UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 2004
----------------------------
(x) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------- --------------------
Commission File number 0-11695
-----------------------------
APEX RESOURCES GROUP, INC.
--------------------------
(Exact name of registrant as specified in charter)
UTAH 87-0403828
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
136 East South Temple, Suite 1600, Salt Lake City, Utah 84111
- ------------------------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
(801) 363-2599
--------------
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), Yes [x] No [ ] and (2) has been
subject to such filing requirements for the past 90 days. Yes [x] No [ ]
State the number of shares outstanding of each of the registrant's
classes of common equity, as of the latest practicable date.
Common stock, par value $.001; 91,585,212 shares outstanding as of
December 31, 2004.
INDEX
Page
Number
------
PART I.
ITEM 1. Financial Statements (unaudited)...................................3
Balance Sheets
December 31, 2004 and June 30, 2004..............................4
Statements of Operations
Three months and six months ended December 31, 2004
and 2003 and the period January 27, 1984 to
December 31, 2004................................................5
Statement of Changes in Stockholders' Equity
Period from January 27, 1984 to December 31, 2004................6
Statements of Cash Flows
Six months ended December 31, 2004 and 2003
and the period January 27, 1984 to December 31, 2004............8
Notes to Financial Statements.....................................10
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...........15
ITEM 3. Controls and Procedures ..........................................18
PART II
ITEM 2. Changes in Securities ............................................19
ITEM 6. Exhibits .........................................................19
Signatures........................................................20
-2-
PART I - FINANCIAL INFORMATION
This filing contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. For this
purpose any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, words such as "may," "will," "expect," "believe," anticipate,"
"estimate" or "continue" or comparable terminology are intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainty, and actual results may differ materially depending on a
variety of factors, many of which are not within the Company's control. These
factors include but are not limited to economic conditions generally and in the
industries in which the Company and its customers participate; competition
within the Company's industry, including competition from much larger
competitors; technological advances which could render the Company's products
less competitive or obsolete; failure by the Company to successfully develop new
products or to anticipate current or prospective customers' product needs; price
increase or supply limitations for components purchased by the Company for use
in its products; and delays, reductions, or cancellations of orders previously
placed with the Company.
ITEM 1. FINANCIAL STATEMENTS
The accompanying balance sheets of Apex Resources Group, Inc., (
development stage company) at December 31, 2004 and June 30, 2004, the
statements of operations for the three and six months ended December 31, 2004
and 2003 and the period January 27, 1984 (date of inception) to December 31,
2004 and cash flows for the six months ended December 31, 2004 and 2003 and the
period January 27, 1984 (date of inception) to December 31, 2004 and the
statement of stockholders' equity for the period from January 27, 1984 to
December 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 December 31, 2004, are not
necessarily indicative of the results that can be expected for the year ending
June 30, 2005.
-3-
APEX RESOURCES GROUP, INC.
(Development Stage Company)
BALANCE SHEETS
December 31, 2004 and June 30, 2004
================================================================================
(unaudited)
ASSETS
Dec 31, Jun 30,
2004 2004
------------ ------------
CURRENT ASSETS
Cash $ 52,599 $ 14,741
------------ ------------
Total Current Assets 52,599 14,741
------------ ------------
PROPERTY AND EQUIPMENT - net of accumulated
depreciation 189,255 197,538
------------ ------------
OTHER ASSETS
Accounts receivable - affiliates 150,726 148,932
Oil leases 67,913 67,913
Land 273,045 83,600
Deposit 4,000 --
Available-for-sale securities 2,428 2,628
------------ ------------
498,112 303,073
------------ ------------
$ 739,966 $ 515,352
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable - current - land $ 207,835 $ 71,183
Accounts payable 30,954 42,526
Accounts payable - related parties 154,574 84,000
------------ ------------
Total Current Liabilities 393,363 197,709
------------ ------------
LONG TERM DEBT - net of current - land 36,972 --
------------ ------------
STOCKHOLDERS' EQUITY
Common stock
400,000,000 shares authorized, at $.001
par value; 91,585,212 issued and outstanding 91,585 58,264
Capital in excess of par value 10,880,275 8,002,023
Less stock subscriptions receivable (2,427,000) --
Deficit accumulated during the
development stage (8,235,229) (7,742,644)
------------ ------------
Total Stockholders' Equity 309,631 317,643
------------ ------------
$ 739,966 $ 515,352
============ ============
The accompanying notes are an integral part of these financial statements.
-4-
APEX RESOURCES GROUP, INC.
( Development Stage Company)
STATEMENT OF OPERATIONS - unaudited
For the Three and Six Months Ended December 31, 2004 and 2003 and the
Period January 27, 1984 (date of inception) to December 31, 2004
=========================================================================================================
Three Months Six Months
Dec Dec Dec Dec Jan 27, 1984 to
2004 2003 2004 2003 Dec 31, 2004
----------- ----------- ----------- ----------- ---------------
REVENUES
Rents and interest $ 1,120 $ 1,317 $ 11,067 $ 2,789 $ 361,764
----------- ----------- ----------- ----------- -----------
EXPENSES
Exploration, development
and promotion 321,142 148,794 491,652 213,006 9,814,362
Depreciation 6,000 7,000 12,000 14,000 107,386
----------- ----------- ----------- ----------- -----------
327,142 155,794 503,652 227,006 9,921,748
----------- ----------- ----------- ----------- -----------
NET LOSS - before other
income (326,022) (154,477) (492,585) (224,217) (9,559,984)
Gain on sale of assets -- -- -- -- 1,324,755
----------- ----------- ----------- ----------- -----------
NET LOSS $ (326,022) $ (154,477) $ (492,585) $ (224,217) $(8,235,229)
=========== =========== =========== =========== ===========
LOSS PER COMMON SHARE
Basic $ -- $ -- $ (.01) $ (.01)
----------- ----------- ----------- -----------
AVERAGE OUTSTANDING
SHARES - (stated in 1,000's)
Basic 72,727 37,517 69,721 35,871
----------- ----------- ----------- -----------
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 December 31, 2004
===================================================================================================
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 losses from operations for the six
years ended June 30, 1989 -- -- -- (38,910)
Capital contribution - expenses -- -- 752 --
Net losses from operations for the six
years ended June 30, 1998 -- -- -- (1,641,468)
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)
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)
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 December 31, 2004
===================================================================================================
Common Stock Capital in
------------ Excess of Accumulated
Shares Amount Par Value Deficit
----------- ----------- ----------- ------------
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 cash
at $.02 - Nov 6, 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 - Mar 2004 367,655 368 18,014 --
Issuance of common stock for services
at $.001 - Apr 2004 500,000 500 -- --
Issuance of common stock for payment
of debt at $.03 - Jun 2004 2,376,234 2,377 68,910 --
Issuance of common stock for services
and expenses at $.03 - Nov & Jun 2004 8,400,000 8,400 243,600 --
Net loss from operations for the year
ended June 30, 2004 -- -- -- (748,280)
----------- ----------- ----------- --------------
Balance June 30, 2004 - audited 58,263,569 58,264 8,002,023 (7,742,644)
Issuance of common stock for expenses
at $.02 - Sept 2, 2004 1,717,785 1,718 30,137 --
Issuance of common stock for payment
of debt at $.02 - Sept 2, 2004 311,500 311 7,789 --
Issuance of common stock for expenses
and services at $.02 - Sept 24, 2004 2,800,000 2,800 81,200 --
Issuance of common stock for cash and
note receivable at $.02 - Sept 27, 2004 5,000,000 5,000 95,000 --
Issuance of common stock for land
at $.016 to .02 - Sept 29, 2004 1,100,000 1,100 16,900 --
Issuance of common stock for stock
subscriptions receivable at $.05 to $.20
November & December 2004 18,000,000 18,000 2,432,000 --
Issuance of common stock for expenses
at $.05 - December 21, 2004 4,392,358 4,392 215,226 --
Net loss form operations for the six
months ended December 31, 2004 -- -- -- (492,585)
----------- ----------- ----------- --------------
Balance December 31, 2004 -
unaudited 91,585,212 $ 91,585 $10,880,275 $(8,235,229)
=========== =========== =========== ==============
The accompanying notes are an integral part of these financial statements.
-7-
APEX RESOURCES GROUP, INC.
(Development Stage Company)
STATEMENT OF CASH FLOWS - unaudited
For the Six Months Ended December 31, 2004 and 2003 and the
Period January 27, 1984 (Date of Inception) to December 31, 2004
======================================================================================
Dec 31, Dec 31, Jan 27, 1984
2004 2003 to Dec 31, 2004
----------- ----------- ---------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $ (492,585) $ (224,217) $(8,235,229)
Adjustments to reconcile net loss
to net cash provided by operating
activities
Depreciation 12,000 14,000 112,386
Common capital stock issued
for services & expenses 335,473 84,000 5,312,093
(Increase) decrease in accounts receivable (1,794) (48,999) (150,726)
Increase (decrease) in liabilities 240,726 131,499 718,975
----------- ----------- -----------
Net Change in Cash from Operations 93,820 (43,717) (2,242,501)
----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Deposit (4,000) -- (4,000)
Purchase of investments 200 -- (2,428)
Purchase of property & equipment (175,162) (24,400) (569,686)
Purchase of oil & gas leases and
mining claims -- -- (67,913)
----------- ----------- -----------
(178,962) (24,400) (644,027)
----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from note payable -- 21,960 --
Net proceeds from issuance of
capital stock 123,000 50,000 2,939,127
----------- ----------- -----------
Net Change in cash 37,858 3,843 52,599
Cash at beginning of year 14,741 14,259 --
----------- ----------- -----------
Cash at end of year $ 52,599 $ 18,102 $ 52,599
=========== =========== ===========
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 December 31, 2004
================================================================================
SCHEDULE OF NONCASH OPERATING, INVESTING, AND FINANCING ACTIVITIES
Issuance of 1,154,073 common shares for assets,
services and expenses - from inception to June 30, 1998 $1,500,765
----------
Issuance of 1,549,875 common shares for assets, services
and expenses - for the year ended June 30, 1999 1,157,000
----------
Issuance of 1,242,781 common shares for assets, services
and expenses - for the year ended June 30, 2000 1,240,093
----------
Issuance of 784,500 common shares for services and expenses -
for the year ended June 30, 2001 629,500
----------
Issuance of 105,000 common shares for services and expenses -
for the year ended June 30, 2002 62,999
----------
Issuance of 10,560,000 common shares for services and expenses -
for the year ended June 30, 2003 115,380
----------
Issuance of 9,267,655 common shares for services and expenses -
for the year ended June 30, 2004 270,882
----------
Issuance of 4,517,785 common shares for services and expenses
for the three months ended September 30, 2004 115,855
----------
Issuance of 4,392,358 common shares for services and expenses
for the three months ended December 31, 2004 219,619
----------
The accompanying notes are an integral part of these financial statements.
-9-
APEX RESOURCES GROUP, INC.
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
================================================================================
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:
Office equipment 132,130
Residential rentals 164,511
Less accumulated depreciation (107,386)
----------
189,255
----------
Office equipment is depreciated on the straight line method over five and seven
years and the residential rentals are depreciated on the straight line method
over forty years.
Basic and Diluted Net Income (Loss) Per Share
- ---------------------------------------------
Basic net income (loss) per share amounts are computed based on the weighted
average number of shares actually outstanding. Diluted net income (loss) per
share amounts are computed using the weighted average number of common shares
and common equivalent shares outstanding as if shares had been issued on the
exercise of any common share rights unless the exercise becomes antidilutive and
then only the basic per share amounts are shown in the report.
-10-
APEX RESOURCES GROUP, INC.
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2004
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.
Financial Instruments
- ---------------------
The carrying amounts of financial instruments are considered by management to be
their estimated fair values due their short term maturities.
Income Taxes
- ------------
The Company utilizes the liability method of accounting for income taxes. Under
the liability method deferred tax assets and liabilities are determined based on
the differences between financial reporting and the tax bases of the assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect, when the differences are expected to reverse. An allowance against
deferred tax assets is recorded, when it is more likely than not, that such tax
benefits will not be realized.
At December 31, 2004, the Company had a net operating loss available for carry
forward of $8,235,229. The tax benefit of approximately $2,470,000 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 2025.
-11-
APEX RESOURCES GROUP, INC.
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2004
================================================================================
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition
- -------------------
Revenue is recognized on the sale and transfer of properties or services and the
receipt of 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.
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.
-12-
APEX RESOURCES GROUP, INC.
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2004
================================================================================
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 coordinated through Imperial Oil
Resources. There are no plans to develop the area until a gas pipe line becomes
available.
4. PURCHASE OF LAND
The Company is obligated under three installment sales contracts for the
purchase of land. One contract has a balance of $176,160, including accrued
interest, after the down payment, of which $126,105 is due over 25 years in
monthly payments including 4% interest of $697, and two contracts provide for
180 monthly payments of $776 starting in January and March of 2004, including
interest of 11%. The payments due are in arrears.
5. AVAILABLE-FOR-SALE SECURITIES
During 2001 the Company purchased 6,000,000 shares of Omega Ventures Group, Inc.
for $3,000. During the year ended June 30, 2004 745,635 shares were sold for
$21,184, and during August 2004 399,735 shares were sold for $8,761, leaving
4,854,630 shares. On the date of this report the shares have been trading, in
small quantities, for $.035 per share.
Management intents to hold the securities for investment.
6. PURCHASE OF OIL LEASES
During the quarter ended September 2004 the Company purchased a 1% interest, and
2.5 participation units in two oil leases by the payment of the initial drilling
costs. The payments for the drilling costs have been expensed.
-13-
APEX RESOURCES GROUP, INC.
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2004
================================================================================
7. ISSUANCE OF COMMON CAPITAL STOCK
During the year ended June 30, 2004 the Company issued 5,001,820 common shares
in a private placement sale for cash of $102,159.
During the year ended June 30, 2004 the Company issued 9,471,900 restricted
common shares for payment of debt of $284,156, 9,267,655 restricted common
shares for services at $.03 per share, and 300,000 restricted common shares for
Arizona land for $9,000, all to related parties.
During the quarter ended September 2004 the Company issued 4,517,785 restricted
common shares for services and expenses, 311,500 for payment of a debt,
1,100,000 for purchase of land, and 5,000,000 shares for cash and a note
receivable.
During the quarter ended December 2004 the Company issued 18,000,000 restricted
common shares for stock subscriptions receivable of $2,450,000 and 4,392,358 for
expenses of $219,618.
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.
8. SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES
The officers-directors and their controlled entities and a consultant have
acquired 14% of the outstanding common stock of the Company.
The Company has made no interest, demand loans to affiliates of $150,726. The
affiliations resulted through common officers between the Company and its
affiliates, and the Company owns 7% of the outstanding stock of one of the
affiliates.
Officers-directors have made no interest, demand, loans to the Company of
$154,574.
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.
-14-
APEX RESOURCES GROUP, INC.
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2004
================================================================================
10. SCHEDULE OF EXPENSES
Following is a summary schedule of the expenses for the six months ended
December 31, 2004 and 2003 shown in the statement of operations under
exploration, development, and administrative.
Dec 31, Dec 31,
2004 2003
-------- --------
Travel $ 54,154 $ 23,686
Office expenses 73,572 58,775
Professional 9,860 15,236
Consultants 236,475 73,975
Promotional 10,678 8,747
Rent 41,171 15,307
Exploration and development - oil and gas 55,414 16,122
Other 10,328 1,158
-------- --------
$491,652 $213,006
-------- --------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
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 and the Annual Report of the Company on Form 10-KSB for the year
ended June 30, 2004.
General
The Company is in the development stage and engaged in the acquisition
of interests in gas and oil properties and the acquisition of interests in real
estate. The Company has not been engaged in the production of any gas and oil.
For a detailed description of the oil and gas and real estate holding of the
Company, please see the Annual Report of the Company filed on Form 10-KSB for
the year ended June 30, 2004, 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 December 31, 2004.
-15-
Oil and Gas Interests
---------------------
Plaquemines Parish, Louisiana
-----------------------------
To date, this well has not been put into production. The Company has
learned that the operator needs additional funding to complete work on the well
before if can be re-entered. At this time it is unclear when or if this well
will be re-entered. The Company owns a 6.25% working interest in this well.
Manahuilla Creek Field , Texas
------------------------------
During the quarter ended September 30, 2004, P.B. Energy Partners
notified the Company that the BB Gayle #1 gas well had been drilled and
perforated and did not prove to be of commercial value. Plans to perforate
another zone within this well are currently being discussed by the partners in
the project. The Company owns a 1.875% of 75% participating working interest in
this gas well.
Henry Dome Prospect, Texas
--------------------------
This well site was prepared for drilling during the quarter. However,
the operator was unable to secure a drilling rig during the quarter. It is
expected that a drilling rig should be delivered and drilling should start
before the end of February 2005. The Company owns 2.5 participation units in the
Henry Dome Prospect in McMullen County, Texas, for $12,500. These units give the
Company a 1.875% working interest in the re-entry and completion of the first
well prospect in McMullen County, Texas. Under its purchase agreement, the
Company had the right to rescind the agreement and request a refund of price it
paid for its participation units, less reasonable costs, if the well was not
spudded by December 31, 2004. While the well was not spudded by that date, the
Company did not and does not intend to seek to rescind its agreement.
Northstar Wallis Prospect, Texas
--------------------------------
During the quarter, Northstar Energy, Inc., the operator and Managing
Venturer of the Northstar Wallis Well #1 Joint Venture in Victoria County, Texas
notified the Company that the well had been drilled and perforated. The well did
not prove to be of commercial value
Real Estate Interests
- ---------------------
Cowichan Lake, Victoria, B.C.
-----------------------------
Subsequent to quarter end in January 2005, the Company paid
approximately $39,000 toward the purchase price for Lot 4 on Upper Point Ideal
Road in the Cowichan Lake District in Victoria B.C. Of the $39,000, $30,000 paid
the balance of the down payment for that lot. The remaining $9,000 was used to
pay various fees and taxes. During the upcoming quarter, the Company anticipates
making a payment of approximately $40,000 toward the purchase price of Lot 2.
-16-
Part of said payment will be used to satisfy the balance of the down payment on
Lot 2. Following this payment, the Company will pay off the balance of the
purchase price of the two lots by making monthly payments for 25 years. The
Company acquired these properties for investment purposes and has no present
intent to develop or improve these parcels.
The Company also owns approximately 4,854,630 or 7% of the outstanding
common shares of Omega Ventures Group, Inc., a corporation whose common stock is
traded on the Over-the-Counter Bulletin Board, stock symbol "OMGV."
Liquidity and Capital Resources
The Company currently does not have sufficient cash reserves or cash
flow from operations to meet its cash requirements. This raises substantial
doubt about the Company's ability to continue as a going concern. During the six
months ended December 31, 2004, the Company financed its operations primarily
through the issuance of Company securities. During the quarter, the Company
received subscriptions to purchase 18,000,000 shares of its common stock in
private placement transactions for cash totaling $2,450,000. As of December 31,
2004, the Company has received $23,000. The Company's balance sheet reflects the
remaining balance as stock subscriptions receivable. During the quarter, the
Company caused its transfer agent to issue the 18,000,000 shares. These shares,
however, are being held in escrow and will only be delivered out as funds are
received by the Company. During the quarter, the Company also issued out
4,392,358 common shares in satisfaction of services and expenses totaling
$219,619.
On December 31, 2004, the Company had cash on hand of $52,599, as cash
flows from operating activities and financing activities were only partially
offset by cash flows used in investing activities.
The Company has plans to further develop its oil and gas properties,
which will require substantial additional working capital.
Results of Operations
Comparison of the quarter ended December 31, 2004 and 2003
The Company sustained a net loss of $326,022 in the quarter ended
December 31, 2004, compared to a loss of $154,477 for the quarter ended December
31, 2003. This increase in loss was primarily the result of the Company being
much more active in its business operations in the three months ended December
31, 2004, compared to the same period of 2003, as shown in the following
comparison of expenses:
December 31, 2004 December 31, 2003
----------------- -----------------
Travel $ 50,687 $ 6,021
Office Expenses 47,145 41,012
Professional 9,100 2,649
Consultants 159,328 60,094
Promotional 6,668 8,747
Rent 28,071 15,307
Exploration and Development-
Oil and Gas 17,314 16,122
Other 2,829 --
-17-
The significant increases in travel, professional and consultant fees
are primarily the result of the Company undertaking more active oil and gas and
real estate purchasing activities in the three months ended December 31, 2004
compared to the same period 2003. The Company has no employees, rather
management retains consultants to provide the services the Company needs. We
anticipate consultant expenses to continue at about the same level in the
upcoming quarter as the Company continues active oil and gas exploration
activities. Depending on the results of exploration currently being conducted,
exploration and development expenses could also continue at about the same level
during the upcoming quarter.
Non operating revenue was $1,120 in the three months ended December 31,
2004, compared to $1,317 in the three months ended December 31, 2003.
Comparison of the six months ended December 31, 2004 and 2003
The Company sustained a net loss of $492,585 during the six months
ended December 31, 2004, compared to a loss of $224,217 for the six months ended
December 31, 2003. This increase in loss was primarily the result of the Company
being much more active in its business operations in the six months ended
December 31, 2004, compared to the same period of 2003, as shown in the
following comparison of expenses:
December 31, 2004 December 31, 2003
----------------- -----------------
Travel $ 54,154 $ 23,686
Office Expenses 73,572 58,775
Professional 9,860 15,236
Consultants 236,475 73,975
Promotional 10,678 8,747
Rent 41,171 15,307
Exploration and Development -
Oil and Gas 55,414 16,122
Other 10,328 1,158
The significant increases in travel, office expense, consultant fees
and exploration and development costs are primarily the result of the Company
undertaking more active oil and gas and real estate purchasing activities during
the six months ended December 31, 2004 compared to the same period 2003. The
Company has no employees, rather management retains consultants to provide the
services the Company needs. We anticipate consultant expenses to continue at
about the same level in the upcoming quarter as the Company continues active oil
and gas exploration activities. Depending on the results of exploration
currently being conducted, exploration and development expenses could also
continue at about the same level during the upcoming quarter.
Non operating revenue for the six months ended December 31, 2004 was
$11,067 compared to $2,789 during the six months ended December 31, 2003.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. The Company's
Chief Executive Officer and Chief Financial Officer have conducted an evaluation
of the Company's disclosure controls and procedures (as defined in Rule
13A-15(e) under the Securities Exchange Act of 1934 ("Exchange Act") as of the
end of the period covered by this quarterly report (the "Evaluation Date").
Based on their evaluation, the Company's Chief Executive Officer and Chief
Financial Officer have concluded that, as of the Evaluation Date, the Company's
disclosure controls and procedures are effective to ensure that information
required to be disclosed by the Company in its Exchange Act reports is recorded,
processed, summarized and reported within the applicable periods specified by
the SEC's rules and forms.
(b) Changes in Internal Controls and Procedures. During the period
covered by this quarterly report, there were no changes in the Company's
internal control over financial reporting (as defined in Rule 13a-15) or 15d-15
under the Exchange Act) that has materially affected, or is reasonably likely to
materially affect, the Company's internal controls over financial reporting.
-18-
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
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 December 31, 2004.
The following securities, which are not registered under the Securities
Act of 1933, were issued by the Company during the quarter ended December 31,
2004.
On December 21, 2004 and December 22, 2004, the Company issued
4,392,358 shares of its common stock to non United States persons, including
945,480 shares to Company Secretary and Director, John Hickey in satisfaction of
debts owed by the Company and 700,000 shares as a bonus for services rendered to
the Company over the past ten years. All shares issued were valued at $.05 per
share. These shares were issued 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.
During the quarter ended December 31, 2004, the Company received
subscriptions for 18,000,000 shares of its common stock pursuant to private
placements of Company stock in accordance with Regulation S. The subscriptions
were for various prices ranging from $.05 - $.20 per share, with total proceeds
to be received of $2,450,000. As of December 31, 2004, the 18,000,000 shares
have been issued and are being held in escrow awaiting receipt of funds. As of
December 31, 2004, only $23,000 has been received by the Company. The Company
did not offer any of these shares 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.
ITEM 6. 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
-19-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
APEX RESOURCES GROUP, INC.
Date: February 18, 2005 By: /s/ John R. Rask
---------------------------------
John R. Rask, President and Director
Date: February 18, 2005 By: /s/ John M. Hickey
---------------------------------
John M. Hickey, Secretary and Director
-20-