UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
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(Mark one)
X Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
-------- Act of 1934
For the quarterly period ended December 31, 2005
Transition Report Under Section 13 or 15(d) of the Securities Exchange
-------- Act of 1934
For the transition period from ______________ to _____________
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Commission File Number: 0-21071
Nevstar Corporation
(Exact name of registrant as specified in its charter)
Nevada 88-0309578
------------------------ ------------------------
(State of incorporation) (IRS Employer ID Number)
12890 Hilltop Road, Argyle, TX 76226
------------------------------------
(Address of principal executive offices) (Zip Code)
(972) 233-0300
--------------
(Registrant's telephone number, including area code)
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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
--- ---
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act): YES X NO
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: February 20, 2006: 419,436
--------------------------
Transitional Small Business Disclosure Format (check one): YES NO X
--- ---
Nevstar Corporation
Form 10-Q for the Quarter ended December 31, 2005
Table of Contents
Page
----
Part I - Financial Information
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis or Plan of Operation 12
Item 3 Quantitative and Qualitative Disclosures About Market Risk 13
Item 4 Controls and Procedures 14
Part II - Other Information
Item 1 Legal Proceedings 14
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 14
Item 3 Defaults Upon Senior Securities 14
Item 4 Submission of Matters to a Vote of Security Holders 14
Item 5 Other Information 15
Item 6 Exhibits 15
Signatures 15
2
Part I
Item 1 - Financial Statements
Nevstar Corporation
(a development stage enterprise)
Balance Sheets
December 31, 2005 and June 30, 2005
(Unaudited) (Audited)
December 31, June 30,
2005 2005
------------ ------------
Assets
------
Assets
Cash on hand and in bank $ 15,045 $ --
------------ ------------
Total Assets $ 15,045 $ --
============ ============
Liabilities and Stockholders' Deficit
-------------------------------------
Current Liabilities
Current portion of long-term pre-petition tax liabilities $ 113,638 $ 42,000
Accounts payable - trade 52,547 52,547
Accrued interest payable 78,763 63,058
Line of credit note payable to shareholder 390,625 380,304
------------ ------------
635,573 537,909
------------ ------------
Long-Term Liabilities
Pre-petition tax liabilities -- 128,857
------------ ------------
Total Liabilities 635,573 666,766
------------ ------------
Commitments and contingencies
Stockholders' Deficit
Preferred stock - $0.01 par value
10,000,000 shares authorized
None issued and outstanding -- --
Common stock - $0.01 par value
150,000,000 shares authorized
419,436 and 169,436 shares
issued and outstanding, respectively 4,164 1,694
Additional paid-in capital 577,986 505,456
Accumulated deficit - prior to development stage (1,001,679) (1,001,679)
Deficit accumulated during development stage (200,999) (172,237)
------------ ------------
Total Stockholders' Deficit (620,528) (666,766)
------------ ------------
Total Liabilities and Stockholders' Deficit $ 15,045 $ --
============ ============
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
The accompanying notes are an integral part of these financial statements.
3
Nevstar Corporation
(a development stage enterprise)
Statements of Operations and Comprehensive Loss
Six and Three months ended December 31, 2005 and 2004 and
Period from November 22, 2002 (date of bankruptcy settlement)
through December 31, 2005
(Unaudited)
Period from
November 22,
2002 (date of
bankruptcy
Six months Six months Three months Three months settlement)
ended ended ended ended through
December 31, December 31, December 31, December 31, December 31,
2005 2004 2005 2004 2005
------------ ------------ ------------ ------------ ------------
Revenues $ -- $ -- $ -- $ -- $ --
Expenses
General and
administrative expenses 19,057 13,603 5,236 3,250 132,275
------------ ------------ ------------ ------------ ------------
Loss from Operations (19,057) (13,603) (5,236) (3,250) (132,275)
Other Expense
Other income -- -- -- -- 20,000
Gain on
settlement of liabilities 9,985 -- 9,985 -- 9,985
Interest expense (19,690) (16,444) (9,490) (8,440) (98,709)
------------ ------------ ------------ ------------ ------------
Loss before Provision
for Income Taxes (28,762) (30,047) (4,741) (11,694) (200,999)
Provision for
Income Taxes -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net Loss (28,762) (30,047) (4,741) (11,694) (200,999)
Other
Comprehensive
Income -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Comprehensive Loss $ (28,762) $ (30,047) $ (4,741) $ (11,694) $ (200,999)
============ ============ ============ ============ ============
Loss per weighted-average share
of common stock outstanding,
computed on Net Loss -
basic and fully diluted $ (0.10) $ (0.18) $ (0.01) $ (0.07)
============ ============ ============ ============
Weighted-average number
of shares of common
stock outstanding 280,849 169,436 392,262 169,436
============ ============ ============ ============
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
The accompanying notes are an integral part of these financial statements.
4
Nevstar Corporation
(a development stage enterprise)
Statements of Cash Flows
Six months ended December 31, 2005 and 2004 and
Period from November 22, 2002 (date of bankruptcy settlement)
through December 31, 2005
(Unaudited)
Period from
November 22,
2002 (date of
bankruptcy
Six months Six months settlement
ended ended through
December 31, December 31, December 31,
2005 2004 2005
------------ ------------ ------------
Cash Flows from Operating Activities
Net Loss $ (28,762) $ (30,047) $ (200,999)
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation -- -- --
Gain on negotiated debt reduction in
pre-petition tax liabilities (9,985) -- (9,985)
(Increase) Decrease in
Accounts payable - trade -- (4,539) (25,499)
Accrued interest payable 15,705 16,445 77,342
------------ ------------ ------------
Net cash used in operating activities (23,042) (18,141) (159,141)
------------ ------------ ------------
Cash Flows from Investing Activities -- -- --
------------ ------------ ------------
Cash Flows from Financing Activities
Proceeds from sale of common stock 75,000 -- 75,000
Cash received from long-term debt 10,321 32,141 168,000
Cash paid on long-term debt (47,234) (14,000) (68,814)
------------ ------------ ------------
Net cash provided by financing activities 38,087 18,141 174,186
------------ ------------ ------------
Increase (Decrease) in Cash and Cash Equivalents 15,045 -- 15,045
Cash and cash equivalents at beginning of period -- -- --
------------ ------------ ------------
Cash and cash equivalents at end of period $ 15,045 $ -- $ 15,045
============ ============ ============
Supplemental Disclosures of Interest and Income Taxes Paid
Interest paid during the period $ 3,985 $ -- $ 19,985
============ ============ ============
Income taxes paid (refunded) $ -- $ -- $ --
============ ============ ============
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
The accompanying notes are an integral part of these financial statements.
5
Nevstar Corporation
(a development stage enterprise)
Notes to Financial Statements
Note A - Organization and Description of Business
Nevstar Corporation (Company) was incorporated under the laws of the State of
Nevada on December 2, 1993 as Mesquite Gaming Corp. On October 3, 1995, the
Company changed its name to NevStar Gaming Corporation and on September 18,
1997, changed its name to NevStar Gaming & Entertainment Corporation.
The Company was formed to acquire, develop, construct, own and manage
hotel/casino projects. The Company's strategy was to concentrate its efforts on
"niche" markets, such as "local" or "neighborhood" casinos. The Company obtained
its license and related approvals from the Nevada Gaming Commission to conduct
gaming at its initial hotel/casino, Mesquite Star Hotel and Casino (The Mesquite
Star) in Mesquite, Nevada, pursuant to an Order of Registration dated June 23,
1998. On July 1, 1998, the Mesquite Star, opened for business and the Company
began receiving revenues from operations. The Mesquite Star was located on an
approximately 25-acre property in Mesquite, Nevada.
On December 1, 1999, the Company filed a voluntary petition for relief under
Chapter 11 (the First Chapter 11 Proceeding) in the United States Bankruptcy
Court, District of Nevada (Bankruptcy Court), Case No. 99-19566RCJ. The Company
acted as debtor in possession during the First Chapter 11 Proceeding. In part as
a result of the objections of certain of the Company's secured creditors and the
Bankruptcy Court's belief that the Company could not be successfully reorganized
in view of such objections, the Bankruptcy Court dismissed the First Chapter 11
Proceeding on or about March 2, 2000.
On March 3, 2000, Randy Black (Black) was appointed by the District Court of
Clark County, Nevada as receiver for the Company. On or about March 8, 2000,
Black caused the casino to cease all meaningful operations and the casino was
closed. The Company has not engaged in business operations since that date.
Subsequently, Black acquired the first trust deed on the casino from the bank
and he began foreclosure proceedings against the casino.
On July 10, 2000, the Company again filed a voluntary petition for relief under
Chapter 11 (the Second Chapter 11 Proceeding) in the Bankruptcy Court, Case No.
BK-S-00-15075-LBR. During the Second Chapter 11 Proceeding, the Company acted as
debtor in possession. During the course of the Second Chapter 11 Proceeding, the
Bankruptcy Court permitted Black to foreclose on the casino, which occurred on
November 13, 2000. In April, 2001, the Company and W/F Investment Corp. (W/F)
submitted to the Bankruptcy Court a plan of reorganization, which was amended
from time to time (the Plan of Reorganization). On February 20, 2002, the
Bankruptcy Court issued an order confirming the Plan of Reorganization. On
November 22, 2002, the Plan of Reorganization became effective. The Company
issued 15,141,674 shares of common stock to holders of unsecured claims; 156,428
shares of common stock to certain administrative claimants and to a previously
secured claim holder, and 27,807,219 shares of common stock to the Plan
Proponents. The 7,583,687 shares of Common Stock that were previously
outstanding were retained by the holders of those shares. There are a total of
50,715,008 shares of common Stock outstanding after the issuance of shares under
the Plan of Reorganization. The Plan of Reorganization authorized a reverse
split of the Common Stock, which occurred on January 12, 2006. The effect of the
reverse stock split is reflected in the accompanying financial statements as of
the first day of the first period presented.
On September 6, 2005, the United States Bankruptcy Court, District of Nevada,
issued a final decree in the Chapter 11 proceeding, formally removing the
Company from the oversight of the Bankruptcy Court and ending all bankruptcy
proceedings.
On October 11 2005, the Company entered into a Stock Purchase Agreement with
Halter Financial Investments, L.P., a Texas limited partnership (HFI) pursuant
to which the Company sold 250,000 newly issued, restricted post-reverse split
shares (75,000,000 pre-reverse split shares) of its common stock to HFI,
constituting a change of control of the Company.
The Company's emergence from Chapter 11 of Title 11 of the United States Code on
November 22, 2002 created the combination of a change in majority ownership and
voting control - that is, loss of control by the then-existing stockholders, a
court-approved reorganization, and a reliable measure of the entity's fair value
- resulting in a fresh start, creating, in substance, a new reporting entity.
Accordingly, the Company, post bankruptcy, has no significant assets,
liabilities or operating activities. Therefore, the Company, as a new reporting
entity, qualifies as a "development stage enterprise" as defined in Statement of
Financial Accounting Standard No. 7, as amended.
The Company's post-bankruptcy business plan is to locate and combine with an
existing, privately-held company which is profitable or, in management's view,
has growth potential, irrespective of the industry in which it is engaged.
6
Nevstar Corporation
(a development stage enterprise)
Notes to Financial Statements
Note A - Organization and Description of Business - Continued
However, the Company does not intend to combine with a private company which may
be deemed to be an investment company subject to the Investment Company Act of
1940. A combination may be structured as a merger, consolidation, exchange of
the Company's common stock for stock or assets or any other form which will
result in the combined enterprise's becoming a publicly-held corporation.
As of the date of the accompanying financial statements and subsequent thereto,
the Company does not have any operations.
Note B - Preparation of Financial Statements
The Company follows the accrual basis of accounting in accordance with
accounting principles generally accepted in the United States of America and has
a year-end of June 30.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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.
Management further acknowledges that it is solely responsible for adopting sound
accounting practices, establishing and maintaining a system of internal
accounting control and preventing and detecting fraud. The Company's system of
internal accounting control is designed to assure, among other items, that 1)
recorded transactions are valid; 2) valid transactions are recorded; and 3)
transactions are recorded in the proper period in a timely manner to produce
financial statements which present fairly the financial condition, results of
operations and cash flows of the Company for the respective periods being
presented
During interim periods, the Company follows the accounting policies set forth in
its annual audited financial statements filed with the U. S. Securities and
Exchange Commission on its Annual Report on Form 10-K for the year ended June
30, 2005. The information presented within these interim financial statements
may not include all disclosures required by generally accepted accounting
principles and the users of financial information provided for interim periods
should refer to the annual financial information and footnotes when reviewing
the interim financial results presented herein.
In the opinion of management, the accompanying interim financial statements,
prepared in accordance with the U. S. Securities and Exchange Commission's
instructions for Form 10-Q, are unaudited and contain all material adjustments,
consisting only of normal recurring adjustments necessary to present fairly the
financial condition, results of operations and cash flows of the Company for the
respective interim periods presented. The current period results of operations
are not necessarily indicative of results which ultimately will be reported for
the full fiscal year ending June 30, 2006
Note C - Going Concern Uncertainty
The Company has no post-bankruptcy operating history, limited cash on hand, no
other operating assets and has a business plan with inherent risk. Because of
these factors, the Company's auditors have issued an audit opinion on the
Company's June 30, 2005 financial statements which includes a statement
describing the Company's going concern status. This means, in the Company's
auditor's opinion, substantial doubt exists about the Company's ability to
continue as a going concern at the date of their opinion.
The Company's majority stockholder maintains the corporate status of the Company
and has provided all nominal working capital support on the Company's behalf
since the bankruptcy discharge date. Because of the Company's lack of operating
assets, its continuance is fully dependent upon the majority stockholder's
continuing support. The majority stockholder intends to continue the funding of
nominal necessary expenses to sustain the corporate entity.
The Company's continued existence is dependent upon its ability to generate
sufficient cash flows from operations to support its daily operations as well as
provide sufficient resources to retire existing liabilities and obligations on a
timely basis. Further, the Company faces considerable risk in it's business plan
and a potential shortfall of funding due to our inability to raise capital in
the equity securities market. If no additional operating capital is received
during the next twelve months, the Company will be forced to rely on existing
cash in the bank and additional funds loaned by management and/or significant
stockholders. In the event, the Company is unable to acquire advances from
management and/or significant stockholders, the Company's ongoing operations
would be negatively impacted.
7
Nevstar Corporation
(a development stage company)
Notes to Financial Statements - Continued
Note C - Going Concern Uncertainty - Continued
The Company's business plan is to seek an acquisition or merger with a private
operating company which offers an opportunity for growth and possible
appreciation of our stockholders' investment in the then issued and outstanding
common stock. However, there is no assurance that the Company will be able to
successfully consummate an acquisition or merger with a private operating
company or, if successful, that any acquisition or merger will result in the
appreciation of our stockholders' investment in the then outstanding common
stock.
The Company remains dependent upon additional external sources of financing;
including being dependent upon its management and/or significant stockholders to
provide sufficient working capital in excess of the Company's initial
capitalization to preserve the integrity of the corporate entity.
The Company anticipates offering future sales of equity securities. However,
there is no assurance that the Company will be able to obtain additional funding
through the sales of additional equity securities or, that such funding, if
available, will be obtained on terms favorable to or affordable by the Company.
It is the intent of management and significant stockholders to provide
sufficient working capital necessary to support and preserve the integrity of
the corporate entity. However, no formal commitments or arrangements to advance
or loan funds to the Company or repay any such advances or loans exist. There is
no legal obligation for either management or significant stockholders to provide
additional future funding.
Note D - Summary of Significant Accounting Policies
1. Cash and cash equivalents
-------------------------
For Statement of Cash Flows purposes, the Company considers all cash on
hand and in banks, certificates of deposit and other highly-liquid
investments with maturities of three months or less, when purchased, to be
cash and cash equivalents.
2. Income Taxes
------------
The Company uses the asset and liability method of accounting for income
taxes. At December 31, 2005 and 2004, respectively, the deferred tax asset
and deferred tax liability accounts, as recorded when material to the
financial statements, are entirely the result of temporary differences.
Temporary differences represent differences in the recognition of assets
and liabilities for tax and financial reporting purposes.
As of December 31, 2005 and 2004, the deferred tax asset related to the
Company's net operating loss carryforward is fully reserved. Due to the
provisions of Internal Revenue Code Section 338, the Company may have no
net operating loss carryforwards available to offset financial statement or
tax return taxable income in future periods as a result of a change in
control involving 50 percentage points or more of the issued and
outstanding securities of the Company.
3. Earnings (loss) per share
-------------------------
Basic earnings (loss) per share is computed by dividing the net income
(loss) available to common shareholders by the weighted-average number of
common shares outstanding during the respective period presented in our
accompanying financial statements.
Fully diluted earnings (loss) per share is computed similar to basic income
(loss) per share except that the denominator is increased to include the
number of common stock equivalents (primarily outstanding options and
warrants).
8
Nevstar Corporation
(a development stage enterprise)
Notes to Financial Statements - Continued
Note D - Summary of Significant Accounting Policies - Continued
3. Earnings (loss) per share - continued
-------------------------------------
Common stock equivalents represent the dilutive effect of the assumed
exercise of the outstanding stock options and warrants, using the treasury
stock method, at either the beginning of the respective period presented or
the date of issuance, whichever is later, and only if the common stock
equivalents are considered dilutive based upon the Company's net income
(loss) position at the calculation date.
At December 31, 2005 and 2004, and subsequent thereto, the Company had no
outstanding common stock equivalents.
The weighted-average number of shares issued and outstanding as reflected
in the accompanying financial statements have been adjusted to give effect
to the 1-for-300 reverse stock split, as previously disclosed.
Note E - Fair Value of Financial Instruments
The carrying amount of cash, accounts payable and notes payable, as applicable,
approximates fair value due to the short term nature of these items and/or the
current interest rates payable in relation to current market conditions.
Interest rate risk is the risk that the Company's earnings are subject to
fluctuations in interest rates on either investments or on debt and is fully
dependent upon the volatility of these rates. The Company does not use
derivative instruments to moderate its exposure to interest rate risk, if any.
Financial risk is the risk that the Company's earnings are subject to
fluctuations in interest rates or foreign exchange rates and are fully dependent
upon the volatility of these rates. The company does not use derivative
instruments to moderate its exposure to financial risk, if any.
Note F - Pre-Petition Tax Liabilities
Pre-petition tax liabilities consist of approximately $120,918 (including
accrued interest of approximately $7,279) to the Nevada Department of Taxation.
Pursuant to the Bankruptcy Code and stipulations entered into between the
parties and the Company, the amounts will be paid in full, plus interest at 5%
in quarterly payments ending September, 2009. Since the Company is in default
with regard to its payments, the total pre-petition tax liabilities are
presented as current liabilities in the accompanying balance sheet as of
December 31, 2005.
During the quarter ended December 31, 2005, the Company reached a settlement
agreement with the Nevada Gaming Commission and paid approximately $51,220 as a
"settlement in full" on the outstanding debt, resulting in an approximate $9,985
gain on debt extinguishment.
Note G - Line of Credit Note Payable to Shareholder
The Company has a $250,000 revolving line of credit with W/F Investment Corp, a
company shareholder and key participant of the Company's Plan of Reorganization
in the Second Chapter 11 Proceeding. As of December 31, 2005, this Line of
Credit has an outstanding balance of approximately $390,625.
Proceeds from the Line of Credit were used to pay the Company's obligations,
including the bankruptcy related allowed administrative expenses, accounting,
legal and related expenses. The Line of Credit bears interest at prime plus 2%,
payable monthly. The Line of Credit is due October 31, 2007. Accrued interest on
the Line of Credit totaled approximately $70,063 at December 31, 2005.
Because the Company has exceeded it's credit limit and is in default on the
payment terms of the accrued interest and because the lender has the right, due
to the existence of these defaults, to call the Line of Credit, the balance
outstanding is presented as a current liability in the accompanying balance
sheet at December 31, 2005.
9
Nevstar Corporation
(a development stage enterprise)
Notes to Financial Statements - Continued
Note H - Income Taxes
The components of income tax (benefit) expense for each of the six month periods
ended December 31, 2005 and 2004 is as follows:
Six months Six months
ended ended
December 31, December 31,
2005 2004
------------ ------------
Federal:
Current $ -- $ --
Deferred -- --
------------ ------------
-- --
------------ ------------
State:
Current -- --
Deferred -- --
------------ ------------
-- --
------------ ------------
Total $ -- $ --
============ ============
As a result of a October 28, 2005 change in control, the Company has a limited
net operating loss carryforward to offset future taxable income. The amount and
availability of any net operating loss carryforwards may be subject to
limitations set forth by the Internal Revenue Code. Factors such as the number
of shares ultimately issued within a three year look- back period; whether there
is a deemed more than 50 percent change in control involving holders of 5.0% or
more of the issued and outstanding shares of common stock; the applicable
long-term tax exempt bond rate; continuity of historical business; and
subsequent income of the Company all enter into the annual computation of
allowable annual utilization of the carryforwards.
The Company's income tax expense (benefit) for each of the six month periods
ended December 31, 2005 and 2004, respectively, differed from the statutory
federal rate of 34 percent as follows:
Six months Six months
ended ended
December 31, December 31,
2005 2004
------------ ------------
Statutory rate applied to income before income taxes $ (9,780) $ (10,200)
Increase (decrease) in income taxes resulting from:
State income taxes -- --
Other, including reserve for deferred tax asset
and application of net operating loss carryforward 9,780 10,200
------------ ------------
Income tax expense $ -- $ --
============ ============
The Company's net operating loss carryforward gives rise to a deferred tax asset
as of December 31, 2005 and June 30, 2005, respectively. This deferred tax asset
has been fully reserved due to the uncertainty of it's ultimate utilization, if
any, in future periods.
Note I - Common Stock Transactions
Authorized Shares and Reincorporation
-------------------------------------
On January 3, 2006, the Company filed an Amendment and Restatement of its
Articles of Incorporation with the Secretary of State of the State of Nevada.
This Amendment allows for the issuance of up to 150,000,000 shares, consisting
of any combination of Common Stock, par value $0.01 and up to 10,000,000 shares
of Preferred Stock, par value $0.01 per share. Prior to this change, the Company
was authorized to issue up to 126,396,000 shares of $0.01 par value Common Stock
and up to 10,000,000 shares of $0.01 par value Preferred Stock. The effect of
this change is reflected in the accompanying financial statements as of the
first day of the first period presented.
10
Nevstar Corporation
(a development stage enterprise)
Notes to Financial Statements - Continued
Note I - Common Stock Transactions - Continued
Authorized Shares and Reincorporation - continued
-------------------------------------------------
On January 12, 2006, the Company effected a 1-for-300 share reverse stock split
of the then issued and outstanding common stock. The reverse stock split did not
change the number of authorized shares of common stock or the par value of the
Company's common stock. Except for any changes as a result of the treatment of
fractional shares, each stockholder holds the same percentage of common stock
outstanding immediately following the reverse stock split as such stockholder
did immediately prior to the reverse stock split.
This action caused the issued and outstanding shares to decrease from
125,715,008 to approximately 419,436. The effect of this action is reflected in
the accompanying financial statements as of the first day of the first period
presented.
Stock issuances
---------------
On October 11, 2005, the Company sold 250,000 post-reverse split shares of
restricted common stock for gross proceeds of $75,000, pursuant to a
subscription agreement, to Halter Financial Investments, L. P., (a Texas Limited
Partnership), an entity controlled by Timothy P. Halter, who became the
Company's current Chief Executive Officer. The Company relied upon Section 4(2)
of The Securities Act of 1933, as amended, for an exemption from registration of
these shares and no underwriter was used in this transaction. As a result of
this transaction, Halter Financial Investments, L. P. became the Company's
controlling stockholder, owning approximately 59.60% of the 419,436 shares
currently issued and outstanding.
Note J - Commitments and Contingencies
In connection with the previously mentioned Stock Purchase Agreement and the
January 2006 reverse stock split, the Company entered into a Settlement and
Stock Issuance Agreement with W/F Investment Corp., a California corporation
(W/F Investment), pursuant to which (I) W/F Investment shall forgive the
approximately $460,000, including accrued interest of approximately $70,000,
that was loaned to the Company for purposes of providing the Company with
working capital, and in return, the Company will pay W/F Investment $100,000 and
issue 107,000 newly issued, restricted shares of the Company's common stock to
W/F Investment. W/F Investment is a secured lender of the Company and a member
of W/F Nevstar LLC, a California corporation (W/F Nevstar) and a principal
stockholder of the Company. William O. Fleischman, a member and the immediate
previous Chairman of our Board of Directors, is the managing member of W/F
Nevstar. The foregoing settlement transaction shall be accounted for in the
fiscal quarter in which it is completed.
Immediately following the execution of the Settlement and Stock Issuance
Agreement described above, the Stock Purchase Agreement calls for HFI and W/F
Investment to enter into a Put Option Agreement pursuant to which W/F Investment
may require HFI to purchase up to 199,869 shares of the common stock of the
Company held by W/F Investment at a price per share of $2.00 at any time during
the period of time (I) commencing 180 days following the execution of the Stock
Purchase Agreement and (ii) ending upon the earlier of six months following the
Company's completion of a transaction whereby the Company acquires operating
control, or substantially all of the assets, of a privately held corporation
generating revenues as reported in financial statements audited in conformity
with accounting practices generally accepted in the United States or two years
following the execution of the Stock Purchase Agreement.
(Remainder of this page left blank intentionally)
11
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
(1) Caution Regarding Forward-Looking Information
Certain statements contained in this quarterly filing, including, without
limitation, statements containing the words "believes", "anticipates", "expects"
and words of similar import, constitute forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements.
Such factors include, among others, the following: international, national and
local general economic and market conditions: demographic changes; the ability
of the Company to sustain, manage or forecast its growth; the ability of the
Company to successfully make and integrate acquisitions; raw material costs and
availability; new product development and introduction; existing government
regulations and changes in, or the failure to comply with, government
regulations; adverse publicity; competition; the loss of significant customers
or suppliers; fluctuations and difficulty in forecasting operating results;
changes in business strategy or development plans; business disruptions; the
ability to attract and retain qualified personnel; the ability to protect
technology; and other factors referenced in this and previous filings.
Given these uncertainties, readers of this Form 10-QSB and investors are
cautioned not to place undue reliance on such forward-looking statements. The
Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
(2) Results of Operations, Liquidity and Capital Resources
Quarters Ended December 31, 2005 and 2004
-----------------------------------------
The Company had no revenue for the respective six or three month periods ended
December 31, 2005 and 2004, respectively.
During each of the six month periods ended December 31, 2005 and 2004, the
Company recognized general operating expenses of approximately $19,000 and
$13,600, which were directly related to the Company's compliance with the
periodic reporting requirements of the Securities Exchange Act of 1934, as
amended. Further, during the quarter ended December 31, 2005, the Company
recognized a one-time gain on forgiveness of debt or approximately $9,985
related to the settlement and payment in full of the pre-petition tax liability
owed to the Nevada Gaming Board.
The Company accrued interest expense on pre-petition tax liabilities and the
Line of Credit note payable to W/F Investment Corp totaling approximately
$19,700 and $16,400 for each of the six month periods ended December 31, 2005
and 2004, respectively.
The Company does not expect to generate any meaningful revenue or incur
operating expenses for purposes other than fulfilling the obligations of a
reporting company under The Securities Exchange Act of 1934 unless and until
such time that the Company's operating subsidiary begins meaningful operations.
At December 31, 2005, the Company had working capital of approximately
$(620,528).
It is the intent of management and significant stockholders to provide
sufficient working capital necessary to support and preserve the integrity of
the corporate entity. However, there is no legal obligation for either
management or significant stockholders to provide additional future funding.
Should this pledge fail to provide financing, the Company has not identified any
alternative sources. Consequently, there is substantial doubt about the
Company's ability to continue as a going concern.
The Company's need for capital may change dramatically as a result of any
business acquisition or combination transaction. There can be no assurance that
the Company will identify any such business, product, technology or company
suitable for acquisition in the future. Further, there can be no assurance that
the Company would be successful in consummating any acquisition on favorable
terms or that it will be able to profitably manage the business, product,
technology or company it acquires.
Plan of Business
----------------
General
-------
The Company intends to locate and combine with an existing, privately-held
company which is profitable or, in management's view, has growth potential,
irrespective of the industry in which it is engaged. However, the Company does
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not intend to combine with a private company which may be deemed to be an
investment company subject to the Investment Company Act of 1940. A combination
may be structured as a merger, consolidation, exchange of the Company's common
stock for stock or assets or any other form which will result in the combined
enterprise's becoming a publicly-held corporation.
Pending negotiation and consummation of a combination, the Company anticipates
that it will have, aside from carrying on its search for a combination partner,
no business activities, and, thus, will have no source of revenue. Should the
Company incur any significant liabilities prior to a combination with a private
company, it may not be able to satisfy such liabilities as are incurred.
If the Company's management pursues one or more combination opportunities beyond
the preliminary negotiations stage and those negotiations are subsequently
terminated, it is foreseeable that such efforts will exhaust the Company's
ability to continue to seek such combination opportunities before any successful
combination can be consummated. In that event, the Company's common stock will
become worthless and holders of the Company's common stock will receive a
nominal distribution, if any, upon the Company's liquidation and dissolution.
Combination Suitability Standards
In its pursuit for a combination partner, the Company's management intends to
consider only combination candidates which are profitable or, in management's
view, have growth potential. The Company's management does not intend to pursue
any combination proposal beyond the preliminary negotiation stage with any
combination candidate which does not furnish the Company with audited financial
statements for at least its most recent fiscal year and unaudited financial
statements for interim periods subsequent to the date of such audited financial
statements, or is in a position to provide such financial statements in a timely
manner. The Company will, if necessary funds are available, engage attorneys
and/or accountants in its efforts to investigate a combination candidate and to
consummate a business combination. The Company may require payment of fees by
such combination candidate to fund the investigation of such candidate. In the
event such a combination candidate is engaged in a high technology business, the
Company may also obtain reports from independent organizations of recognized
standing covering the technology being developed and/or used by the candidate.
The Company's limited financial resources may make the acquisition of such
reports difficult or even impossible to obtain and, thus, there can be no
assurance that the Company will have sufficient funds to obtain such reports
when considering combination proposals or candidates. To the extent the Company
is unable to obtain the advice or reports from experts, the risks of any
combined enterprise's being unsuccessful will be enhanced. Furthermore, to the
knowledge of the Company's officers and directors, neither the candidate nor any
of its directors, executive officers, principal stockholders or general
partners:
(1) will have been convicted of securities fraud, mail fraud, tax fraud,
embezzlement, bribery, or a similar criminal offense involving
misappropriation or theft of funds, or be the subject of a pending
investigation or indictment involving any of those offenses;
(2) will have been subject to a temporary or permanent injunction or
restraining order arising from unlawful transactions in securities,
whether as issuer, underwriter, broker, dealer, or investment advisor,
may be the subject of any pending investigation or a defendant in a
pending lawsuit arising from or based upon allegations of unlawful
transactions in securities; or
(3) will have been a defendant in a civil action which resulted in a final
judgement against it or him awarding damages or rescission based upon
unlawful practices or sales of securities.
The Company's officers and directors will make these determinations by asking
pertinent questions of the management of prospective combination candidates.
Such persons will also ask pertinent questions of others who may be involved in
the combination proceedings. However, the officers and directors of the Company
will not generally take other steps to verify independently information obtained
in this manner which is favorable. Unless something comes to their attention
which puts them on notice of a possible disqualification which is being
concealed from them, such persons will rely on information received from the
management of the prospective combination candidate and from others who may be
involved in the combination proceedings.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
The Company owns no financial instruments or other assets, nor has it entered
into any contracts or commitments, which would expose it to market risks such as
interest rate risk, foreign currency exchange rate risk or commodity price risk
as required to be disclosed pursuant to Regulation S-K, Item 305, of the
Securities Exchange Act of 1934, as amended..
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Item 4 - Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in its Exchange Act
reports is recorded, processed, summarized and reported within the time
periods specified in the Security and Exchange Commission's rules and
forms, and that such information is accumulated and communicated to the
Company's management, including the Company's Chief Executive Officer and
Chief Accounting Officer, as appropriate, to allow timely decisions
regarding required disclosure. Management necessarily applied its judgment
in assessing the costs and benefits of such controls and procedures, which,
by their nature, can provide only reasonable assurance regarding
management's control objectives.
The Company carried out an evaluation, under the supervision and with the
participation of its management, including its Chief Executive Officer and
Chief Accounting Officer, on the effectiveness of the design and operation
of its disclosure controls and procedures pursuant to Exchange Act Rules
13a-15 and 15d-15 as of the end of the period covered by this report. Based
upon that evaluation, the Company's Chief Executive Officer and Chief
Accounting Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to information relating to
the Company required to be included in the Company's Exchange Act reports.
While the Company believes that its existing disclosure controls and
procedures have been effective to accomplish their objectives, the Company
intends to continue to examine, refine and document its disclosure controls
and procedures and to monitor ongoing developments in this area.
(b) Changes in Internal Controls
During the quarter ended December 31, 2005, there were no changes
(including corrective actions with regard to significant deficiencies or
material weaknesses) in the Company's internal control over financial
reporting that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting
as new management made no alterations to the existing internal controls
procedures.
Part II - Other Information
Item 1 - Legal Proceedings
None
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
On October 11, 2005, the Company sold 250,000 post-reverse split shares of
restricted common stock for gross proceeds of $75,000, pursuant to a
subscription agreement, to Halter Financial Investments, L. P., (a Texas
Limited Partnership), an entity controlled by Timothy P. Halter, who became
the Company's current Chief Executive Officer. The Company relied upon
Section 4(2) of The Securities Act of 1933, as amended, for an exemption
from registration of these shares and no underwriter was used in this
transaction. As a result of this transaction, Halter Financial Investments,
L. P. became the Company's controlling stockholder, owning approximately
59.60% of the 419,436 issued and outstanding shares of the Company's common
stock.
The $75,000 in proceeds was used to satisfy the pre-petition debt payable
to the Nevada Gaming Commission, retire certain trade accounts payable and
pay certain operating expenses of the Company to maintain compliance with
the requirements of the Securities Exchange Act of 1934, as amended.
Item 3 - Defaults on Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
The Company has held no regularly scheduled, called or special meetings of
stockholders during the reporting period.
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Item 5 - Other Information
None
Item 6 - Exhibits
Exhibits
--------
31.1 Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002
32.1 Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
--------------------------------------------------------------------------------
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.
Nevstar Corporation
Dated: February 21, 2006 /s/ Timothy P. Halter
----------------- ------------------------------------
Timothy P. Halter
President, Chief Executive Officer
Chief Financial Officer and Director
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