U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE QUARTERLY PERIOD ENDED
September 30, 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: 0-26101
GOLDEN SPIRIT GAMING LTD.
(Exact name of registrant as specified in its charter)
DELAWARE 52-2132622
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1288 Alberni Street, Suite 806, Vancouver, V6E 4R8
British Columbia, Canada
(Address of registrant's principal executive offices) (Zip Code)
604.664.0499
(Registrant's Telephone Number, Including Area Code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act) Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date. As of September 30, there
were 238,600,192 shares of the issuer's $.0001 par value common stock issued
and outstanding.
Transitional Small Business disclosure format: Yes [ ] No [X]
==============================================================================
INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements........................................F1-F-21
Item 2. Management's Discussion and Analysis or Plan of Operation.....2
Item 3. Controls And Procedures.......................................11
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................12
Item 2. Changes in Securities and Use of Proceeds.................... 12
Item 3. Defaults Upon Senior Securities...............................15
Item 4. Submission of Matters to a Vote of Security Holders...........15
Item 5. Other Information............................................ 15
Item 6. Exhibits and Reports on Form 8-K..............................18
SIGNATURES..............................................................18
=============================================================================
Item 1. FINANCIAL STATEMENTS
GOLDEN SPIRIT GAMING LTD.
(formerly Golden Spirit Mining Ltd.)
(an devlopment stage company)
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
(unaudited)
CONSOLIDATED BALANCE SHEETS.........................F-1
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS.......F-2
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS.......F-3
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS..F-4
------------------------------------------------------------------------------
GOLDEN SPIRIT GAMING LTD.
(Formerly Golden Spirit Mining Ltd.)
(an devlopment stage company)
CONSOLIDATED BALANCE SHEETS
<table>
<caption>
<s> <c> <c>
September 30, 2005 December 31, 2004
------------------ -----------------
ASSETS
CURRENT ASSETS
Cash $ - $ 2,096
Accounts Receivable 1,860 1,168
Due from Legacy Mining Ltd. (Note 9) 13,256 10,577
Available for sale securities (Note 3) 1,657 545
--------- ---------
16,773 14,385
FURNITURE AND EQUIPMENT, net of depreciation 747 1,067
WEBSITE DEVELOPMENT COST(Note 5) 80,000 -
DEPOSIT ON ACQUISTION(Note 6) 500,000 -
--------- ---------
580,747 1,067
--------- ---------
$ 597,520 $ 15,452
========= =========
LIABILITIES CURRENT
Bank Indebteness $ 17 -
Accounts payable and accrued liabilities 101,383 15,467
Due to Avalon Energy Corporation (Note 9) 122,678 45,813
Due to related parties (Note 9) 6,817 22,768
--------- ---------
230,895 84,048
========= =========
GOING CONCERN (Note 1)
CONTINGENCIES AND COMMITMENTS (Note 10)
STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)(Note 8)
CAPITAL STOCK
Authorized 500,000,000 Common stock, $.0001 par
value; Issued and outstanding:
238,600,192(2004 - 92,450,192) 24,792 10,176
Additional paid-in capital 16,031,216 12,305,082
Deficit accumulated during the exploration stage (13,676,761) (12,109,911)
Deferred Compensation (Note 7) (2,012,507) (272,716)
Accumulated other comprehensive loss (115) (1,227)
------------ ------------
366,625 (68,596)
------------ ------------
$ 597,520 $ 15,452
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</table>
F-1
GOLDEN SPIRIT GAMING LTD.
(formerly Golden Spirit Mining Ltd.)
(an devlopment stage company)
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<table>
<caption>
<s> <c> <c> <c> <c> <c>
Three Months Three Months Nine Months Nine Months Cummulative
ended ended ended ended from January 1
September 30, September 30, September 30, September 30 1996
2005 2004 2005 2004 September 30
2005
----------- ----------- -------- -------- ----------
REVENUES
Processing Fees $ - $ - $ - $ - $ 98,425
Sale of Oil & Gas Interest - - - - 47,510
Interest Income - - - - 2,927
------------ ------------ --------- --------- -------------
- - - - 148,853
------------ ------------ --------- --------- --------------
GENERAL AND ADMINISTRATIVE EXPENSES
Advertising and marketing - - - - 55,305
Consulting fees 252,911 67,474 466,292 267,557 3,042,618
Consulting fees- Stock-based
compensation 97,500 510,000 752,000 552,100 1,922,069
Loss on settlement of debt - - - 163,000 302,500
Depreciation 160 144 320 343 31,365
Exploration cost(Recovery) - (81,477) 9,078 41,432 239,823
Investor relations 19,583 12,292 78,237 74,375 557,336
Management fees 1,993 1,000 12,227 9,000 367,881
Office and general 20,615 8,977 63,453 30,025 417,721
Professional fees 14,485 3,697 47,628 34,606 472,160
Travel and accommodation 10,617 3,505 20,288 9 185,523
Wages and benefits 2,076 - 3,827 - 238,710
Website development costs - - - - 345,682
Write-down of URLs - - - 1 1,571,657
Write-down of technology license - - - - 2,055,938
Loss On Writedown of Advances
to 4KE(note 6) 113,500 - 113,500 - 113,500
Write-off of other assets - - - - 145,186
-------- -------- ----------- ---------- -----------
543,494 525,612 1,566,851 1,172,448 12,064,974
-------- -------- ----------- ---------- -----------
LOSS BEFORE THE FOLLOWING: (543,494) (525,612) (1,66,851) (1,172,448) (11,916,121)
EQUITY LOSS FROM AVALON GOLD CORP. - - - - (1,394,280)
WRITE DOWN OF INVESTMENT IN AVALON - - - - (313,301)
GAIN (LOSS) ON SALE OF SECURITIES - - - (815) (26,178)
DILUTION GAIN-LEGACY - - - - 334,087
MINORITY INTEREST IN LEGACY'S LOSS - - - - 479,978
------------ ------------ ----------- ----------- -------------
NET LOSS FOR THE PERIOD $ (543,494) $ (525,612) $(1,566,851) $(1,173,263) $ (12,835,815)
============ ============ =========== =========== =============
BASIC NET LOSS PER SHARE $ (0.00) $ (0.01) $ (0.01) $ (0.02)
============ ============ =========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 115,279,812 75,436,988 102,519,606 67,206,995
The accompanying notes are an integral part of these consolidated financial statements.
</table>
F-2
GOLDEN SPIRIT GAMING LTD.
(formerly Golden Spirit Mining Ltd.)
(an devlopment stage company)
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<table>
<caption>
<s> <c> <c> <c>
Cummulative from,
Nine Months ended Nine Months ended January 1, 1996
September 30, September 30, to September 30,
2005 2004 2005
------------ ------------ ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (1,566,851) $ (1,182,396) $ (12,835,851)
Adjustments to reconcile net loss to
net cash from operating activities:
Depreciation 320 343 31,822
Fees and services paid with shares 320,209 309,000 2,814,791
Loss on settlement of debt - 163,000 302,500
Stock-based compensation 752,000 552,100 1,922,069
Non-cash component of URL write-down - - 1,214,193
Non-cash exploration costs - - 163,000
Write-down of technology license - - 2,055,938
Write-off of website development costs - - 126,876
Equity loss from Avalon Gold Corp. - - 1,394,280
Write down of investment in Avalon Gold Corp. - - 313,301
Loss(Gain) on sale of securities - 815 26,127
Dilution gain-Legacy Mining Ltd. - - (334,087)
Minority interest in Legacy's Mining Ltd.'s loss - - (479,978)
Net changes in working capital items 28,546 (7,431) 407,250
------------ ----------- ------------
CASH USED IN OPERATING ACTIVITIES (465,776) (164,567) (2,877,682)
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Deposit - - (75,000)
Technology license - - (135,938)
Acquisition of furniture and equipment - - (32,696)
Website development costs (26,000) - (152,876)
Other intangible assets - - (5,189)
Proceeds from sale of shares of Avalon Gold Corp. - 7,185 99,470
Cash aquired on acquisition of Legacy Mining Ltd. - - 209,955
------------ ----------- ------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES (26,000) 7,185 (92,274)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank Overdraft 17 - 17
Net Advances (to) from related parties 60,913 77,985 275,190
Net proceeds on sale of common stock 428,750 76,000 2,694,749
------------ ----------- ------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES 489,680 153,985 2,969,956
------------ ----------- ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,096) (3,397) 0
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,096 3,790 -
------------ ----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 0 $ 393 $ 0
============ =========== ============
Supplemental cash flow information( See Note 10)
The accompanying notes are an integral part of these consolidated financial statements.
</table>
<page>F-3
GOLDEN SPIRIT GAMING LTD.
(Formerly Golden Spirit Mining Ltd.)
(A development stage company)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
The Company was incorporated on September 13, 1993 in the State of Delaware as
Power Direct, Inc. On January 31, 2000 the Company changed its name to 2U
Online.com Inc to reflect management's decision to shift the Company's focus
from oil and gas exploration and development to internet-based business
development. On October 8, 2003, the Company changed its name to Golden Spirit
Minerals Ltd. to reflect management's decision to shift the Company's focus from
internet-based business development to mineral exploration. On October 19, 2004,
the Company changed its name to Golden Spirit Mining Ltd. On July 18, 2005, the
Company changed its name to Golden Spirit Gaming Ltd to reflect management's
decision to develop an online gaming business.
By agreement dated July 18, 2005 as amended September 20, 2005 (the "Amended
Agreement"), the Company agreed to acquire 100% of the issued and outstanding
common shares of 4 Of A Kind Enterprises ("4KE") doing business as Everything
About Poker.com for consideration of 25,000,000 restricted shares of the
Company's common stock which were issued as a deposit on the acquisition. The
parties have agreed to complete this acquisition effective November 30, 2005.
(See Note .6)
The consolidated financial statements have been prepared on the basis of a going
concern which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has incurred losses
since inception of $13,676,761 and at September 30, 2005 had a working capital
deficiency of $214,122. The Company and its subsidiaries are in the exploration
stage, have not generated substantial revenues or completed development of any
commercially acceptable products or services to date and further significant
losses are expected to be incurred in developing its business. Accordingly,
these factors raise substantial doubt regarding the ability of the Company to
continue as a going concern. The recoverability of the carrying value of assets
and ability of the Company to continue as a going concern is dependent on
raising additional capital and ultimately on generating future profitable
operations.
Unaudited Interim Financial Statements
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with United States generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB of Regulation S-B. They do not include all information and footnotes
required by United States generally accepted accounting principles for complete
financial statements. However, except as disclosed herein, there have been no
material changes in the information disclosed in the notes to the financial
statements for the year ended December 31, 2004 included in the Company's Annual
Report on Form 10-KSB filed with the Securities and Exchange Commission. The
interim unaudited financial statements should be read in conjunction with those
financial statements included in the Form 10-KSB. In the opinion of Management,
all adjustments considered necessary for a fair presentation, consisting solely
of normal recurring adjustments, have been made. Operating results for the nine
months ended September 30, 2005 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2005.
<page>F-4
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The financial statements include the accounts of the Company and its
subsidiaries, a 100% interest in PD Oil & Gas, Inc. (inactive), and a 100%
interest in Cardstakes.com Enterprises Ltd. (inactive).
Cash and Cash Equivalents
The Company considers all liquid investments, with an original maturity of three
months or less when purchased, to be cash equivalents.
Furniture and Equipment
Furniture and equipment is carried at acquisition cost less accumulated
depreciation. Depreciation is provided on a 30% declining balance basis per
annum.
Use of Estimates and Assumptions
Preparation of the Company's financial statements in conformity with United
Stares generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates. The significant
areas requiring management's estimates and assumptions relates to determining
the fair value of stock based compensation.
Financial Instruments
The Company's financial instruments include cash, other receivables, available
for sale securities, amounts due from Legacy Mining Ltd., accounts payable,
amounts due to Avalon Energy Corporation, and due to related parties.
Management believes the fair values of these financial instruments approximate
their carrying values due to their short term nature. The fair value of the
Company's available for sale securities is estimated based on their market value
Mineral Property Costs
Mineral property acquisition, exploration and development costs are expensed as
incurred until such time as economic reserves are quantified. To date the
Company has not established any proven or probable reserves on its mineral
properties.
<page>F-5
The Company has adopted the provisions of SFAS No. 143 "Accounting for Asset
Retirement Obligations" which establishes standards for the initial measurement
and subsequent accounting for obligations associated with the sale, abandonment,
or other disposal of long-lived tangible assets arising from the acquisition,
construction or development and for normal operations of such assets. The
adoption of this standard has had no effect on the Company's financial position
or results of operations. As at September 30, 2005, any potential costs
relating to the retirement of the Company's mineral property interest are not
yet determinable.
Foreign Currency Translation
The financial statements are presented in United States dollars. In accordance
with Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation", foreign denominated monetary assets and liabilities are translated
to their United States dollar equivalents using foreign exchange rates that
prevailed at the balance sheet date. Revenue and expenses are translated at
average rates of exchange during the year. Gains or losses resulting from
foreign currency transactions are included in results of operations.
Income Taxes
The Company follows the liability method of accounting for income taxes. Under
this method, 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
balances. Deferred tax assets and liabilities are measured using enacted or
substantially enacted tax rates expected to apply to the taxable income in the
years in which those 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 date of enactment or
substantive enactment. A valuation allowance is provided for deferred tax
assets if it is more likely than not that the Company will not realize the
future benefit, or if the future deductibility is uncertain.
Net Loss per Common Share
Basic earnings per share includes no dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Dilutive earnings per share reflects the potential
dilution of securities that could share in the earnings of the Company. The
accompanying presentation is only of basic loss per share as the potentially
dilutive factors are anti-dilutive to basic loss per share. Loss per share, as
presented, has been restated to reflect all share splits described in Note 6.
<page>F-6
Investments
The Company follows the equity method of accounting for its long-term
investments in which it holds less than 50% of the investee's voting shares and
over which it exercises significant influence. Under this method, the Company
records its shares of the earnings or losses of the investee. Management
reviews the carrying value of these investments on a quarterly basis to
determine if their carrying value has been impaired. Declines in value that are
other than temporary are recognized by writing down the investment to its
estimated recoverable amount.
The Company's other investments consist of available for sale where their
carrying value is adjusted to market at the end of each quarter. As required by
SFAS 130, unrealized gains and losses on these investments are recorded as a
component of accumulated other comprehensive income and are recorded as a
component of net income when realized. However, if there is a permanent decline
in the available-for-sale securities, this adjustment is taken into income in
the period the decline is determined.
Stock Based Compensation
In December 2002, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure" ("SFAS No. 148"), an amendment of Financial
Accounting Standard No. 123 "Accounting for Stock-Based Compensation" ("SFAS No.
123"). The purpose of SFAS No. 148 is to: (1) provide alternative methods of
transition for an entity that voluntarily changes to the fair value based method
of accounting for stock-based employee compensation, (2) amend the disclosure
provisions to require prominent disclosure about the effects on reported net
income of an entity's accounting policy decisions with respect to stock-based
employee compensation, and (3) to require disclosure of those effects in interim
financial information. The disclosure provisions of SFAS No. 148 were effective
for the Company for the year ended December 31, 2002.
The Company has elected to continue to account for stock-based employee
compensation arrangements in accordance with the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", ("APB No. 25") and comply with the disclosure provisions
of SFAS No. 123 as amended by SFAS No. 148 as described above. In addition, in
accordance with SFAS No. 123 the Company applies the fair value method using the
Black-Scholes option-pricing model in accounting for options granted to
consultants. Under APB No. 25, compensation expense is recognized based on the
difference, if any, on the date of grant between the estimated fair value of the
Company's stock and the amount an employee must pay to acquire the stock.
Compensation expense is recognized immediately for past services and pro-rata
for future services over the option-vesting period.
<page>F-7
The following table illustrates the pro forma effect on net income (loss) and
net income (loss) per share as if the Company had accounted for its for stock-
based employee compensation using the fair value provisions of SFAS No. 123
using the assumptions as described in Note 6:
<table>
<caption>
<s> <c> <c> <c>
Nine months ended Nine months ended
September 30, 2005 September 30, 2004
--------------------------------------------------
Net income (loss) for the period As reported $ (1,566,851) $ (1,173,263
SFAS 123 compensation expense Pro-forma (112,500) (131,000)
------------- ------------
Net loss for the period Pro-forma (1,689,351) (1,304,263)
============ ============
Pro-forma basic net loss per share Pro-forma $ (0.00) $ (0.02)
============ ============
</table>
The Company accounts for equity instruments issued in exchange for the receipt
of goods or services from other than employees in accordance with SFAS No. 123
and the conclusions reached by the Emerging Issues Task Force ("EITF") in Issue
No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring or in Conjunction with Selling Goods or Services" ("EITF
96-18"). Costs are measured at the estimated fair market value of the
consideration received or the estimated fair value of the equity instruments
issued, whichever is more reliably measurable. The value of equity instruments
issued for consideration other than employee services is determined on the
earlier of a performance commitment or completion of performance by the provider
of goods or services as defined by EITF 96-18.
The Company has also adopted the provisions of the Financial Accounting
Standards Board Interpretation No.44, Accounting for Certain Transactions
Involving Stock Compensation - An Interpretation of APB Opinion No. 25 ("FIN
44"), which provides guidance as to certain applications of APB 25.
The Company has also adopted the provisions of the Financial Accounting
Standards Board Interpretation No.44, Accounting for Certain Transactions
Involving Stock Compensation - An Interpretation of APB Opinion No. 25 ("FIN
44"), which provides guidance as to certain applications of APB 25.
Website development costs
The Company has adopted the provisions of EITF 00-2 "Accounting for Web Site
Development Costs" and AICPA SOP 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" whereby costs incurred in the
preliminary project phase are expensed as incurred; costs incurred in the
application development phase are capitalized; and costs incurred in the post-
implementation operating phase are expensed as incurred. The website
development costs will be amortized straight line over a 3 year period (See Note
5.)
<page>F-8
NOTE 3 - AVAILABLE FOR SALE SECURITIES
During 2004, the Company sold 52,000 shares of Avalon for net proceeds of $7,454
and realized a loss of $866. Effective December 31, 2004 the Company recorded an
unrealized loss in the carrying value of its available-for-sale securities
totaling $1,126 which was recorded as other comprehensive loss for the year. As
at September 30, 2005 the Company recorded an unrealized loss in the carrying
value of its available-for-sale securities totaling $1,112 which was recorded as
other comprehensive loss for the period. As at September 30, 2005, the Company
owns 10,351 shares of Avalon's common stock with a market value of $1,657.
NOTE 4 - RESOURCE PROPERTIES
(a) Ester Creek
On October 10, 2003 the Company entered into an agreement with Ester Creek Gold
Company ("Ester Creek"), a private Nevada cooperative, to acquire from Ester
Creek a 90% ownership of the Ester Creek Gold properties (the "Mining Claims")
located approximately eight miles northeast of Fairbanks, Alaska for $45,000 and
the issuance of 450,000 restricted shares of the Company's common stock. Under
the terms of the agreement, Ester Creek retains a 10% non-assessable interest in
the Mining Claims. The Mining Claims are located in and around Ester Creek over
an area of approximately 2,320 acres (4 square miles). In October 2003 the
Company paid $3,000 and issued 450,000 restricted shares with a fair value of
$27,000 to Ester Creek and paid an additional $42,000 in cash to acquire the
property, as per the agreement. Under the terms of the agreement Ester Creek has
a contract to supervise and perform certain work programs. The Company has had
an independent engineering report prepared, which recommends an initial Phase I
geologic and sampling reconnaissance of the property at a cost of $5,200.
A Phase II work program based on the results of Phase I has been determined and
the amount required to conduct a Phase II exploration program is estimated at
$25,500.
In July, 2004 the Company completed the Phase I work program and planned to
begin Phase II in July, 2005. However, primarily as a result of the Company's
new focus on developing an online gaming business, the Company decided to sell
its interest in the Ester Creek property (See Note 4(b)).
(b) Second Chance Claims
On October 10, 2004, the Company entered into an agreement with Lee Holland
("Holland"), to acquire from Holland a 90% ownership of the Second Chance claims
(the "Claims") located in the Ester Creek area of Alaska for:
1. $2,000 (paid) plus 100,000 restricted Rule 144 shares of common stock valued
at $6,000 (issued).
2. $2,000 per month between November 10, 2004 and February 10, 2005 for a total
of $8,000 (paid).
<page>F-9
The Company completed the acquisition of the Claims. However, primarily as a
result of the Company's new focus on developing an online gaming business, the
Company decided to sell its interest in the Claims. On October 11, 2005, the
Company entered into an agreement with Legacy Mining Ltd. ("Legacy"), a company
with directors in common, whereby the Company will sell its full ninety-percent
(90%) ownership interest of Ester Creek area claims including the Second Chance
claims. Under the terms of the agreement (a) Legacy is required to issue
750,000 restricted common shares of its $0.0001 par value common stock to the
Company;
(b) Legacy will be responsible to keep the claims in good standing henceforth
and to protect the rights of the carried interest holders. Under the terms of
the agreement Holland retains a 10% non-assessable interest in the Claims. (See
Note 11)
(c) Niger Property
On April 4, 2005, the Company signed a Memorandum of Understanding with a
private corporation to acquire a Uranium Concession on the African Continent.
The Company paid a $5,000 Cdn consultant fee to a third party to commence the
process of acquiring a prospecting permit from the Niger Ministry of Mines which
will be valid for thirty (30) years. The Company also agreed to issue a further
100,000,000 restricted 144 common shares and pay an additional $5,000 Cdn once
the Ministry of Mines issued the Prospecting Permit. As at September 30, 2005,
the Prospecting Permit has not been issued, the Company has not issued the
shares, and the acquisition has been abandoned.
NOTE 5 - WEBSITE DEVELOPMENT COSTS
On July 12, 2005, the Company entered into a Software Sub License Agreement with
Arc2 Entertainment ("Arc2"), a British Virgin Islands Corporation whereby
Arc2 agreed to build, operate and manage its online gaming website, Golden
Spirit Poker.com. Arc2 is an online gaming software development and marketing
company that has licensed the Company the rights to route users to such software
utilized for the operation of online gaming. This Agreement will remain in
effect for a period of three years and shall be automatically renewed
indefinitely for additional one year terms (without further consideration),
unless the Licensee or Licensor serves written notice of termination or intent
not to renew this Agreement to the non-terminating party at least sixty days
prior to the end of any then current term.
<page>F-10
The total consideration paid to Arc2 by the Company will be as follows:
(a) Initial Fee: The Company shall pay Arc2 a one-time, non-refundable license
acquisition website and development fee in the amount of One Hundred
Thousand Dollars ($100,000), $80,000 due upon execution and $20,000 due upon
launch of the live website where players are able to play on the site for
real money. As of September 30, 2005, $26,000 of the amounts due upon
execution have been paid to Arc2 while the due date for the 2005,the
remaining $54,000 has been extended to December 31, 2005. The website, where
people are able to play with and for "play money" or "play for free", was
launched in early September. This first "play for free" phase is intended
to draw players while the live version, where players are able to play on
the site for cash, is being developed. The live version is expected to be
launched by the end of 2005. The Company will receive compensation for
hosting games between players by collecting a percentage (rake) from each
real money pot.
(b) Monthly License Fee: The Company shall pay to Arc2 an ongoing monthly fee
based on a monthly amount equivalent to Twenty-Eight (28) percent of the Net
Monthly Revenue generated by the website. No amounts have been paid or are
payable to date.
(c) Payment for Marketing and Management: Upon the signing of this agreement the
Company issued 100,000,000 Rule 144 restricted shares of its common stock
(currently held in trust) with a fair value of $2,000,000 to Arc2 and its
designees. This amount has been recorded as Deferred Compensation as a
component of shareholders' equity and will be amortized as marketing and
management expense over a three-year period being the term of the Agreement
and the automatic renewal period (See Note 7). $166,661 was amortized in the
period
(d) Payment for Development Costs: The Company will be responsible for all of
the remaining costs in connection with the development of the online gaming
website.
NOTE 6 - DEPOSIT ON ACQUISITION
During the period, the Company issued 25,000,000 restricted common shares with a
fair value of $500,000 in connection with its acquisition of 4 Of A Kind
Enterprises ("4KE") doing business as Everything About Poker.com (see Note 1).
4KE specializes in the business of marketing poker related merchandise, internet
media, educational card playing and boot-camp events. 4KE also sponsors
professional poker players in major televised tournaments.
<page>F-11
The completion date has been extended to November 30, 2005 by mutual consent,
pending the delivery of 4KE's audited financial statements. Upon signing of the
Acquisition Agreement, 4KE transferred one hundred percent (100%) of their
issued and outstanding stock comprising of 10,000,000 common shares to the
Company. At completion, upon the receipt of 4KE's audited financial statements,
25,000,000 of the Company's restricted common shares, which are held in a
lawyer's trust, will be released to 4KE.
As of September 30, 2005, the Company has advanced $113,500 on behalf of 4KE to
third parties for poker player sponsorships in certain televised poker
tournaments. This amount has been written off during the quarter as the Company
and 4KE do not expect to be able to recoup the funds advanced. The Company is
now contemplating legal action on behalf of Golden Spirit and 4KE to recover
approximately $93,000 of the monies advanced for the tournaments mentioned for
breach of contract as the tournaments were not televised.
NOTE 7 - DEFERRED COMPENSATION
On June 15, 2005, the Company entered into an agreement with Palisades Financial
Ltd. ("Palisades"), a private company controlled by a significant shareholder,
with a 2-year term, whereby Palisades will provide investment-banking services
to the Company (valued at $60,000) in exchange for 3,000,000 restricted shares
of the Company's common stock.
On July 12, 2005, the Company entered into a Software Sub License Agreement (the
"Agreement") with Arc2 Entertainment ("Arc2"), an online gaming software
development and marketing company incorporated in the British Virgin Islands
(see Note 5). Under the terms of the Agreement, Arc2 will build and operate the
Company's online gaming website in connection with which Arc2 will license to
the Company Arc2's software utilized for the operation of online gaming. Upon
the signing of the Agreement, the Company issued 100,000,000 (value $2,000,000)
Rule 144 restricted shares of its common stock to Arc2 and its designees as
payment for the marketing and management services to be provided over the 3-year
term of the Agreement (See Note 5).
On January 10, 2004, the Company entered into agreements with:
1. J & S Overseas Holdings Ltd.,(" J& S") a private company controlled by a
significant shareholder, for a two year term, whereby J & S will provide
investment-banking services to the Company (valued at $50,000) in exchange
for 1,000,000 restricted shares of the Company's common stock. The investment
banker will provide access to investors and ongoing funding for the Company's
investments.
<page>F-12
2. 1063244 Alberta Ltd., ("1063244") a private company controlled by a
significant shareholder, for a two year term, whereby 1063244 will provide
investor relations services to the Company (valued at $40,000) in exchange
for 800,000 restricted shares of the Company's common stock. The investor
relations individual will provide such services as researching, editing and
generating a company profile, technical chart analysis, relaying the
Company's business perspectives and distribution of corporate updates,
including press releases.
3. Two individual consultants, for a one year term, whereby they will provide
consulting services to the Company with respect to its mineral exploration and
development (valued at $10,000) in exchange for a total of 200,000 restricted
shares of the Company's common stock.
On October 1, 2004, the Company entered into an agreement with an individual,
with a 1-year term, whereby the individual will provide consulting services to
the Company (valued at $10,000) in exchange for 100,000 restricted shares of the
Company's common stock.
On October 1, 2004, the Company entered into an agreement with an individual,
with a six month term, whereby the individual will provide investor relations
services to the Company (valued at $3,000) in exchange for 30,000 restricted
shares of the Company's common stock.
On October 1, 2004, the Company entered into an agreement with Holm Investments
Ltd. ("Holm") a private company controlled by a shareholder, for a three year
term, whereby Holm will provide investor relations services to the Company
(valued at $175,000) in exchange for 1,750,000 restricted shares of the
Company's common stock. The investor relation's services include researching,
editing and generating a company profile, technical chart analysis, relaying the
Company's business perspectives and distribution of corporate updates, including
press releases.
On January 10, 2003, the Company entered into agreements with:
1. Compte de Sierge Accommodative Corp. ("Compte"), a private company, for a two
and one-half year term, whereby Compte will provide investment-banking
services to the Company, (valued at $50,000) in exchange for 1,500,000
restricted shares of the Company's common stock. The consultant will provide
such services and advice to the Company in business development, business
strategy and corporate image. In addition, the consultant will assist the
Company in developing, studying, and evaluating acquisition proposals in
Europe.
<page>F-13
2. Y.E.N.N. Asset Management ("Y.E.N.N."), a private company controlled by a
significant shareholder, for a two and one-half year term, whereby Y.E.N.N.
will provide investment-banking services to the Company (valued at $50,000)
in exchange for 1,500,000 restricted shares of the Company's common
stock. The consultant will provide such services and advice to the Company in
business development, business strategy and corporate image. In addition, the
consultant will assist the Company in developing, studying and evaluating
acquisition proposals in North and South America.
3. Inter-Orient Investments Ltd. ("Inter-Orient"), a private company controlled
by a significant shareholder, for a two year term, whereby Inter-Orient will
provide investment-banking services to the Company (valued at $50,000) in
exchange for 1,500,000 restricted shares of the Company's common stock. The
investment banker will provide access to investors and ongoing funding for
the Company's investments.
4. Asiatic Management Consultants Ltd. ("Asiatic"), a private company controlled
by a significant shareholder, for a two and one-half year term, whereby
Asiatic will provide investment-banking services to the Company (valued at
$25,000) in exchange for 750,000 restricted shares of the Company's common
stock. The consultant will provide such services and advice to the Company
business development, business strategy and corporate image. In addition, the
consultant will assist the Company in developing, studying and evaluating
acquisition proposals in the Far East.
5. HBK Investments Services Ltd. ("HBK"), a private company controlled by an
employee, for a two year term, whereby HBK will provide investor relations
services to the Company (valued at $20,000) in exchange for 600,000
restricted shares of the Company's common stock. The investor relations
services include researching, editing and generating a company profile,
technical chart analysis, relaying the Company's business perspectives and
distribution of corporate updates, including press releases.
At September 30, 2005 the unamortized balance of deferred compensation with
respect to the above described service contracts totaled $2,012,507 (December
31, 2004 - $272,715) and has been recorded as a component of stockholders'
equity. All costs have been amortized using the straight-line method consistent
with the terms of the agreements as outlined in this section.
NOTE 8 - CAPITAL STOCK
The Company's capitalization is 500,000,000 common shares with a par value of
$0.0001 per share.
<page>F-14
2005 Transactions
On January 12, 2005, the Company filed a Registration Statement on Form S-8 to
cover 19,000,000 shares of common stock to be issued pursuant to the Company's
2005 Stock Incentive and Option Plan (the "Plan"). On February 8, 2005 3,550,000
stock option shares were granted to an employee at $0.03 per share and
15,450,000 stock option shares were granted to consultants at $0.03 per share.
A fair value of $570,000 for these options ($106,500 for the employee options
and $463,500 for the consultant options) was estimated using the Black-Scholes
option pricing model assuming an expected life of 5 years, a risk-free interest
rate of 3% and an expected volatility of 229%. In the nine month period ended
September 30, 2005 the consultant options have been expensed and the employee
options have been recorded on a pro-forma basis
On June 13, 2005, the Company filed a Registration Statement on Form S-8 to
cover 19,000,000 shares of common stock to be issued pursuant to the Company's
2005 Stock Incentive and Option Plan (the "Plan"). On June 14, 2005, 900,000
stock option shares were granted to an employee at $0.02 per share and 8,950,000
stock option shares were granted to consultants at $0.02 per share. A fair value
of $294,500 for these options ($6,000 for the employee options and $288,500 for
the consultant options) was estimated using the Black-Scholes option pricing
model assuming an expected life of 5 years, a risk-free interest rate of 3% and
an expected volatility of 229%. During the nine month period ended September
30, 2005 the consultant options have been expensed and the employee options have
been recorded on a pro-forma basis.
During the period 15,400,000 options were exercised for total proceeds of
$373,750.
During the period a total of 2,750,000 common shares were issued at $0.02 per
share in connection with a private placement for total proceeds of $55,000.
On June 15, 2005, the Company entered into an agreement with a private company
controlled by a significant shareholder, with a two year term, whereby this
company will provide investment-banking services to the Company (valued at
$60,000) in exchange for the issuance of 3,000,000 restricted shares of the
Company's common stock (See Note 7).
On September 20, 2005, the Company entered into an Acquisition Agreement with 4
of A Kind Enterprises ("4KE"), a Nevada Corporation, to acquire 100% ownership
of 4KE by issuing 25,000,000 common shares at a fair value of $500,000 (See Note
6).
<page>F-15
On July 12, 2005, the Company entered into a Software Sub License Agreement with
Arc2 Entertainment ("Arc2"), a British Virgin Islands Corporation, to build,
manage and operate its online gaming website by issuing 100,000,000 common
shares with a total value of $2,000,000 (See Note 5).
Stock Options
The following table summarizes the Company's stock option activity:
Weighted Average
Number Remaining
of Weighted Average Contractual Life
Options Exercise Price in Years
----------- ---------------- -----------------
Balance, December 31, 2003 20,000 $ 0.06 4.04
Granted 13,000,000 $ 0.03 5.00
Exercised (13,000,000) $ (0.03) (5.00)
- -------------------------------------------------------------------------------
Balance, December 31, 2004 20,000 $ 0.03 3.04
Granted 28,850,000 $ 0.03 5.00
Exercised (15,400,000) $ (0.02) (5.00)
- -------------------------------------------------------------------------------
Balance, September 30, 2005 13,470,000 0.03 5.00
===============================================================================
<page>F-16
2004 Transactions
On January 13, 2004, the Company filed a Registration Statement on Form S-8 to
cover 11,150,000 shares of common stock to be issued, 3,000,000 shares pursuant
to the Company's 2004 Stock Incentive and Option Plan (the "Plan") and 8,150,000
shares of common stock for debt.
On January 14, 2004, the Company issued a total of 8,150,000 common shares to
employees and consultants in settlement of outstanding management and consulting
fees totalling $163,000. Of the 8,150,000 common shares issued, 2,500,000 were
issued to two directors and 1,000,000 were issued to one employee for
professional fees. The fair value of the shares issued exceeded the outstanding
debts by an amount of $163,000, which has been recorded as a loss on settlement
of debt. On January 10, 2004, the Company entered into an agreement with a
private company controlled by a significant shareholder, with a two-year term,
whereby this company will provide investment-banking services to the Company
(valued at $50,000) in exchange for the issuance of 1,000,000 restricted shares
of the Company's common stock (See Note 9).
On January 10, 2004, the Company entered into an agreement with a private
company controlled by a significant shareholder with a two-year term, whereby
this company will provide investor relations services to the Company (valued at
$40,000) in exchange for the issuance of 800,000 restricted shares of the
Company's common stock (See Note 9).
<page>F-16
On January 10, 2004 the Company entered into agreements with two individual
consultants with one-year terms, whereby these individuals will provide
consulting services with respect to the Company's mineral property (valued at
$10,000) in exchange for the issuance of 200,000 restricted shares of the
Company's common stock (See Note 9).
On June 3, 2004, as amended June 16, 2004, the Company filed a Registration
Statement on Form S-8 to cover 11,200,000 shares of common stock to be issued,
5,000,000 shares pursuant to the Company's 2004 Stock Incentive and Option Plan
and 6,200,000 shares of common stock for debt.
On June 17, 2004, the Company issued a total of 6,200,000 common shares to
consultants in settlement of outstanding consulting fees totalling $62,000. On
October 1, 2004, the Company entered into an agreement with an individual, with
a 1-year term, whereby the individual will provide consulting services to the
Company (valued at $10,000) in exchange for 100,000 restricted shares of the
Company's common stock (See Note 7).
On October 1, 2004, the Company entered into an agreement with an individual,
with a six-month term, whereby the individual will provide investor relations
services to the Company (valued at $3,000) in exchange for 30,000 restricted
shares of the Company's common stock. (See Note 7).
On October 1, 2004, the Company entered into an agreement with a private company
controlled by a shareholder, for a three-year term, whereby the private company
will provide investor relations services to the Company (valued at $175,000) in
exchange for 1,750,000 restricted shares of the Company's common stock (See
Note 7).
The Company declared a 10% stock dividend to all of the shareholders of record
effective September 30, 2004, representing 80,245,956 shares of the Company's
common stock. The Company has recorded this stock dividend at a fair value of
$641,968 and issued 8,024,596 in payment on October 17, 2004.
On October 10, 2004, the Company issued 100,000 shares valued at $6,000 pursuant
to an agreement to acquire 90% ownership of the Second Chance claims located in
the Ester Creek area of Alaska (See Note 4).
On November 29, 2004, the Company issued 1,000,000 common shares 144-Registered
valued at $70,000 as a non-refundable deposit to Avalon pursuant to an agreement
to acquire a 40% working interest in certain gas leases in the Uinta Basin,
Utah. On December 15, 2004, the Company issued an additional 1,000,000 common
shares 144-Registered valued at $60,000 to Avalon as consideration for an
extension to meet the terms of the agreement to acquire the 40% interest. On
January 4, 2005, the Company received a default notice from Avalon for failure
to meet the terms of the agreement, which was terminated.
On December 1, 2004, the Company issued 200,000 common shares valued at $14,000
in settlement of directors' salaries.
<page>F-17
During the nine months ended September 30, 2005, companies controlled by
significant shareholders earned $82,465 (2004 - $63,084) pursuant to investment
banking services contracts (See Note 7).
During the nine months ended September 30, 2005, a company controlled by an
employee earned $Nil (2004-$4,166) and companies controlled by significant
shareholders earned $58,749 (2004 - $10,208) pursuant to
investor relations services contracts (See Note 7). During the nine months
ended September 30, 2005, the Company paid $12,227 (2004 - $9,000) to two
directors for management fees.
During the nine months ended September 30, 2005, the Company incurred expenses
for office rent of $18,810 (2004 - $9,333) and consulting fees of $100,000 (2004
- - $Nil) to a company controlled by a significant shareholder. At September 30,
2005 a total of $ 122,678 (December 31, 2004 - $45,813) is owing to Avalon for
cash advances. This amount is non-interest bearing and has no specified terms of
repayment.
At September 30, 2005 a total of $13,256 (December 31, 2004 - $10,576) owed from
Legacy Mining Ltd for cash advances. This amount is non-interest bearing and has
no specified terms of repayment.
At September 30, the following amounts are due to related parties:
September 30, 2005 September 30, 2004
------------------ --------------------
Employee $ 192 $ 192
Significant Shareholders 6,625 48,665
------------------- --------------------
$ 6,817 $48,857
=================== ====================
<page>F-18
All related party transactions are in the normal course of business and are
measured at the exchange amount, which is the amount of consideration
established and agreed to by the related parties.
NOTE 10 - CONTINGENCIES
On May 2, 2003, the Company issued 450,000 shares valued at $9,000 to a
consultant pursuant to a stock option incentive plan. The consultant failed to
meet the terms of the stock option agreement by not paying the exercise price
and as a result, the Company requested the return of the 450,000 shares. The
consultant refused to return the shares; therefore the Company issued a stop
transfer and commenced legal proceedings to recover the shares. The consultant
subsequently filed a Statement of Claim against the Company for damages of
$53,000 Cdn. On April 29, 2005, the Supreme Court of British Columbia issued a
Judgment awarding the plaintiff $15,000 Cdn. in damages and $7,180 Cdn. in
costs, however, the 450,000 shares were to be returned to the Company (not yet
received)
In September 2005, the Company settled the above issue with the plaintiff. A
payment of $6,080 Cdn has been made and a payment schedule of $1,000 Cdn per
month for the remainder of the judgment has been ordered and will commence
December 1, 2005.
On September 28th 2005, the Company received notice of a lawsuit from Thomas L.
Franklin, a professional poker player formerly under contract with 4KE, for an
alleged breach of contract for services rendered based on the original contract
between the Company and 4KE dated July 18, 2005. The Company 4KE, and certain
individuals, are being sued for $967,500, plus interest at the rate of 8% per
annum from August 22, 2005, and all costs pertaining to this legal matter. An
attorney in Mississippi has been retained by the Company to apply for a
dismissal of the case, based on Mississippi being the wrong jurisdiction for
this suit and to defend the claims made by the plaintiff. The outcome of this
litigation and the impact, if any, on the Acquisition Agreement dated September
20, 2005 between the Company and 4KE is presently not determinable and no
provision for loss relating to this lawsuit has been recorded at September 30,
2005.
NOTE 11 - SUBSEQUENT EVENTS
On october 11, 2005, the company entered into an agreement with legacy mining
ltd. ("Legacy"), a company with directors in common, whereby the company will
sell its full ninety-percent (90%) ownership interest in the ester creek and
second chance claims (see note 4). Under the terms of the agreement legacy is
required to issue 750,000 restricted common shares of its $0.0001 par value
common stock to the company.
<page>F-19
ITEM 2.
THIS FOLLOWING INFORMATION SPECIFIES CERTAIN FORWARD-LOOKING STATEMENTS OF
MANAGEMENT OF THE COMPANY. FORWARD-LOOKING STATEMENTS ARE STATEMENTS THAT
ESTIMATE THE HAPPENING OF FUTURE EVENTS AND ARE NOT BASED ON HISTORICAL FACT.
FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY, SUCH AS "MAY", "SHALL", "WILL", "COULD", "EXPECT", "ESTIMATE",
"ANTICIPATE", "PREDICT", "PROBABLE", "POSSIBLE", "SHOULD", "CONTINUE", OR
SIMILAR TERMS, VARIATIONS OF THOSE TERMS OR THE NEGATIVE OF THOSE TERMS. THE
FORWARD-LOOKING STATEMENTS SPECIFIED IN THE FOLLOWING INFORMATION HAVE BEEN
COMPILED BY OUR MANAGEMENT ON THE BASIS OF ASSUMPTIONS MADE BY MANAGEMENT AND
CONSIDERED BY MANAGEMENT TO BE REASONABLE. OUR FUTURE OPERATING RESULTS,
HOWEVER, ARE IMPOSSIBLE TO PREDICT AND NO REPRESENTATION, GUARANTY, OR WARRANTY
IS TO BE INFERRED FROM THOSE FORWARD-LOOKING STATEMENTS.
THE ASSUMPTIONS USED FOR PURPOSES OF THE FORWARD-LOOKING STATEMENTS SPECIFIED IN
THE FOLLOWING INFORMATION REPRESENT ESTIMATES OF FUTURE EVENTS AND ARE SUBJECT
TO UNCERTAINTY AS TO POSSIBLE CHANGES IN ECONOMIC, LEGISLATIVE, INDUSTRY, AND
OTHER CIRCUMSTANCES. AS A RESULT, THE IDENTIFICATION AND INTERPRETATION OF DATA
AND OTHER INFORMATION AND THEIR USE IN DEVELOPING AND SELECTING ASSUMPTIONS FROM
AND AMONG REASONABLE ALTERNATIVES REQUIRE THE EXERCISE OF JUDGMENT. TO THE
EXTENT THAT THE ASSUMED EVENTS DO NOT OCCUR, THE OUTCOME MAY VARY SUBSTANTIALLY
FROM ANTICIPATED OR PROJECTED RESULTS, AND, ACCORDINGLY, NO OPINION IS EXPRESSED
ON THE ACHIEVABILITY OF THOSE FORWARD-LOOKING STATEMENTS. NO ASSURANCE CAN BE
GIVEN THAT ANY OF THE ASSUMPTIONS RELATING TO THE FORWARD-LOOKING STATEMENTS
SPECIFIED IN THE FOLLOWING INFORMATION ARE ACCURATE, AND WE ASSUME NO OBLIGATION
TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS.
Our Background. Golden Spirit Mining Ltd., formerly 2UOnline.com, Inc., formerly
Power Direct, Inc., was incorporated in the State of Delaware on September 13,
1993, and we maintain our principal executive offices at 1288 Alberni Street,
Suite 806, Vancouver, British Columbia, Canada V6E 4N5. Our offices in the
United States are located at 177 Telegraph Road, Suite 541, Bellingham,
Washington 98226.
<page>2
We changed our name from Power Direct, Inc., to 2UOnline.com, Inc. by filing a
Certificate of Amendment to our Certificate of Incorporation on January 31,
2000. We also changed our trading symbol from "PWDR" to "TWOU" in order to
reflect our decision to shift our focus from oil and gas production to Internet-
related activities. Our symbol was then changed to "TWOUE". On or about April
18, 2000, we were removed from the Over-the-Counter Bulletin Board ("OTCBB") for
failure to comply with NASD Rule 6530, which requires any company listed on the
OTCBB to be current in its public reporting obligations pursuant to the
Securities and Exchange Act of 1934. The Company was re-instated on the OTCBB on
October 7, 2002 under the symbol "TWOU". The Company filed a certificate of
amendment to its Articles of Incorporation with the State of Delaware on October
1, 2003 to change its name to Golden Spirit Minerals Ltd. The name change
reflects management's decision to shift the Company's focus from internet-based
business development to mineral exploration. On October 8, 2003, the trading
symbol for the Company became "GSPM". On October 19, 2004, the Company changed
its name to Golden Spirit Mining Ltd. and the trading symbol is currently
"GSML". On July 18, 2005, the Company changed its name to Golden Spirit Gaming
Ltd to reflect management's decision to add online gaming to its business
development and its trading symbol was changed to "GSGL".
We were originally incorporated to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware. We were inactive from September 13, 1993, through November 1998, when
we began the process of identifying potential business interests, including, but
not necessarily limited to, interests in oil and natural gas producing
properties.
THIS REPORT ON FORM 10-QSB IS FOR THE THREE MONTHS ENDING SEPTEMBER 30, 2005.
THE REPORT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IN
NOVEMBER 2005. TO THE EXTENT PRACTICABLE, THE DISCLOSURE CONTAINED HEREIN HAS
BEEN PREPARED TO SPEAK AS OF SEPTEMBER 30, 2005. GOLDEN SPIRIT GAMING LTD. HAS
INCLUDED A SECTION BELOW ENTITLED "SUBSEQUENT EVENTS" WHICH DISCUSSES CERTAIN
MATERIAL EVENTS THAT OCCURRED SUBSEQUENT TO SEPTEMBER 30, 2005.
Our Investment in Avalon Energy Corporation
During 2003 the Company bought 303,750 shares, in addition to 114,351 shares of
Avalon Energy Corporation ("Avalon"), a public company with directors and
significant shareholders in common, for $55,786 and sold 355,750 shares, out of
a balance of 418,101 shares, for net proceeds of $74,710 and realized a loss of
$32,764. Effective December 31, 2003 the Company recorded an unrealized loss in
the carrying value of its available-for-sale securities totaling $115 that was
recorded as other comprehensive income for the year. As at December 31, 2003
the Company owned 62,351 shares of Avalon's common stock.
<page>3
During 2004, the Company sold 52,000 shares for net proceeds of $7,454 and
realized a loss of $866. Effective December 31, 2004 the Company recorded an
unrealized loss in the carrying value of its available-for-sale securities
totaling $1,126 which was recorded as other comprehensive loss for the year. As
at June 30, 2005 the Company recorded an unrealized loss in the carrying value
of its available-for-sale securities totaling $1,112 which was recorded as other
comprehensive loss for the period. As at September 30, 2005, the Company owns
10,351 shares of Avalon's common stock with a market fair value of $1,656.
Our Mineral Properties
Ester Creek
On October 10, 2003 the Company entered into an agreement with Ester Creek Gold
Company ("Ester Creek"), a private Nevada cooperative, to acquire from Ester
Creek 90% ownership of the Ester Creek Gold properties (the "Mining Claims")
located approximately eight miles northeast of Fairbanks, Alaska for $45,000 and
the issuance of 450,000 restricted shares of the Company's common stock. Under
the terms of the agreement, Ester Creek retains a 10% non- assessable interest
in the Mining Claims. The Mining Claims are located in and around Ester Creek
over an area of approximately 2,320 acres (4 square miles). In October 2003 the
Company paid $3,000 and issued 450,000 restricted shares with a fair value of
$27,000 to Ester Creek Gold Company and paid an additional $42,000 in cash to
acquire the property, as per the agreement. Under the terms of the agreement the
Company has agreed to give Ester Creek a contract to supervise and perform
certain work programs. The Company has had an independent engineering report
prepared that recommends an initial Phase I geologic and sampling reconnaissance
of the property at a cost of $5,200. A Phase II work program based on the
results of Phase I has been determined and the amount required to conduct a
Phase II exploration program is estimated at $25,500. The Company was expecting
to conduct Phase II in June 2005, but has delayed the start of Phase II until
next year due to the new business direction the Company.
<page>4
The completed Phase I exploration program conducted in the third quarter of 2004
consisted of the following:
o sampling and mapping the altered bedrock fragments found in tailing
pipes on the eastern margin of the claim group
o examining and sampling the intrusive rock located on the south slope to
Ester Creek in section 11-12
o mapping geology on north facing slope in central Section 12 which is
underlain by a magnetic low field
o examining and sampling as appropriate the WSW linear feature on Hill
1516, Section 11
o collecting heavy mineral concentrate from lower-most Moose Gulch and
testing for skarn-type minerals suggested to be present by the magnetic
high field in the vicinity
o examining and resampling previously reported gold anomaly in Section 11
on the NB-2 claim
o mapping bedrock and colluvium on uppermost Ester Creek
This work program is specifically targeted toward showing the occurrence of gold
values in possible lode sources, an important step in determining future
exploration.
The Company's geologist, Jim Barker reported the discovery of a strongly
altered, sheared and crushed quartz vein zone associated with an altered felsic
dike in an area of old prospect trenches in Section 12 of the program area. This
strong structure, open at both ends and to depth, contains potentially economic
gold mineralization. Fire-assay results across 10.5 feet of the structure
returned a weighted average of 2.11 ounces of gold per ton from the following
contiguous channel samples:
Width *Fire-Assay Width
Sample (Inches) Description Au (ppm) x ppm
- -------------------------------------------------------------------------------
FE 1517 36.0 Hanging Wall; Quartz vein system & gouge 138.0 4,968.0
FE 1518 36.0 Central Zone; Sheared vein quartz & wall rock 87.6 3,153.6
FE 1519 54.0 Footwall; Hydrothermally altered felsic
dyke & quartz-veins 2.97 160.38
- -------------------------------------------------------------------------------
Total 126.0 Total 8,281.98
============= ====================
The above is equivalent to 65.73 ppm/ton (2.11 ounces/ton) gold over 126 inches
or 10.50 feet.\
*Assaying was completed by ALS Chemex in North Vancouver using the GRA21
technique which is a fire assay with a gravimetric finish preferably used to
obtain accuracy for high grade gold samples.
<page>5
The Company's claim group is located on the south flank of the Ester Dome
complex which is known for mesothermal and deep epithermal gold vein systems.
This target area is believed to be related to an underlying intrusive system and
is located at the head of the extensive Ester Creek placer-dredging fields.
One of the better examples of a similar intrusion related dome complex with
ongoing gold production is the Fort Knox mine about 15 miles northeast which
contains a gold inventory of 7.2 million ounces.
Full results of this exploration program and the implications of its findings
will be summarized in a detailed report and shall form the basis of the next
exploration stage which should identify a drill target. At the drilling stage,
the Company will be seeking a joint venture partner.
Second Chance Claims
On October 10, 2004, the Company entered into an agreement with Lee Holland
("Holland"), to acquire from Holland 90% ownership of the Second Chance claims
(the "Claims") located in the Ester Creek area of Alaska for:
1. $2,000 (paid) plus 100,000 restricted Rule 144 shares of common stock
valued at $6,000 (issued).
2. $2,000 per month between November 10, 2004 and February 10, 2005 for a
total of $8,000.
The Company paid $6,000 to December 31, 2004 towards the acquisition and
completed the acquisition in February, 2005.Under the terms of the agreement
Holland retains a 10% non-assessable interest in the Claims.
Uinta Basin
On November 10, 2004, the Company entered into an agreement with Avalon, a
Company with directors in common, to acquire a 40% interest in the Letter of
Intent and Participation Agreement that Avalon acquired from Pioneer Oil and Gas
("Pioneer") in a gas field lease in the Uinta Basin, located in the US Rockies,
Utah.
Upon signing of the agreement, the Company issued 1,000,000 restricted Rule 144
common shares valued at $70,000 as a non-refundable deposit to Avalon and was to
acquire the 40% working interest in the gas lease upon Avalon receiving a
payment of $750,000 on or before December 10, 2004. In return, upon payment of
the purchase price of $750,000 by the Company, Avalon was to issue 2,000,000
shares of its common stock to the Company. Upon receiving the $750,000, Avalon
was required to pay Pioneer $706,279 to acquire its 85% working interest.
On December 10, 2004, the Company received an extension to December 24, 2004 to
meet the requirements of the initial agreement. The Company issued an additional
1,000,000 restricted Rule 144common shares valued at $60,000 as consideration
for the extension.
On January 4, 2005, the Company received a default notice from Avalon for
failure to meet the terms of the agreement which was terminated.
<page>6
Website Development
On July 12, 2005, the Company entered into a Software Sub License Agreement with
Arc2 Entertainment ("Arc2"), a British Virgin Islands Corporation whereby
Arc2 agreed to build, operate and manage its online gaming website, Golden
Spirit Poker.com. Arc2 is an online gaming software development and marketing
company that has licensed the Company the rights to route users to such software
utilized for the operation of online gaming. This Agreement will remain in
effect for a period of three years and shall be automatically renewed
indefinitely for additional one year terms (without further consideration),
unless the Licensee or Licensor serves written notice of termination or intent
not to renew this Agreement to the non-terminating party at least sixty days
prior to the end of any then current term.
The total consideration paid to Arc2 by the Company will be as follows:
(a) Initial Fee: The Company shall pay Arc2 a one-time, non-refundable
license acquisition fee in the amount of One Hundred Thousand Dollars
($100,000), $80,000 due upon execution and $20,000 due upon launch of the live
website where players are able to play on the site for real money. As of
September 30, 2005, $26,000 of the amounts due upon execution have been paid to
Arc2 while the remaining $54,000 has been accrued in accounts payable. Arc2 has
agreed to an extension to December 31, 2005 for the unpaid $54,000. The
website, where people are able to play with and for "play money" or "play for
free", was launched in early September. This first "play for free" phase is
intended to draw players while the live version, where players are able to play
on the site for cash, is being developed. The live version is expected to be
launched by the end of 2005. The Company will receive compensation for hosting
games between players by collecting a percentage (rake) from each real money
pot.
(b) Monthly License Fee: The Company shall pay to Arc2 an ongoing monthly
fee based on a monthly amount equivalent to Twenty-Eight (28) percent of the Net
Monthly Revenue generated by the website. No amounts have been paid or are
payable to date.
(c) Payment for Marketing and Management: Upon the signing of this agreement
the Company issued 100,000,000 Rule 144 restricted shares of its common stock
with a fair value of $2,000,000 to Arc2 and its designees. This amount has been
recorded as Deferred Compensation and will be amortized as marketing and
management expense over a three-year period being the term of the Agreement and
the automatic renewal period (See Note 7). There was $166,661 amortized in the
period.
(d) Payment for Development Costs: The Company will be responsible for all
of the remaining costs in connection with the development of the online gaming
website.
<page>7
Investment in 4 of A Kind Enterprises
During the period, the Company issued 25,000,000 restricted common shares with a
fair value of $500,000 in connection with its acquisition of 4 Of A Kind
Enterprises ("4KE") doing business as Everything About Poker.com (see Note 1).
4KE specializes in the business of marketing poker related merchandise, internet
media, educational card playing and boot-camp events. 4KE also sponsors
professional poker players in major televised tournaments.
The completion date has been extended to November 30, 2005 by mutual consent,
pending the delivery of 4KE's audited financial statements. Upon signing of the
Acquisition Agreement, 4KE transferred one hundred percent (100%) of their
issued and outstanding stock comprising of 10,000,000 common shares to the
Company. At completion, upon the receipt of 4KE's audited financial statements,
25,000,000 of the Company's restricted common shares, which are held in a
lawyer's trust, will be released to 4KE.
As of September 30, 2005, the Company has advanced $113,500 to 4KE for poker
player sponsorships in certain televised poker tournaments. This amount has been
written off during the quarter as the Company does not expect to be able to
recoup the funds advanced to 4KE. The Company is now contemplating a lawsuit on
behalf of Golden Spirit and 4KE to recover approximately $93,000 of the monies
forwarded for the tournaments mentioned above which were not televised
Liquidity and Capital Resources
For the three months ended September 30, 2005, we had total assets of $597,520
including $1,860 in other receivables and deposits, $13,256 due from Legacy
Mining Ltd., and $1,657 available for sale securities. We also held $747 in
depreciated furniture and equipment, $80,000 in website development costs, and
an investment in 4KE in the amount of $500,000. The Company was indebted to the
bank for $17 at the end of this quarter. At September 30, 2005, we had total
current liabilities of $230,895 of which $101,383 was represented by accounts
payable and accrued liabilities, $122,678 due to Avalon Energy Corporation, and
$6,817 was due to related parties. At September 30, 2005, we had total current
assets of $16,773 and $230,895 in total current liabilities. At September 30,
2005, current liabilities exceeded current assets by $214,122.
Private Placement
The Company completed a private placement to four investors in the amount of
2,750,000 restricted common shares for total proceeds of $55,000. The shares
were issued on July 14, 2005. No finders fee is payable in connection with this
private placement.
<page>8
Stock Options
On January 12, 2005, the Company filed a Registration Statement on Form S-8 to
cover 19,000,000 shares of common stock to be issued pursuant to the Company's
2005 Stock Incentive and Option Plan (the "Plan"). On February 8, 2005 3,550,000
stock option shares were granted to an employee at $0.03 per share and
15,450,000 stock option shares were granted to consultants at $0.03 per share.
A fair value of $570,000 for these options ($106,500 for the employee options
and $463,500 for the consultant options) was estimated using the Black-Scholes
option pricing model assuming an expected life of 5 years, a risk-free interest
rate of 3% and an expected volatility of 229%. In the nine month period ended
September 30, 2005 the consultant options have been expensed and the employee
options have been recorded on a pro-forma basis
On June 13, 2005, the Company filed a Registration Statement on Form S-8 to
cover 19,000,000 shares of common stock to be issued pursuant to the Company's
2005 Stock Incentive and Option Plan (the "Plan"). On June 14, 2005, 900,000
stock option shares were granted to an employee at $0.02 per share and 8,950,000
stock option shares were granted to consultants at $0.02 per share. A fair value
of $294,500 for these options ($6,000 for the employee options and $288,500 for
the consultant options) was estimated using the Black-Scholes option pricing
model assuming an expected life of 5 years, a risk-free interest rate of 3% and
an expected volatility of 229%. During the nine month period ended September
30, 2005 the consultant options have been expensed and the employee options have
been recorded on a pro-forma basis.
During the period 15,400,000 options were exercised for total proceeds of
$373,750.
During the period a total of 2,750,000 common shares were issued at $0.02 per
share in connection with a private placement for total proceeds of $55,000.
On June 15, 2005, the Company entered into an agreement with a private company
controlled by a significant shareholder, with a two year term, whereby this
company will provide investment-banking services to the Company (valued at
$60,000) in exchange for the issuance of 3,000,000 restricted shares of the
Company's common stock (See Note 7).
On September 20, 2005, the Company entered into an Acquisition Agreement with 4
of A Kind Enterprises ("4KE"), a Nevada Corporation, to acquire 100% ownership
of 4KE by issuing 25,000,000 common shares at a fair value of $500,000 (See Note
6).
On July 12, 2005, the Company entered into a Software Sub License Agreement with
Arc2 Entertainment ("Arc2"), a British Virgin Islands Corporation, to build,
manage and operate its online gaming website by issuing 100,000,000 common
shares with a total value of $2,000,000 (See Note 5).
<page>9
We are not aware of any trends, demands, commitments or uncertainties that will
result in our liquidity decreasing or increasing in any material way. We do not
believe that our available cash is sufficient to pay our day-to-day
expenditures; therefore, we rely on management to provide the necessary funds to
pay these day-to-day expenditures. We have one other external source of
liquidity, that being the sale of our common stock.
No assurances can be given that we will have access to additional cash in the
future, or that funds will be available on acceptable terms to satisfy our case
requirements.
Results of Operations
We have not yet realized any significant revenue from operations. For the three
months ended September 30, 2005, we had $543,494 in general and administrative
expenses including, but not limited to, expenses for consulting fees, management
fees, investor relations, and office and general expenses. Our operating
expenses for the corresponding period in 2004 were $525,612. Net losses from
operations for the three months ending September 30, 2005 were $543,494, being
the general and administrative expenses. Our net loss for the corresponding
period in 2004 was a comparative $525,612. We have incurred net losses of
$12,835,815 since January 1, 1996.
Our Plan of Operation for the Next 12 Months.
We anticipate that we will need to raise additional capital within the next 12
months in order to continue as a going concern. Such additional capital may be
raised through additional public or private financings, as well as borrowings
and other resources. To the extent that additional capital is raised through
the sale of equity or equity-related securities, the issuance of such securities
could result in dilution of our stockholders. There can be no assurance that
additional funding will be available on favorable terms, if at all. If adequate
funds are not available within the next 12 months, we may be required to curtail
our operations significantly or to obtain funds through entering into
arrangements with collaborative partners or others that may require us to
relinquish rights to certain assets that we would not otherwise relinquish.
We anticipate certain expenditures within the next 12 months for our new
business venture, Online Gaming. (See Subsequent Events section) We anticipate
$300,000 in development and marketing costs for our online gaming website within
the next 12 months. We do not anticipate that we will lease or purchase any
significant equipment within the next 12 months. We do not anticipate a
significant change in the number of our employees within the next 12 months. We
are not aware of any material commitment or condition that may affect our
liquidity within the next 12 months.
<page>10
The Following are Material Subsequent Events (Occurring after September 30,
2005).
Disposition of Assets
On October 11, 2005, the Company entered into an agreement with Legacy Mining
Ltd. ("Legacy"), a company with directors in common, whereby the Company will
sell its full ninety-percent (90%) ownership interest in certain State of Alaska
mining claims. The claims are in the Ester Creek area, which is located on the
mineralized earthen dome structure called Ester Dome, some 8 miles north and
west of Fairbanks, Alaska. Two previous claimholders will retain their non-
assessable, carried ten-percent (10%) interest. Under the terms of the agreement
to sell its full ninety-percent (90%) interest, Legacy is required to issue the
Registrant 750,000 restricted common shares of its $0.0001 par value common
stock.
Legacy will be responsible to keep the claims in good standing henceforth to
protect the rights of the carried interest holders.
ITEM 3. Controls and Procedures
a) Evaluation of Disclosure Controls and Procedures. Our Chief Executive
Officer, and Chief Financial Officer, have performed an evaluation of the
Company's disclosure controls and procedures, as that term is defined in
Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as of September 30, 2005 and each has concluded that such disclosure
controls and procedures are effective to ensure that information required to
be disclosed in our periodic reports filed under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified by the
Securities and Exchange Commission's rules and forms.
(b) Changes in Internal Controls. There were no changes in the Company's
internal controls or in other factors that could affect these controls
subsequent to the date of the evaluation.
Code of Ethics:
We intend to adopt a code of ethics in 2005 that applies to our principle
executive officer, principal financial officer, principle accounting officer or
controller, other persons performing similar functions. We intend to post the
text of our code of ethics on our website in connection with our "Investor
Relations" materials. In addition, we intend to promptly disclose (1) the
nature of any amendment to our code of ethics that applies to our principle
executive officer principal financial officer, principle accounting officer or
controller, other persons performing similar functions (2) the nature of any
wavier, including an implicit wavier, from a provision of our code of ethics
that is granted to one of these specific officers, the name of such person who
is granted the waiver and the date of the waiver on our web site in the future.
We do not currently have a code of ethics as this is a new regulatory
requirement and we are examining the various form and contents of other
companies written code of ethics, discussing the merits and meaning of a code of
ethics to determine the best form for our Company.
<page>11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On May 2, 2003, the Company issued 450,000 shares valued at $9,000 to a
consultant pursuant to a stock option incentive plan. The consultant failed to
meet the terms of the stock option agreement by not paying the exercise price
and as a result, the Company requested the return of the 450,000 shares. The
consultant refused to return the shares and the Company put a stop transfer on
these shares and commenced legal proceedings to recover these shares. The
consultant subsequently filed a Statement of Claim against the Company for
damages of $53,000 Cdn. On April 29, 2005, the Supreme Court of British Columbia
issued a judgment awarding the plaintiff $15,000 Cdn. in damages and $7,180 Cdn.
in costs. However, the 450,000 shares are to be returned to the Company (not
yet received).
As of September 30, 2005, the Company has entered into a settlement with the
plaintiff. A payment of $6,080 Cdn. has been made and a payment schedule of
$1,000 Cdn. per month for the remainder of the judgment has been ordered and
will commence on December 1, 2005.
On September 28th 2005, the Company received notice of a lawsuit from Thomas L.
Franklin, a professional poker player formerly under contract with 4KE, for an
alleged breach of contract for services rendered based on the original contract
dated July 18, 2005. The Company and 4KE are being sued for $967,500, plus
interest at the legal rate of 8% per annum from August 22, 2005, and all costs
pertaining to this legal matter. An attorney in Mississippi has been retained
by the Company to apply for a dismissal of the case, based on Mississippi being
the wrong jurisdiction for this suit and to defend the claims made by the
plaintiff. The outcome of this litigation and the impact, if any, on the
Acquisition Agreement effective September 20, 2005 between the Company and 4KE
is presently not determinable and no provision for loss have been recorded at
September 30, 2005.
Item 2. Changes in Securities.
2005 Transactions
On January 12, 2005, the Company filed a Registration Statement on Form S-8 to
cover 19,000,000 shares of common stock to be issued pursuant to the Company's
2005 Stock Incentive and Option Plan (the "Plan"). On February 8, 2005 3,550,000
stock option shares were granted to an employee at $0.03 per share and
15,450,000 stock option shares were granted to consultants at $0.03 per share.
A fair value of $570,000 for these options ($106,500 for the employee options
and $463,500 for the consultant options) was estimated using the Black-Scholes
option pricing model assuming an expected life of 5 years, a risk-free interest
rate of 3% and an expected volatility of 229%. In the nine month period ended
September 30, 2005 the consultant options have been expensed and the employee
options have been recorded on a pro-forma basis
<page>12
On June 13, 2005, the Company filed a Registration Statement on Form S-8 to
cover 19,000,000 shares of common stock to be issued pursuant to the Company's
2005 Stock Incentive and Option Plan (the "Plan"). On June 14, 2005, 900,000
stock option shares were granted to an employee at $0.02 per share and 7,925,000
stock option shares were granted to consultants at $0.02 per share. A fair value
of $294,500 for these options ($6,000 for the employee options and $288,500 for
the consultant options) was estimated using the Black-Scholes option pricing
model assuming an expected life of 5 years, a risk-free interest rate of 3% and
an expected volatility of 229%. During the nine month period ended September
30, 2005 the consultant options have been expensed and the employee options have
been recorded on a pro-forma basis.
During the period 15,400,000 options were exercised for total proceeds of
$373,750.
During the period a total of 2,750,000 common shares were issued at $0.02 per
share in connection with a private placement for total proceeds of $55,000.
On June 15, 2005, the Company entered into an agreement with a private company
controlled by a significant shareholder, with a two year term, whereby this
company will provide investment-banking services to the Company (valued at
$60,000) in exchange for the issuance of 3,000,000 restricted shares of the
Company's common stock .
On July 12, 2005, the Company entered into a Software Sub License Agreement with
Arc2 Entertainment ("Arc2"), a British Virgin Islands Corporation, to build and
operate its online gaming website by issuing 100,000,000 common shares with a
total value of $2,000,000.
On September 20, 2005, the Company entered into an Acquisition Agreement with 4
of A Kind Enterprises ("4KE"), a Nevada Corporation, to acquire 100% ownership
of 4KE by issuing 25,000,000 common shares at a fair value of $500,000.
2004 Transactions
On January 13, 2004, the Company filed a Registration Statement on Form S-8 to
cover 11,150,000 shares of common stock to be issued, 3,000,000 shares pursuant
to the Company's 2004 Stock Incentive and Option Plan (the "Plan") and 8,150,000
shares of common stock for debt.
On January 14, 2004, the Company issued a total of 8,150,000 common shares to
employees and consultants in settlement of outstanding management and consulting
fees totaling $163,000. Of the 8,150,000 common shares issued, 2,500,000 were
issued to two directors and 1,000,000 were issued to one employee for
professional fees. The fair value of the shares issued exceeded the outstanding
debts by an amount of $163,000, which has been recorded as a loss on settlement
of debt.
<page>13
On January 10, 2004, the Company entered into an agreement with a private
company controlled by a significant shareholder, with a two year term, whereby
this company will provide investment-banking services to the Company (valued at
$50,000) in exchange for the issuance of 1,000,000 restricted shares of the
Company's common stock
On January 10, 2004, the Company entered into an agreement with a private
company controlled by a significant shareholder with a two year term, whereby
this company will provide investor relations services to the Company (valued at
$40,000) in exchange for the issuance of 800,000 restricted shares of the
Company's common stock
On January 10, 2004 the Company entered into agreements with two individual
consultants with one year terms, whereby these individuals will provide
consulting services with respect to the Company's mineral property (valued at
$10,000) in exchange for the issuance of 200,000 restricted shares of the
Company's common stock
On June 3, 2004, as amended June 16, 2004, the Company filed a Registration
Statement on Form S-8 to cover 11,200,000 shares of common stock to be issued,
5,000,000 shares pursuant to the Company's 2004 Stock Incentive and Option Plan
and 6,200,000 shares of common stock for debt.
On June 17, 2004, the Company issued a total of 6,200,000 common shares to
consultants in settlement of outstanding consulting fees totaling $62,000.
On October 1, 2004 , the Company entered into an agreement with an individual,
with a 1-year term, whereby the individual will provide consulting services to
the Company (valued at $10,000) in exchange for 100,000 restricted shares of the
Company's common stock.
On October 1, 2004, the Company entered into an agreement with an individual,
with a six month term, whereby the individual will provide investor relations
services to the Company (valued at $3,000) in exchange for 30,000 restricted
shares of the Company's common stock.
On October 1, 2004, the Company entered into an agreement with a private company
controlled by a shareholder, for a three year term, whereby the private company
will provide investor relations services to the Company (valued at $175,000) in
exchange for 1,750,000 restricted shares of the Company's common stock
The Company declared a 10% stock dividend to all of the shareholders of record
effective September 30, 2004, representing 80,245,956 shares of the Company's
common stock. The Company has recorded this stock dividend at a fair value of
$641,968 and issued 8,024,596 in payment on October 17, 2004.
<page>14
On October 10, 2004, the Company issued 100,000 shares valued at $6,000 pursuant
to an agreement to acquire 90% ownership of the Second Chance claims located in
the Ester Creek area of Alaska.
On November 29, 2004, the Company issued 1,000,000 common shares 144-Registered
valued at $70,000 as a non-refundable deposit to Avalon pursuant to an agreement
to acquire a 40% working interest in certain gas leases in the Uinta Basin,
Utah. On December 15, 2004, the Company issued an additional 1,000,000 common
shares 144-Registered valued at $60,000 to Avalon as consideration for an
extension to meet the terms of the agreement to acquire the 40% interest. On
January 4, 2005, the Company received a default notice from Avalon for failure
to meet the terms of the agreement which was terminated.
On December 1, 2004, the Company issued 200,000 common shares valued at $14,000
in settlement of directors' salaries.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to Vote of Security Holders
None.
Item 5. Other Information
<table>
<caption>
<s> <c> <c> <c>
Title of Class Name of Beneficial Owner Amount and Nature of
Beneficial Owner Percent of Class
- ---------------------------------------------------------------------------------------------
Common Stock Robert Klein
4540 Woodgreen Place 50,000 0.05%
West Vancouver, BC V7S 2S6
Common Stock Carlton Parfitt
Suite 801 - 1875 Robson Street
Vancouver, BC V6G 1E5 50,000 0.05 %
Directors' Compensation. During the three months ended September 30, 2005, the
Company paid $1,993 (2004 - $1,000) to two directors for management fees.
<page>15
Stock Based Compensation. During the three months ended September 30, 2005,
$97,500 (2004 - $510,000) in stock based compensation was recorded in our
financial statements. Stock based compensation is an estimate of the intrinsic
value placed in respect to stock options granted to officers, directors,
employees and an estimate of the fair value of stock options granted to
consultants using the Black-Sholes option pricing model. We do expect further
stock based compensation in 2005.
B. Security Ownership of Certain Beneficial Holders of ten percent or more
Title of Class Name of Beneficial Owner Amount and Nature of
Beneficial Owner Percent of Class
- -----------------------------------------------------------------------------------------
Common Stock CEDE & Co. (1)
The Depository Trust Co.
P.O. Box 222 Bowling Green Station
New York, New York 10274 89,942,202 88.00 %
</table>
(1) According to the NOBO List, there are no holders of more than 10% of our
issued and outstanding shares.
C. Certain Relationships and Related Party Transactions
During the nine months ended September 30, 2005, companies controlled by
significant shareholders earned $82,465 (2004 - $63,084) pursuant to investment
banking services contracts .
During the nine months ended September 30, 2005, a company controlled by an
employee earned $Nil (2004-$4,166) and companies controlled by significant
shareholders earned $58,749 (2004 - $10,208) pursuant to investor relations
services contracts
<page>16
During the nine months ended September 30, 2005, the Company $12,227 (2004 -
$8,000) to two directors for management fees.
During the nine months ended September 30, 2005, the Company incurred expenses
for office rent of $18,810 (2004 - $9,333) and consulting fees of $100,000
(2004 - $Nil) to a company controlled by a significant shareholder.
At September 30, 2005 a total of $ 122,678 (December 31, 2004 - $45,813)is owing
to Avalon for cash advances. This amount is non-interest bearing and has no
specified terms of repayment.
At September 30, 2005 a total of $13,257 (December 31, 2004 - $10,576) was owing
from Legacy Mining Ltd for cash advances. This amount is non-interest bearing
and has no specified terms of repayment.
At September 30, 2005, the following amounts are due to related parties:
September 30,2005 September 30, 2004
----------------- ----------------
Employee $ 192 $ 192
Significant Shareholders 6,625 48,665
------------ ----------
$6,817 $48,857
============= ==========
D. Description of Property.
Property held by the Company. As of the dates specified in the following table,
we held the following property in the following amounts:
September 30, December 31, December 31,
2005 2004 2003
------------------------------------------
Cash and Cash Equivalents ($17) $2,096 $3,790
===========================================
We define cash equivalents as all highly liquid investments with a maturity of 3
months or less when purchased. We do not presently own any interests in real
estate or own any inventory or equipment.
<page>17
Item 6. Exhibits and Reports on Form 8-K
Index to Exhibits
(i) Exhibits
31.1 Rule 13a-14(a) Certification of Robert Klein, President
and Chief Executive Officer
31.2 Rule 13a-14(a) Certification of Carlton Parfitt,
Chief Financial Officer
32.1 Certification Pursuant to 18 U.S.C. Section 1350 of Robert Klein.
32.2 Certification Pursuant to 18 U.S.C. Section 1350 of Carlton Parfitt.
(ii) Reports on Form 8-K
July 18, 2005 - Change in Company Name
July 18, 2005 - Acquisition of Software Sub License Agreement with Arc2
Entertainment
July 18, 2005 - Acquisition Agreement with 4 of A Kind Enterprises
September 20, 2005 - Amended Acquisition Agreement with 4 of a Kind Enterprises
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, we
have duly caused this Registration Statement on Form 10-QSB to be signed on our
behalf by the undersigned; thereunto duly authorized, in the City of Vancouver,
British Columbia, Canada, on November 21, 2005.
Golden Spirit Gaming Ltd.,
a Delaware corporation
/s/ Robert Klein
By: ______________
Robert Klein
Its: President
<page>18