UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[xx]
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2003
Commission file Number: 000-32523
LIONS GATE INVESTMENT LIMITED
(Exact name of small business issuer as specified in its charter)
Nevada
(State or other jurisdiction of incorporation or organization)
98-0222710
(I.R.S. Employer Identification Number)
P.O. Box 86020
2106 - 33rd Avenue S.W.
Calgary, Alberta, T2T 1Z0 Canada
(Address of principal executive offices)
(403)606-7696
(Issuer's telephone number)
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:
10,600,000 common shares as at October 31, 2003
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ]
LIONS GATE INVESTMENT LIMITED
INDEX
PART 1.
FINANCIAL INFORMATION
Item 1.
Financial Statements
Balance Sheets as of October 31, 2003 and July 31, 2003
Statements of Operations for the three and nine months
ended October 31, 2003 and 2002 and cumulative since
inception (October 29, 1999)
Statements of Stockholders' Equity
Statements of Cash Flows for the periods ended
October 31, 2003 and 2002 and cumulative since inception
(October 29, 1999)
Notes to Financial Statements
Item 2
Plan of Operation
Item 3
Controls and Procedures
PART II.
OTHER INFORMATION
Item 1
Legal Proceedings
Item 2
Changes in Securities and Use of Proceeds
Item 3
Defaults Upon Senior Securities
Item 4
Submission of Matters to a Vote of Security Holders
Item 5
Other Information
Item 6
Exhibits and Reports on Form 8K
SIGNATURES
ITEM 1.
FINANCIAL INFORMATION
Part I
Financial Statements
LIONS GATE INVESTMENT LIMITED
(A development stage company)
Financial Statements
(Expressed in U.S. Dollars)
(Unaudited - - Prepared by Management)
October 31, 2003
Index
Balance Sheet
Statement of Stockholders' Equity
Statement of Operations
Statement of Cash Flows
Notes to Financial Statements
| LIONS GATE INVESTMENT LIMITED | ||||||||
| (A development stage company) | ||||||||
| Balance Sheet | ||||||||
| (Unaudited - Prepared by Management) | ||||||||
| (Expressed in U.S. Dollars) | ||||||||
| October 31 | July 31 | |||||||
| 2003 | 2003 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 1,562 | $ | 22,329 | ||||
| Royalty income receivable - related party | 10,109 | 7,409 | ||||||
| Total current assets | 11,671 | 29,738 | ||||||
| Royalty interest | 1 | 1 | ||||||
| Total assets | $ | 11,672 | $ | 29,739 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 5,307 | $ | 1,250 | ||||
| Total current liabilities | 5,307 | 1,250 | ||||||
| Stockholders' equity | ||||||||
| Capital stock | ||||||||
| Authorized: | ||||||||
| 100,000,000 common shares with a par value of | ||||||||
| $ 0.0001 per share | ||||||||
| Issued and outstanding: 10,600,000 common shares | 1,060 | 1,060 | ||||||
(2002 - 10,600,000 common shares) | ||||||||
| Additional paid-in capital | 103,640 | 103,640 | ||||||
| (Deficit) accumulated during the development stage | (98,335) | (76,211) | ||||||
| Total stockholders' equity | 6,365 | 28,489 | ||||||
| Total liabilities and stockholders' equity | $ | 11,672 | $ | 29,739 | ||||
The accompanying notes are an integral part of these financial statements.
| LIONS GATE INVESTMENT LIMITED | ||||||||||||||
| (A development stage company) | ||||||||||||||
| Statement of Stockholders' Equity | ||||||||||||||
| (Unaudited - Prepared by Management) | ||||||||||||||
| (Expressed in U.S. Dollars) | ||||||||||||||
| (Deficit) | ||||||||||||||
| accumulated | Total | |||||||||||||
| Additional | during | stockholders' | ||||||||||||
Common stock | paid-in | development | equity | |||||||||||
| Shares | Amount | capital | stage | (deficit) | ||||||||||
| Balance, October 29, 1999 | - | $ | - | $ | - | $ | - | $ | - | |||||
| Common stock issued for services | 9,000,000 | 900 | 1,350 | - | 2,250 | |||||||||
| Common stock issued for cash | 9,800,000 | 980 | 1,470 | - | 2,450 | |||||||||
| Comprehensive income (loss) | ||||||||||||||
| Loss for the period | - | - | - | (4,738) | (4,738) | |||||||||
| Balance, July 31, 2000 | 18,800,000 | 1,880 | 2,820 | (4,738) | (38) | |||||||||
| Private placement | 400,000 | 40 | 49,960 | - | 50,000 | |||||||||
| Common stock issued for royalty interest | 400,000 | 40 | 49,960 | - | 50,000 | |||||||||
| Comprehensive income (loss) | ||||||||||||||
| Loss for the year | - | - | - | (4,465) | (4,465) | |||||||||
| Balance, July 31, 2001 | 19,600,000 | 1,960 | 102,740 | (9,203) | 95,497 | |||||||||
| Return to treasury | (9,000,000) | (900) | 900 | - | - | |||||||||
| Comprehensive income (loss) | ||||||||||||||
| Loss for the year | - | - | - | (61,052) | (61,052) | |||||||||
| Balance, July 31, 2002 | 10,600,000 | 1,060 | 103,640 | (70,255) | 34,445 | |||||||||
| Comprehensive income (loss) | ||||||||||||||
| Loss for the year | - | - | - | (5,956) | (5,956) | |||||||||
| Balance, July 31, 2003 | 10,600,000 | 1,060 | 103,640 | (76,211) | 28,489 | |||||||||
| Comprehensive income (loss) | ||||||||||||||
| Loss for the period | - | - | - | (22,124) | (22,124) | |||||||||
| Balance, October 31, 2003 | 10,600,000 | $ | 1,060 | $ | 103,640 | $ | (98,335) | $ | 6,365 | |||||
The accompanying notes are an integral part of these financial statements.
| LIONS GATE INVESTMENT LIMITED | |||||||||
| (A development stage company) | |||||||||
| Statement of Operations | |||||||||
| (Unaudited - Prepared by Management) | |||||||||
| (Expressed in U.S. Dollars) | |||||||||
| Cumulative | |||||||||
| from | |||||||||
| October 29 | Three | Three | |||||||
| 1999 | Months | Months | |||||||
| (inception) to | Ended | Ended | |||||||
| October 31 | October 31 | October 31 | |||||||
| 2003 | 2003 | 2002 | |||||||
| General and administrative expenses | |||||||||
| Consulting | $ | 31,517 | $ | 20,000 | $ | - | |||
| Filing and transfer agent | 5,816 | 210 | 372 | ||||||
| Office and miscellaneous | 3,528 | 557 | 42 | ||||||
| Professional fee | 23,801 | 4,057 | 1,250 | ||||||
| Write-down of royalty interest | 49,999 | - | - | ||||||
| Loss before other item | 114,661 | 24,824 | 1,664 | ||||||
| Other item | |||||||||
| Royalty income | 16,326 | 2,700 | 2,563 | ||||||
| Income (loss) for the period | $ | (98,335) | $ | (22,124) | $ | 899 | |||
| Loss per share | |||||||||
| - basic and diluted | $ | (0.00) | $ | 0.00 | |||||
| Weighted average number of | |||||||||
| common shares outstanding | |||||||||
| - basic and diluted | 10,600,000 | 10,600,000 | |||||||
The accompanying notes are an integral part of these financial statements.
| LIONS GATE INVESTMENT LIMITED | |||||||||
| (A development stage company) | |||||||||
| Statement of Cash Flows | |||||||||
| (Unaudited - Prepared by Management) | |||||||||
| (Expressed in U.S. Dollars) | |||||||||
| Cumulative | |||||||||
| from | |||||||||
| October 29 | Three | Three | |||||||
| 1999 | Months | Months | |||||||
| (inception) to | Ended | Ended | |||||||
| October 31 | October 31 | October 31 | |||||||
| 2003 | 2003 | 2002 | |||||||
| Cash flows from (used in) operating activities | |||||||||
| Income (loss) for the period | $ | (98,335) | $ | (22,124) | $ | 899 | |||
| Common stock issued for services | 2,250 | - | - | ||||||
| Write-down of royalty interest | 49,999 | - | - | ||||||
| Changes in assets and liabilities: | |||||||||
| - Increase in royalty income receivable | (10,109) | (2,700) | 282 | ||||||
| - Increase (decrease) in accounts | |||||||||
| payable and accrued liabilities | 5,307 | 4,057 | 1,250 | ||||||
| Net cash from (used in) operating activities | (50,888) | (20,767) | 2,431 | ||||||
| Cash flows from financing activities | |||||||||
| Issuance of common stock for cash | 52,450 | - | - | ||||||
| Net cash from financing activities | 52,450 | - | - | ||||||
| Increase (decrease) in cash | |||||||||
| and cash equivalents | 1,562 | (20,767) | 2,431 | ||||||
| Cash and cash equivalents, | |||||||||
| beginning of period | - | 22,329 | 33,627 | ||||||
| Cash and cash equivalents, end of period | $ | 1,562 | $ | 1,562 | $ | 36,058 | |||
| Supplemental disclosure of non-cash | |||||||||
| investing and operating activities: | |||||||||
| Common shares issued for services | $ | 2,250 | $ | - | $ | - | |||
| Common shares issued for royalty interest | $ | 50,000 | $ | - | $ | - | |||
The accompanying notes are an integral part of these financial statements.
LIONS GATE INVESTMENT LIMITED
(A development stage company)
Notes to Financial Statements October 31, 2003
(Unaudited - - Prepared by Management)
(Expressed in U.S. Dollars)
1. Incorporation and Continuance of Operations
The Company was incorporated on October 29, 1999 under the laws of the State of Nevada. The Company is in the business of earning royalty income from oil and gas properties. The Company has not derived significant royalty income to date. The Company is considered a development stage company as defined in SFAS No. 7. The Company has an office in Alberta, Canada.
These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has received minimal royalty income to date. However, the Company is incurring operating losses and requires additional funds to maintain its operations. Management's plans in this regard are advancing funds on an as needed basis and raising equity financing.
These conditions raise substantial doubt about the Company's ability to continue as a going concern. These financial statements do not include any adjustments that might result from this uncertainty.
2. Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all normal, recurring adjustments considered necessary for a fair presentation have been included. The financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-KSB for the year ended July 31, 2003. The results of operations for the three months ended October 31, 2003 are necessarily indicative of the results that may be expected for the fiscal year.
LIONS GATE INVESTMENT LIMITED
(A development stage company)
Notes to Financial Statements October 31, 2003
(Unaudited - - Prepared by Management)
(Expressed in U.S. Dollars)
3. Significant Accounting Policies
| (a) | Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America 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 could differ from those estimates and assumptions. |
| (b) | Advertising Expenses The Company expenses advertising costs as incurred. There was no advertising expenses incurred by the Company for the three months ended October 31, 2003. |
| (c) | Royalty Income Royalty income is recorded in the period earned. |
| (d) | Loss Per Share Loss per share is computed using the weighted average number of shares outstanding during the period. The Company has adopted SFAS No. 128, "Earnings Per Share". Diluted loss per share is equivalent to basic loss per share. |
| (e) | Foreign Currency Transactions The Company operates outside of United States of America and maintains its accounting records in U.S. Dollars, as follows: At the transaction date, each asset, liability, revenue and expense is translated into U.S. dollars by the use of the exchange rate in effect at that date. At the period end, monetary assets and liabilities are remeasured by using the exchange rate in effect at that date. The resulting foreign exchange gains and losses are included in operations. |
LIONS GATE INVESTMENT LIMITED
(A development stage company)
��
Notes to Financial Statements October 31, 2003
(Unaudited - - Prepared by Management)
(Expressed in U.S. Dollars)
3. Significant Accounting Policies (continued)
| (f) | Fair Value of Financial Instruments Fair value of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgement, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair values. The carrying value of cash, royalty receivable and accounts payable and accrued liabilities approximate their fair value because of the short-term nature of these instruments. Management is of the opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments. The Company is operating outside the United States of America and has exposure to foreign currency risk due to the fluctuation of currency in which the Company operates and U.S. dollar. |
| (g) | Income Taxes The Company has adopted Statement of Financial Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes, which requires the Company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns using the liability method. Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. |
| (h) | Stock-Based Compensation The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-based Compensation. SFAS 123 encourages, but does not require, companies to adopt a fair value based method for determining expense related to stock-based compensation. The Company accounts for stock-based compensation issued to employees and directors using the intrinsic value method as prescribed under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations. The Company did not grant any stock options during the three months ended October 31, 2003. |
LIONS GATE INVESTMENT LIMITED
(A development stage company)
Notes to Financial Statements October 31, 2003
(Unaudited - - Prepared by Management)
(Expressed in U.S. Dollars)
3. Significant Accounting Policies (continued)
| (i) | Comprehensive Income The Company has adopted Statement of Financial Accounting Standards No. 130 (SFAS 130), Reporting Comprehensive Income, which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. The Company is disclosing this information on its Statement of Stockholders' Equity. Comprehensive income comprises equity except those resulting from investments by owners and distributions to owners. The Company has no elements of "other comprehensive income" for the three months ended October 31, 2003.
|
| (j) | Accounting for Derivative Instruments and Hedging Activities The Company has adopted the Statement of Financial Accounting Standards No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging Activities, which requires companies to recognize all derivatives contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. The Company has not entered into derivative contracts either to hedge existing risks or for speculative purposes. The adoption of the statement will not have an impact on the Company's financial statements.
|
4. Royalty Interest
| 2003 | 2002 | ||||
Royalty interest | $ | 50,000 | $ | 50,000 | |
Less: impairment provision | (49,999) | (49,999) | |||
| $ | 1 | $ | 1 |
In 2001, the Company acquired a 2% gross overriding royalty interest over certain petroleum producing lands in the province of Alberta, Canada, known as Edgerton "27", located at TWP 42, RGE 3, W4M, Section 27, from an individual, who was subsequently appointed as the president of the Company, at a cost of $50,000. In 2002, management of the Company determined there to be an impairment of the royalty interest and, as a result, reduced the carrying value to $1. The royalty income receivable as at October 31, 2003 was due from this related party.
LIONS GATE INVESTMENT LIMITED
(A development stage company)
Notes to Financial Statements October 31, 2003
(Unaudited - - Prepared by Management)
(Expressed in U.S. Dollars)
5. Related Party Transaction
During the period, the Company paid $20,000 in consulting fees to a company controlled by a director of the Company.
Item 2 - Plan of Operation
The following discussion of the plan of operations of the Company should be read in conjunction with the financial statements and the related notes included elsewhere in this quarterly report for the three months ended October 31, 2003. This quarterly report contains certain forward-looking statements and the Company's future operation results could differ materially from those discussed herein.
Geophysical Data Audit
We commenced the initial stage of our business plan in June, 2001. We have examined suitable trade geophysical data available in the immediate vicinity of our current royalty interest. Our examination of trade data brokers' inventory has determined the geographic location, age and parameters of existing data with a view to acquiring and re-processing suitable data. The activity of data acquisition involved our company reviewing currently available seismic data for quality and technical merit. This data is recorded digitally and can be manipulated through the application of various filters and processes which clarify the data from extraneous seismic noise. This constitutes reprocessing seismic data. This activity is conducted by geophysicists with specialized training.
The estimated costs of this initial program are:
Data Acquisition - 20 kilometers (12.5 miles) @ $260 per kilometer:
$5,200
Re-processing - @ $194 per kilometer:
$3,880
Consultant - Identification and monitoring reprocessing
@ $325 per day for 10 days:
$ 3,250
Total:
$12,330
Geophysical Acquisition Programme
The initial geophysical audit programme may identify selected areas that require specific data acquisition to define drilling targets. The programme may be structured as a geophysical farm-in with a drilling option or we may elect to acquire the data on open Crown Lands. In the first case we will contract with property owners or the owners of hydrocarbon rights to allow us to acquire data in exchange for an option to drill on the subject lands if our geophysical data defines a prospective drilling target. In the second case, we would acquire the proprietary data with a view to requesting the Province of Alberta to post the lands for public auction. In either case we would secure the optimum drilling locations. If our company pursues a geophysical farm-in, it means that we have negotiated the rights to petroleum and natural gas lands by acquiring geophysical data over lands currently owned by a t hird party. The negotiations involve offering the third party the acquired geophysical data at no cost in return for the exclusive right to drill a well on the petroleum and natural gas lands in order to earn a portion of the petroleum and natural gas rights. If petroleum and natural gas rights over certain lands have not been leased by the government to oil and gas companies, those lands are considered to be open lands. In this case, there are no parties to negotiate farm-ins with as the petroleum and natural gas rights over open lands are available only through government run auctions.
Management of the Issuer is working on our phase one exploration program having acquired a library of available geophysical data in our area of interest. Management expects to identify which data it will acquire and re-process before the end of calendar 2003. Our phase two geophysical acquisition program is currently scheduled for the spring of 2004.
The estimated costs of a geophysical exploration programme are:
Permitting and Right of Way @ $970 per kilometer
-10 kilometers:
$9,700
Acquisition @ $1,290 per kilometer:
$12,900
Processing and Interpretation:
$ 4,500
Total:
$27,100
Drilling Option
We currently do not have the funds necessary to pursue a drilling program following our first two phases. However, in the event drill targets are identified and we are able to raise funding independently or through industry partners, we would consider the following options.
We would use our geophysical audit and acquisition data as an enticement to lessors of mineral rights to trade our data for the right to drill an earning well on the petroleum and natural gas rights at no additional cost to the lessor. We would seek to recover our drilling cost from the sale of the first hydrocarbons and after recovery of these costs share in future development and profits at the negotiated rates.
Alternatively, should our geophysical acquisition delineate a drilling target on open Crown lands, we would place a bid to acquire a lease to the lands at a regulated open auction. Current land prices vary from $400 to $1500 dollars per acre and the size of the offered lands could be as high as 640 acres. In this scenario the Issuer would not share the interest in the mineral rights with third parties.
Drilling option scenario costs are:
Drilling one well to a depth of 750 metres:
$162,000
Total:
$162,000
Land acquisition scenario costs are:
Acquiring 640 acres @ $645 per acre:
$412,800
Drilling costs per well @ eight wells:
$1,296,000
Total:
$1,708,800
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
Certain statements in this section and elsewhere in this quarterly report on Form 10-QSB are forward-looking in nature and relate to our plans, objectives, estimates and goals. Words such as "expects," "anticipates," "intends," "plans," "projects," "forecasts," "believes," and "estimates," and variations of such words and similar expressions, identify such forward-looking statements. Such statements are made pursuant to the safe harbor provisions of the private securities litigation reform act of 1995 and speak only as of the date of this report. The statements are based on current expectations, are inherently uncertain, are subject to risks and uncertainties and should be viewed with caution. Actual results and experience may differ materially from those expressed or implied by the forward-looking statements as a result of many factors, including, without limitation, those set forth under "business -- additional factors that may affect our business and future results" in our most recent annual report on Form 10-KSB and under "risk factors". We make no commitment to update any forward-looking statement or to disclose any facts, events, or circumstances after the date hereof that may affect the accuracy of any forward-looking statement.
Item 3 - Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have concluded that our controls and other procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms are effective, based upon their evaluation of these controls and procedures as of a date within 90 days of the filing date of this Form 10-QSB.
There were no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of this evaluation, including any corrective actions with regard to significant deficiencies and weaknesses.
PART II
OTHER INFORMATION
Item 1.
LEGAL PROCEEDINGS
None
Item 2
CHANGES IN SECURITIES AND USE OF PROCEEDS
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
99.1
Section 302 - Certification of Disclosure by the Company's Chief Executive Officer
99.2
Section 302 - Certification of Disclosure by the Company's Chief Financial Officer
99.3
Section 906 Certification
(b)
Reports on Form 8-K
The Company filed a Form 8K/A on September 11, 2003 with respect to the change of auditors.
SIGNATURES
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.
LIONS GATE INVESTMENT LIMITED
Dated: December 4, 2003
Per:
/s/Keith Ebert
Keith Ebert,
C.F.O., Secretary and Director
