MEGASTAR DEVELOPMENT CORP.
Interim Financial Statements
For the 3rd Quarter Ended
November 30, 2010
and
Comparative to November 30, 2009
&
Management Discussion & Analysis
...At the Company’s Annual General Meeting held on December 7, 2010 shareholders re-elected Dusan Berka, Gary Musil, Richard Roy and newly elected Chris Staargaard to the Board of Directors for the upcoming year. Shareholders also approved, subject to acceptance by the TSX Venture Exchange, the company's incentive stock option plan for 2010 and reappointment of BDO Canada LLP Chartered Accountants as auditors for the ensuing year and authorized the directors to fix their remuneration. All other resolutions submitted by management to shareholders for consideration were approved as presented.
At a directors' meeting held after the Company's AGM, the directors re-appointed only two officers: Mr. Berka as President and Chief Executive Officer, and Mr. Musil as Chief Financial Officer and Corporate Secretary, The Board and management thanked Mr. Shawn Thomas and Andrew Lee, former Vice Presidents, for their dedicated service to the Company, (see the News Release dated December 15, 2010).
e) At the Company’s Special Meeting of Shareholders held on December 20, 2010 shareholders of the Company approved the Plan of Arrangement whereby the 70,000,000 shares of Eloro received for the Simkar Property will be distributed to shareholders of Megastar on a pro-rata basis. The ratio of distribution will be approximately 1.6616329869 Eloro shares for each share of the Company held by shareholders of record on the Distribution Record Date, previously set as December 21, 2010. The Company has also received conditional regulatory approval to proceed with the transaction.
f) On December 22, 2010 the Company announced that its previously announced arrangement under the Business Corporations Act (British Columbia) (the “Arrangement”) has received the requisite shareholder approval at the Company's special meeting of shareholders held on December 20, 2010. The Arrangement was approved by 99.95% of shares voted at the Meeting. Pursuant to the Arrangement, Megastar will distribute to its shareholders those shares of Eloro Resources Ltd., which it received as consideration for the sale of its Simkar Property to Eloro. In order to comply with Exchange policies, the Company has reset the record date for the Distribution to January 7, 2011. The final court order to approve the Arrangement was obtained on December 21, 2010. If all other conditions to completion of the Arrangement, including approval of the TSX Venture Exchange are satisfied, Megastar expects to close the Arrangement as soon as possible following the Distribution Record Date. At the meeting, shareholders also approved a resolution approving a possible consolidation, if deemed to be necessary or advisable by the Company’s board of directors, on the basis one (1) new post-consolidation Megastar share for up to every six (6) pre-consolidation Megastar shares outstanding. Such resolution was approved by 93.05% of shares voted at the meeting.
g) On December 23 and 24, 2010 the Company provided clarification regarding its recent announcements of a new Distribution Record Date for the distribution of the Eloro shares
Management Discussion & Analysis – Page 11
under the terms of the Company’s shareholder approved Arrangement. The Distribution Record Date was previously set for December 21, 2010 and, in consultation with the TSX Venture Exchange, was required to be reset to January 7, 2011 in order to comply with the Exchange policies applicable to distributions characterized as dividends. Additionally, the Ex-dividend date, the date as of which a purchaser of Megastar shares will not be entitled to receive Eloro Shares pursuant to the Arrangement, has been set for January 5, 2011.
1.3 Selected Annual Information
Year-Ended February 28, 2010
Year-Ended February 28, 2009
Year-Ended February 29, 2008
a.
Net Sales or Total Revenues
$Nil
$Nil
$Nil
b.
Net Income or (Loss) before Other Items and Income Tax provisions
($428,826)
($488,209)
($596,380)
c.
Basic Earnings or (Loss) per fully diluted share
($0.02)
($0.02)
($0.01)
d.
Net Income or (Loss)
($628,911)
($565,575)
($317,419)
e.
Total Assets
$1,688,618
$1,689,594
$2,094,537
f.
Total long-term financial Liabilities
$Nil
$Nil
$Nil
g.
Cash dividends declared per share
$Nil
$Nil
$Nil
1.4 Results of Operations
The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may be different from those estimates. Additional significant accounting policies are detailed in Note 2 attached to the financial statements.
The Company’s current exploration focus has been on its 100% owned SIMKAR gold and RALLEAU Zn-Cu properties located in Quebec. The Company has also been actively reviewing numerous exploration projects during the period under review in search of additional projects of merit.
1.5 Summary of Quarterly Results
The following table sets forth selected (unaudited) quarterly financial information for each of the last eight most recently completed quarters:
For the Quarter Periods Ending on
November 30, 2010
August 31, 2010
May 31,
2010
February 28, 2010
Total Revenues
$Nil
$Nil
$Nil
$Nil
Net Income (Loss) before other items
($189,357)
($172,888)
($262,185)
($118,392)
Total Net Income (loss)
($138,248)
($175,832)
($317,624)
*(392,849)
Basic and diluted (Loss) per share
($0.004)
($0.004)
($0.008)
($0.011)
Management Discussion & Analysis – Page 12
For the Quarter Periods Ending on
* Other items accounted for during the year and at year-end February 28, 2010 were:
November 30, 2009
August 31, 2009
May 31,
2009
February 28, 2009
Total Revenues
$Nil
$Nil
$ Nil
$Nil
Net Income (Loss) before other items
($141,240)
($101,992)
($67,202)
($142,210)
Total Net Income (loss)
($96,216)
($81,866)
($57,980)
**(139,389)
Basic and diluted (Loss) per share
($0.003)
($0.003)
($0.002)
($0.006)
- $775 in Interest Income on terms deposits and GIC’s;
- $89,750 Unrealized gain on marketable securities; and
- a provision for ($290,610) in interest, penalties, and potential indemnification has been recorded as a liability arising from filing arrears on certain tax forms and failure of the Company to incur qualifying exploration expenditures previously renounced.
**Other items accounted for during the year and at year-end February 28, 2009 were:
- $5,634 in Interest Income on term deposits and GIC’s;
- ($83,000) Unrealized loss on marketable securities as a result of the decrease in share price of other public company shares received/owned by Megastar as received through property option payments.
- Operating expenses before other items and income tax provisions have increased by $316,996 compared with the quarter ended November 30, 2009. Due to the proposed arrangement to distribute the Eloro shares received for the transfer of the Simkar property, the Company incurred increases in accounting and audit to $35,319 ($16,528 in 2009) and legal $65,497 ($3,018 in 2009). In addition the Company incurred a substantial increase in the current period due to stock based compensation (a non-cash item) to $110,836 (2009: $38,310). Other increases were in travel to $22,016 (2009: $12,651); in investor relations and promotion combined with shareholder information to $90,270 (2009: $38,009) as a result of implementing an elevated marketing and awareness plan both in North America and Europe that includes booth attendance at investment shows. Consulting fees increased to $157,507 (2009: $62,762) as management has retained consultants to assist in raising financing, corporate development, updating the website and corporate presentation materials. Other office and operating expenses increased as follows: Increases office, telephone and miscellaneous to $10,229 ($7,135 in 2009); rent to $11,250 ($7,425 in 2009); and insurance to $10,576 ($8,751 in 2009). The Company had a marginal decrease in filing fees of $9,995 ($11,365 in 2009). During the period, the Company was able to recover Quebec sales tax from prior years of $12,701 and recognized a small increase in the fair market value of its marketable securities of $5,600 compared to $73,750 in the prior year.
1.6 Liquidity
The Company has no history of profitable operations and its mineral projects are at an early stage. Therefore, it is subject to many risks common to comparable junior venture resource companies, including under-capitalization, cash shortages and limitations with respect to personnel, financial and other resources as well as a lack of revenues.
As at November 30, 2010, the Company had a $99,087 working capital deficiency compared to $93,597 in working capital as at February 28, 2010.
...
A. Authorized and Issued Share Capital as at January 28, 2011:
Authorized: an unlimited number of Common shares without par value
Issued and outstanding: 42,127,233 common shares
B. Options, Warrants & Convertible Securities Outstanding as at January 28, 2011:
The following options, warrants, and convertible securities were outstanding as at January 28, 2011:
Options
Number of
Exercise
Shares
Price Expiry Date
Management Discussion & Analysis – Page 16
410,000
$0.10
February 26, 2011
215,000
$0.20
March 21, 2011
100,000
$0.10
March 1, 2011
150,000
$0.13
March 1, 2011
350,000
$0.10
October 22, 2012 450,000
$0.13
March 4, 2013
1,675,000
Warrants
Number of
Exercise
Warrants
Price
Expiry Date
1,500,000
$0.10
August 26, 2011
...
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