<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, 1999.
[ ] 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,
$.0001 par value per share, at March 31, 1999 was 4,212,530 shares.
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<PAGE> 2
PART I
ITEM 1. FINANCIAL STATEMENTS.
WINDSTAR RESOURCES INC.
FINANCIAL INFORMATION
INDEX
PAGE
NUMBER
Independent Auditor's Report 1
Balance Sheets 2
Statements of Operations 3
Statement of Stockholders' Equity 4
Statement of Cash Flows 6
Notes to Financial Statements 7
<PAGE> 3
The Board of Directors
WindStar Resources, Inc.
(A Development Stage Company)
East Peoria, IL
ACCOUNTANT'S REVIEW REPORT
We have reviewed the accompanying balance sheet of WindStar Resources,
Inc. (a development stage company) as of September 30, 1999, and the
related statements of operations, stockholders' equity, and cash flows
for the nine months ended September 30, 1999, and for the period from
March 22, 1995, (inception) through September 30, 1999. The review was
conducted in accordance with Statements on Standards for Accounting and
Review Services issued by the American Institute of Certified Public
Accountants. All information included in these financial statements is
the representation of the management of WindStar Resources, Inc.
A review consists principally of inquiries of company personnel and
analytical procedures applied to financial data. It is substantially
less in scope than an audit in accordance with generally accepted
auditing standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying financial statements in order
for them to be in conformity with generally accepted accounting
principles.
The balance sheet for the year ended December 31, 1998, was audited by
us and we expressed an unqualified opinion on it in our report dated
March 10, 1999. We have not performed any auditing procedures since
that date.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 8
to the financial statements, the Company has experienced significant
operating losses since inception, which raise substantial doubt about
its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 8. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
November 5, 1999
1
<PAGE> 4
WINDSTAR RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ - $ 1,744
--------- ----------
Total Current Assets - 1,744
--------- ----------
OTHER ASSETS
Other assets - 274
Mining claims - 79,076
--------- ----------
Total Other Assets - 79,350
--------- ----------
TOTAL ASSETS $ - $ 81,094
========= ==========
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Bank drafts outstanding $ 1,514 $ -
Accounts payable to related parties 13,808 -
Accounts payable 16,888 21,637
Accrued interest to related parties 28,053 -
Accrued interest 6,724 16,484
Accrued payroll and payroll taxes 124,870 90,951
Notes payable 30,400 53,417
Notes payable to related parties 28,633 -
--------- ----------
Total Current Liabilities 250,890 182,489
--------- ----------
LONG-TERM LIABILITIES
Notes payable to related party,
net of current portion 27,600 27,600
--------- ----------
Total Long-Term Liabilities 27,600 27,600
--------- ----------
TOTAL LIABILITIES 278,490 210,089
--------- ----------
COMMITMENTS AND CONTINGENCIES - -
--------- ----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock - $0.0001 par value;
50,000,000 shares authorized;
4,212,530 shares issued and
outstanding 421 421
Preferred stock - $0.0001 par value;
10,000,000 shares authorized; no
shares issued or outstanding - -
Additional paid-in capital 162,760 162,760
Accumulated deficit during the
development stage (441,671) (292,176)
--------- ----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (278,490) (128,995)
--------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ - $ 81,094
========= ==========
</TABLE>
<PAGE> 5
WINDSTAR RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Period from
Three Months Nine Months 03/22/95
Ended Ended (Inception)
September 30, September 30, Through
(unaudited) (unaudited) 09/30/99
1999 1998 1999 1998 (unaudited)
<C> <C> <C> <C> <C>
REVENUES $ - $ - $ - $ - $ 383
--------- --------- ---------- ---------- ---------
GENERAL AND ADMINISTRATIVE
EXPENSES
Officers' compensation - 23,750 28,750 71,249 127,082
Professional services 7,053 2,965 18,445 10,848 51,451
Other general and
administrative 75 17,024 3,322 38,985 148,495
Amortization 205 - 274 - 685
--------- --------- ---------- ---------- ---------
Total general and
administrative
expenses 7,333 43,739 50,791 121,082 327,713
--------- --------- ---------- ---------- ---------
OPERATING INCOME
(LOSS) (7,333) (43,739) (50,791) (121,082) (327,330)
--------- --------- ---------- ---------- ---------
OTHER INCOME (EXPENSES)
Impairment of mining
claims (79,076) - (79,076) - (79,076)
Interest expense (6,798) (4,372) (19,628) (13,480) (35,265)
--------- --------- ---------- ---------- ---------
Total other income
(expenses) (85,874) (4,372) (98,704) (13,480) (114,341)
--------- --------- ---------- ---------- ---------
NET INCOME (LOSS) $ (93,207) $ (48,111) $ (149,495) $ (134,562) $(441,671)
========= ========= ========== ========== =========
NET INCOME (LOSS) PER
COMMON SHARE $ (0.0221) $ (0.0115) $ (0.0355) $ (0.0325) $ (0.1393)
========= ========= ========== ========== =========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 4,212,530 4,173,245 4,212,530 4,146,414 3,169,578
========= ========= ========== ========== =========
</TABLE>
See accompanying notes and accountant's review report.
3
<PAGE> 6
WINDSTAR RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Total
Number Paid-in Accumulated Stockholders'
of Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
Beginning balance
March 22, 1995
(inception) - $ - $ - $ - $ -
Sale of shares for
cash at $0.0002
per share 188,000,000 1,880 42,570 - 44,450
Shares exchanged for
mining claims at
$0.000042 per share 310,000,000 3,100 9,900 - 13,000
Net loss - - - (10,094) (10,094)
----------- ------- -------- ---------- ---------
Balance,
December 31, 1995 498,000,000 4,980 52,470 (10,094) 47,356
Shares exchanged for
mining claims at
$0.000165 per share 400,000,000 4,000 62,076 - 66,076
Deferred registration
costs charged to
paid-in capital - - (36,838) - (36,838)
Net loss - - - (4,434) (4,434)
----------- ------- -------- ---------- ---------
Balance,
December 31, 1996 898,000,000 $ 8,980 $ 77,708 $ (14,528) $ 72,160
----------- ------- -------- ---------- ---------
</TABLE>
See accompanying notes and accountant's review report.
4
<PAGE> 7
WINDSTAR RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Total
Number Paid-in Accumulated Stockholders'
of Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance brought
forward 898,000,000 $ 8,980 $ 77,708 $ (14,528) $ 72,160
Sale of shares for
cash at $0.000074
per share 135,000,000 1,350 8,650 - 10,000
Net loss - - - (116,984) (116,984)
------------- ------- --------- ---------- ---------
Balance, December
31, 1997 1,033,000,000 10,330 86,358 (131,512) (34,824)
Reverse stock split
at 250 to 1 (1,028,867,930) (9,917) 9,917 - -
Shares issued in
exchange for debt
at $2.50 per share 22,000 2 54,998 - 55,000
Warrants exercised
for shares at $0.25
per share 58,460 6 14,964 - 14,970
Registration costs
charged to paid-in
capital - - (3,477) - (3,477)
Net loss - - - (160,664) (160,664)
------------- ------- --------- ---------- ---------
Balance, December
31, 1998 4,212,530 $ 421 $ 162,760 $ (292,176) $(128,995)
============== ======= ========= ========== =========
</TABLE>
See accompanying notes and accountant's review report.
5
<PAGE> 8
WINDSTAR RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Total
Number Paid-in Accumulated Stockholders'
of Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance brought
forward 4,212,530 $ 421 $ 162,760 $ (292,176) $(128,995)
Net loss - - - (149,495) (149,495)
--------- ----- --------- ---------- ---------
Balance,
September 30, 1999
(unaudited) 4,212,530 $ 421 $ 162,760 $ (441,671) $(278,490)
========= ==== ========= ========= =========
</TABLE>
See accompanying notes and accountant's review report.
6
<PAGE> 9
WINDSTAR RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Period from
Three Months Nine Months 03/22/95
Ended Ended (Inception)
September 30, September 30, Through
(unaudited) (unaudited) 09/30/99
1999 1998 1999 1998 (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss $ (93,207) $ (48,111) $ (149,495) $ (134,562) $ (441,671)
Adjustments to reconcile
net loss to net cash
provided (used) by
operating activities:
Amortization 205 - 274 - 685
Impairment of mining
claims 79,076 - 79,076 - 79,076
Changes in assets and
liabilities
Bank drafts
outstanding 1,514 - 1,514 - 1,514
Accounts payable 5,724 36,247 9,059 60,526 30,696
Accrued interest 6,527 - 18,293 - 34,777
Accrued payroll and
payroll taxes (1) - 33,919 - 124,870
-------- -------- --------- --------- ---------
Net cash used by
operating activities (162) (11,864) (7,360) (74,036) (170,053)
-------- -------- --------- --------- ---------
Cash flows from investing
activities - - - - -
-------- -------- --------- --------- ---------
Cash flows from financing
activities:
Stock issuance and
offering costs - 12,969 - 75,226 83,420
Proceeds received on
notes payable 108 - 5,616 - 86,633
-------- -------- --------- --------- ---------
Net cash provided by
financing activities 108 12,969 5,616 75,226 170,053
-------- -------- --------- --------- ---------
Net increase (decrease)
in cash and cash
equivalents (54) 1,105 (1,744) 1,190 -
Cash and cash equivalents,
beginning of period 54 472 1,744 387 -
-------- -------- --------- --------- ---------
Cash and cash equivalents,
end of period $ - $ 1,577 $ - $ 1,577 $ -
======== ======== ========= ========= =========
Supplemental disclosures:
Interest paid $ - $ - $ - $ - $ 217
======== ======== ========= ========= =========
Income taxes paid $ - $ - $ - $ - $ -
======== ======== ========= ========= =========
Non-cash financing activities:
Common stock issued in
exchange of debt $ - $ - $ - $ - $ 55,000
======== ======== ========= ========= =========
Common stock issued for
mineral property $ - $ - $ - $ - $ 79,076
======== ======== ========= ========= =========
</TABLE>
<PAGE> 10
WINDSTAR RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
NOTE 1 ORGANIZATION AND DESCRIPTION OF BUSINESS
WindStar Resources, Inc. ("the Company") was incorporated on March 22,
1995, under the laws of the State of Arizona under the name of
Turtleback Mountain Gold Co., Inc. to conduct business in the fields of
mineral exploration, construction and mining.
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 is seeking additional capital to enable the Company to
continue its operations. However, there are inherent uncertainties in
mining operations and management cannot provide assurances that it will
be successful in this endeavor. The Company has been in the
development stage since its formation on March 22, 1995, and has not
realized any significant revenues from its planned operations.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of WindStar Resources,
Inc. is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of
the Company's management, which is responsible for their integrity and
objectivity. These accounting policies conform to generally accepted
accounting principles and have been consistently applied in the
preparation of the financial statements.
Accounting Method
The Company's financial statements are prepared using the accrual method
of accounting.
Loss Per Share
Loss per share was computed by dividing the net loss for the period by
the weighted average number of shares outstanding during the period.
The weighted average number of shares was calculated by taking the
number of shares outstanding and weighting them by the amount of time
they were outstanding.
Outstanding warrants and stock options were not included in the
computation of loss per share because of the antidilutive effect.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
8
<PAGE> 11
WINDSTAR RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Mineral Properties
Costs of acquiring, exploring and developing mineral properties are
capitalized by project area. Costs to maintain the mineral rights and
leases are expensed as incurred. When a property reaches the
production stage, the related capitalized costs will be amortized using
the units of production method on the basis of periodic estimates of
ore reserves. Mineral properties are periodically assessed for
impairment of value and any losses are charged to operations at the
time of impairment.
Should a property be abandoned, its capitalized costs are charged to
operations. The Company charges to operations the allocable portion of
capitalized costs attributable to properties sold. Capitalized costs
are allocated to properties sold based on the proportion of claims sold
to the claims remaining within the project area.
Provision for Taxes
At September 30, 1999, the Company had net operating loss carryforwards
of approximately $441,000 that may be offset against future taxable
income through 2018. No tax benefit has been reported in the financial
statements, as the Company believes there is a significant chance the
net operating loss carryforwards will expire unused. Accordingly, the
potential tax benefits of the net operating loss carryforwards are
offset by a valuation allowance of the same amount.
Stock Split
The Company restates all references to the number of common shares and
per-share amounts in the balance sheets and statements of operations to
reflect any stock splits or reverse stock splits.
Impaired Asset Policy
In March 1995, the Financial Accounting Standards Board issued a
statement titled "Accounting for Impairment of Long-lived Assets." In
complying with this standard, the Company reviews its long-lived assets
quarterly to determine if any events or changes in circumstances have
transpired which indicate that the carrying value of its assets may not
be recoverable. The Company determines impairment by comparing the
undiscounted future cash flows estimated to be generated by its assets
to their respective carrying amounts. The Company does not believe any
adjustments are needed to the carrying value of its assets at September
30, 1999. See Note 3.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts 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.
<PAGE> 12
WINDSTAR RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
NOTE 3 MINERAL PROPERTIES
Eight mining claims were transferred to the Company on June 30, 1995,
by quitclaim deed in exchange for 310,000,000 shares of common stock.
The mining claims are reflected in the balance sheet at the transferor
cost of $13,000. During the period ended September 30, 1999, the
Company allowed these claims to expire resulting in a charge against
operations in the amount of $13,000.
One hundred twenty-eight mining claims located in the La Paz, Maricopa,
and Yuma counties of Arizona were transferred to the Company on
November 16, 1996, by quitclaim deed in exchange for 400,000,000 units
as explained in note 5. The mining claims are reflected in the balance
sheet at the transferor cost of $66,076. During the period ended
September 30, 1999, the Company allowed these claims to expire
resulting in a charge against operations in the amount of $66,076.
The four Red Raven II claims purchased from Maxam Gold Corporation have
a royalty fee clause attached to them. The royalty fee, payable to
Baragan Mountain Mining, LLC, is five percent of the net income from
operations on the claims or $50,000 annually (whichever is greater)
beginning July 14, 1996. During 1998, the Company settled a default on
the $50,000 annual payment, which was due July 14, 1997, by the
exchange of 22,000 shares of its common stock. This included $5,000 of
interest, which had been accrued on the indebtedness. As part of this
settlement, the $50,000 annual fee has been rescinded and future
royalty fees will be calculated on 2.5% of net smelter return from
production from those claims, if any.
NOTE 4 COMMON STOCK
During the year ended December 31, 1995, the Company issued 310,000,000
shares of common stock in exchange for eight mining claims. The stock
was issued at $0.000042 per share.
During the year ended December 31, 1996, the Company issued 400,000,000
units in exchange for one hundred twenty eight mining claims (Note 3).
Each unit consisted of one share of common stock, one "Class A Warrant"
and one "Class B Warrant". The stock was issued at $0.000165 per
share. See Note 5.
During the year ended December 31, 1998, the Board of Directors
authorized a 1-for-250 reverse stock split, thereby decreasing the
number of issued and outstanding shares and increasing the par value of
each share to $0.0001. All references in the accompanying balance
sheets and statements of operations to number of common shares and per-
share amounts for 1998 and 1999 have been restated to reflect the
reverse stock split.
10
<PAGE> 13
WINDSTAR RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
NOTE 4 - COMMON STOCK (continued)
The Company issued 22,000 shares of its common stock during the year
ended December 31, 1998, in lieu of outstanding debt that was owed to
Baragan Mountain Mining, LLC for an unpaid royalty fee and the interest
accrued. The shares were issued at $2.50 per share.
During the period ended September 30, 1999, no new stock transactions
were executed.
NOTE 5 STOCK WARRANTS
During the year ended December 31, 1996, the Company issued 400,000,000
units. As stated in Note 4, each unit consisted of one share of common
stock, one "Class A Warrant" and one "Class B Warrant". Each "Class A
Warrant" may be exercised to purchase one share of common stock at an
exercise price of $0.01. Each "Class B Warrant" may be exercised to
purchase one share of common stock at an exercise price of $0.02. The
warrants are redeemable at any time upon the Company giving thirty days
written notice to the holder thereof at redemption price of $0.00001
per warrant. The warrants are exercisable up to five years from the
effective date of the offering unless called sooner.
During the year ended December 31, 1998, the Board of Directors voted
to reduce the warrants authorized and outstanding based on a 1 for 250
shares reverse split. This reduced the authorized and outstanding
"Class A Warrants" to 1,600,000 exercisable to purchase 1,600,000
shares of the company's common stock at prices ranging from $0.25 to
$2.50 and the authorized and outstanding "Class B Warrants" to
1,600,000 exercisable to purchase 1,600,000 shares of the company's
common stock at $5.00. As of September 30, 1999, 1,541,558 "Class A
Warrants" remain authorized and outstanding (not exercised). No
warrants were exercised during 1998 or 1999.
NOTE 6 SALE OF STOCK AND GRANT OF OPTIONS
The Company sold 135,000,000 shares of common stock to its president
and chief executive officer for $10,000 cash and granted purchase
options during November 1997. The Company granted to the purchaser
options ("Stock Options") to purchase up to 40,000,000 shares of the
stock during the ten-year period commencing on the second anniversary
of the date of this agreement for the exercise price of $0.01 per
share, and up to 40,000,000 additional shares of stock during the ten-
year period commencing on the third anniversary of the date of this
agreement for the exercise price of $0.02 per share. This agreement
was dated November 11, 1997.
11
<PAGE> 14
WINDSTAR RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
NOTE 6 - SALE OF STOCK AND GRANT OF OPTIONS (continued)
During the year ended December 31, 1998, based on a 1-for-250 reverse
stock split, the Board of Directors reduced these stock options to
160,000 shares during the ten-year period commencing on the second
anniversary of the date of this agreement at an exercise price ranging
from $0.25 to $2.50 per share and 160,000 additional shares of stock
during the ten-year period commencing on the third anniversary of the
date of this agreement at an exercise price of $5.00 per share. No
options were granted or exercised during 1998 or the nine months ended
September 30, 1999.
Following is a summary of the status of fixed options outstanding at
December 31, 1998, and September 30, 1999:
Weighted Weighted
Exercise Average Remaining Average
Price Range Number Contractual Life Exercise Price
$0.25 to $2.50 160,000 10 years $1.375
The options referred to above are exercisable beginning November 11,
1999. The Company estimates that substantially all of these options
will be exercised during the contractual period.
NOTE 7 NOTES PAYABLE
The Company's long-term debt at September 30, 1999, consists of an
unsecured note with Phoenix International Mining, Inc., a related
party, dated August 1, 1997, with interest due at 1% per month and the
principal payable at the discretion of WindStar Resources, Inc. with
the full amount due not later than five years from the date of the
note. Under terms of the note, the Company may borrow from time to
time in varying amounts up to the sum of one million dollars within the
two years from the date of the note. The balance due at September 30,
1999, was $27,600.
All other notes are short-term, unsecured demand notes with an interest
rate of 12% per annum.
Maturities of the notes payable are as follows:
1999 $ 59,033
2000 -
2001 -
2002 27,600
2003 -
12
<PAGE> 15
WINDSTAR RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
NOTE 8 GOING CONCERN
As shown in the financial statements, the Company incurred a net loss
of $149,495 during the period ended September 30, 1999, and has an
accumulated deficit of $441,671 since inception.
These factors indicate that the Company may be unable to continue in
existence. The financial statements do not include any adjustments
related to the recoverability and classification of recorded assets, or
the amounts and classification of liabilities that might be necessary
in the event the Company cannot continue in existence.
The Company intends to raise additional capital in the future through
loans or the sale of common stock. There is no guarantee that the
Company will be successful in its efforts to raise the necessary
capital and, if not, it may not be able to continue as a going concern.
NOTE 9 - RELATED PARTY TRANSACTIONS
The Company has a long-term note payable to a related party as
indicated in Note 7. The Company also has short-term notes payable and
accounts payable to related parties of $28,633 and $13,808,
respectively.
The Company also has a consulting agreement with a related party (Note
10).
NOTE 10 COMMITMENTS AND CONTINGENCIES
Environmental regulations
The Company has been engaged in the exploration and development of
mineral properties. During the quarter ending September 30, 1999, the
Company allowed the mineral claims to expire. Although the minerals
exploration and mining industries are subject to complex environmental
regulations, the Company is unaware of any pending litigation or of any
specific past or prospective environmental issue.
Consulting agreement
The Company has a consulting contract with the Company's president,
which provides for executive services to be performed from April 1,
1999, through March 31, 2001. During the six months ended September 30,
1999, the Company recorded $960 of charges under this contract. At
September 30, 1999, these charges were unpaid and are expected to be
satisfied with the issuance of common stock. This contract may be
renewed for three succeeding terms and may be terminated with a 90-day
notice of either party or upon any merger, consolidation, or transfer
of assets by the Company.
13
<PAGE> 16
WINDSTAR RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
NOTE 11 SUBSEQUENT EVENTS
Acquisition of Nexland, LLP
In August 1999, the Company signed a letter of intent to acquire all of
Nexland, LLP, based in Aventura, Florida. Nexland, LLP is in the
business of marketing information technology hardware. The Company
intends to change its name subsequent to the acquisition to Nexland,
Inc. The Company anticipates closing this transaction by the end of
November 1999.
Stock issuance in settlement of liabilities
Subsequent to the financial statement date, the Company entered into an
agreement to issue 267,130 shares of common stock in partial payment of
outstanding liabilities, which totaled $267,130.
NOTE 12 YEAR 2000 ISSUES
The Company has modified its business technologies to be ready for the
year 2000. Critical data processing systems have been reviewed and the
Company does not expect a significant effect on internal operations.
However, like other companies, WindStar Resources, Inc. could be
adversely affected if the computer systems its suppliers or customers
use do not properly process and calculate date-related information and
data for the period surrounding and including January 1, 2000. This is
commonly known as the "Year 2000" issue. Additionally, this issue
could impact non-computer systems and devices such as production
equipment, elevators, etc. At this time, because of the complexities
involved in the issue, management cannot provide assurances that the
Year 2000 issue will not have an impact on the Company's operations.
All costs related to year 2000 compliance are expensed as incurred.
14
<PAGE> 17
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 were transferred to the Company on June 30,
1995 by "Quitclaim Deed" in exchange for 1,240,000 shares on 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.
Included in this group of claims are the four Red Raven II Claims
which carry an annual minimum payment of $50,000 or 5% of the net
income from operations (whichever is greater) 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 on 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.
<PAGE> 18
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 31 each year. The Company failed to pay the annual assessment
amount as of August 31, 1999, resulting in the loss of these claims
and mining rights.
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 $2.50 per share and 160,000
shares at $5.00 per shares for a period of ten years. On July 29, 1998,
the $2.50 option price was reduced to conform with the offer granted to
the Warrantholders to exercise the Class A Warrants at a reduced price
for a specific time period. As of the date of this report, no options
to purchase additional shares were exercised. On April 1, 1999, Fred
R. Schmid's salary compensation under the employment agreement has been
temporarily suspended and replaced with shares of Common Stock in the
Company.
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
($1,000,000) dollars with Phoenix International Mining Inc.(a principle
stockholder), with interest to be at one (1%)percent 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 terminated by the
Board of Directors. The Company is therefore considering the exercise
of the outstanding 3,200,000 "A" and "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, 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 A Warrant entitles the holder to purchase one share
of Common Stock at $2.50 per share; and each 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. On July 29, 1998, the Company notified Class A Warrantholders
of an offer to exercise the Class A Warrants at a reduced price for a
specific time period, subject to the written approval of each
Warrantholder to modify the same. A majority of the Class A
Warrantholders did reply and approved a lower exercise price of the
Class A Warrant. To date, $12,839 has been raised through the exercise
of a small portion of the Class A Warrants by some of the
Warrantholders who approved the modification. Funds must continue to be
raised through the exercise of the Class A and Class B Warrants. There
is no assurances that the Warrants will be exercised, nor that the
Company will realize any funding from this transaction.
<PAGE> 19
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.
To date, no market has been established to trade the Warrants and none
is expected to be made.
The Company has estimated that a minimum of $950,000 of proceeds
to be derived from 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
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 figures reflects a 1 for 250 share reverse split
which occurred on April 15, 1998.
The Company's management continues to explore opportunities which
could create valuation for shareholders. The Company has received
expressions of interest from several companies concerning a possible
joint-venture, acquisition or merger transaction. However, due to the
depressed price for gold and the fact that many mining companies have
curtailed exploration activities in favor of pursuing properties with
proven reserves or production, the Company has been unable to conclude
a joint-venture transaction or raise funds for exploration and
development of the properties. Management believes that a significant
increase in the price of gold is necessary before the Company is
successful in raising capital for its operations. On August 31, 1999,
due to the lack of funds, the Company failed to pay the annual
maintenance fee of $100 per claim to the United States government and
$10 per claim to the county where the precious metal claims are
located, which resulted in the lost of these claims and mining rights.
Discussion with interested joint-venture, acquisition or merger
candidates has therefore been canceled
Management is of the opinion that it is not presently economical
to continue as a public gold exploration mining company and has engaged
the services of a consultant to assist management in finding a suitable
reverse acquisition company candidate. At the time of this report the
Company has entered into serious discussions with several possible
reverse acquisition company candidates and expects to eventually reach
an agreement with one of these candidates.
<PAGE> 20
A reverse acquisition transaction with a private company would
permit the private company to become a public company using our Company
as a means of achieving their goal. The reverse acquisition company
candidate in that case would have the major stock and control position
in the company and all current shareholders' stock position in the
company would be significantly diluted. Since it is likely that a
reverse acquisition company candidate would not be a gold mining
company or be interested in our assets, the Company's activities will
move in another direction, away from mining.
Management has concluded a Letter of Intent with a possible
acquisition candidate and a transaction may be completed following the
due diligence period of examining the acquisition candidate's legal
corporate status, management, financial statements and business
potential. Should a reverse acquisition be completed, the acquisition
candidate's shareholders would gain majority control of the Company,
assume management responsibilities, change the name of the Company,
replace the existing board of directors with interim members until the
annual shareholders meeting, at which time shareholders can elect the
candidates, obtain a new trading symbol for the Company's stock, and
be fully responsible for continuing to file the necessary quarterly and
annual reports to the Securities and Exchange Commission, in order to
maintain the Company's OTC-BB listing as a public company.
The Company is aware of the issues associated with the programming
code in existing computer systems as the millennium (year 2000)
approaches. The "year 2000" problem is pervasive and complex as
virtually every computer operation will be affected in some way by the
rollover of the two digit year value to 00. The issue is whether
computer systems will properly recognize date sensitive information
when the year changes to 2000. Systems that do not properly recognize
such information could generate erroneous data or cause a system to
fail. Since the Company is not producing or maintaining time sensitive
operations at present, the year 2000 problem is not anticipated to have
a significant impact on the Company's operations.
<PAGE> 21
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 15th day of November, 1999.
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
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<LEGEND>
This schedule contains summary financial information extracted from the
Statement of Financial Condition at September 30, 1999 (Unaudited) and the
Statement of Income for the nine months ended September 30, 1999 (Unaudited)
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
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