. Please visit our sign up page at:
www.liveinternethelp.com/signup.htm.
The Company launched its service July 1st 2001. The Company intends to continue
attracting new marketing partners to continue increasing the brand name of its
services and continue increasing its customer base. In addition, the Company
intends to continue its ongoing marketing campaign for the following 12 months.
Currently, the Company spends approximately $15,000 per month. In order to fund
the Company, the officers and directors of the Company will continue making
capital contributions to the Company for the next 6 (six) months. Startcall
expects to start generating revenues as soon as August 2002 and estimates that
it will have close to or over 1,000 paying customers by August 15th 2002. At the
minimum income per customer of $29.95, the Company should be generating
sufficient funds to cover its current monthly expenses. The Company anticipates
that it will continue adding new services to its service menu with any potential
new services related to its market area.
There are currently over 8,000 ISP and web-hosting companies in the United
States. The regional nature of their business usually creates a fixed customer
base and margin sensitive business. StartCall intends to capitalize on these
conditions by offering the ISP a simple, effective way to:
I-2
1) Add an additional revenue stream that is nearly risk free and
extremely high margin;
2) Offer a set of services that allows them to differentiate themselves
from the competition; and
3) Promote themselves as a business that cares about consumer privacy and
control on the Internet.
Because StartCall hosts ClickiChat/Support, ISPs will have no internal knowledge
transfer or set-up costs. They simply sign-up as a partner, up-sell to their
clients, and start receiving royalty checks.
Another rapidly growing segment of the e-CRM market is web-based customer
interaction ("WCI"). The WCI market is built upon the premise that
relationships, by their very nature, require a two-way communication. WCI
focuses on translating the traditional web based experience of a human
interacting with a computer into a human interacting with a human over an
electronic medium. WCI software sales are expected to reach $1.8 billion by
2004.
The Company does not foresee purchasing any major equipment or changes on the
number of employees for the next 6 months. The Company feels that once it
reaches approximately 10,000 customers, new positions will be available in the
areas of customer service, marketing and business development.
The Company anticipates that it will raise additional funding once it reaches
10,000 customers within the next twelve (12) months.
Development Stage Revenues
--------------------------
The Company's operations have been devoted primarily to designing its business
and marketing plans and building an infrastructure. The ability of the Company
to achieve its business objectives is contingent upon its success in raising
additional capital until adequate revenues are realized from operations.
Development Stage Expenses
--------------------------
Development stage expenses during the fourteen-month period primarily consisted
of accounting, legal, consulting and office expenses which are necessitated by
operating in a public environment. Ongoing increases to development stage
expenses are anticipated during the year 2002.
Liquidity and Capital Resources
-------------------------------
Despite capital contributions and related party loans, the Company from time to
time experienced cash flow shortages that have slowed the Company's growth.
Through March 31,2002, the consequences of those cash flow shortages has
------------------------------------------------------------------------
been an increase of accrued expenses and stockholder loans bringing those
-------------------------------------------------------------------------
amounts to approximately $64,000 and $148,000, respectively.
-----------------------------------------------------------
The Company has primarily financed its activities from sales of capital stock of
the Company and from loans from its shareholders. A significant portion of the
funds raised from the sale of capital stock has been used to cover working
capital needs such as office expenses and various consulting and professional
fees.
The Company continues to experience cash flow shortages, and anticipates this
continuing through the foreseeable future. Management believes that additional
funding will be necessary in order for it to continue as a going concern. The
Company is investigating several forms of private debt and equity financing,
although there can be no assurances that the Company will be successful in
procuring such financing or that it will be available on terms acceptable to the
Company.
I-3
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None
Item 2. Changes in Securities. None
Item 3. Defaults Upon Senior Securities. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None
Item 6. Exhibits and Reports of Form 8-K. None
II-1
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed in its
behalf by the undersigned, thereunto duly authorized, on May 20, 2002.
Startcall.com, Inc.
(Registrant)
Date: May 20, 2002 /s/ Antonio Treminio
--------------------------
Antonio Treminio
President and Director
II-2