U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A-1
Amendment No. 1
|X| Annual Report Pursuant to Section 13 or 15(D) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 2005.
|_| Transition Report Under Section 13 or 15(D) of the Securities Exchange Act
of 1934 for the transition period from _____ to _____
Commission file number: 000-26017
INTERNATIONAL STAR, INC.
(Exact name of Small Business Issuer as specified in its charter)
NEVADA 86-0876846
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
2405 Ping Drive
Henderson, NV 89074 89074
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (702) 897-5338
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common
Stock, par value $0.001 per share
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |_|
State issuer's revenues for its most recent fiscal year ended December 31, 2005,
was $0.
Based on the closing sale price of $0.045 on December 30, 2005, the aggregate
market value of the voting stock held by non-affiliates of the registrant was
$6,124,566.56
As of March 31, 2006, there were 214,577,710 shares of the registrant's Common
Stock issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
INTERNATIONAL STAR, INC.
Form 10-KSB
For the Fiscal Year Ended December 31, 2005
TABLE OF CONTENTS
PART I ...................................................................... 1
ITEM 1. BUSINESS ........................................................... 3
ITEM 2. DESCRIPTION OF PROPERTY ........................................ 7
ITEM 3. LEGAL PROCEEDINGS .............................................. 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............ 11
PART II ..................................................................... 12
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
SMALL ISSUER PURCHASES OF EQUITY SECURITIES .................... 12
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION .... 16
ITEM 7. FINANCIAL STATEMENTS ........................................... 21
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE ....................................... 33
ITEM 8A. CONTROLS AND PROCEDURES ..................................... 33
ITEM 8B. OTHER INFORMATION ........................................... 34
PART III .................................................................... 34
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT .............. 34
Common stock issued for cash. November 29, 2004
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . 39
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................. 41
ITEM 13. EXHIBITS ....................................................... 41
ii
PART I
EXPLANATORY NOTE
This Amendment No. 1 to our Annual Report on Form 10-KSB ("Form 10KSB/A-1") for
the year ended December 31, 2005, initially filed with the Securities and
Exchange Commission ("SEC") on April 14, 2006 (the "Original Filing") reflects,
among other things, a restatement of the Financial Statements of International
Star, Inc. as discussed in Note K to the Financial Statements.
This Form 10-KSB/A-1 only amends and restates Items 5, 7, 8A, 12 and 13 of the
Original Filing and we have revised language in certain of these Items from the
Original Filing to reflect the restatement of our Financial Statements. As
explained in Note K of our restated financial statements for the year ended
December 31, 2005, we have restated our financial statements to correct an
accounting error in the recording of mineral exploration costs and additional
paid in capital. Item 5 was amended to correct for an error in our disclosure of
certain recent sales of our unregistered securities; Item 7 reflects our
restated financial statements; Item 8A elaborates on a material weakness
identified in our evaluation of our internal controls, Item 12 was amended to
disclose a related transactions with our executive officers; and Item 13 was
amended to file as exhibits hereto, all amendments to our Articles of
Incorporation that was not previously filed as an exhibit to our prior periodic
reports.
The amendment of portions of any Item identified above does not imply that the
entirety of such Item has changed since the Original Filing. For the convenience
of the reader, this Form 10-KS/A-1 sets forth the Original Filing in its
entirety. However, this Form 10-KSB/A-1 only amends and restates the specific
portions of the Original Filing identified above, and no other information in
the Original Filing is amended hereby. Furthermore, except as set forth herein,
none of the foregoing items, nor any other portion of the Original Filing, has
been updated to reflect other events occurring after the date of the Original
Filing, or to modify or update those disclosures affected by subsequent events.
Pursuant to the rules of the SEC, currently dated certifications from our Chief
Executive Officer and Chief Financial Officer are attached to this Form
10-KSB/A-3 as Exhibits 31.1, 31.2, 32.1 and 32.2, respectively.
The Original Filing was filed with the Securities and Exchange Commission to
cover our reporting requirements under the Securities Exchange Act of 1934 (the
"1934 Act") for our fiscal year ended December 31, 2005.
1
FORWARD LOOKING STATEMENTS
This Form 10-KSB, the other reports, statements, and information that we have
previously filed or that we may subsequently file with the Securities and
Exchange Commission and public announcements that we have previously made or may
subsequently make include, may include, incorporate by reference or may
incorporate by reference certain statements that may be deemed to be
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements relate to such
matters as, among other things, our anticipated financial performance, business
prospects, technological developments, new products, future distribution or
license rights, international expansion, possible strategic alternatives, new
business concepts, capital expenditures, consumer trends and similar matters.
Forward looking statements necessarily involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of
activity, performance, or achievements to be materially different from any
future results, levels of activity, performance, or achievement expressed or
implied by such forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"could," "intend," "expect," "anticipate," "assume", "hope", "plan," "believe,"
"seek," "estimate," "predict," "approximate," "potential," "continue", or the
negative of such terms. Statements including these words and variations of such
words, and other similar expressions, are forward-looking statements. Although
we believe that the expectations reflected in the forward-looking statements are
reasonable based upon our knowledge of our business, we cannot absolutely
predict or guarantee our future results, levels of activity, performance, or
achievements. Moreover, neither we nor any other person assumes responsibility
for the accuracy and completeness of such statements.
We note that a variety of factors could cause our actual results and experience
to differ materially from the anticipated results or other expectations
expressed in our forward-looking statements. The risks and uncertainties that
may affect the operations, performance, development and results of our business
include, but are not limited to, the following: changes in consumer spending
patterns; changes in consumer preferences and overall economic conditions; the
impact of competition and pricing; the financial condition of the suppliers and
manufacturers from whom we source our merchandise; economic and political
instability in foreign countries or restrictive actions by the governments of
foreign countries in which suppliers and manufacturers from whom we source
products are located or in which we may actually conduct or intend to expand our
business; changes in tax laws, or the laws and regulations governing direct or
network marketing organizations; our ability to hire, train and retain a
consistent supply of reliable and effective participants in our direct or
network marketing operation; general economic, business and social conditions in
the United States and in countries from which we may source products, supplies
or customers; the costs of complying with changes in applicable labor laws or
requirements, including without limitation with respect to health care; changes
in the costs of interest rates, insurance, shipping and postage, energy, fuel
and other business utilities; the reliability, longevity and performance of our
licensors and others from whom we derive intellectual property or distribution
rights in our business; the risk of non-payment by, and/or insolvency or
bankruptcy of, customers and others owing indebtedness to us; threats or acts of
terrorism or war; and strikes, work stoppages or slow downs by unions affecting
businesses which have an impact on our ability to conduct our own business
operations.
Forward-looking statements that we make, or that are made by others on our
behalf with our knowledge and express permission, are based on a knowledge of
our business and the environment in which we operate, but because of the factors
listed above, actual results may differ from those in the forward-looking
statements. Consequently, these cautionary statements qualify all of the
forward-looking statements we make herein. We cannot assure the reader that the
results or developments anticipated by us will be realized or, even if
substantially realized, that those results or developments will result in the
expected consequences for us or affect us, our business or our operations in the
way we expect. We caution readers not to place undue reliance on these
forward-looking statements, which speak only as of their dates, or on any
subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by these
cautionary statements. We do not undertake any obligation to release publicly
any revisions to such forward-looking statements to reflect events or
circumstances after the date hereof or thereof or to reflect the occurrence of
unanticipated events.
2
ITEM 1. BUSINESS
Our Background and Business Development
International Star, Inc. ("us", "we", "our" or the "Company") was 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
On March 2, 1998, we entered into a Mining Property Lease Agreement with Mr.
James R. Ardoin pursuant to which Mr. Ardoin leased to our Company the Detrital
Wash mineral claims located around mile marker 22 on Hwy 93, Mohave County,
Arizona for the purpose of exploring for minerals, and if minerals are found on
the lands leased to us pursuant to this lease, for the extraction, treatment,
and sale of such Minerals. In exchange, we agreed to pay Mr. Ardoin a production
royalty equal to two percent (2%) of Net Smelter Returns (as defined in the
Mining Property Lease). The term of this lease is for 20 years, although we have
the option to renew the lease for successive 20 year terms.
In September 2000, we acquired from Gold Standard Mines Inc. 51 lode mining
claims located in the Wikieup mining district, Mohave County, Arizona (the
"Wikieup Property") and the exclusive rights to an extraction process for the
recovery of precious metals from the Wikieup Property that was developed by the
claim owner. We have not had the extraction process verified independently. This
acquisition was completed on March 26, 2001 and the consideration was 1,000,000
restricted common stock shares having an aggregate value of $400,000 as of the
date of the agreement. In exchange, we received a notarized Quit Claim deed for
all rights, interest and title to 51 lode Mining Claims which was subsequently
recorded at the BLM office in Phoenix, Arizona and at Mohave County in Kingman,
Arizona.
On October 15, 2001, we announced the formation of a wholly owned subsidiary,
Qwik Track, Inc. to engage in web-based information distribution services to
provide timely and accurate thoroughbred handicapping analytical data and
statistical information to the international account wagering market. However,
due to our limited finances and lack of funding, we have suspended the further
development of Qwik-Track, Inc. for an indefinite period. As a result, the
Nevada Secretary of State has, as of November 11, 2005, revoked the corporate
status of Quik Track, Inc. under the laws of the State of Nevada.
3
Effective October 1, 2002, we acquired Pita King Bakeries International, Inc.
("Pita King"). Up until we dissolved our business relationship with Pita King,
this company operated as our wholly-owned subsidiary engaged in the production
and marketing of a variety of pita breads and chips. However, effective January
1, 2004, we and the principals of Pita King mutually agreed to dissolve our
business relationship pursuant to a Mutual Agreement to Dissolve Business
Relationship (the "Dissolution Agreement"). Pursuant to the terms of the
Dissolution Agreement, we forgave a debt owing from Pita King to our Company in
the aggregate amount of $35,000 and in exchange, the principals and officers of
Pita King agreed to return 4,000,000 shares of our common stock that was issued
in connection with our acquisition of Pita King. We agreed that the remaining
139,500 shares of our common stock that was issued to the original shareholders
of Pita King in connection with the acquisition would remain the property of
such shareholders and would be unaffected by the Dissolution Agreement. As a
result, Pita King no longer operates as our wholly-owned subsidiary.
On January 10, 2006, we entered into a joint venture agreement (the "Agreement")
with Resolve Capital Funding Corporation, Inc. ("Resolve") for the formation of
Star-Resolve Detrital Wash, LLC 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. As our
capital contribution to the joint venture, upon the formation of Star-Resolve
Detrital Wash, LLC, we are required to contribute our mineral rights in the
Detrital Wash Property under a mining property lease. As Resolve's capital
contribution to Star-Resolve Detrital Wash, LLC, Resolve is required to
contribute 600,000 Canadian Dollars, equivalent to approximately US$518,000
translated into U.S. Dollars using current exchange rate, within 60 to 90 days
of the Joint Venture's formation. In addition, Resolve is required to use its
best efforts to manage Star-Resolve Detrital Wash, LLC, including, without
limitation, providing Star-Resolve Detrital Wash, LLC with 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.
Pursuant to the Agreement, the operating agreement of Star-Resolve Detrital
Wash, LLC shall provide that prior to the sale or transfer of a party's
membership interest, that party must obtain the other member's consent and then
give such member the opportunity to purchase the membership interest on the same
terms of the proposed sale.
We further agreed that we will grant to Resolve a right of first refusal with
respect to any transaction with a third party in which we agree to (i) explore
or exploit any other land, jointly with such third party; or (b) sell or
otherwise dispose of, any other parcels owned by us and located within the
Detrital Wash region.
On February 16, 2005, we finalized an agreement with Zereko Nevada, Inc.
(Zereko), a Nevada based corporation engaged in mining engineering and related
services, for various services in support of the ongoing exploration activities
at the Detrital Wash Property. Under the terms of the agreement, Zereko will
review in detail available information on all previous work done on the
property, define areas that merit further detailed examination, then propose an
implementation plan, prepare budgets and obtain quotes for the indicated
exploration activity.
Exploration Planning - Speculative Nature of Mineral Exploration
Exploration for and production of minerals is highly speculative and involves
greater risks than exist in many other industries. Many exploration programs do
not result in the discovery of minerals and any mineralization discovered may
not be of a sufficient quantity or quality to be profitably mined. Also, because
of the uncertainties in determining metallurgical amenability of any minerals
discovered, the mere discovery of mineralization may not warrant the mining of
the minerals on the basis of available technology.
4
Although we have processed and tested mineralized materials and produced very
small amounts of precious metals on a testing basis (these have come from the
testing of mineralized material from both the Detrital Wash and Wikieup
Properties), our decision as to whether any of the mineral properties we now
hold, or which we may acquire in the future, contain commercially mineable
deposits, and whether such properties should be brought into production, will
depend upon the results of the exploration programs and independent feasibility
analysis and the recommendation of engineers and geologists. The decision will
involve the consideration and evaluation of a number of significant factors,
including, but not limited to:
o the ability to obtain all required permits;
o costs of bringing the property into production, including
exploration and development or preparation of feasibility studies
and construction of production facilities;
o availability and costs of financing;
o ongoing costs of production;
o market prices for the metals to be produced; and
o the existence of reserves or mineralization with economic grades of
metals or minerals.
We cannot be certain that any of our properties contain commercially mineable
mineral deposits, and no assurance can be given that we will ever generate a
positive cash flow from production operations on such properties.
However, encouraged by the early stage exploration performed on our Detrital
Wash Property by Kokanee Placer, Inc. of White Rock, BC, a geological
exploration company and Zereko Nevada, Inc., a mining engineering company, and
independent tests performed by us on our Wikieup Property, we are in the process
of developing a staged exploration plan based on the perceived merits of the
Detrital Wash Property and projected costs of further exploration.
Regulation
Our exploration activities are subject to various federal, state and local
laws and regulations governing such matters as:
o prospecting;
o development;
o taxes;
o labor standards;
o waste disposal;
o occupational safety and health;
o protection of the environment;
o reclamation of the environment; and
5
o toxic substances.
We believe we are currently in substantial compliance with any such regulations
that apply to us. However, we may not be able to anticipate all liabilities that
may arise in the future under existing regulations, or the costs of compliance.
If we are not in compliance, we may be subject to fines, clean-up orders,
restrictions on our operations or other penalties.
Federal, state and local provisions regulating the discharge of material into
the environment, or otherwise relating to the protection of the environment,
such as the Clean Air Act, Clean Water Act, the Resource Conservation and
Recovery Act, and the Comprehensive Environmental Response Liability Act
("Superfund") affect mineral operations. For exploration and mining operations,
applicable environmental regulation includes a permitting process for mining
operations, an abandoned mine reclamation program and a permitting program for
industrial development and siting. Other non-environmental regulations can
impact exploration and mining operations and indirectly affect compliance with
environmental regulations. For example, a state highway department may have to
approve a new access road to make a project accessible at lower costs, but the
new road itself may raise environmental issues. Compliance with these laws, and
any regulations, can make the development of mining claims prohibitively
expensive, thereby impeding the sale or lease of properties, or curtailing
profits or royalties, which might have been received. We cannot anticipate what
the further costs and/or effects of compliance with any environmental laws might
be.
Facilities
We own no production, laboratory or storage facilities and rent space as
appropriate when necessary. Our executive offices are located at 2405 Ping
Drive, Henderson, NV.
Employees
As of year end 2005, we had no employees other than our executive officers, nor
any plans to recruit employees within the next twelve months.
Competition
The business of mineral exploration is highly competitive, and tends to be
dominated by a limited number of major mining companies. Inasmuch as we have
exclusive exploration rights to the properties that are the targets of our
current exploration activities, we do not compete directly against any
particular firm for sales or market share. However, many of the human and
physical resources we may require, such as engineering professionals, managers,
skilled equipment operators, and metallurgical and extractive processes and
equipment, among others, are also sought by companies with substantially greater
financial resources than we possess, which places us at a competitive
disadvantage in obtaining such resources for our own use. Accordingly, such
competition may make our exploration activities more difficult than for a
larger, more substantial company.
Subsidiaries
Qwik Track, Inc.
On October 15, 2001, we organized Qwik Track, Inc. as our wholly-owned
subsidiary to operate as a web-based service business providing the wagering
enthusiast with thoroughbred handicapping, analytical data and statistical
information for racetrack wagering over the Internet. As of November, 2003, we
suspended business development of our Qwik Track subsidiary in order to focus
our limited resources on exploring our mineral properties. As a result, the
Nevada Secretary of State has, as of November 11, 2005, revoked the corporate
status of Quik Track, Inc. under the laws of the State of Nevada.
6
Pita King Bakeries International, Inc.
Effective October 1, 2002, we acquired Pita King Bakeries International, Inc.
("Pita King") and appointed Hassan Alaeddine to our Board of Directors. Up until
we dissolved our business relationship with Pita King, this subsidiary company
produced and marketed a variety of pita breads and chips. However, effective
January 1, 2004, we and the principals of Pita King mutually agreed to dissolve
our business relationship pursuant to a Mutual Agreement to Dissolve Business
Relationship (the "Dissolution Agreement"). Pursuant to the terms of the
Dissolution Agreement, we forgave a debt owing form Pita King to our Company in
the aggregate amount of $35,000, and in exchange, the principals and officers of
Pita King agreed to return 4,000,000 shares of our common stock that was issued
in connection with our acquisition of Pita King. We agreed that the remaining
139,500 shares of our common stock that was issued to the original shareholders
of Pita King in connection with the acquisition would remain the property of
such shareholders and would be unaffected by the Dissolution Agreement. As a
result, effective January 1, 2004, Pita King no longer operates as our
wholly-owned subsidiary and we have recognized a loss of $99,472 on the
divestiture of Pita King.
SUBSEQUENT EVENTS
Star-Resolve Detrital Wash, LLC
As discussed elsewhere in this Annual Report, on January 10, 2006, we entered
into a joint venture agreement (the "Agreement") with Resolve Capital Funding
Corporation, Inc. ("Resolve") for the formation of Star-Resolve Detrital Wash,
LLC to engage in the development and commercial exploration of the Detrital Wash
Property. Each of Resolve and our Company will have a 50% membership interest in
Star-Resolve Detrital Wash, LLC. As our capital contribution to the joint
venture, upon the formation of Star-Resolve Detrital Wash, LLC, we are required
to contribute our mineral rights in the Detrital Wash Property under a mining
property lease. As Resolve's capital contribution to Star-Resolve Detrital Wash,
LLC, Resolve is required to contribute 600,000 Canadian Dollars, equivalent to
approximately US$518,000 translated into U.S. Dollars using current exchange
rate, within 60 to 90 days of the Joint Venture's formation. In addition,
Resolve is required to use its best efforts to manage Star-Resolve Detrital
Wash, LLC, including, without limitation, providing Star-Resolve Detrital Wash,
LLC with 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.
ITEM 2. DESCRIPTION OF PROPERTY
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.
7
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.
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.
The Detrital Wash Property originally consisted of 8 placer claims lying in
Section 36, Township 28 N, Range 21W and is easily accessed by partially paved
entry off Hwy 93 and has availability to electricity and water.
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 our 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.
The majority of this 22,240-acre property is composed of "alluvial sand," that
is to say, a dry riverbed lying 210 feet above the existing water table. Two
historically documented sources found at the County seat archives in Kingman,
Arizona provide possible explanation for the deposition of valuable minerals in
the Detrital Valley:
1. A major flood in early 1900's. This flood washed away approximately
15 major gold and silver mines overlooking the Detrital on the West.
These mining camps, among the most prolific and highest producing
mines in the Western USA, were known as Silverado, Excelsior, Prince
Albert, Occidental, Etc. According to County records most of the
mine stockpiles and tailing were washed into the Detrital Wash. The
flood acted as a water cannon stripping the landscape and washing
everything down into the valley below.
2. In 1982, County Historian, Roman Malach, in a book entitled " White
Hills, Silverado in Mohave County" confirms the disaster in White
Hills, the valuable gold camps, particularly Silverado that were
lost to the flood and, the likely presence of an ancient river which
flowed through the Detrital Valley. This river was likely the
transporter of gold, silver, platinum and palladium to the Valley.
8
Although limited in number prior to 2005, all "spot/surface samples" taken by
the Company on this property indicated the existence of "precious metals". Of
major significance was a 2-ton "bulk sample" (at a depth of 4 to 12 feet) by
AuRIC Metallurgical Laboratories, LLC, Salt Lake City, Utah, conducted in 1998
under a "chain of custody" (COC) that provided evidence of gold and silver with
traces of palladium and platinum.
Two batch tests of 1,000 lbs. each were performed, each batch produced a "dore
bar" (composite of all metalliferous minerals recovered from the sample). One of
the dore bars was then refined and yielded metals equivalent to the following
values per ton of original material:
----------------------------------------
Gold (Au) 0.812 oz.
Silver (Ag) 1.359 oz.
Platinum (Pt) 0.440 oz.
Palladium (Pd) 0.019 oz.
----------------------------------------
Our Management believed that the precious metals derived from the surface and
bulk samples were of sufficient quantity and quality to warrant further
exploration of the Detrital Wash Property. Accordingly, on January 9, 2004, we
engaged Kokanee Placer, Inc. of White Rock, BC, a geological exploration
company, to execute the initial phase of an exploration program on our original
1,280 acre Detrital Wash Property, the results of which would dictate subsequent
exploration phases, if found to be practical. The initial effort by Kokanee
Placer, Inc. called for surface sampling of the property in a grid pattern at
intervals of every 500 feet (in excess of 200 samples). The results of the
sampling program identified areas of elevated to anomalous values of placer gold
and silver that required follow-up exploration and evaluation.
As result, on February 16, 2005, the Company finalized an agreement with Zereko
Nevada, Inc. (Zereko), a Nevada based corporation engaged in mining engineering
and related services, for various services in support of the ongoing exploration
activities at our Detrital Wash Property. In May 2005, Zereko issued a final
report (the "Zereko Report") on assay test results from the Detrital Wash
Property. In order to prove the best process for extracting precious metals on
the Detrital Wash Property, samples from drilling that took place in early April
2005 were sent to three different metallurgical laboratories as part of a blind
test process: Mountain States R&D ("Mountain States"), AuRic Metallurgical
Laboratories, LLC ("AuRic"), and Nevada Bureau of Geology and Mines ("NBGM").
In assessing the samples, Mountain States used a strictly "fire assay" analysis
process and returned negative results from all samples tested, which was not a
surprise since, the "alluvial sand" on the Detrital Wash Property rarely tests
positive in fire assays and the purposes of testing at Mountain States was to
help validate the blind test process. On the other hand, AuRic reported positive
results for gold, silver, platinum and palladium for each sample presented to
AuRic for analysis and was consistent with Auric's 1998 conclusions with respect
to the Detrital Wash Property. It should be noted that since AuRic had been used
in the past for testing samples on the Detrital Wash Property, this was a
completely blind test and AuRic was not aware of the origin of the samples.
Nevertheless, these recent samples returned with comparable results from earlier
tests performed by AuRic on the Detrital Wash Property. The third lab, NBGM,
received the bulk of the samples and reported no detectable results for gold,
palladium or platinum, but reported significantly for silver in a large number
of the samples. The findings of NBGM were qualified by Zereko in that NBGM's
testing procedures do not allow NBGM to go to the lower levels of gold, platinum
and palladium detection necessary to obtain `detectable amounts.' Gold, platinum
and palladium must be tested at a lower level than silver for an accurate
reading. AuRic's findings in particular, led Zereko to conclude that gold,
silver, platinum and palladium do exist at lower levels of detection on the
Detrital Wash Property and are considered to have some economic value.
9
Currently we are attempting to raise additional capital to continue a staged
exploration program on this 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.
In the area of the claims where we have explored, is the Oakman mining district,
which is located to the northwest and also the Bagdad open pit copper property
located to the southeast of this area.
We 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.
We have not systematically drilled and sampled the Wikieup Property. The
sampling of Detrital Wash Property is not sufficient to confirm the presence of
any concentrations of precious metals in a mineable mass. We believe that the
staged exploration program being conducted by Zereko Nevada will assist in
making those determinations. There is substantial risk that such testing would
show limited concentrations of precious metals, and such testing may show a lack
of precious metals in a mineable mass. Test results so far have been positive
and confirm the presence of precious metals in the samples. However, we cannot
safely assume that precious metals-bearing materials exist in quality and
quantity to make a mining operation economically feasible.
10
Wikieup testing to date has focused principally on assaying materials for
precious metals content, with very limited testing of how to process materials
for production. The various procedures we have used to assay the samples have
not addressed what metallurgical procedures would be best suited to process
precious metals out of the materials on an economic scale. Even if independent
reserve reports indicate the presence of precious metals, further extensive work
will be needed in the form of a feasibility study to determine if the precious
metals (if any are shown likely to be present in the property) in fact can be
processed out of the material at a profit. Some companies decide that even
though one of their properties contains valuable minerals, it is impossible to
remove them profitably in commercial production.
ITEM 3. 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 December 31, 2005, we know of no current or threatened legal
proceedings involving us or our properties reportable under this Item 3.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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.
11
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL ISSUER
PURCHASES OF EQUITY SECURITIES
Up until May 23 2003, our common stock was traded on the OTC Bulletin Board of
the National Association of Securities Dealers, Inc. ("NASD") under the symbol
ISRI. Since May 23, 2003, our common stock has been traded on the Pink Sheets
under the Symbol ISRI.PK. On February 22, 2005, the NASDAQ assigned our Company
a new trading symbol and our common stock began trading on the Pink Sheets under
the symbol ILST.PK. On June 20, 2005, our common stock was approved by the NASD
for listing on the OTC Bulleting Board, and since such date, our common stock
has been trading under the symbol ILST.OB. The following table indicates
quarterly high and low price per share for our common stock during the fiscal
years ended December 31, 2005 and 2004. These prices represent quotations among
dealers without adjustments for retail mark-ups, markdowns or commissions, and
may not represent actual transactions. The market for our shares has been
sporadic and at times very limited.
Fiscal Year Ended December 31, 2005
HIGH LOW
4th Quarter ended December 31, 2005 $ 0.11 $0.025
3rd Quarter ended September 30, 2005 $ 0.11 $ 0.04
2nd Quarter ended June 30, 2005 $ 0.17 $ 0.07
1st Quarter ended March 31, 2005 $ 0.21 $ 0.06
4th Quarter ended December 31, 2004 $ 0.10 $ 0.10
3rd Quarter ended September 30, 2004 $ 0.17 $ 0.15
2nd Quarter ended June 30, 2004 $0.109 $0.059
1st Quarter ended March 31, 2004 $0.059 $0.059
The closing price of our common stock as of March 31, 2006 was $0.042 per share.
Stock Split
As of February 18, 2005, the NASDAQ approved a 3:1 forward split of our common
stock. As a result, shareholders of record received three shares for each one
share held by them as of the effective date, February 22, 2005. As of the
approval date, we had 64,428,741 common stock shares outstanding and as a result
of the forward stock split, we had 193,286,223 common stock shares outstanding
as of the approval date.
Number of Shareholders
At December 31, 2005, we had approximately 153 stockholders of record of our
common stock. This figure does not include beneficial owners of common stock
held in nominee or street name, as we cannot accurately estimate the number of
these beneficial owners.
Dividend Policy
We have never paid any dividends on or common stock and we have no plans to do
so in the near future. There are no legal, contractual or other restrictions,
which limit our ability to pay dividends. Payment of future dividends, if any,
on our common stock, will be dependent upon the amounts of our future after-tax
earnings, if any, and will be subject to the discretion of our Board of
Directors. Our Board of Directors is not legally obligated to declare dividends,
even if we are profitable.
12
Penny Stock
Our common stock is subject to the provisions of Section 15(g) and Rule 15g-9 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), commonly
referred to as the "penny stock rule." Section 15(g) sets forth certain
requirements for transactions in penny stocks, and Rule 15g-9(d) (1)
incorporates the definition of "penny stock" that is found in Rule 3a51-1 of the
Exchange Act. The SEC generally defines "penny stock" to be any equity security
that has a market price less than $5.00 per share, subject to certain
exceptions. If our Common Stock is deemed to be a penny stock, trading in the
shares will be subject to additional sales practice requirements on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors. "Accredited investors" are persons with assets in
excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together
with their spouse. For transactions covered by these rules, broker-dealers must
make a special suitability determination for the purchase of such security and
must have the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the first transaction, of a
risk disclosure document, prepared by the SEC, relating to the penny stock
market. A broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, and current quotations for the
securities. Finally, monthly statements must be sent disclosing recent price
information for the penny stocks held in an account and information on the
limited market in penny stocks. Consequently, these rules may restrict the
ability of broker-dealers to trade and/or maintain a market in our Common Stock
and may affect the ability of our shareholders to sell their shares.
Securities Authorized For Issuance under Equity Compensation Plans
We do not have any securities authorized for issuance under any equity
compensation plans.
13
Stock Option Plan
In August 2004, our Board unanimously voted to adopt a Stock Option and
Restricted Stock Plan (the "Plan") to become effective January 1, 2005, and to
submit such Plan to a vote of our shareholders. The Plan would provide for a
share reserve of 18,000,000 common shares for future issuances as direct awards
or upon exercise of options granted under the Plan. However, as of the date of
this filing, the Plan has not been adopted, and accordingly, no stock options
were granted to our named executive officers during the fiscal year ended
December 31, 2005, nor have any stock options been granted to our named
executive officers since December 31, 2005, through and including the filing
date of this Report.
--------------------------------------------------------------------------------------------------------------------
Plan category Number of Weighted- Number of
Securities to be average exercise securities remaining
issued upon price of available for
exercise of outstanding issuance under
outstanding options, warrants equity compensation
options, warrants and rights plans (excluding
and rights securities reflected
in column (a))
(a) (b) (c)
----------------- ----------------- --------------------
Equity compensation plans approved
by security holders -- -- --
Equity compensation plans not approved by
security holders -- -- --
Total -- -- --
--------------------------------------------------------------------------------------------------------------------
Recent Sales of Unregistered Securities
Pursuant to a Private Placement of our restricted common stock shares, on
February 4, 2005, we sold 66,500 shares at $0.15 per share for an aggregate
purchase price of $9,975. We believe the issuance was exempt from the
registration requirements pursuant to Regulation D or Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act").
Pursuant to a Private Placement of our restricted common stock shares, on
February 10, 2005, we sold 126,598 shares at $0.15 per share for an aggregate
purchase price of $18,989.70. We believe the issuance was exempt from the
registration requirements pursuant to Regulation D or Section 4(2) of the
Securities Act.
Pursuant to a Private Placement of our restricted common stock shares, on
February 16, 2005, we sold 257,073 shares at $0.15 per share for an aggregate
purchase price of $38,560.90. We believe the issuance was exempt from the
registration requirements pursuant to Regulation D or Section 4(2) of the
Securities Act.
Pursuant to a Private Placement of our restricted common stock shares, on March
21, 2005, we sold 509,306 shares at $0.049 per share for an aggregate purchase
price of $24,956. We believe the issuance was exempt from the registration
requirements pursuant to Regulation D or Section 4(2) of the Securities Act.
14
Pursuant to a Private Placement of our restricted common stock shares, on March
24, 2005, we sold 500,000 shares at $0.10 per share for an aggregate purchase
price of $50,000. We believe the issuance was exempt from the registration
requirements pursuant to Regulation D or Section 4(2) of the Securities Act.
Pursuant to a Private Placement of our restricted common stock shares, on April
8, 2005, we sold 833,334 shares at $0.12 per share for an aggregate purchase
price of $100,000. We believe the issuance was exempt from the registration
requirements pursuant to Regulation D or Section 4(2) of the Securities Act.
Pursuant to a Private Placement of our restricted common stock shares, on April
15, 2005, we sold 166,667 shares at $0.12 per share for an aggregate purchase
price of $20,000. We believe the issuance was exempt from the registration
requirements pursuant to Regulation D or Section 4(2) of the Securities Act.
Pursuant to a Private Placement of our restricted common stock shares, on May
24, 2005, we sold 200,000 shares at $0.06 per share for an aggregate purchase
price of $12,000. We believe the issuance was exempt from the registration
requirements pursuant to Regulation D or Section 4(2) of the Securities Act.
Pursuant to a Private Placement of our restricted common stock shares, on May
25, 2005, we sold 100,000 shares at $0.06 per share for an aggregate purchase
price of $6,000. We believe the issuance was exempt from the registration
requirements pursuant to Regulation D or Section 4(2) of the Securities Act.
Pursuant to a Private Placement of our restricted common stock shares, on May
25, 2005, we sold 75,000 shares at $0.06 per share for an aggregate purchase
price of $4,500. We believe the issuance was exempt from the registration
requirements pursuant to Regulation D or Section 4(2) of the Securities Act.
Pursuant to a Private Placement of our restricted common stock shares, on May
25, 2005, we sold 200,000 shares at $0.06 per share for an aggregate purchase
price of $12,000. We believe the issuance was exempt from the registration
requirements pursuant to Regulation D or Section 4(2) of the Securities Act.
Pursuant to a Private Placement of our restricted common stock shares, on June
1, 2005, we sold 150,000 shares at $0.066 per share for an aggregate purchase
price of $10,000. We believe the issuance was exempt from the registration
requirements pursuant to Regulation D or Section 4(2) of the Securities Act.
Pursuant to a Private Placement of our restricted common stock shares, on June
2, 2005, we sold 300,000 shares at $0.06 per share for an aggregate purchase
price of $18,000. We believe the issuance was exempt from the registration
requirements pursuant to Regulation D or Section 4(2) of the Securities Act.
Pursuant to a Private Placement of our restricted common stock shares, on June
2, 2005, we sold 100,000 shares at $0.06 per share for an aggregate purchase
price of $6,000. We believe the issuance was exempt from the registration
requirements pursuant to Regulation D or Section 4(2) of the Securities Act.
Pursuant to a Private Placement of our restricted common stock shares, on August
8, 2005, we sold 6,065,000 shares at $0.02 per share for an aggregate purchase
price of $121,300. We believe the issuance was exempt from the registration
requirements pursuant to Regulation D or Section 4(2) of the Securities Act.
Pursuant to a Private Placement of our restricted common stock shares, on August
10, 2005, we sold 235,500 shares at $0.02 per share for an aggregate purchase
price of $4,700. We believe the issuance was exempt from the registration
requirements pursuant to Regulation D or Section 4(2) of the Securities Act.
15
Pursuant to a Private Placement of our restricted common stock shares, on August
11, 2005, we sold 1,666,667 shares at $0.03 per share for an aggregate purchase
price of $50,000. We believe the issuance was exempt from the registration
requirements pursuant to Regulation D or Section 4(2) of the Securities Act.
Pursuant to a Private Placement of our restricted common stock shares, on
November 9, 2005, we sold 2,500,000 shares at $0.02 per share for an aggregate
purchase price of $50,000. We believe the issuance was exempt from the
registration requirements pursuant to Regulation D or Section 4(2) of the
Securities Act.
Pursuant to a Private Placement of our restricted common stock shares, on
December 22, 2005, we sold 2,000,000 shares at $0.02 per share for an aggregate
purchase price of $40,000. We believe the issuance was exempt from the
registration requirements pursuant to Regulation D or Section 4(2) of the
Securities Act.
Pursuant to a Private Placement of our restricted common stock shares, on
December 27, 2005, we sold 2,50,000 shares at $0.02 per share for an aggregate
purchase price of $50,000. We believe the issuance was exempt from the
registration requirements pursuant to Regulation D or Section 4(2) of the
Securities Act.
Pursuant to a Private Placement of our restricted common stock shares, on
December 30, 2005, we sold 250,000 shares at $0.04 per share for an aggregate
purchase price of $10,000. We believe the issuance was exempt from the
registration requirements pursuant to Regulation D or Section 4(2) of the
Securities Act.
Purchases of Equity Securities
We are required by the Securities Act of 1933 to disclose, in tabular format,
any repurchases of our securities in the fourth quarter of our fiscal year ended
December 31, 2005. We did not repurchase any of our securities in the fourth
quarter of our fiscal year ended December 31, 2005, and accordingly, we have
eliminated such table.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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 7
of this Annual Report on Form 10-KSB. 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
16
The business of mineral exploration is inherently speculative, and involves a
number of general risks which could materially adversely affect our results of
operation and financial condition, including among others, the rarity of
commercial mineral deposits, environmental and other laws and regulations,
physical dangers to personnel associated with exploration activity, and
political events.
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.
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.
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 our service
agreement with Zereko Nevada, Inc, and a mining engineer, Karel Pieterse and 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.
17
Going Concern
We have incurred substantial operating and net losses, as well as negative
operating cash flow, since our inception. Accordingly, we continued to have
significant stockholder deficits and working capital deficits during 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 and implementation of the
recommendations of the Zereko Report 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.
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. We believe the issuance was exempt from the registration
requirements pursuant to Regulation D or Section 4(2) of the Securities Act.
(See: "Recent Sales of Unregistered Securities").
18
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 $35,000 and $0 at December 31, 2005 and 2004, respectively. During the year
ended December 31, 2005, our Directors contributed to capital amounts that
totaled $0 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
2005 2004
--------- ---------
Net cash Used in Operating Activities $(749,162) (703,522)
Net Cash Used in Investing Activities -- (29,355)
Net Cash Provided by Financing Activities 754,116 569,000
General
Overall, we had positive cash flows of $4,954 for the year ended December 31,
2005, resulting from $749,162 used in our operating activities and $754,116
provided by our financing activities. No cash was provided by our investing
activities for the fiscal year 2005.
Cash Used in Our Operating Activities
For the year ended December 31, 2005, net cash used in our operating activities
of $749,162 was due primarily to a net loss of $896,568 and adjustments to
reconcile net income to net cash used in operating activities in the amount of
$147,406 comprised of (a) depreciation and amortization of $1,614, (b) decrease
in accounts receivable and prepaids of $54,000, and (c) increase in accounts
payable and accrued interest of $91,792.
Cash Provided By Our Financing Activities
Net cash used in our financing activities of $754,116 in the year ended December
31, 2005 was comprised of cash provided by the issuance of common stock and
warrants aggregating $754,116.
Internal Sources of Liquidity
For the year ended December 31, 2005, 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.
19
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% pr 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. At December 31, 2005 $250,000 was
outstanding under this Note. 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
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.
20
ITEM 7. FINANCIAL STATEMENTS
Board of Directors
International Star, Inc. and Subsidiaries
Henderson, Nevada
REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM
We have audited the accompanying consolidated balance sheet of International
Star, Inc. and Subsidiaries (an Exploration Stage Company) as of December 31,
2005 and the consolidated statements of operations, stockholders' equity and
cash flows for the years ended December 31, 2005 and 2004, and for the period
from inception of exploration stage (January 1, 2004) through December 31, 2005.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with auditing standards of the Public
Company Accounting Oversight Board ("PCAOB"). Those standards require that we
plan and perform an audit to obtain reasonable assurance 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,
significant estimates made by management and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, based upon our audits, these consolidated financial statements
present fairly, in all material aspects, the consolidated financial position of
the Company as of December 31, 2005, and the consolidated results of its
operations and cash flows for the years ended December 31, 2005 and 2004, and
for the period from inception of exploration stage (January 1, 2004) through
December 31, 2005, in conformity with accounting principles generally accepted
in the United States of America.
As explained in Note K, the Company has restated its financial statements for
the year ending December 31, 2005 to correct an accounting error in the
recording of mineral exploration costs and additional paid in capital.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company does not have the
necessary working capital to service its debt and for its planned activity,
which raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are described in Note J to the
financial statements. These financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/Madsen & Associates CPA's, Inc.
Madsen & Associates CPA's, Inc.
March 31, 2006
Salt Lake City, Utah
21
INTERNATIONAL STAR, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(An Exploration Stage Company)
ASSETS
(Restated)
December 31,
2005
------------
Current Assets:
Cash $ 205,220
-----------
Total Current Assets 205,220
Fixed Assets (Net of Accumulated Depreciation) 31,964
-----------
Total Assets $ 237,184
===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 71,608
Accrued Interest and Expenses 21,459
Note Payable 250,000
-----------
Total Current Liabilities 343,067
Stockholders' Equity (Deficit):
Common Stock, $.001 par value; authorized 780,000,000 shares; $ 212,987
issued and outstanding 212,987,443 at December 31, 2005
Paid-In Capital 3,524,059
Accumulated Deficit (3,842,929)
-----------
Total Stockholders' Equity (105,883)
Total Liabilities and Stockholders' Equity $ 237,184
===========
See accompanying notes to the financial statements.
22
INTERNATIONAL STAR, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Restated)
(Restated) Cumulative from
Year Year Inception of Exploration
Ended Ended Stage (January 1, 2004) to
December 31, 2005 December 31, 2004 December 31, 2005
----------------- ----------------- --------------------------
Revenue: $ -- $ -- $ --
------------- ------------- -------------
Total Revenue -- -- --
Expenses:
Mineral exploration costs 247,640 231,145 478,785
Professional fees 24,435 87,813 112,248
Management fees & Compensation 420,727 496,827 917,554
Depreciation & amortization 1,614 2,859 4,473
General & administrative 93,615 42,374 135,989
------------- ------------- -------------
Total Expenses 788,031 861,018 1,649,049
Net (Loss) from Operations $ (788,031) $ (861,018) $ (1,649,049)
============= ============= =============
Other Income (Expenses)
Interest Expense (11,250) (29,277) (40,527)
Loss on divestiture of subsidiary -- (99,472) (99,472)
------------- ------------- -------------
Total Other Expenses (11,250) (128,749) (139,999)
Net Loss (799,281) (989,767) (1,789,048)
============= ============= =============
Weighted Average Shares
Common Stock Outstanding 201,308,938 175,099,143
============= =============
Net Loss Per Common Share
(Basic and Fully Dilutive) $ (0.00) $ (0.00)
============= =============
See accompanying notes to financial statements.
23
INTERNATIONAL STAR, INC.
AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(Restated)
Cumulative
from Inception
(Restated) of Exploration
Year Year Stage (January 1,
Ended Ended 2004) to
December 31, 2005 December 31, 2004 December 31, 2005
----------------- ----------------- -----------------
Cash Flows Used in Operating Activities:
Net Loss $ (799,281) $ (989,767) $(1,789,048)
Common stock issued for services -- 74,000 $ 74,000
Loss of divestiture of Pita King -- 99,472 $ 99,472
Depreciation & Amortization 1,614 2,859 $ 4,473
Changes to Operating Assets and Liabilities: --
(Increase) decrease in screened ore -- 2,600 $ 2,600
(Increase) decrease in Accounts Receivable and Prepaids 54,000 25,795 $ 79,795
(Increase) decrease in Inventories -- 63,812 $ 63,812
(Increase) decrease in Goodwill -- 92,874 $ 92,874
(Decrease) Increase in accounts payables and accrued interest 91,792 (30,693) $ 61,099
(Decrease) Increase in accrued management fees / compensation -- (44,474) $ (44,474)
----------- ----------- -----------
Cash Flows Used in Operating Activities (651,875) (703,522) (1,355,397)
Cash Flows used in Investing Activities:
Purchase fixed assets -- (29,355) $ (29,355)
----------- ----------- -----------
Cash Flows Used in Investing Activities -- (29,355) (29,355)
Cash Flows from Financing Activities:
Common stock and warrants issued for cash 656,826 569,000 $ 1,225,826
Proceeds from notes payable -- -- $ --
Repayments on line of credit -- -- $ --
Advances from officers/affiliates -- -- $ --
----------- ----------- -----------
Cash Flows from Financing Activities 656,826 569,000 1,225,826
----------- ----------- -----------
Net Increase (Decrease) in Cash 4,951 (163,877) (158,926)
----------- ----------- -----------
Cash at Beginning of Period 200,269 364,146 364,146
Cash at End of Period $ 205,220 $ 200,269 $ 205,220
=========== =========== ===========
Supplemental Non-Cash Financing Activities:
Capital contributed for payment of loans, cash advances
and interest $ -- $ 81,392 $ 81,392
=========== =========== ===========
Interest Paid $ 21,777 $ 31,883
=========== =========== ===========
Income Taxes Paid $ -- $ -- $ --
=========== =========== ===========
See accompanying notes to financial statements.
24
INTERNATIONAL STAR, INC.
AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' EQUITY
(Restated)
Cumulative from Inception of Exploration Stage
(January 1, 2003) through December 31, 2005
Common Common
Stock Stock Paid-In Accumulated Total
Shares Amount Capital Deficit Equity
------------- ----------- ----------- ------------ ---------
Balances at December 31, 2003 180,126,681 $ 180,127 $ 2,183,198 $ (2,053,882) $ 309,443
---------
Shares cancelled from divestiture of Pita King Bakeries,
Int'l, Inc. (12,000,000) $ (12,000) $ 4,000 $ -- $ (8,000)
---------
Shares retained to Company and cancelled (105,000) $ (105) $ (2,895) $ -- $ (3,000)
---------
Common stock issued for cash. February 20, 2004 --
Valued at $.05 per share 90,000 $ 90 $ 1,410 $ -- $ 1,500
---------
Common stock issued for cash. February 20, 2004 --
Valued at $.06 per share 300,000 $ 300 $ 5,700 $ -- $ 6,000
---------
Common stock issued for cash. April 27, 2004 --
Valued at $.11 per share 409,092 $ 409 $ 14,591 $ -- $ 15,000
---------
Common stock issued for cash. May 28, 2004 --
Valued at $.07 per share 454,545 $ 455 $ 9,545 $ -- $ 10,000
---------
Common stock issued for cash. June 7, 2004 --
Valued at $.07 per share 4,090,908 $ 4,091 $ 85,909 $ -- $ 90,000
---------
Capital contributed for interest expenses. June 30, 2004 -- $ -- $ 7,500 $ -- $ 7,500
---------
Common stock issued for services. September 30, 2004 --
Valued at $.03 per share 6,000,000 $ 6,000 $ 54,000 $ -- $ 60,000
---------
Common stock issued for cash. October 6, 2004 --
Valued at $.10 per share 2,250,000 $ 2,250 $ 72,750 $ -- $ 75,000
---------
Common stock issued for cash. November 29, 2004 --
Valued at $.10 per share 1,500,000 $ 1,500 $ 48,500 $ -- $ 50,000
---------
Common stock issued for cash. December 8, 2004 --
Valued at $.10 per share 9,750,000 $ 9,750 $ 315,250 $ -- $ 325,000
---------
Common stock issued for services. December 31, 2004 --
Valued at $.10 per share 420,000 $ 420 $ 13,580 $ -- $ 14,000
---------
Capital contributed for services and accrued expenses -- $ -- $ 73,892 $ -- $ 73,892
---------
Net (loss) for year ended December 31, 2004 -- $ -- $ -- $ (989,767) $(989,767)
------------- ----------- ----------- ------------ ---------
--
Balances at December 31, 2004 193,286,226 $ 193,286 $ 2,886,930 $ (3,043,648) $ 36,569
See accompanying notes to financial statements.
25
INTERNATIONAL STAR, INC.
AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' EQUITY (Cont'd)
(Restated)
Cumulative from Inception of Exploration Stage
(January 1, 2003) through December 31, 2005
Common Common
Stock Stock Paid-In Accumulated Total
Shares Amount Capital Deficit Equity
------------- ----------- ----------- ------------ ---------
1 for 3 forward stock split. February 22, 2005
Common stock issued for cash. February 4, 2005
Valued at $.05 per share 199,500 $ 200 $ 9,776 9,975
Common stock issued for cash. February 4, 2005
Valued at $.05 per share 1,151,013 $ 1,151 $ 56,400 57,551
Common stock issued for cash. March 3, 2005
Valued at $.049 509,036 $ 509 $ 24,447 24,956
Common stock and warrants issued for cash. March 3, 2005
Valued at $.03 1,666,667 $ 1,667 $ 48,313 49,980
Common stock and warrants issued for cash. March 3, 2005
Valued at $.02 4,500,000 $ 4,500 $ 85,477 89,977
Common stock issued for cash, March 31, 2005
Valued at $.10 500,000 $ 500 $ 49,500 50,000
Common stock and warrants issued for cash, April 26, 2005
Valued at $.12 833,334 $ 833 $ 99,137 99,970
Common stock issued for cash, June 1, 2005
Valued at $.066 150,000 $ 150 $ 9,850 10,000
Common stock and warrants issued for cash, June 8, 2005
Valued at $.06 975,000 $ 975 $ 57,495 58,470
Common stock and warrants issued for cash, August 22, 2005
Valued at $.02 6,300,000 $ 6,300 $ 119,700 126,000
Common stock and warrants issued for cash, August 22, 2005
Valued at $.12 166,667 $ 167 $ 19,833 20,000
Common stock issued for cash, December 16, 2005
Valued at $.02 2,500,000 $ 2,500 $ 47,450 49,950
Common stock issued for cash, December 30, 2005
Valued at $.04 250,000 $ 250 $ 9,750 10,000
Net (loss) for year ended December 31, 2005 (799,281) $(799,281)
------------- ----------- ----------- ------------ ---------
212,987,443 $ 212,987 $ 3,524,059 $ (3,842,929) $(105,883)
============= =========== =========== ============ =========
See accompanying notes to financial statements.
26
INTERNATIONAL STAR, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005
A. ORIGINATION AND HISTORY
International Star, Inc. (the Company) was incorporated October 28, 1993 as a
Nevada corporation. On November 5, 1993, the Company issued 2,500 shares, no par
value, for cash consideration of $5,000 in a 504 intrastate offering. The
Company amended its "Articles of Incorporation" on January 22, 1997, increasing
its authorized common stock from 2,500 shares to 100,000,000 shares and
modifying its par value to $.001 per share.
In January 1997, the Company forward split its common stock to 6,000,000 shares
in a 2400:1 exchange. In April 1997, the Company again forward split its stock
5:1, increasing the total outstanding shares to 30,000,000 and, in a
reorganization of outstanding shares canceled 17,400,000 shares forward split
the balance of the shares 8:1 for an additional issuance of 10,080,000 shares to
the 12,600,000 shares outstanding, and then issued 300,000 shares to the
shareholders who canceled the 17,400,000 shares, resulting in 22,980,000 shares
issued and outstanding. Also, in April 1997, the Company issued 4,500,000
shares, (valued at $10,000) in consideration of services performed by various
individuals and corporations. The 4,500,000-share transaction, which predates
the 5:1 and 8:1 transactions, were apparently not impacted by either of the two
aforementioned forward splits, but resulted in a total of 27,480,000 shares of
common stock issued and outstanding.
In April 1997, the Company entered the waste management business. A loan of
$50,000 was obtained from an affiliated entity, American Holding Group, at 3%,
(no formal loan documents were drafted), a portion of which was used to open a
Company office in Idaho Falls, Idaho.
Due to a lack of capital, the Company was only able to obtain a small
instrumentation sale for $17,444 to Asia Kingtec Co. LTD., in December 1997. The
Company closed its office in January 1998 and abandoned the computers and office
equipment, purchased at $6,981, to the three individuals who lead the Company
into the waste management business. The Company accounts payable reflect $11,455
in disputed bills from these discontinued operations, which the Company does not
intend to pay.
The three officers and directors who were appointed at the time of the Company's
connection with the foray into the waste management business, resigned in August
1999. The Company accepted the resignations on September 8, 1999.
On July 17, 1998, the Company entered into an extraction agreement with AuRic
Metallurgical Laboratories, Inc., a Utah limited liability corporation, with the
requirement that the Company pay a 1% net smelter return to AuRic for
utilization of its technology.
On October 12, 1998, the Company entered into a letter of intent with North
American Industrial Development Authority, Inc. (NAIDA), of Kingman, Arizona.
The original proposal involved constructing an investment in a mineral
processing plant in order to process ores from the Company's mineral property.
In exchange, NAIDA would receive 15% of the total ore produced. However, because
of NAIDA's inability to perform, the proposal was never set into motion.
27
On October 15, 2001, the Company formed a wholly owned subsidiary called Qwik
Track, Inc. (Qwik Track). Qwik Track operated as an internet web-based business
that provides handicapping, analytical data and statistical information for
wagering on thoroughbred horse races. Qwik Track also offers wagering
enthusiasts the opportunity to participate in multiple racetrack wagering via
the internet. The Nevada Secretary of State has, as of November 11, 2005,
revoked the corporate status of Quik Track, Inc. under the laws of the State of
Nevada.
On October 1, 2002, the Company acquired all of the outstanding shares of common
stock of Pita King Bakeries International, Inc. (Pita King) making Pita King a
wholly owned subsidiary of the Company. Pita King operated a retail bakery
outlet in Everett, Washington which commenced operations in September of 2001.
On January 1, 2004, the original shareholders of Pita King and the management of
the Company mutually agreed to dissolve their business relationship. (See Note
H)
The Company's main focus of business, commencing January 1, 2004, is the
exploration of mining claims and mining properties. The Company has in
accordance with guidelines of the Securities and Exchange Commission (SEC)
appropriately disclosed that the company is considered and exploration stage
company.
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 fiscal year
ended December 31, 2005 and the accounts of International Star, Inc., Qwik
Track, Inc. for the fiscal year ended December 31, 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.
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 was 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.
28
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.
t 0 0 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.
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 three months or less to be cash
equivalents.
29
13. Financial and Concentration Risk
The Company does not have any concentration or related financial credit risk
C. ESTABLISHING THE DETRITAL WASH PROJECT
On May 30, 2001, the Company announced plans to focus on widening their
exploration area, by re-establishing a project from 1998, the "Detrital Wash"
project. Though positive results were generated from testing conducted of a
2-ton composite sample; the Company's limited capital during the past 12 months
has delayed commencement of any significant project operations. Still, the
Company is continuing to expend efforts and resources to maintain the operating
costs of its mining interests.
D. LOANS AND ADVANCES FROM COMPANY DIRECTORS
Company directors have from time to time advanced funds to the Company for the
payment of operating expenses. These advances are repaid in cash and through
common stock of the Company. The amounts that were due to the Company directors
for these advances were $0 at December 31, 2005.
The Company's President/CEO charges the Company a management fee of $5,000 per
month, totaling $60,000 annually. A director of the Company is also compensated
in the form of a management fee in the amount of $5,000 per month as the
Director of Mineral Operations for the Company.
Subsequent to year end, in January 2006, stock was issued to 2 Company officers
in satisfaction of commission related to private placement stock sales. Related
commission expense was recorded in the 12/31/2005 financial statements.
E. COMMON STOCK
The Company issued options for the purchase of 2,280,000 common shares, to its
directors on November 7, 2000. The options have an exercise price of $.25 per
share, are vested as of the November 7, 2000, and have a 5-year duration. The
Company did not recognize any compensation expense in connection with their
issuance, as the Company values the issuance of its options under the "intrinsic
value method". Also, the option price exceeded or equaled the market value of
the stock at the time of the grant of these options.
On January 18, 2001, the Company conducted a private placement of 400,000 shares
of common stock at $.25 per unit. Each unit consisted of one common share and
one non-transferable share purchase warrant. Each warrant entitles the holder to
purchase an additional share for a two-year period at $.75 per unit. The private
placement funds totaled $100,000, all of which were utilized for incurred
operational costs and mineral development expenses relating to the Company's
recent acquisition.
On March 22, 2001, the Company issued 1,000,000 shares of its common stock to
Gold Standard Mines, Inc., valued at $.40 per share, (current market value) in
connection with the acquisition agreement.
In July of 2001, the Company issued 42,682 shares of common stock as
consideration for the consulting services of James Williams, per consulting
agreement dated May 9, 2001. The shares were valued at the current market value;
$.41 per share.
30
On October 1, 2001, the Company issued 310,000 options, valued at $77,500,
($0.25 per option) to directors and employees of Qwik Track, Inc. These options
are valid until October 1, 2005, and will be vested at 25% each year.
During the year ended December 31, 2003, the Company issued 9,133,500 shares of
common stock for cash with the shares valued at a range of $0.01 to $0.10 per
share. The Company also issued 14,857,990 shares of common stock for loans, cash
advances, accrued management fees and interest valued at a range of $0.03 1/3 to
$0.05 per share.
During the year ended December 31, 2004, the Company issued 6,281,515 shares of
common stock for cash with the shares valued at a range of $0.05 to $0.11 per
share. The Company also issued 2,140,000 shares of common stock for services
rendered to the Company at $0.03 and $0.10 per share.
On February 2, 2005, the Company executed a 1 for 3 forward stock split. This
transaction has been retroactively applied to give effect to this forward stock
split as if it occurred at the Company's inception.
During the year ended December 31, 2005, the Company issued 19,701,217 shares of
common stock and 16,025,001 warrants for cash with the shares valued at a range
of $0.02 to $0.15 per share, and the warrants with an exercise price range of
$0.03 to $0.15. These warrants do not have any registration rights and carry a
two-year life. The fair value of all warrants has been calculated using the
Black-Scholes method, with the resulting value being immaterial to the financial
statement presentation.
F. ACQUISITION AND DIVESTITURE OF PITA KING BAKERIES INTERNATIONAL, INC.
On October 1, 2002, the Company issued 4,139,500 restricted shares of common
stock to the shareholders of Pita King Bakeries International, Inc. (Pita King)
and acquired all of the outstanding shares of Pita King. Pita King Bakeries
International, Inc. (a Nevada corporation) is a wholly owned subsidiary and the
holding company for Pita King Ltd. (a Washington corporation). Pita King, Ltd.
began operations as a retail bakery in Everett, Washington in September of 2001
and continues to operate as a retail bakery. The results of Pita King's
operations for the fiscal year ended October 31, 2003 are included in the
consolidated statement of operations.
Effective January 1, 2004, the original shareholders of Pita King and the
management of the Company mutually agreed to dissolve their business
relationship. Under terms of this dissolution, the original shareholders of Pita
King returned 4,000,000 shares of common stock to the Company and Company agreed
to forgive a $35,000 loan made to Pita King. The original shareholders of Pita
King were allowed to retain 139,500 shares of the Company's common stock which
they had received as part of the original purchase of Pita King. The Company has
recognized a loss of $99,472 on the divestiture of Pita King.
G. INVESTMENT IN QWIK TRACK, INC.
On October 15, 2001, Qwik Track, Inc. (Q-Track) was organized as a wholly owned
subsidiary of International Star, Inc. Q-Track operates as a web-based service
business providing the wagering enthusiast with thoroughbred handicapping,
analytical data and statistical information for racetrack wagering over the
internet. Q-Track has not commenced principal operations and has incurred
minimal expenses since inception. The Nevada Secretary of State has, as of
November 11, 2005, revoked the corporate status of Quik Track, Inc. under the
laws of the State of Nevada.
31
H. QUANTITATIVE AND QUALITATIVE DISCLOSURES
The Company will be exposed to various market risks as a part of its future
operations. As an effort to mitigate losses associated with these risks, the
Company may, at times, enter into derivative financial instruments. These may
take the form of forward sales contracts and interest rate swaps. The Company
does not actively engage in the practice of trading derivative securities for
profit. This discussion of the Company's market risk assessments contains
"forward looking statements" that contain risks and uncertainties. Actual
results and actions could differ materially from those discussed below.
The Company's future operating results will be substantially dependent upon the
world market prices of Palladium, Platinum, Gold and Silver, which can fluctuate
widely and are affected by numerous factors, such as supply and demand and
investor sentiment. In order to mitigate some of the risk associated with these
fluctuations, the Company may at times enter into forward sale contracts. The
Company will continually evaluate the potential benefits of engaging in these
strategies based on the then current market conditions. The Company may be
exposed to nonperformance by counterparties as a result of its hedging
activities. This exposure would be limited to the amount that the spot price of
the metal falls short of the contract price.
I. NOTE PAYABLE
On October 28, 2003 management approved the acceptance of a Subscription
Agreement and Loan Agreement between the Company and a Life Insurance Company.
Under the terms of the agreement, the Life Insurance Company loaned $250,000 to
the Company. This note carries an interest rate of 6% per annum with interest
only 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 the Company's 1,280
acre Detrital Wash Mining Claims in Mohave County, Arizona (see Note C
Establishing the Detrital Wash Project). 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 (see Note E Common Stock).
J. GOING CONCERN
The company will need additional working capital for its future planned activity
and to service its debt, which raises substantial doubt about its ability to
continue as a going concern. Continuation of the Company as a going concern is
dependent upon obtaining sufficient working capital to be successful in that
effort. The management of the Company has developed a strategy, which it
believes will accomplish this objective, through additional short term loans,
and equity funding, which will enable the Company to operate for the coming
year.
K. RESTATEMENT
The Company has restated its financial statements for the year ended December
31, 2005 to correct an accounting error in the recording of mineral exploration
costs and additional paid in capital. The following tables reflect the effect of
the restatement adjustment on the balance sheet, statement of operations and net
loss per share.
32
Originally
Reported Restated Adjustment
------------ ------------ ------------
Balance Sheet
Total Assets 237,184 237,184 --
Paid in Capital 3,621,346 3,524,059 (97,287)
Accumulated Deficit (3,940,216) (3,842,929) 97,287
Total Liabilities & Stockholders Equity 237,184 237,184 --
Statement of Operations
Mineral Exploration Costs 344,927 247,640 (97,287)
Net Loss (896,568) (799,281) 97,287
Weighted average shares
Common stock outstanding 201,308,938 201,308,938 --
Net loss per share $ (0.00) $ (0.00) $ (0.00)
L. RELATED PARTY TRANSACTIONS
The Company has agreed to pay officers, directors and employees of the Company a
10% finder's fee on any private placement sales of common stock and upon any
funds loaned to the Company for working capital. During the years ended December
31, 2005 and 2004 the amounts paid to officers, directors and employees as
finder's fees totaled $33,494 and $21,225, respectively.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 8A. 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 Annual Report on Form 10-KSB,
December 31, 2005. 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. Specifically, we have identified a material weakness
relating to our lack of competent financial management personnel with
appropriate accounting knowledge and training and our financial inability to
retain such financial management personnel during the fiscal year ended December
3,1 2005. We continue to seek the capital necessary to hire additional personnel
to address this weakness, however, as of the date of this Amendment, we have not
been able to do so. Any plan to address the above-identified material weakness
will necessarily depend on our ability to obtain additional funding to hire and
train additional personnel with the appropriate accounting knowledge, expertise
and experience.
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.
33
(b) Changes in Internal Control over Financial Reporting
There was no change in the our 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.
ITEM 8B. OTHER INFORMATION
Item 3.02 Unregistered Sales of Equity Securities
Our discussion under "Recent Sales of Unregistered Securities" in ITEM 5 of PART
II of this Annual Report on Form 10-KSB is hereby incorporated by this
reference.
Item 5.02 Departure of Directors or Principal Officers; Election of Directors;
Appointment of Principal Officers
Effective May 10, 2005, Ms. Virginia Kilpatrick Shehee was appointed the
Chairman of our Board of Directors.
Effective May 17, 2005, Mr. Robert Hawkins resigned as the President and Chief
Executive Officer of our Company. He was replaced by our current President and
Chief Executive Officer, Mr. Denver Cashatt.
Effective May 13, 2005, Mr. Robert Hawkins was appointed the Vice President of
our Company.
On August 5, 2005, Mr. Robert Hawkins temporarily resigned from our Board of
Directors in consideration of his ongoing health problems. Mr. Joe Therell, Jr.
was nominated and appointed to replace Mr. Hawkins on our Board on a temporary
basis. Effective September 30, 2005, Mr. Robert Hawkins resigned from our Board
of Directors and Mr. Joe Therell, Jr. was nominated and appointed as a Director
to replace Mr. Hawkins on our Board.
Effective September 30, 2005, Mr. Robert Hawkins resigned as Vice President of
our Company.
Effective September 30, 2005, Mr. Robert Hawkins resigned as President of Qwik
Track.
Effective September 30, 2005, Mr. Denver Cashatt was appointed as President and
Chief Executive Officer of our Company, and as President and Chief Executive
Officer of Qwik Track.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
Our executive officers and directors, and their respective ages as of April 13,
2006, are as follows:
--------------------------------------------------------------------------------
Name Age Position(s) Held Date Service
Began
---------------------- --- ------------------------------- --------------
Denver Cashatt 58 President, CEO and Director September 2003
Dottie Wommack McNeely 49 Secretary, Treasurer and CFO January 2004
Kamal Alawas 55 Director December 1998
Joseph Therrell, Jr. 66 Director October 2004
Virginia Shehee 82 Director, Chairman of the Board January 2005
--------------------------------------------------------------------------------
34
Mr. Denver Cashatt currently serves as our President, Chief Executive Officer
and Director where his duties include managing the daily operations and planning
for the future growth of our Company. He has served in various executive officer
capacities with our Company since September 30, 2003. Prior to joining our
Company, he served as the Vice President of Marketing -US Operations for
International Software Company, a French company. Mr. Cashatt attended Western
Carolina University, and in 1968, received a Masters in Information Science from
the North Carolina School of Automation.
Ms. Dottie Wommack McNeely currently serves as our Secretary, Treasurer and
Chief Financial Officer and has been employed by our Company since January 2004.
Prior to this, from September 2003 to December 2003, she served as an executive
administrative assistant at Stovall Fabrication, Inc., a metal fabrication
company located in Mt. Pleasant, Texas. From June 2003 to August 2003, Ms.
Wommack served as an executive administrative assistant at Isomet, Ltd., a
safety equipment manufacturer located in Naples, Texas. From August 1996 through
April 2003, Ms. Wommack served as associate faculty and executive administrative
assistant at the Northeast Texas Community College, Computer Science Department.
Ms. Wommack received an Associate's Degree in Computer Information from
Northeast Texas Community College in 1996, and also attended Texas A&M
University where she majored in Computer Information Systems and minored in
accounting.
Ms. Virginia Kilpatrick Shehee currently serves as the Chairman of our Board of
Directors, a position she has held since January 2005. Ms. Shehee is also the
former State Senator of Louisiana and currently serves as the President and
Chief Executive Officer of Kilpatrick Life Insurance Company, a major
shareholder, and Kilpatrick's Rose-Neath Funeral Homes and Cemeteries, Inc. Ms.
Shehee is also presently on the Forum 500 Board of Governors and on the
Committee on Committees of the American Council of Life Insurance, for whom she
also served on the Board of Directors and on the Taxation Steering Committee as
well. In addition, Ms. Shehee is the Chairman Emeritus of the Biomedical
Research Foundation of Northwest Louisiana, for whom she also served as the
President and Chairman of its board of directors. Mr. Shehee has served in
various executive capacities for the Life Insurers Conference and was a board
member of LOMA, the Louisiana Insurers' Conference, the Louisiana Life & Health
Insurance Guaranty Association and the National Organization of Life and Health
Insurance Guaranty Association.
Mr. Kamal Alawas currently serves as a Director on our Board. From December 1998
to current, he served as our President and Chief Executive Officer. Mr. Alawas
also serves on the Board of Directors of Franklin Lake Resources, a publicly
traded Nevada company.
Mr. Joseph Therrell, Jr. currently serves as a Director on our Board. Joseph E.
Therrell, Jr., Vice President, Chief Investment Officer for Kilpatrick Life
Insurance Company. Mr. Therrell attended Vanderbilt University in Nashville, TN,
and graduated with a BA in History. He also attended Tennessee Bankers
Association School at Vanderbilt in 1969 and received his Masters from the
Graduate School of Banking of the South, LSU Baton Rouge, in 1982. Mr. Therrell
is former Branch Manager of First American National Bank in Nashville from
1965-1974, and Vice President of Louisiana Bank & Trust Company from 1974-1989.
Term of Office
Our directors are elected for a one-year term to hold office until the next
annual general meeting of our shareholders, or until removed from office in
accordance with our bylaws and applicable law. Our officers are appointed by our
Board of Directors and hold office until removed by the Board.
35
Family Relationships
There are no familial relationships among any of our directors, executive
officers, or persons nominated or chosen to become directors or executive
officers.
Involvement in Certain Legal Proceedings
During the past five years, no present or former director, executive officer or
person nominated to become a director or an executive officer of the Company:
(1) was a general partner or executive officer of any business against
which any bankruptcy petition was filed, either at the time of the
bankruptcy or two years prior to that time;
(2) was convicted in a criminal proceeding or named subject to a pending
criminal proceeding (excluding traffic violations and other minor
offenses);
(3) was subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of
business, securities or banking activities; or
(4) was found by a court of competent jurisdiction (in a civil action),
the Securities and Exchange Commission or the Commodity Futures
Trading Commission to have violated a Federal or state securities or
commodities law, and the judgment has not been reversed, suspended
or vacated.
Audit Committee and Financial Expert Disclosures
Section 301 of the Sarbanes-Oxley Act of 2003, and SEC regulations implementing
that provision require that public companies disclose a determination by their
Board of Directors as to the existence of a financial expert on their audit
committee and, if none is determined to exist, that the Board of Directors has
determined that no one serving on its Board of Directors meets the qualification
of a financial expert as defined in the Sarbanes-Oxley Act and implementing
regulations.
As of December 31, 2005, and as of the date of filing of this report, we have
not created any standing committees of the Board of Directors, including an
audit committee. Accordingly, our entire Board of Directors serves as our audit
committee.
We also disclose that our Board has determined that we have not , and we do not,
possess on our Board of Directors anyone who qualifies as an audit committee
financial expert and, unless and until one is identified and agrees to serve, we
will continue to rely on outside professional consultants who advise us with
respect to audit matters.
Compliance with Section 16(A) of the Securities Exchange Act
Section 16(a) of the Exchange Act requires our executive officers and directors,
and persons who beneficially own more than ten percent of our equity securities,
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Officers, directors and greater than ten percent
shareholders are required by SEC regulation to furnish us with copies of all
Section 16(a) forms they file. Based solely upon review of the copies of such
reports furnished to us during, and with respect to, the fiscal year ended
December 31, 2005 or any written representations we received from a director,
officer, or beneficial owner of more than 10% of our common stock that no other
reports were required during that period, we believe that, for the fiscal year
ended December 31, 2005, all Section 16(a) filing requirements applicable to our
reporting persons were met.
36
Code of Ethics
We have adopted a Code of Ethics applicable to our principal executive officers,
principal financial officers, principal accounting officers or controllers, or
persons performing similar functions, a copy of which is filed as an Exhibit to
this Annual Report on Form 10KSB for the fiscal year ended December 31, 2005. In
addition, a copy of our code of ethics can be obtained by writing our Company at
2405 Ping Drive, Henderson, NV 89074.
37
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
SUMMARY COMPENSATION TABLE
-------------------------------------------------------------------------------------------------------
Long Term
Annual Compensation Compensation
--------------------------------------- ------------
Awards
Other ------------
Annual Securities
Compen- Underlying All Other
Salary Bonus sation Options Compensation
Name and Principal Position Year ($) ($) ($) (#) ($)
---------------------------- ---- ------- ------- ------- ----------- ------------
Denver Cashatt 2005 $94,525 -- -- -- $46,450(1)
President and 2004 $ 60,00 $29,050 -- -- $60,000(2)
Chief Executive Officers 2003 $13,000 -- -- -- --
Dottie Wommack McNeely 2005 $60,000 -- -- -- $37,411(3)
Secretary, Treasurer and CFO 2004 $47,125 $ 5,000 -- -- --
2003 -- -- -- -- --
Robert L. Hawkins 2005 $63,671 -- -- --
2004 $60,000 $29,050 -- --(4)
2003 $60,000 -- -- --
Kamal Alawas 2005 $20,000 -- -- --
2004 $60,000 $20,000 -- --(4)
2003 $60,000 -- -- --
-------------------------------------------------------------------------------------------------------
(1) Commission paid on Private Placements and compensation for voluntary
reduction in annual salary. $35,000 converted into debt settlement stock
(2) Signing bonus paid in stock
(3) Commission paid on Private Placements. $22,500 converted into debt
settlement stock.
(4) In our Annual Report for the fiscal year ended December 31, 2004, we
reported that we granted Mr. Hawkins 5,500,000 options to purchase
restricted shares of our common stock and Mr. Alawas 3,500,000 options to
purchase restricted shares of our common stock pursuant to a Stock Option
Plan that was to become effective January 1, 2005 pursuant to a
shareholder vote. As discussed elsewhere in this Report, the Stock Option
Plan has not been submitted to a shareholder vote and therefore, has not
been adopted as the date of the filing of this Report. Accordingly, Mr.
Alawas and Mr. Hawkins have agreed with us to rescind the grant of these
options. As a result, no options have been granted to either Mr. Alawas,
Mr. Hawkins or any of our named executive officers during our fiscal years
2005 and 2004.
38
Stock Option Grants
In August 2004, our Board unanimously voted to adopt a Stock Option and
Restricted Stock Plan (the "Plan") to become effective January 1, 2005, and to
submit such plan to a vote of our shareholders. The Plan would provided for a
share reserve of 18,000,000 common shares for future issuance as direct awards
or upon exercise of options granted under the Plan. However, as of the date of
this filing, the Plan has not been adopted, and accordingly, no stock options
were granted to our named executive officers during the fiscal year ended
December 31, 2005, nor have any stock options been granted to our named
executive officers since December 31, 2005, through and including the filing
date of this Report. Although we reported in our Annual Report on Form 10KSB for
the year ended December 31, 2004 that options were granted to our then named
executive officers and directors, the grant of these options were contingent
upon the adoption of the Plan in our fiscal year 2005. Accordingly, as we did
not adopt the Plan, these options were effectively rescinded upon mutual
agreement of our Company and the optionholder.
Exercises of Stock Options and Year-End Option Values
No stock options were exercised by our named executive officers during the
fiscal year ended December 31, 2005, nor have any stock options been exercised
by our named executive officers since December 31, 2005, through and including
the filing date of this Report.
Employment Agreements
Effective April 1, 2004, we entered into an employment agreement with Ms. Dottie
Wommack to serve as our Secretary and Treasurer at an annual compensation of
$60,000 per year. The employment agreement provides that Ms. Wommack's
employment shall continue on an annual basis with the renewal date as of October
28 of each calendar year, and that Ms. Wommack will be eligible for quarterly
merit bonuses at the discretion of our upper management.
Effective November 4, 2005, we entered into an employment agreement with Mr.
Denver Cashatt to serve as our President and Chief Executive Officer. The
employment agreement provides that Mr. Cashatt's employment shall continue for a
period of 3 years at an annual compensation rate of $100,000 per year. In
addition, the employment agreement provides that Mr. Cashatt will be reimbursed
for automobile expenses for the use of personal vehicles used in Company
business as well as the use of a personal dwelling for business offices at the
monthly rate of $550 per month for office space and $50.00 per month for
utilities.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Securities Authorized For Issuance under Equity Compensation Plans
We have not adopted any form of equity compensation plan, and accordingly, have
not authorized the issuance of any securities under any such plan.
39
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information concerning the number of
shares of our common stock owned beneficially as of the date of this Report by:
(i) each person (including any group) known to us to own more than five percent
(5%) of any class of our voting securities; (ii) each of our directors and named
executive officers; and (iii) all of our officers and directors as a group.
Except as otherwise indicated, all stockholders have sole voting and investment
power with respect to the shares listed as beneficially owned by them, subject
to the rights of spouses under applicable community property laws.
---------------------------------------------------------------------------------------------------
Title of Name and Address of Amount and Nature of Beneficial Percent of
Class Beneficial Owner Ownership Class
Common Virginia K. Shehee Direct 46,860,908(1) 22%
1818 Marshall St.
Shreveport, LA 71161
Common Kamal Alawas Direct 27,964,524(2) 13%
P.O. Box 1191
Everett, WA 98206
Common Denver Cashatt Direct 2,768,752 1%
2405 Ping Drive
Henderson, NV 89074
Common Dottie Wommack McNeely Direct 2,563,402 1%
595 S. Green Valley Pkwy, #1013
Henderson, NV 89012
Common Joseph Therrell, Jr. Direct 1,704,545(3) 1%
1818 Marshall Street
Shreveport, LA 71101
Common Robert L. Hawkins Direct 3,933,918(4) 2%
52 Megan Dr.
Henderson, NV 89074
---------------------------------------------------------------------------------------------------
(1) Includes shares beneficially owned by Kilpatrick Life Insurance Co., a
privately-owned company controlled by Mrs. Shehee., 2,430,000 shares
issuable upon exercise of warrants at $0.15, and 5,200,000 shares issuable
upon exercise of options at $0.10 per share.
(2) Includes 1,500,000 shares beneficially owned by Alawas Investments, Inc.,
a private investment company controlled by Mr. Alawas.
(3) Includes 500,000 shares issuable upon exercise of warrants at $0.10, and
10,000 shares issuable upon exercise of warrants at $0.15 per share. These
warrants were issued in repayment of debt due and owing from us to Mr.
Alawas during our fiscal year 2003.
(4) Mr. Hawkins resigned as Director September 30, 2005
40
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal year ended December 31, 2005, we paid commissions to certain
of our executive officers in an amount equal to ten percent (10%) of the amounts
raised in our private placements through the efforts of such executive officers.
Specifically, and as set forth in Item 10 of this Annual Report, $46,450 and
$37,411 were paid to our President and our Chief Financial Officer respectively,
of which approximately $35,000 and $22,500 were converted into restricted common
stock shares. The terms of the commissions were approved by resolution of our
Board of Directors, dated April 27, 2004.
ITEM 13. EXHIBITS
Exhibit
No. Description
--------- -----------
3.(i)(1) Articles of Incorporation of the Company dated October 26,
1993.
3.(i)** Certificate of Amendment to Articles of Incorporation, as
filed with the Nevada Secretary of State on December 21, 2004.
3.(i)** Certificate of Amendment to Articles of Incorporation, as
filed with the Nevada Secretary of State on April 30, 1997.
3.(i)** Certificate of Amendment to Articles of Incorporation, as
filed with the Nevada Secretary of State on April 30, 1997.
3.(i)** Certificate of Amendment to Articles of Incorporation, as
filed with the Nevada Secretary of State on February 18, 1997.
3.(i)** Certificate of Amendment to Articles of Incorporation, as
filed with the Nevada Secretary of State on January 22, 1997
3.(ii)(1) Bylaws of the Company
2.1(3) Acquisition Agreement and Plan of Reorganization dated
November 15, 2002 by and among the Company, Pita King Bakeries
and the Shareholders of Pita King
10.1(2) Independent Contractor/Consulting Agreement dated May 9, 2001
between the Company and James Williams.
10.1(4) Mining Property Lease Agreement dated March 2, 1998 between
the Company and James R. Ardoin
10.2(4) Agreement dated July 17, 1998 between the Company and AuRic
Metallurgical Laboratories, Inc.
10.3(6) Exploration Rights Agreement dated February 13, 2004 between
the Company and Associated Placer Group
10.4(7) Service Agreement dated February 16, 2005 between the Company
and Zereko Nevada, Inc.
41
10.5(8) Joint Venture Agreement dated January 10, 2006 between the
Company and Resolve Capital Funding Corporation, Inc.
10.6* Agreement dated September 23, 2000 between the Company, Gold
Standard Mines, Inc. and Howard Sadlier
10.7* Assignment of Rights to Proprietary Formula dated March 21,
2001 between the Company, Gold Standard Mines, Inc. and Howard
Sadlier
10.8* Officer Employment Agreement dated April 1, 2004 between the
Company and Dottie Wommack
10.9* Mutual Agreement to Dissolve Business Relationships with an
effective date of January 1, 2004 between the Company Pita
King Bakeries International, Inc.
10.10* Officer Employment Agreement dated November 4, 2005 between
the Company and Denny Cashatt
10.11* Quit Claim Deed dated December 6, 2000 between the Company and
Gold Standard Mines
14.1* Code of Ethics for Principal Executive Officers and Senior
Financial Officers of the Company
21.1(5) List of Subsidiaries of the Company
Name State of Names under which
Incorporation Subsidiary conducts
Business
---------------- ------------- -------------------
Qwik Track, Inc. Nevada Qwik Track, Inc.
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.
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.
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
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
42
* Filed with the Original Report on April 14, 2006.
** Filed herewith.
(1) Filed on January 12, 2000 as an exhibit to the Company's
registration statement on Form 10-SB and incorporated herein by
reference.
(2) Filed on May 30, 2001 as an exhibit to the Company's registration
statement on Form S-8 and incorporated herein by reference.
(3) Filed on November 19, 2002 as an exhibit to the Company's report on
Form 8-K and incorporated herein by reference.
(4) Filed on July 22, 2004 as an exhibit to the Company's annual report
on Form 10-KSB for the fiscal year ended December 31, 2002, and
incorporated herein by reference.
(5) Filed on July 27, 2004 as an exhibit to the Company's amendment to
its annual report on Form 10-KSB for the fiscal year ended December
31, 2003 and incorporated herein by reference.
(6) Filed on July 30, 2004 as an exhibit to the Company's quarterly
report on Form 10-QSB for the quarter ended March 31, 2004 and
incorporated herein by reference.
(7) Filed on February 25, 2005 as an exhibit to the Company's report on
Form 8-K/A and incorporated herein by reference.
(8) Filed on January 17, 2006 as an exhibit to the Company's report on
Form 8-K and incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
We appointed the accounting firm of Madsen & Associates CPA's, Inc. ("Madsen")
to serve as our independent auditors for the fiscal years ended December 30,
2005 and 2004. During our fiscal years 2005 and 2004, accrued fees owed to
Madsen are as follows:
Audit Fees
2005 2004
---- ----
$12,431 $10,021
Audit Related Fees
2005 2004
---- ----
$0.00 $0.00
Audit Fees and Audit Related Fees consist of fees billed for professional
services rendered for auditing our Financial Statements, reviews of interim
Financial Statements included in quarterly reports, services performed in
connection with other filings with the Securities & Exchange Commission and
related comfort letters and other services that are normally provided by our
independent auditors in connection with statutory and regulatory filings or
engagements.
43
Tax Fees
2005 2004
---- ----
$0.00 $0.00
Tax Fees consists of fees billed for professional services for tax compliance,
tax advice and tax planning. These services include assistance regarding
federal, state and local tax compliance and consultation in connection with
various transactions and acquisitions.
All Other Fees
2005 2004
---- ----
$0.00 $0.00
44
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INTERNATIONAL STAR, INC.
By: /s/ Denver Cashatt
-----------------------------------
President, Chief Executive Officer and Director
Date: August 17, 2006
In accordance with the Securities Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
By: /s/ Denver B. Cashatt
-----------------------------------
Denver B. Cashatt
President, Chief Executive Officer and Director
Director
Date: August 17, 2006
By: /s/Dottie Wommack McNeely
-----------------------------------
Dottie Wommack McNeely
Chief Financial Officer, Treasurer and Secretary
Date: August 17, 2006
By:
-----------------------------------
Kamal Alawas
Director
Date: August 17, 2006
By: /s/ Joseph E. Therell, Jr.
-----------------------------------
Joseph E. Therell, Jr.
Director
Date: August 17, 2006
By: /s/ Virginia Kilpatrick Shehee
-----------------------------------
Virginia Kilpatrick Shehee.
Director
Date: August 17, 2006
45