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 November 30, 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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4349 Baldwin Ave., Unit A, El Monte, CA 91731
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(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
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Number of shares outstanding of the issuer's classes of common equity, as of
November 30, 2006: 8,701,480 Shares of Common Stock (One Class)
Transitional Small Business Disclosure Format: Yes No X
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TABLE OF CONTENTS
Page
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Balance Sheet as of November 30, 2006 (unaudited)...........3
Condensed Statements of Operations for the Six Months Ended
November 30, 2006 and 2005 (unaudited)................................4
Condensed Statements of Operations for the Three Months Ended
November 30, 2006 and 2005 (unaudited)................................5
Condensed Statements of Cash Flows for the Six Months Ended
November 30, 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.........................................18
PART II - OTHER INFORMATION...................................................18
ITEM 1. LEGAL PROCEEDINGS...............................................18
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.....19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.................................19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............19
ITEM 5. OTHER INFORMATION...............................................19
ITEM 6. EXHIBITS .......................................................19
SIGNATURES....................................................................20
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASAP SHOW, INC.
CONDENSED BALANCE SHEET
(UNAUDITED)
November 30,
2006
ASSETS
Current assets:
Cash $ 61,412
Accounts receivable, net 10,000
Prepaid expenses 4,790
------------
Total current assets 76,202
Other assets 9,800
------------
Total assets $ 86,002
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 350,294
Deferred revenue 52,074
Line-of-credit, stockholder 1,083,347
------------
Total current liabilities 1,485,715
------------
COMMITMENTS AND CONTINGENCIES
Stockholders' deficit:
Common stock, $0.001 par value; 45,000,000 shares
authorized; 8,701,480 shares issued and outstanding 8,701
Capital contribution receivable (50,000)
Additional paid-in capital 14,174,550
Accumulated deficit (15,532,964)
------------
Total stockholders' deficit (1,399,713)
------------
Total liabilities and stockholders' deficit $ 86,002
============
See accompanying notes to condensed financial statements.
3
ASAP SHOW, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended
November 30,
-----------------------
2006 2005
---------- ----------
Revenues:
Transaction sales $ 243,914 $ 200,756
Tradeshow 750,549 754,575
Buying trip 28,938 239,590
---------- ----------
Revenues 1,023,401 1,194,921
---------- ----------
Operating expenses:
Cost of transaction sales 216,497 168,160
General and administrative 792,112 1,032,435
Payroll and related 189,456 305,135
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Total operating expenses 1,198,065 1,505,730
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Loss from operations (174,664) (310,809)
Interest expense 43,364 36,506
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Loss before income taxes (218,028) (347,315)
Income taxes 800 800
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Net loss $ (218,828) $ (348,115)
========== ==========
Net loss per share available to common stockholders:
Basic and diluted $ (0.03) $ (0.04)
========== ==========
Weighted-average number of common shares outstanding:
Basic and diluted 8,666,040 8,626,480
========== ==========
See accompanying notes to condensed financial statements.
4
ASAP SHOW, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
November 30,
-----------------------
2006 2005
---------- ----------
Revenues:
Transaction sales $ 65,511 $ 80,037
Tradeshow -- 34,460
Buying trip 28,938 67,758
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Revenues 94,449 182,255
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Operating expenses:
Cost of transaction sales 53,851 70,244
General and administrative 112,096 198,299
Payroll and related 94,095 128,545
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Total operating expenses 260,042 397,088
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Loss from operations (165,593) (214,833)
Interest expense 23,287 10,112
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Loss before income taxes (188,880) (224,945)
Income taxes -- --
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Net loss $ (188,880) $ (224,945)
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Net loss per share available to common stockholders:
Basic and diluted $ (0.02) $ (0.03)
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Weighted-average number of common shares outstanding:
Basic and diluted 8,701,480 8,626,480
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See accompanying notes to condensed financial statements.
5
ASAP SHOW, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
November 30,
----------------------
2006 2005
--------- ---------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $(218,828) $(348,115)
Adjustments to reconcile net loss to net
cash used in operating activities:
Estimated fair value of common stock issued
for services rendered: 8,250 --
Changes in operating assets and liabilities:
Accounts receivable 15,160 47,212
Prepaid expenses (2,132) 17,597
Other assets -- 1,568
Accounts payable and accrued expenses (4,316) (62,731)
Deferred revenues (69,361) (168,640)
--------- ---------
Net cash used in operating activities (271,227) (513,109)
Cash flows from investing activities:
Proceeds from capital contribution receivable -- 365,000
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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 718,636 658,800
Repayments of borrowings on line-of-credit from stockholder (457,089) (381,612)
--------- ---------
Net cash provided by financing activities 261,547 177,188
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Net (decrease) increase in cash (9,680) 29,079
Cash, beginning of period 71,092 69,866
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Cash, end of period $ 61,412 $ 98,945
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period
Interest 55,481 30,294
Income taxes 800 800
See accompanying notes to condensed financial statements.
6
ASAP Show, Inc.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
November 30, 2006
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 three and six-month periods ended November 30, 2006
are not necessarily indicative of the results that may be expected for the year
ending May 31, 2007.
At November 30, 2006, the Company has accumulated deficit of $15,532,964,
negative working capital of $1,409,513 and a lack of profitable operational
history. The Company hopes to increase revenues from the growth of its buying
trips and the Fashion International Trade Show ("FITS"). 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 determined 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.
Management believes that the Company will require approximately $600,000 in cash
to fund operations through November 30, 2007, based on approximately $300,000 of
cash used in operations during the six months ended November 30, 2006.
Management also believes that such a fund requirement can be reduced by its cost
reduction plan and the estimated growth of revenues from FITS and the buying
trips. As of November 30, 2006, the Company had approximately $217,000 available
to borrow under the line of credit from stockholder.
The Company's success is dependent upon numerous items, certain of which are the
successful growth of revenues from its products and services and its ability to
obtain new customers/exhibitors in order to achieve levels of revenues adequate
to support the Company's current and future cost structure, for which there is
no assurance. Unanticipated problems, expenses, and delays are frequently
encountered in establishing and maintaining profitable operations. These
include, but are not limited to, competition, the need to develop customer
support capabilities and market expertise, technical difficulties, market
acceptance and sales and marketing. The failure of the Company to meet any of
these conditions could have a materially adverse effect on the Company and may
force the Company to reduce or curtail operations. No assurance can be given
that the Company can achieve or maintain profitable operations.
These factors, among others, raise substantial doubt about the Company's ability
to continue as a going concern. The accompanying financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the classification of liabilities
that might result from the outcome of these uncertainties.
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 the Securities and Exchange Commission. Management believes the
Company's revenue recognition policies conform to SAB 104.
Revenues include amounts earned under transaction sales, trade shows, and buying
trips.
7
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. 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 travel through various foreign countries in
Asia to meet local apparel manufacturers. The Company receives a portion of
exhibition net revenues collected by the foreign government's trade promotion
agencies located in the various cities which were visited by the Buyers (i.e.
the Company does not share in losses, if any). The Buying Trip's revenue is
recognized ratably during the period in which the event is conducted. The
Company plans to conduct buying trips on a semi-annual basis.
Fashion International Trade Show ("FITS")
-----------------------------------------
FITS is a brand licensing trade show held in China. FITS brings International
Fashion Brands into 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
revenue of FITS was recognized at the completion of the FITS Show.
The Company anticipates placing brands in the International Textile and Fashion
Mega-Mall ("ITFM"), which is the world's largest textile and clothing
distributing center with 13 million square feet of floor space. ITFM, the master
licensee, will pay each brand an annual agreed upon royalty during a five year
term. The Company will earn a negotiated fee for placing each brand. There were
no ITFM related revenues earned during the six months ended November 30, 2006.
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.
8
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:
6 Months Ended 3 Months Ended
11/30/06 11/30/05 11/30/06 11/30/05
----------- ----------- ----------- -----------
Numerator for basic and diluted loss per share:
Net loss $ (218,828) $ (348,115) $ (188,880) $ (224,945)
Denominator for basic and diluted loss per share:
Weighted average shares (basic and diluted) 8,666,040 8,626,480 8,701,480 8,626,480
----------- ----------- ----------- -----------
Loss charged to common stockholders per common share:
Basic and diluted $ (0.03) $ (0.04) $ (0.02) $ (0.03)
=========== =========== =========== ===========
Stock-Based Compensation
------------------------
At November 30, 2006, the Company had no stock-based compensation plans and has
not issued any share-based payments to its employees.
Effective June 1, 2006, the Company adopted the fair value recognition
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123(R),
Share Based Payment, using the modified-prospective transition method. Under
this transition method, compensation cost required to be recognized in the
periods ended subsequent to June 1, 2006 will include: (a) compensation cost for
all share-based payments granted subsequent to May 31, 2006 based on the
grant-date fair value estimated in accordance with the provisions of SFAS No.
123(R).
The Company will calculate stock-based compensation by estimating the fair value
of each option using the Black-Scholes option pricing model. The Company's
determination of fair value of share-based payment awards will be made as of
their respective dates of grant using that option pricing model and is affected
by the Company's stock price as well as assumptions regarding a number of
subjective variables. These variables include, but are not limited to the
Company's expected stock price volatility over the term of the awards and actual
and projected employee stock option exercise behavior. The Black-Scholes option
pricing model was developed for use in estimating the value of traded options
that have no vesting or hedging restrictions and are fully transferable. Because
the Company's employee stock options will have certain characteristics that are
significantly different from traded options, the existing valuation models may
not provide an accurate measure of the fair value of the Company's employee
stock options. Although the fair value of employee stock options will be
determined in accordance with SFAS No. 123(R) using an option-pricing model,
that value may not be indicative of the fair value observed in a willing
buyer/willing seller market transaction. The calculated compensation cost will
be recognized on a straight-line basis over the vesting period of the option.
Issuance of Stock for Non-cash Consideration
--------------------------------------------
All issuances of the Company's common stock for non-cash consideration have been
assigned a dollar amount equaling either the market value of the shares issued
or the value of consideration received whichever is more readily determinable.
The majority of the non-cash consideration received pertains to services
rendered by consultants and others and has been valued at the market value of
the shares issued. In certain issuances, the Company may discount the value
assigned to the stock issued for illiquidity and restrictions on resale.
9
The Company's accounting policy for equity instruments issued to consultants and
vendors in exchange for goods and services follows the provisions of EITF Issue
No. 96-18, Accounting for Equity Instruments That are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services and
EITF Issue No. 00-18, Accounting Recognition for Certain Transactions Involving
Equity Instruments Granted to Other Than Employees. The measurement date for the
fair value of the equity instruments issued is determined at the earlier of (i)
the date at which a commitment for performance by the consultant or vendor is
reached or (ii) the date at which the consultant or vendor's performance is
complete. In the case of equity instruments issued to consultants, the fair
value of the equity instrument is recognized over the term of the consulting
agreement.
Recently Issued Accounting Pronouncements
-----------------------------------------
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Income Tax Uncertainties ("FIN 48"). FIN
48 defines the threshold for recognizing the benefits of tax return positions in
the financial statements as "more-likely-than-not" to be sustained by the taxing
authority. The recently issued literature also provides guidance on the
de-recognition, measurement and classification of income tax uncertainties,
along with any related interest and penalties. FIN 48 also includes guidance
concerning accounting for income tax uncertainties in interim periods and
increases the level of disclosures associated with any recorded income tax
uncertainties.
FIN 48 is effective for fiscal years beginning after December 15, 2006 (ASAP's
fiscal year ending May 31, 2008). The differences between the amounts recognized
in the statements of financial position prior to the adoption of FIN 48 and the
amounts reported after adoption will be accounted for as a cumulative-effect
adjustment recorded to the beginning balance of retained earnings. The Company
is still evaluating the impact, if any, of adopting the provisions of FIN 48 on
its financial position, results of operations and liquidity.
In September 2006, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 108, Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements , which provides interpretive guidance on the consideration of the
effects of prior year misstatements in quantifying current year misstatements
for the purpose of a materiality assessment. SAB No. 108 is effective for fiscal
years ending after November 15, 2006 (ASAP's fiscal year ending May 31, 2007).
The Company is currently assessing the impact, if any, the adoption of SAB No.
108 will have on our operating income or net earnings. The cumulative effect, if
any, of applying the provisions of SAB No. 108 will be reported as an adjustment
to beginning-of-year retained earnings.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements . SFAS
No. 157 defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures about fair
value measurements. This Statement applies under other accounting pronouncements
that require or permit fair value measurements, the FASB having previously
concluded in those accounting pronouncements that fair value is the relevant
measurement attribute. Accordingly, this Statement does not require any new fair
value measurements. SFAS No. 157 is effective for fiscal years beginning after
December 15, 2007 (ASAP's fiscal year ending May 31, 2009). We plan to adopt
SFAS No. 157 beginning in the first quarter of fiscal 2009. We are currently
evaluating the impact, if any; the adoption of SFAS No. 157 will have on our
operating income or net earnings.
10
NOTE 2 - BUSINESS SEGMENTS
Reportable business segments as of and for the periods ended November 30, 2006
and 2005 are as follows:
6 Months Ended 3 Months Ended
11/30/06 11/30/05 11/30/06 11/30/05
----------- ----------- ----------- -----------
Revenues:
Transaction sales $ 243,914 $ 200,756 $ 65,511 $ 80,037
Tradeshow 750,549 754,575 -- 34,460
Buying trip 28,938 239,590 28,938 67,758
----------- ----------- ----------- -----------
$ 1,023,401 $ 1,194,921 $ 94,449 $ 182,255
=========== =========== =========== ===========
Income (loss) from operations:
Transaction sales $ 27,417 $ 32,596 $ 11,660 $ 9,793
Tradeshow (221,557) (486,807) (196,729) (273,710)
Buying trip 19,476 143,402 19,476 49,084
----------- ----------- ----------- -----------
$ (174,664) $ (310,809) $ (165,593) $ (214,833)
=========== =========== =========== ===========
Identifiable assets:
Transaction sales $ --
Tradeshow 76,002
Buying trip 10,000
-----------
$ 86,002
===========
Revenues as reflected above, consist of sales to unaffiliated customers only as
there were no significant intersegment sales for the three and six-month periods
ended November 30, 2006 and 2005.
There were no significant concentrations on net segment sales for the three and
six-month periods ended November 30, 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 "Line") with Frank Yuan, the
Company's Chief Executive Officer and a significant Company stockholder, which
expires on August 1, 2007 and provides for borrowings up to a maximum of
$1,300,000, as amended. The Line bears an interest rate of 10.0% per annum. The
balance at November 30, 2006 was $1,087,905, including accrued and unpaid
interest of $4,558. Interest expense incurred under the Line approximated the
following:
Three-Months Six-Months
Ended Ended
November 30, 2006 $ 23,250 $ 43,327
======== ========
November 30, 2005 $ 12,000 $ 38,394
======== ========
11
NOTE 4 - EQUITY
During the six months ended November 30, 2006, the Company issued 75,000 shares
of common stock for services rendered. The estimated fair value of the common
stock was $8,250 (based on the estimated fair value on the date of grant) and
the related expense is included in general and administrative expenses in the
accompanying statement of operations.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
On March 7, 2006, a complaint was filed against Cyber Merchants Exchange Inc.
("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, which
C-Me transferred all of its assets and liabilities to the Company. 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.
NOTE 6 SUBSEQUENT EVENT
The Company signed a letter of intent (the "LOI") on December 20, 2006 involving
the Company and China Renyuan International Inc., a Delaware corporation
("Renyuan"). The LOI confirmed the general terms of the reorganization whereby,
the Company will form a wholly owned subsidiary (the "ASAP Subsidiary"), in
which the officers and directors of the Company will be the officers and
directors of. In addition, the ASAP Subsidiary and the Company will enter into a
transfer agreement whereby all of the assets of the Company will be transferred
to the ASAP Subsidiary and all liabilities, obligations and contracts of the
Company (known and unknown, fixed or contingent or otherwise) will be assumed by
the ASAP Subsidiary ("Assumed Liabilities"). Renyuan will purchase 100,000
shares of the Company's convertible preferred stock for $600,000, which will be
injected into the ASAP Subsidiary. The Company will issue an additional 200,000
shares of the convertible preferred stock in exchange for all of the issued and
outstanding shares of the common stock of Renyuan. The aggregate of 300,000
shares of the Company's convertible preferred stock held by Renyuan will be
convertible into 99% of the then issued and outstanding shares of the Company's
common stock, effecting a change of control of the Company.
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 November 30, 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.
12
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
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, and 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 derives revenue principally from the sale of exhibit space and
conference attendance fees generated at its events. In fiscal 2006,
approximately 95% of the revenue generated from the ASAP Show 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 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
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 has included 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 annual buying trips in China in May and
Southeast Asia countries in November.
The Buying Trip's revenue is generated from participation fees paid by buyers
and shared exhibitors' fees with each city's Co-organizer, the Municipal
Government, and is recognized ratably during the period in which the event is
conducted. The company plans to conduct 2 buying trips durint fiscal 2007.
13
ASAP Buying Trips have a great reputation for taking U.S. and European buyers to
visit factories in Asia. The buying trips provide a cost effective way to
evaluate multiple pre-arranged qualified factories in a short time period. ASAP
has arranged four trips to China, Bangladesh, and Pakistan.
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 many Chinese consumers
are not familiar with certain foreign brands, the opportunity for designers to
become famous brands is available with the right promotion.
FITS is a brand new licensing trade show to be held in China. FITS intends to
bring International Fashion Brands into 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 i.e. Brand name,
designs, marketing and promotions - and receive royalty income without any
capital investment. The first FITS was held in Hangzhou from June 29 to July 1,
2006. The Company's management negotiated with Hangzhou municipal government,
whereby it covered all venue rental, booth decoration, and International Fashion
Brands' hotel accommodation expenses. The revenue of FITS was recognized at the
completion of the FITS show and is classified as tradeshow revenue in the
accompanying statements of operations.
The Company anticipates placing brands in the International Textile and Fashion
Mega-Mall ("ITFM"), which is the world's largest textile and clothing
distributing center with 13 million square feet of floor space. ITFM, the master
licensee, will pay each brand an annual agreed upon royalty during a five year
term. The Company will earn a negotiated fee for placing each brand. There were
no ITFM related revenues earned during the six months ended November 30, 2006.
Electronic Commerce, A New Wave of International Trade
------------------------------------------------------
The Company has utilized the convenience and power of the 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. ISN is in its development stage as the Company is focusing its resources
on its trade show operations.
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.
14
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
requires management to make judgments, assumptions and estimates that affect the
amounts reported in the our financial statements and the accompanying notes. The
amounts of assets and liabilities reported on our balance sheet and the amounts
of revenues and expenses reported for each of our fiscal periods are affected by
estimates and assumptions, which are used for, but not limited to, the
accounting for revenue recognition, stock based compensation and the valuation
of deferred taxes. Actual results could differ from these estimates. The
following critical accounting policies are significantly affected by judgments,
assumptions and estimates used in the preparation of the financial statements:
Revenue Recognition
-------------------
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin 101 ("SAB 101"), "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 the SEC. SAB 101 has been amended
and replaced by SAB 104. Management believes the Company's revenue recognition
policies conform to SAB 104.
Net revenues include amounts earned under transaction sales, trade shows, buying
trips, Material World and subscription fees.
Transaction Sales
-----------------
Transaction revenues are recorded in accordance with 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. For all product transactions with its customers
in 2005 and 2006, the Company acted as a principal, took title to all products
sold upon shipment, and bore inventory risk for return products that the Company
was not able to return to the supplier, although these risks are mitigated
through arrangements with factories, shippers and suppliers.
Trade Shows
-----------
Trade shows generate 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.
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 (we do
not share any losses, if any). Buying Trip's revenue is recognized ratably
during the period in which the event is conducted.
Material World
--------------
The Company shares Material World's foreign exhibitors' net exhibitors' fees
income which are derived through Company introduction (we do not share in
losses, if any). Material World's net revenue is recognized in the accounting
period in which the event is conducted. Effective November 1 2005, the Company
is no longer associated with Material World and does not expect any additional
revenues to be generated.
Subscription Fees
-----------------
The Company also recognizes revenue from monthly subscription fees. Subscriber
fees represent revenue generated through one-time, non-refundable setup fees and
monthly hosting fees. Subscription and subscriber fees are recognized as revenue
after the services have been provided.
15
DEFERRED TAX ASSET VALUATION
The Company accounts for income taxes under SFAS No. 109, "Accounting for Income
Taxes." Under SFAS No. 109, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Management provides a valuation allowance for significant deferred tax assets
when it is more likely than not that such assets will not be recovered.
RESULTS OF OPERATIONS
Six Months Ended November 30, 2006 and 2005
Revenue
-------
Revenues from transaction sales for the six months ended November 30, 2006 were
$243,914, an increase of $43,158 or 21% compared to $200,756 for the same period
last year. The Company does not anticipate that transactions sales will be 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 six months ended November 30, 2006 was
$750,549, a decrease of $4,026 or 0.5% compared to $754,575 for the same period
last year. This decrease was due to a slight decrease in number of exhibitors
for the ASAP Show in August 2006 compared to the same show in August 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 six months ended November 30, 2006
were $28,938, a decrease of $210,652 or 88% compared to $239,590 for the same
period last year. This decrease was due to having only one small buying trip to
China for the six months ended November 30, 2006, while there were three buying
trips to China, South Eastern Asia and Pakistan for the same period last year.
Operating Expenses
------------------
Operating expenses decreased by $307,665, or 20%, to $1,198,065 for the six
months ended November 30, 2006, as compared to $1,505,730 for the same period
last year. The decrease in operating expenses is primarily due to the decrease
in payroll, ASAP attendee marketing expenses, and professional fees. Payroll
decreased by $115,679 to $189,456 for the six months ended November 20, 3006, as
compared to $305,135 for the same period last year. ASAP attendee marketing
expenses decreased by $50,811 to $44,695 for the six months ended November 20,
3006, as compared to $95,506 for the same period last year. Such decreases in
payroll and marketing expenses resulted from the implementation of the Company's
cost reduction plan. Professional fees decreased by $133,065 to $52,485 for the
six months ended November 30, 2006, as compared to $185,550 for the same period
last year. The decrease in professional fees is primarily related to the
additional legal and accounting fees in connection with the filing of the
Company's Form 10-SB and related amendments for the same period last year.
Net Loss (Income)
-----------------
The Company recorded a net loss of $218,828 for the six months ended November
30, 2006, an improvement of $129,287 as compared to a net loss of $348,115 for
the same period last year. Such an improvement is mainly due cost savings in
operating expenses of $307,665, net of the decrease in total revenues of
$171,520.
Three Months Ended November 30, 2006 and 2005
Revenue
-------
Gross revenue from transaction sales for the three months ended November 30,
2006 were $65,511, a decrease of $14,526 or 18% compared to $80,037 for the same
period last year. The Company does not anticipate that transactions sales will
be 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.
16
The gross tradeshow revenue for the three months ended November 30, 2006 was $0,
a decrease of $34,460 or 100% compared to $34,460 for the same period last year.
The gross trade show revenue of $34,460 for the same period last year was the
profit sharing revenues from the sales of Material World show booths. This
revenue stream was stopped in this fiscal year. The Company is no longer
promoting Material World Shows.
Gross revenues from the buying trip for the three months ended November 30, 2006
were $28,938, a decrease of $38,821 or 57% compared to $67,758 for the same
period last year. This decrease was due to there was only one small buying trip
held to China for the three months ended November 30, 2006, while there were two
buying trips held to South Eastern Asia and Pakistan.
Operating Expenses
------------------
Operating expenses decreased by $137,046, or 35%, to $260,042 for the three
months ended November 30, 2006, as compared to $397,088 for the same period last
year. The decrease in operating expenses is primarily due to the decrease in
payroll, cost of transaction sales and professional fees. Payroll decreased by
$34,450 to $94,095 for the three months ended November 30, 2006, as compared to
$128,545 for the same period last year. Cost of transaction sales decreased by
$16,393 to $53,851 for the three months ended November 30, 2006 as compared to
$70,244 for the same period last year. Professional fees decreased by $72,939 to
$28,591 for the three months ended November 30, 2006, as compared to $101,530
for the same period last year. The decrease in payroll was due to the continued
implementation of the Company's cost reduction plan. The decrease in cost of
transaction sales was due to less customer orders in the second quarter. The
decrease in professional fees was due to less additional legal and accounting
fees in connection with the filing of the Company's Form 10-SB and related
amendments for the same period last year.
Net Loss (Income)
-----------------
The Company recorded a net loss of $188,880 for the three months ended November
30, 2006, an improvement of $36,065 as compared to a net loss of $224,945 for
the same period last year. Such an improvement is mainly due to the reduction of
operating expenses of $137,046, net of the reduction of net revenues from
transaction sales, tradeshow revenue and buying trip as a whole of $87,806 and
an increase in interest expense of $13,175.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a deficit in working capital of approximately $1,409,513 at
November 30, 2006. During this six month period ended November 30, 2006, the
Company had average monthly expenses of approximately $89,000 (excluding ASAP
Show production expenses). Management anticipates maintaining its monthly
expenses in the range of $90,000 to $100,000 in the foreseeable future. The
Company will focus its efforts on the semi-annual ASAP Shows in Las Vegas,
Buying Trips and FITS, to generate more revenue to cover its minimum average
monthly expenses.
At November 30, 2006, the Company has current assets of approximately $76,000.
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 through November 2007 and beyond.
The Company has a revolving line-of-credit (the "Line") from Frank Yuan, the
Company's CEO and a significant shareholder, which expires on August 1, 2007 and
provides for borrowings up to a maximum of $1,300,000, as amended. The Line
carries an interest rate of 10.0% per annum. The balance as of November 30, 2006
was 1,087,905, including $4,558 of accrued interest.
17
The Company signed a letter of intent (the "LOI") on December 20, 2006 involving
the Company and China Renyuan International Inc., a Delaware corporation
("Renyuan"). The LOI confirmed the general terms of the reorganization whereby,
the Company will form a wholly owned subsidiary (the "ASAP Subsidiary"), in
which the officers and directors of the Company will be the officers and
directors of. In addition, the ASAP Subsidiary and the Company will enter into a
transfer agreement whereby all of the assets of the Company will be transferred
to the ASAP Subsidiary and all liabilities, obligations and contracts of the
Company (known and unknown, fixed or contingent or otherwise) will be assumed by
the ASAP Subsidiary ("Assumed Liabilities"). Renyuan will purchase 100,000
shares of the Company's convertible preferred stock for $600,000, which will be
injected into the ASAP Subsidiary. The Company will issue an additional 200,000
shares of the convertible preferred stock in exchange for all of the issued and
outstanding shares of the common stock of Renyuan. The aggregate of 300,000
shares of the Company's convertible preferred stock held by Renyuan will be
convertible into 99% of the then issued and outstanding shares of the Company's
common stock, effecting a change of control of the Company.
The Report of the Company's Independent Registered Public Accounting Firm on our
May 31, 2006 financial statements includes an explanatory paragraph stating that
the Company has incurred recurring losses and has a working capital deficit of
$377,135 at May 31, 2006, and that these factors, among others, raise
substantial doubt about our ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
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 November 30, 2006 our disclosure controls and procedures were
effective in timely alerting him 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
November 30, 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
On March 7, 2006, a complaint was filed against Cyber Merchants Exchange Inc.
("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.
18
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, which
C-Me transferred all of its assets and liabilities to the Company. 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.
19
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: 1/16/07 /s/ Frank S. Yuan
---------------------------------------------
Frank S. Yuan, Chairman, Chief Executive Officer
20