UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period endedJUNE 30, 2004
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 0-12809
Commission file number 0-12809
| State of Kansas | 48-0846635 |
|---|---|
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification #) |
1711 E. Frankford, Suite 104, Carrollton, Texas 75006
(Address of principal executive offices)
(214) 731-8844
(Issuer’s telephone number, including area code)
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
There were 127,578,710 shares of common stock, No Par Value, outstanding as of June 30, 2004.There were 127,578,710 shares of common stock, No Par Value,
outstanding as of June 30, 2004.
Transitional Small Business Disclosure Format (check one); Yes [ ] No [X]
-1-
Golden Chief Resources Inc.
(A Development Stage Enterprise)
Balance Sheet
(Unaudited)
| June 30 2004 | September 30 2003 | |||||||
|---|---|---|---|---|---|---|---|---|
| A S S E T S | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 226 | $ | -- | ||||
| Total Current Assets | 226 | $ | -- | |||||
| Total Assets | $ | 226 | $ | -- | ||||
| L I A B I L I T I E S and S T O C K H O L D E R S' D E F I C I T | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable | 14,844 | 31,284 | ||||||
| Accrued Expenses - Related Party | 11,569 | 60,796 | ||||||
| Total Current Liabilities | 26,413 | 92,080 | ||||||
| Stockholders' Deficit | ||||||||
| Common Stock, no par value | 3,633,186 | 3,567,292 | ||||||
| authorized 500,000,000 shares; | 127,578,710 | |||||||
| and 72,078,710 issued and outstanding | ||||||||
| Additional Paid-In Capital | 15,000 | 15,000 | ||||||
| Accumulated Deficit | (994,640 | ) | (994,640 | ) | ||||
| Deficit accumulated during the development stage | (2,679,733 | ) | (2,679,732 | ) | ||||
| Total Stockholders' Deficit | (92,080 | ) | (92,080 | ) | ||||
| Total Liabilities and Stockholders' Deficit | $ | (65,667 | ) | $ | -- | |||
-2-
Golden Chief Resources, Inc.
A Development Stage Enterprise
Statement of Operations
For Three and Nine Months Ended June 30, 2004 and 2003
(Unaudited)
| Cumulative During the Development | Three Months | Nine Month | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Stage | 2004 | 2003 | 2004 | 2003 | |||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Oil and gas | $ | 205,395 | $ | -- | $ | -- | $ | -- | $ | -- | |||||||||||||
| Other income | -- | -- | -- | -- | |||||||||||||||||||
| Total Revenue | 205,395 | -- | -- | -- | -- | ||||||||||||||||||
| Cost of Revenues | |||||||||||||||||||||||
| Lease operating expenses | 223,417 | -- | -- | -- | -- | ||||||||||||||||||
| Depletion | 29,254 | -- | -- | -- | -- | ||||||||||||||||||
| Total Cost of Revenues | 252,671 | -- | -- | -- | -- | ||||||||||||||||||
| Gross Profit | (47,276 | ) | -- | -- | -- | -- | |||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| Personnel costs | 813,482 | -- | -- | -- | -- | ||||||||||||||||||
| Consulting fees | 913,200 | -- | -- | -- | -- | ||||||||||||||||||
| Professional fees | 583,887 | 2,000 | -- | 2,000 | -- | ||||||||||||||||||
| Public relations | 183,140 | -- | -- | -- | -- | ||||||||||||||||||
| Travel | 83,285 | 238 | 244 | 238 | 3,168 | ||||||||||||||||||
| Rent | 16,290 | -- | -- | -- | -- | ||||||||||||||||||
| Other | 100,148 | 2,515 | 112 | 3,309 | 1,727 | ||||||||||||||||||
| Total Operating Expenses | 2,693,432 | 4,753 | 356 | 5,547 | 4,895 | ||||||||||||||||||
| Income from Operations | (2,740,708 | ) | (4,753 | ) | (356 | ) | (5,547 | ) | (4,895 | ) | |||||||||||||
| Other Income/(Expenses) | -- | ||||||||||||||||||||||
| Gain/(loss) on sale of investments | 41,331 | -- | -- | -- | -- | ||||||||||||||||||
| Unrealized gain on investments | 13,468 | -- | -- | -- | -- | ||||||||||||||||||
| Interest income | 631 | -- | -- | -- | -- | ||||||||||||||||||
| Income before income taxes | (2,685,278 | ) | (4,753 | ) | (356 | ) | (5,547 | ) | (4,895 | ) | |||||||||||||
| Income taxes | -- | -- | -- | -- | -- | ||||||||||||||||||
| Net Income | $ | (2,685,278 | ) | (4,753 | ) | (356 | ) | (5,547 | ) | (4,895 | ) | ||||||||||||
| Earnings per Share | $ | (0.07 | ) | $ | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | |||||||||||
| Weighted Average Shares Outstanding | 40,346,136 | 127,578,710 | 68,745,366 | 106,800,932 | 67,634,255 | ||||||||||||||||||
-3-
Golden Chief Resources Inc.
(A Development Stage Enterprise)
Statement of Changes in Stockholders' Deficit
From the Period August 1998 to June 30, 2004
| Common Stock Shares | Common Stock Amount | Additional Paid In Capital | Deficit Accumulated During the Development Stage | Accumulated Deficit | Total Stockholders' Deficit | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance October 1, 1996 | 3,221,715 | $ | 994,640 | $ | -- | $ | -- | $ | (994,640) | $ | -- | |||||||||||||||
| Net loss | -- | -- | -- | -- | ||||||||||||||||||||||
| Balance September 30, 1997 | 3,221,715 | 994,640 | -- | -- | (994,640) | -- | ||||||||||||||||||||
| Stock issued for services and expenses | 9/98 | 1,594,100 | 1,594 | -- | 1,594 | |||||||||||||||||||||
| Net loss | -- | -- | -- | (1,594) | -- | (1,594 | ) | |||||||||||||||||||
| Balance September 30, 1998 | 4,815,815 | 996,234 | -- | (1,594) | (994,640) | -- | ||||||||||||||||||||
| Shares issued for: | ||||||||||||||||||||||||||
| Expenses | 10/98 | 568,892 | 2,477 | 2,477 | ||||||||||||||||||||||
| Marketable securities | 12/98 | 721,932 | 7,219 | 7,219 | ||||||||||||||||||||||
| Cash | 01/99 | 33,000 | 3,300 | 3,300 | ||||||||||||||||||||||
| Marketable securities | 02/99 | 89,460 | 8,946 | 8,946 | ||||||||||||||||||||||
| Consulting | 03/99 | 50,000 | 10,000 | 10,000 | ||||||||||||||||||||||
| Cash | 04/99 | 20,000 | 2,000 | 2,000 | ||||||||||||||||||||||
| Expenses | 04/99 | 20,000 | 4,000 | 4,000 | ||||||||||||||||||||||
| Cash | 07/99 | 45,000 | 9,000 | 9,000 | ||||||||||||||||||||||
| Marketable securities | 07/99 | 137,500 | 27,500 | 27,500 | ||||||||||||||||||||||
| Net loss | (74,342) | (74,342 | ) | |||||||||||||||||||||||
| Balance September 30, 1999 | 6,501,599 | 1,070,676 | -- | (75,936) | (994,640) | 100 | ||||||||||||||||||||
| Shares issued for: | ||||||||||||||||||||||||||
| Oil and gas properties | 10/99 | 9,750,000 | ||||||||||||||||||||||||
| Cash | 10/99 | 25,000 | 25,000 | 25,000 | ||||||||||||||||||||||
| Cash | 11/99 | 5,000 | 5,000 | 5,000 | ||||||||||||||||||||||
| Cash and subscription | 12/99 | 10,000 | 10,000 | 10,000 | ||||||||||||||||||||||
| Cash | 01/00 | 5,100 | 5,100 | 5,100 | ||||||||||||||||||||||
| Cash | 02/00 | 26,000 | 26,000 | 26,000 | ||||||||||||||||||||||
| Cash | 03/00 | 14,500 | 14,500 | 14,500 | ||||||||||||||||||||||
| Cash | 06/00 | 27,000 | 27,000 | 27,000 | ||||||||||||||||||||||
| Public relations services | 06/00 | 50,000 | 50,000 | 50,000 | ||||||||||||||||||||||
| Professional services | 07/00 | 150,000 | 135,000 | 135,000 | ||||||||||||||||||||||
-4-
Golden Chief Resources Inc.
(A Development Stage Enterprise)
Statement of Changes in Stockholders' Deficit
From the Period August 1998 to June 30, 2004
Continued
| Common Stock Shares | Common Stock Amount | Additional Paid In Capital | Deficit Accumulated During the Development Stage | Accumulated Deficit | Total Stockholders' Deficit | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Cash | 08/00 | 10,000 | 10,000 | 10,000 | ||||||||||||||||||||||
| Nonmarketable securities | 09/00 | 400,000 | 20,000 | 20,000 | ||||||||||||||||||||||
| Net loss | (455,230) | (455,230 | ) | |||||||||||||||||||||||
| Balance September 30, 2000 | 16,974,199 | 1,398,276 | (531,166) | (994,640) | (127,530 | ) | ||||||||||||||||||||
| Shares issued for: | ||||||||||||||||||||||||||
| Oil and gas properties | 10/00 | 4,924,500 | 92,956 | 92,956 | ||||||||||||||||||||||
| Professional services | 10/00 | 200,000 | 65,000 | 65,000 | ||||||||||||||||||||||
| Options granted | 03/01 | 15,000 | 15,000 | |||||||||||||||||||||||
| Oil and gas properties | 04/01 | 5,380,000 | -- | |||||||||||||||||||||||
| Professional services | 04/01 | 400,000 | 40,000 | 40,000 | ||||||||||||||||||||||
| Net loss | (573,166) | (573,166 | ) | |||||||||||||||||||||||
| Balance September 30, 2001 | 27,878,699 | 1,596,232 | 15,000 | (1,104,332) | (994,640) | (487,740 | ) | |||||||||||||||||||
| Shares issued for: | ||||||||||||||||||||||||||
| Consulting services | 12/01 | 3,500,000 | 245,000 | 245,000 | ||||||||||||||||||||||
| Legal services | 12/01 | 1,000,000 | 70,000 | 70,000 | ||||||||||||||||||||||
| Consulting services | 01/02 | 2,900,000 | 225,000 | 225,000 | ||||||||||||||||||||||
| Legal services | 01/02 | 200,000 | 28,000 | 28,000 | ||||||||||||||||||||||
| Consulting services | 02/02 | 6,000,000 | 420,000 | 420,000 | ||||||||||||||||||||||
| Consulting services | 03/02 | 1,200,000 | 108,000 | 108,000 | ||||||||||||||||||||||
| Legal services | 04/02 | 4,000,000 | 80,000 | 80,000 | ||||||||||||||||||||||
| Reverse asset acquisition | 05/02 | (400,000 | ) | (20,000 | ) | (20,000 | ) | |||||||||||||||||||
| Legal services | 05/02 | 2,000,000 | 40,000 | 40,000 | ||||||||||||||||||||||
| Professional services | 06/02 | 800,000 | 12,000 | 12,000 | ||||||||||||||||||||||
| Legal services | 06/02 | 3,000,000 | 60,000 | 60,000 | ||||||||||||||||||||||
| Director and officer compensation | 09/02 | 15,000,000 | 698,060 | 698,060 | ||||||||||||||||||||||
| Net loss | (1,570,505) | (1,570,505 | ) | |||||||||||||||||||||||
| Balance September 30, 2002 | 67,078,699 | 3,562,292 | 15,000 | (2,674,837) | (994,640) | (92,185 | ) | |||||||||||||||||||
| Rounding | 11 | |||||||||||||||||||||||||
| Stock Issued | 05/03 | 5,000,000 | 5,000 | 5,000 | ||||||||||||||||||||||
| Net loss | (4,895) | (4,895 | ) | |||||||||||||||||||||||
| Balance September 30, 2003 | 72,078,710 | 3,567,292 | 15,000 | (2,679,732) | (994,640) | (92,080 | ) | |||||||||||||||||||
| Shares issued for: | ||||||||||||||||||||||||||
| Cash | 10,000,000 | 10,000 | 10,000 | |||||||||||||||||||||||
| Net loss | ||||||||||||||||||||||||||
| Balance December 31, 2003 | 82,078,710 | 3,577,292 | 15,000 | (2,679,732) | (994,640) | (82,080 | ) | |||||||||||||||||||
| Shares issued for: | ||||||||||||||||||||||||||
| Reduce payable | 01/04 | 30,000,000 | 30,000 | 30,000 | ||||||||||||||||||||||
| Reduce payable | 02/04 | 500,000 | 16,444 | 16,444 | ||||||||||||||||||||||
| Cash | 03/04 | 15,000,000 | 15,000 | 15,000 | ||||||||||||||||||||||
| Net loss | (794) | |||||||||||||||||||||||||
| Balance March 31, 2004 | 127,578,710 | 3,638,732 | 15,000 | (2,680,526) | (994,640) | (21,434 | ) | |||||||||||||||||||
| Net loss | (4,753) | (4,753 | ) | |||||||||||||||||||||||
| Balance June 30, 2004 | 127,578,710 | 3,638,732 | 15,000 | (2,685,279) | (994,640) | (26,187 | ) | |||||||||||||||||||
-5-
Golden Chief Resources Inc.
(A Development Stage Enterprise)
Statement of Cash Flows
(Unaudited)
| For the Nine Months Ended June 30 | Cumulative During the Development | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Cash Flows from Operating Activities: | 2004 | 2003 | Stage | |||||||||||
| Net (Loss) | $ | (5,547 | ) | $ | (4,895 | ) | $ | (2,685,278 | ) | |||||
| Adjustments to reconcile net loss to net cash | ||||||||||||||
| provided by operating activities: | ||||||||||||||
| Depletion | -- | -- | 29,255 | |||||||||||
| Amortization of prepaid expenses | -- | -- | 126,250 | |||||||||||
| Gain on sale of marketable securities | -- | -- | (41,331 | ) | ||||||||||
| Gain on disposal of assets | -- | -- | (22,135 | ) | ||||||||||
| Stock Issued for Services | -- | -- | 1,583,221 | |||||||||||
| Change in assets and liabilities: | ||||||||||||||
| Decrease(increase) in: | ||||||||||||||
| Accounts receivable | -- | -- | (9,700 | ) | ||||||||||
| Increase(Decrease) in: | ||||||||||||||
| Accounts Payable | (19,227 | ) | (231 | ) | 277,994 | |||||||||
| Accrued expenses | -- | -- | 699,571 | |||||||||||
| Net Cash Used in Operating Activities | (24,774 | ) | (5,126 | ) | (42,153 | ) | ||||||||
| Cash Flows from Investing Activities: | ||||||||||||||
| Purchase oil and gas properties | -- | -- | (174,400 | ) | ||||||||||
| Proceeds from sale of securities | -- | -- | 96,027 | |||||||||||
| Purchase of marketable securities | -- | -- | (11,031 | ) | ||||||||||
| Net Cash Provided from Investing Activities | -- | -- | (89,404 | ) | ||||||||||
| Cash Flows from Financing Activities: | ||||||||||||||
| Proceeds of stock sales | 25,000 | 5,000 | 166,900 | |||||||||||
| Proceeds of short term debt | -- | -- | 10,000 | |||||||||||
| Repayment from short term notes | -- | -- | (10,000 | ) | ||||||||||
| Repayment of net profits interest payable | -- | -- | (24,557 | ) | ||||||||||
| Net Cash Used In Financing Activities | 25,000 | 5,000 | 142,343 | |||||||||||
| Net Increase (Decrease) in Cash | 226 | (126 | ) | 10,786 | ||||||||||
| Cash -Beginning of year | -- | 126 | -- | |||||||||||
| Cash -End of year | $ | 226 | $ | (151 | ) | $ | -- | |||||||
-6-
Golden Chief Resources Inc.
(A Development Stage Enterprise)
Statement of Cash Flows
(Unaudited)
Continued
| For the Nine Months Ended June 30 | Cumulative During the Development | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | Stage | ||||||||||||
| Supplementary Disclosure: | ||||||||||||||
| Cash Paid for Interest | $- | $ | -- | $ | -- | |||||||||
| Cash Paid for Taxes | -- | -- | -- | |||||||||||
| Non-cash transactions: | ||||||||||||||
| Shares Issued for Services | ||||||||||||||
| Various expenses | -- | -- | 3,771 | |||||||||||
| Consulting | -- | 998,000 | 16,008,300 | |||||||||||
| Professional services | -- | 290,000 | 449,000 | |||||||||||
| Marketable securities | -- | -- | 43,665 | |||||||||||
| Prepaid professional services | -- | -- | 135,000 | |||||||||||
| Prepaid public relations services | -- | -- | 37,500 | |||||||||||
| Non-Marketable securities | -- | -- | 20,000 | |||||||||||
| Value of options granted as compensation | -- | -- | 15,000 | |||||||||||
| Fixed assets acquired with: | ||||||||||||||
| Oil and gas properties | -- | -- | 92,956 | |||||||||||
| Net profits interest payable assumed in | -- | -- | 99,000 | |||||||||||
| purchase | ||||||||||||||
-7-
Golden Chief Resources, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
Three and Nine Months Ended June 30, 2004 and 2003
GENERAL INFORMATION
The Company was incorporated as Arts Antique Autos, Ltd. in November 1976 in the State of Kansas. During the early 1980‘s the Company engaged in oil and gas operating, mining, real estate operations. During the mid 1980‘s, economic conditions caused the Company to lose its asset and revenue base. Management decided to discontinue any further business operations and completed the liquidation of the few remaining assets during 1986. The Company did not operate a line of business until the year ended September 30, 2000. During the fiscal year ended September 30, 1998, new assets were contributed in an attempt to revive the Company. In October 1999, interests in oil and gas properties were contributed by third parties in exchange for newly issued stock. This resulted in a change in control of the Company. In July of 2002, the Company abandoned the oil assets by transferring the assets to one of the shareholders in exchange for the debt associated with the property. Management’s plans include efforts to raise operating and development capital followed by further acquisition and development of oil and gas properties.
DEVELOPMENT STAGE ENTERPRISE
Due to the loss of assets and operations in 1986, the Company’s current activity is the initiation of a new phase. As a result, the Company has reemerged as a development stage enterprise. The Company will continue to be considered to be in a development stage until it has begun significant operations and is generating significant revenues.
The unaudited interim financial statements of the Company as of June 30, 2004 and for the three and nine months ended June 30, 2004, included herein have been prepared in accordance with the instructions for Form 10QSB under the Securities Exchange Act of 1934, as amended, and Article 10 of Regulation S-X under the Securities Act of 1933, as amended. The June 30, 2004 Balance Sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations relating to interim consolidated financial statements.
In the opinion of management, the accompanying consolidated unaudited interim financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company at June 30, 2004, and the results of their operations for the three and nine months ended June 30, 2004, the period from remerging as a development stage enterprise (1986) to September 30, 2003, and the period from emerging as a development stage enterprise (1986) to June 30, 2004, and their cash flows for the same periods.
The results of operations for such periods are not necessarily indicative of results expected for the full year or for any future period. These financial statements should be read in conjunction with the audited consolidated financial statements as of September 30, 2003 and related notes included in the Company’s Form 10-KSB filed with the Securities and Exchange Commission.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LONG-LIVED ASSETS
Long-lived assets consist primarily of property and equipment, excess of cost over net assets of acquired businesses, and other intangible assets. The recoverability of long-lived assets is evaluated at the operating unit level by an analysis of operating results and consideration of other significant events or changes in the business environment. If an operating unit has indications of impairment, such as current operating losses, the Company will evaluate whether impairment exists on the basis of undiscounted expected future cash flows from operations before interest for the remaining amortization period. If impairment exists, the carrying amount of the long- lived asset is reduced to its estimated fair value, less any costs associated with any final settlement. As of September 30, 2003, there was no impairment of the Company’s long-lived assets.
-8-
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry-forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has recorded a 100% valuation allowance against net deferred tax assets due to uncertainty of their ultimate realization.
The Company’s differences arise principally from the difference in the way oil and gas assets are deducted and from the deductibility of accrued salaries for financial statement and income tax purposes
EARNINGS PER SHARE
Accounting rules provide for the calculation of “Basic” and “Diluted” earnings per share. Basic earnings per common share excludes dilutive securities and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per common share reflects the potential dilution of securities that could share in the earnings of the entity on an “as if” converted basis. This is done by dividing net income available to common shareholders, as adjusted if necessary, by the weighted average number of common shares outstanding plus potential dilutive securities. The Company had no dilutive securities during 2003 or 2002.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents for purposes of preparing its Statement of Cash Flows. The Company had no cash equivalents at June 30, 2004.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Management estimates that the carrying value of financial instruments reported in the financial statements approximates their fair values.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, the 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.
CONCENTRATIONS
The Company’s operations are all in the oil and gas industry. As such, revenues, costs, etc. are subject to changes due to national and international inventory levels, variations in consumption, and other discrete factors. The Company currently owns interests in only two properties and deals with a single operator on each property. Should anything happen to the operator of either property, it is believed that a substitute operator would be available.
-9-
LEASE
The Company leases its office space under a month-to-month lease. Rent expense totaled $1,800 for the year ended September 30, 2002.
Recent Accounting Pronouncements
In April 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (SFAS) No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. The Statement further clarifies accounting for derivative instruments. The company believes the adoption of this Statement will have no material impact on its financial statements.
In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” (“SFAS 150”). SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. We do not believe the adoption of SFAS 150 will have a material impact on our consolidated financial statements.
NOTE 2: OIL AND GAS PROPERTIES
The Company acquired an interest in a non-producing field during the year ended September 30, 2000. This field had produced gas through 1992, but was shut in due to the low price of gas and the costs associated with producing the gas and making it marketable. After reworking wells and production equipment, the field was returned to production in January 2000. In September 2002, this along with other oil & gas properties were transferred to an officer and major shareholder in return for the liabilities associated with the oil & gas assets.
NOTE 3: STOCK TRANSACTIONS
During the previous quarter the Company agreed to issue 30,000,000 shares of the Company’s common stock to the Company’s executive vice president to reduce the Company’s payable to him by $30,000. The Company issued 500,000 shares to the Company’s previous independent auditor to eliminate the Company’s payable to him in the amount of $16,440. The Company also arranged to sell 15,000,000 shares for $15,000 cash to be used in reducing payables and securing the audits necessary to bring the Company’s SEC filings up to date.
During the quarter ended December 31, 2003 the Company arranged for the sale of 10,000,000 shares of the Company’s common stock for $10,000 with such funds to be used in reducing payables and securing the audits to bring the Company’s SEC filings up to date.
In December 2001, a 1 for 10 reverse split of the Company’s stock was approved at a special stockholders’ meeting. All share issuances and per- share information, along with option information, in the financial statements and notes have been restated to reflect the effects of the reverse split. It has been estimated that ten additional shares will be issued as a result of the decision to round any stockholder of less than one share after the reverse split up to one share.
During September 1998, the Board approved the issuance of 1,594,100 shares of common stock to its President and Secretary for past services provided to the Company valued at $1,000 and reimbursement of expenses totaling $594.
During the quarter ended December 31, 1998, the Company issued 538,892 shares valued at $2,177 to officers and directors or their assignees for expenses incurred on behalf of the Company. Additionally, 30,000 shares valued at $300 were issued for investment banking services and 721,932 shares valued at $7,219 were issued to a related entity in exchange for marketable securities. During the last three quarters ending September 30, 1999, the Company issued 98,000 shares for $14,300 cash, 226,960 shares to related parties for marketable securities, and 70,000 shares valued at $14,000 for consulting and professional services.
-10-
During October 1999, the Company issued 9,750,000 shares to Red River Properties, Inc. in exchange for a 10% working interest in the JFS field in Dimmit County, Texas. Because this property was acquired from a related party, carryover basis was used to record the property. The related party had no basis in the property and the carryover basis was zero. During the year ended September 30, 2000, the Company issued 122,600 shares for cash proceeds of $122,600 pursuant to a private placement memorandum. A public relations firm was issued 50,000 shares valued at $50,000 for Internet promotion of the Company. A consultant was employed to increase public awareness of the Company and assist with fund-raising programs in exchange for 150,000 shares valued at $135,000. In September 2000, 400,000 shares were issued in exchange for 100,000 shares of a closely-held oil and gas company. This interest represents less than 5% of the outstanding stock of the investee.
During October 2000, the Company issued, 4,924,500 shares to Red River Properties, Inc. in exchange for an additional 15% working interest in the JFS field. Red River had a $92,956 basis in this interest which carried over since it is a related party. In acquiring this 15% interest, the Company took the property subject to a $99,000 Net Profits Interest which will be paid before the Company realizes any net cash flow from the interest. Also 200,000 shares valued at $65,000 were issued during October 2000 for legal and public relations services. During April 2001, the Company issued 5,380,000 shares to Red River for a 3.75% working interest in the Kingsridge field in LaFourche Parish, Louisiana. This oil and gas producing field immediately began yielding revenues to the Company. Red River had no basis in the property and no basis was recorded on the Company’s books for this purchase. Additionally, 400,000 shares valued at $40,000 were issued in April 2001 for legal and financial consulting services.
In December 2001 the Company issued common shares pursuant to the S-8 filing to Steve Owen in the amount of 2,500,000 shares valued at $175,000; Gene Maloney in the amount of 1,000,000 shares valued at $70,000; and 1,000,000 shares to Aden L. Vickers valued at $70,000. The shares to Mr. Owen were issued pursuant to his agreement to provide specific consulting and advisory services in the area of petroleum engineering, identification of possible asset acquisitions, and petroleum geology services. The shares to Mr. Maloney were issued pursuant to his financial consulting agreement with the Company. The shares to Mr. Vickers were issued as payment for legal fees relative to the filing of the S-8 registration statement.
During the quarter ended March 31, 2002 the Company has issued an additional 9,100,000 shares pursuant to the S-8 registration statement as follows. Gene Maloney was issued 1,900,000 shares (valued at $95,000) pursuant to his consulting agreement. Steve Owen was issued 6,000,000 shares (valued at $420,000) pursuant to his consulting and advisory agreement. William Andrew Stack was issued 200,000 shares (valued at $28,000) pursuant to his agreement to provide certain legal services to the Company. 2,200,000 shares (valued at $238,000) were issued to Dr. Sarvotham Chary who has agreed to provide advisory services in overseas markets.
During the quarter ended June 30, 2002 the Company has issued an additional 9,000,000 shares (valued at $180,000) pursuant to the S-8 registration statement to consultants and attorneys pursuant to their agreement to provide certain legal services to the Company. The Company also issued 800,000 restricted shares to Vision Publishing for market research services which were valued at $12.000.
In September 2002, the Company issued a total of 15,000,000 shares to the officers of the Company in exchange for their agreement to waive and forego any benefit from their employment agreements and that the Company shall cancel those agreements including stock option grants. A total of $698,060 had been accrued as salaries under the respective employment agreements.
At September 30, 2003 and 2002, the Company has reserved 2,500,000 and 5,500,000 shares, respectively, of its authorized but unissued common stock for possible future issuance in connection with the potential exercise of stock options.
NOTE 4: STOCK OPTIONS
At September 30, 2003, the Company had outstanding options for the purchase of its common stock as presented below. These options are related to employment agreements and services rendered to the Company.
| Exercise Price | Exercise Period | # of Shares | ||||||
|---|---|---|---|---|---|---|---|---|
| $0.20 per share | Through 12/31/04 | 50,000 | ||||||
| $0.10 per share | Through 12/31/05 | 200,000 | ||||||
| Total | 250,000 | |||||||
-11-
Changes in outstanding options during the year were as follows:
| Options outstanding at September 30, 2002 | 250,000 | ||||
| Cancelled | -0- | ||||
| Expirations | -0- | ||||
| Grants | -0- | ||||
| Options outstanding at September 30, 2003 | 250,000 | ||||
There is no provision for income tax expense or benefit in 2003 or 2002. This is due to the fact there is no current foreseeable taxable income against which to offset these losses. Net operating losses available for carry-forward are presented in the table below.
| Year of Expiration | Amount of Net Operating Loss Carry Forward | ||||
|---|---|---|---|---|---|
| 2018 | $ | 1,541 | |||
| 2019 | 69,401 | ||||
| 2020 | 261,503 | ||||
| 2021 | 309,836 | ||||
| 2022 | 1,570,505 | ||||
| 2023 | 4,895 | ||||
| Total | $ | 2,217,681 | |||
Income tax expense consists of the following at September 30, 2003 and 2002:
| 2003 | 2002 | |||||||
|---|---|---|---|---|---|---|---|---|
| Current federal income taxes | $ -- | $ -- | ||||||
| Current state income taxes | -- | -- | ||||||
| Current income tax expense | -- | -- | ||||||
| Deferred tax expense | -- | -- | ||||||
-12-
The following table presents a reconciliation of income tax calculated at the statutory Federal rate to the Company’s income taxes.
| 2003 | 2002 | |||||||
|---|---|---|---|---|---|---|---|---|
| Tax calculated on financial statement net loss | $ (565 | $ | (533,972 | ) | ||||
| Amortization and deduction of oil and gas | ||||||||
| properties | -0- | (2,350 | ) | |||||
| Nondeductible expenses | -0- | 1,253 | ||||||
| Deferral of accrued salaries | -0- | -0- | ||||||
| Net operating loss available for carry forward | (565 | 535,069 | ||||||
| Provision for income taxes | $ -- | $ | -- | |||||
As discussed at Note 1, deferred tax assets and liabilities consist of the following:
| 2003 | 2002 | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Deferred federal tax liability | $ | -0- | $ | -0- | ||||||||||||||||
| Deferred state tax liability | $ | -0- | $ | -0- | ||||||||||||||||
| Total Deferred Tax Liabilities | $ | -0- | $ | -0- | ||||||||||||||||
| Deferred federal tax asset | 925,879 | 925,314 | ||||||||||||||||||
| Deferred state tax asset | 122,468 | 122,468 | ||||||||||||||||||
| Less valuation allowance | (1,048,347) | (1,047,782) | ||||||||||||||||||
| Total Deferred Tax Assets | $ | -0- | $ | -0- | ||||||||||||||||
| Net Deferred Tax Assets and Liabilities | $ | - | $ | - | ||||||||||||||||
Although the Company has net operating loss carry-forwards as indicated above, it is not foreseeable when or if benefits arising from these losses will be realized. Due to this uncertainty, a valuation allowance has been established to defer recognition of any benefit until it becomes reasonably clear that these benefits will be utilized.
The following temporary differences gave rise to deferred tax assets/(liabilities):
| 2003 | 2002 | |||||||
|---|---|---|---|---|---|---|---|---|
| Accrued salaries and options | $ | -0- | $ | 508,725 | ||||
| Fixed assets | -0- | (54,760 | ) | |||||
| Net operating loss carry-forwards | -0- | 747,050 | ||||||
During the previous quarter the Company agreed to issue 30,000,000 shares of the Company’s common stock to the Company’s executive vice president to reduce the Company’s payable to him by $30,000. (See Stock Transactions above)
For the year ended September 30, 2002, the oil & gas properties were transferred to the Company’s President in exchange for the liabilities associated with the assets. Stock was issued to the officers in exchange for the accrued salaries and stock options.
-13-
In March 2000, the Company entered into employment contracts which were made effective to October 12, 1999, and run through October 2002 (not including automatic annual renewals thereafter) with its president and vice-president. These contracts provide for salaries of $120,000 per year which are to be accrued if not paid, options to purchase specified numbers of shares, and other standard employee benefits should the Company elect to provide them to any employee. In March 2001, the Company entered into a three-year contract with its corporate secretary providing for a salary of $50,000 per year along with standard benefits available to any other employee. The aggregate commitment under these contracts for future salaries at September 30, 2000, excluding stock options and other possible compensation, was approximately $373,000. In September 2002, the Company and the officers agreed to cancel the employment contracts by issuing a total of 15,000,000 shares of stock.
The following table sets forth the computation of basic and diluted earnings per common share (EPS) for the years ended September 30, 2003 and 2002.
| 2003 | 2002 | |||||||
|---|---|---|---|---|---|---|---|---|
| Numerator: | ||||||||
| Net income from continuing operations | $ | (4,895 | ) | $ | (1,570,505 | ) | ||
| Denominator: | ||||||||
| Basic weighted average shares outstanding | 39,423,143 | 39,423,143 | ||||||
| Dilutive options | -- | -- | ||||||
| Denominator for diluted EPS | 39,423,143 | 39,423,143 | ||||||
| Earnings/(loss) per share: | ||||||||
| Basic | $ | (0.00 | ) | $ | (0.04 | ) | ||
| Diluted | (0.00 | ) | (0.00 | ) | ||||
As discussed in the General Information regarding the Development Stage Enterprise, the Company had no substantial operations between 1986 and September 30, 1999. Since that date, the Company has generated some new capital, as indicated above, and has acquired interests in oil and gas leases which are producing revenues. However, such revenues have yet to significantly overcome sizable lease operating expenses. Management’s plans consist primarily of the generation of significant new capital. Should management prove unsuccessful in its fund-raising efforts, the Company is not in any real danger of dissolution as long as the officers and directors are willing to pay the nominal costs of keeping it in good standing. Management continues to seek opportunities to acquire additional oil and gas interests or to identify a viable merger candidate. No predictions can be made as to the success of these plans.
In order for the Company to proceed an input of capital and or assets must be forthcoming. Management is actively seeking both, and in the previous quarter secured the input of an additional $15,000 from an investor to provide cash to reduce payables and secure the audits necessary to bring the Company’s SEC filings to date. In the quarter ended December 31, 2003 the Company secured the input of $10,000 for these purposes.
At the end of the previous fiscal year the Company’s management determined that continuing operation of the oil and gas properties was not of economic benefit to the Company and entered into an agreement with the Company’s president whereby he agreed to accept the liabilities associated with the properties and receive the properties from the Company. This transaction effectively removed all producing properties and transferred them to the Company’s president along with the liabilities associated with them.
-14-
On December 17, 2001 a special meeting of shareholders was held in Dallas, Texas at which the Company agreed to effect a reverse split of its common stock at a 1 for 10 ratio. This action was effective as soon as practical and was effected in the trading of the Company’s shares on January 2, 2002. The meeting also approved the filing of an S-8 registration statement with the Securities and Exchange Commission to allow the issuance of shares to consultants, advisors and attorneys. The S-8 statement was filed on December 21, 2001. The meeting also approved the change of corporate name to be determined at a later date by management.
During the quarter ended June 30, 2001 the Company continued to develop sources for outside financing, and also continued to review and evaluate possible acquisitions. The Company reviewed several possible acquisitions, some of which would require capital infusions along with issuance of the Company’s common stock to complete the transaction. While no transactions were entered into, management is confident that with the heightened activity in the energy industry certain transactions can be completed when adequate financing is available.
During the current quarter the Company’s capital resources were extremely limited, but the Company expects to begin to proceed with bringing the Company’s SEC reporting current. The prospects for the Company will depend entirely on its ability to secure future financing and find a suitable line of business.
Management has met with several parties who could potentially assist in the above financing. While the overall energy industry is enjoying continued positive results, the financing of small companies in the energy sector is still difficult.
During the year ago quarter the Company’s capital resources were extremely limited. Company management expected that the one for ten reverse split of the Company’s common stock would result in improved marketability of the stock which could allow for the Company to make limited private placements to bring in capital for acquisitions and operations. To date only limited success has been evident, but management continues to seek effective results in this area.
The Company reported no revenues during the current quarter, and had only minimal expenses in securing the audits and proceeding with the SEC reporting requirements.
The Company reported revenues of $8,538 during the quarter ended June 30, 2002, most of which arose from the JFS property. The expenses incurred reflect the increased activity of the period relative to the inactivity of the year earlier quarter and the Company’s efforts to resume trading of the common stock.
The Company reported a loss of $207,111 for the three months ended June 30, 2002 as compared to a net loss of $187,824 for the previous year’s quarter. The Company reported a loss of $1,510,831 for the nine months ending June 30, 2002 as compared to a loss of $463,512 for the same period a year ago. These results also are reflective of the increased level of activity.
During the current the quarter the Company issued no shares of the Company’s common stock, but the reader’s attention is directed to Note 2 to the financial statements for a discussion of shares preciously issued during the fiscal year.
In April 2001, the Company issued 3,000,000 common shares valued at $30,000 to its new management consultant. This issuance represents the stock portion of the fee to be paid to the consultant for the first six months of services. The remaining $30,000 is to be paid in cash.
On March 5, 2001 the Company acquired a three and three quarters percent (3.75%) working interest in the Kingsridge Field located in Lafourche Parish, Louisiana effective April 1, 2001. The Company acquired the interest from Red River Properties, Inc., a major stockholder of the Company in exchange for the issuance of 53,800,000 shares of the Company’s common stock to Red River Properties, Inc. The Kingsridge Field was returned to production early in the year 2000, and currently produces approximately 200 barrels of oil per day along with associated natural gas. While the Company’s interest is small it does provide an additional revenue source for the Company’s operations. The property is operated by Alpine Exploration Companies of Dallas, Texas an unrelated third-party.
No filings were made during the quarter on Form 8K.
-15-
Where this Form 10-QSB includes “forward-looking” statements within the meaning of Section 27A and Section 21E of the Securities Act, the Company desires to take advantage of the “safe harbor” provisions thereof. Therefore, the Company is including this statement for the express purpose of availing itself of the protections of such safe harbor provisions with respect to all of such forward-looking statements. The forward-looking statements in this Form 10-QSB reflect the Company’s current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ from those anticipated. These risks include, but are not limited to, economic conditions within the industry, changing prices for gas and oil, competition for leases, world-wide inventory levels, accidents, and environmental regulations. In this Form 10-QSB, the words “anticipates,” “believes, “expects,” “intends,” “future” and similar expressions identify forward-looking statements. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that may arise after the date hereof. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by this section.
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: July 29, 2004 Date: July 29, 2004 | GOLDEN CHIEF RESOURCES, INC. /s/JAMES W. LANDRUM By: James W. Landrum, President /s/ M. H. MCILVAIN By: M. H. McIlvain, Executive Vice President and Chief Financial Officer |
-16-
