Quarterly Report — Small Business — Form 10-QSB Filing Table of Contents
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(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
o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
YES
x
NO
o
Number
of
shares of common stock outstanding as of November 15, 2007: 41,219,311shares
of
common stock.
Transitional
Small Business Format Yes
o
No
x
TABLE
OF CONTENTS
PART
I
Item
1. Financial Statements
Item
2. Management’s Discussion and Analysis or Plan of
Operation
During
the periods, the Company had no cash flows arising from interest
and
income taxes paid.
(The
accompanying notes are an integral part of these condensed financial
statements.)
-3-
1.Description
of Business and Going Concern
a)
Description
of Business
Stargold
Mines, Inc. (the "Company"), formerly Sockeye Seafood Group Inc., (Sockeye
Seafood Group Inc. merged with its wholly-owned subsidiary Stargold Mines,
Inc.
on November 23, 2006 and changed its name to Stargold Mines, Inc.) was
incorporated under the laws of the State of Nevada on May 21, 2003. The Company
was formed to engage in the business of procuring and marketing seafood products
direct from Pacific Northwest First Nations organizations to North American
and
international wholesalers, distributors, and retailers.
The
Company's operations have been limited to general administrative operations,
purchasing a limited amount of sample inventory, minimal sales and establishing
its website. The Company is considered a development stage company in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 7 "Accounting
and
Reporting by Development Stage Enterprises". The Company is currently working
on
acquiring licenses to develop and extract natural resources in the Siberian
and
Far Eastern Districts of Russia.
b)
Going
Concern
The
accompanying condensed financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
with the assumption that the Company will be able to realize its assets and
liabilities in the normal course of business. The Company has experienced
recurring losses since inception and has negative cash flows from operations
that raise substantial doubt as to its ability to continue as a going concern.
For the period ended September 30, 2007, the Company experienced a net loss
of
$328,214 and has a deficit accumulated during the development stage of $390,857
at September 30, 2007.
The
Company's ability to continue as a going concern is contingent upon its ability
to secure additional financing and attaining profitable operations.
Management
is pursuing various sources of equity financing. Although the Company plans
to
pursue additional financing, there can be no assurance that the Company will
be
able to secure financing when needed or obtain such on terms satisfactory to
the
Company, if at all.
The
accompanying condensed financial statements do not include any adjustments
to
reflect the possible future effects on the recoverability and classification
of
assets or the amounts and classification of liabilities that may result from
the
inability of the Company to continue as a going concern.
-4-
2.Summary
of Significant Accounting Policies
a)
Basis
of Presentation
The
accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
of
America for interim financial information and with the instructions to Form
10
QSB. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a
fair presentation have been included. Interim results are not necessarily
indicative of the results that may be expected for a full year. There have
been
no significant changes of accounting policies since December 31, 2006. These
condensed financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Company's Annual Report
for the fiscal year ended December 31, 2006.
b)
Recent
Accounting Pronouncements
In
February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities
Including an Amendment of FASB Statement No. 115”. This statement permits
entities to choose to measure many financial instruments and certain other
items
at fair value. The objective is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. This statement is expected to expand the
use of fair value measurement, which is consistent with the Board’s long term
measurement objectives for accounting for financial instruments. This statement
also establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. This statement does not affect any
existing accounting literature that requires certain assets and liabilities
to
be carried at fair value. This statement does not establish requirements for
recognizing and measuring dividend income, interest income, or interest expense.
This statement does not eliminate disclosure requirements included in other
accounting standards, including requirements for disclosures about fair value
measurements included in FASB Statements No. 157, “Fair Value Measurements”, and
No. 107, “Disclosures about Fair Value of Financial Instruments.” This statement
is effective as of the beginning of the entity’s first fiscal year that begins
after November 15, 2007. The Company is currently reviewing the effect, if
any,
the proposed guidance will have on its financial statements.
In
May
2007, the FASB issued a FASB Staff Position on FIN 46(R)-7, "Application of
FASB
Interpretation No. 46(R) to Investment Companies" ("FSP FIN 46 (R)-7"). FSP
FIN
46(R)-7 addresses the application of FASB Interpretation No. 46 (revised
December 2003), "Consolidation of Variable Interest Entities", by an entity
that
accounts for its investments in accordance with the specialized accounting
guidance in the American Institute of Certified Public Accountants (“AICPA”)
Audit and Accounting Guide, "Investment Companies" (the “Guide”). The adoption
of FSP FIN 46(R)-7 did not have a material impact on the Company's results
of
operations and financial condition.
-5-
2.Summary
of Significant Accounting Policies (cont'd)
b)
Recent
Accounting Pronouncements (cont'd)
In
May
2007, the FASB issued FASB Interpretation FIN No. 48-1, “Definition of
Settlement in FASB Interpretation 48” (“FIN 48-1”). FIN 48-1 amends FIN 48,
“Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement
No. 109”, to provide guidance on how an enterprise should determine whether a
tax position is effectively settled for the purpose of recognizing previously
unrecognized tax benefits. FIN 48-1 is effective retroactively to January 1,2007. The adoption of FIN 48-1 did not have a material effect on the Company’s
condensed financial statements.
In
June
2007, the AICPA issued Statement of Position ("SOP") No. 07-1, ''Clarification
of the Scope of the Audit and Accounting Guide Investment Companies and
Accounting by Parent Companies and Equity Method Investors for Investments
in
Investment Companies" (“SOP No. 07-1”). SOP No. 07-1 clarifies when an entity
may apply the provisions of the Guide. Investment companies that are within
the
scope of the Guide report investments at fair value; consolidation or use of
the
equity method for investments is generally not appropriate. SOP No. 07-1 also
addresses the retention of specialized investment company accounting by a parent
company in consolidation or by an equity method investor. SOP No. 07-1 is
effective for fiscal years beginning on or after December 15, 2007 with early
adoption encouraged. The Company is currently evaluating the impact, if any
of
SOP No. 07-1 on the Company’s condensed financial statements.
In
September 2007, the FASB published Proposed FASB Staff Position ("FSP") No.
APB
14-a, “Accounting for Convertible Debt Instruments That May Be Settled in Cash
upon Conversion.” The proposed FSP applies to convertible debt instruments that,
by their stated terms, may be settled in cash (or other assets) upon conversion,
including partial cash settlement, unless the embedded conversion option is
required to be separately accounted for as a derivative under SFAS No.133.
Convertible debt instruments within the scope of the proposed FSP are not
addressed by APB 14. Therefore, the liability and equity components of
convertible debt instruments within the scope of the proposed FSP shall be
separately accounted for in a manner that will reflect the entity’s
nonconvertible debt borrowing rate. This will require an allocation of the
convertible debt proceeds between the liability component and the embedded
conversion option (i.e., the equity component). The difference between the
principal amount of the debt and the amount of the proceeds allocated to the
liability component would be reported as a debt discount and subsequently
amortized to earnings over the instrument’s expected life using the effective
interest method. The proposed FSP is expected to be effective for fiscal years
beginning after December 15, 2007 and will require retrospective application.
The Company is currently reviewing the effect, if any, if the proposed FSP
were
to be adopted.
-6-
3.
Loan
Receivable
The
loan
receivable from UniverCompany Limited Liability Company, a Russian limited
liability society ("UniverCompany"), is non-interest bearing, unsecured and
has
no specified terms for repayment, and has face value of $1,199,000. The fair
value of the loan was determined to be $961,585, estimated based on a collection
period of 2 years, using interest rate of 11%. Unrealized loss has been reported
in other comprehensive loss.
4.
Loan
Payable
The
loan
payable to Blue Water Partners bears interest at prime plus 1% per annum
beginning October 31, is unsecured and has no specified terms of repayment.
5.
Capital
Stock
On
November 23, 2006, the Company implemented a one for forty (1:40) forward stock
split and increased its authorized shares of common stock on a corresponding
basis. The 2006 comparative number of shares have been retroactively adjusted
to
give effect to the stock split.
On
December 19, 2006the Company issued 1,000,000 units of the Company's
securities, each unit consisting of one share of common stock and one share
purchase warrant for total proceeds of $1,000,000. Each warrant is exercisable
for one share of common stock at an exercise price of $2.50 for two years from
the date of issuance. Due to the substantial difference between market value
and
exercise price no value has been attributed to the warrants.
In
March
2007, the Company issued 25,000 shares for services valued at
$2,500.
In
March
2007, the Company issued 83,200 shares for cash of $8,320.
In
May
2007, the Company issued 111,111 shares by way of the sale of 111,111 units
of
the Company's securities. Each unit consists of one share of common stock and
one half Class A Warrant. Each Class A Warrant is exercisable for one share
of
common stock at an exercise price of $7.00 for 2 years from the date of
issuance. The units were issued for cash of $406,112 for the common shares
and
$93,888 for the Class A Warrants.
In
June
2007, the Company cancelled 40,000,000 issued common shares that were held
by
former directors.
-7-
6.
Income
Taxes
The
Company accounts for income taxes pursuant to SFAS No. 109. This standard
prescribes the use of the liability method whereby deferred tax asset and
liability account balances are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates. The effects of future changes in tax laws or rates are not
anticipated.
Under
SFAS No. 109 income taxes are recognized for the following: a) amount of tax
payable for the current year, and b) deferred tax liabilities and assets for
future tax consequences of events that have been recognized differently in
the
financial statements than for tax purposes.
The
current provision for income taxes has been computed as follows:
Expected
income tax recovery at the statutory rate - 31%
$
(103,059
)
Valuation
allowance
103,059
Current
provision for income taxes
-
The
Company has tax losses available to be applied against future years' income.
Due
to the losses incurred in the current period and expected future operating
results, management determined that it is more likely than not that the deferred
tax asset resulting from the tax losses available for carryforward will not
be
realized through the reduction of future income tax payments, accordingly a
100%
valuation allowance has been recorded for the current income taxes and deferred
income tax assets.
The
Company has deferred income tax assets as follows:
Net
operating loss carryforward
$
122,730
Valuation
allowance for deferred income tax assets
(122,730
)
Deferred
income tax assets
$
-
As
of
September 30, 2007, the Company had $390,857 of Federal and state net operating
loss carryforwards available to offset future taxable income. The Company has
the following losses which expire in 20 years from the date the loss was
incurred:
Expiry
2023
$
1,728
Expiry
2024
4,513
Expiry
2025
5,676
Expiry
2026
50,726
Expiry
2027
328,214
$
390,857
-8-
7.
Contingency
On
November 30, 2006, the Company entered into a stock purchase agreement with
UniverCompany and agreed to purchase from shareholders of UniverCompany 100%
of
the issued and outstanding shares of common stock of UniverCompany. In
consideration therefore, the Company will issue to the shareholders of
UniverCompany 15,000,000 shares of the Company's common stock.
The
acquisition is currently going through the legal procedures required by Russian
legislation, and the title did not pass to the Company as of the period end.
Shares will be issued when the transaction is approved by the Russian
authorities.
8.
Restatement
The
stockholders' equity has been retroactively restated to December 31, 2005 to
give effect to the 1 for 40 stock split as described in note 5.
Item
2.Management’s
Discussion and Analysis or Plan of Operations.
The
following discussion should be read in conjunction with our financial
statements, which are included elsewhere in this Form 10-QSB (the “Report”).
This Report contains forward-looking statements which relate to future events
or
our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as “may”, “should”, “expects”,
“plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or
“continue” or the negative of these terms or other comparable terminology. These
statements are only predictions and involve known and unknown risks,
uncertainties, and other factors that may cause our or our industry’s actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking
statements.
While
these forward-looking statements, and any assumptions upon which they are based,
are made in good faith and reflect our current judgment regarding the direction
of our business, actual results will almost always vary, sometimes materially,
from any estimates, predictions, projections, assumptions or other future
performance suggested herein. Except as required by applicable law, including
the securities laws of the United States, we do not intend to update any of
the
forward-looking statements to conform these statements to actual
results.
Overview
We
were
incorporated under the laws of the State of Nevada on May 21, 2003 under the
name Sockeye Seafood Group, Inc. On November 13, 2006, we entered into a Plan
and Agreement of Merger with our wholly-owned subsidiary, Stargold Mines, Inc.,
a Nevada corporation (the "Subsidiary"). The Subsidiary had no assets or
liabilities and no previous operating history; it was formed by us on November8, 2006 for the sole purpose of entering into the merger.
The
merger was consummated on November 23, 2006. On that date, we filed with the
Secretary of State of Nevada Articles of Merger, pursuant to which the
Subsidiary merged with and into us in accordance with the Plan of Merger.
Pursuant to the Articles of Merger, we also changed our name from "Sockeye
Seafood Group, Inc." to "Stargold Mines, Inc."
Effective
as of November 23, 2006, we implemented a one for forty (1:40) forward stock
split and increased our authorized shares of common stock on a corresponding
basis. The number of shares of our common stock increased on a one for forty
(1:40) basis, from 25,000,000 shares, par value $0.001, to 1,000,000,000 shares,
par value $0.0001.
As
disclosed in the Company's Current Report on Form 8-K filed with the Securities
and Exchange Commission (the "SEC") on December 5, 2006, on November 30, 2006,
the Company entered into a Stock Purchase Agreement with UniverCompany Limited
Liability Company, a Russian limited liability society ("UniverCompany"), and
the shareholder of UniverCompany, Evgeny Belchenko (the "UniverCompany
Shareholder")(collectively, the "Univer Agreement"). Pursuant to the Univer
Agreement, the Company agreed to purchase from the UniverCompany Shareholder
100% of the issued and outstanding shares of common stock of UniverCompany
in
exchange for 41,000,000 shares of the Company's common stock. On May 15, 2007,
the Univer Agreement was amended to reduce the consideration to 15,000,000
shares of the Company's common stock.
On
August27, 2007, the Company initiated its acquisition of UniverCompany by acquiring
100% of the issued and outstanding shares of common stock of UniverCompany
in
accordance with the UniverAgreement, as amended. UniverCompany will become
a
wholly-owned subsidiary of the Company after the Russian registration procedures
and completed and approved.
Since
inception, we have had an insignificant amount of revenues. Our operations
have
been limited to general administrative operations. We are considered a
development stage company in accordance with Statement of Financial Accounting
Standards No. 7.
Proposed
Business
On
August27, 2007, the Company initiated its acquisition of UniverCompany by acquiring
100% of the issued and outstanding shares of common stock of UniverCompany
in
accordance with the UniverAgreement. UniverCompany has begun the process of
transferring it’s registration per Russian government procedures. Once this
process is complete, UniverCompany will become a wholly-owned subsidiary of
the
Company. We intend to file under cover of an appropriate SEC periodic report,
the financial statements of UniverCompany and pro forma financial statements
for
UniverCompany and the Company, to the extent required by applicable SEC
regulations.
As
previously disclosed on December 4, 2006, UniverCompany holds licenses to
develop and extract natural resources of gold, copper, tin and lead located
in
the Siberian and Far Eastern Federal Districts of Russia. Once its acquisition
of UniverCompany is complete, StarGold will own rights to the "Nerchinskie"
minerals & metals deposit, which StarGold believes contains significant
amounts of gold and silver, and approximately 17% of the "Karalon" deposit,
which the Company believes has both precious metals and other scare resources
such as copper, lead and tin. The balance of the purchase price for Nerchinskie
license of approximately $26 million USD must be paid prior to January 2013.
Under an agreement dated December 2006, UniverCompany has the option to acquire
an additional 63% of the Karalon deposit in return for a payment of $2.8 million
USD.
In
December 2006 we received $1,000,000 gross proceeds from the sale of 1,000,000
units to Hampton Park Capital LLC. Each unit consisted of one share of common
stock and one share purchase warrant, exercisable for one share of common stock
at an exercise price of US$2.50 for two years from the date of issuance. The
$1,000,000 raised by us was lent to UniverCompany on an unsecured basis, with
no
specific terms for repayment.
In
May
2007, the Company received gross proceeds of an aggregate of $500,000 from
the
sale of 111,111 units of the Company's securities. Each unit consisted of one
share of common stock and one half Class A Warrant. Each Class A Warrant is
exercisable for one share of common stock at an exercise price of $7.00 for
two
years from the date of issuance. The units were sold pursuant to Section 4(2)
of
the Securities Act of 1933.
In
June
2007, the Company cancelled 40,000,000 shares of its commons stock which had
previously been issued to former directors.
Plan
of Operation
We
have
not generated any revenues during the nine months ended September 30, 2007
and
do not expect to generate any revenues over the next six to twelve months.
The
company's strategy is to complete the procedural steps necessary to register
UniverCompany as a wholly-owned subsidiary of StarGold and to raise funds to
prove and possibly exploit the Nerchinskie and Karalon properties. Further,
Company will continue to seek out investment and acquisition opportunities
in
Russia and Eastern Europe with the aim of extracting natural resources from
existing licenses and acquiring and exploiting other natural resource licenses
and properties ultimately developing a portfolio of natural resource
opportunities attractive to Western investors.
Our
principal business objective for the next twelve months will be to raise funds.
If we are not successful, we will then have to seek, investigate and, if such
investigation warrants, engage in a business combination with another private
entity whose business presents an opportunity for our shareholders.
As
of
September 30, 2007, we had $6,990 in cash. We incurred a net loss of $205,622
for the period July 1, 2007 to September 30, 2007. During the quarter covered
by
this Report, the Company made a $99,000 non-interest bearing, unsecured loan
to
UniverCompany. During the quarter ended September 30, 2007, there was an in
increase in professional fees corresponding with the increase in legal and
accounting activity associated with completing the acquisition of UniverCompany.
Salaries and benefits for the six and nine month period ending June 30, 2007
and
September 30, 2007, was $40,000 and $60,000 respectively, as Marcus Segal,
the
Company's Chief Executive Officer and Chief Financial Officer receives a salary
of $20,000 per quarter for services.
During
the next twelve months we anticipate incurring costs related to finalizing
the
acquisition of UniverCompany and the filing of the appropriate SEC periodic
reports. We believe we will be able to meet these costs through funds to be
loaned by or invested in us by our stockholders, management or other investors.
We have no specific plans, understandings or agreements with respect to the
raising of such funds, and we may seek to raise the required capital by the
issuance of equity or debt securities or by other means. Since we have no such
arrangements or plans currently in effect, our inability to raise funds for
the
consummation of an acquisition may have a severe negative impact on our ability
to become a viable company.
Item
3.Controls
and Procedures.
Evaluation
of Disclosure Controls and Procedures
Our
disclosure controls and procedures are designed to ensure that information
required to be disclosed in reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within
the
time periods specified in the rules and forms of the United States Securities
and Exchange Commission. Our Chief Executive Officer and Chief Financial Officer
has reviewed the effectiveness of our "disclosure controls and procedures"
(as
defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c))
within the end of the period covered by this Quarterly Report on Form 10-QSB
and
has concluded that the disclosure controls and procedures are effective to
ensure that material information relating to the Company is recorded, processed,
summarized, and reported in a timely manner. There were no significant changes
in our internal controls or in other factors that could significantly affect
these controls subsequent to the last day they were evaluated by our Chief
Executive Officer and Chief Financial Officer.
Changes
in Internal Controls over Financial Reporting
There
have been no changes in the Company's internal control over financial reporting
during the last quarterly period covered by this report that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
In
accordance with to requirements of the Exchange Act, the registrant caused
this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.