FORM 51-901F
QUARTERLY REPORT
Incorporated as part of:
X
Schedule A
Schedules B & C
ISSUER DETAILS:
NAME OF ISSUER
Derek Resources Corporation
ISSUER'S ADDRESS
#1550 - 355 Burrard Street
Vancouver, B.C. V6C 2G8
ISSUER TELEPHONE NUMBER
(604) 331-1757
CONTACT PERSON
Frank Hallam
CONTACT'S POSITION
Director
CONTACT TELEPHONE NUMBER
(604) 331-1757
CONTACT E-MAIL ADDRESS
investor@derekresources.com
WEBSITE ADDRESS
www.derekresources.com
FOR QUARTER ENDED
July 31, 2003
DATE OF REPORT
September 29, 2003
CERTIFICATE
THE SCHEDULE (S) REQUIRED TO COMPLETE THIS QUARTERLY REPORT ARE ATTACHED AND THE DISCLOSURE CONTAINED THEREIN HAS BEEN APPROVED BY THE BOARD OF DIRECTORS. A COPY OF THIS QUARTERLY REPORT WILL BE PROVIDED TO ANY SHAREHOLDER WHO REQUESTS IT. PLEASE NOTE THAT THIS FORM IS INCORPORATED AS PART OF BOTH THE REQUIRED FILING OF SCHEDULE A AND SCHEDULES B & C.
"Barry C.J. Ehrl"
Barry C.J. Ehrl
2003/09/29
DIRECTOR'S SIGNATURE
DIRECTOR'S NAME
DATE SIGNED
(YY/MM/DD)
"Frank Hallam"
Frank Hallam
2003/09/29
DIRECTOR'S SIGNATURE
DIRECTOR'S NAME
DATE SIGNED
(YY/MM/DD)
#
DEREK RESOURCES CORPORATION
QUARTERLY FINANCIAL STATEMENTS
For the Three Month Period Ended July 31, 2003 and 2002
Unaudited
Prepared by Management
Vancouver, B.C.
September 29, 2003
Unaudited - Prepared by Management
DEREK RESOURCES CORPORATION
Consolidated Balance Sheets
as at July 31, 2003 and April 30, 2003
ASSETS
|
July31,2003 $ |
April 30, 2003 $ |
Current Assets | | |
Cash and short term deposits | 22,777 | 8,857 |
Performance Bonds | 80,792 | 81,710 |
Accounts receivable | 10,949 | 7,112 |
| | 114,518 | 97,679 |
| | | |
LAK oil project | 14,217,017 | 14,217,017 |
Other oil and natural gas interests | 1 | 1 |
Capital Assets, Net | 7,721 | 9,651 |
| | 14,339,257 | 14,324,348 |
LIABILITIES
Current Liabilities | | |
Accounts payable and accrued liabilities | 761,966 | 985,482 |
Short Term debt | 626,326 | 609,660 |
SHAREHOLDER’S EQUITY
Share capital | 24,911,634 | 24,580,559 |
Contributed Surplus | 65,950 | 65,950 |
Equity component of Notes Payable | 203,300 | 203,300 |
Retained earnings (deficit) | (12,229,919) | (12,120,603) |
| | 14,339,257 | 14,324,348 |
Approved by the Directors
"Frank Hallam”, Director
"Barry C.J. Ehrl", Director
Unaudited – Prepared by Management
DEREK RESOURCES CORPORATION
Consolidated Statement of Loss and Deficit
For the three months ended July 31, 2003 and 2002
| | |
Three Months Ended July 31, 2003 $ | Three Months Ended July 31, 2002 $ |
REVENUE | | | |
Oil and gas sales, net of royalties and windfall profit tax | |
2,527 |
11,889 |
Recoveries | | 0 | 38,996 |
Interest earned | | 259 | 347 |
| | | 2,786 | 51,232 |
| | | | |
EXPENSES | | | |
Bank charges and interest | | 18,355 | 47,727 |
Consulting fees | | 4,228 | 0 |
Foreign exchange loss (gain) | | (4,047) | (993) |
Legal and audit fees | | 8,309 | 4,774 |
Management fees | | 20,000 | 46,331 |
Office administration and other | | 4,977 | 1,699 |
Office rent and services | | 5,930 | 6,270 |
Salaries and benefits | | 19,760 | 13,310 |
Shareholders information | | 2,720 | 434 |
Stock exchange and filing fees | | 2,000 | 0 |
Telephone and fax | | 3,293 | 1,593 |
Transfer fees | | 1,818 | 1,533 |
Travel to site and administrative | | 1,092 | 156 |
Lak Operating Costs | | 23,667 | 27.876 |
| | | 112,102 | 150,710 |
| | | | |
LOSS FOR THE PERIOD | | (109,316) | (99,478) |
DEFICIT – BEGINNING OF PERIOD | | (12,120,603) | (11,625,050) |
DEFICIT – END OF PERIOD | | (12,229,919) | (11,724,528) |
Unaudited – Prepared by Management
.
DEREK RESOURCES CORPORATION
Consolidated Statement of Changes in Financial Position
For the three months July 31, 2003, 2002 and 2001
| | | Three Months Ended July 31, 2003 $ | Three Months Ended July 31, 2002 $ |
Cash flows from (for) operating activities | | | |
Loss for the period | | (109,316) | (99,478) |
Depreciation of Capital Assets | | 1,930 | 0 |
Net change in non-cash working capital items | | | |
Performance Bonds Posted | | 918 | 400 |
Accounts receivable and prepaid | | (3,837) | (906) |
Accounts payable and accrued liabilities | | (223,516) | 115,398 |
Short Term debt | | 16,666 | 0 |
| | | (317,155) | 15,414 |
| | | | |
Cash flows from (for) investing activities | | | |
Oil and natural gas interests | | 0 | (25,568) |
| | | 0 | (25,568) |
| | | | |
Cash flows from (for) financing activities | | | |
Shares issued for cash | | 331,075 | 0 |
Share issue costs | | 0 | 0 |
Notes Payable | | 0 | 0 |
| | | 331,075 | 0 |
| | | | |
Increase (Decrease) in cash and short term deposits | |
13,920 |
(10,154) |
Cash and short term deposits – Beginning of Period | |
8,857 |
14,804 |
Cash and short term deposits – End of Period | |
22,777 |
4,650 |
Unaudited – Prepared by Management
DEREK RESOURCES CORPORATION
NOTES TO THE INTERIM FINANCIAL STATEMENTS
JULY 31, 2003
(Unaudited)
1.
NATURE OF OPERATIONS
The Company is a public company incorporated under the laws of the Province of British Columbia. Its shares are traded on the Toronto Stock Exchange-Venture board.
These financial statements have been prepared on a going concern basis, which assumes the realization of assets and liquidation of liabilities in the normal course of business. The Company’s ability to continue as a going concern is dependent on continued financial support from its shareholders, the ability of the Company to raise equity and debt financing, and the attainment of profitable operations, external financings and further share issuances to meet the Company’s liabilities as they become payable. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary, should the Company be unable to continue as a going concern.
2.
SIGNIFICANT ACCOUNTING POLICIES
a)
Oil and Gas Interests
The Company follows the full cost method of accounting for oil and gas properties and equipment whereby all costs of acquiring, exploring for and developing oil and gas reserves are capitalized.
Capitalized costs of proven reserves and equipment are depleted using a unit of production method based upon estimated proven reserves (energy content) net of royalties. Unless a significant amount of reserves is involved, proceeds received from the disposition of oil and gas properties are credited to the capitalized costs. In the event of a significant sale of reserves, a proportionate amount of cost and accumulated depletion, based upon the ratio of reserves sold to total reserves, is removed from the capitalized costs and the resultant profit or loss is taken into income.
An annual “ceiling test” is applied to ensure that capitalized costs net of accumulated depletion do not exceed the estimated future net revenues from production of proven reserves (based on current prices and operating costs) plus unproven reserves at cost less provisions for impairment. The aggregate future value is further reduced for recurring general and administrative costs, future financing costs and income taxes. Capitalized costs in excess of this ceiling test limit are written off as additional depletion.
Estimated future removal and site restoration costs, net of salvage values, are provided for using the unit of production method based on remaining proven reserves. Costs are estimated based on current regulations, costs, technology and industry standards. The annual charge is included in the provision for depletion and amortization. Removal and site restoration expenditures are charged to the accumulated provision for future removal and site restoration costs as incurred.
Substantially all of the Company’s exploration, development and production activities related to oil and gas are conducted jointly with others and, accordingly, the accounts reflect only the Company’s proportionate interest in such activities.
b)
Financial Instruments
The carrying value of current assets and current liabilities approximates their fair value due to the relatively short periods to maturity of these instruments.
c)
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of the 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. Significant areas requiring the use of management estimates relate to the determination of environmental obligations, impairment of resource properties and deferred exploration expenditures. Actual results could differ from those estimates.
d)
Stock-Based Compensation
No compensation expense is recognized when stock or stock options are issued to directors or employees. Any consideration paid by directors and employees on stock options or purchase of shares is credited to share capital.
e)
Loss Per Share
The loss per share is calculated using the weighted average number of shares outstanding during the period. Fully diluted loss per share is not presented as it is anti-dilutive.
3.
OIL AND NATURAL GAS INTERESTS
a.
United States
The company has working interests in certain wells located in Oklahoma and Kansas, U.S.A. These interests are carried at a nominal value.
By way of an option agreement dated September 24, 1997 the company has a working interest in the unproven LAK Ranch (LAK) oil leasehold interest located near Newcastle,
Wyoming, U.S.A. Under the terms of the option agreement the company acquired a 75% interest in the LAK property and up to a 37.5% interest in two adjoining tracts of lands by making payments of US $600,000 and funding US $3,500,000 in exploration expenditures by December 31, 2000. The agreement required that all property expenditures made in excess of US $3,500,000 were to be on a pro-rata basis by the company and the optionor.
On December 19, 2000 the company delivered formal notice to the optionor that the company had spent US $3,868,144 on the LAK project and had met the earn-in requirements of the option agreement and that the company had vested it’s 75% working interest in the LAK property.
By January 30, 2001 the optionor had made no payment to the company with respect to their 25% share of ongoing exploration costs for the LAK property. The company delivered a formal notice of default to the optionor for their failure to pay amounts then due. On March 1, 2001 the company initiated formal foreclosure proceedings in Wyoming. The optionor contested the company’s foreclosure proceedings to the Wyoming District Court. The Court upheld the company’s right to foreclose. On April 13, 2001 the company foreclosed on all of the optionor’s rights and interests to the LAK property for a bid amount of US $852,571, representing the optionor’s share of LAK property costs incurred to date, giving the company a 100% interest in the property.
Subsequent to the foreclosure, the optionor filed a lawsuit against the company claiming that the company had not earned its interest in the LAK property. The company then filed a motion for partial summary judgement against the optionor and thecourt in Wyoming set a date to hear the motion on October 31, 2001.
Prior to the court hearing, on October 18, 2001, the optionor agreed to a settlement. Under the terms of the settlement agreement the optionor relinquished any claim to any right or interest in the LAK Ranch Property. In return they received a proportionate, reducible gross overriding royalty on the property of 0.7%. They were also granted certain participation rights in the event that the Company should sell some or all of its rights and interests in the property. From any net sales proceeds the optionor will receive a 7.5% interest in the first US $7.5 million of net proceeds and 1.0% of any proceeds thereafter, subject to certain adjustments.
During the year ended April 30, 2002, as part of certain financings, the company granted additional royalties of US $0.1360838 per barrel of oil produced on the LAK property.
The company has posted performance bonds of US $55,000 in relation to the LAK property.
During the year ended July 31, 2003, the company capitalized $0 in general and administrative costs in the LAK property (2002 - $0) and incurred operating costs of $23,667 (2002-$27,876).
4.
DUE TO RELATED PARTIES
During the period, the Company paid management expenditures, including management fees, consulting fees; professional fees and benefits totaled $24,228, of which none was deferred to the LAK Ranch Property.
1.
NOTES PAYABLE
Debt
Equity
Total
Notes Payable
$565,460
$203,300
$768,760
Accrued Interest
$ 60,866
0
$ 60,866
$626,326
$203,300
$789,626
The company has issued promissory notes to three arms length parties. Terms of the notes call for interest in the amount of 10% per annum to be paid. The notes have due dates of May 31 and September 30, 2003. The company is in the process of negotiating an extension. The notes also grant the holders a small per barrel gross royalty on oil produced from the LAK Ranch project.
Details of the particular notes are as follows:
On June 15, 2001 the company issued a promissory note in the principal amount of US $471,183 (C$741,500) in settlement of accounts payable to a single creditor. Interest on the note was calculated at a rate of 10.0% per annum. All principal and interest was due and payable on May 31, 2002. In addition to the interest payable on the note, the lender received a gross overriding royalty on the LAK Ranch property of US $0.0471 per barrel of oil produced. The lender also received a right to convert some or all of the principal and interest outstanding into shares of the company at a price of $0.75 per share at any time during the life of the note. The company did not repay the principal and interest on May 31, 2002 and by that time had incurred a further US $38,416.93 in payables for goods and services to this creditor. On August 21, 2002 the company was indebted to this cr editor for principal, interest and payables totaling US $568,440 (C $894,220). On August 21, 2002 the lender agreed to settle one half of this total debt, or US $284,220 (C $447,110) in exchange for common shares of the company at a price of $0.10 per share. The lender also agreed that the remaining amount payable by the company of US $284,220 (C $447,110) would be secured by way of a new note issued by the company, with the principal due on September 30, 2003. At this time the company is negotiating an extension to this note.
On June 6, 2001 the company issued a promissory note in the principal amount of US $100,000. Interest on the note was calculated at rate of 0.8333% per month and interest was payable monthly. All principal and any outstanding interest was due and payable on June 6, 2002. In addition to the interest payable on the note, the lender received a gross overriding royalty on the LAK Ranch property of US $0.01 per barrel of oil produced. On August 21, 2002 the lender agreed to settle US $50,000 (C $78,675) from the principal amount in exchange for common shares of the company at a price of $0.10 per share. On September 16, 2002 the company paid cash for all outstanding interest on this note in the amount of US $10,911 (C $17,171). The company had earlier paid cash for two of the monthly interest payments due. The Lender agreed to secure the remaining principal amount of US $50,000 (C $78,685) by way of a new promissory note bearing interest payable monthly at a rate of 0.8333% per month. This new note is due September 30, 2003. The company is negotiating an extension of the note or a payout schedule contingent on future financing.
On June 27, 2001 the company issued a promissory note for a principal amount of US $100,000. The note bears interest at a rate of 10.0% per annum and all interest and principal is due and payable by the company on May 31, 2003. In addition to the interest payable on the note, the lender received a gross overriding royalty on the LAK Ranch property of US $0.01 per barrel of oil produced. The lender also received a right to convert some or all of the principal and interest outstanding into shares of the company at a price of $0.75 per share at any time during the life of the note. On August 21, 2002 the company settled the accrued interest on this note in the amount of US $12,114 (C$19,064) in exchange for common shares of the company at a price of $0.10 per share. The promissory note itself was due to be paid May 31, 2003. The company is negotiating an extension of the note or a payout schedule contingent on future financing.
6.
SHARE CAPITAL
a)
Authorized
100,000,000 common shares of no par value
a)
Issued
22,343,185 common shares
Number
Of Shares
Amount
BALANCE AS AT APRIL 30, 2002
38,145,022
$
22,464,255
PRIVATE PLACEMENTS SHARES FOR DEBT
18,963,035
1,896,304
SHARE CONSOLIDATION
(38,072,038)
--
BALANCE APRIL 30, 2003
19,036,019
24,360,559
PRIVATE PLACEMENTS (1)(2)
3,307,166
551,075
BALANCE AS AT JULY 31, 2003
22,343,185
24,911,634
.
1.
A private placement of 1,100,000 units raising $220,000 was allotted for but the shares un-issued as of April 30, 2003. The placement was closed and the shares issued in May 2003.
2.
The company has completed a private placement raising $600,000 consisting of 4,000,000 units. Each unit consisted of one share and one half-share purchase warrant. Each whole warrant entitles the holder to purchase another share for $0.20 until July 14, 2004. Payment for 2,207,166 units were received prior to July 31, 2003. The balance of the placement closed subsequent to the period end.
c)
Stock Options Outstanding
Stock
Option
Options
Price
BALANCE AS AT APRIL 30, 2002
856,000
$1.05-2.25
Cancellation of options
(175,667)
$1.05-2.25
Grant of options
none
none
BALANCE AS AT APRIL 30, 2003
680,333
$1.05-2.25
Granted in the period
none none
Expired in the period
none none
BALANCE AS AT JULY 31, 2003
680,333
$1.05-2.25
Summary of options –
Number of Shares
Exercise Price
Expiry Date
75,000
1.44
May 5, 2004
3,667
2.25
October 15, 2004
16,667
2.10
December 16, 2004
584,999
1.05
November 4, 2005
.
d.)
Share Purchase Warrants Outstanding
Each of the company’s common share purchase warrants is convertible into one common share, upon payment of the exercise price.
Number of
Exercise
Warrants
Price
Outstanding April 30, 2002
8,924,547
$1.20 -$2.25
Granted
1,405,833
$0.45
Expired
(6,735,413)
$1.59
Outstanding April 30, 2003
3,594,967
$0.45-$2.25
Granted
2,203,583
$0.20-$0.25
Outstanding July 31, 2003
5,798,550
$0.20-$2.25
Summary of the warrants outstanding:
Number of Warrants
Exercise Price
Expiry Date
97,000
$2.25
August 20, 2003
178,333
$1.20
September 14, 2003
529,828
$1.20
October 19, 2003
1,383,973
$1.20
December 21, 2003
1,100,000
$0.25
April 23, 2004
1,103,583
$0.20
July 14, 2004
1,305,833
$0.45
August 30, 2004
100,000
$0.45
December 13, 2004
8.
INCOME TAXES
The Company has adopted the liability method of accounting for income taxes as outlined in the provisions of Section 3465 of the handbook of the Canadian Institute of Chartered Accountants.
Under this method, current income taxes are recognized for the estimated income taxes payable for the current year. Future income tax assets and liabilities are recognized for temporary differences between the tax and accounting bases of assets and liabilities as well as for the benefit of losses available to be carried forward to future years for tax purposes that are likely to be realized.
.
