UNITED STATES
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, 2005
( ) Transition report pursuant of Section 13 or 15(d) of the Securities
Exchange Act of 1939 for the transition period ____ to______
COMMISSION FILE NUMBER 000-25973
JOYSTAR, INC.
(Exact name of registrant as specified in its charter)
California 68-0406331
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
95 Argonaut St. Alisa Viejo, CA 92656, Telephone (949) 837-8101
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(Address of Principal Executive Offices, including Registrant's zip code
and telephone number)
5 Whatney, Irvine, Ca. 92618
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Former address
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 1934 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 [X] No [ ]
The number of shares of the registrant's common stock as of March 31, 2005:
23,973,633 shares.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
(a) Balance Sheets 3
(b) Statements of Operations 4
(c) Statement of Stockholders' Equity (deficit) 5
(d) Statements of Cash Flows 6
(e) Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 10
Item 3. Controls and Procedures 12
PART II. OTHER INFORMATION 13
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults On Senior Securities
Item 4. Submission of Items to a Vote
Item 5. Other Information
Item 6.
(a) Exhibits (b) Reports on Form 8K
SIGNATURES AND CERTIFICATES 14
2
JOYSTAR, INC.
BALANCE SHEETS
(UNAUDITED)
---------------------------------------------------------------------------------------
March 31, December 31,
2005 2004
----------- -----------
ASSETS
Current assets:
Cash $ 75,664 $ 283,869
Other receivables 2,454 100
Prepaid expenses 40,201 16,265
----------- -----------
Total current assets 118,319 300,234
Property and equipment, net 48,438 37,327
----------- -----------
Total assets $ 166,757 $ 337,561
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 157,888 $ 144,416
Accrued salaries 198,574 172,038
Accrued payroll taxes 278,077 203,970
Accrued rent 35,000 35,000
Loans from shareholder 365,831 259,834
----------- -----------
Total current liabilities 1,035,370 815,258
Commitments and contingency -- --
Stockholders' equity:
Preferred stock, no par value, 10,000,000
shares authorized; none issued -- --
Common stock, no par value, 50,000,000
shares authorized; 23,973,633 and 23,228,633
shares issued and outstanding at March 31, 2005 and
December 31, 2004, respectively 4,585,163 4,178,663
Stock issued for deferred compensation (553,000) (621,250)
Stock subscribed not issued, 487,333 shares and
887,333 shares at March 31, 2005 and December
31, 2004, respectively 594,800 794,800
Accumulated deficit (5,495,576) (4,829,910)
----------- -----------
Total stockholders' (deficit) (868,613) (477,697)
----------- -----------
Total liabilities and stockholders'
equity (deficit) $ 166,757 $ 337,561
=========== ===========
The accompanying notes are an integral part of these financial statements
3
JOYSTAR, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
---------------------------------------------------------------------------------------
For the three For the three
months ended months ended
March 31, 2005 March 31, 2004
------------ ------------
Revenues:
Travel agent programs and commissions $ 469,023 $ 31,244
Cost of revenues 452,258 --
------------ ------------
Net revenues 16,765 31,244
Operating expenses:
General and administrative 504,193 363,135
Marketing and sales 178,238 340,950
------------ ------------
Total operating expenses 682,431 704,085
------------ ------------
Loss from operations before
interest and taxes (665,666) (672,841)
Interest expense -- --
Provision for taxes - State -- --
------------ ------------
Net loss $ (665,666) $ (672,841)
============ ============
Loss per share $ (0.03) $ (0.03)
============ ============
Weighted average number of common shares outstanding 23,438,466 21,086,332
============ ============
The accompanying notes are an integral part of these financial statements
4
JOYSTAR, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
---------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK Stock issued Stock Total
--------------------------- for Subscribed Stockholders'
Number of Deferred not Accumulated Equity
Shares Amount Compensation Issued (Deficit) (Deficit)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 2004 23,228,633 $ 4,178,663 $ (621,250) $ 794,800 $(4,829,910) $ (477,697)
Stock issued for services 345,000 206,500 -- -- -- 206,500
Stock issued for cash 400,000 200,000 -- (200,000) -- --
Deferred compensation earned -- -- 68,250 -- -- 68,250
Net loss -- -- -- -- (665,666) (665,666)
------------ ------------ ------------ ------------ ------------ -----------
Balance March 31, 2005 23,973,633 $ 4,585,163 $ (553,000) $ 594,800 $(5,495,576) $ (868,613)
============ ============ ============ ============ ============ ===========
The accompanying notes are an integral part of these financial statements
5
JOYSTAR, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
-------------------------------------------------------------------------------
For the three For the three
months ended months ended
March 31, 2005 March 31, 2004
--------- ---------
Cash flows from operating activities:
Net loss $(665,666) $(672,841)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation 2,889 1,540
Stock issued for services 274,750 239,750
Changes in assets and liabilities:
Increase in bank overdraft -- 28,320
Decrease (increase) in prepaid expenses (23,936) 5,042
Decrease (increase) in other receivables (2,354) 1,000
Increase in accounts payable 13,472 17,680
Increase in accrued salaries and payroll taxes 26,536 41,954
Increase in payroll taxes 74,107 --
Increase in accrued rent -- 466
--------- ---------
Net cash used by operations (300,202) (337,089)
--------- ---------
Cash flows from investing activities:
Acquisition of property and equipment (14,000) (13,914)
--------- ---------
Net cash used by investing activities (14,000) (13,914)
--------- ---------
Cash flows from financing activities:
Loans from shareholders 105,997 --
Issuance of common stock -- 12,000
Stock subscribed not issued -- 202,684
--------- ---------
Net cash provided by financing activities 105,997 214,684
--------- ---------
Increase in cash (208,205) (136,319)
Cash at the beginning of the period 283,869 136,319
--------- ---------
Cash at the end of the period $ 75,664 $ --
========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Issuance of stock for services $ 274,750 $ 239,750
Income taxes paid $ -- $ --
Shares issued for shareholder loan $ -- $ 83,295
Interest paid $ -- $ --
Subscribed shares issued $ 200,000 $ --
The accompanying notes are an integral part of these financial statements
6
JOYSTAR, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED)
--------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
---------------------
Joystar, Inc. a California corporation (" the Company") was incorporated on
February 5, 1998. The Company specializes in selling complex travel products
including cruises, vacation packages and group travel through its national sales
force of independent travel agents.
All adjustments (consisting only of normal recurring adjustments) have been made
which, in the opinion of management, are necessary for a fair presentation.
Results of operations for the three months ended March 31, 2005 and 2004 are not
necessarily indicative of the results that may be expected for any future
period. The balance sheet at December 31, 2004 was derived from audited
financial statements.
Certain information and footnote disclosures, normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America, have been omitted. These financial statements
should be read in conjunction with the audited financial statements and notes
for the year ended December 31, 2004.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
REVENUE RECOGNITION
--------------------
The Company recognizes revenue when the travel is completed and Joystar
has been paid the corresponding commission from the supplier. The
Company records revenues from travel related sales transactions where
the Company both purchases from the supplier and sells to the customer
the requested travel service. This is reflected in the Statement of
Operations at the net amount, which reflects the gross amount charged
to the customer less the cost paid to the supplier. The Company also
receives commissions from travel suppliers for processing reservations.
7
Revenues derived in the future from annual memberships or other
activities where a time factor is involved will be deferred over the
appropriate period and recognized as earned.
PROPERTY AND EQUIPMENT
----------------------
Property and equipment is stated at cost and depreciated using the
straight-line method over the estimated useful life of the assets,
which is seven years for furniture and equipment and three years for
computer equipment.
USE OF ESTIMATES
----------------
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
INCOME TAXES
------------
Deferred income taxes are reported using the liability method. Deferred
tax assets are recognized for deductible temporary differences and
deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
NET LOSS PER SHARE
------------------
In February 1997, the Financial Accounting Standards Board (FASB)
issued SFAS No. 128 "Earnings Per Share" which requires the Company to
present basic and diluted earnings per share, for all periods
presented. The computation of loss per common share (basic and diluted)
is based on the weighted average number of shares actually outstanding
during the period. The Company has no common stock equivalents, which
would dilute earnings per share.
8
3. GOING CONCERN
-------------
The accompanying financial statements, which have been prepared in
conformity with accounting principles generally accepted in the United
States of America, contemplates the continuation of the Company as a
going concern. However, the Company had been in the development stage
since its inception, sustained significant losses and
has used capital raised through the issuance of stock and debt to fund
activities. Continuation of the Company as a going concern is
contingent upon establishing and achieving profitable operations. Such
operations will require management to secure additional financing for
the Company in the form of debt or equity.
Management believes that actions currently being taken to revise the
Company's funding requirements will allow the Company to continue its
development stage operations. However, there is no assurance that the
necessary funds will be realized by securing debt or through stock
offerings.
4. LEGAL PROCEEDINGS
-----------------
In March, 2004 a former employee of the Company who was terminated prior to the
acquisition of Joystar, filed a lawsuit in Orange County Superior Court for
breach of contract and specific performance relating to the exercise of options,
among other causes of action. A proposed settlement has been submitted to the
Company in which the Company will issue an additional 300,000 shares and a cash
payment of $12,700 for cost. As of the date of this report, this agreement has
not yet been finalized. The Company's financial statements do not reflect any
adjustment to record the possible settlement.
An independent third party stockbroker has filed a lawsuit against the Company
for refusal to register certain shares to them. A proposed settlement has been
submitted by the Company in which the Company will register an additional
138,600 shares. As of the date of this report, this agreement has not yet been
finalized. The Company's financial statements do not reflect any adjustment to
record the possible settlement.
5. SUBSEQUENT EVENTS
-----------------
In April 2005 12,500 shares of common stock were issued in payment of
compensation totalling $2,500 in accordance with an employment
agreement.
At various dates in April and May 2005 the Company issued 285,294 and
344,857 of common stock for services and $128,000 in cash,
respectively.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
ALL FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE DEEMED BY THE COMPANY TO BE
COVERED BY AND TO QUALIFY FOR THE SAFE HARBOR PROTECTION PROVIDED BY THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. PROSPECTIVE SHAREHOLDERS SHOULD
UNDERSTAND THAT SEVERAL FACTORS GOVERN WHETHER ANY FORWARD - LOOKING STATEMENT
CONTAINED HEREIN WILL BE OR CAN BE ACHIEVED. ANY ONE OF THOSE FACTORS COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED HEREIN. THESE
FORWARD - LOOKING STATEMENTS INCLUDE PLANS AND OBJECTIVES OF MANAGEMENT FOR
FUTURE OPERATIONS, INCLUDING PLANS AND OBJECTIVES RELATING TO THE PRODUCTS AND
THE FUTURE ECONOMIC PERFORMANCE OF THE COMPANY. ASSUMPTIONS RELATING TO THE
FOREGOING INVOLVE JUDGMENTS WITH RESPECT TO, AMONG OTHER THINGS, FUTURE
ECONOMIC, COMPETITIVE AND MARKET CONDITIONS, FUTURE BUSINESS DECISIONS, AND THE
TIME AND MONEY REQUIRED TO SUCCESSFULLY COMPLETE DEVELOPMENT PROJECTS, ALL OF
WHICH ARE DIFFICULT OR IMPOSSIBLE TO PREDICT ACCURATELY AND MANY OF WHICH ARE
BEYOND THE CONTROL OF THE COMPANY. ALTHOUGH THE COMPANY BELIEVES THAT THE
ASSUMPTIONS UNDERLYING THE FORWARD - LOOKING STATEMENTS CONTAINED HEREIN ARE
REASONABLE, ANY OF THOSE ASSUMPTIONS COULD PROVE INACCURATE AND, THEREFORE,
THERE CAN BE NO ASSURANCE THAT THE RESULTS CONTEMPLATED IN ANY OF THE FORWARD -
LOOKING STATEMENTS CONTAINED HEREIN WILL BE REALIZED. BASED ON ACTUAL EXPERIENCE
AND BUSINESS DEVELOPMENT, THE COMPANY MAY ALTER ITS MARKETING, CAPITAL
EXPENDITURE PLANS OR OTHER BUDGETS, WHICH MAY IN TURN AFFECT THE COMPANY'S
RESULTS OF OPERATIONS. IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES INHERENT IN THE
FORWARD - LOOKING STATEMENTS INCLUDED THEREIN, THE INCLUSION OF ANY SUCH
STATEMENT SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY OTHER
PERSON THAT THE OBJECTIVES OR PLANS OF THE COMPANY WILL BE ACHIEVED.
General
Joystar, Inc., a California corporation, (the "Company") was
incorporated in the State of California on February 5, 1998.
Joystar specializes in selling complex travel products including cruises,
vacation packages and group travel through its national sales force of over
1,300 of independent travel agents.
These financial statements should be read in conjunction with the
financial statements and notes for the year ended December 31, 2004.
10
RESULTS OF OPERATIONS
---------------------
The Company had sales of $469,000 for the three months ended March 31,
2005 as compared to $31,000 for the three months ended March 31, 2004. The
Company has expended significant time and money in promoting the benefits of
travel agents aligning themselves with the Company. The Company now has an
estimated over 1,300 agents using our online services for booking travel.
General and administrative expenses for the three months ended March
31, 2005 were $504,000 as compared to $363,000 for the three months ended March
31, 2004, an increase of $141,000 due primarily to the increases in salaries of
$52,000, independent contractor fees of $50,000 and a general increase in other
expenses due to increased activity.
Marketing and sales expenses for the three months ended March 31, 2005
were $178,000 down $163,000 from the $341,000 for the three months ended March
31, 2004. This was due to the Company's successful results of marketing over the
past year.
LIQUIDITY AND SOURCES OF CAPITAL
---------------------------------
At March 31, 2005 our cash position required that we actively seek additional
sources of capital. At March 31, 2005 the Company had a cash balance of $75,664
as compared to a cash balance of $283,869 at December 31, 2004.
The Company had negative working capital at March 31, 2005. To date the Company
has financed operations by issuance of shares of common stock in private
placements of 1,811,000 and issuance of shares for services in the amount of
2,777,000.
The Company expects to finance the capital needed with additional issuances
of its securities. In order to fund the Company's growth, the Company has
engaged an NASD member firm to provide investment banking services. The Company
intends to raise approximately 5 million dollars in 2005. There is no assurance
that the Company will be able to secure such financing.
11
ITEM 3. Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer (our principal
executive officer and principal financial officer, respectively) have concluded,
based on their evaluation as of March 31, 2005, that the design and operation
of our "disclosure controls and procedures" (as defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934, as amended ("Exchange Act")) are effective
to ensure that information required to be disclosed by us in the reports filed
or submitted by us under the Exchange Act is accumulated, recorded, processed,
summarized and reported to our management, including our Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions regarding
whether or not disclosure is required.
During the quarter ended March 31, 2005, there were no changes in
our internal controls over financial reporting (as defined in Rule 13a-15(f)
under the Exchange Act) that have materially affected, or are reasonably likely
to materially affect, our internal controls over financial reporting.
12
PART II. OTHER INFORMATION
Item 1. Legal proceedings
In March, 2004 a former employee of the Company who was terminated prior to the
acquisition of Joystar, filed a lawsuit in Orange County Superior Court for
breach of contract and specific performance relating to the exercise of options,
among other causes of action. A proposed settlement has been submitted to the
Company in which the Company will issue an additional 300,000 shares and a cash
payment of $12,700 for cost. As of the date of this report, this agreement has
not yet been finalized. The Company's financial statements do not reflect any
adjustment to record the possible settlement.
An independent third party stockbroker has filed a lawsuit against the Company
for refusal to register certain shares to them. A proposed settlement has been
submitted by the Company in which the Company will register an additional
138,600 shares. As of the date of this report, this agreement has not yet been
finalized. The Company's financial statements do not reflect any adjustment to
record the possible settlement.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds NONE
Item 3. Defaults on Senior Securities NONE
Item 4. Submission of Items to a Vote NONE
Item 5. Other Information NONE
Item 6.
(a) Exhibits
--------
Exhibit No. Description
----------- -----------
Exhibit 2.2 Articles of Merger (Nevada)
Exhibit 2.3 Certificate of Ownership (California)
Exhibit 31 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF
FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT
Exhibit 32 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF
FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT
b) Reports on 8K during the quarter: none
13
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
JOYSTAR, INC.
Date: May 23, 2005
By /s/ William Alverson
---------------------------
Chief Executive Officer and Chief
Financial Officer
14