[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: September 30, 2004
-------------------------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
For the transition period from to
------------------------------ --------------------------
Commission file number 333-102930
----------------------------------------------------
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: September 30, 2004 84,502,641
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
September 30, December 31,
------------------ -----------------
ASSETS 2004 2003
------------------ -----------------
Current Assets
Cash $ 5,571 $ 502,428
Prepaid Expense 13,440 40,000
------------------ -----------------
Total Current Assets 19,011 542,428
------------------ -----------------
Fixed Assets
Furniture and Fixtures 6,847 -
Computers 4,845 -
Vehicles 18,316 -
Accumulated Depreciation (3,355) -
------------------ -----------------
Net Fixed Assets 26,653 -
------------------ -----------------
Other Assets
Oil and Gas Properties 2,152,366 405,000
------------------ -----------------
Total Assets $ 2,198,030 $ 947,428
================== =================
3
SILVER STAR ENERGY, INC.
(An Exploration State Company)
BALANCE SHEETS
(Continued)
September 30, December 31,
------------------- ------------------
2004 2003
------------------- ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 165,886 $ 45,113
Notes Payable 251,830 -
Due to Related Party - 445,000
------------------- ------------------
Total Current Liabilities 417,716 490,113
------------------- ------------------
Stockholders' Equity
Preferred stock (Par Value $.001), 5,000,000 shares
authorized. -0- issued at September 30, 2004 and
December 31, 2003 - -
Common Stock (Par Value $.001), 300,000,000 shares
authorized. 84,502,641 issued and outstanding at September 30, 2004 and
154,578,624 issued and outstanding
at December 31, 2003 84,503 154,579
Treasury Stock - (3,500)
Paid in Capital in Excess of Par Value 2,691,576 -
Share Subscriptions Received - 500,000
Retained Deficit (128,480) (128,480)
Deficit accumulated during the exploration state (867,285) (65,284)
------------------- ------------------
Total Stockholders' Equity 1,780,314 457,315
------------------- ------------------
Total Liabilities and Stockholders' Equity $ 2,198,030 $ 947,428
=================== ==================
See accompanying notes.
4
SILVER STAR ENERGY, INC.
(An Exploration State Company)
STATEMENTS OF OPERATIONS
Deficit
Accumulated
Since
October 28,
2003
For the Three Months For the Nine Months Inception of
Ended September 30, Ended September 30, Exploration
------------------------------ ------------------------------
2004 2003 2004 2003 State
------------- ------------- ------------- ------------- -------------
Revenue $ -- $ -- $ -- $ -- $ --
------------- ------------- ------------- ------------- -------------
Expenses
Consulting and Management Fees 40,905 -- 163,671 -- 220,110
General and Administrative 133,866 -- 552,326 -- 557,146
Professional Fees 29,571 4,075 84,174 21,667 88,199
------------- ------------- ------------- ------------- -------------
Total Expenses 204,342 4,075 800,171 21,667 865,455
Other Income (Expense)
Interest Expense (1,830) -- (1,830) -- (1,830)
------------- ------------- ------------- ------------- -------------
Net Income (Loss) from continuing operations (206,172) (4,075) (802,001) (21,667) (867,285)
Discontinued Operations
Income (Loss) from discontinued operations -- 561 -- (14,737) --
------------- ------------- ------------- ------------- -------------
Net Income (Loss) $ (206,172) $ (3,514) $ (802,001) $ (36,404) $ (867,285)
============= ============= ============= ============= =============
Income (Loss) per Common Share
Continuing Operations $ -- $ -- $ (0.01) $ --
Discontinued Operations $ -- $ -- $ -- $ --
------------- ------------- ------------- -------------
Net Income (Loss) $ -- $ -- $ (0.01) $ --
============= ============= ============= =============
Weighted Average Shares Outstanding 84,143,945 154,578,624 94,252,550 154,578,624
============= ============= ============= =============
See accompanying notes.
5
SILVER STAR ENERGY, INC.
(An Exploration State Company)
STATEMENTS OF CASH FLOWS
Deficit
Accumulated
Since
October 28,
2003
For the Nine Months Inception of
Ended September 30, Exploration
-------------------------------------
2004 2003 State
----------------- ------------------ ------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss $ (802,001) $ (36,404) $ (867,285)
Adjustments used to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation 3,355 - 3,355
Non-Cash Management Fees - 4,500 -
Common stock issued for accounts payable 25,000 - 25,000
Net (Income) Loss from
Discontinued Operations - 14,737 -
(Increase) decrease in other assets & prepaids 26,560 1,570 (13,420)
Increase (decrease) in accounts payable
and accrued expenses 122,603 8,394 155,468
----------------- ------------------ ------------------
Net cash used by continuing operations (624,483) (7,203) (696,882)
Net cash used by discontinued operations - (14,737) -
----------------- ------------------ ------------------
Net cash used in operating activities (624,483) (21,940) (696,882)
----------------- ------------------ ------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition/Sale of equipment, net (30,008) - (30,008)
Acquisition of oil & gas property interests (1,747,366) - (2,152,366)
Proceeds on sale of Netcash (net of cash) - - 25,000
----------------- ------------------ ------------------
Net cash used by continuing operations (1,777,374) - (2,157,374)
Net cash used by discontinued operations - (5,816) -
----------------- ------------------ ------------------
Net cash used by investing activities (1,777,374) (5,816) (2,157,374)
----------------- ------------------ ------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from loans payable 250,000 - 250,000
Proceeds from shareholder loans - - 445,000
Proceeds on sale of common stock 1,655,000 - 2,155,000
----------------- ------------------ ------------------
Net Cash Provided by Financing Activities 1,905,000 - 2,850,000
----------------- ------------------ ------------------
6
SILVER STAR ENERGY, INC.
(An Exploration State Company)
STATEMENTS OF CASH FLOWS
(continued)
Deficit
Accumulated
Since
October 28,
2003
For the Nine Months Inception of
Ended September 30, Exploration
-------------------------------------
2004 2003 State
----------------- ------------------ ------------------
Effect of exchange rate changes - (2,400) -
Net Increase (Decrease) in
Cash and Cash Equivalents (496,857) (30,156) (4,256)
Cash and Cash Equivalents at
Beginning of the Period 502,428 39,983 9,827
----------------- ------------------ ------------------
Cash and Cash Equivalents at
End of the Period $ 5,571 $ 9,827 $ 5,571
================= ================== ==================
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 NINE MONTHS ENDED SEPTEMBER 30, 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 September 30, 2004 and for the
three and nine 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 and
nine 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 NINE MONTHS ENDED SEPTEMBER 30, 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 NINE MONTHS ENDED SEPTEMBER 30, 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 NINE MONTHS ENDED SEPTEMBER 30, 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 September 30, 2004
BASIC INCOME (LOSS) PER SHARE
Continuing Operations $ (206,172) 84,143,945 $ -
Discontinued Operations 84,143,945
----------------- ------------------ ------------------
Loss available to common shareholders $ (206,172) 84,143,945 $ -
================= ================== ==================
For the three months ended September 30, 2003
BASIC INCOME (LOSS) PER SHARE
Continuing Operations $ (4,075) 154,578,624 $ -
Discontinued Operations $ 561 154,578,624 $ -
----------------- ------------------ ------------------
Loss available to common shareholders $ (3,514) 154,578,624 $ -
================= ================== ==================
For the nine months ended September 30, 2004
BASIC INCOME (LOSS) PER SHARE
Continuing Operations $ (802,001) 94,252,550 $ (0.01)
Discontinued Operations 94,252,550 $ -
----------------- ------------------ ------------------
Loss available to common shareholders $ (802,001) 94,252,550 $ (0.01)
================= ================== ==================
For the nine months ended September 30, 2003
BASIC INCOME (LOSS) PER SHARE
Continuing Operations $ (21,667) 154,578,624 $ -
Discontinued Operations $ (14,737) 154,578,624 $ -
----------------- ------------------ ------------------
Loss available to common shareholders $ (36,404) 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 and nine months ended
September 30, 2004 and 2003 are not presented as it would be anti-dilutive.
11
SILVER STAR ENERGY, INC.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
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
Vehicles 5-7 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.
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 centers, being Canada and the U.S.A. To
date the Company has not established any proven recoverable reserves on its
properties.
12
SILVER STAR ENERGY, INC.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
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.
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.
13
SILVER STAR ENERGY, INC.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
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 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.
14
SILVER STAR ENERGY, INC.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
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 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.
15
SILVER STAR ENERGY, INC.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(continued)
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 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 nine months ended September 30, 2004, the Company paid an
additional $409,898 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.
16
SILVER STAR ENERGY, INC.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(continued)
NOTE 3 - OIL AND GAS PROPERTIES (continued)
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:
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 nine months ended September 30, 2004, the Company incurred
$371,829 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.
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.
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 nine months ended September 30, 2004, the Company incurred
$502,375 in exploration and development costs. These costs have been
capitalized.
17
SILVER STAR ENERGY, INC.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(continued)
NOTE 3 - OIL AND GAS PROPERTIES (continued)
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)
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.
18
SILVER STAR ENERGY, INC.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(continued)
NOTE 5 - COMMON STOCK (continued)
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.
During the three months ended June 30, 2004, the Company received
subscription proceeds of $630,000 pursuant to the Private Placement Financing
announced on November 25, 2003. During the three months ended June 30, 2004,
661,915 shares were issued in accordance with the $630,000 in subscription
proceeds received.
On June 30, 2004, the Company received share subscription proceeds of
$275,000 for 500,000 shares of restricted common stock pursuant to the Private
Placement Financing announced on November 25, 2003. During the three months
ended September 30, 2004, 500,000 shares were issued in accordance with the
$275,000 in subscription proceeds received.
On August 18, 2004, the Company issued 250,000 shares of common stock
for $25,000 in accounts payable.
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 at December 31, 2003 was
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.
19
SILVER STAR ENERGY, INC.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(continued)
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 - NOTES PAYABLE
On August 24, 2004, the Company received a loan of $150,000 with an
interest rate of 8%. The loan is due on August 24, 2005. On September 2, 2004,
the Company received a loan of $100,000 with an interest rate of 8%. This loan
is due on September 2, 2005.
NOTE 10 - DISCONTINUED OPERATIONS
On October 28, 2003, 657333 B.C. Ltd., doing business as Netcash, a
wholly owned subsidiary of the Company, was sold, and is no longer a subsidiary
of the Company.
Operating results of this discontinued operation for the three and nine
months ended September 30, 2004 and 2003 are shown separately in the
accompanying consolidated statement of operations. The operating statements for
the three and nine months ended September 30, 2003 have been restated to conform
with the current year's presentation and are also shown separately. The
operating results of this discontinued operation for the three and nine months
ended September 30, 2004 and 2003 consist of:
For the three months ended For the nine months ended
September 30, September 30,
------------------------------------- --------------------------------------
2004 2003 2004 2003
----------------- ----------------- ------------------ ------------------
Sales $ - $ 6,126 $ - $ 13,887
Operating Expenses - (5,565) - (28,624)
----------------- ----------------- ------------------ ------------------
Net Income (Loss) $ - $ 561 $ - $ (14,737)
================= ================= ================== ==================
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
CALIFORNIA
During the third quarter it has been determined that A.O.F. (absolute
open flow rates at the sand face) rate on the "Archer-Whitney #1" well to be in
excess of 12 million cubic feet per day. The recent flow test gas analysis
returned a B.T.U. content of 940 and reservoir engineers report that Silver Star
can expect excellent deliverability under producing conditions. Silver Star has
discovered a new gas reservoir and production rates will be established after
the well is tied-in to pipeline. The Company executed an Authority for
Expenditure (A.F.E.) for the Company's working interest share of the North
Franklin Project pipeline cost. Silver Star advanced the payment in full to the
operator totaling $150,000 for the Company's 40% working interest share of the
North Franklin pipeline cost. Silver Star advanced funds in full for additional
acreage that has been added to the Area of Mutual Interest (A.M.I.) surrounding
North Franklin covering 400 acres. The North Franklin Project land holdings
under lease now totals approximately 1,800 acres. These new leases cover the
pipeline route as well as expand the coverage of the underlying Winters
formation adding to the potential reserves of the North Franklin gas reservoir.
The North Franklin Project and the underlying newly discovered Winters
gas reservoir contains the "Archer-Whitney # 1" well. Once connected to
pipeline, Silver Star will be in a cash flow positive situation and a commercial
gas producer. A contract is in place with a natural gas purchaser and pipeline
construction will be completed in Q4. Once a connection and tie-in is completed,
the well will be evaluated as to I.P.R.'s (Initial Production Rates). Silver
Star is optimistic that gas flow rates will be similar to area analog gas fields
and that 5,000 mcf/day is a realistic target. Silver Star continues to work
closely with the operator and the generators of the play as to future well
locations, reserve estimations and overall reservoir engineering as we move
closer to the commencement of commercial gas production. Silver Star Energy,
Inc. continues to aggressively develop the North Franklin Gas Project by
constructing pipeline and tie-in of the "Archer-Whitney #1" natural gas well.
This well has made Silver Star a near-term commercial gas producer in the state
of California. The pipeline construction included a route survey, site
facilities construction and laying of the pipe.
Silver Star announced that the Company has executed acquisition and
joint operating agreements on five (5) natural gas prospects in California.
Silver Star has joined in an exploration project on these prospects located
throughout the Sacramento Basin. Silver Star is a 7.5% carried working interest
on four of the prospects and has acquired a 25% carried working interest in the
fifth. Silver Star, under the terms of the agreements is carried through the
drilling and completion of the first well on each of the five prospects. The
cumulative potential natural gas reserves in the five newly acquired prospects
are in excess of 100 Bcf. Gas. Each separate gas play has been chosen as
21
a moderate risk, high probability of success gas target with good quality
seismic anomalies in known gas producing formations. There is 3D Seismic
information, good geological control and analog fields spread throughout the
basin. The drilling of the first prospect is targeted in Q4 (weather dependent)
at which time, when the well is spudded, more information regarding the
specifics of each play will be made available due to the intense competition
between gas exploration and development companies all competing for the best
quality prospects in the Sacramento Basin. As the prices of natural gas continue
to rise as seen in gas futures trading above the $7.00 per mcf range, high
quality gas prospects are of a competitive nature.
Silver Star is carried on all costs related to the prospect through the
licensing, permitting, drilling and completion of the first well on each
project. In the event of a successful gas well being drilled, Silver Star would
then, following testing and completion, be responsible for the working interest
costs of well tie-in and pipeline. Silver Star would also then be a working
interest participant on any additional gas wells drilled.
ALBERTA
Also during the third quarter we announced details of the completion
program at the Evi Project "7-11" well located in Alberta. The completion
program was designed to test potential oil- bearing zones that were indicated by
the presence of oil on logs. Following perforation of the casing, testing of a
7.0 metre section of the Slave Point Formation commenced. Testing has concluded
that the "7-11" well was completed as an oil well and that the well has
established that the Slave Point is oil bearing at this location. Log analysis
indicates that the oil reservoir in this well is better than in a nearby well
that produced over 100,000 barrels of oil to-date and is still producing and
this nearby well required fracture stimulation to be a commercial producer. The
swab testing on the "7- 11" well indicated that the Silver Star's well was not
producing at commercial rates under the well's current state of completion and
that the well requires fracture stimulation of the formation. Silver Star and
Transaction Oil and Gas Ventures have prepared a "fracture stimulation" program
at Evi and plan on implementation of it during Q4 2004 or Q1 2005 weather
dependant.
Silver Star received notification that the Alberta Government granted
the Company on EVI lands SE 1/4 11-87-11W5M that surround and include the 7-11
well a "continue indefinitely" pursuant to Section 15 of the P & NG Tenure
Regulation. This means the well and lands are "held by production" to the base
of the Slave Point formation. Silver Star's newly granted status and the
validation by Alberta Energy shows that production now holds the EVI lease for
Silver Star in perpetuity.
SUBSEQUENT EVENTS
Silver Star has also designed and engineered a multi-well program at
the Joarcam lands, southeast of Edmonton. The comprehensive drilling plan
designed by Silver Star and Transaction Oil and Gas Ventures, the operator,
include four locations. The "13-27" location was recently added and will be
drilled based on information gathered from a new producer on a neighboring
lease. The "13-27" will directly offset Enermark's new "16-28-47-20W4M" well
that has produced in the first 26 days at a rate of 74 barrels per day with only
a 37% water cut. Transaction Oil and Gas Ventures engineered four drilling
locations. The four locations are designated "13-27", "13-22", "5-27" and
22
"5-22". The four locations are now at a varied status of surveying, permitting
and licensing. Site preparation of the first location will be commencing shortly
and Silver Star anticipates the spud of the first well dependant on rig
availability.
Currently, the 38 degree API light oil at Joarcam has been priced at
over $66.00 CDN per barrel. The project is a low risk development property with
oil at a shallow depth and with a short payback period and long life reserves in
the "Viking C" pool adjacent to the established Joarcam Viking pool, the largest
Viking hydrocarbon accumulation in Alberta, Canada.
The four wells now planned for Joarcam with the addition of the "13-27"
location are part of an overall development strategy that could see up to 16
well locations ultimately be drilled. With success at Joarcam, it is anticipated
that the field could produce 500 barrels of oil per day (bbls/d) if fully
developed. Oil wells at Joarcam demonstrate very shallow decline curves. The
prospect lands are located about 25 miles southeast of Edmonton, Alberta and
there is year round access to the property.
At the time of writing, the Company was preparing to begin the drilling
of the 5-27 oil well that is offset by 100 metres to a new producer across the
lease boundary. Silver Star expects a similar production rate between 60-65
barrels per day of top quality light crude from the well and plans to complete
this venture prior to the end of October.
The natural gas pipeline construction and tie-in of the Archer-Whitney
#1 gas well at the North Franklin Project is nearing completion. Silver Star
anticipates the well to be tied-in during November, 2004. Once finished, the
tie-in of the Archer-Whiney #1 well will mark the commencement of production.
Silver Star will announce immediately when the well is tied-in and update gas
flow rates when they are made available. The current gas price from
PG&E-Citygate at time of writing is $6.75 and prices are expected to rise during
the fall and winter.
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
(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
23
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
On June 30, 2004, the Company received share subscription proceeds of
$275,000 for 500,000 shares of restricted common stock pursuant to the Private
Placement Financing announced on November 25, 2003. During the three months
ended September 30, 2004, 500,000 shares were issued in accordance with the
$275,000 in subscription proceeds received.
On August 18, 2004, the Company issued 250,000 shares of common stock
for $25,000 in accounts payable.
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.
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.
24
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.
None.
25
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: November 3, 2004
By: /s/ Robert McIntosh
Robert McIntosh
President, CEO & Director
By: /s/ David Naylor
David Naylor
Treasurer, Director
26