UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2005
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period from ______________ to ______________
Commission file number 000-28861
INTERNATIONAL STAR, INC.
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(Exact name of small business as specified in its charter)
NEVADA 86-0876846
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
2266 Chestnut Bluffs, Henderson, NV, 89052
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(Address of principal executive offices)
(702) 897-5338
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(Issuer's telephone number)
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(Former name, former address, and former fiscal year, if
changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be file
by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by the court. Yes |_| No |_|
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
The Company had 205,885,210 shares of common stock
outstanding at September 30, 2005.
Transitional Small Business Disclosure Format (Check one): Yes |_| No |X|
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
The following unaudited financial statements of International Star, Inc. have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB.
Accordingly, these financial statements may not include all of the information
and disclosures required by generally accepted accounting principles for
complete financial statements. These financial statements should be read in
conjunction with the audited financial statements and the notes thereto for the
fiscal year ending December 31, 2004. In the opinion of management, these
unaudited financial statements contain all adjustments necessary to fairly
present the Company's financial position as of September 30, 2005 and its
results of operations and its cash flows for the three months and nine months
ended September 30, 2005.
INTERNATIONAL STAR, INC.
AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
2005 2004
----------- -----------
ASSETS
Current Assets:
Cash $ 70,466 $ 200,266
Prepaid expenses -- 54,000
Total Current Assets 70,466 254,266
Fixed Assets (Net of Depreciation) 28,736 33,578
Total Assets $ 99,202 $ 287,844
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued interest $ 49,429 $ 1,275
Accrued expenses 16,239 --
Total Current Liabilities 65,668 1,275
Long-term Liabilities:
Note Payable 250,000 250,000
Total Long-term Liabilities 250,000 250,000
Stockholders' Equity (Deficit):
Preferred stock, undesignated par value; authorized
20,000,000 shares, no shares issued and outstanding
Common Stock, $.001 par value; authorized
780,000,000 shares; issued and outstanding 207,337,104
and 193,286,223 at September 30, 2005 and
December 31, 2004, respectively $ 207,338 $ 193,286
Paid-In Capital 3,379,800 2,886,931
Accumulated Deficit (3,803,604) (3,043,648)
Total Stockholders' Equity (Deficit) (216,466) 36,569
Total Liabilities and Stockholders' Equity $ 99,202 $ 287,844
See accompanying notes to the financial statements.
3
INTERNATIONAL STAR INC.
AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
From January 1,
2004
(Date of
Nine Months Nine Months Three Months Three Months inception of
Ended Ended Ended Ended exploration stage)
September 30, September 30, September 30, September 30, to September 30,
2005 2005 2005 2005 2005
------------- ------------- ------------- ------------- -------------
Revenue: $ -- $ -- $ -- $ -- $ --
Total Revenue -- -- -- -- --
Gross Profit $ -- $ -- $ -- $ -- $ --
Expenses:
Mineral exploration costs 323,516 189,979 48,804 28,379 554,661
Interest expense 11,250 11,363 3,750 2,794 40,527
Professional fees 18,735 43,462 2,662 22,520 106,548
Compensation & management fees 305,369 246,500 88,793 120,000 802,196
Depreciation & amortization 4,842 1,197 1,614 399 7,701
General & administrative 96,244 56,186 23,785 13,556 138,618
Total Expenses 759,956 548,687 169,408 187,648 1,650,251
Net (loss) from operations $ (759,956) $ (548,687) $ (169,408) $ (187,648) (1,650,251)
Other Income (Expense):
Loss on divestiture of subsidiary -- (43,370) -- -- (99,472)
Net (loss) (759,956) (592,057) (169,408) (187,648) (1,749,723)
Weighted Average Shares
Common Stock Outstanding 197,618,615 173,198,694 204,681,548 177,366,222
Net Loss Per Common Share
(Basic and Fully Dilutive) (0.00) (0.00) (0.00) (0.00)
See accompanying notes to financial statements.
4
INTERNATIONAL STAR INC.
AND SUBSIDIARIES
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
From January 1,
2004
(date of
inception of
Nine Months Nine Months Three Months Three Months exploration
Ended Ended Ended Ended stage) to
September 30, September 30, September 30, September 30, September 30,
2005 2005 2005 2005 2005
------------- ------------- ------------- ------------- -------------
Cash Flows Used in Operating Activities:
Net Loss $ (759,956) $ (592,057) $ (169,408) $ (187,648) $ (1,749,723)
Adjustments to reconcile net (loss) to
net cash provided by operating activites:
Depreciation & Amortization 4,842 1,197 1,614 399 7,701
Loss in divestiture of subsidiary -- 43,370 -- -- 99,472
Common stock issued for services -- 60,000 -- 60,000 74,000
Changes to Operating Assets and Liabilities:
(Increase) decrease in Accounts Receivable
and Prepaids 54,000 5,450 -- -- 79,792
(Increase) decrease in inventories -- -- -- -- 63,812
(Increase) decrease in other assets -- -- -- -- 95,474
(Decrease) increase in accounts payables
and accrued interest 48,154 4,189 15,541 22,362 17,461
(Decrease) increase in accrued liability 16,239 (2,300) 16,239 (12,000) (28,235)
Cash Flows Used in Operating Activities (636,721) (480,151) (136,014) (116,887) (1,340,246)
Cash Flows from Investing Activities:
Purchase of fixed assets -- -- -- -- (29,355)
Cash Flows from Investing Activities -- -- -- -- (29,355)
Cash Flows from Financing Activities:
Proceeds from sale of common stock 506,921 122,375 176,000 -- 1,075,921
Cash Flows from Financing Activities 506,921 122,375 176,000 -- 1,075,921
Net Increase (Decrease) in Cash (129,800) (357,776) 39,986 (116,887) (293,680)
Cash at Beginning of Period 200,266 364,146 30,480 123,257 364,146
Cash at End of Period $ 70,466 $ 6,370 $ 70,466 $ 6,370 $ 70,466
Supplemental non-cash financing activites:
Cancellation of 4,000,000 shares
origianlly issued to acquire Pita
King Bakery International (236,000) (236,000)
Capital contributed for payment of interest 7,500 7,500
See accompanying notes to financial statements.
5
INTERNATIONAL STAR, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
A. BASIS OF PRESENTATION
The interim financial statements of International Star, Inc. and Subsidiaries
("we", "us", or the "Company") for the nine and three months ended September 30,
2005 and 2004 are not audited. The financial statements are prepared in
accordance with the requirements for unaudited interim periods, and consequently
do not include all disclosures required to be in conformity with accounting
principles generally accepted in the United States of America.
In the opinion of management, the accompanying consolidated financial statements
contain all adjustments, consisting only of normal recurring accruals, necessary
for a fair presentation of the Company's financial position as of September 30,
2005 and the results of operations and cash flows for the nine and three months
ended September 30, 2005 and 2004.
The results of operations for the nine and three months ended September 30, 2005
and 2004 are not necessarily indicative of the results for a full year period.
B. SIGNIFICANT ACCOUNTING POLICIES
1. Principles of Consolidation and Accounting Methods
These consolidated financial statements include the accounts of
International Star, Inc., and Qwik Track, Inc. (a wholly owned subsidiary)
for the nine and three months ended September 30, 2005 and 2004.
2. Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount 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 period. Actual results could differ from
those estimates.
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3. Dividend Policy
The Company has not adopted a policy regarding the payment of dividends.
4. Mineral Properties and Equipment
The Company has expensed the costs of acquiring and exploring its
properties during the periods in which they were incurred, and will
continue to do so until it is able to determine that commercially
recoverable ore reserves are present on the properties. If it determines
that such reserves exist, it will capitalize further costs.
5. Basic and Dilutive Net Income (Loss) Per Share
Basic net income (loss) per share amounts are computed based on the
weighted average number of shares actively outstanding in accordance with
SFAS NO. 128 "Earnings Per Share." Diluted net income (loss) per share
amounts are computed using the weighted average number of common shares
and common equivalent shares outstanding as if shares had been issued on
the exercise of any common share rights unless the exercise becomes
antidultive and then only the basic per share amounts are shown in the
report.
6. Comprehensive Income
The Company adopted SFAS No. 130, "Reporting Comprehensive Income", which
requires inclusion of foreign currency translation adjustments, reported
separately in its Statement of Stockholders' Equity, in other
comprehensive income. Such amounts are immaterial and have not been
reported separately. The Company had no other forms of comprehensive
income since inception.
7. Stock Based Compensation
The Company has elected to follow Accounting Principles Board Opinion
No.25 (APB 25) and related interpretations in accounting for its employee
stock options. Under APB25, when the exercise price of employee stock
options is equal to the estimated market price of the stock on the date of
grant, no compensation expense is recorded. The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards
No. 123 (SFAS 123) with respect to employee stock options.
8. Income Taxes
The Company has adopted SFAS No. 109 "Accounting for Income Taxes". The
Company accounts for income taxes under an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been recognized
in the Company's financial statements or tax returns. In estimating future
tax consequences, all expected future events, other than enactment of
changes in the tax laws or rates, are considered.
Due to the uncertainty regarding the Company's future profitability, the
future tax benefits of its losses have been fully reserved and no net tax
benefit has been recorded in these financial statements.
7
9. Fair Value of Financial Instruments
The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values. These financial instruments
include cash, tax credit recoverable, reclamation bond, accounts payable
and accrued liabilities, amount due to a director and loan payable.
10. Recent Accounting Pronouncements
The Company does not expect that the adoption of other recent account
pronouncements will have a material effect on its financial statements.
11. Revenue Recognition
Revenue will be recognized on the sale and delivery of a product or the
completion of a service provided.
12. Statement of Cash Flows
For the purposes of the statement of cash flows, the Company considers all
highly liquid investments with a maturity of nine months or less to be
cash equivalents.
13. Financial and Concentration Risk
The Company does not have any concentration or related financial credit
risk
C. Common Stock
On February 18, 2005, our Board of Directors approved a 3:1 forward split of its
common stock. As a result of this plan, the shareholders of record of the
Company as of February 22, 2005 received three shares of the Company's common
stock in exchange for one share. The Company increased its authorized common
shares to 780,000,000 at $0.001 par value. The Company also authorized
20,000,000 shares of undesignated preferred stock. The weighted average shares
outstanding and net loss per common share have been compiled as if the forward
split had occurred at inception of the Company. The total outstanding shares of
common stock prior to the forward split were 64,428,741 and after the 3:1
forward split the total number of shares outstanding were 193,286,223.
Item 2 - Management's Discussion and Analysis or Plan of Operation
We are an exploration stage company with no reserves or mining operations. Since
1998 we have been embarked on the acquisition of mineral claims, principally in
Mohave County, Arizona. We are currently focusing on raising the funding
necessary for further exploration on our Detrital Wash property, located near
Marker 22 in Mohave County. We believe the results of the limited sampling
conducted in 1998 by AuRic Metallurgical Laboratories and completion of surface
sampling program conducted by Kokanee Placer Ltd. warrant further investigation
of the mineral potential of that property. In April of 2005, Zereko Nevada
conducted a surface drilling program yielding sixty-eight samples on the
Detrital Wash property from April 3, 2005 through April 7, 2005. Results of the
sampling drilling program were consistent with previous samplings and indicated
the need for further testing. During September, 2005, International Star entered
into a drilling and sample testing contract with RMC, Ltd. for six holes to be
drilled to a depth of 100 feet, and samples taken every 10 foot. Permits for the
drilling program were issued, and the Surety Bond was paid to the BLM. Results
of this testing were revealed in a press release on October 4, 2005. Those
results will determine whether more testing is required (i.e., developing an
inferred reserve), or if the property is viable for going directly into
production. We cannot at this time state or guarantee what, if anything, these
results might yield.
8
Despite our history as a mineral exploration company, we have attempted other
business ventures in our recent past. In October 2002, we acquired Pita King
Bakeries International, Inc. ("PKBI"). On February 4, 2004 we announced a
reorganization of the business and management of our company, and on June 1,
2004, we divested our interest in the PKBI subsidiary by selling the company
back to its original shareholders, who mutually agreed with us to terminate our
business relationship. Under terms of this dissolution, the original
shareholders of PKBI returned 4,000,000 shares of our common stock, and we
agreed to forgive a $35,000 loan made to PKBI. The original shareholders of PKBI
were further allowed to retain 139,500 share of our common stock which they had
received as part of our original purchase of that subsidiary. We recognized a
loss of $99,472 on the divestiture of PKIB, but the reorganization helped us
focus on our core business of the acquisition and exploration of mineral claims.
During 2005 we secured additional funding through private placements of our
common stock. Kilpatrick Life Insurance Co. and associated individuals from
Shreveport, Louisiana purchased 6,466,667 shares of our common stock for
$146,000. Additionally, we secured funding through private placements in the
amount of $360,922 for 5,084,478 shares of our common stock, for an aggregate
raise of $506,922 in consideration for 11,551,145 shares of our common stock.
We have no credit lines or other sources of cash. We believe our current cash is
sufficient to sustain our administrative overhead over the next several months,
and to commence some limited exploration operations on our Detrital Wash and
Wikieup properties. However, in order for us to significantly increase our
exploration and acquisition activities, or to commence any type of production
work, we will need to attract substantial additional capital through investment
or other means. We currently plan to continue to pursue capital to expand our
existing exploration activities, either through loans or private placements of
our securities, or possibly entering joint venture arrangements with one or more
substantial companies. However, there are no arrangements now in place to
further fund our activities by any of these means, and the outcome of the
discussions with other entities cannot be predicted. If we raise capital by
selling our capital stock, the proportionate ownership of existing shareholders
will be diluted, potentially substantially.
Item 3 - Controls And Procedures
Evaluation of Disclosure Controls and Procedures
Our Principal Executive Officer and Principal Financial Officer have reviewed
and evaluated the effectiveness of our disclosure controls and procedures (as
defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by
this report. Based on that evaluation, the Principal Executive Officer and
Principal Financial Officer have concluded that the company's current disclosure
controls and procedures are effective to ensure that information required to be
disclosed by the company in reports it files or submits under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms. There was
no change in the company's internal controls that occurred during the fourth
quarter of the period covered by this report that has materially affected, or is
reasonably likely to affect, the company's internal controls over financial
reporting.
9
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None.
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ending on September 30, 2005, we issued and/or
sold the securities listed in the table below without registration under the
Securities Act of 1933.
No underwriters were involved in these transactions. Selling prices for
the shares may have been discounted from then prevailing market prices to
reflect the restricted status of the shares or the urgency of our need for
capital. When shares were issued for property or services, in each instance the
valuation of the property or services was based on the board of director's
determination of the value received for the shares.
The securities were sold by our officers without the use of an
underwriter. In effecting the sales, we relied on the exemption authority
provided by Section 4(2) of the Securities Act of 1933, as amended, relating to
sales not involving any public offering, and Regulation S, relating to
securities sold in bona fide offshore transactions. We believe that all such
sales were made by our executive officers in private, negotiated transactions
without any advertising, public announcements or general solicitation. The
purchasers of the shares represented themselves in writing to be, and we believe
them to be, members of one or more of the following classes of purchaser:
a. Officers, directors, promoters or control persons of the issuer;
b. Accredited investors, as defined in Rule 501 under Regulation D of
the Securities Act;
c. Individuals who:
i. Are knowledgeable and sophisticated in investment matters;
ii. Are able to assess the risks of an investment such as in our
securities;
iii. Are financially able to bear the risk of a loss of their
entire investment; and iv. Have access to pertinent
information regarding the issuer and its operations.
The shares are subject to the resale provisions of Rule 144 under the Securities
Act of 1933, as amended, and may not be sold or transferred without registration
except in accordance with that rule. Certificates representing the securities
bear a legend to that effect.
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Number of
Date Issued Class Amount Price Purchasers
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August 8, 2005 Common Stock 6,065,000 $0.02(1) 6
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August 10, 2005 Common Stock 235,000 $0.02(1) 1
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August 11, 2005 Common Stock 1,666,667 $0.03(1) 1
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(1) Issued for cash
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Item 3 - Defaults Upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
10
Item 5 - Other Information
On July 21, 2005, International Star, Inc., announced the return to OTCBB
listing status. In May of 2003, International Star (listed as ISRI on the OTCBB)
was D-listed for failure to file timely reports with the SEC (Securities
Exchange Commission). Since that time, International Star was listed for trading
on the Pink Sheets as ISRI.PK until receiving a symbol change in February of
2005 to ILST.PK. Following the reorganization of the management team for
International Star in January of 2004, STAR returned to a status of current
filing with the SEC in July of 2004. In April of 2005, Propalo Enterprises
started the due diligence process necessary to complete the Form 211 application
which was filed in June of 2005. International Star is currently listed on the
OTCBB as ILST.OB.
On September 1, 2005, the Board of Directors initiated a certified proxy vote
for members of the Board of Directors for 2005 - 2006. The voting was
facilitated by STALT, Inc. the duly authorized transfer agent and registrar for
International Star, Inc., with the assistance of ADP Investor Communications
Services. Results of the election were submitted to International Star on
October 19, 2005, and promptly recorded with the Nevada Secretary of State. As a
result of the election, the Board of Directors of International Star, Inc.
consist of; Virginia K. Shehee, Denny Cashatt, Kamal Alawas, and Joe Therrell,
Jr.
Item 6 - Exhibits
Exhibit
No. Description
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31.1 Certification of Chief Executive Officer pursuant to Rules 13a-14(a)
and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. (Filed herewith)
31.2 Certification of Chief Financial Officer pursuant to Rules 13a-14(a)
and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. (Filed herewith)
32.1 Certification of Chief Executive Officer pursuant to pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (Filed herewith)
32.2 Certification of Chief Financial Officer pursuant to pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (Filed herewith)
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INTERNATIONAL STAR INC.
Dated: November 3, 2005 /s/ Denny Cashatt
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President and Chief Executive Officer
(PRINCIPAL EXECUTIVE OFFICER)
Dated: November 3, 2005 /s/ Dottie Wommack McNeely
--------------------------------------
Acting Chief Financial Officer
(PRINCIPAL ACCOUNTING OFFICER)
12