UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
| (x) | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: December 31, 2005
| ( ) | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________________ to _________________
Commission File number 0-11695
APEX RESOURCES GROUP, INC.
(Exact name of registrant as specified in charter)
UTAH | 87-0403828 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| | |
136 East South Temple, Suite 1600, Salt Lake City, Utah | 84111 |
| (Address of principal executive offices) | (Zip Code) |
(801) 363-2599
Registrant’s telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) Yes [x] No [ ] and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]
State the number of shares outstanding of each of the registrant’s classes of common equity, as of the latest practicable date.
Common stock, par value $.001; 92,625,212 shares outstanding as of March 15, 2006.
INDEX
| | | Page |
| | | Number |
| PART I. | | |
| | | |
| ITEM 1. | Financial Statements (unaudited) | 3 |
| | | |
| | Balance Sheets | |
| | December 31, 2005 | 4 |
| | | |
| | Statement of Operations | |
| | Three Month and Six Months Ended December 31, 2005 and 2004 and the Period January 27, 1984 to December 31, 2005 | 5 |
| | | |
| | Statement of Cash Flows | |
| | Six Months Ended December 31, 2005 and 2004 and the Period January 27, 1984 to December 31, 2005 | 6 |
| | | |
| | Notes to Financial Statements | 8 |
| | | |
| ITEM 2. | Managements’ Discussion and Analysis of Financial Condition and Results of Operations | 13 |
| | | |
| ITEM 3. | Controls and Procedures | 19 |
| | | |
| PART II | | |
| | | |
| ITEM 5. | Other Information | 19 |
| | | |
| ITEM 6. | Exhibits | 19 |
| | | |
| | Signatures | 20 |
PART I - FINANCIAL INFORMATION
This filing contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may,” “will,” “expect,” “believe,” anticipate,” “estimate” or “continue” or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainty, and actual results may differ materially depending on a variety of factors, many of which are not within the Company’s control. These factors include but are not limited to economic conditions generally and in the industries in which the Company and its customers participate; competition within the Company’s industry, including competition from much larger competitors; technological advances which could render the Company’s products less competitive or obsolete; failure by the Company to successfully develop new products or to anticipate current or prospective customers’ product needs; price increase or supply limitations for components purchased by the Company for use in its products; and delays, reductions, or cancellations of orders previously placed with the Company.
ITEM 1. FINANCIAL STATEMENTS
The accompanying balance sheet of Apex Resources Group, Inc., (development stage company) at December 31, 2005 the statement of operations for the three and six months ended December 31, 2005 and 2004 and the period January 27, 1984 (date of inception) to December 31, 2005 and cash flows for the six months ended December 31, 2005 and 2004 and the period January 27, 1984 (date of inception) to December 31, 2005 and the statement of stockholders’ equity for the period from January 27, 1984 to September 30, 2005, have been prepared by the Company’s management in conformity with accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature.
Operating results for the quarter ended December 31, 2005, are not necessarily indicative of the results that can be expected for the year ending June 30, 2006.
(DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
| | | | |
| | | December 31, 2005 | |
CURRENT ASSETS | | | |
| Cash | | | 22,685 | |
| Total Current Assets | | | 22,685 | |
| | | | | |
PROPERTY AND EQUIPMENT - net of accumulated | | | | |
| Depreciation | | | 179,005 | |
| | | | | |
OTHER ASSETS | | | | |
| Accounts receivable - affiliates | | | 156,341 | |
| Oil leases | | | 67,913 | |
| Available for sale securities | | | 2,428 | |
| Land - Canada | | | 89,845 | |
| | | | 316,527 | |
| | | | | |
Total Assets | | | 518,217 | |
| | | | | |
LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | |
| | | | | |
CURRENT LIABILITIES | | | | |
| Accounts payable | | | 138,354 | |
| Accounts payable - related parties | | | 397,893 | |
| Total Current Liabilities | | | 536,247 | |
| | | | | |
STOCKHOLDERS' EQUITY | | | | |
| Common stock | | | | |
400,000,000 shares authorized, at $.001 par value; 92,625,212 issued and outstanding | | | 92,625 | |
| Capital in excess of par value | | | 10,983,235 | |
| Less stock subscriptions receivable | | | (2,427,000 | ) |
| Deficit accumulated during the development stage | | | (8,666,890 | ) |
| Total Stockholders' Equity | | | (18,030 | ) |
| | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | | | 518,217 | |
(DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
| | | 3 months ended December 31, | | 6 months ended December 31, | | Jan. 27, 1984 (date of inception of development stage) | |
| | | 2005 | | 2004 | | 2005 | | 2004 | | to Dec. 31, 2005 | |
| | | | | | | | | | | | |
REVENUES | | | | | | | | | | | |
| Other non-operating income | | $ | 1,287 | | $ | 1,120 | | $ | 3,784 | | $ | 11,067 | | $ | 366,728 | |
| | | | | | | | | | | | | | | | | |
EXPENSES | | | | | | | | | | | | | | | | |
Exploration, development and administrative | | | 41,175 | | | 321,142 | | | 195,374 | | | 491,652 | | | 10,064,506 | |
| Depreciation | | | 6,000 | | | 6,000 | | | 12,000 | | | 12,000 | | | 154,102 | |
| | | | | | | | | | | | | | | | | |
| Total operating expenses | | | 47,175 | | | 327,142 | | | 207,374 | | | 503,652 | | | 10,218,608 | |
| | | | | | | | | | | | | | | | | |
NET (LOSS) - before other income (expense) | | | (45,888 | ) | | (326,022 | ) | | (203,590 | ) | | (492,585 | ) | | (9,851,880 | ) |
| | | | | | | | | | | | | | | | | |
| Gain on sale of assets | | | - | | | - | | | 40,993 | | | - | | | 1,329,316 | |
| Interest expense | | | (2,697 | ) | | - | | | (20,525 | ) | | - | | | (2,697 | ) |
| Loss on land reposession | | | - | | | - | | | (1,744 | ) | | - | | | - | |
| | | | | | | | | | | | | | | | | |
| NET (LOSS) | | | (48,585 | ) | | (326,022 | ) | | (184,866 | ) | | (492,585 | ) | | (8,525,261 | ) |
| | | | | | | | | | | | | | | | | |
| Basic net (loss) per common share | | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | | | |
| | | | | | | | | | | | | | | | | |
| Weighted average shares outstanding | | | 92,625,000 | | | 72,727,000 | | | 92,625,000 | | | 69,721,000 | | | | |
APEX RESOURCES GROUP, INC.
(DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
| | | 6 months ended December 31, | | Jan. 27, 1984 (date of inception of development stage) | |
| | | 2005 | | 2004 | | to Dec. 31, 2005 | |
| | | | | | | | |
| Cash flows from operating activities: | | | | | | | |
| Net (loss) | | $ | (184,866 | ) | $ | (492,585 | ) | $ | (8,651,936 | ) |
Adjustments to reconcile net loss to cash used in operating activities: | | | | | | | | | | |
| Depreciation | | | 12,000 | | | 12,000 | | | 136,386 | |
| Common stock issued for services | | | - | | | 335,473 | | | 5,322,093 | |
| (Increase) decrease in accounts receivable | | | (269 | ) | | (1,794 | ) | | (156,341 | ) |
| (Increase) decrease in other assets | | | - | | | | | | - | |
| Increase (decrease) in liabilities | | | (38,676 | ) | | 240,726 | | | 895,060 | |
| Net cash used in operating activities | | $ | (211,811 | ) | $ | 93,820 | | $ | (2,454,738 | ) |
| | | | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | | | |
| Deposit | | $ | - | | $ | (4,000 | ) | $ | - | |
| Purchase of investments | | | - | | | 200 | | | (2,428 | ) |
| Purchase of oil & gas leases & mining claims | | | - | | | - | | | (67,913 | ) |
| Purchase of property and equipment | | | 215,989 | | | (175,162 | ) | | (400,505 | ) |
| Net cash provided by investing activities | | | 215,989 | | | (178,962 | ) | $ | (470,846 | ) |
| | | | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | | | |
| Net proceeds from issuance of common stock | | $ | - | | $ | 123,000 | | $ | 2,948,269 | |
| Net cash provided by financing activities | | $ | - | | $ | 123,000 | | $ | 2,948,269 | |
| | | | | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | | | 4,178 | | | 37,858 | | | 22,685 | |
| Cash and cash equivalents, beginning of period | | | 18,507 | | | 14,741 | | | - | |
| | | | | | | | | | | |
| Cash and cash equivalents, end of period | | $ | 22,685 | | $ | 52,599 | | $ | 22,685 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Supplemental disclosure of cash flow information: | | | | | | | | | | |
| Interest paid | | $ | - | | $ | - | | $ | - | |
| Income taxes paid | | $ | - | | $ | - | | $ | - | |
| | | | | | | | | | | |
| Non-cash financing activities: | | | | | | | | | | |
| Common stock issued for service | | $ | - | | $ | - | | $ | - | |
| Common stock issued for anticipated acquisition | | $ | - | | $ | - | | $ | - | |
APEX RESOURCES GROUP, INC.
(Development Stage Company)
STATEMENT OF CASH FLOWS (Continued)
For the Period January 27, 1984 (Date of Inception) to September 30, 2005
| SCHEDULE OF NONCASH OPERATING, INVESTING, AND FINANCING ACTIVITIES | | | |
| | | | |
| | | | |
| Issuance of 1,154,073 common shares for assets, services and expenses - from inception to June 30, 1998 | | $ | 1,500,765 | |
| | | | | |
| Issuance of 1,549,875 common shares for assets, services and expenses - for the year ended June 30, 1999 | | | 1,157,000 | |
| | | | | |
| Issuance of 1,242,781 common shares for assets, services and expenses - for the year ended June 30, 2000 | | | 1,240,093 | |
| | | | | |
| Issuance of 784,500 common shares for services and expenses - for the year ended June 30, 2001 | | | 629,500 | |
| | | | | |
| Issuance of 105,000 common shares for services and expenses - for the year ended June 30, 2002 | | | 62,999 | |
| | | | | |
| Issuance of 10,560,000 common shares for services and expenses - for the year ended June 30, 2003 | | | 115,380 | |
| | | | | |
| Issuance of 9,267,655 common shares for services and expenses - for the year ended June 30, 2004 | | | 270,882 | |
| | | | | |
| Issuance of 9,010,143 common shares for assets, services and expenses for the year ended June 30, 2005 | | | 345,473 | |
APEX RESOURCES GROUP, INC.
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
1. ORGANIZATION AND BASIS OF PRESENTATION
The Company was incorporated in the State of Utah on January 27, 1984 with authorized capital stock of 50,000,000 shares at a par value of $0.001. On May 17, 1999 the authorized was increased to 100,000,000 shares and on March 3, 2000 the authorized was increased to 400,000,000 shares with the same par value. On March 26, 2003 the name of the Company was changed from “Ambra Resources Group, Inc. to “Apex Resources Group, Inc.”
The company has been in the development stage since inception and has been engaged in the business of the acquisition of mining and oil property interests and other business activities.
The interim financial statements of Apex Resources Group, Inc. for the three and six months ended December 31, 2005 and 2004 are unaudited. The financial statements are prepared in accordance with the requirements for unaudited interim periods, and consequently do not include all disclosures required to be in conformity with accounting principles generally accepted in the United States of America.
In the opinion of management, the accompanying financial statements contain all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the Company’s financial position as of December 31, 2005, results of operations for the three and six months ended December 31, 2005 and 2004, results of operations from inception to December 31, 2005, cash flows for the three and six months ended December 31, 2005 and 2004, and cash flows from inception to December 31, 2005.
The results of operations for the three months ended December 31, 2005 and 2004 are not necessarily indicative of the results for a full year period.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Methods
The Company recognizes income and expenses based on the accrual method of accounting.
Dividend Policy
The Company has not yet adopted any policy regarding payment of dividends.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with a maturity, at the time of purchase, of less than three months, to be cash equivalents.
APEX RESOURCES GROUP, INC.
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property and Equipment
The Company’s property and equipment consists of the following:
| Office equipment | | | 150,880 | |
| Residential rentals | | | 164,511 | |
| Less accumulated depreciation | | | (136,386 | ) |
| | | | 179,005 | |
Office equipment is depreciated on the straight line method over five and seven years and the residential rentals are depreciated on the straight line method over forty years.
Basic and Diluted Net Income (Loss) Per Share
Basic net income (loss) per share amounts are computed based on the weighted average number of shares actually outstanding. Diluted net income (loss) per share amounts are computed using the weighted average number of common shares and common equivalent shares outstanding as if shares had been issued on the exercise of any common share rights unless the exercise becomes antidilutive and then only the basic per share amounts are shown in the report.
Capitalization of Oil Leases Costs
The Company uses the successful efforts cost method for recording its oil lease interests, which provides for capitalizing the purchase price of the project and the additional costs directly related to proving the properties and amortizing these amounts over the life of the reserve when operations begin or a shorter period if the property is shown to have an impairment in value or expensing the remaining balance if it is proven to be of no value. Expenditures for oil well equipment are capitalized and depreciated over their useful lives.
Environmental Requirements
At the report date environmental requirements related to the mineral claim interests acquired are unknown and therefore an estimate of any future cost cannot be made.
Foreign Currency Translation
Part of the transactions of the Company were completed in Canadian dollars and have been translated to US dollars as incurred, at the exchange rate in effect at the time. Related gains/losses are immaterial to the financial statement presentation as of December 31, 2005 and 2004. US dollars are considered to be the functional currency.
APEX RESOURCES GROUP, INC.
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial Instruments
The carrying amounts of financial instruments are considered by management to be their estimated fair values due their short term maturities.
Income Taxes
The Company utilizes the liability method of accounting for income taxes. Under the liability method deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax bases of the assets and liabilities and are measured using the enacted tax rates and laws that will be in effect, when the differences are expected to reverse. An allowance against deferred tax assets is recorded, when it is more likely than not, that such tax benefits will not be realized.
At December 31, 2005, the Company had a net operating loss available for carry forward of $8,525,261. The tax benefit of approximately $2,550,000 from the loss carry forward has been fully offset by a valuation reserve because the use of the future tax benefit is doubtful because the Company is unable to establish a predictable projection of operating profits for future years.
The net operating loss carryovers will expire beginning in the years 2005 through 2025.
Revenue Recognition
Revenue is recognized on the sale and transfer of properties or services and the receipt other sources of income.
Advertising and Market Development
The Company expenses advertising and market development costs as incurred.
Estimates and Assumptions
Management uses estimates and assumptions in preparing financial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of the assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were assumed in preparing these financial statements.
APEX RESOURCES GROUP, INC.
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentration of credit risk consists primarily of cash and account receivables. Cash balances are maintained in accounts that are not federally insured for amounts over $100,000 but are other wise in financial institutions of high credit quality. Accounts receivable are unsecured; however management considers them to be currently collectable.
Other Recent Accounting Pronouncements
The Company does not expect that the adoption of other recent accounting pronouncements to have any material impact on its financial statements.
3. OIL LEASES - BEAUFORT SEA PROJECT
On June 9, 1997 the Company purchased a 3.745% working interest, for $67,913, in the Beaufort Sea well Esso Pex Home et al Itiyok I-27 consisting of 640 acres and is located at Latitude 70-00', Longitude 134-00', Sections 7, 8, 17, 18, 27, 28, and 37, License No. 55, dated April 22, 1987. During 1982 and 1983 a consortium of companies participated in the drilling, casing, and testing the area to a depth of 12,980 feet. A review of the well data and geological prognosis indicates that the area would contain proven recoverable gas reserves of 108 Bscf and proven recoverable oil reserves of 8,976 MSTB.
The lease is shown at cost, which is considered by management to be its estimated fair value.
The other partners in the project are controlled by Exxon Oil Corporation, however there is no immediate plans to develop the area until a gas pipe line becomes available.
4. SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES
Officers-directors and their controlled entities and a consultant have acquired 21% of the outstanding common stock of the Company and have received the restricted common capital stock issued to them.
On December 31, 2005 the Company owed certain shareholders, directors and officers the sum of $397,893.
The Company has made no interest, demand loans to affiliates of $156,341. The affiliations resulted through common officers between the company and its affiliates, and the Company owns 13% of the outstanding stock of one of the affiliates.
APEX RESOURCES GROUP, INC.
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
5. GOING CONCERN
The Company will need additional working capital for its future planned activity and to service its debt, which raises substantial doubt about its ability to continue as a going concern. Continuation of the Company as a going concern is dependent upon obtaining sufficient working capital to be successful in that effort. The management of the Company has developed a strategy, which it believes will accomplish this objective, through additional short term loans, and equity funding, which will enable the Company to operate for the coming year.
ITEM 2. MANAGEMENTS’ DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
For a complete understanding, this Managements’ Discussion and Analysis should be read in conjunction with Part I- Item 1. Financial Statements to this Form 10-QSB and the Annual Report of the Company on Form 10-KSB for the year ended June 30, 2005.
General
The Company is in the development stage and engaged in the acquisition of interests in gas and oil properties and the acquisition of interests in real estate. The Company has not been engaged in the production of any gas and oil. For a detailed description of the oil and gas and real estate holding of the Company, please see the Annual Report of the Company filed on Form 10-KSB for the year ended June 30, 2005, and the subsequent Quarterly Reports filed by the Company on Form 10-QSB. Following is a brief description of relevant events that occurred during the quarter ended September 30, 2005.
Recent Developments
Oil and Gas Interests
Beaufort Sea
The Company holds a 3.745% working interest in the Beaufort Sea well Esso Pex Home, et. al. Itiyok I-27, consisting of 640 acres, located at Latitude 70-00', Longitude 134-00', Sections 7, 8, 17, 18, 27, 28 and 37. License No. 55, dated April 22, 1987. During 1982 and 1983 a consortium of companies participated in drilling, casing and testing the area to a depth of 12,980 feet.
The other partners in the project are coordinated by Imperial Oil Resources. It was recently announced that a consortium of oil and gas companies have filed an application to build a natural gas pipeline that could be used to transport gas from the Beaufort Sea region. No current plans have been formulated to perform further work in the immediate Beaufort area and it is anticipated this area will not be developed until a pipeline is built.
Bastian Bay Field, Plaquamines Parish, Louisiana
The Company owns a 6.25% working interest in the Bastian Bay Field Lease #16152 in Plaquamines Parish Louisiana. Until recently, Royal “T” Oil was the operator of this well. It turned over its interest in the well to Imperial Petroleum, Inc. Prior to Hurricane Katrina, Imperial had decided to work over the well at an estimated cost of $906,800. It was the Company’s understanding that Imperial intended to make a cash call to all participants. The participants in the well would be given the choice to pay the cash call or continue on a non-consent basis under which the non paying participants relinquish half of their working interest after Imperial has recouped its expenditures. The Company had determined to continue on a non-consent basis and not meet the cash call. If the Company fails to meet the cash call, its net revenue interest will be reduced from 6.25% to 3.125%. The Company has not yet learned how Imperial intends to proceed in the aftermath of Hurricane Katrina.
Henry Dome Prospect, Texas
The Company owns 2.5 participation units in the Henry Dome Prospect in McMullen County, Texas, for $12,500. These units give the Company a 1.875% working interest in JB Henry Dome #1 well. Recent flow testing of the well demonstrated flow of 450,000 cubic feet of gas per day. Following initial testing, acid washing of the well was performed to attempt to increase flow rates. Additional testing is ongoing as the operator has encountered many problems with this well. The estimated life expectancy of this well is at least six years.
Real Estate Interests
Abbecombec Ocean Village Resort
The Company owns two vacation homes in the Abbecombec Ocean Village Resort located on the shore of Clam Bay, which is 40 miles east of Halifax, Nova Scotia. The Company currently rents the dwellings on a month-to-month basis for $500 per month. The income generated by these properties is subject to a number of factors, including the time of year, occupancy rates among similar properties in the area and economic conditions in general. These properties are not subject to any mortgage or other obligation. The Company is currently trying to sell these properties. At this time the Company has no plans for renovate or otherwise improve the properties. The Company believes these properties are adequately insured.
Woodland Valley Ranch and Elk Valley Ranch, Arizona
During the quarter the Company learned that the mortgage holder on the 37 acres of undeveloped land owned by the Company in Woodland Valley Ranch, located in Apache County in northern Arizona and the two undeveloped lots, totaling 73 acres of real property, in Elk Valley Ranch in northern Arizona owned by the Company foreclosed on the mortgages on these lots on September 30, 2005, as a result of the Company’s failure to make the monthly mortgage payments on these properties.
Cowichan Lake, Victoria, B.C.
In January 2005, the Company paid approximately $39,000 toward the purchase price for Lot 4 on Upper Point Ideal Road in the Cowichan Lake District in Victoria B.C. In March 2005, the Company paid approximately $42,000 toward the purchase price of Lot 2. Part of the payment covered various fees and taxes, the remainder was applied to reduce the balance of the purchase price. In September 2005, the Company sold Lot 4 for $177,426. The Company used the proceeds from the sale of that property to retire the $87,500 mortgage on Lot 4 and the $78,000 mortgage on Lot 2. The Company is currently attempting to sell Lot 2. The Company acquired these properties for investment purposes and has no present intent to develop or improve these parcels.
The Company also owns approximately 5,254,365 or 5.7% of the outstanding common shares of Omega Ventures Group, Inc., a corporation whose common stock is traded on the Over-the-Counter Bulletin Board, stock symbol “OMGV.”
Liquidity and Capital Resources
The Company currently does not have sufficient cash reserves or cash flow from operations to meet its cash requirements. This raises substantial doubt about the Company’s ability to continue as a going concern. During the six months ended December 31, 2005, the Company financed its operations primarily through loans from related parties. During the quarter ended December 31, 2004, the Company received subscriptions to purchase 18,000,000 shares of its common stock in private placement transactions for cash totaling $2,450,000. As of December 31, 2005, the Company has received $23,000. The Company’s balance sheet reflects the remaining balance as stock subscriptions receivable. During the quarter ended December 31, 2004, the Company caused its transfer agent to issue the 18,000,000 shares. These shares, however, are being held in escrow and will only be delivered out as funds are received by the Company. During the quarter ended December 31, 2005, the Company did not issue any shares for services or in satisfaction of expenses, as a result, accounts payable to related parties increased to $397,893 compared to $323,604 at June 30, 2005.
On December 31, 2005, the Company had cash on hand of $22,685.
The Company has plans to further develop its oil and gas properties, which will require substantial additional working capital that the Company does not currently have. Moreover, the Company does not anticipate significant revenue from its operating activities in the upcoming quarter.
Results of Operations
Comparison of the three months ended December 31, 2005 and 2004
The Company sustained a net loss of $48,585 during the three months ended December 31, 2005 compared to a loss of $326,022 for the three months ended December 31, 2004. This decrease in loss was primarily the result of the Company not engaging in any exploration and development activities during the three months ended December 31, 2005, compared to the same period of 2004, as a result of the Company having limited available funds. The Company incurred the following expenses:
| | | Three months ended | |
| | | December 31, 2005 | | December 31, 2004 | |
| | | | | | |
| Travel | | $ | 929 | | $ | 50,687 | |
| Office expenses | | | 9,912 | | | 47,145 | |
| Professional | | | 3,000 | | | 9,100 | |
| Consultants | | | 2,677 | | | 159,328 | |
| Promotional | | | - | | | 6,668 | |
| Rent | | | 18,862 | | | 28,071 | |
| Exploration and development - oil and gas | | | - | | | 17,314 | |
| Other | | | 5,795 | | | 2,829 | |
| | | | | | | | |
Total | | $ | 41,175 | | $ | 321,142 | |
Travel expenses decreased $49,758 or 98% to $929 during the three months ended December 31, 2005 compared to December 31, 2004. This decrease is primarily the result of reduced travel for promotion due to limited financial resources during the three months ended December 31, 2005 compared to the same period of 2004. The Company anticipates travel expenses will remain low until such time as the Company obtains additional funding.
Office expenses decreased $37,233 or 79% to $9,912 during the three months ended December 31, 2005 compared to the same period 2004. This decrease is primarily the result of significantly reduced activity at the Salt Lake City office and other efforts to reduce office expenses in connection with the limited funds available to the Company. The Company expects office expenses to remain at this lower level until such time as the Company obtains additional financing.
Professional fees decreased from $9,100 during the three months ended December 31, 2004 to $3,000 during the three months ended December 31, 2005. This decrease is largely attributable to the Company retaining fewer professionals to provides services as a result of the Company’s inability to pay for such services. The Company expects professional expenses to continue at rates consistent with those experienced during the second fiscal quarter 2006 until such time as the Company has additional funds available for use.
Consultants fees decreased $156,651 or 98% to $2,677 during the three months ended December 31, 2005 compared to three month period ended December 31, 2004. The Company has no employees, rather management retains consultants to provide the services the Company needs. Again, as a result of efforts to reduce expenses, the Company retained very few consultants during the three months ended December 31, 2005 compared to the same three month period of 2004. The Company expects consultants fees to remain at about the same level in upcoming quarters unless the Company is able to obtain additional funding.
The Company incurred no promotional expenses during the quarter ended December 31, 2005, compared to $6,668 during the three months ended December 31, 2004. This decrease in promotional expenses, as with other decreases in expenses is attributable to our efforts to reduce expenses as much as possible. The Company will continue to limit promotional expenses until such time as need and funding justify increasing promotional efforts.
Rent expenses decreased $9,383 or 33% during the three months ended December 31, 2005 compared to 2004. We anticipate rents will remain fairly consistent with those experienced during the three month ended December 31, 2005 until the office lease for the Company’s Salt Lake City office expires later this year.
During the three months ended December 31, 2005, the Company incurred no expenses for exploration and development, compared to $17,314 during the three months ended December 31, 2004. This decrease is partially attributable to the Company having limited funds and partially the result of timing issues. The Company anticipates exploration and development expenses in the future will increase and return to higher levels in the upcoming fiscal quarters if the Company is able to obtain additional funding.
Other expenses increased to $5,795 for the three months ended December 31, 2005 compared to $2,829 for the three months ended December 31, 2004. This increase is primarily the result of fluctuations in the foreign currency exchange rate. Other than fluctuations in foreign currency exchange rate, which we cannot predict, we anticipate all other expenses include in other expenses to remain consistent with those experienced during the second fiscal quarter.
The Company generated no operating income during the three months ended December 31, 2005 or 2004. Non-operating income during the three months ended December 31, 2005, was $1,287 compared to $1,120 during the three months ended December 31, 2004.
Comparison of the six months ended December 31, 2005 and 2004
The Company sustained a net loss of $184,866 during the six months ended December 31, 2005 compared to a loss of $492,585 for the six months ended December 31, 2004. This decrease in loss was primarily the result of the Company not engaging in any exploration and development activities during the six months ended December 31, 2005, compared to the same period of 2004, as a result of the Company having limited available funds. The Company incurred the following expenses:
| | | Six months ended | |
| | | December 31, 2005 | | December 31, 2004 | |
| | | | | | |
| Travel | | $ | 20,014 | | $ | 54,154 | |
| Office expenses | | | 18,024 | | | 73,572 | |
| Professional | | | 18,529 | | | 9,860 | |
| Consultants | | | 72,459 | | | 236,475 | |
| Promotional | | | - | | | 10,678 | |
| Rent | | | 37,551 | | | 41,171 | |
| Exploration and development - oil and gas | | | - | | | 55,414 | |
| Other | | | 28,797 | | | 10,328 | |
| | | | | | | | |
Total | | $ | 195,374 | | $ | 491,652 | |
Travel expenses decreased $34,140 or 63% to $20,014 during the six months ended December 31, 2005 compared to December 31, 2004. This decrease is primarily the result of decreased travel for promotional purposes as a result of the limited financial resources of the Company. The Company anticipates travel expenses will continue to decrease until additional funding becomes available.
Office expenses decreased $55,548 or 75% to $18,023 during the six months ended December 31, 2005 compared to the same period 2004. This decrease is primarily the result of reducing the activities at its Salt Lake City office and other efforts to reduce office expenses in connection with the limited funds available to the Company.
Professional fees increased from $9,860 during the six months ended December 31, 2004 to $18,529 during the six months ended December 31, 2005. This increase is largely attributable to increases in accounting expenses. The Company intends to try and limit professional expenses in upcoming fiscal quarters because of its limited financial resources.
Consultants fees decreased $164,016 or 69% to $72,459 during the six months ended December 31, 2005 compared to six month period ended December 31, 2004. The Company has no employees, rather management retains consultants to provide the services the Company needs. Again, as a result of efforts to reduce expenses, the Company retained fewer consultants during the six months ended December 31, 2005 compared to the same six month period ended December 31, 2004. The Company expects consultants fees to continue to decrease in the future until such time as the Company is able to secure additional funding.
The Company incurred no promotional expenses during the six months ended December 31, 2005, compared to $8,747 during the six months ended December 31, 2004. This decrease in promotional expenses, as with other decreases in expenses is attributable to our efforts to reduce expenses as much as possible. The Company will continue to try to limit promotional expenses until such time as need and funding justify increasing promotional efforts.
Rent expenses remained fairly constant decreasing $3620 of 9% during the six months ended December 31, 2005 compared to the same six month period of 2004. We anticipate rents will continue at consistent rates until the lease on our Salt Lake offices expires later this year.
During the six months ended December 31, 2005, the Company incurred no expenses for exploration and development, compared to $16,122 during the six months ended December 31, 2004. This decrease is partially attributable to the Company having limited funds and partially the result of timing issues. The Company anticipates exploration and development expenses in the future will increase and return to higher levels in upcoming fiscal quarters if the Company is able to secure additional funding.
Other expenses increased to $18,469 for the six months ended December 31, 2005 compared to $10,328 for the six months ended December 31, 2004. This increase is primarily the result of fluctuations in the foreign currency exchange rate. Other than fluctuations in foreign currency exchange rate, which we cannot predict, we anticipate all other expenses include in other expenses to remain consistent with those experienced during the first six months of the current fiscal year.
The Company generated no operating income during the six months ended December 31, 2005 or 2004. Non-operating income during the six months ended December 31, 2005, was $3,784 compared to $11,067 during the six months ended December 31, 2004. This decrease is attributable to funds being used to refurbish houses at Abbecombec Ocean Village.
ITEM 3. CONTROLS AND PROCEDURES
The Company’s principal executive officers and our principal financial officer (the "Certifying Officers") are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Such officers have concluded (based upon their evaluations of these controls and procedures as of the end of the period covered by this report) that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by it in this report is accumulated and communicated to management, including the Certifying Officers as appropriate, to allow timely decisions regarding required disclosure.
The Certifying Officers have also indicated that there were no significant changes in the Company’s internal controls over financial reporting or other factors that could significantly affect such controls subsequent to the date of their evaluation, and there were no significant deficiencies and material weaknesses.
Management, including the Certifying Officers, does not expect that the Company’s disclosure controls or its internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any systems of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On December 14, 2005, the board of directors appointed Stephen Golde to serve as a director of the corporation. Mr. Golde is 57 years of age. Mr. Golde retired from the automotive industry in the 1990s and since that time his primary occupation has been that of a private investor. Mr. Golde owns 150,000 shares of Apex Resources Group. Mr. Golde is 57 years old. He is not a director of any other SEC reporting issuer. Mr. Golde is not related to any Company officer or director.
ITEM 6. EXHIBITS
Exhibits. The following exhibits are included as part of this report:
| | 31.1 | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | 31.2 | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | 32.1 | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized
| | APEX RESOURCES GROUP, INC. |
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| Date: March 15, 2006 | By: | /s/ John R. Rask |
| | | John R. Rask, President and Director |
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| Date: March 15, 2006 | By: | /s/ John M. Hickey |
| | | John M. Hickey, Secretary and Director |
