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 February 28, 2006
[ ] Transition report under section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from to
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Commission file number 001-51554
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ASAP SHOW, INC.
---------------
(Exact name of small business issuer as specified in its charter)
Nevada 20-2934409
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4349 Baldwin Ave., Unit A, El Monte, CA 91731
--------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (626)636-2530
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 No X
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes No X
Number of shares outstanding of the issuer's classes of common equity, as of
March 31, 2006: 8,626,480 Shares of Common Stock (One Class)
Transitional Small Business Disclosure Format: Yes No X
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Balance Sheet as of February 28, 2006 (unaudited)...........3
Condensed Statements of Operations for the Nine Months Ended
February 28, 2006 and 2005 (unaudited)................................4
Condensed Statements of Operations for the Three Months Ended
February 28, 2006 and 2005 (unaudited)................................5
Condensed Statements of Cash Flows for the Nine Months Ended
February 28, 2006 and 2005 (unaudited)................................6
Notes to Condensed Financial Statements (unaudited)...................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION...............................................12
ITEM 3. CONTROLS AND PROCEDURES.........................................17
PART II - OTHER INFORMATION...................................................17
ITEM 1. LEGAL PROCEEDINGS...............................................17
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.....18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.................................18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............18
ITEM 5. OTHER INFORMATION...............................................18
ITEM 6. EXHIBITS .......................................................18
SIGNATURES....................................................................18
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASAP SHOW, INC.
CONDENSED BALANCE SHEET
(UNAUDITED)
February 28,
2006
ASSETS
Current assets:
Cash $ 132,589
Accounts receivable, net 37,921
Capital contribution receivable 50,000
Prepaid expenses 2,695
------------
223,205
Total current assets
Other assets 9,800
------------
Total assets
$ 233,005
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 376,852
Deferred revenue 2,814
Line-of-credit and interest payable to stockholder 748,607
------------
Total current liabilities 1,128,273
COMMITMENTS AND CONTINGENCIES
Stockholders' deficit:
Common stock, $0.001 par value; 45,000,000 shares
authorized; 8,626,480 shares issued and outstanding 8,626
Additional paid-in capital 14,166,375
Accumulated deficit (15,070,269)
------------
Total stockholders' deficit (895,268)
------------
Total liabilities and stockholders' deficit $ 233,005
============
See accompanying notes to condensed financial statements
3
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended
February 28,
-----------------------
2006 2005
---------- ----------
Revenues:
Transaction sales $ 282,286 $ 292,351
Tradeshow revenue 1,300,006 1,086,614
Buying trip 239,590 --
Subscription fees -- 360
---------- ----------
Revenues 1,821,882 1,379,325
---------- ----------
Operating expenses:
Cost of transaction sales 192,648 255,647
General and administrative 1,597,876 1,399,243
Payroll and related 418,668 505,573
---------- ----------
Total operating expenses 2,209,192 2,160,463
---------- ----------
Loss from operations (387,310) (781,138)
Interest expense, net of interest income 52,943 7,122
---------- ----------
Loss before income taxes (440,253) (788,260)
Income taxes 800 800
---------- ----------
Net loss $ (441,053) $ (789,060)
========== ==========
Net loss per share available to common stockholders
Basic and diluted $ (0.05) $ (0.11)
========== ==========
Weighted-average number of common shares outstanding
Basic and diluted 8,626,480 7,472,673
========== ==========
See accompanying notes to condensed financial statements.
4
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
February 28
-----------------------
2006 2005
---------- ----------
Revenues:
Transaction sales $ 81,530 $ 230,601
Tradeshow 545,431 351,950
Subscription Fees -- 360
---------- ----------
Revenues 626,961 582,911
---------- ----------
Operating expenses:
Cost of transaction sales 24,488 217,549
General and administrative 565,441 513,736
Payroll and related 113,533 168,962
---------- ----------
Total operating expenses 703,462 900,247
---------- ----------
Loss from operations (76,501) (317,336)
Interest expense, net of interest income 16,437 1,841
---------- ----------
Loss before income taxes (92,938) (319,177)
Income taxes -- 800
---------- ----------
Net loss $ ( 92,938) $ (319,977)
---------- ----------
Net loss per share available to common stockholders
Basic and diluted $ (0.01) $ (0.04)
---------- ----------
Weighted-average number of common shares outstanding
Basic and diluted 8,626,480 7,472,673
---------- ----------
See accompanying notes to condensed financial statements.
5
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
February 28,
----------------------
2006 2005
--------- ---------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $(441,053) $(789,060)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Changes in operating assets and liabilities:
Accounts receivable 62,972 324,536
Inventory -- 25,874
Prepaid expenses 62,059 61,297
Other assets 1,568 --
Accounts payable and accrued expenses (44,628) 166,430
Deferred revenues (184,179) 111,481
--------- ---------
Net cash (used in) provided by operating activities (543,261) 99,442
Cash flows from investing activities:
Proceeds from capital contribution 365,000 --
--------- ---------
Net cash provided by investing activities 365,000 --
Cash flows from financing activities:
Repayment of loan payable (100,000) --
Proceeds from borrowings on line-of-credit from stockholder 808,800 454,000
Repayments of borrowings on line-of-credit from stockholder (467,816) (350,159)
--------- ---------
Net cash provided by financing activities 240,984 103,841
--------- ---------
Net increase in cash 62,723 4,399
Cash, beginning of period 69,866 4,451
--------- ---------
Cash, end of period $ 132,589 $ 8,850
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period
Interest 52,935 5,404
Income taxes 800 800
See accompanying notes to condensed financial statements
6
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF REPORTING
Basis of Presentation
---------------------
The accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form
10-QSB and Article 10 of Regulation S-B. Accordingly, they do not include all of
the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for fair presentation have been included.
Operating results for the nine-month period ended February 28, 2006 are not
necessarily indicative of the results that may be expected for the year ending
May 31, 2006.
At February 28, 2006, the Company has accumulated deficit of $15,070,269,
negative working capital of $904,968 and a lack of profitable operational
history. The Company hopes to continue to increase revenues from the continued
growth of their trade show segment. In the absence of significant increase in
revenues, the Company intends to fund operations through additional debt and
equity financing arrangements, including continued support from its majority
shareholder (see Note 3). The successful outcome of future activities cannot be
deteremined at this time and there are no assurances that if achieved, the
Company will have sufficient funds to execute its intended business plan or
generate positive operating results.
ASAP Show, Inc. ("ASAP" or the "Company") was incorporated in December 2004
under the laws of the State of Nevada. As summarized below and described below,
Cyber Merchants Exchange, Inc. ("C-ME"), the Company's former parent, entered
into a Securities Purchase Agreement ("SPA") with KI Equity Partners II, LLC
("KI Equity"), as amended, which resulted in a reorganization of the Company and
C-ME (the "Reorganization"). The Company accounted for the reorganization as a
reverse spin-off; accordingly, the accompanying financial statements include the
historical results of C-ME.
REORGANIZATION
Securities Purchase Agreement
-----------------------------
On November 19, 2004 C-ME entered into the SPA with Keating Reverse Merger Fund,
LLC ("KRM Fund") and Frank Yuan, the then Chairman of the Board and Chief
Executive Officer of C-ME ("Yuan") providing for the investment by KRM Fund of
$425,000 (the "Investment") in C-ME in exchange for 7,000,000 shares of C-ME's
common stock. The SPA was amended and restated effective August 25, 2005 to,
among other things, change the Investment to $415,000, change the number of
shares to be purchased to 7,104,160, and substitute KI Equity for KRM Fund. The
balance of $50,000 which has not been received at February 28, 2006, is included
in the accompanying balance sheet as a capital contribution receivable. Such
amount is to be received on March 30, 2006. The Investment by KI Equity was used
to satisfy $124,397 of certain liabilities assumed by the Company with the
remaining funds of $240,603 being used to provide the Company with working
capital to grow its trade show business. The Reorganization will allow the
shareholders of C-ME to participate in the growth of the trade show business
through the spin-off of the Company, which owns and operates the trade show
business (see below). Following the Reorganization and spin off of the Company,
C-ME is majority owned by KI Equity and will seek a business combination with an
operating company.
Stock Bonus
-----------
C-ME issued 1,027,327 shares to certain key employees and directors effective
May 31, 2005 (the "Stock Bonus"). The Stock Bonus was not subject to shareholder
approval. The individuals receiving the Stock Bonus previously had stock options
in C-ME, which were cancelled as part of the Stock Bonus and Reorganization. In
addition, C-ME terminated all of its stock option plans, and all outstanding
stock options were cancelled. In addition, the employees have not received any
significant pay increases in recent years. Directors of C-ME have never been
paid fees for services on the Board. The intent of the issuance of the Stock
Bonus was to partially compensate these individuals for their significant
contributions to C-ME since employees did not receive any significant pay
increases in recent years and outside directors were never paid for services on
the Board.
7
ASAP Show, Inc.
---------------
C-ME formed ASAP on December 1, 2004 as a wholly owned subsidiary. The officers
and directors of the Company are the same as the officers and directors of C-ME.
Since the Reorganization, ASAP has focused on operating the trade show business
previously operated by C-ME. The Investment contemplated as part of the
Reorganization was used to pay the liabilities of C-ME that were assumed by ASAP
under the Transfer Agreement. ASAP will continue to operate its trade show twice
a year in Las Vegas, Buying Trips in China and other production Countries, and
Fashion International Trade Show ("FITS") in China.. As part of the Transfer
Agreement, ASAP assumed a revolving $800,000 line of credit from Frank Yuan and
his family (the
"Yuan Line of Credit"). Frank Yuan and his family consented to the assumption of
the Yuan Line of Credit and released C-ME from any and all liabilities
thereunder. The Yuan Line of Credit has an outstanding balance as of February
28, 2006 of $748,607, including accrued interest of $11,807, bears interest at
10% per annum, and expires in September 2007. With the payment of liabilities
with the Investment, the expected cash flow generated from the trade shows and
the Yuan Line of Credit, ASAP believes it will have sufficient cash resources to
grow its business and meet the liabilities and obligations with respect to its
operations for the next twelve months.
As a further condition of the Investment, C-ME and ASAP entered into the
Transfer Agreement effective May 31, 2005 whereby all of the assets of C-ME were
transferred to ASAP and all liabilities, obligations and contracts of C-ME
(known and unknown, fixed or contingent or otherwise) were assumed by ASAP
("Assumed Liabilities"). In exchange C-ME received 8,626,480 shares of ASAP
common stock. ASAP and Frank Yuan have agreed to indemnify and hold C-ME
harmless from any loss, costs or damages incurred by C-ME with respect to the
Assumed Liabilities ("Indemnity Claims"). As a condition of the Investment, C-ME
must have no liabilities, obligations, debts, contracts or agreements of any
kind or nature.
Distribution
------------
On August 25, 2005, C-ME distributed the 8,626,480 shares of ASAP to the U.S.
Stock Transfer Corporation as depository agent for ASAP's shareholders. The ASAP
shares will be held by the depository agent until such time as the Company's
Form 10-SB, originally filed on October 3, 2005, has become effective. The SEC
has indicated no comments on the Company's Form 10-SB filling as of late Febuary
2006, therefore, ASAP's 8,626,480 shares have been distributed to the
shareholders. The Company requested Spartan Security to file a form 15c2 (11)
around late March 2006 with NASD for OTBCC quotation for its stock. If NASD
provide a ticker symbol, the ASAP Shareholder can freely tradable on OTCBB,
subject to certain restrictions applicable to insiders and affiliates.
The distribution was taxable to the shareholders.
Investment
----------
The closing of the transactions contemplated by the SPA and the Investment
occurred on September 30, 2005. Pursuant to the Investment, C-ME issued
7,104,160 shares of common stock to KI Equity for $415,000. The proceeds of the
Investment were used to satisfy liabilities that were assumed by the Company as
part of the Transfer and other liabilities of C-ME, and the remaining funds of
$290,603 will be used by the Company for working capital purposes, less $50,000
which C-ME will hold in reserve for a period of six months following the closing
of the SPA to satisfy any Indemnity Claims. The Company has been informed by
C-ME that the $50,000 reserves originally due March 30, 2006 will be retained by
C-ME until the preference claim is resolved (see Note 4).
Accounting Treatment
--------------------
The Company accounted for the Reorganization as a reverse spinoff in accordance
with the Emerging Issues Task Force Issue ("EITF") No. 02-11, "Accounting for
Reverse Spinoffs." In a reverse spinoff, the legal spinnee (ASAP) is treated as
though it were the spinnor for accounting purposes. Reverse spinoff accounting
is appropriate as the treatment of the legal spinnee as the accounting spinnor
results in the most accurate depiction of the substance of the transaction for
8
shareholders and other users of the financials statements. Under this treatment,
the historical financial statements of the Company will be the historical
financial statements of ASAP. In making its determination, the Company
considered the following indicators, among others:
o the accounting spinnor (legal spinnee, ASAP) is larger than the accounting
spinnee (legal spinnor, C-ME);
o the fair value of the accounting spinnor (legal spinnee) is greater than that
of the accounting spinnee (legal spinnor);
o the accounting spinnor (legal spinnee) retains the senior management of the
formerly combined entity; and
o the accounting spinnor (legal spinnee) retains senior management.
REVENUE RECOGNITION
The Securities and Exchange Commission issued Staff Accounting Bulletin 104
("SAB 104"), "Revenue Recognition" which outlines the basic criteria that must
be met to recognize revenue and provide guidance for presentation of revenue and
for disclosure related to revenue recognition policies in financial statements
filed with Securities and Exchange Commission. Management believes the Company's
revenue recognition policies conform to SAB 104.
Revenues include amounts earned under transaction sales, trade show booth sales
and subscription fees.
Transaction Sales
-----------------
Transaction revenues are recorded in accordance with Emerging Issues Task Force
Issue No. ("EITF") 99-19 "Reporting Revenue Gross as a Principal versus net as
an Agent." The Company recognizes net revenues from product transaction sales
when title to the product passes to the customer, net of factoring fees.
Beginning in fiscal 2005 for all product transactions with its customers, the
Company acts as a principal, takes title to all products sold upon shipment, and
bears inventory risk for return products that the Company is not able to return
to the supplier, although these risks are mitigated through arrangements with
factories, shippers and suppliers.
The Company recognizes revenue on transaction sales upon shipment when there is
evidence that an arrangement exists, delivery has occurred under the Company's
standard FOB shipping point terms, the sales price is fixed or determinable and
the ability to collect sales proceeds is reasonably assured.
ASAP Trade Show
---------------
The ASAP trade show generates revenue through exhibitor booths sales, corporate
sponsorship, and advertising. Such revenue is typically collected in advance,
deferred and then recognized at the time of the related trade show. The Company
conducts two trade shows per year, currently in February and August in Las
Vegas.
Buying Trips
------------
Buying trips generate revenue through the participating buyers ("Buyers") paying
for the Company's assistance during the travel through various foreign countries
in Asia to meet local apparel manufacturers. The Company receives a portion of
exhibition net revenues collected by the oversea government's trade promotion
agencies located in the various cities which were visited by the Buyers (i.e.
the Company does not share any losses, if any). The Buying Trip's revenue is
recognized ratably during the period in which the event is conducted. Management
is planning to conduct buying trips to China in May and Southeast Asia Countries
in November each year.
Fashion International Trade Show ("FITS")
-----------------------------------------
FITS is a brand new licensing trade show to be held in China. FITS intends to
bring International Fashion Brands to enter the fastest growing consumer market,
China, by matching them with a local Chinese Master Licensee partner. In this
way, International Fashion Brands can provide their know how - such as Brand
name, designs, marketing and promotions - and receive royalty income without any
9
capital investment. The first FITS will be held in Hangzhou from June 29 to July
1, 2006. The Company's management negotiated with Hangzhou municipal government,
whereby it is going to cover all venue rental, booths decoration and
international fashion brands hotel accommodation expenses. The booths sales
proceeds will be the Company's bottom line profit. The revenue of FITS will be
recognized after the FITS show finished.
INDEMNITIES AND GUARANTEES
During the normal course of business, the Company has made certain indemnities
and guarantees under which it may be required to make payments in relation to
certain transactions. These indemnities include certain agreements with the
Company's officers, under which the Company may be required to indemnify such
person for liabilities arising out of their employment relationship. The
duration of these indemnities and guarantees varies and, in certain cases, is
indefinite. The majority of these indemnities and guarantees do not provide for
any limitation of the maximum potential future payments the Company could be
obligated to make. Historically, the Company has not been obligated to make
significant payments for these obligations and no liabilities have been recorded
for these indemnities and guarantees in the accompanying condensed balance
sheets.
BASIC AND DILUTED LOSS PER COMMON SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted loss per common share computations:
9 Months Ended 3 Months Ended
02/28/06 02/28/05 02/28/06 02/28/05
----------- ----------- ----------- -----------
Numerator for basic and diluted loss per share:
Net loss $ (441,053) $ (789,060) $ ( 92,938) $ (319,977)
Denominator for basic and diluted loss per share:
Weighted average shares (basic and diluted) 8,626,480 7,472,673 8,626,480 7,472,673
----------- ----------- ----------- -----------
Loss charged to common stockholders per common share:
Basic and diluted $ (0.05) $ (0.11) $ (0.01) $ (0.04)
=========== =========== =========== ===========
Recently Issued Accounting Pronouncements
-----------------------------------------
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment" ("Statement 123(R)") to provide investors and other users of financial
statements with more complete and neutral financial information by requiring
that the compensation cost relating to share-based payment transactions be
recognized in financial statements. That cost will be measured based on the fair
value of the equity or liability instruments issued. Statement 123(R) covers a
wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. Statement 123(R) replaces SFAS No. 123, and
supersedes APB 25. SFAS No. 123, as originally issued in 1995, established as
preferable a fair-value-based method of accounting for share-based payment
transactions with employees. However, that Statement permitted entities the
option of continuing to apply the guidance in APB 25, as long as the footnotes
to financial statements disclosed what net income would have been had the
preferable fair-value-based method been used. Public entities (other than those
filing as small business issuers) will be required to apply Statement 123(R) as
of the first interim or annual reporting period that begins after June 15, 2005.
The Company will be required to apply Statement 123(R) as of the quarter ended
May 31, 2006. The Company is in the process of evaluating whether the adoption
of Statement 123(R) will have a significant impact on the Company's overall
results of operations or financial position.
10
NOTE 2 - BUSINESS SEGMENTS
Reportable business segments as of and for the periods ended February 28, 2006
and 2005 are as follows:
9 Months Ended 3 Months Ended
02/28/06 02/28/05 02/28/06 02/28/05
----------- ----------- ----------- -----------
Revenues:
Transaction sales $ 282,286 $ 292,351 $ 81,530 $ 230,601
Tradeshow 1,300,006 1,086,614 545,431 351,950
Buying trip 239,590 -- -- --
Subscription Fees -- 360 -- 360
----------- ----------- ----------- -----------
$ 1,821,882 $ 1,379,325 $ 626,961 $ 582,911
=========== =========== =========== ===========
Income (loss) from operations:
Transaction sales $ 89,638 $ 36,704 $ 57,042 $ 13,052
Tradeshow (614,713) (818,202) (127,906) (330,748)
Buying trip 137,765 -- (5,637) --
Subscription Fees -- 360 -- 360
----------- ----------- ----------- -----------
$ (387,310) $ (781,138) $ (76,501) $ (317,336)
=========== =========== =========== ===========
Identifiable assets:
Transaction sales $ 2,628
Tradeshow 200,377
Buying trip 30,000
-----------
$ 233,005
===========
Net revenues as reflected above, consist of sales to unaffiliated customers only
as there were no significant intersegment sales for the nine and three-month
periods ended February 28, 2006 and 2005.
There were no significant concentrations on net segment sales for the nine and
three-month periods ended February 28, 2006 and 2005.
Transaction apparel sales are made from goods exported from China into the USA,
while tradeshow revenue relates exclusively to the Company's Las Vegas, Nevada
trade shows.
NOTE 3 - DEBT
Line of Credit From Stockholder
-------------------------------
The Company has a revolving line-of-credit (the "Yuan Line of Credit") from
Frank Yuan, the Company's Chief Executive Officer and his family, which expires
on September 1, 2007 and provides for borrowings up to a maximum of $800,000, as
amended. The Yuan Line of Credit bears an interest rate of 10.0% per annum. The
balance at February 28, 2006 was $748,607, including accrued and unpaid interest
of $11,807. Interest expense incurred under the Yuan Line of Credit approximated
the following:
Three-Months Nine-Months
Ended Ended
February 28, 2006 $ 13,781 $ 35,281
======== ========
February 28, 2005 $ 1,841 $ 7,245
======== ========
11
NOTE 4 COMMITMENTS AND CONTINGENCIES
The Company filed a lawsuit against Maureen Storch ("Storch"), Katherine Li
("Li"), Cherry Wang ("Wang") and Global Nexus, Inc., a California Corporation
("Global"), (collectively the four defendants referred to as "Defendants") in
the Superior Court of the State of California, County of Los Angeles on November
23, 2005. The claims by the Company against Storch, Li, Wang and Global arose
out of certain activities undertaken by them as consultants or employees of the
Company. The Company alleges, among other things, that Defendants failed to
fulfill their contractual obligations and breached their fiduciary duties to the
Company for a number of reasons, including by breach of contract, interference
with contract, interference with prospective economic advantage, unfair
competition and misappropriation of trade secrets. The Company seeks
compensatory damages and injunctive relief.
In response to the lawsuit filed by the Company, Defendants filed a
Cross-Complaint against the Company and Frank Yuan individually on January 20,
2006 alleging breach of written contract, breach of implied covenant of good
faith and fair dealing, fraud and deceit, rescission, libel, slander,
intentional interference with prospective economic advantage, and unfair
competition. Defendants seek compensatory and punitive damages and injunctive
relief.
The Company intends to pursue its Complaint for damages against Defendants and
to vigorously defend the Cross-Complaint brought by Defendants. The Company
believes that it has no obligations to make any payments to Defendants and has
meritorious defenses to all of Defendants' allegations. However, if the Company
does not prevail and the Court awards any significant damage award to
Defendants, this would have a material adverse effect upon the Company.
On March 7, 2006, a complaint was filed against the C-ME in a Chapter 7
bankruptcy proceeding in U.S. Bankruptcy Court in the District of Delaware in
the matter captioned In Re: Factory 2-U Stores, Inc. The complaint seeks to
recover from C-ME $91,572 in alleged preferential transfers made to C-ME by the
debtor during the ninety-day period prior to the filing of the debtor's
bankruptcy petition. C-ME intends to defend against such preference claim by
asserting that such transfers were made in the ordinary course of business and
such other available defenses.
To the extent C-ME incurs any losses, costs or damages with respect to the
preference claim, including attorneys' fees and related costs, the C-ME believes
it may recover such losses, costs and damages from Frank Yuan and the Company
pursuant to the indemnification provisions under the Transfer Agreement. C-ME
has informed Frank Yuan and the Company that it intends to seek indemnification
from them with respect to the preference claim. Further, C-ME has informed Frank
Yuan and the Company that the $50,000 reserve originally due to be paid March
30, 2006 under the terms of the Transfer Agreement will be retained by C-ME
until this preference claim is resolved to satisfy any potential indemnity
claims.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the financial statements and the
related notes thereto included elsewhere in this quarterly report for the period
ended February 28, 2006. This quarterly report contains certain forward-looking
statements and the Company's future operating results could differ materially
from those discussed herein. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Given these uncertainties, readers are
cautioned not to place undue reliance on such forward-looking statements. The
Company disclaims any obligation to update any such factors or to announce
publicly the results of any revisions of the forward-looking statements
contained or incorporated by reference herein to reflect future events or
developments.
STATUS OF OPERATIONS
Background
ASAP Show, Inc. (the "Company") is a trade show organizer that is initially
targeting the apparel industry and an international electronic trading,
financing and logistics corporation. The following four interlocking services
make the Company unique: 1) ASAP Shows consists of ASAP Global Sourcing Show -
held twice a year in Las Vegas, NV., ASAP Buying Trips, and Fashion
12
International Trade Show ("FITS") 2) The Company builds private extranets, or
Internet Sourcing Networks ("ISN"), for its retail partners. The ISN matches and
pushes merchandise to the appropriate buyers computer desktops. 3) The Company's
Global Financial Platform ("GFP": Patent Pending) allows U.S. buyers to purchase
overseas merchandise without the need of issuing a letter of credit. 4)
Logistics warehouse, shipping, and billing services for overseas manufacturers.
The Company presently has representatives located in 25 countries throughout
Asia, Africa, and the Middle East to facilitate international transactions.
Services
Asap Global Sourcing Show
-------------------------
The Apparel Sourcing Association Pavilion ("Global Sourcing Show" or "ASAP
Show") is bringing a totally new concept to the trade show industry. The Company
has a unique opportunity to make the ASAP Show successful because of the
Company's global presence and management expertise in the apparel industry. In
addition, there were no trade shows for the producing countries to exhibit in
the U.S.A. to gain container load orders until the ASAP show was launched. Also,
many buyers are reluctant to travel overseas. Therefore, the ASAP Show is well
positioned for buyers and overseas manufacturers.
The ASAP show segment derives revenue principally from the sale of exhibit space
and conference attendance fees generated at its events. In fiscal 2005,
approximately 95% of our trade shows and conferences revenue was from the sale
of exhibit space. Events are generally held on a semi-annual basis in Las Vegas,
Nevada. At many of our trade shows, a portion of exhibit space is reserved and
partial payment is received as much as 90 days in advance. Booth fees that are
collected in advance of the related ASAP show are recorded on our balance sheet
as deferred revenue. Revenue and related direct event expenses are recognized in
the month in which the event is held.
Costs incurred by the ASAP show segment include facility rent, outsourced
services such as registration, booth rental, electrical services, security,
decorator and attendee and exhibitor promotion. All show promotion related
expenses such as advertisements, traveling; staff salaries and related payroll
expenses are treated as monthly period expenses. The deposit for the ASAP show
facility is capitalized and then expensed in the month the event occurs.
ASAP Buying Trips
-----------------
The China Buying Trip is being arranged by the Company to bring 80 U.S. and
European buyers during fiscal 2006, each with more than $10 million in
purchasing power, to four production centers in China. This event has been
overwhelmingly supported by the International Cotton Council, The American
Apparel Production Network and many other leading corporations and associations.
The first tour of its kind was designed for U.S. and European buyers prepared to
place production orders, find joint ventures possibilities and relocate U.S.
textile plants to China. Participation from the U.S. side will include such
prominent names as Fruit of the Loom, Maidenform and many others. The Company
also arranged a trip bringing 12 buyers to Bangladesh and Pakistan Buying trip
in November 2005. Management is planning to conduct the China Buying Trip in May
of each year and is also planning to conduct buying trips to other countries in
fiscal year 2006.
The Buying Trip's revenue is generated from Buyers paid participation fees and
shared exhibitor's fees with each city's Co-organizer, the Municipal Government,
is recognized ratably during the period in which the event is conducted.
Fashion International Trade Show ("FITS")
-----------------------------------------
Currently there are very few brands in China. Only world famous brands such as
Louis Vuitton, Chanel, DKNY, and Polo, have a presence. There is a vacuum for up
and coming brands from the U.S., Canada and Europe. Since Chinese consumers are
not familiar with any foreign brands, all designers can become famous brands
with the right promotion.
FITS is a brand new licensing trade show to be held in China. FITS intends to
bring International Fashion Brands to enter the fastest growing consumer market,
China, by matching them with a local Chinese Master Licensee partner. In this
way, International Fashion Brands can provide their know how - such as Brand
name, designs, marketing and promotions - and receive royalty income without any
capital investment. The first FITS will be held in Hangzhou from June 29 to July
1, 2006. The Company's management negotiated with Hangzhou municipal government,
whereby it is going to cover all venue rental, booths decoration, international
13
fashion brands hotel accommodation expenses. The booths sales proceeds will be
the Company's bottom line profit. The revenue of FITS will be recognized after
the FITS show finished.
Electronic Commerce, A New Wave of International Trade
------------------------------------------------------
The Company has utilized the convenient and powerful Internet to communicate
between buyers and sellers internationally. The ISN was built with the buyer in
mind to make it user friendly to gain global apparel stock lot information. The
Company has successfully represented Fruit of the Loom, Kellwood, Value City,
and others to be their buyer's agent. The ASAP Show helps promote the Company's
ISN transaction model to these buyers. In addition, the Company sometimes acts
as a principal to purchase merchandise for presale orders. The Company also
represents some reputable overseas manufacturers with non-refundable monthly
retainer payments as their U.S. sales agents. ISN is in its development stage.
Global Financial Platform
-------------------------
The Company developed a patent-pending global financial platform, levied with
CIT - a factoring accounts receivable guarantee service. This process allows
overseas sellers to gain cash advances through their local bank and eliminate
the need for letters of credit to sell international merchandise. The
application for the patent was filed in 2001. Due to the U. S. Patent Office's
workload, the Company has not received any response to the filing. Therefore,
the Company cannot predict when or if this patent will be granted. The GFP is in
its development stage. There can be no assurance as to when or if the GFP will
be utilized.
Logistics, Warehouse, Shipping and Invoice Services
---------------------------------------------------
Logistics, warehousing, shipping and billing services are also provided for
overseas manufacturers.
In international trade, the shipment of goods from one country to another
involves multiple activities. The Company will assist clients in finding ocean
and air forwarders, custom brokers, domestic trucking companies and public
warehouses for packaging and shipping. The Company intends to leverage the
contacts from its trade show buyers and sellers to negotiate with FedEx, DHL,
and many ocean carriers for a deep discount bulk rate. The Company will keep a
portion of the discount rate. When the Company's client base expands, this
activity could generate significant revenues. However there is no assurance as
to if or when this will occur.
These logistics and warehousing activities are in their development stages.
Revenue Model
The ASAP Show
-------------
Currently, the ASAP Global Sourcing Show held twice a year in Las Vegas charges
$58 per square foot to exhibitors. The cost per square foot is considered costly
in the U.S. trade show industry. The reason ASAP exhibitors are willing to pay
this high price is because the Company's management partners with overseas
governments to subsidize up to 50%-100% of the exhibition costs. The Company's
management expertise in the apparel industry, unique marketing concepts,
services, educational seminars and relationships with the foreign trade
promotion bureaus and associations set the Company apart from competitors.
ASAP buying trips partner with each city's municipal government to conduct a
trade show in each city that ASAP's participating buyers visit. ASAP receives
revenues from buyers who pay participation fees, and also shares a portion of
the local exhibitor paid fees. This innovative revenue model depends upon the
management's relationships with the foreign government agency.
FITS - The Company's management negotiated to hold the FITS in Hangzhou, China.
Hangzhou municipal government has agreed to pay for all venue rental, booths
decoration, and international fashion brands hotel accommodation expenses. The
booths sold proceeds from the International Fashion brands will be the Company's
profit. The revenue of FITS will be recognized at the time of the related show.
14
E-commerce Transactions
-----------------------
The Company charges a minimum of 5%-10% commission when representing U.S. buyers
who wish to utilize the Company as their buying agent to source their goods
overseas. The Company can also act as the principal to purchase the pre-sold
merchandise with a minimum profit margin of 20%. There is high demand for the
Company's sourcing abilities by the U.S. apparel buyers and the Company is in
the process of selecting the U.S. apparel buyers it wants to represent. This is
in its development stage.
Global Financial Platform
-------------------------
The Company developed a patent-pending global financial platform, levied with
CIT - a factoring accounts receivable guarantee service. This process allows
overseas sellers to gain cash advances through their local bank and eliminate
the need for letters of credit to sell international merchandise. The
application for the patent was filed in 2001. Due to the U. S. Patent Office's
workload, the Company has not received any response to the filing. Therefore,
the Company cannot predict when or if this patent will be granted. The GFP is in
its development stage. There can be no assurance as to when or if the GFP will
be utilized.
CIT charges 1.5% of the invoice value as its non-recourse factoring fee while
the Company charges 0.5%. The overseas bank charges interest for their cash
advances made to the seller. The potential of eliminating the letter of credit
to purchase overseas merchandise business represents billions of dollars per
year. There were no transactions with for the nine months ended February 28,
2006.
Logistics, Warehousing, Shipping and Billing
--------------------------------------------
The Company charges standard public warehouse charges for freight in and out,
warehouse storage, shipping and billing charges for its exhibitors and overseas
manufacturers. These services are in their development stages.
RESULTS OF OPERATIONS
Nine Months Ended February 28, 2006 and 2005
Revenue
-------
Revenues from transaction sales for the nine months ended February 28, 2006 were
$282,286, a decrease of $10,065 or 3% compared to $292,351 for the same period
last year. The reason for such a decrease on transaction sales was because the
Company received fewer orders during the period. The Company does not anticipate
that transactions sales will remain a significant percentage of the Company's
overall business in future periods, because the Company allocates most of its
resources and efforts to ASAP Show production and promotion.
The gross tradeshow revenue for the nine months ended February 28, 2006 was
$1,300,006, an increase of $213,392 or 19% compared to $1,086,614 for the same
period last year. This increase was due to an increase in number of exhibitors
for the ASAP Show in February 2006 compared to the same show in February 2005.
Because of the Men's Apparel Guild in California's ("MAGIC") Sourcing Zone which
is held at the same time, management believes the competing show will make it
difficult to have significant growth for the ASAP show in the future.
Gross revenues from the buying trip for the nine months ended February 28, 2006
were $239,590. The first buying trip was to China in May 2005 and a second
buying trip was to Pakistan and Bangladesh in November 2005.
There was no revenue from subscription fees for the nine months ended February
28, 2006, as compared to revenue of $360 for the same period last year. The
company does not anticipate any significant revenue from subscription fees in
future periods, because the Company allocates most of its resources and efforts
to ASAP Show production and promotion.
Operating Expenses
------------------
Operating expenses increased by $48,729, or 2%, to $2,209,192 for the nine
months ended February 28, 2006, as compared to $2,160,463 for the same period
last year. The increase in operating expenses was primarily due to the increase
in professional fees and ASAP Show production, net of the decrease of payroll
and general administrative expenses. Professional fees increased by
approximately $93,000 to $218,000 for the nine months ended February 28, 2006,
as compared to approximately $125,000 for the same period last year. The
15
increase in professional fees was primarily related to increased legal and
accounting fees in connection with the Spin off of ASAP Show, Reorganization of
C-ME, Investment from Keating, and filing of the Company's Form 10-SB and
related amendments. ASAP Show production expenses increased by approximately
$114,000 to approximately $837,000 for the nine months ended February 28, 2006
from approximately $723,000 for the same period last year. Such an increase was
due to an increase in numbers of exhibitors, cost of venue rental increases in
Sands Expo compare to the Venetian Grand Ballroom. Payroll and related expenses
decreased by approximately $87,000 and general administrative expenses decreased
by approximately $72,000 because the Company had less employees during the nine
months ended February 28, 2006 and was implementing cost reduction plan to cut
back overhead expenses.
Net Loss
--------
As a result of the above, the Company recorded a net loss of $441,053 for the
nine months ended February 28, 2006, an improvement of $348,007 as compared to a
net loss of $789,060 for the same period last year. Such an improvement is
mainly due to the revenues generated from buying trips and trade shows of
$452,982, net of increases in operating expenses of $48,729 and interest expense
of $45,698.
Three Months Ended February 28, 2006 and 2005
Revenue
-------
Gross revenue from transaction sales for the three months ended February 28,
2006 were $81,530, a decrease of $149,071 or 65% compared to $230,601 for the
same period last year. The reason for such a significant decrease on transaction
sales was because the Company received fewer orders during the period. The
Company does not anticipate that transactions sales will remain a significant
percentage of the Company's overall business in future periods, because the
Company allocates most of its resources and efforts to ASAP Show production and
promotion.
The gross tradeshow revenue for the three months ended February 28, 2006 was
$545,431, an increase of $193,481 or 55% compared to $351,950 for the same
period last year. Such an increase was due to more exhibitors for the February
2006 ASAP Show, as compared to the February 2005 ASAP Show, plus additional
$12,114 profit sharing revenues from the sales of Material World show booths.
There was no buying trip conducted for the three months ended February 28, 2006.
There was no revenue from subscription fees for the three months ended February
28, 2006, as compared to a small revenue of $360 for the same period last year.
The Company does not anticipate any significant revenue from subscription fees
in future periods, because the Company allocates most of its resources and
efforts to ASAP Show production and promotion.
Operating Expenses
------------------
Operating expenses decreased by $196,785, or 22%, to $703,462 for the three
months ended February 28, 2006, as compared to $900,247 for the same period last
year. The decrease in operating expenses is primarily due to the decrease in
cost of transaction sales. Cost of transaction sales decreased by $193,061 to
$24,488 for the three months ended February 28, 2006, as compared to $217,549
for the same period last year.
The transaction sales activity was less in the 2006 period due to the Company
focusing more of its efforts on growing the trade show segment of its business.
Net Loss
---------
As a result of the above, the Company recorded a net loss of $92,938 for the
three months ended February 28, 2006, an improvement of $226,239; as compared to
a net loss of $319,177 for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
Excluding the line-of-credit from the shareholder, the Company had a deficit in
working capital of approximately $156,461 as of February 28, 2006, primarily due
to the liabilities assumed from C-Me under the Transfer Agreement. During the
nine month period ended February 28, 2006, the Company had average monthly
expenses of approximately $110,000 (excluding ASAP Show production expenses,
16
buying trip expenses and additional professional fees incurred due to reverse
spin-off of the Company). Management anticipates maintaining its monthly
expenses in the range of $110,000 to $120,000 in the foreseeable future. The
Company will focus its efforts on the semi-annual ASAP show in Las Vegas, Buying
Trips and FITS, to generate more revenue. At February 28, 2006, the Company has
current assets of approximately $223,000. With the net revenue from the ASAP
shows, Buying Trips, FITS and continuing support from its major shareholder to
provide a revolving line-of-credit, management believes the Company will have
enough net working capital to sustain its business for the next twelve months
and beyond.
The Company has a revolving line-of-credit (the "Yuan Line of Credit") from
Frank Yuan, the Company's CEO and his family, which expires on September 1, 2007
and provides for borrowings up to a maximum of $800,000, as amended. The Yuan
Line of Credit carries an interest rate of 10.0% per annum. The balance as of
February 28, 2006 was $748,607, including $11,807 of accrued interest.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. The Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer ("CEO") and Chief
Financial Officer ("CFO"), of the effectiveness of the Company's disclosure
controls and procedures. Based upon that evaluation, the CEO and CFO concluded
that as of February 28, 2006 our disclosure controls and procedures were
effective in timely alerting them to the material information relating to the
Company required to be included in the Company's periodic filings with the SEC,
subject to the various limitations on effectiveness set forth below under the
heading, "LIMITATIONS ON THE EFFECTIVENESS OF INTERNAL CONTROLS," such that the
information relating to the Company, required to be disclosed in SEC reports (i)
is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms, and (ii) is accumulated and communicated to
the Company's management, including our CEO and CFO, as appropriate to allow
timely decisions regarding required disclosure." (b) Changes in internal control
over financial reporting. There has been no change in the Company's internal
control over financial reporting that occurred during the fiscal quarter ended
February 28, 2006 that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
LIMITATIONS ON THE EFFECTIVENESS OF INTERNAL CONTROLS The Company's management,
including the CEO and CFO, does not expect that our disclosure controls and
procedures or our internal control over financial reporting will necessarily
prevent all fraud and material error. An internal control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the internal control. The design of
any system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions.
Over time, control may become inadequate because of changes in conditions,
and/or the degree of compliance with the policies or procedures may deteriorate.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company filed a lawsuit against Maureen Storch ("Storch"), Katherine Li
("Li"), Cherry Wang ("Wang") and Global Nexus, Inc., a California Corporation
("Global"), (collectively the four defendants referred to as "Defendants") in
the Superior Court of the State of California, County of Los Angeles on November
23, 2005. The claims by the Company against Storch, Li, Wang and Global arose
out of certain activities undertaken by them as consultants or employees of the
Company. The Company alleges, among other things, that Defendants failed to
fulfill their contractual obligations and breached their fiduciary duties to the
Company for a number of reasons, including by breach of contract, interference
with contract, interference with prospective economic advantage, unfair
competition and misappropriation of trade secrets. The Company seeks
compensatory damages and injunctive relief.
17
In response to the lawsuit filed by the Company, Defendants filed a
Cross-Complaint against the Company and Frank Yuan individually on January 20,
2006 alleging breach of written contract, breach of implied covenant of good
faith and fair dealing, fraud and deceit, rescission, libel, slander,
intentional interference with prospective economic advantage, and unfair
competition. Defendants seek compensatory and punitive damages and injunctive
relief.
The Company intends to pursue its Complaint for damages against Defendants and
to vigorously defend the Cross-Complaint brought by Defendants. The Company
believes that it has no obligations to make any payments to Defendants and has
meritorious defenses to all of Defendants' allegations. However, if the Company
does not prevail and the Court awards any significant damage award to
Defendants, this would have a material adverse effect upon the Company.
On March 7, 2006, a complaint was filed against the C-ME in a Chapter 7
bankruptcy proceeding in U.S. Bankruptcy Court in the District of Delaware in
the matter captioned In Re: Factory 2-U Stores, Inc. The complaint seeks to
recover from C-ME $91,572 in alleged preferential transfers made to C-ME by the
debtor during the ninety-day period prior to the filing of the debtor's
bankruptcy petition. C-ME intends to defend against such preference claim by
asserting that such transfers were made in the ordinary course of business and
such other available defenses.
To the extent C-ME incurs any losses, costs or damages with respect to the
preference claim, including attorneys' fees and related costs, the C-ME believes
it may recover such losses, costs and damages from Frank Yuan and the Company
pursuant to the indemnification provisions under the Transfer Agreement. C-ME
has informed Frank Yuan and the Company that it intends to seek indemnification
from them with respect to the preference claim. Further, C-ME has informed Frank
Yuan and the Company that the $50,000 reserve originally due to be paid March
30, 2006 under the terms of the Transfer Agreement will be retained by C-ME
until this preference claim is resolved to satisfy any potential indemnity
claims.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
None.
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.
ASAP SHOW, INC.
(Registrant)
Date: 04/21/2006 /s/ Frank S. Yuan
--------------------- ---------------------------------------------
Frank S. Yuan, Chairman, Chief Executive Officer
18