this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes [ ] No [X]
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Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a
smaller reporting company. See the definitions of “large accelerated filer,”
“accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the
Exchange Act
| Large accelerated filer [ ] | Accelerated filer [ ] |
| Non-accelerated filer [ ] | Smaller reporting company [X] |
| (Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act).
Yes [
] No [X]
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by
reference to the price at
which the common equity was last sold, or the average bid and asked price of
such
common equity, as of the last business day of the registrant’s most
recently completed second fiscal quarter.
27,825,000 common shares at a price of $1.65 1.per share for total proceeds of $45,911,250
1 The aggregate market value of the voting stock held
by non-affiliates is computed by reference to the sale price of
our stock
which was $1.65 per share reported on Yahoo! Finance on June 10, 2008
Note.—If a determination as to whether a particular
person or entity is an affiliate cannot be made without involving
unreasonable effort and expense, the aggregate market value of the common
stock held by non-affiliates may be
calculated on the basis of assumptions
reasonable under the circumstances, provided that the assumptions are set
forth in this Form.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be
filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities
under a plan confirmed by a court. Yes [ ] No [
]
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the
registrant’s classes of common stock, as of
the latest practicable date:
66,683,333 shares of common stock are issued and outstanding as
of June 17,
2008
DOCUMENTS INCORPORATED BY REFERENCE
Not Applicable
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Table of Contents
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FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future results of operation or future financial performance, including, but not limited to, the following: statements relating to our ability to raise sufficient capital to finance our planned operations, our ability to develop brand recognition with resellers and consumers, develop our current and future products, increase sales and our estimates of cash expenditures for the next 12 months. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “intends”, “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, including the risks in the section entitled “Risk Factors” on page 4, which may cause our or our industry’s actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. You should not place undue reliance on these statements, which speak only as of the date that they were made. These cautionary statements should be considered with any written or oral forward-looking statements that we may issue in the future. 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 reflect actual results, later events or circumstances or to reflect the occurrence of unanticipated events.
In this report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the common shares in our capital stock.
As used in this annual report on Form 10-K, and unless otherwise indicated, the terms “we”, “us” and “our company” refer to Star Resorts Development Inc. and its subsidiaries.
PART I
ITEM 1. BUSINESS
Corporate Overview
Description of Business
We were incorporated in the State of Nevada on November 7, 2005, under the name “Nabo Inc.” On April 17, 2007, we changed our name to “Star Resorts Development Inc.” We effected this name change by merging with our wholly owned subsidiary, named “Star Resorts Development Inc.”, a Nevada corporation that we formed specifically for this purpose. We changed the name of our company to better reflect the direction and business of our company.
In addition to our change of name, we effected a seven for one stock split of our authorized, issued and outstanding common stock. As a result, our authorized capital increased from 75,000,000 shares of common stock with a par value of $0.001 to 525,000,000 shares of common stock with a par value of $0.001.
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We are in the business of real estate development and are focusing on Emerging Markets such as Argentina in South America. Our intended products are real estate, hotels, spas, outdoor activity facilities, wineries, condos, villas, restaurants and retail stores.
Our services are the participation in the acquisition, development and operations, lease or sale of residential and commercial real estate developments. We provide funding, ideas, advice and real estate and hotel development experience to our partners and co-stakeholders in the various projects. The people who enter into projects with us may be bigger, more experienced real estate development companies or they may be individuals or small entities without a lot of funds. Our partners and co-stakeholders may be invested in several projects or they may want to participate in the development of one particular project or area.
The end user of our products and services are tourists and residents and investors of the areas where our real estate projects are located. We are focusing on the leisure market and upscale development, so our intended end-users are high end tourists and business people.
We entered into an assignment agreement with Latin Star Developments Inc., dated effective December 20, 2007, for the acquisition from Latin Star of all of its assets (the “Assets”), including rights to certain hotel and other real estate development projects through a memoranda of understanding, a real estate purchase agreement and other related documents (collectively, the “Memoranda.”) Latin Star is a Nevis company that is wholly-owned by our Secretary and director, David Craven. In December, 2007 we took effective control of the assets.
As consideration for the assignment of all the rights to the Assets held by Latin Star, we agreed to pay 6,900,000 shares of our common stock to Latin Star. We also agreed to pay future shares of common stock to Latin Star, the number of which depended upon the achievement of certain new business opportunities related to the acquired rights.
On April 23, 2008, we completed our acquisition from Latin Star Developments Inc. through the issuance of the shares that we had agreed to issue as consideration under the Assignment Agreement.
Puerto Madero - Dock 2 Project
On July 31, 2007, we entered into a memorandum of understanding with Ricardo Ernesto Bello and Diego Alberto Radivoy Magnani wherein we have agreed to purchase a 40% interest in the capital of Inversiones del Dique S.A., an Argentine company which, through its subsidiary, Incubus S.A. owns a 50% interest in a project known as the Dock 2 Project.
This project is aimed at the commercial development of the former “Dock 2” ship channel located in the Puerto Madero area. We paid $1,300,000 to Ricardo Ernesto Bello and Alberto Radivoy Magnani in the period from August to December, 2007, in anticipation of the purchase of the stock of Inversiones del Dique S.A. An additional $700,000 was advanced between January and March, 2008. Our total investment in this project as of March 31, 2008 is $2,000,000. This amount, along with $300,000 that we intend to pay by the end of July 2008 will complete our payment for 40% of the shares of Inversiones del Dique S.A., which in turn holds a 50% interest in Incubus S.A. an Argentinean company which is the developer of the Dock 2 Project.
Incubus has obtained from the Municipality of Buenos Aires a 20 year lease, renewable for additional 20 years, to exploit the water surface of the Docks 2 & 3 located where Puerto Madero’s historic Shipyards used to operate.
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Cerro Bayo Project
In July, 2007, we loaned $336,500 to Latin Star to pay expenses related to the purchase of an interest in Cerro Bayo, S.A., owner-operator of a ski resort/real estate project in Argentina. The project includes options on additional land, which offers opportunities for development in consortium with other partners. We advanced a further $500,000 to Latin Star for the same purposes in October 2007. Latin Star held a 25% interest in Cerro Bayo, S.A., which was transferred to our company through the Assignment Agreement with Latin Star described above.
We have also obtained the approval by the province of Neuquén for the concession of approximately 500 acres of land adjacent to the Cerro Bayo project. 220 Acres will be given in outright property to increase the size of the Ski Resort and the Real estate developments. The other approximately 300 acres can be developed and exploited for 60 years renewable for 20 years more, at the end of which they will return to the province with all the improvements that have been developed on them. This concession still has pending the ratification by the new Provincial government which took office in December 2007.
Uboldi land
In December, 2007, with the consent of Latin Star, we exercised Latin Star’s options to participate in a purchase of land in a tract known as Uboldi, adjacent to the Cerro Bayo project. We paid $650,000 in December 2007 to a private consortium which is in the process of closing title to a parcel of 55 hectares (135.9 acres) in Cerro Bayo, municipality of Villa La Angostura, province of Neuquen. Our participation will be a 25% interest in the parcel. It is planned for development with Argentinian partners as part of the Cerro Bayo Project.
Sta Maria de Los Andes Project.
We made two payments of $141,269 from August to October 2007 and an additional payment of $141,270 in December, 2007 to purchase vineyard land in this collaborative real estate project in Argentina. The project under construction includes plots of land in a wine field, a Winery, a Hotel and Spa and polo grounds. In February 2008 we made further payments of $5,300 and $141,270. An additional $200,000 had been paid in 2007 by Latin Star, which transferred its rights to the purchase of approximately 47 acres of land to us through the Assignment Agreement described above. At March 31, 2008, we had invested a total of $770,378.
Description of Property
Our executive and head office is located at 701 Brickell Ave. #1550, Miami, FL, 33131. We currently lease approximately 360 square feet of office space in the Bank of America building located on Brickell Avenue’s financial district of Miami, Fl. The total rent is $3,200.00 per month and includes secretarial services, phone management services, utilities and parking. The landlord, Intelligent Office, is not related to Star Resorts.
The description of our real estate properties is under Item 2 Properties on page 8 and Description of Properties on page 20.
Reports to security holders
We file reports and other information with the SEC. The registration statement, historical information about our company and other information can be inspected and copied at the Public Reference Room of the SEC located at Room 1580, 100 F Street, N.E., Washington D.C. 20549. Copies of such materials,
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including copies of any portion of the registration statement, can be obtained from the Public Reference Room of the SEC at prescribed rates. You can call the SEC at 1-800-SEC-0330 to obtain information on the operation of the Public Reference Room. Such materials may also be accessed electronically by means of the SEC’s home page on the Internet (http://www.sec.gov).
ITEM 1A. RISK FACTORS
An investment in our common shares involves a number of very significant risks. You should carefully consider the following risks and uncertainties in addition to other information in this prospectus in evaluating our company and our business before purchasing our common shares. Our business, operating results and financial condition could be seriously harmed due to any of the following risks. The risks described below are not the only ones facing our company. Additional risks not presently known to us may also impair our business operations. You could lose all or part of your investment due to any of these risks.
Risks Associated with Our Company
1. We have a limited history of operations and have incurred only losses and no revenues since inception (November 8, 2005). We may not be able to successfully implement our business plan, our business may fail and investors could lose all of their investment in our company.
We have a limited history of operations and have incurred only losses and no revenues since inception (November 8, 2005). Accordingly, our operations are subject to the risks inherent in the establishment of a new business enterprise, including access to capital, successful implementation of our business plan and limited revenue from operations. Also, there is no way for potential investors to analyze an investment in our company based on prior performance. We may continue to experience net losses for the foreseeable future. We have and will continue to incur significant costs, including the issuance of shares of our common stock as one form of payment, researching, acquiring and developing interests in real estate development projects. We may not be able to sell or lease any or all of our interests. If we are able to sell or lease our interests in the real property developments, it will likely take a long time and may not bring us a profit. We estimate that we will need approximately $1,000,000.00 in order to fund our proposed operations for the next 12 months. We will require additional financing in order to fund our investment activities and our monthly overhead. There can be no assurance that we will be able to obtain the additional financing we require, or be able to obtain such additional financing on terms favorable to our company. Because of our limited history of operations, losses, lack of revenue and need for additional financing, we may not be able to successfully implement our business plan, our business may fail and investors could lose all of their investment in our company.
2. Our business requires significant expenditures which we must make before realizing any revenues and we may have problems financing our operations. If we are unable to obtain the additional financing we need, we may go out of business and investors would lose all of their investment in our company.
The development of our business will require us to make significant expenditures, including the issuance of shares of our common stock as one form of payment, before any revenues are recognized. We will continue to incur significant expenditures in connection with the acquisition, development, sale or lease of interests in real estate developments before we realize any revenue. Accordingly, our capital requirements will be obtained through additional financing. There can be no assurance that any required additional financing will be available to us or that any additional financing will not materially dilute the ownership of our shareholders. If we are unable to obtain the additional financing we need on terms we can accept and pay, we may go out of business and investors would lose all of their investment in our company.
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3. Because our executive officers and directors control approximately 34% of common shares. Investors will have little or no control over our management or other matters requiring shareholder approval, which will frustrate shareholders’ attempts to change or improve the management of the company.
Our officers and directors beneficially own approximately 34% of the common voting shares of our company. Other investors will have little or no control over our management or other matters requiring shareholder approval. This will frustrate shareholders’ attempts to change or improve the management of the company.
4. Substantially all of our assets are outside the United States. Investors may not be able to enforce remedies under U.S. federal securities laws against us.
Substantially all of our assets are located outside the United States. As a result, it may be difficult for investors to enforce within the United States any judgments obtained against our company predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. Consequently, you may be effectively prevented from pursuing remedies under U.S. federal securities laws against us.
5. If our co-investors fail, we will fail, causing losses to our investors.
The success of our real estate development investments will all depend on the success of the other investors in the same projects. All of the risk factors that apply to us also apply to the other companies that invest in real estate development projects with us. If another investor in one of our real estate development projects is negatively affected by the risk factors set out in this section or if it fails to meet its obligations under our agreements, defraud us or do not do a good job of its contributions to the development, then the entire project will likely fail and we will likely lose most or all of our investment in any given project, meaning our business operations will suffer and investors could lose some or all of their investment in us.
Risks Associated with Our Business
6. Our assumptions about the future performance of our investments in real estate development may be wrong. If we do not obtain the resale or lease amounts that we predict and fail to earn a profit on any or all of our investments, we may never become profitable, our business could fail and investors could lose their entire investment in our company.
We focus our business on the acquisition, development and sale or lease of commercial and residential projects. In deciding whether to acquire an interest in a particular property or real estate development project, we make assumptions regarding the expected future performance of that property. In particular, we estimate the return on our investment based on expected resale or lease value, as applicable. We may be unable to obtain the resale or lease amount that we have predicted and fail to earn a profit on any or all of our investments. If we do not become profitable, our business will fail and investors would lose their entire investment in our company.
7. Real estate development investment is highly speculative and our success depends on our ability to acquire, develop sell or lease our interests in many real estate development projects. Many variable factors beyond our control could cause us to fail to make a profit on any or all of our investments. If we do not become profitable, investors will lose their investment in our company.
Our business plan is to acquire, develop sell or lease interests in real estate developments. This is a highly speculative area and any or all of our investments could fail to perform as we predict. Many of our current
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projects are several years away from completion. All of our projects will be subject to national, regional and local economic, political and social changes, each of which could affect the demand for the specific types of real estate developments that we are or will become involved in. In addition, the financial success of each project depends on our ability – and the ability of our co-investors in any given project -- to plan and execute each particular project. In many cases, a project’s success will also be dependent on our ability to secure adequate financing to fund all or a portion of the development.
More specifically, in connection with the development of new projects and the redevelopment of existing projects, we will be subject to risks such as:
- deteriorating credit markets, which challenge our ability to obtain financing for our investments and projects on favorable terms, if at all;
- cyclical overbuilding, causing less demand for a particular real estate development than we expected;
- cost overruns, including increases in the cost of materials because of increased global demand (particularly in the price of steel, lumber, drywall, copper and concrete, which are significant components of construction costs);
- difficulties in obtaining or failures to obtain land use entitlements, occupancy and other government permits and authorizations;
- delays because of a number of factors, including unforeseen circumstances;
- changes in political views toward the proposed development, redevelopment or use;
- governmental restrictions on the nature or size of a project;
- strikes, labor disputes or supply disruptions;
- condemnation and taking of any of our projects by the government under eminent domain;
- shortages of qualified trade workers and building materials;
- development costs for projects not pursued to completion;
- earthquakes, floods, mudslides, fires, bad weather and other acts of God;
- design and construction defects and unforeseen or underestimated environmental and engineering problems;
- contractor and subcontractor disputes and mechanics’ liens; and
- lack of income until leasing or sale.
Any or all of these risks could have an adverse affect on our business, operations, cash flow and ability to increase values for our stockholders. Any of these factors could cause us to fail to make a profit on any or all of our real estate development project investments. If we do not become profitable, investors will lose their investment in our company.
8. Operating risks may adversely affect our operations and investors may be unable to obtain a return on their investment.
Our properties are subject to operating risks common to real estate development in general. These risks include: our ability to rent or sell our investment interests; competition from other real estate development investors; increases in operating costs due to inflation and other factors; downturns in market conditions and the economy generally; and, uninsurable damage to our investment properties. In addition, we may acquire properties or entities that are subject to liabilities, including environmental liabilities, state of title, physical condition or compliance with zoning laws, building codes, or other legal requirements. For example, if any liability is asserted against us relating to any property in which we have an interest, we might have to pay substantial sums to settle the claim or fix what is wrong with the property. If this happens, our operations may suffer and investors could be unable to obtain a return on their investment.
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Risks Related to Our Common Stock
9. Our common stock is illiquid and shareholders may be unable to sell their shares.
There is currently a limited market for our common stock and we can provide no assurance to investors that a market will develop. If a market for our common stock does not develop, our shareholders may not be able to re-sell the shares of our common stock that they have purchased and they may lose all of their investment. Public announcements regarding our company, changes in government regulations, conditions in our market segment or changes in earnings estimates by analysts may cause the price of our common shares to fluctuate substantially. These fluctuations may adversely affect the trading price of our common shares.
10. Trading on the OTC Bulletin Board may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares.
Our common stock is quoted on the OTC Bulletin Board service of the Financial Industry Regulatory Authority (“FINRA”). Trading in stock quoted on the OTC Bulletin Board is often thin and characterized by wide fluctuations in trading prices due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Bulletin Board is not a stock exchange, and trading of securities on the OTC Bulletin Board is often more sporadic than the trading of securities listed on a quotation system like Nasdaq or a stock exchange like the American Stock Exchange. Accordingly, our shareholders may have difficulty reselling any of their shares.
11. Our stock is a penny stock. Trading of our stock may be restricted by the SEC's penny stock regulations and FINRA's sales practice requirements, which may limit a stockholder's ability to buy and sell our stock.
Our stock is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines "penny stock" to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and "accredited investors". The term "accredited investor" refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in, and limit the marketability of, our common stock.
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In addition to the "penny stock" rules promulgated by the Securities and Exchange Commission, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable
ITEM 2. PROPERTIES
We are engaged in the business of real estate development. More specifically, our business plan is to acquire interests in real estate development projects, participate in the development of those projects and sell or lease our interests in those projects.
On April 23, 2008, we completed our acquisition from Latin Star Developments Inc. of all of the rights to the shares and other assets (the “Assets”) to certain hotel and other real estate development projects through a memoranda of understanding, a real estate purchase agreement and other related documents (collectively, the “Memoranda.”) Latin Star is a Nevis company that is wholly-owned by our Secretary and director, David Craven.
The projects that we are involved in and our percentage of equity interest that we own in each of those projects, following the completion of the assignment agreement with Latin Star, are described below:
Cerro Bayo Mountain Resort Project
We own 25% of this mountain resort project. This mountain resort project is a tourist destination year round. It is located within the Nahuel Haupi National Park close to the town of Villa la Angostura in the Argentinean Patagonia and overlooks the Nahuel Huapi Lake. Visitors participate in outdoor activities such as kayaking, fishing, hiking, mountain biking and rock climbing in the summer and skiing, snowboarding and snowmobiling in the winter. Along with owning the 25% interest in the Cerro Bayo Mountain Resort and Ski Center including all its land, Ski runs, Ski lifts, Service areas, Buildings, Base Camp, Restaurants, Retail and other Amenities, we have invested in an additional 139.5 acres of land adjacent to the Cerro Bayo Mountain Resort Project. We plan to develop both the land surrounding the Ski Center and this additional 139.5 acres of land into hotels, condominiums, ski-in ski-out villas, spa facilities, new retail stores and additional restaurants. As owner of a 25% interest in the project, Star Resorts will receive its corresponding share of the profits, if and when there are any, from the sale, lease or operation of the new real estate developed, such as the retail outlets, hotels and restaurants and from the operation of the Mountain Resort’s facilities and amenities.
The Cerro Bayo Mountain Resort Project contains a Ski Center. The Ski Center’s amenities and facilities have been upgraded and are in operation.
Our plan, with our partners who own the remaining 75% of the project, is to develop the Cerro Bayo Mountain Resort. We intend to upgrade the existing ski resort and develop 1,300 acres into a surrounding alpine village. We intend to develop a private gated community and over 400,000 square meters of
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buildings dedicated to luxury ski-in ski-out villas, condominiums, 3 hotels, commercial space, spas, retail stores and restaurants.
The master plan and architectural and urbanism designs for the new developments on the Cerro Bayo Mountain Resort Project are being finalized and we expect the permitting phase of the project will begin in the summer of 2008. We expect the initial phases of development of at least one hotel and the commercial areas should begin after the winter season ends in October 2008.
Santa Maria De Los Andes Project
This is a winery and real estate development project in the province of Mendoza, Argentina. We own approximately 47 acres of vineyard land within the “Santa Maria de los Andes” project, which measures approximately 2,000 acres. We intend to grow our own wine grapes and produce, bottle and sell our own premium wines. If we choose to do so, we have the right and the ability to build up to four luxury villas within this land for lease to visitors or sale to investors in real estate. We, our guests and any subsequent investors to whom we may sell properties on this project, have a right to use common areas that are being developed on the property by the developers of other sections of the Santa Maria de los Andes project. The plans for the development of the Santa Maria de los Andes project include a club house, an artisans’ village, equestrian facilities and polo fields. Investors will be required to pay maintenance fees for the facilities developed in the common areas. These planned facilities are scheduled for completion by approximately the end of 2008.
We also intend to participate in the development of accommodations for tourists to the vineyard by building and operating – in partnership with the developers of the project (Santa Maria de los Andes S.A.) - a boutique hotel and condo-hotel units planned to be branded and managed by a world renowned luxury hotel brand. The construction of this hotel is scheduled to begin in the fall of 2008. Wine production is planned to begin in approximately three years. The development of the broader Santa Maria de los Andes project’s club house, artisans’ village, equestrian facilities and polo fields is underway and on schedule.
Argentina is one of the world’s well-know wine producing nations. The Mendoza region produces the high quality Malbec and Shiraz wine grapes. The land in the Santa Maria de los Andes Project is in what we believe to be the best and most fertile area of Mendoza. We have premium vines growing on the property. In order to sell our wine, we will face a lot of competition from other Argentinean wineries and from wineries all over the world, some large and some small. We will face competitive pressures to produce high quantities at low prices for export into other markets in an attempt to become a profitable winery. Also, we expect to have to build the profile and reputation of our winery before developing a client base. While we recognize that competition in the wine business is serious and steep, we believe that our land, our premium vines and our oenologist, Alberto Antonini who is considered one of the best in the world, will put us in a good competitive position in relation to other new, small wineries once we start producing and bottling our own wine.
Puerto Madero “Docks 2&3” Project
We own 20% of the Puerto Madero “Docks 2&3” Project, through our subsidiary, Inversiones del Dique S.A., an Argentinean company. This project consists of a high-end floating shopping mall, entertainment venues, restaurants, bars, a marina, a hotel, a spa & gym and a nightclub in the Puerto Madero district of Buenos Aires. It is being developed by a partnership led by Fiducia Capital Group which also owns 20% of the project, and Proideas Development which owns another 20% of the project. The remaining 40% of the project is owned by Floating Docks LLC, a US corporation, and Eric Spencer which own 20% each. We expect the first phase of this project to be ready by January 2009. After that we
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expect to receive our corresponding share of the income, when and if there is any, from the lease of the retail spaces, entertainment venues and marina slips to be developed.
The master plan and all architectural and engineering designs have been finalized for this project. Most permitting and licensing has been obtained. The pre-fabrication of the floating docks, buildings, promenades and other facilities has begun. We expect the first building phase of the project to be ready for occupancy by January 2009. The first phase is expected to bring the high end floating shopping mall, entertainment venues, restaurants, bars, a hotel, a spa & gym and a nightclub to approximately one third completion. We expect the other two thirds of the project to be completed by the end of 2009.
We continue to be engaged in the business of the acquisition, development and operation of real estate projects.
Compliance with Government Regulation
As any other real estate development everywhere in the world, all projects require approvals and licenses from various federal, provincial and municipal governmental agencies and offices. All of our projects have been planned and designed to comply with all approval, licensing, planning, zoning, building, environmental, use and occupancy laws and regulations. The permitting process is an ongoing one all throughout the development phases of the projects.
Competition
Cerro Bayo Mountain Resort Project
Prices at Argentina’s up-market ski resorts are commonly 50-75% lower than those at their counterparts in the United States or Canada. Most Argentina’s up-market ski resorts are located in the midst of the incredibly beautiful Patagonia region, they offer year round attractiveness for an increasingly larger amount of world travelers. The seasons in the southern hemisphere are opposed to the ones in the northern hemisphere eliminating competition from North American and European ski resort destinations.
We own 25% of the Cerro Bayo Mountain Resort. The all-season, boutique development is located just outside Villa La Angostura in Patagonia, Argentina.
The Cerro Bayo Mountain Resort is an established year round tourist destination within the Nahuel Haupi National Park. Visitors enjoy Cerro Bayo’s view of Nahuel Huapi Lake and its outdoor activities including kayaking, fishing, hiking, mountain biking and rock climbing. During the past winter season, which ended in October 2007, Cerro Bayo welcomed over 26,000 visitors of various skill levels to its 20 signalled ski and snowboard runs.
Our competition, Bariloche, is located 45 minutes away and is a very popular ski destination. Bariloche is generally accepted to be the most popular skiing destination in South America. We expect our development plan to increase the Cerro Bayo Mountain Resort’s ability to compete with Bariloche and enable it to offer equal or better skiing, winter activity, accommodations, dining, shopping and nightlife options. When we have completed our development plan, we expect Cerro Bayo Mountain Resort to be on par with or better than Bariloche in appeal to mountain resort visitors.
Puerto Madero “Docks 2&3” Project
This project, of which we own 20%, is planned to contain a high end floating shopping mall, entertainment venues, restaurants, bars, a marina, a hotel, a spa & gym and a nightclub and it is being
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developed by a partnership led by Fiducia Capital Group and Proideas Development companies in the Puerto Madero district of Buenos Aires. It will be the first and only luxury floating shopping mall in the world.
When this project is operational, we will compete with many other establishments offering similar services. We intend to distinguish our development by using innovative Architectural design by the famous Rockwell Group out of New York and the novel and unique concept of a floating shopping center and entertainment venue with an outdoor promenade meandering through restaurants, bars, a marina and three docked ships. The three docked ships will contain a Boutique Hotel, a high-end Discotheque and an upscale Spa and Fitness Center. We intend to make this project competitive by making it unique and by locating it in a prime spot in Buenos Aires. We also intend to lease the retail and entertainment space to the most well known and sought after retailers, restaurateurs, hoteliers and other luxury services and products tenants. We expect that these factors will ensure the project’s appeal to consumers.
General
There are many real estate development companies who may attempt to invest in the same projects that we choose to invest in. Furthermore, other real estate developers may develop similar projects to ours to compete with our projects. Our board of directors considers these factors when determining which projects we should invest in; however, our board of directors cannot avoid or prevent these situations from arising.
In situations where there are competing attempts to seize particular investment opportunities, we intend to build and maintain relationships with potential or current development partners and offer not only funding for products but our ideas and expertise. In this way, we believe that we will be competitive in obtaining investment opportunities.
In situations where there are developments that compete with our offerings, we intend to attempt to ensure that our projects are competitive by obtaining business and planning advice, proper financing and ensuring that the development and operations of our projects are under good management.
Employees
As a U.S.-based company with interests in overseas projects, we only require a small number of direct employees based at Star Resorts’ headquarters in Miami. Currently, we only employ our President/CEO and our CFO, who both work full time for the company. All workers needed for each project are directly employed by the local companies set up in each location to develop each project.
ITEM 3. LEGAL PROCEEDINGS
To the best of our knowledge, we are currently not a party to any legal or bankruptcy proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market information
Our common stock is quoted on the OTC Bulletin Board under the symbol “SRDP”. The following table shows the quarterly range of high and low bid information for our common stock over the fiscal quarters for the last two fiscal years as quoted on the OTC Bulletin Board. The bid prices represent quotations by dealers without adjustments for retail mark-ups, mark-downs or commissions and may not represent actual transactions. Investors should not rely on historical prices of our common stock as an indication of its future price performance. The last sale price of our common stock on June 10, 2008, was $1.65 per share.
| Quarter Ended | Bid High | Bid Low | Bid Close |
| 06/30/2006 | $0.00 | $0.00 | $0.00 |
| 09/29/2006 | $0.00 | $0.00 | $0.00 |
| 12/29/2006 | $0.00 | $0.00 | $0.00 |
| 03/30/2007 | $0.00 | $0.00 | $0.00 |
| 06/29/2007 | $1.05 | $0.00 | $1.05 |
| 09/28/2007 | $1.10 | $0.51 | $0.90 |
| 12/31/2007 | $0.90 | $0.75 | $0.75 |
| 03/31/2008 | $1.10 | $0.51 | $0.51 |
Transfer Agent
The transfer agent and registrar for our common stock is First American Stock Transfer, Inc., 706 East Bell Road, Suite 202, Phoenix, AZ 85022, Phone: 602 485 1346, FAX: 602 788 0423
Holders of Common Stock
As of June 17, 2008, we have 17 shareholders holding 66,683,333 shares of our common stock.
Dividends
We have never declared or paid any cash dividends or distributions on our capital stock. We currently intend to retain our future earnings, if any, to support operations and to finance expansion and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
Since the end of our last quarter, we have issued the following securities:
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| 1. |
On February 19, 2008, we issued to Blue Mint Exploration Inc. (“Blue Mint”) a Convertible Promissory Note (the “Note”) in the amount of $500,000. The Note is payable on February 19, 2010, and will accrue interest at the rate of 9%, which is paid per annum starting 180 days from the date of the Note. |
|
Blue Mint has the option that at any time on or after February, 19, 2008, the outstanding principal amount and accrued interest under the Note that Blue Mint elects to convert is convertible into common shares at a conversion rate based upon 100% of the average closing prices for the 10 trading days immediately preceding the conversion date. | |
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Blue Mint may also exercise the option of giving written notice to our company that the entire unpaid principal amount of the Note and the applicable interest is payable if any events of default have occurred and be continuing at the time of such notice. | |
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We issued the Note to one non-US person pursuant to an offshore transaction relying on Regulation S and/or Section 4(2) of the Securities Act of 1933, as amended. | |
| 2. |
On April 8, 2008, we issued to Blue Mint a Convertible Promissory Note (the “Note”) in the amount of $500,000. The Note is dated April 3, 2008 and payable on April 3, 2010, and will accrue interest at the rate of 9%, which is paid per annum starting 180 days from the date of the Note. |
|
Blue Mint has the option to convert the outstanding principal amount and accrued interest under the Note into common shares at a conversion price equal to the average closing price of the 10 trading days immediately preceding the conversion date. | |
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Blue Mint may also exercise the option of giving written notice to our company that the entire unpaid principal amount of the Note and the applicable interest is payable if any events of default have occurred and be continuing at the time of such notice. | |
|
We issued the Note to one non-US person pursuant to an offshore transaction relying on Regulation S and/or Section 4(2) of the Securities Act of 1933, as amended. | |
| 3. |
On April 23, 2008, we issued 6,900,000 shares to Latin Star in exchange for all of its rights to the shares and other assets of certain hotel and other real estate developments. |
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The 6,900,000 shares of our common stock issued to Latin Star were issued pursuant to an exemption from registration as set out under Regulation S and/or Section 4(2) of the Securities Act of 1933, as amended. No advertising or general solicitation was employed in offering the securities. | |
| 4. |
On May 5, 2008 we issued 2,208,333 shares of common stock to two individuals as consideration pursuant to mutual releases dated effective March 31, 2008. |
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We issued the shares to two non-US person pursuant to an offshore transaction relying on Regulation S and/or Section 4(2) of the Securities Act of 1933, as amended. |
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| 5. |
On May 22, 2008, we issued to Blue Mint a Convertible Promissory Note (the “Note”) in the amount of $300,000. The Note is payable on May 22, 2010, and will accrue interest at the rate of 9%, which is paid per annum starting 180 days from the date of the Note. |
|
Blue Mint has the option that at any time on or after May 22, 2008, the outstanding principal amount and accrued interest under the Note that Blue Mint elects to convert is convertible into common shares at a conversion rate based upon 100% of the average closing prices for the 10 trading days immediately preceding the conversion date. | |
|
Blue Mint may also exercise the option of giving written notice to our company that the entire unpaid principal amount of the Note and the applicable interest is payable if any events of default have occurred and be continuing at the time of such notice. | |
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We issued the Note to one non-US person pursuant to an offshore transaction relying on Regulation S and/or Section 4(2) of the Securities Act of 1933, as amended. |
ITEM 6 SELECTED FINANCIAL DATA
Not applicable
ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this prospectus and registration statement.
Our audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.
We are a development stage company. We have commenced very limited operations and we currently have no business revenue. Our assets consist of cash and cash equivalents, prepaid expenses, nominal equipment and Real Estate property interests. There can be no assurance that we will generate revenues in the future or that we will be able to operate profitably in the future, if at all. We have incurred net losses in each fiscal year since inception of our operations. Our company has never declared bankruptcy, it has never been in receivership, and it has never been involved in any legal action or proceedings.
Our intended products are real estate, hotels, spas, outdoor activity facilities, wineries, condos, villas, restaurants and retail stores. Our services are the participation in the acquisition, development and operations, lease or sale of residential and commercial real estate developments. We provide funding, ideas, advice and real estate and hotel development experience to our partners and co-stakeholders in the various projects. The people who enter into projects with us may be bigger, more experienced real estate development companies or they may be individuals or small entities without a lot of funds. Our partners and co-stakeholders may be invested in several projects or they may want to participate in the development of one particular project or area.
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The end user of our products and services are tourists and residents and investors of the areas where our real estate projects are located. We are focusing on the leisure market and upscale development, so our intended end-users are high end tourists and business people.
Plan of Operation
The following discussion and analysis summarizes our plan of operation for the next 12 months, our results of operations for the 12 months ended March 31, 2008, and changes in our financial condition from our year ended March 31, 2007. The following discussion should be read in conjunction with our Management’s Discussion and Analysis and the financial statements filed in this annual report.
Anticipated Cash Requirements
Our estimated expenses for the next 12 months are as follows:
| Expense | Cost | ||
| Property Expenses | $ | 1,000,000 | |
| Salary | $ | 385,000 | |
| Professional Fees | $ | 100,000 | |
| Consulting Fees | $ | 60,000 | |
| Stock Transfer Fees | $ | 7200 | |
| General and Administrative Fees | $ | 26,000 | |
| Investment in Current and New Projects | $ | 7,000,000 | |
| Total Expenses | $ | 8,578,000 |
We recorded a net operating loss of $487,595 for the 12 months ended March 31, 2008 and have an accumulated deficit of $517,595 since inception.
As at March 31, 2008 we had cash of $530,974 and for the next 12 months, management anticipates that the minimum cash requirements to fund our proposed business plan and continued operations will be $8,600,000.
On May 22, 2008, we obtained $300,000 from Blue Mint Exploration Inc. and issued the third of three convertible promissory notes. For more information on the convertible promissory note, please see the note, which is incorporated by reference as an exhibit to this annual report on Form 10-K.
On April 8, 2008, we obtained $500,000 from Blue Mint Exploration Inc. and issued the second of two convertible promissory notes. For more information on the convertible promissory note, please see the note, which is incorporated by reference as an exhibit to this annual report on Form 10-K.
On February 19, 2008, we obtained $500,000 from Blue Mint Exploration Inc. and issued the first of two convertible promissory notes. For more information on the convertible promissory note, please see the note, which is incorporated by reference as an exhibit to this annual report on Form 10-K.
Accordingly we do not have sufficient funds to meet our planned expenditures over the next 12 months and will need to obtain further financing to fund our operations. See “Future Financings” on page 17.
Liquidity and Capital Resources
Our financial condition for the year ended March 31, 2008 and 2007 and the changes between those periods for the respective items are summarized as follows:
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Working Capital
| March 31 | |||||||
| 2008 | 2007 | ||||||
| Current assets | $ | 536,974 | $ | 2,200 | |||
| Current liabilities | 4,450,447 | 1,200 | |||||
| Working capital | $ | (3,913,473 | ) | $ | 1,000 | ||
Cash Flows
| March 31 | ||||||
| 2008 | 2007 | |||||
| Cash flows from operating activities | $ | 3,485,651 | $ | |||
| Cash flows (used in) investing activities | (7,506,877 | ) | -- | |||
| Cash flows provided by financing activities | 4,550,000 | 2,500 | ||||
| Net increase (decrease) in cash during period | $ | 528,774 | $ | (51,955 | ) | |
Working Capital
The decrease in our working capital from $1,000 to $(3,913,473) was primarily due to an investment in real estate development projects, which was not offset by cash from the sale of stock.
Cash Used In Operating Activities
During the year ended March 31, 2008 operating activities provided cash in the amount of $4,450,497 primarily represented by subscriptions received for common stock.
Cash used by Investing Activities
In the year ended March 31, 2008 cash used in investing activities was the sum of $7,506,877 as compared to nil in the prior year. Cash was used to purchase investment in real estate projects in Argentina.
Cash from Financing Activities
We received net cash from financing activities in the amount of $4,550,000 during the year ended March 31, 2008 compared to $2,500 during the year ended March 31, 2007.
The increase was due to the sale of common stock, and proceeds of a loan and cash advance.
Results of Operations
The following summary of our results of operations should be read in conjunction with our audited financial statements for the year ended March 31, 2008 which are included herein.
Our operating results for the year ended March 31, 2008, for the period from our inception on November 4, 2004 through to March 31, 2008 and the changes between those periods for the respective items are summarized as follows:
| Year Ended | Year Ended | ||||||||
| March 31, 2008 | March 28, 2007 | Increase/Decrease | |||||||
| Revenue | $ | -- | $ | -- | -- | ||||
| Accounting and Audit Fees | 9,600 | 4,400 | 54.2% | ||||||
| Advertising and Public Relations | 840 | - | 100.0% | ||||||
| Bank charges | 2,323 | 480 | 79.3% |
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| Year Ended | Year Ended | ||||||||
| March 31, 2008 | March 28, 2007 | Increase/Decrease | |||||||
| Consulting fees | 61,413 | 20,200 | 67.1% | ||||||
| Filing and transfer agent | 4,107 | 17,225 | -319.4% | ||||||
| Legal Fees | 78,962 | 5,399 | 93.2% | ||||||
| Management Fees | - | - | - | ||||||
| Property costs | 10,937 | 4,000 | 63.4% | ||||||
| Office and miscellaneous | 219,657 | 1,817 | 99.2% | ||||||
| Insurance | - | - | - | ||||||
| Travel and Entertainment | 27,828 | - | 100.0% | ||||||
| Net loss | $ | (457,575 | ) | $ | (55,655 | ) | 87.8% |
Revenues
We have had no operating revenues since our inception on November 4, 2004 through to the period ended March 31, 2008. We anticipate that we will not generate any revenues for so long as we are a development stage company.
Future Financings
We anticipate continuing to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to our existing shareholders. There is no assurance that we will achieve any additional sales of our equity securities or arrange for debt or other financing to fund our operations during the next 12 month period.
Off Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Recently Issued Accounting Standards
In March 2005, the SEC staff issued Staff Accounting Bulletin No. 107 (“SAB 107”) to give guidance on the implementation of SFAS 123R. We will consider SAB 107 during implementation of SFAS 123R.
FASB Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements, establishes a formal framework for measuring fair value under GAAP. It defines and codifies the many definitions of fair value included among various other authoritative literature, clarifies and, in some instances, expands on the guidance for implementing fair value measurements, and increases the level of disclosure required for fair value measurements. Although SFAS No. 157 applies to and amends the provisions of existing FASB and AICPA pronouncements, it does not, of itself, require ant new fair value measurements, nor does it establish valuation standards. SFAS No. 157 applies to all other accounting pronouncements requiring or permitting fair value measurements, except for; SFAS No. 123 (R) share-based payment and related pronouncements, the practicability exceptions to fair value determinations allowed by various other authoritative pronouncements, and AICPA Statements of Position 97-2 and 98-9 that deal with software revenue recognition. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.
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In February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments, an Amendment of FASB Standards No. 133 and 140”. This Statement established the accounting for certain derivatives embedded in other instruments. It simplifies accounting for certain hybrid financial instruments by permitting fair value re-measurement for any hybrid instrument that contains an embedded derivative that otherwise would require bifurcation under SFAS No. 133 as well as eliminating a restriction on the passive derivative instruments that a qualifying special-purpose entity (“SPE”) may hold under SFAS No. 140. This Statement allows a public entity to irrevocably elect to initially and subsequently measure a hybrid instrument that would be required to be separated into a host contract and derivative in its entirety at fair value (with changes in fair value recognized in earnings) so long as that instrument is not designated as a hedging instrument pursuant to the Statement. SFAS No. 140 previously prohibited a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This Statement is effective for fiscal years beginning after September 15, 2006, with early adoption permitted as of the beginning of an entity’s fiscal year. We do not expect the adoption of SFAS No. 155 to have a material effect on its financial condition or results of operations.
In March 2006, FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets - an Amendment of FASB Statement No. 140.” This Statement requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in any of the following situations: a transfer of the servicer’s financial assets that meets the requirements for sale accounting; a transfer of the servicer’s financial assets to a qualifying special-purpose entity in a guaranteed mortgage securitization in which the transferor retains all of the resulting securities and classifies them as either available-for-sale securities or trading securities in accordance with FASB Statement No. 115; or an acquisition or assumption of an obligation to service a financial asset that does not relate to financial assets of the servicer or its consolidated affiliates. The Statement also requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable and permits an entity to choose either the amortization or fair value method for subsequent measurement of each class of servicing assets and liabilities. This Statement is effective for fiscal years beginning after September 15, 2006, with early adoption permitted as of the beginning of an entity’s fiscal year. We do not expect the adoption of SFAS No. 156 to have a material effect on its financial condition or results of operations.
In June 2006, FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109”, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. Star Resorts does not expect the adoption of FIN 48 to have a material effect on its financial condition or results of operations.
In September 2006, FASB issued SFAS No. 157, “Fair Value Measurements” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. Where applicable, SFAS No. 157 simplifies and codifies related guidance within GAAP and does not require any new fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier adoption is encouraged. Star Resorts does not expect the adoption of SFAS No. 157 to have a material effect on its financial condition or results of operations.
In September 2006, FASB issued SFAS No. 158, “Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R).” SFAS No. 158 requires, among other things, that a company (1) recognize a net liability or asset to report the
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funded status of their defined benefit pensions and other postretirement plans on its balance sheet and (2) measure benefit plan assets and benefit obligations as of Star Resorts' balance sheet date. Calendar year-end companies with publicly traded equity securities are required to adopt the recognition and disclosure provisions of SFAS 158 as of March 31, 2007. Star Resorts does not expect the adoption of SFAS No. 158 to have a material effect on its financial condition or results of operations
In September 2006, the SEC announced Staff Accounting Bulletin No. 108 (“SAB 108”). SAB 108 addresses how to quantify financial statement errors that arose in prior periods for purposes of assessing their materiality in the current period. It requires analysis of misstatements using both an income statement (rollover) approach and a balance sheet (iron curtain) approach in assessing materiality. It clarifies that immaterial financial statement errors in a prior SEC filing can be corrected in subsequent filings without the need to amend the prior filing. In addition, SAB 108 provides transitional relief for correcting errors that would have been considered immaterial before its issuance. Star Resorts does not expect the adoption of SAB 108 to have a material effect on its financial condition or results of operations.
In April 2006, FASB issued Staff Position No. FIN No. 46R6, (“FSP 46R-6”), “Determining the Variability to Be Considered in Applying FASB Interpretation No. 46R.” This FSP addresses how a reporting enterprise should determine the variability to be considered in applying FIN No. 46R, “Consolidation of Variable Interest Entities.” FIN No. 46R provides guidance on when to consolidate an entity based on exposure to risks and rewards, rather than voting control. It describes the characteristics of a variable interest entity (“VIE”) and how an entity that is involved with a VIE should determine whether its shares in the VIE’s risks and rewards extensively enough to be the VIE’s primary beneficiary and therefore consolidate it. The guidance in this FSP applied prospectively to all entities with which Star Resorts first became involved with and to all entities previously analyzed under FIN No. 46R when a reconsideration event occurred beginning July 1, 2006. Retrospective application of FIN No. 46R was permitted but not required. Star Resorts adopted this FSP prospectively. Application of this FSP has not had a material impact on the 2006 consolidated financial statements. The impact of this FSP on Star Resorts’ financial statements beyond 2006 is dependent upon the specifics of future arrangements.
The financial statements of Star Resorts have been prepared in accordance with generally accepted accounting principles in the United States. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates which have been made using careful judgment.
The financial statements have, in management’s opinion, been properly prepared within the reasonable limits of materiality and within the framework of the significant accounting policies summarized below:
Accounting Method
Star Resorts’ financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.
Income Taxes
The Company utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the tax basis of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The Company generated deferred tax
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credits through net operating loss carryforwards. However, a valuation allowance of 100% has been established, as the realization of the deferred tax credits is not reasonably certain, based on going concern considerations outlined above.
Basic and Diluted Loss Per Share
In accordance with SFAS No. 128 – “Earnings Per Share”, the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional common shares that would be outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The dilutive securities outstanding as of March 31, 2008 were 7,175,000 warrants convertible into one share of common stock, and a $500,000 promissory note convertible into common stock at a conversion rate of the average of the preceding week’s closing prices.. The exercise of these securities would be anti-dilutive since the company is in a loss position, therefore they were not counted in the calculation of Earnings Per Share.
A common stock split of 7 to 1 occurred on April 17, 2007. The outstanding shares as at March 31, 2007 was restated to give retroactive effect to the stock split.
Description of Properties
Cerro Bayo Mountain Resort Project – We own 25% of this mountain resort project. This mountain resort project is a tourist destination year round. It is located within the Nahuel Haupi National Park close to the town of Villa la Angostura in the Argentinean Patagonia and overlooks the Nahuel Huapi Lake. Visitors participate in outdoor activities such as kayaking, fishing, hiking, mountain biking and rock climbing in the summer and skiing, snowboarding and snowmobiling in the winter. Along with owning the 25% interest in the Cerro Bayo Mountain Resort and Ski Center including all its land, Ski runs, Ski lifts, Service areas, Buildings, Base Camp, Restaurants, Retail and other Amenities, we have invested in an additional 135.9 acres of land adjacent to the Cerro Bayo Mountain Resort Project. We plan to develop both the land surrounding the Ski Center and this additional 139.5 acres of land into hotels, condominiums, ski-in ski-out villas, spa facilities, new retail stores and additional restaurants.
As owner of a 25% interest in the project, Star Resorts will receive its corresponding share of the profits, if and when there are any, from the sale, lease or operation of the new real estate developed, such as the retail outlets, hotels and restaurants and from the operation of the Mountain Resort’s facilities and amenities.
Santa Maria De Los Andes Project - This is a winery and real estate development project in the province of Mendoza, Argentina. We own approximately 47 acres of vineyard land within the “Santa Maria de los Andes” project. On this land, we intend to grow our own wine grapes and produce, bottle and sell our own premium wines. If we choose to do so, we have the right and the ability to build up to four luxury villas within this land for lease to visitors or sale to investors in real estate. We, our guests and any subsequent investors to whom we may sell properties on this project, have a right to use common areas that are developed on the property by the developers of other sections of the Santa Maria de los Andes project. The plans for the development of the broader Santa Maria de los Andes project include a club house, an artisans’ village, equestrian facilities and polo fields. Investors will be required to pay maintenance fees for the facilities developed in the common areas. These planned facilities are scheduled for completion by approximately the end of 2008. We also intend to participate in the development of accommodations for tourists to the vineyard by building and operating – in partnership with the
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developers of the project (Santa Maria de los Andes S.A.) - a boutique hotel and condo-hotel units planned to be branded and managed by a world renowned luxury hotel brand.
Our income stream from this project will come from the production and sale of premium wines, from the lease or sale of the real estate we develop on our land, and from the income of the hotel operation and condo – hotel unit sales.
Puerto Madero “Docks 2&3” Project - We own 20% of the Puerto Madero “Docks 2&3” Project, through our subsidiary, Inversiones del Dique S.A., an Argentinean company. This project consists of a high end floating shopping mall, entertainment venues, restaurants, bars, a marina, a hotel, a spa & gym and a nightclub in the Puerto Madero district of Buenos Aires. It is being developed by a partnership led by Fiducia Capital Group which also owns 20% of the project, and Proideas Development, which owns another 20% of the project. Two more partners own the remaining 40% of the project. We expect the first phase of this project to be ready by January 2009. After that we expect to receive our corresponding share of the income, when and if there is any, from the lease of the retail spaces, entertainment venues and marina slips to be developed.
Investment Objectives and Policies
We intend to build shareholder value by strategically investing during the early stages of emerging real estate projects being developed by experienced high-end developers with a proven track record of success. We also plan to continue to look for “opportunity” properties both in emerging and booming markets which, due to their location and/or characteristics paired with a favorable purchase cost, could bring a high return on investment. We seek to benefit from the expertise and connections our management team has in the real estate and hospitality industries, to bring added value and enhance the final products of our projects.
Taxes
All applicable Federal, Provincial and Local taxes payable, including Property Taxes are to be paid by our subsidiaries and partnership companies for each project we have invested in.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To: The Board of Directors and Shareholders
Star Resorts
Development Inc.
Miami, Florida
I have audited the accompanying balance sheet of Star Resorts Development Inc. as of March 31, 2008 and 2007 and the related statements of operations and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. My responsibility is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered an initial loss and its investments will not produce a source of income until certain development phases are under way and / or completed. This raises substantive doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
In my opinion, based on my audit, the financial statements referred to above present fairly, in all material respects, the financial position of Star Resorts Development Inc. as of March 31, 2008 and 2007 and the results of its operations and its cash flows for the years ended March 31, 2008 and 2007, in conformity with United States generally accepted accounting principles.
The Company has determined that it is not required to have, nor was I engaged to perform, an audit of the effectiveness of its documented internal controls over financial reporting.
John Kinross-Kennedy
Certified Public Accountant
Irvine, California
July 7, 2008
| STAR RESORTS DEVELOPMENT INC. |
| (A Development Stage Company) |
| BALANCE SHEET |
| March 31, 2008 | March 31, 2007 | |||||
| (Restated) | ||||||
| ASSETS | Note 4 | |||||
| CURRENT ASSETS | ||||||
| Cash | $ | 530,974 | $ | 2,200 | ||
| Travel Advance | 6,000 |