Star Energy Corporation - Indicate by check mark whether the...

Star Energy Corporation - Recent Material Event

Item 405 of Regulation S-B contained in this form, and if no disclosure will 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-KSB or any amendment to this Form 10-KSB ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨

The issuer’s revenues for the fiscal year ended December 31, 2007 were $0.

The aggregate market value of the issuer’s common stock held by non-affiliates as of March 31, 2008 was approximately $2,675,240 based on the average closing bid and asked prices for the issuer’s common stock on March 31, 2008.

At March 31, 2008, the number of shares outstanding of the issuer’s common stock was 33,865,500 shares.

Transition Small Business Disclosure Format. Yes ¨ No x

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TABLE OF CONTENTS


	PART I

ITEM 1	DESCRIPTION OF BUSINESS	3

ITEM 2	DESCRIPTION OF PROPERTY	9

ITEM 3	LEGAL PROCEEDINGS	9

ITEM 4	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	9

	PART II

ITEM 5	MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES	10

ITEM 6	MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS	11

ITEM 7	FINANCIAL STATEMENTS	17

ITEM 8	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	48

ITEM 8A(T)	CONTROLS AND PROCEDURES	48

ITEM 8B	OTHER INFORMATION	50

	PART III

ITEM 9	DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS, AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT	51

ITEM 10	EXECUTIVE COMPENSATION	54

ITEM 11	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	57

ITEM 12	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	58

ITEM 13	EXHIBITS	59

ITEM 14	PRINCIPAL ACCOUNTANT FEES AND SERVICES	61

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PART I

ITEM 1

DESCRIPTION OF BUSINESS

General

We were incorporated in Nevada on December 7, 1999 as “Cairo Acquisitions, Inc.” to engage in any legal undertaking. On November 21, 2002, we changed our name to “Star Energy Corporation” to reflect the decision of our then management to engage in the exploration, development and production of oil and gas resources.

Unless the context otherwise requires, references to “Star,” “we,” “us,” and “our company” refer to Star Energy Corporation and its subsidiaries at the applicable time.

Business History

From July 2, 2003 until October 6, 2006, we were engaged, as an independent oil and natural gas producer, in the exploration, development, production and sale of oil and gas derived from eight oil and gas wells, known as the “Galvan Ranch Gas Wells,” located in Webb County, West Texas, Texas, in each of which we had a 15% working interest and a 12% net revenue interest. The wells were on five separate parcels of land spread over 425 acres of the Galvan Ranch. During the second quarter of 2006, we believed that the Galvan Ranch Gas Wells, which had generated revenues of only $55,852 in 2005 and $33,431 for the nine months ended September 30, 2006, were not meeting expectations, were without perceived growth potential and were a distraction to our ability to raise financing and grow. Mr. Ruairidh Campbell, at the time a principal shareholder and one of our officers and directors, was not interested in pursuing a strategy of focusing on areas in Russia and the former Soviet Union, rather than the United States. On October 6, 2006, we transferred, pursuant to an Assignment and Bill of Sale, our entire interest in the Galvan Ranch Gas Wells to Ruairidh Campbell, who contemporaneously resigned as an officer and director of Star. In consideration therefor, Mr. Campbell transferred to us, for cancellation and return to our authorized but unissued shares of common stock, the 3,250,000 shares held by him. As a result, since October 6, 2006, we no longer have had any interest in the Galvan Ranch Gas Wells and are no longer engaged in the oil and gas business in the United States.

Pursuant to a Stock Purchase Agreement, dated October 6, 2006, we acquired 100% of the capital stock of Volga-Neft Limited Company, a Russian limited liability company primarily engaged in the processing and sale of crude oil in Samara, Russia (“Volga-Neft”), in consideration for our issuance to the stockholders of Volga-Neft of an aggregate of 10,000,000 shares of our common stock, which represented, at the time, 25.6% of our issued and outstanding shares. Thereafter, we borrowed and advanced $3,000,000 of working capital to Volga-Neft. Volga-Neft (i) sells to local oil exporters, wholesalers, and distributors crude oil it has purchased from local oil developers and (ii) processes crude oil purchased from local oil developers, selling the processed petroleum products in the local market to oil exporters, wholesalers, and distributors. As a result of this acquisition, Volga-Neft became our wholly-owned subsidiary.

On April 13, 2007, we were advised by RSM Top-Audit, the audit firm that purportedly audited the financial statements of Volga-Neft covering certain periods prior to our acquisition of Volga-Neft, that those financial statements were not audited by that firm. These financial statements, which we filed with the Securities and Exchange Commission on a Form 8-K/A on December 8, 2006, were the balance sheets of Volga-Neft as of October 6, 2006 and December 31, 2005, and the related statements of income, stockholders’ equity and cash flows for the period January 1, 2006 through October 6, 2006 and the year ended December 31, 2005. We therefore concluded that those financial statements could not be relied upon, and, on May 11, 2007, we filed a Current Report on Form 8-K to disclose these developments.

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Under the Stock Purchase Agreement, the shareholders of Volga-Neft made numerous representations and warranties, including that Volga-Neft’s books and records were complete and correct, represented actual transactions and were maintained in accordance with sound business practice. As part of our further investigation once we were advised that RSM Top-Audit disclaimed performing an audit of the pre-acquisition financial statements of Volga-Neft, we were advised by Volga-Neft’s internal accountant that the revenues of Volga-Neft for the period January 1, 2006 through the December 31, 2006 were actually $47 million (rather than the $83 million reflected in financial statements provided to us for the shorter January 1, 2006 through October 6, 2006 period). We were also advised by an accounting firm which we intended to retain to “re-audit” Volga-Neft’s financial statements, among other things, that documents requested were not provided, that reconciliations did not exist, that no observations of inventories had occurred in the past and that some properties listed as owned by Volga-Neft may have been leased. These factors led us to conclude that the books and records of Volga-Neft were not complete and correct and were not maintained in accordance with sound business practice. These factors also put into question our ability to rely on other representations and warranties made by the stockholders of Volga-Neft. In addition, because our independent auditor was unable to audit opening balances for post-acquisition financial statements of Volga-Neft, we could not receive the comfort that a post-closing audit provides an acquirer with respect to the accuracy of representations and warranties. In lieu of retaining Volga-Neft and spending the time, effort and cost of trying to establish the degree to which breaches existed and the level of damages sustained, and then seek indemnification against the Volga-Neft stockholders in Russia, we determined that it was in our best interests to seek rescission of the Stock Purchase Agreement. By a Rescission Agreement dated June 14, 2007 among us, Volga-Neft and the individuals from whom we acquired the shares of Volga-Neft, the Stock Purchase Agreement was rescinded, we returned the shares of Volga-Neft we received to the former stockholders of Volga-Neft who, in turn, returned to us the 10,000,000 shares of our common stock that we had previously issued to them. In addition, Volga-Neft issued a $4,200,000 promissory note in our favor to repay $3,000,000 of loans we made to Volga-Neft since the acquisition and to reimburse us for costs and damages incurred by us. We, in turn, sold the promissory note to a non-related third party on a non-recourse basis for $3,000,000.

We subsequently received a report from Nixon Peabody, LLP, which was based upon certain documentation and interviews conducted with personnel made available by us, Volga-Neft and RSM Top-Audit, which report did not constitute a comprehensive analysis because a number of key witnesses and certain sources of documentary evidence were not available to Nixon Peabody. Following receipt of that report, we concluded that it is unlikely that RSM Top-Audit performed any audit of Volga-Neft’s financial statements, that RSM Top-Audit may not, in fact, have been engaged by Volga-Neft to perform an audit, and that, while actions taken by various individuals in Russia, at least one of whom was employed by RSM Top-Audit, may have resulted in our receipt of the purported audit report of RSM Top-Audit, neither we nor any of our officers or directors knew of these facts or the absence of the audits prior to RSM Top-Audit’s advice on April 13, 2007 that RSM Top-Audit had not audited the financial statements of Volga-Neft.

We have instituted an action against RSM Top-Audit, the international accounting network of which RSM Top-Audit is a member, certain principals of the audit firms and certain other individuals seeking, among other things, damages suffered by us as a result of the falsified audit of Volga-Neft.

As a result of the rescission, we have not included the assets, liabilities or results of operations of Volga-Neft in our financial statements for any period. While the Rescission Agreement does not affect the rights that any third parties may have against us with respect to agreements entered into, actions taken, or transactions or events that occurred, directly by or with us, we do not believe we have any such obligations. The Rescission Agreement also did not relieve us with respect to breaches of agreements to which we are a party that may have resulted from the Rescission Agreement.

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On November 6, 2006, we entered into a Letter of Intent to acquire 100% of the common stock of Samaratransoil Ltd., a company organized under the laws of the Russian Federation, from its sole stockholder in exchange for 1,000,000 shares of our common stock. The consummation of this transaction was subject to certain conditions, including completion of due diligence to our satisfaction. After performing our due diligence, we determined not to proceed further with the transaction and did not issue any shares of our common stock with respect to this prospective acquisition.

On November 28, 2006, we entered into a Stock Purchase Agreement to acquire 51% of the capital stock of Kommunarskoe NGDU, a Russian limited liability company, from its sole stockholder in exchange for 6,000,000 shares of our common stock. The consummation of this transaction was subject to certain conditions, including completion of due diligence to our satisfaction. After performing our due diligence as part of satisfying the closing conditions, we determined not to proceed further with the transaction. Effective June 14, 2007, all parties to this Stock Purchase Agreement agreed not to proceed with the transaction and to end all further negotiations, and we did not issue any shares of our common stock with respect to this prospective acquisition.

On August 1, 2007, we entered into separate agreements with each of Firecreek Petroleum, Inc. (“Firecreek”), a wholly-owned subsidiary of EGPI Firecreek, Inc., PJM Management, Inc. (“PJM”) and Double Coin Ltd. (“Double Coin”), pursuant to which we acquired from Firecreek and Double Coin any and all of their rights and interests they had with respect to certain projects in Ukraine, consisting of 100% of a project known as the Region Project, 51% of a project known as the Dewon ZAO Project and 100% of a project known as the Bukovyna Project (the “Projects”). Of the rights held by Firecreek and Double Coin, one was a letter of intent for Anglo-UKr-Energy LLC (“AUE”) to acquire the Region Project for $5.5 million, the second was an oral understanding pursuant to which we entered into a letter of intent to acquire 51% of the Dewon ZAO Project for $40.0 million and the third was a contract for AUE to acquire the Bukovyna Project for $20.0 million. AUE was a company being formed on behalf of Firecreek and Double Coin in Ukraine to acquire the Projects. We were granted the right to complete, and did complete, the organization of AUE as our subsidiary. In exchange for our acquisition of the rights of Firecreek and Double Coin, we issued 2,100,000 shares of our common stock and paid $100,000 to Firecreek and issued 2,500,000 shares of our common stock to Double Coin. We issued 150,000 shares of the Company’s common stock and paid $10,000 to PJM which acted as a finder for Firecreek and Double Coin. The shares were valued at $0.27 per share for a total consideration of $1,392,500. The purchase price for our acquisition of the rights of Firecreek and Double Coin and PJM’s finder’s fee was negotiated with them and was equal to approximately 2.1% of the total purchase price that was to be paid to the owners of the Projects, based on the market value of our common stock at the time we entered into the agreements with Firecreek, PJM and Double Coin. Firecreek, PJM and Double Coin are not related to our officers, directors and affiliates.

Our right to proceed with respect to these Projects expired on November 10, 2007, November 15, 2007 and November 26, 2007, respectively. We sought extensions from the owners of the Projects, but were unable to negotiate an extension of the letter of intent with respect to the Dewon ZAO Project (which was needed to complete due diligence and seek requisite financing for the Project), unable to obtain the due diligence materials we needed with respect to the Region Project and unable to obtain the necessary financing for the Bukovyna Project. Accordingly, we no longer have rights to acquire any of the Projects and, as such, the options to acquire the oil and gas properties have been completely written-off. We have commenced an arbitration proceeding against Firecreek and Double Coin seeking a return of the consideration paid to them.

Plans for Future Operations

In previous years, we were primarily engaged in domestic energy operations. We have shifted our focus entirely to prospects situated in the Commonwealth of Independent States that are considered emerging markets and, particularly, are seeking to capitalize on the opportunities we believe are available to us in

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Ukraine. With the disposition of the Galvan Ranch Wells and the rescission of the Volga-Neft acquisition, we are not currently engaged in an active business. In light of our prior experience and taking into consideration the risks inherent to operating in emerging markets, we have retained western legal, accounting and geological consultants. Although we are in discussions regarding potential acquisitions, we are not currently a party to any agreement to acquire properties or rights with respect to any oil or gas properties or production.

Debenture Financing

On February 9, 2007, we entered into a securities purchase agreement, whereby the Company issued $7,500,000 in principal amount of convertible debentures (the “Debentures”). The Debentures bear interest at 8% per annum, payable quarterly, are secured by all our assets and mature on February 9, 2010 or earlier upon acceleration following an event of default, as defined in the Debentures. On February 28, 2008, the debenture holders agreed to defer our payment of interest due April 1, 2008 to April 1, 2009 in consideration for our agreeing to pay them an aggregate premium of $12,000 on April 1, 2009. The Debentures were originally convertible into shares of our common stock at the option of the holders at a conversion price of $2.00 per share. In addition, the debenture holders were issued warrants which allow the holders to purchase, at any time until February 9, 2012, up to 2,437,500 shares of our common stock. The Warrants were originally exercisable at an exercise price equal to $3.81 per share. The Debentures and the Warrant have conversion and exercise price adjustment clauses to adjust their conversion and exercise prices based on certain events, including stock splits and stock combinations, and, with exceptions relating to issuances under stock option plans and acquisitions and strategic transactions synergistic with our business, to reduce the conversion and exercise prices to the price at which new shares are issued. The right of each investor to convert the Debentures, or exercise the Warrants, is subject to the restriction that such conversion or exercise does not result in the investor beneficially owning at any one time more that 4.99% of our outstanding common stock.

Payment of the Debentures is guaranteed by Volga-Neft pursuant to the terms of a Guarantee dated as of February 9, 2007, and is secured by all of our assets and the assets of Volga-Neft pursuant to the terms of a Security Agreement, dated as of February 9, 2007. We believe that our acquisition of Volga-Neft was a significant factor in our ability to obtain this financing. The rescission of the acquisition of Volga-Neft could have resulted in the acceleration of the maturity of some or all of our $7,500,000 principal amount of 8% Secured Convertible Debentures we issued in February 2007 and that otherwise would be due on February 9, 2010 or earlier upon acceleration, following an event of default, as defined in the Debentures. Prior thereto, we, through our Chief Executive Officer, obtained the oral approval of the debenture holders.

Pursuant to the terms of a Registration Rights Agreement by and between us and the purchasers of the Debentures, dated as of February 9, 2007, we agreed to prepare and file by April 15, 2007 with the Securities and Exchange Commission a registration statement for the purpose of registering for resale all of the shares of our common stock issuable upon conversion of the Debentures and the exercise of the Warrants. We have not, to date, filed the registration statement. The Registration Rights Agreement provided that, if we did not file the registration statement by April 15, 2007, the registration statement was not declared effective by the Securities and Exchange Commission by July 15, 2007, and in certain other circumstances (including if the registration statement did not remain continuously effective except for certain limited periods for specified reasons), we were to pay, on the applicable date and each monthly anniversary of that date, as partial liquidated damages, 1.5% of the principal amount of the Debentures then held by the debenture holders. If we failed to pay any of these amounts within seven days after the date payable, the Registration Rights Agreement provides that we are to pay interest thereon at the rate of 18% per annum.

On October 11, 2007, we entered into waiver and consent agreements with the holders of the debentures, in which the debenture holders, among other things, waived all accrued liquidated damages under the Registration Rights Agreement and agreed that future

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liquidated damages would not be payable if we filed the requisite registration statement by April 11, 2008 and that liquidated damage would be capped at 10% per annum. In consideration for the agreement by holders of Debentures in the principal amount of $5,000,000, we paid $302,322 to those debenture holders, with the conversion price of those Debentures remaining at $2.00 per share and their Warrants to purchase 1,625,000 shares of common stock remaining at an exercise price of $3.81 per share, in each case subject to potential anti-dilution adjustments. In consideration for such agreement by holders of Debentures in the principal amount of $2,500,000, we issued 100,000 shares of our common stock to those debenture holders, reduced the conversion price of those Debentures from $2.00 to $.75 per share, and lowered the exercise price of their Warrants to purchase 812,500 shares of common stock from $3.81 to $.75 per share until October 11, 2010, at which time the exercise price of those Warrants will revert to $3.81 per share, in each case subject to potential anti-dilution adjustments. On April 9, 2008, we entered into amendments to each of the waiver and consent agreements pursuant to which each debenture holder waived the requirement to file the registration statement by April 11, 2008, provided we file the registration statement at the earliest possible time using our reasonable best efforts.

There can be no assurance that we will be successful in obtaining any future waivers from the holders of our Debentures or, if we are successful, of the terms of any modification of the Debentures or Registration Rights Agreement. Any default under the Debentures would allow each Debenture holder to declare the outstanding principal amount of such holder’s Debenture, plus accrued and unpaid interest, liquidated damages and other amounts owing in respect of the holder’s Debenture due and payable at its “Mandatory Default Amount” of 130% of the outstanding principal amount of the Debenture plus all accrued and unpaid interest thereon. Commencing five trading days after the occurrence of an event of default that results in the eventual acceleration of a Debenture, the Debenture is to accrue interest at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law.

As a condition of the Debenture financing, we entered into agreements with each of our then officers, directors and principal stockholders pursuant to which each of them agreed not to sell any shares of our common stock prior to 90 calendar days after a registration statement covering the resale all of the shares of our common stock issuable upon conversion of the Debentures and the exercise of the Warrants has been declared effective by the Securities and Exchange Commission.

We paid Rodman & Renshaw LLC, placement agent for the Debenture financing, $525,000 (7% of the gross proceeds from the sale of the Debentures), plus $25,000 in reimbursement of its expenses, under a Placement Agency Agreement, dated February 9, 2007. We also issued to Rodman & Renshaw LLC and its designees warrants to purchase, until February 12, 2012, 262,500 shares of our common stock at an exercise price of $3.81 per share. The warrants have exercise price adjustment clauses to adjust their exercise price based on certain events, including stock splits and stock combinations, and, with exceptions relating to issuances under stock option plans and acquisitions and strategic transactions synergistic with our business, to reduce the exercise price to the price at which new shares are issued. We also have agreed to indemnify Rodman & Renshaw LLC, its selected dealers, agents and their respective officers, directors, employees and controlling persons against liabilities incurred under the Securities Act, as well as claims made against those persons for finder’s or broker’s fees, and to reimburse those persons for expenses (including reasonable attorneys’ fees) incurred in investigating and defending against claims asserted against them, in connection with the offer and sale of the Debentures, except in certain circumstances, and to the extent indemnification is not available, to contribute to payments made by those persons. In addition, we issued 15,500 shares of our common stock valued at $58,900 to an unaffiliated third party for its assistance in identifying potential institutional investors.

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Competition

The oil and gas exploration industry is highly competitive. We expect to encounter competition in all aspects of our operations, including property acquisition, and for equipment and labor required to operate and to develop properties and operations. We expect to be in competition with major oil companies, independent oil companies, and individual producers and operators that have financial and other resources substantially greater than ours.

In addition, the oil industry as a whole also competes with other industries in supplying the energy and fuel requirements of industrial, commercial and individual consumers. The price and availability of alternative energy sources could adversely affect our operations.

Governmental Regulation

Our operations will be subject to various levels of government controls and regulations in virtually all of the countries in the Commonwealth of Independent States, including environmental controls and regulations, that will vary from country to country and from time to time as they are reviewed for amendment or expansion.

We will attempt to comply with all legal requirements in the conduct of our operations and employ business practices which we consider to be prudent under the circumstances in which we operate. Failure to comply with such rules and regulations can result in substantial penalties. The regulatory burden on the oil and gas industry could increase our cost of doing business and affect our profitability. Because such rules and regulations are frequently amended or reinterpreted, we are unable to predict the future cost or impact of complying with such laws.

Environmental Regulation

Oil exploration, storage, transportation, refining and related activities are subject to numerous and constantly changing country, state and local laws governing the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations may require the acquisition of certain permits prior to or in connection with our operations, restrict or prohibit the types, quantities and concentration of substances that we can release into the environment, restrict or prohibit activities that could impact endangered or threatened species, protected areas or natural resources, require some degree of remedial action to mitigate pollution from former operations and impose substantial liabilities for pollution resulting from our operations.

For example, the government of the Russian Federation, Ministry of Natural Resources, and other agencies establish special rules, restrictions and standards for enterprises conducting activities affecting the environment. The general principle of Russian environmental law is that any environmental damage must be fully compensated. Under certain circumstances, top officers of the entity causing substantial environmental damage may be subject to criminal liability. The law of the Russian Federation on subsoil requires that all users of subsoil ensure safety of works related to the use of subsoil and comply with existing rules and standards of environment protection.

Environmental laws and regulations may substantially increase the cost of our operations and may prevent or delay the commencement or continuation of a given project and thus generally could have a material adverse effect upon our capital expenditures, earnings and competitive position. Violation of these laws and regulations could result in significant fines or penalties. We may experience accidental spills, leaks and other discharges of contaminants at some of the properties that we may acquire, operate or sell, or in which we may hold an interest but not operational control, as have other similarly situated oil and gas companies, and including past or ongoing contamination for which we may be held responsible. The costs of remedying such conditions may be significant, and could have a material adverse impact on our financial condition and results of operations.

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Changes in existing environmental laws and regulations or in the interpretations thereof could have a significant impact on our operations, as well as the oil and gas industry in general. For instance, any changes in environmental laws and regulations that result in more stringent and costly waste handling, storage, transport, disposal or clean-up requirements could have a material adverse impact on our results of operations.

Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements and Labor Contracts

We have no patents, trademarks, licenses, franchises, concessions, royalty agreements or labor contracts.

Employees

We have five full time employees, consisting of our three executive officers who are based in our corporate headquarters in New York and two employees located in Kiev, Ukraine.

ITEM 2

DESCRIPTION OF PROPERTY

We lease our executive office, which consist of approximately 1,000 square feet, at 317 Madison Avenue, New York, New York 10017, under a sub-lease for $3,400 per month on a month-to-month basis.

We also lease approximately 1,000 square feet of office space in Kiev, Ukraine for $8,400 per month under a one year lease that expires on November 30, 2008.

We believe our current office space to be adequate for the foreseeable future.

ITEM 3

LEGAL PROCEEDINGS

We are not a defendant in, and our property is not the subject of, any pending legal proceedings.

ITEM 4

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of the security holders, through the solicitation of proxies or otherwise, during the year ended December 31, 2007.

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PART II

ITEM 5

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

Shares of our common stock are traded on the Over-the-Counter Bulletin Board under the symbol “SERG.OB”. The table below sets forth the high and low bid prices for our common stock for each quarterly period for the last two fiscal years. The quotations below reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions:


Year	Quarter Ended	High		Low
2007	December 31	$	0.54	$	0.18
	September 30	$	0.60	$	0.21
	June 30	$	3.98	$	0.34
	March 31	$	4.38	$	3.20
2006	December 31	$	4.10	$	0.80
	September 30	$	1.30	$	0.40
	June 30	$	2.05	$	1.15
	March 31	$	2.25	$	1.00

Record Holders

As of March 31, 2008, we had approximately 89 stockholders of record, exclusive of stockholders whose shares were held by brokerage firms, depositories and other institutional firms in “street name” for their customers.

Dividends

We have not declared any dividends since inception and do not anticipate paying any dividends in the foreseeable future. The payment of dividends is within the discretion of our Board of Directors and will depend on our earnings, capital requirements, financial condition, and other relevant factors. Pursuant to an agreement to which we are a party, we have agreed, among other things, not to declare or pay out any dividend or make any distribution without the prior written consent of the other party thereto (which consent is not to be unreasonably withheld).

Recent Sales of Unregistered Securities

On March 1, 2007, in consideration for consulting services rendered to us, we issued 250,000 shares of our common stock valued at $870,000, to Blue Water Partners, a consultant.

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On October 11, 2007, in consideration for the holders of $2,500,000 of our 8% Secured Convertible Debentures entering into a waiver and consent agreement with us pursuant to which they waived accrued liquidated damages under a Registration Rights Agreement, we issued to them 100,000 shares of our common stock.

We believe that each issuance was exempt from the registration provisions of the Securities Act by virtue of the exemption afforded under Section 4(2) of the Securities Act.

Repurchases of Equity Securities

We did not repurchase any of our equity securities during the year ended December 31, 2007, although we did reacquire and cancel 10,000,000 shares of our common stock in connection with our rescission of the acquisition of Volga-Neft.

ITEM 6

MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

The following discussion should be read in conjunction with our financial statements and notes thereto included in this report.

Forward Looking Statements

This Management’s Discussion and Analysis and Plan of Operations and other parts of this report contain forward-looking statements that involve risks and uncertainties. Forward-looking statements can be identified by words such as “may,” “should,” “anticipates,” “intends,” “expects,” “believes,” “plans,” “predicts,” “estimates,” “strategy” and similar terms. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. These statements are subject to risks and uncertainties and are based upon assumptions and beliefs that may or may not materialize. These risks and uncertainties include, but are not limited to, the following, many of which are beyond our control: our ability to locate and acquire high oil and gas producing properties, or rights with respect to or interests in, high producing properties; the sufficiency of existing capital resources; our ability to raise additional capital to fund cash requirements for acquisitions and future operations; our ability to obtain and maintain sufficient energy reserves to fund and maintain operations; the market for any oil and gas production we may generate; domestic and foreign political conditions; the overall level of the supply of and demand for oil and gas; the price of imports of oil and gas; weather conditions; the price and availability of alternative fuels; the proximity and capacity of oil pipelines and other transportation facilities to any properties we may acquire or in which we may acquire rights or interests; uncertainties related to our future business prospects, including possible future acquisitions; the volatility of the stock market in general and our common stock specifically; our ability to maintain the quotation of our common stock on the Over-the-Counter Bulletin Board; and general economic conditions.

We also wish to advise readers not to place any undue reliance on the forward looking statements contained in this report, which reflect our beliefs and expectations only as of the date of this report. We assume no obligation to update or revise these forward looking statements to reflect new events or circumstances or any changes in our beliefs or expectations, other than as required by law.

Overview

We were incorporated in Nevada on December 7, 1999. Our operations began on July 2, 2003 when we purchased a 15% working interest and 12% net revenue interest in eight oil and gas producing wells known as the “Galvan Ranch Gas Wells” in Webb County, West Texas. The wells were on five separate parcels of land spread over 425 acres of the Galvan Ranch.

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During the second quarter of 2006, we believed that the Galvan Ranch Gas Wells, which had generated revenues of only $55,852 in 2005 and $33,431 for the nine months ended September 30, 2006, were not meeting expectations, were without perceived growth potential and were a distraction to our ability to raise financing and grow. Mr. Ruairidh Campbell, at the time a principal shareholder and one of our officers and directors, was not interested in pursuing a strategy of focusing on areas in Russia and the former Soviet Union, rather than the United States.

On October 6, 2006, we entered into an Assignment and Bill of Sale with Mr. Campbell pursuant to which we assigned to Mr. Campbell all of our interests in and to the Galvan Ranch Gas Wells. In consideration therefor, Mr. Campbell transferred to us, for cancellation and return to our authorized but unissued shares of common stock, the 3,250,000 shares of common stock owned by him. As a result, since October 6, 2006, we have no longer had any interest in the Galvan Ranch Gas Wells and are no longer engaged in the oil and gas business in the United States.

Under our new strategy, pursuant to a Stock Purchase Agreement, on October 6, 2006, we acquired 100% of the capital stock of Volga-Neft Limited Company, a Russian limited liability company primarily engaged in the processing and sale of crude oil in Samara, Russia (“Volga-Neft”), in consideration for our issuance to the stockholders of Volga-Neft of an aggregate of 10,000,000 shares of our common stock, representing, at the time, 25.6% of our issued and outstanding shares. Thereafter, we borrowed and advanced $3,000,000 of working capital to Volga-Neft.

On April 13, 2007, we were advised by RSM Top-Audit that the financial statements of Volga-Neft, purportedly audited by RSM Top-Audit for periods prior to our acquisition of Volga-Neft were not audited by that firm.

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On August 1, 2007, we entered into separate agreements with each of Firecreek Petroleum, Inc. (“Firecreek”), a wholly-owned subsidiary of EGPI Firecreek, Inc., PJM Management, Inc. (“PJM”) and Double Coin Ltd. (“Double Coin”), pursuant to which we acquired from Firecreek and Double Coin any and all of their rights and interests they had with respect to certain projects in Ukraine, consisting of 100% of a project known as the Region Project, 51% of a project known as the Dewon ZAO Project and 100% of a project known as the Bukovyna Project (the “Projects”). Of the rights held by Firecreek and Double Coin, one was a letter of intent for Anglo-Ukr-Energy LLC (“AUE”) to acquire the Region Project for $5.5 million, the second was an oral understanding pursuant to which we entered into a letter of intent to acquire 51% of the Dewon ZAO Project for $40.0 million and the third was a contract for AUE to acquire the Bukovyna Project for $20.0 million. AUE was a company being formed on behalf of Firecreek and Double Coin in Ukraine to acquire the Projects. We were granted the right to complete, and did complete, the organization of AUE as our subsidiary. In exchange for our acquisition of the rights of Firecreek and Double Coin, we issued 2,100,000 shares of our common stock and paid $100,000 to Firecreek and issued 2,500,000 shares of our common stock to Double Coin. We issued 150,000 shares of the Company’s common stock and paid $10,000 to PJM which acted as a finder for Firecreek and Double Coin. The shares were valued at $0.27 per share for a total consideration of $1,392,500. The purchase price for our acquisition of the rights of Firecreek and Double Coin and PJM’s finder’s fee was negotiated with them and was equal to approximately 2.1% of the total purchase price that was to be paid to the owners of the Projects, based on the market value of our common stock at the time we entered into the agreements with Firecreek, PJM and Double Coin. Firecreek, PJM and Double Coin are not related to our officers, directors and affiliates.

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Plans for Future Operations

In previous years, we were primarily engaged in domestic energy operations. We have shifted our focus entirely to operations situated in the Commonwealth of Independent States that are considered emerging markets and, particularly, are seeking to capitalize on the opportunities available to us in Ukraine. With the disposition of the Galvan Ranch Wells and the rescission of the Volga-Neft acquisition, we are not currently engaged in an active business. In light of our prior experience and taking into consideration the risks inherent to operating in emerging markets, we have retained western legal, accounting and geological consultants. Although we are in discussions regarding potential acquisitions, we are not currently a party to any agreement to acquire properties or rights with respect to oil or gas properties or production.

Results of Operations

Year ended December 31, 2007 compared to year ended December 31, 2006

We had no active operations during the year ended December 31, 2007 as a result of our disposition of the Galvan Ranch Wells and the rescission of our acquisition of Volga-Neft in October 2006. The results of our operations for the year ended December 31, 2006, which were primarily related to the operation of the Galvan Ranch Wells captured in the discontinued operations line item in our statements of consolidated operations, are not discussed since comparative financial analysis would not be meaningful.

As a result of the disposition and rescission we had no sales and a loss of $8,885,598 for the year ended December 31, 2007. This compares to a loss from continuing operations of $1,113,873 (including $650,000 of costs associated with the rescission of the Volga-Neft acquisition) and a loss of $56,138 related to the discontinued Galvan Ranch Wells operations, which resulted in an overall loss of $1,170,011 for the year ended December 31, 2006.

Our principal operating expenses for the 2007 reporting periods consisted of:

Salary and benefits costs were $1,684,011. Of this amount, $1,080,890 represents the amortized portion of compensation expense related to the issuance of shares to certain officers and directors. The compensation cost recognized for stock-based compensation pursuant to our stock option plan was $106,475. The balance of these costs, $496,646, was cash compensation and benefits for officers, directors and other employees.

Due diligence expenses of $1,564,134 were incurred for legal, seismic, and financial audit data for the potential acquisition targets.

Expiration of rights to contract for the purchase of oil and gas properties expenses were $1,392,500. These expenses reflect acquisition costs related to the rights to three oil and gas Projects in Ukraine. As these rights have expired, the costs associated with the expired rights have been completely written-off.

Professional fees were $1,305,221. These expenses primarily pertained to general legal and auditing services, including the preparation of our Annual Report on Form 10-KSB for the year ended December 31, 2006, the audit of our financial statements contained therein, as well as our Quarterly Reports on Form 10-QSB, other Securities and Exchange Commission related matters, our investigation of the disclaimed audit report of Volga-Neft and legal proceedings instituted by us.

Consulting fees were $1,072,289, of which $870,000 related to Volga-Neft and the remainder were incurred for general consulting services.

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Advertising and promotion expenses were $384,611. Of this amount advertising expenses represented $225,000, largely related to promotional activities subsequent to the acquisition of Volga-Neft, and investor and public relations costs were $134,092.

Office and general expenses of $249,312 were primarily incurred for Board of Directors fees of $83,000; insurance expenses of $39,348; office rent of $58,303; and telephone expense of $20,382.

Travel expenses of $139,487 stemmed primarily from trips to the Russian Federation with respect to Volga-Neft and visits to Ukraine for due diligence gathering for potential acquisitions, as well as establishment of an office in Kiev, that country’s capital.

Depreciation expense was $2,384 related to computer hardware, as well as office equipment, furniture and fixtures placed in service during the year ended December 31, 2007.

Interest income of $22,270, along with a gain on sale of marketable securities of $9,678, represented our only sources of income for the year ended December 31, 2007. These were derived from the investment of proceeds from our private placement in February 2007 of $7,500,000 of 8% Secured Convertible Debentures.

The foreign exchange loss of $1,369 resulted from the conversion of U.S. dollars to the currency of the Ukraine.

The Debenture interest expense of $1,120,928 for the year ended December 31, 2007 included amortization of deferred debt issuance costs and debt discount of $181,542 and $58,397, respectively. The Debenture interest expense also includes $344,322 incurred to obtain waivers from the debenture holders related to their entitlement to all accrued liquidated damages under the Registration Rights Agreement.

LIQUIDITY AND CAPITAL RESOURCES

In February 2007, we sold $7,500,000 principal amount of our 8% Secured Convertible Debentures to institutional investors for a total purchase price of $7,500,000 (the “Debenture Financing”). We paid Rodman & Renshaw LLC, placement agent for the Debenture Financing, $525,000 (7% of the gross proceeds from the sale of the Debentures), plus $25,000 in reimbursement of its expenses, under a placement agency agreement. An additional $58,900 was paid to an unaffiliated third party in shares of our common stock for its assistance in identifying potential institutional investors.

Of the net proceeds of the Debenture Financing of $6,950,000, we repaid a loan of $1,000,000 that we incurred in 2006, the proceeds of which were used to pay liabilities of Volga-Neft, and we advanced an additional $2,000,000 to Volga-Neft for capital expenditures. At the time of the rescission of our acquisition of Volga-Neft, we received, in addition to the return of the 10,000,000 shares of our common stock that we had issued in consideration for our acquisition, a $4,200,000 promissory note in full settlement of all monetary claims we may have had against Volga-Neft or its stockholders. We, in turn, sold the promissory note to a non-related third party on a non-recourse basis for $3,000,000.

During the year ended December 31, 2007, we used $5,756,477 for operating activities primarily to fund our net loss of $5,131,750 on a cash basis (net loss for financial reporting purposes of $8,885,598 less the following non-cash expenses: $1,392,500 related to the write-off of the rights to oil and gas Projects in Ukraine; $889,660 for the issuance of shares of our common stock for services; $1,187,365 for stock-based compensation; $181,542 of amortized debt issuance costs; $58,397 for amortization of debt discount; $42,000 for the issuance of common stock for the payment of late fees on the Debentures; and $2,384 of depreciation).

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Investing activities during the year ended December 31, 2007 provided net cash of $856,279 principally from our $3,000,000 collection of the sale of the note we received from Volga-Neft discussed above, substantially offset by office equipment purchases of $33,721, advances made to Volga-Neft of $2,000,000 prior to the rescission (which were repaid to us from the proceeds of the $3,000,000 note we received and sold), and the $110,000 cash portion of the consideration we paid for our acquisition of the right to contract for the purchase of interests in the oil and gas Projects in Ukraine.

Financing activities provided net cash of $5,947,215 during the year ended December 31, 2007, resulting from the Debenture Financing discussed above. We used $550,000 of the proceeds of this financing for debt issuance costs to the placement agent and $1,000,000 to repay the loan we incurred in 2006 to fund liabilities of Volga-Neft and which was repaid to us as part of the sale of the note we received from the stockholders of Volga-Neft and sold as discussed in “Investing Activities” above. We also spent $2,785 to repay a related party advance.

We intend to use our remaining available cash of $1,048,720 at December 31, 2007 to fund strategic initiatives and to pay certain accrued liabilities. We expect that these funds will be sufficient to sustain our operations for most of the first half of 2008. By that time, we will require additional capital, through the issuance of equity or debt, until we are able to achieve profitable operations. Although we plan to seek additional financing, there can be no assurance that we will be able to secure financing or, if so, on satisfactory terms.

Off-Balance Sheet Financing

The Company has no off-balance sheet financing arrangements, within the meaning of Item 303(c) of Securities and Exchange Commission Regulation S-B.

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ITEM 7

FINANCIAL STATEMENTS

STAR ENERGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2007 AND 2006

CONTENTS


Report of Independent Registered Public Accounting Firm		18

Consolidated Balance Sheets		19

Statements of Consolidated Operations and Comprehensive Loss		20

Statements of Consolidated Stockholders’ (Deficit) Equity		21

Statements of Consolidated Cash Flows		22

Notes to Consolidated Financial Statements		23-47

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

of Star Energy Corporation and Subsidiaries:

We have audited the accompanying consolidated balance sheets of Star Energy Corporation and Subsidiaries (a development stage company) (the “Company”) as of December 31, 2007 and 2006, and the related consolidated statements of operations and comprehensive loss, stockholders’ (deficit) equity and cash flows for the years ended December 31, 2007 and 2006, and the period from re-entering the development stage (October 6, 2006) through December 31, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. 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. We believe our audits provides a reasonable basis for our opinion.

In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2007 and 2006, and the results of its operations and its cash flows for the years ended December 31, 2007 and 2006 and the period from re-entering the development stage (October 6, 2006) through December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations and will require additional capital during fiscal 2008 to fund continuing operations. These items raise substantial doubt about the Company’s ability to continue as a going concern through December 31, 2008. Management’s plans in regards to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.


Toronto, Canada		“SF Partnership, LLP”
March 14, 2008		CHARTERED ACCOUNTANTS
(except note 20 which is April 9, 2008)

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STAR ENERGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Consolidated Balance Sheets

December 31, 2007 and 2006


				Restated
				(note 19)
	2007			2006
ASSETS
Current
Cash	$	1,048,720		$	1,703
Investment in Volga-Neft (note 5)		—			11,700,000
Loan receivable from Volga-Neft (note 6)		—			1,000,000
Prepaid expenses and other current assets		34,556			1,080,890

Total Current Assets		1,083,276			13,782,593
Equipment (note 8)		31,337			—
Debt Issuance Costs (note 9)		427,358			—

Total Assets	$	1,541,971		$	13,782,593

LIABILITIES
Current
Accounts payable	$	60,859		$	375,327
Accrued liabilities		389,297			665,000
Advance from related party (note 10)		—			2,785
Loan payable (note 11)		—			1,000,000

Total Current Liabilities		450,156			2,043,112
Convertible Debentures, Net of Discount (note 12)		7,358,179			—

Total Liabilities		7,808,335			2,043,112

Commitments and Contingencies (note 15)
STOCKHOLDERS’ (DEFICIT) EQUITY
Capital Stock (note 13)
Authorized
5,000,000 preferred stock, par value $0.001 per share
225,000,000 common stock, par value $0.001 per share
Issued and outstanding
33,865,500 common stock (2006 - 38,737,500)		33,866			38,738
Additional Paid-in Capital		3,794,690			12,910,065
Accumulated Deficit and Deficit Accumulated During the Development Stage		(10,094,920	)		(1,209,322	)

Total Stockholders’ (Deficit) Equity		(6,266,364	)		11,739,481

Star Energy Corporation - Recent Material Event

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