UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2004
-----------------------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File number 0-11695
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APEX RESOURCES GROUP, INC.
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formerly Ambra Resources Group, Inc.
(Exact name of registrant as specified in charter)
UTAH 87-0403828
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
136 East South Temple, Suite 1600, Salt Lake City, Utah 84111
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(Address of principal executive offices) (Zip Code)
(801) 363-2599
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Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), Yes [x ] No [ ] and (2) has been
subject to such filing requirements for the past 90 days. Yes [x] No [ ]
State the number of shares outstanding of each of the registrants
classes of common equity, as of the latest practicable date.
Common stock, par value $.001; 50,287,335 shares outstanding as of
April 20, 2004.
1
INDEX
Page
Number
PART I.
ITEM 1. Financial Statements (unaudited)..................................
Balance Sheets
March 31, 2004 and June 30, 2003................................
Statements of Operations
Three and nine months ended March 31, 2004 and 2003.............
and the period January 27, 1984 to March 31, 2004
Statement of Changes in Stockholders' Equity......................
Period from January 27, 1984 to March 31, 2004
Statements of Cash Flows
Nine months ended March 31, 2004 and 2003.....................
and the period January 27, 1984 to March 31, 2004
Notes to Financial Statements.....................................
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................
ITEM 3. Controls and Procedures ..........................................
PART II
ITEM 2. Changes in Securities
ITEM 6. Exhibits and Reports on Form 8-K .................................
Signatures........................................................
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PART I - FINANCIAL INFORMATION
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This filing contains certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. For this purpose any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, words
such as "may," "will," "expect," "believe," anticipate," "estimate" or
"continue" or comparable terminology are intended to identify forward-looking
statements. These statements by their nature involve substantial risks and
uncertainty, and actual results may differ materially depending on a variety of
factors, many of which are not within the Company's control. These factors
include but are not limited to economic conditions generally and in the
industries in which the Company and its customers participate; competition
within the Company's industry, including competition from much larger
competitors; technological advances which could render the Company's products
less competitive or obsolete; failure by the Company to successfully develop new
products or to anticipate current or prospective customers' product needs; price
increase or supply limitations for components purchased by the Company for use
in its products; and delays, reductions, or cancellations of orders previously
placed with the Company.
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ITEM 1. FINANCIAL STATEMENTS
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The accompanying balance sheets of Apex Resources Group, Inc., (
development stage company) at March 31, 2004 and June 30, 2003, the statements
of operations and cash flows for the three and nine months ended March 31, 2004
and 2003 and the period January 27, 1984 (date of inception) to March 31, 2004
and the statement of stockholders' equity for the period from January 27, 1984
to March 31, 2004, have been prepared by the Company's management in conformity
with accounting principles generally accepted in the United States of America.
In the opinion of management, all adjustments considered necessary for a fair
presentation of the results of operations and financial position have been
included and all such adjustments are of a normal recurring nature.
Operating results for the quarter ended March 31, 2004, are not necessarily
indicative of the results that can be expected for the year ending June 30,
2004.
APEX RESOURCES GROUP, INC.
( Development Stage Company)
BALANCE SHEETS
March 31, 2004 and June 30, 2003
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ASSETS
Mar 31, 2004 Jun 30, 2003
CURRENT ASSETS
Cash $ 14,733 $ 14,259
----------- -----------
Total Current Assets 14,733 14,259
----------- -----------
PROPERTY AND EQUIPMENT - net of accumulated
depreciation 289,797 221,597
----------- -----------
OTHER ASSETS
Accounts receivable - affiliates 147,200 92,562
Oil leases - note 3 67,913 67,913
Joint venture interest - note 4 125,012 125,012
Other investments 7,005 7,005
----------- -----------
347,130 292,492
----------- -----------
$ 651,660 $ 528,348
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable - current portion $ 9,307 $ --
Accounts payable 30,772 26,059
Accounts payable - related parties 38,094 102,563
----------- -----------
Total Current Liabilities 78,173 128,622
----------- -----------
NOTE PAYABLE - net of current portion 58,443 --
----------- -----------
STOCKHOLDERS' EQUITY
Common stock
400,000,000 shares authorized, at $.001 par value;
49,787,335 issued and outstanding on Mar 31, 2004 49,787 34,222
Capital in excess of par value 7,770,713 7,359,868
Deficit accumulated during the development stage (7,305,456) (6,994,364)
----------- -----------
Total Stockholders' Equity 515,044 399,726
----------- -----------
$ 651,660 $ 528,348
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
APEX RESOURCES GROUP, INC.
( Development Stage Company)
STATEMENTS OF OPERATIONS
Forthe Three and Nine Months Ended March 31, 2004 and
2003 and the Period January 27, 1984 (date of inception) to March 31, 2004
Three Months Nine Months
------------------------- --------------------------
Mar Mar Mar Mar Jan 27, 1984 to
2004 2003 2004 2003 Mar 31, 2004
----------- ----------- ----------- ----------- -----------
REVENUES
Rents and interest $ 1,128 $ 995 $ 3,917 $ 10,467 $ 327,950
----------- ----------- ----------- ----------- -----------
EXPENSES
Exploration, development
and promotion 81,003 118,968 294,009 473,082 8,867,118
Depreciation 7,000 9,500 21,000 28,500 121,043
----------- ----------- ----------- ----------- -----------
88,003 128,468 315,009 501,582 8,988,161
----------- ----------- ----------- ----------- -----------
NET LOSS - before other
income (86,875) (127,473) (311,092) (491,115) (8,660,211)
Gain on sale of assets -- -- -- -- 1,354,755
----------- ----------- ----------- ----------- -----------
NET LOSS $ (86,875) $ (127,473) $ (311,092) $ (491,115) $(7,305,456)
=========== =========== =========== =========== ===========
LOSS PER COMMON SHARE
Basic and diluted $ -- $ (.02) $ (.01) $ (.06)
----------- ----------- ----------- -----------
AVERAGE OUTSTANDING
SHARES - (stated in 1,000's)
Basic 42,685 8,012 36,338 8,012
----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
5
APEX RESOURCES GROUP, INC.
( Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Period January 27, 1984 (Date of Inception) to March 31, 2004
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Common Stock Capital in
----------------------- Excess of Accumulated
Shares Amount Par Value Deficit
--------- ----------- ------------ ------------
Balance January 27, 1984
(Date of Inception) -- $ -- $ -- $ --
Issuance of common stock from inception
to June 30, 1998 1,610,838 1,611 2,120,660
Net income from operations
for the period ended June 30, 1984 -- -- -- 3,048
Net loss from operations
for the year ended June 30, 1985 -- -- -- (44,556)
Net income from operations
for the year ended June 30, 1986 -- -- -- 18,018
Net loss from operations
for the year ended June 30, 1987 -- -- -- (9,248)
Net income from operations
for the year ended June 30, 1988 -- -- -- 15,828
Net loss from operations
for the year ended June 30, 1989 -- -- -- (22,000)
Capital contribution - expenses -- -- 752 --
Net loss from operations
for the year ended June 30, 1993 -- -- -- (9,752)
Net loss from operations
for the year ended June 30, 1994 -- -- -- (82,277)
Net loss from operations
for the year ended June 30, 1995 -- -- -- (115,762)
Net loss from operations for
the year ended June 30, 1996 -- -- -- (269,717)
Net loss from operations for the
year ended June 31, 1997 -- -- -- (515,238)
Net loss from operations for the year
ended June 30, 1998 -- -- -- (648,722)
Issuance of common stock for the
year ended June 30, 1999 1,943,798 1,944 1,344,079 --
Net loss from operations for the year
ended June 30, 1999 -- -- -- (1,607,517)
Issuance of common stock for the
year ended June 30, 2000 3,318,058 3,318 2,948,196 --
Net loss from operations for the year
ended June 30, 2000 -- -- -- (1,029,239)
Balance June 30, 2000 6,872,694 6,873 6,413,687 (4,317,134)
The accompanying notes are an integral part of these financial statements.
6
APEX RESOURCES GROUP, INC.
( Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Continued)
Period January 27, 1984 (Date of Inception) to March 31, 2004
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Capital in
Common Stock Excess of Accumulated
Shares Amount Par Value Deficit
---------- ---------- ---------- ----------
Issuance of common stock for
the year ended June 30, 2001 1,034,500 1,034 778,467 --
Net loss from operations for the year
ended June 30, 2001 -- -- -- (807,576)
Issuance of common stock for services &
expenses - August 31, 2001 105,000 105 62,894 --
Net loss from operations for the year
ended June 30, 2002 -- -- -- (1,216,953)
Issuance of common stock for services
at $.001 - April 14, 2003 6,380,000 6,380 -- --
Issuance of common stock for cash
at $.001 - April & June 2003 15,650,000 15,650 -- --
Issuance of common stock for services
at $.01 - June 3, 2003 2,500,000 2,500 22,500 --
Issuance of common stock for services
at $.05 - June 30, 2003 1,680,000 1,680 82,320 --
Net loss from operations for the year
ended June 30, 2003 -- -- -- (652,701)
Balance June 30, 2003 34,222,194 34,222 7,359,868 (6,994,364)
Issuance of common stock for purchase
of land at $.03 - Nov 17, 2003 300,000 300 8,700 --
Issuance of common stock for payment
of debt at $.03 - Nov 25, 2003 7,095,666 7,095 205,774 --
Issuance of common stock for services
and expenses at $.03 - Nov 25, 2003 2,800,000 2,800 81,200 --
Issuance of common stock for cash
at $.02 - Dec 10, 2003 2,500,000 2,500 47,500 --
Issuance of common stock for cash
at $.015 to $.04 - Jan & Feb 2004 2,501,820 2,502 49,657 --
Issuance of common stock for services
at $.05 - March 2004 367,655 368 18,014 --
Net loss from operations for the nine
months ended March 31, 2004 -- -- -- (311,092)
---------- ---------- ---------- ----------
Balance March 31, 2004 49,787,335 $ 49,787 $7,770,713 $ ( 7,305,456)
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
7
APEX RESOURCES GROUP, INC.
( Development Stage Company)
STATEMENTS OF CASH FLOWS
For the Nine Months Ended March 31, 2004 and 2003 and the
Period January 27, 1984 (Date of Inception) to March 31, 2004
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January 27, 1984
Mar Mar (Date of Inception)
2004 2003 to Mar 31, 2004
----------- ----------- ---------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net profit (loss) $ (311,092) $ (491,115) $ (7,305,456)
Adjustments to reconcile net loss
to net cash provided by operating
activities
Valuation of investments -- -- 2,640
Depreciation 21,000 28,500 121,043
Common capital stock issued
for services & expenses 102,382 -- 4,808,119
Gain from sale of assets -- -- (1,354,755)
(Increase) decrease in accounts receivable (54,638) 195,312 (147,200)
(Increase) decrease in advance deposits -- 38,664 --
Increase (decrease) in liabilities 153,724 (14,510) 303,262
----------- ----------- ---------------
Net Cash Used By Operations (88,624) (243,149) (3,572,347)
----------- ----------- ---------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of other assets -- (2,500) (9,645)
Purchase of property & equipment (35,020) -- (356,660)
Purchase of oil & gas leases -- -- (523,019)
Net sales of assets -- -- 1,638,159
----------- ----------- ---------------
(35,020) (2,500) 748,835
----------- ----------- ---------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Increase in note payable 21,960 -- 21,960
Net proceeds from sale of capital stock 102,158 10,000 2,816,285
----------- ----------- ---------------
124,118 10,000 2,838,245
----------- ----------- ---------------
Net increase (decrease) in cash 474 (235,649) 14,733
Cash at beginning of year 14,259 251,998 --
----------- ----------- ---------------
Cash at end of year $ 14,733 $ 16,349 $ 14,733
=========== =========== ===============
The accompanying notes are an integral part of these financial statements.
8
APEX RESOURCES GROUP, INC.
( Development Stage Company)
STATEMENT OF CASH FLOWS
(Continued) For the Period January 27, 1984 (Date of Inception) to Mar 31, 2004
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SCHEDULE OF NONCASH OPERATING, INVESTING, AND FINANCING ACTIVITIES
Issuance of 1,154,073 common shares for assets, services and expenses -
from inception to June 30, 1998 $ 1,500,765
---------
Issuance of 1,549,875 common shares for assets, services and expenses -
for the year ended June 30, 1999 1,157,000
---------
Issuance of 1,242,781 common shares for assets, services and expenses -
for the year ended June 30, 2000 1,240,093
---------
Issuance of 784,500 common shares for services and expenses -
for the year ended June 30, 2001 629,500
---------
Issuance of 105,000 common shares for services and expenses -
for the year ended June 30, 2002 62,999
---------
Issuance of 10,560,000 common shares for services and expenses -
for the year ended June 30, 2003 115,380
---------
Issuance of 300,000 common shares for purchase of land November 17, 2003 9,000
---------
Issuance of 7,095,666 common shares for payment of debt November 25, 2003 212,870
---------
Issuance of 2,800,000 common shares for services and expenses November 25, 2003 84,000
---------
Issuance of 367,655 common shares for services March 24, 2004 18,382
---------
9
APEX RESOURCES GROUP, INC.
( Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2004
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1. ORGANIZATION
The Company was incorporated in the State of Utah on January 27, 1984 with
authorized capital stock of 50,000,000 shares at a par value of $0.001. On May
17, 1999 the authorized was increased to 100,000,000 shares and on March 3, 2000
the authorized was increased to 400,000,000 shares with the same par value. On
March 26, 2003 the name of the Company was changed from "Ambra Resources Group,
Inc. to "Apex Resources Group, Inc."
The Company has been in the development stage since inception and has been
engaged in the business of the acquisition of mining and oil property interests
and other business activities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Methods
- ------------------
The Company recognizes income and expenses based on the accrual method of
accounting.
Dividend Policy
- ---------------
The Company has not yet adopted any policy regarding payment of dividends.
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid instruments purchased with a maturity,
at the time of purchase, of less than three months, to be cash equivalents.
Property and Equipment
- ----------------------
The Company's property and equipment consists of the following:
Land 89,200
Office equipment 128,413
Residential rentals 164,511
Less accumulated depreciation (92,327)
--------
289,797
--------
Office equipment is depreciated on the straight line method over five and seven
years and the residential rentals are depreciated on the straight line method
over forty years.
10
APEX RESOURCES GROUP, INC.
( Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Continued)
March 31, 2004
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Basic and Diluted Net Income (Loss) Per Share
- ---------------------------------------------
Basic net income (loss) per share amounts are computed based on the weighted
average number of shares actually outstanding. Diluted net income (loss) per
share amounts are computed using the weighted average number of common shares
and common equivalent shares outstanding as if shares had been issued on the
exercise of any common share rights unless the exercise becomes antidilutive and
then only the basic per share amounts are shown in the report.
Capitalization of Mining Claim Costs
- -------------------------------------
Costs of acquisition, exploration, carrying, and retaining unproven properties
are expensed as incurred. Costs incurred in proving and developing a property
ready for production are capitalized and amortized over the life of the mineral
deposit or over a shorter period if the property is shown to have an impairment
in value. Expenditures for mine equipment are capitalized and depreciated over
their useful lives.
Capitalization of Oil Leases Costs
- -------------------------------------
The Company uses the successful efforts cost method for recording its oil lease
interests, which provides for capitalizing the purchase price of the project and
the additional costs directly related to proving the properties and amortizing
these amounts over the life of the reserve when operations begin or a shorter
period if the property is shown to have an impairment in value or expensing the
remaining balance if it is proven to be of no value. Expenditures for oil well
equipment are capitalized and depreciated over their useful lives.
Environmental Requirements
- --------------------------
At the report date environmental requirements related to the mineral claim
interests acquired are unknown and therefore an estimate of any future cost
cannot be made.
Foreign Currency Translation
- ----------------------------
Part of the transactions of the Company were completed in Canadian dollars and
have been translated to US dollars as incurred, at the exchange rate in effect
at the time, and therefore, no gain or loss from the translations is recognized.
US dollars are considered to be the functional currency.
11
APEX RESOURCES GROUP, INC.
( Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Continued)
March 31, 2004
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial Instruments
- ---------------------
The carrying amounts of financial instruments, including cash, accounts
receivable due from affiliates, and accounts payable, are considered by
management to be their estimated fair values.
Income Taxes
- ------------
The Company utilizes the liability method of accounting for income taxes. Under
the liability method deferred tax assets and liabilities are determined based on
the differences between financial reporting and the tax bases of the assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect, when the differences are expected to reverse. An allowance against
deferred tax assets is recorded, when it is more likely than not, that such tax
benefits will not be realized.
At March 31, 2004, the Company had a net operating loss available for carry
forward of $7,305,456. The tax benefit of approximately $2,200,000 from the loss
carry forward has been fully offset by a valuation reserve because the use of
the future tax benefit is doubtful because the Company is unable to establish a
predictable projection of operating profits for future years.
The net operating loss carryovers will expire beginning in the years 2004
through 2024.
Revenue Recognition
- -------------------
Revenue is recognized on the sale and transfer of properties or services and the
receipt other sources of income.
Advertising and Market Development
- ----------------------------------
The Company expenses advertising and market development costs as incurred.
Estimates and Assumptions
- -------------------------
Management uses estimates and assumptions in preparing financial statements in
accordance with accounting principles generally accepted in the United States of
America. Those estimates and assumptions affect the reported amounts of the
assets and liabilities, the disclosure of contingent assets and liabilities, and
the reported revenues and expenses. Actual results could vary from the estimates
that were assumed in preparing these financial statements.
12
APEX RESOURCES GROUP, INC.
( Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Continued)
March 31, 2004
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Concentration of Credit Risk
- ----------------------------
Financial instruments that potentially subject the Company to significant
concentration of credit risk consists primarily of cash and account receivables.
Cash balances are maintained in accounts that are not federally insured for
amounts over $100,000 but are other wise in financial institutions of high
credit quality. Accounts receivable are unsecured however management considers
them to be currently collectable.
Other Recent Accounting Pronouncements
- --------------------------------------
The Company does not expect that the adoption of other recent accounting
pronouncements to have any material impact on its financial statements.
3. OIL LEASES - BEAUFORT SEA PROJECT
On June 9, 1997 the Company purchased a 3.745% working interest, for $67,913, in
the Beaufort Sea well Esso Pex Home et al Itiyok I-27 consisting of 640 acres
and is located at Latitude 70-00', Longitude 134-00', Sections 7, 8, 17, 18, 27,
28, and 37, License No. 55, dated April 22, 1987. During 1982 and 1983 a
consortium of companies participated in the drilling, casing, and testing the
area to a depth of 12,980 feet. A review of the well data and geological
prognosis indicates that the area would contain proven recoverable gas reserves
of 108 Bscf and proven recoverable oil reserves of 8,976 MSTB.
The lease is shown at cost, which is considered by management, to be its
estimated fair value.
The other partners in the project are controlled by Exxon Oil Corporation,
however there are no immediate plans to develop the area until a pipeline is
completed.
4. JOINT VENTURE INTEREST
During July 2001 the Company purchased a one half participation interest in a
joint venture covering the "Hughes Prospect Lease Bank Agreement" for $175,290
which consists of 4,219 acres of oil and gas leases located in Robertson County,
Texas in which the joint venture participants are marketing the leases. The
Company has received $50,278 as its share of the on- going sale of the leases,
which has been recorded as a reduction of the cost of the joint venture. A gain
or loss cannot be determined until the balance of the leases have been sold.
13
APEX RESOURCES GROUP, INC.
( Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Continued)
March 31, 2004
- --------------------------------------------------------------------------------
5. MINING CLAIMS
On June 20, 1994 the Company purchased six unproven mineral claims, from a
related party, and are identified as Marathon, Marathon 1 and Marathon 2,
Krystal Ann 1, Krystal Ann 2 and Krystal Ann 3. The Marathon claims contain 32
units and expire in February 2006 and the Krystal claims contain 28 units and
expire in May 2006. The Claims are located near Cowichan Lake in the Province of
British Columbia, Canada. The claims are located within the Sicker Volcanic Belt
on Vancouver Island in an active gold mining area and are current through 2005.
The claims have not been proven to have a commercially minable ore reserve and
therefore all costs for acquisition and retaining the properties have been
expensed.
6. ISSUANCE OF COMMON CAPITAL STOCK
During the quarter ended March 31, 2004 the Company issued 367,655 restricted
common shares of its capital stock for services and 2,501,820 restricted common
shares for cash, as outlined in the statement of changes in stockholders'
equity.
On March 26, 2003 the Company completed a reverse stock split of one share for
20 shares of outstanding stock.
This report has been prepared showing post split shares from inception.
7. SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES
Officers-directors and their controlled entities have acquired 36% of the
outstanding common stock of the Company and they have made demand, no interest
loans to the Company of $38,094.
The Company has made no interest, demand loans to affiliates of $147,200. The
affiliations resulted through common officers between the company and its
affiliates, and the Company owns 15% of the outstanding stock of one of the
affiliates.
8. LONG TERM NOTES PAYABLE
The Company is obligated under two installment sales contracts for the purchase
of land. The payments due, under the contracts, are 180 monthly payments of
$776, including interest of 11%.
14
APEX RESOURCES GROUP, INC.
( Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Continued)
March 31, 2004
- --------------------------------------------------------------------------------
9. GOING CONCERN
The Company will need additional working capital for its future planned activity
and to service its debt, which raises substantial doubt about its ability to
continue as a going concern. Continuation of the Company as a going concern is
dependent upon obtaining sufficient working capital to be successful in that
effort. The management of the Company has developed a strategy, which it
believes will accomplish this objective, through additional short term loans,
and equity funding, which will enable the Company to operate for the coming
year.
- --------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
- --------------------------------------------------------------------------------
This Form 10-QSB contains certain forward-looking statements. For this
purpose any statements contained in this Form 10-QSB that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
"estimate" or "continue" or comparable terminology are intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties. Actual results may differ materially depending on a
variety of factors. For a complete understanding, this Management Discussion and
Analysis should be read in conjunction with Part I- Item 1. Financial Statements
to this Form 10- QSB.
General
The Company is in the development stage and engaged in the acquisition of
interests in gas and oil properties in Texas, and Louisiana, and other business
interests. The Company has not been engaged in the production of any gas and
oil. For a detailed description of the oil and gas and mineral rights and real
estate holding of the Company, please see the Annual Report of the Company filed
on Form 10-KSB, and the subsequent Quarterly Reports filed by the Company on
Form 10-QSB. Following is a brief description of relevant events that occurred
during the quarter ended March 31, 2004, and subsequent thereto.
Plaquemines Parish, Louisiana
-----------------------------
15
Subsequent to the end of the quarter, the Company learned that well #1 of
the Bastian Bay State Lease 16152 at Plaquemines Parish, Louisiana has a leak.
The operator believes it will take at least two weeks to locate and repair the
problem. Once repairs are completed, the well will be tested to determine its
production capacity. To date, this well has not been put into production. The
Company owns a 6.25% working interest in this well.
Manahuilla Creek Field , Texas
------------------------------
The Company learned that drilling of this well was completed on May 20,
2004. The Company anticipates it will take several weeks to complete the well.
Upon completion, the well will be turned on and flow tested. The Company owns a
1.875% of 75% participating working interest in this gas well.
Elk Valley Ranch, Arizona
-------------------------
In January 2004, Arizona Land acquired 2 undeveloped lots, totaling 73
acres of real property, in Elk Valley Ranch. Elk Valley Ranch is near other lots
the Company owns in Woodland Valley Ranch and is about 15 miles east of St.
Johns, Arizona. The Company purchased the lots for $98,715, including a down
payment of $5,020 and monthly payments of $521 for 180 months. The Company
acquired these properties for investment purposes and has no present intent to
develop or improve these parcels.
The Company also owns approximately 5,600,000 or 14.5% of the outstanding
common shares of Omega Ventures Group, Inc., a corporation whose common stock is
traded on the Over-the-Counter Bulletin Board, stock symbol "OMGV."
Liquidity and Capital Resources
During the quarter ended March 31, 2004, the Company funded its operations
primarily from the sale of Company securities. During the quarter, the Company
sold 2,501,820 shares of its common stock for $52,158. On March 31, 2004, the
Company had cash on hand of $14,733. The Company will need additional working
capital for its future planned activities and to service its debt. The Company
currently does not have sufficient cash reserves or cash flow from operations to
meet its cash requirements. This raises substantial doubt about the Company's
ability to continue as a going concern. Continuation of the Company as a going
concern is dependent upon obtaining sufficient working capital to be successful
in that effort. Management of the Company has developed a strategy, that it
believes will accomplish this objective, through additional short term loans,
and equity funding, which may enable the Company to operate for the coming year.
The Company, however, has no firm commitments from any party to provide it
additional funding. Without some source of additional funds, it is unlikely the
Company will have sufficient funds to continue operations for the next twelve
months. There is no guarantee the Company will be successful in implementing its
strategy to obtain sufficient working capital to continue operations for the
next twelve months.
16
The Company has plans to further develop its properties, which will require
all of its current working capital.
Results of Operations
Comparison of the quarter ended March 31, 2004 and the quarter ended March
31, 2003
The Company sustained a net loss of $86,875 in the quarter ended March 31,
2004, compared to a loss of $127,473 for the quarter ended March 31, 2003. This
decrease in the loss was largely the result of decreases in expenses as shown in
the following comparison of expenses:
March 31, 2004 March 31, 2003
-------------- ---------------
Exploration, development $ 81,003 $118,968
and promotion
Depreciation 7,000 9,500
The decrease in operating expenses in the quarter ended March 31, 2004,
compared to the same period of 2003 was primarily the result of decreased
exploration, development and promotional activity by the Company in the quarter
ended March 31, 2004, because of a lack of funds to pursue these activities.
Revenue from rents and interest increased to $1,128 in the three months
ended March 31, 2004, compared to $995 in the three months ended March 31, 2003.
Comparison of the nine months ended March 31, 2004 and the nine months
ended March 31, 2003.
The Company sustained a net loss of $311,092 for the nine months ended
March 31, 2004, compared to a loss of $491,115 for nine months ended March 31,
2003. This decrease in the loss was largely the result of decreases in expenses
as shown in the following comparison of expenses:
December 31, 2003 December 31, 2002
Exploration, development $294,009 $473,082
and promotion
Depreciation 21,000 28,500
17
The decrease in operating expenses during the nine months ended March 31,
2004, compared to the same period of 2003 was primarily the result of decreased
exploration, development and promotional activity by the Company in the nine
months ended March 31, 2004, due to a lack of funds to pursue these activities.
Revenue from rents and interest decreased from $10,467 in the nine months
ended March 31, 2004 to $3,917 in the nine months ended March 31, 2003.
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ITEM 3. CONTROLS AND PROCEDURES
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(a) Evaluation of Disclosure Controls and Procedures. The Company's
Principal Executive Officer and Principal Financial Officer have conducted an
evaluation of the Company's disclosure controls and procedures as of a date (the
"Evaluation Date") within 90 days before the filing of this quarterly report.
Based on their evaluation, the Company's Principal Executive Officer and
Principal Financial Officer have concluded that the Company's disclosure
controls and procedures are effective to ensure that information required to be
disclosed by the Company in reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the applicable Securities and Exchange
Commission rules and forms.
(b) Changes in Internal Controls and Procedures. Subsequent to the
Evaluation Date, there were no significant changes in the Company's internal
controls or in other factors that could significantly affect these controls, nor
were any corrective actions required with regard to significant deficiencies and
material weaknesses.
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PART II - OTHER INFORMATION
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ITEM 2. CHANGES IN SECURITIES
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No instruments defining the rights of the holders of any class of
registered securities have been materially modified, limited or qualified during
the quarter ended March 31, 2004.
The following securities, which are not registered under the Securities Act
of 1933, were issued by the Company during the quarter ended March 31, 2003.
18
During the quarter ended March 31, 2004, the Company sold 2,194,320 shares
of its common stock to non United States persons, including Company Secretary
and Director, John Hickey. The Company received $39,858 from the sale of the
shares. These shares were sold pursuant to Regulation S promulgated by the
Securities and Exchange Commission under the Securities Act of 1933. The Company
did not offer the securities to any person in the United States, any
identifiable groups of U.S. citizens abroad, or to any U.S. Person as that term
is defined in Regulation S. At the time the buy orders were originated, the
Company reasonably believed the Buyers were outside of the United States and
were not U.S. Persons. The Company reasonably believed that the transaction had
not been pre-arranged with a buyer in the United States. The Company has not nor
will engage in any "Directed Selling Efforts" and reasonably believes the Buyers
have not nor will engage in any "Directed Selling Efforts." The Company
reasonably believed the Buyers purchased the securities for their own accounts
and for investment purposes and not with the view towards distribution or for
the account of a U.S. Person.
In January 2003, the Company sold 307,500 shares of restricted common
shares to Company President and Director, John Rask for $12,300. The shares were
issued without registration under the Securities Act of 1933 in reliance on an
exemption from registration provided by Section 4(2) of the Securities Act, and
from similar applicable state securities laws, rules and regulations exempting
the offer and sale of these securities by available state exemptions. No general
solicitation was made in connection with the offer or sale of these securities.
On March 24, 2004, the Company issued 367,655 restricted common shares to a
consultant for consulting and other services provided to the Company. The
services rendered to the Company were valued at $18,380. The shares were issued
without registration under the Securities Act of 1933 in reliance on an
exemption from registration provided by Section 4(2) of the Securities Act, and
from similar applicable state securities laws, rules and regulations exempting
the offer and sale of these securities by available state exemptions. No general
solicitation was made in connection with the offer or sale of these securities.
Subsequent to quarter end, on April 8, 2004, the Company issued 500,000
restricted common shares to a consultant for providing public relations services
to the Company. The services were valued at $5,000. The shares were issued
without registration under the Securities Act of 1933 in reliance on an
exemption from registration provided by Section 4(2) of the Securities Act, and
from similar applicable state securities laws, rules and regulations exempting
the offer and sale of these securities by available state exemptions. No general
solicitation was made in connection with the offer or sale of these securities.
19
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Reports on Form 8-K.
On February 10, 2004, the Company filed a Current Report on Form 8-K, as
amended, disclosing that on or about February 5, 2004, the Company had dismissed
Sellers & Andersen as its independent. The dismissal of Sellers & Andersen was
not the result of any disagreement between the Company and Sellers & Andersen.
At that time, the Company also announced that it had retained Madsen &
Associates, CPAs, Inc., to serve as its independent auditors to replace Sellers
& Andersen.
(b) Exhibits.
31.1 Certification of Principal Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Principal Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
APEX RESOURCES GROUP, INC.
Date: May 21, 2004 By: /s/ John R. Rask
-----------------------------------
John R. Rask, President and Director
Date: May 21, 2004 By: /s/ John M. Hickey
--------------------------------
John M. Hickey, Secretary and Director
20