[As adopted in Release No. 34-32231, April 28, 1993, 58 F.R. 26509]
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2004
---------------------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
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Commission file number 333-102930
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Silver Star Energy, Inc.
----------------------------------------------------------------------------
(Exact name of small business issuer as
specified in its charter)
Nevada 98-0385312
- --------------------------------------------------------------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
11300 W. Olympic Boulevard, Suite 800, Los Angeles, California 90064
-------------------------------------------------------------------------------
(Address of principal executive offices)
(310) 477-2211
Issuer's telephone number
(Former name, former address and former fiscal year, if changed
since last report.)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practical date: March 31, 2004 83,090,726
Transitional Small Business Disclosure Format (check one).
Yes ; No X
---- -----
PART I
Item 1. Financial Statements
SILVER STAR ENERGY, INC.
(An Exploration State Company)
BALANCE SHEETS
March 31, December 31,
------------------ -----------------
ASSETS 2004 2003
- ------
------------------ -----------------
Current Assets
Cash $ 3,960 $ 502,428
Prepaid Expense 55,216 40,000
------------------ -----------------
Total Current Assets 59,176 542,428
------------------ -----------------
Fixed Assets
Furniture and Fixtures 6,847 -
Computers 2,500 -
------------------ -----------------
Net Fixed Assets 9,347 -
------------------ -----------------
Other Assets
Oil and Gas Properties 1,474,093 405,000
------------------ -----------------
Total Assets $ 1,542,616 $ 947,428
================== =================
3
SILVER STAR ENERGY, INC.
(An Exploration State Company)
BALANCE SHEETS
(Continued)
March 31, December 31,
------------------- ------------------
2004 2003
------------------- ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 106,320 $ 45,113
Due to Related Party - 445,000
------------------- ------------------
Total Current Liabilities 106,320 490,113
------------------- ------------------
Stockholders' Equity
Preferred stock (Par Value $.001), 5,000,000 shares
authorized. -0- issued at March 31, 2004 and
December 31, 2003 - -
Common Stock (Par Value $.001), 300,000,000 shares
authorized. 83,090,726 issued and outstanding
at March 31, 2004 and
154,578,624 issued and outstanding
at December 31, 2003 83,091 154,579
Treasury Stock - (3,500)
Paid in Capital in Excess of Par Value 1,762,988 -
Share Subscriptions Received - 500,000
Retained Deficit (100,001) (100,001)
Deficit accumulated during the exploration state (309,782) (93,763)
------------------- ------------------
Total Stockholders' Equity 1,436,296 457,315
------------------- ------------------
Total Liabilities and Stockholders' Equity $ 1,542,616 $ 947,428
=================== ==================
See accompanying notes.
4
SILVER STAR ENERGY, INC.
(An Exploration State Company)
STATEMENTS OF OPERATIONS
Deficit
Accumulated
Since
October 11,
2002
For the Three Months Inception of
Ended March 31, Exploration
--------------------------------------
2004 2003 State
------------------ ------------------ ------------------
Revenue $ - $ 2,708 $ 18,147
------------------ ------------------ ------------------
Expenses
Consulting and Management Fees 76,830 9,587 162,717
General and Administrative 102,658 2,217 115,941
Professional Fees 36,531 8,249 66,014
------------------ ------------------ ------------------
Total Expenses 216,019 20,053 344,672
------------------ ------------------ ------------------
Net Income (Loss) from operations (216,019) (17,345) (326,525)
Gain on Sale of Netcash - - 16,743
------------------ ------------------ ------------------
Net Income (Loss) $ (216,019) $ (17,345) $ (309,782)
================== ================== ==================
Loss per Common Share $ - $ -
================== ==================
See accompanying notes.
5
SILVER STAR ENERGY, INC.
(An Exploration State Company)
STATEMENTS OF CASH FLOWS
Deficit
Accumulated
Since
October 11,
2002
For the Three Months Inception of
Ended March 31, Exploration
-------------------------------------
2004 2003 State
----------------- ------------------ ------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss $ (216,019) $ (17,345) $ (309,782)
Adjustments used to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation - - 1,129
Non-Cash Management Fees - 1,500 6,500
Gain on sale of Netcash - - (16,743)
(Increase) decrease in other assets & prepaids (15,216) 1,432 (55,216)
Increase (decrease) in accounts payable 61,207 1,198 102,750
----------------- ------------------ ------------------
Net cash used in operating activities (170,028) (13,215) (271,362)
----------------- ------------------ ------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition/Sale of equipment, net (9,347) - (15,163)
Acquisition of oil & gas property interests (1,069,093) - (1,474,093)
Proceeds on sale of Netcash (net of cash) - - 25,000
----------------- ------------------ ------------------
Net cash used by investing activities (1,078,440) - (1,464,256)
----------------- ------------------ ------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from shareholder loans - - 445,000
Payment made for treasury stock - - (3,500)
Proceeds on sale of common stock 750,000 - 1,298,078
----------------- ------------------ ------------------
Net Cash Provided by Financing Activities 750,000 - 1,739,578
----------------- ------------------ ------------------
6
SILVER STAR ENERGY, INC.
(An Exploration State Company)
STATEMENTS OF CASH FLOWS
(continued)
Deficit
Accumulated
Since
October 11,
2002
For the Three Months Inception of
Ended March 31, Exploration
-------------------------------------
2004 2003 State
----------------- ------------------ ------------------
Effect of exchange rate changes - 181 -
Net Increase (Decrease) in
Cash and Cash Equivalents (498,468) (13,034) 3,960
Cash and Cash Equivalents at
Beginning of the Period 502,428 39,983 -
----------------- ------------------ ------------------
Cash and Cash Equivalents at
End of the Period $ 3,960 $ 26,949 $ 3,960
================= ================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest $ - $ - $ -
Income Taxes $ - $ - $ -
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES: NONE
See accompanying notes.
7
SILVER STAR ENERGY, INC.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN
This summary of accounting policies for Silver Star Energy, Inc. (an
exploration state company) is presented to assist in understanding the Company's
financial statements. The accounting policies conform to generally accepted
accounting principles and have been consistently applied in the preparation of
the financial statements.
The unaudited financial statements as of March 31, 2004 and for the
three months then ended reflect, in the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to fairly state the
financial position and results of operations for the three months. Operating
results for interim periods are not necessarily indicative of the results which
can be expected for full years.
These financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America with
the on-going assumption applicable to a going concern which contemplates the
realization of assets and the satisfaction of liabilities and commitments in the
normal course of business. The Company is an exploration state company and its
general business strategy is to acquire oil and gas properties either directly
or through the acquisition of operating entities. The continued operations of
the Company and the recoverability of oil and gas property acquisition,
exploration and development costs is dependent upon the existence of
economically recoverable reserves and the ability of the Company to obtain
necessary financing to complete the development of those reserves, and upon
future profitable production. To date, the Company has not generated significant
revenues from operations and will require additional funds to meet its
obligations and the costs of its operations. As a result, significant losses are
anticipated prior to the generation of any revenues. The Company is planning
additional ongoing equity financing by way of private placements to fund its
obligations and operations.
The Company's future capital requirements will depend on many factors,
including costs of exploration of the properties, cash flow from operations,
costs to complete well production, if warranted, and competition and global
market conditions. The Company's anticipated recurring operating losses and
growing working capital needs will require that it obtain additional capital to
operate its business. Further, the Company does not have sufficient funds on
hand to complete the exploration of the properties.
The Company will depend almost exclusively on outside capital to
complete the exploration and development of the oil and gas properties. Such
outside capital will include the sale of additional stock and may include
commercial borrowing. There can be no assurance that capital will be available
as necessary to meet these continuing exploration and development costs or, if
the capital is available, that it will be on terms acceptable to the Company.
The issuances of additional equity
8
SILVER STAR ENERGY, INC.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(continued)
NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN (continued)
securities by the Company may result in a significant dilution in the equity
interests of its current stockholders. Obtaining commercial loans, assuming
those loans would be available, will increase the Company's liabilities and
future cash commitments. If the Company is unable to obtain financing in the
amounts and on terms deemed acceptable, the business and future success may be
adversely affected.
Given the Company's limited operating history, lack of sales, and its
operating losses, there can be no assurance that it will be able to achieve or
maintain profitability. Accordingly, these factors raise substantial doubt about
the Company's ability to continue as a going concern.
Organization and Basis of Presentation
Silver Star Energy, Inc. (the "Company") was incorporated on September
25, 2002 in the State of Nevada and commenced operations on October 3, 2002.
During the year ended December 31, 2003, the Company changed its name from
Movito Holdings Ltd. to Silver Star Energy Inc.
Nature of Business
The Company's initial business was that of managing ATM machines
through its wholly owned subsidiary 657333 B.C. Ltd., doing business as Netcash
("Netcash"). On October 28, 2003 the Company closed an agreement whereby it sold
100% of the shares in the Common Stock of Netcash inclusive of all its tangible
and intangible assets and liabilities associated with the Company's Automated
Teller Machines management operations for consideration of $25,000.
During 2003 the Company executed four agreements to earn an interest in
four separate oil and gas properties, two in Alberta, Canada and two in the
State of California, U.S.A.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
This summary of accounting policies for Silver Star Energy, Inc. is
presented to assist in understanding the Company's financial statements. The
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.
9
SILVER STAR ENERGY, INC.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its 100% owned subsidiary, 657333 B.C. Ltd., doing business as
Netcash, from its incorporation on October 29, 2002 to its sale on October 28,
2003. All significant intercompany balances and transactions were eliminated on
consolidation.
Cash Equivalents
For the purpose of reporting cash flows, the Company considers all
highly liquid debt instruments purchased with maturity of three months or less
to be cash equivalents to the extent the funds are not being held for investment
purposes.
Pervasiveness of 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.
Reclassifications
Certain reclassifications have been made in the 2003 financial
statements to conform with the 2004 presentation.
Concentration of Credit Risk
The Company has no significant off-balance-sheet concentrations of
credit risk such as foreign exchange contracts, options contracts or other
foreign hedging arrangements.
10
SILVER STAR ENERGY, INC.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
Loss per Share
The reconciliations of the numerators and denominators of the basic
loss per share computations are as follows:
Per-Share
Loss Shares Amount
For the three months ended March 31, 2004
Basic Loss per Share
Loss available to common shareholders $ (216,019) 118,183,008 $ -
================= ================== ==================
For the three months ended March 31, 2003
Basic Loss per Share
Loss available to common shareholders $ (17,345) 154,578,624 $ -
================= ================== ==================
Basic earnings per common share were computed by dividing net loss by
the weighted average number of shares of common stock outstanding during the
year. Diluted loss per common share for the three months ended March 31, 2004
and 2003 are not presented as it would be anti- dilutive.
Fixed Assets
Fixed assets are stated at cost. Depreciation and amortization are
computed using the following rates over the estimated economic useful lives of
the related assets:
Computer equipment 3-5 years
Furniture and fixtures 5-7 years
Office equipment 3-7 years
One-half year depreciation is taken in the year of acquisition on
certain fixed assets.
Upon sale or other disposition of property and equipment, the cost and
related accumulated depreciation or amortization are removed from the accounts
and any gain or loss is included in the determination of income or loss.
Expenditures for maintenance and repairs are charged to expense as
incurred. Major overhauls and betterments are capitalized and depreciated over
their estimated economic useful lives.
11
SILVER STAR ENERGY, INC.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
Intangibles
The Company has adopted the provisions of the Financial Accounting
Standards Board ("FASB") Statement No. 142, "Goodwill and Intangible Assets"
("SFAS 142"). Under SFAS 142, goodwill and intangible assets with indefinite
lives will no longer be amortized and will be tested for impairment annually.
The determination of any impairment would include a comparison of estimated
future operating cash flows anticipated during the remaining life with the net
carrying value of the asset as well as a comparison of the fair value to the
book value of the Company or the reporting unit to which the goodwill can be
attributed.
Oil and Gas Properties
The Company follows the full cost method of accounting for its oil and
gas operations whereby all costs related to the acquisition of petroleum and
natural gas interests are capitalized. Such costs include land and lease
acquisition costs, annual carrying charges of non-producing properties,
geological and geophysical costs, costs of drilling and equipping productive and
non- productive wells, and direct exploration salaries and related benefits.
Proceeds from the disposal of oil and gas properties are recorded as a reduction
of the related capitalized costs without recognition of a gain or loss unless
the disposal would result in a change of 20 percent or more in the depletion
rate. The Company operates in two cost centres, being Canada and the U.S.A. To
date the Company has not established any proven recoverable reserves on its
properties.
Depletion and depreciation of the capitalized costs are computed using
the unit-of-production method based on the estimated proven reserves of oil and
gas determined by independent consultants.
Estimated future removal and site restoration costs are provided over
the life of proven reserves on a unit-of-production basis. Costs, which include
the cost of production equipment removal and environmental clean-up, are
estimated each period by management based on current regulations, costs,
technology and industry standards. The charge is included in the provision for
depletion and depreciation and the actual restoration expenditures are charged
to the accumulated provision amounts as incurred.
The Company applies a ceiling test to capitalized costs to ensure that
such costs do not exceed estimated future net revenues from production of proven
reserves at year end market prices less future production, administrative,
financing, site restoration, and income tax costs plus the lower of cost or
estimated market value of unproved properties. If capitalized costs are
determined to exceed estimated future net revenues, a write-down of carrying
value is charged to depletion in the period.
12
SILVER STAR ENERGY, INC.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
Fair Value of Financial Instruments
In accordance with the requirements of SFAS No. 107, the Company has
determined the estimated fair value of financial instruments using available
market information and appropriate valuation methodologies. The fair value of
financial instruments classified as current assets or liabilities approximate
carrying value due to the short-term maturity of the instruments.
Foreign currency transactions
The financial statements are presented in United States dollars. In
accordance with Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation", foreign denominated monetary assets and liabilities are
translated to their United States dollar equivalents using foreign exchange
rates that prevailed at the balance sheet date. Revenue and expenses are
translated at average rates of exchange during the year. Related translation
adjustments are reported as a separate component of stockholders' equity,
whereas gains or losses resulting from foreign currency transactions are
included in results of operations.
Stock-based compensation
In December 2002, the Financial Accounting Standards Board issued
Financial Accounting Standard No. 148, "Accounting for Stock-Based Compensation
- - Transition and Disclosure" ("SFAS No. 148"), an amendment of Financial
Accounting Standard No. 123 "Accounting for Stock-Based Compensation" ("SFAS No.
123"). The purpose of SFAS No. 148 is to: (1) provide alternative methods of
transition for an entity that voluntarily changes to the fair value based method
of accounting for stock-based employee compensation, (2) amend the disclosure
provisions to require prominent disclosure about the effects on reported net
income of an entity's accounting policy decisions with respect to stock-based
employee compensation, and (3) to require disclosure of those effects in interim
financial information. The disclosure provisions of SFAS No. 148 were effective
for the Company commencing December 31, 2002.
The Company has elected to account for stock-based employee
compensation arrangements in accordance with the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees",
("APB No. 25") and comply with the disclosure provisions of SFAS No. 123 as
amended by SFAS No. 148 as described above. In addition, in accordance with SFAS
No. 123 the Company applies the fair value method using the Black-Scholes
option-pricing model in accounting for options granted to consultants. Under APB
No. 25, compensation expense is recognized based on the difference, if any, on
the date of grant between the estimated fair value of the Company's stock and
the amount an employee must pay to acquire the stock. Compensation
13
SILVER STAR ENERGY, INC.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
expense is recognized immediately for past services and pro-rata for future
services over the option- vesting period.
The Company accounts for equity instruments issued in exchange for the
receipt of goods or services from other than employees in accordance with SFAS
No. 123 and the conclusions reached by the Emerging Issues Task Force in Issue
No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring or in Conjunction with Selling Goods or Services" ("EITF
96-18"). Costs are measured at the estimated fair market value of the
consideration received or the estimated fair value of the equity instruments
issued, whichever is more reliably measurable. The value of equity instruments
issued for consideration other than employee services is determined on the
earlier of a performance commitment or completion of performance by the provider
of goods or services as defined by EITF 96-18.
The Company has also adopted the provisions of the Financial Accounting
Standards Board Interpretation No.44, Accounting for Certain Transactions
Involving Stock Compensation - An Interpretation of APB Opinion No. 25 ("FIN
44"), which provides guidance as to certain applications of APB 25. FIN 44 is
generally effective July 1, 2000 with the exception of certain events occurring
after December 15, 1998.
Income taxes
The Company follows the liability method of accounting for income
taxes. Under this method, future tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax balances. Future tax assets and liabilities are measured using
enacted or substantially enacted tax rates expected to apply to the taxable
income in the years in which those differences are expected to be recovered or
settled. The effect on future tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the date of enactment
or substantive enactment. As at December 31, 2003 the Company had net operating
loss carryforwards; however, due to the uncertainty of realization the Company
has provided a full valuation allowance for the deferred tax assets resulting
from these loss carryforwards.
Recent accounting pronouncements
In June 2001, the FASB issued SFAS No. 143 Accounting for Asset
Retirement Obligations which establishes standards for the initial measurement
and subsequent accounting for obligations associated with the sale, abandonment,
or other disposal of long-lived tangible assets arising from
14
SILVER STAR ENERGY, INC.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
the acquisition, construction or development and for normal operations of such
assets. SFAS 143 is effective for fiscal years beginning after June 15, 2002. As
at December 31, 2003, any potential costs relating to the retirement of the
Company's property interests are not yet determinable.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment on Disposal of Long-lived Assets" (SFAS 144), which supersedes SFAS
No. 121, Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of". SFAS No. 144 applies to all long-lived assets
(including discontinued operations) and consequently amends APB Opinion No.30,
"Reporting Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business". SFAS No. 144 requires that long-lived assets that are to
be disposed of by sale be measured at the lower of book value or fair value less
cost to sell. That requirement eliminates APB Opinion No. 30's requirement that
discontinued operations be measured at net realizable value or that entities
include under "discontinued operations" in the financial statements amounts for
operating losses that have not yet occurred. Additionally, SFAS No. 144 expands
the scope; of discontinued operations to include all components of an entity
with operations that (1) can be distinguished from the rest of the entity and
(2) will be eliminated from the ongoing operations of the entity in a disposal
transaction. SFAS No. 144 is effective for financial statements issued for
fiscal years beginning after December 15, 2001, and, generally, its provisions
are to be applied prospectively. The adoption of this standard has not had any
impact on the Company's financial position or results of operations and as of
December 31, 2003 the Company has not recorded any impairments of long-lived
assets.
In April 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections." Such standard requires any
gain or loss on extinguishments of debt to be presented as a component of
continuing operations (unless specific criteria are met) whereas SFAS No. 4
required that such gains and losses be classified as an extraordinary item in
determining net income. Upon adoption of SFAS No. 145, the Company will
reclassify any extraordinary gains and losses on the extinguishments of debt
recorded in prior periods to continuing operations. The adoption of SFAS 145
does not have a material effect on the Company's financial position or results
of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." Such standard requires costs
associated with exit or disposal activities (including restructurings) to be
recognized when the costs are incurred, rather than at a date of commitment to
an exit or disposal plan. SFAS No. 146 nullifies EITF Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." Under SFAS No.
146, a liability related to
15
SILVER STAR ENERGY, INC.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
an exit or disposal activity is not recognized until such liability has actually
been incurred whereas under EITF Issue No. 94-3 a liability was recognized at
the time of a commitment to an exit or disposal plan. The provisions of this
standard are effective for exit or disposal activities initiated after December
31, 2002. The adoption of SFAS 146 does not have a material effect on the
Company's financial position or results of operations.
In April 2003, the Financial Accounting Standards Board issued SFAS No.
149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities", which clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The adoption of SFAS 149 does not
affect the Company's financial position or results of operations.
In May, 2003, SFAS 150, "Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity", was issued. This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. Generally, a financial instrument, whether
in the form of shares or otherwise, that is mandatorily redeemable, i.e. that
embodies an unconditional obligation requiring the issuer to redeem it by
transferring its shares or assets at a specified or determinable date (or dates)
or upon an event that is certain to occur, must be classified as a liability (or
asset in some circumstances). In some cases, a financial instrument that is
conditionally redeemable may also be subject to the same treatment. This
Statement does not apply to features that are embedded in a financial instrument
that is not a derivative (as defined) in its entirety. For public entities, this
Statement is effective for financial instruments entered into or modified after
May 31, 2003. The adoption of SFAS 150 does not affect the Company's financial
position or results of operations.
NOTE 3 - OIL AND GAS PROPERTIES
The Company entered into agreements to acquire interests in various
unproved oil and gas properties as follows:
Alberta Prospects, Canada
Pursuant to two agreements dated October 29, 2003 with 1048136 Alberta
Ltd., the Company acquired the right to participate and earn an interest in two
oil and gas exploration and development
16
SILVER STAR ENERGY, INC.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(continued)
NOTE 3 - OIL AND GAS PROPERTIES (continued)
projects located in the province of Alberta known respectively as the Evi
prospect and the Verdigris prospect. 1048136 Alberta Ltd. is a private Alberta
company. The Company's current president, Robert McIntosh, was a director of
1048136 Alberta Ltd. and had resigned from that position prior to his
involvement with the Company. Sak Narwal, a significant shareholder of the
Company, is also a director of 1048136 Alberta Ltd and Scott Marshall, the
majority shareholder of 1048136 Alberta Ltd., is the spouse of Naomi Patricia
Johnston, owner of a 12.07% interest in the Company. Pursuant to the two
agreements with 1048136 Alberta Ltd., the Company must advance, commencing
February 1, 2004, a total of $2,000,000 and $1,500,000 respectively on the Evi
and Verdigris prospects in connection with the drilling, testing, completion,
capping and/or abandonment of up to three wells on each of the properties.
In order to earn a 66.7% interest in the Evi and Verdigris prospects
the Company must fund drilling programs totaling $3,500,000 as follows:
Date Due
- -------------------------------------------
February 1, 2004 $ 1,000,000
March 1, 2004 1,000,000
April 1, 2004 1,000,000
May 1, 2004 500,000
----------------
Total $ 3,500,000
================
The Company received an Authority for Expenditure (AFE) with respect to
one of the Alberta properties on December 1, 2003, in the amount of $463,264
which was paid on January 28, 2004.
During the three months ended March 31, 2004, the Company paid an
additional $165,829 towards the exploration and development of one of the oil
and gas prospects in Alberta. These costs have been capitalized.
In the event that the Company does not provide the funds as required,
the Company will retain no interest in the prospects.
California Prospects, U.S.A.
On December 5, 2003, the Company entered into two option agreements
with Archer Exploration, Inc. (Archer) to acquire Archer's interest in certain
unproved oil and gas prospects located in the State of California, U.S.A. To
earn an assignment of 100% of Archer's interests in these agreements, being a
100% working interest (76% net revenue interest), the Company:
17
SILVER STAR ENERGY, INC.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(continued)
NOTE 3 - OIL AND GAS PROPERTIES (continued)
North Franklin Prospect:
a) made a cash payment of $85,000 and is required to pay $15,000 at
spud of the initial test well and $25,000 at completion of the initial test
well. In addition, the Company is responsible for all expenses for lease
extensions and rental of existing leases (including a 20% fee), acquisition of
any additional leases (including a 20% fee) and costs in connection with
drilling and completion of the initial test well. During the year ended December
31, 2003 the Company incurred a total of $85,000 in acquisition costs which have
been capitalized.
During the three months ended March 31, 2004, the Company incurred
$36,000 in exploration and development costs. These costs have been capitalized.
Pursuant to the agreement, Archer retains a 2.5% overriding royalty, a
5% working interest through the completion of the initial test well and the
right to participate in a 5% working interest.
Winter Pinchout Prospect:
b) made a cash payment of $100,000 and is required to pay $15,000 at
spud of the initial test well of the first three prospects drilled and $25,000
at completion of the initial test well of each prospect drilled. In addition,
the Company is responsible for all expenses for acquisition of leases acquired
(including a 20% fee), acquisition and analysis of seismic data, drilling and
completion of the initial test well on the first prospect drilled and a monthly
management fee in the amount of $10,000 commencing January 2004. During the year
ended December 31, 2003 the Company incurred a total of $320,000 in acquisition
and exploration costs which have been capitalized.
During the three months ended March 31, 2004, the Company incurred
$404,000 in exploration and development costs. These costs have been
capitalized.
Pursuant to the agreement, Archer retains a 2.5% overriding royalty, a
5% working interest through the completion of the initial test well and the
right to participate in a 10% working interest.
NOTE 4 - NETCASH PURCHASE AGREEMENT
By agreement dated October 22, 2002 between the Company's subsidiary
Netcash and Netcash Services Inc. (NSI), Netcash acquired a 100% interest in
four Service and Management Contracts with retail locations' operations and one
Processing Contract with a cash transaction processor for four automated teller
machines (ATM's) as well as the exclusive right to use the trade name "Netcash"
in exchange for (a) 48,000,000 (2,000,000 restricted pre-forward 24:1 split)
18
SILVER STAR ENERGY, INC.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(continued)
NOTE 4 - NETCASH PURCHASE AGREEMENT (continued)
common shares of the Company valued at $2,000; and (b) the commitment to provide
a loan with no fixed terms of repayment of up to $15,000.
Effective October 28, 2003 the Company sold 100% of the shares in the
Common Stock of Netcash, inclusive of all its tangible and intangible assets and
liabilities associated with the Company's Automated Teller Machines management
operations, with a net book value of $8,257, to an arms length third party for
$25,000, resulting in a gain on sale of Netcash of $16,743.
NOTE 5 - COMMON STOCK
On November 20, 2003, the Company restructured its share capital
whereby the total common shares presently issued and outstanding was forward
split on a 1 (old) to 12 (new) basis. Effective January 5, 2004 the Company
restructured its share capital whereby the total common shares presently issued
and outstanding was forward split on a 1 (old) to 2 (new) basis. All references
to common stock, common shares outstanding, average numbers of common shares
outstanding and per share amounts in these Financial Statements and Notes to
Financial Statements prior to the effective date of the forward stock splits
have been restated to reflect the 12:1 and the 2:1 common stock splits on a
retroactive basis.
On December 5, 2003, the Company received $500,000 in subscription
proceeds from a director and officer for the purchase of 444,444 (222,222
pre-forward 2:1 split) common shares of the company's stock pursuant to a
Regulation S Private Placement Financing which was announced on November 25,
2003 and whereby the Company plans to issue up to 3,555,556 (1,777,778 pre-
forward 2:1) common shares of its capital stock at $1.13 per share. During the
three months ended March 31, 2004, the Company received subscription proceeds of
$750,000 pursuant to the Private Placement Financing announced on November 25,
2003. During the three months ended March 31, 2004, 1,112,102 shares were issued
in accordance with the $1,250,000 in subscription proceeds received.
On March 23, 2004, the Company entered into an agreement with two
shareholders for the shareholders to surrender for cancellation 24,600,000
regulation 144 restricted shares of the Company's common stock.
As of December 31, 2003, the Company has not adopted a stock option
plan or granted any stock options and accordingly has not recorded any
stock-based compensation.
19
SILVER STAR ENERGY, INC.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(continued)
NOTE 5 - COMMON STOCK (continued)
Treasury Stock
On December 18, 2003, upon the resignation of an officer of the
Company, 48,000,000 (2,000,000 pre-forward 24:1 split) common shares were
returned to Treasury, for consideration of $3,500. The shares were cancelled on
January 23, 2004.
NOTE 6- RELATED PARTY TRANSACTIONS
The $445,000 amount due to a related party is comprised of advances
from a director of the Company and is unsecured, non-interest bearing and has no
fixed terms of repayment. On February 20, 2004, this debt was forgiven in its
entirety and recorded as paid-in capital.
Pursuant to consulting agreements dated November 15, 2003 the Company
agreed to pay $5,500 per month to the CFO and director of the Company and $7,000
per month to the President and director of the Company.
NOTE 7 - INCOME TAXES
As of December 31, 2003, the Company has incurred operating losses of
approximately $87,000 which, if utilized, will expire through 2022. Future tax
benefits which may arise as a result of these losses and resource deductions
have not been recognized in these financial statements, as their realization is
determined not likely to occur.
NOTE 8 - COMMITMENTS
By agreement dated November 20, 2003 the Company engaged a private
company, to provide public relations and communications services for one year,
for the fee of $15,000 per month, commencing December 2003.
NOTE 9 - SUBSEQUENT EVENTS
The Company has an agreement to farm-out a 35% working interest in the
North Franklin Project to Fidelis Energy, Inc. Under the terms of the agreement,
Fidelis will contribute $500,000 towards the drilling and completion of the
Archer-Whitney #1 well and participate as a full working interest partner on all
further costs including drilling of any additional wells on the project.
20
Item 2. Management's Discussion and Analysis or Plan of Operation.
General - This discussion should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations in the
Company's annual report on Form 10-KSB for the year ended December 31, 2003.
Plan of Operations - We intend to seek financing necessary to fund our present
obligations in connection with the Oil and Gas interest acquisitions both in
Alberta and California and to fund our investigation, negotiation, acquisition
of other business acquisition opportunities and any potential future operations.
Currently, we have limited anticipated sources of financing and no specific
additional business projects that are being reviewed.
We anticipate incurring approximately $65,000 for administrative
expenses over the next 12 month period including accounting and audit costs
($20,000) legal fees ($15,000), rent and office costs ($12,000) and general
administrative costs ($18,000). We also anticipate incurring approximately
$225,000 in management, administrative and industry related consulting fees.
Additionally, subject to successful drilling programs on our acquired Oil and
Gas prospects and subject to the completion of all drilled wells on our
prospects, potentially our total commitments for the development and completion
of all wells would be as follows:
1. Alberta Prospects
A. Evi $500,000 - completion and tie-in of the 7-11 well
B. Verdigris $1,500,000 - leasing and drilling
C. Joarcam $1,230,000 - 3 wells at $410,000
2. California Prospects
A. North Franklin $117,000 - for well completion and tie-in and
$500,000 for one more well
B. Winter PinchOut $4,029,000
Additional funding will be required in the form of equity financing
from the sale of our common stock or from directors or shareholders loans to
fund operations. However, we cannot provide investors with any assurance that we
will be able to secure sufficient funding from the sale of our common stock or
arrange director or shareholders loans in order to continue operations.
Item 3. Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer have
concluded, based on an evaluation conducted within 90 days prior to the filing
date of this Quarterly Report on Form 10- QSB, that the Company's disclosure
controls and procedures have functioned effectively so as to provide those
officers the information necessary to evaluate whether:
(i) this Quarterly Report on Form 10-QSB contains any untrue statement
of a material fact or omits to state a material fact necessary to make
the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered
by this Quarterly Report on Form 10-QSB, and
21
(ii) the financial statements, and other financial information included
in this Quarterly Report on Form 10-QSB, fairly present in all material
respects the financial condition, results of operations and cash flows
of the Company as of, and for, the periods presented in this Quarterly
Report on Form 10-QSB.
There have been no significant changes in the Company's internal controls or in
other factors since the date of the Chief Executive Officer's and Chief
Financial Officer's evaluation that could significantly affect these internal
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no legal proceedings pending or threatened against us.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
Exhibit
Number Title of Document
10.1 Robert McIntosh's Consulting Agreement dated November 15, 2003, filed
on April 21, 2004 on Form 10KSB/A.
10.2 David Naylor's Consulting Agreement dated November 15, 2003, filed on
April 21, 2004 on Form 10KSB/A.
10.3 Robert McIntosh's Loan Agreement dated December 31, 2003, filed on
April 21, 2004 on Form 10KSB/A.
22
10.4 Agreement dated October 21, 2003 between the Company and Adil Dinani
disposing of 657333 BC Ltd. (Netcash), filed on November 13, 2003 on
Form 8-K.
10.5 Agreement dated October 29, 2003 between the Company and 1048136
Alberta, Ltd. respecting the acquisition of the Evi oil and gas
prospect, filed on November 13, 2003 on Form 8-K.
10.6 Agreement dated October 29, 2003 between the Company and 1048136
Alberta, Ltd. respecting the acquisition of the Verdigris oil and gas
prospect, filed on November 13, 2003 on Form 8-K. 10.7 Agreement dated
December 5, 2003 between the Company and Archer Exploration, Inc.
respecting the North Franklin oil and gas prospect, filed on December
23, 2003 on Form 8-K.
10.8 Agreement dated December 5, 2003 between the Company and Archer
Exploration, Inc. respecting the Winter Pinchout oil and gas project,
filed on December 23, 2003 on Form 8-K.
31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(b) Reports on Form 8-K filed.
On April 30, 2004, the Company filed a report on 8-K under Item 4
reporting a change in independent accountants from Dale, Matheson, Carr-Hilton,
Labonte, Chartered Accountants to Robison, Hill & Co.
23
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Silver Star Energy, Inc.
(Registrant)
DATE: May 14, 2004
By: /s/ Robert McIntosh
Robert McIntosh
President, CEO & Director
By: /s/ David Naylor
David Naylor
Treasurer, Director
24