<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 June 30, 1998.
[ ] 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 [ ] NO [ x ]
The number of shares outstanding of the Registrant's Common Stock, no
par value per share, at June 30, 1998 was 4,132,000 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 June 30, 1998 and
December 31, 1997 F-2
Statement of Loss and accumulated deficit
for the period from inception (March 22, 1995)
through June 30, 1998 F-3
Statement of Changes in Stockholders' Equity
for the period from inception (March 22, 1995)
through June 30, 1998 F-4
Statement of Cash Flows for the period from
inception (March 22, 1995) through
June 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 June 30, 1998, or the
related statements of loss and accumulated deficit and cash flows for
the six months ended June 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
June 30, 1998 and December 31, 1997
ASSETS
<TABLE> CAPTION>
06-30-98
(Unaudited) 1997
<S> <C> <C>
CURRENT ASSETS
Cash $ 472 $ 387
Accounts receivable
-------- ---------
Total current assets 472 387
OTHER ASSETS
Organization costs (net of $274
amortization 411 411
Mining claims 79,076 79,076
-------- ---------
$ 79,959 $ 79,874
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 54,424 $ 8,355
-------- ---------
OTHER CURRENT LIABILITIES
Accrued Interest 7,478 5,943
Baragan Mountain (accrued
Royalty Fee) 0 50,000
Notes Payable 49,475 22,800
-------- ---------
LONG TERM DEBT
NOTE PAYABLE 27,600 27,600
-------- ---------
STOCKHOLDERS' EQUITY
Common stock - $.0001 par value,
50,000,000 shares authorized,
4,154,000 shares issued 415 413
Preferred Stock - $.0001 par value,
10,000,000 shares authorized, 0
shares issued - -
Additional paid in capital 151,273 96,275
-------- ---------
151,688 96,688
Deficit accumulated during the
development stage (210,706) (131,512)
-------- ---------
Total Stockholders' Equity (59,018) (34,824)
-------- ---------
$ 79,959 $ 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 June 30, 1998
<TABLE>
<CAPTION>
Cumulative
during
development
Three Six stage from
Months Months Inception inception
Ended Ended (3-22-95) (3-22-95)
06-30-98 06-30-98 through through
(Unaudited) (Unaudited) 12-31-97 06-30-98
<S> <C> <C> <C> <C>
INCOME $ - $ - $ 383 $ 383
OPERATING EXPENSES 54,913 86,452 131,895 218,347
-------- --------- --------- ---------
NET INCOME (LOSS) $(54,913) $ (84,452) $(131,512) $(217,964)
======== ========= ========= =========
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 June 30, 1998
<TABLE>
<CAPTION>
Additional Retained
Common Stock Paid-in Earnings
Shares Amount Capital (Deficit)
<S> <S> <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)
ADD:
Sale of 22,000 shares
of common stock for
$55,000 debt/interest 22,000 2 54,998
Net loss for the six
months ended June 30,
1998 (Unaudited) (86,452)
--------- ------- -------- ---------
BALANCE, June 30, 1998
(Unaudited) 4,154,000 $ 415 $151,273 $(217,964)
========= ======= ======== =========
</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 June 30, 1997
<TABLE>
<CAPTION>
Cumulative
during
development
Three Six stage from
Months Months Inception inception
Ended Ended (3-22-95) (03-22-95)
06-30-98 06-30-98 through through
(Unaudited) (Unaudited) 12-31-97 06-30-98
<S> <C> <C> <C> <C>
CASH FLOWS PROVIDED (USED)
IN OPERATIONS
Net loss for the period $ (54,913) $ (86,452) $ (131,512) $ (217,964)
Noncash expense included:
Amortization of
organization costs - 274 274
(Increase) decrease
in accounts receivable - - -
Increase in accounts payable (7,650) 24,279 87,098 111,377
--------- -------- --------- ---------
(62,563) (62,173) (44,140) (106,313)
--------- -------- --------- ----------
CASH FLOWS PROVIDED (USED) IN
INVESTING ACTIVITIES - - - -
--------- -------- --------- ----------
CASH FLOWS PROVIDED (USED) IN
FINANCING ACTIVITIES
Proceeds from sale of
stock 62,258 62,258 54,450 116,708
Payment of deferred registration
and organization costs - - (37,523) (37,523)
Increase in long term debt 27,600 27,600
--------- -------- --------- ----------
62,258 62,258 44,527 106,785
--------- -------- --------- ----------
NET INCREASE (DECREASE)
IN CASH (305) 85 387 472
CASH BEGINNING OF PERIOD 777 387 -
--------- -------- --------- ----------
CASH END OF PERIOD $ 472 $ 472 $ 387 $ 472
========= ======== ========= ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ -0- $ -0- $ -0- $ -0-
Income taxes $ -0- $ -0- $ -0- $ -0-
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.
</TABLE>
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.
2. STOCKHOLDERS' EQUITY
Incorporation shares: Upon incorporation, the Company had a
total of 1,992,000 shares subscribed.
<PAGE> 9
WINDSTAR RESOURCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
2. STOCKHOLDERS' EQUITY . . .continued
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.
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.
<PAGE> 10
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
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 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.
<PAGE> 11
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.
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.
As of the filing date of this report the Company has notified
Warrantholders that for a specific time period the exercise price of the
Class A Warrants could be exercised at a reduced price subject to the
written approval of each Warrantholder to modify the same. No replies have
been received by the Company and there is no assurance that the Company will
be successful in getting Warrantholders to accept the Company's offer.
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 15, 1998, at a Special Meeting of the Shareholders the
following matters were submitted to a vote and passed:
1. To effect a 1-for-250 reverse stock split of the company's presently
issued and outstanding common shares from 1,033,000,000 to
4,132,000.
2. Amend the Company's Articles of Incorporation to reduce the total
number of authorized common shares from 3,000,000,000 to 50,000,000
and change the par value of each common share from $0.00001 to
$0.0001 per share.
3. Amend the Company's Articles of Incorporation to reduce the total
number of authorized Preferred Shares from 400,000,000 to 10,000,000
and change the par value of each share of Preferred Stock from
$0.00001 to $0.0001 per share.
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 13th day of August, 1997.
WINDSTAR RESOURCES, INC.
(the "Registrant")
BY: /s/ Richard G. Steeves,
Secretary/Treasurer, Chief Financial Officer and, a
member of the Board of Director
<PAGE> 13
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 June 30, 1998 (Unaudited) and the
Statement of Income for the six months ended June 30, 1998 (Unaudited)
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 472
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 472
<PP&E> 79,487
<DEPRECIATION> 0
<TOTAL-ASSETS> 79,959
<CURRENT-LIABILITIES> 111,377
<BONDS> 0
0
0
<COMMON> 415
<OTHER-SE> (59,018)
<TOTAL-LIABILITY-AND-EQUITY> 79,959
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 86,452
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (86,452)
<INCOME-TAX> 0
<INCOME-CONTINUING> (86,452)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (86,452)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
