<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 19998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from:
-------------------------------
Commission file number 333-3074
-------------------------------
WINDSTAR RESOURCES, INC.
(Exact name of Registrant as specified in its charter.)
ARIZONA 37-1356503
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
528 Fon du Lac Drive
East Peoria, Illinois 61611
(Address of principal executive offices including zip code.)
(309) 699-8725
(Registrant's telephone number, including area code.)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities 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 [ ]
The number of shares outstanding of the Registrant's Common
Stock, no par value per share, at September 30, 1998 was
4,205,277 shares.
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<PAGE> 2
PART I
ITEM 1. FINANCIAL STATEMENTS.
WINDSTAR RESOURCES, INC.
FINANCIAL INFORMATION
PAGE
INDEX NUMBER
Accountants' Report F-1
Balance Sheet as September 30, 1998 and
December 31, 1997 F-2
Statement of Loss and accumulated deficit
for the period from inception (March 22, 1995)
through September 30, 1998 F-3
Statement of Changes in Stockholders' Equity
for the period from inception (March 22, 1995)
through September 30, 1998 F-4
Statement of Cash Flows for the period from
inception (March 22, 1995) through
September 30, 1998 F-5
Notes to Financial Statements F6-F7
<PAGE> 3
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
WindStar Resources, Inc.
We have audited the accompanying balance sheet of WINDSTAR
RESOURCES, INC. (A Development Stage Company) as of December 31,
1997, and the related statements of operations, changes in
stockholders' equity and cash flows for the period ended December
31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of WINDSTAR RESOURCES, INC. (A Development Stage Company) at
December 31, 1997, and the results of its operations, changes in
stockholders' equity and its cash flows for the period ended
December 31, 1997, in conformity with generally accepted
accounting principles.
We have not audited the balance sheet as of September 30, 1998,
or the related statements of loss and accumulated deficit and
cash flows for the nine months ended September 30, 1998, and
accordingly, do not express an opinion or any other form of
assurance on them.
Robert Moe & Associates, P.S.
Certified Public Accountants
Spokane, Washington
February 27, 1998
F-1
<PAGE> 4 WINDSTAR RESOURCES, INC.
(A Development Stage Company)
BALANCE SHEET
September 30, 1998 and December 31, 1997
ASSETS
<TABLE>
<CAPTION>
09-30-98
(Unaudited) 1997
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,577 $ 387
Accounts receivable
-------- ---------
Total current assets 1,577 387
OTHER ASSETS
Organization costs (net of $274
amortization 411 411
Mining claims 79,076 79,076
-------- ---------
$ 81,064 $ 79,874
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 83,050 $ 8,355
-------- ---------
OTHER CURRENT LIABILITIES
Accrued Interest 11,850 5,943
Baragan Mountain (accrued
Royalty Fee) 0 50,000
Notes Payable 52,724 22,800
-------- ---------
LONG TERM DEBT
NOTE PAYABLE 27,600 27,600
-------- ---------
STOCKHOLDERS' EQUITY
Common stock - $.0001 par value,
50,000,000 shares authorized,
4,205,277 shares issued 420 413
Preferred Stock - $.0001 par value,
10,000,000 shares authorized, 0
shares issued - -
Additional paid in capital 164,236 96,275
-------- ---------
164,656 96,688
Deficit accumulated during the
development stage (258,816) (131,512)
-------- ---------
Total Stockholders' Equity (94,160) (34,824)
-------- ---------
$ 81,064 $ 79,874
======== =========
</TABLE>
See accompanying notes to financial statements
F-2
<PAGE> 5
WINDSTAR RESOURCES, INC.
(A Development Stage Company)
STATEMENT OF LOSS AND ACCUMULATED DEFICIT
for the period from inception (March 22, 1995)
through September 30, 1998
<TABLE>
<CAPTION>
Cumulative
during
development
Three Nine stage from
Months Months Inception inception
Ended Ended (3-22-95) (3-22-95)
09-30-98 09-30-98 through through
(Unaudited) (Unaudited) 12-31-97 09-30-98
<S> <C> <C> <C> <C>
INCOME $ - $ - $ 383 $ 383
OPERATING EXPENSES 48,111 127,304 131,895 259,199
-------- --------- --------- ---------
NET INCOME (LOSS) $(48,111) $(127,304) $(131,512) $(258,816)
======== ========= ========= =========
NET INCOME PER
SHARE $ NIL $ NIL $ NIL $ NIL
======== ========= ======== =========
</TABLE>
The company is in the development stage and has not commenced
operations.
See accompanying notes to financial statements
F-3
<PAGE> 6 WINDSTAR RESOURCES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
March 22, 1995 (Inception) through September 30, 1998
<TABLE>
<CAPTION>
Additional Retained
Common Stock Paid-in Earnings
Shares Amount Capital (Deficit)
<S> <C> <C> <C> <C>
BALANCE
Inception March 22, 1995 - $ - $ - $ -
ADD:
Sale of 752,000 shares
of common stock for
$44,450 cash 752,000 75 44,375
Sale of 1,240,000 shares
of common stock for mining
claims at a value of
$13,000 1,240,000 124 12,876
Net loss for the period (10,094)
--------- ------- --------- ---------
BALANCE, December 31, 1995 1,992,000 199 57,251 (10,094)
ADD:
Sale of 1,600,000
shares of common stock
for mining claims at a
value of $66,076 1,600,000 160 65,916
Deferred registration costs
charged to paid-in-capital (36,838)
Net loss for 1996 (4,434)
--------- ------- --------- ---------
Balance,
December 31, 1996 3,592,000 359 86,329 (14,528)
ADD:
Sale of 540,000 shares
of common stock for
$10,000 cash 540,000 54 9,946
Net loss for 1997 (116,984)
--------- ------- --------- ----------
Balance,
December 31, 1997 4,132,000 413 96,275 (131,512)
ADD:
Sale of 22,000 shares
of common stock for
$55,000 debt/interest 22,000 2 54,998
Net loss for the nine
months ended September
30, 1998 (Unaudited) (127,304)
--------- ------- -------- ---------
BALANCE, September 30, 1998
(Unaudited) 4,205,277 $ 420 $164,237 $(258,816)
========= ======= ======== =========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 7 WINDSTAR RESOURCES, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
for the period from inception (March 22, 1995)
through September 30, 1997
<TABLE> <CAPTION> Cumulative
during
development
Three Nine stage from
Months Months Inception inception
Ended Ended (3-22-95) (03-22-95)
09-30-98 09-30-98 through through
(Unaudited) (Unaudited) 12-31-97 09-30-98
<S> <C> <C> <C> <C>
CASH FLOWS PROVIDED (USED)
IN OPERATIONS
Net loss for the period $ (48,111) $(127,304) $ (131,512) $ (258,816)
Noncash expense included:
Amortization of
organization costs - 274 274
(Increase) decrease
in accounts receivable - - -
Increase in accounts payable 36,247 60,526 87,098 147,624
--------- -------- --------- ---------
(11,864) (66,778) (44,140) (110,918)
--------- -------- --------- ----------
CASH FLOWS PROVIDED (USED) IN
INVESTING ACTIVITIES - - - -
--------- -------- --------- ----------
CASH FLOWS PROVIDED (USED) IN
FINANCING ACTIVITIES
Proceeds from sale of stock 12,969 67,968 54,450 122,418
Payment of deferred registration
and organization costs - - (37,523) (37,523)
Increase in long term debt 27,600 27,600
--------- -------- --------- ----------
12,969 67,968 44,527 112,495
--------- -------- --------- ----------
NET INCREASE (DECREASE)
IN CASH 1,105 1,190 387 1,577
CASH BEGINNING OF PERIOD 472 387 -
--------- -------- --------- ----------
CASH END OF PERIOD $ 1,577 $ 1,577 $ 387 $ 1,577
========= ======== ========= ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ -0- $ -0- $ -0- $ -0-
Income taxes $ -0- $ -0- $ -0- $ -0-
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES
Mining claims were transferred to the Company during 1995, in exchange
for 1,240,000 shares of common stock and is reflected in the balance
sheet at the transferor cost of $13,000. The mining claims were
appraised in October 1986 for an amount that exceeds the value reflected
in the balance sheet by Marston & Marston, Inc. (engineers to the mining
industry). Mining claims were transferred to the Company during 1996 in
exchange for 1,600,000* shares of common stock and is reflected in the
balance sheet at the transferor cost of $66,076.
* Reflects a 1-for-250 share reverse stock split which occurred on
April 15, 1998.
See accompanying notes to financial statements
F-5
<PAGE> 8
WINDSTAR RESOURCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization: WindStar Resources, Inc. was incorporated on
March 22, 1995, under the laws of the State of Arizona under
the name of Turtleback Mountain Gold Co. Inc. On December
31, 1997, the board of directors authorized amending the
Articles of Incorporation to change the name of the Company
from Turtleback Mountain Gold Co., Inc. to WindStar
Resources, Inc. The Company has adopted a year ending on
December 31.
The Company was organized to use the limited funding it
obtained from its original shareholders for organizational
matters and preparation of an offering. The Company
exchanged stock for mining claims.
Because of the speculative nature of the Company, there are
significant risks which are summarized as follows:
Newly formed company with no operating history and
minimal assets.
Limited funds available for acquisition.
Management is inexperienced and offers limited time
commitment.
Conflict-of-interest, as all employees have other
part-time or full-time employment.
The Company is considered to be in the development stage as
defined in Statement of Financial Accounting Standards No.
7. There have been no operations since incorporation.
Summary of Significant Accounting Principles: Organization
costs will be amortized over sixty (60) months beginning
January 1, 1996.
Mining claims transferred to the Company were recorded at
the transferor cost basis.
Mining claims are reviewed annually by management for
continued valuation or impairment. Management will consider
the estimated undiscounted future cash flows and write off
claims abandoned or impaired. Management elected to adopt
Financial Accounting Standards No. 121 effective January 1,
1996. The adoption did not impact the financial statements
at December 31, 1995.
F-6
<PAGE> 9
WINDSTAR RESOURCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
2. STOCKHOLDERS' EQUITY
Incorporation shares: Upon incorporation, the Company had a
total of 1,992,000 shares subscribed.
Public stock offering: On November 16, 1996, the Company
issued one million (1,600,000) units in exchange for one
hundred twenty eight (128) mining claims located in La Paz,
Maricopa, and Yuma counties, Arizona. Each Unit consists of
one share of Common Stock; one warrant to purchase one share
of Common Stock at an exercised price of $2.50 per warrant
("Class A Warrants"); and, one warrant to purchase one share
of Common Stock at an exercise price of $5.00 per warrant
("Class B Warrants"). The Warrants may be redeemed by the
Company at any time upon thirty (30) days written notice to
the holders thereof at redemption price of $0.00001 per
warrant. The Warrants are immediately detachable and
separately tradable. The Warrants are exercisable up to
five (5) years from the effective date of the offering
unless called sooner.
3. EMPLOYMENT AGREEMENT
On November 11, 1997 the Company entered into an employment
agreement with Mr. Fred R. Schmid to be employed as
President and Chief Executive Officer. The agreement shall
expire on November 10, 2000.
4. MINING CLAIMS
Eight mining claims were transferred to the company on June
30, 1995 by "Quitclaim Deed" in exchange for 1,240,000
shares of common stock. The mining claims are reflected in
the balance sheet at the transferor cost of $13,000.
One hundred twenty-eight mining claims were transferred to
the Company on November 16, 1996 by "Quitclaim Deed" in
exchange for 1,600,000 shares of common stock. The mining
claims are reflected in the balance sheet at the transferor
cost of $66,076.
F-7
<PAGE> 10
WINDSTAR RESOURCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
4. MINING CLAIMS . . . continued
The Four (4) Red Raven II claims purchased from Maxam Gold
Corporation has a Royalty Fee clause attached to them. The
royalty fee is Five (5) percent of the net income from
operations on the claims or $50,000.00 annually (which ever
is greater) starting July 14, 1997. The Company was in
default on this agreement. On June 18, 1998, a settlement
with Baragan Mountain Mining LLC was finalized curing the
default on the Red Raven II Claims. In exchange for the
past due annual payment and interest thereon together
totaling $55,000 and the elimination of all future similar
minimum annual payment obligations, the Company's
independent board of director members approved and
authorized the issuance of 22,000 shares of restricted
common stock at a value of $2.50 per share, to settle the
default amount on these claims. In addition, the future
production royalty interest on the four claims was reduced
from 5% to 2 1/2% net smelter return on the sale of
commercially mined minerals from these claims, if any.
F-8
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company is considered to be in the development stage as
defined in the Statement of Financial Accounting Standards No. 7.
There have been no operations since incorporation.
Liquidity and Capital Resources
On April 15, 1998, the Company's shareholders approved,
among other things, a 1-for-250 share of Common Stock reverse
stock split; and, a change in the authorized capital from
3,000,000,000 shares of Common Stock, $0.00001 par value per
share to 50,000,000 shares of Common Stock, $0.0001 par value;
and, from 400,000,000 shares of Preferred Stock, $0.00001 par
value per share to 10,000,000 shares of Preferred Stock, $0.0001
par value per share.
The Company sold 1,992,000 shares of its Common Stock to
nineteen persons and two corporations for $44,450 in cash and
property. The cash has been used for organizational matters and
initial start-up.
Eight mining claims transferred to the Company on June 30,
1995 by "Quitclaim Deed" in exchange for 1,240,000 shares of
common stock. The mining claims are reflected in the balance
sheet at the transferor's costs of $13,000.
One hundred twenty-eight mining claims were transferred to
the Company on November 16, 1996 by "Quitclaim Deed" in exchange
for 1,600,000 shares of common stock. The mining claims are
reflected in the balance sheet at the transferor's costs of
$66,076.
Included in this group of claims are the Four (4) Red Raven
II claims which carry an annual minimum payment of $50,000 or 5%
of the net income from operations (whichever is grater) starting
July 1, 1996. The Company defaulted on the minimum annual
payment due on the first anniversary date and interest accrued at
the annual rate of 5% payable to affiliated entities which are
either principally owned or controlled, directly or beneficially
by Dale L. Runyon and Robert M. Brown, Chairman and member of
the Company's Board of Directors, respectively. On June 18,
1998, a settlement with Baragan Mountain Mining LLC was finalized
curing the default on the Red Raven II Claims. In exchange for
the past due annual payment and interest thereon together
totaling $55,000 and the elimination of all future similar
minimum annual payment obligations, the Company's independent
board of director members approved and authorized the issuance of
<PAGE> 12
22,000 shares of restricted common stock at a value of $2.50 per
share, to settle the default amount on these claims. In
addition, the future production royalty interest on the four
claims was reduced from 5% to 2 1/2% net smelter return on the
sale of commercially mined minerals from these claims, if any.
In order to maintain the mining rights to the 136 unpatented
mining claims the Company must pay an annual maintenance fee of
$100 per claim to the United States government and $10 per claim
to the county where the claims are located. This amount of
$14,960 is payable by August 31st each year.
As part of the employment agreement dated November 11, 1997
the Company sold Fred R. Schmid, pursuant to a Stock Purchase
Agreement, 540,000 shares of Common Stock at a purchase price of
$10,000, which has been paid to the Company. The agreement also
provides an option for the purchase of 160,000 shares at a $2.50
per share and 160,000 shares at $5.00 per share for a period of
ten years.
The Company must obtain additional capital in order to fully
develop its claims. The Company intends to raise additional
capital in the future through loans or the sale of Common Stock.
On August 1, 1997, the Company established a line of credit for
one million dollars ($1,000,000) with Phoenix International
Mining Inc. (a principal stockholder), with interest to be at one
percent (1%) per month of the outstanding balance. The Company
has borrowed $27,600. However, at the time of this report this
source of funding has been delayed and future loans may not be
available due to unforeseen circumstances beyond Phoenix's
control. The Company is therefore considering the exercise of
the outstanding 3,200,000 Class A and Class B Warrants as its
best source of raising capital for funding the initial phase of
exploration work on the claims. The Company has no operating
history.
On June 19, 1998, Post-Effective Amendment No. 1 to the Form
S-1 Registration Statement under the Securities Act of 1933,
became effective. The Company has registered 3,200,000 shares of
Common Stock underlying the Company's Class A and Class B
Warrants of 1,600,000 shares, respectively. Each Class A
Warrant entitles the holder to purchase one share of Common Stock
at $2.50 per share; and each Class B Warrant entitles the holder
to purchase one share of Common Stock at $5.00 per share; on or
before August 15, 2001, unless the Warrants are called sooner by
the Company. If all of the Class A Warrants are exercised the
Company could realize $4,000,000; and if all of the Class B
Warrants are exercised the Company could realize an additional
$8,000,000. There is no assurances that the Warrants will be
exercised, nor that the Company will realize any funding from
this transaction.
<PAGE> 13
On September 16, 1998, the National Association of
Securities Dealers ("NASD") cleared Olsen Payne & Company's (a
brokerage company) request to quote the Company's Common Stock
for trading on the OTC Bulletin Board ("OTCBB"). After 30 days
other brokerage companies could also become market makers in the
Company's securities. The symbols used for trading on the OTCBB
are WSRI for the common stock; WSRIW for the Class A Warrant; and
WSRIZ for the Class B Warrant. The current gold market price
continues to be depressed and this has affected gold mining
companies' stock prices and also their ability to raise capital.
The Company has estimated that a minimum of $950,000 of
proceeds to be derived form the exercise of the Warrants is
necessary to undertake the initial exploratory phase of
operations on the first target area, namely, Lost Horse Peak
Claim. Following the initial target phase, if results warrant
further exploratory operations, it is estimated that an
additional $1,500,000 will be required to proceed with further
exploration development on the Lost Horse Peak Claim. Other
target areas will also be considered when necessary. There is no
assurance that the Company will be successful in undertaking the
exploration of the claims.
The foregoing reflects the 1 for 250 share reverse stock
split that took place on April 15, 1998.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated this 11th day of November, 1998.
WINDSTAR RESOURCES, INC.
(the "Registrant")
BY: /s/ Richard G. Steeves,
Richard G. Steeves,
Secretary/Treasurer, Chief
Financial Officer and, a
member of the Board of
Director
<PAGE> 15
EXHIBIT INDEX
Exhibit
No. Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Statement of Financial Condition at September 30, 1998 (Unaudited) and the
Statement of Income for the nine months ended September 30, 1998 (Unaudited)
and is qualified in its entirety by reference to such financial statement.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<CASH> 1,577
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,577
<PP&E> 79,487
<DEPRECIATION> 0
<TOTAL-ASSETS> 81,064
<CURRENT-LIABILITIES> 147,624
<BONDS> 0
0
0
<COMMON> 420
<OTHER-SE> (94,160)
<TOTAL-LIABILITY-AND-EQUITY> 81,064
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 127,304
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (127,304)
<INCOME-TAX> 0
<INCOME-CONTINUING> (127,304)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (127,304)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
