UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D)
OF THE EXCHANGE ACT
For the transition period from ____________ to ____________
Commission file number: 000-28861
INTERNATIONAL STAR INC.
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(Exact name of small business as specified in its charter)
NEVADA 86-0876846
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2266 Chestnut Bluffs, Henderson, NV, Henderson, NV 89052
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(Address of principal executive offices)
(702) 897-5338
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(Issuer's telephone number)
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(Former name, former address, and former fiscal year,
if changed since last report)
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes[X] No | |
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be file
by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by the court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
The Company had 59,788,741 shares of common stock outstanding at September 30,
2004.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
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PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
The following unaudited financial statements of International Star Inc. have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB.
Accordingly, these financial statements may not include all of the information
and disclosures required by generally accepted accounting principles for
complete financial statements. These financial statements should be read in
conjunction with the audited financial statements and the notes thereto for the
fiscal year ending December 31, 2003. In the opinion of management, these
unaudited financial statements contain all adjustments necessary to fairly
present the Company's financial position as of September 30, 2004 and its
results of operations and its cash flows for the six months ended September 30,
2004.
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INTERNATIONAL STAR, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
September 30 December 31,
2004 2003
--------------- ---------------
Current Assets:
Cash $ 6,370 $ 364,146
Accounts Receivable - 23,805
Inventories - 63,812
Prepaid Legal Fees 1,990 1,990
--------------- ---------------
Total Current Assets 8,360 453,753
Mineral Assets:
Screened Ore 2,600 2,600
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Total Mineral Assets 2,600 2,600
Fixed Assets (Net of Depreciation) 9,975 284,888
Other Assets & Prepaid Rent - 28,402
Goodwill - 64,472
--------------- ---------------
Total Assets $ 20,935 $ 834,115
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued interest $ 36,156 $ 31,968
Advances and Loans from officers with
accrued interest 49,392 49,392
Accrued Compensation and Management Fees 29,000 117,105
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Total Current Liabilities 114,548 198,465
Long-term Liabilities:
Line of Credit and Accrued Interest $ - $ 84,206
Note Payable 250,000 250,000
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Total Long-term Liabilities 250,000 334,206
Stockholders' Equity (Deficit):
Common Stock, $.001 par value; authorized $ 59,790 $ 60,043
100,000,000 shares; issued and
outstanding 59,788,741 at
September 30, 2004 and 60,042,227
at December 31, 2003
Paid-In Capital 2,242,535 2,295,282
Accumulated Deficit (2,645,938) (2,053,881)
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Total Stockholders' Equity (Deficit) (343,613) 301,444
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Total Liabilities and
Stockholders' Equity (Deficit) $ 20,935 $ 834,115
=============== ===============
See accompanying notes to the financial statements.
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INTERNATIONAL STAR INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Nine Months Nine Months Nine Months
Ended Ended Ended Ended
Sept 30, 2004 Sept 30, 2003 Sept 30, 2004 Sept 30, 2003
------------------ ----------------- ----------------- ------------------
Revenue: $ - $ 253,829 $ - $ 100,937
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Total Revenue - 253,829 - 100,937
Cost of Goods Sold:
Materials & packaging - 91,538 - 36,983
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Total Cost of Goods Sold: $ - $ 91,538 $ - $ 36,983
Gross Profit $ - $ 162,291 $ - $ 63,954
Expenses:
Mineral exploration &
development costs 189,979 - 28,379 -
Interest expense 11,363 7,392 2,794 2,015
Professional fees 43,462 - 22,520 -
Management fees 157,500 90,000 31,000 30,000
Compensation 89,000 99,320 89,000 34,312
Depreciation & amortization 1,197 15,378 399 5,126
General & administrative 56,186 162,971 13,556 57,359
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Total Expenses 548,687 375,061 187,648 128,812
Other Income (Expense)
Loss on divestiture of subsidiary (43,370) - - -
------------------ ----------------- ----------------- ------------------
Net Loss $ (592,057) $ (212,770) $ (187,648) $ (64,858)
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Weighted Average Shares
Common Stock Outstanding 57,732,798 31,836,237 59,122,074 31,836,237
================== ================= ================= ==================
Net Loss Per Common Share
(Basic and Fully Dilutive) $ (0.01) $ (0.01) $ (0.00) $ (0.00)
================== ================= ================= ==================
See accompanying notes to the financial statements.
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INTERNATIONAL STAR INC.
AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Nine Months
Ended Ended
September 30, 2004 September 30, 2003
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Cash Flows Used in Operating Activities:
Net Loss $ (592,057) $ (212,770)
Expenses Not Requiring an Outlay of Cash
Depreciation & Amortization 1,197 15,378
Loss on divestiture of subsidiary 43,370 -
Common stock issued for services 60,000 -
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Net Cash used in Operations (487,490) (197,392)
Changes to Operating Assets and Liabilities:
(Increase) decrease in Accounts Receivable
and Prepaids 5,450 12,820
(Increase) decrease in Inventories - (12,869)
Increase (decrease) in accounts payables
and accrued interest 4,189 (66,936)
Increase (decrease) in accrued management
fees / compensation (2,300) 151,800
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Cash Flows Used in Operating Activities (480,151) (112,577)
Cash Flows from Financing Activities:
Proceeds from sale of common stock 122,375 76,600
Repayment of line of credit - (15,410)
Increase in advances and loans from officers/affiliates - 15,000
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Cash Flows from Financing Activities 122,375 76,190
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Net Increase (Decrease) in Cash (357,776) (36,387)
Cash at Beginning of Period (364,146) 39,684
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Cash at End of Period 6,370 3,297
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Interest Paid - 8,259
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Income Taxes Paid - -
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Supplemental Non-cash Financing Activities:
Cancellation of 4,000,000 shares originally
issued to acquire Pita King Bakeries, Int'l (236,000)
Capital contributed for payment of interest 7,500
See accompanying notes to the financial statements.
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INTERNATIONAL STAR, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
A. BASIS OF PRESENTATION
The Interim financial statements of International Star, Inc. and Subsidiaries
(the Company) for the nine months ended September 30, 2004 and 2003 are not
audited. The financial statements are prepared in accordance with the
requirements for unaudited interim periods, and consequently do not include all
disclosures required to be in conformity with accounting principles generally
accepted in the United States of America.
In the opinion of management, the accompanying consolidated financial statements
contain all adjustments, consisting only of normal recurring accruals, necessary
for a fair presentation of the Company's financial position as of September 30,
2004 and the results of operations and cash flows for the nine months ended
September 30, 2004 and 2003.
The results of operations for the nine months ended September 30, 2004 and 2003
are not necessarily indicative of the results for a full year period.
B. SIGNIFICANT ACCOUNTING POLICIES
1. Principles of Consolidation and Accounting Methods
These consolidated financial statements include the accounts of
International Star, Inc., and Qwik Track, Inc. (a wholly owned
subsidiary) for the nine months ended September 30, 2004 and includes
the accounts of International Star, Inc., Pita King, Bakeries
International, Inc., and Qwik Trak, Inc. for the nine months ended
September 30, 2003.
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
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recoverable ore reserves are present on the properties. If it
determines that such reserves exist, it will capitalize further costs.
5. Basic and Dilutive Net Income (Loss) Per Share
Basic net income (loss) per share amounts are computed based on the
weighted average number of shares actively outstanding in accordance
with SFAS NO. 128 "Earnings Per Share." Diluted net income (loss) per
share amounts are computed using the weighted average number of common
shares and common equivalent shares outstanding as if shares had been
issued on the exercise of any common share rights unless the exercise
becomes antidultive and then only the basic per share amounts are
shown in the report.
6. Comprehensive Income
The Company adopted SFAS No. 130, "Reporting Comprehensive Income",
which requires inclusion of foreign currency translation adjustments,
reported separately in its Statement of Stockholders' Equity, in other
comprehensive income. Such amounts are immaterial and have not been
reported separately. The Company had no other forms of comprehensive
income since inception.
7. Stock Based Compensation
The Company has elected to follow Accounting Principles Board Opinion
No.25 (APB 25) and related interpretations in accounting for its
employee stock options. Under APB25, when the exercise price of
employee stock options is equal to the estimated market price of the
stock on the date of grant, no compensation expense is recorded. The
Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS 123) with respect to
employee stock options.
8. Income Taxes
The Company has adopted SFAS No. 109 "Accounting for Income Taxes".
The Company accounts for income taxes under an asset and liability
approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax
returns. In estimating future tax consequences, all expected future
events, other than enactment of changes in the tax laws or rates, are
considered.
Due to the uncertainty regarding the Company's future profitability,
the future tax benefits of its losses have been fully reserved and no
net tax benefit has been recorded in these financial statements.
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.
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10. Recent Accounting Pronouncements
The Company does not expect that the adoption of other recent account
pronouncements will have a material effect on its financial
statements.
11. Revenue Recognition
Revenue will be recognized on the sale and delivery of a product or
the completion of a service provided.
12. Statement of Cash Flows
For the purposes of the statement of cash flows, the Company considers
all highly liquid investments with a maturity of nine months or less
to be cash equivalents.
13. Financial and Concentration Risk
The Company does not have any concentration or related financial
credit risk
C. DIVESTITURE OF PITA KING BAKERIES INTERNATIONAL, INC.
Effective January 1, 2004, the original shareholders of Pita King Bakeries,
International Inc. and the management of International Star, Inc. (the Company)
mutually agreed to dissolve their business relationship. Under terms of this
dissolution, the original shareholders of Pita King Bakeries International, Inc.
returned 4,000,000 shares of common stock to the Company and the Company agreed
to forgive a $35,000 loan made to Pita King Bakeries International, Inc. The
original shareholders of Pita King Bakeries International, Inc. were allowed to
retain 139,500 share of the Company's common stock which they had received as
part of the original purchase of Pita King Bakeries International, Inc. by the
Company. The Company has recognized a loss of $43,370 on the divestiture of Pita
King Bakeries International, Inc.
Item 2 - Management's Discussion and Analysis or Plan of Operation
Plan of Operation
We are an exploration stage company with no reserves or mining
operations. The funding raised in November 2003 allowed us the opportunity to
initiate the first significant exploration efforts on our properties since the
limited sampling conducted in 1998 by AuRIC Metallurgical Laboratories which we
believe warranted further investigation of the mineral potential of that
property.
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Planning was finalized January 9, 2004 and Kokanee Placer, Inc. of
White Rock, BC, a geological exploration company, began to execute the initial
phase of an exploration program on our 1,280 acre Detrital Wash property, the
results of which will dictate subsequent exploration phases, if found to be
practical.
This initial work effort called for surface sampling of the property in
a grid pattern at intervals of every 500 feet (in excess of 200 samples). We are
currently evaluating the sample analysis along with Kokanee to determine the
practicality of a second phase of exploration, what that plan would entail, if
warranted, and the associated costs. When the evaluation process is complete, we
intend to review the findings with Kokanee's lead geologist, announce the
findings of our evaluation and either plan the second phase of exploration or
direct our efforts elsewhere.
In July of 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.
As previously announced, we have transitioned from one accounting firm
to another, suspended further development of our Qwik Track subsidiary,
dissolved our business relationship with the Pita King subsidiary and now
believe we are positioned to focus all the Company's resources on the further
development of our mineral interest in the Detrital Wash and Wikieup properties.
We have no credit lines or other sources of cash since we divested our
Pita King subsidiary. Our cash balance at September 30, 2004 was $6,370.
However, In October, subsequent to the period covered by this quarterly report,
we received a commitment for an additional $225,000 in equity financing, of
which we received $75,000 on October 5th and expect to receive the balance in
two installments during November and December, respectively. The funds will be
used for exploration costs and for general and administrative expenses. The
funds should sustain our current level of exploration activity through most of
the next twelve months, after which we will need to obtain additional funding to
continue our exploration activities. We will continue our efforts to obtain cash
from borrowing, a sale of our common stock, or other means. We may consider a
joint venture arrangement with an established resource company as well, although
we currently have no specific prospects for such an arrangement.
Loss On Sale of Pita King Subsidary
In June of 2004 we sold our Pita King Bakeries International, Inc.
subsidiary back to its founding shareholders, giving effect to the sale as of
January 1, 2004. 4,000,000 shares of our common stock were returned to us and
cancelled, and we forgave $35,000 in loans to the subsidiary. Our financial
statements for the nine month period ended September 30, 2004 reflect a loss of
$43,370 recognized on the sale.
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Item 3 - Controls And Procedures
Evaluation of Disclosure Controls and Procedures
Within the 90 days prior to the filing date of this report, the Company
carried out an evaluation of the effectiveness of the design and operation of
its disclosure controls and procedures pursuant to Exchange Act Rule 13a-15.
This evaluation was done under the supervision and with the participation of the
Company's principal executive officer and principal financial officer. Based
upon that evaluation, they concluded that the Company's disclosure controls and
procedures are effective in gathering, analyzing and disclosing information
needed to satisfy the Company's disclosure obligations under the Exchange Act.
Changes in Internal Controls
There were no significant changes in the Company's internal controls or
in other factors that could significantly affect those controls since the most
recent evaluation of such controls.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None.
Item 2 - Changes in Securities
During the three months ending on June 30, 2004, we issued and/or sold
the securities listed in the table below without registration under the
Securities Act of 1933.
No underwriters were involved in these transactions. Selling prices for
the shares may have been discounted from then prevailing market prices to
reflect the restricted status of the shares or the urgency of our need for
capital. When shares were issued for property or services, in each instance the
valuation of the property or services was based on the board of director's
determination of the value received for the shares.
The securities were sold by our officers without the use of an
underwriter. In effecting the sales, we relied on the exemption authority
provided by Section 4(2) of the Securities Act of 1933, as amended, relating to
sales not involving any public offering, and Regulation S, relating to
securities sold in bona fide offshore transactions. We believe that all such
sales were made by our executive officers in private, negotiated transactions
without any advertising, public announcements or general solicitation. The
purchasers of the shares represented themselves in writing to be, and we believe
them to be, members of one or more of the following classes of purchaser:
a. Officers, directors, promoters or control persons of the issuer;
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b. Accredited investors, as defined in Rule 501 under Regulation D of the
Securities Act;
c. Individuals who:
i. Are knowledgeable and sophisticated in investment matters;
ii. Are able to assess the risks of an investment such as in our
securities;
iii. Are financially able to bear the risk of a loss of their entire
investment; and
iv. Have access to pertinent information regarding the issuer and its
operations.
The shares are subject to the resale provisions of Rule 144 under the Securities
Act of 1933, as amended, and may not be sold or transferred without registration
except in accordance with that rule. Certificates representing the securities
bear a legend to that effect.
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Number of
Date Issued Class Amount Price Purchasers
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October 5, 2004 Common Stock 750,000 $0.10(1) 2
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(1) Issued for cash
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Item 3 - Defaults Upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K
We filed the following Current Reports on Form 8-K during the period:
Date Item(s)
09-15-04 Item 7, Item 9
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The following exhibits are filed with this annual report:
Ex. 31.1 Certification of CEO
Ex. 31.2 Certification of CFO
Ex. 32.1 Certification of CEO
Ex. 32.2 Certification of CFO
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INTERNATIONAL STAR INC.
November 15, 2004 /s/ Robert L. Hawkins
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Dated President
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