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 March 31, 2006
[ ] 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 Identification No.)
of incorporation or organization)
2405 Ping Drive
Henderson, NV 89074
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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 227,777,710 shares of common stock outstanding at May 11,
2006.
Transitional Small Business Disclosure Format (Check one): Yes |_| No |X|
INTERNATIONAL STAR, INC.
Form 10-QSB
For The Quarterly Period Ended March 31, 2006
TABLE OF CONTENTS
PART 1.........................................................................3
FINANCIAL INFORMATION..........................................................3
ITEM 1. FINANCIAL STATEMENTS...............................................3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.........10
ITEM 3. CONTROLS AND PROCEDURES...........................................16
PART II.......................................................................17
OTHER INFORMATION.............................................................17
ITEM 1. LEGAL PROCEEDINGS.................................................17
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.......17
ITEM 3. DEFAULTS UPON SENIOR SECURITIES...................................18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............18
ITEM 5. OTHER INFORMATION.................................................18
ITEM 6. EXHIBITS..........................................................18
2
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, 2005. In the opinion of management, these
unaudited financial statements contain all adjustments necessary to fairly
present the Company's financial position as of March 31, 2006 and its results of
operations and its cash flows for the three months ended March 31, 2006.
3
INTERNATIONAL STAR, INC.
AND SUBSIDIARIES
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
March 31, December 31,
2006 2005
----------- -----------
Current Assets:
Cash $ 136,979 $ 205,220
----------- -----------
Total Current Assets 136,979 205,220
Fixed Assets (Net of Depreciation) 31,114 31,964
----------- -----------
Total Assets $ 168,093 $ 237,184
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued interest $ 54,898 $ 93,067
----------- -----------
Total Current Liabilities 54,898 93,067
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 227,691,610 and 212,987,443
at March 31, 2006 and December 31, 2005, respectively $ 227,691 $ 212,987
Paid-In Capital 3,817,642 3,621,346
Accumulated Deficit (4,182,138) (3,940,216)
----------- -----------
Total Stockholders' Equity (Deficit) (136,805) (105,883)
Total Liabilities
and Stockholders' Equity $ 168,093 $ 237,184
=========== ===========
See accompanying notes to the financial statements.
4
INTERNATIONAL STAR, INC.
AND SUBSIDIARIES
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
From January 1, 2004
Three Months Three Months (Date of inception
Ended Ended of exploration stage)
March 31, 2006 March 31, 2005 to March 31, 2006
------------- ------------- -------------
Revenue: $ - $ - $ -
------------- ------------- -------------
Total Revenue - - -
Expenses:
Mineral exploration costs 7,980 179,677 584,052
Professional fees 2,910 8,847 115,158
Compensation & management fees 91,210 99,915 1,008,764
Depreciation & amortization 850 1,614 5,323
General & administrative 135,222 42,360 271,211
------------- ------------- -------------
Total Expenses (238,172) (336,163) 1,984,508
Net (loss) from operations $ (238,172) $ (336,163) (1,984,508)
Other Income (Expense):
Interest expense 3,750 3,750 (44,277)
Loss on divestiture of subsidiary -- -- (99,472)
------------- ------------- -------------
Total Other Income 3,750 3,750 (143,749)
Net (loss) (234,422) (332,413) (2,128,257)
Weighted Average Shares
Common Stock Outstanding 218,847,166 194,986,233
============= =============
Net Loss Per Common Share
(Basic and Fully Dilutive) (0.00) (0.00)
============= =============
See accompanying notes to the financial statements.
5
INTERNATIONAL STAR, INC.
AND SUBSIDIARIES
(AN EXPLORATION STAGE COMPANY)
STATEMENT OF CASH FLOWS
(Unaudited)
From January 1, 2004
(date of inception
Three Months Three Months of
exploration stage)
Ended Ended to
March 31, 2006 March 31, 2005 March 31, 2006
----------- ----------- -----------
Cash Flows Used in Operating Activities:
Net Loss $ (241,922) $ (336,163) $(2,128,257)
Adjustments to reconcile net (loss) to net cash
provided
by operating activities:
Depreciation & Amortization 850 1,614 5,323
Loss in divestiture of subsidiary -- -- 99,472
Common stock issued for services 57,500 -- 131,500
----------- ----------- -----------
Net Cash used in Operations (183,572) (334,549) (1,891,962)
Changes to Operating Assets and Liabilities:
(Increase) decrease in Accounts Receivable and Prepaids -- 54,000 20,955
(Increase) decrease in inventories -- -- 63,812
(Increase) decrease in other assets -- -- 92,874
(Decrease) increase in accounts payables and accrued
interest (38,169) 20,840 (21,012)
(Decrease) increase in accrued liability -- -- (189,095)
----------- ----------- -----------
Cash Flows Used in Operating Activities (221,741) (259,709) (1,924,428)
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 note payable -- -- 250,000
Proceeds from sale of common stock 153,500 132,212 1,476,616
----------- ----------- -----------
Cash Flows from Financing Activities 153,500 132,212 1,726,616
Net Increase (Decrease) in Cash (68,421) (127,497) (227,167)
Cash at Beginning of Period 205,220 200,266 364,146
----------- ----------- -----------
Cash at End of Period $ 136,979 $ 72,769 $ 136,979
=========== =========== ===========
See accompanying notes to the financial statements.
6
INTERNATIONAL STAR, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
A. BASIS OF PRESENTATION
The Interim financial statements of International Star, Inc. and Subsidiaries
(the Company) for the three months ended March 31, 2006 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 March 31, 2006
and the results of operations and cash flows for the three months ended March
31, 2006.
The results of operations for the three months ended March 31, 2006 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 three
months ended March 31, 2006.
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.
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.
7
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.
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.
8
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. DIVESTITURE OF PITA KING BAKERIES INTERNATIONAL, INC.
Effective January 1, 2004, the original shareholders of Pita King Bakeries,
International Inc. and the management of International Star, Inc. (the Company)
mutually agreed to dissolve their business relationship. Under terms of this
dissolution, the original shareholders of Pita King Bakeries International, Inc.
returned 4,000,000 shares of common stock to the Company and the Company agreed
to forgive a $35,000 loan made to Pita King Bakeries International, Inc. The
original shareholders of Pita King Bakeries International, Inc. were allowed to
retain 139,500 share of the Company's common stock which they had received as
part of the original purchase of Pita King Bakeries International, Inc. by the
Company. The Company has recognized a loss of $99,472 on the divestiture of Pita
King Bakeries International, Inc.
D. COMMON STOCK
On February 18, 2005, the Company adopted a plan for 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.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
The following presentation of Management's Discussion and Analysis of Financial
Condition has been prepared by internal management and should be read in
conjunction with the Financial Statements and notes thereto included in Item 1
of our Quarterly Report on Form 10-QSB for the three and nine month periods
ended March 31, 2006. Except for the historical information contained herein,
the discussion in this report contains certain forward-looking statements that
involve risks and uncertainties, such as statements of our business plans,
objectives, expectations and intentions as of the date of this filing. The
cautionary statements about reliance on forward-looking statements made earlier
in this document should be given serious consideration with respect to all
forward-looking statements wherever they appear in this report, notwithstanding
that the "safe harbor" protections available to some publicly reporting
companies under applicable federal securities law do not apply to us as an
issuer of penny stocks. Our actual results could differ materially from those
discussed here.
We were organized under the laws of the State of Nevada on October 28, 1993 as
Mattress Showrooms, Inc. In 1997, we changed our corporate name to International
Star, Inc. and became engaged in the business of construction, sale and
operation of state of the art waste management systems, specializing in turnkey
systems for management of hospital, industrial, petroleum, chemical and
municipal solid waste collection systems. Despite our efforts, we were unable to
develop this business beyond the start-up stage. Following our unsuccessful
venture in waste management, we refocused our business efforts on mineral
exploration in 1998. Currently, we are primarily engaged in the acquisition and
exploration of precious metals mineral properties. Since 1998, we have examined
various mineral properties prospective for precious metals and minerals and have
acquired interests in those we believe may contain precious metals and minerals.
Our properties are located in Arizona. We have not established that any of our
properties contain reserves. A reserve is that part of a mineral deposit which
could be economically and legally extracted or produced at the time of the
reserve determination. Further exploration will be needed before a final
determination can be made whether any property is economically and legally
feasible. Therefore, at present we have no reserves and no income from mineral
production
The business of mineral exploration is very speculative because there is
generally no way to recover any of the funds expended on exploration unless the
company establishes the existence of mineable reserves and then exploits those
reserves by either commencing mining operations, selling or leasing its interest
in the property, or entering into a joint venture with a larger resource company
that can develop the property to the production stage. Unless we can establish
and exploit reserves before our funds are exhausted, we will have to discontinue
operations, which could make our stock valueless.
Reserves, by definition, contain mineral deposits in a quantity and in a form
room which the target minerals may be economically and legally extracted or
produced. We have not established that such reserves exist on our properties and
unless and until we do so we will not have any income from our mineral
operations.
10
Our directors and executive officers lack significant experience or technical
training in exploring for precious metal deposits and developing mines.
Accordingly, our management may not be fully aware of many of the specific
requirements related to working within this industry. Their decisions and
choices may not take into account standard engineering or managerial approaches
such as mineral exploration companies commonly use. Consequently, our
operations, earnings, and ultimate financial success could suffer irreparable
harm due to our management's lack of experience in the mining industry. We plan
to align our Company with reputable, knowledgeable experts in the mining
industry to overcome this lack of experience and expertise, such as the
formation of a joint venture with Resolve Capital Funding Corporation, Inc.
Any changes in government policy may result in changes to laws affecting
ownership of assets, land tenure, mining policies, taxation, environmental
regulations, labor relations, or other factors relating to our exploration
activities. Such changes could cause us to incur significant unforeseen expenses
of compliance or even require us to suspend our activities altogether.
Our directors and executive officers own a significant amount of our voting
capital common stock, and accordingly, exert considerable influence over us. As
of March 31, 2006, our directors and executive officers beneficially owned
common stock and securities convertible into our common stock which, upon
exercise, would equal to approximately 38% of the voting power. As a result,
these stockholders are potentially able to decide all matters requiring
stockholder approval, including the election of directors and the approval of
significant corporate transactions. This concentration of ownership could also
delay or prevent a change in control that may be favored by other stockholders.
OUR PROPERTIES
We currently hold interests in two properties which we believe show potential
for mineral development. Both properties are unpatented mining claims located on
federal public land and managed by the United States Bureau of Land Management
("BLM").
Unpatented claims are "located" or "staked" by individuals or companies on
federal public land. Each placer claim covers 20 to 160 acres; each lode claim
covers 20 acres. We are obligated to pay a maintenance fee of $100 per claim per
year to the BLM or file an Affidavit of Assessment Work with the BLM showing
labor and improvements of at least $100 for each claim yearly.
If the statutes and regulations for the location and maintenance of a mining
claim are complied with, the locator obtains a valid possessory right to the
contained minerals. Failure to pay such fees or make the required filings may
render the mining claim void or voidable. We believe we have valid claims, but,
because mining claims are self-initiated and self-maintained, it is impossible
to ascertain their validity solely from public real estate records.
If the government challenges the validity of an unpatented mining claim, we
would have the burden of proving the present economic feasibility of mining
minerals located on the claims.
There are uncertainties as to title matters in the mining industry. We believe
that we have good title to our properties; however, defects in such title could
have a material adverse effect on us. We have investigated our rights to
explore, exploit and develop our various properties in manners consistent with
industry practice and, to the best of our knowledge, those rights are in good
standing. However, we cannot assure that the title to our properties will not be
challenged or impugned by third parties or governmental agencies. In addition,
there can be no assurance that the properties in which we have an interest are
not subject to prior unregistered agreements; transfers or claims and title may
be affected by undetected defects. Any such defects could cause us to lose our
rights to the property or to incur substantial expense in defending our rights.
11
Detrital Wash, Mohave County, Arizona Property
On March 3, 1998, we entered into a mineral lease with James R. Ardoin for the
Detrital Wash mineral claims located one mile east of mile marker 22 on Hwy 93,
Mohave County, Arizona. The lease does not require any minimum payments, and
charges a royalty of 2% of net smelter returns (NSR). The term of the lease is
for 20 years with an option to renew for additional, successive 20-year terms.
In July 2004, we reached an agreement in principle with the holders of 131
placer association claims covering approximately 20,000 acres adjacent to and
surrounding the original Detrital Wash Property. The agreement will grant us
exclusive exploration rights on the claims, and first right of refusal for
exclusive development rights in exchange for a 0.25% net smelter return payable
to the claimholders. The agreement will require the company to expend a minimum
of $125,000 on exploration during a three-year period.
Currently we are attempting to raise additional capital to continue a staged
exploration program on the Detrital Wash Property. As part of this effort, we
formed Star-Resolve Detrital Wash, LLC as part of a joint venture with Resolve
Capital Funding Corporation, Inc. ("Resolve") to engage in the development and
commercial exploitation of the Detrital Wash Property. Each of Resolve and our
Company will have a 50% membership interest in Star-Resolve Detrital Wash, LLC.
Under this joint venture, Resolve has committed to use its best efforts to
manage Star-Resolve Detrital Wash, LLC and to provide us access to its industry
related contracts and its expertise in the commercial exploitation of mineral
rights. Resolve will be the exclusive managing member of Star-Resolve Detrital
Wash, LLC.
Wikieup, Arizona Property
In March 2001, we purchased from Gold Standard Mines Inc. 51 lode mining claims
located in the Wikieup mining district, Mohave County, Arizona (the "Wikieup
Property"). Consideration for the acquisition was 1,000,000 restricted common
shares valued at $400,000 as of the date of the agreement. In connection with
the acquisition of the Wikieup Property and for no additional consideration, we
were assigned all right, title and interest in certain proprietary gold, silver
and/or platinum metal recovery formulae for the processing of ore in and about
the Wikieup Property. As of the date of this filing, we have not had the
formulae and processing techniques independently verified.
The Wikieup Property at present consists of approximately 840 acres (42 lode
claims) of mountainous terrain and is accessible by paved and dirt roads west of
Wikieup, Arizona off U.S. Highway 93. The property is located in Section 36,
Township 16N, Range 14W in the Holapa Mountain Range. There is nearby access to
electricity and water.
12
We have processed a limited number of "spot samples" of stockpiled screened
material from a claim immediately adjacent to our Wikieup Property and found
precious metals to exist in the material, although our sampling did not permit a
reliable quantitative evaluation as we could not be certain of the degree of
pre-treatment and concentration the material had undergone. Nevertheless, the
spot samples confirmed our belief, based on the available literature, that the
property shows promise as an exploration target. However, the mountainous
terrain and complex nature of the geological makeup of the Wikieup Property
would likely make it much more costly to explore and develop than the Detrital
Wash Property. As a result, we have focused our efforts and available resources
on the continued exploration of the Detrital Wash Property.
Going Concern
We have incurred substantial operating and net losses, as well as negative
operating cash flow, since our inception. Accordingly, we continue to have
significant stockholder deficits and working capital deficits, as further
explained in our Annual Report on Form 10KSB for the year ended December 31,
2005. In recognition of these trends, our independent registered accountants
included cautionary statements in their report on our financial statements for
the year ended December 31, 2005 that expressed "substantial doubt" regarding
our ability to continue as a going concern. Specifically, our independent
accountants have opined that the continuation of our Company as a going concern
is dependent upon obtaining sufficient working capital to be successful in that
effort.
Our ability to continue as a going concern is dependent on obtaining additional
working capital and our management has developed a strategy which it believes
will accomplish this objective through additional equity funding, long term
financing, and payment of our expenses by our officers, if needed, which will
enable us to operate for the coming year.
Plan of Operation
Over the next twelve months, we intend to focus on obtaining financing necessary
for further exploration on the Detrital Wash Property to assess the commercial
viability of mineral extraction from deposits on the Detrital Wash Property and
the establishment of a precious metal reserve. Given our limited resources and
our ability to obtain financing, we intend to concentrate our efforts and our
available finances on the continued exploration of the Detrital Wash Property.
At present, our Management has no intention of continuing the exploration of the
Wikieup Property, although should financing become available with respect to the
Wikieup Property, our Management may consider further mineral exploration of the
Wikieup Property.
Due to our limited financial resources, we do not anticipate any purchase or
sale of property, plant, or other significant equipment, and we do not expect
any significant changes in the number of our employees.
Financing
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 twelve months,
and to continue some exploration operations on our Detrital Wash Property. We
will continue to pursue means to expand our exploration activities, either by
seeking additional capital through loans or private placements of our
securities, or possibly entering joint venture arrangements with one or more
other, more substantial companies, such as the joint venture with Resolve
Capital Funding Corporation, LLC for the formation of Star-Resolve Detrital
Wash, LLC, which will allow us access to Resolve's industry related contracts
and leverage off of Resolve's expertise in commercial exploitation of mineral
rights. If we raise capital by selling our equity stock, the proportionate
ownership of existing shareholders will be diluted.
13
During our fiscal year ended December 31, 2005, we secured additional funding
through the private placement of our restricted common stock shares at prices
ranging from $0.02 to $0.15 per share. In the aggregate, we sold 18,801,125
restricted common stock shares during our fiscal year 2005 for a net purchase
price of $656,828.04. During the three month period ended March 31, 2006, we
secured additional funding through the private placement of our restricted
common stock shares at prices ranging from $0.01 to $0.015 per share. In the
aggregate, we sold 13,266,667 restricted common stock shares for a net purchase
price of $153,500. We believe these issuances were exempt from the registration
requirements pursuant to Regulation D or Section 4(2) of the Securities Act.
(See: "Recent Sales of Unregistered Securities").
In addition, certain of our directors have, from time to time. advanced funds to
our Company for the payment of operating expenses. These advances have been
repaid in cash and through the issuance of restricted shares of our common
stock. The amounts that were due to the Company directors for these advances
were $0.00 at March 31, 2006. During the three month period ended March 31,
2006,, our Directors contributed to capital amounts that totaled $0.00 as
payment for the advances and accrued compensation that was owed to those
Officers who also serve as a Director on our Board.
LIQUIDITY
Liquidity and Capital Resources
For the Three For the Three Months
Months Ended Ended
March 31, 2006 March 31, 2005
------------------- ----------------------
Net cash Used in Operating Activities $(221,741) (259,709)
Net Cash Used in Investing Activities -- --
Net Cash Provided by Financing Activities 153,500 132,212
General
Overall, we had negative cash flows of $68,241 for the three months ended March
31, 2005, resulting from $221,741 used in our operating activities and $153,500
provided by our financing activities. No cash was provided by our investing
activities for the fiscal year 2005.
14
Cash Used in Our Operating Activities
For the three month period ended March 31, 2006, net cash used in our operating
activities of $221,741 was due primarily to a net loss of $241,922, adjustments
to reconcile net income to net cash used in operating activities in the amount
of $58,350 comprised of depreciation and amortization of $850 and common stock
issued for services in the amount of $57,500, and changes to our operating
assets and liabilities, primarily a decrease in accounts payables and accrued
interest aggregating $38,169.
Cash Provided By Our Financing Activities
For the three month period ended March 31, 2006, net cash provided by our
financing activities was attributed to the sale of our common stock resulting in
proceeds of $153,500.
Internal Sources of Liquidity
For the three month period ended March 31, 2006, the funds generated from our
operations were insufficient to fund our daily operations. There is no assurance
that funds from our operations will meet the requirements of our daily
operations in the future. In the event that funds from our operations are
insufficient to meet our operating requirements, we will need to seek other
sources of financing to maintain liquidity.
External Sources of Liquidity
We actively pursue all potential financing options as we look to secure
additional funds to both stabilize and grow our business operations. Our
management will review any financing options at their disposal, and will judge
each potential source of funds on its individual merits. There can be no
assurance that we will be able to secure additional funds from debt or equity
financing, as and when we need to, or if we can, that the terms of such
financing will be favorable to us or our existing stockholders.
On October 28, 2003, we approved the acceptance of a Subscription Agreement and
Loan Agreement between us and a Life Insurance Company. Under the terms of these
agreements, the Life Insurance Company loaned to us $250,000 pursuant to a
promissory note, carrying an interest rate of 6% per annum, with interest
payable in quarterly installments with the first quarterly interest payment due
on April 28, 2004. This note is due and payable in full on October 28, 2006, and
is secured by a mortgage of a 25% mineral interest in our 1,280 acre Detrital
Wash Mining Claims in Mohave County, Arizona. The Life Insurance Company has
waived payment of all interest due until October 28, 2006. This Life Insurance
Company also purchased 7,663,500 shares of the Company's common stock at a value
of $0.03 1/3 for a total purchase price of $250,000
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Inflation
Management believes that inflation has not had a material effect on our results
of operations, and does not expect that it will in fiscal year 2006, except that
rising oil and gas prices may materially and adversely impact the economy
generally.
Forward Looking Statements
This Management's Discussion and Analysis of Financial Condition and Results of
Operations includes a number of forward-looking statements that reflect our
management's current views with respect to future events and financial
performance. Those statements include statements regarding our intent, belief or
current expectations, and those of members of our management team, as well as
the assumptions on which such statements are based. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risk and uncertainties, and that actual results may
differ materially from those contemplated by such forward-looking statements.
Readers are urged to carefully review and consider the various disclosures made
by us throughout this Report, as well as in our other reports filed with the
Securities and Exchange Commission. Important factors currently known to
Management could cause actual results to differ materially from those in
forward-looking statements. We undertake no obligation to update or revise
forward-looking statements to reflect changed assumptions, the occurrence of
unanticipated events or changes in future operating results over time. We
believe that our assumptions are based upon reasonable data derived from and
known about our business and operations. No assurances are made that actual
results of operations or the results of any future activities will not differ
materially from our assumptions.
Since our trading shares are classified as "penny stocks", we are not entitled
to rely upon the "Safe Harbor" provisions adopted by the SEC under the Exchange
Act with respect to Forward Looking Statements. Nevertheless, investors are
urged to give serious consideration to those factors which we have identified as
outside of our control, and the consequences to us and our investors if our
anticipated results do not come to pass as expected as a result of material
deviations which may occur from the assumptions we have relied upon in making
Forward-Looking Statements.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
ITEM 3. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures.
Our management evaluated, with the participation of our Chief Executive and
Financial Officer, the effectiveness of our disclosure controls and procedures
as of the end of the period covered by this Quarterly Report on Form 10-QSB,
March 31, 2006. Based on this evaluation, our Chief Executive and Financial
Officer has concluded that our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the
Exchange Act) are ineffective to ensure that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in SEC rules and forms. We are developing a plan to ensure that all information
will be recorded, processed, summarized and reported on a timely basis. This
plan is dependent, in part, upon reallocation of responsibilities among various
personnel, possibly hiring additional personnel and additional funding. It
should also be noted that the design of any system of controls is based in part
upon certain assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions, regardless of how remote.
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(b) Changes in Internal Control over Financial Reporting
There was no change in the our internal controls that occurred during the three
month period ended March 31, 2006 that has materially affected, or is reasonably
likely to affect, the Company's internal controls over financial reporting.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time we are involved in legal proceedings relating to claims
arising out of operations in the normal course of business, as well as claims
arising from our status as an issuer of securities and/or a publicly reporting
company. At March 31, 2001, we know of no current or threatened legal
proceedings involving us or our properties reportable under this Item 1.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended March 31, 2006, 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;
17
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.
-----------------------------------------------------------------------------------------------------------
Number of
Date Issued Class Amount Price Purchasers
===========================================================================================================
-----------------------------------------------------------------------------------------------------------
January 6, 2006 Common Stock 4,500,000 $0.02 (1) 2
-----------------------------------------------------------------------------------------------------------
January 6, 2006 Common Stock 255,000 $0.04 (1) 2
-----------------------------------------------------------------------------------------------------------
January 6, 2006 Common Stock 1,437,500 $0.04 (2) 2
-----------------------------------------------------------------------------------------------------------
March 9, 2006 Common Stock 1,666,667 $0.015 (1) 1
-----------------------------------------------------------------------------------------------------------
March 13, 2006 Common Stock 2,500,000 $0.015 (1) 1
-----------------------------------------------------------------------------------------------------------
March 13, 2006 Common Stock 9,100,000 $0.01 (1) 1
-----------------------------------------------------------------------------------------------------------
1 Issued for cash
2 Issued to Officers of the Company in settlement of Debt
===========================================================================================================
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the vote of our security holders, whether through
solicitation or proxies or otherwise, during the three month period ended March
31, 2006.
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
Exhibit No. Description
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)
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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)
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: May 15, 2006 /s/ Denny Cashatt
------------------------------------
President and Chief Executive Officer
(PRINCIPAL EXECUTIVE OFFICER)
Dated: May 15, 2006 /s/ Dottie Wommack McNeely
------------------------------------
Acting Chief Financial Officer
(PRINCIPAL ACCOUNTING OFFICER)
19