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FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended - December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
Commission file number 333-03074
WINDSTAR RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Arizona 37-1356503
State or 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)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
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 [ ]
Check if no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is contained herein, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. [ ]
State Issuer's revenues for its most recent fiscal year.
December 31, 1998 - $0.
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State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock
was sold, or the average bid and ask prices of such stock, as of a
specified date within the past 60 days. Dec 31, 1998 - $ -0-. There
are approximately 1,007,099 shares of common voting stock of the
Registrant held by non-affiliates. During the past five years, there
has been no "public market" for the shares of Common Stock of the
Registrant, so the Registrant has arbitrarily valued these shares on
the basis of par value per share or $100.71.
Issuers involved in Bankruptcy Proceedings during the past Five Years.
Not Applicable.
State the number of shares outstanding of each of the Issuer's classes
of common equity, as of the latest practicable date:
December 31, 1998 - 4,205,530 shares of Common Stock
Documents Incorporated by Reference
1. Form S-1 Registration Statement and all amendments thereto, which
was declared effective by the Securities and Exchange Commission
on August 16, 1996 and all exhibits thereto.
2. Form 10-KSB for the period ending December 31, 1996 and any
amendments thereto.
3. Form 10-KSB for the period ending December 31, 1997 and any
attachments thereto.
4. Form S-1 Registration Statement and all amendments thereto, which
was declared effective by the Securities and Exchange Commission
on June 19, 1998, and all exhibits thereto.
Transitional Small Business Issuer Format
YES [ x ] NO [ ]
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PART I
ITEM 1. BUSINESS.
Background and Business Strategy.
Background.
WindStar Resources, Inc. (formerly Turtleback Mountain Gold Co.,
Inc.)(the "Company") has had no significant operating history and must
be considered an exploration stage company. The Company was formed on
March 22, 1995, to engage in the business of identification,
acquisition, exploration and, if warranted, development of mineral
properties and the production of minerals therefrom. The Company does
not own an operating mine and has no other revenue-producing mining
activities. Moreover, it is not expected to commence mining
activities, at least with respect to its southwestern Arizona
properties, until the following events have occurred; initial operating
capital has been secured; significant exploration activities on the
Company's mining claims have been completed; a determination has been
made that the properties contain a commercially mineable ore body; all
required mining and environmental permitting applications have been
approved; a comprehensive feasibility study or proposed mine plan has
been prepared; and adequate financing of a mine has been obtained.
There is no assurance that the Company will be successful in any of
these activities. The mineralization of main exploratory interest is
gold. No reserves have been delineated on the property, and to date
the Company has not identified a commercially mineable ore body.
Business Strategy.
Since incorporation in 1995, the Company's operations have been
centered around its (i) organization; (ii) evaluation of the mining
industry; (iii) start-up financing of its operations; (iv) acquiring
mining claims and interests in southwestern Arizona; (v) formulation
and implementation of its business plan.
The Company acquired the mining rights to 136 unpatented claims as
a result of several transactions involving affiliated parties, who
previously staked and maintained the properties by paying an annual
maintenance fee of $100 per claim payable to the United States
Government by August 31 each year. Due to such relationships none of
these transactions can be deemed to have resulted from arms-length
negotiations. The terms of these transactions may not be as favorable
to the Company as they might have been had the Company dealt with
unaffiliated parties.
Eight claims were transferred to the Company on June 30, 1995 in
exchange for 1,240,000 "restricted" shares of Common Stock and were
valued at the transferors' cost of $13,000. On November 16, 1996, the
Company issued 1,600,000 Units in exchange for 128 unpatented claims.
Each Unit consisted 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 Warrant"); and, one warrant to purchase one share of
Common Stock at an exercise price of $5.00 per warrant ("Class B
Warrant"). The Warrants may be redeemed by the Company at any time upon
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thirty (30) days written notice to the holders thereof at a redemption
price of $0.00001 per warrant. The Warrants are exercisable up to
August 16, 2001 (five years from the effective date) unless called
sooner. The number of shares issued was based on the amount of acreage
owned by a claimant. The Company issued approximately 89.69 Units for
each acre it acquired and are reflected in the balance sheet at
the transferor cost of $66,076. The foregoing number of Units was
arbitrarily determined by the Company and bore no relationship to the
value of the claims and no fairness opinion was obtained from an
independent party.
The four Red Raven II Claims acquired under a January 7, 1994
agreement from Maxam Gold Corporation have a royalty fee clause
attached to them. The royalty fee is five percent (5%) of the net
income from operations on the Claims or $50,000.00 annually (which ever
is greater) starting July 1, 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. All of the claims will be 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 intends to adopt Financial
Account Standards No. 121 effective January 1, 1996.
The Company's management believes that exploration is warranted on
eight claims currently held by the Company as indicated by recent
geology information. Management's belief is predicated upon a report
dated October 1986 prepared by William T. Marston, P.E., deceased,
which indicates that there are economically recoverable quantities of
gold in the mineralized material. Reports written on May 7th and
September 4th, 1996 by Hewlett Mineral Management indicated a mineral
resource on the Lost Horse Peak Claim of approximately 10.9 million
tons averaging a gold grade of 0.036 troy ounces per ton (see
Exploration and Development Section). However, there can be no
assurance the occurrence, grade, and quantity of gold or other precious
metal mineralization will satisfy the cost of recovery. Currently,
there are no known mineral deposits of commercial mineable significance
on any of the Company's properties. Nevertheless, according to
preliminary geological information, eight of the claims demonstrate
mineralization features related to possible deposits of gold or other
precious metals sufficient to merit further exploration. If sufficient
funds are available, management plans to complete the exploration stage
of operations on these eight claims and others to substantiate the
presence of sufficient commercial gold bearing deposits and to prepare
a feasibility report based upon such information, if indicated. To
date, the Company has not established any marketing plans or concluded
any commercial mineral reserves which may be located on the Company's
claims.
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The Company anticipates funding the cost of exploration by the
sale of common stock, loans, or possible joint venture projects with
third parties. The Company has not identified any purchasers of common
stock, lenders or joint venture partners as of the date of this report
and there is no assurance that any sales of common stock, loans or
joint ventures will ever occur. There has only been a very limited
public market for the Units and Common Stock of the Company.
Olsen Payne, a broker/dealer firm, has filed a Securities and
Exchange Commission Form under Rule 15c2-11, seeking the right to
initiate quotations of the Company's securities in the OTC Bulletin
Board Service. Management believes that the listing of its securities
on the OTCBB could be of value to shareholders and warrantholders and
assist the Company in its efforts to raise the necessary funding for
its exploration program. However, there can be no assurance that a
trading market will develop or continue following the listing of the
Company's securities on the OTCBB, or even if such a trading market
should develop that the securities may be resold at or near their
original cost. The exercise price of all Classes of Warrants,
including those originally offered as part of the Units, has been
determined arbitrarily by the Company and bears no relationship
whatsoever to assets, earnings, book value, or any other objective
standard of worth. On September 16, 1998, the National Association of
Securities Dealers ("NASD") cleared Olsen Payne & Company's request to
quote the Company's Common Stock for trading on the OTC Bulletin Board
("OTCBB"). 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.
Property Location, Description and Access.
The claims are located in La Paz, Maricopa and Yuma counties,
Arizona. Parker is the county seat for La Paz County, Phoenix is the
county seat for Maricopa County and Yuma is the county seat for Yuma
County. The claims are accessible from state, county roads or ranch
roads on BLM land and lie in flat desert areas with minimum vegetation
as is common in arid areas.
Title - Unpatented Claims.
The Company owns or holds the mining rights on Unpatented mining
claims. The Unpatented mining claims are possessory only and are held
by right of location. Management believes that all of its Unpatented
claims are properly staked and recorded, and that it has the right to
possession of them, and the right to remove minerals therefrom.
Unpatented mining claims require a maintenance fee of $100 to be paid
to the United States Government by August 31 each year. All
maintenance fees have been paid to date. The claims have been properly
recorded at the Bureau of Land Management, and with the various county
recorders, in compliance with federal and state filing requirements.
Presently, the Company's total cost to maintain its mining rights on
the Unpatented mining claims is $13,600.00 per year.
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History.
There has been no significant operating history and the Company
must be considered an exploration stage company. The Company does not
own an operating mine and has no other revenue-producing mining
activities. To date there has been limited exploration work on a small
portion of the claims held by the Company.
Geology.
The sites lie within the Basin and Range province of Southwest
Arizona. Each site is in the flat lying, gently sloping and relatively
uncut area between and along the adjacent mountains. The sites are
covered (or filled) by basin fill that is recent to Pleistocene in age.
The source areas for the basin fill are the surrounding ranges of hills
and mountains. The basin fill is composed of unconsolidated gravel,
sand, silt, clays, and possibly some glacial till and debris. The silt
and clays are water deposited although there is evidence that some of
the silt sand may be air-borne and deposited. The gravel may or may not
be water worn-usually the top or upper layers of coarser material are
angular indicating that this material has not traveled far from its
in-situ location.
Other Properties.
Management may enter into new mining ventures with joint
venturers, partners or other third parties. Such arrangements may be
multi-party ventures to which the Company will contribute stock, cash
and/or mineral interests. In such arrangements, the Company's
participation in revenues and profits, if any, will be reduced. At this
time, the Company has no agreement or understanding with any third
parties for the formation of a joint mining operation.
In determining the suitability of any property as a prospective
acquisition, factors to be considered by the Company will include, but
not be limited to, the following: (a) whether the asking price is
competitive and permits possible appreciation in value; (b) condition
of title; (c) whether the geological features of the property indicate
the probable likelihood of gold mineralization of a commercial grade
that is of sufficient quantity to justify further exploration and
development; (d) time and expenses which will be involved in the
exploration and development of the property; (e) a fairness opinion on
the economic considerations of the transaction from independent
parties, if warranted; and, (f) procedure for exploration and
development (individually or joint venture).
Management, together with such professional advisors which the
Company deems appropriate, will investigate prospective properties
through on-site examination, reviewing available geologic reports or
publications relating to the property, and a general field
reconnaissance to secure preliminary information regarding
characteristics of the property. If, from such preliminary reviews,
management deems it advisable to further investigate the property, the
Company may determine the condition of title and ownership by using
abstractors or title companies, and may obtain a preliminary
feasibility study by one or more geologists, mining engineers, or
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accountants. If, after the foregoing preliminary investigation,
management determines that the property does not meet the Company's
acquisition criteria, efforts to acquire the property would be
abandoned, in which case costs incurred in conducting the investigation
would not be recoverable. In the event the property is abandoned, the
Company intends to reallocate the unexpended proceeds for the
acquisition and/or exploration of other prospects.
Exploration and Development Activities.
Since the claims are without known commercially mineable proven or
probable reserves the Company proposes to investigate and explore the
possibility of commercial grade of minerals contained in the claims
through exploration work on the properties. In order to determine if
such minerals are present, the Company must raise the necessary capital
to undertake an initial exploration program. Approximately $1.0
million is budgeted for initial trenching, drilling, sampling,
assaying, metallurgical testing, permitting, engineering, geological
and administrative supervision of the program. Multiple claims will be
investigated with primary focus directed toward Lost Horse Peak, Vekol
Valley and Red Raven claims, since preliminary information has
previously been reported on these claims by independent sources. On
September 4, 1996, Hewlett Mineral Management issued a report on Lost
Horse Peak based on two series of back-hoe trenches and two periods of
auger drill-hole sampling to compute a mineralized resource of
approximately 10.9 million tons averaging a gold grade of 0.036 troy
ounces per ton. This information was based upon standard methods of
ore computation on 500-foot square blocks through interpolation into a
500-foot square grid. However, additional work must be completed to
establish and confirm that the mineralized values are consistent
throughout the tested area through in-fill drilling, trenching,
sampling, assaying, metallurgical testing and additional work before
proven reserves can be reported. There is no assurance that reserves
will be established or that the estimated exploration costs will be
sufficient to prove the existence of commercial grade minerals. Costs
may vary depending upon unknown events which may impact the exploration
and mining of claims
The Company expects to pay the costs of such exploration work from
funds to be realized through the exercise of the outstanding "A" and
"B" Warrants held by shareholders of the Company, which are exercisable
into shares of the Company's Common Stock at $2.50 and $5.00
respectively. Management is also considering raising funds through
loans. On August 1, 1997, the Company established a line of credit for
$1,000,000 with Phoenix International Mining, Inc.(a principal
shareholder), however, at the time of this report this source of
funding has been delayed due to unforeseen circumstances beyond
Phoenix's control. The Company therefore is considering the exercise
of the outstanding Warrants as its best source of raising capital for
funding the initial phase of exploration work. 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, $14,999 has been raised
through the exercise of a small number of Class A Warrants. Management
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may also seek to raise capital through a public offering of its
securities or joint venture participation from third parties. There is
no assurance, however, that the Company will be successful in its
efforts to raise capital or how long it may take to raise adequate
funds to complete the exploration of the claims. In the event adequate
capital is not available to complete the exploration of the claims or
if adequate capital is raised but commercial grade of minerals are not
established on any of the claims a Shareholder or Warrantholder could
lose his/her entire investment.
Mining, Environmental and Other Matters Pertaining to Properties.
Overview.
The Company, like other mining companies doing business in the
United States, is subject to a variety of federal, state and local
statutes, rules and regulations designed to protect the quality of the
air and water in the vicinity of its mining operations and the
preservation of certain archeological sites. These include
"permitting" or pre-operating approval requirements designed to ensure
the environmental integrity of a proposed mining facility, operating
requirements designed to mitigate the effects of discharges into the
environment during mining operations, and reclamation or post-operation
requirements designed to remediate the lands affected by a mining
facility once commercial mining operations have ceased. These laws also
set forth limitations on the generation, transportation, storage and
disposal of solid and hazardous waste.
Federal legislation and implementing regulations adopted and
administered by the Environmental Protection Agency, the Forest
Service, the Bureau of Land Management, the Fish and Wildlife Service,
the Army Corps of Engineers and other agencies in particular,
legislation such as the federal Clean Water Act, the Clean Air Act, the
National Environmental Policy Act and the Comprehensive Environmental
Response, Compensation and Liability Act, have a direct bearing on
domestic mining operations. These federal initiatives are often
administered and enforced through state agencies operating under
parallel state statutes and regulations. Although mines continue to be
approved for development in the United States, the cost and uncertainty
associated with the permitting process could have a material affect on
mining the properties.
The Clean Water Act.
The federal Clean Water Act is the principal federal environmental
protection law regulating mining operations. The Act imposes
limitations on waste water discharges into waters of the United states,
including discharges from point sources such as mine facilities. In
order to comply with the Clean Water act, the Company will be required
to obtain one or more permits which will control the level of effluent
discharges from future proposed mining and processing operations.
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The Clean Air Act.
The federal Clean Air Act limits the ambient air discharge of
certain materials deemed to be hazardous and establishes a federal air
quality permitting program for such discharges. Hazardous materials
are defined in enabling regulations adopted under the Act to include
metals and toxic solvents such as cyanide which is used in heap leach
recovery processes. The Act also imposes limitations on the level of
particulate matter generated from mining operations, and the Company
may be required to adopt dust control techniques in all phases of
mining in order to comply with these limitations.
The National Environmental Policy Act.
The National Environmental Policy Act ("NEPA") requires all
governmental agencies to consider the impact on the human environment
of major federal actions as therein defined. Because the Company's
mining properties are located on federal lands, mining operations on
those lands could be conditioned on the preparation, review and
approval of an environmental impact statement outlining in detail the
environmental effects of such operations and the Company's efforts to
ameliorate such effects.
The Comprehensive Environmental Response, Compensation and Liability
Act.
The federal Comprehensive Environmental, Response, Compensation
and Liability Act ("CERCLA") imposes clean-up and reclamation
responsibilities with respect to unlawful discharges into the
environment, and establishes significant criminal and civil penalties
against those persons who are primarily responsible for such
discharges.
Arizona Environmental Laws and Regulations.
Arizona has adopted counterparts to NEPA and CERCLA, being the
Environmental Policy Act and the Metal Mine Reclamation Act, both of
which are administered by the Department of Lands. The state has also
adopted the Air Quality Act and Water Quality Act, which parallel to a
large extent the provisions of the Clean Air Act and Clean Water Act;
these statutes are administered through various bureaus of the
Department of Environmental Quality.
Compliance with statutory environmental quality requirements may:
necessitate significant capital outlays; materially affect the earning
power of the Company; or may cause material changes in the Company's
intended activities. No assurance can be given that environmental
standards imposed by either federal, state or local governments will
not be changed or become more stringent, thereby possibly materially
adversely affecting the proposed activities of the Company.
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Competition and Markets.
The Company faces extensive competition in the acquisition of
properties suitable for the exploration and development of gold and
other precious metals. Many of the Company competitors have greater
financial resources and more extensive operating histories that the
Company. There is no assurance the Company will be able to begin
exploration work which results in the discovery of commercially
producible quantities of gold or other previous metals. In addition,
there is no assurance that the Company's property interests can be
economically maintained.
The exploration and development of mineral properties, and the
marketing of minerals, are affected by a number of facts which are
beyond the Company's control. These factors include fluctuations in
the market price of gold and previous minerals, availability of
adequate transportation and equipment, marketing of competitive
minerals, prices of fuels and fluctuating supply and demand for
minerals.
Offices.
The Company's headquarters and executive offices are located at
528 Fon du Lac Drive, East Peoria, Illinois 61611 and the telephone
number is (309) 699-8725. The Company uses approximately 100 square
feet of space at the aforementioned address rent free.
Management Remuneration.
From March 22, 1995 through November 11, 1997, no compensation has
been paid or accrued to any Officer or Director to date. The Company
entered into a three (3) year employment agreement with Fred R. Schmid
as its President/CEO effective November 11, 1997 that requires him to
devote at least 80% of his time to the affairs of the Company. Between
November 11 through December 31, 1997, Schmid was paid as a consultant
to the Company. Under the agreement, Schmid shall be compensated at a
base salary of $95,000 for the first year, a base salary of $115,000
for the second year and a base salary of $140,000 for the third year,
such salary to be payable in equal monthly installments with an annual
cost of living adjustment based upon the percentage of increase in the
consumer price index for New York City-Northern New Jersey. As
additional consideration for his commitment to render future services
to the Company, the Company shall pay Schmid a cash bonus equal to 3%
of the Company's Net Pre-Tax Operating Profit, as determined by the
Company's independent certified public accountants. For each joint
venture arranged by Schmid on behalf of the Company, Schmid shall
receive, subject to applicable securities and other laws, an equity
ownership of 3% of the Company's equity ownership therein or in such
other entity formed by the Company for the purposes of entering into a
joint venture. Upon completion of raising the initial $1,000,000 equity
(excluding the equity raised through the exercise of the Company's
outstanding A and B Warrants) for the Company, the Company will pay the
premium necessary (but not to exceed $25,000) per year to (a) purchase
a $1,000,000 one-year term life insurance policy on Schmid's life
renewable each year thereafter; or (b) apply an amount equal to such
premium each year to purchase mutual fund shares or a tax-deferred
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annuity in Schmid's name, whichever Schmid may elect. If the agreement
is terminated for any reason except cause or the death of Schmid, he
will be entitled to receive a lump sum payment equal to the greater of
(i) $5,000,000 or (ii) one percent (1%) of the Company's net worth as
of the preceding year's end, plus the balance of any salary and bonus
owed to Schmid pursuant to the agreement. The Company has no other
employment agreements and it has no retirement, pension or profit
sharing plan. Along with the retention of its Officers, the Company
anticipates adding employees as needed in the future.
Safe Harbor Statement.
Some of the statements contained in this report relate to future
events and are considered to be "forward-looking statements" under the
Private Securities Litigation Reform Act of 1995. These statements do
not involve historical facts and pose special risks and uncertainties.
In evaluating these forward-looking statements, you should be mindful
of these potential risks and uncertainties, including: the likelihood
that the Company will continue to incur losses from operations pending
development of its mining properties, and the uncertainly that it will
be able to continue as a going concern; the likelihood that the Company
will need to obtain significant additional financing in order to
develop its properties; the effect of extensive regulatory controls
over mining operations; the environmental and other risks associated
with mining; the absence of established proven and probable reserves on
the Company's mining properties; fluctuations in the price of gold; and
other factors that may affect future results. These risks and
uncertainties, which may not be complete, are described in greater
detail below.
Risk Factors.
1. Exploration Stage Mining Company with No History of Operation.
The Company is in its exploration stage, has no operating history and
is subject to all the risks inherent in a new business enterprise. The
Company does not own an operating mine and has no other revenue-
producing mining activities. The likelihood of success of the Company
must be considered in light of the problems, expenses, difficulties,
complications and delays frequently encountered in connection with a
new business, and the competitive and regulatory environment in which
the Company will operate.
2. Securities are Subject to Penny Stock Rules. The Company's
shares are "penny stocks" consequently they are subject to Securities
and Exchange Commission regulations which impose sales practice
requirements upon brokers and dealers to make risk disclosures to
customers before effecting any transactions therein.
3. No Commercially Mineable Ore Body. No commercially mineable
ore body has been delineated on the properties, nor have any reserves
been identified.
4. Risks Inherent in the Mining Industry. The Company is subject
to all of the risks inherent in the mining industry including,
without limitation, the following: competition from a large number of
companies, many of which are significantly larger than the Company, in
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the acquisition, exploration, and development of mining properties; in
order to maintain possessory title to Unpatented mining claims after
discovery of valuable mineral deposits, the claim holder must pay fees;
exploration for minerals is highly speculative and involves substantial
risks, even when conducted on properties known to contain significant
quantities of mineralization, and most exploration projects do not
result in the discovery of commercially Mineable deposits of ore;
operations are subject to a variety of existing laws and regulations
relating to exploration and development, permitting procedures, safety
precautions, property reclamation, employee health and safety, air
quality standards, pollution and other environmental protection
controls; a large number of factors beyond the control of the Company,
including fluctuations in gold, silver, or other mineral prices,
inflation, and other economic conditions, will affect the economic
feasibility of mining of precious metals, particularly gold and silver;
mining activities are subject to substantial operating hazards some of
which are not insurable or may not be insured due to economic
considerations; the availability of water, which is essential to
milling operations; and, interruptions caused by adverse weather
conditions.
5. Need for Additional Capital. The ability of the Company to
ultimately conclude the exploration of its properties will depend upon
its ability to raise additional capital or to enter into arrangements
for such purposes with third parties. There can be no assurance that
additional financing will not be required sooner than presently
projected. There also can be no assurance that additional capital or
other types of financing will be available when needed or that, if
available, the terms of such financing will be commercially acceptable
to the Company.
6. Nature of the Industry. Exploration, development and mining
of mineral properties is highly speculative and involves unique and
greater risks than are generally associated with other businesses. The
Company's operations will be subject to all the operating hazards and
risks normally incident to the exploration, development and mining of
mineral properties, including risks enumerated above and below.
7. Fluctuating Price for Gold. The Company's operations will be
greatly influenced by the price of gold. Gold prices fluctuate widely
and are affected by numerous factors beyond the Company's control,
including expectations for inflation, the strength of the United States
dollar, global and regional demand and political and economic
conditions and production costs in major gold producing regions of the
world.
8. Unpatented Claims. The Company holds unpatented mining
claims, which are possessory only and are held by right of location.
These claims are subject to inherent hazards of non-recorded risks.
Unpatented mining claims are subject to title hazards, and require
payment of fees.
9. Environmental Controls. Compliance with statutory
environmental quality requirements may necessitate significant capital
outlays, may materially affect the earning power of the Company, or may
cause material changes in the Company's intended activities. No
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assurance can be given that environmental standards imposed by either
federal or state governments will not be changed or become more
stringent, thereby possibly materially adversely affecting the proposed
activities of the Company.
10. Governmental Regulation and Environmental Controls. The
Company's activities are subject to extensive federal, state, county
and local laws and regulations controlling not only the exploration for
and development of mineral properties, but also the possible effect of
such activities upon the environment. In its mining operations, the
Company will use certain equipment which will subject the Company to
federal and state safety and health regulations. While the Company
intends to act in compliance with all such regulations, any adverse
ruling under any regulations, any imposition of a fine, or any
imposition of more stringent regulations could require the Company to
make additional capital expenditures that could impair its operations.
The United State Congress is currently considering changes to the
General Mining Laws of 1872. The exact nature and extent of any
changes are unknown at this time, but it is anticipated that there may
be changes affecting the cost of acquiring patented mining claims and
the assessment work required to hold Unpatented claims.
11. No Dividends. The Company has paid no dividends since its
inception and does not intend to pay any dividends in the foreseeable
future. Instead, the Company intends to retain all earnings, if any,
for use in its business operations.
12. Preferred Shares Authorized. Although the Company does not
presently intend to issue preferred shares, the holders of preferred
shares, if and when issued, would more than likely have rights superior
to those of common shareholders. Any issuance of preferred shares
would dilute the interest of the common shareholders.
13. Reliance Upon Directors and Officers. The Company is wholly
dependent, at the present, upon the personal efforts and abilities of
its Officers who will exercise control over the day to day affairs of
the Company and upon its Directors, most of whom are engaged in other
activities, and will devote limited time to the Company's activities,
upon completion of this offering. The President will devote 80% of his
time to the operation of the day to day affairs of the Company and the
Secretary/Treasurer will devote 25% his time to the operation of the
day to day affairs to the Company. There can be no assurance as to the
volume of business, if any, which the Company may succeed in obtaining,
nor that its proposed operations will prove to be profitable.
14. Issuance of Additional Shares. 4,205,530 shares of Common
Stock or 85.3 % of the 50,000,000 authorized shares of Common Stock of
the Company remain unissued even if all of the Redeemable Warrants are
exercised. The Board of Directors has the power to issue such shares,
subject to shareholder approval, in some instances. Although the
Company presently has no commitments, contracts or intentions to issue
any additional shares to other persons, the Company may in the future
attempt to issue shares to acquire equipment or services, or for other
corporate purposes. Any additional issuance by the Company following
the offering, from its authorized but unissued shares, would have the
effect of further diluting the interest of investors in this offering.
<PAGE> 14
15. Non-Arms's Length Transaction. The number of shares of
Common Stock issued to present shareholders of the Company for cash and
property was arbitrarily determined and may not be considered the
product of arm's length transactions.
16. Indemnification of Officers and Directors for Securities
Liabilities. The Articles of Incorporation of the Company provide that
the Company may indemnify any Director, Officer, agent and/or employee
as to those liabilities and on those terms and conditions as are
specified in the Arizona Business Corporation Act. Further, the
Company may purchase and maintain insurance on behalf of any such
persons whether or not the corporation would have the power to
indemnify such person against the liability insured against. The
foregoing could result in substantial expenditures by the Company and
prevent any recovery from such Officers, Directors, agents and
employees for losses incurred by the Company as a result of their
actions. Further, the Company has been advised that in the opinion of
the Securities and Exchange Commission, indemnification is against
public policy as expressed in the Securities Act of 1933, as amended,
and is, therefore, unenforceable.
17. Competition. The Company has competitors and potential
competitors, many of whom may have considerably greater financial and
other resources than the Company.
18. Lack of Public Market for Securities. At present, no market
exists for the Company's securities and there is no assurance that a
regular trading market will ever develop or, if developed, that it will
be sustained. A purchaser of shares may, therefore, be unable to
resell the securities offered herein should he or she desire to do so.
Furthermore, it is unlikely that a lending institution will accept the
Company's securities as pledged collateral for loans unless a regular
trading market develops.
19. Cumulative Voting, Preemptive Rights and Control. There are
no preemptive rights in connection with the Company's Common Stock.
The shareholders purchasing in this offering may be further diluted in
their percentage ownership of the Company in the event additional
shares are issued by the Company in the future. Cumulative voting in
the election of Directors is not provided for. Accordingly, the
holders of a majority of the shares of Common Stock, present in person
or by proxy, will be able to elect all of the Company's Board of
Directors.
20. Possibility of Defective Title. The Company's interests in
the properties are and will be in the form of unpatented mining claims
acquired from third parties. The validity of all unpatented mining
claims is dependent upon inherent uncertainties and conditions. These
uncertainties related to such non-recorded facts as the sufficiency of
the discovery of minerals, proper posting and marking of boundaries,
whether the minerals discovered were properly locatable as a lode claim
or a placer claim as appropriate, whether sufficient annual assessment
work has been performed since location as required by law, and possible
conflicts with other claims not determinable from description of
record. In the absence of a discovery of valuable minerals, a mining
claims is open to location by others unless the owner is in actual
possession of and diligently working the claim.
<PAGE> 15
21. Availability of Water Shortages of Supplies and Materials.
Water is essential in all phases of the exploration for and development
of mineral properties. It is used in such processes as exploration,
drilling, leaching, placer mining, dredging, testing, and hydraulic
mining. Water is known to be in short supply throughout the area where
the Company intends to concentrate its mining activities. Furthermore,
any water that may be found will be subject to acquisition pursuant to
local, state and federal water quality standards. The Company has not
determined the availability of water, and has not determined the cost
of compliance with any water quality restrictions. Both the lack of
available water and the cost of complying with water quality
regulations may make an otherwise viable project economically
impossible to complete. The mineral industry has experienced from time
to time shortages of certain supplies and materials necessary in the
exploration for an evaluation of mineral deposits. The prices at which
such supplies and materials are available have also greatly increased.
There is a possibility that planned operations may be subject to delays
due to such shortages and that further price escalations will increase
the costs of the Company.
ITEM 2. DESCRIPTION OF PROPERTIES.
The claims are located in La Paz, Maricopa and Yuma counties,
Arizona. Parker is the county seat for La Paz County, Phoenix is the
county seat for Maricopa County and Yuma is the county seat for Yuma
County.
Title - Unpatented Claims.
The Company owns or holds unpatented mining claims. The unpatented
mining claims are possessory only and are held by right of location.
Management believes that all of its unpatented claims are properly
staked and recorded, and that it has the right to possession of them,
and the right to remove minerals therefrom. Unpatented mining claims
require the expenditure of $100 each per year to their benefit. All of
the required expenditures and assessment work on the Company's property
has been accomplished. The claims have been properly recorded at the
Bureau of Land Management, and with the various county recorders, in
compliance with federal and state filing requirements.
The claims are as follows:
<TABLE>
<CAPTION>
Title of BLM Claim Section
Claim County Location AMC Number Number
<S> <C> <C> <C> <C> <C>
Lost Horse Peak Maricopa Township 7 South 317628 11-1 11
Range 1 West 317629 11-2
317630 11-4
317631 12-1 12
Vekol Valley Maricopa Township 8 South 330955 27-1 27
Range 1 East 330956 27-2
330957 27-3
330958 27-4
<PAGE> 16
Red Raven II Yuma Township 4 South 315314 3-1 3
Range 12 West 315315 3-2
315316 3-3
315317 3-4
Salome Lapaz Township 6 North 332066 14-1 14
Range 13 West 332071 15-2 15
332072 15-3
332073 15-4
Winchester Lapaz Township 6 North 332112 6-3 6
Range 12 West 332113 6-4
332114 7-1 7
332115 7-2
Low Mountain Lapaz Township 7 North 332043 28-1 28
Range 12 West 332044 28-2
332045 28-3
332046 28-4
Socorro Peak Lapaz Township 6 North 332098 30-1 30
Range 11 West 332099 30-2
332100 30-3
332101 30-4
Happy Camp Lapaz Township 7 North 332030 8-1 8
Range 11 West 332031 8-2
332032 8-3
332033 8-4
Sacaton Flats Maricopa Township 3 South 329259 5-3 5
Range 10 West 329260 7-2 7
329261 7-4
329262 8-1 8
Red Raven II Yuma Township 4 South 329263 4-1 4
Range 12 West 329969 4-2
329264 4-3
329265 4-4
329266 9-1 9
329971 9-2
329973 10-1 10
329974 10-2
Meltop Maricopa Township 2 South 331076 34-2 34
Range 3 West 331077 35-1 35
331078 35-2
331079 35-3
Tricia Maricopa Township 2 South 323305 31-3 31
Sheri- Ect Range 2 West 323308 31-4
Township 2 South 323332 26-2 26
Range 3 West 323331 26-4
Meltop Maricopa Township 2 South 331049 20-3 20
Range 3 West 331050 20-4
331065 29-1 29
331066 29-2
Rainbow Maricopa Township 3 South 31090 7-3 7
Range 1 West 331091 18-1 18
331092 18-3
331093 19-1 19
Mobile Maricopa Township 3 South 331080 19-4 19
Range 1 East 331081 20-3 20
331082 29-1 29
331083 30-2 30
<PAGE> 17
Rainbow Valley Maricopa Township 3 South 331106 11-1 11
Range 2 West 331107 11-2
331108 11-3
331109 11-4
Bosque Maricopa Township 6 South 329591 1-3 1
Range 3 West 328317 11-2 11
328319 11-4
329600 12-1 12
329601 12-3
329602 13-1 13
328320 14-1 14
328321 14-2
Township 5 South 329605 29-3 29
Range 3 West 330030 29-4
329606 30-3 30
329607 30-4
Coyote Peak Lapaz Township 2 North 329373 3-1 3
Range 13 West 329374 3-2
330478 3-3
330479 3-4
330490 8-1 8
330491 8-2
330492 8-3
330493 8-4
330554 28-1 28
330555 28-2
330556 28-3
330557 28-4
Coyote Well Lapaz Township 2 North 329573 12-3 12
Range 14 West 329572 12-4
329574 13-1 13
329575 13-2
Little Horn Lapaz Township 1 North 330333 2-1 2
Range 13 West 330334 2-2
330335 2-3
330336 2-4
330367 11-1 11
330368 11-2
330369 11-3
330370 11-4
330373 13-1
330374 14-1
330375 14-2
Little Horn Lapaz Township 1 North 330376 14-3
Range 13 West
Red Raven Yuma Township 3 South 329944 2-1 2
Range 12 West 329934 2-2
329946 2-3
329947 2-4
329964 34-2 34
329965 34-3
329966 34-4
329967 35-1 35
Charco Tank Lapaz Township 3 North 329485 17-3 17
Range 14 West 329486 17-4
329487 18-3 18
329488 18-4
<PAGE> 18
Mike Lapaz Township 2 North 330295 6-1 6
Range 12 West 330296 6-2
330297 6-3
330298 6-4
Getzwell Maricopa Township 7 South 338174 34-1 34
Range 2 West 339175 34-2
338176 34-3
338201 34-4
Palomas Yuma Township 2 South 339721 1-1 1
Range 13 West 339722 1-2
337241 1-3
339723 1-4
337302 36-1 36
339796 36-2
339797 36-3
339798 36-4
</TABLE>
ITEM 3. LEGAL PROCEEDINGS.
The Company is not the subject of any pending legal proceedings;
and to the knowledge of management, no proceedings are presently
contemplated against the Company by any federal, state or local
governmental agency.
Further, to the knowledge of management, no director or executive
officer is party to any action in which any has an interest adverse to
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held a shareholders meeting on April 15, 1998. The
matters voted upon and passed were 1) The reverse stock split of the
1,033,000,000 issued and outstanding shares of Common Stock on a 1 for
250 basis. 2) The amendment of the Company's certificate of
incorporation to decrease the authorized common stock of the company
from 3,000,000,000 shares, $0.00001 par value to 50,000,000 shares,
$0.0001 par value per share. 3) The amendment of the Company's
certificate of incorporation to decrease the authorized preferred stock
of the company from 400,000,000 shares, $0.00001 par value to
10,000,000 shares, $0.0001 par value per share.
<PAGE> 19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS.
(a) Market Information.
The Registrant's securities are traded over-the-counter on the
Bulletin Board operated by the National Association of Securities
Dealers, Inc. under the symbol WSRI. The table shows the high and low
bid of Registrant's Common Stock since September 16, 1998 when the
Registrant's securities began trading.
Quarter Ended BID
1998 High Low
Third Quarter 0.00 0.00
Fourth Quarter 0.00 0.00
(b) Holders.
As of December 31, 1998, there were approximately 145 holders of
the Registrant's Common Stock. This number does not include those
beneficial owners whose securities are held in street name.
(c) Dividends.
The Registrant has never paid a cash dividend on its Common Stock
and has no present intention to declare or pay cash dividends on the
Common Stock in the foreseeable future. The Registrant intends to
retain any earnings which it may realize in the foreseeable future to
finance its operations. Future dividends, if any, will depend on
earnings, financing requirements and other factors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULT 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.
The Company controls the mining rights to 136 unpatented mining
claims in Arizona. Included in this group of claims are the four Red
Raven II Claims which carried 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.
<PAGE> 20
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 issued 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. This amount of $13,600 is
payable by August 31 each year. The Company paid the annual assessment
amount for the current year, however, failure to meet this payment
obligation in the future could result in the loss of these claims and
mining rights.
The Company must obtain additional funds in order to fully
maintain, explore and develop its mining claims, if warranted. 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 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 under this line of credit. 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 "B" Warrants into
shares of Common Stock 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, $14,999 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 additional Warrants will be exercised or
that the Company will be successful in realizing sufficient funding
from this transaction.
<PAGE> 21
The current gold market price continues to be depressed and this
has affected the Company's stock price and also its ability to raise
capital.
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.
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 additional shares were purchased.
Results of Operations.
1998 compared to 1997. During the years ended December 31, 1998
and December 31, 1997 the Company realized no revenues.
Operating expenses increased to $172,734 for the year ended
December 31, 1998 from $110,126 for the year ended December 31, 1997.
The overall increase was primarily due to general and administrative
expenses for start up operations including $98,332 officer's salary and
$8,352 payroll taxes which did not exist in 1997. Interest expense on
notes payable increased to $18,114 from $3,453 in 1997, and legal
expense increased to $15,579 from $7,998 in 1997 due to necessary
shareholder approved actions, and Securities and Exchange Commission
registration filings and quarterly reports. Royalty fees of $50,000
per annum plus accrued interest carried in 1997 was reduced to zero
($0.00) in 1998, due to the agreement reached with Baragan Mountain
Mining LLC.
Liquidity and Capital Resources.
The Company is an exploration stage mining company and for
financial reporting purposes has been categorized as a development
stage company since inception. At December 31, 1998, it had no
recurring sources of revenue and negative working capital. The Company
has incurred losses and experienced negative cash flows from operations
in every year since its inception.
<PAGE> 22
Prior to 1998, 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.
In 1998, the Company issued 51,442 shares of its Common Stock and
received $14,999 in payment for the exercise of Class A Warrants by
Warrantholders.
As of December 31, 1998, 4,205,530 shares of Common Stock are
outstanding and 1,548,558 Class A Warrants and 1,600,000 Class B
Warrants. As of the date of this report, addition Class A Warrants
have been exercised increasing the total outstanding shares of Common
Stock to 4,212,530 and reducing the Class A Warrants to 1,541,558.
The Company must obtain additional funds or enter into joint
mining ventures in order to fully maintain, explore and develop its
mining claims, if warranted. In order to maintain the mining rights to
the 136 unpatented mining claims the Company must raise and pay an
annual maintenance fee of $13,600 by August 31 each year. The Company
does not have sufficient funds to meet this payment obligation.
Additional capital must be raised through loans, exercise of Warrants
or the sale of common stock, however, there is no assurance that the
Company will be successful in doing so.
The foregoing figures reflect a 1 for 250 share of Common Stock
reverse split which occurred on April 15, 1998.
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.
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. However, due to the depressed
price for gold and the fact that mining companies have curtailed
exploration activities in favor of pursuing properties with proven
<PAGE> 23
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. Discussion with
interested joint-venture, acquisition or merger candidates shall
continue.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
WINDSTAR RESOURCES, INC.
(A Development Stage Company)
C O N T E N T S
Independent Auditor's Report . . . . . . F-1
Balance Sheets . . . . . . . . . F-2
Statements of Operations . . . . . . . F-4
Statements of Stockholders' Equity . . . . . F-5
Statements of Cash Flows . . . . . . F-7
Notes to the Financial Statements . . . . F-8
<PAGE> 24
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Windstar Resources, Inc.
East Peoria, IL
We have audited the accompanying balance sheet of Windstar Resources,
Inc., (a development stage company) as of December 31, 1998, and the
related statements of operations, stockholders' equity, and cash flows
for the year then ended. 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.
The financial statements of Windstar Resources, Inc. as of December 31,
1997 and 1996 were audited by other auditors whose report dated
February 27, 1998, expressed an unqualified opinion on those
statements.
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 audit provides a reasonable basis for our opinion.
In our opinion, the December 31, 1998 financial statements referred to
above present fairly, in all material respects, the financial position
of Windstar Resources, Inc. as of December 31, 1998, and the results of
its operations and its cash flows for the year then ended in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 9
to the financial statements, the Company is in the development stage
and 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 the Note 9. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Williams & Webster, P.S.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
March 10, 1999
F-1
<PAGE> 25
WINDSTAR RESOURCES, INC.
(A Development Stage Company)
BALANCE SHEETS
December 31
A S S E T S
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 1,744 $ 387 $ 3,536
Accounts receivable - - -
-------- -------- --------
Total Current Assets 1,744 387 3,536
-------- -------- --------
OTHER ASSETS
Organization costs, net
of amortization 274 411 548
Mining claims 79,076 79,076 79,076
-------- -------- --------
Total Other Assets 79,350 79,487 79,624
-------- -------- --------
TOTAL ASSETS $ 81,094 $ 79,874 $ 83,160
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-2
<PAGE> 26
WINDSTAR RESOURCES, INC.
(A Development Stage Company)
BALANCE SHEETS
December 31
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 21,637 $ 8,355 $ 11,000
Accrued interest 16,484 5,943 -
Accrued royalty fee - 50,000 -
Accrued payroll and
payroll taxes 90,951 - -
Notes payable 53,417 22,800 -
--------- --------- ---------
Total Current
Liabilities 182,489 87,098 11,000
--------- --------- ---------
LONG TERM LIABILITIES
Notes payable 27,600 27,600 -
--------- --------- ---------
TOTAL LIABILITIES 210,089 114,698 11,000
--------- --------- ---------
COMMITMENTS AND
CONTINGENCIES - - -
--------- --------- ---------
STOCKHOLDERS' EQUITY
Common stock - $0.0001 par
value 50,000,000 shares
authorized; 4,212,520,
4,132,000 and 3,592,000
shares issued and
outstanding, respectively 421 413 359
Preferred stock-$0.0001 par
value, 10,000,000 shares
authorized, -0- shares issued
and outstanding - - -
Additional paid-in capital 162,760 96,275 86,329
Accumulated deficit (292,176) (131,512) (14,528)
---------- --------- ---------
Total Stockholders'
Equity (Deficit) (128,995) (34,824) 72,160
---------- --------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT) $ 81,094 $ 79,874 $ 83,160
========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-3
<PAGE> 27
WINDSTAR RESOURCES, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Period from
March 22, 1995
(Inception)
For the Years Ended December 31, Through
1998 1997 1996 12/31/98
<S> <C> <C> <C> <C>
REVENUES $ - $ - $ 180 $ 383
--------- --------- --------- ---------
GENERAL AND ADMINISTRATIVE
EXPENSES
Officer's compensation 98,332 - - 98,332
Professional fees 33,006 - - 33,006
General and
administrative 13,689 116,984 4,614 145,584
--------- --------- --------- ---------
Total expenses 145,027 116,984 4,614 276,922
--------- --------- --------- ---------
OPERATING LOSS (145,027) (116,984) (4,434) (276,539)
--------- --------- --------- ---------
OTHER INCOME (EXPENSES)
Interest income - - - -
Interest expense 15,637 - - 15,637
--------- --------- --------- ---------
Total other income
(expense) (15,637) - - 15,637
--------- --------- --------- ---------
NET LOSS $(160,664) $(116,984) $ (4,434) $(292,176)
========= ========= ========= =========
NET LOSS PER
COMMON SHARE $ (0.0386) $ (0.0322) $ (0.0020) $ (0.0986)
========= ========= ========= =========
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING 4,162,223 3,636,384 2,189,260 2,963,959
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-4
<PAGE> 28
WINDSTAR RESOURCES, INC
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
March 22, 1995 (Inception) through December 31, 1998
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in
Shares Amount Capital
<S> <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
Shares exchanged for
mining claims at
$0.000042 per share 310,000,000 3,100 9,900
Net loss - - -
------------- -------- --------
Balance,
December 31, 1995 498,000,000 4,980 52,470
Shares exchanged for
mining claims at
$0.000165 per share 400,000,000 4,000 62,076
Deferred registration
costs charged to
paid-in capital - - (36,838)
Net loss - - -
------------- -------- --------
Balance,
December 31, 1996 898,000,000 8,980 77,708
Sale of shares for
cash at $0.000074
per share 135,000,000 1,350 8,650
Net loss - - -
------------- -------- --------
Balance,
December 31, 1997 1,033,000,000 $ 10,330 $ 86,358
------------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-5a
<PAGE> 29
WINDSTAR RESOURCES, INC
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
March 22, 1995 (Inception) through December 31, 1998
<TABLE>
<CAPTION>
Accumulated
Deficit Total
<S> <C> <C>
Beginning Balance
March 22, 1995
(Inception) $ - $ -
Sale of shares for cash
at $0.0002 per share - 44,450
Shares exchanged for
mining claims at
$0.000042 per share - 13,000
Net loss (10,094) (10,094)
---------- ----------
Balance,
December 31, 1995 (10,094) 47,356
Shares exchanged for
mining claims at
$0.000165 per share - 66,076
Deferred registration
costs charged to
paid-in capital - (36,838)
Net loss (4,434) (4,434)
---------- ----------
Balance,
December 31, 1996 (14,528) 72,160
Sale of shares for
cash at $0.000074
per share - 10,000
Net loss (116,984) (116,984)
---------- ----------
Balance,
December 31, 1997 $ (131,512) $ (34,824)
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-5b<PAGE> 30
WINDSTAR RESOURCES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
March 22, 19995 (Inception) through December 31, 1998
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in
Shares Amount Capital
<S> <C> <C> <C>
Balance Forward
December 31, 1997 1,033,000,000 $ 10,330 $ 86,358
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
Warrants exercised
for shares at
$0.25 per share 58,000 14,964 14,964
Registration costs
charged to paid-
in capital - - (3,477)
Net loss - - -
------------- -------- ---------
Balance,
December 31, 1998 4,212,530 $ 421 $ 162,760
============= ======== =========
</TABLE>
The accompanying notes are an integral part of these financial
statements
F-6a
<PAGE> 31
WINDSTAR RESOURCES, INC
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
March 22, 1995 (Inception) through December 31, 1998
<TABLE>
<CAPTION>
Accumulated
Deficit Total
<S> <C> <C>
Balance Forward
December 31, 1997 $ (131,512) $ (34,824)
Reverse stock split
at 250 for 1 - -
Shares issued in
exchange for debt
at $2.50 per share - 55,000
Warrants exercised
for shares at $0.25
per share - 14,970
Registration costs
charged to paid-in
capital - (3,477)
Net loss (160,664) (160,664)
---------- ----------
Balance,
December 31, 1998 (292,176) (128,995)
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-5b<PAGE> 32
WINDSTAR RESOURCES, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
During
Development
Stage
03/22/95
(Inception)
For the Years Ended December 31, Through
1998 1997 1996 12/31/98
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $ (160,664) $ (116,984) $ (4,434) $ (292,176)
Adjustment to reconcile net
loss to net cash used by
operating activities
Amortization 137 137 137 411
Changes in assets and liabilities
Accounts receivable - - 1,500 -
Accounts payable 13,282 (2,645) 11,000 21,637
Accrued interest 10,541 5,943 - 16,484
Accrued royalty (50,000) 50,000 - -
Accrued payroll and
payroll taxes 90,951 - - 90,951
Net cash provided (used) by
operating activities (95,753) (63,549) 8,203 (162,693)
---------- --------- -------- ----------
Cash flows from investing
activities: - - - -
---------- --------- -------- ----------
Cash flows from financing
activities:
Stock issuance and offering
costs 66,493 10,000 (5,188) 83,420
Proceeds received on notes
payable 30,617 50,400 - 81,017
---------- --------- --------- ----------
Net cash provided (used) by
financing activities 97,110 60,400 (5,188) 164,437
---------- --------- -------- ----------
Net increase (decrease)
in cash 1,357 (3,149) 3,015 1,744
---------- --------- -------- ----------
Cash, beginning of period 387 3,536 521 -
---------- --------- -------- ----------
Cash, end of period $ 1,744 $ 387 $ 3,536 $ 1,744
========== ========= ======== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid during the period for:
Interest $ - $ - $ - $ -
Income Taxes $ - $ - $ - $ -
Non-cash financing activities:
Common stock issued in
exchange for debt $ 55,000 $ - $ - $ 55,000
Common stock issued for
mineral properties $ - $ - $ 66,076 $ 79,076
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-7
<PAGE> 33
WINSTAR RESOURCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Windstar Resources, Inc. (Windstar) 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. Furthermore, the Company is in the
development stage, as it has not realized any significant revenues from
its planned operations.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 by the weighted
average number of shares outstanding during the year. 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 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.
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.
F-8
<PAGE> 34
WINSTAR RESOURCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Mineral Properties (Continued)
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 December 31, 1998, the Company had net operating loss carryforwards
of approximately $292,000 that may be offset against future taxable
income through 2013. No tax benefit has been reported in the financial
statements, as the Company believes there is a 50% or greater 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."
This standard is effective for years beginning after December 15, 1995.
In complying with this, the Company reviews its long-lived assets
annually 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 does not believe any adjustments are
needed to the carrying value of its assets at December 31, 1998.
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.
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.
F-9
<PAGE> 35
WINSTAR RESOURCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 3 MINERAL PROPERTIES (Continued)
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.
The Four Red Raven II claims purchased from Maxam Gold Corporation have
a royalty fee clause attached to them. The royalty fee is five percent
of the net income from operations on the claims or $50,000 annually
(whichever is greater) starting 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 INTANGIBLE ASSETS
Organization costs are recorded at cost. Amortization of these
intangible assets is determined using the straight-line method over the
expected useful lives of the assets, which has been determined to be 5
years.
NOTE 5 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.
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 financial
statements to number of common shares and per-share amounts for 1998
have been restated to reflect the reverse stock split.
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.
F-10
<PAGE> 36
WINSTAR RESOURCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 6 STOCK WARRANTS
During the year ended December 31, 1996, the Company issued 400,000,000
units. As stated in Note 5, 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 at prices ranging from
$0.25 to $2.50 and the authorized and outstanding "Class B Warrants" to
1,600,000 exercisable at $5.00. As of December 31, 1998, 1,548,558
"Class A Warrants" remain authorized and outstanding (not exercised).
NOTE 7 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. Certain shares of the common stock are
held in escrow until May 31, 1999. If the option purchaser has
permanently terminated his association with the Corporation prior to
May 31, 1999, any shares of the stock still to be delivered to the
purchaser on the next or forthcoming due dates shall be returned to the
Corporation for cancellation and any unused portion of the purchase
price shall be remitted to the purchaser at the rate of $0.000074 for
each share returned to the Corporation. 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.
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.
F-11
<PAGE> 37
WINSTAR RESOURCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 8 NOTES PAYABLE
The Company's long term debt at December 31, 1998 consists of an
unsecured note with Phoenix International Mining, Inc. 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 December 31, 1998 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 $53,417
2000 -
2001 -
2002 27,600
2003 27,600
NOTE 9 GOING CONCERN
As shown in the financial statements, the Company incurred a net loss
of $160,664 during the year ended December 31, 1998 and an accumulated
deficit of $292,176 since inception. At December 31, 1998, there has
been a significant change in the Company's liquidity. Cash to
accumulated deficits has increased from a ratio of 0.29% as of December
31, 1997 to 0.60% as of December 31, 1998, while negative working
capital has increased from $86,711 to $180,745 during the same period.
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
plans on developing a program to evaluate the mineral content of
certain claims to determine the economic value of the claims. This
will be done by a controlled plan of drilling and trenching for samples
along with laboratory testing and assaying the samples for content.
F-12
<PAGE> 38
WINSTAR RESOURCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 9 GOING CONCERN (Continued)
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 $1,000,000 with Phoenix
International Mining, Inc. (a principal stockholder), with interest to
be at 1% per month of the outstanding balance. As of the date of this
report, the $1,000,000 line of credit established by the Company with
Phoenix International Mining, Inc. has been suspended due to lack of
funds available at the present time. The Company must seek alternative
capital funding sources if it is to undertake the exploration of its
claims. 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.
F-13
<PAGE> 39
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
On December 28, 1998, Robert Moe & Associates, P.S. notified the
company and the Securities and Exchange Commission that they could no
longer act as the Company's auditors due to a reduction in force and a
reassignment in staff. Their statement included the comments that
Robert Moe & Associates were not aware of any information or facts that
would impair the integrity of management of WindStar Resources, Inc.
and that Robert Moe & Associates have no disagreements with management
as to a) Accounting principles, b) Auditing procedures, or c) other
similarly significant matters.
The accounting firm of Williams and Webster, CPA, 601 West
Riverside, Spokane, Washington 99201, replaced Robert Moe & Associates,
as the Company's auditors.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Identification of Directors and Executive Officers.
The following table sets forth the names and nature of all
positions and offices held by all directors and executive officers of
the Company for the calendar year ending December 31, 1998, and to the
date hereof, and the period or periods during which each such director
or executive officer served in his or her respective positions.
Date of Date of
Position Election of Termination
Name Held Designation or Resignation
Alan E. Hubbard Former President 1996 1997
Member of the 1996
Board of Directors
Dale L. Runyon Former Secretary/ 1995 1997
Treasurer Chief
Financial Officer;
Member of the 1995
Board of Directors
Robert M. Brown Former President 1995 1996
Member of the 1995
Board of Directors
Richard G. Steeves Secretary/Treasurer 1997
Chief Financial Officer
Member of the 1996
Board of Directors
Fred R. Schmid President/Chief 1997
Executive Officer
and Member of the
Board of Directors
<PAGE> 40
Term of Office
The terms of office of the current directors continue until the
annual meeting of stockholders, which the Bylaws provide shall be held
on the third Friday of November of each year; officers are elected at
the annual meeting of the board of directors, which immediately follows
the annual meeting of stockholders.
Alan E. Hubbard - Member of the Board of Directors of the Company.
Mr. Hubbard was elected to the Board of Directors on November 19,
1996. From May 1988 to the present, Mr. Hubbard has been the President
and Chief Executive of Al Hubbard Associates, Inc., a Texas
corporation. Since July 1995, Mr. Hubbard has been the President and
a member of the Board of Directors of Maxam Gold Corporation, a Utah
corporation. Maxam Gold Corporation is a natural resource company.
Since May 1996, Mr. Hubbard has been the President and a member of the
Board of Directors of Phoenix International Mining, Inc., a Nevada
corporation. Phoenix International Mining, Inc. is a natural resource
company. Mr. Hubbard received a B.A. from Bradley University.
Dale L. Runyon - Chairman of the Board of Directors of the Company.
Mr. Runyon is a founder of the Company. Since the Company's
inception, he has been the Secretary/Treasurer, Chief Financial Officer
and a member of the Board of Directors. Since 1978, Mr. Runyon has
been a business consultant in the mining industry. As a consultant, he
assists companies with economic analysis of potential mining properties
and, in general, supervises "turnkey projects" from start to finish.
Since 1986, Mr. Runyon has been the Chairman of the Board and Chief
Executive Officer of Phoenix International Mining, Inc., a Nevada
corporation. Since 1987, Mr. Runyon has been the Chairman of the Board
and Chief Executive Officer of Maxam Gold Corporation, a Utah
corporation, involved in the business of mining. Mr. Runyon received
a B.A. from Knox College and is a retired Colonel in the United States
Army.
Robert M. Brown - Member of the Board of Directors
Mr. Brown is a founder of the Company. Since the Company's
inception, he has been a member of the Board of Directors. From the
Company's inception until October 31, 1996, Mr. Brown served as
President of the Company. Since 1985, Mr. Brown has been a member of
the Board of Directors of H.W.W. Foundation, a Colorado corporation,
involved in the business of family investments. Mr. Brown received a
B.A. from DePauw University, Greencastle, Indiana.
Richard G. Steeves - Secretary/Treasurer and Member of the Board of
Directors
Since November 1996, Mr. Steeves has been a member of the Board of
Directors and Secretary/Treasurer since 1997. Since August 1994, Mr.
Steeves has been the President and a member of the Board of Directors
of JOHSTE, Inc., an Illinois corporation. JOHSTE, Inc. consults with
companies on business management. From July 1978 to August 1993, Mr.
Steeves was the Traffic Manager, Controller and Division Manager of
<PAGE> 41
Southland Distribution Center, a Division of The Southland Corporation.
Southland Corporation, a Texas corporation, is an operator of a
convenience store chain ("Seven-Eleven"). Since April 1993, Mr.
Steeves has been the President and a member of the Board of Directors
of Sandaz Corporation, a Nevada corporation. Sandaz Corporation is a
natural resources company. Since April 1993, Mr. Steeves has been the
President and a member of the Board of Directors of RGS Services, Inc.,
an Illinois corporation. RGS Services, Inc. consults with companies on
business management, transportation and taxes. Since July, 1998, Mr.
Steeves has been Secretary and a member of the Board of Directors of
Maxam Gold Corporation, a Utah Corporation, involved in the business of
mining. Mr. Steeves received a B.A. from Hampton Institute, Hampton,
Virginia.
Fred R. Schmid - President and Chief Executive Officer and a Member of
the Board of Directors of the Company.
Since November 1997, Mr. Schmid has been President and Chief
Executive Officer and a member of the Board of Directors of the
Company. Mr. Schmid was Chairman of the Board of Directors of Hanover
Gold Company. Inc., a publicly traded NASDAQ company he founded, from
September 1990 to April 1996, and President and Chief Executive Officer
from September 1990 to March 1996, and a Director from September 1990
to June 1997. Mr. Schmid was Chairman of the Board, President and
Chief executive Officer of Hanover resources, Inc. and Group S Limited,
both privately-held gold resource companies he founded in April 1990
and September 1991, respectively, both of which were merged into
Hanover Gold in September 1996. From 1972 to December 1995, he was
Chairman, President and Chief executive Officer of The Hanover Group,
Inc., a privately-held natural resource investment company he founded,
which was merged into Group S Limited in December 1995.
Family Relationships
The only known relationship between any directors is Alan E.
Hubbard is first cousin to Dale L. Runyon.
Involvement in Certain Legal Proceedings
During the past five years, no present or former director,
executive officer or person nominated to become a director or an
executive officer of the Company has been the subject matter of any
legal proceedings, including bankruptcy, criminal proceedings, or civil
proceedings. Further, no legal proceedings are known to be
contemplated by governmental authorities against any director,
executive officer and person nominated to become a director.
Compliance with Section 16(a) of the Exchange Act.
No securities of the Company are registered pursuant to Section
12(g) of the Securities Exchange Act of 1934, and the Company files
reports under Section 15(d) of the Securities Exchange Act of 1934;
accordingly, directors, executive officers and ten percent stockholders
are not required to make filings under Section 16 of the Securities
Exchange Act of 1934.
<PAGE> 42
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth the aggregate compensation paid by the
Company for services rendered during the period indicated:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION> Long Term Compensation Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (I)
Name Other Restricted LTIP All
and Annual Stock Pay- Other
Principal $ $ Compen Awards Options/ Outs Compen
Position Year Salary Bonus sation($) $ SAR's(#) ($) sation$
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31
Alan Hubbard
Director 1998 $ -0- $0 $0 $0 0 $0 $0
1997 $ -0- $0 $0 $0 0 $0 $0
1996 $ -0- $0 $0 $0 0 $0 $0
Dale R. Runyon
Director 1998 $ -0- $0 $0 $0 0 $0 $0
1997 $ -0- $0 $0 $0 0 $0 $0
1996 $ -0- $0 $0 $0 0 $0 $0
Robert M.
Brown
Director 1998 $ -0- $0 $0 $0 0 $0 $0
1997 $ -0- $0 $0 $0 0 $0 $0
1996 $ -0- $0 $0 $0 0 $0 $0
Richard G.
Steeves
Secretary/Treasurer
Director 1998 $ -0- $0 $0 $0 0 $0 $0
1997 $ -0- $0 $0 $0 0 $0 $0
1996 $ -0- $0 $0 $0 0 $0 $0
Fred R.
Schmid
President
/CEO 1998 $ 15,833 $0 $0 $0 0 $0 $0
1997 $ 12,930 $0 $0 $0 135,000,000 $0 $0
1196 $ 0 $0 $0 $0 0 $0 $0
</TABLE>
Cash Compensation.
As previous noted in this report, Fred R. Schmid, as president of
the Company, receives an annual salary payable in monthly installments
in the form of cash. The aggregate compensation payable to Mr. Schmid
during 1998 was $98,332, of which $15,833 was paid in cash and $82,499
was accrued. In additional, $3,998 of medical insurance benefits and
expenses were also accrued. Further, Mr. Schmid has been granted stock
options to purchase 160,000 shares of common stock at $2.50 per share
and 160,000 shares of common stock at $5.00 per share, exercisable
through November 2007. The exercise price of the $2.50 per share
option is similar to the exercise price of the Class A Warrant, which
has been adjusted granting the Warrantholders the right to exercise the
Warrant at a reduced price which escalates over a period of time and
eventually returns to the $2.50 price. To date, no options have been
exercised.
<PAGE> 43
Compensation of Directors.
The Company's Board of Directors unanimously resolved that members
receive no compensation for their services, however, they are
reimbursed for travel expenses incurred in serving on the Board of
Directors.
No additional amounts are payable to the members of the Company's
Board of Directors for committee participation or special assignments.
Termination of Employment and Change of Control Arrangements.
As previously reported, an employment agreement between Fred
Schmid and the Company entered into November 11, 1997 provides for
termination provisions in the event of Mr. Schmid's resignation or
other termination of his employment with the Company.
If Mr. Schmid is terminated by the Company for reasons other than
"cause", Mr. Schmid will be entitled to receive a lump sum payment
equal to the greater of (i) $5,000,000 or (ii) one percent (1% ) of
the Company's net worth as of the preceding year's end, plus the
balance of any salary and bonus owed to Schmid pursuant to this
Agreement, without rendering any additional service to the Company and
without any reduction for amounts that may be received by Schmid from
any other employer.
If Mr. Schmid elects to terminate this Agreement for "good
reason", such as, a change in control of the Company or a change in Mr.
Schmid's responsibilities following a change of control of the Company
which are objectionable to Mr. Schmid, the payments made to him
hereunder shall not exceed an amount equal to 300% of the "base amount"
of his compensation as determined in accordance with Section 280G of
the Internal Revenue Code of 1986, as amended, less $1.00.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Security Ownership of Certain Beneficial Owners
The following table sets forth the share holdings of those persons
who own more than five percent of the Company's Common Stock as of
December 31, 1998:
Name and address 12/31/98
of owner Shares Percent
Maxam Gold Corporation[1] 304,000 7.23%
528 Fon du Lac Drive
East Peoria, IL 61611
Dale L. Runyon[2][3] 2,648,947 62.99%
528 Fon du Lac Drive
East Peoria, Illinois
<PAGE> 44
Fred R. Schmid [4] 540,000 12.84%
P.O. Box B
Roslyn, NY 11576
TOTAL 3,492,947 83.06%
[1] Dale Runyon and Alan Hubbard are officers and/or directors of
Maxam Gold Corporation.
[2] Includes shares owned by Charco Tank Mining, LLC; Coyote Peak
Mining, LLC; DLR Trust #3; Getzwell Mining, LLC; Little Horn
Mining, LLC; Maxam Gold Corporation; Meltop Mining, LLC; Phoenix
International Mining, Inc.; Rainbow Valley Mining, LLC.; Lost
Horse Peak Trust; Uranco Trust #1; Uranco Trust #5; Tank Mountain
Gold Co., Inc.; and, Uranco Mining, LLC., which Mr. Runyon is
affiliated with.
[3] Does not include 1,548,558 Class A Warrants and 1,600,000 Class B
Warrants to purchase up to 3,148,558 shares of Common Stock.
[4] Does not include 320,000 shares of common stock for purchase under
a Stock Option Agreement.
Security Ownership of Management
The following table sets forth the share holdings of the Company's
directors and executive officer as of December 31, 1998:
<TABLE>
<CAPTION>
Beneficially
Owned Percent
Name & address 12/31/98
<S> <C> <C>
Alan E. Hubbard[5] 80,000 1.90%
3140 Hampshire Court
Frisco, Texas 75034
Dale L. Runyon[2][4] 2,648,947 62.99%
528 Fon du Lac Drive
East Peoria, IL 61611
Robert M. Brown[1][3] 48,000 1.14%
528 Fon du Lac Drive
East Peoria, IL 61611
Richard G. Steeves 4,000 0.10%
1911 E. Meadowlake Drive
Mahomet, Illinois 61853
Fred R. Schmid 54,000 12.84%
P.O. Box B
Roslyn, NY 11576
ALL OFFICERS 3,320,947 78.97%
<PAGE> 45
[1] Includes shares owned by the Estate of Teddi N. Brown; R. D.
Brown; Brown Family Investments and the HWW Foundation.
[2] Includes shares owned by Charco Tank Mining, LLC; Coyote Peak
Mining, LLC; DLR Trust #3; Getzwell Mining, LLC; Little Horn
Mining, LLC; Maxam Gold Corporation; Meltop Mining, LLC; Phoenix
International Mining, Inc.; Rainbow Valley Mining, LLC.; Lost
Horse Peak Trust; Uranco Trust #1; Uranco Trust #5; Tank Mountain
Gold Co., Inc.; and, Uranco Mining, LLC., which Mr. Runyon is
affiliated with.
[3] Does not include 43,895 Class A Warrants and 43,895 Class B
Warrants to purchase up to 87,790.
[4] Does not include 1,221,321 Class A Warrants and 1,221,321 Class B
Warrants to purchase up to 2,442,642 shares of Common Stock.
[5] Does not include 80,000 Class A Warrants and 80,000 Class B
Warrants to purchase up to 160,000 shares of Common Stock.
[6] Does not include 320,000 shares of common stock for purchase under
a Stock Option Agreement.
Changes in Control
To the knowledge of management, there are no present arrangements
or pledges of securities of the Company which may result in a change in
control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Registrant has engaged in no transactions with management or
others in which the amount involved exceeds $60,000 other than the
following:
On March 31, 1995, the Company issued 1,992,000 shares of Common
Stock to nineteen persons in exchange for $44,450 in cash and property.
The foregoing includes shares issued to its officers and directors or
affiliates thereof.
The following table reflects the name of each officer and director
and their affiliates, the amount of cash contributed by each and in the
case of the 8-160 acre claims contributed by the Lost Horse Peak A
Trust and the Phoenix International Mining, Inc., the dollar value
assigned to the claims. The dollar value assigned to each claim was
arbitrarily determined by the Company and claimant, and bears no
relationship to the value of the claim.
<PAGE> 46
</TABLE>
<TABLE>
<CAPTION> Amount of
Shares Consideration Date of
Name of Owner Acquired Cash/Other Sale
- - -----------------------------------------------------------------------
<S> <C> <C> <C>
William Brown 12,000 $ 3,000.00 2/13/95
H. W. W. Foundation 4,000 $ 1,000.00 3/25/95
Lost Horse Peak,
A Trust 840,000 4-160 acre 02/21/95
mining claims
Phoenix International
Mining, Inc. 400,000 4 - 160 acre 02/21/95
mining claims
Uranco Trust #5 580,000 $ 1,450.00 01/06/95
</TABLE>
Dale Runyon, the Company's Secretary/Treasurer, Chief Financial
Officer and a member of the Board of Directors is the Trustee of the
Uranco Trust #5; and affiliate and a Director of Phoenix International
Mining, Inc.; and a Trustee of Lost Horse Peak A Trust. Further,
Robert M. Brown, the Company's President and a member of the Board of
Directors is a member of the Board of Directors of H.W.W. Foundation,
a foundation which holds title to investments made by the Brown family.
The transactions with the Lost Horse Peak A Trust and Phoenix
International Mining, Inc. were arbitrarily decided by the Company and
the respective party and were not at arms-length and were more
favorable to the Company and less favorable to those entities than in
an arm's length transaction with unaffiliated third parties. The basis
for the foregoing statement is that Lost Horse Peak A Trust and Phoenix
International Mining, Inc. would not have transferred the claims to the
Company for 1,240,000 restricted shares of common stock in a start-up
venture, but for the affiliation of Dale L. Runyon with the Company.
The following table reflects the name of each officer and director
and their affiliates that were issued stock in exchange for claims:
Name Number of Units
Estate of Teddi N. Brown 20,697
R. M. Brown & R. D. Brown 500
Robert M. Brown 21,197
Brown Family Investments 1,500
Charco Tank Mining LLC 40,000
Coyote Peak Mining LLC 160,000
DLR Trust #3 6,766
Getzwell Mining LLC 40,000
Alan E. Hubbard 80,000
Little Horn Mining LLC 120,000
Maxam Gold Corporation 304,000
Meltop Mining LLC 40,000
Mike Mining LLC 40,000
Rainbow Valley Mining LLC 160,000
Tank Mountain Gold Co., Inc. 80,000
Uranco Mining LLC 137,500
Uranco Trust #5 26,702
Uranco Trust #1 8,496
Dale L. Runyon 17,853
<PAGE> 47
To date, there have not been any transactions between the Company
and its Officers, Directors, principal shareholders or affiliates other
than as set forth above. If such transactions occur in the future,
they will be on terms no less favorable to the Company than could be
obtained from unaffiliated parties.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter of
the period covered by this report.
Exhibits
The following documents are incorporated herein by reference from
the Registrant's Form S-1 Registration Statement and all amendments
thereto, which was declared effected by the Securities and Exchange
Commission on August 16, 1996, and all exhibits thereto, as filed with
the Commission:
Exhibit
No. Description
3.1 Articles of Incorporation.
3.2 Amended Articles of Incorporation.
3.3 Bylaws of the Company.
4.1 Specimen certificate for Common Stock.
4.2 Specimen certificate for Class A Redeemable Warrants.
4.3 Specimen certificate for Class B Redeemable Warrants.
The following documents are incorpored by reference from the
Registrant's Form 10-K Annual Report for the period ended December 31,
1997:
99.1 Stock Purchase Agreement
99.2 Employement Agreement wtih Fred Schmid
The followign documents are incorporated by reference from the
Registrant's Post-Effective Amendment to its Form S-1 registration
Statement:
3.3 Amended Articles of Incorporation dated December 31, 1997.
3.5 Amended Articles of Incorporation dated April 15, 1998.
<PAGE> 48
The following documents are incorporated herein:
3.6 Amended Articles of Incorporation.
27 Financial Data Schedule
<PAGE> 49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto
duly authorized, on this 30th day of March, 1999.
WINDSTAR RESOURCES, INC.
(formerly, TURTLEBACK MOUNTAIN GOLD CO., INC.)
(Registrant)
BY: /s/ Fred R. Schmid
Fred R. Schmid, President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following person on
behalf of the Registrant and in the capacities and on this 30th day of
March, 1999.
SIGNATURES TITLE DATE
/s/ Alan E. Hubbard Member of the Board March 30, 1999
Alan Hubbard of Directors
/s/ Dale L. Runyon Chairman of the Board March 30, 1999
Dale L. Runyon Board of Directors
/s/ Robert M. Brown Member of the Board March 30, 1999
Robert M. Brown of Directors
/s/ Richard G. Steeves Chief Financial Officer March 30, 1999
Richard G. Steeves Secretary/Treasurer and
Member of the Board
of Directors
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
No annual report material has been forwarded to securities holders of
the Registrant during the period covered by this report or for the
previous five calendar years ended December 31; however, if any annual
report or proxy material is furnished to security holders in connection
with the annual meeting stockholders to be held in 1999, a copy of any
such annual report or proxy materials shall be forwarded to the
Commission when it is forwarded to security holders.
<PAGE> 50
EXHIBIT 3.6
CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION
OF
WINDSTAR RESOURCES, INC.
An Arizona Corporation
WINDSTAR RESOURCES, INC., a corporation formed under the
Arizona Corporate Code of the State of Arizona.
The undersigned, the President and the Secretary of WindStar
Resources, Inc. Certify that at a shareholders meeting held on
April 15, 1998, and which was called for the purpose of amending
the Articles of Incorporation of WindStar Resources, Inc., an
appropriate majority of the holders of shares of each class
entitled to vote authorized the following amendment of Articles
V, Authorized Capital, of the Articles of Incorporation:
The number of shares which the Corporation shall have
authority to issue is 50,000,000 shares of common stock
having a par value of $0.0001 per share and 10,000,000
shares of preferred stock, having a par value of $0.0001 per
share. There shall be no other classes or shares of stock
in the Corporation. The Corporation shall have the right to
purchase, take, receive or otherwise acquire, hold, own,
pledge, transfer and dispose of its own shares, to the
extent of both its restricted and unreserved capital
surplus.
Dated this 15th day of April, 1998.
WindStar Resources, Inc.
By: /s/ Fred R. Schmid
Fred R. Schmid, President
By: /s/ Richard G. Steeves
Richard G. Steeves, Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at December 31, 1998 Audited
and the Consolidated Statement of Income for the twelve months ended
December 31, 1998 Audited and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,744
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,744
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 81,094
<CURRENT-LIABILITIES> 182,489
<BONDS> 0
0
0
<COMMON> 421
<OTHER-SE> (129,416)
<TOTAL-LIABILITY-AND-EQUITY> (128,995)
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 145,027
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,637
<INCOME-PRETAX> (160,664)
<INCOME-TAX> 0
<INCOME-CONTINUING> (160,664)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (160,664)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
