Attached files
| file | filename |
|---|---|
| EX-31.2 - EX312 - Dragon's Lair Holdings, Inc. | ex312.htm |
| EX-99.1 - EX991 - Dragon's Lair Holdings, Inc. | ex991.htm |
| EX-32.1 - EX321 - Dragon's Lair Holdings, Inc. | ex321.htm |
| EX-21.1 - EX211 - Dragon's Lair Holdings, Inc. | ex211.htm |
| EX-31.1 - EX311 - Dragon's Lair Holdings, Inc. | ex311.htm |
U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended: June
30, 2010
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from _________ to _________
Commission
File No. 000-52202
FOUR
STAR HOLDINGS, INC.
(Exact
name of small business issuer as specified in its charter)
|
Florida
|
26-1427633
|
|
(State
or other jurisdiction of incorporation Or organization)
|
(I.R.S.
Employer Identification No.)
|
100
Four Star Lane
Odenville,
Alabama 35120
(Address
of Principal Executive Offices)
(205) 640-3726
(Issuer’s
telephone number)
Check
whether the issuer (1) has filed all reports required to be filed by Section 13
or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90
days. Yes x No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer,” “non-accelerated filer,” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act.
Large
accelerated filer o Accelerated
filer
o
Non-accelerated
filer o
Smaller
reporting company x
APPLICABLE
ONLY TO CORPORATE ISSUERS:
State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of June 30, 2010: 22,234,228 shares of common
stock.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act): Yes x
No o
Transitional
Small Business Disclosure Format (Check One) Yes o No x
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Page
|
||
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PART
I – FINANCIAL INFORMATION
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||
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Item 1. Financial Statements.
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3
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15
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||
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18
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Item
4T. Controls and Procedures
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18
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PART
II – OTHER INFORMATION
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||
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Item 1. Legal Proceedings.
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20
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|
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Item
2.
Changes in Securities
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20
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|
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Item 3.
Defaults Upon Senior
Securities.
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20
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20
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Item 5. Other Information.
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20
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Item 6. Exhibits and Reports on Form 8-K.
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20
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21
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| EXHIBIT INDEX | 22 | |
PART
1
Item1. Financial Statements
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FOUR
STAR HOLDINGS, INC.
|
||||||||
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CONDENSED
CONSOLIDATED BALANCE SHEETS
|
||||||||
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ASSETS
|
||||||||
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June
30,
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December
31,
|
|||||||
|
2010
|
2009
|
|||||||
|
(Unaudited)
|
||||||||
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Cash
|
$
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26,258
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$
|
137
|
||||
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Accounts
receivable
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7,450
|
-
|
||||||
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Due
from related parties
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1,771,527
|
-
|
||||||
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Inventories:
|
402
|
|||||||
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Real
estate held for sale
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5,581,289
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-
|
||||||
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Land
held for development
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11,154,586
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-
|
||||||
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PP&E,
net of accumulated depreciation
|
905,960
|
345
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||||||
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License,
net
|
660
|
660
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||||||
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Loan
origination fees
|
43,701
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-
|
||||||
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Total
Assets
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$
|
19,491,431
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$
|
1,544
|
||||
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LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
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Accounts
payable & accrued expenses
|
$
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64,918
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$
|
7,000
|
||||
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Notes
payable
|
10,864,446
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-
|
||||||
|
Deferred
tax liability
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2,226,239
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-
|
||||||
|
Total
Liabilities
|
13,155,603
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7,000
|
||||||
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SHAREHOLDERS'
EQUITY:
|
||||||||
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Preferred
stock (50,000,000 authorized;
|
||||||||
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par
value $.001; none issued and outstanding)
|
-
|
-
|
||||||
|
Common
stock (100,000,000 shares authorized;
|
||||||||
|
no
par value; 22,234,228 and 8,001,078 issued and outstanding,
respectively)
|
6,557,204
|
88,587
|
||||||
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Accumulated
deficit
|
(221,376)
|
(94,043
|
)
|
|||||
|
Total
Shareholders' Equity (Deficit)
|
6,335,828
|
(5,456
|
)
|
|||||
|
Total
Liabilities and Shareholders' Equity
|
$
|
19,491,431
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$
|
1,544
|
||||
The
accompanying notes are an integral part of these financial
statements.
| FOUR STAR HOLDINGS, INC. | ||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
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June
30,
|
June
30,
|
June
30,
|
June
30,
|
|||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
Unaudited
|
Unaudited
|
|||||||||||||||
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Net
Sales
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$ | 132,984 | $ | - | $ | 132,984 | $ | - | ||||||||
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Cost
of Sales
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92,371 | - | 92,371 | - | ||||||||||||
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Gross
Profit
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40,613 | - | 40,613 | - | ||||||||||||
|
Expenses:
|
||||||||||||||||
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Amortization
|
2,813 | 60 | 2,813 | 120 | ||||||||||||
|
Depreciation
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2,596 | 25 | 2,596 | 50 | ||||||||||||
|
General
and Administrative
|
85,377 | 14,363 | 85,377 | 31,793 | ||||||||||||
|
Total
|
90,786 | 14,448 | 90,786 | 31,963 | ||||||||||||
|
Loss
before other income (expense):
|
(50,173 | ) | (14,448 | ) | (50,173 | ) | (31,963 | ) | ||||||||
|
Other
income
|
8,872 | - | 8,872 | - | ||||||||||||
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Interest
expense
|
(86,032 | ) | - | (86,032 | ) | - | ||||||||||
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Total
other income (expense), net
|
(77,160 | ) | - | (77,160 | ) | - | ||||||||||
|
Net
(loss) before Income Taxes
|
(127,333 | ) | (14,448 | ) | (127,333 | ) | (31,963 | ) | ||||||||
|
Provision
for Income Taxes
|
- | - | - | - | ||||||||||||
|
Net
loss
|
$ | (127,333 | ) | (14,448 | ) | (127,333 | ) | (31,963 | ) | |||||||
|
Basic
and diluted net loss per common share
|
$ | (0.01 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.00 | ) | ||||
|
Weighted
average number of common shares outstanding
|
17,386,048 | 8,001,078 | 17,386,048 | 8,001,078 | ||||||||||||
The
accompanying notes are an integral part of these financial
statements.
|
FOUR
STAR HOLDINGS, INC.
|
||||||||
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||||
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For
the six months ended
|
For
the six months ended
|
|||||||
|
June
30,
|
June
30,
|
|||||||
|
2010
|
2009
|
|||||||
|
Unaudited
|
||||||||
|
OPERATING
ACTIVITIES:
|
||||||||
|
Net
loss
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$ | (127,333 | ) | $ | (31,963 | ) | ||
|
Adjustments
to reconcile net income to net cash
|
||||||||
|
used
in operating activities:
|
||||||||
|
Increase
in amortization
|
2,813 | 120 | ||||||
|
Increase
in depreciation
|
2,596 | 50 | ||||||
|
Changes
in operating assets and operating liabilities:
|
||||||||
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Due
from related parties
|
(311,222 | ) | - | |||||
|
Changes in
inventory
|
(12,702 | ) | - | |||||
|
Accounts
payable and accrued expenses
|
(1,901 | ) | (5,251 | ) | ||||
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Net
cash used in operating activities
|
(447,749 | ) | (33,198 | ) | ||||
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FINANCING
ACTIVITIES:
|
||||||||
|
Cash
proceeds notes payable
|
400,000 | - | ||||||
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Notes
payable-related parties
|
73.870 | - | ||||||
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Net
cash provided by financing activities
|
473,870 | - | ||||||
|
NET
INCREASE (DECREASE) IN CASH
|
26,121 | (33,198 | ) | |||||
|
CASH
BEGINNING BALANCE
|
137 | 66.614 | ||||||
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CASH
ENDING BALANCE
|
$ | 26,258 | $ | 33,416 | ||||
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SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
||||||||
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Taxes
paid
|
$ | - | $ | - | ||||
|
Interest
paid
|
$ | 86,032 | $ | - | ||||
The
accompanying notes are an integral part of these financial
statements.
FOUR
STAR HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June
30, 2010
NOTE
1 – BASIS OF PRESENTATION
The
accompanying unaudited interim financial statements have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission for the presentation of interim financial information, and include
all the information and footnotes required by generally accepted accounting
principles for complete financial statements. The audited financial
statements for the period December 31, 2009 and the year then ended were filed
on February 5, 2010 with the Securities and Exchange Commission are hereby
referenced. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six month period ended June
30, 2010 are not necessarily indicative of the results that may be expected for
the year ended December 31, 2010.
NOTE
2 - DESCRIPTION OF BUSINESS
Description
of Business
Dragon’s
Lair Holdings, Inc., a Florida corporation, was incorporated on October 4, 2007,
and conducts its operations through its operating subsidiaries. Our Company was
a provider of personal care products by means of a network of direct sales
consultants. Our business strategy was to provide quality products,
operate at a profit, and enable our direct sales consultants to operate at a
profit.
On
December 14, 2009, Bobby Smith, Jr., (100% owner of Four Star Investment, Inc.),
and Frances Mize (a single person) together consummated the purchase of
5,928,235 shares of common stock of Dragon’s Lair Holdings, Inc. from Talles
Investments, Inc., Michel Lemoine, Yamit Lemoine, H. Bradley Ress, Steve
Kravitz, Joseph R. Pierre-Louis, and Island Capital Management, LLC, which
constituted 74.1 percent (74.1%) of the issued and outstanding shares of common
stock of Dragon’s Lair Holdings, Inc., for an aggregate cash purchase price in
the amount of $325,000. The source of the funds for the purchase
price for the shares of common stock of the Company was from Four Star
Investments, Inc., an Alabama corporation, which is wholly owned by Bobby Smith,
Jr. As a result of the transactions, (i) Bobby R. Smith, Jr. owns
individually 43.7 percent (43.7%) of the issued and outstanding common stock of
the Company and has the sole power to vote and dispose of the such shares (ii)
Frances Mize owns individually 30.4 percent (30.4%) of the issued and
outstanding common stock of Dragon’s Lair Holdings, Inc. and has the sole power
to vote and dispose of the such shares.
On
February 10, 2010, Dragon’s Lair Holdings, Inc. changed its name to Four Star
Holdings, Inc., (hereinafter known as the “Company”). The Company is a real
estate acquisition and development entity that invests in companies that operate
as real estate developers and home builders in order to (i) maximize cash flows,
(ii) create value within the organizations and (iii) eventually sell at a
profit.
Twelve
Oaks Properties, Inc., an Alabama corporation, incorporated and organized on
July 11, 2007, was acquired on June 30, 2010 by the Company. As of
June 30, 2010, the company structure is set forth in the following
chart:
|
FOUR
STAR HOLDINGS, INC.
a
Florida corporation
|
|
RIDGEFIELD
DEVELOPMENT CORPORATION
An
Alabama corporation
(100%
Owned Subsidiary)
|
|
FOUR
STAR REALTY, LLC
An
Alabama limited liability company
(100%
Owned Subsidiary)
|
|
TWELVE
OAKS PROPERTIES, INC.
An
Alabama limited liability company
(100%
Owned Subsidiary)
|
Our
principal executive office is located at 100 Four Star Lane, Odenville,
AL 35120. Our telephone number is (205)-640-7821, and our
company website is www.4StarHoldings.com. Our
fiscal year ends on December 31st.
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared by the
Company. The Company’s consolidated financial statements are prepared in
accordance with generally accepted accounting principles in the United States of
America (“US GAAP”). The consolidated financial statements of the Company
include the Company and its subsidiaries. All material inter-company balances
and transactions have been eliminated.
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash
and Cash Equivalents
The
Company considers all highly liquid debt instruments with original maturities of
three months or less to be cash equivalents. As of June 30, 2010, the Company
has no cash equivalents.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Inventories
Inventories
are stated at cost unless the inventory within a community is determined to be
impaired, in which case the impaired inventory is written down to fair value.
Inventory costs include land, land development and home construction costs, real
estate taxes, deposits on land, purchase contracts, and interest related to
development and construction. Construction overhead and selling expenses are
expensed as incurred. Real estate held-for-sale is classified as inventories
until delivered. Land, land development, amenities and other costs are
accumulated by specific area and allocated to homes within the respective areas.
The Company reviews its inventory for indicators of impairment by evaluating
each community during each reporting period. The inventory within each community
is categorized as real estate held-for-sale or land held for development based
on the development state within respective phases.
Revenue
Recognition
Revenues
from fixed-price contracts are recognized on the completed contract method. This
method is used because the typical contract is completed in three months or
less, and financial position and results of operations do not vary significantly
from those that would result from use of the percentage-of-completion method. A
contract is considered complete when all costs except insignificant items have
been incurred and the installation is operating according to specifications or
has been accepted by the customer.
Contract
costs include all direct material and labor costs and those indirect costs
related to contract performance, such as indirect labor, supplies, tools,
repairs, and depreciation costs. General and administrative costs are charged to
expense as incurred. Provisions for estimated losses on uncompleted contracts
are made in the period in which such losses are determined.
All other
revenue, including timber, commissions, and rental, are recognized when
persuasive evidence of an arrangement exists, the sale is complete, the price is
fixed or determinable and collectability is reasonably assured.
Earnings
(Loss) Per Share
The
Company computes earnings per share in accordance with the Accounting Standards
Codification (“ASC”) 260 “Earnings Per Share” which was previously Statement of
Accounting Standards No. 128, “Earnings per Share” (“SFAS No. 128”). Under
the provisions of SFAS No. 128, basic earnings per share is computed by dividing
the net income (loss) for the period by the weighted average number of common
shares outstanding during the period. Diluted earnings per share is computed by
dividing the net income (loss) for the period by the weighted average number of
common and potentially dilutive common shares outstanding during the
period. There were no potentially dilutive common shares outstanding
during the period.
Income
Taxes
The
Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, “Accounting for Income Taxes.” Under the asset and
liability method of Statement 109, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates in effect for the year in which those
temporary differences are expected to be recovered or settled.
Fair
Value of Financial Instruments
The
Company adopted the Financial Accounting Standards Board Fair Value
Measurements, as it applies to its financial statements. This
standard defines fair value, outlines a framework for measuring fair value, and
details the required disclosures about fair value measurements.
Fair
value is defined as the price that would be received to sell an asset, or paid
to transfer a liability, in an orderly transaction between market participants
at the measurement date in the principal or most advantageous
market. The standard establishes a hierarchy in determining the fair
value of an asset or liability. The fair value hierarchy has three
levels of inputs, both observable and unobservable. The standard
requires the utilization of the lowest possible level of input to determine fair
value. Level 1 inputs include quoted market prices in an active
market for identical assets or liabilities. Level 2 inputs are market
data, other than Level 1, that are observable either directly or
indirectly. Level 2 inputs include quoted market prices for similar
assets or liabilities, quoted market prices in an inactive market, and other
observable information that can be corroborated by market data. Level
3 inputs are unobservable and corroborated by little or no market
data.
The
carrying value of current assets and liabilities approximates fair value due to
the short period of time to maturity. The carrying amount of loan payable to
stockholders approximates their fair value, using Level Three inputs, as the
current interest rate on said instruments approximates current market rates on
similar instruments.
Share
Based Payments
In
December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment,” which
replaces SFAS No. 123 and supersedes APB Opinion No. 25. Under SFAS No. 123(R),
companies are required to measure the compensation costs of share-based
compensation arrangements based on the grant-date fair value and recognize the
costs in the financial statements over the period during which employees or
independent contractors are required to provide services. Share-based
compensation arrangements include stock options and warrants, restricted share
plans, performance-based awards, share appreciation rights and employee share
purchase plans. In March 2005, the SEC issued Staff Accounting Bulletin No. 107,
or “SAB 107”. SAB 107 expresses views of the staff regarding the interaction
between SFAS No. 123(R) and certain SEC rules and regulations and provides the
staff's views regarding the valuation of share-based payment arrangements for
public companies. SFAS No. 123(R) permits public companies to adopt its
requirements using one of two methods. On April 14, 2005, the SEC adopted a new
rule amending the compliance dates for SFAS 123(R). Companies may elect to apply
this statement either prospectively, or on a modified version of retrospective
application under which financial statements for prior periods are adjusted on a
basis consistent with the pro forma disclosures required for those periods under
SFAS 123.
Effective
commencing on the year ended December 31, 2007, the Company has fully adopted
the provisions of SFAS No. 123(R) and related interpretations as provided by SAB
107. As such, compensation cost is measured on the date of grant as the fair
value of the share-based payments. Such compensation amounts, if any, are
amortized over the respective vesting periods of the option grant.
Recent
Accounting Pronouncements
FASB
Accounting Standards Codification
(Accounting
Standards Update (“ASU”) 2009-01)
In
June 2009, FASB approved the FASB Accounting Standards Codification (“the
Codification”) as the single source of authoritative nongovernmental GAAP. All
existing accounting standard documents, such as FASB, American Institute of
Certified Public Accountants, Emerging Issues Task Force and other related
literature, excluding guidance from the Securities and Exchange Commission
(“SEC”), have been superseded by the Codification. All other non-grandfathered,
non-SEC accounting literature not included in the Codification has become
non-authoritative. The Codification did not change GAAP, but instead introduced
a new structure that combines all authoritative standards into a comprehensive,
topically organized online database. The Codification is effective for interim
or annual periods ending after March 15, 2009, and impacts the Company’s
financial statements as all future references to authoritative accounting
literature will be referenced in accordance with the Codification. There have
been no changes to the content of the Company’s financial statements or
disclosures as a result of implementing the Codification during the quarter
ended June 30, 2010. As a result of the Company’s
implementation of the Codification during the quarter ended June 30, 2010,
previous references to new accounting standards and literature are no longer
applicable. In the current quarter financial statements, the Company will
provide reference to both new and old guidance to assist in understanding the
impacts of recently adopted accounting literature, particularly for guidance
adopted since the beginning of the current fiscal year but prior to the
Codification.
In
June 2009, the FASB revised the authoritative guidance for consolidating
variable interest entities, which changes how a company determines when an
entity that is insufficiently capitalized or is not controlled through voting
(or similar rights) should be consolidated. The determination of whether a
company is required to consolidate an entity is based on, among other things, an
entity’s purpose and design and a company’s ability to direct the activities of
the entity that most significantly impact the entity’s economic performance. The
Company is currently evaluating the impact the adoption of this guidance will
have on its consolidated financial statements.
In
January 2010, the FASB issued ASU 2010-06, “Improving Disclosures about
Fair Value Measurements,” which requires additional disclosures about transfers
between Levels 1 and 2 of the fair value hierarchy and disclosures about
purchases, sales, issuances and settlements in the roll forward of activity in
Level 3 fair value measurements. This guidance was effective for the Company in
the current quarter, except for the Level 3 activity disclosures, which are
effective for fiscal years beginning after December 15, 2010. The adoption
of this guidance, which is related to disclosure only, will not have a material
impact on the Company’s consolidated financial position, results of operations
or cash flows.
Subsequent
Events
(Included
in Accounting Standards Codification (“ASC”) 855 “Subsequent Events”, previously
SFAS No. 165 “Subsequent Events”)
SFAS
No. 165 established general standards of accounting for and disclosure of
events that occur after the balance sheet date, but before the financial
statements are issued or available to be issued (“subsequent events”). An entity
is required to disclose the date through which subsequent events have been
evaluated and the basis for that date. For public entities, this is the date the
financial statements are issued. SFAS No. 165 does not apply to subsequent
events or transactions that are within the scope of other GAAP and did not
result in significant changes in the subsequent events reported by the Company.
SFAS No. 165 became effective for interim or annual periods ending after
June 15, 2009 and did not impact the Company’s financial statements. The
Company evaluated for subsequent events through the issuance date of the
Company’s financial statements. No recognized or non-recognized subsequent
events were noted.
Loss
Contingencies
See
Section II Part 1 titled Legal Proceedings in reference to the Company as a
defendant in a case entitled Cirrus Acquisition and Development Corporation vs.
the Company, which is in the United States District Court in the Northern
District of Alabama. The case arose from claims by Richard Woods, a former
consultant, who claims that the Company owes the Plaintiff stock and cash. The
suit seeks damages totaling $10,000,000. The Company believes that the claims
are without merit and intends to vigorously defend its position. The ultimate
outcome of this litigation cannot presently be determined. However, in
management’s opinion, the likelihood of a material adverse outcome is remote.
Accordingly, adjustments, if any, that might result from the resolution of this
matter have not been reflected in the financial statements.
Determination
of the Useful Life of Intangible Assets
(Included
in ASC 350 “Intangibles – Goodwill and Other”, previously FSP SFAS No. 142-3
“Determination of the Useful Lives of Intangible Assets”)
FSP SFAS
No. 142-3 amended the factors that should be considered in developing
renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under previously issued goodwill and intangible
assets topics. This change was intended to improve the consistency between the
useful life of a recognized intangible asset and the period of expected cash
flows used to measure the fair value of the asset under topics related to
business combinations and other GAAP. The requirement for determining useful
lives must be applied prospectively to intangible assets acquired after the
effective date and the disclosure requirements must be applied prospectively to
all intangible assets recognized as of, and subsequent to, the effective date.
FSP SFAS No. 142-3 became effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. The adoption of FSP SFAS No. 142-3 did not impact the
Company’s financial statements.
Non-controlling
Interests
(Included
in ASC 810 “Consolidation”, previously SFAS No. 160 “Non-controlling Interests
in Consolidated Financial Statements an amendment of ARB No. 51”)
SFAS
No. 160 changed the accounting and reporting for minority interests such
that they will be recharacterized as non-controlling interests and classified as
a component of equity. SFAS No. 160 became effective for fiscal years
beginning after December 15, 2008 with early application prohibited. The
Company implemented SFAS No. 160 at the start of fiscal 2009 and no longer
records an intangible asset when the purchase price of a non-controlling
interest exceeds the book value at the time of buyout. Any shortfall resulting
from the early buyout of non-controlling interests will continue to be
recognized as a benefit in partner investment expense up to the initial amount
recognized at the time of buy-in. Additionally, operating losses can be
allocated to non-controlling interests even when such allocation results in a
deficit balance (i.e., book value can go
negative). Minority interest expense is no longer separately reported
as a reduction to net income on the consolidated income statement, but is
instead shown below net income under the heading “net income attributable to
non-controlling interests.” The adoption of SFAS No. 160 did not have any
other material impact on the Company’s financial statements.
NOTE
4 - EQUITY TRANSACTIONS
On
October 4, 2007 (inception), Dragon’s Lair Holdings issued 975,000 shares of
common stock for the purchase of the license to manufacture, distribute and
sell, the Sore-Eez Chinese herbal liniment, its initial product, from Yamit
Lemoine. The value of the license was determined to be the legal
costs to create the license, which was $1,200, as there were no other
out-of-pocket costs for the license or the development of the
recipe.
On
November 4, 2007, Dragon’s Lair Holdings, Inc. issued 5,000,000 shares of common
stock to an investor for cash in the amount of $11,100.
On
December 31, 2007, Dragon’s Lair Holdings, Inc. issued 63,278 shares of common
stock to an investor for cash in the amount of $633.
On March
27, 2008, Dragon’s Lair Holdings, Inc. issued 100,000 shares of common stock to
directors for services rendered at a value of $4,008.
On
December 11, 2008, Dragon’s Lair Holdings, Inc. completed its public offering
pursuant to its Form S-1 Registration Statement of 6,780 shares of Series A
Convertible Preferred Stock, which were converted into 1,762,800 shares of
common stock and provided aggregate offering proceeds in the amount of
$67,800.
On April
1, 2009, Dragon’s Lair Holdings, Inc. issued 100,000 shares of common stock to
its transfer agent for services rendered at a value of $3,846.
On
December 14, 2009, Bobby Smith Jr. and Frances T. Mize purchased 74.1% of the
issued and outstanding stock of Dragon’s Lair holdings, Inc. exchanging
beneficial ownership to these persons.
On
February 10, 2010, the Company issued 2,075,000 restricted shares for consultant
services.
On
February 10, 2010, the Company issued an aggregate of 12,000,000 shares of
common stock of the Company, of which six (6) million were issued to each of
Frances Mize and Bobby R. Smith, Jr. to cover extraordinary expenses incurred
and paid on behalf of the Company and for future and probable
acquisitions.
On
February 10, 2010, the Company executed an agreement to issue an aggregate of
200,000 shares of common stock to Joseph L. Pittera, attorney for the Company,
for services rendered. As of June 30, 2010, the shares have not been
issued.
On March
15, 2010, the Company issued 158,150 restricted shares for IT consulting
services.
NOTE
5 - CONCENTRATION OF CREDIT RISK
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist principally of cash deposits. Accounts at each institution are
insured by the Federal Deposit Insurance Corporation (“FDIC”). At June 30, 2010,
the Company had no amounts in excess of the FDIC insured limit.
NOTE
6 – BUSINESS COMBINATION
On June
30, 2010, the Company acquired 100% of the outstanding common shares of Twelve
Oaks Properties, Inc., (“Twelve Oaks”) from Twelve Oaks’ former majority
shareholders (the “Shareholders”). Twelve Oaks is a real estate development
company in Odenville, Alabama, and the acquisition is expected to increase the
Company’s brand awareness and market share in the area. The business combination
was a tax-free reorganization under Section 368(a) of the Internal Revenue
Code.
Consideration
paid by the Company included the issuance of 676,877 shares of Company common
stock. The fair value of $2,023,862 for the 676,877 shares issued by Company as
consideration paid for Twelve Oaks was determined on the basis of the closing
market price of Company’s common shares on the acquisition date.
The
transaction was accounted for using the acquisition method required by Topic
805, Business
Combinations. The assignment of the total consideration as of the date of
the acquisition is as follows:
|
Inventories
|
$ | 6,875,000 | ||
|
Equipment
|
15,237 | |||
|
Other
assets
|
542,835 | |||
|
Accounts
payable and accrued expenses
|
(15,030 | ) | ||
|
Deferred
income tax liability
|
(840,000 | ) | ||
|
Notes
payable
|
(4,554,180 | ) | ||
|
Total
fair value
|
$ | 2,023,862 |
Fair
valuation methods used for the identifiable net assets acquired in that
acquisition make use of quoted prices in active markets and discounted cash
flows using current interest rates.
Seasonality
Historically,
the homebuilding industry has experienced seasonal fluctuations; therefore, the
operating results for the period ended June 30, 2010 is not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 2010.
NOTE-
7 OPERATING LEASE AGREEMENT
The
Company’s subsidiary, Four Star Realty, LLC, has executed an operating lease for
its offices. The following is a schedule by years of future
minimum rental payments required under operating leases that have
initial or remaining noncancelable lease terms in excess of one year
as of June 30, 2010:
Year
ending December 31,:
|
2010
|
$ | 24,000 |
|
2011
|
$ | 24,000 |
|
2012
|
$ | 24,000 |
|
2013
|
$ | 24,000 |
|
2014
|
$ | 24,000 |
NOTE
8 - PROPERTY PLANT & EQUIPMENT
Amounts
and expected lives of property plant & equipment are as
follows:
|
Amounts
|
Expected
useful lives
|
||||
|
Real
estate buildings
|
$ | 847,403 |
39
years
|
||
|
Equipment
|
64,102 |
7
years
|
|||
|
Land
|
50,000 | ||||
|
Total
land and depreciable PP&E
|
961,505 | ||||
|
Less:
Accumulated depreciation
|
(55,545 | ) | |||
|
Net
land and depreciable PP&E
|
905,960 | ||||
|
Total
net PP&E
|
$ | 905,960 | |||
NOTE
9- LAND HELD FOR DEVELOPEMENT AND REAL ESTATE HELD FOR SALE
Land
acquisition costs are capitalized as “Land Held for Development”. Project costs
that are clearly associated with the development and construction of a real
estate project are capitalized as a cost of that project. Costs are allocated to
individual projects by the specific identification method. Interest costs are
capitalized while development is in progress. When a project is completed it is
reclassified as “Real Estate Held for Sale” until it is sold. Once a project is
sold, the capitalized costs are reclassified as “Cost of Sales” to offset real
estate sales in the Statement of Operations.
NOTE
10- RELATED PARTY TRANSACTIONS
Several
of the Company’s officers and directors, or their affiliates, have from time to
time extended loans to the Company or agreed to defer compensation payable to
them in order to fund the Company’s operating expenses. As of June 30, 2010 and
December 31, 2009, related party loans were outstanding. Initial operations
for Twelve Oaks Properties were funded by an affiliated company, Ridgefield
Development Corporation, a related party controlled by the Company’s president.
The Company was unable to obtain necessary funds for operations from financial
institutions due to lack of established credit. The funds were available from
Ridgefield Development and were transferred to the Company for expenses as
incurred. There is no written agreement between the two entities and no imputed
interest.
NOTE
11- NOTES PAYABLE
The
company has a revolving line of credit with Union State Bank for $5,500,000. The
line of credit was renewed in August 2009. Borrowings under the line of credit
bear interest at a fixed rate of 8.25% per anum. The outstanding balance on the
line of credit was $5,435,945 at June 30, 2010. The line of credit is personally
guaranteed by the shareholders.
The
company has a revolving line of credit with Covenant Bank for $300,000.
Borrowings under this line of credit bear interest at a fixed rate of 6.00% per
anum. This line of credit is renewable on July 30, 2011. The outstanding balance
on the line of credit was $299,717 at June 30, 2010. The line of credit is
personally guaranteed by the shareholders.
The
Company has a note payable with South City Bank for $400,000. This note bears
interest at fixed rate of 6.5% per annum. The note is renewable on
July 11, 2011 The note is personally guaranteed by the
shareholders.
The
Company has a note payable to Twelve Oaks Improvement District in the amount of
$2,661,095. This note bears an interest rate of 7.80% and is payable
semi-annually until maturity at May 1, 2038. The expenses in connection with
this note are for qualified expenses that are approved by an engineering firm.
Once approved, the company is reimbursed for said expenditures in accordance
with a limited offering memorandum dated July 31, 2008.
The
Company has executed notes payable to related parties in the amount of
$2,316,711. The notes carry an interest rate of 5% and are due August 15,
2012.
Item 2. Management’s Discussion and Analysis of
Financial Conditions and Results of Operations
The
following discussion and analysis should be read in conjunction with our
consolidated financial statements, including the notes thereto, appearing in
this Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2009 filed on February 17, 2010 with the Securities and Exchange
Commission and are hereby referenced.
The
statements in this report include forward-looking statements. These
forward-looking statements are based on our management’s current expectations
and beliefs and involve numerous risks and uncertainties that could cause actual
results to differ materially from expectations. You should not rely
upon these forward-looking statements as predictions of future events because we
cannot assure you that the events or circumstances reflected in these statements
will be achieved or will occur. You can identify a forward-looking
statement by the use of the forward-terminology, including words such as “may”,
“will”, “believes”, “anticipates”, “estimates”, “expects”, “continues”,
“should”, “seeks”, “intends”, “plans”, and/or words of similar import, or the
negative of these words and phrases or other variations of these words and
phrases or comparable terminology. These forward-looking statements
relate to, among other things: our sales, results of operations and anticipated
cash flows; capital expenditures; depreciation and amortization expenses; sales,
general and administrative expenses; our ability to maintain and develop
relationship with our existing and potential future customers; and,
our ability to maintain a level of investment that is required to remain
competitive. Many factors could cause our actual results to differ
materially from those projected in these forward-looking statements, including,
but not limited to: variability of our revenues and financial performance; risks
associated with technological changes; the acceptance of our products in the
marketplace by existing and potential customers; disruption of operations or
increases in expenses due to our involvement with litigation or caused by civil
or political unrest or other catastrophic events; general economic conditions,
government mandates and conditions in the gaming/entertainment industry in
particular; and, the continued employment of our key personnel and other risks
associated with competition.
For a
discussion of the factors that could cause actual results to differ materially
from the forward-looking statements see the “Liquidity and Capital Resources”
section under “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in this item of this report and the other risks and
uncertainties that are set forth elsewhere in this report or detailed in our
other Securities and Exchange Commission reports and filings. We
believe it is important to communicate our expectations. However, our management
disclaims any obligation to update any forward-looking statements whether as a
result of new information, future events or otherwise.
Overview
The
Company is a real estate acquisition and development entity that invests in
companies that operate as real estate developers and home builders in order to
(i) maximize cash flows, (ii) create value within the organizations and (iii)
eventually sell at a profit.
Critical
Accounting Policies
Our
financial statements and accompanying notes have been prepared in accordance
with United States generally accepted accounting principles applied on a
consistent basis. The preparation of financial statements requires
management to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues, expenses and related disclosures. On an
on-going basis, management evaluates these estimates and assumptions, including
but not limited to those related to revenue recognition and the impairment of
long-lived assets, goodwill and other intangible assets. Management bases
its estimates on historical experience and various other assumptions that it
believes to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions.
Stock
Compensation
The
Company adopted SFAS No. 123R, Share-Based
Payment (“SFAS 123R”), which requires all stock-based payments
to employees, including grants of employee stock options, to be recognized in
the financial statements based on their fair values. The Company
accounts for stock-based compensation arrangements with nonemployees in
accordance with the Emerging Issues Task Force Abstract No. 96-18, Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling Goods or Services. The Company records the
expense of such services to employees and non employees based on the estimated
fair value of the equity instrument using the Black-Scholes pricing
model.
Revenue
Recognition
The
Company recognizes revenue on arrangements in accordance with Securities and
Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition
in Financial Statements’ and No. 104, “Revenue Recognition”. In all cases,
revenue is recognized only when the price is fixed or determinable, persuasive
evidence of an arrangement exists, the service is performed and collectability
of the resulting receivable is reasonably assured.
Product
sales and shipping revenues, net of promotional discounts, rebates, and return
allowances, are recorded when the products are shipped and title passes to
customers. Retail sales to customers are made pursuant to a sales contract that
provides for transfer of both title and risk of loss upon our delivery to the
carrier. Return allowances, which reduce product revenue, are estimated using
historical experience. Revenue from product sales and services rendered is
recorded net of sales taxes. Amounts received in advance for subscription
services, are deferred and recognized as revenue over the subscription
term.
Outlook
The most
important metric by which we judge the Company’s performance now and in the near
term is sales growth. Our current commitment to develop and build residential
and commercial real estate communities is directly affected by current economic
conditions. We do not expect our operations to decline meaningfully in the near
future. Since investors are certain to be the primary, near term source of
liquidity to support our development and marketing efforts, our liquidity will
be driven by our ability to attract repeat investments from current shareholders
and to find new ones. This in turn may be materially impacted by the general
investment climate.
Our
primary marketing challenge for the coming 12 months is to achieve greater
market awareness through hiring new marketing consultants. Our
primary developmental and operational challenge is to increase the amount of
homes we can build and sell and our commitment to succeed through tough economic
times.
Revenues
As our
revenues increase, we plan to continue to invest in marketing and sales by
increasing the number of direct real estate sales consultants and management
personnel, expand our selling and marketing activities, building brand awareness
and sponsoring additional marketing events. We expect that in the future,
marketing and sales expenses will increase in absolute dollars. We do not expect
our revenues to increase significantly until 2011.
General
and Administrative Expenses
We expect
that general and administrative expenses associated with executive compensation
will increase in the future. Although our current chief executive,
president, secretary and treasurer have currently foregone full salary payments,
we anticipate retroactive and current compensation during the 2010. In
addition, we believe in the 2011 fiscal year that the compensation packages
required to attract the senior executives the Company requires to execute
against its business plan will increase our total general and administrative
expenses.
Summary
of Consolidated Condensed Results of Operations
Any
measurement and comparison of revenues and expenses from continuing operations
should not be considered necessarily indicative or interpolated as the trend to
forecast our future revenues and results of operations.
Results
for the Six Months Ended June 30, 2010 Compared to June 30, 2009
Revenues. The Company’s
revenues for the six months ended June 30, 2010 were $132,984. The Company’s
revenues for the six months ended June 30, 2009 were $0. No revenues
occurred during these periods, because no there were no product
sales.
Cost of
Revenues. The Company’s cost of revenues for the six months
ended June 30, 2010 were $92,371. The Company’s cost of revenues for the six
months ended June 30, 2009 were $0. There was not cost of revenues,
because no product sales were made by the Company.
Gross Profit/Loss. The
Company’s gross profit/loss for the six months ended June 30, 2010 was $40,613.
The Company’s gross profit/loss for the six months ended June 30, 2009 was
$0. No gross profit/loss occurred during these periods, because no
there were no product sales.
General and Administrative
Expenses. General and administrative expenses for the six months ended
June 30, 2010 were $85,377 compared to $31,793 for the six months ended June 30,
2009. General and administrative expenses consisted primarily of
professional service fees associated with the Company’s acquisitions of its
subsidiaries.
Net Loss. Net loss for the
six months ended June 30, 2010 was $127,333 as compared to $31,963 for the six
months ended June 30, 2009. The net loss for the six months ended
June 30, 2010 and June 30, 2009 was primarily related to increased general and
administrative expenses in connection with the acquisitions of its
subsidiaries.
As of six
months ended June 30, 2010, our Shareholders’ Equity was
$6,335,828.
Results
for the Quarter Ended June 30, 2010 Compared to June 30, 2009
Revenues. The Company’s
revenues for the three months ended June 30, 2010 were $132,984. The Company’s
revenues for the three months ended June 30, 2009 were $0. No
revenues occurred during these periods, because no there were no product
sales.
Cost of
Revenues. The Company’s cost of revenues for the three months
ended June 30, 2010 were $92,371. The Company’s cost of revenues for the three
months ended June 30, 2009 were $0. There was not cost of revenues,
because no product sales were made by the Company.
Gross Profit/Loss. The
Company’s gross profit/loss for the three months ended June 30, 2010 was
$40,613. The Company’s gross profit/loss for the three months ended June 30,
2009 was $0. No gross profit/loss occurred during these periods,
because no there were no product sales.
General and Administrative
Expenses. General and administrative expenses for the three months ended
June 30, 2010 were $85,377 compared to $14,363 for the three months ended June
30, 2009. General and administrative expenses consisted primarily of
professional service fees associated with the Company’s acquisitions of its
subsidiaries.
Net Loss. Net loss for the
three months ended June 30, 2010 was $127,333 as compared to $14,448 for the
three months ended June 30, 2009. The net loss for the six months
ended June 30, 2010 and June 30, 2009 was primarily related to increased general
and administrative expenses in connection with the acquisitions of its
subsidiaries.
Off-Balance
Sheet Arrangements
The
Company has no off-balance sheet arrangements.
Liquidity
and Capital Resource
The
company will rely upon
the issuance of common stock and additional capital contributions from
shareholders to fund administrative expenses
pending full implementation of the Company’s business model.
Critical
Accounting Policies
Four Star
Holding’s financial statements and related public financial information are
based on the application of accounting principles generally accepted in the
United States (“GAAP”). GAAP requires the use of estimates; assumptions,
judgments and subjective interpretations of accounting principles that have an
impact on the assets, liabilities, revenue and expense amounts reported. These
estimates can also affect supplemental information contained in our external
disclosures including information regarding contingencies, risk and financial
condition. We believe our use if estimates and underlying accounting
assumptions adhere to GAAP and are consistently and conservatively applied. We
base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances. Actual results may
differ materially from these estimates under different assumptions or
conditions. We continue to monitor significant estimates made during the
preparation of our financial statements.
Item 3. Quantitative and Qualitative
Disclosures About Market Risk
Not
Applicable.
Item 4T. Evaluation of Disclosure
Controls and Procedures
As of the
end of the period covered by this report, the Company carried out, under the
supervision and with the participation of the Company’s management, including
its Chief Executive Officer and Chief Financial Officer, an evaluation of the
effectiveness of the design and operation of the Company’s disclosure controls
and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) in ensuring that information required to be disclosed by
the Company in its reports is recorded, processed, summarized and reported
within the required time periods. In carrying out that evaluation,
management identified a material weakness (as defined in Public Company
Accounting Oversight Board Standard No. 2) in our internal control over
financial reporting.
The
material weakness identified by Management consisted of inadequate staffing and
supervision within the bookkeeping and accounting operations of our
company. The relatively small number of employees who have
bookkeeping and accounting functions prevents us from segregating duties within
our internal control system. The inadequate segregation of duties is
a weakness because it could lead to the untimely identification and resolution
of accounting and disclosure matters or could lead to a failure to perform
timely and effective reviews. However, as there has been no instance
in which the company failed to identify or resolve a disclosure matter or failed
to perform a timely and effective review, management determined that the
addition of personnel to our bookkeeping and accounting operations is not an
efficient use of our resources at this time.
Accordingly,
based on their evaluation of our disclosure controls and procedures as of June
30, 2010, the Company’s Chief Executive Officer and its Chief Financial Officer
have concluded that, as of that date, the Company’s controls and procedures were
not effective for the purposes described above.
(b) Changes in internal
controls.
There
have not been any changes in the Company’s internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the quarter ended June 30, 2010 that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
PART
II - OTHER INFORMATION
Item 1. Legal Proceedings.
The
Company is party to a lawsuit filed on May 6, 2010 in the United States District
Court for the Northern District of Alabama, Middle Division as case number
CV-10-PT-1183-M.
The
Plaintiffs in the lawsuit are Cirrus Acquisition and Development Corporation, a
Nevada corporation, and Cirrus Global Capital Management, Inc., a Nevada
corporation, Cirrus Holdings, Inc., and Richard Woods. The Plaintiffs
filed suit against the following Defendants: Four Star Companies, Inc., a
Florida corporation and its subsidiaries, including but not limited to Twelve
Oaks Properties, Inc., Ridgefield Development, SBE, Inc., Four Star Realty, Four
Star Investments, B&B Smith Construction, and Four Star Land Ventures;
Dragon’s Lair Holdings, Inc., a Florida corporation; Four Star Holding Company,
Inc. a Florida corporation; Bobby Smith, Jr. individually and in his capacity as
officer, director and principal of Four Star Companies, Inc., Dragon’s Lair
Holdings, Inc.; Fran Mize, individually and in her capacity as officer, director
and principal of Four Star Companies, Inc., Dragon’s Lair Holdings, Inc., and
Four Star Holdings, Inc.
The
lawsuit alleges that the Plaintiffs are owed Four Star Holdings, Inc. common
stock and cash in payment for financial brokerage services
rendered. The Company disputes the quality and effectiveness of such
services and expects that the matter will be resolved in its favor.
During
2008, Four Star Realty, LLC was involved in one pending matter in the Circuit
Court of St. Clair County, Alabama, styled Jennifer Englett, et al. vs.
Four Star Realty, LLC, et al., CV 08-30. According to the pleadings
in the case, Jennifer Englett, (the “Plaintiffs”) have asserted claims
arising from construction defects in their homes. The Company was the exclusive
listing agent for the sale of the homes and as such has been named as a
defendant in the lawsuit. According to the Company’s counsel, based
on the evidence and testimony to date, it appears the Plaintiffs will have a
difficult time prevailing on any claims directed at the Company and anticipates
moving for summary judgment against the Plaintiffs as soon as all depositions
have been recorded.
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior
Securities.
None
Item 4. Submission of Matters to a
Vote of Security Holders.
None
Item 5. Other
Information.
None
Item 6. Exhibits and Reports on Form
8-K
(a)
Exhibits
21.1
List of Subsidiaries
32.1
Certification pursuant to Section 302 of Sarbanes Oxley Act of 2002
32.2 Certification
pursuant to Section 302 of Sarbanes Oxley Act of 2002
32.2 Certification
pursuant to Section 906 of Sarbanes Oxley Act of 2002
99.1
Financial Statements and Notes of Twelve Oak Properties, Inc.
(b) Reports
on Form 8-K
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FOUR
STAR HOLDINGS, INC.
Date:
August 18, 2010
/s/
Bobby R. Smith,
Jr.
Bobby R.
Smith, Jr.
Chief
Executive Officer
FOUR
STAR HOLDINGS, INC.
(the
“Registrant”)
(Commission
File No. 000-52202)
to
Quarterly Report on Form 10-Q
for
the Quarter Ended June 30, 2010
|
Exhibit
No.
|
Description
|
Incorporated
Herein
by
Reference to
|
Filed
Herewith
|
| 21.1 | List of Subsidiaries |
X
|
|
|
31.1
|
X
|
||
|
31.2
|
X
|
||
|
32.1
|
X
|
||
| 99.1 | Financial Statements and Notes of Twelve Oak Properties, Inc. | X |
- 22
-