UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A1
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
ASAP Show, Inc.
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(Name of Small Business Issuer in its charter)
Nevada 20-2934409
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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
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Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
To be so registered each class is to be registered
None None
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Securities to be registered under Section 12(g) of the Act:
Common Stock, $.001 Par Value
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(Title of class)
ASAP SHOW, INC.
TABLE OF CONTENTS
PAGE
PART I
Item 1 Description of Business .................................... 3
Item 2 Management's Discussion and Analysis or Plan of Operation.. 13
Item 3 Description of Property ................................... 20
Item 4 Security Ownership of Certain Beneficial Owners and
Management .............................................. 20
Item 5 Directors and Executive Officers, Promoters and
Control Persons ......................................... 21
Item 6 Executive Compensation .................................... 22
Item 7 Certain Relationships and Related Transactions ............ 23
Item 8 Description of Securities ................................. 23
PART II
Item 1 Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters ........... 24
Item 2 Legal Proceedings ......................................... 24
Item 3 Changes in and Disagreements with Accountants ............. 24
Item 4 Recent Sales of Unregistered Securities ................... 24
Item 5 Indemnification of Directors and Officers ................. 24
PART FS
Balance Sheet as of May 31, 2005 .......................... 28
Statements of Operations .................................. 29
Statements of Shareholders' Deficit ....................... 30
Statements of Cash Flows .................................. 31
Notes to Financial Statements ............................. 32
PART III
Item 1 Index to Exhibits ......................................... 57
Item 2 Description of Exhibits ................................... 57
SIGNATURES .................................................................. 57
2
PART I
ITEM 1 - DESCRIPTION OF BUSINESS AND BACKGROUND
ASAP Show, Inc. ("ASAP" or the "Company") is a spin off from Cyber Merchants
Exchange, Inc. ("C-ME"). ASAP was incorporated in December 2004 under the laws
of the State of Nevada. All of the assets and liabilities of C-ME have been
transferred to the Company effective May 31, 2005 (the "Transfer"). The Company
will operate the business previously operated by C-ME; a trade-show organizer
and a business-to-business international stock lot trading and logistics company
that is initially targeting the apparel industry. ASAP uses its overseas offices
and agents to source apparel overstock lots. It then displays that stock lot
information on its website for United States retail stores to consider for
purchasing. Once the transaction is consummated through the information provided
by ASAP's website, either the buyer or seller will pay ASAP a commission for
this service. With regard to logistics, ASAP is helping its exhibitors and
apparel stock lot owners overseas ship the merchandise via air or ocean freight,
find customs brokers to clear the merchandise and assist in shipping by local
trucking to the buyers' warehouses. The officers and directors of ASAP are the
same as the officers and directors of C-ME.
REORGANIZATION
On May 16, 2005, the shareholders of Cyber Merchants Exchange, Inc. ("C-ME")
approved a reorganization (the "Reorganization"), summarized as follows:
1. C-ME entered into an amended and restated Securities Purchase Agreement
("SPA") with KI Equity Partners II, LLC ("KI Equity") effective as of August 25,
2005. The transaction closed on September 30, 2005. C-ME issued 7,104,160 shares
of its common stock to KI Equity for proceeds of $415,000 (the "Investment").
The funds were distributed from C-ME to the Company on that date and were used
to satisfy liabilities of C-ME assumed by the Company pursuant to the Transfer
Agreement referred to below;
2. C-ME issued a stock bonus to certain directors and officers of 1,027,327
shares of C-ME's common stock, effective May 31, 2005 (the "Stock Bonus");
3. C-ME transferred all of its assets and liabilities to the Company effective
May 31, 2005 pursuant to a Transfer and Assumption Agreement ("Transfer
Agreement"); and
4. On August 25, 2005 C-ME distributed 8,626,480 shares of common stock of ASAP,
representing all of the outstanding shares of ASAP, to C-ME's shareholders of
record on August 18, 2005 on a pro rata basis (the "Distribution").
The details of the transaction summarized above are as follows:
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 current Chairman of the Board and Chief
Executive Officer of C-ME ("Yuan") providing for the investment by KRM Fund of
$425,000 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 Investment by KI Equity
will be used satisfy certain liabilities assumed by the Company with any
remaining funds being used to provide the Company with working capital to grow
its trade show business. The Reorganization will allow the shareholders of C-ME
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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 will be 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 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 or assumed by Yuan. 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.
Transfer
--------
Since the Transfer effective May 31, 2005, ASAP has been and will continue to
focus on operating the trade show business previously operated by C-ME. The
Investment contemplated as part of the Reorganization will be 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, arrange three
or more Buying Trips, and manage Material World Global Pavilion in Miami and New
York. As part of the Transfer Agreement, ASAP has assumed an $800,000 revolving
line of credit from Frank Yuan and his wife (the "Yuan Line of Credit"). Frank
Yuan and his wife consented to the assumption of the Yuan Line of Credit and
released C-ME from any and all liabilities there under. The Yuan Line of Credit
has an outstanding balance as of August 31, 2005 of $554,179, including accrued
interest of $9,179; bears interest at 8% per annum, and expires in September
2006. $120,000 of the funds received from C-ME as a result of the Investment
were used to partially repay the Yuan Line of Credit. With the payment of
liabilities from 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 pay the liabilities and meet the obligations
with respect to its operations through at least September 2006.
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").
Distribution
------------
On August 25, 2005, C-ME distributed 8,626,480 shares of ASAP to C-ME's
shareholders of record on August 18, 2005 on a pro-rata basis.
In connection with the filing of this Form 10-SB with the Securities and
Exchange Commission (the "SEC"), the Distribution was paid to 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 this Form 10-SB
has become effective and all comments from the SEC have been cleared. At that
time, the certificates representing ASAP shares will be disbursed by the
depository agent to ASAP's shareholders. Following disbursement of the ASAP
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shares, ASAP intends to make available information that will allow a broker to
file a Form 15c2-11 to post a quotation and obtain a trading symbol for the
shares of ASAP on the OTC BB. The ASAP shares distributed as part of the
Distribution will be freely tradable, subject to certain restrictions applicable
to insiders and affiliates, once this Form 10-SB has become effective and all
comments of the SEC have been cleared.
The distribution will be taxable to the Company's shareholders.
Investment
----------
The closing of the transactions contemplated by the SPA and the Investment
occurred on September 30, 2005, after the Distribution. 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 will be used to satisfy liabilities
that were assumed by ASAP as part of the Transfer and any other liabilities of
C-ME, which will be applied to all third party liabilities which existed at May
31, 2005 and any remaining funds being transferred to ASAP, 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.
Accounting Treatment
--------------------
The Company accounted for the Reorganization as a reverse spinoff in accordance
with the Emerging Issues Task Force Issue No. ("EITF") 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
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.
OVERVIEW OF ASAP SHOW SERVICES
TRADE SHOWS
ASAP GLOBAL SOURCING SHOW - a trade show for U.S. buyers to meet hundreds of
overseas ready-made garment manufacturers - is held twice a year in Las Vegas.
The 8th edition ASAP Global Sourcing Show held from August 29 to 31, 2005 had
approximately 300 full package factories from 35 countries exhibiting.
ASAP BUYING TRIP - The first ASAP China Buying Trip was arranged by the Company
to take more than 80 United States and European Union buyers, each with more
than $5 million in purchasing power, to 4 production centers in China. This
"reverse trade-show" event was supported and promoted by the U.S Cotton Council,
American Apparel and Footwear Association, America Apparel Production Network,
and many other leading corporations and associations active in the apparel
industry. It was the first buying tour of its kind designed for United States
5
and European Union buyers prepared to place production orders, license their
brands, understand China's distribution channels, find joint ventures
possibilities and relocate United States textile plants to China. Participation
from the United States and European Union included such prominent names such as
Fruit of the Loom, Warnaco, Salvatore Ferragamo and Marks & Spencer among
others. The Company is planning a buying trip to Sri Lanka and Bangladesh in
November 2005, an India and Thailand buying trip in March 2006 and the 2nd
edition of the China Buying Trip in May 2006.
The U. S. Cotton Council's objective is to promote U. S. raw cotton to overseas
manufacturers. The Cotton Council's London office promotes the use of cotton
with European apparel buyers as an alternative to synthetic fabrics. The Cotton
Council endorsed and promoted the ASAP China buying trip. It paid ASAP $50,000
and invited 15 European buyers to join the buying trip.
The American Apparel Footwear Association is a non-profit organization
headquartered in Washington D. C. Its members are leading footwear brands such
as Nike, Lee, Limited, etc. It is the only brand association for footwear in the
United States. On the China Buying Trip, its members were able to gain an
understanding of the production strengths and locations in China.
The American Apparel Production Network is a U. S. based non-profit organization
with members in Canada, Central and South America. It promoted the China Buying
Trip to assist its members in balancing their sourcing in China.
Other associations such as the California Fashion Association had the same
objective; to assist their members in sourcing in China.
MATERIAL WORLD is a textile, fabrics and accessories sourcing show held twice a
year in Miami, Florida and New York. ASAP has entered into an exclusive
agreement with Material World to represent it as its global marketing partner
and will share 50% of the net profits associated with sales of booths by the
Company. ASAP's agreement with Material World is based upon ASAP's global
contacts and network to bring textile and accessories manufacturers to exhibit
at the Miami and New York shows. ASAP will share 50% of the gross profits, which
are generated from ASAP's efforts. The calculation is based on the total booth
receipts less venue rental, booth decorations and commissions paid to overseas
agents. Material World will be responsible for promotion and advertising to
attract attendees/buyers. ASAP is responsible for promotion and advertisements
to attract overseas manufacturers as exhibitors.
THE INTERNET SOURCING NETWORK ("ISN")
The ISN is a private extranet that the Company builds and maintains for its U.S.
retail users. ISN allows ASAP's retail users and overseas suppliers to conduct
business using the web-based application. Overseas suppliers have direct access
to U.S. retail buyers; push the stock lot information to buyer's computer and
receive feedback on their immediate merchandise needs. There are many types of
international trade activities related to apparel. Currently, the Company is
focused on apparel stock lot (excess inventories) transactions. For example, if
overseas manufacturers have any stock lots, excess inventory or leftovers, ASAP
will place send a pre-designed information sheet describing the merchandise,
including pictures, to U. S. buyers to review. If a U. S. buyer likes the
product information, ASAP will introduce the buyer and seller. If a transaction
is completed, either the buyer or the seller will pay ASAP a commission. ISN is
in its development stage.
GLOBAL FINANCIAL PLATFORM ("GFP")
Letters of credit have historically been the predominant means of payment for
6
international trading. ASAP's patent pending GFP provides a framework for
obtaining non-recourse financing of merchandise shipments to pre-approved buyers
in the United States, without the need for letters of credit. Through ASAP's
GFP, the CIT Group ("CIT"), the overseas bank and ASAP, each play an integral
role. First, CIT guarantees the credit worthiness of the U.S. buyers. Second,
the overseas bank provides working capital financing and acts as the conduit for
foreign manufacturers to receive payment. Consequently, U.S. buyers can purchase
overseas merchandise just as they purchase domestic goods, with open terms and
without the need to open letters of credit. 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.
CIT will pay ASAP 0.5% of the transaction value. CIT and Bank SinoPac have
tested the GFP platform and model successfully. There have been more than 10
transactions done through the CIT and Bank Sinopac Tri-party agreement. In one
case, a seller in Taiwan shipped merchandise to a San Diego based retailer with
net 30 days open terms. The day the merchandise is shipped from Taiwan, Bank
Sinopac advanced 80% of the value of the merchandise to the Taiwan shipper. The
shipping documents and invoice were sent to the Company. The Company duplicated
the documents. The Company invoiced the San Diego retailer and assigned the
invoice to CIT for collection. When the retailer paid CIT, CIT deducted its
commission and the Company's commission. CIT then remitted the balance to Bank
Sinopac. Bank Sinopac then deducted the advances and interest and remitted the
balance to the shipper. Even though there were several successful similar
transactions, multiple countries are needed for this type of international
trading transaction to be widely used and recognized. The Company has only the
relationship with Bank Sinopac in Taiwan. Therefore this innovative financing
method is still in the development stage. As of May 31, 2005, the Company did
not have the financial resources to allocate to this project. However,
management believes GFP could be a large revenue source in the future. CIT and
the Company cancelled the factoring and commission agreement by mutual consent
and released each other's responsibilities and liabilities under these
agreements. ASAP management will enter into a similar factoring and commission
agreement with CIT when ASAP has more resources ready to promote this GFP
business. If the Company had enough resources to approach banks in multiple
countries, this product could be widely used in international trade. There are
multi-billion dollars of letters of credit issued in international trade. If GFP
can be widely used, it would be a tremendous source of revenue for the Company.
However there can be no assurance as to when or if GFP will be utilized.
LOGISTICS AND WAREHOUSING
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
TRADE SHOWS
Trade show revenue is generated primarily from booth sales. There are many other
ancillary revenues such as seminar fees, advertisements, trade show decoration,
material rentals, etc. Currently, management allocates all resources and
manpower to develop the tradeshows mentioned above.
7
Consequently, the Company's revenues are generated solely from trade shows.
The management budgets its tradeshow income for the year 2006 as follows:
Name of Show Annual Gross Revenue Production Cost Gross Profit
---------------------------- ------------------------- ------------------- ------------------
Two ASAP Shows in Las Vegas $1.2 million $0.60 million $0.60 million
Three Buying Trips $1.0 million $0.25 million $0.75 million
Two Material World shows $0.6 million $0.20 million $0.40 million
Total $2.8 million $1.05 million $1.75 million
---------------------------- ------------------------- ------------------- ------------------
Historically the Company has sold approximately 120 booths at the ASAP shows in
Las Vegas at an average rate of $5,000 per booth. Management estimates that
without any growth for the two shows in 2006, the Company will sell 240 booths
at the same rate for a total of $1,200,000 in revenue.
For the year 2005, the China Buying Trip had 80 buyers. The Company estimates
that in 2006, it will take 125 buyers to China. The Company receives an average
of $1,600 per buyer per city. The buyers will visit 2 cities. The Company
estimates that total gross revenue from the China Buying Trips in 2006 will be
$800,000.
The Company had a Pakistan and Bangladesh buying trip in late November 2005
which had 12 buyers visiting 3 cities. The Company's gross revenue for this trip
was $52,000. In addition, the Company plans to have a buying trip to India and
Sri Lanka in mid 2006. The Company estimates that there will be 20 buyers going
to three cities at $1,600 each with total gross revenue to the Company of
$120,000.
There is no guarantee that the trade shows and buying trips will generate
revenues at these levels in fiscal 2006.
THE INTERNET SOURCING NETWORK
The Company generates at least 10% of the net transaction revenue from selling
overseas stock lots to the U.S. retailers. For the last three years, C-ME
generated an average of $1 million dollars in gross transaction revenue.
Management believes ASAP can increase its transaction sales if it provides
additional resources to the segment; however, the Company is currently focused
on the tradeshow business.
GLOBAL FINANCIAL PLATFORM
CIT paid the Company 0.5% of transaction value. CIT and Bank SinoPac have tested
the GFP platform and model successively. CIT and C-Me have cancelled the
tri-Party Agreement as of September 15, 2005. ASAP management feels it will be
very easy to enter into the same agreement with CIT when there are enough
resources provided and business volume increases for this type of business.
LOGISTICS AND WAREHOUSING
Management is aggressively negotiating with DHL and FedEx for a bulk discount
rate of 25%. If the Company is successful in this regard, the Company will
resell a 15% discount to its tradeshow exhibitors and attendees. The potential
10% freight revenue can generate freight logistic fees for the Company if DHL,
FedEx and ocean carriers are willing to offer the bulk discount rate of 25% to
ASAP's exhibitors and attendees. ASAP's apparel exhibitors and attendees are the
8
target clients for U.S. logistic companies. The Company charges its overseas
suppliers and exhibitors the same rate as a public warehouse charges for similar
warehousing services.
EMPLOYEES
As of May 31, 2005, the Company employed 14 full-time employees and 1 part-time
employee classified as follows: 3 full-time executive officers; 1 full-time
administrative personnel; 10 full-time marketing personnel; and 1 part-time
technical employee. None of the employees are subject to a collective bargaining
agreement, and the Company believes that relations with its employees are good.
COMPETITION
There are numerous fashion, apparel, textile and accessories/supplies trade
shows in the U.S. each year. Some of these shows are well established and have
been held for years.
The primary competitors of ASAP are as follows:
MAGIC - MAGIC, the Men's Apparel Guild in California was founded in 1933. Due to
enormous growth, the show relocated from Los Angeles to Las Vegas in 1989.
Today, MAGIC International is the world's largest and most widely recognized
organizer of fashion industry trade shows. MAGIC encompasses every facet of
fashion. MAGIC announced its Sourcing Zone and Fabric@Magic show in 2003, which
is direct competition of ASAP' trade show in Las Vegas.
The management of ASAP has a combined experience in international apparel trade
of more than 100 years. A competitor such as MAGIC, even though it has a history
of a large tradeshow, cannot compete with ASAP because a sourcing show is a very
specialized tradeshow that requires management to understand the in and outs of
apparel international trade to establish a unique apparel sourcing show. ASAP
offers unique services such as matchmaking between appropriate exhibitors and
buyers and educational seminars for exhibitors and attendees on the complexity
of international trade laws. None of these unique services have been provided by
other tradeshows. ASAP is the first tradeshow in the U. S. that is a sourcing
show compared to others that are more focused on the fashion trade.
IFFE at New York Javits Center - The longest established fabric and trim show in
North America. IFFE concluded its last event in April 2005.
SOURCES trade show - Now in its third year, SOURCES has exhibitors that are
non-US based manufacturers of gifts, home and decorative accessories, and
handcrafted products who come to the U.S. to do business with wholesalers,
importers, distributors, catalog and mail order, and direct volume purchasers.
Although the competitors detailed in the preceding paragraphs may offer similar
services to the ASAP trade shows, the Company believes that no other company has
its range of services, approach to serving the industry or such an experienced
management team with years of experience within the apparel industry. ASAP is
focused on providing a complete merchandise sourcing solution by providing
educational seminars, matchmaking sessions, dedicated country managers and other
unique services that interlock each other and are focused on serving buyers'
/exhibitors' international sourcing and transaction needs.
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RISK FACTORS
The following risk factors include, among other things, cautionary statements
with respect to certain forward-looking statements, including statements of
certain risks and uncertainties that could cause actual results to vary
materially from the future results referred to in such forward-looking
statements.
WE ARE SUBJECT TO GOVERNMENT REGULATIONS WHICH COULD ADVERSELY AFFECT THE
COMPANY'S BUSINESS.
Apparel imports are governed by the World Trade Organization's ("WTO") bilateral
agreements between the U. S. and each other country. For example, even though
China is a WTO member, the U. S. can elect, based upon safeguards/market
disruptions, to limit the export quantities to the U. S. Management found that
because of China's limitations of exports to the U. S., fewer Chinese
manufacturers are willing to exhibit in U. S. trade shows. Foreign governments
may also advise their exporters to sell merchandise to countries other than the
U. S. to balance their export concentration in the U. S. Any of these government
policies will adversely affect the Company's trade show exhibitor revenue.
WE EXPECT TO DEPEND ON REVENUE FROM UNPROVEN ASAP TRADE SHOWS, INTERNET SOURCING
NETWORK, GLOBAL FINANCIAL PLATFORM AND LOGISTICS AND WAREHOUSING WHICH MAKES OUR
REVENUE POTENTIAL UNCERTAIN.
ASAP expects to depend primarily on revenue from trade shows, ISN, GFP and
logistics and warehousing. The trade shows have generated revenue in the past.
Growth in trade shows depends upon venue availability, continued willingness of
manufacturers to pay to exhibit and buyers willingness to attend. There is no
assurance that venues will be available in Las Vegas or that exhibitors will
continue to pay fees or that attendees will continue to find it worthwhile to
attend. Therefore there is no guarantee that the trade shows will continue to
generate revenue or that revenue will meet management's expectations. The ISN,
GFP and logistics and warehousing are in their development stages. Therefore
there is no significant revenue generated from these services. Currently the
Company does not anticipate revenue in the near future from the GFP or logistics
and warehousing fees. The Company's primary source of funds will be trade show
revenue and the $800,000 line of credit provided by Mr. Yuan.
THERE IS CURRENTLY NO PUBLIC MARKET FOR OUR STOCK WHICH MAKES AN INVESTMENT IN
OUR STOCK VERY ILLIQUID.
Following disbursement of the ASAP shares, ASAP intends to make available
information that will allow a broker to file a Form 15c2-11 to post a quotation
and obtain a trading symbol for the shares of ASAP on the OTC BB. However there
is no assurance that the shares of the Company's common stock will trade or that
a market will be maintained.
WE HAVE A HISTORY OF OPERATING LOSSES.
As of May 31, 2005, C-ME transferred all of its assets of $246,881 and
liabilities of $1,116,096 to ASAP. As a result, ASAP has a shareholder deficit
of $869,215. For the three months ended August 31, 2005, ASAP had a loss of
$123,000. C-ME had a history of operating losses. C-ME was not profitable since
inception in 1996 and we do not expect ASAP to be profitable in the near future.
WE FACE INTENSE COMPETITION FROM MANY ENTITIES.
The trade show marketplace is highly competitive. The barrier to entry is not
significant. We have identified and continue to identify numerous companies that
are better funded, have more experience and more significant resources that have
entered or are planning to enter the trade show business. Should these companies
decide to enter our specific market, there is no guarantee that we will be able
to compete with them effectively.
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WE ARE DEPENDENT ON OUR FOREIGN ALLIANCES.
The Company heavily relies on foreign alliances with manufacturers and their
governments' willingness to subsidize their exporters exhibit fees for the trade
shows. If a foreign government decides to drop the financial support of its
exporters at the trade shows, this will have an immediate negative on the
Company's trade show revenue. For example, Macau has been supporting its
exporters at the Company's trade shows. If for any reason, the Macau government
decides to not pay for its exporters to exhibit, it will be very hard for the
exporters to pay on their own. In addition, ASAP faces political risks of
conducting international business including risks of changing economic
conditions in the Pacific Rim. This may have a material adverse effect on our
ability to provide global merchandise sourcing to our clients. For example, if
Pakistan does not support the U. S. in combating terrorism, management believes
that the U. S. government would ban Pakistani imports into the U. S. This type
of political activity would hurt the Company's trade shows as it would lose the
Pakistani exhibitors.
WE ARE DEPENDENT ON MARKET DEMAND FOR AN ACCEPTANCE OF OUR SERVICE WHICH IF DOES
NOT EXIST WOULD HAVE A NEGATIVE IMPACT ON OUR BUSINESS.
Much of ASAP's success is dependent upon aggregating a critical mass of
subscribing overseas manufacturers and trade show attendees and establishing and
maintaining strong relationships with clients. If market demand and acceptance
for our services is not in line with ASAP's expectations, it is likely that
ASAP's revenue will not meet our expectations.
WE ARE DEPENDENT ON RELATIONSHIPS WITH KEY APPAREL RETAILERS / BUYERS, AND THE
ABILITY TO CREATE MORE SUCH RELATIONSHIPS, THE LOSS OF ANY OF WHICH COULD HAVE A
NEGATIVE IMPACT ON OUR BUSINESS.
Our business model is retailer/buyer -centric. Successful implementation of it
is predicated on our ability to create and nurture strong relationships with
retailers/buyers. If we are unable to expand and maintain existing
relationships, our revenue and profitably will not meet our expectations.
Although ASAP believes it can create and maintain the necessary relationships,
there is no guarantee that it will.
WE DEPEND ON THE RELIABILITY OF OUR SERVICES.
As a member of the service industry, ASAP is dependent upon the reliability of
its trade show, software and hardware. There is no guarantee that ASAP will be
able to provide reliable services. Even though the Company's trade show is a
unique sourcing show with niche services such as matchmaking and educational
seminars, there is no guarantee that other trade shows such as MAGIC will not
copy or follow the Company's unique services. If a competitor starts to copy our
unique services, which is possible, management believes that it will face more
intense competition than before.
WE DEPEND UPON KEY MEMBERS OF MANAGEMENT, THE LOSS OF ANY OF WHOM WOULD
NEGATIVELY IMPACT OUR BUSINESS.
The implementation of our business plan relies on key members of the management
team and sales, marketing, and finance personnel. There is no guarantee that
these employees will continue to work for ASAP. In addition, there is no
guarantee that ASAP will be able to replace these employees with personnel of
similar caliber should they not be able to work, or decide not to work for ASAP.
Frank Yuan is a key member of our management. If for any reason, Mr Yuan were to
leave the Company, it would be very difficult to find a replacement with his
experience and financial support of the Company.
11
THE COMPANY'S SECURITIES ARE SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC WHICH
MAY AFFECT THE MARKET FOR THE SECURITIES.
The Company's securities are subject to the Securities and Exchange Commission's
"penny stock" rules. The penny stock rules may affect the ability of owners of
the Company's shares to sell them. There may be a limited market for penny
stocks due to the regulatory burdens on broker-dealers. The market among dealers
may not be active. The mark-ups or commissions charged by the broker-dealers
might be greater than any profit an investor may make. Because of large spreads
that market makers quote, investors may be unable to sell the stock immediately
back to the dealer at the same price the dealer sold the stock to the investor.
The Company's securities are also subject to the Securities and Exchange
Commission rule that imposes special sales practice requirements upon
broker-dealers that sell such securities to other than established customers or
accredited investors. For purposes of the rule, the phrase "accredited investor"
means, in general terms, institutions with assets exceeding $5,000,000 or
individuals having net worth in excess of $1,000,000 or having an annual income
that exceeds $200,000 (or that, combined with a spouse's income, exceeds
$300,000). For transactions covered by the rule, the broker-dealer must make a
special suitability determination for the purchaser and receive the purchaser's
written agreement to the transaction prior to the sale. Consequently, the rule
may affect the ability of purchasers of the Company's securities to buy or sell
in any market.
INTELLECTUAL PROPERTY.
ASAP has one patent pending that pertains to business processes: Global
Financial Platform. ASAP's GFP eliminates the need for letters of credit by
allowing overseas suppliers to ship merchandise to pre-approved retailers/buyers
in the United States. C-ME pioneered this process by establishing the first
tri-party agreement with CIT and Bank SinoPac in Taiwan. In essence, it is the
first workable international factoring mechanism. Overseas suppliers, U.S.
retailers/buyers, international banks and CIT are linked to ASAP's GFP. Through
this arrangement, each of the tri-party participants plays an integral role.
First, CIT guarantees the credit worthiness of the U.S. retailers/buyers.
Secondly, Bank SinoPac provides cash advances up to 80% and acts as the conduit
for foreign suppliers to receive payment. Through ASAP's GFP, U.S.
retailers/buyers can purchase overseas merchandise, just as they purchase
domestic merchandise, with open terms and without the need to open letters of
credit. Overseas suppliers ship merchandise to pre-approved retailers without
payment risk and receive up to 80% cash advance when they ship the merchandise.
CIT and C-Me have cancelled the agreement as of September 15, 2005. ASAP
management feels it will be able to enter into the same agreement with CIT when
there are enough resources provided and as business volume increases for this
type of business.
In addition, ASAP has trademarked the following trade names: ASAP Global
Sourcing Show(TM), DEPS(TM); FOCASTING(TM); and Internet Sourcing Network(TM).
DIVIDENDS
C-ME did not paid dividends in prior years and the Company has no plans to pay
dividends in the near future. The Company intends to reinvest its earnings in
the continued development and operation of its business. Any payment of
dividends would depend on the Company's pattern of growth, profitability,
financial condition, and other factors, as the Board of Directors may deem
relevant.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion of the plan of operation of the Company should be read
in conjunction with the Company's audited financial statements and the related
notes thereto-included elsewhere in this registration statement for the 11-month
period ended May 31, 2005. Certain statements contained herein may constitute
forward-looking statements, as discussed at the beginning of Part I of this
registration statement. The Company's actual results could differ materially
from the results anticipated in the forward-looking statements as a result of a
variety of factors.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Effective for the fiscal year ended in 2005, C-ME changed its fiscal year end
from June 30 to May 31. The following table presents comparative information for
the eleven-months ended May 31, 2005 and 2004.
5/31/05 5/31/04
---------- -----------
(Unaudited)
Revenues $2,040,341 $ 1,754,826
========== ===========
Loss from operations $ (463,063) $ (532,628)
========== ===========
Loss before income taxes $ 477,268 $ 795,321
========== ===========
Income taxes $ 800 $ 800
========== ===========
Net loss $ (478,068) $ (796,121)
========== ===========
Loss per share-basic and diluted $ (0.06) $ (0.10)
========== ===========
11-MONTH PERIOD ENDED MAY 31, 2005 COMPARED TO YEAR ENDED JUNE 30, 2004
The following discussion sets forth information for the eleven months ended May
31, 2005, compared with the twelve months ended June 30, 2004. This information
has been derived in part from the audited consolidated financial statements of
the Company contained elsewhere in this Form 10-SB.
REVENUES
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. For all product transactions with its customers in 2005, 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. However, during 2004, the Company acted as an
agent for such transactions and therefore such are presented on a net basis in
accordance with EITF 99-19.
During the eleven months ended May 31, 2005, the Company had
transaction sales of $315,493 compared to $1,352,601 for the year ended June 30,
2004. Net revenues from transaction sales (after reduction for cost of
13
transaction sales) for the eleven months ended May 31, 2005 were $68,307, a
decrease of $39,894 from $108,201 in the year ended June 30, 2004. The gross
profit margin of transaction sales for the eleven months ended May 31, 2005 was
21.7%, compared to 8.0% for the year ended June 30, 2004. Management put a
majority of its resources and manpower to its trade show development for 2005,
which is the reason why the transaction sales declined in the eleven months
ended May 31, 2005, compared with the year ended June 30, 2004. Even though
transaction sales gross revenue declined, management focused on more profitable
transactions. The Company expects this net revenue percentage to grow, as it
begins to fully utilize its overseas sourcing network and its trade show
buyers/attendees relationships.
Trade Shows
-----------
ASAP GLOBAL SOURCING SHOW
The ASAP Global Sourcing Show segment derives revenue principally from
the sale of exhibit space, sponsorship and conference attendance fees generated
at its events. In 2005, approximately 95% of our trade show 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. Cash is
collected in advance of an event and is 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.
Trade show business is seasonal, with revenue typically reaching its
highest levels during the first and third quarters of each fiscal year, largely
due to the timing of the ASAP Global Sourcing shows held February and August
each year. In 2005, approximately 64% of our tradeshow revenue was generated
during the first quarter (August show) and approximately 36% during the third
quarter (February show). Because event revenue is recognized when a particular
event is held, we also experience fluctuations in quarterly revenue based on the
movement of annual trade show dates from one quarter to another.
ASAP Global Sourcing Show revenues totaled $1,427,439 in the eleven
months ended May 31, 2005, compared to $1,663,274 in the year ended June 30,
2004, a decrease of $235,835 or 14% compared to the prior period. This decrease
was due to a slight decrease in number of exhibitors compared to the prior
period. Another reason for decreasing exhibitors is because of the Men's Apparel
Guild in California's ("MAGIC") establishment of its Sourcing Zone, which is
held at the same time as our shows. Management believes the competing show will
make it difficult to have significant growth.
CHINA BUYING TRIP
China Buying Trip revenues totaled $259,907 for the eleven months ended
May 31, 2005. This is the first year that it is incorporated into the Company's
business model. Management is planning to establish semi-annual China Buying
Trips, to South and South East Asia, in May and November of each year.
MATERIAL WORLD
Material World revenues totaled $37,502 for the period ended May 31,
2005. This is the first year that the Company acted as Material World's Global
Pavilion Agent. Management also entered into a similar agreement with Material
World for its September 2005 New York show. The Company records the revenues
earned from Material World as tradeshow revenue in its financial statements.
14
OPERATING EXPENSES
General and administrative expenses consist primarily of ASAP Global Sourcing
show production costs, attendee marketing programs, exhibitors' promotion costs,
and payroll related expenses. General and administrative expenses decreased by
$34,379 or 2% to $1,512,972 for the eleven-month period ended May 31, 2005 from
$1,547,351 in the year ended June 30, 2004. Such increase was primarily
attributed to there only being eleven months of fiscal 2005 compared to twelve
months in fiscal 2004.
Stock based compensation increased by $126,953 from fiscal 2004. Such an
increase is due to the Company issuing 120,862 shares of common stock (on a
post-Reverse Split basis) to certain employees and directors as a stock bonus,
which was valued at $133,553 (based on the estimated fair value on the date of
grant).
Payroll and related benefit expense decreased by $149,972 or 20% to $609,693 due
to our continued cost cutting efforts in lowering our headcount and there were
only eleven months in fiscal 2005 compared to twelve months in fiscal 2004.
OTHER EXPENSE (INCOME)
Under the equity method of accounting, the loss in overseas joint ventures was
$9,341 for the year ended June 30, 2004. Each joint venture incurred significant
development costs and amortization of the software acquired from the Company
associated with infrastructure development and market branding. The Company
invested in the joint ventures with proceeds received from the sales of its ISN
software to the respective joint ventures. The revenue from the software sold
was amortized over a 3-year period using straight-line amortization method and
offset by negative goodwill. These joint ventures had net losses since inception
and were formed during the Internet boom with a business model to attract
subscribers to join the Company's ISN services. Since the Company's core
business model changed from attracting paid subscribers for its ISN services to
organizing trade shows and transaction sales, it was determined by the
management that the investment was permanently impaired and as a result, the
Company recorded an impairment charge of $720,460 during the year ended June 30,
2004. In addition, interest increased by $23,286 due to higher borrowings during
the year, such borrowings were used in our operations.
NET LOSS
The net loss for the eleven months ended May 31, 2005 decreased by $792,495 or
62% to $478,068 from $1,270,563 for the year ended June 30, 2004. The decrease
is mainly due to no impairment write-down on investment in overseas joint
ventures and a reduction of operating expenses of approximately $64,000 and only
eleven months of operations in the eleven month period ended May 31, 2005.
Net loss per share decreased by $0.11 or 65% to $0.06 per share for the eleven
month period ended May 31, 2005 from $0.17 for the year ended June 30, 2004.
15
THREE MONTH PERIOD ENDED AUGUST 31, 2005 COMPARED TO THREE MONTHS ENDED AUGUST
31, 2004
REVENUES
Transaction Sales
-----------------
Gross revenue from transaction sales for the three months ended August 31, 2005
were $120,719, an increase of $93,104 or 336% compared to $27,705 for the same
period last year. The reason for such a significant increase on transaction
sales is because the Company received more orders during the period. The
Company, however, 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.
Tradeshows
----------
The gross tradeshow revenue for the three months ended August 31, 2005 was
$720,115, an increase of $132,926 or 23% compared to $587,189 for the same
period last year. This increase was due to an increase in number of exhibitors
for the ASAP Show in August 2005 compared to the same show in August 2004.
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.
CHINA BUYING TRIP
Gross revenues from the buying trip for the three months ended August 31, 2005
were $171,832. This was the debut of the buying trip. The Company is conducting
another buying trip to Southeast China in November 2005.
OPERATING EXPENSES
Operating expenses increased by $587,698, or 53%, to $1,108,642 for the three
months ended August 31, 2005, as compared to $590,626 for the same period last
year. The increase in operating expenses is primarily due to the increase in
professional fees, ASAP Show expenses, the inclusion of the cost of transaction
sales and first time buying trip expenses. Professional fees increased by
$57,458 to $84,020 for the three months ended August 31, 2005, as compared to
$26,562 for the same period last year. The ASAP Show and its marketing expenses
increased by $357,681 to $593,842 for the three months ended August 31, 2005 as
compared to $236,161 for the same period last year. In addition, expenses
related to the buying trip totaled $77,514.
NET LOSS (INCOME)
The Company recorded a net loss of $123,170 for the three months ended August
31, 2005, a decrease of $145,353 in earnings; as compared to a net income of
$22,183 for the same period last year. Such a decrease in earnings is mainly due
to increases in operating expenses of $587,698 and interest expense of $24,849,
net of an increase in total revenues of $467,454, which included the revenue
generated from the debut of the buying trip of $171,832.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital deficit increased from a deficit of
$536,088 at June 30, 2004 to $880,583 at May 31, 2005, primarily due to an
increase in the line-of-credit from a shareholder of approximately $155,000 and
an increase in accounts payable and accrued expenses of approximately $201,000.
During the eleven month period ended May 31, 2005, the Company had average
monthly general and administrative expenses (excluding non-cash compensation
expenses) of approximately $127,000, excluding ASAP show production costs, as
compared to $137,000 for fiscal year ended June 30, 2004. During the next twelve
months, the Company will focus on the ASAP Global Sourcing show, buying trips
and Material World trade show business model to generate more revenues. At May
31, 2005,
16
the Company has current assets of approximately $236,000. With the net revenue
from the ASAP Global Sourcing show, buying trips and Material World 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 another 12 months.
Excluding the line-of-credit from the shareholder, the Company had a deficit in
working capital of approximately $33,000 as of August 31, 2005, primarily due to
the liabilities assumed from C-Me under the Transfer Agreement. During this
quarter, the Company had average monthly expenses of approximately $138,000
(excluding ASAP Show production expenses, 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 $130,000 to
$140,000 in the foreseeable future. The Company will focus its efforts on the
semi-annual ASAP show in Las Vegas and Material World Global Pavilion ("Material
World") show, to generate more revenue, in addition to the revenues generated
from buying trips. At August 31, 2005, the Company has current assets of
approximately $609,000. With the net revenue from the ASAP shows, Buying Trips,
Material World and continuing support from its major shareholder to provide a
revolving line-of-credit and the Investment of $415,000 from KI Equity,
management believes the Company will have enough net working capital to sustain
its business through August 2006 and beyond.
The Company accepted a revolving line-of-credit (the "Line") on
September 15, 2004 from Frank Yuan, the Company's CEO and a significant
shareholder, and his spouse, Vicky Yuan, which expires on February 1, 2006 and
provides for borrowings up to a maximum of $500,000. The Line carries an
interest rate of 8.0% per annum. The Line contained financial and non-financial
covenants, which the Company was in compliance with at May 31, 2005. The balance
as of May 31, 2005 was $395,000, with accrued and unpaid interest of $12,623.
The balance of the Line at August 31, 2005 was $554,178 including accrued and
unpaid interest of $ 9,178.
In February 2005, the Company borrowed $100,000 for working capital
purposes from a related party. The note was non-interest bearing and was paid in
full in June 2005.
The forecast of the period of time through which the Company's
financial resources will be adequate to support its operations is a
forward-looking statement that involves risks and uncertainties. The Company's
actual funding requirements may differ materially as a result of a number of
factors, including unknown expenses associated with the cost of continuing to
implement the Company's international electronic trading business and ASAP Show
expansion.
The Company has no commitments to make capital expenditures for the fiscal year
ending in the next twelve months.
Over the next two to five years, the Company plans to utilize a combination of
internally generated funds from operations and potential debt and equity
financing to fund its long-term growth.
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 consolidated 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
17
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
Securities and Exchange Commission Staff Accounting Bulletin ("SAB") No. 101,
"REVENUE RECOGNITION," 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. SAB 101 was amended and replaced by SAB 104.
Management believes that the Company's revenue recognition policy conforms to
SAB 104.
Net revenues include amounts earned under product transaction sales, buying
trips, subscriptions and trade show fees. Product transaction revenues are
recorded in accordance with Emerging Issues Task Force ("EITF") Issue No. 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, 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. Due to the Company not
bearing credit risk on all transactions, the Company records a portion of their
revenue on a net basis. However, for financial reporting purposes the Company
presents the details of gross transaction sales and related costs of sales in
the accompanying consolidated statements of operations for all net transactions.
The Company recognizes revenue from the ASAP Global Sourcing shows, which
generates revenue through exhibitor booth sales, corporate sponsorship and
advertising. The buying trip generates revenue through the participating buyers
paying the Company. Company officials guide clients through various foreign
countries in Asia to meet its local apparel manufacturers and share a portion of
exhibition net revenues and revenue is recognized ratably over the duration of
the buying trip. The Company also receives commissions for booths sold for the
Material World shows foreign exhibitors net exhibitors fees income. Trade show
and conference revenue is recognized in the accounting period in which the event
is conducted. 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.
DEFERRED TAX ASSET VALUATION
The Company accounts for income taxes under Statement of Financial Accounting
Standard ("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.
STOCK BASED COMPENSATION
Financial Accounting Standards Board ("FASB") Interpretation No. 44 ("FIN 44"),
"ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION, AN
INTERPRETATION OF APB 25" clarifies the application of APB 25 for (a) the
definition of employee for purposes of applying APB 25, (b) the criteria for
determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence for various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
18
compensation awards in a business combination. FIN 44 is effective July 1, 2000,
but certain provisions cover specific events that occur after either December
15, 1998, or January 12, 2000. The adoption of certain other provisions of FIN
44 prior to June 30, 2000 did not have a material effect on the financial
statements.
Under Accounting Principles Board ("APB") Opinion No. 25, "ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES," the intrinsic value based method, compensation expense is
the excess, if any, of the fair value of the stock at the grant date or other
measurement date over the amount an employee must pay to acquire the stock.
Compensation expense, if any, is recognized over the applicable service period,
which is usually the vesting period.
SFAS No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION," if fully adopted,
changes the method of accounting for employee stock-based compensation plans to
the fair value based method. For stock options and warrants, fair value is
determined using an option pricing model that takes into account the stock price
at the grant date, the exercise price, the expected life of the option or
warrant, stock volatility and the annual rate of quarterly dividends.
Compensation expense, if any, is recognized over the applicable service period,
which is usually the vesting period. The adoption of the accounting methodology
of SFAS 123 is optional and the Company has elected to continue accounting for
stock-based compensation issued to employees using APB 25; however, pro forma
disclosures, as the Company adopted the cost recognition requirement under SFAS
123, are required to be presented.
SFAS 148, "ACCOUNTING FOR STOCK-BASED COMPENSATION - TRANSITION AND DISCLOSURE,
AN AMENDMENT OF FASB STATEMENT NO. 123," was issued in December 2002 and is
effective for fiscal years ending after December 15, 2002. SFAS 148 provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of Statement 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results.
NEW 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 transaction be
recognized in financial statements. The 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 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 No. 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 period for the fiscal year ending May 31, 2007. The Company is in
the process of evaluating whether the adoption of SFAS 123(R) will have a
significant impact on the Company's overall results of operations or financial
position.
In December 2004, the FASB issued SFAS No. 153, "EXCHANGES OF NONMONETARY
ASSETS, AN AMENDMENT OF APB OPINION NO. 29, ACCOUNTING FOR NONMONETARY
TRANSACTIONS." APB Opinion No. 29 is based on the principle that exchanges of
nonmonetary assets should be measured based on the fair value of the assets
exchanged. The guidance in that Opinion, however, included certain exceptions to
that principle. This statement amends Opinion 29 to eliminate the exception for
19
nonmonetary exchanges of similar productive assets and replaces it with a
general exception for the exchanges of nonmonetary assets that do not have
commercial substance, that is, if the future cash flows of the entity are not
expected to change significantly as a result of the exchange. The provisions of
this statement are effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. We anticipate that SFAS No. 153 will not
have a material impact on our financial statements.
In May 2003, the FASB issued SFAS No. 150, "ACCOUNTING FOR CERTAIN FINANCIAL
INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY." SFAS No. 150
established standards for how a company classifies and measures certain
financial instruments with characteristics of both liabilities and equity, and
is effective for public companies as follows: (i) in November 2003, the FASB
issued FASB issued FASB Staff Position ("FSP") FAS 150-03 ("FSP 150-3"), which
defers indefinitely (a) the measurement and classification guidance of SFAS No.
150 for all manditorily redeemable non-controlling interest in (and issued by)
limited-life consolidated subsidiaries, and (b) SFAS No. 150's measurement
guidance for other types of manditorily redeemable non-controlling interests,
provided they were created before November 5, 2003; (ii) for financial
instruments entered into or modified after May 31, 2003, that are outside the
scope of FSP 150-3: and (iii) otherwise, at the beginning of the first interim
period beginning after June 15, 2003. The Company adopted SFAS No. 150 on the
aforementioned effective dates. The adoption of this pronouncement did not have
a material impact on the Company's results of operations or financial condition.
The Company continues to assess the effects of recently issued accounting
standards. The impact of all recently adopted and issued accounting standards
has been disclosed in the footnotes to the Company's audited financial
statements, note 1.
ITEM 3. DESCRIPTION OF PROPERTY.
The Company leases its corporate headquarters located at 4349 Baldwin Avenue,
Suite A, El Monte, California 91731. Its telephone number is (626) 636-2530.
ASAP entered into a new lease effective June 28, 2005, which expires on June 30,
2007. ASAP currently leases approximately 7,000 square feet at an average
monthly rent of approximately $4,990.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of August 25, 2005 certain information known
to the Company regarding the beneficial ownership of the Company's common stock
which, following the Distribution, will reflect shares of the Company for (i)
each executive officer or director of the Company who beneficially owns shares;
(ii) each shareholder known to the Company to beneficially own five percent or
more of the outstanding shares of its common stock; and (iii) all executive
officers and directors as a group. The Company believes that the beneficial
owners of the common stock listed below, based on information furnished by such
owners, have sole investment and voting power with respect to such shares,
subject to community property laws where applicable. The individuals listed in
the table are accessible at the following address: 4349 Baldwin Ave., Unit A, El
Monte, California 91731.
20
PRINCIPAL STOCKHOLDERS
Amount and Nature of Percentage of common shares
Name Beneficial Owner outstanding
------------------------------------------ ---------------- ---------------------------
(i) Directors and Executive Officers
FRANK S. YUAN - CEO AND CHAIRMAN 2,901,311 33.63%
JAMES VANDEBERG, DIRECTOR 85,000 0.99%
DEBORAH SHAMALEY, DIRECTOR 427,508 4.96%
CHARLES RICE, DIRECTOR 190,001 2.20%
LUZ JIMENEZ - CONTROLLER 66,003 0.77%
(ii) All directors and officers as a group 3,669,823 42.54%
------------------------------------------ ---------------- ---------------------------
CHANGE IN CONTROL
The Company is not aware of any arrangement that would upset the control
mechanisms currently in place. Although it is conceivable that a third party
could attempt a hostile takeover of the Company, the Company has not received
notice of any such effort.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
Each of the following persons, who were directors of C-ME, are the directors of
ASAP to serve until the next Annual Meeting of ASAP's stockholders and until
their successors shall be elected and qualify.
NAME OF DIRECTOR AGE POSITIONS HELD WITH COMPANY
---------------- --- ---------------------------
Charles Rice 62 Director since 2005
Deborah Shamaley 46 Director since 2005
James Vandeberg 61 Director since 2005
Frank S. Yuan 56 Chairman of the Board since 2005
Chief Executive Officer since 2005
There are no family relationships among any of the directors and
executive officers.
The following sets forth certain biographical information concerning
each director:
CHARLES RICE. Charles Rice, Senior International and Domestic buyer, is retired
from Sears Roebuck and Montgomery Ward. His 30 plus years of buying experience,
reputation, contacts and product sourcing knowledge bring the Company tremendous
benefits and a head start in the retail industry. Mr. Rice holds a B.S. degree
in business and economics from the University of Delaware. Mr. Rice was a
director of C-ME since 1996.
DEBORAH SHAMALEY. Deborah Shamaley, a chain store and apparel-jobbing
entrepreneur, has 20 years of retail and wholesale apparel experience. Mrs.
Shamaley co-founded The Apparel Group ("TAG"). TAG imported and sold women's
apparel wholesale to more than 1,800 retailers including Nordstrom's, J.C.
Penney's, Sears, and Burlington Coat Factory. TAG also owned and operated a 23
apparel store-chain under the name $11.99 Puff. Ms. Shamaley sold the company in
1996. Currently, Mrs. Shamaley is a franchise partner of a full service Italian
restaurant chain called "Johnny Carino's Country Italian," for 25 locations.
Mrs. Shamaley has also been involved in Shamaley Ford car dealership, one of the
largest in El Paso, Texas since 1995. Ms. Shamaley was a director of C-ME since
1996.
JAMES VANDEBERG. James Vandeberg has been an attorney in private practice
specializing in corporate finance for the past 11 years. He brings more than 20
21
years of Corporate Counsel and Secretary experience to the Company. He has
significant experience advising both internet and retail companies on
securities, financings, mergers and acquisitions, and general corporate matters,
including IPO's, SEC compliance, and investor relations' issues. His retail
experience includes 14 years as Corporate Counsel and Secretary at the former
Carter Hawley Hale Stores, a holding company for the multi-billion dollar
department and specialty retail stores which operated under the names: The
Broadway, Neiman Marcus, Contempo Casuals, Emporium, Weinstock's, Bergdorf
Goodman, Holt Renfrew - Canada, Waldenbooks, John Wanamaker, Thalhimers, and
Sunset House. In addition, Mr. Vandeberg serves on the board of directors for
Information Highway.com, Inc. (OTC: BB IHWY), IAS Communications, Inc. (OTC: BB
IASCA), and REGI US, Inc. (OTC: BB RGUS). He received his B.A. in accounting
from the University of Washington and his J.D. from New York University. Mr.
Vandeberg was a director of C-ME since 2001.
FRANK S. YUAN. Combining decades of experience in the apparel, banking, real
estate, insurance and computer industries, Frank Yuan has developed and started
multiple new ventures in his 30 plus years as an immigrant in the United States.
Before the Company, Mr. Yuan founded multi-million dollars of business in men's
apparel private label & wholesale company, a "Knights of Round Table" sportswear
line, a "Uniform Code" sweater line, and men's clothing retail store chain. Mr.
Yuan also founded UNI-Fortune, a real-estate development company, and co-founded
United National Bank, Evertrust Bank, Western Cities Title Insurance Company and
Serv-American National Title Insurance. Mr. Yuan received a B.A. degree in
economics from Fu-Jen Catholic University in Taiwan and a M.B.A. degree from
Utah State University. Mr. Yuan was a director of C-ME since 1996.
ITEM 6. EXECUTIVE COMPENSATION.
The Company did not make any compensation payments to any executive officers
during the 11-months ended May 31, 2005. The following table sets forth the
compensation C-ME paid to each executive officer and all executive officers as a
group, for the 11 months ended May 31, 2005. No other executive officers
received more than $100,000 in the 11 months ended May 31, 2005. The Company
does not currently have a long-term compensation plan and does not grant any
long-term compensation to its executive officers or employees. The table does
not reflect certain personal benefits, which in the aggregate are less than ten
percent of the named executive officer's salary and bonus. No other compensation
was granted for the period ended May 31, 2005.
SUMMARY COMPENSATION TABLE
Long Term Compensation
-----------------------------------------
Annual Compensation Awards Payouts
--------------------------------------------------------------------------------------------------------------------------
Securities
Name Other Restricted Underlying
and Annual Stock Options/ LTIP All Other
Principal Compensation Award(s) SARs (#) (1) Payouts ($) Compensation
Position Year Salary ($) Bonus ($) ($) ($) ($)
--------------------------------------------------------------------------------------------------------------------------
Yuan, Frank 2005 $137,500 N/A $0 $42,943(2) N/A N/A $0
(CEO) 2004 $150,000 N/A $0 N/A 185,000 N/A $0
2003 $150,000 N/A $0 N/A 5,000 N/A $0
2002 $150,000 N/A $0 N/A 5,000 N/A $0
--------------------------------------------------------------------------------------------------------------------------
(1) Consists of grants of stock options under C-ME's 1996, 1999, and 2001
Stock Option Plans. All the stock options were cancelled during fiscal
2005.
(2) Consists of value of stock bonus.
22
The Company has not granted any stock options.
COMPENSATION OF DIRECTORS
All outside directors are reimbursed for any reasonable expenses incurred in the
course of fulfilling their duties as directors of the Company and do not receive
any payroll.
C-Me compensated its directors with stock options for their service as
directors. Prior stock options granted and vested under C-ME's 1996, 1999 and
2001 Stock Option Plans were cancelled during fiscal 2005. The value of the
Stock Bonus issued to the directors of C-ME effective May 31, 2005 approximated
$93,000.
In order to provide incentive compensation for ASAP's employees and directors,
ASAP intends to adopt a stock option plan for employees and members of the Board
of Directors. There will be 2,000,000 shares of common stock of ASAP available
for grant pursuant to such plan. There are no current plans for the issuance of
stock options.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
ASAP has an $800,000 revolving line of credit from Frank Yuan, the Chairman and
Chief Executive Officer of the Company (the "Yuan Line of Credit"). The Yuan
Line of Credit bears interest at 8% per annum and expires on September 1, 2006.
The balance of the line of credit on August 31, 2005 is $554,179.
ITEM 8. DESCRIPTION OF SECURITIES.
The Company has 45,000,000 shares of common stock, par value $.001, authorized
of which 8,626,480 are issued and outstanding. The holders of common stock do
not have preemptive rights or cumulative voting rights. There are no provisions
in the Articles of Incorporation or bylaws that would delay, defer or prevent a
change in control.
23
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
There is no public trading market for the Company's common stock. There
are 201 shareholders of record of Company common stock who will receive shares
of common stock of the Company in the Distribution. The Company does not have a
stock option plan.
ITEM 2. LEGAL PROCEEDINGS.
None
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
8,626,480 shares of Company common stock were issued to shareholders of C-ME as
part of the reorganization of C-ME and were part of the Distribution. This
issuance was exempt from registration under Section 4 (2) of the Securities Act
of 1933 as a transaction by an issuer not involving a public offering.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Incorporation of the Company provide for indemnification of
directors.
24
PART F/S
ASAP SHOW, INC.
Reports of Independent Registered Public Accounting Firms ............... 26-27
Financial Statements:
Balance Sheet as of May 31, 2005 ........................................... 28
Statements of Operations for the eleven-month
period ended May 31, 2005 and the year ended June 30, 2004 ................. 29
Statements of Shareholders' Deficit for the eleven-month period ended
May 31, 2005 and the year ended June 30, 2004 .............................. 30
Statements of Cash Flows for the eleven-month period ended
May 31, 2005 and the year ended June 30, 2004 .............................. 31
NOTES TO THE FINANCIAL STATEMENTS .......................................... 32
Interim Condensed Financial Statements:
Condensed Balance Sheet as of August 31, 2005 .............................. 48
Condensed Statements of Operations for the three-month
periods ended August 31, 2005 and 2004 ..................................... 49
Condensed Statements of Cash Flows for the three-month periods ended
August 31, 2005 and 2004 ................................................... 50
NOTES TO THE CONDENSED FINANCIAL STATEMENTS ................................ 51
25
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
TO THE BOARD OF DIRECTORS
ASAP SHOW, INC.
We have audited the accompanying balance sheet of ASAP SHOW, INC. (the
"Company") as of May 31, 2005, and the related statements of operations,
shareholders' deficit, and cash flows for the eleven-month period then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ASAP SHOW, INC. as of May 31,
2005, and the results of its operations and its cash flows for the eleven-month
period then ended in conformity with accounting principles generally accepted in
the United States of America.
/s/ CORBIN & COMPANY, LLP
IRVINE, CA
SEPTEMBER 9, 2005
26
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
ASAP Show, Inc.
We have audited the accompanying statements of operations, shareholders' deficit
and cash flows of ASAP Show, Inc., formerly operating as Cyber Merchants
Exchange, Inc. (the "Company"), for the year ended June 30, 2004. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of ASAP Show,
Inc. for the year ended June 30, 2004 in conformity with accounting principles
generally accepted in the United States of America.
In connection with the reorganization of Cyber Merchants Exchange, Inc.
("Cyber") and the reverse spin-off accounting described in Note 2, the effect of
the difference between the par value of the Company's common stock (see Note 1)
and Cyber's no-par common stock has been retroactively reflected as of June 30,
2003 in the accompanying statements of shareholders' deficit. Such adjustment
did not have any effect on the June 30, 2003 or 2004 total shareholders' deficit
previously reported by Cyber.
/s/ Squar, Milner, Reehl & Williamson, LLP
Newport Beach, California
September 3, 2004 (except for Notes 2 and 6, the "Change in Par Value" section
of Note 1, and the fourth paragraph of this report, as to which the date is
August 25, 2005)
27
ASAP SHOW, INC.
BALANCE SHEET
MAY 31, 2005
ASSETS
Current assets:
Cash $ 69,866
Accounts receivable 100,893
Prepaid expenses 64,754
------------
Total current assets 235,513
Other assets 11,368
------------
Total assets $ 246,881
============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 421,480
Deferred revenue 186,993
Loan payable 100,000
Line-of-credit and interest payable to shareholder 407,623
------------
Total current liabilities 1,116,096
------------
Commitments and contingencies
Shareholders' 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 13,751,375
Accumulated deficit (14,629,216)
------------
Total shareholders' deficit (869,215)
------------
Total liabilities and shareholders' deficit $ 246,881
============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
28
ASAP SHOW, INC.
STATEMENTS OF OPERATIONS
FOR THE ELEVEN-MONTH PERIOD ENDED MAY 31, 2005 AND YEAR ENDED
JUNE 30, 2004
05/31/2005 06/30/2004
----------- -----------
Revenues:
Transaction apparel sales $ 315,493 $ 1,352,601
Cost of transaction sales -- 1,244,400
----------- -----------
Revenue from transaction sales 315,493 108,201
Tradeshow revenue 1,464,941 1,663,274
Buying trip 259,907 --
----------- -----------
Revenues 2,040,341 1,771,475
----------- -----------
Operating expenses:
Cost of transaction sales 247,186 --
General and administrative 1,512,972 1,547,351
Payroll and related benefits 609,693 759,665
Stock-based compensation 133,553 6,600
Depreciation and amortization -- 6,902
----------- -----------
Total operating expenses 2,503,404 2,320,518
----------- -----------
Loss from operations (463,063) (549,043)
----------- -----------
Other expense (income):
Equity in net losses in investments in
overseas joint ventures -- 9,341
Impairment write-down on investments in
overseas joint ventures -- 720,460
Interest expense (income), net 14,205 (9,081)
----------- -----------
Total other expense 14,205 720,720
----------- -----------
Loss before income taxes (477,268) (1,269,763)
Income taxes 800 800
----------- -----------
Net loss $ (478,068) $(1,270,563)
=========== ===========
Basic and diluted net loss available to common
shareholders per share $ (0.06) $ (0.17)
=========== ===========
Weighted-average number of common shares
outstanding basic and diluted 7,602,220 7,599,153
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
29
ASAP SHOW, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR THE ELEVEN-MONTH PERIOD ENDED MAY 31, 2005 AND YEAR ENDED
JUNE 30, 2004
Common Stock Additional Total
--------------------------- Paid-In Accumulated Shareholders'
Shares Amount Capital Deficit Deficit
------------ ------------ ------------ ------------ ------------
Balance, June 30, 2003 7,599,153 $ 7,599 13,612,249 $(12,880,585) $ 739,263
Stock-based compensation
for warrants issued -- -- 6,600 -- 6,600
Net loss -- -- -- (1,270,563) (1,270,563)
------------ ------------ ------------ ------------ ------------
Balance, June 30, 2004 7,599,153 7,599 13,618,849 (14,151,148) (524,700)
Issuance of common stock as
compensation 1,027,327 1,027 132,526 -- 133,553
Net loss -- -- -- (478,068) (478,068)
------------ ------------ ------------ ------------ ------------
Balance, May 31, 2005 8,626,480 $ 8,626 $ 13,751,375 $(14,629,216) $ (869,215)
============ ============ ============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
30
ASAP SHOW, INC.
STATEMENTS OF CASH FLOWS
FOR THE ELEVEN-MONTH PERIOD ENDED MAY 31, 2005 AND YEAR ENDED
JUNE 30, 2004
---------------------------
05/31/05 06/30/04
----------- -----------
Cash flows from operating activities:
Net loss $ (478,068) $(1,270,563)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization -- 6,902
Accrued interest 12,623 --
Equity in losses on investments in overseas joint ventures -- 9,342
Impairment write-down on investment in overseas joint
ventures -- 720,460
Compensation expense for warrants granted -- 6,600
Estimated fair value of common stock issued as compensation 133,553 --
Changes in operating assets and liabilities:
Accounts receivable (84,831) 73,739
Inventory -- 189,364
Prepaid expenses and other assets (6,333) (32,049)
Accounts payable and accrued expenses 200,710 (52,357)
Deferred revenue 22,248 (42,194)
----------- -----------
Net cash used in operating activities (200,098) (390,756)
----------- -----------
Cash flows from investing activities:
Proceeds from maturity of certificates of deposit -- 100,000
----------- -----------
Cash flows from financing activities:
Proceeds from loan payable 100,000 --
Proceeds from borrowings on line-of-credit from shareholder 495,000 252,000
Repayments of borrowings on line-of-credit from shareholder (352,000) --
----------- -----------
Net cash provided by financing activities 243,000 252,000
----------- -----------
Net increase (decrease) in cash 42,902 (38,756)
Cash, beginning of period 26,964 65,720
----------- -----------
Cash, end of period $ 69,866 $ 26,964
=========== ===========
Supplemental disclosure of cash flow information: Cash paid
during the period:
Interest $ 3,196 $ 528
=========== ===========
Income taxes $ 800 $ 800
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
31
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
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 in Note
2, Cyber Merchants Exchange, Inc. ("C-ME"), the Company's former parent, entered
into a Securities Purchase Agreement ("SPA") with KI Equity Partners II, LLC
("Keating"), which will result in a reorganization of the Company and C-ME. The
Company will account for the reorganization as a reverse spin-off, accordingly,
the accompanying financial statements include the historical results of C-ME.
C-ME was incorporated in July 1996 under the laws of the State of California. In
July 1999, C-ME raised approximately $3.2 million through its IPO. On June 30,
2000, C-ME raised an additional $6.3 million in a private placement offering
subscribed by 30 high net-worth Chinese investors. C-ME is currently listed on
the OTCBB under the symbol CMXG, and is a fully reporting public company.
The Company's value to global suppliers and buyers in the manufacturing,
wholesaling and retailing clothing business lies in its capabilities as an
intermediary for the industry. The Company believes it has built a foundation to
meet today's ever-changing international trading landscape.
The Apparel Sourcing Association Pavilion Trade Show ("ASAP Show") is a natural
extension of the Company's core business on-line model. ASAP Show is a global
apparel and textile sourcing show that brings leading manufacturers from around
the world to one venue to meet, greet and sell to buyers. In the past eight
years, C-ME has created a comprehensive base of manufacturers from around the
world. Through its network, the Company believes that a significant number of
international manufacturers will exhibit at the ASAP Show twice a year in Las
Vegas, Nevada.
Effective for fiscal 2005, the Company changed its fiscal year end from June 30
to May 31. The following table presents information for the eleven-month periods
ended May 31, 2005 and 2004:
5/31/05 5/31/04
---------- ------------
(UNAUDITED)
Revenues $2,040,341 $ 1,754,826
========== ===========
Loss from operations $ (463,063) $ (532,628)
========== ===========
Loss before income taxes $ (477,268) $ (795,321)
========== ===========
Income taxes $ 800 $ 800
========== ===========
Net loss $ (478,068) $ (796,121)
========== ===========
Loss per share $ (0.06) $ (0.10)
========== ===========
REORGANIZATION
The shareholders have approved a reorganization of C-ME (the "Reorganization"),
summarized as follows:
32
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
1. C-ME entered into an amended and restated Securities Purchase Agreement
("SPA") with KI Equity Partners II, LLC ("KI Equity") effective as of August 25,
2005;
2. C-ME issued a stock bonus to current directors and employees of 1,027,327
shares of the Company's common stock, on a post-Reverse Split basis, effective
May 31, 2005 (the "Stock Bonus");
3. C-ME transferred of all of the assets and liabilities (the "Transfer") to the
Company effective May 31, 2005 pursuant to a Transfer and Assumption Agreement
("Transfer Agreement");
4. On August 25, 2005, C-ME distributed 8,626,480 shares of common stock of
ASAP, representing all of the outstanding shares of ASAP, to C-ME's shareholders
of record on August 18, 2005 on a pro rata basis (the "Distribution"); and
5. C-ME issued 7,104,160 shares of common stock to KI Equity for $415,000 (the
"Investment"), which will be used to satisfy liabilities that were assumed by
the Company in connection with the Transfer.
See Note 2 for further details of the Reorganization
CHANGE IN PAR VALUE
In connection with the reorganization of the Company (see Note 2), the beginning
balances presented in the accompanying statements of shareholders' deficit
reflect a change in par value from those previously reported. Such changes
reflect the par value of the Company's common stock. Accordingly, the Company
reduced the previously reported common stock amount by $9,987,788 to $7,599 to
properly reflect the par value and recorded a corresponding increase of
additional paid in capital of $9,987,788 to $13,612,249.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP") requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Among the more significant estimates included in
these financial statements are the estimated allowance for doubtful accounts,
valuation of stock based compensation and the valuation allowance for deferred
income tax assets. Actual results could differ from those estimates.
RISKS AND UNCERTAINTIES
The Company operates in a highly competitive trade show and high-technology
environment that is subject to government regulation and rapid change. The
Company's operations are subject to significant risk and uncertainties including
financial, operational and other risks associated with the business, including
the potential risk of business failure.
At August 31, 2005, the Company has an accumulated deficit of $14,629,216,
negative working capital of $880,583 and a lack of profitable operational
history. The Company hopes to continue to increase revenues from the continued
growth of their ASAP Show. In the absence of significant increases in revenues,
the Company intends to fund operations through additional debt and equity
financing
33
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
arrangements. 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 $220,000 in cash
to fund operations for the fiscal year ending May 31, 2006 based on
approximately $200,000 cash used in operating activities for the fiscal year
ended May 31, 2005. Management believes it can reduce cash needs for fiscal 2006
to $220,000 based upon expense reductions and increased revenue from tradeshows
and buying trips. Management intends to fund the $220,000 with anticipated
increased revenues from the buying trips and Material World, unused portions of
the line-of-credit from shareholder, additional shareholder loans, third party
loans, and unregistered sales of the Company's restricted common stock to
investors. As discussed in Note 5, the Company had $295,000 available to borrow
under the line-of-credit from shareholder as of September 15, 2005.
CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
Certain financial instruments, principally accounts receivable, potentially
subject the Company to credit risks. The Company performs ongoing credit
evaluations of its customers but does not require collateral. The Company
maintains an allowance for doubtful receivables and sales returns based upon
factors surrounding the credit risk of specific customers, historical trends and
the Company's estimate of future product returns. As of the balance sheet date,
no allowance is required nor provided against these receivables, which are
deemed to be collectible in the normal course of business. Although the Company
expects to collect amounts due, actual collections may differ from the estimated
amounts.
There were no significant sales concentrations for fiscal 2005 or 2004 nor
accounts receivable concentrations at May 31, 2005.
INVESTMENTS IN OVERSEAS JOINT VENTURES
Investments in overseas joint ventures were accounted for under the equity
method (see Note 4). All such investment balances were fully impaired and
written off during fiscal 2004.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and
equipment was calculated on the straight-line method over the estimated useful
lives of the assets, generally three to five years. Leasehold improvements were
amortized over the shorter of the amortized useful lives or the lease term.
Maintenance, repairs and minor renewals are charged directly to expense as
incurred. Additions and betterments to property and equipment are capitalized.
When assets are disposed of, the related cost and accumulated depreciation
thereon are removed from the accounts and any resulting gain or loss is included
in the statement of operations.
Property and equipment was fully depreciated at June 30, 2004.
REVENUE RECOGNITION
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin
34
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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. For all
product transactions with its customers in 2005, 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. However, during 2004, the Company acted as an agent for such
transactions which are presented on a net basis in accordance with EITF 99-19.
For financial reporting purposes, in 2004 the Company presents the details of
gross transaction sales and related costs of sales in the accompanying
statements of operations.
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. The Company
organizes two trade shows per year 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 (we do
not share any losses, if any). 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 to Southeast Asia countries in November
each year.
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. Material World conducts two trade shows
per year, i.e. April and September.
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
35
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
subscriber fees are recognized as revenue after the services have been provided.
Subscription fees were insignificant for fiscal 2005 and 2004.
INCOME TAXES
The Company accounts for income taxes under Statement of Financial Accounting
Standards ("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. A valuation allowance is
provided for significant deferred tax assets when it is more likely than not
those assets will not be recovered.
STOCK-BASED COMPENSATION
At May 31, 2005, C-ME has cancelled each of its three stock-based employee
compensation plans (see Note 2). During the fiscal periods ended May 31, 2005
and June 30, 2004, no stock option-based compensation expense was recognized in
the accompanying statements of operations for options issued to employees below
market value pursuant to APB No. 25. No other stock option-based employee
compensation cost is reflected in the 2005 and 2004 consolidated statements of
operations, as all other options granted in 2005 and 2004 under those plans had
exercise prices equal to or greater than the market value of the underlying
common stock on the dates of grant.
The following table illustrates the effect on net loss and loss per share if
C-ME had applied the fair value recognition provisions of SFAS No. 123 to
stock-based employee compensation:
Eleven Month
Period ended Year ended
05/31/05 06/30/04
----------- -----------
Net loss, as reported $ (478,068) $(1,270,563)
Deduct: total stock-based employee
compensation expense determined under
fair value based method for all awards (67,000) (57,000)
----------- -----------
Pro-forma net loss $ (545,068) $(1,327,563)
=========== ===========
Basic and diluted net loss per share:
As reported $ (0.06) $ (0.17)
=========== ===========
Pro-forma $ (0.07) $ (0.18)
=========== ===========
LOSS PER SHARE
Under SFAS No. 128, "Earnings per Share," basic loss per share is computed by
dividing net loss available to common shareholders by the weighted-average
number of common shares assumed to be outstanding during the period of
computation. Diluted earnings per share is computed similar to basic loss per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional
36
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
common shares were dilutive (totaling zero and 575,500 shares at May 31, 2005
and June 30, 2004, respectively, based on the Treasury Stock method). Because
the Company has incurred net losses, basic and diluted loss per share are the
same as additional potential common shares would be anti-dilutive.
FAIR VALUE
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires
disclosure of fair value information about financial instruments when it is
practicable to estimate that value. The carrying amounts of the Company's cash,
accounts receivable, accounts payable, accrued expenses, deferred revenues, loan
payable and the line-of-credit from shareholder approximate their fair values
due to the short-term maturities of those financial instruments.
ADVERTISING
The Company expenses the cost of advertising when incurred as general and
administrative expenses. Advertising expenses were approximately $154,900 and
$79,000 for fiscal 2005 and 2004, respectively. The advertisement costs are
primarily to promote ASAP Global Sourcing Show awareness and to attract buyers
to attend the show.
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information" dictates the way public companies report information about segments
of their business in their annual financial statements and requires them to
report selected segment information in their quarterly reports issued to
shareholders. It also requires entity-wide disclosures about the products and
services an entity provides, the material countries in which it holds assets and
reports revenues and its major customers (see Note 9).
ACCOUNTING FOR WEB SITE DEVELOPMENT COSTS
EITF No. 00-2, "Accounting for Web Site Development Costs" states that for
specific web site development costs, the accounting for such costs should be
accounted for under Statement of Position 98-1 ("SOP 98-1"), "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." Web site
maintenance costs incurred and expensed under general and administrative
expenses in the accompanying statements of operations were insignificant to the
Company for the periods ended May 31, 2005 and June 30, 2004.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board ("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 transaction be recognized in financial statements. The 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 supercedes APB No. 25. SFAS No.123, as
originally issued in 1995, established 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
37
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
APB No. 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 period for the fiscal
year ending May 31, 2007. The Company is in the process of evaluating whether
the adoption of SFAS 123(R) will have a significant impact on the Company's
overall results of operations or financial position.
In December 2004, the FASB issued SFAS No. 153, "Exchanges Of Nonmonetary
Assets, An Amendment of APB Opinion No. 29, ACCOUNTING FOR NONMONETARY
TRANSACTIONS." APB No. 29 is based on the principle that exchanges of
nonmonetary assets should be measured based on the fair value of the assets
exchanged. The guidance in that Opinion, however, included certain exceptions to
that principle. This statement amends APB No. 29 to eliminate the exception for
nonmonetary exchanges of similar productive assets and replaces it with a
general exception for the exchanges of nonmonetary assets that do not have
commercial substance, that is, if the future cash flows of the entity are not
expected to change significantly as a result of the exchange. The provisions of
this statement are effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. We anticipate that SFAS No. 153 will not
have a material impact on our financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting For Certain Financial
Instruments With Characteristics of Both Liabilities and Equity." SFAS No. 150
established standards for how a company classifies and measures certain
financial instruments with characteristics of both liabilities and equity, and
is effective for public companies as follows: (i) in November 2003, the FASB
issued FASB issued FASB Staff Position ("FSP") FAS 150-03 ("FSP 150-3"), which
defers indefinitely (a) the measurement and classification guidance of SFAS No.
150 for all manditorily redeemable non-controlling interest in (and issued by)
limited-life subsidiaries, and (b) SFAS No. 150's measurement guidance for other
types of manditorily redeemable non-controlling interests, provided they were
created before November 5, 2003; (ii) for financial instruments entered into or
modified after May 31, 2003, that are outside the scope of FSP 150-3: and (iii)
otherwise, at the beginning of the first interim period beginning after June 15,
2003. The Company adopted SFAS No. 150 on the aforementioned effective dates.
The adoption of this pronouncement did not have a material impact on the
Company's results of operations or financial condition.
Other recent accounting pronouncements issued by the FASB (including its
Emerging Issues Task Force), the American Institute of Certified Public
Accountants, and the Securities and Exchange Commission did not or are not
believed by Management to have a material impact on the Company's present or
future financial statements.
NOTE 2 - 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 current 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
Investment by KI Equity will be used satisfy certain liabilities assumed by the
Company with any remaining funds being used to provide the Company with working
capital to grow its trade show business. The Reorganization will allow the
38
NOTE 2 - REORGANIZATION (CONTINUED)
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 will be 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 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.
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 Transfer, ASAP continued to focus on operating the trade show business
previously operated by C-ME. The Investment contemplated as part of the
Reorganization will be 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, four shows in China, and manage Material World Global
Pavilion in Miami, FL and New York. As part of the Transfer Agreement, ASAP has
assumed a revolving $800,000 line of credit from Frank Yuan and his wife (the
"Yuan Line of Credit"). Frank Yuan and his wife consented to the assumption of
the Yuan Line of Credit and released the Company from any and all liabilities
thereunder. The Yuan Line of Credit has an outstanding balance as of August 31,
2005 of $554,179, including accrued interest of $9,179, bears interest at 8% per
annum, and expires in September 2006. 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
through at least September 30, 2006.
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 are held by the depository agent until such time as this Form 10-SB has
become effective.
39
NOTE 2 - REORGANIZATION (CONTINUED)
At that time, the certificates representing ASAP shares will be disbursed by the
depository agent to ASAP's shareholders. Following disbursement of the ASAP
shares, ASAP intends to make available information that will allow a broker to
file a Form 15c2-11 to post a quotation and obtain a trading symbol for the
shares of ASAP on the OTCBB. The ASAP shares distributed as part of the
Distribution will be freely tradable, subject to certain restrictions applicable
to insiders and affiliates, once the Form 10-SB has become effective.
The distribution will be taxable to the shareholders.
Investment
----------
The closing of the transactions contemplated by the SPA and the Investment will
occur after the Distribution. Pursuant to the Investment, C-ME will issue
7,104,160 shares of common stock to KI Equity for $415,000. The proceeds of the
Investment will be used to satisfy liabilities that were assumed by ASAP as part
of the Transfer and any other liabilities of C-ME, which will be applied to all
third party liabilities which existed at May 31, 2005 and any remaining funds
being transferred to ASAP, 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.
Accounting Treatment
--------------------
The Company will account for the Reorganization as a reverse spinoff in
accordance with the Emerging Issues Task Force Issue No. ("EITF") 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 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
o and the accounting spinnor (legal spinnee) retains senior
management.
NOTE 3 - AGREEMENT WITH CIT
On October 19, 2000, C-ME and CIT Commercial Services ("CIT") entered into a
factoring agreement. Under the agreement, C-ME sells and assigns to CIT certain
accounts receivable, as defined, arising from transaction sales. CIT assumes the
credit risk on a non-recourse basis on each account approved. For each sales
transaction assigned to CIT for collection, CIT charges 1.5% of the assigned
invoice value as their factoring fee. The amount of factoring fees incurred by
C-ME during fiscal 2005 and 2004 were insignificant. CIT and C-ME cancelled the
factoring and commission agreement by mutual consent and released each other's
responsibilities and liabilities thereunder. ASAP management will enter a
similar
40
NOTE 3 - AGREEMENT WITH CIT (CONTINUED)
factoring and commission agreement with CIT when ASAP has more resources ready
to promote this GFP business.
NOTE 4 - INVESTMENTS IN OVERSEAS JOINT VENTURES
On December 22, 1999, C-ME entered into an agreement to form a joint venture in
Taiwan named C-ME Technology Co., Ltd. ("C-ME Taiwan") to facilitate the buying
and selling activities between U.S.-based retailers and Taiwan-based exporters
through C-ME 's web-based communication system. C-ME invested $300,000 (which
was used to purchase software back from the Company, see below) for a 30%
interest in February 2000 and accounts for this investment under the equity
method. C-ME invested an additional $200,000 for an additional 10% interest in
May 2001. For the year ended June 30, 2004, C-ME recognized an investment loss
in the accompanying statements of operations from this joint venture of
approximately $4,000, based on C-ME's equity ownership percentage.
On March 25, 2000, C-ME entered into an agreement with Good Support
International Limited, a British
Virgin Islands Company, to form a joint venture named Global Purchasing Dotcom,
Inc. ("GP.com"), a Washington corporation, which focused on implementing several
targeted businesses in China's e-commerce market. C-ME invested $400,000 during
the fiscal year ended June 30, 2000 (which was used to purchase software back
from C-ME (see below)). During the fiscal year ended June 30, 2001, C-ME
invested an additional $600,000 for a total interest of 50% and accounted for
this investment under the equity method, as it has no ability to significantly
influence the decisions of management. For the year ended June 30, 2004, C-ME
recognized an investment loss in the accompanying statements of operations from
this joint venture of $5,000, based on C-ME 's equity ownership percentage.
C-ME invested in the joint ventures with proceeds received from the sale of its
Internet Sourcing Network ("ISN") software to the respective joint ventures. The
revenue from the software sold was amortized over a 3-year straight-line
amortization method and offset by negative goodwill. These two joint ventures
had net losses since inception and were formed during the Internet boom with a
business model to attract paid subscribers to join C-ME 's ISN services. Since
C-ME 's core business model changed from attracting paid subscribers for its ISN
services to organizing trade shows and transaction sales, it was determined by
the management that the investment was permanently impaired and as a result,
C-ME has written off such investments in full, totaling approximately $720,000
for the year ended June 30, 2004.
During fiscal years 2002 and 2003, C-ME entered into agreements with third
parties to form joint ventures in Bangladesh, Korea, Hong Kong, Indonesia and
Sri Lanka named C-ME Bangladesh, C-ME Korea, C-ME Hong Kong, C-ME Indonesia and
C-ME Sri Lanka, respectively, in which all will use C-ME's proprietary web-based
communication systems to facilitate the front end merchandise sourcing. C-ME is
not required to invest money into the joint ventures. Per the joint venture
agreements, C-ME is to provide its technology and all costs to operate the joint
ventures are to be funded by the third party joint venture partners. Profits are
first to be distributed to the joint venture partners until the joint venture
partners are reimbursed for all costs paid by the third parties on behalf of the
joint ventures, then all profits will be allocated on a 50% basis to each
partner. As of May 31 2005, the joint ventures are not operational. Certain of
employees of the joint ventures are promoting the ASAP Show as independent
contractors. The joint ventures have ceased operations with no further liability
for C-ME. ASAP has no potential future exposure from the joint ventures.
As of and for the year ended June 30, 2004, the investment in respective joint
ventures are summarized as follows:
41
NOTE 4 - INVESTMENTS IN OVERSEAS JOINT VENTURES (CONTINUED)
C-ME Taiwan GP.com Total
-------------------------------------------------------------------------
Net investment at July 1, 2003 $ 129,729 $ 600,072 $ 729,801
Equity in loss of joint ventures (4,298) (5,043) (9,341)
Impairment write-down in joint
ventures (125,431) (595,029) (720,460)
--------- --------- ---------
Net investment at June 30, 2004 $ -- $ -- $ --
========= ========= =========
NOTE 5 - LINE-OF-CREDIT FROM STOCKHOLDER AND LOAN PAYABLE
In February 2005, the Company borrowed $100,000 for working capital purposes
from a related party. The note was non-interest bearing and was paid in full in
June 2005.
The Company has an unsecured revolving line-of-credit (the "Line") from Frank
Yuan, the Company's Chief Executive Officer and a significant Company
shareholder, and his spouse, Vicky Yuan, which expires in September 2006 and
provides for borrowings up to a maximum of $800,000. The Line carries an
interest rate of 8.0% per annum. The balance as of May 31, 2005 was $395,000,
with accrued and unpaid interest of $12,623. The balance as of August 31, 2005
was $554,179, including accrued interest of $9,179.
NOTE 6 - INCOME TAXES
Income tax expense for the period ended May 31, 2005 and year ended June 30,
2004 differed from the amounts computed by applying the U.S. Federal income tax
rate of 34 percent to the loss before income taxes as a result of the following:
2005 2004
--------- -----------
Computed "expected" tax benefit $(162,000) $ (432,000)
Adjustment in income taxes resulting from:
Tax attributes of C-ME not retained
By the Company 162,800 432,800
--------- -----------
$ 800 $ 800
========= ===========
In connection with the Reorganization, the tax attributes associated with C-Me
have not been retained by the Company. Therefore, the Company has no deferred
tax assets or deferred tax liabilities. In addition, the Company has no tax
operating loss carry forwards available to offset future income.
NOTE 7 - SHAREHOLDERS' DEFICIT
Common Stock
------------
As described in Note 2, in May 2005, C-ME declared a Stock Bonus of 1,027,327
shares of common stock to certain key employees and directors of C-ME, which
were valued at $133,553 (based on the closing price of C-ME's common stock on
the effective date of grant). The Stock Bonus was issued to the employees and
directors on July 7, 2005, effective May 31, 2005.
42
NOTE 7 - SHAREHOLDERS' DEFICIT (CONTINUED)
Options
-------
C-ME previously compensated its directors and employees with stock options for
their services. In connection with the Reorganization (see Note 2), effective
May 31, 2005, C-ME has cancelled all stock options by mutual agreement with the
holders thereof and terminated all of its stock option plans. In order to
provide incentive compensation for these directors and employees, following the
Distribution, ASAP will adopt a new stock option plan, which will have 2,000,000
shares of common stock of ASAP available for grant
C-ME's 1996 Stock Option Plan (the "1996 Plan") provided for granting of stock
options to employees and non-employee directors. C-ME had reserved 250,000
shares of common stock for issuance under the 1996 Plan. The terms and
conditions of grants of stock options are determined by the Board of Directors.
Generally, one-half of the granted options were exercisable after the employee's
first year of employment. The remaining options were exercisable after the end
of the employee's third year of employment. The options granted would have
expired within three months after the termination of employment.
C-ME's 1999 stock option plan (the "1999 Plan") provided for granting of stock
options to employees, officers, directors, and other entities who have made
contributions to C-ME. C-ME had reserved 2,500,000 shares of common stock for
issuance under the 1999 Plan. The Board of Directors determined the terms and
conditions of granting stock options. Generally, the vesting period was two
years, allocated as follows: the first 25% of options granted are exercisable
after the first six months of employment, then 4.16% are vested each month
thereafter until fully vested. The 1999 Plan provided for the useful life of the
options granted to be 10 years starting from the date of grant. The options
granted would have expired within three months after the termination of
employment.
C-ME's 2001 stock option plan ("2001 Plan") provided for grants of stock options
to employees, officers, director, and other entities who have made contributions
to C-ME. C-ME had reserved 2,000,000 shares of common stock for issuance under
the 2001 Plan. The Board of Directors determined the terms and conditions for
granting stock options. Generally, the vesting period was two years, allocated
as follows: the first 25% of options granted are exercisable after the first six
months of employment, then 4.16% are vested each month thereafter until fully
vested. The 2001 Plan provided for the useful life of the options granted to be
10 years starting from the date of grant. The options granted would have expired
within three months after the termination of employment.
For the year ended June 30, 2004, C-ME, pursuant to the 1999 plan, granted
options to purchase an aggregate of 290,000 shares of restricted common stock,
at an exercise price of $0.20 per share, and weighted average fair value of
$0.20 per share, (estimated to be in excess of the fair market value of C-ME 's
common stock on the date of grant), to various employees of C-ME. The options
would have vested through September 2005 and were exercisable through September
2013. In addition, C-ME, pursuant to the 2001 plan, granted options to purchase
an aggregate 330,000 shares of restricted common stock, at exercise prices
ranging from $0.20 to $0.51 per share, with a weighted average exercise price of
$0.23 and weighted average fair value of $0.23, (estimated to be the fair market
value of C-ME's common stock on the dates of grant), to various employees of
C-ME. The options would have vested through September 2005 and were exercisable
through September 2013.
No compensation expense was recorded during fiscal 2005 and 2004 related to
stock option activity.
43
NOTE 7 - SHAREHOLDERS' DEFICIT (CONTINUED)
A summary of changes in stock options during each period is presented below:
Weighted Average
Stock Options Exercise Price
-------------------------------------
Balance, July 1, 2003 1,581,885 $3.14
Options granted 620,000 0.43
Options cancelled (81,420) 1.60
---------- -----
Balance, June 30, 2004 2,120,465 2.35
Options granted -- --
Options cancelled (2,120,465) 2.35
---------- -----
Balance, May 31, 2005 -- --
========== =====
Exercisable, June 30, 2004 1,930,467 $2.56
========== =====
The weighted average fair value of the stock options granted during the year
ended June 30, 2004 was approximately $0.21 per share as determined using the
Black Scholes option-pricing model. The pricing assumptions used were as
follows:
YEAR ENDED
JUNE 30, 2004
-------------
Discount rate - bond yield rate 3.50%
Volatility 291%
Expected life 3 years
Expected dividend yield --
Warrants
--------
On May 25, 2000, C-ME entered into a joint marketing and cooperation agreement
with Factory 2-U. As a part of the agreement, C-ME granted Factory 2-U a warrant
that allowed Factory 2-U to purchase up to 10% of the issued and outstanding
shares of C-ME's common stock immediately after its June 2000 private placement
at the same price at which the shares were sold in the private placement. The
maximum shares Factory 2-U could purchase were 838,119 shares at $4.878 per
share. In accordance with SFAS No. 123, C-ME recognized an expense of $684,738
in fiscal 2000 for the granting of this warrant. The warrant expired unexercised
on May 25, 2005.
In April 2003, C-ME issued a Private Placement Memorandum ("PPM") offering
qualified investors 8% convertible preferred shares ("Shares") and warrants
("Warrants"), collectively the "Units", in exchange for a cash investment in
C-ME for an aggregate of $1,250,000. C-ME offered 125 Units priced at $10,000
per Unit. Each Unit consists of 20,000 shares of preferred stock with an 8%
annual dividend and 5,000 Warrants, to purchase common stock at $0.50 per share,
immediately exercisable for a term of five years.
44
NOTE 7 - SHAREHOLDERS' DEFICIT (CONTINUED)
This convertible stock offering did not have any commitments or investments as
of May 31, 2005 and was closed effective May 31, 2005. C-ME entered into an
agreement with C.K. Cooper & Company ("CKCC"), a NYSD member investment banker
based in Irvine, California as its placement agent and financial consultant for
the PPM. As of May 31, 2005, C-ME issued a total of 30,000 warrants exercisable
at $0.28 and the related expense was not significant. The warrants were
cancelled in April 2005.
The following represents a summary of warrants outstanding for the period ended
May 31, 2005 and year ended June 30, 2004:
Period Ended Year Ended
------------------------------------------------------------
05/31/2005 06/30/2004
-------------------------- -------------------------
Weighted Weighted
Average Average
Warrants Price Warrants Price
-------- ------ -------- ------
Outstanding, beginning of year 869,119 $ 4.81 869,119 $ 4.99
Granted -- -- 20,000 $ 0.28
Exercised -- -- -- --
Cancelled/Forfeited/Expired (869,119) $ 4.81 (20,000) $ 8.00
-------- ------ -------- ------
Outstanding, end of year -- $ -- 869,119 $ 4.81
======== ====== ======== ======
Exercisable, end of year -- $ -- 869,119 $ 4.81
======== ====== ======== ======
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Operating Lease
---------------
The Company leases office space under a non-cancelable operating lease
agreement. The lease provides for monthly lease payments approximating $5,000
and expires in June 2007, as amended. Future minimum lease payments under
non-cancelable operating leases as of May 31, 2005 approximate the following:
Year Ending May 31,
-------------------
2006 $ 60,000
2007 $ 60,000
2008 $ 5,000
---------
$ 125,000
Rent expense for the period ended May 31, 2005 and year ended June 30, 2004 was
approximately $65,000 and $70,000, respectively.
Litigation
----------
The Company may be involved from time to time in various claims, lawsuits,
disputes with third parties, actions involving allegations or discrimination or
breach of contract actions incidental in the normal operations of the business.
The Company is currently not involved in any such litigation which management
believes could have a material adverse effect on its financial position or
results of operations.
45
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Indemnities and Guarantees
--------------------------
The Company has made certain indemnities and guarantees, under which it may be
required to make payments to a guaranteed or indemnified party, in relation to
certain transactions. The Company indemnifies its directors, officers, employees
and agents to the maximum extent permitted under the laws of the State of
Nevada. In connection with its facility leases, the Company has indemnified its
lessor for certain claims arising from the use of the facilities. In connection
with line of credit, the transfer agreement, stock purchase and other
agreements, the Company has indemnified lenders, sellers, and various other
parties for certain claims arising from the Company's breach of representations,
warranties and other provisions contained in the agreements. The guarantees and
indemnities 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 any payments for these obligations and no liabilities
have been recorded for these indemnities and guarantees in the accompanying
balance sheet.
NOTE 9 - BUSINESS SEGMENTS
Reportable business segments for the eleven month period ended May 31, 2005 and
year ended June 30, 2004 were as follows:
----------- -----------
2005 2004
----------- -----------
Net sales from operations:
Transaction sales, gross $ 315,493 $ --
Transaction sales, net -- 108,201
ASAP Global Sourcing Show and Material World 1,464,941 1,663,274
China Buying Trip 259,907 --
----------- -----------
$ 2,040,341 $ 1,771,475
=========== ===========
Income (loss) from operations:
Transaction sales $ (263,194) $ (155,733)
ASAP Global Sourcing Show and Material World (416,966) (393,310)
China Buying trip 217,097 --
----------- -----------
$ (463,063) $ (549,043)
=========== ===========
Depreciation and amortization:
Transaction sales $ -- $ 6,902
ASAP Global Sourcing Show and Material World -- --
China Buying trip --
----------- -----------
$ -- $ 6,902
=========== ===========
Identifiable assets:
Transaction sales $ 115,061
ASAP Global Sourcing Show and Material World 101,611
China Buying trip 30,209
-----------
$ 246,881
===========
Net sales as reflected above consist of sales to unaffiliated customers only as
there were no significant intersegment sales during the eleven month period
ended May 31, 2005 and the year ended June 30, 2004.
46
NOTE 9 - BUSINESS SEGMENTS (CONTINUED)
There were no significant capital expenditures during fiscal 2005 or 2004.
There was no significant concentration on net segment sales for the eleven
months ended May 31, 2005 and year ended June 30, 2004.
ASAP Global Sourcing Show revenue relates exclusively to the Company's Las
Vegas, Nevada trade shows.
47
ASAP SHOW, INC.
CONDENSED BALANCE SHEET
(UNAUDITED)
Aug. 31, 2005
-------------
ASSETS
Current assets:
Cash $ 94,687
Accounts receivable, net 96,688
Capital contribution receivable 415,000
Prepaid expenses 2,467
------------
608,842
Total current assets
Other assets 9,800
------------
Total assets $ 618,642
============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 641,849
Line-of-credit and interest payable to shareholder 554,178
------------
Total current liabilities 1,196,027
------------
Commitments and contingencies
Shareholders' 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 (14,752,386)
------------
Total shareholders' deficit (577,385)
------------
Total liabilities and shareholders' deficit $ 618,642
============
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS
48
ASAP SHOW, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
August 31,
--------------------------
2005 2004
----------- -----------
Revenues:
Transaction sales $ 120,719 $ 27,705
Tradeshow revenue 720,115 587,189
Buying trip 171,832 --
----------- -----------
Revenues 1,012,666 614,894
----------- -----------
Operating expenses:
Cost of transaction sales 97,916 69,682
General and administrative 834,136 351,038
Payroll and related 176,590 169,906
----------- -----------
Total operating expenses 1,108,642 590,626
----------- -----------
(Loss) income from operations (95,976) 24,268
Interest expense, net of interest income 26,394 2,085
----------- -----------
(Loss) income before income taxes (122,370) 22,183
Income taxes 800 --
----------- -----------
Net (loss) income $ (123,170) $ 22,183
=========== ===========
Net loss per share available to common stockholders
Basic and diluted $ (0.01) $ --
=========== ===========
Weighted-average number of common shares outstanding
Basic and diluted 8,626,480 7,472,673
=========== ===========
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
49
ASAP SHOW, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
August 31,
-------------------------
2005 2004
--------- ---------
Cash flows from operating activities:
Net loss (income) $(123,170) $ 22,183
Adjustments to reconcile net loss (income) to net
cash (used in) provided by operating activities:
Changes in operating assets and liabilities:
Accounts receivable 4,205 343,000
Inventory -- 25,874
Prepaid expenses and other assets 63,855 57,932
Accounts payable and accrued expenses 220,369 (120,148)
Deferred revenues (186,993) 2,000
--------- ---------
Net cash (used in) provided by operating activities (21,734) 330,841
--------- ---------
Cash flows from financing activities:
Repayment of loan payable (100,000) --
Proceeds from borrowings on line-of-credit from shareholder 250,000 99,000
Repayments of borrowings on line-of-credit from shareholder (103,445) (100,000)
--------- ---------
Net cash provided by (used in) financing activities 46,555 (1,000)
--------- ---------
Net increase in cash 24,821 329,841
Cash, beginning of period 69,866 4,451
--------- ---------
Cash, end of period $ 94,687 $ 334,292
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period
Interest $ 29,839 $ 18,026
--------- ---------
Income taxes $ -- $ --
--------- ---------
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS
50
ASAP SHOW, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
AUGUST 31, 2005
(UNAUDITED)
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-month period ended August 31, 2005 are not
necessarily indicative of the results that may be expected for the year ending
May 31, 2006
ASAP Show, Inc. ("ASAP" or the "Company") was incorporated in December 2004
under the laws of the State of Nevada. As described in Note 2, Cyber Merchants
Exchange, Inc. ("C-ME"), the Company's former parent, entered into a Securities
Purchase Agreement ("SPA") with KI Equity Partners II, LLC ("Keating"), which
resulted in a reorganization of the Company and C-ME. 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 current 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
$415,000 has been included in the accompanying balance sheet at August 31, 2005
as a capital contribution receivable and was received in October 2005. The
Investment by KI Equity has been used satisfy certain liabilities assumed by the
Company. The Reorganization allows 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 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
51
ASAP SHOW, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
AUGUST 31, 2005
(UNAUDITED)
did not receive any significant pay increases in recent years and outside
directors were never paid for services on the Board.
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 Transfer, ASAP continued to focus on operating the trade show business
previously operated by C-ME. The Investment contemplated as part of the
Reorganization will be 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, four shows in China, and manage Material World Global
Pavilion in Miami, FL and New York. As part of the Transfer Agreement, ASAP has
assumed a revolving $800,000 line of credit from Frank Yuan and his wife (the
"Yuan Line of Credit"). Frank Yuan and his wife 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 August 31,
2005 of $554,179, including accrued interest of $9,179, bears interest at 8% per
annum, and expires in September 2006. 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
through at least September 30, 2006.
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 or about 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 this
Form 10-SB has become effective.
At that time, the certificates representing ASAP shares will be disbursed by the
depository agent to ASAP's shareholders. Following disbursement of the ASAP
shares, ASAP intends to make available information that will allow a broker to
file a Form 15c2-11 to post a quotation and obtain a trading symbol for the
shares of ASAP on the OTC BB. The ASAP shares distributed as part of the
Distribution will be freely tradable, subject to certain restrictions applicable
to insiders and affiliates, once the Form 10-SB has become effective.
52
ASAP SHOW, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
AUGUST 31, 2005
(UNAUDITED)
The distribution will be taxable to the shareholders.
Investment
----------
The closing of the transactions contemplated by the SPA and the Investment
occured after the Distribution. 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 ASAP as part of
the Transfer and any other liabilities of C-ME, which were applied to all third
party liabilities which existed at May 31, 2005 and any remaining funds being
transferred to ASAP, 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 $415,000 has been included in the accompanying balance sheet at August 31,
2005 as a capital contribution and $365,000 was distributed to and received by
ASAP in October 2005.
Accounting Treatment
--------------------
The Company accounted for the Reorganization as a reverse spinoff in accordance
with the Emerging Issues Task Force Issue No. ("EITF") 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
shareholders and other users of the financials statements. Under this treatment,
the historical financial statements of C-ME are 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.
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." Beginning in fiscal 2005 for all product transactions with its
customers, the Company acts as a
53
ASAP SHOW, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
AUGUST 31, 2005
(UNAUDITED)
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.
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. Material World conducts two trade shows
per year, i.e. April in Miami and September in New York.
Buying Trip
-----------
Buying trip generates 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). 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 China Countries in November
each year.
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
sheet.
54
ASAP SHOW, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
AUGUST 31, 2005
(UNAUDITED)
BASIC AND DILUTED EARNINGS PER COMMON SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per common share computations:
3 Months Ended
08/31/05 08/31/04
----------- -----------
Numerator for basic and diluted (loss) income per share:
Net (loss) income $ (123,170) $ 22,183
Denominator for basic and diluted (loss) income per share:
Weighted average shares (basic and diluted) 8,626,480 7,599,153
----------- -----------
Loss charged to common shareholders per common share:
Basic and diluted $ (0.01) $ --
=========== ===========
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.
Small business issuers will be required to apply Statement 123(R) as of the
annual reporting period that begins after December 15, 2005. 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.
NOTE 2 - BUSINESS SEGMENTS
Reportable business segments as of and for the periods ended August 31, 2005 and
2004 are as follows:
55
------------------------------------------------------------------------------
3 Months 3 Months
Ended 08/31/05 Ended 08/31/04
----------------------------------------
Revenues:
Transaction sales $ 120,719 $ 27,705
Tradeshows 720,115 587,189
Buying trip
171,832 --
----------- -----------
$ 1,012,666 $ 614,894
=========== ===========
(Loss) income from operations:
Transaction sales $ 22,803 $ (41,977)
Tradeshows (213,097) 66,245
Buying trip 94,318 --
----------- -----------
$ (95,976) $ 24,268
=========== ===========
Depreciation and amortization:
Transaction sales $ -- $ --
Tradeshows -- --
Buying trip -- --
----------- -----------
$ -- $ --
=========== ===========
Identifiable assets:
Transaction sales $ 19,361
Tradeshows 595,762
Buying trip 3,519
-----------
$ 618,642
===========
Net sales as reflected above, consist of sales to unaffiliated customers only as
there were no significant intersegment sales for the three-month periods ended
August 31, 2005 and 2004.
There were no significant concentrations on net segment sales for the
three-month periods ended August 31, 2005 and 2004.
Transaction apparel sales are made from goods exported from China into the USA,
while ASAP show revenue relates exclusively to the Company's Las Vegas, Nevada
trade shows.
NOTE 3 - DEBT
LINE OF CREDIT FROM SHAREHOLDER
The Company has a revolving line-of-credit (the "Line") from Frank Yuan, the
Company's Chief Executive Officer and a significant Company shareholder, which
expires on September 1, 2006 and provides for borrowings up to a maximum of
$800,000, as amended. The Line bears an interest rate of 8.0% per annum. The
balance at August 31, 2005 was $554,178, including accrued and unpaid interest
of $9,178 at August 31, 2005.
56
PART III
ITEM 1. INDEX TO EXHIBITS.
Exhibit 3.1 Articles of Incorporation
Exhibit 3.2 Bylaws
Exhibit 10.1 Amended and Restated Securities Purchase Agreement by and
among KI Equity Partners II, LLC, Cyber Merchants Exchange Inc. and
Frank Yuan dated as of August 25, 2005.
Exhibit 10.2 Transfer and Assumption Agreement by and among Cyber
Merchants Exchange Inc., ASAP Show, Inc. and Fran Yuan dated as of May
31, 2005.
Exhibit 10.3 Promissory Note from ASAP Show, Inc. to Frank Yuan
ITEM 2. DESCRIPTION OF EXHIBITS.
Exhibit 3.1 Articles of Incorporation of ASAP Show, Inc.
Exhibit 3.2 Bylaws of ASAP Show, Inc.
Exhibit 10.1 Amended and Restated Securities Purchase Agreement by and
among KI Equity Partners II, LLC, Cyber Merchants Exchange Inc. and
Frank Yuan dated as of August 25, 2005.
Exhibit 10.2 Transfer and Assumption Agreement by and among Cyber
Merchants Exchange Inc., ASAP Show, Inc. and Fran Yuan dated as of May
31, 2005.
Exhibit 10.3 Promissory Note from ASAP Show, Inc. to Frank Yuan
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
ASAP Show, Inc.
/s/ Frank S. Yuan.
------------------
Date: December 7, 2005 By: Frank S. Yuan
Chairman & CEO
57